FOFA 10-Q
Family Office Of America, Inc. (FOFA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For
the quarterly period ended
For the transition period from _________ to _________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number (
Securities registered pursuant to Section 12(g) of the Act:
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of August 12, 2024, there were shares of common stock outstanding.
QUALIS INNOVATIONS, INC
TABLE OF CONTENTS
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DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “seeks,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” below. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Such statements may include, but are not limited to, information related to: anticipated operating results; licensing arrangements; relationships with our customers; consumer demand; financial resources and condition; changes in revenues; changes in profitability; changes in accounting treatment; cost of sales; selling, general and administrative expenses; interest expense; the ability to secure materials and subcontractors; the ability to produce the liquidity or enter into agreements to acquire the capital necessary to continue our operations and take advantage of opportunities; legal proceedings and claims.
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
USE OF CERTAIN DEFINED TERMS
Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “our Company,” or “the Company” is of Qualis Innovations, Inc.
In addition, unless the context otherwise requires and for the purposes of this report only:
| ● | “Qualis” refers to Qualis Innovations, Inc., a Nevada corporation; | |
| ● | “Commission” refers to the Securities and Exchange Commission; | |
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; and | |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
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QUALIS INNOVATIONS, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Short-term – share settlement | ||||||||
| Short-term note payable | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding at June 30, 2024 and December 31, 2023 | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
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QUALIS INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Gross Profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Stock based compensation - related party | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense: | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See accompanying notes to consolidated financial statements.
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QUALIS INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Common Stock | Additional Paid | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | in Capital | Deficit | Equity | ||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | ( | ) | $ | | |||||||||||||
| Warrants issued to third parties in conjunction with services | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Warrants issued to third parties in conjunction with services | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Issuance of common stock for cash | ||||||||||||||||||||
| Share settlement | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to consolidated financial statements
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QUALIS INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Warrants issued for services | ||||||||
| Options issued for services | ||||||||
| Warrants forfeited in conjunction with compensation - related parties | ||||||||
| Other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| None | - | - | ||||||
| Net cash used in investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Issuance of common stock for cash | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Common stock issued in conjunction with share agreement | $ | $ | ||||||
See accompanying notes to consolidated financial statements
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QUALIS INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Corporate History and Background
Qualis Innovations, Inc. (the “Company” or “Qualis”), formerly known as Hoopsoft Development Corp., Yellowstone Mining, Inc. and Sky Digital Holding Corp. was incorporated in the state of Nevada on March 23, 2006 under the name Hoopsoft Development Corp (“Hoopsoft”). On January 12, 2007, the Company entered into an agreement and plan of merger (“Agreement and Plan of Merger”) with Yellowcake Mining, Inc. (“Yellowcake”), a Nevada corporation and wholly-owned subsidiary of Hoopsoft Development Corp., incorporated for the sole purpose of effecting the merger. Pursuant to the terms of the Agreement and Plan of Merger, Yellowcake merged with and into Hoopsoft, with Hoopsoft carrying on as the surviving corporation under the name “Yellowcake Mining, Inc.”
On April 6, 2011, Yellowcake restated its articles of incorporation and changed its name to Sky Digital Stores Corp (“SKYC”). On May 5, 2011, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among SKYC and Hong Kong First Digital Holding Ltd. (“First Digital”), and the shareholders of First Digital (the “FDH Shareholders”) entered into a Share “FDH”), and the shareholders of FDH (the “FDH Shareholders”). The closing of the transaction (the “Closing”) took place on May 5, 2011 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of FDH from the FDH Shareholders; and FDH Shareholders transferred and contributed all of their Shares to us. In exchange, the Company issued to the FDH Shareholders, their designees or assigns, an aggregate of shares (the “Shares Component”) or % of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at $ per share.
Mr. Lin Xiangfeng planned, organized and executed the Share Exchange. Prior to the Share Exchange, Mr. Lin Xiangfeng was the largest shareholder and sole officer of FDH. He was also the CEO of SKYC but did not own any shares of the Company. The parties involved in the Share Exchange Agreement are SKYC, FDH and all FDH Shareholders. Mr. Lin Jinshui, an FDH Shareholder, is the father of Mr. Lin Xiangfeng and Mr. Lin Xiuzi, an FDH Shareholder, is the brother of Mr. Lin Xiangfeng. Other than Mr. Lin Xiangfeng, no third-party played a substantial role in the agreement.
FDH
owned (i)
On
February 13, 2018, a change of control occurred, and new officers and directors of the Company were appointed. The name change of ‘Sky
Digital Stores Corp.’ (SKYC) to Qualis Innovations, Inc. and the
In July, 2019, John Ballard and Charles Achoa, formed a new company named EMF Medical Devices Inc. for the development, maintenance, marketing and sale of an electronic device for the treatment of pain that would make use of certain intellectual property interests held by LCMD. In May 2021 the Company changed its name to mPathix Health Inc. John Ballard is the Company’s previous Chief Financial Officer and Charles Achoa does not participate in any management or board position.
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On June 28, 2021, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among mPathix Health, Inc. (formerly EMF Medical Devices, Inc., a Delaware corporation) (“mPathix”) and Qualis. The closing of the transaction (the “Closing”) took place on June 29, 2021 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of mPathix. In exchange, the Company issued to the mPathix shareholder’s, their designees or assigns, an aggregate of shares of Company common stock (the “Shares Component”) or % of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at a valuation of $ per share, and the Company issued warrants to purchase an additional shares ( warrants issued to the Company’s previous CEO and to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the Company’s acting CEO and chairman of the board) of the Company’s common stock, exercisable for years at a $ per share exercise price, subject to adjustment. In connection with the closing of the mPathix acquisition, the officers and directors of mPathix were appointed as the officers and directors of the Company. On June 29, 2021, the Company issued common shares for the recapitalization of Qualis in conjunction with the reverse acquisition for a net book value of $.
The acquisition was accounted for as a “reverse merger’’ and recapitalization since the stockholders of mPathix owned a majority of the outstanding shares of the common stock immediately following the completion of the transaction assuming that holders of 10% of the Public Shares exercise their conversion rights. mPathix was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of mPathix. As a result, Qualis was considered to be the continuation of the predecessor mPathix. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of mPathix and are recorded at the historical cost basis of mPathix. Qualis’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of mPathix after consummation of the acquisition.
NOTE 2 – BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and stated in U.S. dollars. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The Company currently operates in one business segment. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer, who comprehensively manages the entire business. The Company does not currently operate any separate lines of businesses or separate business entities.
Going Concern
The
accompanying consolidated 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 $
While the Company is attempting to expand operations and generate 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. 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.
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The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the consolidated financial statements.
Use of Estimates
The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the consolidated financial statements. The more significant estimates and assumptions by management include among others: common stock valuation, amortization of intangible assets, depreciation of property and equipment, the recoverability of intangibles. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
For
the year ended December 31, 2023, the accompanying consolidated financial statements includes a change in accounting estimate of accrued
expenses that resulted in a $
Cash
The
Company’s cash is held in bank accounts in the United States and is insured by the Federal Deposit Insurance Corporation (FDIC)
up to $
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company.
Income Taxes
Income taxes are accounted for under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Balance Sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The likelihood that its deferred tax assets will be recovered from future taxable income must be assessed and, to the extent that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance in a period are recorded through the income tax provision in the consolidated Statements of Operations.
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ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s consolidated financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company does not have a liability for unrecognized income tax benefits.
Advertising and Marketing Costs
Advertising
and marketing expenses are recorded as marketing expenses when they are incurred. The Company had
Research and Development
All research and development costs are expensed as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well as other contracted services, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730, Research and Development.
With respect to the current status of the patent, there has been no movement during the period ended June 30, 2024 and to date. The Company has a disagreement with the specific vendor and the project relating to collection of data, testing and filing the patent application has been kept on hold. The Company and the vendor are trying to resolve this disagreement, about achieving a particular milestone, which they expect to be completed later in fiscal 2024.
General and Administrative Expenses
General and administrative expenses consisted of professional service fees, and other general and administrative overhead costs. Expenses are recognized when incurred.
Inventories
Inventories are valued at the lower of cost or net realizable value. The Company’s inventories are valued under the first in, first out (FIFO) method or average cost method. Net realizable value is estimated based on current selling prices. The Company records a provision for excess and obsolete inventory based primarily on forecasted product demand and production requirements. Once inventory provisions are established, the written-down value of the inventory becomes its new cost basis.
Deposits
Deposits consist of amounts paid to a vendor in advance to manufacture pain treatment products. Deposits are included in current assets in the accompanying Condensed Consolidated Balance Sheets.
Property and Equipment
Property
and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, generally
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Impairment of Long-lived Assets
The Company periodically evaluates whether the carrying value of property, equipment and intangible assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value.
The Company’s impairment analyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third-party comparable sales and discounted cash flow models. If actual results are not consistent with the Company’s assumptions and estimates, or the assumptions and estimates change due to new information, the Company may be exposed to an impairment charge in the future.
In
the 4th quarter of 2023, the Company determined that the third-party manufacturer of its SOLACE device was unable to deliver the remaining
SOLACE devices and that it may not be economically feasible to pursue the manufacturer for the return of the tooling and deposits. As
a result, the Company determined that the value of the tooling and deposits related to its SOLACE device was $
Fair Value of Financial Instruments
The provisions of accounting guidance, FASB Topic ASC 825 requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of June 30, 2024 and December 31, 2023, there were no financial instruments requiring fair value.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities |
The carrying value of financial assets and liabilities recorded at fair value are measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. There were no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. There have been no transfers between levels.
The computation of net loss per share included in the Statements of Operations, represents the net loss per share that would have been reported had the Company been subject to ASC 260, “Earnings Per Share as a corporation for all periods presented.
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Diluted loss per share are computed on the basis of the weighted average number of common shares (including common stock subject to redemption) plus dilutive potential common shares outstanding for the reporting period. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Potentially dilutive securities were excluded from the calculation of diluted net loss per share because the effects were anti-dilutive based on the application of the treasury stock method and because the Company incurred net losses during the period.
There were and , and and dilutive securities outstanding for the three and six months ended June 30, 2024 and 2023, respectively. These potential dilutive securities outstanding have not been considered as the inclusion would be anti-dilutive.
Stock based compensation issued to employees and members of our board of directors is measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The grant date fair value of a stock-based award is recognized as an expense over the requisite service period of the award on a straight-line basis.
For purposes of determining the variables used in the calculation of stock-based compensation issued to employees, the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our consolidated statements of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our consolidated financial statements.
Issuances of the Company’s common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. Although situations may arise in which counter performance may be required over a period of time, the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Non-Cash Equity Transactions
Shares of equity instruments issued for non-cash consideration are recorded at the fair value of the consideration received based on the market value of services to be rendered, or at the value of the stock given, considered in reference to contemporaneous cash sale of stock.
Concentrations, Risks, and Uncertainties
Business Risk
Substantial business risks and uncertainties are inherent to an entity, including the potential risk of business failure.
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The Company is headquartered and operates in the United States. To date, the Company has generated no revenues from operations. There can be no assurance that the Company will be able to raise additional capital and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. Currently, these contingencies include general economic conditions, price of components, competition, and governmental and political conditions.
Interest rate risk
Financial assets and liabilities do not have material interest rate risk.
Credit risk
The Company is not exposed to credit risk.
Seasonality
The business is not subject to substantial seasonal fluctuations.
Major Suppliers
The Company has not entered into any contracts that obligate it to purchase a minimum quantity or exclusively from any supplier.
Recent Accounting Pronouncements
Recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 4 – SHORT TERM LOAN
The
Company borrows funds from the Company’s CEO for working capital purposes from time to time. The Company has recorded the principal
balance due of $
NOTE 5 – STOCKHOLDERS’ EQUITY
The Company has authorized preferred stock with a par value of $ with preferred shares outstanding at June 30, 2024 and December 31, 2023.
The Company has authorized shares of par value $ common stock, of which and shares are outstanding at June 30, 2024 and December 31, 2023, respectively.
Common Stock
In
January 2024, the Company issued common shares to two (2) affiliates for aggregate gross proceeds of $
In
January 2024, the Company issued a total of common shares valued at $
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Warrants
On February 24, 2022, Mr. Bingol, the Company’s previous CEO, entered into a separation agreement whereby he will terminate his employment effective April 15, 2022. He received no severance payment and there were no disagreements between he or the Company. A total of warrants have vested.
On
February 1, 2022, the Company granted warrants to purchase
On
March 29, 2022, the Board of Directors approved the granting of warrants, with effect from April 1, 2022, convertible to the
Company’s common shares with an exercise price of $
On
August 1, 2022, based on a revised agreement signed by the relevant parties, the Company granted warrants to purchase
On
September 1, 2022, the Company granted warrants to purchase
On
April 3, 2023, the Company granted shares warrants to purchase
The following represents a summary of the warrants outstanding at June 30, 2024 and changes during the periods then ended:
| Warrants | Weighted Average Exercise Price | Weighted Average (in Years) | Aggregate Intrinsic Value * | |||||||||||||
| Outstanding at January 1, 2023 | $ | | $ | |||||||||||||
| Granted | ||||||||||||||||
| Exercised | - | |||||||||||||||
| Expired/Forfeited | - | |||||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | |||||||||||||||
| Expired/Forfeited | - | |||||||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
| Expected to be vested | $ | $ | ||||||||||||||
| * |
| 15 |
Options
| Options | Weighted Average Exercise Price | Weighted Average Contract Life (in Years) | Aggregate Intrinsic Value * | |||||||||||||
| Outstanding at January 1, 2023 | $ | | $ | |||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | - | ||||||||||||||
| Expired/Forfeited | - | - | ||||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | - | ||||||||||||||
| Expired/Forfeited | - | - | ||||||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
| Expected to be vested | $ | $ | ||||||||||||||
| * |
NOTE 6 – RELATED PARTY TRANSACTIONS
Other than as set forth below, and as disclosed in Notes 4 and 5, there have not been any transaction entered into or been a participant in which a related person had or will have a direct or indirect material interest.
FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations.
Basic earnings (loss) per share are computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Options to purchase shares of common stock | ||||||||||||||||
| Warrants to purchase shares of common stock granted on February 14, 2021 to CreoMed, Inc.* | ||||||||||||||||
| Warrants to purchase shares of common stock granted on March 16, 2021 to Demir Bingol* | ||||||||||||||||
| Warrants to purchase shares of common stock granted on April 1, 2022 to CreoMed, Inc. | ||||||||||||||||
| Warrants to purchase shares of common stock | ||||||||||||||||
| Total potentially dilutive shares | ||||||||||||||||
| * |
| 16 |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net loss attributable to the common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic weighted average outstanding shares of common stock | ||||||||||||||||
| Dilutive effect of options and warrants | ||||||||||||||||
| Diluted weighted average common stock and common stock equivalents | ||||||||||||||||
| Loss per share: | ||||||||||||||||
| Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Legal
From time to time, various lawsuits and legal proceedings may arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition or operating results.
2021 Equity Incentive Plan
In June 2021, the board of directors of the Company authorized the adoption and implementation of the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The principal purpose of the 2021 Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its related companies by providing them the opportunity to acquire a proprietary interest in the Company and to link their interests and efforts to the long-term interests of the Company’s shareholders. Under the 2021 Plan, an aggregate of shares of the Company’s common stock have initially been reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock awards, restricted stock, restricted stock units and other stock and cash-based awards. The exercise price for each option may not be less than fair market value of the common stock on the date of grant, and shall vest as determined by the Company’s board of directors but shall not exceed a ten-year period.
NOTE 9 – SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after June 30, 2024 up through the date the consolidated financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events required to be disclosed as of and for the period ended June 30, 2024.
| 17 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statement Notice
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Goliath Film and Media Holdings, (“we”, “us”, “our” or the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
Description of Business
Background
Qualis Innovations, Inc. (the “Company” or “Qualis”), formerly known as Hoopsoft Development Corp., Yellowstone Mining Inc., Sky Digital Stores Corp., and Sky Digital Holdings Corp., was incorporated in the state of Nevada on March 23, 2006.
In early 2018, a change of control occurred, new officers and directors of the Company were appointed, and the Company’s name was changed to Qualis Innovations, Inc.
In July 2019, John Ballard and Charles Achoa, formed a new company named EMF Medical Devices Inc. for the development, maintenance, marketing and sale of an electronic device for the treatment of pain that would make use of certain intellectual property interests held by LCMD. In May 2021 that company changed its name to mPathix Health Inc.
On June 28, 2021, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among mPathix Health, Inc. (formerly EMF Medical Devices, Inc., a Delaware corporation) (“mPathix”) and Qualis. The closing of the transaction (the “Closing”) took place on June 29, 2021 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of mPathix. In exchange, the Company issued to the mPathix shareholder’s, their designees or assigns, an aggregate of 6,988,300 shares of Company common stock (the “Shares Component”) or 93.36% of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at a valuation of $0.50 per share, and the Company issued warrants to purchase an additional 1,098,830 shares (698,830 warrants issued to the Company’s previous CEO and 400,000 to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the Company’s previous acting CEO and chairman of the board) of the Company’s common stock, exercisable for 10 years at a $0.50 per share exercise price, subject to adjustment. In connection with the closing of the mPathix acquisition, the officers and directors of mPathix were appointed as the officers and directors of the Company. On June 29, 2021, the Company issued 496,650 common shares for the recapitalization of Qualis in conjunction with the reverse acquisition for a net book value of $0.
The acquisition was accounted for as a “reverse merger’’ and recapitalization since the stockholders of mPathix owned a majority of the outstanding shares of the common stock immediately following the completion of the transaction assuming that holders of 10% of the Public Shares exercise their conversion rights. mPathix was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of mPathix. As a result, Qualis was considered to be the continuation of the predecessor mPathix. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of mPathix and are recorded at the historical cost basis of mPathix. Qualis’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of mPathix after consummation of the acquisition.
| 18 |
The Company is now the holding company under which mPathix operates. mPathix is a clinical stage company focused on the development, production, and distribution of pain management and other central nervous system (CNS) based solutions.
A key element to the Company’s growth strategy is to acquire the rights to or develop existing devices. Large device companies have increased the minimum market opportunity they require in order to commit marketing resources to their products. As a result, there are many products that are unsupported by such companies and are currently scheduled to be phased out or “sunsetted.” Qualis Innovations believes that it can create significant value by developing or acquiring rights to a portfolio of such products, expanding their therapeutic uses and/or markets, improving or enhancing such products and dedicating the appropriate amount of marketing and other resources to maximize the value of the Company’s portfolio.
There are several key criteria the Company uses when evaluating product opportunities:
| ● | The disease or condition largely has been ignored due to lack of interest by other, larger companies and, as a result, overall competition in the space is limited. | |
| ● | The device is not selling well for various reasons (including, among other things, poor management, poor reimbursement, improper or no available billing codes, inaccurate pricing, and limited and/or poor clinical outcomes) which, Qualis would attempt to eliminate, thereby increasing product revenues. | |
| ● | The device should be easy to manufacture, thereby avoiding the need for costly investment by the Company develop products and complicated manufacturing facilities. | |
| ● | There should be a large, underserved patient population. The device should have clear regulatory and reimbursement paths with the FDA and CMS, respectively (or already be approved). | |
| ● | The device should be relatively easy to distribute/dispense and administer. Most importantly, the product must have a history of limited adverse events to patients. |
Our planned product, which is our sole product in the development pipeline, is SOLACE, a non-invasive medical device that uses electromagnetic induction to generate deep heat below the surface of the skin to reduce and relieve pain. SOLACE™ delivers radio frequency (RF) energy continuously and thereby delivers thermal effects to the tissue and utilizes several differentiated features vs other radio frequency devices currently on the market. We have not yet finalized development of the planned SOLACE device and have not generated any cash flows from operations in connection with the planned device.
The SOLACE device is based on proprietary high-frequency magnetic induction technology, which we refer to as Electromagnetic Induction (“EMI”). Electromagnetic or magnetic induction is the use of electric currents or a derivative of a current in the form of a sound or an acoustic wave or an electromagnetic energy wave. Administered electric currents or their derivatives have two attributes: (1) pain relief and (2) regeneration of tissues.
Magnetic fields are induced beneath the skin surface to create localized, planar heat in the dermis and deeper muscle, while selectively avoiding sensitive structures in the epidermis and fat layers. By comparison, our SOLACE device creates currents in discreet planes beneath the tissue surface rather than directing energy through the planes and penetrating the epidermis. Therefore, our EMI technology may provide for shorter duration of treatments and a more comfortable patient experience vs. other energy-based technologies.
SOLACE™ delivers RF energy via a user-friendly hand-held applicator that allows for targeted and ergonomic application of RF energy to discrete areas of concern. In contrast, competitor diathermy devices utilize a large drum applicator wherein the RF energy is emitted across a large surface area. Diathermy is the controlled production of deep heating beneath the skin in the subcutaneous tissue, deep muscles and joints for therapeutic purposes. There are two types of diathermy devices on the market today: radio or high frequency and microwave. The drum applicator design limits the tissue targeting to larger joints, while smaller joints or tissue areas (e.g. acromion of the shoulder, plantar aspect of foot, neck) are largely unaddressed. The hand-held applicator from the SOLACE™ device provides a small surface area (approx. 3 cm2) which is coated in Teflon® that can easily be positioned to target smaller body parts providing a differentiation compared to large drum-type radio frequency devices fail to adequately treat.
| 19 |
Recent Developments
We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Impairment of Assets
In the 4th quarter of 2023, the Company determined that the third-party manufacturer of its SOLACE device was unable to deliver the remaining SOLACE devices and that it may not be economically feasible to pursue the manufacturer for the return of the tooling and deposits. As a result, the Company determined that the value of the tooling and deposits related to its SOLACE device was $0 and recorded an impairment of assets totaling $76,008 in the year ended December 31, 2023 which was classified in other expenses in the consolidated Statements of Operations.
Financing Transactions
Short Term Note Payable
The Company borrows funds from the Company’s CEO for working capital purposes from time to time. The Company has recorded the principal balance due of $9,102 and $9,102 under short term note payable in the accompanying Balance Sheets at June 30, 2024 and December 31, 2023, respectively. The Company received no advances and had no repayments for the three and six months ended June 30, 2024 and 2023, respectively. The advance from our CEO was not made pursuant to any loan agreements or promissory notes, are interest bearing at 10% per annum and due on demand.
Common Stock
In January 2024, the Company issued 2,000,000 common shares to two (2) affiliates for aggregate gross proceeds of $100,000.
In January 2024, the Company issued a total of 10,000,000 common shares valued at $500,000 (based on the estimated fair value of the stock on the date of grant) to two affiliates in settlement of a dispute.
Warrants
On April 3, 2023, the Company granted 3,333,333 warrants to purchase 3,333,333 of the Company’s common stock to Jim Holt, the Company’s previous CEO, valued at $1,597,635 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of seven years at $0.03 per share in whole or in part and vest immediately. On December 13, 2023, Mr. Holt, entered into a cancellation agreement whereby a total of 100,000 warrants, valued at $45,763 (based on the Black Scholes valuation model on the date of grant) have vested with the remaining 3,233,333 warrants cancelled. The warrants are exercisable for a period of three years at $0.03 per share in whole or in part and vest immediately.
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 have not finalized development of our planned SOLACE device, nor have we generated any cash flow from operations. The Company’s cash position may not be sufficient to support the Company’s daily operations. 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.
Overview of Presentation
The following Management’s Discussion and Analysis (“MD&A”) or Plan of Operations includes the following sections:
| ● | Results of Operations | |
| ● | Liquidity and Capital Resources | |
| ● | Capital Expenditures | |
| ● | Going Concern | |
| ● | Critical Accounting Policies | |
| ● | Off-Balance Sheet Arrangements |
General and administrative expenses consist primarily of personnel costs and professional fees required to support our operations and growth.
| 20 |
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. 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.
Results of Operations
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
The following discussion represents a comparison of our results of operations for the three months ended June 30, 2024 and 2023. The results of operations for the periods shown in our unaudited condensed consolidated financial statements are not necessarily indicative of operating results for the entire period. In the opinion of management, the unaudited condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.
Three Months Ended | Three Months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| Net revenues | $ | - | $ | - | ||||
| Cost of sales | - | - | ||||||
| Gross Profit | - | - | ||||||
| Operating expenses | 30,102 | 1,639,861 | ||||||
| Other expense | 1,126 | - | ||||||
| Net loss before income taxes | $ | (31,228 | ) | $ | (1,639,861 | ) | ||
Revenues
For the three months ended June 30, 2024 and 2023, we had no revenues.
Cost of Sales
For the three months ended June 30, 2024 and 2023, we had no cost of sales.
Operating expenses
Operating expenses decreased by $1,628,684, or 98.2%, to $30,103 for three months ended June 30, 2024 from $1,658,787 for the three months ended June 30, 2023 primarily due to decreases in stock-based compensation costs of $1,605,208, consulting fees of $10,050, depreciation costs of $4,275, professional fees of $6,615, and general and administration costs of $2,536 offset partially by as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
For the three months ended June 30, 2024, we had general and administrative expenses of $30,103 primarily due to consulting fees of $11,500, professional fees of $17,121, and general and administration costs of $1,481 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
For the three months ended June 30, 2023, we had stock-based compensation of $1,605,208 and general and administrative expenses of $34,653 primarily due to depreciation costs of $4,275, consulting fees of $21,550, and professional fees of $23,736, and general and administration costs of $14,908 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
| 21 |
Other Expense
Other expense for the three months ended June 30, 2024 and 2023 was none.
Net loss before income taxes
Net loss before income for the three months ended June 30, 2024 totaled $31,228 primarily due to (increases/decreases) in professional fees, consulting fees, and general and administration costs compared to a loss of $1,639,861 for the three months ended June 30, 2023 primarily due to (increases/decreases) in stock-based compensation, consulting fees, depreciation, insurance costs, and general and administration costs.
Assets and Liabilities
Assets were $63,456 as of June 30, 2024. Assets consisted primarily of cash of $62,956. Liabilities were $33,800 as of June 30, 2024. Liabilities consisted primarily of accounts payable and accrued expenses of $18,224, short-term note payable of $9,102, and other current liabilities of $6,474.
In the 4th quarter of 2023, the Company determined that the third-party manufacturer of its SOLACE device was unable to deliver the remaining SOLACE devices and that it may not be economically feasible to pursue the manufacturer for the return of the tooling and deposits. As a result, the Company determined that the value of the tooling and deposits related to its SOLACE device was $0 and recorded an impairment of assets totaling $76,008 in the year ended December 31, 2023 which was classified in other expenses in the consolidated Statements of Operations.
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
The following discussion represents a comparison of our results of operations for the six months ended June 30, 2024 and 2023. The results of operations for the periods shown in our unaudited condensed consolidated financial statements are not necessarily indicative of operating results for the entire period. In the opinion of management, the unaudited condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.
Six Months Ended | Six Months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| Net revenues | $ | - | $ | - | ||||
| Cost of sales | - | - | ||||||
| Gross Profit | - | - | ||||||
| Operating expenses | 46,035 | 1,719,672 | ||||||
| Other expense | 1,353 | - | ||||||
| Net loss before income taxes | $ | (47,388 | ) | $ | (1,719,672 | ) | ||
Revenues
For the six months ended June 30, 2024 and 2023, we had no revenues.
Cost of Sales
For the six months ended June 30, 2024 and 2023, we had no cost of sales.
| 22 |
Operating expenses
Operating expenses decreased by $1,692,564, or 97.4%, to $46,035 for six months ended June 30, 2024 from $1,738,599 for the six months ended June 30, 2023 primarily due to decreases in stock-based compensation costs of $1,605,208, research and development costs of $1,500, insurance costs of $20,492, consulting fees of $65,389, depreciation costs of $8,551, and general and administration costs of $2,246, offset partially by professional fees of $10,822 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
For the six months ended June 30, 2024, we had general and administrative expenses of $46,035 primarily due to consulting fees of $19,970, professional fees of $24,258, and general and administration costs of $1,807 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
For the six months ended June 30, 2023, we had research and development costs of $1,500, stock-based compensation of $1,605,208 and general and administrative expenses of $112,964 primarily due to depreciation costs of $8,550, consulting fees of $85,359, professional fees of $13,436, insurance costs of $20,492, and general and administration costs of $14,873 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
Other Expense
Other expense for the six months ended June 30, 2024 and 2023 was none.
Net loss before income taxes
Net loss before income for the six months ended June 30, 2024 totaled $47,388 primarily due to (increases/decreases) in professional fees, consulting fees, and general and administration costs compared to a loss of $1,719,672 for the six months ended June 30, 2023 primarily due to (increases/decreases) in in consulting fees, depreciation, insurance costs, and general and administration costs.
Liquidity and Capital Resources
Going Concern
The accompanying consolidated 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 $4,477,696 at June 30, 2024, had working capital of $29,656 at June 30, 2024, had net losses of $31,228 and $47,388, and $1,639,861 and $1,719,672 for the three and six months ended June 30, 2024 and 2023, respectively, and net cash used in operating activities of $39,475 and $45,231 for the six months ended June 30, 2024 and 2023, 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 public 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 consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
| 23 |
General – Overall, we had an increase in cash flows for six months ended June 30, 2024 of $60,525 resulting from cash provided by financing activities of $100,000, offset partially by cash used in operating activities of $39,475.
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:
Six Months Ended | Six Months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (39,475 | ) | $ | (45,231 | ) | ||
| Investing activities | - | - | ||||||
| Financing activities | 100,000 | - | ||||||
| $ | 60,525 | $ | (45,231 | ) | ||||
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Cash Flows from Operating Activities – For the six months ended June 30, 2024, net cash used in operations was $39,475 compared to net cash used in operations of $45,231 for the six months ended June 30, 2023. Net cash used in operations was primarily due to a net loss of $47,388 for the six months ended June 30, 2024 and the changes in operating assets and liabilities of $7,913, primarily due to accounts payable and accrued expenses of $1,939 and other current liabilities of $6,474.
For the six months ended June 30, 2023, net cash used in operations was $45,231. Net cash used in operations was primarily due to a net loss of $1,719,672 for the six months ended June 30, 2023 and the changes in operating assets and liabilities of $43,152, primarily due to other current assets of $92,170, offset partially by accounts payable and accrued expenses of $17,826 and other current liabilities of $31,192. In addition, net cash used in operating activities includes adjustments to reconcile net profit from depreciation expense of $8,550, and warrants issued for services of $1,622,739.
Cash Flows from Investing Activities – For the six months ended June 30, 2024 and 2023, net cash used in investing was none.
Cash Flows from Financing Activities – For six months ended June 30, 2024, net cash provided by financing was $100,000 due to proceeds from issuance of common stock for cash. For six months ended June 30, 2023, net cash provided by financing was none.
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 shareholders, in the case of equity financing.
| 24 |
Board of Directors Resolutions
On April 3, 2023, by unanimous written consent, the Company’s Board of Directors granted 3,333,333 warrants to purchase 3,333,333 shares of the Company’s common stock to Mr. Jim Holt, the Company’s previous CEO and Director as compensation. The warrants are exercisable for a period of seven years at $0.03 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date. On December 13, 2023, Mr. Holt, entered into a cancellation agreement whereby a total of 100,000 warrants, valued at $45,763 (based on the Black Scholes valuation model on the date of grant) have vested with the remaining 3,233,333 warrants cancelled. The warrants are exercisable for a period of three years at $0.03 per share in whole or in part and vest immediately.
Common Stock
In January 2024, the Company issued 2,000,000 common shares to two (2) affiliates for aggregate gross proceeds of $100,000.
In January 2024, the Company issued a total of 10,000,000 common shares valued at $500,000 (based on the estimated fair value of the stock on the date of grant) to two affiliates in settlement of a dispute.
Warrants
On April 3, 2023, the Company granted 3,333,333 warrants to purchase 3,333,333 shares of the Company’s common stock to Jim Holt, the Company’s previous CEO, valued at $1,597,635 (based on the Black Scholes valuation model on the date of grant). The warrants are exercisable for a period of seven years at $0.03 per share in whole or in part and vest immediately. On December 13, 2023, Mr. Holt, entered into a cancellation agreement whereby a total of 100,000 warrants, valued at $45,763 (based on the Black Scholes valuation model on the date of grant) have vested with the remaining 3,233,333 warrants cancelled. The warrants are exercisable for a period of three years at $0.03 per share in whole or in part and vest immediately.
Impairment of Assets
In the 4th quarter of 2023, the Company determined that the third-party manufacturer of its SOLACE device was unable to deliver the remaining SOLACE devices and that it may not be economically feasible to pursue the manufacturer for the return of the tooling and deposits. As a result, the Company determined that the value of the tooling and deposits related to its SOLACE device was $0 and recorded an impairment of assets totaling $76,008 in the year ended December 31, 2023 which was classified in other expenses in the consolidated Statements of Operations.
Capital Expenditures
Other Capital Expenditures
We expect to purchase approximately $30,000 of equipment in connection with the expansion of our business during the next twelve months.
Fiscal year end
Our fiscal year end is December 31.
Critical Accounting Policies
Refer to Note 3 in the accompanying notes to the consolidated financial statements for critical accounting policies.
Recent Accounting Pronouncements
Refer to Note 3 in the accompanying notes to the consolidated financial statements.
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Contractual Obligations and Off-Balance Sheet Arrangements
Refer to Note 8 in the accompanying notes to the consolidated financial statements for future contractual obligations and commitments. Future contractual obligations and commitments are based on the terms of the relevant agreements and appropriate classification of items under U.S. GAAP as currently in effect. Future events could cause actual payments to differ from these amounts.
We incur contractual obligations and financial commitments in the normal course of our operations and financing activities. Contractual obligations include future cash payments required under existing contracts, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related operating activities. Details on these obligations are set forth below.
Off-Balance Sheet Arrangements
As of June 30, 2024, we have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated under which it has:
| ● | a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit; | |
| ● | liquidity or market risk support to such entity for such assets; | |
| ● | an obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument; or | |
| ● | an obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to us, where such entity provides financing, liquidity, market risk or credit risk support to or engages in leasing, hedging, or research and development services with us. |
Inflation
We do not believe that inflation has had a material effect on our results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure Controls and Procedures. We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported accurately, in accordance with U.S. Generally Accepted Accounting Principles and within the required time periods, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, who is also our acting Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. As of the end of the period covered by this report (June 30, 2024), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures were not effective to enable us to accurately record, process, summarize and report certain information required to be included in the Company’s periodic SEC filings within the required time periods, and to accumulate and communicate to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to or otherwise involved in any legal proceedings.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
There have been no events which are required to be reported under this Item.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
* Incorporated by reference to the Company’s registration statement on Form S-1 filed on November 12, 2021
** Incorporated by reference to the Company’s amended registration statement on Form S-1/A filed on April 20, 2022
*** Incorporated by reference to the Company’s amended registration statement on Form S-1/A filed on January 18, 2022
**** Incorporated by reference to the Company’s amended registration statement on Form S-1/A filed on May 4, 2022
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| QUALIS INNOVATIONS, INC. | ||
| Dated: August 12, 2024 | By: | /s/ Patrick Adams |
| Patrick Adams | ||
| Acting CEO and Chairman | ||
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