Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guarantee, or warranty is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guarantee that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
Critical Accounting Policies and Estimates .
Critical Accounting Policy and Estimates.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be 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. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.
The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements for the year ended December 31, 2013 together with notes thereto as previously filed with our Annual Report on Form 10-K on June 25, 2013. In addition, these accounting policies are described at relevant sections in this discussion and analysis and in the notes to the financial statements included in our Quarterly Report on Form 10-Q for the period ended September 30, 2014.
Prior period correction in the three months ended December 31, 2013
Beginning in the three months ended June 30, 2012 and through the three months ended September 30, 2013, the Company improperly valued the potential beneficial conversion option of the Company’s convertible notes payable. Based on ASC 470-20-30-16 through 30-18, the beneficial conversion option should have been valued based on the fair market value on the date of issuance and recorded as a debt discount. The debt discount should have been amortized over the term of the convertible note (longest term was 6 months). The accumulated impact of the correction was a charge to interest expense of $141,267 and a charge to debt discount on notes payable of $18,508 offset by a credit to additional paid in capital of $159,775. In-addition, during the quarter ended June 30, 2013, the Company improperly recorded stock-based compensation issued to the Company’s former chief executive officer upon achievement of operational milestones for the Type2Defense product (see Note 6) as intellectual property. Based on ASC 718-10 and ASC 505-50 this amount should have been classified as stock based compensation on the date earned. The accumulated impact of the correction on the financial statements was a charge to stock based compensation of $231,600 and a credit to intellectual property of $231,600.
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In accordance with the Securities and Exchange Commission's Staff Accounting Bulletin, or SAB, No. 99, Materiality, and SAB No. 108, the Company assessed the materiality of these charges to its financial statements for the quarters ended June 30, 2012 through September 30, 2013 and the year ended December 31, 2013, using both the roll-over method and iron-curtain method as defined in SAB No. 108. The Company concluded the effect of understating interest expense and share-based compensation was not material to its financial statements for the quarters ended June 30, 2012 through September 30, 2013 and the year ended December 31, 2013 and, as such, those financial statements are not materially misstated. The Company also concluded that providing for the correction of the understatement in 2013 would not have a material effect on its financial statements for the year ending December 31, 2013.
The out-of-period adjustment at December 31, 2013 for the improperly valued beneficial conversion option of the Company’s convertible notes payable was a charge to interest expense of $141,267 and charge to debt discount on notes payable of $18,508 offset by a credit to additional paid in capital of $159,775 in the accompanying balance sheet and statement of operations. The out-of-period adjustment at December 31, 2013 for improperly recording stock-based compensation issued to the Company’s former Chief executive officer upon achievement of operational milestones as intellectual property was a charge to stock based compensation of $231,600 and a credit to intellectual property of $231,600 in the accompanying balance sheet and statement of operations. The impact of the misstatements on the previously issued financial statements and the effect of correcting the misstatements during the three months ended December 31, 2013 are summarized in Note 2 of the accompanying financial statements and notes.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. There were no cash equivalents as of September 30, 2014 and December 31, 2013.
The Company maintains cash balances at one financial institution that is insured by the Federal Deposit Insurance Corporation.
Recoverability of Long-Lived Assets
The Company reviews their long-lived assets on a periodic basis, namely intellectual property, whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment will be based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying value or fair value less estimated costs to sell.
The Company evaluates the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill.
We make critical assumptions and estimates in completing impairment assessments of goodwill and other intangible assets. Our cash flow projections look several years into the future and include assumptions on variables such as future sales and operating margin growth rates, economic conditions, market competition, inflation and discount rates. A 10% decrease in the estimated discounted cash flows for the reporting units tested would result in an impairment that is not material to our results of operations. A 1.0 percentage point increase in the discount rate used would also result in an impairment that is not material to our results of operations.
We amortize the cost of other intangible assets over their estimated useful lives, which range up to ten years, unless such lives are deemed indefinite. Intangible assets with indefinite lives are tested in the third quarter of each fiscal year for impairment, or more often if indicators warrant.
During the fiscal year ended December 31, 2013, the Company recorded an impairment charge related to other intangible assets in the amount of $200,000.
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Fair Value of Financial Instruments
The carrying amount reported in the balance sheets for cash, accounts payable, accrued expenses, and short-term notes payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company does not utilize derivative instruments.
Beneficial Conversion Features
ASC 470-20 applies to convertible securities with beneficial conversion features that must be settled in stock and to those that give the issuer a choice in settling the obligation in either stock or cash. ASC 470-20 requires that the beneficial conversion feature should be valued at the commitment date as the difference between the conversion price and the fair market value of the common stock into which the security is convertible, multiplied by the number of shares into which the security is convertible. This amount is recorded as a debt discount and amortized over the life of the debt. ASC 470-20 further limits this amount to the proceeds allocated to the convertible instrument.
Revenue Recognition
The Company currently has nominal revenue from operations. The Company uses the following criteria for revenue recognition:
1)
Persuasive evidence of an arrangement exists;
2)
delivery has occurred or services have been rendered;
3)
the seller’s price to the buyer is fixed or determinable, and
4)
collectable is reasonably assured.
Share Based Compensation
The Company accounts for share-based compensation in accordance with the fair value recognition provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 718 and No. 505. For employees, directors and non-employees, the fair value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete. The Company has not issued any stock option or warrants.
Inventory
Inventory is stated at the lower of cost (FIFO: first-in, first-out) or market, and includes raw materials and finished goods. The cost of finished goods includes the cost of packaging supplies, direct and indirect labor and other indirect manufacturing costs. As of September 30, 2014, the Company had inventory of $12,857 comprise solely of the Type2Defense product. On April 1, 2014, the Company wrote down the inventory value to $15 per box. A charge of $7,972 was recorded in the accompanying condensed statement of operations. With the acquisition of the "Glucose Health Natural Blood Sugar Maintenance” product from BTB Management LLC, the Company will discontinue manufacturing the Type2Defense product.
Background
Our Business
On March 27, 2007, Bio-Solutions Corp. (the “Company”) was incorporated in the State of Nevada.
The Company was a manufacturer of a pre-mix for chicken integrators called Nutra-Animal, a pre-mix anti-oxidant containing wheat middlings, vitamin E, calcium carbonate, silicone dioxide, shrimp flour, sodium selenite and fish oil. The Company is also the distributor of GreenEx ™ in Africa. GreenEx ™ is a biological larvicide produced from a strain of Bacillus thuringiensis subspecies israelensis (Bti), a naturally occurring bacterium that produces a crystalline protein toxin (cystal) toxic for mosquitoes, vectors of Malaria. GreenEx ™ formulations are produced in the United States to strict manufacturing specifications, ensuring that the products are of high quality and without any harmful contaminants.
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On June 30, 2010, the board of directors approved the increase of the authorized shares of common stock from 75,000,000 to 90,000,000. In addition the board approved a 1.20 to 1 stock split. All shares have been reflected retroactively in accordance with SAB Topic 14C.
On September 26, 2011, the Company acquired all the assets and intellectual property rights of Type2Defense, a natural dietary supplement formulated to support healthy glucose levels for type 2 diabetics and pre-diabetics.
During October 2011, the Company decided to abandon the former operations to focus solely on the Type2Defense product. All inventories from the former products were written off as of October 1, 2011.
During October 2012, the board of directors increased the number of common shares authorized from 90,000,000 to 200,000,000 shares.
The first production run of the Company’s Type2Defense product was completed during June 2013. On July 8, 2013 the Company announced our product was available for on-line sales on Amazon.com. On July 9, 2013, the Company announced our product was available for on-line sales from our www.Type2Defense.com website. The first sale was completed in July 2013. Since the Company generated nominal revenues from our Type2Defense product in the fiscal year ended December 31, 2013, the Company elected to declare the $200,000 intellectual property for Type2Defense, recorded as other intangible assets, as impaired at December 31, 2013.
On January 10, 2014, the Company’s Board of Directors unanimously voted to reverse split the Company’s common stock on the basis of one share of the Company’s common stock for each 10 shares outstanding while maintaining the authorized capital structure of the Company at 200,000,000 shares. The Board resolution set the date of record for shareholder approval on January 14, 2014. As of January 29, 2014, the Company obtained the written consent in lieu of a meeting of the shareholders to authorize a reverse split of the Company’s common stock. Shareholders owning a total of 100,992,469 shares of the Company’s common stock voted in favor of the reverse split. There were a total of 199,611,900 shares of common stock issued and outstanding as of January 14, 2014 (the date of record). The number of shares of common stock voting in favor of the reverse split was sufficient for approval. On February 4, 2014, the Company filed a Certificate of Change with the State of Nevada effecting a 1-for-10 reverse split pursuant to which every ten shares of the Company’s common stock were combined and converted into one share of the Company’s common stock (with all fractional shares resulting there from being rounded up to the next whole share) with the total number of shares of the Company’s authorized common stock remaining at 200,000,000 shares. The effective date of the above corporate action was February 26, 2014, as approved by the Financial Industry Regulatory Authority.
On April 8, 2014, the Company appointed James Hodge as Chairman of the Company’s board of directors.
On April 8, 2014, in a special meeting of the board of directors, the board voted in favor of amending the Company’s Bylaws to decrease the number of members of the board of directors from three to one. Messrs. Gallagher and Metzger agreed to resign from the board and accept other duties for the Company.
On April 21, 2014, the Company promoted Thomas Metzger PhD, President to Chief Executive Officer and Chief Financial Officer. In addition, Peggy Knight, Executive Vice-President of Marketing was promoted to Chief Marketing Officer.
On July 22, 2014, Thomas Metzger PhD, Chief Executive Officer, Chief Financial Officer, President and Chief Operating Officer resigned from the Company to pursue other interests. In addition, James Hodge, Chairman of the Board of Directors was appointed interim Chief Executive Officer and Chief Financial Officer.
On October 1, 2014, the Company entered into an Intellectual Property Purchase Agreement to purchase the “Glucose Health Natural Blood Sugar Maintenance” product from BTB Management LLC. BTB Management LLC was compensated with 15,000,000 unregistered shares of the Company’s common stock. BTB is a Company owned by Murray Fleming, the Company’s CEO. Although we intend to market our new Glucose Health product on Amazon.com, our principal marketing focus will be channel sales through national and regional pharmacy retailers. In this regard, we retained an attorney specializing in compliance with Food and Drug Administration (FDA) regulations necessary, in part, to achieve such channel sales, to assist us. In June of 2013, we manufactured 1,764 cases of our first product Type2Defense. As of the current period, our remaining inventory of Type2 Defense product on-hand is -0- and remaining inventory placed with our channel sales partner is 858 cases. We do not intend to manufacture additional Type2Defense product
On October 1, 2014, Murray Fleming was appointed as the Company’s Chief Executive Officer for the 12 month period ending October 1, 2015. Mr. Fleming was compensated with 15,000,000 unregistered shares of the Company’s common stock. On October 1, 2014, Mr. Fleming beneficially owned 30,000,000 shares or 50.1% of the outstanding shares of the Company’s common stock which resulted in a change in control of the Company.
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Results of Operations
For the three months ended September 30, 2014 as compared to the three months ended September 30, 2013
Revenues
We generated nominal revenues of $2,250 and $224 for the three months ended September 30, 2014 and 2013, respectively. We hope to generate substantial revenues, continue operations and implement our business plan by February 29, 2015. The Company’s focus for remainder of 2014 and 2015 will be the Glucose Health Natural Blood Sugar Maintenance dietary supplement.
Gross Profit (Loss)
We reported a gross profit of $133 for the three months ended September 30, 2014 compare to a gross loss of $12,851 for the three months ended September 30, 2013. Until the Company generates significant revenues, we will not have substantial profits.
Operating Expenses
For the three months ended September 30, 2014, we had total operating expenses of $64,203, as compared to total operating expenses of $220,208 for the three months ended September 30, 2013. The decrease of $156,005 or 71%, in operating expenses between the two periods is primarily due to an approximate $160,000 decrease in professional fees paid for by the issuance of common stock and an approximate $3,000 decrease in other general and administrative expenses offset by an approximate $7,000 increase for other professional fees. We expect we will continue to incur significant legal and accounting expenses related to being a public company.
Net Loss
For the three months ended September 30, 2014, after interest expense of $40,307, we had a net loss of $104,377 or $0.00 per share. In comparison, for the three months ended September 30, 2013, after interest income of $107,492 and a $21,000 loss on conversion of debt, we had a net loss of $146,567 or $0.01 per share. We expect to continue to incur net losses for the foreseeable future and until we generate significant revenues.
For the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013
Revenues
We generated nominal revenues of $2,739 and $224 for the nine months ended September 30, 2014 and 2013, respectively. We hope to generate substantial revenues, continue operations and implement our business plan by February 29, 2015. The Company’s focus for remainder of 2014 and 2015 will be the Glucose Health Natural Blood Sugar Maintenance dietary supplement.
Gross Loss
We reported a gross loss of $9,662 and $12,851 for the nine months ended September 30, 2014 and 2013, respectively. The 2014 gross loss includes a $7,972 inventory write down to $15 per box. Until the Company generates significant revenues, our revenue will not exceed the product and warehousing costs.
Operating Expenses
For the nine months ended September 30, 2014, we had total operating expenses of $174,529, as compared to total operating expenses of $698,281 for the nine months ended September 30, 2013. The decrease of $523,752 or 75%, in operating expenses between the two periods is primarily due to an approximate $547,000 decrease in professional fees paid for by the issuance of common stock and an approximate $8,000 decrease in other general and administrative expenses offset by an $27,000 increase for other professional fees and $4,000 related to the Type2Defense product. We expect we will continue to incur significant legal and accounting expenses related to being a public company.
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Net Loss
For the nine months ended September 30, 2014, after interest expense of $69,128, we had a net loss of $253,319 or $0.01 per share. In comparison, for the nine months ended September 30, 2013, after interest income of $5,235 and a $21,000 loss on conversion of debt, we had a net loss of $726,897 or $0.05 per share. We expect to continue to incur net losses for the foreseeable future and until we generate significant revenues.
Liquidity and Capital Resources
As of September 30, 2014 our current assets totaled $14,203 consisting $879 of cash, $12,857 of inventory and $467 of prepaid expenses for legal fees.
Our current liabilities were $263,637 as of September 30, 2014, which was represented by accounts payable and accrued expenses of $146,561, short term loans of $7,728 and convertible notes payable of $109,348, net of debt discount of $36,435.
We had no other liabilities and no long term commitments or contingencies as of September 30, 2014.
We had a working capital deficit of $249,434 at September 30, 2014. Unless we secure additional funding, of which there can be no assurance, we will not be able to satisfy our ongoing expenses.
On April 8, 2014, the Company issued a $21,000 convertible note to an individual. The loan bears interest at 8% and has a maturity date of October 8, 2014. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.0065 per share. The Company is not compliant with the repayment terms of the note and currently in default.
On May 8, 2014, the Company issued a $21,000 convertible note to an individual. The loan bears interest at 8% and has a maturity date of November 8, 2014. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.0065 per share.
On May 28, 2014, the Company issued a $10,000 convertible note to an individual. The loan bears interest at 5% and has a maturity date of November 28, 2014. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.0065 per share.
On June 23, 2014, the Company issued a $10,000 convertible note to an individual. The loan bears interest at 5% and has a maturity date of December 23, 2014. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.0065 per share.
On July 11, 2014, the Company issued a $10,000 convertible note to an individual. The loan bears interest at 5% and has a maturity date of January 11, 2015. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.0065 per share.
On August 4, 2014, the Company issued an $8,000 convertible note to an individual. The loan bears interest at 5% and has a maturity date of February 4, 2015. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.0065 per share.
On August 4, 2014, the Company issued an $8,000 convertible note to the Company’s CEO. The loan bears interest at 5% and has a maturity date of February 4, 2015. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.0065 per share.
On September 3, 2014, the Company issued a $6,000 convertible note to an individual. The loan bears interest at 5% and has a maturity date of March 3, 2015. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.005 per share.
On September 3, 2014, the Company issued a $6,000 convertible note to the Company’s CEO. The loan bears interest at 5% and has a maturity date of March 3, 2015. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.005 per share.
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On October 1, 2014, the Company issued a $4,625 convertible note to an individual. The loan bears interest at 5% and has a maturity date of April 1, 2015. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.005 per share.
On October 1, 2014, the Company issued a $4,625 convertible note to the Company’s CEO. The loan bears interest at 5% and has a maturity date of April 1, 2015. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.005 per share.
On October 15, 2014, the Company issued a $3,600 convertible note to the Company’s CEO. The loan bears interest at 5% and has a maturity date of April 15, 2015. In addition, at any time, the holder may convert the note into shares of the Company’s common stock at an exercise price of $.004 per share.
Our Plan of Operation for the Next Twelve Months.
On October 1, 2014, the Company entered into an Intellectual Property Purchase Agreement to purchase the “Glucose Health Natural Blood Sugar Maintenance” product from BTB Management LLC. Although we intend to market our new Glucose Health product on Amazon.com, our principal marketing focus will be channel sales through national and regional pharmacy retailers. In this regard, we retained an attorney specializing in compliance with Food and Drug Administration (FDA) regulations necessary, in part, to achieve such channel sales, to assist us. In June of 2013, we manufactured 1,764 cases of our first product Type2Defense. As of the current period, our remaining inventory of Type2 Defense product on-hand is -0- and remaining inventory placed with our channel sales partner is 858 cases. We do not intend to manufacture additional Type2Defense product. The first production run of our Glucose Health Natural Blood Sugar Maintenance products is expected during the quarter ended March 31, 2015. Peggy Freeman Knight, our executive vice-president of marketing and chief marketing officer will be responsible for our marketing efforts in 2014 and 2015. Ms. Knight has over 20 years of marketing experience with Walmart Stores Inc. and Sam’s Club.
At September 30, 2014 we had nominal cash and revenues, which will not be sufficient to satisfy our working capital requirements for the next twelve months. We cannot forecast with any degree of certainty anticipated revenues or cash flow. Our forecasts and operations will involve risks and uncertainties which we are unable to predict and actual results could fail. We will require additional capital to continue operations. If we cannot secure additional capital or generate significant revenues we may cease operations in which case you will lose your investment.
We intend to pursue capital through public or private financing as well as borrowings and from other sources, such as our officer, directors and principal shareholders. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue or expand our operations may be significantly hindered. If adequate funds are not available, our officer, directors and principal shareholders may contribute capital to the Company in the form of debt financing or equity contributions. However, our officer, directors and principal shareholders are not committed to contribute funds to pay for our expenses.
Even assuming that we secure adequate financing, there can be no assurance that we will be profitable at any time in the future.
The legal and accounting costs of being a public company will continue to impact our liquidity and we will need to obtain funds to pay those expenses. Other than the anticipated increases in legal and accounting costs due to the reporting requirements of being a reporting company, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.
Our auditors have questioned our ability to continue operations as a “going concern”. We hope to obtain significant revenues from future product sales. In the absence of significant sales and profits, we will seek to raise additional funds to meet our working capital needs principally through the additional sales of our securities. However, we cannot guarantee that we will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to us. As a result, our auditors believe that substantial doubt exists about our ability to continue operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable
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