BIOSTAX CORP. The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in the sections titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements."
Overview
Our Company is a developer and marketer of pharmaceutical, biotechnology, andMedTech products that have a well-defined path to market. We believe that we have deep expertise and strong partnerships in the fields of autoimmunity and immune restoration and are able to deliver solutions today for people that are living with autoimmunity, chronic inflammation, infection, and cancer.
Recent Developments
OnJanuary 10, 2023 , the Majority Shareholders consented in writing to approve the Company's conversion from aFlorida corporation to aNevada corporation (the "Conversion") named "Biostax Corp. ", certain changes to the authorized and outstanding shares of Common Stock of the Company, the authorization of a class of preferred stock for theNevada Corporation , and the adoption of new bylaws to govern theNevada Corporation as the successor to the Company following the Conversion. As of such date, the Majority Shareholders held 42,225,908 shares of our Common Stock, representing approximately 50.83% of the Company's outstanding shares eligible to vote on this matter. The foregoing shareholder consent was to become effective on the 20th day following the filing of a definitive information statement on Schedule 14C with theSEC and the mailing of such information statement to the Company's shareholders, at which time the Conversion and related corporate actions would become effective. No such definitive information statement was filed. However, onFebruary 28, 2023 , the Majority Shareholders consented in writing to abandon the Conversion and related corporate actions as no longer being in the best interests of the Company and to file an amended preliminary Schedule 14C.
On
On
On
47 Results of Operations The following table sets forth key components of our results of operations during the years endedDecember 31, 2022 and 2021, both in dollars and as a percentage of our revenues. Year End Change 2021 2022 Amount ($) Percent (%) Operating expenses Selling, general, and administrative$ 585,502 $ 1,149,257 563,755 96.29
Research and development expense 152,667 14,236
(138,431 ) (90.68 ) Total operating expenses 738,169 1,163,493 425,324 57.62 Loss from operations (738,169 ) (1,163,493 ) (425,324 ) 57.62 Other income (expense)
Gain on issuance of Forte license - 3,165,151 3,165,151 - Interest expense (210,919 ) (120,403 ) 90,516 (42.92 ) Receipt of common shares 5,761,500 - (5,761,500 ) (100.00 ) Change in market value of common shares (3,116,500 ) (2,645,000 ) 471,500 (15.13 ) (Loss) gain on settlement of obligations and conversion of debt 711,892 (1,166,418 ) (1,878,310 ) (263.85 ) Gain on derivative liability valuation 1,178,230 - (1,178,230 ) (100.00 ) Charge from warrant modification and debt settlement - (1,605,913 ) (1,605,913 ) - Total other income 4,324,203 (2,372,583 ) (6,696,786 ) (154.87 ) Net (loss) income 3,586,034 (3,536,076 ) (7,122,110 ) (198.61 ) Total revenues.
We had no revenues from operations for the years ended
Cost of sales.
As we had no revenues, we also did not have any costs or expenses related to
sales for the years ended
Selling, general, and administrative expenses.
Selling, general and administrative expense for the years ended
2022 2021
Selling, general and administrative $ 1,149 $ 586
Increase (decrease) from prior year $ 564 $ (175 ) Percent increase (decrease) from prior year 96 % (23 )%
In 2022, selling, general and administrative expense was
2022 2021
Stock listing and investor relations
170 120
Professional fees and consulting 684 119
Payroll and benefits 189 312
Other 84 14
$ 1,149 $ 586
48
During the year ended December 31, 2022 , the Company has focused on executing
its restructuring plan and business development activities and the negotiation
and finalization of certain licensing transactions described further in "Note 8.
Licensing Agreements" in the notes to the consolidated financial statements.
The increase in selling, general and administrative expense reflects the
increase of board fees, professional and consulting fees, and general operating
expenses, offset by a reduction of payroll costs. The increase in board fees is
related to the expansion of the board during 2022. Professional fees and
consulting costs are incurred for legal, tax and accounting services as well as
expanded management headcount. The increase in the professional costs increased
to reflect the Company's financial reorganization efforts and licensing
strategies underway with Cytocom , Forte and TaiwanJ Pharmaceuticals as described
in Note 8 to the financial statements. The decrease in payroll and benefits
reflect accrued wages payable to the Company's former Chief Executive Officer
and wages paid to a former, part time financial analyst.
The recapitalization was focused on the reduction of outstanding notes and obligations in exchange for equity issuances.
Depreciation and amortization.
We did not incur any depreciation or amortization expenses for the years ended
Research and development expenses.
In 2022, research and development expense was$14 thousand , compared to$152 thousand for 2021, a decrease of$138 thousand or (91)%. The decrease was primarily a result of the payment of license maintenance fees, royalties and various patent evaluation and filing expenses toPenn State University during 2021. These liabilities have been assigned toCytocom and required no payments in 2022.
A summary of our research and development expenses for the years ended
2022 2021
Research and development $ 14 $ 152
Increase (decrease) from prior year $ (138 ) $ 26 Percent increase (decrease) from prior year (91 )% (21 )%
The Company recorded$14 thousand of research and development costs during the year endedDecember 31, 2022 reflecting fees payable toAHAR Pharma related to the renewal of Lodonol marketing authorization inNigeria . Our research and development programs are managed internally and have historically focused working with individuals and universities to identify and utilize patents we have sub-licensed or acquired since our inception. We continue to seek to expand our pipeline of intellectual property by reviewing other compounds, technologies, or capabilities. The Company continues to seek and identify innovative technologies to incorporate into our intellectual property assets.
For the years ended
2022 2021
Patent expenses $ - $ 152
Professional fees 14 -
$ 14 $ 152
49
Total other income (expense).
We had$2,372,583 in total other expenses, net, for the year endedDecember 31, 2022 , as compared to other income, net, of$4,324,203 for the year endedDecember 31, 2021 . Other expense, net, for the year endedDecember 31, 2022 consisted of$3,165,151 on the gain of the issuance of the license to Forte,$120,403 of interest expense,$2,645,000 expense on the change in the market value of common shares, a$1,166,418 loss on the settlement of outstanding Company obligations and conversion of debt, and a$1,605,913 other expense on the charge from warrant modification and debt settlement. Other expense, net, for the year endedDecember 31, 2021 , consisted of interest expense of$210,919 , a gain on the receipt of common shares of$5,761,500 , a$3,116,500 expense on the change in the market value of common shares, a$711,892 gain on the settlement of obligations and conversion of debt, a$1,178,230 gain on the derivative liability valuation, and no other income or expenses from warrant modifications and debt settlements.
Gain on issuance of Forte license.
In 2022, we issued a license to Forte, substantially as described in "Item 1. Business - Intellectual Property- License withForte Animal Health, Inc. " As a part of this license, we receive periodic milestone and licensing payments. As a result, in 2022, we received a gain of$3,165,151 from payments due to our Company under this license. Interest Expense.
Interest expense for the years ended
2022 2021
Interest expense $ 120 $ 211
Decrease from prior year $ (91 ) $ (269 ) Percentage decrease from prior year (43 )% (56 )%
Interest expense is comprised of interest expense and amortization of loan origination fees owed by the Company. The decrease year over year reflects the reduction in outstanding notes payable. Our decrease in the change in the interest expense is based primarily on the maturity and settlement of outstanding notes payable.
Change in market value of common shares.
In 2021,Cytocom , announced the completion of its merger with CBLI which resulted in our receipt of 1,150,000 common shares of CBLI, reflecting our retained minority interest inCytocom . Subsequent to the merger, CBLI adopted a new corporate name, "Statera BioPharma, Inc. ", with the ticker symbol "STAB," effective onSeptember 1, 2021 ("Statera"). Statera emerged as a publicly traded entity following the merger with CBLI. We evaluated the carrying value of the Statera common shares for the fiscal year endedDecember 31, 2022 and determined that an impairment loss of$2,645,000 should be reflected in the Statement of Operations. The impairment loss reflects the Company's assessment of a series of events reported by Statera to theSEC on and afterMarch 25, 2022 - including alleged events of default with respect to Statera's outstanding indebtedness, resignations of members of Statera's board of directors and notice by the Nasdaq Capital Market of Statera's failure to comply with the Nasdaq Listing Rules. As a result of the foregoing, the Company recognized an impairment loss of$2,645,000 for the year endedDecember 31, 2022 , which is decreased by$471,500 increased from the$3,116,500 loss recognized onDecember 31, 2021 , for a decrease in the total other expense from the change in the market value of common shares of Statera by 15.13%.
(Loss) gain on settlement of obligations and conversion of debt.
The Company recognized a non-cash gain of$3,165,151 upon the assumption of certain Company defaulted notes and other vendor and employee obligations by Forte. The assignments of these obligations were made as consideration for theJuly 8, 2021 Amended License Agreement with Forte. The Company recognized a non-cash charge of$1,166,418 upon the receipt of signed releases of obligations from certain vendors, employees and note holders in connection with the corporate recapitalization which allowed for certain of these obligations to be converted into common stock at$0.05 per share. 50
Charge from warrant modification and debt settlement
On
Net (loss) income.
As a result of the cumulative effect of the factors described above, we had a
net loss of
Liquidity and Capital Resources.
As ofDecember 31, 2022 , we had cash of$150,491 . To date, we have financed our operations primarily through revenue generated from sales of our securities and proceeds from notes payable. We have been dependent upon financing activities as we implement our acquisition strategy. The Company does not expect to generate significant revenues in the coming twelve months. Additional funds will be required to execute our business plan and our strategy of acquiring additional pharmaceutical products and licenses. The funds required to execute this business plan will depend on the size, capital structure and purchase price consideration that the seller of a target license acceptable in a given transaction, as well as the drug development costs in order to maintain regulatory approval for our products. Management continues to pursue new financing sources to support the business. We may be unable to raise additional working capital to meet operating obligations and expenditures and as such may be required to modify it business plan. If the Company is unable to generate sufficient cash flows from sales, or if it does not raise additional working capital to meet all its operating obligations and expenditures, the Company may have to modify its business plan. Over the next 12 months, the Company believes it will require between$500,000 and$1,000,000 to meet its ongoing expenses and obligations. We intend to raise capital for additional acquisitions primarily through debt financing, additional equity offerings by the Company, or by undertaking a combination of any of the above. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all.
There is no guarantee that we will be able to acquire additional businesses under the terms outlined above or that we will be able to find additional acquisition candidates should we terminate our plans for any of our current acquisition targets.
Summary of Cash Flow
The following table provides detailed information about our net cash flow for
the years ended
Year Ended December 31,
2022 2021
Net cash used in operating activities $ (581,821 ) $ (231,717 )
Net cash used in investing activities (500,000 ) -
Net cash provided by financing activities 738,427 715,631
Net change in cash (343,394 )
483,914
Cash and cash equivalents at beginning of year 493,885 9,971
Cash and cash equivalents at end of year
51 Our net cash used in operating activities was$581,821 for the year endedDecember 31, 2022 , as compared to$231,717 for the year endedDecember 31, 2021 . For the year endedDecember 31, 2022 , our net loss of$3,536,076 ,$2,645,000 loss on impairment on investment in common stock, loss from warrant modification of$1,605,913 , loss from settlement of obligations of$1,166,418 , offset by a gain on issuance on license agreement of$3,165,151 were the primary drivers for cash used in operations. For the year endedDecember 31, 2021 , our loss on impairment on investment in common stock of$3,116,500 , offset by a gain recognized upon receipt of equity securities of$5,761,500 , net income of$3,586,034 , and a gain on change in value of derivative liability of$1,178,230 , were the primary drivers for cash used in operations. Our net cash used in investing activities for the year endedDecember 31, 2022 was$500,000 , related to the purchase of intangible assets from Taiwain J. We did not use any cash for investing activities in fiscal year 2021. Our net cash provided by financing activities was$738,427 for the year endedDecember 31, 2022 , as compared to$715,631 for the year endedDecember 31, 2021 . Net cash provided by financing activities for the year endedDecember 31, 2022 consisted of$6,369 received as proceeds from undocumented investor advances,$417,058 from proceeds from related parties, and$315,000 in proceeds from the issuance of notes, while net cash provided by financing activities for the year endedDecember 31, 2021 consisted of net proceeds of$715,631 proceeds from undocumented investor advances. Outstanding Debt Promissory Notes
As of
Note issued in the first quarter of 2019. The note accrues
interest at 6% and matured in
$ 231,478
Note issued in 2019 for the settlement of debt in the same
amount. The note accrues interest at 15% and matured in 2021.
This note was modified in
$ 150,000
Note issued in 2022 and accrues interest at 6%. The note matures
in 2023 and is convertible into common stock at
$ 200,000
Note issued in 2022 and accrues interest at 7.75%. The note matures in 2023.$ 50,000 Total$ 696,478 Contractual Obligations Our principal commitments consist mostly of obligations under the loans described above, the operating leases described under Item 2 "Properties" and obligations disclosed under various licensing agreements. We do not have any purchase obligations with any suppliers.
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. 52 Critical Accounting Policies The following discussion relates to critical accounting policies for our Company. The preparation of financial statements in conformity withUnited States generally accepted accounting principles, or GAAP, requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements: Use of Estimates. The preparation of the Company's financial statements in conformity withU.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from such estimates. Concentration of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the balance sheets. The cash accounts are insured by theFederal Deposit Insurance Corporation up to$250,000 . Segment and Geographic Information. Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment and does not segment the business for internal reporting or decision making. Fair Value of Financial Instruments. In accordance with the reporting requirements ofFinancial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 825, "Financial Instruments", the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. Cash, cash equivalents and accounts payable are accounted for at cost which approximates fair value due to the relatively short maturity of these instruments. The carrying value of the Company's investment in the common stock of Statera is measured based on the quoted per share price as reported on NASDAQ. The carrying value of notes payable approximate fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes. Derivative Financial Instruments. FASB ASC 815, Fair Value Measurements requires bifurcation of certain embedded derivative instruments in certain debt or equity instruments, and measurement at their fair value for accounting purposes. A holder redemption feature embedded in the Company's note payable requires bifurcation from its host instrument and is accounted for as a freestanding derivative. The Company held no derivative financial instruments atDecember 31, 2022 .
Research and Development Costs. Research and development costs are charged to expense as incurred and are comprised of fees paid to consultants and patent related costs. Income Taxes. The Company follows ASC Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. 53
The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC Topic 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As ofDecember 31, 2022 and 2021, and at the date of adoption, the Company did not have a liability for unrecognized tax uncertainties. The Company's policy is to record interest and penalties on uncertain tax positions as income tax expense. As ofDecember 31, 2022 and 2021, the Company has not accrued any interest or penalties related to uncertain tax positions. Stock-Based Compensation and Issuance of Stock for Non-Cash Consideration. The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values equaling either the market value of the shares issued, or the value of consideration received, whichever is more readily determinable. Generally, the non-cash consideration pertains to services rendered by consultants and others and has been valued at the fair value of the Company's common stock at the date of
the agreement. The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC Topic 718, "Compensation - Stock Compensation." The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete.
The Company did not grant any stock-based compensation awards during the years
ended
Net Income per Share. Basic net income per share is calculated by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common
stock equivalents. The Company's potentially dilutive securities which include primarily warrants, have been included in the computation of diluted net income per share for the twelve-month periods endedDecember 31, 2022 and 2021. Going Concern. As ofDecember 31, 2022 , the Company had$150,491 in cash on hand, negative working capital of$3,326,682 and a stockholders' deficit of$2,513,454 . For the year endedDecember 31, 2022 , the Company reported net loss attributable to common shareholders of$3,536,076 . Included in net loss for the year endedDecember 31, 2022 was a non-cash operating loss of$2,645,000 related to the change in market value of investment inCytocom common shares. For the year endedDecember 31, 2021 , the Company reported net income attributable to common shareholders of$3,586,034 . Included in net income for the year endedDecember 31, 2021 were non-cash non-operating gains aggregating$4,535,122 as follows: Gain on assignment of debt and liabilities$ 711,892 Receipt of common shares 5,761,500
Change in market value of investment in STAB common shares (3,116,500 ) Gain on reversal of derivative liability
1,178,230
$ 4,535,122
54
Historically the Company has relied on the funding of operations through private
equity financings and management expects operating losses and negative cash
flows to continue at more significant levels in the future. As the Company
continues to incur losses, transition to profitability is dependent upon the
successful development, approval, and commercialization of its current or future
product candidates as they become available and the achievement of a level of
revenues adequate to support the Company's cost structure. The Company may never
achieve profitability, and unless and until it does, the Company will continue
to need to raise additional cash. Management intends to fund future operations
through additional private or public debt or equity offerings and may seek
additional capital through arrangements with strategic partners or from other
sources.
Working capital at December 31, 2022 is not sufficient to meet the cash
requirements to fund planned operations through the next twelve months without
additional sources of cash. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements have been prepared assuming that the Company will continue as a going
concern and do not include adjustments that might result from the outcome of
this uncertainty. This basis of accounting contemplates the recovery of the
Company's assets and the satisfaction of liabilities in the normal course of
business.
Management has been executing on its strategy to re-capitalize the Company and position it for future growth. Key steps to this process include:
? Improve the condition of the financial position and balance sheet via license
arrangements and capital infusions.
? Identify and acquire late-stage assets for commercialization.
? Build out operational infrastructure to generate revenue opportunities to grow
shareholder value.
There can be no guaranties that the Company will be successful in securing adequate capital to continue operations and in identifying and acquiring assets for future development.
If the Company is unable to generate sufficient revenues or secure new working capital, other alternatives strategies will be required.
Historically, the Company has been able to acquire and develop assets, spin them out and retain both an equity stake and royalties and milestone payments. In so doing, the Company has acted as an incubator for late-stage drug development. Management believes that this strategy can continue to be successful. At this time, the Company is reviewing several opportunities which it may pursue as soon as funding is available. At present no definitive actions have been taken.
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