Life On Earth, Inc. - Annual Report: 2021 (Form 10-K)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 _________________

FORM 10-K

☒ 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: May 31, 2021 

OR 

☐ 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to ______________________

Commission file number: 001-34673

LIFE ON EARTH, INC.

(Exact name of Registrant as Specified in Its Charter)

Securities registered pursuant to Section 12(b) of the Act:

Registrant’s telephone number, including area code: (646) 884-9897

Securities registered pursuant to Section 12(g) of the Act: none

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any news or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the registrant’s voting common equity held by non-affiliates of the registrant, based upon the closing price of the registrant’s common stock on the last business day of the registrant’s most recently completed second fiscal quarter was approximately $800,000 Thousand.

The number of outstanding shares of the registrant’s common stock was 46,424,344 as of September 3, 2021.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

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FORWARD - LOOKING STATEMENTS

. This document contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This Annual Report on Form 10-K (Report) contains a number of forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, the economy, events or developments that management expects or anticipates will or may occur in the future, including statements related to sales, revenues, profitability, distributor channels, new products, adequacy of funds from operations, cash flows and financing, our ability to continue as a going concern, potential strategic transactions, statements regarding future operating results and non-historical information, are forward-looking statements. In particular, the words such as “believe,” “expect,” “intend,”“anticipate,” “estimate,” “may,” “will,” “can,” “plan,” “predict,” “could,” “future,” “continue,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking. Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions and apply only as of the date of this Report. Our actual results, performance or achievements could differ materially from historical results as well as from the results expressed in, anticipated or implied by these forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In particular, our business, including our financial condition and results of operations and our ability to continue as a going concern may be impacted by a number of factors, including, but not limited to, the following:

Readers are also urged to carefully review and consider the various disclosures made by us in this Report and in our other reports we file with the Securities and Exchange Commission, including our periodic reports on Forms 10-Q and current reports on Form 8-K.

All references in this Annual Report on Form 10-K to “LFER,” “Life On Earth, Inc. the “Company,” “we,” “us” or “our” mean Life On Earth, Inc.

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PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

Corporate Overview

Life On Earth, Inc. is a cloud enterprise software developer/ provider that enables rapid innovation to keep enterprise operations safe, compliant and manageable. The Company’s products offered are designed to help organizations innovate and modernize legacy systems while minimizing cost and risk of business disruptions and ensure regulatory compliance. Through its recent acquisition of SmartAxiom, Inc., the Company now has the capabilities of offering software that manages and secures the Internet-of-Things (IoT) through patented, lite blockchain technology running among those devices at the edge of the Internet and enabling them to defend themselves. Our peer-to-peer distributed ledgers improve security, latency, reliability and manageability. We have uniquely created, through our SmartAxiom subsidiary, the endpoint-to-cloud blockchain solution, while our IoT Smart Contracts manage NFTs and push intelligence to the edge. The SmartAxiom technology is proving value in verticals such as smart buildings, manufacturing lines and shipment tracking. It interoperates with enterprise systems such as IBM Blockchain and Microsoft Azure and is proven on many ARM and Intel based microcontrollers such as those from Intel, NXP, Renesas, Marvell, and Broadcom.

The Company previously was a brand accelerator and incubator Company that was focused on building and scaling concepts in the natural consumer products category (“CPG”). During the year ended May 31, 2021, the Company discontinued the wholesale beverage distribution operations, and the Company announced its intention divest away from its business as a Consumer-Packaged Goods (“CPG”) Company. Accordingly, the Company’s results of operations for the year ended May 31, 2020, reflect a charge in the aggregate amount of $786,436,

On November 11, 2019, the Board of Directors and a majority of the voting power approved a resolution to effectuate a 5:1 Reverse Stock Split. and an increase in authorized Shares of Common Stock from One Hundred million (100,000,000) to Two Hundred million (200,000,000) shares of common stock, $0.001 par value. The Company received approval from FINRA on March 25, 2020 and, on that date, the reverse stock split became effective. All share and per share information has been retroactively adjusted to reflect the impact of this reverse stock split. 

Company History

Life On Earth, Inc. was incorporated in April 2013.

In October 2013, we signed a distribution agreement with Gran Nevada Beverage, Inc. (“Gran Nevada”), an entity related through common management and ownership. The agreement provides us with the right to sell and distribute Gran Nevada’s beverages in the United States with purchase prices at the then applicable wholesale prices charged to Gran Nevada’s distributors. The agreement was for an initial term of five years with automatic renewals of successive five-year terms unless terminated. We initiated sales and distribution operations in March 2014. This agreement was renewed for an additional 5 years as per the agreement. During the years ended 2020 and 2019, the Company sold $0 and $73,592 respectively. These products were produced by a third party copacker and were not purchased from Gran Nevada. The decrease in sales from 2019 to 2020 was related to limited production capacity for the Gran Nevada Horchata that the company was producing. The availability of 3^rd party copackers that can produce an Horchata are limited and it directly impacted the sales. As there is currently no co-packing available for this product the Company does not know if they will be able to produce this product again in the future.

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In July 2016, we entered into a Stock Purchase and Sale Agreement to acquire all of the issued and outstanding common stock of Energy Sources Distributors, Inc. (“ESD”) from its three founding shareholders. ESD provides wholesale distribution of specialty beverage products from its headquarters in Gilroy, California. The total purchase price for the acquisition was $450,000 in cash. We retained one of the selling founders as General Manager for a term of twelve (12) months pursuant to an employment agreement to manage operations at the ESD facility in Gilroy, California. ESD is now a wholly owned subsidiary of the Company. The acquisition of ESD in July 2016 allowed the Company to expand distribution on the West Coast. In June 2019, the Company further decided to discontinue the wholesale beverage distribution operations in Northern California and, on November 4, 2019, ESD filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code in the United States Bankruptcy Court for the Northern District of California.

In October 2017, the Company acquired Victoria’s Kitchen, LLC (“VK”). VK is a specialty beverage company that makes exceptional European-inspired drinks. VK’s beverages are natural and all the beverages are Gluten-Free, GMO-Free, Dairy-Free, Vegan and contain no artificial ingredients or preservatives.

On April 30, 2018, the Company acquired The Giant Beverage Company Inc. (“Giant” or “GBC”). Giant is a Direct Store Delivery (DSD) business that covers the five boroughs of New York City under an eight-route distribution system. GBC serviced over 600 accounts in the five boroughs. Giant services mainly independent retailers but was expanding to service authorized chain accounts.

On May 7, 2019, Life On Earth, Inc., GBC, and Frank Iemmiti and Anthony Iemmiti (“Frank and Anthony Iemmiti”) entered into a Dispute Resolution and Resale agreement that will resolve all existing disputes between the two parties and will also result in the sale of the ownership of Giant back to Frank and Anthony Iemmiti. Under the terms of the agreement, the Company deposited $50,000 into an Attorney’s Trust Account. Frank and Anthony Iemmiti have a continuing obligation to provide the Company with all financial information of Giant (the “Giant Financial Information”) that the Company needs to complete its SEC reporting requirements. On July 4, 2019 the Company and Frank and Anthony Iemmiti executed a Dispute Resolution and Resale agreement that at the closing the Company authorized the release of the $50,000 to Frank and Anthony Iemmiti. Also, at closing, the Company also paid Frank and Anthony Iemmiti the agreed upon consideration of $62,718 of the Company shares at $0.80 per share. Lastly at the closing, with an effective date of March 2, 2019 the Company sold GBC to Frank and Anthony Iemmiti for 291,000 shares of the Company stock that they owned. The sale of the Giant Beverage Company to Frank and Anthony Iemmiti became effective March 1, 2019.

On May 11, 2021, LFER acquired SmartAxiom with all their assets including intellectual properties, Patents and core Internet of Things (IoT) software that enables securing sensor devices and communication to the cloud-based software. The agreed purchase price was $6,250,000 paid as follows: (a) $1,950,000 by issuing 13,000,000 shares of the Company’s common stock, upon closing; (b) $2,100,000 by issuing 210,000 shares of the Company’s Series D convertible preferred shares (each share of the Company’s Series D convertible preferred is convertible into 10 shares of the Company’s common stock); and, (c) $2,200,000 to be paid pursuant to a full earnout based on SmartAxiom GAAP revenue recognition in the amount of $1,500,000 within the first eighteen months after closing date of the acquisition. The earnout will be prorated based on the SmartAxiom revenues received over an eighteen-month period. 

Sales and Distribution

The Company markets and sells its logistics solutions based on proprietary patented technologies. The logistics solution consists of a multi-tenant cloud system managing BlockTracker cellular tracking devices, which sense location, temperature, vibration, pressure and light level. The device can also act as a gateway and connect to additional nearby sensors via Bluetooth Low Energy (BLE). It has one temperature logger per box and reports to one BlockTracker per installed box. The management system, built with SmartAxiom’s Tenacious cloud backend, shows shipment location and condition, and notifies by short messaging service (SMS) when monitored parameters like temperature, humidity, light, vibration etc. exceed configured parameter, has geofencing and tools to activate devices and assemble shipments. The company has developed complete end-to-end solution for multiple industries with Supply Chain Management, Warehouse and Asset Management, and Industrial IoT solutions. These solutions are targeted to serve the fastest-growing IoT base edge computing, mobility (tracking and visualizing distributed assets) and manufacturing industry IoT solution markets. The Company also provides custom solution services to adopt and integrate its standard solution to customer environments and specification through its consulting, integration and support services group. The custom solutions focus is solving customers’ cyber security and vulnerabilities in their IoT business environment with patented IoT technologies. 

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Production and Distribution

The Company strategy is to create end-to-end solution and partner with platform technologies providers and system integrators. Our focus is to develop solutions and provide customization, integration and support to our partners. We have a small team of highly technical and experienced personnel to support our various partners that include Renesas (our IoT platform partner), Amazon & Microsoft (our Cloud platform partners), IBM (Block Chain software partner) and several system integrators and technologies providers. Our primary software development is conducted in California, USA. We also have an offshore development and support center in India. In addition, we have expert resources in Dublin, Ireland.

Competition 

Our SmartAxiom product line has multiple competitors for Internet of things (IoT) security technologies, which include Mocana, DeviceAuthority, Xage and Atonomy. However, these vendors do not address the distributed block chain technologies, nor do they have any rival patents in this space. In the logistics industry there are literally hundreds of competitors. Our competitors have greater operational histories, financial resources and personnel than we do. On the other hand, we have a comprehensive solution protected by our patented technologies such as the edge security software with distributed blockchain security for IoT devices.

The Company’s solution differentiators and advantage of our technologies-based solution is the robust end-to-end solution.

Government Regulation

 There are no government regulations that we need to adhere to support IoT solutions.

 Research and Development Activities

The Company is currently involved in developing a Center of Excellence to support large enterprise clients’ solutioning and integration needs. We are working with Partner and System Integrators to determine the level of subject matter experts (SMEs) and support infrastructure needed to ensure their support requirements.

Employees

The Company currently has three full-time employees, as follows: a CEO, COO, and President, and its wholly owned subsidiary, SmartAxiom, Inc., has 6 full-time employees and 8 subcontractors and services providers.

Certain positions, such as senior sales executives, solution architects and customer support for both the Company and its wholly owned subsidiary, are being filled with paid independent contractors or insider owners who do not receive cash compensation but may receive stock compensation. In certain regions of the United States, we utilize the services of direct sales and distribution companies. The Company also outsources its logistics to third parties, which can reduce the need for employees in these roles.

Going Concern Qualification 

Several conditions and events cast substantial doubt about the Company’s ability to continue as a going concern. The Company has incurred net losses from inception of approximately $18,600,000, has limited revenues and requires additional financing in order to finance its business activities on an ongoing basis. The Company has negative working capital of $9,676,000 as of May 31, 2021. The Company’s future capital requirements will depend on numerous factors including, but not limited to, continued progress in finding business opportunities. We have experienced recurring losses from operations and negative cash flows from operating activities. This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about our ability to continue as a going concern. We continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, currently, based upon our near-term anticipated level of operations and expenditures, management believes that cash on hand, excluding cash available under our line of credit, is not sufficient to enable us to fund operations for 12 months from the date the financial statements included in this Report are issued.

At May 31, 2021, we had cash on hand of $34,629 and an accumulated deficit of $18,635,356. See“Liquidity and Capital Resources.”

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Intellectual Property Protection

The Company has secured a registered trademark for its name and logo. The Company also has trademarks registered for the Victoria’s Kitchen and Just Chill brands. No Trademarks have been filed to date with respect to SmartAxiom.  

SmartAxiom owns two issued patents U.S. Patent No. 10,924,466 (System and method for IOT security) and 11,032,293 (System and method for managing and securing a distributed ledger for a decentralized peer-to-peer network).  These patents will expire at approximately May 2, 2039 and December 8, 2039.  SmartAxiom owns three pending patent applications 17/340,928, 17/169,356, and 16/293,538. 

Issued patents

1.       Patent No. 11,032,293 – June 8, 2021 (same as application no. 16/272,358 and publication no. 2019-0253434 A1 published 8/15/2019).  Title –
SYSTEM AND METHOD FOR MANAGING AND SECURING A DISTRIBUTED LEDGER FOR A DECENTRALIZED PEER-TO-PEER NETWORK

a.     Currently pending Continuation application of above issued patent - 17/340,928 – filed 6/7/2021 Title –
SYSTEM AND METHOD FOR MANAGING AND SECURING A DISTRIBUTED LEDGER FOR A DECENTRALIZED PEER-TO-PEER NETWORK

2.      Patent No.: US 10,924,466 B2, Pub. Date of Patent: Feb.16,2021 (same as application no. 16/048,140 and publication no. 2029-0036906 A1 Published 1/31/2019)

a.    Currently pending Continuation application of above issued patent – Application No. 17/169,356 (same as publication no. 2021-0160233 A1 published February 5, 2021) title - SYSTEM AND METHODS FOR IOT SECURITY

Published not issued yet patent applications.

3.    Published Patent Number: US 2019/0273623 Al, Pub. Date: Sep. 5, 2019 – currently pending no issued.  Title - Systems and Methods for a Blockchain Multi-Chain Smart Contract Time Envelope.

In summary, SmartAxiom has 3 currently pending patent applications and 2 issued patents as stated above. 

ITEM 1A. RISK FACTORS

As a “Smaller Reporting Company”, we are not required to provide this information. We are subject to Covid-19 risks that are contained at page 12.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

We maintain our principal office at 575 Lexington Avenue, 4^th Floor, New York, NY 10022. Our telephone number at that office is (646) 844-9897. Our executive offices are in New York City. SmartAxiom is located in California at 530 Technology Park, Suite 100 & 200, Irvine, CA 92618.

In connection with the acquisition of ESD, the Company assumed a lease for approximately 13,000 square feet of warehouse space located in Gilroy, California at a base rent of $5,248 per month. The lease terminated on June 30, 2021. In June 2019, the Company made the decision to discontinue the operations of ESD. The warehouse space has been leased by a third party and the company’s obligations under the lease terminated as of August 1, 2019.

We maintain a website at http://www.lifeonearthinc.com/ and the information contained on that website is not deemed to be a part of this annual report. 

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ITEM 3. LEGAL PROCEEDINGS

Settlement of Gankaku Litigation

Effective as of June 17, 2021, we settled litigation with Gankaku Living Trust (“Gankaku”), Gankaku Living Trust v. Life on Earth, Inc., Case No. 655189/2019 (New York Supreme Court) (the “Settlement”) in connection with Gankaku’s complaint on September 12, 2019 claiming a breach of contract and default upon a Note. The Settlement provides that Gankaku file with the Court a Satisfaction of Judgment and Stipulation of Discontinuance, which stipulation was filed by Gankaku on June 24, 2021. This Settlement does not involve the issuance of any additional shares to Gankaku as part of the settlement amount.  The Settlement settles all matters pertaining to the Gankaku complaint and litigation, and we no longer owe Gankaku any further consideration. As per the Settlement Agreement, both parties mutually released one another from any and all claims.

Settlement of Redstart Litigation

On March 23, 2021, the Company and Redstart Holdings Corp (“Redstart”) settled litigation in connection with a complaint by Redstart in the Supreme Court of Nassau County, New York alleging events of default under the terms of 2 Convertible Notes of which Redstart was the Holder. In connection with settlement of the litigation, Redstart filed a motion to dismiss their complaint against the Company with prejudice, which settles all matters pertaining to the Redstart litigation and complaint. The Company no longer owes Redstart any further consideration. As per the Settlement Agreement, both parties mutually released one another from any and all claims.

Complaint by Anshu Sharma and Aditya Sharma

On March 16, 2021, we received a complaint filed by Anshu Sharma and Aditya Sharma against the Company and the Company's officers/directors in the County of Hennepin, Minnesota (District Court; Fourth Judicial District) in connection with our agreement regarding an investment by the Plaintiffs in our Preferred C Shares.  On March 29, 2021, we filed “Defendant’s Joint Motion to Dismiss” to dismiss the complaint.  The Company believes that there is no merit to the complaint and it intends to vigorously defend this matter.  

Complaint by Note Holder

On December 14, 2020, the Company received a Complaint from the note holder, L & H, Inc. (“L&H”), filed in the First Judicial District Court of Nevada, Carson City, alleging breaches of contract regarding the Company’s failure to repay amounts due or failing to issuing shares upon demand and breach of Implied covenant of good faith and fair dealing in connection with the $110,000 September 10, 2019 Convertible Promissory Note between L&H and the Company. The Complaint seeks an unspecified amount of damages representing the balance of the unconverted debt and penalties. .

Complaint by Former Employee

On November 20, 2019, a Complaint was filed with the Superior Court-Judicial District of New Haven by a former employee, naming the Company as Defendant. The Complaint claims that the Company owes the former employee back wages of $60,000 and unpaid expenses of $20,000, which were due to be paid to the former employee upon his termination from the Company on November 1, 2019, in accordance with an employment agreement dated November 18, 2018. The Company has responded that the employee was terminated for cause and is no longer obligated under the terms of the employment agreement. As of August 31, 2020, the parties have not engaged in extensive discovery or any substantial motion practice and no trial date has been set. In addition to the back wages of $60,000, severance of $45,000 and unpaid expenses of $20,000, the Company has recorded legal expenses of $15,000 during the year ended May 31, 2020, as a result of receiving the Complaint.

There are no other legal or governmental proceedings that are presently pending or, to our knowledge, threatened, to which we are a party.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable. 

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PART II

ITEM  5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

We have two classes of stock outstanding, Common Stock and Series A Preferred Stock. As of May 31, 2020, there were no Series B Preferred Shares issued or outstanding. Our Common Stock is quoted on the OTC Bulletin Board under the symbol “LFER

The following table sets forth the high and low reported closing prices per share of our Common Stock for the period’s indicated. There is no established public trading market for our Series A Preferred Stock, our Series B Preferred Stock, our Series C Preferred and our Series D Preferred Stock.

The Company has not declared dividends and does not intend to in the foreseeable future. The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.

Holders

As of September 3, 2021, there were 46,424,344 shares of Common Stock issued and outstanding held by 1,000 shareholders of record. As of September 3, 2021, there were 1,200,000 shares of Series A Preferred Stock issued and outstanding held by shareholders of record. The Series A Preferred shares are not convertible and do not receive dividends. As of September 3, 2021, there were 100,000 Series B Preferred Share issued or outstanding to 3 holders; There were 290,000 Series C Preferred Shares issued and outstanding to 6 Shareholders; and there were 210,000 Series D Preferred Shares issued or outstanding to 23 shareholders.

Dividends

We have never declared any cash dividends with respect to our Common Stock. Future payment of dividends is within the discretion of the Board of Directors and will depend on earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting or that are likely to limit, our ability to pay dividends on our Common Stock, we presently intend to retain future earnings, if any, for use in our business. We have no present intention to pay cash dividends on our Common Stock.

Recent Sales or Issuances of Unregistered Securities

During the year ended May 31, 2021, the Company issued 14,801,203 shares of common stock to seven (7) parties for the conversions of convertible debt at prices ranging from $0.01 to $0.10 per share.

During the year ended May 31, 2021, the Company issued 1,297,500 shares of common stock to seven (7) parties related to finance costs related to convertible debt at prices ranging from $0.084 to $0.20 per share.

During the year ended May 31, 2021, the Company issued 368,593 shares of common stock to six (6) vendors at prices ranging from $0.072 to $0.21 per share for services provided to the Company. 

During the year ended May 31, 2020, the Company issued 4,496,543 shares of common stock to four (4) parties for the conversions of convertible debt at prices ranging from $0.007 to $0.75 per share.

During the year ended May 31, 2020, the Company issued 645,029 shares of common stock to fifteen (15) vendors at prices ranging from $0.009 to $1.65 per share for services provided to the Company.

During the year ended May 31, 2020, the Company issued 633,865 shares of common stock to five (5) members of our Board of Directors at prices ranging from $0.19 to $1.50 per share.

During the year ended May 31, 2020, the Company issued 78,398 shares of the Company’s stock to Frank and Anthony Iemmiti, for their additional stated consideration in the GBC Settlement Agreement, at $0.80 per share.

During the year ended May 31, 2020, the Company issued 235,750 shares of common stock to seven (7) parties related to deferred financing costs. 

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Each of the foregoing transactions were deemed exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on the exemption at Section 4(a)(2) and/or Regulation A Rule 506 for transaction not involving a public offering.

In addition, the Company issued the following debt instruments during the period June 1, 2017 through May 31, 2021.

All conversions and payoffs of these debt instruments are reflected in the financial statements and are detailed in the footnotes. 

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ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As described at the beginning of this Annual Report on Form 10-K, our actual results could differ materially from those anticipated in these forward-looking statements. Factors that could contribute to such differences include those discussed at the beginning of this Report, below in this section and in the section above entitled “Risk Factors.” You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect new information, events or circumstances after the date of this Report, or to reflect the occurrence of unanticipated events. You should read the following discussion and analysis in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Report.

CURRENT OPERATIONS

Life On Earth, Inc. (Company) was incorporated in April 2013 as Hispanica International Delights of America, Inc. as a Delaware corporation. In February 2018, the Company changed its name to Life On Earth, Inc. and was engaged in the distribution of its own proprietary functional beverages throughout the United States. During the year ended May 31, 2021, the Company discontinued the wholesale beverage distribution operations, and the Company announced its intention divest away from its business as a Consumer-Packaged Goods (“CPG”) Company. Accordingly, the Company’s results of operations for the year ended May 31, 2020, reflect a charge in the aggregate amount of $786,436,

In December of 2020 the Company decided to change its business and focus on building a technology company to take advantage of high growth software solution based on in IoT edge technologies. In May of 2021, the company acquired SmartAxiom. SmartAxiom delivers Internet of Things (IoT) edge solutions. The Company has computing IoT platform providing our customers with a truly integrated, secure, scalable, interoperable, and advanced insight and visualization engine for the Internet-of-everything’s. SmartAxiom’s delivers a “Single Pane of Glass” architecture model, that works with third-party solutions to provide the foundation for seamlessly, and securely connecting devices. Delivering trusted data to the cloud, and providing value through big data predictive analytics.

Coronavirus Risks

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”.

The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. The significant outbreak of COVID-19 has resulted in a widespread health crisis that has adversely affected the economies and financial markets worldwide, and may continue to do so, which could adversely affect our business, results of operations and financial condition.

GOING CONCERN QUALIFICATION 

Several conditions and events cast substantial doubt about the Company’s ability to continue as a going concern. The Company has incurred net losses from inception of approximately $18,500,000, has limited revenues and requires additional financing in order to finance its business activities on an ongoing basis. The Company has negative working capital of $4,295,000 as of May 31, 2021. The Company’s future capital requirements will depend on numerous factors including, but not limited to, continued progress in finding business opportunities. We have experienced recurring losses from operations and negative cash flows from operating activities. This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about our ability to continue as a going concern. We continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, currently, based upon our near-term anticipated level of operations and expenditures, management believes that cash on hand, excluding cash available under our line of credit, is not sufficient to enable us to fund operations for 12 months from the date the financial statements included in this Report are issued

At May 31, 2021, we had cash on hand of $34,629 and an accumulated deficit of $18,635,356. See“Liquidity and Capital Resources.”

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates. Many of our estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are subject to many risks and uncertainties, including those discussed below and elsewhere in this Report. We do not undertake any obligation to update or revise this discussion to reflect any future events or circumstances. There are certain critical accounting estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We have identified below our accounting policies that we use in arriving at key estimates that we consider critical to our business operations and the understanding of our results of operations. This is not a complete list of all of our accounting policies, and there may be other accounting policies that are significant to us. For a detailed discussion on the application of these and our other accounting policies, see Note 1 to Consolidated Financial Statements of this Report.

Revenue Recognition

The Company recognizes revenue under ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASC 606”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model (as described in Note 1 to the Consolidated Financial Statements of this Report) to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer.

Revenue consists of the gross sales price, less allowances for which provisions are made at the time of sale, and less certain other discounts, allowances, and rebates that are accounted for as a reduction from gross revenue. Costs incurred by the Company for shipping and handling charges are included in cost of goods sold.

Goodwill and Intangible Assets 

Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. Goodwill and other intangibles are reviewed for impairment annually or more frequently when events or circumstances indicates that the carrying value of a reporting unit more likely than not exceeds its fair value. The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the asset. If, on the basis of qualitative factors, it is considered more likely than not that the fair value of the asset is greater than the carrying amount, further testing of goodwill for impairment is not required. If the carrying amount of the asset exceeds the asset’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that asset. Identifiable intangible assets acquired in business combinations are recorded at the estimated acquisition date fair value. Finite lived intangible assets are amortized over the shorter of the contractual life or their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated. As part of the Company’s annual review of goodwill and intangibles we performed a detail analysis of the intangibles recorded as they relate to the acquisitions of JC and VK. Based on this analysis, the Company recorded an impairment charge of $299,000 related to the JC acquisition as of May 31, 2020. The Company also wrote off the goodwill recorded in the VK acquisition, in the amount of $195,000.

 Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

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Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

LIQUIDITY AND CAPITAL RESOURCES 

During the year ended May 31, 2021, the Company received $100,000 from the issuance of 100 shares of the Company’s Series B Preferred Stock., and, received $220,000 from the issuance of the 220 shares of the Company’s Series C Preferred Stock. During June 2021, the Company received $170,000 from the issuance of 170 shares of the Company’s Series C Preferred Stock. During the year ended May 31, 2021, the Company received $70,000 from the issuance of convertible notes payable and $30,000 from the issuance of a term note and paid $9,000 of notes payable to related parties.

During the year ended May 31, 2020, the Company received $447,240 from the issuance of convertible notes payable and made a $6,000 principal payment to a convertible note holder. During the year ended May 31, 2020, the Company received approximately $53,000 from the issuance of notes payable to related parties and paid $5,300 of notes payable to related parties.

During the year ended May 31, 2021, the Company received proceeds from various lines of credit in an aggregate total of approximately $19,000 and repaid approximately $30,000. During the year ended May 31, 2020, the Company received proceeds from various lines of credit in an aggregate total of approximately $59,000 and repaid approximately $67,000.

We have experienced recurring losses from operations and negative cash flows from operating activities. This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about our ability to continue as a going concern. We continue to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs. Therefore, currently, based upon our near-term anticipated level of operations and expenditures, management believes that cash on hand is not sufficient to enable us to fund operations for 12 months from the date the financial statements included in this Report are issued. In view of these conditions, our ability to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on our ability to obtain necessary financing to fund ongoing operations. The consolidated financial statements included in this Report do not give effect to any adjustments which will be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements. As of May 31, 2021, the Company had negative working capital of approximately $4,295,000.

We will require additional financing to support our working capital needs in the future. The amount of additional capital that we will require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for available debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. We believe it is important that we meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed. Additionally, these alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions that we consider to be in the best interest of our company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible when needed.

CASH FLOW

Our primary sources of liquidity have been cash from sales of products, sales of shares, the issuance of a convertible promissory notes and from lines of credit. 

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WORKING CAPITAL

As of May 31, 2021, the Company had total current assets of $113,657 and total current liabilities of $9,881,135 resulting in negative working capital of $9,767,478. As of May 31, 2020, the Company had total current assets of $3,831 and total current liabilities of $4,289,675 resulting in negative working capital of $4,285,844. The increase in negative working capital of $5,481,634 during the year ended May 31, 2021, related, primarily to the accrued cost of the acquisition of Smart Axiom of approximately $5,044,000. In addition, there was an increase in current assets in 2021 compared to 2020 of approximately $117,000, primarily related to an increase in other receivables of $70,000 and the current assets acquired from Smart Axiom of approximately $50,000, including cash of $34,000.

Our current liabilities increased during the year ended May 31, 2021 as compared to the year ended May 31, 2020 by approximately $5,591,000, primarily due to the in thee accrued cost of the acquisition of Smart Axiom of approximately $5,044,000, other increases in accounts payable and accrued expenses in 2021 of $321,000, and an increase in the contingent liability for the acquisition of JCG of approximately $358,000, offset by decreases in our convertible notes payable in 2021 of approximately $232,000. 

RESULTS OF OPERATIONS  

FOR THE YEAR ENDED MAY 31, 2021, AS COMPARED TO MAY 31, 2020.

Sales 

The Company recorded no sales from continuing operations for the years ended May 31, 2021, and 2020.  

Cost of Goods Sold and Gross Profit

Gross profit during the year ended May 31, 2021, was $0 as compared to a negative gross profit of $55,701 as reported for the year ended May 31, 2020. The negative gross profit during the year ended 2020 was primarily due the write-offs of obsolete inventory because of expiring inventory

Operating Expenses

Operating expenses from continuing operations were $663,564 for the year ended May 31, 2021 as compared to $1,959,408 for the year ended May 31, 2020. The decrease in operating expenses was related to a variety of factors. During the year ended May 31, 2021 our professional fees decreased by $446,000, Officers compensation decreased by $441,000, salaries and benefits decreased by $349,000, other selling, general and administrative expenses decreased by $187,000. and amortization increased by $79,000 as compared to the year ended May 31, 2020.

Other Expense

During the year ended May 31, 2021, the Company recorded interest and finance costs from continuing operations of $423,546, as compared to $744,461 during the year ended May 31, 2020. The interest and finance costs incurred by the Company reflect the cost of the debt incurred by the Company to finance operations. During the year ended May 31, 2021, the Company recorded a charge for the fair value of contingent consideration of $357,955 as compared to a credit of the fair value of contingent consideration by $325,309 during the year ended May 31, 2020, related to the acquisition of Just Chill, which arises from the measurement of LFER stock on the 12-month anniversary of the acquisition and subsequent Balance Sheet reporting dates. During the year ended May 31, 2021, the Company recorded a credit change in the fair value of derivative liability of $36,127 as compared to $1,247 during the year ended May 31, 2019.

Net Loss

Net loss from continuing operations for the year ended May 31, 2021, decreased to $1,408,938 from a net loss of $2,432,907 for the year ended May 31, 2020. In addition to the above factors, during the year ended May 31, 2021 the Company recorded a loss on discontinued operations of $25,135. During the year ended May 31, 2020, the Company recorded a loss on discontinued operations of $786,435 and a gain on the disposal of subsidiary of $893,515 related to the disposal of ESD.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a “Smaller Reporting Company”, the Company is not required to provide this information. 

ITEM 8. FINANCIAL STATEMENTS

The audited financial statements are included beginning immediately following the signature page to this report. See Item 15 for a list of the financial statements included herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES 

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed by is in the reports we file or submit under the Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) (“Disclosure Controls”) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our Disclosure Controls and make modifications as necessary; our intent in this regard is that the Disclosure Controls will be modified as systems change, and conditions warrant.

As of May 31, 2021, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer of the effectiveness of the design and opera on of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

The determination that our disclosure controls and procedures were not effective as of May 31, 2021 is a result of inadequate staffing and supervision within the accounting operations of our Company. The Company plans to expand its accounting operations as the business of the Company expands.  

MANAGEMENT’S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

There have been no changes in our internal controls over financial reporting during the quarter ended May 31, 2021 that have materially affected or are reasonably likely to materially affect our internal controls.

ITEM 9B. OTHER INFORMATION

Not applicable. 

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Executive Officers and Directors

Below are the names and certain information regarding our current executive officers and directors:

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Biographical information of each current officer and director is set forth below.

Mr. Fernando “Oswaldo” Leonzo, our Chairman of the Board of Directors since April, 2014, is a founder of, and has been employed by the Company since its inception in April of 2013. Mr. “Oswaldo” Leonzo has over 13 years’ experience in the Food and Beverage industry both from the distribution side as well as the brand side. He has also been working with contract manufacturers and suppliers as well as logistics companies for transshipments both in the U.S. and overseas for both Export and Imports- primarily in Latin America. For the past 15 years Fernando Oswaldo Leonzo has worked for the following companies: Deep River Snacks (NYC Regional Sales Manager from February to December, 2011), Reeds, Inc. (New York Metropolitan Area Sales Manager from January to December, 2010), Cheeseworks, Inc. (Sales Director from December 2008 to December 2009), Presto Food & Beverage, Inc. (President & CEO from July 2001 to December 2008).; Gran Nevada Beverage, Inc. (President from November 2011 to present). He served on the board of directors and founded Presto Food & Beverage, Inc. in 2001. Presto’s the Company beverage brand, SolMaya, grew from zero to over $2 million in sales. This is primarily why he was selected as a director of the Company. Previously, he worked for almost a decade in the financial industry, initially as a sales executive with regional financial firms and later for a major clearinghouse on Wall Street. Prior to his financial service industry experience, he successfully operated a business that distributed recorded music to retailers in the U.S., Mexico and Colombia. He received his undergraduate degree (B.A.) in International Studies from New York University (NYU). He currently serves on the board of directors of the Company.

Mr. Robert Gunther, the Chief Operations Officer, Treasurer and Director since April, 2014, is a founder of the Company since its inception in April of 2013. He has 26 years’ experience in manufacturing. For the past five years, he has managed his own sales business under his own name specializing in products for apparel and construction. From December 1988 to December 2008 he was a Sr. Account Executive with Georgia Narrow Fabrics / Premier Narrow Fabrics in New York City. As the one of the firm’s producing Account Executives, he generated sales to major accounts including Jockey, Fruit of the Loom, Warner, and VF. The product line included a broad range of knit and woven elastic products. In the mid-80s, he helped develop new apparel customers and manufacturing facilities for Hewlett Manufacturing. From July 1971 to April 1986, he was vice president at Gunther & Sharfman, a family-owned apparel manufacturing business. He participated in design, merchandising, sales, purchasing and manufacturing. His background includes 25 years of experience managing in purchasing and negotiation contracts for materials. Gunther has a BS from Long Island University. Mr. Gunther’s extensive business experience combined with his personal interest in the business is expected to provide the Board with insight and guidance in matters of corporate finance, business development and industry strategy.

Mr. John Romagosa, President and Director since October 2014. He is currently the managing director and founder of Latin Sales & Marketing, LLC. (“LSM”), founded in 2012. LSM is a leading brokerage/marketing/consulting firm innovating the retail, foodservice and private label sector of the Hispanic consumer packed goods industry. LSM facilitates the emergence of major Latin manufacturers and US manufacturers for the steadily growing Hispanic market in the USA. Mr. Romagosa’s extensive experience and relationships, within the Hispanic and Ethnic Food industry, will benefit the Board of the Company as it positions the company, its management, its products, and its distribution channels.

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Mr. Romagosa was the managing director and partner of Falcon International Distributors, LLC, a leading ethnic foods distributor on the east coast, holding a chief procurement role for over ten years. Mr. Romagosa helped build that company from $9 million in revenues to over $100 million in revenues during his tenure before successfully selling the business in 2011. He has received Chamber of Commerce awards in New York and New Jersey and has been responsible for the contribution of over a million pounds of donated products to food banks in the Northeast of the US. Mr. Romagosa is an Alumni of Saint John’s University where he studied Finance, Business Administration, and Marketing.

Mahmood Khan – CEO, Director

Mahmood Khan has been our Chief Executive Officer since February, 2021 and our Director since June, 2021. Mahmood Khan is an entrepreneur with multiple startups in his 30 plus years’ experience leading product strategy, sales and marketing, solution implementations, and customer success and operations programs. He founded SpeechWare, Inc. in 1989, a CRM technology and professional services company in San Jose, CA. He served as CEO and President till 1999. In 2004 he founded G-ESI, a consulting and professional services company, in Santa Clara, CA. In 2008, he co-founded Terra-Polaris, a original arts gallery in Campbell, California and deployed a Cloud based commercial site. In October 2015, he co-founded Crosscode, Inc., an enterprise software mapping and analysis firm located in Minneapolis, Minnesota, and served as sr. VP of Strategy and Customer Success.

Mahmood Khan’s passion is technologies and simplifying complexities using data & software intelligence to create value. He has deep knowledge and experience in software development, migration and modernization of mission critical legacy solutions, ERP, productivity improvements, process optimization, operations and risk management. He has successfully delivered solutions in multiple industries including retail, manufacturing, banking, telecommunications and federal and states. His major clients have included William Sonoma, Sears, Aramark, GM, DreamWorks, USPS, Bay Area Transportation Authority, State of Washington, CA-DOJ, Ericsson, and Telia. He holds an MBA from Pepperdine, B.Sc. from Salford University England, PMI-PMP, and multiple technology certificates.   

Board Committees

The Company has not established any committees of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations. Our four directors perform all functions that would otherwise be performed by committees. Given the present size of our board it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand the size of our board and allocate responsibilities accordingly.

Shareholder Communications

Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations.

Code of Ethics

We have adopted a written code of ethics (the “Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We believe that the Code of Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. To request a copy of the Code of Ethics, please make written request to our Company at 575 Lexington Ave., 4^th Floor, New York, NY 10022.

Compliance with Section 16(a) of the Exchange Act

Our Common Stock is not registered pursuant to Section 12 of the Exchange Act. On July 7, 2015, our common stock became registered pursuant to section 12g of the exchange act. Accordingly, our officers, directors and principal shareholders are subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act. Based solely on a review of the copies of these reports furnished to us from our directors and executive officers with respect to our Fiscal Year 2021,  we are not aware of any required Section 16 reports that were not filed as required.

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ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning the total compensation paid or earned and accrued by each of our named executive officers (as defined under SEC rules) for the fiscal year ended May 31, 2021. 

Summary Compensation Table for Fiscal Year Ended May 31, 2021

The following table sets forth information concerning the total compensation paid or earned by each of our named executive officers (as defined under SEC rules) for the fiscal year ended May 31, 2020.

Summary Compensation Table for Fiscal Year Ended May 31, 2020

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The Company has no stock-based option plans in place and has never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.

Employment Agreements

Mahmood Khan

Mahmood Khan is the CEO of LFER and all its subsidiaries. He has an “at will” contract with a base salary of $285,000 per year. There are no additional compensation items at this time.

Amit Biyani

Amit Biyani is the President of SmartAxiom. He has an “at will” employee contract. His base salary is $150,000 per year.

There are no other employment agreements; however, the Company anticipates entering into more employment agreements with key management positions as the Company grows. The Company does not have a standing compensation committee, audit committee, nomination committee, or committees performing similar functions. We anticipate that we will form such committees of the Board of Directors once we have a full Board of Directors.

Outstanding Equity Awards at Fiscal Year-End

As of May 31, 2021, and 2020, there were no outstanding options or warrants to purchase, or other instruments convertible into, common equity of the Company, related to equity awards.   

 Director Compensation

The Company is currently creating an Independent Compensation committee, reporting to the Board, with a compensation schedule for both Independent Board members as well as Executives of the Company which is intended to be retroactive to June 1, 2019.

On February 5, 2020, a Separation and Mutual Release Agreement was entered into between Life On Earth, Inc, (“LFER”) and Michael Bloom, a member of LFER’s Board of Director’s (“Director”). The Director and LFER entered into the mutual agreement with respect to the Director’s resignation from his position as a director on the Board of LFER. LFER and the Director agree that the Company has issued to the Director 302,419 restricted  shares of the Company’s common stock (the “Restricted Shares”) as full and adequate compensation to the Director for his services performed as a director on the Company’s Board through February 5, 2020, the “Resignation Date”, all of which were issued to the Director during the year ended May 31, 2020.

Effective May 31, 2019, a Separation and Mutual Release Agreement was entered into between Life On Earth, Inc, (“LFER”) and Roy DiBenerdini, a member of LFER’s Board of Director’s (“Director”). The Director and LFER entered into the mutual agreement with respect to the Director’s resignation from his position as a director on the Board of LFER. LFER and the Director agree that the Company issued to the Director 967,218 restricted  shares of the Company’s common stock (the “Restricted Shares”) to compensate him for his services performed as a director on the Company’s Board through the Resignation Date. LFER and the Director agree that the Company paid the Director the amount of $10,000 which is the cash fee for Director’s service as an independent director on the Company’s Board of Directors. 

Effective May 31, 2019, Separation and Mutual Release Agreement was entered into between Life On Earth, Inc, (“LFER”) and Randy Berholtz, a member of LFER’s Board of Director’s (“Director”). The Director and LFER entered into the mutual agreement with respect to the Director’s resignation from his position as a director on the Board of LFER. LFER and the Director agree that the Company issued to the Director 1,870,852  restricted shares of the Company’s common stock (the “Restricted Shares”) to compensate him for his services performed as a director on the Company’s Board through the Resignation Date. LFER and the Director agree that the Company paid the Director the amount of $10,000  which is the cash fee for Director’s service as an independent director on the Company’s Board of Directors. 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information with respect to the beneficial ownership of our Common Stock known by us as of August 31, 2020 by:

Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our Common Stock owned by them, except to the extent such power may be shared with a spouse. 

The percent of class is based on 46,424,344 shares of common stock issued and outstanding as of August 30, 2021 plus 5,663,866 shares beneficially owned from the conversion of debt, the execution of warrants and accrued director compensation. 

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 Preferred shares outstanding

Preferred shares do not have liquidation preferences but have 50-1 preferred voting rights.

Securities Authorized For Issuance Under Equity Compensation Plans

We have not adopted any Equity Compensation Plans as of the date of this filing.

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DESCRIPTION OF SECURITIES 

The Common Stock

We are authorized to issue 200,000,000 shares of Common Stock, $0.001 par value. The holders of Common Stock are entitled to equal dividends and distributions, with respect to the Common Stock when, as, and if declared by the Board of Directors from funds legally available for such dividends. No holder of Common Stock has any preemptive right to subscribe for any of our stock nor are any shares subject to redemption. Upon our liquidation, dissolution or winding up, and after payment of creditors and any amounts payable to senior securities, the assets will be divided pro rata on a share- for-share basis among the holders of the shares of Common Stock. All shares of Common Stock now outstanding upon completion of this Offering and conversion of any Preferred Stock, are, and will be, fully paid, validly issued and non- assessable.

Holders of our Common Stock do not have cumulative voting rights, so that the holders of more than 50% of the shares voting for the election of directors will be able to elect 100% of the directors if they choose to do so, and in that event, the holders of the remaining shares will not be able to elect any members to the Board of Directors.

The Company has never paid any dividends to shareholders of our Common Stock. The declaration in the future of any cash or stock dividends will depend upon our capital requirements and financial position, general economic conditions, and other pertinent factors. We presently intend not to pay any cash or stock dividends in the foreseeable future. Management intends to reinvest earnings, if any, in the development and expansion of our business. No dividend may be paid on the Common Stock until all Preferred Stock dividends are paid in full.

Preferred Stock

We are authorized by our Articles of Incorporation to issue a maximum of 10,000,000 shares of Preferred Stock, $0.001 par value. This Preferred Stock may be in one or more series and containing such rights, privileges and limitations, including voting rights, conversion privileges and/or redemption rights, as may, from time to time, be determined by our Board of Directors. Preferred stock may be issued in the future in connection with acquisitions, financings or such other matters as the Board of Directors deems to be appropriate. In the event that any such shares of Preferred Stock shall be issued, a Certificate of Designation, setting forth the series of such Preferred Stock and the relative rights, privileges and limitations with respect thereto, shall be filed. The effect of such Preferred Stock is that our Board of Directors alone, within the bounds and subject to the federal securities laws and the Delaware Law, may be able to authorize the issuance of Preferred Stock which could have the effect of delaying, deferring or preventing a change in control of our Company without further action by the stockholders and might adversely affect the voting and other rights of holders of Common Stock. The issuance of Preferred Stock with voting and conversion rights also may adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others.

 The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established. 

The Board of Directors shall exercise the foregoing authority by adopting a resolution setting forth the designation of each series and the number of shares therein and fixing and determining the relative rights and preferences thereof. The Board of Directors may make any change in the designations, terms, limitations or relative rights or preferences of any series in the same manner, so long as no shares of such series are outstanding at such time.

Within the limits and restrictions, if any, stated in any resolution of the Board of Directors originally fixing the number of shares constituting any series, the Board of Directors is authorized to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of such series. In case the number of shares of any series shall be so decreased, the share constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

Series A Preferred Stock

We have designated 1,200,000 shares of Series A Preferred Stock, par value $0.001 per share (the “Class A Stock”). We have 1,200,000 shares of Series A Preferred Stock issued and outstanding.

The Series A Preferred Stock does not have liquidation preferences. The Series A Preferred Stock has 50:1 voting rights, with each share possessing fifty votes. Series A Preferred shares are not convertible and do not pay dividends.

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Series B Preferred Stock

We have designated 250,000 shares of Series B Preferred Stock, par value $0.001 per share. As of May 31, 2021, 100,000 shares of our Series B Preferred Stock are issued and outstanding.

The Series B Preferred Stock does not have liquidation preferences. The Series B Preferred Stock has no voting rights except to the extent that they hold Common Stock Shares from conversion, in which case each Common Stock share will be equal to one vote. The Company shall pay the holders of Series B Preferred Stock a 10% annual cash dividend paid quarterly.

Series C Preferred Stock

We have designated 3,000,000 shares of Series C Preferred Stock, par value $0.001 per share. As of May 31, 2021, 290,000 shares of our Series C Preferred Stock are issued and outstanding.

The Series C Preferred Stock does not have liquidation preferences. The Series C Preferred Stock has no voting rights except to the extent that they hold Common Stock Shares from conversion, in which case each Common Stock share will be equal to one vote. The Company shall pay the holders of Series C Preferred Stock a 10% annual cash dividend paid quarterly. 

Series D Preferred Stock

We have designated 210,000 shares of Series D Preferred Stock, par value $0.001 per share. As of May 31, 2021, 210,000 shares of our Series D Preferred Stock are issued and outstanding.

The Series D Preferred Stock does not have liquidation preferences. The Series D Preferred Stock has no voting rights except to the extent that they hold Common Stock Shares from conversion, in which case each Common Stock share will be equal to one vote. Each share of the Series D preferred stock converts into 10 shares of the Company’s common stock. The Series D Preferred Stock pays no dividend.  

Warrants outstanding

Securities Authorized For Issuance Under Equity Compensation Plans

We have not adopted any Equity Compensation Plans as of May 31, 2021. 

23

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Our CEO, Fernando “Oswaldo” Leonzo, owns no shares in Gran Nevada, however he serves as Gran Nevada’s   current President. Robert Gunther, our Chief Operating Officer owns 12% of the common stock of Gran Nevada.

The current officers and directors of the Company are involved in other business activities and may, in the future, become involved in additional business opportunities. Currently there are no other employment contracts with the remaining members of the management team. In addition, there are currently agreements in place with an independent member of the Board of Directors. If a specific business opportunity becomes available, such person(s) may face a conflict in selecting between our business interest and their other business interests. The policy of the Board is that any personal business or corporate opportunity incurred by an officer or Director of LFER must be examined by the Board and turned down by the Board in a timely basis before an officer or Director can engage or take advantage of a business opportunity which could result in a conflict of interest.

Our chairman has also guaranteed certain operating business loans to support the operations. Currently he has guaranteed business loans with Blue Vine and Kabbage.

Our COO, Robert Gunther, has guaranteed a credit line with Wells Fargo for $50,000.

The founder's Common Shares as disclosed herein were sold to our officers and directors in April 2013. The Company believes that the issuance of these shares was exempt from registration pursuant to Section (2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving any public offering. The Founders, Fernando “Oswaldo” Leonzo (Chairman & CEO), Robert Gunther (Treasurer, Secretary, Director & Chief Operations Officer), and Jerry Gruenbaum were issued the following Preferred Shares as founders for services rendered as Officers and Directors as of April 30, 2013, 600,000 Preferred Shares, 300,000 Preferred Shares, and 100,000 Preferred Shares respectively. Jerry Gruenbaum resigned as a Director on April 16, 2015. None of the following parties has, since the date of incorporation, had any material interest, direct or indirect, in any transaction with the Company or in any presently proposed transaction that has or will materially affect us:

Director Independence

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to (and we do not) have our Board of Directors comprised of a majority of “Independent Directors.”

Our Board of Directors has considered the independence of its directors in reference to the definition of “independent director” established by the NASDAQ Marketplace Rule 5605(a)(2). In doing so, the Board of Directors has reviewed all commercial and other relationships of each director in making its determination as to the independence of its directors.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

Effective March 16, 2020, our Board of Directors appointed Boyle CPA LLC (“Boyle”) as our independent registered public accounting firm, to audit our financial statements for the years ended May 31, 2021 and 2020.

The aggregate fees billed to the Company for services rendered in connection with the years ended May 31, 2021 and 2020 are set forth in the table below:

___________ 

Audit Committee’s Pre-Approval Practice

We currently do not have an audit committee. Our board of directors has approved the services described above.

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PART IV - FINANCIAL INFORMATION 

Boyle CPA, LLC

Certified Public Accountants & Consultants

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and

Board of Directors of Life on Earth, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Life on Earth, Inc. (the “Company”) as of May 31, 2021 and 2020, the related statements of operations, stockholders’ deficiency, and cash flows for each of the two years in the period ended May 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended May 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s continuing operating losses, negative working capital and negative cash flows from operating activities raise substantial doubt about its ability to continue as a going concern for a period of one year from the issuance of the consolidated financial statements. Management’s plans are also described in Note 2. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.

Basis of Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for the Smart Axiom, Inc. (“SA”) Acquisition

As discussed in Note 5 to the consolidated financial statements, on April 16, 2021, the Company entered into a stock purchase agreement with SmartAxiom, Inc. (“SA”) and its shareholders providing for the Company to purchase of all the outstanding common stock shares of SA. The Agreement was supplemented by First and Second Addendum Agreements, dated April 30, 2021, and May 11, 2021, respectively. The total purchases price was $5,044,127, based upon the fair value of the common and preferred stock to be issued and the earn out provisions. The Company allocated this fair value to the assets and liabilities, with $5,177,643 allocated to capitalized software, patents, and customer lists. The Company estimated the useful lives of these intangible assets to be five years.

We identified the accounting considerations and related valuations as a critical audit matter. The principal considerations for our determination were the accounting and valuation considerations in determining the valuation of the consideration given, the allocation of the purchase price to the acquired assets and liabilities, and the subsequent valuation of the acquired intangible assets. Auditing these elements is especially challenging and requires auditor judgement due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

Our audit procedures related to the acquisition of SA, included the following, among others: (1) evaluating the relevant terms and conditions of the acquisition agreement, (2) assessing the valuation of the consideration given by the Company and the allocation of the fair value to the assets and liabilities of SA, (3) independently assessing the valuations determined by Management, and (4) recomputing the carrying values of the acquired intangible assets.

/s/ Boyle CPA, LLC

We have served as the Company’s auditor since 2020

Red Bank, NJ
September 3, 2021

F-3

The accompanying notes are an integral part of these consolidated financial statements

F-4

The accompanying notes are an integral part of these consolidated financial statements

F-5

The accompanying notes are an integral part of these consolidated financial statements

10

F-6

The accompanying notes are an integral part of these consolidated financial statements

F-7

Life On Earth, Inc.

Notes to Consolidated Financial Statements

Note 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Basis of Presentation

Life On Earth, Inc. is a cloud enterprise software developer/ provider that enables rapid innovation to keep enterprise operations safe, compliant and manageable. The Company’s products offered are designed to help organizations innovate and modernize legacy systems while minimizing cost and risk of business disruptions and ensure regulatory compliance. Through its recent acquisition of SmartAxiom, Inc., the Company now has the capabilities of offering software that manages and secures the Internet-of-Things (IoT) through patented, lite blockchain technology running among those devices at the edge of the Internet and enabling them to defend themselves. Our peer-to-peer distributed ledgers improve security, latency, reliability and manageability. We have uniquely created, through our SmartAxiom subsidiary, the first true endpoint-to-cloud blockchain solution, while our IoT Smart Contracts manage NFTs and push intelligence to the edge. The SmartAxiom technology is proving value in verticals such as smart buildings, manufacturing lines and shipment tracking. It interoperates with enterprise systems such as IBM Blockchain and Microsoft Azure and is proven on many ARM and Intel based microcontrollers such as those from Intel, NXP, Renesas, Marvell, and Broadcom. The Company was a brand accelerator and incubator Company that was focused on building and scaling concepts in the natural consumer products category. The Company’s previous business model focused and long-term forward-looking vision to consumers in the health, wellness and lifestyle spaces through superior branding, product quality, and direct to consumer and retail experience within the CPG industry.

The accompanying consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, Smart Axiom Inc. (“SA”), Victoria’s Kitchen, LLC (“VK”) and The Chill Group, LLC (“JC”). All intercompany transactions and balances have been eliminated in consolidation.

On June 21, 2019, the Company made the determination to shut down and discontinue the operations of Energy Source Distributors, Inc. (“ESD”) and further focus on the brand portfolio. Effective November 4, 2019, ESD filed for Chapter 7 bankruptcy protection. On December 11, 2019, the Company received a final decree from the United States Bankruptcy Court ruling that a Chapter 7 bankruptcy estate for ESD had been fully administered. The results of operations of ESD for the years ended May 31, 2020 and 2019 are included herein as discontinued operations in the financial statements. The Company has recognized a gain on the disposal of ESD in the amount of $893,515 for the year ended May 31, 2020, as reported in the consolidated statements of operations.

LFER was incorporated in Delaware in April 2013 and acquired SA in May 2021, VK in October 2017, and JC in August 2018.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  

Revenue Recognition

In May 2014, the FASB issued guidance codified in ASC 606 which amends the guidance in former ASC 605, “Revenue Recognition.” The core principle of the standard is to recognize revenue when control of the promised goods or services is transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. The standard also requires additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the company satisfies a performance obligation

Because the Company’s agreements generally have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations. The Company’s performance obligations are satisfied at the point in time when products are received by the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product. Shipping and handling amounts are included in cost of goods sold. Sales tax and other similar taxes are excluded from net sales. Sales are recorded net of provisions for discounts, slotting fees payable by us to retailers to stock our products and promotion allowances, which are typically agreed to upfront with the customer and do not represent variable consideration. Discounts, slotting fees and promotional allowances vary from customer to customer. The consideration the Company is entitled to in exchange for the sale of products to distributors. The Company estimates these discounts, slotting fees and promotional allowances in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue.

All sales to distributors and customers are generally final. In limited instances the Company may accept returned product due to quality issues or distributor terminations, in which situations the Company would have variable consideration. To date, returns have not been material. The Company’s customers generally pay within 30 days from the receipt of a valid invoice. The Company offers prompt pay discounts of up to 2% to certain customers typically for payments made within 15 days. Prompt pay discounts are estimated in the period of sale based on experience with sales to eligible customers. Early pay discounts are recorded as a deduction to the accounts receivable balance presented on the consolidated balance sheets.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made in prior year’s financial statements to conform to classifications used in the current year.

Reverse Stock Split

On November 11, 2019, the Company’s Board of Directors (the “Board”) and a majority of shareholders approved a reverse stock split at a ratio of one-for-five shares of common stock, without changing the par value, rights, terms, conditions, and limitations of such shares of common stock, (the “Reverse Stock Split”). The Reverse Stock Split became effective on March 25, 2020 (the “Effective Date”), pursuant to approval from the Financial Industry Regulatory Authority (“FINRA”), whereupon the shares of our common stock will begin trading on a split adjusted basis. All share and per share information has been retroactively adjusted to reflect the impact of this reverse stock split.

Net Loss Per Common Share

Basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share is calculated by dividing net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, common stock equivalents, if any, are not considered, as their effect would be anti-dilutive. As of May 31, 2021, and 2020, respectively, warrants and convertible notes payable could be converted into approximately 3,088,000 and 2,779,000 shares of common stock, respectively.

Income Taxes

The Company utilizes the accrual method of accounting for income taxes. Under the accrual method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and the tax basis of the assets and liabilities, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recognized when it is more likely than not that such tax benefits will not be realized.

The Company recognizes the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not” threshold, the amount recognized in the consolidated financial statements is the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. The Company did not have any unrecognized tax benefits as of May 31, 2021 and does not expect this to change significantly over the next 12 months.

Accounting for Equity Awards

The cost of services received in exchange for an award of equity instruments related to employees and non-employees is based on the grant-date fair value of the award and allocated over the requisite service period of the award.

Cash and Cash Equivalents

The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within three months from date of purchase to be cash equivalents.

At May 31, 2021 and 2020, respectively, the Company had cash and cash equivalents of $34,629 and $3,831 respectively. At May 31, 2021 and May 31, 2020, cash equivalents were comprised of funds in checking accounts, savings accounts and money market funds. 

Accounts Receivable

Our accounts receivable balance primarily includes balances from trade sales to distributors and retail customers. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance for doubtful accounts based primarily on historical write-off experience. Account balances that are deemed uncollectible, are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company extends credit to its customers in the normal course of business and performs ongoing credit evaluations of its customers. A significant change in demand for certain products as compared to forecasted amounts may result in recording additional provisions for obsolete inventory. Provisions for obsolete or excess inventory are recorded as cost of goods sold.

As of May 31, 2021, and May 31, 2020, the allowance for doubtful accounts was $41,900 and $33,356, respectively.

Inventory

Inventory consists of finished goods and raw material which are stated at the lower of cost (first-in, first-out) and net realizable value and include adjustments for estimated obsolete or excess inventory. A significant change in demand for certain products as compared to forecasted amounts may result in recording additional provisions for obsolete inventory. During the years ended May 31, 2021 and 2020, the Company recorded and provision for obsolete and excess inventory of $0 and $96,000, respectively, which was recorded as cost of goods sold. On May 31, 2021 and 2020, there was $0 on hand.

Intangible Assets

The Company's intangible assets include developed technology, customer relationships and tradenames and were acquired in a purchase business combination. The Company carries these intangibles at cost, less accumulated amortization. Amortization is recorded on a straight-line basis over the estimated useful lives of the respective assets, which is estimated to be 5 years.

Costs that are related to the conceptual formulation and design of licensed software programs are expensed as incurred to research, development and engineering expense; costs that are incurred to produce the finished product after technological feasibility has been established are capitalized as an intangible asset. Capitalized amounts are amortized on a straight-line basis over periods ranging up to five years. The company performs periodic reviews to ensure that unamortized program costs remain recoverable from future revenue.

There were no indefinite-lived intangible assets as of May 31, 2021 or 2020.

The Company reviews its finite-lived intangible and other long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The carrying amount of an asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Fair value of finite-lived intangible assets and property and equipment is based on various valuation techniques. If the carrying amount of an asset or group of assets exceeds its net realizable value, the asset will be written down to its fair value.

Goodwill

Goodwill is deemed to have an indefinite life, and accordingly, is not amortized, but evaluated annually (or more frequently if events or changes in circumstances indicate the carrying value may not be recoverable) for impairment. The most significant assumptions, which are used in this test, are estimates of future cash flows. If these assumptions differ significantly from actual results, impairment charges may be required in the future.

Advertising

Advertising and promotion costs are expensed as incurred. Advertising and promotion expense amounted to approximately $15,449 and $38,639 for the years ended May 31, 2021 and 2020, respectively.

Shipping and Handling

Shipping and handling costs are included in costs of goods sold.

Business combination

GAAP requires that all business combinations not involving entities or businesses under common control be accounted for under the acquisition method. The Company applies ASC 805, “Business combinations”, whereby the cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total of cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of operations and comprehensive income.

The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Any changes to provisional amounts identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined. 

Deferred Finance Cost

Deferred financing costs or debt issuance costs are costs associated with issuing debt, such as various fees and commissions paid to investment banks, law firms, auditors, regulators, and so on. Since these payments do not generate future benefits, they are treated as a contra debt account. The costs are capitalized, reflected in the balance sheet as a contra long-term liability, and amortized using the effective interest method or over the finite life of the underlying debt instrument, if below de minimis.

Derivative Liability

The Company accounts for certain instruments, which do not have fixed settlement provisions, as derivative instruments in accordance with FASB ASC 815-40, Derivative and Hedging – Contracts in Entity’s Own Equity. This is due to the conversion features of certain convertible notes payable being tied to the market value of our common stock. As such, our derivative liabilities are initially measured at fair value on the contract date and are subsequently re-measured to fair value at each reporting date. Changes in estimated fair value are recorded as non-cash adjustments within other income (expenses), in the Company’s accompanying Consolidated Statements of Operations.

Fair Value Measurements

In August 2018, the FASB issued a new guidance which modifies the disclosure requirements on fair value measurements.

We categorize our financial instruments into a three-level fair value hierarchy that prioritize the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets recorded at fair value on our consolidated balance sheets are categorized as follows:

Level 1 inputs—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs—Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs).

Level 3 inputs—Unobservable inputs for the asset or liability, which are supported by little or no market activity and are valued based on management’s estimates of assumptions that market participants would use in pricing the asset or liability.

Recent Accounting Pronouncements

On February 25, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-2, "Leases" (Topic 842), which is intended to improve financial reporting for lease transactions. This ASU requires organizations that lease assets, such as real estate and manufacturing equipment, to recognize assets and liabilities on their balance sheets for the rights to use those assets for the lease term and obligations to make lease payments created by those leases that have terms of greater than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. This ASU also requires disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. This ASU became effective for public entities beginning the first quarter 2019. During 2019 the Company sold the Giant Beverage Company which resulted in elimination of the Company’s lease obligation related to that operation. The remaining lease obligation related to Energy Source Distributors which was terminated on July 31, 2019 reducing the remaining terms of the lease to 2 months. The Company has adopted ASU 2016-2 Leases which does not have material impact on Company’s financial statements. 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Credit Losses (“ASU 2016-13”), which changes the impairment model for most financial instruments, including trade receivables from an incurred loss method to a new forward-looking approach, based on expected losses. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU become effective for fiscal years beginning after December 15, 2019. and must be adopted using a modified retrospective transition approach. The Company adopted ASU 2016-13 which did not have a material impact on Company’s financial statements.

In January 2017, the FASB issued an update to the accounting guidance to simplify the testing for goodwill impairment. The update removes the requirement to determine the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. A company will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The guidance is effective prospectively for public business entities for annual reporting periods beginning after December 15, 2019. This standard is required to take effect in the Company’s first quarter (August 2020) of our fiscal year ending May 31, 2021. Adoption of this new guidance did not have a material impact on our financial statements.

In November 2018, the FASB issued new guidance to clarify the interaction between the authoritative guidance for collaborative arrangements and revenue from contracts with customers. The new guidance clarifies that, when the collaborative arrangement participant is a customer in the context of a unit-of-account, revenue from contracts with customers guidance should be applied, adds unit-of-account guidance to collaborative arrangements guidance, and requires, that in a transaction with a collaborative arrangement participant who is not a customer, presenting the transaction together with revenue recognized under contracts with customers is precluded. The Company does not have any collaborative arrangements or revenue from contracts and therefore Topic 808 does not have an impact on our consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

Note 2 - BASIS OF REPORTING AND GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.

The Company has incurred losses from inception of approximately $18,600,000, has a working capital deficiency of approximately $9,800,000 and a net capital deficiency of approximately $4,700,000, which, among other factors, raises substantial doubt about the Company's ability to continue as a going concern. As of May 31, 2021, the Company did not have sufficient cash on hand to fund operations for the next 12 months. The ability of the Company to continue as a going concern is dependent upon management's plans to raise additional capital from the sale of stock and receive additional loans from third parties and related parties. The accompanying consolidated financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.

Note 3 - CONCENTRATIONS

Concentration of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and accounts receivable. The Company places its cash with high quality credit institutions. At times, balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. Cash in banks is insured by the FDIC up to $250,000 per institution, per entity. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its account receivable credit risk exposure is limited.

Sales and Accounts Receivable

One customer accounted for 100% of the Company’s accounts receivable as of May 31, 2021.