NUTRALIFE BIOSCIENCES, INC - Quarter Report: 2022 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
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 000-55144
NUTRALIFE BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
| Florida | 46-1482900 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 6601 Lyons Road, Suite L-6, Coconut Creek, FL | 33073 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code 888-509-8901
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| N/A | N/A | N/A |
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| 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 new 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 number of shares outstanding of the registrant’s common stock as of June 30, 2022, was shares.
DOCUMENTS INCORPORATED BY REFERENCE — NONE
TABLE OF CONTENTS
| Part I – FINANCIAL INFORMATION | 3 | |
| Item 1. | Financial Statements (unaudited) | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 6 |
| Item 4. | Controls and Procedures | 6 |
| Part II – OTHER INFORMATION | 7 | |
| Item 1. | Legal Proceedings | 7 |
| Item 1A. | Risk Factors | 7 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 8 |
| Item 3. | Defaults Upon Senior Securities | 8 |
| Item 4. | Mine Safety Disclosures | 8 |
| Item 5. | Other Information | 8 |
| Item 6. | Exhibits | 9 |
| SIGNATURES | 10 | |
| 2 |
PART I FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this quarterly report on Form 10-Q contains “forward-looking statements.” These forward-looking statements are contained principally in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to: our future financial performance; the continuation of historical trends; the sufficiency of our resources in funding our operations; our intention to engage in mergers and acquisitions; and our liquidity and capital needs. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. These risks, uncertainties and other factors include but are not limited to: the risks of limited management, labor and financial resources; our ability to establish and maintain adequate internal controls; our ability to develop and maintain a market in our securities; and our ability obtain financing, if and when needed, on terms that are acceptable. Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
As used in this quarterly report on Form 10-Q, “we,” “our,” “us” and the “Company” refer to NutraLife BioSciences, Inc., a Florida corporation, and its subsidiaries unless the context requires otherwise.
| 3 |
NUTRALIFE BIOSCIENCES, INC., F/K/A NUTRAFUELS, INC.
Condensed Consolidated Balance Sheets
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 51,802 | $ | 135,769 | ||||
| Accounts receivable, net of allowance for doubtful accounts in the amount of $0 and $0 | 32,002 | 44,198 | ||||||
| Inventories | 352,782 | 309,334 | ||||||
| Prepaid and other current assets | 1,500 | 28,997 | ||||||
| Total current assets | 438,086 | 518,298 | ||||||
| Property and equipment, net | 2,240,500 | 2,265,196 | ||||||
| Operating lease right-of-use assets | 569,281 | 449,155 | ||||||
| Investments | 1,283,326 | 383,326 | ||||||
| Deposit on equity and license agreement | 675,000 | |||||||
| License, net | 402,777 | |||||||
| Intangible asset, net | 235,556 | 525,150 | ||||||
| Other assets | 35,000 | 35,000 | ||||||
| Total Assets | $ | 5,204,526 | $ | 4,851,125 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 248,386 | $ | 283,164 | ||||
| Accrued expenses (related party $177,304 and $148,552) | 1,250,756 | 1,043,891 | ||||||
| Deferred revenue | 42,225 | 70,521 | ||||||
| Liability for stock to be issued | 38,055 | 265,500 | ||||||
| Current portion of finance leases | 8,629 | 17,161 | ||||||
| Current portion of operating lease liability | 211,374 | 141,911 | ||||||
| Notes payable, net of unamortized discount of $63,809 and $200,542 (related party $1,000,000 and $1,000,000) | 2,424,921 | 2,621,506 | ||||||
| Other current liability | 33,000 | 33,000 | ||||||
| Total current liabilities | 4,257,346 | 4,476,654 | ||||||
| Long-term Liabilities: | ||||||||
| Notes payable - SBA, net of current portion | 10,000 | 10,000 | ||||||
| Operating lease liability, net of current portion | 399,135 | 350,887 | ||||||
| Revenue share agreements payable | 2,305,502 | 725,000 | ||||||
| Finance leases, net of current portion | 1,114 | |||||||
| Total liabilities | 6,971,983 | 5,563,655 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock; $ par value, authorized shares | ||||||||
| shares Series A issued and outstanding | 1 | 1 | ||||||
| and shares Series B issued and outstanding | - | - | ||||||
| Common stock; $ par value, authorized shares; and shares issued and outstanding | 17,608 | 17,133 | ||||||
| Additional paid-in-capital | 47,757,893 | 46,828,644 | ||||||
| Accumulated deficit | (49,542,959 | ) | (47,558,308 | ) | ||||
| Total stockholders’ (deficit) equity | (1,767,457 | ) | (712,530 | ) | ||||
| Total Liabilities and Stockholders’ Equity | $ | 5,204,526 | $ | 4,851,125 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-1 |
NUTRALIFE BIOSCIENCES, INC., F/K/A NUTRAFUELS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Sales | $ | 55,835 | $ | 39,096 | $ | 136,313 | $ | 175,469 | ||||||||
| Cost of Sales | 4,665 | 35,416 | 127,790 | 132,284 | ||||||||||||
| Gross Profit | 51,170 | 3,680 | 8,523 | 43,185 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Advertising and Promotion | 7,092 | 3,654 | 14,132 | 8,066 | ||||||||||||
| Stock-based compensation | 174,975 | 200,000 | 390,515 | 2,394,514 | ||||||||||||
| General and administrative | 457,474 | 461,719 | 836,548 | 899,274 | ||||||||||||
| Depreciation and amortization | 61,867 | 29,236 | 146,013 | 59,408 | ||||||||||||
| Total operating expenses | 701,408 | 694,609 | 1,387,208 | 3,361,262 | ||||||||||||
| Loss from operations | (650,238 | ) | (690,929 | ) | (1,378,685 | ) | (3,318,077 | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income (expense) | 54,997 | 708 | 54,614 | 1,998 | ||||||||||||
| Income from sublease | 20,000 | 20,000 | ||||||||||||||
| Income from debt forgiveness | 244,700 | |||||||||||||||
| Finance costs | (305,197 | ) | (1,140,450 | ) | (660,580 | ) | (1,260,378 | ) | ||||||||
| Total other income (expense) | (250,200 | ) | (1,119,742 | ) | (605,966 | ) | (993,680 | ) | ||||||||
| Loss before income taxes | (900,438 | ) | (1,810,671 | ) | (1,984,651 | ) | (4,311,757 | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | $ | (900,438 | ) | $ | (1,810,671 | ) | $ | (1,984,651 | ) | $ | (4,311,757 | ) | ||||
| Net loss per weighted average common share - basic and diluted | $ | (0.01) | $ | (0.01) | $ | (0.01 | ) | $ | (0.03 | ) | ||||||
| Number of weighted average shares outstanding - basic and diluted | 175,124,109 | 161,522,865 | 174,316,790 | 160,974,225 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-2 |
NUTRALIFE BIOSCIENCES, INC., F/K/A NUTRAFUELS, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
| Preferred Stock | Total | |||||||||||||||||||||||||||||||||||
| Series A | Series B | Number | Par | Additional | Stockholder’s | |||||||||||||||||||||||||||||||
| Number Shares | Par Amount | Number Shares | Par Amount | Shares Common | Amount Common | Paid-in Capital | Accumulated Deficit | Equity (Deficit) | ||||||||||||||||||||||||||||
| Balance, January 1, 2022 | 1,000 | $ | 1 | 27 | $ | 171,398,834 | $ | 17,133 | $ | 46,828,644 | (47,558,308 | ) | $ | (712,530 | ) | |||||||||||||||||||||
| Preferred stock issued for services | - | 8 | - | 106,940 | 106,940 | |||||||||||||||||||||||||||||||
| Warrants issued in connection with debt exchange | - | - | - | 225,000 | 225,000 | |||||||||||||||||||||||||||||||
| Shares and warrants issued for cash | - | - | 1,375,000 | 138 | 109,862 | 110,000 | ||||||||||||||||||||||||||||||
| Shares issued for service | - | - | 1,100,000 | 110 | 108,490 | 108,600 | ||||||||||||||||||||||||||||||
| Net Loss | - | - | - | (1,084,213 | ) | (1,084,213 | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 1,000 | $ | 1 | 35 | $ | 173,873,834 | $ | 17,381 | $ | 47,378,936 | $ | (48,642,521 | ) | $ | (1,246,203 | ) | ||||||||||||||||||||
| Common stock and warrants issued for services | - | - | 1,825,000 | 182 | 174,792 | 174,974 | ||||||||||||||||||||||||||||||
| Conversion series B preferred stock to common stock | - | (3 | ) | 448,701 | 45 | 45 | ||||||||||||||||||||||||||||||
| Warrants issued in connection with debt conversion | - | - | - | 204,165 | 204,165 | |||||||||||||||||||||||||||||||
| Net Loss | (900,438 | ) | (900,438 | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 1,000 | $ | 1 | 32 | $ | 176,147,535 | $ | 17,608 | $ | 47,757,893 | $ | (49,542,959 | ) | $ | (1,767,457 | ) | ||||||||||||||||||||
| Balance, January 1, 2021 | 1,000 | $ | 1 | 20 | $ | 160,419,488 | $ | 16,036 | $ | 42,015,874 | $ | (41,730,801 | ) | $ | 301,110 | |||||||||||||||||||||
| Preferred stock issued for services | - | 10 | - | 164,524 | 164,524 | |||||||||||||||||||||||||||||||
| Warrants issued in connection with debt financing | - | - | - | 199,100 | 199,100 | |||||||||||||||||||||||||||||||
| Warrants issued as compensation | - | - | - | 2,029,990 | 2,029,990 | |||||||||||||||||||||||||||||||
| Net loss | (2,501,086 | ) | (2,501,086 | ) | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 1,000 | $ | 1 | 30 | $ | 160,419,488 | $ | 16,036 | $ | 44,409,488 | $ | (44,321,887 | ) | $ | 193,638 | |||||||||||||||||||||
| Common stock and warrants issued for cash | - | - | 2,412,500 | 241 | 192,759 | 193,000 | ||||||||||||||||||||||||||||||
| Common stock issued in connection with debt conversions and accrued interest | - | - | 1,997,312 | 199 | 159,585 | 159,784 | ||||||||||||||||||||||||||||||
| Warrants issued as compensation | - | - | - | 200,000 | 200,000 | |||||||||||||||||||||||||||||||
| Warrants issued in connection with debt conversion | - | - | - | 962,176 | ||||||||||||||||||||||||||||||||
| Net loss | (1,810,671 | ) | (1,810,671 | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 1,000 | $ | 1 | 30 | $ | 164,829,300 | $ | 16,476 | $ | 45,924,008 | $ | (46,042,558 | ) | $ | (102,073) | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-3 |
NUTRALIFE BIOSCIENCES, INC., F/K/A NUTRAFUELS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 2022 | For the Six Months Ended June 30, 2021 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (1,984,651 | ) | $ | (4,311,757 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Income from debt forgiveness | (244,700 | ) | ||||||
| Depreciation | 24,696 | 26,924 | ||||||
| Warrants issued in connection with finance costs | 429,165 | 962,176 | ||||||
| Stock-based compensation | 390,515 | 2,394,514 | ||||||
| Amortization of debt discount | 153,165 | 180,509 | ||||||
| Amortization of right of use asset | 88,918 | 103,617 | ||||||
| Amortization of intangible asset | 24,094 | 32,484 | ||||||
| Amortization of license | 97,223 | |||||||
| Bad debt | (11,800 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 23,996 | 81,238 | ||||||
| Inventories | (43,448 | ) | (19,245 | ) | ||||
| Prepaid expenses | 27,497 | |||||||
| Accounts payable | (34,778 | ) | 92,865 | |||||
| Accrued expenses | 233,664 | 192,300 | ||||||
| Deferred revenue | (28,296 | ) | (12,700 | ) | ||||
| Operating lease liabilities | (91,333 | ) | (107,681 | ) | ||||
| Net Cash Used in Operating Activities | (701,373 | ) | (629,456 | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of license | (500,000 | ) | ||||||
| Purchase of investment | (225,000 | ) | ||||||
| Net Cash Used in Investing Activities | (725,000 | ) | ||||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from SBA financing | 243,275 | |||||||
| Proceeds from debt issuances | 223,750 | 215,000 | ||||||
| Common stock and warrants issued for cash | 110,000 | 193,000 | ||||||
| Payments on finance leases | (9,646 | ) | (9,906 | ) | ||||
| Repayments of debt | (86,500 | ) | ||||||
| Proceeds from revenue share agreements | 1,110,000 | |||||||
| Payments on revenue share agreements | (5,198 | ) | ||||||
| Net Cash Provided by Financing Activities | 1,342,406 | 641,369 | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (83,967 | ) | 11,913 | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 135,769 | 742 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 51,802 | $ | 12,655 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES | ||||||||
| Debt and accrued interest converted to equity | $ | 38,055 | $ | 159,784 | ||||
| Warrants issued for the issuance of debt | $ | 429,165 | $ | 199,100 | ||||
| Right of use asset addition under ASC 842 | $ | 209,044 | $ | |||||
| Operating lease liabilities under ASC 842 | $ | 209,044 | $ | |||||
| Debt and accrued interest exchanged for revenue share agreement | $ | 457,700 | $ | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-4 |
NUTRALIFE BIOSCIENCES, INC., F/K/A NUTRAFUELS, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND CONSOLIDATION
NutraLife BioSciences, Inc. (“We” or the “Company”) is the producer and distributor of nutritional supplements that uses micro molecular formulae and a utilization of an oral spray to provide faster and more efficient absorption. Our products are sold to private label distributers who sell the products we manufacture under their own brand name as well as under our own brand name.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America (“U.S.”) as promulgated by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and with the rules and regulations of the U.S Securities and Exchange Commission (“SEC”). In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Therefore, the interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, from which the accompanying condensed consolidated balance sheet dated December 31, 2021 was derived.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Precision Analytic Testing, LLC, NutraDerma Technologies, Inc., PhytoChem Technologies, Inc., and TransDermalRX, Inc. We operate as one reportable segment. All intercompany transactions and balances have been eliminated in consolidation.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”, which amended the effective date of the various topics. As the Company is a smaller reporting company, the provisions of ASU 2016-13 and the related amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 (quarter ending March 31, 2023 for the Company). Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company will evaluate the impact of ASU 2016-13 on the Company’s consolidated financial statements in a future period closer to the date of adoption.
Effective January 1, 2021, the Company adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
| F-5 |
Effective January 1, 2021, the Company Adopted ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” using a modified retrospective approach which simplifies and clarifies certain calculation and presentation matters related to convertible equity and debt instruments. Specifically, ASU-2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments. Accounting Standards Update 2020-06 also provides clearer guidance surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation of Diluted EPS. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents as of June 30, 2022 consisted of a money market account.
Inventories
Inventories are stated at lower of cost or net realizable value utilizing the weighted average method of valuation and consist of raw materials and finished goods. The Company reduces inventory on hand to its net realizable value on an item-by-item basis when it is apparent that the expected realizable value of an inventory item falls below its original cost. A charge to cost of sales results when the estimated net realizable value of specific inventory items declines below cost. Management regularly reviews the Company’s inventories for such declines in value. Inventory consists of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Raw Materials | $ | 70,831 | $ | 60,630 | ||||
| Finished Goods | 281,951 | 248,704 | ||||||
| $ | 352,782 | $ | 309,334 | |||||
| F-6 |
Allowance for Doubtful Accounts
We establish the existence of bad debts through a review of several factors including historical collection experience, current aging status of the customer accounts, and financial condition of our customers. The allowance for doubtful accounts is $0 as of June 30, 2022 and December 31, 2021.
Property and Equipment
All property and equipment are recorded at cost and depreciated over their estimated useful lives, generally three, seven and twelve years, using the straight-line method. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from their respective accounts, and the resulting gain or loss is included in the results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred. Leasehold improvements are amortized over their estimated useful lives or the remaining term of the lease, whichever is shorter.
Impairment of Long-Lived Assets
A long-lived asset is tested for impairment whenever events or changes in circumstances indicate that its carrying value amount may not be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds the sum of the undiscounted cash flows resulting from its use and eventual disposition. The impairment loss is measured as the amount by which the carrying amount of the long-lived assets exceeds its fair value.
Impairment charges would be included with costs and expenses in the Company’s condensed consolidated statements of operations and would result in reduced carrying amounts of the related assets on the Company’s condensed consolidated balance sheets. No adjustments were made to long-lived assets during the three months ended June 30, 2022, and 2021.
Revenue Recognition
The Company accounts for revenue under the guidance of FASB ASC 606, “Revenue from Contracts from Customers” (“ASC 606”).
ASC 606 prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of revenue to be recognized. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company generates revenues from the sale of products. The product is invoiced, and the revenue is recognized upon shipment or once transfer of risk has passed to the customer, which is the point at which the Company has satisfied its performance obligation.
Payments received in advance from customers are recorded as customer deposits until earned, at which time revenue is recognized.
We recognize certain revenues under bill and hold arrangements with certain customers when the Company has fulfilled all of its performance obligations, the units are segregated for the specific customer only, and the goods are ready for physical transfer to the customer in accordance with their defined contract delivery schedule. For any requested bill and hold arrangement, we make an evaluation as to whether the bill and hold arrangement qualifies for revenue recognition. The customer must initiate the request for the bill and hold arrangement. The customer must make a fixed commitment to purchase the items. The risk of ownership is passed to the customer, and payment terms are not modified.
| F-7 |
The Company’s revenues accounted for under ASC 606 do not require significant estimates or judgements based on the nature of the Company’s revenue. The Company’s contracts do not include multiple performance obligations or variable consideration. All of the Company’s sales resulted from contracts with customers for the three and six months ended June 30, 2022 and 2021.
Income Taxes
The Company recorded income tax expense for the three and six months ended June 30, 2022 and 2021 because the estimated annual effective tax rate was zero. As of June 30, 2022, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more than likely than not that its deferred tax assets will not be realized.
Basic loss per share excludes dilution and is computed by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless consideration of such dilutive potential shares would result in anti-dilution. The following equity and debt securities were excluded from the computation of net loss per share.
| June 30,2022 | June 30,2021 | |||||||
| (Shares) | (Shares) | |||||||
| Warrants | 78,978,575 | 82,499,848 | ||||||
| Series B Preferred Stock | 4,786,144 | 4,487,010 | ||||||
| Convertible notes payable, and accrued interest | 7,760,001 | 6,013,466 | ||||||
| 91,524,720 | 93,000,324 | |||||||
Related Party Transactions
All transactions with related parties are in the normal course of operations and are measured at the exchange amount.
All transactions with related parties are in the normal course of operations and are measured at the exchange amount. See note 8 for further details.
Leases
The Company accounts for leases under FASB ASU 2016-02, “Leases” (ASC 842) and other associated standards, which defines a lease as any contract that conveys the right to use a specific asset for a period of time in exchange for consideration. ASC 842 requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet and the disclosure of key information about certain leasing arrangements. As permitted by ASC 842, the Company elected the adoption date of January 1, 2019, which is the initial date of application. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases (formerly called capital leases). The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is recorded in interest expense.
Leases are classified as a finance lease if any of the following criteria are met:
| 1. | The lease transfers ownership of the underlying asset to the lessee by the end of the lease term. | |
| 2. | The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise. | |
| 3. | The lease term is for the major part of the remaining economic life of the underlying asset. | |
| 4. | The present value of the sum of lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset. | |
| 5. | The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. |
| F-8 |
For any leases that do not meet the criteria identified above for finance leases, the Company treats such leases as operating leases. As of June 30, 2022, the Company has two finance leases and two operating leases.
Under the ASC 842, both finance and operating leases are reflected on the balance sheet as lease or “right-of -use” assets and lease liabilities. There are some exceptions, which the Company has elected in its accounting policies. For leases with terms of twelve months or less, or below the Company’s general capitalization policy threshold, the Company elects an accounting policy to not recognize lease assets and lease liabilities for all asset classes. The Company recognizes lease expense for such leases generally on a straight-line basis over the lease term.
The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain to be exercised. Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for separately. In general, the Company will assess if non-lease components are fixed and determinable, or variable, when determining if the component should be included in the lease liability. For purposes of calculating the present value of the lease obligations, the Company utilizes the implicit interest rate within the lease agreement when known and/or determinable, and otherwise utilizes its incremental borrowing rate at the time of the lease agreement. The related right-of-use asset is initially measured at cost, which primarily comprises of the initial amount of the lease liability.
Lease expense for operating leases consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.
Intangible Asset
Intangible asset represents the value assigned to intellectual property and is amortized based on the economic benefit expected to be realized.
Cost Investments
The Company accounts for investments using the cost method of accounting if the Company’s ownership in the investee is less than 20% and the Company cannot exert any substantial influence over the management and operations of the investee and the investment has no easily determinable fair value. The investment is therefore held at historical cost on the condensed consolidated balance sheet. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. As of June 30, 2022, the Company believes the carrying value of its cost method investments were recoverable in all material respects.
NOTE 3 - LIQUIDITY AND GOING CONCERN CONSIDERATIONS
Our condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We sustained a net loss of $1,984,651 for the six months ended June 30, 2022, and have an accumulated deficit of approximately $49,500,000 at June 30, 2022. These conditions raise substantial doubt about our ability to continue as a going concern.
| F-9 |
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in China, and began to spread around the world in early 2020. In reaction to decreased supply of and increased demand for sanitizer products, the Company shifted its manufacturing to produce sanitizer products. The Company’s other business operations have been impacted negatively by COVID-19 due to government restrictions and the overall adverse effect on the global economy. The Company expects COVID-19 to continue to negatively impact its operating results and its ability to obtain financing.
The Company is currently in the process of raising capital to complete and finalize the build-out of its facility in Deerfield Beach for the purpose of consolidating its operations. The structure of the capital raise is currently in development. The Company is continuing its path to profitability through increased business development, marketing and sales of the Company’s multiple lines of topical, ingestible and skincare health and wellness products. In January 2022, the Company entered into a license and ownership agreement in an effort to expand its sales and customer base. Refer to Note 6 for details.
Failure to successfully continue to grow operational revenues could harm our profitability and adversely affect our financial condition and results of operations. We face all of the risks inherent in a new business, including the need for significant additional capital, management’s potential underestimation of initial and ongoing costs, and potential delays and other problems in connection with establishing sales channels.
We are continuing our plan to further grow and expand operations and seek sources of capital to pay our contractual obligations as they come due. Management believes that its current operating strategy will provide the opportunity for us to continue as a going concern as long as we are able to obtain additional financing; however, there is no assurance this will occur. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
NOTE 4 – PROPERTY AND EQUIPMENT, NET
A summary of property and equipment is as follows:
| June 30, 2022 | December 31, 2021 | |||||||
| Furniture and equipment | $ | 1,959,694 | $ | 1,959,694 | ||||
| Leasehold improvements | 840,728 | 840,728 | ||||||
| Property and equipment, at cost | 2,800,422 | 2,800,422 | ||||||
| Less: accumulated depreciation | (559,922 | ) | (535,226 | ) | ||||
| $ | 2,240,500 | $ | 2,265,196 | |||||
Depreciation expense for the three months ended June 30, 2022 and 2021, totaled $12,348 and $12,994, respectively.
Depreciation expense for the six months ended June 30, 2022 and 2021 totaled $24,696 and $26,924, respectively.
NOTE 5 – INTANGIBLE ASSET, NET
In February 2019, the Company acquired certain intellectual property consisting of patent rights. The aggregate purchase price paid in connection with the patent purchase was $714,640, consisting of $130,000 cash, and shares of the Company’s common stock valued at $ per share or an aggregate of $584,640. As such, the Company recognized a liability for stock to be issued of $265,500. During the quarter ended June 30, 2022, upon the negotiation agreement, the Company wrote off the liability for stock to be issued and decreased the intangible asset value by $265,500. The residual value is to be amortized over its remaining estimated useful life of approximately 8 years. Amortization expense for of the three months ended June 30, 2022 and 2021 was 7,852 and $16,242 respectively. Amortization expense for of the six months ended June 30, 2022 and 2021 was $24,094 and $32,484 respectively. Total accumulated amortization for June 30, 2022 and December 31, 2021 was $213,584 and $189,490, respectively. The estimated annual amortization expense for the next five years and thereafter is as follows:
| F-10 |
NOTE 5 – INTANGIBLE ASSET, NET, Continued
| 2022 (remainder of year) | $ | 15,704 | ||
| 2023 | 31,407 | |||
| 2024 | 31,407 | |||
| 2025 | 31,407 | |||
| 2026 | 31,407 | |||
| Thereafter | 94,224 | |||
| $ | 235,556 |
There is no impairment recorded for the three and six months ended June 30, 2022 and 2021.
License
The acquired license is amortized over its estimated useful life of three years. Amortization expense for the three months ended June 30, 2022 totaled $41,667. Amortization expense for the six months ended June 30, 2022 totaled $97,223. The estimated annual amortization expense is as follows:
| 2022 (Remainder of year) | $ | 83,332 | ||
| 2023 | 166,667 | |||
| 2024 | 152,778 | |||
| $ | 402,777 |
NOTE 6 – INVESTMENTS
Distribution Agreement
On November 2, 2020 in connection with a manufacturing, distribution and sales agreement with a third party distributor (the “Distributor”), the Company issued million of its common shares for shares of non-trading convertible preferred stock of the Distributor. Each convertible preferred share is convertible into shares of the Distributor’s common stock. The Distributor’s common shares are currently traded in the over the counter market.
As of June 30, 2022 and December 31, 2021, the Company was entitled to shares of the Distributer’s common stock. No shares have been received as of the date of the filing of this report.
The Company determined to initially value the convertible preferred stock investment using the Black-Scholes option pricing model using the following inputs: stock price: $, exercise price: $, expected term: one year, and risk free rate 0.13%.
The Company made this investment to realize strategic benefits for its business, rather than to generate income or capital gains. Because the Company owns less than 20% on an as converted basis of the Distributor, and cannot exercise significant influence over operating and financial policies of the Distributor, the Company accounts for the investment under ASC 321, “Equity Securities” (“ASC 321”). Under ASC 321, for each reporting period, the Company completes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.
| F-11 |
The investment balance as of June 30, 2022 and December 31, 2021 was $383,326. There is no impairment recorded for the three and six months ended June 30, 2022.
Investment and License
In November 2021, the Company negotiated terms of a non-exclusive sub-license agreement with a third party (the “Party”) whereby the Party will grant the Company a limited, non-exclusive authority to purchase, distribute, market, make, and sell products in which the Party has authorized the Company to produce on a case-by-case basis, for a period of three years from the effective date of the definitive agreement. In exchange for the license, the Company agreed to pay $450,000 along with a monthly license royalty fee of 20% of the final sales price of licensed items to the end buyer. The terms also allow the Company to purchase an equivalent ownership interest of the Party for an initial funding of $225,000, with the option to increase its investment up to $6,000,000. The Company provided an initial funding fee of $225,000 in exchange for the permission to purchase an equivalent ownership interest of the Party, which should equal to the appropriate preferred purchase price, based upon the stated current valuation. The total payment of $675,000 as of December 31, 2021 was classified as a Deposit on Equity and License Agreement on the consolidated balance sheet.
In January 2022, the Company entered into a definitive agreement with the Party. The definitive agreement defined an initial term of three years from December 30, 2021, with options to renew. The Company made additional payments to the Party in January in the amount of $725,000 toward the license fee and to purchase an equivalent ownership interest. The total funding to the Party of $1,400,000 was allocated $500,000 for the license, and equity participation of $900,000 in accordance with the terms of the agreement.
During the period ended June 30, 2022, the Company received $11,550 in accordance with license agreement. The Company allocated and paid $ towards the applicable revenue share agreements payable.
The Company made this investment to realize strategic benefits for its business, rather than to generate income or capital gains. Because the Company owns less than 20% of the Party and cannot exercise significant influence over operating and financial policies of the Party, the Company accounts for the investment under ASC 321. Under ASC 321, for each reporting period, the Company completes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.
The investment balance as of June 30, 2022 was $900,000. There is no impairment recorded for the six months ended June 30, 2022.
NOTE 7 – ACCRUED EXPENSES
A summary of accrued expenses is as follows:
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Officer – Bonus | $ | 661,500 | $ | 540,500 | ||||
| Accrued Expenses – Other | 47,590 | 30,912 | ||||||
| Accrued Interest – Related Parties | 177,304 | 148,552 | ||||||
| Accrued Interest | 234,127 | 230,203 | ||||||
| Accrued Rent | 23,935 | |||||||
| Other Current Liabilities | 106,300 | 93,724 | ||||||
| $ | 1,250,756 | $ | 1,043,891 | |||||
| F-12 |
NOTE 8 – NOTES PAYABLE
Notes Payable
During the six month period ended June 30, 2022, the Company received proceeds aggregating $218,750 in connection with short-term promissory notes with due dates in February through May 2024. The notes bear interest ranging from 10% to 22% for the terms of the notes. The notes had an original issue discount aggregating to $21,450.
During the sixth month period ended June 30, 2022 the Company entered into a Note Exchange Agreement with one of its noteholders whereby the noteholder exchanged his promissory notes into shares of common stock. The amount exchanged was in the aggregate of $30,000 of principal and $8,055 of accrued interest. As of June 30, 2022, these shares have not been issued and the Company recognized a liability for stock to be issued of $38,055. Additionally, 1,902,752 warrants were issued to the noteholder as additional consideration. The warrants are exercisable at $0.08 per share and expire two years from the date of issuance. The warrants issued in connection with the exchange were valued at $114,165 and charged to finance costs. The value was calculated using the Black-Scholes Merton valuation model with the following inputs: an expected and contractual life of two years, an assumed volatility of 146.4%, zero dividend rate, and a risk-free rate of 2.5%.
During the quarter ended June 30, 2022, one of the notes and related accrued interest was exchanged for a revenue share agreement pursuant to a Note Exchange Agreement. See Note 9 for further information.
Convertible Note Payable to Shareholder
In June 2019, the Company entered into an Investment Agreement that included a secured convertible 5.75% promissory note payable for $1,000,000 with a shareholder. The note is convertible at the note holder’s discretion at any time the note is outstanding into shares of the Company’s common stock at the price of $ per share. The note is subject to a security agreement whereby the first four Ennea Processors the Company has committed to commercialize and monetize will be secured as collateral for the note as well as current and future assets of the Company and its subsidiaries. The payment terms of the note were interest only payments from July 7, 2019 through December 7, 2019 and commencing January 7, 2020, the Company was to make equal monthly installment payments that include principal and interest through the Maturity Date of December 7, 2020.
Included in the Investment Agreement is a royalty agreement whereby the investor received 500,000 shares of the Company’s common stock and will be entitled to a royalty of 8.5% from the revenue generated from the “collateral processors” while the principal is outstanding and 5% thereafter on the first two collateral processors for a period of 10 years.
In addition to the collateral, the note is secured by a Pledge Agreement from a related party that included a mortgage lien on certain real property as additional collateral.
The collateral processors are not yet in service. Therefore, revenue generated from them and the related royalties due cannot be estimated at this time and will be expensed as incurred in the future.
The Company is currently in default of this note, however, the parties are in negotiation to reach settlement terms.
Debt Discounts
Total amortization associated with all debt discounts was $57,983 and $153,165 for the three and six months, ended June 30, 2022, and $116,178 and $180,509 for the three and six months ended June 30, 2021.
| F-13 |
During the year ended December 31, 2021, the Company entered into two revenue share agreements with third party investors (“Investors”) and received an aggregate of $. In accordance with these agreements, the proceeds were primarily used to fund the third party license agreement as described in Note 6.
During the six month period ended June 30, 2022, the Company entered into seven Note Exchange Agreements with its noteholders whereby the noteholders exchanged their promissory notes into revenue share agreements. The amounts exchanged were an aggregate of $457,000 of principal and $35,340 of accrued interest for a total amount of $492,340. In addition, the Company received $ in cash proceeds for other revenue share agreements.
The proceeds are non-refundable.
An aggregate of 5,250,000 warrants were issued to the noteholders as additional consideration. The warrants are exercisable at $0.08 per share and expire two years from the date of issuance. The warrants issued in connection with exchanges were valued at $315,000 and charged to finance costs. The value was calculated using the Black-Scholes Merton valuation model with the following inputs: an expected and contractual life of two years, an assumed volatility of 146.4%, zero dividend rate, and a risk-free rate of 2.5%.
NOTE 10 - STOCKHOLDERS’ EQUITY
During the quarter ended March 31, 2022, the Company issued shares of common stock for services aggregating $108,600, valued using the trading price on the date of issuance.
During the quarter ended March 31, 2022, the Company issued shares of common stock and warrants in exchange for cash totaling $110,000. The warrants have an exercise price of $0.08 per share and expire two years after issuance.
During the quarter ended June 30, 2022, the Company issued shares of common stock for services aggregating $174,974, valued using the trading price on the date of issuance.
Preferred Stock
The Company’s board of directors is authorized to issue, at any time, without further stockholder approval, up to shares of preferred stock. The board of directors has the authority to fix and determine the voting rights, rights of redemption and other rights and preferences of preferred stock.
Series A Preferred Stock (“Series A Preferred”)
On November 30, 2012, the board of directors of the Company created Series A Preferred. The Series A Preferred has the following rights and preferences:
| 1. | The shares are not entitled to dividends or liquidation preferences. | |
| 2. | Each share has voting rights equal to 500,000 shares of the Company’s common stock. | |
| 3. | So long as Series A Preferred shares are outstanding, the Company cannot take certain actions (as defined in the certificate of designation) without the consent of the holders of 100% of the Series A Preferred shares. |
On November 30, 2012, Edgar Ward, the Company’s President, CEO, and director, was granted shares of Series A Preferred for $1,000. At the option of Mr. Ward, the Series A Preferred shares are redeemable for $1,000.
As of June 30, 2022 and March 31, 2022, shares of Series A Preferred are outstanding.
| F-14 |
Series B Convertible Preferred Stock (“Series B Preferred”)
On September 30, 2020, the Company designated shares of Preferred Stock as Series B Convertible Preferred Stock. A Series B Holder has the right from time to time, and at any time following January 1, 2021, to convert each outstanding share of Series B stock into shares of common stock at a rate of shares of common stock for each share of Series B Preferred. Each share of Series B Preferred shall have a number of votes equal to the number of conversion shares which would be issuable as of the date of such vote. The Series B Preferred does not have any liquidation preferences. The Series B Preferred will participate in any dividends, distributions or payments to the holders of the common stock on an as-converted basis. The Series B Preferred is subject to an ownership limitation, pursuant to which no holder of Series B Preferred will be entitled to convert such investor’s shares of Series B Preferred Stock into shares of common stock if such conversion would result in ownership of more than 4.99% of the outstanding shares of common stock of the Company. Once issued, certain shares of the Series B Preferred are redeemable at the election of the Company at any time prior to the Permitted Conversion Date pursuant to separate written agreements that will be effectuated between holders of the Series B Preferred and the Company.
In March, 2022, the Company issued shares of Series B Preferred to its consultant as part of their compensation agreement. The consultant compensation was valued at $ using the trading price of the equivalent common stock on the date of issuance.
In April 2022, a shareholder converted three shares of Series B Preferred stock into shares of common stock.
As of June 30, 2022 and December 31, 2021, and shares, respectively, of Series B Preferred are outstanding.
Subsequent Issuances
In August 2022, the Company issued shares of common stock with an aggregate value of $38,055 for promissory note conversion.
NOTE 11 – LEASES
In conjunction with the guidance for leases, as defined by the FASB with ASU 2016-02, Leases (Topic 842), the Company has designated the existing leases as operating as further described below:
The Company leases their office and warehouse facilities located in in Coconut Creek, Florida under a non-cancelable operating lease agreement. In January 2022, the lease term has been renewed for three years to expire in February 2025.
In June 2017, the Company entered into a lease for an additional facility located in Deerfield Beach, Florida under a non-cancelable operating lease. The term of the lease is for 86 months beginning on January 1, 2018 and calls for yearly 3% increases to base rent, with monthly payments that commenced in March 2018.
As of June 2022, the Company rents office and warehouse space located in Onalaska, Wisconsin, on a month-to-month basis for $2,589 per month.
In addition to rent, the Company pays certain insurance, maintenance, and other costs related to its leased spaces.
As of December 31, 2021, in the condensed consolidated balance sheet, the Company has recorded right-of-use assets of $449,155 and a lease liability of $492,798, of which $141,911 is reported as a current liability.
As of June 30, 2022, in the condensed consolidated balance sheet, the Company has right-of-use assets of $569,281 and a lease liability of $610,509, of which $211,374 is reported as a current liability.
| F-15 |
NOTE 11 – LEASES, Continued
The weighted average remaining lease term is 32 months and weighted average discount rate used is 10%.
The following table presents a reconciliation of the undiscounted future minimum lease payments remaining under the operating lease reported as operating lease liability on the condensed consolidated balance sheet as of June 30, 2022.
| Undiscounted future minimum lease payments: | ||||
| 2022 (remainder of year) | $ | 129,000 | ||
| 2023 | 267,000 | |||
| 2024 | 275,000 | |||
| 2025 | 47,000 | |||
| Total undiscounted future minimum lease payments | 718,000 | |||
| Less: amount representing imputed interest | (107,000 | ) | ||
| Operating lease liability | $ | 611,000 | ||
Supplemental cash flow information related to leases is as follows, for the six months ended June 30,
| 2022 | 2021 | |||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 178,869 | $ | 252,648 | ||||
Lease expense for the operating leases was $89,564 and $87,695 for the three months ended June 30, 2022 and 2021, respectively. Lease expense for the operating leases was $185,704 and $188,495 for the six months ended June 30, 2022 and 2021, respectively.
Finance Leases:
The Company has acquired certain equipment under agreements that are classified as finance leases. The cost of the equipment under finance leases is included in the balance sheet as property and equipment. The finance lease equipment was approximately $110,000 as of June 30, 2022 and December 31, 2021, with related accumulated depreciation of $14,704 and $12,786, respectively.
Minimum lease payments required by these finance leases are as follows:
Undiscounted future minimum lease payments:
| 2022 (remainder of year) | $ | 7,000 | ||
| 2023 | 2,100 | |||
| Total undiscounted future minimum lease payments | 9,100 | |||
| Less: amount representing interest | (471 | ) | ||
| Less: current portion | 8,629 | |||
| Present value of minimum lease payments, net of current portion | $ |
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company is subject to asserted claims and liabilities that arise in the ordinary course of business. The Company maintains insurance policies to mitigate potential losses from these actions. In the opinion of management, the amount of the ultimate liability with respect to those actions will not materially affect the Company’s financial position or results of operations.
Litigations applicable to the Company are discussed as follows.
Ortiz v. the Company: Jose Ortiz v. Nutralife Biosciences, Inc. f/k/a Nutrafuels, Inc., Case No. CACE-29-017957, was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, on October 28, 2020. In this matter, Mr. Ortiz is seeking a judgment for damages, attorneys’ fees, and other costs relating to defendant’s purported breach of an employment agreement dated March 18, 2015. We do not believe that this claim is valued at greater than $5,000. Ortiz’ claim was filed on October 28, 2020, asserting improper discharge from employment, and failure to pay wages and benefits, however, we believe (and have filed summary judgment asserting) that the claim was filed too late, in contravention of the applicable statute of limitations.
Hamilton v. the Company: Hamilton & Associates Law Group, P.A. v. Nutralife Biosciences, Inc. f/k/a Nutrafuels, Inc., Case No. 50-2020-CA-008435, was filed in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida on August 9, 2020. In the suit, Hamilton & Associates Law Group, P.A. sets forth purported claims for breach of contract, and in the alternative, account stated, open account, unjust enrichment, and quantum meruit. Plaintiff requests a judgment for damages in the principal sum of $150,000, plus an award of attorneys’ fees and costs pursuant to a legal services agreement dated January 7, 2019, as well as pre-judgment interest and post-judgment interest. The Hamilton matter filed directly against the Company initially included a claim against Edgar Ward, but the individual claim has been dropped. The prior engagement agreement between the Hamilton law firm and the Company (for 2018) was in the nature of a flat fee engagement, in which shares were provided in lieu of cash payments. The Company maintains that the change in the engagement of the law firm (from 2018 to 2019) in terms of the nature of payment was not disclosed or explained adequately, and the Company was unaware of any claim that sums remained unpaid, as all fees were understood to be paid as a result of the shares of stock provided. The claim was filed on August 9, 2020, and is not set for trial, and only documentary discovery has been conducted to date.
Native American Partners v. the Company: Native American Partners LLC, including NAVF Holdings and NAVF-Pharma, subsidiary companies, and Best Darn Brands, LLC, and its subsidiaries v. Nutralife Biosciences Inc., Case No. CACE-20-009352, was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. This action was filed on June 5, 2020, against both the Company and Edgar Ward. However, the claim against Mr. Ward was later dropped. The claim asserted that the Company failed to comply with the confidentiality imposed by a non-disclosure agreement signed by plaintiff and defendant. Plaintiff claims that defendant proceeded with the development of a hand sanitizer product that was first revealed to defendant by the plaintiff, however, defendant asserted that the product produced was different (gel vs. spray) and that defendant had contemplated developing the product (the Covid 19 pandemic was already underway) well in advance of the signing of the NDA. In the Amended Complaint filed on July 9, 2020, plaintiffs demanded injunctive relief and damages for conversion, fraudulent misrepresentation, fraud in the inducement, equitable accounting, unjust enrichment, quantum meruit, breach of contract, and negligent misrepresentation. We obtained a dismissal of this Amended Complaint on February 8, 2021, based on the arbitration provision included in the written contract at issue between the parties. At this time, the plaintiffs have not filed another court action that we are aware of. We are also not yet aware of any arbitration initiated by the plaintiff.
NOTE 13 – SUBSEQUENT EVENTS
In July and August 2022 the company issued promissory notes payable whereby the company received aggregate proceeds totaling $220,000.
NOTE 14 - DISCLOSURE OF PRIOR PERIOD FINANCIAL STATEMENT CHANGES
The Company recorded additional finance costs of $962,176 for the three and six months ended June 30, 2021. The change was the result of warrants issued as additional consideration in connection with debt conversion in the second quarter of 2021. The transaction was properly reflected in the financial statements included in the Company’s Form 10-K for the year ended December 31, 2021.
The following tables illustrate the change and financial impact on the various line items impacted on the unaudited condensed consolidated financial statements as of June 30, 2021and for the three and six months ended June 30, 2021, as follows:
Unaudited Condensed Consolidated Balance Sheet as of June 30, 2021 and Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Three and six Months Ended June 30, 2021
| Three Months and Six Months Ended June 30, 2021 | ||||||||||||
| As Reported | Adjustment | As Corrected | ||||||||||
| Additional paid-in-capital | 44,961,832 | 962,176 | 45,924,008 | |||||||||
| Accumulated deficit | (45,080,382 | ) | (962,176 | ) | (46,042,558 | ) | ||||||
Unaudited Condensed Consolidated Statement of Operations for the Three and Six Months Ended June 30, 2021
| Three Months Ended June 30, 2021 | ||||||||||||
| As Reported | Adjustment | As Corrected | ||||||||||
| Finance costs | (178,274 | ) | (962,176 | ) | (1,140,450 | ) | ||||||
| Total other income (expense) | (157,566 | ) | (962,176 | ) | (1,119,742 | ) | ||||||
| Loss before income taxes | (848,495 | ) | (962,176 | ) | (1,810,671 | ) | ||||||
| Net loss | (848,495 | ) | (962,176 | ) | (1,810,671 | ) | ||||||
| Net loss per weighted average common share - basic and diluted | (0.01 | ) | (0.01 | ) | ||||||||
| Six Months Ended June 30, 2021 | ||||||||||||
| As Reported | Adjustment | As Corrected | ||||||||||
| Finance costs | (298,202 | ) | (962,176 | ) | (1,260,378 | ) | ||||||
| Total other income (expense) | (31,504 | ) | (962,176 | ) | (993,680 | ) | ||||||
| Loss before income taxes | (3,349,581 | ) | (962,176 | ) | (4,311,757 | ) | ||||||
| Net loss | (3,349,581 | ) | (962,176 | ) | (4,311,757 | ) | ||||||
| Net loss per weighted average common share - basic and diluted | (0.02 | ) | (0.01 | ) | (0.03 | ) | ||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the results of operations and financial condition of the Company for the quarters ended June 30, 2022 and March 31, 2022, should be read in conjunction with the other sections of this Quarterly Report, including the Financial Statements and notes thereto of the Company included in this Quarterly Report. The various sections of this discussion contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties as well as other matters over which we have no control. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.
Overview
NutraLife BioSciences, Inc., a Florida corporation (“us”, “we” or “our”) was formed as a limited liability company in the state of Florida on April 1, 2010, to engage in the development and distribution of nutritional and dietary oral spray products. On December 3, 2012, we converted from a Limited Liability Company to a Florida Corporation.
We manufacture and distribute oral spray nutritional and dietary products. Our distribution strategy includes selling to private label customers retailers, distributors, and consumers through retail outlets.
Six Months Ended June 30, 2022 and 2021
We had sales of $136,313 and $175,469 for the six months ended June 30, 2022 and 2021, respectively, or a 22.3% decrease.
Cost of sales was $127,790 compared to $132,284 for the six months ended June 30, 2022 and 2021, respectively, or a 3.4% decrease. This decrease is directly related to the decrease in sales and production volume resulting from the shutdowns and business disruptions from the pandemic. The Company also significantly increased its production labor force.
Gross margin was $8,523 and $43,185 for the six months ended June 30, 2022 and 2021, respectively, or an 80.3% decrease.
General and administrative expenses were $836,548 compared to $899,274 for the six months ended June 30, 2022 and 2021, respectively, or a 6.9% decrease. This decrease is primarily due to the disruptions in the Company’s operations from the pandemic.
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Stock based compensation was $390,515 and $2,394,514 for the six months ended June 30, 2022 and 2021, respectively, or a 83.7% decrease.
Finance costs were $660,580 compared to $1,260,378 for the six months ended June 30, 2022 and 2021, respectively, a decrease of $599,798. This decrease is the result of recognizing the expenses related to warrants issued as compensation for debt conversion in the prior year.
We incurred a net loss of ($1,984,651) compared to ($4,311,757) for the six months ended June 30, 2022 and 2021, respectively.
Three Months Ended June 30, 2022 and 2021
We had sales of $55,835 and $39,096 for the three months ended June 30, 2022 and 2021, respectively, or 42.9% increase from the first quarter of 2021.
Cost of sales was $4,665 compared to $35,416 for the three months ended June 30, 2022 and 2021, respectively, or 86.8% decrease.
Gross profit was $51,170 and $3,680 for the three months ended June 30, 2022 and 2021, respectively, or 1,290.5% increase.
General and administrative expenses were $457,474 compared to $461,719 for the three months ended June 30, 2022 and 2021, respectively, a decrease of 0.9%. This decrease is primarily due to the disruptions in the Company’s operations from the pandemic.
Stock based compensation was $174,975 and $200,000 for the three months ended June 30, 2022 and 2021, respectively, a decrease of $25,025.
Our finance costs were $305,197 compared to $1,140,450 for the three months ended June 30, 2022 and 2021 respectively, a decrease of $835,253.
We incurred a net loss of ($900,842) compared to ($1,810,471) for the three months ended June 30, 2022 and 2021 respectively.
Liquidity and Capital Resources
Historically, the Company’s primary cash needs have been related to working capital items, which the Company has largely funded through our revenues, working capital, cash on hand, proceeds from lending and proceeds from the issuance of stock.
As of June 30, 2022, the Company had a cash balance of $51,802. Failure to successfully continue to grow operational revenues could harm our profitability and adversely affect our financial condition and results of operations. We face all of the risks inherent in a new business, including the need for significant additional capital, management’s potential underestimation of initial and ongoing costs, and potential delays and other problems in connection with establishing sales channels.
We are continuing our plan to further grow and expand operations and seek sources of capital to pay our contractual obligations as they come due. Management believes that its current operating strategy will provide the opportunity for us to continue as a going concern as long as we are able to obtain additional financing; however, there is no assurance this will occur. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Cash Flow Activities
As of June 30, 2022, the Company had a cash balance of $51,802.
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Operating Activities
Cash used in operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities, such as those included in working capital.
For the first three months of 2022, the Company’s operating activities used cash of $701,373, compared to the first quarter of 2021 which used cash of $629,456. For details of the operating cash flows refer to the condensed consolidated statements of cash flows in Part I – Financial Information.
Investing Activities
During the six months ended June 30, 2022, the Company’s investing activities included the acquisition of a license for $500,000 and an investment of $225,000 for an aggregate of $725,000.
Financing Activities
During the six months ended June 30, 2022, we received proceeds of $1,110,000 for revenue share agreements, $223,750 form the issuance of debt, net of $86,500 for the repayment of debt and $9,646 for the payment of finance leases.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our estimates are based on our historical experience, knowledge of current events and actions we may undertake in the future, and on various other factors that we believe are reasonable under the circumstances. Our critical accounting policies and estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our Annual Report on Form 10-K filed with the SEC on April 11, 2022. There were no material changes to our accounting policies during the six months ended June 30, 2022.
Recent Accounting Pronouncements
(See “Recently Issued Accounting Pronouncements” in Note 2 of Notes to the Condensed Consolidated Financial Statements.)
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information called for by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022. Based upon this evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of June 30, 2022.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Litigations applicable to the Company are discussed as follows.
Hamilton v. the Company: Hamilton & Associates Law Group, P.A. v. Nutralife Biosciences, Inc. f/k/a Nutrafuels, Inc., Case No. 50-2020-CA-008435, was filed in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida on August 9, 2020. In the suit, Hamilton & Associates Law Group, P.A. sets forth purported claims for breach of contract, and in the alternative, account stated, open account, unjust enrichment, and quantum meruit. Plaintiff requests a judgment for damages in the principal sum of $150,005, plus an award of attorneys’ fees and costs pursuant to a legal services agreement dated January 7, 2019, as well as pre-judgment interest and post-judgment interest. The Hamilton matter filed directly against the Company initially included a claim against Edgar Ward, but the individual claim has been dropped. The prior engagement agreement between the Hamilton law firm and the Company (for 2018) was in the nature of a flat fee engagement, in which shares were provided in lieu of cash payments. The Company maintains that the change in the engagement of the law firm (from 2018 to 2019) in terms of the nature of payment was not disclosed or explained adequately, and the Company was unaware of any claim that sums remained unpaid, as all fees were understood to be paid as a result of the shares of stock provided. The claim was filed on August 9, 2020, and is not set for trial, and only documentary discovery has been conducted to date.
Native American Partners v. the Company: Native American Partners LLC, including NAVF Holdings and NAVF-Pharma, subsidiary companies, and Best Darn Brands, LLC, and its subsidiaries v. Nutralife Biosciences Inc., Case No. CACE-20-009352, was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. This action was filed on June 5, 2020, against both the Company and Edgar Ward. However, the claim against Mr. Ward was later dropped. The claim asserted that the Company failed to comply with the confidentiality imposed by a non-disclosure agreement signed by plaintiff and defendant. Plaintiff claims that defendant proceeded with the development of a hand sanitizer product that was first revealed to defendant by the plaintiff, however, defendant asserted that the product produced was different (gel vs. spray) and that defendant had contemplated developing the product (the Covid 19 pandemic was already underway) well in advance of the signing of the NDA. In the Amended Complaint filed on July 9, 2020, plaintiffs demanded injunctive relief and damages for conversion, fraudulent misrepresentation, fraud in the inducement, equitable accounting, unjust enrichment, quantum meruit, breach of contract, and negligent misrepresentation. We obtained a dismissal of this Amended Complaint on February 8, 2021, based on the arbitration provision included in the written contract at issue between the parties. At this time, the plaintiffs have not filed another court action that we are aware of. We are also not yet aware of any arbitration initiated by the plaintiff.
Ortiz v. the Company: Jose Ortiz v. Nutralife Biosciences, Inc. f/k/a Nutrafuels, Inc., Case No. CACE-29-017957, was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, on October 28, 2020. In this matter, Mr. Ortiz is seeking a judgment for damages, attorneys’ fees, and other costs relating to defendant’s purported breach of an employment agreement dated March 18, 2015. We do not believe that this claim is valued at greater than $5,000. Ortiz’ claim was filed on October 28, 2020, asserting improper discharge from employment, and failure to pay wages and benefits, however, we believe (and have filed summary judgment asserting) that the claim was filed too late, in contravention of the applicable statute of limitations.
Item 1A. Risk Factors.
As a smaller reporting company, the Company is not required to provide information under this Item.
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Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds.
During the quarter ended June 30, 2022, and to date, we offered and sold the securities below which were not registered under the Securities Act of 1933, as amended (the “Securities Act”). None of the issuances involved underwriters, underwriting discounts or commissions. We relied upon Sections 4(2) of the Securities Act, and Rule 506(b) of the Securities Act for the offer and sale of the securities.
We believed these exemptions were available because:
| ● | We are not a blank check company; | |
| ● | We filed a Form D, Notice of Sales, with the SEC; | |
| ● | Sales were not made by general solicitation or advertising; | |
| ● | All certificates had restrictive legends; | |
| ● | Sales were made to persons with a pre-existing relationship to our Chief Executive Officer and Sole Director, Edgar Ward; and | |
| ● | Sales were made to investors who represented that they were accredited investors. |
In March, 2021, the Company issued 10 shares of Series B Convertible Preferred Stock to three consultants as part of their compensation agreements. The consultant compensation was valued at $164,524 using the trading price of the equivalent common stock on the date of issuance.
In April 2021, the Company issued 2,000,000 warrants to its Production Manager as compensation. The warrants have an exercise price of $0.1025 and expire 3 years after issuance.
In April through June 2021, the Company issued 3,662,500 shares of common stock and 14,650,000 warrants in exchange for $1,193,000. The warrants have an exercise price of $0.08 per share and expire 2 years after issuance.
In June 2021, the Company entered into two Note Exchange Agreements whereby previous note holders of the Company agreed to exchange their current notes that were in default, for new promissory notes, shares of common stock totaling 1,997,312, and warrants to acquire an aggregate of 7,989,250 shares of common stock. The warrants are exercisable at $0.08 per share and expire two years from the dates of the new promissory notes.
In March 2022, the Company issued 8 shares of Series B Convertible Preferred Stock to three consultants as part of their compensation agreements. The consultant compensation was valued at $164,524 using the trading price of the equivalent common stock on the date of issuance.
In April 2022, a shareholder converted three shares of Series B Preferred stock into 448,701 shares of common stock.
During the quarter ended June 30, 2022, the Company issued 1,825,000 shares of common stock for services aggregating $174,974, valued using the trading price on the date of issuance.
In August 2022, the Company issued 475,688 shares of common stock with an aggregate value of $38,055 for promissory note conversion.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
The exhibits listed on the Exhibit Index below are provided as part of this report.
| * | Filed herewith. |
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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, thereunto duly authorized.
| NutraLife BioSciences, Inc. | ||
| Dated: August 22, 2022 | By: | /s/ Edgar Ward |
| Edgar Ward | ||
Chief Executive Officer (principal executive, accounting, and financial officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
/s/ Edgar Ward |
Chief Executive Officer and Sole Director | August 22, 2022 | ||
| Edgar Ward | (principal executive officer and principal financials and accounting officer) |
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