Property and Equipment
The Company’s property and equipment are recorded at cost and depreciated using the straight-line method over the useful lives of the assets, generally from three to seven years. Upon sale or disposal of property and equipment, the related asset cost and accumulated depreciation or amortization are removed from the respective accounts and any gain or loss is reflected in current operations. As of September 30, 2024 and December 31, 2023, the total of accumulated depreciation was $23,153 and $52,474.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets established in connection with business combinations consist of patents, trademarks, and trade names. The impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the
7
estimated fair value of the intangible asset with it carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. With the acquisition of Ultimate Brain Nutrients on April 3, 2020 the Company added a purchasing value of $315,604 in patents to its balance sheet.
As of September 30, 2024, the Company believes that based upon qualitative factors, no impairment of indefinite-lived intangible assets is necessary.
Goodwill
In accordance with Goodwill and Other Intangible Assets, goodwill is defined as the excess of the purchase price over the fair value assigned to individual assets acquired and liabilities assumed and is tested for impairment at the reporting unit level on an annual basis in the Company's fourth fiscal quarter or more frequently if indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of the Company's reporting units with each respective reporting unit's carrying amount, including goodwill. The fair value of reporting units is generally determined using the income approach. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, the second step of the goodwill impairment test is performed to determine the amount of any impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. No goodwill impairment indicators were present, for the goodwill listed on the books as of September 30, 2024, after working through our analysis of goodwill during the nine months ended September 30, 2024.
The Company has determined that the method applied represents the fair value of the asset group principally because the valuation of the intangibles with the asset group is based on the anticipated cash flows related to the revenue stream from its customers. The asset group excludes goodwill, long term non-operational assets and liabilities and cash. As such, the principal value from the asset group relates to the cash inflows from its customers and the cash outflows required to service these customers. The fair value for the asset group consists of the following:
·Fair value of net revenues: computed using the income approach. The key input to these computations is the anticipated cash inflows from customers. These valuations include 100% of the cash inflows related to the customer base, and taking cash outflows into consideration.
·Fair value of working capital (including accounts receivable, inventory, accrued expenses, and accounts payables). Due to the short-term nature of the working capital, book value has been determined to be fair value. These accounts represent either avoided future outflows (inventory, prepaids) or future cash flows (accrued expense, AP and AR) related to customer sales.
·Fair value of five years of revenue (2023 to 2027): we discounted our cash flows to the anticipated cash projected to be received. We also projected the anticipated cash outflows required to service these customers. If the asset group was to be valued as a whole, we would expect an income approach based on the revenues being generated from the customers and expenses required to service those customers, appropriately adjusted for the working capital position. The sum of these values reasonably approximates this approach.
The Company’s revenue streams align directly with the intangibles, which were recorded as a result of the BergaMet acquisition in fiscal 2019. For purposes of the Step 2 recoverability test under ASC 360 subsection 2.3., the net revenues from BergaMet customers base were used. The revenue stream fairly reflects anticipated future cash flows; accordingly, the intangibles associated with these revenue streams have been tested with the expected cash flows.
Debt with Warrants
In accordance with ASC Topic 470-20-25, when the Company issues debt with warrants, the Company treats the fair value of the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations using the straight-line method. The offset to the contra-liability is recorded as either equity or liability in the Company’s consolidated balance sheets depending on the accounting treatment of the warrants. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.
8
Convertible Debt – Derivative Treatment
When the Company issues debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: (a) one or more underlying’s, typically the price of our common stock; (b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; (c) no initial net investment, which typically excludes the amount borrowed; and (d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both (a) indexed to its own stock; and (b) classified in stockholders’ equity in its balance sheet.
If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using a Black-Scholes Option-Pricing model upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt using the straight-line method.
Revenue Recognition
The Company applies Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers (ASC 606). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes all of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires us to identify distinct performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. When distinct performance obligations exist, the Company allocates the contract transaction price to each distinct performance obligation. The standalone selling price is used to allocate the transaction price to the separate performance obligations. The Company recognizes revenue when, or as, the performance obligation is satisfied.
Mostly, revenues are recognized at the time of shipment to the customer with the price being fixed and determinable and collectability assured, provided title and risk of loss is transferred to the customer. Most of our shipping and handling costs are built into the transaction price, but if the customer asks for express shipping, the costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales.
The Company’s subsidiary, BergaMet N.A., LLC, recognizes revenue from our main source – e-commerce revenue. Here is a list of all the sales channels which include the Company’s subsidiary website channel or any other selling channel like Amazon, doctors’ offices, and walk-in sales. All of our customer sales for Healthy Extracts Inc. and Ultimate Brain Nutrients, LLC are recognized as revenue under the subsidiary of BergaMet N.A., LLC. All three divisions of the Company sell plant-based nutraceuticals to our end using customers.
The Company evaluates the criteria pursuant to ASC 606-10-55. Some of the different considerations that we use because of their significance are as follows: Collectability - payment has to be made prior to shipment unless the customer has agreed upon terms. Guaranties – we offer a money back to customers if they are unhappy with our products. Principal versus Agent Considerations - currently we are the principal and have not engaged an agent at this time and we have not recognized any revenues under the agent considerations.
Revenue is recognized when, or as, control of a promised merchandise or service is shipped to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring title of those products or services and are recorded net of and discounts or allowances. Shipping costs paid by the customer are included in revenue. Merchandise sales are fulfilled with inventory held in our warehouse in Henderson, NV. Therefore, the Company’s contracts have a single performance obligation (shipment of product).
9
If the Company receives a request for refund on a customer obligation, the Company will refund the full cost of the obligation due to our money back guarantee. Historically, we have done a valuation of our sales allowance account (customer returns). In 2023 our return percentage was 0.008% of sales and 2022 was 0.009% of sales. Due to the low refund percentage management decided there was not a need for an estimated adjustment for allowances and refunds due to materiality.
Revenue recognition is evaluated through the following five-step process:
1.identification of the contract with a customer;
2.identification of the performance obligations in the contract;
3.determination of the transaction price;
4.allocation of the transaction price to the performance obligations in the contract; and
5.recognition of revenue when or as a performance obligation is satisfied.
These steps are met when an order is received, a price agreed and the product shipped or delivered to that customer.
Concentration
There is no concentration of revenue for the year ended December 31, 2023 and for the nine months ended September 30, 2024 because the revenue was earned from multiple customers.
Income Taxes
The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the accounting bases and the tax bases of the Company’s assets and liabilities. The deferred tax assets and liabilities are computed using enacted tax rates in effect for the year in which the temporary differences are expected to reverse.
The Company's deferred income taxes include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
The Company has adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At September 30, 2024 and December 31, 2023, there were no uncertain tax positions that required accrual.
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands dis3closure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity
10
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The derivative liability in connection with the conversion feature of the convertible debt, classified as a Level 3 liability, is the only financial liability measure at fair value on a recurring basis. If the convertible debt is viewed as short-term, management chooses to expense the full debt discount in the period incurred is recorded as a gain or loss in the consolidated statement of operations.
The Company measures and reports certain financial instruments as liabilities at fair value on a recurring basis. The fair value of these instruments as of September 30, 2024 and December 31, 2023 was as follows:
|
| Fair Value
|
|
| Level 1
|
|
| Level 2
|
|
| Level 3
|
|
Fair Value at December 31, 2022
| $
|
| 102,011
|
|
|
| -
|
|
|
| -
|
|
| $
| 102,011
|
|
Derivative liability
|
|
| 52,139
|
|
|
| -
|
|
|
| -
|
|
|
| 52,139
|
|
Fair Value at December 31, 2023
| $
|
| 154,150
|
|
|
| -
|
|
|
| -
|
|
| $
| 154,150
|
|
Derivative liability
|
|
| 273,436
|
|
|
| -
|
|
|
| -
|
|
|
| 273,436
|
|
Fair Value at September 30, 2024
| $
|
| 427,586
|
|
|
| -
|
|
|
| -
|
|
| $
| 427,586
|
|
September 30, 2024
|
| Level 1
|
|
| Level 2
|
|
| Level 3
|
|
| Total
|
|
Derivative liability
|
|
| -
|
|
|
| -
|
|
|
| 427,586
|
|
| $
| 427,586
|
|
December 31, 2023
|
| Level 1
|
|
| Level 2
|
|
| Level 3
|
|
| Total
|
|
Derivative liability
|
|
| -
|
|
|
| -
|
|
|
| 154,150
|
|
| $
| 154,150
|
|
The details of derivative liability transactions for the nine months ended September 30, 2024 and the year ended December 31, 2023 are as follows:
The change in Level 3 financial instrument fair value is as follows:
Balance, December 31, 2022
|
| $ 102,011
|
Issued during the year ended December 31, 2023
|
| 145,067
|
Derivative liabilities debt premium
|
| 29,167
|
Change in fair value recognized in operations
|
| (83,923)
|
Converted during the year ended December 31, 2023
|
| (38,172)
|
Balance, December 31, 2023
|
| $ 154,150
|
Issued during the nine months ended September 30, 2024
|
| -
|
Derivative liabilities debt discount
|
| -
|
Change in fair value recognized in operations
|
| 273,436
|
Converted during the nine months ended September 30, 2024
|
| -
|
Balance, September 30, 2024
|
| $ 427,586
|
The Company did not transfer any assets or liabilities measured at fair value on a recurring basis between levels during the months ending September 30, 2024 and the year ended December 31, 2023.
The Company determines the fair value of the derivative liability based on Level 3 inputs using the Black-Scholes option pricing model. The significant unobservable input assumptions that can significantly change the fair value
11
includes common share price; amount of principal and accrued interest convertible into shares as of the conversion date, and the number of shares issuable upon conversion; expected exercise price; expected term; volatility; and risk-free interest rate.
Convertible Instruments
Convertible debt – derivative treatment
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using the Black-Sholes option pricing model upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. If the convertible debt is viewed as short-term, management chooses to expense the full debt discount in the period incurred is recorded as a gain or loss in the consolidated statement of operations. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the consolidated statement of operations.
Convertible debt – beneficial conversion feature
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, any discounts, if applicable, to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts, if applicable, under these arrangements are amortized over the term of the related debt to their stated date of redemption.
Debt modifications and extinguishments
The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded under change in fair value on derivative, in the consolidated operation statements, as a gain or loss on extinguishment of the two separate liabilities. During the year ended December 31, 2023, the Company issued $388,888 of convertible debt.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements of five–step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract cost, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting period
12
beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
The Company’s revenues are recognized when control of the promised goods or services is transferred to our clients (upon shipment of goods) in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps: (1) Identify the contract with a client; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to performance obligations in the contract; and (5) Recognize revenues when or as the Company satisfies a performance obligation.
We adopted ASC 2014-09 on January 1, 2019. Although the new revenue standard is expected to have an immaterial impact, if any, on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities with them.
The Company leases its office and warehouse space under non-cancellable capital leases. The Company accounts for this lease in accordance with ASC 842. Right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Since our lease arrangements do not provide an implicit rate, we use our estimated incremental borrowing rate for the expected remaining lease term at commencement date in determining the present value of future lease payments.
The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Capital lease expense is recognized on a straight-line basis over the lease term. Variable lease payments are not included in the lease payments to measure the lease liability and are expensed as incurred.
Finance lease expense is comprised of both interest expense, which is recognized using the effective interest method, and amortization of the right-of-use assets. These expenses are presented consistently with the presentation of other interest expense and amortization or depreciation of similar assets.
Common area maintenance fees (or CAMs) and other charges related to leases are expensed as incurred. See Note 5 — Right-of-Use Assets and Lease Liabilities for further discussion of the Company’s lease activities.
Common Stock Purchase Warrants
The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 (“Contracts in Entity's Own Equity”). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification is required.
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated minimal revenues from operations. Since its inception, the Company has been engaged substantially in financing activities and developing its business plan and incurring startup costs and expenses. As a result, the Company incurred accumulated net losses from Inception (December 19, 2014) through the nine months ended September 30, 2024 of $18,793,415. Due to our negative cash flow, the Company has substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. In addition, the Company’s development activities since inception have been financially sustained through equity
13
financing. Management plans to keep seeking funding through debt and equity financing which are intended to mitigate the conditions that have raise substantial doubt about the entity’s ability to continue as a going concern.
NOTE 4 – RELATED PARTY
For the nine months ended September 30, 2024 and the year ended December 31, 2023, the Company had expenses totaling $0 and $0 respectively, to an officer and director for salaries, which is included in general and administrative expenses on the accompanying consolidated statement of operations.
Note
|
| Issuance Date
|
| Maturity Date
|
| Interest Rate
|
| Original Principal Amount
|
| Balance at September 30, 2024
|
| Balance at December 31, 2023
|
Unsecured debt A
|
| March 2019, March and June 2020
|
| No due date
|
| 0%
|
| $866
|
| $866
|
| $866
|
Unsecured debt H
|
| September 1, 2023
|
| January 1, 2024
|
| 10%
|
| $82,500
|
| $-
|
| $82,500
|
Unsecured debt I
|
| January 1, 2024
|
| June 30, 2025
|
| 15%
|
| $84,965
|
| $177,500
|
| $-
|
Total notes payable
|
|
|
|
|
|
|
| $168,331
|
| $178,366
|
| $83,366
|
Debt discount and deferred financing costs
|
|
|
|
|
|
|
| -
|
| -
|
| -
|
Total notes payable, net
|
|
|
|
|
|
|
| $168,331
|
| $178,366
|
| $83,366
|
Unsecured debt A: On March 2, 2020, the Company received an unsecured loan of $200 from a shareholder. Additionally, during in March and June 2019, the Company received an additional loan of $666 from another shareholder. Both of these notes are unsecured and do not have a payment due date at an interest rate of 0.00%.
Unsecured debt H: On September 1, 2023, the Company received an unsecured line of credit in the principal of up to $82,500 with a loan origination fee in the amount of $7,500, which was amortized over the life of the line of credit. The net proceeds from this line of credit were $75,000. The loan is unsecured and is due for repayment on January 1, 2024. Interest will accrue at an interest rate of 10% per annum on any unpaid principal amount. If the Company defaults on the loan, the holder of the note can declare all or any portion of the unpaid balance with all accrued interest immediately due and payable. On January 1, 2024, both parties agreed to convert this note and move it over to Unsecured debt I. As of September 30, 2024, the outstanding principal balance of unsecured debt H totaled $0.
Unsecured debt I: On January 1, 2024, the Company agreed and signed a new unsecured line of credit in the principal of up to $180,000. The net proceeds from this line of credit were $82,000. The loan is unsecured and is due for repayment on June 30, 2025. Interest will accrue at an interest rate of 15% per annum on any unpaid principal amount. If the Company defaults on the loan, the holder of the note can declare all or any portion of the unpaid balance with all accrued interest immediately due and payable. As of September 30, 2024, the outstanding principal balance of unsecured debt I totaled $177,500.
14
NOTE 5 – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
In February 2022, the Company entered into a lease agreement for our warehouse facilities located at 7375 Commercial Way Suite 125, Henderson, Nevada 89011 with a term of 35 month 25 days and will expire in 2025. Prior to February 4, 2022 the company was leasing a warehouse facility on a month-to-month lease. The average monthly base rent for the first 12 months is approximately $5,333. For the next 24 months of the lease, the average monthly base rent will be approximately $5,694. As part of the agreement the Company will be responsible to share any property operating expenses estimated as $1,017 per month. Pursuant to ASC 842, the estimated operating expenses was included with the base rent and was included in the calculations of the right of use assets. The Company recorded operating lease right-of-use of $175,765 and lease liabilities for operating lease of $175,765.
Supplemental statements of operations information related to leases are as follows:
|
| Nine Months Ended
September 30, 2024
|
Lease Cost
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for the first quarter 2022
|
| $
| -
|
Weighted average remaining lease term – operating leases (in years)
|
|
| 1.08
|
Average discount rate – operating leases
|
|
| 9.8%
|
|
|
|
|
|
| September 30, 2024
|
Operating leases
|
|
|
|
Right-of-use assets, net of amortization of $150,531
|
| $
| 25,234
|
|
|
|
|
Short-term operating lease liabilities
|
| $
| (26,187)
|
Long-term operating lease liabilities
|
|
| -
|
Total operating lease liabilities
|
| $
| (26,187)
|
The following table summarizes the future undiscounted cash payments reconciled to the lease liability:
Year Ending
|
| Operating Leases
|
2022 (remaining eleven months)
|
| $
| -
|
2023
|
|
| -
|
2024
|
|
| 17,409
|
2025
|
|
| 5,822
|
2026 and thereafter
|
|
| -
|
Total lease payments
|
| $
| 23,231
|
Less: Imputed interest/present value discount
|
| $
| 2,956
|
Present value of lease liabilities
|
| $
| 26,187
|
15
NOTE 6 – NOTES PAYABLE
As of September 30, 2024, the Company had the following:
Note
|
| Issuance Date
|
| Maturity Date
|
| Interest Rate
|
| Original Principal Amount
|
| Balance at September 30, 2024
|
| Balance at December 31, 2023
|
Unsecured debt B
|
| February 22, 2022
|
| February 15, 2023
|
| 10%
|
| 200,000
|
| -
|
| -
|
Secured debt C
|
| October 7, 2022
|
| October 7, 2023
|
| 12.99%
|
| 200,000
|
| -
|
| -
|
Unsecured debt D
|
| March 20, 2023
|
| August 17, 2024
|
| 10%
|
| 330,000
|
| -
|
| 166,486
|
Secured debt E
|
| May 19, 2023
|
| May 18, 2024
|
| 12.99%
|
| 131,000
|
| -
|
| -
|
Secured debt F
|
| July 26, 2023
|
| May 18, 2024
|
| 12.99%
|
| 196,000
|
| -
|
| 110,399
|
Secured debt G
|
| December 19, 2023
|
| December 18, 2024
|
| 10%
|
| 94,600
|
| -
|
| 84,208
|
Unsecured debt J
|
| March 18, 2024
|
| May 25, 2025
|
| 15%
|
| 247,300
|
| 141,564
|
| -
|
Secured debt K
|
| April 15, 2024
|
| October 15, 2025
|
| 11%
|
| 36,630
|
| 12,690
|
| -
|
Total notes payable
|
|
|
|
|
|
|
| 1,435,530
|
| 154,254
|
| 361,093
|
Debt discount and deferred financing costs
|
|
|
|
|
|
|
| -
|
| -
|
| -
|
Total notes payable, net
|
|
|
|
|
|
|
| 1,435,530
|
| 154,254
|
| 361,093
|
Unsecured debt B: On February 22, 2022, the Company received an unsecured loan in the principal of $200,000 with a loan origination fee in the amount of $20,000, which was fully expensed as interest expense in this period. The net proceeds from this loan were $180,000. The loan is unsecured and the initial payment of $17,804 was due on April 22, 2022. There will be ten monthly payments due on the 22nd day of each following month, beginning on May 22, 2022 through Feb 15, 2023. During fourth quarter of 2022, the note holder agreed to forgo two months of payments and add them to the back end of the note, which extended the due date of the note to April 25, 2023. Interest will accrue at an interest rate of 10% per annum on any unpaid principal amount. If the Company defaults on the loan, the default interest will increase to 16% per annum. During 2022, the Company made a total in principal payments of $124,630 towards unsecured debt B. During 2023, the Company has made additional principal payments towards unsecured debt B totaling $75,370 which settled the entire principal balance in full. As of September 30, 2024, the principal balance of the note was paid off.
Secured debt C: On October 7, 2022, the Company agreed to a secured loan by any consigned inventory held at fulfillment centers and any rights, title or interest in their account. The principal loan amount was $200,000 and will have a loan term of twelve months with an annual interest rate of 12.99%, with a default rate of 14.99%. The first three months of payment will be interest only payments of $2,165 and the remaining nine payments will be principal and interest payments of $23,442. Interest payments will begin November 8, 2022 and Installment payments, including principal and interest, will begin February 8, 2023. During 2023, the Company has made principal payments totaling $200,000 towards the secured debt C which settled the entire principal balance in full. As of September 30, 2024 the principal balance of secured debt C was paid off.
Unsecured debt D: On March 20, 2023, the Company received an unsecured loan in the principal of $330,000 with a loan origination fee in the amount of $30,000, which was fully expensed as interest expense in this period. The net proceeds from this loan were $300,000. The loan is unsecured and the initial payment of $23,359 will be due on June
16
17, 2023. There will be fourteen monthly payments due on the 17th day of each following month, beginning on July 17, 2023 through August 17, 2024. Interest will accrue at an interest rate of 10% per annum on any unpaid principal amount. If the Company defaults on the loan, the default interest will increase to 16% per annum. During 2023, the Company made a total in principal payments of $163,514 towards the unsecured debt D. During 2024, the Company made a total in principal payments of $46,718 towards the unsecured debt D. On March 18, 2024, the Company agreed with the borrower to close this unsecured debt D and roll over the outstanding principal in to unsecured debt J. As of September 30, 2024, the outstanding principal balance of unsecured debt D totaled $0.
Secured debt E: On May 19, 2023, the Company agreed to a secured loan by any consigned inventory held at fulfillment centers and any rights, title or interest in their account. The principal loan amount was $131,000 and will have a loan term of twelve months with an annual interest rate of 12.99%, with a default rate of 14.99%. The first payment of principal and interest will be $11,700 and will be due June 19, 2023 with an additional eleven payments due each 19th of the month. During 2023, the Company has made principal payments totaling $10,282 towards the secured debt E. As of September 30, 2024 the principal balance of secured debt E was paid off.
Secured debt F: On July 26, 2023, the Company agreed to a secured loan by any consigned inventory held at fulfillment centers and any rights, title or interest in their account. The principal loan amount was $196,000 and will have a loan term of twelve months with an annual interest rate of 12.99%, with a default rate of 14.99%. The first payment of principal and interest will be $17,505 and will be due August 26, 2023 with an additional eleven payments due each 26th of the month. During 2023, the Company has made principal payments totaling $85,601 towards the secured debt F. During 2024, the Company has made principal payments totaling $110,399 towards the secured debt F. As of September 30, 2024 the principal balance of secured debt E was paid off.
Secured debt G: On December 19, 2023, the Company agreed to a secured loan by any rights, title or interest in their account. The principal loan amount was $86,000 and will have a loan term of twelve months. The note has a cost of funds equal to 10% of the loan amount or $8,600 and will be due upon acceptance of the loan amount. A total of $283 of the interest has been expensed in 2023. A total of $2,144 of the interest has been expensed in 2024. Payment will be made daily at a repayment rate of 14% of daily sales. and will be due December 21, 2023 and will continue until full amount owed is paid. During 2023, the Company has made principal payments totaling $2,074 towards the secured debt E. During 2024, the Company has made principal payments totaling $92,526 towards the secured debt E. As of September 30, 2024 the principal balance of secured debt E was paid off.
Unsecured debt J: On March 18, 2024, the Company received an unsecured loan in the principal of $247,300. The loan is unsecured and the initial payment of $19,365 will be due on April 25, 2024. There will be fourteen monthly payments due on the 25th day of each following month, beginning on April 25, 2024 through May 25, 2025. Interest will accrue at an interest rate of 15% per annum on any unpaid principal amount. If the Company defaults on the loan, the default interest will increase to 16% per annum. The Company has accrued $4,992 in interest and will accrue an additional $8,111 of interest over the life of the loan. During 2024, the Company has made principal payments totaling $84,267 towards the unsecured debt J. As of September 30, 2024, the outstanding principal balance of unsecured debt J totaled $141,564.
Secured debt K: On April 15, 2024, the Company agreed to a secured loan by any rights, title or interest in their account. The principal loan amount was $33,000 and will have a loan term of eighteen months. The note has a cost of funds equal to 11% of the loan amount or $3,630 and will be due upon acceptance of the loan amount. A total of $1,109 of the interest has been expensed in 2024. Payment will be made daily at a repayment rate of 6% of daily sales and will be due October 15, 2024 and will continue until full amount owed is paid. During 2024, the Company has made principal payments totaling $21,420 towards the secured debt E. As of September 30, 2024 the principal balance of secured debt E total $15,210.
17
NOTE 7 – CONVERTIBLE DEBT
As of September 30, 2024, the Company had the following convertible debt outstanding:
Note
|
| Issuance Date
|
| Maturity Date
|
| Interest Rate
|
| Original Principal Amount
|
| Balance at September 30, 2024
|
| Balance at December 31, 2023
|
Convertible promissory note #1
|
| July 28, 2016
|
| January 19, 2017
|
| 8%
| $
| 15,000
| $
| 6,750
| $
| 6,750
|
Convertible promissory note #2
|
| May 25, 2022
|
| August 5, 2023
|
| 10%
|
| 154,000
|
| -
|
| -
|
Convertible promissory note #3
|
| May 12, 2022
|
| May 1, 2023
|
| 12%
|
| 200,000
|
| 200,000
|
| 200,000
|
Convertible promissory note #4
|
| January 24, 2023
|
| April 24, 2024
|
| 0%
|
| 388,888
|
| 359,961
|
| 401,851
|
Total notes payable
|
|
|
|
|
|
| $
| 757,888
| $
| 566,711
| $
| 608,601
|
Debt discount and deferred financing costs
|
|
|
|
|
|
|
| -
|
| -
|
| -
|
Total notes payable, net
|
|
|
|
|
|
| $
| 757,888
| $
| 566,711
| $
| 608,601
|
Convertible promissory note #1:
On July 28, 2016, the Company executed the convertible promissory note #1 in the principal amount of $15,000, which is in default but management has not been able to make contact with this party, due to them living out of the country. The due date for this note was January 19, 2017 at an interest rate of 8%, with a default interest rate of 18%. We have calculated the derivative liability as if it is in default (but the note’s default interest rate stays the same at 8%) and will still accrue appropriate interest until the note is fully satisfied or converted into the Company’s common stock. The conversion option for this note coverts at a 54% discount to the market price based on the lowest trading prices in the last 20 days trading period. The outstanding balance on convertible promissory note #1 as of September 30, 2024 was $6,750.
The fair value of the derivative as of September 30, 2024 was determined to be $24,061 using the Black-Scholes option pricing model based on the following assumptions: common share price of $3.40 per share; expected exercise price of $1.904 per share; volatility of 222%; expected dividend yield of zero; and annual risk-free interest rate of 4.82%. The derivatives are classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period. The Company originally recorded a derivative liability in the amount of $9,649. The fair value of the derivative liability is remeasured each reporting period using the Black-Scholes option pricing model, and the change in fair value is recorded as an adjustment to the derivative liabilities account with the unrealized gains or losses reflect in other income – change in fair value on derivative.
Convertible promissory note #2:
On May 25, 2022, the Company executed the convertible promissory note #2 in the principal amount of $154,000 with a loan origination fee in the amount of $15,400, which was fully expensed as interest expense in this period. The net proceeds from this note were $138,600. The loan is unsecured and the initial repayment of $14,488 was due on October 5, 2022. There will be ten additional monthly payments due on the 5th day of each following month, beginning on November 5, 2022 through August 5, 2023. Interest will accrual at an interest rate of 10% per annum on any unpaid principal amount. If the Company defaults on the loan, the default interest will increase to 16% per annum. During 2022, the Company has made principal payments totaling $43,465 towards the outstanding balance on convertible promissory note #2. During 2023, the Company has made additional principal payments towards convertible promissory note #2 totaling $110,535 which settled the entire principal balance in full. As of September 30, 2024, the principal balance of the note was paid off.
The fair value of the derivative was determined to be $0, due to being paid off, using the Black-Scholes option pricing model based, prior to the note being paid off, on the following assumptions: common share price of $3.40 per share;
18
expected exercise price of $6.00 per share; volatility of 222%; expected dividend yield of zero; and annual risk-free interest rate of 4.82%. The derivatives are classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period. The Company originally recorded a derivative liability in the amount of $89,895. The fair value of the derivative liability is remeasured each reporting period using the Black-Scholes option pricing model, and the change in fair value is recorded as an adjustment to the derivative liabilities account with the unrealized gains or losses reflect in other income – change in fair value on derivative.
Convertible promissory note #3:
On May 12, 2022, the Company executed the convertible promissory note #3 in the principal amount of $200,000. The loan is unsecured and the principal and any unpaid accrued interest shall be due and payable on May 12, 2023. Interest shall accrue at the rate of 12% per annum. The outstanding balance on convertible promissory note #3 as of September 30, 2024 was $200,000. At any time on or after July 24, 2023, the holder shall have the right, at his option, to convert the principal amount of the note, or any portion of such principal amount, plus accrued but unpaid interest into shares of the Company’s common stock. The Company has been advised the holder of convertible promissory note #3 will be converting the full value of the outstanding principal and interest in the near future. The conversion price shall be $0.05 per share.
The fair value of the derivative was determined to be $85,671 using the Black-Scholes option pricing model based on the following assumptions: common share price of $3.40 per share; expected exercise price of $6.00 per share; volatility of 222%; expected dividend yield of zero; and annual risk-free interest rate of 4.82%. The derivatives are classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period. The Company originally recorded a derivative liability in the amount of $184,011. The fair value of the derivative liability is remeasured each reporting period using the Black-Scholes option pricing model, and the change in fair value is recorded as an adjustment to the derivative liabilities account with the unrealized gains or losses reflect in other income – change in fair value on derivative.
Convertible promissory note #4:
On January 24, 2023, the Company executed the convertible promissory note #4 in the principal amount of $388,888 with a loan origination fee in the amount of $38,888, which was fully expensed as interest expense in this period, additionally there were $12,500 of legal costs and $31,500 of agent fees in which were also fully expenses in this period. The net proceeds from this loan were $306,000. The loan is unsecured and the principal and any unpaid accrued interest shall be due and payable on October 24, 2023 with an interest rate of 0%. Any unpaid balance at that time will start to accrue interest at a default rate of 20% per annum. On October 31, 2023 the note was extended to April 24, 2024 for an additional fee in the amount of $38,889. The additional fee will be amortized over the six month and in 2023 $12,962 was expensed. As of April 23, 2024, the Company signed a promissory note for the total outstanding balance. The note will bear interest at a rate of 10% and will have twenty-six payments in total. The payments will be $16,301.68 per month and will increase on June 24, 2025 to a payment of $23,901.68. The total of principal paid during 2024 is $33,275.92. The outstanding balance on convertible promissory note #4 as of September 30, 2024 was $359,962. The holder shall have the right, at his option, to convert the principal amount of the note, or any portion of such principal amount, plus accrued but unpaid interest into shares of the Company’s common stock. The conversion price means ninety percent (90%) of the lowest VWAP of our common stock for the five (5) consecutive Trading Days immediately preceding the date of the issuance of a Conversion Election.
The fair value of the derivative was determined to be $317,854 using the Black-Scholes option pricing model based on the following assumptions: common share price of $3.40 per share; expected exercise price of $3.06 per share; volatility of 222%; expected dividend yield of zero; and annual risk-free interest rate of 4.82%. The derivatives are classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period. The Company originally recorded a derivative liability in the amount of $174,234. The fair value of the derivative liability is remeasured each reporting period using the Black-Scholes option pricing model, and the change in fair value is recorded as an adjustment to the derivative liabilities account with the unrealized gains or losses reflect in other income – change in fair value on derivative.
19
NOTE 8 – DERIVATIVE LIABILITY
The Company evaluated the notes under the requirements of ASC 480 “Distinguishing Liabilities From Equity” (ASC 480) and concluded that the notes do not fall within the scope of ASC 480. The Company next evaluated the notes under the requirements of ASC 815 “Derivatives and Hedging Activities” and determined that the scope exception to ASC 815’s derivative accounting provisions does not apply. The Company then evaluated the embedded derivative criteria in ASC 815, and concluded that the conversion features meet all the embedded derivative criteria in ASC 815, and therefore, the conversion features meet the definition of an embedded derivative that should be separated from the notes and accounted for as a derivative liability.
The derivative liabilities were valued using a Black-Scholes option pricing model with the following average assumptions:
The expected life of the note was based on the remaining contractual term of the instruments. The Company uses the historical volatility of its Common Stock to estimate the future volatility for its Common Stock. The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank.
Consolidated Statement of Operations – Change in fair value on derivative
During the year ended December 31, 2023, the following transactions were recorded in the account “change in fair value on derivative”: (i) as a result of the issuance of convertible notes, the Company recorded derivative liabilities of $(145,067); (ii) the Company viewed the convertible debt derivatives as short term and thus chose to expense the debt discounts associated with the derivative liabilities incurred during this period in the amount of $(29,167); (iii) the changes in the fair value of these derivative liabilities for the year ended December 31, 2023 resulted in a gain of $83,920; and (iv) the Company recorded a gain on debt extinguishment of $38,172 to account for the extinguishment of derivative liabilities associated with the settlement or the conversion of the convertible debt accounted for as a derivative liability.
During the nine months ended September 30, 2024, the following transactions were recorded in the account “change in fair value on derivative”: (i) the change in the fair value of these derivative liabilities for the nine months ended September 30, 2024 resulted in a loss of $273,436.
20
The details of derivative liability transactions for the period ended September 30, 2024 and December 31, 2023 are as follows:
The change in Level 3 financial instrument fair value is as follows:
Balance, December 31, 2022
|
| $ 102,011
|
Issued during the year ended December 31, 2023
|
| 145,067
|
Derivative liabilities debt discount
|
| 29,167
|
Change in fair value recognized in operations
|
| (83,923)
|
Converted during the year ended December 31, 2023
|
| (38,172)
|
Balance, December 31, 2023
|
| $ 154,150
|
Issued during the nine months ended September 30, 2024
|
| -
|
Derivative liabilities debt discount
|
| -
|
Change in fair value recognized in operations
|
| 273,436
|
Converted during the nine months ended September 30, 2024
|
| -
|
Balance, September 30, 2024
|
| $ 427,586
|
NOTE 9 – INCOME TAXES
The effective income tax rate for the nine months ended September 30, 2024 and 2023 differs from the U.S. Federal statutory rate due to the following:
|
| September
2024
|
| September
2023
|
Federal statutory income tax rate
|
| $ 108,561
|
| $ (562,157)
|
Change in valuation allowance
|
| (108,561)
|
| 562,157
|
|
| $ -
|
| $ -
|
The components of the deferred tax assets and liabilities at September 30, 2024 and 2023 are as follows:
|
| September
2024
|
| September
2023
|
Long-term deferred tax assets:
|
|
|
|
|
Federal net operating loss carryforwards
|
| $ 108,561
|
| $ 562,157
|
Valuation allowance
|
| (108,561)
|
| (562,157)
|
Net long-term deferred tax assets
|
| $ -
|
| $ -
|
NOTE 10 – STOCKHOLDERS’ EQUITY
Authorized Stock
The Company has authorized 75,000,000 common shares with a par value of $0.001 per share. Each common share entitles the holder to one vote on any matter on which action of the stockholders of the corporation is sought. During February 2017, the Company increased the authorized number of shares to 500,000,000. Also, the Company increased the authorized preferred stock to 75,000,000 shares and designated 25,000,000 shares of preferred stock to Series A Convertible Preferred Stock. During January 2018, the Company increased its authorized number of common shares to 1,000,000,000. During April 2018, the Company increased its authorized number of common shares to 2,500,000,000. The Board of Directors, in the future, has the authority to increase the authorized capital up to 4,000,000,000 shares based on shareholder approval. On December 29, 2023 the Company decreased its authorized number of common shares to 50,000,000.
The Company effectuated a reverse stock split of 120-for-1 as of December 29, 2023. Due to the reverse stock split we added 9,802 common stock shares from the fractional shares issued by the DTC.
21
On October 16, 2017, the Company filed an Amended and Restated Certificate of Designation of the Rights, Preferences, Privileges and Restrictions of the Series A Convertible Preferred Stock (the “Amended Certificate”) with the Secretary of State of the State of Nevada. The Amended Certificate reduces the number of preferred shares designated as Series A Preferred Stock from 25,000,000 shares to 1,333,334 shares. The Amended Certificate also changes the conversion and voting rights of the Series A Preferred Stock. The Series A Preferred Stock is now convertible into the number of shares of our common stock equal to 0.00006% of our outstanding common stock upon conversion. The voting rights of the Series A Preferred Stock are now equal to the number of shares of common stock into which the Series A Preferred Stock may convert.
As of September 30, 2024, there are no outstanding shares of preferred stock. All the preferred stock was converted in common stock on February 4, 2019.
Common Share Issuances
There were no shares issued during the first quarter 2024. During the three months ended June 30, 2024, the Company issued 29,666 shares of common stock for services. 4,166 shares were issued at $6.00 per share while 25,500 shares were issued at $2.20 per share. During the three months ended September 30, 2024, the Company repurchased the 4,166 shares which were issued in the 2nd quarter of 2024. These shares are classified as treasury stock with a value of $5,400.
During the three months ended March 31, 2023, the Company issued 320,000 shares of common stock for services. These shares were issued at a per share price of $0.05. During the three months ended June 30, 2023, the Company did not issue any shares of common stock. During the three months ended September 30, 2023, the Company issued 9,000,000 shares of common stock for the Restricted Stock Units which were executed. The holders paid the Company $0.01 for each share of common stock and the value of each share was $0.05. There were no shares issued during the fourth quarter 2023.
Treasury Stock
During the nine months ended September 30, 2024, the Company repurchased 4,166 shares of common stock that were issued for services rendered in the prior quarter. These shares will still be outstanding but not issued and will be held by the Company.
Warrant Issuances
During the three months ending March 31, 2023, the Company issued 61,846 warrants to 2 unrelated parties at a per share price of $5.6592. On February 2, 2022, the Company issued 16,667 warrants to an individual at a per share price of $6.00. As of December 31, 2023, there were 195,180 warrants outstanding, of which 195,180 warrants are fully vested. As of June 30, 2024, there were 132,680 warrants outstanding, of which 132,680 warrants are fully vested.
|
|
| Weighted-
|
|
|
| Weighted-
| Average
|
|
|
| Average
| Remaining
| Aggregate
|
|
| Exercise
| Contractual
| Intrinsic
|
| Warrants
| Price
| Life (Years)
| Value
|
|
|
|
|
|
Outstanding at December 31, 2023
| 195,180
| $ 6.72
| 2.26
| $ 32,678
|
Granted
| -
| -
| -
| -
|
Forfeited
| (62,500)
| 6.00
| -
| -
|
Exercised
| -
| -
| -
| -
|
Outstanding at September 30, 2024
| 132,680
| $ 7.07
| 2.31
| $ -
|
|
|
|
|
|
Vested and expected to vest at September 30, 2024
| 132,680
| $ 7.07
|
| $ -
|
|
|
|
|
|
Exercisable at September 30, 2024
| 132,680
| $ 7.07
|
| $ -
|
22
At September 30, 2024, the intrinsic value of these stock warrants was $0 as the exercise price of these stock warrants were greater than the market price.
Share Conversion Agreements
All of the holders of the Company’s Series A Convertible Preferred Stock (the “Preferred Holders”) entered into a Preferred Stock Conversion Agreement. Pursuant to the Conversion Agreements, the Preferred Holders converted their shares of preferred stock into common stock, effective as of the Exchange. As a result, no shares of the Company’s Series A Convertible Preferred Stock are outstanding. An aggregate of 15,592,986 shares of common stock were issued to the Preferred Holders. The Preferred Holders agreed to convert each share of Series A Convertible Preferred Stock into eighteen (18) shares of common stock and agreed to retire a total of 467,057 shares of Series A Convertible Preferred Stock. The Company cancelled the retired shares.
Omnibus Stock Grant and Option Plan
The following summary of options activity for the nine months ended September 30, 2024 is presented below:
|
|
| Weighted-
|
|
|
| Weighted-
| Average
|
|
|
| Average
| Remaining
| Aggregate
|
|
| Exercise
| Contractual
| Intrinsic
|
| Options
| Price
| Life (Years)
| Value
|
|
|
|
|
|
Outstanding at December 31, 2023
| 38,333
| $ 6.00
| 2.34
| 46,000
|
Granted
| -
| -
| -
| -
|
Forfeited
| -
| -
| -
| -
|
Exercised
| -
| -
| -
| -
|
Outstanding at September 30, 2024
| 38,333
| $ 6.00
| 1.59
| $ -
|
|
|
|
|
|
Vested and expected to vest at September 30, 2024
| 38,333
| $ 6.00
|
| $ -
|
Exercisable at September 30, 2024
| 38,333
| $ 6.00
|
| $ -
|
At September 30, 2024, the intrinsic value of these stock options was $0 as the exercise price of these stock options were greater than the market price.
The following summary of restricted stock units’ activity for the six months ended September 30, 2024 is presented below:
|
|
|
|
| Weighted-
|
|
|
|
|
|
| Weighted-
|
|
|
|
|
|
| Average
|
|
|
|
|
|
| Grant Date
|
|
|
| Shares
|
|
| Fair Value
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2023
|
|
| 58,958
|
|
|
| 1.20
|
|
Granted
|
|
| -
|
|
|
| -
|
|
Vested
|
|
| -
|
|
|
| -
|
|
Forfeited
|
|
| -
|
|
|
| -
|
|
Non-vested at September 30, 2024
|
|
| 58,958
|
|
|
| 1.20
|
|
As of December 31, 2023, the amount of unvested compensation related to issuances of restricted stock units’ fair value was $423,910. This amount will be amortized and expensed over the life of the contract and will be included in selling, general and administrative expenses in the accompanying consolidation statements of operations.
23
As of September 30, 2024, the amount of unvested compensation related to issuances of restricted stock units’ fair value was $129,708. This amount will be amortized and expensed over the life of the contract and will be included in selling, general and administrative expenses in the accompanying consolidation statements of operations. At September 30, 2024, the intrinsic value of these restricted stock unit was $120,708 as the exercise price of these RSU’s were less than the market price.
The fair value of share options, units, and warrants are estimated using the Black-Scholes option pricing method based on the following weighted-average assumptions:
|
| Months and Years Ending
|
|
|
| September 30, 2024
|
|
| December 31, 2023
|
|
Risk-free interest rate
|
|
| 4.82
|
|
|
| 5.18
| %
|
Average expected term (years)
|
|
| 2.8 years
|
|
|
| 4.7 years
|
|
Expected volatility
|
|
| 222
|
|
|
| 106.5
| %
|
Expected dividend yield
|
|
| -
|
|
|
| -
|
|
NOTE 11 – BUSINESS SEGMENT INFORMATION
As of September 30, 2024, the Company operated in two reportable segments (Corporate and Health Supplements) supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the quarter ended September 30, 2024.
| CONSOLIDATED
| HEALTH SUPPLEMENTS
| CORPORATE
|
| | BergaMet
| UBN
| |
Revenue
| 2,342,091
| 2,342,091
| -
| -
|
Cost of Revenue
| 845,185
| 845,185
| -
| -
|
Long-lived Assets
| 732,030
| 193,260
| 538,771
| -
|
Gain (Loss) Before Income Tax
| (393,742)
| 364,817
| (770)
| (757,789)
|
Identifiable Assets
| 1,437,482
| 1,437,482
| -
| -
|
Depreciation and Amortization
| 343
| 343
| -
| -
|
As of September 30, 2023, the Company operated in two reportable segments (Corporate and Health Supplements) supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the quarter ended September 30, 2023.
| CONSOLIDATED
| HEALTH SUPPLEMENTS
| CORPORATE
|
| | BergaMet
| UBN
| |
Revenue
| 1,816,968
| 1,816,968
| -
| -
|
Cost of Revenue
| 760,825
| 760,825
| -
| -
|
Long-lived Assets
| 732,030
| 229,303
| 502,727
| -
|
Gain (Loss) Before Income Tax
| (2,094,316)
| (328,433)
| (6,113)
| (1,759,770)
|
Identifiable Assets
| 1,527,575
| 1,527,575
| -
| -
|
Depreciation and Amortization
| 1,646
| 1,646
| -
| -
|
Currently, all of our customers are located in the United States of American and Canada. Our revenues to our customers are not material to our overall total sales. Our largest customers, Natural Grocers and Emerson Ecologics, LLC, account for less than 1% of our total sales in the months ending September 30, 2024 and 2023.
NOTE 12 – SUBSEQUENT EVENTS
The Company evaluated its September 30, 2024 financial statements for subsequent events through November 6, 2024, the date the financial statements were available to be issued.
24
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.
Overview
We are a platform for acquiring, developing, patenting, marketing, and distributing plant-based nutraceuticals. Our products have not been evaluated by the FDA or any similar regulatory body for safety and efficacy. Our proprietary and patented products target select high-growth categories within the multibillion-dollar nutraceuticals market, such as heart, brain and immune health. Our mission is to acquire or create products with health and performance benefits that have mass consumer appeal.
Guided by this mission, our first two acquisitions formed our current operating subsidiaries, BergaMet NA, LLC, which offers nutraceutical heart and immune health products, and UBN, which offers nutraceutical products for brain health. Based on published research from third-party sources, we believe our BergaMet NA, LLC products have been shown to support heart health, support immune response, and address metabolic syndrome.
Our Financial Condition and Going Concern Issues
As a result of our financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2023 and 2022 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. From inception (December 19, 2014) through the end of December 31, 2023, we have incurred accumulated net losses of $18,399,673. In order to continue as a going concern, we must effectively balance many factors and generate more revenue so that we can fund our operations from our sales and revenues. If we are not able to do this, we may not be able to continue as an operating company. At our current revenue and burn rate, we have an immediate cash need, and thus we must raise capital by issuing debt or through the sale of our stock. However, there is no assurance that our existing cash flow will be adequate to satisfy our existing operating expenses and capital requirements.
25
Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023
Introduction
We had revenues of $744,916 and $2,342,091 for the three and nine months ended September 30, 2024, compared to $613,541 and $1,816,968 for the three and nine months ended September 30, 2023. Our cost of revenue for the three and nine months ended September 30, 2024 were $142,456 and $845,185, compared to $120,309 and $760,825 for the three and nine months ended September 30, 2023.
Our operating expenses were $517,068 and $1,485,945 for the three and nine months ended September 30, 2024, compared to $754,026 and $2,977,998 for the three and nine months ended September 30, 2023. Our operating expenses consisted entirely of general and administrative expenses.
Our net income (loss) was $354,466 and $(393,742) for the three and nine months ended September 30, 2024, compared to $(247,924) and $(2,094,316) for the three and nine months ended September 30, 2023.
Revenues and Net Operating Loss
Our revenue, operating expenses, other income (expense), and net loss for the three and nine months ended September 30, 2024 and 2023 were as follows:
|
| Three Months
Ended
|
| Three Months
Ended
|
| Nine Months
Ended
|
| Nine Months
Ended
|
|
| September 30,
|
| September 30,
|
| September 30,
|
| September 30,
|
|
| 2024
|
| 2023
|
| 2024
|
| 2023
|
|
|
|
|
|
|
|
|
|
Revenue
| $
| 744,916
| $
| 613,541
| $
| 2,342,091
| $
| 1,816,968
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
| 142,456
|
| 120,309
|
| 845,185
|
| 760,825
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
| 602,460
|
| 493,233
|
| 1,496,906
|
| 1,056,143
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
| 517,068
|
| 754,026
|
| 1,485,945
|
| 2,977,998
|
Total operating expenses
|
| 517,068
|
| 754,026
|
| 1,485,945
|
| 2,977,998
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expenses, net of interest income
|
| (39,963)
|
| (24,502)
|
| (131,267)
|
| (138,774)
|
Change in fair value on derivative
|
| 309,037
|
| 37,371
|
| (273,436)
|
| (33,687)
|
Total other income (expense)
|
| 269,074
|
| 12,869
|
| (404,703)
|
| (172,461)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
| $
| 354,466
| $
| (247,924)
| $
| (393,742)
| $
| (2,094,316)
|
Revenues
We had revenues of $744,916 and $2,342,091 for the three and nine months ended September 30, 2024, compared to $613,541 and $1,816,968 for the three and nine months ended September 30, 2023, an increase of $131,375, or 21%, and $525,123, or 29%, respectively. We expect strong growth to increase as our direct consumer sales and marketing efforts continue to perform.
Cost of Revenue
Our cost of revenue for the three and nine months ended September 30, 2024 were $142,456 and $845,185, compared to $120,309 and $760,825 for the three and nine months ended September 30, 2023, an increase of $22,147, or 18%, and $84,360, or 11%, respectively. Gross profit for the three and nine months ended September 30, 2024 was $602,460 and $1,496,906, compared to $493,233 and $1,056,143 for the three and nine months ended September 30, 2023, an increase of $109,227, or 22%, and $440,763, or 42%, respectively.
26
Cost of revenue as a percentage of revenues was 19% and 36% for the three and nine months ended September 30, 2024, compared to 20% and 42% for the three and nine months ended September 30, 2023. The reduced cost as a percentage of revenues was due to efficiencies as a result of increased revenue.
General and Administrative
Our general and administrative expenses were $517,068 and $1,485,945 for the three and nine months ended September 30, 2024, compared to $754,026 and $2,977,998 for the three and nine months ended September 30, 2023, a decrease of $236,958, or 31%, and $1,492,053, or 50%, respectively. In the three months ended September 30, 2024, general and administrative expenses consisted mainly of advertising of $204,893, consulting fees of $109,050, stock-based compensation $54,345, salaries and wages of $52,212 and accounting and legal fees of $37,925. In the three months ended September 30, 2023, general and administrative expenses consisted mainly of consulting fees of $167,593, stock-based compensation $90,614, advertising of $271,956, accounting and legal fees of $86,948, and salary and wages of $79,520. In the nine months ended September 30, 2024, general and administrative expenses consisted mainly of advertising of $509,711, consulting fees of $389,897, stock-based compensation $106,166, salaries and wages of $147,812 and accounting and legal fees of $153,784. In the nine months ended September 30, 2023, general and administrative expenses consisted mainly of consulting fees of $438,593, stock-based compensation $1,219,471, advertising of $659,985, accounting and legal fees of $222,064, and salary and wages of $151,489. During the three months ended September 30, 2023, part of the increase in costs were due to a catch up of stock compensation that occurred. Additionally, some of the incremental costs of the Company’s uplist have not been deferred and have been included.
Other Income (Expense)
Other income (expense) was $269,074 and $(404,703) for the three and nine months ended September 30, 2024, compared to $12,869 and $(172,461) for the three and nine months ended September 30, 2023, an increase of $256,205, or 1,991%, and a decrease of $232,242, or 135%, respectively. In the three months ended September 30, 2024, other income (expense) consisted of interest expense, net of interest income ($39,963) and change in fair value on derivative of $309,037. In the three months ended September 30, 2023, other income (expense) consisted of interest expense, net of interest income of $(24,502) and change in fair value on derivative of $37,371. In the nine months ended September 30, 2024, other income (expense) consisted of interest expense, net of interest income ($131,268) and change in fair value on derivative of $(273,436). In the nine months ended September 30, 2023, other income (expense) consisted of interest expense, net of interest income of $(138,774) and change in fair value on derivative of $(33,687). Change in fair value of derivative was related to the conversion of convertible debts into common stock shares.
Net Income (Loss)
Net income (loss) was $354,466 and $(393,742), or $0.12 and $(0.13) per share, for the three and nine months ended September 30, 2024, compared to $(247,924) and $(2,094,316), or $(0.09) and $(0.72) per share, for the three and nine months ended September 30, 2023.
Our net income (loss) varies from period to period primarily because of the change in fair value on derivative and our increase in general and administrative expenses.
Liquidity and Capital Resources
Introduction
During the nine months ended September 30, 2024, we had positive operating cash flows. Our cash on hand as of December 31, 2023 was $19,441 and as of September 30, 2024 was $100,402. While we had positive net cash from operations for the nine months ended September 30, 2024, our monthly cash flow burn rate for the year ended December 31, 2023 was $35,000. We have both short- and medium-term cash needs. We anticipate that these needs will be satisfied through increased revenues and the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
27
Our cash, current assets, total assets, current liabilities, and total liabilities as of September 30, 2024, and December 31, 2023, respectively, are as follows:
| September 30,
|
| December 31,
|
| Increase/
|
| 2024
|
| 2023
|
| (Decrease)
|
|
|
|
|
|
|
Cash
| $
| 100,402
|
| $
| 19,441
|
| $
| 80,961
|
Total Current Assets
| 1,732,158
|
|
| 1,899,678
|
| (167,520)
|
Total Assets
| 2,467,837
|
|
| 2,635,014
|
| (167,177)
|
Total Current and Total Liabilities
| 1,664,876
|
|
| 1,680,424
|
| (15,548)
|
Our total current assets and total assets decreased slightly during the nine months ended September 30, 2024, primarily as a result of our decrease in inventory of $188,801, offset in part by an increase in cash of $80,961. Our accumulated deficit increased during the nine months ended September 30, 2024, by $393,742 to $18,793,415.
In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
Cash Requirements
Our cash on hand as of September 30, 2024 was $100,402. Based on our current level of revenues and monthly burn rate for 2023 of approximately $35,000 per month, we will need to continue to fund operations by raising capital from the sale of our stock and debt financings.
Sources and Uses of Cash
Operating Activities
We had net cash from operating activities of $240,090 for the nine months ended September 30, 2024, compared to net cash used in operating activities of $(471,373) for the nine months ended September 30, 2023. We use our cash for normal business operations. Our net cash from operating activities for the nine months ended September 30, 2024, consisted of our net loss of $393,742, offset in part by our change in fair value on derivative liability of $273,436, warrants issued for services of $247,513, and our decrease in inventory of $188,801. Our net cash used in operating activities for the nine months ended September 30, 2023, consisted of our net loss of $2,094,316, offset in part by our warrants issued for services of $1,275,471, and increase in inventory of $291,553.
Investing Activities
We had zero cash flows provided by investing activities for the nine months ended September 30, 2024 and 2023.
Financing Activities
Our net cash provided by financing activities for the nine months ended September 30, 2024 was $(159,129), compared to $452,113 for the nine months ended September 30, 2023. Our net cash provided by financing activities consisted of proceeds from the issuance of notes payable of $122,541 and proceeds from the issuance of notes payable related party of $95,000, offset by repayment of notes payable of $329,380.
ITEM 3Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
28
ITEM 4Controls and Procedures
(a)Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2024, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in our Annual Report on Internal Control Over Financial Reporting filed in our Annual Report on Form 10-K.
Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all errors and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b)Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report, the nine-month period ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
29
PART II – OTHER INFORMATION
ITEM 1Legal Proceedings
There are no updates to the disclosure of legal proceedings in our Annual Report on Form 10-K.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 1ARisk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds
There have been no events which are required to be reported under this Item.
ITEM 3Defaults Upon Senior Securities
There have been no events which are required to be reported under this Item.
ITEM 4Mine Safety Disclosures
Not applicable.
ITEM 5Other Information
None.
30
ITEM 6Exhibits
(a)Exhibits
(1)
| Incorporated by reference from our Registration Statement on Form S-1 filed with the Commission on August 28, 2023.
|
|
|
(2)
| Incorporated by reference from our Annual Report on Form 10-K filed with the Commission on August 3, 2021.
|
|
|
(3)
| Incorporated by reference from our Current Report on Form 8-K filed with the Commission on December 29, 2023.
|
|
|
(4)
| Incorporated by reference from our Registration Statement on Form S-1 filed with the Commission on March 6, 2015.
|
31
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 hereunto duly authorized.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
9 Months Ended |
Sep. 30, 2024 |
|---|
| Notes |
|
| NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2024 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.
In regards to inventory write-offs and allowances, our Company determines the net realizable value by using the various factors as following: excess or slow-moving inventories (12 months or more of inventory on hand), expiration dates (within 12 months of the current reporting period), current and future product demand, production planning, and market conditions. If any of these factors are found in the reporting period, management will review each item and determine if any additional allowances or write-offs need to be made. A change in any of these variable’s factors could result in an adjustment to inventory. Management has provided for any risks in the current inventory allowance booked.
As for revenue adjustments for discounts, allowances and refunds, we treat each of these items differently. When it comes to revenue discounts, we will create the invoice for the product sold which will include any discounts given. These discounts usually happen for a short period of time for sales that we will offer around holidays. Due to the revenue being recognized once the order has shipped, less any applicable discount, we book this transaction at the net order transaction amount. In regards to allowances and refunds for revenue adjustments, due to our refund percentage is less than 1% we decided the need for an estimated adjustment for allowances and refunds was not material. If we
do receive any returned orders, we will directly book those orders as refunds the day we receive the call from the customer requesting the refund. We will book the credit memo at the full value of the customer original order.
Cash
Cash includes cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.
Accounts Receivables
Accounts receivables are recorded at the invoice amount and do not bear interest.
Inventory
Inventories consist of health supplements held for sale in the ordinary course of business. The Company uses the weighted average cost method to value its inventories at the lower of cost and net realizable value. In pursuant to ASC 330-10-50-6, the components of inventory cost include raw materials, labor, and overhead. Additionally, the weighted average cost per unit is used as a basis to determine the cost amounts removed from inventory as the aggregate number of units expected to be delivered under each order. Finally, the net realizable value is determined by using the various factors as following: excess or slow-moving inventories (12 months or more of inventory on hand), expiration dates (within 12 months of the current reporting period), current and future product demand, production planning, and market conditions. If any of these factors are found in the reporting period, management will review each item and determine if any additional allowances or write-offs need to be made. A change in any of these variable’s factors could result in an adjustment to inventory.
An allowance for inventory was established in 2018 and is evaluated each quarter to determine if all items are still sellable due to the factors listed above. As of September 30, 2024 and December 31, 2023, the total of inventory allowance was $906,871 and $1,611,257. The following are the classes held in inventory as of September 30, 2024 and December 31, 2023:
|
| SEPTEMBER 30,
|
|
| DECEMBER 31,
|
|
| 2024
|
|
| 2023
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Classes:
|
|
|
|
|
|
|
|
Raw Materials
|
| $
| 2,140,253
|
|
| $
| 2,998,683
|
Finished Goods
|
|
| 202,708
|
|
|
| 225,567
|
Work in process
|
|
| 1,392
|
|
|
| 13,290
|
Total inventory
|
|
| 2,344,353
|
|
|
| 3,237,540
|
Inventory allowance
|
|
| (906,871)
|
|
|
| (1,611,257)
|
Total inventory, net
|
| $
| 1,437,482
|
|
| $
| 1,626,283
|
Property and Equipment
The Company’s property and equipment are recorded at cost and depreciated using the straight-line method over the useful lives of the assets, generally from three to seven years. Upon sale or disposal of property and equipment, the related asset cost and accumulated depreciation or amortization are removed from the respective accounts and any gain or loss is reflected in current operations. As of September 30, 2024 and December 31, 2023, the total of accumulated depreciation was $23,153 and $52,474.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets established in connection with business combinations consist of patents, trademarks, and trade names. The impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the
estimated fair value of the intangible asset with it carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. With the acquisition of Ultimate Brain Nutrients on April 3, 2020 the Company added a purchasing value of $315,604 in patents to its balance sheet.
As of September 30, 2024, the Company believes that based upon qualitative factors, no impairment of indefinite-lived intangible assets is necessary.
Goodwill
In accordance with Goodwill and Other Intangible Assets, goodwill is defined as the excess of the purchase price over the fair value assigned to individual assets acquired and liabilities assumed and is tested for impairment at the reporting unit level on an annual basis in the Company's fourth fiscal quarter or more frequently if indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of the Company's reporting units with each respective reporting unit's carrying amount, including goodwill. The fair value of reporting units is generally determined using the income approach. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, the second step of the goodwill impairment test is performed to determine the amount of any impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. No goodwill impairment indicators were present, for the goodwill listed on the books as of September 30, 2024, after working through our analysis of goodwill during the nine months ended September 30, 2024.
The Company has determined that the method applied represents the fair value of the asset group principally because the valuation of the intangibles with the asset group is based on the anticipated cash flows related to the revenue stream from its customers. The asset group excludes goodwill, long term non-operational assets and liabilities and cash. As such, the principal value from the asset group relates to the cash inflows from its customers and the cash outflows required to service these customers. The fair value for the asset group consists of the following:
·Fair value of net revenues: computed using the income approach. The key input to these computations is the anticipated cash inflows from customers. These valuations include 100% of the cash inflows related to the customer base, and taking cash outflows into consideration.
·Fair value of working capital (including accounts receivable, inventory, accrued expenses, and accounts payables). Due to the short-term nature of the working capital, book value has been determined to be fair value. These accounts represent either avoided future outflows (inventory, prepaids) or future cash flows (accrued expense, AP and AR) related to customer sales.
·Fair value of five years of revenue (2023 to 2027): we discounted our cash flows to the anticipated cash projected to be received. We also projected the anticipated cash outflows required to service these customers. If the asset group was to be valued as a whole, we would expect an income approach based on the revenues being generated from the customers and expenses required to service those customers, appropriately adjusted for the working capital position. The sum of these values reasonably approximates this approach.
The Company’s revenue streams align directly with the intangibles, which were recorded as a result of the BergaMet acquisition in fiscal 2019. For purposes of the Step 2 recoverability test under ASC 360 subsection 2.3., the net revenues from BergaMet customers base were used. The revenue stream fairly reflects anticipated future cash flows; accordingly, the intangibles associated with these revenue streams have been tested with the expected cash flows.
Debt with Warrants
In accordance with ASC Topic 470-20-25, when the Company issues debt with warrants, the Company treats the fair value of the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations using the straight-line method. The offset to the contra-liability is recorded as either equity or liability in the Company’s consolidated balance sheets depending on the accounting treatment of the warrants. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.
Convertible Debt – Derivative Treatment
When the Company issues debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: (a) one or more underlying’s, typically the price of our common stock; (b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; (c) no initial net investment, which typically excludes the amount borrowed; and (d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both (a) indexed to its own stock; and (b) classified in stockholders’ equity in its balance sheet.
If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using a Black-Scholes Option-Pricing model upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt using the straight-line method.
Revenue Recognition
The Company applies Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers (ASC 606). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes all of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires us to identify distinct performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. When distinct performance obligations exist, the Company allocates the contract transaction price to each distinct performance obligation. The standalone selling price is used to allocate the transaction price to the separate performance obligations. The Company recognizes revenue when, or as, the performance obligation is satisfied.
Mostly, revenues are recognized at the time of shipment to the customer with the price being fixed and determinable and collectability assured, provided title and risk of loss is transferred to the customer. Most of our shipping and handling costs are built into the transaction price, but if the customer asks for express shipping, the costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales.
The Company’s subsidiary, BergaMet N.A., LLC, recognizes revenue from our main source – e-commerce revenue. Here is a list of all the sales channels which include the Company’s subsidiary website channel or any other selling channel like Amazon, doctors’ offices, and walk-in sales. All of our customer sales for Healthy Extracts Inc. and Ultimate Brain Nutrients, LLC are recognized as revenue under the subsidiary of BergaMet N.A., LLC. All three divisions of the Company sell plant-based nutraceuticals to our end using customers.
The Company evaluates the criteria pursuant to ASC 606-10-55. Some of the different considerations that we use because of their significance are as follows: Collectability - payment has to be made prior to shipment unless the customer has agreed upon terms. Guaranties – we offer a money back to customers if they are unhappy with our products. Principal versus Agent Considerations - currently we are the principal and have not engaged an agent at this time and we have not recognized any revenues under the agent considerations.
Revenue is recognized when, or as, control of a promised merchandise or service is shipped to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring title of those products or services and are recorded net of and discounts or allowances. Shipping costs paid by the customer are included in revenue. Merchandise sales are fulfilled with inventory held in our warehouse in Henderson, NV. Therefore, the Company’s contracts have a single performance obligation (shipment of product).
If the Company receives a request for refund on a customer obligation, the Company will refund the full cost of the obligation due to our money back guarantee. Historically, we have done a valuation of our sales allowance account (customer returns). In 2023 our return percentage was 0.008% of sales and 2022 was 0.009% of sales. Due to the low refund percentage management decided there was not a need for an estimated adjustment for allowances and refunds due to materiality.
Revenue recognition is evaluated through the following five-step process:
1.identification of the contract with a customer;
2.identification of the performance obligations in the contract;
3.determination of the transaction price;
4.allocation of the transaction price to the performance obligations in the contract; and
5.recognition of revenue when or as a performance obligation is satisfied.
These steps are met when an order is received, a price agreed and the product shipped or delivered to that customer.
Concentration
There is no concentration of revenue for the year ended December 31, 2023 and for the nine months ended September 30, 2024 because the revenue was earned from multiple customers.
Income Taxes
The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the accounting bases and the tax bases of the Company’s assets and liabilities. The deferred tax assets and liabilities are computed using enacted tax rates in effect for the year in which the temporary differences are expected to reverse.
The Company's deferred income taxes include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
The Company has adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At September 30, 2024 and December 31, 2023, there were no uncertain tax positions that required accrual.
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands dis3closure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The derivative liability in connection with the conversion feature of the convertible debt, classified as a Level 3 liability, is the only financial liability measure at fair value on a recurring basis. If the convertible debt is viewed as short-term, management chooses to expense the full debt discount in the period incurred is recorded as a gain or loss in the consolidated statement of operations.
The Company measures and reports certain financial instruments as liabilities at fair value on a recurring basis. The fair value of these instruments as of September 30, 2024 and December 31, 2023 was as follows:
|
| Fair Value
|
|
| Level 1
|
|
| Level 2
|
|
| Level 3
|
|
Fair Value at December 31, 2022
| $
|
| 102,011
|
|
|
| -
|
|
|
| -
|
|
| $
| 102,011
|
|
Derivative liability
|
|
| 52,139
|
|
|
| -
|
|
|
| -
|
|
|
| 52,139
|
|
Fair Value at December 31, 2023
| $
|
| 154,150
|
|
|
| -
|
|
|
| -
|
|
| $
| 154,150
|
|
Derivative liability
|
|
| 273,436
|
|
|
| -
|
|
|
| -
|
|
|
| 273,436
|
|
Fair Value at September 30, 2024
| $
|
| 427,586
|
|
|
| -
|
|
|
| -
|
|
| $
| 427,586
|
|
September 30, 2024
|
| Level 1
|
|
| Level 2
|
|
| Level 3
|
|
| Total
|
|
Derivative liability
|
|
| -
|
|
|
| -
|
|
|
| 427,586
|
|
| $
| 427,586
|
|
December 31, 2023
|
| Level 1
|
|
| Level 2
|
|
| Level 3
|
|
| Total
|
|
Derivative liability
|
|
| -
|
|
|
| -
|
|
|
| 154,150
|
|
| $
| 154,150
|
|
The details of derivative liability transactions for the nine months ended September 30, 2024 and the year ended December 31, 2023 are as follows:
The change in Level 3 financial instrument fair value is as follows:
Balance, December 31, 2022
|
| $ 102,011
|
Issued during the year ended December 31, 2023
|
| 145,067
|
Derivative liabilities debt premium
|
| 29,167
|
Change in fair value recognized in operations
|
| (83,923)
|
Converted during the year ended December 31, 2023
|
| (38,172)
|
Balance, December 31, 2023
|
| $ 154,150
|
Issued during the nine months ended September 30, 2024
|
| -
|
Derivative liabilities debt discount
|
| -
|
Change in fair value recognized in operations
|
| 273,436
|
Converted during the nine months ended September 30, 2024
|
| -
|
Balance, September 30, 2024
|
| $ 427,586
|
The Company did not transfer any assets or liabilities measured at fair value on a recurring basis between levels during the months ending September 30, 2024 and the year ended December 31, 2023.
The Company determines the fair value of the derivative liability based on Level 3 inputs using the Black-Scholes option pricing model. The significant unobservable input assumptions that can significantly change the fair value
includes common share price; amount of principal and accrued interest convertible into shares as of the conversion date, and the number of shares issuable upon conversion; expected exercise price; expected term; volatility; and risk-free interest rate.
Convertible Instruments
Convertible debt – derivative treatment
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using the Black-Sholes option pricing model upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. If the convertible debt is viewed as short-term, management chooses to expense the full debt discount in the period incurred is recorded as a gain or loss in the consolidated statement of operations. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the consolidated statement of operations.
Convertible debt – beneficial conversion feature
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, any discounts, if applicable, to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts, if applicable, under these arrangements are amortized over the term of the related debt to their stated date of redemption.
Debt modifications and extinguishments
The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded under change in fair value on derivative, in the consolidated operation statements, as a gain or loss on extinguishment of the two separate liabilities. During the year ended December 31, 2023, the Company issued $388,888 of convertible debt.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements of five–step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract cost, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting period
beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
The Company’s revenues are recognized when control of the promised goods or services is transferred to our clients (upon shipment of goods) in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps: (1) Identify the contract with a client; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to performance obligations in the contract; and (5) Recognize revenues when or as the Company satisfies a performance obligation.
We adopted ASC 2014-09 on January 1, 2019. Although the new revenue standard is expected to have an immaterial impact, if any, on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities with them.
The Company leases its office and warehouse space under non-cancellable capital leases. The Company accounts for this lease in accordance with ASC 842. Right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Since our lease arrangements do not provide an implicit rate, we use our estimated incremental borrowing rate for the expected remaining lease term at commencement date in determining the present value of future lease payments.
The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Capital lease expense is recognized on a straight-line basis over the lease term. Variable lease payments are not included in the lease payments to measure the lease liability and are expensed as incurred.
Finance lease expense is comprised of both interest expense, which is recognized using the effective interest method, and amortization of the right-of-use assets. These expenses are presented consistently with the presentation of other interest expense and amortization or depreciation of similar assets.
Common area maintenance fees (or CAMs) and other charges related to leases are expensed as incurred. See Note 5 — Right-of-Use Assets and Lease Liabilities for further discussion of the Company’s lease activities.
Common Stock Purchase Warrants
The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 (“Contracts in Entity's Own Equity”). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification is required.
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