BUT NOT LIMITED TO “THE FACTORS THAT MAY AFFECT FUTURE RESULTS” SHOWN AS ITEM 1A IN THE 2021 ANNUAL REPORT AND IN MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS ASSOCIATED
WITH AN EARLY-STAGE COMPANY THAT HAS ALMOST NO CASH ASSETS AND MINIMAL OPERATIONS, THE LACK OF ANY APPARENT FINANCIAL RESOURCES OF THE
COMPANY, THE COMPANY’S INSOLVENCY IN THAT OUR TOTAL LIABILITIES EXCEED OUR TOTAL ASSETS, THE INTENSE COMPETITION THAT WE FACE FROM
OTHER ESTABLISHED COMPETITORS, THE CLEAR LIKELIHOOD OF A BANKRUPTCY FILING THAT WOULD LIKELY RESULT IN THE TOTAL DESTRUCTION OF THE COMPANY
WITH EACH COMMON STOCKHOLDER SUFFERING THE TOTAL LOSS ON THEIR INVESTMENT AND THE LEGAL UNCERTAINTIES THAT DIRECTLY AND INDIRECTLY IMPACT
DEVELOPMENT-STAGE COMPANIES. WE HAVE NO HISTORY OF GENERATING ANY REVENUES FROM OUR PLANNED BUSINESS. ANY ONE OR MORE OF THESE OR OTHER
RISKS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FUTURE RESULTS INDICATED, EXPRESSED, OR IMPLIED IN SUCH FORWARD-LOOKING
STATEMENTS. WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT TO REFLECT EVENTS, CIRCUMSTANCES, OR NEW INFORMATION
AFTER THE DATE OF THIS FORM 10-Q OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED OR OTHER SUBSEQUENT EVENTS. MAKE NO MISTAKE: WE ARE
INSOLVENT AND OUR COMMON STOCK SHOULD ONLY BE ACQUIRED BY PERSONS WHO CAN AFFORD THE TOTAL LOSS OF THEIR INVESTMENT SINCE OUR COMMON
STOCK MUST BE CONSIDERED A “HIGH RISK” SECURITY. INVESTORS SHOULD NOTE THAT OUR COMMON STOCK DOES NOT CURRENTLY
TRADE IN ANY STOCK MARKET (See Item 2 below).
| ITEM
2. | MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
As
used herein, the term “we,” “our,” “us,” and the “Company” refers to Kallo, Inc., a Nevada
corporation unless otherwise noted.
This
section of the report includes a number of forward-looking statements 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 apply only as of the date of this report. These forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from historical results or our predictions. All funds are reflected
in United States dollars unless otherwise indicated.
There
is a high risk that the Company may be facing severe and prolonged financial adversity, a filing in U.S. Bankruptcy Court with the high
likelihood that the Company’s stockholders will lose their entire investment.
WARNING:
Matter of Ten Day Stop Trading Order & Related Risks. As noted in our prior periodic filings with the Securities and Exchange
Commission (including but not limited to the Form 8-K that we filed on March 26, 2021) on March 24, 2021, the U.S. Securities and Exchange
Commission issued a Ten Day Stop Trading Order to stop the trading in our Common Stock (the “Order”). The Order
was issued pursuant to Section 12(k) of the Securities Exchange Act of 1934, as amended and it expired on April 7, 2021. As a result,
we have expended and continue to expend significant efforts to secure at least one market-maker who may be willing, subject to a complete
and satisfactory due diligence review and evaluation of our corporate, business, and financial affairs, to serve as our market-maker
for our Common Stock. Currently and despite our continuing efforts, we have not been successful in securing the services of a duly licensed
and registered market-maker for our Common Stock and we can not assure you that we will be successful in these and other efforts needed
that may allow the holders of our Common Stock to regain trading privileges on OTC Markets. Since the Order and currently, we have not
been successful in retaining the services of any market-maker to make a market in our Common Stock and there can be no assurance that
we will ever obtain a market-maker for our Common Stock at any time in the future. For these and other reasons, any person who acquires
our Common Stock will likely discover that it is nearly impossible to ever re-sell our Common Stock. Thus, our Common Stock represents
an illiquid investment and there is no clear likelihood that our Common Stock will ever become a liquid investment at any time in the
future.
Further
and as a result of the Order, we do not currently have a FINRA-registered market-maker and we have no certain prospect that we will be
successful in gaining a FINRA-registered market-maker on or before September 21, 2022 (“to make a market” in our common stock).
As a result of the Order and given our state of insolvency, and the severely high risks associated with our business strategy, there
is a clear and unmistakeable very high risk that we will not longer have the status of being a publicly traded company. In that context
and for these and other reasons, any person who acquires our Common Stock, our Preferred Stock or any debt instrument that we issued,
faces a clear and unmistakeable HIGH RISK that they will lose their entire investment.
If
we are not successful in gaining a FINRA-registered market-maker on or before September 21, 2021, holders of our Common Stock will likely
incur the total loss on their investment since our Common Stock will lose all liquidity and all marketability of the shares of our Common
Stock that they hold. In that context and unless we are successful in securing the services of such a market-maker, the Company will
effectively become a “privately-held” company and the fair market value of our Common Stock will likely be $0.00. We cannot
assure that we will be successful in securing a market-maker for our Common Stock and any person who acquires our Common Stock should
be prepared to lose all of their investment since there can be no guarantee that any market-maker will be willing to provide us with
market-making services for our Common Stock at any time in the future.
Status
as Insolvent Company with Continuing Losses, No Revenues and Negative Equity
We
agree with our independent auditors in that there is substantial doubt about our ability to continue as a going concern since:
(a)
our Total Current Liabilities exceed our Total Current Assets which are currently $3,357 and thus we are insolvent;
(b)
we have limited cash assets and our Total Liabilities are in excess of $6.92 million;
(c)
as of December 31, 2021 we have incurred over $89,000,000 in accumulated losses and there is no certain prospect that we will achieve
and sustain any positive cash flow, profitability or either of them;
(d)
we incurred losses of over $8,000,000 during our most recent fiscal year ending December 31, 2021; and
(e)
we have over $6.92 million in Liabilities as of June 30, 2022.
In
every respect, we are insolvent and anyone who acquires our Common Stock should be prepared to lose their entire investment. Our Common
Stock, our Preferred Stock, and any other instrument that we have or will issue, should be considered a “HIGH RISK”
investment suitable only for those persons who can afford the TOTAL LOSS of their investment.
Overall,
we are a small company with minimal financial and managerial resources, and our business model and all of our plans have not been reviewed
or evaluated by any independent third party. We incurred over $8,000,000 in losses in our most recent fiscal year ending December 31,
2021 and we are insolvent. MAKE NO MISTAKE: there is substantial doubt that we can continue as an on-going business for the next
twelve months unless we obtain additional capital to pay our bills and meet our operating expenses. This is because we have generated
insignificant revenues from our operations during the last ten years and we have no clear prospect that we will generate any revenues
at any time in the future. We have been able to remain in business primarily as a result of management’s determination and the
efforts by certain other parties but we cannot assure you that we will have the necessary resources that will allow us to continue our
corporate existence. We expect to incur significant operating losses in the foreseeable future and our ability to continue as a going
concern is dependent upon our ability to raise additional money through investments by others and achieve profitable operations.
There
is no assurance and there can be no assurance that we will ever be able to raise additional money or that additional money or that additional
financing will be available to us on satisfactory terms or that we will be able to achieve profitable operations with positive cash flow.
Moreover, we cannot assure you that we will be successful in securing a FINRA-registered market-maker that may be willing to serve as
a market-maker for our Common Stock on or before September 21, 2021. In that event, we will lose our status as a public company. Our
consolidated financial statements were prepared under the assumption that we will continue as a going concern, however, there can be
no assurance that we can raise any additional funds or otherwise obtain the necessary financial support to allow us to remain as a corporate
entity. There can be no guarantee that we have any ability to raise funds or otherwise maintain our corporate existence as a Nevada corporation.
In every respect, our financial circumstances raise substantial doubt about our ability to continue as a going concern and, for that
matter, our very existence as a corporation. The consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
For
the last twelve fiscal years, starting January 2010, our management and board of directors raised funds through a personal and professional
network of investors. This allowed us to undertake a limited amount of business development, maintain minimal operations, and generate
limited amount of potential customer interest. We had losses of over $8 million for the fiscal year ending December 31, 2021 and we have
no basis to believe that we will avoid further losses at or around that magnitude during the fiscal year ending December 31, 2021. In
order to continue operations, we need to raise significant additional capital and sustain operations. We cannot assure you that we will
achieve any success in either raising additional capital and in sustaining our operations. We know that other companies raise capital
from one or more existing shareholders or via debt and equity offers to independent investment professionals and through various other
financing alternatives. We do not have many viable options and we know that if we are to avoid bankruptcy and the decimation of
the Company, we would need significant amounts of additional capital on a timely basis, in sufficient amounts and on reasonable terms.
Unless this is achieved without undue delay and without any significant legal complications, we may, if circumstances and market conditions
allow, continue our existing limited operations. However, we are insolvent, we have almost no cash assets, and we have no
basis to believe that we will raise any additional capital on a timely basis and on reasonable terms that may allow is to continue to
remain in business. Currently we have not received any commitment from any third party to provide the additional capital that we believe
we will require if we are to sustain our Company as a corporate entity or otherwise allow us to meet our financial obligations.
Any
reading of this Quarterly Report on Form 10-Q should also include a reading of Item 1A, Risk Factors in our Annual Report on Form 10-K
for the fiscal year ending December 31, 2021. We have no recent history of generating any revenues or positive cash flow and there can
be no assurance that we will be successful in generating any revenues or, if we are successful in generating revenues, that we can sustain
any such revenues at a level that will allow us to become solvent or otherwise operate with a positive cash flow at any time in the future.
Make no mistake: there is a high risk that the Company may be facing severe and prolonged financial adversity with the high likelihood
that the Company’s stockholders will lose their entire investment.
We
are a small company with very limited managerial resources and we are insolvent. There is substantial doubt that we can continue as an
on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our operating expenses. This
is because we have generated only insignificant revenues from our operations during the last twelve years. We have been able to remain
in business as a result of investments, in debt or equity securities, by our officers and directors and by certain other related parties.
We expect to incur operating losses in the foreseeable future and our ability to continue as a going concern is dependent upon our ability
to raise additional money through investments by others and achieve profitable operations. There is no assurance that we will be able
to raise additional money or that additional money or that additional financing will be available to us on satisfactory terms or that
we will be able to achieve profitable operations. The consolidated statements were prepared under the assumption that we will continue
as a going concern, however, there can be no assurance that such financial support shall be ongoing or available on terms or conditions
acceptable to the Company. This raises substantial doubt about our ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
On
April 8, 2017, the Company entered into an agreement with FE Pharmacy, Inc. (the “Prior FE Pharmacy Agreement”) whereby in
consideration for the issuance of 475,000,000 common stock of Kallo, FE Pharmacy, Inc. assumed and agreed to pay all of the Company’s
outstanding indebtedness as of April 7, 2017. We currently do not have any additional or similar commitment from FE Pharmacy, Inc. which
would assure us that FE Pharmacy, Inc. will provide any additional funds to us at any time in the future. While this agreement has, in
the past, allowed us to pursue our business strategy, there can be no assurance that any such agreement or similar arrangement with FE
Pharmacy, Inc. will be obtained. In the event that we do not receive sufficient additional cash funds in the very near future and in
such amounts that would allow us to meet our working capital needs and otherwise satisfy our creditors, our very existence as a corporate
entity is doubtful. In that event and in other similar events, persons who hold our Common Stock, our Preferred Stock and our debt instruments
will each likely lose all or their investment.
Every
person who is considering the purchase of our Common Stock, our Preferred Stock or any other instrument that we may issue should fully
appreciate that if an agreement with FE Pharmacy, Inc. similar to the Prior FE Pharmacy Agreement is not obtained on a timely basis and
on similar terms, we will likely need to cease operations and pursue the liquidation of the Company and otherwise likely terminate the
very existence of the Company. Thus, our Common Stock, our Preferred Stock and any other instrument that we have issued must be considered
a HIGH RISK investment that is suitable only for persons who can afford to LOSE THEIR ENTIRE INVESTMENT.
Risky
& Uncertain Agreements with Countries in Africa & Agreements with Project Funding Source
The
following summarizes certain agreements that we currently have with five (5) countries in Africa. In each case, the agreements provide
for us to provide certain healthcare services to the named country located in Africa and in each instance, we also entered into a financing
arrangement with the same provider of funding that is lending funds to the country that is our counterparty in each agreement. While
the agreements between us and each country vary and the funding provisions in the financing agreements with the financing source follow
a general pattern, we recognize that the agreements and arrangements are subject to significant risks and uncertainties that include,
but are not limited to the following:
| ● | There
are implicit and significant political risks in that each country does not have an established
rule of law and as a result, the rights and the obligations of each of the parties to these
agreements do not offer the level of certainty or enforceability that is found in comparable
agreements entered into between parties in the United States, Canada, or the United Kingdom. |
| ● | There
are political processes that are not predictable but can result in not just a sudden change
of government but the wholesale abrogation of existing agreements and contracts and thereby
the destruction of our property rights and contractual rights that otherwise, in another
context, may be assumed to be inviolate. |
| ● | There
are many unforeseeable political forces and institutional challenges that may arise which
can directly or indirectly result in an adverse economic and political environment that can
effectively inhibit our ability to conduct our planned business operations for months if
not years. |
| ● | The
vagaries and circumstances relating or involving the conduct of each of the governments that
is a counterparty to our agreements are not at all predictable and the political systems
and legal systems present in each of the countries do not readily conform or allow any predictable
legal outcomes which, as a result, create risks that fundamentally undermine our investment
of our resources in each of the governmental agreements that we reached with each of these
governments and all of the collateral and related agreements that we entered into which assumed
the validity of the governmental agreements.
|
| ● | In
the event of any later dispute or controversy arising out of any one or more of the governmental
agreements that we have, we are likely to experience significant challenges in enforcing
our rights and ensuring that each governmental entity that is the counterparty to our agreement,
fulfills its contractual obligations to us. As a result, we are exposed to significant risks
and uncertainties in all of our dealings with each country and these risks far exceed the
contractual risks associated with contracts in the United States, Canada, and the United
Kingdom. |
| ● | We
face and very likely will continue to face a clear and unambiguous risk of insolvency and
other severe financial risks that, absent receipt of a sufficient injection of new equity
capital into our company in coming days, our existence as a business and as a company is
highly doubtful. For these and other reasons, our Common Stock, our Preferred Stock and the
debt instruments that we have issued should be acquired only by persons who can afford the
total loss of their investment. |
It
is in that context that we have entered into the following agreements in the following countries and, as we have learned by our experiences,
that we face continuing significant risks and uncertainties which we inherently cannot mitigate or avoid in any significant way. We caution
you that these risks and uncertainties are likely to remain at all times and any person who acquires our Common Stock, our Preferred
Stock or any other instrument that we have issued will face the risk of a Total Loss of their investment. That is, we have not had any
experience where we have been successful in operating or managing any health care program in any country. Thus, any person who reads
this Form 10-Q should understand that we have no experience, no track record, and no obvious ability to manage and maintain any health
care services in any country at any time in the history of Kallo, Inc.
The
six (6) governmental agreements are as follows:
A. Ghana.
In 2017 the Government of Ghana initiated several discussions with us, to revisit how the Ministry of Defense – Military Hospital
requirements, the Ministry of Health healthcare infrastructure requirements and the Ministry of Education Teaching Hospital infrastructure
requirements can be met using the Kallo Integrated Delivery Model. The success of these discussions confirmed Ghana’s continued
belief that the Kallo Integrated Delivery System may be a viable solution for the nation’s healthcare infrastructure development,
which is very encouraging given the significant risks and uncertainties involved.
On
June 20, 2017, our branch office was legally registered in Ghana. A valid tax identification number was issued and this number is to
be used by us in all of our anticipated business that we hope to conduct within Ghana. We have incorporated four SPVs (Special Purpose
Vehicles/Companies) to oversee the various projects we seek to undertake in Ghana. The SPVs are all incorporated under the laws of Ghana
as private companies. Based on our internal management assessments conducted without the benefit of any independent third-party review
or evaluation, we believe that our business plans involving Ghana are sound and may offer us significant business opportunities. However,
we cannot assure you that we will be able to obtain sufficient financing on reasonable terms and on a timely basis that will allow us
to pursue these opportunities. If we are not successful in obtaining sufficient financing on a timely basis and on reasonable terms,
we may be unable to pursue any of our plans involving Ghana or any of the other countries.
We
have entered into four major concession agreements with four key governmental institutions in Ghana. We have also, through our SPVs entered
into the following concession arrangements for the construction and operation of various hospital facilities in Ghana:
| | |
Project Description | |
Kallo SPV |
| 1 | |
Tamale Military Hospital project | |
K-TMH Ghana Limited |
| 2 | |
Cape Coast Teaching Hospital project | |
K-UCC Cape Coast Limited |
| 3 | |
Sunyani Teaching Hospital project | |
K-UENR Sunyani Limited |
| 4 | |
Ho Teaching Hospital project | |
K-UHAS Ho Limited |
These
agreements are effective upon execution and the concession period will start from the date on which financial close is achieved with
the Lenders and all conditions precedent are satisfied or waived. The financing that is required that would allow us to pursue and implement
our plans in Ghana (and each of the other countries) has not been received and we cannot guarantee that we will ever receive any financing
that would allow us to implement any of our plans in Ghana or otherwise. In every way, we cannot assure you that we will be able to obtain
sufficient financing on reasonable terms and on a timely basis that will allow us to pursue any of these opportunities. If we are not
successful in obtaining sufficient financing on a timely basis and on reasonable terms, we may be unable to pursue any of our plans involving
Ghana or any of the other countries.
As
of the date of filing this 10Q there has been no further progress in securing financing for these concession agreements and if we are
not successful in obtaining sufficient financing on a timely basis and on reasonable terms, we may be unable to pursue any of our plans
involving Ghana or any of the other countries.
Notwithstanding
the many uncertainties and risks that we face, we continue to believe that the global need for standardized healthcare service delivery
to all geographies and to all people is fundamental. And we believe that we can offer an innovative approach via our Kallo Integrated
Delivery System – “KIDS”.
And
while we have not conducted any extensive market research or otherwise received any assessment from an independent consultant, we continue
to believe that our approach is a unique and comprehensive concept which we developed based on our own internal firsthand discovery and
a detailed study of ground realities and causal analysis over 15 years. The business issues in the current healthcare systems are addressed
by intricate orchestration of technologies both proprietary and off the shelf to create a standardized healthcare delivery model across
the continuum of care.
We
have adopted what we believe is a “strategic market approach” in that our strategy is to ensure that our potential customers
(the counterparties to our health services agreements) undertake a well-informed decision that we hope will allow them to work with us
to embrace a national strategy for healthcare infrastructure and a standardized healthcare services delivery model across the country.
This led us to develop what we believe may be a structured business development process and management of the services that we seek to
offer and the benefits that we seek to provide to each national health care agency in each country. However, we have no record of achieving
any of our goals and we have not been successful in entering into any agreement with any country that has allowed us to demonstrate that
our business strategy is viable. As a result, there can be no assurance that our contemplated strategy and contemplated business is financially
viable.
After
many years of hard work in developing countries we believe that there is a dynamic shift in the thought process within the developing
countries to consider innovative solutions leveraging technology for strengthening and advancing their healthcare infrastructure and
services delivery for all citizens alike. Our assessments and our evaluations in all of these matters are based solely upon the determinations
made internally by our management and we have not had the benefit of any independent and professional third-party evaluation in any of
these matters. We may later discover that our assumptions, our analysis, and our assessments are fatally inaccurate and otherwise not
commercially viable. In that event, investors in our Company should be prepared to lose all of their investment.
B.
Kenya. On June 26, 2020, the Cabinet Secretary of the Department of Health and the Cabinet Secretary of the National Treasury
and Planning of the Republic of Kenya entered into a Project Contract (the “Kenya Contract”) with Kallo Inc. and a Loan Contract
with Techno-Investment Module SL. now with its registered office in Spain (the “Financing Source”) for implementing Kallo
Integrated Delivery Systems (KIDS) in the Republic of Kenya to strengthen their National Healthcare Infrastructure and build a robust,
sustainable healthcare ecosystem. On March 23, 2021, we received a letter from the Cabinet Secretary for the National Treasury &
Planning, the Republic of Kenya, informing us that the project and agreements previously entered into have been put on hold. We cannot
assure you that the Kenya Contract will later be implemented and if it is later implemented whether the terms and conditions will resemble
or adhere to the terms and conditions that were set forth in the Kenya Contract. Overall, we do not know and we cannot predict whether
the Kenya Contract will later be abrogated or if other events and political considerations in the Republic of Kenya will prevent or preclude
us from achieving our original objectives that we sought to achieve when we originally entered into the Kenya Contract and the agreement
with the Financing Source. While we did not fully appreciate the extent of the risks and uncertainties that we face in entering into
the Kenya Contract and completing what we thought were appropriate steps to securing the financing with the Financing Source, we now
appreciate the apparently significantly greater risks and uncertainties that are inherent in all transactions similar to the Kenya Contract.
For these and other reasons, we are acutely aware that we face significant “political risks” in Kenya and, for that matter,
in each country where we seek to implement our contemplated business. These risks are inherent and we are not able to mitigate or reduce
our exposure to the unpredictable and dramatic political risks that we face in Kenya or, for that matter, in any foreign country. In
that light, our contemplated business strategy will likely remain a HIGH RISK strategy for the foreseeable future.
C. Eswatini.
On November 10, 2020, the Minister of Health and the Minister of Finance of the Kingdom of Eswatini entered into a Project Contract
with Kallo Inc. and a Loan Contract (the “Eswatini Contract”) with Techno-Investment Module SL., now with its registered
office in Spain (the “Financing Source”) for implementing Kallo Integrated Delivery Systems (KIDS) in the Kingdom of Eswatini
to strengthen their National Healthcare Infrastructure and build a robust, sustainable healthcare ecosystem. Given our recent experience
with the Kenya Contract, we can not assure you that the Eswatini Contract will later be implemented and if it is later implemented whether
the terms and conditions will resemble or adhere to the terms and conditions that were set forth in the Eswatini Contract. Overall, we
do not know and we cannot predict whether the Eswatini Contract will later be abrogated or if other events and political considerations
in the Kingdom of Eswatini will prevent or preclude us from achieving our original objectives that we sought to achieve when we originally
entered into the Eswatini Contract and the agreement with the Financing Source. While we did not fully appreciate the extent of the risks
and uncertainties that we face in entering the Eswatini Contract and completing what we thought were appropriate steps to securing the
financing with the Financing Source, we now appreciate the apparently significantly greater risks and uncertainties that are inherent
in all transactions similar to risks that we encountered in the Kenya Contract. (See discussion regarding Kenya above.)
D. Ethiopia.
On November 30, 2020, the Minister of Health and the Minister of Finance of the Federal Democratic Republic of Ethiopia entered into
a Project Contract with Kallo Inc. (the “Ethiopia Contract”) and a Loan Contract with Techno-Investment Module SL., now with
its registered office in Spain (the “Financing Source”) for implementing Kallo Integrated Delivery Systems (KIDS) in the
Federal Democratic Republic of Ethiopia to strengthen their National Healthcare Infrastructure and build a robust, sustainable healthcare
ecosystem. Included in the contract is a Medical Tourism project with a Medical Center of Excellence. Again and given our recent experience
with the Kenya Contract, we cannot assure you that the Ethiopia Contract will later be implemented and if it is later implemented whether
the terms and conditions will resemble or adhere to the terms and conditions that were set forth in Ethiopia Contract. Overall, we do
not know and we cannot predict whether the Ethiopia Contract will later be abrogated or if other events and political considerations
in the Federal Democratic Republic of Ethiopia will prevent or preclude us from achieving our original objectives that we sought to achieve
when we originally entered into the Ethiopia Contract and the agreement with the Financing Source. While we did not fully appreciate
the extent of the risks and uncertainties that we face in entering into the Ethiopia Contract and completing what we thought were appropriate
steps to securing the financing with the Financing Source, we now appreciate the apparently significantly greater risks and uncertainties
that are inherent in all transactions similar to the risks that we have encountered in the Kenya Contract. (See discussion regarding
Kenya above.)
E. Mozambique.
On December 10, 2020, the Minister of Health and the Minister of Finance of the Republic of Mozambique entered into a Project Contract
(Phase-1) with Kallo Inc. (the “Mozambique Contract”) and a Loan Contract (Phase-1) with Techno-Investment Module SL., now
with its registered office in Spain (the “Financing Source”) for implementing Kallo Integrated Delivery Systems (KIDS) in
the Republic of Mozambique to strengthen their National Healthcare Infrastructure and build a robust, sustainable healthcare ecosystem.
Given our recent experience with the Kenya Contract, we cannot assure you that the Mozambique Contract will later be implemented and
if it is later implemented whether the terms and conditions will resemble or adhere to the terms and conditions that were set forth in
the Mozambique Contract. Overall, we do not know and we cannot predict whether the Mozambique Contract will later be abrogated or if
other events and political considerations in the Republic of Mozambique will prevent or preclude us from achieving our original objectives
that we sought to achieve when we originally entered into the Mozambique Contract and the agreement with the Financing Source. While
we did not fully appreciate the extent of the risks and uncertainties that we face in entering into the Mozambique Contract and completing
what we thought were appropriate steps to securing the financing with the Financing Source, we now appreciate the apparently significantly
greater risks and uncertainties that are inherent in all transactions similar to the Kenya Contract. (See discussion above regarding
the Kenya contract.)
F.
Eritrea. On December 11, 2020, the Minister of Health and the Minister of Finance of the State of Eritrea entered into a Project
Contract with Kallo Inc. (the “Eritrea Contract”) and a Loan Contract with Techno-Investment Module SL., now with its registered
office in Spain (the “Financing Source”) for implementing Kallo Integrated Delivery Systems (KIDS) in the State of Eritrea
to strengthen their National Healthcare Infrastructure and build a robust, sustainable healthcare ecosystem. Given our recent experience
with the Kenya Contract, we cannot assure you that the Eritrea Contract will later be implemented and if it is later implemented whether
the terms and conditions will resemble or adhere to the terms and conditions that were set forth in the Eritrea Contract. Overall, we
do not know and we cannot predict whether the Eritrea Contract will later be abrogated or if other events and political considerations
in the State of Eritrea will prevent or preclude us from achieving our original objectives that we sought to achieve when we originally
entered into the Eritrea Contract and the agreement with the Financing Source. While we did not fully appreciate the extent of the risks
and uncertainties that we face in entering into the Eritrea Contract and completing what we thought were appropriate steps to securing
the financing with the Financing Source, we now appreciate the apparently significantly greater risks and uncertainties that are inherent
in all transactions similar to the Kenya Contract. (See the discussion above regarding the Kenya Contract.)
Status
Update on contracts signed with Kenya, Eswatini, Mozambique, Ethiopia and Eritrea
We
have been working diligently for the past several years to introduce our Kallo Integrated Delivery System (KIDS), a comprehensive healthcare
delivery solution, to developing countries in Africa.
In
2019 we began working with a local representative in Africa, Global Interest Services (GIS). Working through GIS, Kallo entered into
detailed discussions and negotiations with a number of African countries including Kenya, Eswatini, Mozambique, Ethiopia and Eritrea.
These efforts culminated in signing project and loan contracts with each of these countries through the second half of 2020.
Normally,
during the final stages of negotiations and signing of such contracts, the President and CEO of Kallo would have travelled to the countries
in question and would have concluded the negotiations and signing of the contracts in person. However, with the advent of Covid-19 and
the imposition of lockdowns and travel restrictions in early 2020, in-person meetings were not possible.
In
each case, all parties involved agreed to sign contracts remotely with all signatures being legally notarized. As required by regulation,
in each instance, we reported the signing of these contracts as material events by filing the required Form 8-K with the U.S. Securities
and Exchange Commission and in each instance, we believe that we provided and fulfilled our disclosure obligations in accordance with
U.S. securities laws and accepted good practices.
With
the signing of each contract, work proceeded with arranging financing for the projects. These are all major projects and arranging financing
is a major undertaking. Techno Investment Module SL (TIM), a financier based in Spain, was willing to provide financing for the projects.
In order to provide the financing, it was established that collateral for the required loans would need to be provided in the form of
a cash-backed standby letter of credit to be issued by the central bank of each country and confirmed by a corresponding major bank in
the United Kingdom.
Beginning
in late 2020, TIM and Kallo have been working through GIS to establish the required collateral with the governments of each country.
This part of the process has proven to be much more challenging and time consuming than anticipated. Although efforts have been continuous
and persistent, with regular communications through our local representative, none of these governments has yet to provide this essential
requirement before financing can be finalized.
A
number of factors may have contributed to the delays in completing this process in each country. During this period there have been multiple
elections in Ethiopia which have disrupted the normal process of government. As of the date of filing this 10Q, there has been no further
progress in arranging financing for Ethiopia, and if we are not successful in obtaining financing on a timely basis and on reasonable
terms, we may be unable to pursue any of our plans involving Ethiopia.
Further
deliberations with the government of Kenya were put on hold as the government prepared for major elections this summer. Those elections
were held on August 9, 2022 and it is expected that the new government will be formed in the coming weeks. Once the new government is
in place, we anticipate that we will have an opportunity to re-engage with Kenya.
Political
unrest and regional conflicts in Mozambique, Eswatini and Ethiopia have had economic impacts and have also disrupted the process of government
in these countries. We do not know why the governments and the governmental agencies in each of these countries did not and have not
completed the additional steps needed that would allow us to proceed with the implementation of the agreements that we entered into with
each such government and each such agency. More than that, we do not understand what would provoke any such delays or hesitation by any
of our counterparties in these instances. As of the date of filing this 10Q, there has been no further progress in arranging financing
for these countries, and if we are not successful in obtaining financing on a timely basis and on reasonable terms, we may be unable
to pursue any of our plans involving these countries.
As
we have previously disclosed, we have spent a considerable amount of time and energy negotiating these significant contracts while also
incurring significant expenses. We want to provide every opportunity to allow these efforts to be concluded successfully. However, we
cannot continue to expend time and energy on these engagements indefinitely. As well, TIM is growing increasingly impatient with the
prolonged timeframe to conclude this part of arranging the financing.
Accordingly,
we will formally request video conference calls with the appropriate government officials of each of these countries to confirm their
willingness and ability to provide the required collateral instruments for the financing of these projects within reasonable timeframes.
If these video conference calls are not forthcoming, or if the governments cannot commit to providing their collateral instrument in
a reasonable timeframe, we will have to consider cancelling these contracts in order to focus on more promising business opportunities.
Throughout
this period Kallo has continued with its business development efforts in Africa. Kallo has been in discussions with several other African
countries that have expressed keen interest in the unique and comprehensive healthcare delivery solution that Kallo offers. In some instances,
discussions have progressed to an advanced stage with the potential of leading to contractual commitments that may be promising. However,
and given the circumstances, Kallo is also considering alternative financing options to provide more flexibility to its client countries.
If
circumstances and market conditions allow, we may also seek business development opportunities in other parts of the globe including
Southeast Asia, the Caribbean and North America as its unique healthcare delivery solution is relevant to many countries and circumstances.
In
general, and as we have become more fully aware of the business landscape and the risks and uncertainties associated with efforts to
conduct any business in countries where the rule of law can easily become subject to ever unpredictable and changing political pressures,
we cannot approach our business plans and strategies without deep concern that we face risks that we cannot realistically mitigate or
otherwise contain. In that respect and when any business enterprise commits its limited financial and managerial resources to a business
strategy where there is no certainty that the rule of law will be upheld and fully observed, the risks facing the enterprise are existential.
For that reason, we face the clear and unmistakeable risk that our business and our assets may be entirely lost and we may have little
or no recourse to protect the Company, its planned business and assets and the stockholders’ investment. In that respect, any person
who acquires or did acquire our Common Stock, our Preferred Stock, or any debt instrument that we may issue, should be prepared to lose
their entire investment.
Plan
of Operation
The
following plan of operation contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere
in this document. Because of the speculative nature of our operations and the nature of the African countries we are attempting to do
business with, there is no assurance that any of our planned operations will occur and there can be no assurance that we will achieve
anything that is commercially viable given the significant risks and uncertainties inherent in our business and given that we are insolvent
with no history of generating and sustaining any sales revenues, profits and positive cash flow during anytime in the past twelve (12)
years.
However,
any person who reads this Quarterly Report on Form 10-Q should know that we are acutely aware that we face significant “political
risks” in each and every country where we seek to implement our contemplated business. These risks are inherent and we are not
able to mitigate or reduce our exposure to the unpredictable and dramatic political risks that we face in Kenya or, for that matter,
in any foreign country. In that light, our contemplated business strategy will likely remain a HIGH RISK strategy for the foreseeable
future.
In
that context and subject to the serious risks that we face, including but not limited to: (a) our current state of insolvency; (b) the
effect that the Ten Day Stop Trading Order has had on our Common Stockholders; (c) the lack of any market-maker for our Common Stock
and the likelihood that, as a result of the amendment to Rule 15c2-11 that will directly and adversely impact us and our Common Stockholders
likely in September 2021; and (d) other risks and issues that we are likely to face in the near future assuming that we survive as a
corporate entity, then and subject to the Risk Factors set forth here and those set forth in Item 1A of our 2021 Annual Report filed
on Form 10-K for the fiscal year ending December 31, 2021, then and if to the extent that we are financially able and if
circumstances allow, we plan to continue to develop components of Kallo Integrated Delivery System:
Kallo
Integrated Delivery System (KIDS)
The
following are “Forward-Looking Statements” that are subject to the qualifications set forth on page 11 of this Form 10-Q
and subject to the Risk Factors set forth herein.
MobileCareTM
– as currently planned and subject to our ability to successfully implement our business plan, we plan to establish a
mobile trailer that opens into a state of the art clinical setup in a vehicle equipped with the latest technology in healthcare. As
currently envisioned, MobileCare TM may be able to instantly connect the onboard physician with specialists for on-demand consultation
via satellite through its Telehealth system. In that respect and if we are successful, we believe that this would provide a truly a holistic
approach to delivering healthcare to the remotely located. For many rural communities, the nearest hospital, doctor or nurse may be hundreds
of kilometers away. In many cases, this gap can be bridged using Telehealth technology that allows patients, nurses and doctors to talk
as if they were in the same room.
RuralCareTM
– if we are successful, we currently plan to establish prefabricated modular healthcare units focused in rural areas
where no roads infrastructure is available. As currently planned and subject to our ability to successfully implement our business
plan, these units are to be equipped to provide primary healthcare including X-Ray, ultrasound, surgery, pharmacy and lab services.
Ranging from 1,200 to 3,800 square feet, these clinics can be up and running in disaster zones or rural areas in as little as one week.
Similar to the MobileCare TM product, RuralCare TM also utilizes satellite communications to access the Telehealth
system.
Our
overall healthcare mission is to “reach the unreached”. Based on our own internal assessments conducted
by our officers and without the benefit of any independent third-party evaluation, we believe that may be able to offer end-to-end solution
that may include the following:
Global
command center – as currently planned and subject to our ability to successfully implement our business plan, this center is
to be located in the Kallo headquarters in Canada and serve as a hoped-for escalation point for the coordination of our planned delivery
of Telehealth and eHealth support. It consists of both the Clinical Command Center and the Administrative Command Center.
Regional
command centers, Clinical and Administrative – as currently planned and subject to our ability to successfully implement our
business plan, we intend to establish centers which, if we are able to secure one or more contracts with a host country, we currently
plan to locate centers in the urban area hospitals and connected with satellite communications, these centers coordinate all aspects
of the healthcare delivery solution with the Mobile clinics and Rural clinics including clinical services, Telehealth services, pharmacy
and medical consumable coordination as well as escalations to our planned global response center.
Kallo
University – as currently planned and subject to our ability to successfully implement our business plan, we seek to establish
a focal point that we hope may provide education, training and development of local resources for all aspects of the healthcare delivery
which includes clinical, engineering and administration.
Emergency
Medical Services – as currently planned and subject to our ability to successfully implement our business plan, we seek to
establish an ancillary organization that we hope will provide ground and air ambulance vehicles for emergency patient transport. We
have now incorporated Medical Drone Services.
All
of the foregoing is based solely on our internal management assessments conducted without the benefit of any independent third-party
review or evaluation, we believe that our end-to-end delivery solution is equipped with necessary medical equipment as per regional healthcare
requirements. We also plan to install our copyrighted software and third-party software as required along with a five (5) year support
agreement renewable after the five (5) year initial term that includes the medical equipment, software licenses, installation implementation
and training. If we are successful in implementing our business plan and if we have sufficient financial resources, then we anticipate
that may, if circumstances are favorable, allow us to generate an ongoing revenue stream for service, maintenance, spare-parts, and consumables.
However, we cannot assure you that even if we are able to achieve these goals that we can do so at levels that may allow us to achieve
and sustain positive cash flow and profitability and avoid insolvency. We have incurred significant and protracted losses and we have
no record of achieving and sustaining positive cash flow and profitability and we cannot be certain that we will achieve either or both
of these goals at any time in the future. We are currently insolvent, we have very limited cash assets and we have liabilities in excess
of $6.92 million and we cannot assure you that we will regain any measure of solvency at any time in the future. Further and given our
financial condition, we have been advised that we are in the “Zone of Insolvency” in that our Board of Directors also must
consider the interests of our existing creditors in making financial and operating decisions that impact the rights and interests of
our existing creditors. As a result, the interests of our common stockholders may be significantly and permanently compromised with the
result that the interests of our common stockholders will be significantly and materially injured thereby.
Business
Overview
Our
plans and strategies were developed internally without the benefit of any independent professional consultants but we believe that the
global need for standardized healthcare service delivery to all geographies and to all people may be the fundamental business driver
for the innovation of the Kallo Integrated Delivery System – “KIDS”.
We
developed what we believe may be a unique and comprehensive concept as a result of our internal assessments over the past 15 years. We
believe that if we can implement our business plan and raise a sufficient amount of additional capital on reasonable terms and on a timely
basis, we may be able to address what we believe may be the core business issues in the current healthcare systems with intricate orchestration
of technologies both proprietary and off the shelf to create a standardized healthcare delivery model across the continuum of care.
If
market conditions allow and if we are successful in raising additional capital on reasonable terms, on a timely basis and in sufficient
amounts and avoid bankruptcy as well as the other risks set forth in the Risk Factors set forth herein and those set forth in Item 1A
of our 2021 Form 10-K Annual Report for the fiscal year ending December 31, 2021, we believe that we may be able to implement a strategic
market approach that may allow our potential customers to take a well-informed decision and to work with Kallo on a national strategy
for healthcare infrastructure and a standardized healthcare services delivery model across the country. This led to the development of
a structured business development process and management for what we hope may provide us with an opportunity to demonstrate that our
business strategy can be successfully implemented. However, we cannot assure any holder of our Common Stock, our Preferred Stock or our
dent instruments that we will have the managerial and financial resources that will allow us to undertake the steps needed to implement
our business plan.
We
believe that our business development model, unique to KIDS, is planned to include in-country stakeholder workshops and white-board sessions
on the KIDS concept and its application in their context of healthcare infrastructure and healthcare services delivery model. However,
we have not received and we do not anticipate receiving any independent or third party evaluation of our plans, strategies, or business
model and for this reason we may be exposed to significant additional existential problems that could result in the total destruction
of the Company and, for our common stockholders, the total loss of their investment. Our Common Stock is suitable only for those investors
who are able to suffer the TOTAL LOSS of their investment.
We
previously developed the concept of conducting detailed Clinical, Engineering and Technology studies led by Kallo to establish detailed
requirements for preparation of a customized proposal for the country and a phased roll out plan that we would seek to implement if we
were able to obtain sufficient managerial and financial resources that would be required to undertake these efforts.
In
addition, and if we are successful in avoiding bankruptcy and the liquidation of the Company as well as avoiding the effects of the other
existential risks that we face, then we may proceed to implement our business plan (with such revisions as we deem necessary in light
of then existing circumstances) that may allow us to raise additional capital on a timely basis and in sufficient amounts while avoiding
bankruptcy or insolvency, we may be able to develop a network of financial institutions and banks across the globe that we hope may be
focused on humanitarian and healthcare projects. However, given our recent adverse experience with the Kenya Contract, we remain far
more skeptical and entirely concerned that we may be facing unanticipated but significantly greater risks and uncertainties that may
well prevent us from undertaking any of our plans as provided in each of the agreements with each of the six countries, namely, Ghana,
Kenya, Ethiopia, Eswatini, Mozambique, and Eritrea. However, in the event that we are not successful in mitigating and limiting our exposure
to these and other risks and uncertainties and if we raise a sufficient amount of additional capital on reasonable terms and on a timely
basis, we may not be able to implement some of our business plans and strategies as described herein. In that event we may revise or
alter or plans based on then-existing market conditions and assessments that we make as we reassess our ability to conduct our business
and meet our obligations to creditors and others.
Go-To-Market
Strategy
If
we are successful in implementing our business plan, avoiding bankruptcy and otherwise avoid several other existential risks that we
face (as set forth herein) and provided that we are able to raise a sufficient amount of additional equity capital on reasonable terms,
in sufficient amounts and on a timely basis, then we currently intend to implement what we call our “Our Sales Go-To-Market Strategy”
– a strategy that is segmented based on the varying needs of our customers in the following three categories:
| 1. | Full
solution with Kallo Integrated Delivery System (KIDS) – typically longer sales cycle
and includes the end to end solution of Mobile Clinics, Rural Poly Clinics, Global and Regional
response centers, Clinical and Administrative command centers, telehealth support, Kallo
University training, pharmacy and medical consumable support and Emergency services with
ground and air ambulance vehicles. This solution is focused on the end-to-end healthcare
needs of developing countries. |
| 3. | COVID-19
Rapid Response Program |
Kallo’s
Value Proposition
All
of the above and the following is based on our internal assessments made by our three (3) corporate officers/directors without the benefit
of any independent third party professional consultants:
| ● | Laying
the foundational elements in building the primary care infrastructure for an entire country |
| ● | Providing
Technologies for current and future adoption of advancements in clinical services such as
Telemedicine, remote maintenance and management etc. |
| ● | Creating
operational policies and procedures to set higher standards of care |
| ● | Provide
Education and training to build resource capacity within the country |
| ● | KIDS
provide a modular and flexible Point-of-Care facility to enable healthcare services from
cities to the most rural areas in a given country and helps overcome inequalities in healthcare
services across all geographies. |
We
have not received and we have no plans to receive any independent evaluation of our plans by any independent third party and given the
continued deterioration of our financial condition, there can be no assurance that the value proposition as set forth above is remotely
feasible.
Kallo’s
Key Market Differentiators
Notwithstanding
the clear and unmistakable existential risks that we face, we know that we face ever-changing technology and competition from many others
who possess greater managerial and financial resources, if we can avoid bankruptcy and insolvency and provided that wed can raise additional
capital in sufficient amounts and on a timely basis, we believe that we may be able to offer and differentiate our services in our current
market segment by currently offering a far more comprehensive and holistic healthcare delivery solution compared to that currently offered
by others. However, we are well-aware that other competitors have significantly greater financial and managerial resources and we know
that our competitors are familiar with our business plans and strategies which they can freely adopt in competing with us. However, we
have invested considerable time and energy studying and understanding the healthcare needs of our target market segments.
Unequivocal
Differentiators
Subject
to our ability to avoid bankruptcy and the existential risks that we face, we may be able to offer what we describe as the following
“Unequivocal Differentiators” – attributes that we may be able to offer and provide that we believe (based on our own
internal assessments without the benefit of any independent third party professional consulting advice) may provide us with opportunities
that may allow us to implement one or more parts of our business plan assuming that we have and can obtain sufficient amounts of additional
financing on reasonable terms, in sufficient amounts and on a timely basis:
| 1. | Care
platforms (Point-of-care facilities - Mobile Clinics, Rural clinics & Modular Hospitals)
to be manufactured to North American and internationally accepted standards. |
| 2. | Programs,
facilities and services to be set-up to proactively detect and treat infectious diseases. |
| 3. | On-going
Tele-health service support, leveraging to be established with both local and international
expertise. |
| 4. | On-going
education, training, & certification programs to be offered through Kallo University. |
| 5. | On-going
service & maintenance programs to be provided for all facilities and equipment. |
| 6. | Leverages
local skillsets to be offered so as to provide employment opportunities. |
Competitive
Landscape
Based
solely upon our own internal assessments without the benefit of any third-party professional consulting advice, we believe that the healthcare
landscape is the most complex industry at large. It has developed in each area of its function in an isolated fashion and hence today
we have disparate functions, technologies and infrastructure. Globally healthcare industry leaders are working hard to bring a synchronized
approach in patient encounter, diagnosis and treatment including preventive care. Kallo has leaped into the future with the KIDS concept
and have successfully brought together technologies including global telemedicine, infrastructure and functional expertise leading the
industry and have created the Kallo business ecosystem.
We
also believe that the Kallo Integrated Delivery System (KIDS) may, if we can avoid bankruptcy and the existential risks that we face
and if circumstances allow, provide us with an ability to offer health care services in the under-developed, countries which may allow
us, if we able to successfully implement our business plan, to provide developing and developed countries with the flexibility of deploying
components of KIDS.
Need
for additional capital
We
have incurred significant and protracted operating losses since inception:(a) we have an accumulated deficit of over $89 million; (b)
we incurred losses of over $8 million in the fiscal year ending December 31, 2021; and (c) we have limited cash assets and over $6.9
million in liabilities. We have both a working capital deficit and we are insolvent. We expect to incur additional significant losses
as we execute our current business plan and strategy as well. These losses and our state of insolvency both raise substantial doubt about
our ability to continue as a going concern. In that respect, our Common Stock should be considered a HIGH RISK investment suitable
only to those persons who can afford the total loss of their investment.
As
stated below, we may be in the “Zone of Insolvency.” Under the corporate common law of many jurisdictions, a Board
of Directors of a corporation that is in the “Zone of Insolvency” generally owe a duty of care to the holders of its debt
instruments and other creditors to take steps to avoid or minimize the losses that such persons would otherwise incur. While we believe
that we have acted with due regard to our duty of care to our stockholders and to our creditors, we cannot assure you that we have always
acted with the requisite level to discharge our duties to each of the foregoing. In that event, holders of our Common Stock and holders
of our Preferred Stock will likely suffer the total loss of their investment.
We
cannot guarantee we will be successful in our business operations or in implementing our business plan. Our business is subject to significant
risks and uncertainties inherent in the establishment of a business enterprise, including those risks set forth herein.
To
become profitable and competitive, we anticipate that we will have to sell our products and services in sufficient volumes and with margins
that may allow us to achieve profitability. We cannot assure you or anyone that we will be successful in these efforts and that we will
avoid any of the severe financial and nonfinancial consequences that commonly result when a corporation is insolvent and has had a history
of losses with a large accumulated deficit.
There
is no guarantee that we will obtain sufficient additional financing on a timely basis and on reasonable terms. If financing is not available
on satisfactory terms, we may be unable to continue, develop, or expand our operations. Any equity financing will likely result in immediate
and substantial dilution of existing stockholders.
Results
of operations
Revenues
We
did not generate any revenues during the six months ended June 30, 2022 or 2021. However, we are pursuing what we hope may be suitable
business opportunities that, based on our own internal management assessments conducted without the benefit of any independent third-party
review or evaluation, may offer us commercially feasible and appropriate opportunities. However, we cannot assure you that we will be
successful in any of these matters or, if we achieve any success, that it will allow us to achieve and sustain positive cash flow and
profitability for any period of time.
We
are insolvent, we incurred $8 million in losses in the 2021 fiscal year that ended December 31, 2021 and we will continue to incur losses
with no assurance that we will ever generate any revenues or if we do generate any revenues, that we can sustain such revenues at any
level in excess of our costs. We have no history of generating and sustaining revenues, positive cash flow or profitability and we cannot
assure you that we will ever generate and sustain any revenues, positive cash and profitability at any time in the future. Our Common
Stock and our Preferred Stock should be viewed as HIGH RISK securities that are suitable only for persons who can accept the TOTAL
LOSS of their investment.
We
believe that we may be in the “Zone of Insolvency.” Under the corporate common law of many jurisdictions, a Board
of Directors of a corporation that is in the “Zone of Insolvency” generally owe a duty of care to the holders of its debt
instruments and other creditors to take steps to avoid or minimize the losses that such persons would otherwise incur. While we believe
that we have acted with due regard to our duty of care to our stockholders and to our creditors, we cannot assure you that we have always
acted with the requisite level to discharge our duties to each of the foregoing. In that event, holders of our Common Stock and holders
of our Preferred Stock will likely suffer the total loss of their investment.
Expenses
During
the three months ended June 30, 2022 we incurred total expenses of $126,778, including $218,260 in salaries and compensation, $31,300
in professional fees, $27,746 in interest and financing costs and $2,929 as other expenses, offset by gain on foreign exchange of $145,844
and debt forgiveness of $7,613 whereas during the three months ended June 30, 2021 we incurred total expenses of $7,536,483, including
$7,401,658 in salaries and compensation, $21,997 in professional fees. $27,747 in interest and financing costs, $63,134 in loss on foreign
exchange and $21,947 as other expenses. Many of our costs are primarily fixed costs and, as a result, we can not effectively reduce these
costs as aggressively as we would like.
The
decrease in our total expenses for the three months ended June 30, 2022 from the comparative period is mainly due to a decrease in salaries
and compensation as a result of non-cash stock based compensation of $7,295,600 in the previous period and a positive fluctuation of
$208,978 on foreign exchange due to appreciation of the US dollar versus the Canadian dollar.
During
the six months ended June 30, 2022, we incurred total expenses of $461,998, including $443,332 in salaries and compensation, $45,682
in professional fees, $55,188 in interest and financing costs and $5,053 as other expenses, offset by gain on foreign exchange of
$79,644 and debt forgiveness of $7,613 whereas during the six months ended June 30, 2021 we incurred total expenses of $7,849,008,
including $7,506,189 in salaries and compensation, $148,399 in professional fees. $55,188 in interest and financing costs, $19,501
in selling and marketing, $114,290 in loss on foreign exchange and $5,441 as other expenses. Many of our costs are primarily fixed
costs and, as a result, we cannot effectively reduce these costs as aggressively as we would like.
The
decrease in our total expenses for the six months ended June 30, 2022 from the comparative period is mainly due to a decrease in salaries
and compensation as a result of non-cash stock based compensation of $7,295,600 in the previous period and a positive fluctuation of
$193,934 on foreign exchange due to appreciation of the US dollar versus the Canadian dollar.
The
Company is operating with a minimal number of full-time employees and office space until such time as we may be able to secure new contracts,
if any. As stated above, we face significant risks and uncertainties that we cannot control.
Net
Loss
During
the three months ended June 30, 2022 we did not generate any revenues and incurred a net loss of $126,778
compared to a net loss of $7,536,483 during the same period in 2021. The main reason was the issuance
of stock based compensation in the previous period as discussed above. In that respect, we cannot assure you that we will be successful
in reducing our losses at any time in the future and we may face significant and protracted financial losses and we cannot guarantee
that we will achieve any of our business goals. We are insolvent and our Total Liabilities exceed our Total Assets and we may become
more insolvent unless and until we can generate sufficient revenues and positive cash flow that may allow us to meet our financial and
legal obligations to our creditors.
During
the six months ended June 30, 2022 we did not generate any revenues and incurred a net loss of $461,998 compared to a net loss of $7,849,008
during the same period in 2021. The main reason was the decrease in salaries and compensation due to issuance
of stock based compensation in the previous period as discussed above. In that respect, we cannot assure you that we will be successful
in reducing our losses at any time in the future and we may face significant and protracted financial losses and we cannot guarantee
that we will achieve any of our business goals. We are insolvent and our Total Liabilities exceed our Total Assets and we may become
more insolvent unless and until we can generate sufficient revenues and positive cash flow that may allow us to meet our financial and
legal obligations to our creditors.
We
incurred over $8 million in losses in the twelve months ending December 31, 2021 and there can be no assurance that we will not incur
losses at or above that level in the twelve months ending December 31, 2022. We are in the “Zone of Insolvency” and
holders of our Common Stock and our Preferred Stock face the total loss of their investment. Further and as a result of the “Zone
of Insolvency,” our Directors owe a duty of care to the holders of our existing debt instruments that will diminish the duties
that our Board of Directors would otherwise exercise in protecting the interests of our common stockholders and that of the Company itself.
All of this fundamentally and dramatically has a serious and negative impact on the interests of the holders of our common stock.
Liquidity
and capital resources
As
at June 30, 2022, the Company had current assets of $3,357 and current liabilities of $6,929,416, indicating working capital deficiency
of $6,926,059. As of June 30, 2022, our total assets of $3,357 comprised cash and prepaid expenses and our total liabilities were $6,929,416
comprised of $5,107,702 in accounts payable and accrued liabilities, convertible loans payable of $1,450,424 and short term loans of
$371,290.
Cash
used in operating activities amounted to $60,029 during the six months ended June 30, 2022, primarily as a result of the net loss adjusted
for non-cash items and various changes in operating assets and liabilities.
Cash
provided by financing activities amounted to $60,459 from proceeds from short term loans payable.
There
were no cash movement in investing activities during the current six months period ended June 30, 2022.
As
of June 30, 2022, our Total Liabilities exceeded our Total Assets and we were insolvent. In that respect we face all the risks and uncertainties
of any insolvent corporation that could easily result in stockholders losing all or substantially all of their investment. Our common
stock and our preferred stock are securities that should only be acquired by persons who can accept the HIGH RISK of such an investment
and the total loss of their investment.
As
stated above, we believe that we may be in the “Zone of Insolvency.” Under the corporate common law of many jurisdictions,
a Board of Directors of a corporation that is in the “Zone of Insolvency” generally owe a duty of care to the holders of
its debt instruments and other creditors to take steps to avoid or minimize the losses that such persons would otherwise incur. While
we believe that we have acted with due regard to our duty of care to our stockholders and to our creditors, we cannot assure you that
we have always acted with the requisite level to discharge our duties to each of the foregoing. In that event, our creditors may assert
additional claims against us which would further destroy any value that may be otherwise recoverable by holders of our Common Stock,
our Preferred Stock, our debt instruments and all of them.