The following discussion should be read in conjunction with the audited
financial statements and notes thereto of our wholly-owned subsidiary UCG Inc.
for the years ended December 31, 2019 and 2018 included in our Current Report on
Form 8-K field on April 30, 2020, as amended by the Current Report on Form 8-K/A
filed with the Securities and Exchange Commission (the "SEC") on July 30, 2020,
as further amended by the Current Report on Form 8-K/A filed in August 25, 2020
(collectively, the "Current Report 8-K"). This section of the Quarterly Report
includes a number of forward-looking statements within the meaning of the
private securities litigation reform act of 1995, as amended that reflect our
current views with respect to future events and financial performance.
Forward-looking statements are often identified by words like believe, expect,
estimate, anticipate, intend, project and similar expressions, or words which,
by their nature, refer to future events. You should not place undue certainty on
these forward-looking statements which speak only as of the date made, and
except as required by law, we undertake no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from these forward-looking statements. Factors that could cause differences
include, but are not limited to, customer acceptance risks for current and new
products and services, reliance on external sources of financing, development
risks for new products and brands, dependence on third party service providers,
fluctuations in market demand and customer preferences, changes in government
regulations, as well as general conditions of the industry, and other "Risk
Factors" discussed in our Current Report in the Current Report Form 8-K and
similar discussions in subsequently filed Quarterly Reports on Form 10-Q,
including this Form 10-Q, as applicable, and those contained from time to time
in our other filings with the SEC.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements regarding
our business, financial condition, results of operations and prospects. The
Securities and Exchange Commission (the "SEC") encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This Quarterly Report
on Form 10-Q and other written and oral statements that we make from time to
time contain such forward-looking statements that set out anticipated results
based on management's plans and assumptions regarding future events or
performance. We have tried, wherever possible, to identify such statements by
using words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe," "will" and similar expressions in connection with any
discussion of future operating or financial performance. In particular, these
include statements relating to future actions, future performance or results of
current and anticipated sales efforts, expenses, the outcome of contingencies,
such as legal proceedings, and financial results and the effects of the COVID-19
pandemic or any similar pandemic.
We caution that these factors could cause our actual results of operations and
financial condition to differ materially from those expressed in any
forward-looking statements we make and that investors should not place undue
reliance on any such forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and we
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of anticipated or unanticipated events or circumstances.
New factors emerge from time to time, and it is not possible for us to predict
all of such factors. Further, we cannot assess the impact of each such factor on
our results of operations or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
The following discussion should be read in conjunction with our unaudited
financial statements and the related notes that appear elsewhere in this
Quarterly Report on Form 10-Q as well as our other SEC filings.
11
Overview
World Health Energy Holdings, Inc.("we" "us" "our" the "Company" or "WHEN") was
incorporated on May 21, 1986 in the state of Delaware. WHEN is a diversified
energy, health, and security technology company with corporate offices that are
located in Boca Raton, Florida and Ramat Gan, Israel.
On April 27, 2020, WHEN completed a reverse triangular merger pursuant to the
Agreement and Plan of Merger (the "Merger Agreement") among the Company, R2GA,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("Sub"), UCG, Inc., a Florida corporation ("Seller"), SG 77 Inc., a Delaware
corporation and wholly-owned subsidiary of Seller ("SG"), and RNA Ltd., an
Israeli company and a wholly owned subsidiary of SG ("RNA"). Under the terms of
the Merger Agreement, R2GA merged with and into SG, with SG remaining as the
surviving corporation and a wholly-owned subsidiary of the Company (the
"Merger"). The Merger became effective as of April 29, 2020, upon the filing of
a copy of the Merger Agreement and certificate of merger with the Secretary of
State of the State of Delaware, whereby SG became a direct and wholly owned
subsidiary of the Company and RNA indirect wholly owned subsidiary of the
Company. Each of Gaya Rozensweig and George Baumeohl, directors of the Company,
are also the sole shareholders and directors of UCG.
RNA is primarily a research and development company that has been performing
software design work for the Seller in the field of cybersecurity. SG is
primarily engaged in the marketing and distribution of cybersecurity related
products. In anticipation of the transaction contemplated under the Merger
Agreement, SG was formed and all of the cybersecurity rights and interests held
by UCG, including the share ownership of RNA, were assigned to SG.
Following the closing, each of SG 77 and RNA became wholly-owned subsidiaries of
the Company. Below is a diagram of the current corporate structure of the
Company. We intend to continue the business of SG/RNA as our principal business
enterprise.
Overview of the Post Merger Entity
World Health Energy Holdings (d/b/a WHEN Group) is a cyber, intelligence and
behavioral security company, comprised of SG 77, Inc. ("SG") , and RNA Ltd
("RNA"). See the corporate structure diagram below. SG is a software security
company that designs, develops and markets data security software-based
solutions. SG's solutions are intended for use by commercial enterprises to
prevent unauthorized transfer of proprietary and confidential enterprise data
(Business System) and parental or other legal guardian use to protect their
minor children when online (Parental System). The main focus of the Company
post-merger is on developing next generation intelligence and cyber systems
based on a proprietary pattern recognition technology. This system analyzes
mobiles, servers and computer activity, using a proprietary algorithm to
determine and analyze human behavioral patterns. Any deviation from the regular
behavior pattern is identified and flagged, thus, preventing potential danger
both in the business and the parental sector.
The Business Sector (Business System)
Though Mobile Device Management's (MDM) are widely used in the workforce, they
are focused on providing protection from threats originating outside the
organization. Our commercially available Business System provides such
protection but also is designed to prevent threats to data loss or unauthorized
use or transfer originating from persons within the organization. Contrary to
the common misconception that outside threats are more significant, in numerous
cases the cyber threat arises from inside the company. SG's Business System
provides innovative solutions for the constantly evolving cyber challenges that
arise, whether this is a private business, NGO or governmental entities.
Enterprises may be vulnerable to cyberattacks from many sources, including but
not limited to, network, endpoint, data, and cloud services.
The Business System has similar filters as would any other firewall and
antivirus yet stands out in the manner of information analysis. The Business
System collects and analyzes the employee's organizational behavior, active on a
mobile, tablet desktop and server device creating an employee profile. This
enables an employer or manager to instantly identify and prevent the
unauthorized behavior such as but not limited to: access, download or transfer
of company documents or information. The employee profile is unique to each
individual, and the Business System can detect changes and disconnect the device
if the profile is compromised while simultaneously sending an alert.
Additionally, the Business System knows to identify non-routine employee
activities such as correspondence that suggests the employee is planning to
resign or a change in a behavioral pattern.
12
The Business System is designed to protect sensitive company data by identifying
and preventing any authorized downloads or transfer. Access to any unusual or
unauthorized files will be identified as a change in behavioral pattern and send
an immediate alert. Any irregularities will send real time alerts, thus enabling
a real-time response and protecting the company from both internal and external
threats. Additionally, the software generates real time reports which help
analyze and assess employee activity and improve employee efficiency.
The Parental Sector (Parental System)
SG's Parental System offers a comprehensive solution which is designed to enable
parents wishing to observe their children's online and offline behavior to learn
if they are accessing inappropriate websites and content and/or to protect them
from a range of threats including cyberbullying, pedophiles and other predators
and identity theft.
The Parental System line is positioned as the "ultimate parental cyber
solution". This system incorporates a range of features enabling parents to view
and manage their children's phones. The key elements of our proprietary
solutions include the following: analysis of all incoming and outgoing written
data; analysis of all incoming and outgoing audio communication; real time
location tracking; environmental surroundings analysis; and cyber activity
analysis.
The Parental System has similar features to those of the Business System yet
tailored to fit the needs of parents and guardians to protect their children.
Such variations focus on online behavioral patterns whether vocally, via SMS or
any other way. If there is a change in behavior patterns, the product is
designed to immediately send the parent or adult guardian an alert. For example,
one of the identifiable indicators before suicide is social withdrawal,
something which today appears as a significant decrease in text message
exchanges. The system categorizes this decrease as a red flag. Moreover, prior
to suicide, there are certain words and phrases which usage are increase, should
the system detect these it will put them in the red flag category.
While analyzing voice calls based on; tone of speech, lengths of the
conversation and the frequency of calls, Parental System Analytics is capable of
identifying changes in behavioral patterns and flagging these. I.e. studies
showed that with mental health decrease, the frequency of calls decreases and
the sentences along with the length of the conversations get shorter. Any such
discrepancy in behavior patterns will send a real time alert to the parent or
legal guardian, potentially avoiding a tragedy.
Other Corporate Holdings
FSC Solutions, Inc. On June 26, 2015, we entered into a Stock Purchase Agreement
(the "Agreement") with FSC and its shareholders which included Uri Tadelis, our
former Chief Executive Officer and Director and our former Directors Chaim J.
Lieberman and Gal Levy. The Agreement was effective as of July 1, 2015 which
served as the closing date for the acquisition. Pursuant to the terms of the
Agreement, we acquired all of the capital stock of FSC in exchange for the
issuance of 70 billion shares of our unregistered common stock with the
possibility of the issuance of an additional 130 Billion common shares upon FSC
meeting certain milestones as outlined in the Agreement. Upon completion of the
acquisition of FSC, we intended to employ FSC's software and trading platform to
enter the on-line trading industry. Subsequent to the completion of the
acquisition, we determined that FSC did not have control over the trading
platform and software we expected to acquire and operate. Consequently, we never
commenced operations of this business and we are in discussions with the
non-management sellers of FSC to resolve this issue that arose after closing and
are evaluating our alternatives.
World Health Energy, Inc. World Health Energy, Inc. owns an algae-tech business
who's primary focus was the production of algae using their proprietary GB3000
growth system. The system quickly and efficiently grows algae for the production
of biofuels and food protein. We also sought to produce and market high-quality,
low-cost B100 biodiesel. Though, we believe that the Company has been successful
in demonstrating the effectiveness of the GB3000 system on a small-scale the
Company has not yet been able to raise the necessary capital to implement their
technologies on a commercial scale. The Company continues to pursue all
available options for raising the necessary capital in addition to exploring
alternative revenue sources including joint ventures and mergers with existing
Green Energy organizations. However, there can be no assurance that the
foregoing can occur as planned, or at all.
13
Corporate Structure (Diagram)
The corporate structure of the WHEN Group is reflected below in this diagram
[[Image Removed]]
Comparison of the Three and Nine Months Ended September 30, 2020 to the Three
and Nine Months Ended September 30, 2019
Results of Operations
Comparison of the three months ended September 30, 2020 and 2019
Revenues.
Revenues for the three months ended September 30, 2020 were $24,798 an increase
of $12,021, or 94%, compared to total revenues of $12,777 for the three months
ended September 30, 2019. Revenues were comprised primarily of software license
fees
Research and Development
Research and development expenses consist of salaries and related expenses,
consulting fees, service providers' costs, related materials and overhead
expenses. Research and development expenses for the three months ended September
30, 2020 were $181,175, an increase of $108,117, or 148%, compared to research
and development expenses of $73,058 for the three months ended September 30,
2019. The increase is mainly attributable to the increase in payroll and related
expenses as well as professional fees paid to outside consultant, rent and
office expenses attributable to our research and development activities.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related
expenses, rent and office expenses. General and administrative expenses for the
three months ended September 30, 2020 were $109,466, an increase of $23,139, or
17%, compared to general and administrative expenses of $132,605 for the three
months ended September 30, 2019. The increase is primarily attributable to the
increase in administrative manpower and the related salaries and related
expenses, rent and office expenses.
14
Financing Expenses, Net
Financing expenses, net for the three months ended September 30, 2020 was
$2,307, an decrease of $71,197, or 97%, compared to financing expenses, net, of
$73,504 for the three months ended September 30, 2019. The decrease is mainly a
result of the effect of currency exchange differentials between the US Dollar
and the New Israeli Shekel in the three months ended September 30, 2019
resulting in exchange losses in RNA.
Comparison of the Nine Months ended September 30, 2020 and 2019
Revenues
Revenues for the nine months ended September 30, 2020 were $52,906, a decrease
of $13,359, or 20%, compared to total revenues of $66,265 for the nine months
ended September 30, 2019.
Research and Development
Research and development expenses consist of salaries and related expenses,
consulting fees, service providers' costs, related materials and overhead
expenses. Research and development expenses for the nine months ended September
30, 2020 were $328,529, an increase of $154,258, or 89%, compared to total
research and development expenses of $174,271 for the nine months ended
September 30, 2019. The increase is mainly attributable to the increase in
payroll and related expenses as well as professional fees paid to outside
consultant, rent and office expenses attributable to our research and
development activities.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related
expenses, rent and office expenses. General and administrative expenses for the
nine months ended September 30, 2020 were $227,525, an increase of $30,910, or
16%, compared to total general and administrative expenses of $196,615 for the
nine months ended September 30, 2019. The increase is mainly a result of the
increase in administrative manpower and the related salaries and related
expenses, rent and office expenses.
Financing Expenses, Net
Financing income, net for the nine months ended September 30, 2020 were $6,925,
an increase of $90,865, compared to total financing expenses of $83,940 for the
nine months ended September 30, 2019. The increase in finance income is mainly a
result of the effect of currency exchange differences between the US Dollar and
the New Israeli Shekel in the nine months ended September 30, 2019 resulting in
exchange losses in RNA.
Financial Condition, Liquidity and Capital Resources
On September 30, 2020, we had current and total assets of $441,849. We had
current and total liabilities of $458,609 and $2,048,059, respectively, at
September 30, 2020.
On September 30, 2020, we had a working capital deficiency of $38,809.
We had $94,150 in cash on September 30, 2020 compared to $223,874 in cash on
September 30, 2019. Cash used by operations for the nine months ended September
30, 2020 was $399,949 as compared to $306,905 for nine months ended September
30, 2019. The increase in cash used by operations is related to the increase in
salaries and related expenses as well as service providers.
Net cash used in investing activities was $251,309 for the nine months ended
September 30, 2020, as compared to net cash used in investing activities of
$149,854 for the nine months ended September 30, 2019. The increase is mainly
due to the increase in loans granted to related parties.
15
Net cash provided by financing activities was $387,514 for the nine months ended
September 30, 2020, as compared to net cash provided by financing activities of
$659,252 for the nine months ended September 30, 2019. The decrease is mainly
due to the decrease in loans received from related parties.
Management believes that funds on hand, as well as anticipated revenues, will
allow us to conduct operations as presently conducted through the end of 2020.
We need to raise capital on an immediate basis in order to maintain operations.
Without additional sources of cash and/or the deferral, reduction, or
elimination of significant planned expenditures and debt repayment, we may not
have the cash resources to continue as a going concern thereafter. To meet our
short and long-term liquidity needs, we expect to use existing cash balances,
cash from our revenue generating activities, as well as a variety of other
means, including raising capital through potential issuances of debt or equity
securities in public or private financings, partnerships and/or collaborations.
There can be no assurance that additional financing will be available when
needed or, if available, that can be obtained on commercially reasonable terms.
If we will not be able to obtain the additional financing on a timely basis as
required, or generate significant material revenues from operations, we will not
be able to meet our other obligations as they become due and will be forced to
limit or curtail certain of our business plans.
Going Concern
The accompanying Condensed Consolidated Financial Statements have been prepared
assuming that we will continue as a going concern. We have an accumulated
deficit of $1,120,067, and a working capital deficiency of $38,809 at September
30, 2020, and net loss from operations of $503,148 for the nine months period
ended September 30, 2020. These conditions raise substantial doubt about our
ability to continue as a going concern. The Condensed Consolidated Financial
Statements do not include any adjustments that might be necessary if we are
unable to continue as a going concern.
Critical Accounting Policies
Use of Estimates The Condensed Consolidated Financial Statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America ("GAAP"). In preparing the Condensed Consolidated
Financial Statements, management is required to make estimates and assumptions
that affect the reported amounts on the condensed consolidated balance sheets
and condensed consolidated statements of operations for the year then ended.
Actual results may differ significantly from those estimates. As applicable to
these financial statements, the most significant estimates and assumptions
relate to the going concern assumptions.
Going Concern Uncertainty
The development and commercialization of our product will require substantial
expenditures. We have not yet generated any material revenues and have incurred
substantial accumulated deficit and negative operating cash flows. We currently
have no sources of recurring revenue and are therefore dependent upon external
sources for financing our operations. There can be no assurance that we will
succeed in obtaining the necessary financing to continue our operations. As a
result, our independent registered public accounting firm has expressed
substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Off-Balance Sheet Arrangements We have not entered into any off-balance sheet
arrangements during 2020 and do not anticipate entering into any off-balance
sheet arrangements during the next 12 months.
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WORLD HEALTH ENERGY HOLDINGS, INC. 