NUTRALIFE BIOSCIENCES, INC - Quarter Report: 2014 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Quarterly Ended March 31, 2014

Commission File Number: 333-191407

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 periods 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒   No ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of May 15, 2014, the registrant had 21,802,114 shares of its common stock outstanding.

TABLE OF CONTENTS    

PART I:  FINANCIAL INFORMATION

Item 1.  Financial Statements

NutraFuels, Inc

BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

NutraFuels, Inc.

STATEMENT OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

NutraFuels, Inc.

STATEMENT OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

NOTES TO UNAUDITED FINANCIAL STATEMENTS:

NOTE 1 – DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Nutrafuels is the producer of nutritional supplements that uses micro molecular formulae and a utilization of an oral spray to provide faster and more efficient absorption.

Basis of presentation

The financial statements have been prepared by Nutrafuels, Inc. in accordance with accounting principles generally accepted in the United States. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the financial position and operating results for the respective periods.

Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Company’s most recent annual report on Form 10-K, have been omitted.

We account for non-employee share-based awards based upon ASC 505-50, “Equity-Based Payments to Non-Employees.” ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.

NOTE 2 – GOING CONCERN

As shown in the accompanying financial statements, we have incurred losses from inception, including net losses of $280,180 for the quarter ended March 31, 2014. In response to these conditions, we may raise additional capital through the sale of equity securities, through an offering of debt securities or through borrowings from financial institutions or individuals. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

NOTE 3 –NOTES PAYABLE

During February 2014, an investor loaned the Company $50,000.  The loan is due by May 1, 2014 and a payment of $25,000 was made during April 2014. The investor received 50,000 shares of common stock in conjunction with the loan.  The proceeds were allocated using relative fair value to the stock and loan as follows:

The discount on the note, $25,000, will be recognized as additional interest over the life of the note. As of March 31, 2014, the remaining amount of the discount is $11,071.

NOTE 4 – CONVERTIBLE DEBT

On March 26, 2014, the Company borrowed $290,000 under a convertible note agreement with an investor.  The note bears an interest rate of 10% and matures on March 26, 2015.  The investor received warrants to purchase 500,000 shares of common stock at $0.50 per share with a two year exercise term.

We evaluated the warrants for derivative accounting consideration under ASC Topic 815-40, Derivatives and Hedging – Contracts in Entity’s own stock. We concluded that the warrants meet the criteria for classification in stockholders' equity. Therefore, derivative accounting is not applicable for the warrants.  Accordingly, we allocated the proceeds from the transaction to the debt, stock, and warrants based on their relative fair value.  We determined the fair value of the warrants using a Black-Sholes option pricing model with the following inputs:

The volatility was determined by referring to the average historical volatility of a peer group of public companies because we do not have a trading history from which to determine historical volatility. 

The fair value of the investment was allocated between the note and warrant as follows:

Because the price for recent sales of common stock exceeded the effective conversion price, we also recognized a beneficial conversion feature of $122,553.  The total discount on the note, $290,000, will be recognized as additional interest over the life of the note. As of March 31, 2014, the remaining amount of the discount is $287,212.

NOTE 5 – COMMITMENTS & CONTINGENCIES

During January 2014, we were granted a license to market nutritional supplements under the TapouT XT name to retail locations worldwide. Under the license agreement, we are required to pay a royalty fee to Nutra Evolution of 12.5% of net sales. The agreement provides us with an initial test period of four years, until January 31, 2018, to distribute the product. We paid $85,000 in conjunction with the license. At the expiration of this four year period, we may extend the license for three (3) consecutive three (3) year terms. We are required to pay minimum royalties of $400,000 during the first contract year; $750,000 during the second contract year and $1,000,000 each year thereafter.

During March 2014, NutraFuels entered into an agreement with a contractor for investor and public relations under which the company will pay $20,000 for the first month in two installments and 20,000 common shares per month. Within 30 days after execution, the Company shall register 240,000 of its common shares on behalf of consultant representing the shares being paid to the consultant for services being rendered.

NOTE 6 - SUBSEQUENT EVENTS

During April 2014, an investor purchased 500,000 shares for $1.00 per share.  The investor also received warrants to purchase 500,000 shares at exercise price of $0.50 per share.  The warrants have a one-year term.

In late April 2014, the Company also entered into an agreement with Sullivan Media Group, a Nevada corporation, to conduct market research in regards to promotion of the NutraFuels brand at a cost of $104,500.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors”.

OVERVIEW

NutraFuels, Inc. is the producer of nutritional supplements that uses micro molecular formulae and a utilization of an oral spray to provide faster and more efficient absorption.

NutraFuels, Inc was founded as NutraFuels, LLC in 2010. While still in the developmental stage, the Company has had increasing revenues, and although not profitable, the Company has progressively added the needed equipment to expand its operations to meet the demand of consumption on a national level.

The Company has continually invested for the long term, adding larger facilities, purchasing necessary equipment, and other application development to expand sales and marketing. Many of our investments have increased our costs on an absolute basis in the near-term. Many of these investments had and will continue to occur in advance of experiencing any immediate near term benefit. We expect that our research, sales and marketing costs will continue to increase as a percentage of revenues in the short-term; however, as we increase our products sales, we will gain from the economies of scale, thereby reducing the costs as a percentage of revenues.

Components of Results of Operations

Revenues

We derive our revenues from sales of our products. We recognize our revenues from the point of sale and shipment. For the quarter ended March 31, 2014, our revenues were $21,139. Should we not have sufficient revenues to meet operating costs, we will require additional capital. We have no commitments or assurances that it will ever be successful in obtaining adequate future financing.  We have incurred net losses and losses from operations and we expect that we will continue to have negative cash flows as we implement our business plan. There can be no assurance that our continuing efforts to execute our business plan will be successful and that we will be able to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. As of March 31, 2014 we did not have sufficient cash to sustain us for the next twelve months and we will require additional capital to continue as a going concern. With that said, we received a significant equity investment of $500,000 in April 2014. In the event that future financing does not materialize, we may be unable to pay our obligations as they become due or continue as a going concern, any of which circumstances would have a material adverse effect on our business, prospects, financial condition and results of operations.

Costs and Expenses

The Cost of Goods Sold was heavily concentrated in labor and overhead costs.

Advertising costs continued to be some of our largest operational expenses. As 2014 progresses, we are anticipating more marketing expenditures to research, promote, and enhance our brand.

The remaining significant expenses related to professional fees associated with our SEC filings and accrued interest as it relates to debt securities issued from current and prior years.

Results of Operations

The following tables set forth selected consolidated statement of operations data and such data as a percentage of total revenues for each of the periods indicated:

LIQUIDITY AND CAPITAL RESOURCES

In addition to revenue, our primary source of cash stems from issuance of equity and debt securities. We currently have several new investors interested in the company, and while there can be no assurance they will participate in our endeavors, we are optimistic of continued capital investment. Additionally, since filing our annual report with the SEC, we are pursuing our ticker symbol with FINRA, which will allow trading via public markets.

Operating

During the first quarter of 2014, in addition to fixed & variable overhead costs, other operational expenditures primarily consisted of inventory purchases and payments to vendors.

Investing

During the first quarter of 2014, we didn’t purchase any equipment or make improvements to our facilities.

Financing

Our cash inflow from financing related to the issuance of debt and equity securities. We raised another $340,000 from the issuance of a convertible notes with stock warrants and a note payable along with the issuance of common stock. Upon receiving our ticker symbol, we anticipate raising additional capital via public markets.

SIGNIFICANT ACCOUNTING POLICIES

We report revenues and expenses using the accrual method of accounting for financial and tax reporting purposes.

USE OF ESTIMATES

Management uses estimates and assumption in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.

INCOME TAXES

We account for income taxes under ASC 740 “Income Taxes” which codified SFAS 109, “Accounting for Income Taxes” and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Accounting Standards Codification Topic 820, “Disclosures About Fair Value of Financial Instruments,” requires the Company to disclose, when reasonably attainable, the fair market values of its assets and liabilities, which are deemed to be financial instruments. Our financial instruments consist primarily of cash.

PER SHARE INFORMATION

We compute net loss per share accordance with FASB ASC 205 “Earnings per Share”. FASB ASC 205 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement.

Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive.

STOCK OPTION GRANTS

We have not granted any stock options to our officers and directors since our inception. Upon the further development of our business, we will likely grant options to directors and officers consistent with industry standards for nutritional and dietary supplement companies.

We lease an aggregate of 6,400 square feet of office and warehouse space at 6601 Lyons Rd. L-6&7 with base rent at $5,300 per month from Lyons Corporate Park for our executive offices and manufacturing facility. Approximately 5,800 square feet is used for manufacturing and distribution. The lease term expires on January 16, 2016. We believe our facilities are suitable for our present needs.

We do not currently rent any property. We do not intend to renovate, improve, or develop properties. We are not subject to competitive conditions for property and currently have no property to insure. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities. 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Smaller reporting companies are not required to provide the information required by this item.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s President, Chief Financial Officer, Secretary, Treasurer and Director, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure for the reasons discussed below.

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our board of directors. In addition, the Company currently has limited accounting personnel. Management plans to take action and implementing improvements to our controls and procedures when our financial position permits.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting during the three month period ending March 31, 2014, or in other factors that could significantly affect these controls, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II:  OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in litigation relating to claims arising out of its operations in the normal course of business.  We are not involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business and operations.

Item 1A. Risk Factors

Smaller reporting companies are not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three month period ending March 31, 2014, we offered and sold securities below. We used the proceeds from the sale of these securities for working capital. None of the issuances involved underwriters, underwriting discounts or commissions.

We relied upon Section 4(2) of the Securities Act, and Rule 506 of the Securities Act of 1933, as amended for the offer and sale of the securities. We believed Section 4(2) was available because:

● We are not a blank check company;

 ● We filed a Notice of Sales on Form D, with the Securities & Exchange Commission;

● Sales were not made by general solicitation or advertising;

● All certificates had restrictive legends; and

● Sales were made to persons with a pre-existing relationship to our chief executive officer, Edgar Ward.

On February 24, 2104, we entered into an interest free non-convertible note agreement in the amount of $50,000 with Dennis Poland. We issued 50,000 shares of our common stock to Mr. Poland and must repay the principal amount of $50,000 on or prior to May 1, 2014.

On March 26, 2014, we entered into a convertible note with Craig Hetherington in the principal amount of $290,000 which bears interest at the rate of 10% per annum. At the option of Mr. Hetherington, the outstanding principal and interest due under the note may be converted into shares of our common stock at the price of $1.00 per share. The note is due on June 1, 2014. As of March 31, 2014, the note had $290,397 of principal and interest outstanding.  Upon delivery of the principal amount of $290,000 Mr. Hetherington received warrants to purchase up to 500,000 shares of fifty cents ($.50) per share.  The warrants may be exercised at any time prior to March 26, 2016.   

On April 25, 2014, we sold 500,000 Units to William J. Ferri in exchange for $500,000. Each one (1) unit contains 500,000 shares of common stock and warrants to purchase 500,000 common shares. Each warrant is convertible into one (1) share of our common stock at the price of $.50 at any time before April 25, 2015.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Note Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(1) Incorporated by reference to our Form S-1 Registration Statement filed with the Securities and Exchange Commission on September 26, 2013.

(2) Incorporated by reference to our Form S-1 Registration Statement filed with the Securities and Exchange

Commission on October 31, 2013.

(3) Incorporated by reference to our Form S-1 Registration Statement filed with the Securities and Exchange

Commission on December 5, 2013.

(4) Incorporated by reference to our Form 10-K filed with the Securities and Exchange Commission on May 5, 2014.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.