EKIMAS
CORPORATION
Balance
Sheets
(In
thousands, except per share and per share amounts)
The
accompanying notes are an integral part of these unaudited financial statements.
EKIMAS
CORPORATION
Statements
of Operations
(Unaudited
– In thousands, except per share amounts)
The
accompanying notes are an integral part of these unaudited financial statements.
EKIMAS
CORPORATION
Statement
of Stockholders’ Equity
For
the Three and Six Months Ended September 30, 2022 and 2021
(Unaudited
– In thousands)
The
accompanying notes are an integral part of these unaudited financial statements.
EKIMAS
CORPORATION
Statements
of Cash Flows
(Unaudited
– In thousands)
The
accompanying notes are an integral part of these unaudited financial statements.
EKIMAS CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2022 (UNAUDITED) |
1.
Business Description
On
January 31, 2020 (the “Closing Date”), we completed the sale of substantially all of our assets (the “Asset Sale”)
for a total purchase price of $7,250,000 pursuant to an Asset Purchase Agreement entered into between us and Mitsubishi Chemical Performance
Polymers, Inc., a Delaware corporation (“MCPP”). Prior to the Closing Date, we developed and manufactured advanced polymer
materials which provided critical characteristics in the design and development of medical devices. Our biomaterials were marketed and
sold to medical device manufacturers who used our advanced polymers in devices designed for treating a broad range of anatomical sites
and disease states.
As
a result of the Asset Sale, we ceased operating as a developer, manufacturer, marketer and seller of advanced polymers. Subsequent to
the Closing Date, we became engaged in efforts to identify either an (i) operating company to acquire or merge with through an equity-based
exchange transaction or (ii) investor interested in purchasing a majority interest in our common stock, whereby either transaction would
likely result in a change in control. On October 12, 2021, we entered into a Stock Purchase Agreement (the “SPA”) with Reddington
Partners LLC, a California limited liability company (“Reddington”) providing for the purchase of a total of 5,114,475 of
our common stock, on a post-split basis, or approximately 90% of our total shares of common stock outstanding for total cash consideration
of $400,000. Reddington purchased in two tranches on October 12, 2021 and March 15, 2022.
Pursuant
to the SPA, the Company effectuated a 1-for 50 reverse stock split on March 11, 2022 (the “Reverse Split”). Accordingly,
on a post-split basis, the shares purchased in connection with the First Closing resulted in Reddington owning 422,725 shares of our
common stock. As set forth in the SPA, Reddington then purchased from us on March 15, 2022 an additional 4,691,750 shares of our common
stock, on a post-split basis (the “Second Closing”). After the issuance thereof Reddington owned 5,114,475 shares of our
common stock, or approximately 90% of our total shares of common stock outstanding.
Management
continues to seek to identify an operating company for the purposes of engaging in a merger or business combination of some kind, or
acquire assets or shares of an entity actively engaged in a business that generates sustained revenues. Although we have investigated
certain opportunities to determine whether they would have the potential to add value to us for the benefit of our stockholders, we have
not yet entered into any binding arrangements.
We
do not own or lease any property and maintain a corporate address at 3651 Lindell Road, Las Vegas, Nevada.
2.
Liquidity and Going Concern
Our
financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. During the three months ended September 30, 2022 and 2021, we reported a net loss of
approximately $47,000 and $147,000, respectively. During the six months ended September 30, 2022 and 2021, we reported a net loss of
approximately $5,082,000 and $194,000, respectively. Cash flows of approximately $104,000 and $125,000 were used in operations for the
six months ended September 30, 2022 and 2021, respectively. As a result, we expect our funds will not be sufficient to meet our needs
for more than twelve months from the date of issuance of these financial statements. Accordingly, management believes there is substantial
doubt about our ability to continue as a going concern.
On
October 12, 2021, we entered into a Stock Purchase Agreement (the “SPA”) with Reddington Partners LLC, a California limited
liability company (“Reddington”) providing for the purchase of a total of 5,114,475 of our common stock, on a post-split
basis, or approximately 90% of our total shares of common stock outstanding for total cash consideration of $400,000. Reddington purchased
in two tranches on October 12, 2021 and March 15, 2022.
On
April 11, 2022, effective April 1, 2022, we issued to GK Partners ApS (“GK Partners”), a private investor located in Denmark,
for financial services, a warrant to purchase 6,000,000 shares of our common stock at an exercise price of $1.00 per share which expires
on December 31, 2023. There can be no assurances that GK Partners will exercise all or a portion of the warrant during the term of the
warrant.
EKIMAS CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2022 (UNAUDITED) |
Our
Board of Directors declared a cash distribution to stockholders pursuant to the terms and conditions of the SPA. The cash distribution
of approximately $141,000, or $0.25 per share, was paid on September 22, 2022 to stockholders of record as of March 15, 2022.
Management
is seeking to identify an operating company for the purpose of effecting a merger or business combination, or to acquire assets or shares
of an entity actively engaged in a business that generates sustained revenues. We do not intend to restrict our consideration to any
particular business or industry segment. Because we have limited resources, the scope and number of suitable candidates to merge with
is relatively limited. Because we may participate in a business opportunity with a newly formed firm, a firm that is in the development
stage, or a firm that is entering a new phase of growth, we may incur further risk due to the inability of the target’s management
to have proven its abilities or effectiveness, or the lack of an established market for the target’s products or services, or the
inability to reach profitability in the next few years.
Any
business combination or transaction will likely result in a significant issuance of shares and substantial dilution to our present stockholders.
It is expected that if a transaction is consummated, although no such transaction is assured, then the closing of such a transaction
will result in a change in control and such transaction would be expected to be accounted for as a reverse merger, with the operating
company being considered the legal acquiree and accounting acquirer, and we would be considered the legal acquirer and the accounting
acquiree. As a result, at and subsequent to closing of any such transaction, the financial statements of the operating company would
become our financial statements for all periods presented.
Although
we have investigated certain opportunities to determine whether they would have the potential to add value to us for the benefit of our
stockholders, we have not yet entered into any binding arrangements and there can be no assurance that we will ever identify an opportunity
that could result in the consummation of merger or other business combination. As a result of the limited retained funds and uncertainty
in consummating a possible merger or business combination, we expect our funds will not be sufficient to meet our needs for more than
twelve months from the date of issuance of these financial statements. Accordingly, management believes there is substantial doubt about
our ability to continue as a going concern.
3.
Interim Financial Statements and Basis of Presentation
The
accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S.
GAAP”) for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these
unaudited financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements include all adjustments (consisting only of normal recurring
adjustments), which we consider necessary, for a fair presentation of those financial statements. The results of operations for the three
and six months ended September 30, 2022 and cash flows for the six months ended September 30, 2022 may not necessarily be indicative
of results that may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this quarterly
report on Form 10-Q should be read in conjunction with our audited financial statements included in our annual report on Form 10-K, as
of and for the fiscal year ended March 31, 2022 as filed with the Securities and Exchange Commission (the “SEC”).
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments, which are evaluated
on an ongoing basis, and that affect the amounts reported in our unaudited financial statements and accompanying notes. Management bases
its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of expenses
that are not readily apparent from other sources. Actual results could differ from those estimates and judgments.
Our
significant accounting policies are described in Note 3 to the audited financial statements as of March 31, 2022 which are included in
our Annual Report on Form 10-K as filed with the SEC on June 28, 2022.
EKIMAS CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2022 (UNAUDITED) |
4.
Recent Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that
may have an impact on our accounting and reporting. We believe that such recently issued accounting pronouncements and other authoritative
guidance for which the effective date is in the future either will not have an impact on our accounting or reporting or that such impact
will not be material to our financial position, results of operations and cash flows when implemented.
5.
Related Party Transactions
Mr.
Michael Adams, our former chief executive officer, was a non-employee consultant and holder of less than 1.0% of our outstanding common
stock as of September 30, 2022. During the three months ended September 30, 2022 and 2021, Mr. Adams earned approximately $0 and $31,000,
respectively, in consulting fees and was reimbursed $0 and approximately $5,000, respectively, for office expenses and car allowance.
During the six months ended September 30, 2022 and 2021, Mr. Adams earned approximately $0 and $54,000, respectively, in consulting fees
and was reimbursed $0 and approximately $11,000, respectively, for office expenses and car allowance. As of September 30, 2022 and March
31, 2022, there were no amounts due to Mr. Adams in consideration of his consulting services and reimbursable expenses and allowances.
In connection with the First Closing of the Stock Purchase Agreement which we entered into with Reddington Partners LLC on October 12,
2021, Mr. Adams resigned as our chief executive officer and sole director, and Mr. Bennett J. Yankowitz was appointed as our chief executive
and financial officer and sole director.
Since
October 12, 2021, Mr. Yankowitz, our chief executive and financial officer and sole director, was affiliated with legal counsel who provided
us with general legal services (the “Affiliate”). During the three and six months ended September 30, 2022, we recorded legal
fees for services incurred of approximately $5,000 and $10,000, respectively. The fees for the three months ended June 30, 2022 were
offset by a $6,000 credit resulting from an immaterial error in the recording of two invoices during a previous period. During the three
and six months ended September 30, 2021, the Affiliate did not provide us legal or other services. As of September 30, 2022 and March
31, 2022 we had approximately $7,000 and $12,000 payable to the Affiliate. Mr. Yankowitz does not receive cash compensation for acting
as our chief executive officer and sole director.
6.
Transaction Fee
On
May 20, 2021, we received a $22,000 cash deposit (the “Deposit”) in connection with a non-binding arrangement entered into
with a private company having an interest in a potential business combination with us. On August 12, 2021, we were notified by the private
company of their intent to terminate the arrangement. The arrangement provided that the Deposit was refundable, net of all reasonable
legal, advisory and regulatory fees incurred by us. Our legal, advisory and regulatory fees exceeded the amount of the Deposit, accordingly,
there was no refund due to the private company.
7.
Loss Per Share
Basic
loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period.
Diluted loss per common share is based upon the weighted-average common shares outstanding during the period plus additional weighted-average
common equivalent shares outstanding during the period. Common equivalent shares result from the assumed exercise of outstanding stock
options and warrants, the proceeds of which are then assumed to have been used to repurchase outstanding common stock using the treasury
stock method. In addition, the numerator is adjusted for any changes in loss that would result from the assumed conversion of potential
shares. During the six months ended September 30, 2022, the 6,000,000 shares underlying the warrant issued to GK Partners AsP, which
are common stock equivalents, would be considered anti-dilutive. There were no potentially dilutive shares for the six months ended September
30, 2021.
EKIMAS CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2022 (UNAUDITED) |
8.
Income Taxes
We
are required to file federal and state income tax returns in the United States. The preparation of these tax returns requires us to interpret
the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by us. In consultation
with our tax advisors, we base our tax returns on interpretations that are believed to be reasonable under the circumstances. The tax
returns, however, are subject to routine reviews by the various federal and state taxing authorities in the jurisdictions in which we
file tax returns. As part of these reviews, a taxing authority may disagree with respect to the income tax positions taken by us (“uncertain
tax positions”) and, therefore, may require us to pay additional taxes. As required under applicable accounting rules, we accrue
an amount for our estimate of additional income tax liability, including interest and penalties, which we could incur as a result of
the ultimate or effective resolution of the uncertain tax positions. We account for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary
to reduce deferred tax assets to amounts expected to be realized.
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
We
had no income tax credits for the six months ended September 30, 2022 and 2021. The effective tax rates during each of the six months
ended September 30, 2022 and 2021 was 27.0%. We have estimated our provision for income taxes in accordance with the Tax Act and guidance
available as of the date of this filing but have kept the full valuation allowance.
9.
Stockholders’ Equity
Preferred
Stock
We
have authorized 5,000,000 shares, $0.001 par value, Preferred Stock (the Preferred Stock”) of which 500,000 shares have been issued
and redeemed, therefore are not considered outstanding. In addition, 500,000 shares of Preferred Stock have been designated as Series
A Junior Participating Preferred Stock (the “Junior Preferred Stock”) with the designations and the powers, preferences and
rights, and the qualifications, limitations and restrictions specified in the Certificate of Designation of the Junior Preferred Stock
filed with the Delaware Department of State on January 28, 2008. Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided, that no decrease shall reduce the number of shares of Junior Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights
or warrants or upon the conversion of any outstanding securities issued by us that is convertible into Junior Preferred Stock. As of
September 30, 2022 and March 31, 2022, there was no Junior Preferred Stock issued or outstanding.
Common
Stock
On
October 12, 2021, we entered into a Stock Purchase Agreement (the “SPA”) with Reddington Partners LLC, a California limited
liability company (“Reddington”) providing for the purchase of a total of 5,114,475 of our common stock, on a post-split
basis, for total cash consideration of $400,000. Reddington purchased in two tranches on October 12, 2021 and March 15, 2022. Pursuant
to the SPA, each of four stockholders (the “Principal Stockholders”) entered into a Voting Agreement with Reddington (the
“Voting Agreements”).
EKIMAS CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2022 (UNAUDITED) |
The
sale of the first tranche of 21,136,250 shares of our common stock, on a pre-split basis, was consummated on October 12, 2021 (the “First
Closing”). At the First Closing, the Principal Stockholders entered into the Voting Agreements with Reddington, covering an aggregate
of 4,434,240 shares of our common stock, on a pre-split basis. As a result of these transactions, Reddington obtained ownership or voting
power over a total of 25,570,490 shares of our common stock, on a pre-split basis, constituting approximately 51.8% of our total outstanding
shares. Accordingly, Reddington became the majority stockholder of the Company.
Pursuant
to the SPA, the Company effectuated a 1-for 50 reverse stock split on March 11, 2022 (the “Reverse Split”). Accordingly,
on a post-split basis, the shares purchased in connection with the First Closing resulted in Reddington owning 422,725 shares of our
common stock. As set forth in the SPA, Reddington then purchased from us on March 15, 2022 an additional 4,691,750 shares of our common
stock, on a post-split basis (the “Second Closing”). After the issuance thereof Reddington owned 5,114,475 shares of our
common stock, or approximately 90% of our total shares of common stock outstanding. As of the Second Closing, the Voting Agreements terminated.
The
cumulative purchase price for both tranches of shares of our common stock was $400,000. At the First Closing, Reddington paid the Company
$200,000, $100,000 of which was required to be applied to the payment of our accrued and unpaid liabilities as of the First Closing date,
and $100,000 of which was for working capital purposes. The remaining $200,000 was deposited to an escrow account with an independent
escrow agent (the “Escrow Account”). At the Second Closing, if the $100,000 designated to pay for accrued and unpaid liabilities
was not sufficient, funds from the Escrow Account were to be used to pay the remainder of such liabilities. At the Second Closing, Reddington
paid us an additional $200,000. Pursuant to the SPA, any funds remaining after the payment of the accrued and unpaid liabilities, if
any, and all funds in the Escrow Account, were to be combined and used solely for a special one-time cash distribution (the “Special
Distribution”) by us, through a paying agent reasonably satisfactory to Reddington, to only our stockholders of record as of October
11, 2021, net of any costs associated with making the Special Distribution. Reddington and its Affiliates expressly waived any right
to participate in the Special Distribution.
The
shares of common stock sold to Reddington were and will be sold in reliance upon the exemption from securities registration afforded
by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) of Regulation D under
the Securities Act, based in part on the representations of Reddington. There were no sales commissions paid pursuant to this transaction.
Warrant
On
April 11, 2022, effective April 1, 2022, we issued to GK Partners ApS, a private investor located in Denmark, for financial services,
a warrant to immediately purchase up to 6,000,000 shares of our common stock at an exercise price of $1.00 per share which expires on
December 31, 2023 (the “Warrant”). As of June 30, 2022 there were no exercises pursuant to the terms of the Warrant and the
Warrant remained outstanding. We did not issue any warrants during the three months ended June 30, 2021.
In
determining the fair value of the Warrant, we used the Black-Scholes pricing model having the following assumptions: (i) stock option
exercise price of $1.00; (ii) fair market value of our common stock of $1.22 as quoted on the OTC Markets on the date of issuance of
the Warrant; (iii) expected term of option of 0.83 years utilizing the “simplified” method to develop an estimate of the
expected term of “plain vanilla” warrant grants; (iv) expected volatility of our common stock of approximately 203%; (v)
expected dividend rate of 0.0%; and (vi) risk-free interest rate of approximately 2.44%. As a result, we recorded stock-based compensation
of approximately $5,010,000 for the three months ended June 30, 2022 and for the six months ended September 30, 2022.
The
aggregate intrinsic value totaled $1,500,000, for total outstanding and exercisable warrants and was based on the estimated fair value
of our common stock of $1.25 as of June 30, 2022, which is the aggregate fair value of the common stock that would have been received
by the warrant holder had the warrant holder exercised the Warrant as of that date, net of the aggregate exercise price.
EKIMAS CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2022 (UNAUDITED) |
Cash
Distribution to Stockholders
Our
Board of Directors declared a cash distribution to stockholders pursuant to the terms and conditions of the SPA. The cash distribution
of approximately $141,000, or $0.25 per share, was paid on September 22, 2022 to stockholders of record as of March 15, 2022.
Treasury
Stock and Other Transactions
In
June 2001, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to 250,000 of our shares of common
stock. In June 2004, the Board of Directors authorized the purchase of an additional 500,000 shares of common stock. Since June 2001,
we have repurchased a total of 251,379 shares under the share repurchase program, leaving 498,621 shares remaining to purchase under
the share repurchase program. No repurchases were made during the three months ended June 30, 2022 and 2021. The share repurchase program
authorizes repurchases from time to time in open market transactions, through privately negotiated transactions, block transactions or
otherwise, at times and prices deemed appropriate by management, and is not subject to an expiration date.
Stockholder
Rights Plan
Our
Board of Directors approved the adoption of a stockholder rights plan (the “Rights Plan”) under which all stockholders of
record as of February 8, 2008 will receive rights to purchase shares of the Junior Preferred Stock (the “Rights”). The Rights
will be distributed as a dividend. Initially, the Rights will attach to, and trade with, our common stock. Subject to the terms, conditions
and limitations of the Rights Plan, the Rights will become exercisable if (among other things) a person or group acquires 15% or more
of our common stock. Upon such an event, and payment of the purchase price, each Right (except those held by the acquiring person or
group) will entitle the holder to acquire shares of our common stock (or the economic equivalent thereof) having a value equal to twice
the purchase price. Our Board of Directors may redeem the Rights prior to the time they are triggered. In the event of an unsolicited
attempt to acquire us, the Rights Plan is intended to facilitate the full realization of our stockholder value and the fair and equal
treatment of all of our stockholders. The Rights Plan does not prevent a takeover attempt.
10.
Stock Options
On
August 14, 2017, our board of directors approved and adopted the 2017 Non-Qualified Equity Incentive Plan (the “2017 Plan”),
which authorized the grant of non-qualified stock options exercisable into a maximum of 7,000,000 shares of our common stock. From August
17, 2017 through December 13, 2018, the board of directors approved the grant of stock options to certain directors, employees and a
consultant which were immediately vested and exercisable into a total of 6,550,000 shares of our common stock. During December 2019,
all stock options granted pursuant to the 2017 Plan were exercised through both cash payment and cashless exercise as provided in the
2017 Plan. There were no stock options outstanding pursuant to the 2017 Plan as of September 30, 2022 and March 31, 2022. As of September
30, 2022 and March 31, 2022, there were 9,000 shares of our common stock, on a post-split basis, available to grant pursuant to the 2017
Plan and no options outstanding or exercisable.
11.
Legal Proceedings
We
are not the subject of any pending legal proceedings; and to the knowledge of management, no proceedings are presently contemplated against
us by any federal, state or local governmental agency. Further, to the knowledge of management, no director or executive officer is party
to any action in which any has an interest adverse to us.
12.
Subsequent Events
We
evaluated all events or transactions that occurred after the balance sheet date through the date when we filed these financial statements
and, other than as discussed below, we determined that we did not have any other material recognizable subsequent events.
On
October 14, 2022, we executed a Demand Promissory Note (the “Note”) in favor of GK Partners ApS (the “Lender”),
a private company located in Denmark. The Note has a principal amount of $40,000, bears interest at a rate of 3% per annum and matures
on June 30, 2023 (the “Maturity Date”). Principal and accrued interest are payable on the Maturity Date or earlier on demand.
The Lender advanced $20,000 of the principal amount of the Note on October 14, 2022 and is expected to advance the remaining $20,000
no later than October 21, 2022. We plan to use the amounts advanced to pay certain operating expenses.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary
Note Regarding Forward-Looking Statements
This
Report on Form 10-Q contains certain statements that are “forward-looking” within the meaning of the Private Securities Litigation
Reform Act of 1995 (the “Litigation Reform Act”). These forward looking statements and other information are based on our
beliefs as well as assumptions made by us using information currently available.
The
words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,”
“should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such statements
reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or
more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated, expected, intended or using other similar expressions.
In
accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because
they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially
from those contemplated by the forward-looking statements contained in this Report on Form 10-Q. For example, given the cessation of
our operations as a developer, manufacturer, marketer and seller of advanced polymers on January 31, 2020, resulting from the sale of
substantially all of our assets to an independent third party, we became engaged in efforts to identify an operating company to acquire
or merge with through an equity-based exchange transaction whereby such a transaction would likely result in a change in control. If
we are unable to effect a transaction with an operating company, we may be required to cease all operations, including liquidation through
bankruptcy proceedings. For all of these reasons, the reader is cautioned not to place undue reliance on forward-looking statements contained
herein, which speak only as of the date hereof. You are encouraged to review our filings with the Securities and Exchange Commission
and to read and carefully consider the additional information included in our Annual Report on Form 10K for the fiscal year ended March
31, 2022, including but not limited to the Risk Factors discussed in Part I, Item 1A. We assume no responsibility to update any forward-looking
statements as a result of new information, future events, or otherwise except as required by law.
Business
On
January 31, 2020 (the “Closing Date”), we completed the sale of substantially all of our assets (the “Asset Sale”)
for a total purchase price of $7,250,000 pursuant to an Asset Purchase Agreement entered into between us and Mitsubishi Chemical Performance
Polymers, Inc., a Delaware corporation (“MCPP”). Prior to the Closing Date, we developed and manufactured advanced polymer
materials which provided critical characteristics in the design and development of medical devices. Our biomaterials were marketed and
sold to medical device manufacturers who used our advanced polymers in devices designed for treating a broad range of anatomical sites
and disease states.
As
a result of the Asset Sale, we ceased operating as a developer, manufacturer, marketer and seller of advanced polymers. Subsequent to
the Closing Date, we became engaged in efforts to identify either an (i) operating company to acquire or merge with through an equity-based
exchange transaction or (ii) investor interested in purchasing a majority interest in our common stock, whereby either transaction would
likely result in a change in control. On October 12, 2021, we entered into a Stock Purchase Agreement (the “SPA”) with Reddington
Partners LLC, a California limited liability company (“Reddington”) providing for the purchase of a total of 5,114,475 of
our common stock, on a post-split basis, or approximately 90% of our total shares of common stock outstanding for total cash consideration
of $400,000. Reddington purchased in two tranches on October 12, 2021 and March 15, 2022.
Pursuant
to the SPA, the Company effectuated a 1-for 50 reverse stock split on March 11, 2022 (the “Reverse Split”). Accordingly,
on a post-split basis, the shares purchased in connection with the First Closing resulted in Reddington owning 422,725 shares of our
common stock. As set forth in the SPA, Reddington then purchased from us on March 15, 2022 an additional 4,691,750 shares of our common
stock, on a post-split basis (the “Second Closing”). After the issuance thereof Reddington owned 5,114,475 shares of our
common stock, or approximately 90% of our total shares of common stock outstanding.
Management
is seeking to identify an operating company for the purposes of engaging in a merger or business combination of some kind, or acquire
assets or shares of an entity actively engaged in a business that generates sustained revenues. Although we have investigated certain
opportunities to determine whether they would have the potential to add value to us for the benefit of our stockholders, we have not
yet entered into any binding arrangements.
We
do not intend to restrict our consideration to any particular business or industry segment. Because we have limited resources, the scope
and number of suitable candidates to merge with is relatively limited. Because we may participate in a business opportunity with a newly
formed firm, a firm that is in the development stage, or a firm that is entering a new phase of growth, we may incur further risk due
to the inability of the target’s management to have proven its abilities or effectiveness, or the lack of an established market
for the target’s products or services, or the inability to reach profitability in the next few years.
Any
business combination or transaction will likely result in a significant issuance of shares and substantial dilution to our present stockholders.
As it is expected that the closing of such a transaction will result in a change in control, such transaction is expected to be accounted
for as a reverse merger, with the operating company being considered the legal acquiree and accounting acquirer, and we would be considered
the legal acquirer and the accounting acquiree. As a result, at and subsequent to closing of any such transaction, the financial statements
of the operating company would become our financial statements for all periods presented.
Critical
Accounting Policies
Our
critical accounting policies are summarized in Note 3 to our financial statements included in Item 8 of our annual report on Form 10-K
for the fiscal year ended March 31, 2022. However, certain of our accounting policies require the application of significant judgment
by our management, and such judgments are reflected in the amounts reported in our financial statements. In applying these policies,
our management uses its judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates
are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic
partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates
contained in our unaudited financial statements. Other than as set forth below, there have been no changes to our critical accounting
policies during the fiscal quarter ended September 30, 2022.
Stock-based
Compensation
We
applied the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and
recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the condensed
consolidated statements of operations.
ASC
718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements
based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to
provide service in exchange for the reward- known as the requisite service period. No compensation cost is recognized for equity instruments
for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments
are estimated using the Black Scholes option-pricing model adjusted for the unique characteristics of those instruments.
Equity
instruments issued to non-employees are recorded at their fair values as determined in accordance with ASC 718 as amended by ASU 2018-07.
As such, the grant date is the measurement date of an award’s fair value., which is expensed over the requisite service period.
Results
of Operations
Three
Months Ended September 30, 2022 vs. September 30, 2021
Operating
Expenses
During
the three months ended September 30, 2022, our operating expenses were approximately $47,000 as compared with $147,000 for the comparable
prior year period, a decrease of approximately $100,000. Our operating expenses are composed of those costs necessary to operate a public
company, which are primarily composed of management consultant fees, accounting fees, professional fees, and regulatory fees. The decrease
in these operating costs is primarily a result of the decrease in professional and consulting fees incurred prior to the change of control
resulting from the purchase of common stock by an investor on October 12, 2021.
Six
Months Ended September 30, 2022 vs. September 30, 2021
Operating
Expenses
During
the six months ended September 30, 2022, our operating expenses were approximately $5,082,000 as compared with $216,000 for the comparable
prior year period, an increase of approximately $4,866,000. Our operating expenses are composed of those costs necessary to operate a
public company, which are primarily composed of management consultant fees, accounting fees, professional fees, and regulatory fees.
The increase in these operating costs is primarily a result of the recording of stock-based compensation of approximately $5,010,000
in connection with the issuance of a warrant immediately exercisable into up to 6,000,000 shares of our common stock at an exercise price
of $1.00 per share which is exercisable through December 31, 2023. The increase in these operation costs were offset by a decrease in
professional and consulting fees incurred prior to the change of control resulting from the purchase of common stock by an investor on
October 12, 2021.
Other
Income
On
May 20, 2021, we received a $22,000 cash deposit (the “Deposit”) in connection with a non-binding arrangement entered into
with a private company having an interest in a potential business combination with us. On August 12, 2021, we were notified by the private
company of their intent to terminate the arrangement. The arrangement provided that the Deposit was refundable, net of all reasonable
legal, advisory and regulatory fees incurred by us. Our legal, advisory and regulatory fees exceeded the amount of the Deposit, accordingly,
there was no refund due to the private company.
Liquidity
and Capital Resources
As
of September 30, 2022, we had cash of approximately $1,000 as compared to a cash balance of approximately $246,000 as of March 31, 2022.
During
the six months ended September 30, 2022, we had net cash of approximately $104,000 used in operating activities. Our cash flows used
in operating activities is primarily a result of (i) our net loss of approximately $5,082,000; and (ii) a decrease in accounts payable,
accrued expenses and related party payable of approximately $27,000. The cash used in operating activities were offset by stock-based
compensation of approximately $5,010,000 in connection with the issuance of a warrant immediately exercisable into up to 6,000,000 shares
of our common stock at an exercise price of $1.00 per share through December 31, 2023. During the six months ended September 30, 2021,
we had net cash of approximately $125,000 used in operating activities. Our cash flows used in operating activities is primarily a result
of our net loss of approximately $194,000 which was offset by an increase in accounts payable and accrued expense of approximately $69,000.
During
the six months ended September 30, 2022 we had net cash of approximately $141,000 used in financing activities as a result of the cash
distribution of approximately $141,000 on September 22, 2022 to our stockholders of record as of March 15, 2022.There was no cash used
in or provided by financing activities or investing activities during the six months ended September 30, 2021.
On
January 31, 2020 (the “Closing Date”), we completed the sale of substantially all of our assets (the “Asset Sale”)
for a total purchase price of $7,250,000 pursuant to an Asset Purchase Agreement entered into between us and Mitsubishi Chemical Performance
Polymers, Inc., a Delaware corporation (“MCPP”). As a result of the Asset Sale, we ceased operating as a developer, manufacturer,
marketer and seller of advanced polymers. Subsequent to the Closing Date, we became engaged in efforts to identify either an (i) operating
company to acquire or merge with through an equity-based exchange transaction or (ii) investor interested in purchasing a majority interest
in our common stock, whereby either transaction would likely result in a change in control. On October 12, 2021, we entered into a Stock
Purchase Agreement (the “SPA”) with Reddington Partners LLC, a California limited liability company (“Reddington”)
providing for the purchase of a total of 5,114,475 of our common stock, on a post-split basis, or approximately 90% of our total shares
of common stock outstanding for total cash consideration of $400,000. Reddington purchased these shares of our common stock in two tranches
on October 12, 2021 and March 15, 2022.
Our
financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. During the three months ended September 30, 2022 and 2021, we reported a net loss of
approximately $47,000 and $147,000, respectively. During the six months ended September 30, 2022 and 2021, we reported a net loss of
approximately $5,082,000 and $194,000, respectively. Cash flows of approximately $104,000 and $125,000 were used in operations for the
six months ended September 30, 2022 and 2021, respectively. As a result, we expect our funds will not be sufficient to meet our needs
for more than twelve months from the date of issuance of these financial statements. Accordingly, management believes there is substantial
doubt about our ability to continue as a going concern.
Management
is seeking to identify an operating company for the purposes of engaging in a merger or business combination of some kind, or acquire
assets or shares of an entity actively engaged in a business that generates sustained revenues. Although we have investigated certain
opportunities to determine whether they would have the potential to add value to us for the benefit of our stockholders, we have not
yet entered into any binding arrangements.
We
do not intend to restrict our consideration to any particular business or industry segment. Because we have limited resources, the scope
and number of suitable candidates to merge with is relatively limited. Because we may participate in a business opportunity with a newly
formed firm, a firm that is in the development stage, or a firm that is entering a new phase of growth, we may incur further risk due
to the inability of the target’s management to have proven its abilities or effectiveness, or the lack of an established market
for the target’s products or services, or the inability to reach profitability in the next few years.
Any
business combination or transaction will likely result in a significant issuance of shares and substantial dilution to our present stockholders.
As it is expected that the closing of such a transaction will result in a change in control, such transaction is expected to be accounted
for as a reverse merger, with the operating company being considered the legal acquiree and accounting acquirer, and we would be considered
the legal acquirer and the accounting acquiree. As a result, at and subsequent to closing of any such transaction, the financial statements
of the operating company would become our financial statements for all periods presented.
Subsequent
Events
On
October 14, 2022, we executed a Demand Promissory Note (the “Note”) in favor of GK Partners ApS (the “Lender”),
a private company located in Denmark. The Note has a principal amount of $40,000, bears interest at a rate of 3% per annum and matures
on June 30, 2023 (the “Maturity Date”). Principal and accrued interest are payable on the Maturity Date or earlier on demand.
The Lender advanced $20,000 of the principal amount of the Note on October 14, 2022 and is expected to advance the remaining $20,000
no later than October 21, 2022. We plan to use the amounts advanced to pay certain operating expenses.
Commitments
We
do not have any long-term commitments as of September 30, 2022.
Off-Balance
Sheet Arrangements
As
of September 30, 2022, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future
material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.