Special Note Regarding Forward Looking Statements.
This quarterly report on Form 10-Q of Sigyn Therapeutics, Inc. for the period ended June 30, 2022 contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition, involve risks and uncertainties. In particular, statements under the Sections; Description of Business, Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward looking statements. Where in any forward-looking statements, the Company expresses an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.
The following are factors that could cause actual results or events to differ materially from those anticipated and include but are not limited to: general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in tax laws; and the cost and effects of legal proceedings.
You should not rely on forward looking statements in this quarterly report. This quarterly report contains forward looking statements that involve risks and uncertainties. We use words such as "anticipates," "believes," "plans," "expects," "future," "intends," and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report. Our actual results could differ materially from those anticipated in these forward-looking statements.
In July 2022, the Company entered into an Original Issue Discount Senior Convertible Debentures (the "July 2022 Notes") totaling (i) $313,500 aggregate principal amount of Note (total of $285,000 cash was received) due in various dates in July 2023 based on $1.00 for each $0.90909 paid by the previous noteholder and (ii) five-year Common Stock Purchase Warrants ("Warrants') to purchase up to an aggregate of 627,000 shares of the Company's Common Stock at an exercise price of $0.50 per share. The conversion price for the principal in connection with voluntary conversions by the holders of the convertible notes is $0.50 per share.
On June 22, 2022, the Company entered into an Original Issue Discount Senior Convertible Debenture (the "Note") with respect to the sale and issuance to institutional investor Osher Capital Partners LLC ("Osher") of (i) $82,500 aggregate principal amount of Note due June 22, 2023 based on $1.00 for each $0.90909 paid by the previous noteholder and (ii) five-year Common Stock Purchase Warrants ("Warrants') to purchase up to an aggregate of 165,000 shares of the Company's Common Stock at an exercise price of $0.50 per share. The aggregate cash subscription amount received by the Company from the previous noteholder for the issuance of the Note and Warrants was $75,000 which was issued at a $7,500 original issue discount from the face value of the Note. The conversion price for the principal in connection with voluntary conversions by a holder of the convertible notes is $0.50 per share, subject to adjustment as provided therein, such as stock splits and stock dividends.
On June 1, 2022, the Company entered into an Original Issue Discount Senior Convertible Debenture (the "Note") with respect to the sale and issuance to institutional investor Osher Capital Partners LLC ("Osher") of (i) $55,000 aggregate principal amount of Note due June 1, 2023 based on $1.00 for each $0.90909 paid by the previous noteholder and (ii) five-year Common Stock Purchase Warrants ("Warrants') to purchase up to an aggregate of 110,000 shares of the Company's Common Stock at an exercise price of $0.50 per share. The aggregate cash subscription amount received by the Company from the previous noteholder for the issuance of the Note and Warrants was $50,000 which was issued at a $5,000 original issue discount from the face value of the Note. The conversion price for the principal in connection with voluntary conversions by a holder of the convertible notes is $0.50 per share, subject to adjustment as provided therein, such as stock splits and stock dividends.
On May 10, 2022, the Company entered into an Original Issue Discount Senior Convertible Debenture (the "Note") with respect to the sale and issuance to institutional investor Brio Capital Master Fund Ltd. ("Brio") of (i) $110,000 aggregate principal amount of Note due May 10, 2023 based on $1.00 for each $0.90909 paid by the previous noteholder and (ii) five-year Common Stock Purchase Warrants ("Warrants') to purchase up to an aggregate of 220,000 shares of the Company's Common Stock at an exercise price of $0.50 per share. The aggregate cash subscription amount received by the Company from the previous noteholder for the issuance of the Note and Warrants was $100,000 which was issued at a $10,000 original issue discount from the face value of the Note. The conversion price for the principal in connection with voluntary conversions by a holder of the convertible notes is $0.50 per share, subject to adjustment as provided therein, such as stock splits and stock dividends.
On April 28, 2022, the Company entered into an Original Issue Discount Senior Convertible Debenture (the "Note") with respect to the sale and issuance to institutional investor Osher Capital Partners LLC ("Osher") of (i) $110,000 aggregate principal amount of Note due April 28, 2023 based on $1.00 for each $0.90909 paid by the previous noteholder and (ii) five-year Common Stock Purchase Warrants ("Warrants') to purchase up to an aggregate of 220,000 shares of the Company's Common Stock at an exercise price of $0.50 per share. The aggregate cash subscription amount received by the Company from the previous noteholder for the issuance of the Note and Warrants was $100,000 which was issued at a $10,000 original issue discount from the face value of the Note. The conversion price for the principal in connection with voluntary conversions by a holder of the convertible notes is $0.50 per share, subject to adjustment as provided therein, such as stock splits and stock dividends.
On March 23, 2022, the Company entered into an Original Issue Discount Senior Convertible Debenture (the "Note") with respect to the sale and issuance to institutional investor Osher Capital Partners LLC ("Osher") of (i) $110,000 aggregate principal amount of Note due March 23, 2023 based on $1.00 for each $0.90909 paid by the previous noteholder and (ii) five-year Common Stock Purchase Warrants ("Warrants') to purchase up to an aggregate of 220,000 shares of the Company's Common Stock at an exercise price of $0.50 per share. The aggregate cash subscription amount received by the Company from the previous noteholder for the issuance of the Note and Warrants was $100,000 which was issued at a $10,000 original issue discount from the face value of the Note. The conversion price for the principal in connection with voluntary conversions by a holder of the convertible notes is $0.50 per share, subject to adjustment as provided therein, such as stock splits and stock dividends.
On March 23, 2022, the Company entered into an Original Issue Discount Senior Convertible Debenture (the "Note") with respect to the sale and issuance to institutional investor Brio Capital Master Fund Ltd. ("Brio") of (i) $110,000 aggregate principal amount of Note due March 23, 2023 based on $1.00 for each $0.90909 paid by the previous noteholder and (ii) five-year Common Stock Purchase Warrants ("Warrants') to purchase up to an aggregate of 220,000 shares of the Company's Common Stock at an exercise price of $0.50 per share. The aggregate cash subscription amount received by the Company from the previous noteholder for the issuance of the Note and Warrants was $100,000 which was issued at a $10,000 original issue discount from the face value of the Note. The conversion price for the principal in connection with voluntary conversions by a holder of the convertible notes is $0.50 per share, subject to adjustment as provided therein, such as stock splits and stock dividends.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us on which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, and possible cost overruns due to increases in the cost of services. To become profitable and competitive, we must receive additional capital. We have no assurance that future financing will materialize. If that financing is not available, we may be unable to continue operations.
Sigyn Therapeutics, Inc. ("Sigyn" or the "Company") is a development-stage medical technology company headquartered in San Diego, California. Our focus is directed toward the creation of therapeutic solutions that address unmet needs in global health.
Sigyn Therapy™ is a broad-spectrum blood purification technology to address life-threatening infections and inflammatory disorders for which effective drug therapies are not available. Sigyn Therapy extracts pathogen sources of life-threatening inflammation in concert with dampening down the dysregulated overproduction of inflammatory cytokines (the cytokine storm), which plays a prominent role in each of our candidate treatment indications.
Based on its unprecedented ability to isolate and remove viral pathogens, bacterial toxins, and inflammatory cytokines from the bloodstream, Sigyn Therapy is a candidate to treat pathogen-associated sepsis (leading cause of hospital deaths), community acquired pneumonia (a leading cause of death among infectious diseases), emerging pandemic threats, and hyperinflammation & endotoxemia in end-stage renal disease patients.
Since initiating the development of Sigyn Therapy in 2020, we completed a series of in vitro studies that demonstrated the ability of Sigyn Therapy to extract pathogen sources of inflammation from human blood plasma. These include endotoxin (a gram-negative bacterial toxin), peptidoglycan and lipoteichoic acid (gram-positive bacterial toxins), and viral pathogens, including COVID-19.
We also completed studies that demonstrated the ability of Sigyn Therapy to extract inflammatory cytokines from human blood plasma. These include interleukin-1 beta (IL-1b), interleukin-6 (IL-6), and tumor necrosis factor alpha (TNF-a). In a related study, we reduced the circulating presence of 104 nanometer liposomes as a model to evaluate the potential of Sigyn Therapy to address CytoVesicles that transport inflammatory cytokine cargos throughout the bloodstream.
Additionally, we validated the rapid reduction of hepatic (liver) toxins from human blood plasma, which included ammonia, bile acid and bilirubin. Based on these outcomes, we may further investigate the potential of Sigyn Therapy to address acute forms of liver failure.
Subsequent to our in vitro milestone achievements, we completed in vivo animal studies at the University of Michigan, which demonstrated Sigyn Therapy to be well tolerated. In the studies, Sigyn Therapy was administered via standard dialysis machines utilizing conventional blood-tubing sets, for periods up to six hours in eight porcine (pig) subjects. Important criteria for treatment safety, including hemodynamic parameters, serum chemistries and hematologic measurements, were stable across all eight subjects.
The data resulting from our in vivo and in vitro studies is being incorporated into an Investigational Device Exemption (IDE) that we are drafting for submission to the U.S. Food and Drug Administration ("FDA") to support the potential initiation of human feasibility studies in the United States.
Sigyn Therapy Mechanism of Action
To overcome the limitations of previous drug and device therapies, we designed Sigyn Therapy to have an expansive- mechanism of action. Pre-clinical invitro studies have demonstrated the ability of Sigyn Therapy the deplete the presence of viral pathogens, bacterial toxins, and inflammatory mediators from human blood plasma. Such capabilities establish Sigyn Therapy as a candidate to treat pathogen-associated conditions that precipitate Sepsis, Community Acquired Pneumonia, Emerging Bioterror and Pandemic threats, and End-Stage Renal Disease with endotoxemia and elevated inflammatory cytokine production.
To support widespread implementation, Sigyn Therapy is a single-use disposable device that is deployable on the global infrastructure of hemodialysis and continuous renal replacement therapy (CRRT) machines already located in hospitals and clinics. To reduce the risk of blood clotting and hemolysis, the anticoagulant heparin is administered, which is the standard-of-care drug administered in dialysis and CRRT therapies. During animal studies conducted at the University of Michigan, Sigyn Therapy was deployed for use on a hemodialysis machine manufactured by Fresenius Medical Care, the global leader in the dialysis industry.
Incorporated with Sigyn Therapy is a "cocktail" of adsorbent components formulated to optimize the broad-spectrum extraction of therapeutic targets from the bloodstream. In the medical field, the term "cocktail" is a reference to the simultaneous administration of multiple drugs (a drug cocktail) with differing mechanisms of actions. While drug cocktails are emerging as potential mechanisms to treat cancer, they are proven life-saving countermeasures to treat HIV and Hepatitis-C viral infections. However, dosing of multi-drug agent cocktails is limited by toxicity and adverse events that can result from deleterious drug interactions.
Sigyn Therapy is not constrained by such limitations as active adsorbent components are maintained within Sigyn Therapy and not introduced into the body. As a result, we are able to incorporate a substantial quantity of adsorbent components to capture therapeutic targets outside of the body as they circulate through Sigyn Therapy. Each adsorbent component has differing capture characteristics that contribute to optimizing the ability of Sigyn Therapy to address a broad-spectrum of pathogenic and inflammatory targets that precipitate the cytokine storm that underlies sepsis and other life-threatening inflammatory disorders.
The adsorbent components incorporated within Sigyn Therapy provide more than 200,000 square meters (~50 acres) of surface area on which to adsorb and remove circulating viruses, bacterial toxins, and inflammatory mediators. Beyond an immense capacity to deplete circulating therapeutic targets, Sigyn Therapy is also highly efficient. Based on blood flow rates of 350ml/min, a patient's entire bloodstream can pass through Sigyn Therapy more than fifteen times during a single four-hour treatment period.
From a technical perspective, Sigyn Therapy is a 325mm long polycarbonate column that internally contains polyethersulphone hollow fibers that have porous walls have a median pore size of ~200 nanometers (nm). As blood flows into Sigyn Therapy, plasma and therapeutic targets below 200nm travel through the porous walls as a result of blood-side pressure. As the hollow fiber bundle within Sigyn Therapy creates a resistance to the flow of blood, a pressure drop is created along the length of the device such that the blood-side pressure is higher at the blood inlet and lower at the blood outlet. This allows for plasma and therapeutic targets to flow away from the blood and into the extra-lumen space (inside the polycarbonate shell, yet outside the hollow-fiber bundle) to interact with Sigyn Therapy's adsorbent components in a low shear force environment. In the distal third of the fiber bundle, the pressure gradient is reversed, which allows for plasma to flow back through the fiber walls to be reconvened into the bloodstream without the presence of therapeutic targets that were captured by adsorbent components housed in the extra-lumen space of Sigyn Therapy.
Overview of Candidate Treatment Indications
Based on data resulting from in vitro blood purification studies, our candidate treatment indications include, but are not limited to; pathogen-associated conditions that precipitate Sepsis (leading cause of hospital deaths worldwide), Community Acquired Pneumonia (a leading cause of death among infectious diseases), Emerging Bioterror and Pandemic threats, and End-Stage Renal Disease (ESRD) patients with endotoxemia and elevated inflammatory cytokine production. However, there is no assurance that human feasibility and pivotal studies will demonstrate Sigyn Therapy to be a safe and efficacious treatment for any of our treatment indications.
End-Stage Renal Disease Endotoxemia and Inflammation
According to the United States Renal Data System (USRDS), more than 550,000 individuals suffer from end-stage renal disease (ESRD), which results in approximately 85 million kidney dialysis treatments being administered in the United States each year. Persistent inflammation is a hallmark feature of ESRD as reflected by the excess production of inflammatory cytokines, including tumor necrosis factor-? (TNF-?), interleukin-1? (IL-1?) and interleukin-6 (IL-6), which contribute to increased all-cause mortality. ESRD inflammation also induces intestinal permeability, which allows endotoxin (gram-negative bacterial toxin) to translocate from the gut and into the bloodstream. Beyond fueling further inflammation, endotoxin is potent activator of sepsis, which can lead to multiple organ failure and death.
Sigyn Therapy establishes a candidate strategy to improve the health and quality-of-life of ESRD patients. Beyond its proven ability to deplete endotoxin, TNF-?, IL-1?, and IL-6 from human blood plasma, Sigyn Therapy can be administered in series with dialysis therapy.
We are currently drafting an Investigational Device Exemption (IDE) for submission to the U.S. Food and Drug Administration ("FDA") related to a human feasibility study of Sigyn Therapy in End-Stage Renal Disease (ESRD) patients with endotoxemia and elevated inflammatory cytokine production. As per the study protocol, Sigyn Therapy will be administered in combination with the regularly scheduled dialysis treatments of enrolled subjects. The primary study objective will be to evaluate the safety of Sigyn Therapy in health compromised ESRD patients. A secondary objective is to quantify changes in circulating levels of endotoxin, tumor necrosis factor-? (TNF-?), interleukin-1? (IL-1?), and interleukin-6 (IL-6) before and after each Sigyn Therapy administration. Endotoxin and excess TNF-?, IL-1?, and IL-6 production are commonly associated with each of our candidate treatment indications, including sepsis and community-acquired pneumonia.
Sepsis is defined as a life-threatening organ dysfunction caused by a dysregulated host response to infection. In January of 2020, a report entitled; "Global, Regional, and National Sepsis Incidence and Mortality, 1990-2017: Analysis for the Global Burden of Disease Study," was published in the Journal Lancet. The publication reported 48.9 million cases of sepsis and 11 million deaths in 2017. In that same year, an estimated 20.3 million sepsis cases and 2.9 million deaths were among children younger than 5-years old. The report included a reference that sepsis kills more people around the world than all forms of cancer combined. In the United States, sepsis was reported to be the most common cause of hospital deaths with an annual financial burden that exceeds $24 billion.
To date, more than 100 human studies have been conducted to evaluate the safety and efficacy of candidate drugs to treat sepsis. With one brief exception (Xigris, Eli Lilly), none of these studies resulted in a market cleared therapy.
As sepsis remains beyond the reach of single-target drugs, there is an emerging interest in multi-mechanism therapies that can target both inflammatory and pathogen associated targets. Sigyn Therapy addresses a broad-spectrum of pathogen sources and the resulting dysregulated cytokine production (the cytokine storm) that is the hallmark of sepsis. Additionally, we believe that inflammatory cytokine cargos transported by CytoVesicles may represent a novel, yet important therapeutic target.
Community Acquired Pneumonia (CAP) represents a significant opportunity for Sigyn Therapy to reduce the occurrence of sepsis. CAP is a leading cause of death among infectious diseases, the leading cause of death in children under five years of age, and a catalyst for approximately 50% of sepsis and septic shock cases.
In the United States, more than 1.5 million individuals are hospitalized with CAP each year, resulting in an annual financial burden that exceeds $10 billion.
Statistically, a therapeutic strategy that reduced the incidence of CAP related sepsis and septic shock would save thousands of lives each year. In a study of 4,222 patients, the all-cause mortality for adult patients with CAP was reported to be 6.5% during hospitalization. However, the mortality of patients with CAP related sepsis and septic shock rose to 51% during hospitalization.
CAP is further complicated by the fact that the pathogen sources of CAP are identified in only 38% of patients, based on a study of 2,259 subjects whose pneumonia diagnosis was confirmed by chest x-ray. Of the source pathogens identified in the study, ninety seven percent (97%) were either viral or bacterial in origin.
To reduce the occurrence of CAP related sepsis and septic shock, Sigyn Therapy offers a broad-spectrum mechanism to reduce the circulating presence of viral pathogens and bacterial toxins before and if they are identified as the CAP pathogen source. Additionally, Sigyn Therapy may help to control the excess production of inflammatory cytokines (the cytokine storm) that precipitate sepsis and septic shock.
Covid-19 affirmed the use of extracorporeal blood purification as a first-line countermeasures to treat an emerging pandemic threat not addressed with an approved drug or vaccine at the outset of an outbreak. On March 24, 2020, the U.S. Department of Health and Human Services (HHS) declared that the emergence of COVID-19 justified the Emergency-Use Authorization (EUA) of drugs, biological products, and medical devices to combat the pandemic. Within a month of this HHS declaration, FDA awarded an EUA to blood purification therapies from Terumo BCT, ExThera Medical Corporation, CytoSorbents, Inc., and Baxter Healthcare Corporation. In connection with these authorizations, FDA published a statement that blood purification devices may be effective at treating patients with confirmed COVID-19 by reducing various pathogens, cytokines, and other inflammatory mediators from the bloodstream.
Consistent with FDA's statement, Sigyn Therapy is designed to address pathogen sources of life-threatening inflammation in concert with the broad-spectrum depletion of cytokines and other inflammatory mediators from the bloodstream. Based on this mechanism, we believe that Sigyn Therapy provides a candidate strategy to address future pandemic outbreaks, which are increasingly being fueled by a confluence of global warming, urban crowding, and intercontinental travel.
Additionally, as a majority of infectious human viruses are not addressed with a corresponding drug or vaccine, there may be an ongoing need for blood purification technologies that offer to reduce the severity of infection and mitigate the excess production of inflammatory cytokines (the cytokine storm) associated with high mortality in non-pandemic viral infections. In this regard, we believe Sigyn Therapy also aligns with HHS initiatives established through the Public Health Emergency Medical Countermeasure Enterprise (PHEMCE) that support the development of broad-spectrum medical countermeasures that can mitigate the impact of an emerging pandemic or bioterror threat, yet also have viability in established disease indications.
The following Management's Discussion and Analysis ("MD&A") or Plan of Operations includes the following sections:
General and administrative expenses consist primarily of personnel costs and professional fees required to support our operations and growth.
Depending on the extent of our future growth, we may experience significant strain on our management, personnel, and information systems. We will need to implement and improve operational, financial, and management information systems. In addition, we are implementing new information systems that will provide better record-keeping, customer service and billing. However, there can be no assurance that our management resources or information systems will be sufficient to manage any future growth in our business, and the failure to do so could have a material adverse effect on our business, results of operations and financial condition.
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Statements of Operations for three months ended March 31, 2021, to reclass $93,266 of costs to research and development previously classified in general and administrative. In addition, an adjustment has been made to the Unaudited Condensed Consolidated Balance Sheets as of December 31, 2021, to reclass $1,072 of other current liabilities previously classified in accrued payroll and payroll taxes.
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Net loss before income taxes and discontinued operations $ (666,325 ) $ (649,861 )
For the three months ended June 30, 2022 and 2021, we had no revenues.
For the three months ended June 30, 2022 and 2021, we had no cost of sales as we had no revenues.
Operating expenses increased by $90,977, or 20.6%, to $532,795 for three months ended June 30, 2022 from $441,818 for the three months ended June 30, 2021 primarily due to increases in compensation costs of $104,592, research and development costs of $14,947, depreciation costs of $1,215, rent expenses of $14,849, consulting fees of $489, and general and administration costs of $70,457, offset primarily by a decrease in professional fees of $28,145, investor relations costs of $2,156, marketing costs of $82,119, and amortization costs of $3,152, as a result of adding administrative infrastructure for our anticipated business development. In 2022, the Company incurred compensation for its CEO and CTO and hired a Director of Operations resulting in increased compensation costs and increased rent through the lease of office space in June 2021, has decreased marketing costs (primarily the fair value of common stock issued for services in 2021), and has decreased professional fees (primarily legal and audit fees), Research and development costs consist of an increase of $33,296 attributed to in house efforts and a decrease of $18,349 to third parties for developmental services and testing.
For the three months ended June 30, 2022, we had marketing expenses of $131, research and development costs of $154,683, and general and administrative expenses of $377,981 primarily due to professional fees of $27,947, compensation costs of $195,432, rent of $18,672, depreciation costs of $1,719, amortization costs of $900, investor relations costs of $13,886, consulting fees of $45,874, and general and administration costs of $73,551, as a result of adding administrative infrastructure for our anticipated business development. In 2022, the Company incurred professional fees (primarily legal and audit fees), incurred compensation for its CEO and CTO and hired a Director of Operations, incurred consulting costs (primarily for public relations and brand awareness), had investor relations costs, and had rent through the lease of office space. Research and development costs consist of $154,683 attributed to in house efforts.
For the three months ended June 30, 2021, we had marketing expenses of $82,250, research and development costs of $139,736, and general and administrative expenses of $219,832 primarily due to professional fees of $56,092, compensation costs of $90,840, rent of $3,823, depreciation and amortization costs of $4,555, investor relations costs of $16,042, consulting fees of $45,385, and general and administration costs of $3,095, as a result of adding administrative infrastructure for our anticipated business development. In 2021, the Company incurred marketing costs (primarily the fair value of common stock issued for services), has incurred professional fees (primarily legal and audit fees, and consulting costs), incurred compensation for its CEO and CTO, incurred consulting costs (primarily for public relations and brand awareness), had investor relations costs, and had rent through the lease of office space beginning in June 2021. Research and development costs consist of $121,387 attributed to in house efforts and $18,349 to third parties for developmental services and testing.
Other expense for the three months ended June 30, 2022 totaled $133,530 primarily due to interest expense of $108,597 in conjunction with accretion of debt discount and interest expense of $24,933 in conjunction with accretion of original issuance discount, compared to other expense of $208,043 for the three months ended June 30, 2021 primarily due to interest expense of $185,783 in conjunction with accretion of debt discount and interest expense of $22,260 in conjunction with accretion of original issuance discount.
Net loss before income taxes
Net loss before income taxes and discontinued operations for the three months ended June 30, 2022 totaled $666,325 primarily due to (increases/decreases) in compensation costs, professional fees, marketing costs, investor relations costs, consulting fees, research and development costs, rent, and general and administration costs compared to a loss of $649,861 for the three months ended June 30, 2021 primarily due to (increases/decreases) in compensation costs, professional fees, marketing costs, investor relations, consulting fees, research and development costs, rent, and general and administration costs.
Assets were $395,908 as of June 30, 2022. Assets consisted primarily of cash of $7,291, inventories of $50,000, other current assets of $47,706, equipment of $25,482, intangible assets of $3,900, operating lease right-of-use assets of $240,818, and other assets of $20,711. Liabilities were $1,579,069 as of June 30, 2022. Liabilities consisted primarily of accounts payable of $299,317, accrued payroll and payroll taxes of $69,842, convertible notes of $945,219, net of $333,097 of unamortized debt discount and debt issuance costs, and operating lease liabilities of $264,691.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Net loss before income taxes and discontinued operations $ (1,344,371 ) $ (1,111,543 )
For the six months ended June 30, 2022 and 2021, we had no revenues.
For the six months ended June 30, 2022 and 2021, we had no cost of sales as we had no revenues.
Operating expenses increased by $298,116, or 35.3%, to $1,142,031 for six months ended June 30, 2022 from $843,915 for the six months ended June 30, 2021 primarily due to increases in professional fees of $57,465, compensation costs of $144,802, research and development costs of $126,773, depreciation costs of $2,575, rent expenses of $32,318, consulting fees of $27,130, and general and administration costs of $112,329, offset primarily by a decrease in investor relations costs of $28,551, marketing costs of $164,119, and amortization costs of $12,606, as a result of adding administrative infrastructure for our anticipated business development. In 2022, the Company has incurred an increase in professional fees (primarily audit fees), incurred a full year of compensation for its CEO and CTO and hired a Director of Operations resulting in increased compensation costs, increased consulting costs (primarily for public relations and brand awareness), has increased investor relations costs (primarily the fair value of common stock issued for services), and increased rent through the lease of office space in June 2021. Research and development costs consist of an increase of $175,842 attributed to in house efforts and $138,810 to third parties for developmental services and testing.
For the six months ended June 30, 2022, we had marketing expenses of $381, research and development costs of $383,025, and general and administrative expenses of $758,625 primarily due to professional fees of $131,441, compensation costs of $340,327, rent of $36,591, depreciation costs of $3,423, amortization costs of $1,800, investor relations costs of $23,991, consulting fees of $103,125, and general and administration costs of $117,927, as a result of adding administrative infrastructure for our anticipated business development. In 2022, the Company has incurred professional fees (primarily legal and audit fees), incurred compensation for its CEO and CTO and hired a Director of Operations, incurred consulting costs (primarily for public relations and brand awareness), had investor relations costs (primarily the fair value of common stock issued for services), and had rent through the lease of office space. Research and development costs consist of $567,748 attributed to in house efforts and $166,266 to third parties for developmental services and testing.
For the six months ended June 30, 2021, we had marketing expenses of $164,500, research and development costs of $256,252, and general and administrative expenses of $423,163 primarily due to professional fees of $73,976, compensation costs of $195,525, rent of $4,273, depreciation and amortization costs of $15,254, investor relations costs of $52,542, consulting fees of $75,995, and general and administration costs of $5,598, as a result of adding administrative infrastructure for our anticipated business development. In 2021, the Company has incurred professional fees (primarily legal and audit fees, and consulting costs), and incurred compensation for its CEO and CTO. Research and development costs consist of $391,906 attributed to in house efforts and $27,456 to third parties for developmental services and testing.
Other expense for the six months ended June 30, 2022 totaled $202,340 primarily due to interest expense of $160,854 in conjunction with accretion of debt discount and interest expense of $41,455 in conjunction with accretion of original issuance discount, compared to other expense of $267,628 for the six months ended June 30, 2021 primarily due to interest expense of $236,642 in conjunction with accretion of debt discount and interest expense of $30,986 in conjunction with accretion of original issuance discount.
Net loss before income taxes
Net loss before income taxes and discontinued operations for the six months ended June 30, 2022 totaled $1,344,371 primarily due to (increases/decreases) in compensation costs, professional fees, marketing costs, investor relations costs, consulting fees, research and development costs, rent, and general and administration costs compared to a loss of $1,111,543 for the six months ended June 30, 2021 primarily due to (increases/decreases) in compensation costs, professional fees, marketing costs, investor relations, consulting fees, research and development costs, rent, and general and administration costs.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $5,610,130 at June 30, 2022, had a working capital deficit of $1,258,926 and $341,187 at June 30, 2022 and December 31, 2021, respectively, had a net loss of $666,325 and $1,344,371 and $649,861 and $1,111,543 for the three and six months ended June 30, 2022 and 2021, respectively, and net cash used in operating activities of $854,308 and $681,534 for the six months ended June 30, 2022 and 2021, respectively, with no revenue earned since inception, and a lack of operational history. These matters raise substantial doubt about the Company's ability to continue as a going concern.
While the Company is attempting to expand operations and increase revenues, the Company's cash position may not be significant enough to support the Company's daily operations. Management intends to raise additional funds by way of a private offering or an asset sale transaction. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While management believes in the viability of its strategy to generate revenues and in its ability to raise additional funds or transact an asset sale, there can be no assurances to that effect or on terms acceptable to the Company. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate revenues.
The condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
General - Overall, we had a decrease in cash flows for the six months ended June 30, 2022 of $333,665 resulting from cash used in operating activities of $854,308 and cash used in investing activities of $859, offset partially by cash provided by financing activities of $521,502.
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:
Cash Flows from Operating Activities - For the six months ended June 30, 2022, net cash used in operations was $854,308 compared to net cash used in operations of $681,534 for the six months ended June 30, 2021. Net cash used in operations was primarily due to a net loss of $1,344,371 for six months ended June 30, 2022 and the changes in operating assets and liabilities of $282,531, primarily due to the increase in accounts payable of $259,464 and accrued payroll and payroll taxes of $68,770, offset partially by other current liabilities of $72 and other current assets of $45,631. In addition, net cash used in operating activities includes adjustments to reconcile net profit from depreciation expense of $3,423, amortization expense of $1,800, accretion of original issuance costs of $41,455, and accretion of debt discount of $160,854.
For the six months ended June 30, 2021, net cash used in operations was $681,534. Net cash used in operations was primarily due to a net loss of $1,111,543 for six months ended June 30, 2021 and the changes in operating assets and liabilities of $17,374, primarily due to the increase in accounts payable of $24,661, accrued payroll and payroll taxes of $5,020, and other current liabilities of $1,026, offset partially by other current assets of $27,370 and other assets of $20,711. In addition, net cash used in operating activities includes adjustments to reconcile net profit from depreciation expense of $847, amortization expense of $14,406, stock issued for services of $164,500, accretion of original issuance costs of $30,986, and accretion of debt discount of $236,644.
Cash Flows from Investing Activities - For the six months ended June 30, 2022, net cash used in investing activities was $859 due to the purchase of property and equipment compared to cash used in investing activities of $2,871 for the six months ended June 30, 2020 due to the purchase of property and equipment.
Cash Flows from Financing Activities - For the six months ended June 30, 2022, net cash provided by financing was $521,502, due to proceeds from short term convertible notes of $525,000 and fees associated with the filing of the Company's Form S-1 of $3,498 compared to cash provided by financing activities of $1,660,000 for the six months ended June 30, 2020 due to proceeds from common stock issued for cash of $1,465,000 and short term convertible notes $250,000, and repayment of short term convertible notes of $55,000.
Financing - We expect that our current working capital position, together with our expected future cash flows from operations will be insufficient to fund our operations in the ordinary course of business, anticipated capital expenditures, debt payment requirements and other contractual obligations for at least the next twelve months. However, this belief is based upon many assumptions and is subject to numerous risks, and there can be no assurance that we will not require additional funding in the future.
We have no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies or any other material capital expenditures. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, capital equipment or improvements or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. Due to the ongoing global economic crisis, we believe it may be difficult to obtain additional financing if needed. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
We expect to purchase approximately $30,000 of equipment in connection with the expansion of our business during the next twelve months.
Our fiscal year end is December 31.
Refer to Note 3 in the accompanying notes to the unaudited condensed consolidated financial statements for critical accounting policies.
Refer to Note 3 in the accompanying notes to the condensed consolidated financial statements.
As of June 30, 2022, we have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated under which it has:
We do not believe that inflation has had a material effect on our results of operations.
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