Enzolytics Inc (ENZC)

[foxi]

Still looking over the new filing (Amended Financials and Footnotes December 31 2020) and I'm a little late to the party due to urgent family issues last week.

https://www.otcmarkets.com/otcapi/company/financial-report/275843/content


So far I'm picking up that the company had (and looks to still have?) a TON of toxic convertible debt. Would appreciate insight from some of the regulars on here since there's a lot of complicated data to parse. In particular, if you know of agreements occurring in 2021 or 2022 that canceled or repayed older debt, that would help me in my analysis.



Here's my best attempt to summarize what I'm seeing. On Page 28 there's a lengthy section on Derivative Liabilities that includes the following quotes:

Certain of the Company’s convertible notes are convertible into a variable number of shares of common stock for which there is not a floor to the number of common stock shares the Company might be required to issue. Based on the requirements of ASC 815 Derivatives and Hedging, the conversion feature represented an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability.

As of December 31, 2019, the Company had existing derivative liabilities of $1,008,604 related to various convertible notes. During the year ended December 31, 2020, $64,624 in principal of these convertible notes along with accrued interest and fees of $52,121 were converted into 1,025,676,038 shares of common stock. Also, $185,378 in principal of these convertible notes along with accrued interest and fees of $58,871 were converted into 941,078 shares of Series C Preferred stock.

On December 31, 2020, the derivative liabilities on the remaining convertible notes were revalued at $8,795,075 resulting in a loss of $10,094,691 for the year ended December 31, 2020 related to the change in fair value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions: conversion prices ranging from $0.0001 to $0.0034, the closing stock price of the Company's common stock on the date of valuation of $0.0054, an expected dividend yield of 0%, expected volatility of 383%, risk-free interest rate of 0.12%, and an expected term ranging from 0.25 to 1 year.

Note how they needed "1,025,676,038 shares of common stock" to pay back merely $64,624 in principal and $52,121 of interest and fees from a total debt of $1,008,604 during 2020. So they carried a lot of debt forward from 2020?

We know from https://www.otcmarkets.com/otcapi/company/financial-report/276898/content what the O/S was on December 31, 2020:

As of December 31, 2020, the number of shares outstanding of our Common Stock was: 2,797,935,953

It looks to me that on December 31, 2020, ENZC owed $8,795,075 in derivative liabilities with conversion prices ranging from .0001 to .0034, which at the average of the conversion prices to help us ballpark it (.00165), the outstanding debt from derivative liabilities comes out to something like 5,330,348,484 shares give or take a few Billion.


Note that presumably this number does not include:

- liabilities where there IS a floor "to the number of common stock shares the Company might be required to issue"

- the issuances of convertible preferred stock options and that occur throughout the filing to investors, insiders, etc.

- I'm not sure if it accounts for the "crowdfunding convertible notes" either.



Obviously if there were already 2.7 Billion out of 3 Billion shares outstanding when these numbers were recorded, there's been no room to facilitate conversions to repay the debt. Do yall know if this mountain of convertible debt has been discharged in 2021 or 2022 by some other means than conversion into Common shares? Or is it correct to assume future conversions are 'waiting in the wings' unless they can find another way to discharge those overdue liabilities?


We also have this paragraph from Page 11:

Page 11
(2) Going Concern

Management of the Company believes that the Company will be successful in its capital formation and operating activities, there can be no assurance that it will be able to raise additional equity capital, or be able to generate sufficient revenues to sustain its operations. The Company also intends to conduct additional capital formation activities through the issuance of its common stock to establish sufficient working capital and to expand its operations.

The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP), which contemplate continuation of the Company as a going concern.

The Company has incurred an operating loss since inception and the cash resources of the Company are insufficient to meet its planned business objectives. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Going Concern assumption is present to assert that ENZC plans to operate for the foreseeable future (at least 12 months from the date of [I think the April 2022] filing) and includes the lines of thinking for how it plans to discharge its liabilities.

The going concern principle allows the company to defer some of its prepaid expenses until future accounting periods. The going concern assumption is a fundamental assumption in the preparation of financial statements. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. Accordingly, unless the going concern assumption is inappropriate in the circumstances of the entity, assets and liabilities are recorded on the basis that the entity will be able to realize its assets, discharge its liabilities, and obtain refinancing (if necessary) in the normal course of business.
https://en.wikipedia.org/wiki/Going_concern

From what I'm seeing, ENZC is disclosing unambiguously that they are running out of money and that they intend to dilute in the future.

"The Company also intends to conduct additional capital formation activities through the issuance of its common stock to establish sufficient working capital and to expand its operations." is saying that they intend to dilute.

"The Company has incurred an operating loss since inception and the cash resources of the Company are insufficient to meet its planned business objectives. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern." This is them saying they are in danger of running out of money, raising "substantial doubt" about continuing as a "going concern" (see here for more info https://en.wikipedia.org/wiki/Going_concern#Accounting ). This does not imply ENZC is imminently bankrupt, but it appears to suggest they need to raise big money pronto to address their liabilities and ongoing operating expenses.

This being an amended 2020 filing, filed in 2022 and many parts worded in the present tense, is a little confusing. Are they framing the situation Today or framing the situation as it appeared Back Then?

Let me know your thoughts!