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CONVERSION LABS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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08/14/2019 | 03:36pm EDT

Note Regarding Forward-Looking Statements




This Quarterly Report on Form 10-Q includes a number of forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended, (the "Exchange Act") that reflect management's current
views with respect to future events and financial performance.These statements
are based upon beliefs of, and information currently available to, the Company's
management as well as estimates and assumptions made by the Company's
management. Readers are cautioned not to place undue reliance on these
forward-looking statements, which are only predictions and speak only as of the
date hereof. When used herein, the words "anticipate," "believe," "estimate,"
"expect," "forecast," "future," "intend," "plan," "predict," "project,"
"target," "potential," "will," "would," "could," "should," "continue" or the
negative of these terms and similar expressions as they relate to the Company or
the Company's management identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are
subject to risks, uncertainties, assumptions, and other factors, including the
risks relating to the Company's business, industry, and the Company's operations
and results of operations. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may differ significantly from those anticipated, believed, estimated,
expected, intended, or planned.



Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by
applicable law, including the securities laws of the United States, the Company
does not intend to update any of the forward-looking statements to conform these
statements to actual results.



Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States ("GAAP"). These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that
the estimates, judgments and assumptions upon which we rely are reasonable based
upon information available to us at the time that these estimates, judgments and
assumptions are made. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenues and expenses during the
periods presented. Our financial statements would be affected to the extent
there are material differences between these estimates and actual results. The
following discussion should be read in conjunction with our financial statements
and notes thereto appearing elsewhere in this report. The forward-looking
statements made in this report are based only on events or information as of the
date on which the statements are made in this report. Except as required by law,
we undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise,
after the date on which the statements are made or to reflect the occurrence of
unanticipated events. You should read this report and the documents we refer to
in this report and have filed as exhibits to this report completely and with the
understanding that our actual future results may be materially different from
what we expect. These risks include, by way of example and without limitation:



· our ability to successfully commercialize our products and services on a large

enough scale to generate profitable operations;

· our ability to maintain and develop relationships with customers and suppliers;

· our ability to successfully integrate acquired businesses or new brands;

· the impact of competitive products and pricing;

· supply constraints or difficulties;

· general economic and business conditions;

· our ability to continue as a going concern;

· our need to raise additional funds in the future;

· our ability to successfully recruit and retain qualified personnel;

· our ability to successfully implement our business plan;

· our ability to successfully acquire, develop or commercialize new products and

equipment;

· intellectual property claims brought by third parties; and

· the impact of any industry regulation.




20





Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, or performance. Readers are urged to carefully review and consider the
various disclosures made by us in this report and in our other reports filed
with the Securities and Exchange Commission ("SEC"). We undertake no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes in the future operating
results over time except as required by law. We believe that our assumptions are
based upon reasonable data derived from and known about our business and
operations. No assurances are made that actual results of operations or the
results of our future activities will not differ materially from our
assumptions.



As used in this Quarterly Report on Form 10-Q and unless otherwise indicated,
the terms "Company," "we," "us," and "our" refer to Conversion Labs, Inc.
(formerly known as Immudyne, Inc.) and our majority-owned subsidiaries
LegalSimpli Software, LLC, a Puerto Rico limited liability company
("LegalSimpli"), Conversion Labs PR, LLC (formerly Immudyne PR LLC, now
"Conversion Labs PR"), a Puerto Rico limited liability company ("Conversion Labs
PR"), Conversion Labs Media, LLC ("CVLB Media"), a Puerto Rico limited liability
company, Conversion Labs RX, LLC ("CVLB RX"), a Puerto Rico limited liability
company, and Conversion Labs Asia Limited, a Hong Kong company ("Conversion LabsAsia"). Unless otherwise specified, all dollar amounts are expressed in United
States dollars.


Corporate History and Overview




Conversion Labs, Inc. is a diversified online direct response marketing company
that creates, in-licenses, and acquires proprietary and innovative consumer
products that address large unmet needs in the online marketplace. These
products are then marketed and sold directly to consumers through advertisements
on Facebook, Google, Amazon, and other social media and e-commerce platforms.
Secondarily, we also sell our products to traditional retailers, wholesalers and
physicians' offices.


We currently have four commercial stage brands in our portfolio:

· Shapiro MD: Launched in 2017, Shapiro MD is a patented line consisting of a

shampoo, conditioner and leave-in foamer for thicker, fuller hair. The Shapiro

MD line now also includes a U.S. Food and Drug Administration ("FDA") approved

minoxidil product and a supplement for hair loss.

· iNR Wellness MD: Launched in 2018, iNR Wellness MD is a beta glucan nutritional

supplement for immune and gut support. There are a multitude of published

studies, many noted on the National Institute of Health website, relating to

the health benefits of beta glucan. The FDA and the European Food Safety

Authority have approved health claims related to the maintenance or reduction

of blood cholesterol and consumption of 3 grams of beta-glucan daily.

· Scarology: Launched in 2019, Scarology is a proprietary 3 step Scar Care System

designed to improve the overall color, texture and appearance of scars. The

system consists of a natural fruit acid exfoliator, a proprietary scar healing

cream and silicon scar sheets.

· PDF Simpli: Launched in 2018, PDF Simpli is a PDF conversion software product,

which was acquired through the purchase of 51% of the membership interests of

LegalSimpli Software, LLC, a Puerto Rico limited liability company, which

   operates a marketing-driven software solutions business.




We launched our online direct marketing business in the fourth quarter of 2015
with the establishment of a partnership with Inate Skincare, LLC ("Inate"). Our
initial intention was to launch a skin care line containing our proprietary
ingredients and to market such products directly to consumers. We entered into a
limited liability company operating agreement with our joint venture partners
with respect to Inate under the legal name Immudyne PR LLC ("Immudyne PR"). On
April 1, 2016, the original operating agreement of Immudyne PR was amended and
restated and we increased our ownership and voting interest in Immudyne PR to
78.2%. Concurrent with the name change of the parent company to Conversion Labs,
Inc. completed in 2018, Immudyne PR was renamed to Conversion Labs PR LLC (now
known as "Conversion Labs PR"). On April 1, 2016, the original operating
agreement of Conversion Labs PR was amended and restated and we increased our
ownership and voting interest in Conversion Labs PR to 78.2%. On April 25, 2019,
the operating agreement of Conversion Labs PR was amended and restated in its
entirety to increase the Company's ownership and voting interest in Conversion
Labs PR to 100%.



21





Our priority is to pursue opportunities to market our products and increase
sales. We expect that a significant component of our selling, general and
administration expenses going forward will consist of advertising fees and
service fees to retain skilled professionals to market our products through the
internet. These aforementioned costs, along with the additional costs resulting
from our operations as a public reporting company, could adversely impact our
future results of operations.



We historically have expended a significant amount of our funds on obtaining and
protecting our patents, trade secrets and proprietary products. We rely on the
patent and trademark protection laws in the U.S. to protect our intellectual
property and maintain our competitive position in the marketplace. We have
historically operated with limited capital and have funded operations in the
past through the sales of our products and loans and advances from our
executives and directors.



Divestiture of Nutraceutical and Cosmetic Additives Business

Prior to 2018, we manufactured, distributed and sold natural immune support
products containing our proprietary yeast beta glucans, a group of beta glucans
naturally occurring in the cell walls of yeast that have been shown through
testing and analysis to support the immune system. Beta glucans, or ?-Glucans,
are a natural extract that are considered to be "biological response modifiers"
that support the immune system. The most common sources of beta glucans are from
the cell walls of baker's yeast, the cellulose in plants, the bran of cereal
grains and certain fungi and bacteria.



In the first quarter of 2018 we sold all assets and liabilities related to our
legacy business that manufactured raw yeast beta glucan. As a result of this
divestiture, we now solely operate our online direct marketing business through
our majority-owned operating subsidiary, Conversion Labs PR.



Our Products



We currently have four commercial stage brands. Generally, our business model is
to license or acquire innovative products that address large, global unmet needs
which can be placed onto our internet based or "online" direct response
marketing platform. We seek to protect the market position of our products with
intellectual property, trade secrets, trademarks and brand equity. Our brands
and products are as follows:



Shapiro MD®



Launched in the second quarter of 2017, Shapiro MD is a patented line of hair
products designed to help men and women regain thicker, fuller and healthier
looking hair. The products in our Shapiro MD line currently include a shampoo, a
conditioner, a leave-in foamer, and a "product" which contains Minoxidil, an
FDA-approved product for hair growth. Additionally, we are in the process of
adding an FDA-cleared laser cap to our Shapiro MD product line. The Shapiro MD
Shampoo and Conditioner are the result of 15 years of research and development
by Dr. Steven Shapiro and Dr. Michael Borenstein. The Shapiro MD product line is
protected by two U.S. patents and typically contains three naturally-occurring
dihydrotestosterone (DHT) blocking ingredients. DHT is widely believed to be the
main culprit responsible for balding/hair-loss. Clinical research on the
ingredients used in Shapiro MD products has been published in scientific
journals, including the U.S. National Library of Medicine National Institutes of
Health, International Journal of Dermatology and European Hair Research Society.



iNR Wellness MD®



Launched in 2018, iNR Wellness MD is a nutritional supplement for immune and gut
support. The iNR Wellness product line is a daily nutritional supplement that
contains yeast, oat, and mushroom beta glucans. Beta glucans, or ?-Glucans, are
a natural extract considered to be "biological response modifiers" that support
the immune system. Our three naturally occurring beta glucans have clinically
shown to support the human immune system and are commonly used as an OTC
supplement to reduce cholesterol levels, maintain healthy blood glucose levels,
and support the immune system. Our spokespersons for our iNR Wellness MD brand
include Dr. Joseph DiTrolio, a member of the Board of Directors of the Company,
Dr. Jack Gilbert, and Dr. Liz Lipski, who are leading doctors/researchers in
fields such as urology, microbiology, and nutrition. General scientific research
on beta glucans has been conducted in recent years by renowned medical
laboratories, including Baylor College of Medicine, U.S. Armed Forces
Radiobiology Institute, Stanford University, Harvard University, and North
Carolina State University. As more studies are conducted on beta glucans, we
believe the potential benefits to human health will continue to gain
recognition. Although the Food and Drug Administration ("FDA") has historically
endorsed the consumption of oat glucan/dietary fiber as an aid to lower
cholesterol, most of the testing and analysis or scientific research mentioned
in this annual report has not been subject to oversight of the FDA or any
comparable regulatory body, and no regulatory body has attested to the efficacy
of beta glucans in supporting the immune system or treating disease. Further,
the marketing of beta glucans is not subject to FDA approval, and we are
prohibited by Federal Trade Commission ("FTC") and FDA regulations from
suggesting in advertisements and product labels that our products mitigate,
treat, cure or prevent a specific disease or class of disease.



22






PDF Simpli


Launched in 2018, PDFSimpli is a PDF conversion software, which we acquired in
June 2018 through the purchase of 51% of the membership interests of LegalSimpli
Software, LLC, a Puerto Rico limited liability company. PDFSimpli enables users
to convert, edit and sign PDF documents. As of August 9, 2019, PDFSimpli was
ranked in the top 29,000 websites globally, in which it was also ranked in the
top 2,500 for specific countries with more than 1.6M registered users globally.
Since its launch, PDFSimpli has converted or edited over 3 terabytes of
documents for customers from the legal, financial, real-estate and academic
sectors. PDFSimpli has over 14,000 active subscriptions as of August 9, 2019.



Scarology™



Launched in 2018, Scarology is a topically applied scar healing solution
delivered through a day and night routine. The system consists of a natural
fruit acid exfoliator, a proprietary scar healing cream and silicon scar sheets.
The Scarology system was developed by two prominent dermatologists and has been
tested extensively in a clinical environment. The current global scar treatment
market is estimated to be more than $10 billion and is expected to exceed $34.5
billion by 2025.



Growth Strategy



We actively seek to acquire, license and develop products and brands with large
untapped e-commerce potential and proven business models. We intend to continue
to grow revenue and profitability of our four commercial stage consumer
products. We also expect that PDFSimpli will continue to grow and will achieve
profitability in 2019. We continue to actively seek new brands to buy or license
to expand our product offerings and add to our growth.



We have begun selling all of our products in international markets and we
believe this represents a significant growth opportunity for us. We also entered
into a strategic partnership in Asia in 2018. We are in the process of building
an e-commerce infrastructure in Asia and are continuing to explore how to expand
our market share in that region.



In early 2019, we also launched a service-based business under the name
Conversion Labs Media LLC, which will be used to run e-commerce marketing
campaigns for other online businesses. Conversion Labs Media LLC intends to
develop, run, and optimize advertising and media strategies for third parties
looking to continue their growth on online platforms such as Amazon, Google, and
Facebook. These services will be monetized through a monthly consulting model or
on a revenue share basis.


Material Developments During the Three Months Ended June 30, 2019

Changes to the Board of Directors




On June 11, 2019, we announced the appointment of Happy Walters and Bertrand
Velge to our Board of Directors effective June 11, 2019. In addition, the
Company's President, CEO and largest shareholder, Justin Schreiber assumed the
role of Chairman of the Board. Former Chairman, John R. Strawn, Jr., remains as
a Director of the Company.



23





Telemedicine-focused Joint Venture




In June 2019, the Company announced a telemedicine-focused joint venture and
strategic partnership with CVLB RX and Specialty Medical Drugstore, Inc.
("GoGoMeds"). GoGoMeds is a large online pharmacy licensed to dispense and ship
prescription drugs to patients in all 50 states and the District of Columbia. We
intend to leverage this partnership to offer prescription drugs in tandem with
existing product lines in addition to launching several new 'branded generic'
drug offerings that will be marketed directly to consumers in the United States.



Results of Operations


Comparison of the Three Months Ended June 30, 2019 to the Three Months Ended June 30, 2018

Revenue and Operating Expenses

Our revenue, operating expenses and net loss for the three months ended June 30, 2019 and 2018 are summarized as follows:




                                                Three Months Ended                Three Months Ended
                                                   June 30, 2019                     June 30, 2018
                                                                 % of                              % of
                                                 $              Sales              $              Sales

Net sales                                       2,698,407                         2,037,636
Cost of sales                                     655,211             24 %          534,727             26 %
Gross profit                                    2,043,196             76 %        1,502,909             74 %
Operating expenses                              2,876,361            107 %        2,100,402            103 %
Operating (loss)                                 (833,165 )           (0 )         (597,493 )           (0 )
Other income (expenses)                          (129,826 )           -5 %          (51,078 )           -3 %
Net income (loss)                                (962,991 )          -36 %         (648,571 )          -32 %
Net (loss) income attributable to
noncontrolling interests                         (144,887 )           -5 %          (41,539 )           -2 %
Net (loss) income attributable to
Conversion Labs, Inc.                            (818,104 )          -30 %         (607,032 )          -30 %




Net Sales



Sales were approximately $2.7 million for the three months ended June 30, 2019,
compared to approximately $2.0 million for the three months ended June 30, 2018.
This is an increase of approximately $660,000 or 32% which can primarily be
attributed to an increase in the Company's sales channels for haircare and
skincare products.



Cost of Sales



Total cost of sales was approximately $655,000 for the three months ended June
30, 2019, compared to approximately $534,000 for the three months ended June 30,
2018. Cost of sales consists primarily of material costs and related overhead
directly attributable to the production of our products. Cost of Sales as a
percentage of income is 24% for the three months ended June 30, 2019, as
compared to 26% for the three months ended June 30, 2018. The increase of
approximately $120,000 or 23% is a result of the increase in sales of 32%.


24






Gross Profit


Gross profit was approximately $2.0 million for the three months ended June 30,
2019, compared to approximately $1.5 million for the three months ended June 30,
2019, an increase of approximately $540,000 or 36%. The increase in our gross
profit was primarily the result of the increased sales of our in-licensed
Shapiro MD hair loss product line.



Operating Expenses


Total operating expenses increased approximately 37% to approximately $2.9
million for the three months ended June 30, 2019, from approximately $2.1
million for the three months ended June 30, 2018. The increase in our operating
expenses between the periods was mostly attributable to our increased marketing
efforts for our in-licensed patented hair loss shampoo, conditioner and leave-in
foam, which increased approximately $544,000 over from the three-months ended
June 30, 2019 compared to the three-months ended June 30, 2018. We also had
increased compensation and related expense costs, and general and administrative
expense during the comparable period.



Net Loss



Net loss for the three months ended June 30, 2019 was approximately $818,000,
compared to net loss of approximately $607,000 for the three months ended June
30, 2018. Our net loss for the three months ended June 30, 2019 can be most
attributed to our increased marketing efforts.



Comparison of the Six Months Ended June 30, 2019 to the Six Months Ended June 30, 2018

Revenue and Operating Expenses

Our revenue, operating expenses and net loss for the six months ended June 30, 2019 and 2018 are summarized as follows:



                                                Six Months Ended                Six Months Ended
                                                  June 30, 2019                  June 30, 2018
                                                               % of                           % of
                                                $             Sales             $            Sales

Net sales                                     5,397,397                      3,644,127
Cost of sales                                 1,333,184             25 %       890,180             24 %
Gross profit                                  4,064,213             75 %     2,753,947             76 %
Operating expenses                            5,460,747            101 %     3,630,754            100 %
Operating (loss)                             (1,396,534 )           (0 )      (876,807 )           (0 )
Other income (expenses)                        (300,020 )           -6 %       (57,528 )           -2 %
Income from continuing operations            (1,696,554 )          -31 %      (934,335 )          -26 %
Income from discontinued operations,
including gain on sale, net of income
taxes                                                 -              0 %       925,738             25 %
Net income (loss)                            (1,696,554 )           (0 )        (8,597 )           (0 )
Net (loss) income attributable to
noncontrolling interests                       (214,702 )           -4 %        12,697              0 %
Net (loss) income attributable to
Conversion Labs, Inc.                        (1,481,852 )          -27 %       (21,294 )           -1 %




Net Sales



Sales were approximately $5.4 million for the six months ended June 30, 2019,
compared to approximately $3.6 million for the three months ended June 30, 2018.
The increase is a result of the Company's increase in haircare sales, skincare
and their on-line direct to consumer application sales.



25






Cost of Sales


Total cost of sales was approximately $1.3 million for the six months ended June
30, 2019, compared to approximately $890,000 for the six months ended June 30,
2018. Cost of sales consists primarily of material costs and related overhead
directly attributable to the production of our products. Cost of Sales increased
by $443,000 or 50% which is a result of the increased sales.



Gross Profit



Gross profit was approximately $4.1 million for the six months ended June 30,
2019, compared to approximately $2.8 million for the six months ended June 30,
2018, an increase of approximately 48%. The increase in our gross profit was
primarily the result of the increased sales of our in-licensed patented hair
loss shampoo, conditioner and leave-in foam.



Operating Expenses


Total operating expenses increased approximately 50% to approximately $1.8
million for the three months ended June 30, 2019, from approximately $3.6
million for the three months ended June 30, 2018. The increase in our operating
expenses between the periods was mostly attributable to our increased marketing
efforts for our in-licensed patented hair loss shampoo, conditioner and leave-in
foam, which increased approximately $1.3 million over from the six months ended
June 30, 2019 compared to the six months ended June 30, 2018. We also had
increased general and administrative, compensation and related expense costs,
and lower professional fees during the comparable period.



Net Loss



Net loss for the six months ended June 30, 2019 was approximately $1.7 million,
compared to net loss of approximately $9,000 for the six months ended June 30,
2018. Our net loss for the six months ended June 30, 2019 was mostly
attributable to our increased marketing efforts, whereas our low net loss for
the three months ended June 30, 2018 was mostly attributable to the sale of
the
Company's legacy business.


Liquidity and Capital Resources



Working Capital



The following table sets forth a summary of working capital as of June 30, 2018
and December 31, 2018:



                                        June 30,        December 31,
                                          2019              2018
                Current assets        $  1,329,006$    1,605,070
                Current liabilities      2,347,896          1,192,397
                Working capital       $ (1,018,890 )$      412,673

We had a negative net working deficit of $1,018,890 at June 30, 2019, resulting in a decrease of $1,431,563 in working capital from net working capital of $412,673 at December 31, 2018. The ratio of current assets to current liabilities was 0.57 to 1 at June 30, 2019.



Cash Flows


The following table sets forth a summary of changes in cash flows for the six months ended June 30, 2019 and 2018:



                                                             Six Months Ended
                                                                 June 30,
                                                            2019           2018

Net cash provided by (used in) operating activities $ 640,182$ (238,649 )

Net cash (used in) provided by investing activities (500,000 ) 390,000

   Net cash used in financing activities                    (55,168 )    
(167,479 )
   Change in cash                                        $   85,014$  (16,128 )




26






Operating Activities



Net cash provided by operating activities was approximately $640,000 for the six
months ended June 30, 2019 primarily due to increases in accounts payable and
accrued expenses of $1.1 million, stock compensation expense of approximately
$373,000 and decreases in inventory of approximately $319,000.



Net cash used in operating activities was approximately $238,000 for the six
months ended June 30, 2018. Cash from operating activities during the six months
ended June 30, 2019 was primarily due to the net loss of approximately $9,000,
net cash used in operating activities of discontinued operations of
approximately $140,000 and stock compensation expense of approximately $340,000.



Investing Activities


For the six months ended June 30, 2019, net cash used in investing activities was $500,000 for payments related to the purchase of LegalSimpli.

For the six months ended June 30, 2018, net cash provided by investing activities was $390,000 for proceeds related to the sale of the legacy business.




Financing Activities



For the six months ended June 30, 2019, net cash used in financing activities
was approximately $55,000 of which consisted of $50,000 was received from the
issuance of notes, offset by distributions to noncontrolling interest totaling
$34,298 and payments to convertible note holder of $70,870.



For the six months ended June 30, 2018, net cash used in financing activities was $167,479 which related to the payment of notes payable.

Going Concern and Future Financing




Our principal demands for liquidity are to increase sales via online marketing,
purchase inventory and for sales distribution and general corporate purposes. We
incurred negative operating cash flows of our continued operations to date in
2019 as well as in the 2018 fiscal year. As a result, we have substantial doubt
about our ability to continue as a going concern.



We will require additional funds to implement our growth strategy for our
business. In addition, while we have received capital from various private
placements and convertible loans that have enabled us to fund our operations,
these funds have been largely used to supplement our working capital, although
additional funds are needed for other corporate operational and working capital
purposes. At this time and at our current burn rate, we have sufficient capital
to fund our operations through the balance of this fiscal year. At this time, we
have not determined the amount that may be needed. These funds may be raised
through equity financing, debt financing, or other sources, which may result in
further dilution in the equity ownership of our shares. There can be no
assurance that additional financing will be available to us when needed or, if
available, that it can be obtained on commercially reasonable terms. If we are
not able to obtain the additional financing on a timely basis should it be
required, or generate significant material revenues from operations, we will not
be able to meet our other obligations as they become due and we will be forced
to scale down or perhaps even cease our operations.



27






Equity Financings



On February 27, 2019, the Company entered into short-term note agreement for
$100,000 that was repaid prior to the end of this quarter. As part of the note
agreement, the Company issued 100,000 restricted shares of common stock to the
note holder valued at $16,000.



Debt Financings



None.


Liquidity and Capital Resources Outlook




The Company has funded operations in the past through the sales of its products,
issuance of common stock, and debt securities and through loans and advances
from officers and directors. The Company's continued operations are dependent
upon obtaining an increase in its sales volume and the continued financial
support from officers and directors or the issuance of additional shares of
common stock and/or debt securities.



The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. At
June 30, 2019, the Company has an accumulated deficit approximating $14.9
million and a working capital deficit of approximately $1,019,000. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



Based on the Company's cash balance at June 30, 2019, and projected cash needs
for the remainder of 2019, management estimates that it will need to increase
sales revenue and/or raise additional capital to cover operating and capital
requirements for the 2019 year and beyond. Management will need to raise the
additional needed funds through increased sales volume, issuing additional
shares of common stock or other equity securities, or obtaining debt financing.
Although management has been successful to date in raising necessary funding,
there can be no assurance that sales revenue will substantially increase or that
any required future financing can be successfully completed on a timely basis,
or on terms acceptable to the Company.



Off-Balance Sheet Arrangements




We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to stockholders.



Effects of Inflation


We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.

Critical Accounting Policies and Estimates




Our significant accounting policies are more fully described in the notes to our
financial statements included herein for the quarter ended June 30, 2019 and in
the notes to our consolidated financial statements included in our Annual Report
on Form 10-K for the year ended December 31, 2018, as filed with the SEC on
April 1, 2019.



Recently Issued Accounting Pronouncements

Any recently issued accounting pronouncements are more fully described in Note 1 to our financial statements included herein for the quarter ended June 30, 2019.

Recently Adopted Accounting Standards




Aside from the below, our recently adopted accounting pronouncements are more
fully described in Note 2 to our financial statements included herein for the
quarter ended June 30, 2019.



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In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The standard
requires all leases that have a term of over 12 months to be recognized on the
balance sheet with the liability for lease payments and the corresponding
right-of-use asset initially measured at the present value of amounts expected
to be paid over the term. Recognition of the costs of these leases on the income
statement will be dependent upon their classification as either an operating or
a financing lease. Costs of an operating lease will continue to be recognized as
a single operating expense on a straight-line basis over the lease term. Costs
for a financing lease will be disaggregated and recognized as both an operating
expense (for the amortization of the right-of-use asset) and interest expense
(for interest on the lease liability). This standard will be effective for our
interim and annual periods beginning January 1, 2019, and must be applied on a
modified retrospective basis to leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the financial
statements. Early adoption is permitted. The Company adopted ASU 2016-02 on
January 1, 2019.

© Edgar Online, source Glimpses

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