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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended June 30, 2021

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from _________ to ________

 

Commission file numbers 000-32141

 

NUTRA PHARMA CORP.

 

(Name of registrant as specified in its charter)

 

California   91-2021600

(State or Other

Jurisdiction of Organization)

 

(IRS Employer

Identification Number)

 

1537 NW 65th Avenue

Plantation, FL

  33313
(Address of principal executive offices)   (Zip Code)

 

(954) 509–0911

(Registrant’s telephone number, including area code)

 

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

 

Title of each class   Ticker symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, a smaller reporting company, or an emerging growth company.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging Growth Company

 

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

 

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

 

As of September 24, 2021, there were 7,277,619,714 shares of common stock and 3,000,000 shares of Series A preferred stock issued and outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION F-1
   
Item 1. Financial Statements F-1
   
Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020 F-1
   
Condensed Consolidated Statements of Operations for the Three and Six months ended June 30, 2021 and 2020 (Unaudited) F-2
   
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three months ended June 30, 2021 and 2020 (Unaudited) F-3
   
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Six months ended June 30, 2021 and 2020 (Unaudited) F-4
   
Condensed Consolidated Statements of Cash Flows for the Six months ended June 30, 2021 and 2020 (Unaudited) F-5
   
Notes to Condensed Consolidated Financial Statements (Unaudited) F-6
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
   
Item 4. Controls and Procedures 13
   
PART II. OTHER INFORMATION 14
   
Item 1. Legal Proceedings 14
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
   
Item 3. Defaults Upon Senior Securities 16
   
Item 4. Mine Safety Disclosure 16
   
Item 5. Other Information 16
   
Item 6. Exhibits 16

 

2
 

 

Nutra Pharma Corp (“Nutra Pharma”) and its wholly owned subsidiaries, ReceptoPharm, Inc. (“ReceptoPharm”) and Designer Diagnostics Inc. are referred to herein as “we”, “our” or “us” (ReceptoPharm is also individually referred to herein).

 

Forward Looking Statements

 

This Quarterly Report on Form 10–Q for the period ending June 30, 2021, contains forward–looking statements that involve risks and uncertainties, as well as assumptions that if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward–looking statements. The words or phrases “would be,” “will allow, “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward–looking statements.” We are subject to risks detailed in Item 1(a). All statements other than statements of historical fact are statements that could be deemed forward–looking statements, including: (a) any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; and (b) any statements of the plans, strategies and objectives of management for future operations; and (c) any statement concerning developments, plans, or performance. Unless otherwise required by applicable law, we do not undertake and we specifically disclaim any obligation to update any forward–looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

 

3
 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

NUTRA PHARMA CORP.

Condensed Consolidated Balance Sheets

 

    June 30,     December 31,  
    2021     2020  
    (Unaudited)        
ASSETS                
Current assets:                
Cash   $ 50,480     $ -  
Accounts receivable     37,886       37,080  
Inventory, current portion     34,003       5,271  
Other receivable     3,000       3,000  
Convertible notes receivable     158,215       -  
Prepaid expenses and other current assets     80,205       10,000  
Total current assets     363,789       55,351  
                 
Inventory, less current portion     98,880       78,880  
Property and equipment, net     41,521       14,742  
Operating lease right-of-use assets     136,651       144,010  
Security deposit     8,803       8,803  
Total assets   $ 649,644     $ 301,786  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities:                
Accounts payable   $ 538,468     $ 599,428  
Accrued expenses     775,794       780,432  
Accrued payroll due to officers     1,506,693       1,429,693  
Accrued interest to related parties     148,899       179,522  
Due to officer     192,378       200,837  
Derivative liabilities     27,049,924       3,567,176  
Other debt, net of discount, current portion     8,373,894       4,631,921  
SBA notes payable, current portion     66,357       10,725  
Operating lease obligations, current portion     73,632       82,873  
Total current liabilities     38,726,039       11,482,607  
Convertible note, less current portion     979,654       48,477  
SBA notes payable, less current portion     148,438       204,070  
Operating lease obligations, less current portion     39,611       60,447  
Total liabilities     39,893,742       11,795,601  
                 
                 
Commitments and Contingencies     -        -   
                 
Stockholders’ deficit:                
                 
Preferred stock, $0.001 par value, 20,000,000 shares authorized: 3,000,000 Series A Preferred shares issued and outstanding at June 30, 2021 and December 31, 2020     3,000       3,000  
Common stock, $0.001 par value, 8,000,000,000 shares authorized: 7,267,619,714 and 6,955,197,214 shares issued and outstanding at June 30, 2021 and December 31, 2020     7,267,620       6,955,197  
Additional paid-in capital     52,816,687       50,181,456  
Accumulated deficit     (99,331,405 )     (68,633,468 )
Total stockholders’ deficit     (39,244,098 )     (11,493,815 )
Total liabilities and stockholders’ deficit   $ 649,644     $ 301,786  

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

F- 1
 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Operations

(Unaudited)

 

      1        2        3        4   
    For the Three Months Ended June 30,    

For the Six Months Ended

June 30,

 
    2021     2020     2021     2020  
                         
Net sales   $ 30,459     $ 6,240     $ 52,482     $ 23,356  
Cost of sales     (9,006 )     (3,685 )     (14,640 )     (8,964 )
Gross profit     21,453       2,555       37,842       14,392  
                                 
Operating expenses:                                
Selling, general and administrative - including stock based compensation of $1,445 and $1,000 for the three months ended June 30, 2021 and 2020, and $1,445 and $8,500 for the six months ended June 30, 2021 and 2020, respectively     440,165       232,427       944,757       470,868  
Bad debt expense (recovery)  -related party     20,000       (31,000 )     73,000       (70,500 )
Total operating expenses     460,165       201,427       1,017,757       400,368  
Loss from operations     (438,712 )     (198,872 )     (979,915 )     (385,976 )
                                 
Other income (expenses)                                
Other income     1,715       5,000       1,715       5,000  
Interest expense     (103,970 )     (78,238 )     (215,310 )     (147,111 )
Interest expense to related parties     (4,432 )     (4,914 )     (9,377 )     (9,635 )
Change in fair value of convertible notes and derivatives     3,918,817       (1,226,465 )     (28,958,053 )     1,316,477  
Stock issued for loan modification     -       (3,000 )     (107,500 )     (80,200 )
Loss on settlement of debt and accrued expense, net     (11,200 )     -       (429,497 )     (22,000 )
Total other income (expenses)     3,800,930       (1,307,617 )     (29,718,022 )     1,062,531  
Loss before income taxes     3,362,218       (1,506,489 )     (30,697,937 )     676,555  
Provision for income taxes     -       -       -       -  
Net income (loss)   $ 3,362,218     $ (1,506,489 )   $ (30,697,937 )   $ 676,555  
                                 
Net income (loss)  per share - basic and diluted   $ 0.00     $ (0.00 )   $ (0.00 )   $ 0.00  
                                 
Weighted average number of shares outstanding during the period - basic     7,248,545,868       6,623,845,012       7,156,417,062       6,448,086,770  
                                 
Weighted average number of shares outstanding during the period - diluted     11,761,879,558       6,623,845,012       7,156,417,062       12,971,980,061  

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

F- 2
 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

For the Three Months ended June 30, 2021 and 2020

(Unaudited)

 

              1                2        3        4        5   
                            Additional           Total  
    Preferred Stock     Common Stock     Paid-in     Accumulated     Stockholder’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balance -March 31, 2021     3,000,000     $ 3,000       7,225,349,714     $ 7,225,350     $ 52,566,971     $ (102,693,623 )   $ (42,898,303 )
                                                         
Issuance of common stock in exchange for services to consultants     -       -       5,000,000       5,000       28,000       -       33,000  
Common stock issued for conversion of debt     -       -       35,270,000       35,270       208,517       -       243,787  
Common stock issued for settlement of debt     -       -       2,000,000       2,000       13,199       -       15,200  
Net income                                             3,362,218       3,362,218  
Balance -June 30, 2021     3,000,000     $ 3,000       7,267,619,714     $ 7,267,620     $ 52,816,687     $ (99,331,405 )   $ (39,244,098 )

 

                            Additional           Total  
    Preferred Stock     Common Stock     Paid-in     Accumulated     Stockholder’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balance -March 31, 2020     3,000,000     $ 3,000       6,622,746,111     $ 6,622,746     $ 50,127,203     $ (65,681,240 )   $ (8,928,291 )
                                                         
Common stock issued for debt modification and penalty     -       -       5,000,000       5,000       (2,000 )     -       3,000  
Net loss                                             (1,506,489 )     (1,506,489 )
Balance -June 30, 2020     3,000,000     $ 3,000       6,627,746,111     $ 6,627,746     $ 50,125,203     $ (67,187,729 )   $ (10,431,780 )

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 3
 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

For the Six Months ended June 30, 2021 and 2020

(Unaudited)

 

                            Additional           Total  
    Preferred Stock     Common Stock     Paid-in     Accumulated     Stockholder’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balance -December 31, 2020     3,000,000     $ 3,000       6,955,197,214     $ 6,955,197     $ 50,181,456     $ (68,633,468 )   $ (11,493,815 )
                                                         
Issuance of common stock in exchange for services to consultants     -       -       5,000,000       5,000       28,000       -       33,000  
Common stock issued for debt modification and penalty     -       -       25,000,000       25,000       82,500       -       107,500  
Common stock issued for conversion of debt     -       -       240,350,000       240,350       2,104,049       -       2,344,399  
Common stock issued for settlement of debt     -       -       42,072,500       42,073       420,682       -       462,755  
Net loss                                             (30,697,937 )     (30,697,937 )
Balance -June 30, 2021     3,000,000     $ 3,000       7,267,619,714     $ 7,267,620     $ 52,816,687     $ (99,331,405 )   $ (39,244,098 )

 

                            Additional           Total  
    Preferred Stock     Common Stock     Paid-in     Accumulated     Stockholder’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balance -December 31, 2019     3,000,000     $ 3,000       5,876,746,111     $ 5,876,746     $ 50,283,503     $ (67,864,284 )   $ (11,701,035 )
                                                         
Common stock issued for debt modification and penalty     -       -       126,000,000       126,000       (45,800 )     -       80,200  
Common stock issued for conversion of debt     -       -       500,000,000       500,000       (75,000 )     -       425,000  
Common stock issued for settlement of debt     -       -       125,000,000       125,000       (37,500 )     -       87,500  
Net income                                             676,555       676,555  
Balance -June 30, 2020     3,000,000     $ 3,000       6,627,746,111     $ 6,627,746     $ 50,125,203     $ (67,187,729 )   $ (10,431,780 )

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 4
 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

      1        2   
    For the Six Months Ended June 30,  
    2021     2020  
             
Cash flows from operating activities:                
Net (loss) income   $ (30,697,937 )   $ 676,555  
Adjustments to reconcile net (loss) income to net cash used in operating activities:                
Bad debt expense (recovery) - related party     73,000       (70,500 )
Accrued interest expense for amount due to officer     3,891       3,654  
Loss on settlement of debt and accrued expense     429,497       22,000  
Depreciation     3,385       1,424  
Stock-based compensation     1,445       8,500  
Stock-based loan modification cost     107,500       80,200  
Amortization of convertible notes receivable discount     (1,715 )     -  
Change in fair value of convertible notes and derivatives     28,958,053       (1,316,477 )
Amortization of loan discount     137,881       58,829  
Amortization of operating lease right-of-use assets     11,461       39,296  
Changes in operating assets and liabilities:                
Increase in accounts receivable     (807 )     (1,581 )
Increase in other receivable     (6,000 )     -  
Increase in inventory     (48,732 )     (11,584 )
Decrease (increase) in prepaid expenses and other current assets     (38,650 )     132  
Decrease in accounts payable     (60,960 )     (39,827 )
Increase in accrued expenses     18,621       97,458  
Increase in accrued payroll due to officers     77,000       89,300  
Increase (decrease) in accrued interest to related parties     (30,623 )     9,635  
Decrease in operating lease obligations     (34,179 )     (35,223 )
Net cash used in operating activities     (1,097,869 )     (388,209 )
                 
Cash flows from investing activities:                
Convertible notes receivable advances     (150,500 )     -  
Acquisition of equipment     (30,164 )     -  
Net cash used in investing activities:     (180,664 )     -  
                 
Cash flows from financing activities:                
Loans from officer     21,900       152,700  
Repayment of officer loans     (107,250 )     (15,450 )
Repayments of notes payable-related party     -       (14,400 )
Proceeds from convertible notes     1,492,560       111,875  
Repayment of convertible notes     (62,822 )     -  
Advances from an unrelated third party     -       50,000  
Repayments of other notes payable     (15,375 )     (53,441 )
Proceeds from SBA notes payable     -       214,795  
Net cash provided by financing activities     1,329,013       446,079  
                 
Net increase in cash     50,480       57,870  
                 
Cash - beginning of period     -       -  
                 
Cash - end of period   $ 50,480     $ 57,870  
                 
Supplemental Cash Flow Information:                
Cash paid for interest   $ 40,000     $ -  
Cash paid for income taxes   $ -     $ -  
Non Cash Financing and Investing:                
Stocks issued in settlement of notes and accrued expenses   $ 462,756     $ 87,500  
Shares issued for conversion of debt   $ 2,344,399     $ 425,000  
Increase of right-of-use asset due to lease renewal   $ 4,102     $ -  
Increase of operating lease liabilities due to lease renewal   $ 4,102     $ -  
Reclassification of accrued interest to debt   $ -     $ 12,150  
Reclassification of rental receivable to convertible notes receivable   $ 6,000     $ -  

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

F- 5
 

 

NUTRA PHARMA CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2021

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

 

Nutra Pharma Corp. (“Nutra Pharma”), is a holding company that owns intellectual property and operates in the biotechnology industry. Nutra Pharma was incorporated under the laws of the state of California on February 1, 2000, under the original name of Exotic-Bird.com.

 

Through its wholly-owned subsidiary, ReceptoPharm, Inc. (“ReceptoPharm”), Nutra Pharma conducts drug discovery research and development activities. In October 2009, Nutra Pharma launched its first consumer product called Cobroxin®, an over-the-counter pain reliever designed to treat moderate to severe chronic pain. In May 2010, Nutra Pharma launched its second consumer product called Nyloxin®, an over-the-counter pain reliever that is a stronger version of Cobroxin® and is designed to treat severe chronic pain. In December 2014, Nutra Pharma launched Pet Pain-Away, an over-the-counter pain reliever designed to treat pain in cats and dogs. In October 2019, Nutra Pharma launched Equine Pain-Away™, an over-the-counter topical pain reliever designed to treat pain and inflammation in horses. In March 2021, Nutra Pharma launched Luxury Feet™, an over-the-counter pain reliever designed specifically to treat foot pain and inflammation especially for women that wear high heels and stilettos.

 

Basis of Presentation and Consolidation

 

The Unaudited Condensed Consolidated Financial Statements and notes are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Interim results are not necessarily indicative of results for a full year. Therefore, the interim Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in the Company’s Annual Report on Form 10-K.

 

The accompanying Unaudited Condensed Consolidated Financial Statements include the results of Nutra Pharma and its wholly-owned subsidiaries Designer Diagnostics Inc. and ReceptoPharm (collectively “the Company”, “us”, “we” or “our”). We operate as one reportable segment. Designer Diagnostics Inc. has been inactive since June 2011. All intercompany transactions and balances have been eliminated in consolidation.

 

Reclassification of Prior Year Presentation

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

 

Liquidity and Going Concern

 

Our Unaudited Condensed Consolidated Financial Statements are presented on a going concern basis, which contemplate the realization of assets and satisfaction of liabilities in the normal course of business. We have experienced recurring, significant losses from operations, and have an accumulated deficit of $99,331,405 at June 30, 2021. In addition, we have a significant amount of indebtedness in default, a working capital deficit of $38,362,250 and a stockholders’ deficit of $39,244,098 at June 30, 2021.

 

There is substantial doubt regarding our ability to continue as a going concern which is contingent upon our ability to secure additional financing, increase ownership equity and attain profitable operations. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in which we operate.

 

We do not have sufficient cash to sustain our operations for a period of twelve months from the issuance date of this report and will require additional financing in order to execute our operating plan and continue as a going concern. Since our sales are not currently adequate to fund our operations, we continue to rely principally on debt and equity funding; however, proceeds from such funding have not been sufficient to execute our business plan. Our plan is to attempt to secure adequate funding until sales of our pain products are adequate to fund our operations. We cannot predict whether additional financing will be available, and/or whether any such funding will be in the form of equity, debt, or another form. In the event that these financing sources do not materialize, or if we are unsuccessful in increasing our revenues and profits, we will be unable to implement our current plans for expansion, repay our obligations as they become due and continue as a going concern.

 

The accompanying Unaudited Condensed Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

F- 6
 

 

Impact of COVID-19 on our Operations

 

The ramifications of the outbreak of the novel strain of COVID-19 are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption. Beginning in June 2020, the Company experienced a delay in retail rollout as a downstream implication of the slowing economy. We also closed our Coral Springs office in effort to save money. During May 2020, we received approval from the Small Business Administration (“SBA”) to fund our request for a PPP loan for $64,895. We used the proceeds primarily for payroll costs. We expect forgiveness of this loan under the current terms of requirement by the SBA. During April and June 2020, we obtained a loan in the amount of $150,000 from SBA under its Economic Injury Disaster Loan assistance program. We used the proceeds primarily for rent, payroll, utilities, accounting and legal expenses (See Note 6).

 

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; and the distribution of testing and a vaccine.

 

Use of Estimates

 

The accompanying Unaudited Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense. Significant estimates include our ability to continue as going concern, the recoverability of inventories and long-lived assets, the recoverability of amounts due from officer, the valuation of stock-based compensation and certain debt and derivative liabilities, recognition of loss contingencies and deferred tax valuation allowances. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates, which would be recorded in the period in which they become known.

 

Revenue from Contracts with Customers

 

The Company accounts for revenue from contracts with customers in accordance with Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC Topic 606, revenue recognition has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied.

 

Our revenues are primarily derived from customer orders for the purchase of our products. We recognize revenues as performance obligations are fulfilled upon shipment of products. We record revenues net of promotions and discounts. For certain product sales to a distributor, we record revenue including a portion of the cash proceeds that is remitted back to the distributor.

 

F- 7
 

 

Accounting for Shipping and Handling Costs

 

We account for shipping and handling as fulfillment activities and record amounts billed to customers as revenue and the related shipping and handling costs as cost of sales.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

We grant credit without collateral to our customers based on our evaluation of a particular customer’s credit worthiness. Accounts receivable are due 30 days after the issuance of the invoice. In addition, allowances for doubtful accounts are maintained for potential credit losses based on the age of the accounts receivable and the results of periodic credit evaluations of our customers’ financial condition. Accounts receivable are written off after collection efforts have been deemed to be unsuccessful. Accounts written off as uncollectible are deducted from the allowance for doubtful accounts, while subsequent recoveries are netted against the provision for doubtful accounts expense. We generally do not charge interest on accounts receivable. We use third party payment processors and are required to maintain reserve balances, which are included in accounts receivable.

 

Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. No allowance for doubtful account is deemed to be required at June 30, 2021 and December 31, 2020.

 

Inventories

 

Inventories, which are stated at the lower of average cost or net realizable value, consist of packaging materials, finished products, and raw venom that is utilized to make the API (active pharmaceutical ingredient). The raw unprocessed venom has an indefinite life for use. We classify inventory as short-term or long-term inventory based on timing of when it is expected to be consumed. The Company regularly reviews inventory quantities on hand. If necessary, it records a net realizable value adjustment for excess and obsolete inventory based primarily on its estimates of product demand and production requirements. Write-downs are charged to cost of goods sold. We performed an evaluation of our inventory and related accounts at June 30, 2021 and December 31, 2020, and increased the reserve on supplier advances for future venom purchases included in prepaid expenses and other current assets by $0 and $21,303, respectively. At both June 30, 2021 and December 31, 2020, the total valuation allowance for prepaid venom was $246,162.

 

Financial Instruments and Concentration of Credit Risk

 

Our financial instruments include cash, accounts receivable, accounts payable, accrued expenses, loans payable, due to officers and derivative financial instruments. Other than certain warrant and convertible instruments (derivative financial instruments) and liabilities to related parties (for which it was impracticable to estimate fair value due to uncertainty as to when they will be satisfied and a lack of similar type transactions in the marketplace), we believe the carrying values of our financial instruments approximate their fair values because they are short term in nature or payable on demand. Our derivative financial instruments are carried at a measured fair value.

 

Balances in various cash accounts may at times exceed federally insured limits. We have not experienced any losses in such accounts. We do not hold or issue financial instruments for trading purposes. In addition, for the three months ended June 30, 2021, there was one customer accounted for 31% of the total revenues. For the three months ended June 30, 2020, there was no customer accounted for more than 10% of the total revenues. For the six months ended June 30, 2021, there was one customer that accounted for 33% of the total revenues. For the six months ended June 30, 2020, there was one customer that accounted for 43% of the total revenues. As of June 30, 2021 and December 31, 2020, 98.5% and 100% of the accounts receivable balance are reserves due from two payment processors.

 

F- 8
 

 

Operating Lease Right-of-Use Asset and Liability

 

The Company accounts for leases in accordance with Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended (“ASC Topic 842”). This standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classify as either operating or finance leases.

 

In accordance with ASC Topic 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether we obtain the right to substantially all the economic benefit from the use of the asset, and whether we have the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less under practical expedient in paragraph ASC 842-20-25-2.

 

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate.

 

Derivative Financial Instruments

 

Management evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

 

Convertible Debt

 

For convertible debt that does not contain an embedded derivative that requires bifurcation, the conversion feature is evaluated to determine if the rate of conversion is below market value and should be categorized as a beneficial conversion feature (“BCF”). A BCF related to debt is recorded by the Company as a debt discount and with the offset recorded to equity. The related convertible debt is recorded net of the discount for the BCF. The discount is amortized as additional interest expense over the term of the debt with the resulting debt discount being accreted over the term of the note.

 

F- 9
 

 

The Fair Value Measurement Option

 

We have elected the fair value measurement option for convertible debt with embedded derivatives that require bifurcation, and record the entire hybrid financing instrument at fair value under the guidance of ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”). The Company reports interest expense, including accrued interest, related to this convertible debt under the fair value option, within the change in fair value of convertible notes and derivatives in the accompanying consolidated statement of operations.

 

Derivative Accounting for Convertible Debt and Options and Warrants

 

The Company evaluated the terms and conditions of the convertible debt under the guidance of ASC Topic 815, Derivatives and Hedging. The conversion terms of some of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the debt is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debt and options and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15, Embedded Derivatives, the fair values of the convertible debt, options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.

 

Property and Equipment

 

Property and equipment is recorded at cost. Expenditures for major improvements and additions are added to property and equipment, while replacements, maintenance and repairs which do not extend the useful lives are expensed. Depreciation is computed using the straight-line method over the estimated useful lives of the assets of 37 years.

 

Long-Lived Assets

 

The carrying value of long-lived assets is reviewed annually and on a regular basis for the existence of facts and circumstances that may suggest impairment. If indicators of impairment are present, we determine whether the sum of the estimated undiscounted future cash flows attributable to the long-lived asset in question is less than its carrying amount. If less, we measure the amount of the impairment based on the amount that the carrying value of the impaired asset exceeds the discounted cash flows expected to result from the use and eventual disposal of the impaired assets.

 

Income Taxes

 

The Company recorded no income tax expense for the three and six months ended June 30, 2021 and 2020 because the estimated annual effective tax rate was zero. As of June 30, 2021, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

 

The Company adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) effective as of January 1, 2021. The standard is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard did not have a material effect on the accompanying consolidated financial statements.

 

Stock-Based Compensation

 

We account for stock-based compensation in accordance with FASB ASC Topic 718, Stock Compensation (“ASC Topic 718”). ASC Topic 718, which requires that the cost resulting from all share-based transactions be recorded in the financial statements over the respective service periods. It establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. The statement also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment transactions.

 

F- 10
 

 

Net Income (Loss) Per Share

 

Net income (loss) per share is calculated in accordance with FASB ASC Topic 260, Earnings per Share. Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which we incur losses, common stock equivalents, if any, are not considered, as their effect would be anti-dilutive or have no effect on earnings per share. Any common shares issued as of a result of the exercise of conversion options and warrants would come from newly issued common shares from our remaining authorized shares.

 

      1        2        3        4   
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2021     2020     2021     2020  
Basic and diluted numerator:                                
                                 
Net income (loss) - basic   $ 3,362,218     $ (1,506,489 )   $ (30,697,937 )   $ 676,555  
                                 
Effect of dilutive securities:                                
Change in fair value of convertible notes     (1,647,754 )     -       -       (1,818,618 )
Interest on convertible debt     58,330       -       -       16,167  
Net income (loss) - diluted   $ 1,772,794     $ (1,506,489 )   $ (30,697,937 )   $ (1,125,896 )
                                 
Basic and diluted denominator:                                
                                 
Weighted-average common shares outstanding - basic     7,248,545,868       6,623,845,012       7,156,417,062       6,448,086,770  
                                 
Effect of dilutive securities:                                
Convertible debt     4,513,333,690       -       -       6,523,893,291  
Weighted-average common shares outstanding - diluted (1)     11,761,879,558       6,623,845,012       7,156,417,062       12,971,980,061  
                                 
Net income (loss) per share - basic and diluted   $ 0.00     $ (0.00 )   $ (0.00 )   $ (0.00 )

 

(1) Includes potential common shares that are in excess of authorized shares.

 

For the three months ended June 30, 2021 and 2020, the following items were not included in the calculation of dilutive loss per share as the effect is anti-dilutive:

    June 30, 2021     June 30, 2020  
Options and warrants        -       46,500,000  
Convertible notes payable at fair value     -       5,161,486,089  
Convertible notes payable     -       1,865,425,000  
Total     -       7,073,411,089  

 

For the six months ended June 30, 2021 and 2020, the following items were not included in the calculation of dilutive loss per share as the effect is anti-dilutive:

 

    June 30, 2021     June 30, 2020  
Options and warrants     200,275,000       46,500,000  
Convertible notes payable at fair value     774,465,232       -  
Convertible notes payable     3,992,826,154       -  
Total     4,967,566,386       46,500,000  

 

F- 11
 

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016- 13”), which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting companies. Early adoption is permitted. The Company will evaluate the impact of ASU 2016-13 on the Company’s consolidated financial statements in a future period closer to the date of adoption.

 

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies and clarifies certain calculation and presentation matters related to convertible and equity and debt instruments. Specifically, ASU-2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments. Accounting Standards Update 2020-06 also provides clearer guidance surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation of Diluted EPS. The guidance under ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company will adopt this standard using a modified retrospective approach effective January 1, 2022. The Company is currently evaluating the impact of this standard, and does not believe that it will have a material effect on the accompanying consolidated financial statements.

 

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), which will clarify and reduce diversity in practice. Specifically, the new standard includes a recognition model comprising four categories of transactions and corresponding accounting treatment for each category. The category that would apply to a modification or an exchange of an equity-classified warrant would depend on the substance of the modification transaction (e.g. a financing transaction to raise equity versus one to raise debt). This recognition model is premised on the idea that the accounting for the transaction should not differ from what it would have been had the issuer of the warrants paid cash instead of modifying the warrants. ASU 2021-04 will be effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. Early adoption is permitted. This ASU will be applied prospectively to modifications or exchanges occurring on or after the effective date of the ASU. The Company is currently evaluating the impact this new guidance will have on its condensed consolidated financial statements.

 

All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.

 

2. FAIR VALUE MEASUREMENTS

 

Certain assets and liabilities that are measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020 are measured in accordance with FASB ASC Topic 820-10-05, Fair Value Measurements. FASB ASC Topic 820-10-05 defines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurements for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements.

 

The statement requires fair value measurement be classified and disclosed in one of the following three categories:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active or inputs which are observable either directly or indirectly for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

 

F- 12
 

 

The following table summarizes our financial instruments measured at fair value at June 30, 2021 and December 31, 2020:

 

    Fair Value Measurements at June 30, 2021  
    Total     Level 1     Level 2     Level 3  
Liabilities:                                
Warrant liability   $ 1,096,554     $ -     $ -     $ 1,096,554  
Derivative liabilities   $ 25,953,370     $ -     $ 25,953,370     $ -  
Convertible notes at fair value   $ 5,039,868     $ -     $ -     $ 5,039,868  

 

    Fair Value Measurements at December 31, 2020  
  Total     Level 1     Level 2     Level 3  
Liabilities:                        
Warrant liability   $ 189,543     $ -     $ -     $ 189,543  
Derivative liabilities   $ 3,377,633     $ -     $ 3,377,633     $ -  
Convertible notes at fair value   $ 1,832,439     $ -     $ -     $ 1,832,439  

 

The following table shows the changes in fair value measurements for the warrant liability using significant unobservable inputs (Level 3) during the six months ended June 30, 2021 and the year ended December 31, 2020:

 

Description  

June 30,

2021

    December 31, 2020  
Beginning balance   $ 189,543     $ 1,411  
Purchases, issuances, and settlements     -       143,369  
Total loss included in earnings (1)     907,011       44,763  
Ending balance   $ 1,096,554     $ 189,543  

 

(1) The gain related to the revaluation of our warrant liability is included in “Change in fair value of convertible notes and derivatives” in the accompanying consolidated statement of operations.

 

We valued our warrants using a Dilution-Adjusted Black-Scholes Model. Assumptions used include (1) 0.05% to 0.07% risk-free rate, (2) warrant life is the remaining contractual life of the warrants, (3) expected volatility of 240%, (4) zero expected dividends, (5) exercise price set forth in the agreements, (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted.

 

We valued derivative liabilities using the number of potential convertible shares for warrants in equity and convertible notes with fixed conversion price that are recorded at amortized cost times the closing stock price of our restricted common stock at June 30, 2021. These derivative liabilities are recorded due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit and the equity environment is tainted, and therefore all convertible debt and options and warrants should be accounted for as liabilities.

 

The following table summarizes assumptions and the significant terms of the convertible notes for which the entire hybrid instrument is recorded at fair value at June 30, 2021 and December 31, 2020:

 

                    Conversion Price - Lower of Fixed
Price or Percentage of VWAP
for Look-back Period
Debenture   Face
Amount
  Interest
Rate
  Default
Interest
Rate
  Discount
Rate
  Anti-Dilution
Adjusted
Price
  % of stock price for look-back period   Look-back
Period
June 30, 2021   $ 722,446   8%-10%   20%-24%   N/A   $0.00050-$0.0037     50%-60%   3 to 25 Days
December 31, 2020   $ 766,101   8%-10%   20%-24%   N/A   $0.00050-$0.00064     50%-60%   3 to 25 Days

 

Using the stated assumptions summarized in the table above, we calculated the inception date and reporting period fair values of each note issued. The following table shows the changes in fair value measurements for the convertible notes at fair value using significant unobservable inputs (Level 3) during the six months ended June 30, 2021 and the year ended December 31, 2020:

 

Description  

June 30,

2021

    December 31, 2020  
Beginning balance   $ 1,832,439     $ 5,814,047  
Purchases and issuances     117,000       25,981  
Day one loss on value of hybrid instrument (1)     1,973,612       318,174  
Loss (gain) from change in fair value (1)     3,501,696       (1,931,927 )
Gain on settlement     -       (1,609,294 )
Debt discount     -       22,344  
Repayments in cash     (40,480 )     (5,782 )
Conversion to common stock     (2,344,399 )     (801,104 )
Ending balance   $ 5,039,868     $ 1,832,439  

 

(1) The losses (gains) related to the valuation of the convertible notes are included in “Change in fair value of convertible notes and derivatives” in the accompanying consolidated statement of operations.

 

F- 13
 

 

3. INVENTORIES

 

Inventories are valued at the lower of cost or net realizable value on an average cost basis. At June 30, 2021 and December 31, 2020, inventories were as follows:

 

   

June 30,

2021

   

December 31,

2020

 
Raw Materials   $ 130,151     $ 78,880  
Finished Goods     2,732       5,271  
Total Inventories     132,883       84,151  
Less: Long-term inventory     (98,880 )     (78,880 )
Current portion   $ 34,003     $ 5,271  

 

4. PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following at June 30, 2021 and December 31, 2020:

 

   

June 30,

2021

    December 31, 2020  
Computer equipment   $ 25,120     $ 25,120  
Furniture and fixtures     34,757       34,757  
Lab equipment     95,685       65,521  
Telephone equipment     12,421       12,421  
Office equipment – other     16,856       16,856  
Leasehold improvements     73,168       73,168  
Total     258,007       227,843  
Less: Accumulated depreciation     (216,486 )     (213,101 )
Property and equipment, net   $ 41,521     $ 14,742  

 

We review our long-lived assets for recoverability if events or changes in circumstances indicate the assets may be impaired. At June 30, 2021, we believe the carrying values of our long-lived assets are recoverable. Depreciation expense for the six-months ended June 30, 2021 and 2020 was $3,385 and $1,424, respectively, and for the three-months ended June 30, 2021 and 2020 was $2,012 and $712, respectively.

 

5. DUE TO/FROM OFFICER

 

At June 30, 2021, the balance due to our President and CEO, Rik Deitsch, is $192,378, which is an unsecured demand loan that bears interest at 4%. During the six months ended June 30, 2021, we advanced $107,250 to and collected $21,900 from Mr. Deitsch and the companies owned by him. Additionally, accrued interest on the demand loan was $3,891 and is included in the due to officer account. The Company has fully reserved receivables from companies owned by the Company’s CEO. The reserve was $475,970 as of June 30, 2021, which represents a full valuation allowance for amounts owed by these companies. For the six months ended June 30, 2021 and 2020, we recorded a bad debt expense of $73,000 and a bad debt recovery of $70,500, respectively. For the three months ended June 30, 2021 and 2020, we recorded a bad debt expense of $20,000 and a bad debt recovery of $31,000, respectively.

 

At December 31, 2020, the balance due to our President and CEO, Rik Deitsch, was $200,837, which is an unsecured demand loan that bears interest at 4%. During the year ended December 31, 2020, we advanced $22,150 to and collected $254,000 from Mr. Deitsch and the Companies owned by him. Additionally, accrued interest on the demand loan was $7,675 and is included in the due to officer account. The Company has fully reserved receivables from companies owned by the Company’s CEO. The reserve was $402,970 as of December 31, 2020, which represents a full valuation allowance for amounts owed by these Companies.

 

6. DEBTS

 

Debts consist of the following at June 30, 2021 and December 31, 2020:

 

   

June 30,

2021

   

December 31,

2020

 
Notes payable – Unrelated third parties (Net of discount of $2,780 and $1,500, respectively) (2)   $ 1,316,094     $ 1,346,057  
Convertible notes payable – Unrelated third parties (Net of discount of $185,315 and $101,448, respectively) (3)     2,772,586       1,276,902  
Convertible notes payable, at fair value (4)     5,039,868       1,832,439  
Other advances from an unrelated third party (5)     225,000       225,000  
SBA notes payable(6)     214,795       214,795  
Ending balances     9,568,343       4,895,193  
Less: Long-term portion-Convertible Notes payable-Unrelated third parties     (979,654 )     (48,477 )
Less: Long-term portion- SBA notes payable     (148,438 )     (204,070 )
Current portion   $ 8,440,251     $ 4,642,646  

 

F- 14
 

 

(1) During 2010 we borrowed $200,000 from one of our directors. Under the terms of the loan agreement, this loan was expected to be repaid in nine months to a year from the date of the loan along with interest calculated at 10% for the first month plus 12% after 30 days from funding. We are in default regarding this loan. The loan is under personal guarantee by Mr. Deitsch. We repaid the principal balance in full as of December 31, 2016. We repaid $40,000 of the accrued interest during the first and second quarters of 2021. At June 30, 2021 and December 31, 2020, we owed this director accrued interest of $148,899 and $179,522, respectively. The interest expense for the three-months ended June 30, 2021 and 2020 was $4,432 and $4,914, respectively, and for the six-months ended June 30, 2021 and 2020 was $9,377 and $9,635, respectively.
   
(2) At June 30, 2021 and December 31, 2020, the balance of $1,316,094 and $1,346,057 net of discount of $2,780 and $1,500, respectively, consisted of the following loans:

 

  In August 2016, we issued two Promissory Notes for a total of $200,000 ($100,000 each) to a company owned by a former director of the Company. The Notes carry interest at 12% annually and were originally due on the date that was six-months from the execution and funding of the note. The principal balance of $101,818 and accrued interest of $21,023 were settled on February 15, 2019 for $104,000 with scheduled payments through May 1, 2020. During the first quarter of 2020, the settlement was further amended to $88,500. We recorded a gain on settlement of debt in other income for $15,500 during the first quarter of 2020. The settlement balance of $88,500 was repaid in full during November 2020. At June 30, 2021 and December 31, 2020, we owed principal balance of $91,156, and accrued interest of $46,342 and $40,917, respectively. The remaining principal balance of $91,156 and accrued interest of $46,342 is being disputed in court and negotiation for settlement. (See Note 12).
     
  On August 2, 2011 under a settlement agreement with Liquid Packaging Resources, Inc. (“LPR”), we agreed to pay LPR a total of $350,000 in monthly installments of $50,000 beginning August 15, 2011 and ending on February 15, 2012. We signed the first amendment to the settlement agreement where we agreed to pay $175,000, which was the balance outstanding at December 31, 2011(this includes a $25,000 penalty for non-payment). We repaid $25,000 during the six months ended March 31, 2012. We did not make all of the payments under such amendment and as a result pursuant to the original settlement agreement, LPR had the right to sell 142,858 shares (5,714,326 shares pre reverse stock split) of our free trading stock held in escrow by their attorney and receive cash settlements for a total amount of $450,000 (the initial $350,000 plus total default penalties of $100,000). LPR sold the note to Southridge Partners, LLP (“Southridge”) for consideration of $281,772 in June 2012. In August 2013 the debt of $281,772 reverted back to LPR.
     
  At December 31, 2012, we owed University Centre West Ltd. approximately $55,410 for rent, which was assigned and sold to Southridge, and it is currently outstanding and carries no interest.
     
  In April 2016, we issued a promissory note to an unrelated third party in the amount of $10,000 bearing interest at 10% annually. The note was due in one year from the execution and funding of the note. The note is in default and negotiation of settlement. At June 30, 2021 and December 31, 2020, the accrued interest is $5,272 and $4,769.
     
  In May 2016, the Company issued a promissory note to an unrelated third party in the amount of $75,000 bearing monthly interest at a rate of 2%. The note was due in six months from the execution and funding of the note. During April 2017, we accepted the offer of a settlement to issue 5,000,000 common shares as a repayment of $25,000. The note is in default and in negotiation of settlement. At June 30, 2021 and December 31, 2020, the outstanding principal balance is $50,000 and accrued interest is $68,200 and $62,167.
     
  In June 2016, the Company issued a promissory note to an unrelated third party in the amount of $50,000 bearing monthly interest at a rate of 2%. The note was due in six months from the execution and funding of the note. The note is in default and negotiation of settlement. At June 30, 2021 and December 31, 2020, the outstanding principal balance is $50,000 and accrued interest is $61,400 and $55,367, respectively.

 

F- 15
 

 

  A promissory note originally issued to an unrelated third party in August 2016 was restated in September 2019 in the amount of $333,543 bearing monthly interest at a rate of 2.0% and was due September 2020. In connection with this restated note, we issued 20,000,000 shares of our common stock. During September 2020, we issued a total of 10,000,000 restricted shares due to the default on repayments. The shares were valued at fair value of $6,000. The common stock was valued at $5,895 and recorded as a debt discount that was amortized over the life of the note. Amortization for this debt discount was fully amortized at December 31, 2020. The Note is in default and negotiation of settlement. At June 30, 2021 and December 31, 2020, the principal balance is $333,543, and the accrued interest is $146,759 and $106,511, respectively.
     
  On September 26, 2016, we issued a promissory note to an unrelated third party in the amount of $75,000 bearing interest at 10% annually. The note was due in one year from the execution and funding of the note. In March 2018, $15,000 of the principal balance of the note was assigned to an unrelated third party and is in negotiation of settlement. In January 2019, the remaining principal balance of $60,000 and accrued interest of $15,900 was restated in the form of a Convertible Note (See Note 6(4)). At June 30, 2021 and December 31, 2020, the principal balance outstanding is $15,000, and the accrued interest is $1,371.
     
  In October 2016, we issued a promissory note to an unrelated third party in the amount of $50,000 bearing monthly interest at a rate of 2%. The note was due in six months from the execution and funding of the note. The note is in default and in negotiation of settlement. At June 30, 2021 and December 31, 2020, the accrued interest is $57,700 and $51,667, respectively.
     
  In June 2017, we issued a promissory note to an unrelated third party in the amount of $12,500 bearing interest at 10% annually. The note was due in one year from the execution and funding of the note. The note is in default and in negotiation of settlement. At June 30, 2021 and December 31, 2020, the accrued interest is $5,111 and $4,483, respectively.
     
  During July 2017, we received a loan for a total of $200,000 from an unrelated third party. The loan was repaid through scheduled payments through August 2017 along with interest on average 15% annum. During June 2018, the loan was settled with two unrelated third parties for $130,401 and $40,000, respectively, with the monthly scheduled repayments of approximately $5,000 and $2,000 per month to each unrelated party through July 2020. The Company repaid a total of $34,976, $42,698, and $44,478 during 2018, 2019 and 2020, respectively. Additionally, repayment of $14,376 was made during the first quarter of 2021. At June 30, 2021 and December 31, 2020, the principal balance is $33,874 and $48,250, respectively. The portion of settlement of $130,401 was repaid in full as of March 31, 2021. The remaining balance of $33,874 is in default and negotiation of settlement.
     
  In July 2017, we issued a promissory note to an unrelated third party in the amount of $50,000 with original issue discount of $10,000. The note was due in six months from the execution and funding of the note. The note is in default and in negotiation of settlement. At June 30, 2021 and December 31, 2020, the principal balance of the note is $50,000.

 

F- 16
 

 

  During September 2018 and 2019, a promissory note originally issued to an unrelated third party in September 2017 was amended in the amount of $36,000 including original issuance discount of $6,000 each due in September 2019 and 2020. The Note was further restated in September 2020. The restated principal balance was $33,000 with the original issuance discount of $3,000 and was due March 2021. The original issue discount is amortized over the term of the loan. Repayments of $7,000, $5,000, and $6,500 have been made during 2018, 2019, and 2020, respectively. Additionally, repayment of $1,000 was made during the first quarter of 2021. The Note is under personal guarantee by Mr. Deitsch. At December 31, 2020, the principal balance of the note is $29,500 net of debt discount of $1,500. The remaining debt discount of $1,500 was fully amortized as of March 2021. During March 2021, the remaining balance of $30,000 was sold to an unrelated third party in the form of a convertible note at a fixed conversion price of $0.01 per share (See Note 6(3)). The new note carries interest at 12% with scheduled monthly payments of $1,000 beginning in April 2021 through March 2024.
     
  During January 2020, a promissory note originally issued to an unrelated third party in October 2017 in the amount of $60,000 and the Note of $76,076 originally issued in July 2016 plus accrued interest of $12,149 were combined and restated at a rate of 2.0% monthly due July 2020. During July 2020, the restated Note of $148,225 plus accrued interest of $18,701 was further restated. The new principal balance was $166,926 that carries interest at a rate of 2.0% monthly and was due January 2021. During February 2021, we issued 29,072,500 shares of common stock to satisfy the accrued interest of $23,258 with fair value of $343,056 (See Note 7). The settlement of accrued interest resulted in a loss on settlement of debt for $319,798 in other expense. The principal balance of $166,926 was further restated. The restated balance is $183,619 with an original issuance discount of $16,693 and was due August 2021. Amortization for the six months ended June 30, 2021 for this discount is $13,913. At December 31, 2020, the principal balance and accrued interest was $166,926 and $18,917. At June 30, 2021, the restated principal balance is $180,839 net of debt discount of $2,780. The note is in default and negotiation of settlement.
     
  In November 2017, we issued a promissory note to an unrelated third party in the amount of $120,000 with original issuance discount of $20,000. During March 2020, $50,000 of the Note was settled for 125,000,000 shares with a fair value of $87,500. We recorded a loss on settlement in other expense for $37,500 in March 2020. An additional 36,000,000 shares were issued to satisfy the default provision of the original note and 10,000,000 shares were issued along with the restatement. The total fair value of issued stock was $32,200. The remaining balance of $70,000 was restated with additional issuance discount of $14,000. The $84,000 due in September 2020 is in default and negotiation of further settlement. At June 30, 2021 and December 31, 2020, the principal balance of the loan is $84,000.
     
  In November 2017, we issued a promissory note to an unrelated third party in the amount of $18,000 with original issuance discount of $3,000. The note is in default and in negotiation of settlement. The note was due in six months from the execution and funding of the note. At June 30, 2021 and December 31, 2020, the principal balance of the note is $18,000 and the accrued interest is $2,000.

 

F- 17
 

 

(3) At June 30, 2021 and December 31, 2020, the balance of $2,772,586 and $1,276,902 net of discount of $185,315 and $101,448, respectively, consisted of the following convertible loans:

 

  In October 2017, we issued a promissory note to an unrelated third party in the amount of $60,000 with original issuance discount of $10,000 and a conversion option. The note was due in six months from the execution and funding of the note. The loan is in default and in negotiation of settlement. At June 30, 2021 and December 31, 2020, the principal balance of the note is $60,000.
     
  During January through December 2018, we issued convertible notes payable to the 20 unrelated third parties for a total of $618,250 with original issue discount of $62,950. The notes were due in six months from the execution and funding of each note. The notes are convertible into shares of Company’s common stock at a conversion price ranging from $0.0003 to $0.001 per share. The total discount of $255,655 and original issuance discount of $62,950 have been fully amortized during 2019 for $28,421.

 

During February 2019, we issued convertible notes payable of $70,000 with original issuance discount of $5,000. The notes were due in six months from the execution and funding of each note. The notes are convertible into shares of Company’s common stock at a conversion price of $0.0005 per share. During December 2019, $22,000 of the Note was amended to extend the maturity date to June 2020. During August 2020, the convertible promissory notes of $38,500 was amended to add additional original issuance discount (OID) of $7,550 due February 2021. During October 2020, a convertible promissory note of $16,500 was amended to add additional OID of $1,650 due April 2021. In connection with the issuance of amended convertible notes, the Company granted the following warrants at an exercise price of $0.001 per share. The warrants were valued using the Black-Scholes method and recorded as a debt discount. No warrants have been exercised. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were valued at their fair value of $729,469 and $123,900 on June 30, 2021 and December 31, 2020 (See Note 8). The debt discounts associated with the warrants in August was for $38,500. The debt discounts associated with the warrants in October was for $16,500. The debt discounts are amortized over the life of the notes.

 

Month of

Issuance

 

Number of

Warrants

 

Fair

Value of

Warrants

 

Month of

Expiration

 
December, 2019     44,000,000   $ 7,370     August, 2020  
August, 2020     92,100,000   $ 38,500     August, 2021  
October, 2020     36,300,000   $ 16,500     October, 2022  

 

During May 2019, we restated two convertible notes payable with additional original issue discount of $6,400. The two restated notes were due in August 2019 and are in default.

 

During November and December 2019, we issued two convertible promissory notes to the unrelated third party for $159,500 with original issuance discount of $14,500. The notes were due six months from the execution and funding of the notes. The Noteholder had the right to convert the note into shares of Common Stock at a fixed conversion price ranging from $0.0002 to $0.000275. The Notes are in default and negotiation of settlement.

 

F- 18
 

 

During 2019, repayments of $13,500 were made in cash to three of the Notes. Six of the Notes for a total of $87,100 were repaid in stocks as the part of settlement of issuances of 800,000,000 shares of common stocks during December 2019.

 

At December 31, 2019, the principal balance of the notes, net of discount of $17,370 was $736,180. The remaining debt discount of $17,370 has been fully amortized during the fiscal year 2020. Two of the above mentioned convertible notes payable were settled in March and April, 2021. One of the above mentioned convertible notes payable was repaid in cash for $10,000.

 

During the year ended December 31, 2020, we issued convertible notes payable of $555,600 with original issuance discount of $53,600. $287,400 of these notes were due in a year, and $268,200 of the Notes are due in six months from the execution and funding of each note. The notes are convertible into shares of Company’s common stock at a conversion price ranging from $0.0002 to 0.0008 per share. During July 2020, we issued a total of 1,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $22,000 originated in December 2019. The shares were valued at fair value of $700 (See Note 7). In addition, in connection with the issuance of two of the above mentioned convertible notes of $57,500 with original issuance discount of $7,500 due in one year, the Company granted the 71,875,000 warrants at an exercise price of $0.002 per share that expire one year from the date of issuance. The warrants are valued using the Black-Scholes method and recorded as a debt discount. No warrants have been exercised. The debt discounts associated with the warrants and OID for $50,000 and $7,500, respectively, are amortized over the life of the notes. Amortization for the year ended December 31, 2020 was $83,720. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were valued at their fair value of $367,085 and $65,634 using the Black-Scholes method on June 30, 2021 and December 31, 2020 (See Note 8).

 

At December 31, 2020, the principal balance of the notes, net of discount of $101,448 is $1,276,902.

 

During the first quarter of 2021, we issued convertible promissory notes to the unrelated third parties for a total of $717,667 with original issuance discount of $93,609. During the second quarter of 2021, we issued convertible promissory notes to the unrelated third parties for a total of $864,225 with original issuance discount of $112,725. The Noteholders have the right to convert the note into shares of Common Stock at a conversion price ranging from $0.0003 to $0.002 per share. The notes are due one year from the execution and funding of the notes.

 

During March 2021, the remaining balance of promissory note of $30,000 originally issued in September 2018 was sold to an unrelated third party in the form of a convertible note at a fixed conversion price of $0.01 per share (See Note 6(2)). The new note carries interest at 12% with scheduled monthly payments of $1,000 beginning in April 2021 through March 2024. Repayment of $2,842 has been made during the second quarter of 2021. The principal balance as of June 30, 2021 is $27,158, and the interest expense for the three months ended June 30, 2021 is $1,158.

 

During March 2021, in connection with the settlement of the $6,000 of the Note of $11,000 originated in November 2018, we issued 11,000,000 shares of common stocks in satisfaction of $6,000 of the Note with a fair value of $104,500 (Note 7) and made a repayment of $5,000 in cash. The settlement resulted in a loss on settlement of debt in other expense for $98,500. During April 2021, in connection with this settlement of the remaining balance of $8,500 of the Note of $12,000 originated in December 2018, we issued 2,000,000 shares of common stocks in satisfaction of $4,000 of the Note with a fair value of $15,200 (Note 7) and made a repayment of $4,500 in cash. The settlement resulted in a loss on settlement of debt in other expense for $11,200.

 

At the date of this report, $1,152,200 of the above mentioned convertible notes payable are in default and in negotiation of settlement. The total discount amortization on all notes for the three and six months ended June 30, 2021 was $58,330 and $122,469, respectively. At June 30, 2021, the principal balance of the notes, net of discount of $185,315 is $2,772,586.

 

  (4) At June 30, 2021 and December 31, 2020, the balance of $5,039,868 and $1,832,439, respectively, consisted of the following convertible loans:

 

  The remaining balance of $20,000 of a Convertible Note of $120,000 originated in March 2016 is in default and negotiation of settlement. The conversion price is equal to 55% of the average of the three lowest volume weighted average prices for the three consecutive trading days immediately prior to but not including the conversion date. At June 30, 2021 and December 31, 2020, the convertible notes payable with principal balance of $20,000 plus accrued interest of $19,138 and $17,128, respectively, at fair value, were recorded at $71,160 and $69,433, respectively.

 

F- 19
 

 

  During May 2017, we issued a Convertible Debenture in the amount of $64,000 to an unrelated third party. The note was due on May 4, 2018. The Note holder has the right to convert the note into shares of Common Stock at a sixty percent (60%) of the lowest trading price of our restricted common stock for the twenty trading days preceding the conversion date. We have accrued interest at default interest rate of 20% after the note’s maturity date. After prior conversions, at June 30, 2021 and December 31, 2020, the remaining principal of $12,629 plus accrued interest of $13,571 and $12,308, respectively, at fair value, were recorded at $45,781 and $49,875, respectively. The remaining principal balance of the Note is in default.
     
  During February through August 2018, we issued seven convertible promissory notes to an unrelated third party due one year from the execution dates. The principal balance of these Notes on December 31, 2019 was $511,319. During September 2020, the Note holder received a total of 107,133,333 shares of our restricted common stock in satisfaction of the principal balance of $22,000 and accrued interest of $10,140. During October 2020, the Note holder received a total of 107,817,770 shares of our restricted common stock in satisfaction of the principal balance of $22,000 and accrued interest of $10,345. During October 2020, the Note holder sold the remaining debt principal value as of October 22, 2020 of $509,301 and accrued interest of $234,417 for $250,000 to a non-related party. The new note of $250,000 carries interest at 8%. The Noteholder has the right to convert the note into shares of our restricted common stock at sixty percent of the lowest trading price of our restricted common stock for the twenty-five prior trading days including the conversion date. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $286,969. At June 30, 2021 and December 31, 2020, the convertible note payable with principal balance of $250,000 plus accrued interest of $13,808 and $3,890, respectively, at fair value, were recorded at $525,463 and $521,370.

 

  During July 2018, we issued a convertible debenture in the amount of $50,000 to an unrelated third party. The note carries interest at 8% and was due in July 2019, unless previously converted into shares of restricted common stock. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at fifty five percent of the average three lowest trading price of our restricted common stock for the fifteen trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $46,734. At June 30, 2021 and December 31, 2020, the convertible note payable with principal balance of $50,000 plus accrued interest of $27,441 and $21,490, at fair value, was recorded at $143,006 and $146,232, respectively.
     
  During August 2018, we issued a convertible debenture in the amount of $20,000 to an unrelated third party. The note carries interest at 8% and was due in August 2019, unless previously converted into shares of restricted common stock. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at fifty five percent of the average three lowest trading price of our restricted common stock for the fifteen trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $17,829. At June 30, 2021 and December 31, 2020, the convertible note payable with principal balance of $20,000 plus accrued interest of $10,503 and $8,123, at fair value, was recorded at $56,327 and $57,524, respectively.
     
  During January 2019, the principal balance of $60,000 from a promissory note of $75,000 originated in September 2016 (See Note 6(2)) and accrued interest of $15,900 was restated in the form of a Convertible Note. The new note of $75,900 was due in one year from the restatement of the note. The Noteholder has the right to convert the note into shares of Common Stock at 50% discount to the average trading price of the three lowest closing stock prices for the twenty days prior to the notice of conversion. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $75,900. During November 2020, the Note holder assigned $20,000 of the $75,900 convertible note restated in January 2019 to a third party. The third party subsequently received a total of 100,000,000 shares of our restricted common stock in satisfaction the $20,000 of the Note with a fair value of $140,000. At June 30, 2021 and December 31, 2020, the convertible note payable of $55,900, at fair value, was recorded at $117,209 and $129,832. The note was due January 2021. The Note is in default and negotiation of settlement.

 

F- 21
 

 

  During February 2019, we issued a convertible promissory note to an unrelated third party in the amount up to $1,000,000 paid upon tranches. The note is due two years from the execution and funding of the note per tranche. The Noteholder has the right to convert the note into shares of Common Stock at a conversion price of the lower of $0.0005 or 50% discount to the average trading price of the three lowest closing stock prices for the twenty days prior to the notice of conversion. The eight total tranches of the Note in the amount of $372,374 and $20,199 have been funded during 2019 and 2020, respectively. An additional two tranches of the Note for a total of $117,000 have been funded, and repayment of $40,480 has been made during the first and second quarter of 2021. $15,000 has been funded after June 30, 2021. In connection with issuance of the convertible note, the Noteholder agreed to eliminate two outstanding Notes of $27,000 and the accrued interest of $11,412 that were held by the Noteholder’s defunct entities. In connection with the issuance of the convertible note payable tranches during the six months ended June 30, 2021, we recorded a day-one derivative loss of $1,973,612 for the period. During May and June 2019, the Note holder made conversions of a total of 750,000,000 shares of stock satisfying the principal balance of $100,000 for a fair value of $275,000. During January 2020 through February 2020, the Note holder received a total of 500,000,000 shares of our restricted common stock in satisfaction the $175,000 of the Note with a fair value of $425,000. During February through June 2021, the Note holder received a total of 240,350,000 shares of our restricted common stock in satisfaction the $120,175 of the Note with a fair value of $2,344,399 (See Note 7). The remaining balance of $88,917 is due June 2023. At June 30, 2021 and December 31, 2020, the convertible note payable with principal balance of $73,917 and $117,572, at fair value, was recorded at $960,922 and $282,173.

 

    Number of   Fair Value of  
Date   shares converted   Debt Converted  
2/25/2021     137,700,000   $ 1,500,930  
3/3/2021     67,380,000   $ 599,682  
4/26/2021     27,070,000   $ 192,197  
6/1/2021     5,700,000   $ 35,340  
6/24/2021     2,500,000   $ 16,250  

 

  During June 2019, we issued a convertible promissory note to an unrelated third party for $240,000 with original issuance discount of $40,000. The note was due one year from the execution and funding of the notes. In connection with the issuance of this note, we issued 16,000,000 shares of our restricted common stock. The common stock was valued at $4,688 and recorded as a debt discount that was amortized over the life of the note. The Noteholder has the right to convert the note into shares of Common Stock at a conversion price of the lower of $0.0005 or 50% discount to the average trading price of the three lowest closing stock prices for the twenty days prior to the notice of conversion. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $240,000. Amortization for the debt discount was fully amortized as of June 30, 2020 for $22,344. At June 30, 2021 and December 31, 2020, the convertible note payable with principal balance of $240,000, at fair value, was recorded at $3,120,000 and $576,000. The Note is in default and negotiation of settlement.
     
  (5) At June 30, 2021 and December 31, 2020, the balance of $225,000 consisted of the advances received from a third party during the periods from May 2019 through May 2020 in connection with a Joint Venture proposal. The deposits were considered as payments towards the purchase of equity in the joint venture. The joint venture is currently on hold pending the outcome of the lawsuit with the Securities and Exchange Commission (see Note 12).
     
  (6)

During May 2020, we entered into a two-year loan agreement with the U. S. Small Business Administration for a Payroll Protection Program (PPP) loan, for $64,895 with an annual interest rate of one percent (1%), with a term of twenty-four (24) months, whereby a portion of the loan proceeds have been used for certain labor costs, office rent costs and utilities, which may be subject to a loan forgiveness, pursuant to the terms of the SBA/PPP program.

 

During April and June 2020, the Company executed the standard loan documents required for securing a loan from the SBA under its Economic Injury Disaster Loan assistance program (the “EIDL Loan”) considering the impact of the COVID-19 pandemic on the Company’s business. Pursuant to the Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan was $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due 24 months from the date of the SBA Loan Agreement in the amount of $731. The balance of principal and interest is payable over a 360-month period from the date of the SBA Loan Agreement. In connection therewith, the Company received a $5,000 advance, which does not have to be repaid. We recorded it as other income in April 2020. The SBA requires that the Company collateralize the loan to the maximum extent up to the loan amount. If business fixed assets do not “fully secure” the loan the lender may include trading assets (using 10% of current book value for the calculation), and must take available equity in the personal real estate (residential and investment) of the principals as collateral.

 

The accrued interest as of June 30, 2021 and December 31, 2020 for the above mentioned PPP and EIDL loans are $6,797 and $3,660, respectively.

 

At June 30, 2021, the future minimum principal payments for the above mentioned PPP and EIDL loans are as follows:

 

 

Years   Amount  
2021(6 months remaining)   $ 10,725  
2022     56,290  
2023     3,283  
2024     3,408  
2025     3,538  
Thereafter     137,551  
      214,795  
Less: Long-term portion - SBA notes payable     (148,438 )
Current portion   $ 66,357  

 

F- 22
 

 

7. STOCKHOLDERS’ DEFICIT

 

Series A Preferred Stock

 

Effective October 30, 2017, pursuant to authority of its Board of Directors, the Company filed a Certificate of Determination to authorize the issuance of 20,000,000 shares of stock designated “preferred shares”, issuable from time to time in one or more series and authorize the Board of Directors to fix the number of shares constituting any such series, and to determine or alter the dividend rights, dividend rate, conversion rights, voting rights, right and terms of redemption (including sinking fund provisions), the redemption price or prices and the liquidation preference of any wholly unissued series of such preferred shares, and the number of shares constituting any such series.

 

Effective October 30, 2017 the Board of Directors authorized the issuance of 3,000,000 shares of Series A Preferred Stock (“Series A Preferred”). Terms of the Series A Preferred include the following:

 

  1. The Series A Preferred votes with the Company’s common stock as a single class on all matters or consents for the Company’s common stockholders. Each share of Series A Preferred is entitled to one thousand votes per share.
     
  2. The Series A Preferred will not be entitled to dividends unless the Company pays cash dividends or dividends in other property to holders of outstanding shares of common stock, in which event, each outstanding share of the Series A Preferred will be entitled to receive dividends of cash or property in an amount or value equal to one thousand multiplied by the amount paid in respect of one share of common stock. Any dividend payable to the Series A Preferred will have the same record and payment date and terms as the dividend payable on the common stock.

 

  3. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of all shares of Series A Preferred then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount in cash equal to $0.133 in cash per share before any distribution is made on any shares of the Company’s common stock. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the application of all amounts available for payments with respect to Series A Preferred would not result in payment in full of Series A Preferred, the holders shall share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled.
     
  4. The Series A Preferred does not have any redemption rights.

 

Common Stock Issued for Conversion of Convertible Debt

 

During February through June 2021, the Note holder received a total of 240,350,000 shares of our restricted common stock in satisfaction the $120,175 of the Note with a fair value of $2,344,399 (See Note 6)

 

    Number of     Fair Value of  
Date   shares converted     Debt Converted  
2/25/2021     137,700,000     $ 1,500,930  
3/3/2021     67,380,000     $ 599,682  
4/26/2021     27,070,000     $ 192,197  
6/1/2021     5,700,000     $ 35,340  
6/24/2021     2,500,000     $ 16,250  

 

F- 23
 

 

Common Stock Issued for Settlement of Debt

 

During February 2021, we issued 29,072,500 shares of common stock to satisfy the accrued interest of $23,258 on a promissory note of $166,926 restated in July 2020 with fair value of $343,056. The settlement of accrued interest resulted in a loss on settlement of debt in other expense for $319,798 (See Note 6).

 

During March 2021, in connection with the settlement of a Note of $11,000 originated in November 2018, we issued 11,000,000 shares of common stock in satisfaction of $6,000 of the Note with a fair value of $104,500 and made a repayment of $5,000 in cash. The settlement resulted in a loss on settlement of debt in other expense for $98,500 (See Note 6).

 

During April 2021, in connection with the settlement of the remaining balance of $8,500 of the Note of $12,000 originated in December 2018, we issued 2,000,000 share of common stocks in satisfaction of $4,000 of the Note with a fair value of $15,200. The settlement resulted in a loss on settlement of debt in other expense for $11,200 (See Note 6).

 

Common Stock Issued for Debt Modification and Penalty

 

During January 2021, we issued a total of 25,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $166,926 amended in July 2020. The shares were valued at fair value of $107,500 (See Note 6).

 

Common Stock Issued for Consulting Service

 

During June 2021, the Company signed an agreement with a consultant for services for six months for which the Company is to issue a total of 30,000,000 shares of the Company’s restricted common stock. 5,000,000 of the shares were issued upon execution of the agreement and 5,000,000 shares will be issued every 30 days through November 2021. The 5,000,000 shares issued upon execution were valued at $33,000. The equity compensation charge of $1,445 has been recorded during June 2021. The remaining unrecognized compensation cost of $31,555 will be recognized by the Company over the remaining service period. Additional 10,000,000 shares have been issued after June 30, 2021 (See Note 13).

 

F- 24
 

 

8. STOCK WARRANTS

 

Common Stock Warrants

 

On March 3, 2016, in connection with the issuance of a convertible note, we granted five-year warrants to purchase an aggregate of 2,500,000 shares of our common stock at an exercise price of $0.03 per share. The warrants were valued at their fair value of $0 and $9 using the Black-Scholes method at June 30, 2021 and December 31, 2020. The warrants expired in March 2021.

 

During December 2019, the Company granted 44,000,000 warrants at an exercise price of $0.001 per share in connection with amendment of one convertible notes payable of $22,000. The warrants were valued at $7,370 using the Black-Scholes method and recorded as a debt discount and additional paid in capital. The warrants expired in August 2020.

 

During August and October 2020, in connection with the issuance of amended convertible notes, the Company granted the following warrants at an exercise price of $0.001 per share. The warrants were valued using the Black-Scholes method and recorded as a debt discount. No warrants have been exercised. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were valued at their fair value of $729,469 and $123,900 using the Black-Scholes method on June 30, 2021 and December 31, 2020.

 

Month of Issuance  

Number of

Warrants

 

Month of

Expiration

 
August, 2020     92,100,000     August, 2021  
October, 2020     36,300,000     October, 2022  

 

During November and December 2020, in connection with the issuance of two convertible notes, the Company granted the following warrants at an exercise price of $0.002 per share. The warrants are valued using the Black-Scholes method and recorded as a debt discount. No warrants have been exercised. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were valued at their fair value of $367,085 and $65,634 using the Black-Scholes method on June 30, 2021 and December 31, 2020.

 

Month of Issuance  

Number of

Warrants

 

Month of

Expiration

 
November, 2020     35,937,500     November, 2021  
December, 2020     35,937,500     December, 2021  

 

A summary of warrants outstanding in conjunction with private placements of common stock were as follows during the year ended December 31, 2020 and the six months ended June 30, 2021:

 

    Number Of
shares
  Weighted
average
exercise price
 
           
Balance December 31, 2019     52,500,000   $ 0.0028  
Exercised     -     -  
Issued     200,275,000     0.0014  
Expired     (50,000,000 )   0.0015  
Balance December 31, 2020     202,775,000   $ 0.0017  
Exercised     -     -  
Issued     -     -  
Expired     (2,500,000 )   0.03  
Balance June 30, 2021     200,275,000   $ 0.0014  

 

The following table summarizes information about fixed-price warrants outstanding as of June 30, 2021 and December 31, 2020:

 

    Exercise Price  

Weighted

Average

Number Outstanding

  Weighted
Average
Contractual
Life
 

Weighted
Average

Exercise

Price

 
June 30, 2021   $ 0.001-0.002     201,131,354      0.44 years   $ 0.0014  
December 31, 2020   $ 0.001-0.03     51,086,612      0.93 years   $ 0.0017  

 

At June 30, 2021, the aggregate intrinsic value of all warrants outstanding and expected to vest was $1,029,638. The intrinsic value of warrant share is the difference between the fair value of our restricted common stock and the exercise price of such warrant share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money warrants had they exercised their warrants on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on $0.0065, the closing stock price of our restricted common stock on June 30, 2021. There were 200,275,000 in-the-money warrants at June 30, 2021.

 

F- 25
 

 

9. ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

   

June 30,

2021

    December 31, 2020  
Accrued consulting fees   $ 161,550     $ 166,900  
Accrued settlement expenses     -       35,000  
Accrued payroll taxes     205,062       215,581  
Accrued interest     400,953       351,830  
Accrued others     8,229       11,121  
Total   $ 775,794     $ 780,432  

 

10. PREPAID EXPENSES

 

Prepaid expenses and other current assets consist of the following:

 

   

June 30,

2021

    December 31, 2020  
Supplier advances for future purchases   $ 270,162     $ 246,162  
Reserve for supplier advances     (246,162 )     (246,162 )
Net supplier advances     24,000       -  
Prepaid professional fees     24,650       10,000  
Deferred stock compensation     31,555       -  
Total   $ 80,205     $ 10,000  

 

We performed an evaluation of our inventory and related accounts at June 30, 2021 and December 31, 2020, and increased the reserve on supplier advances for future venom purchases by $0 and $21,303, respectively. At June 30, 2021 and December 31, 2020, the total valuation allowance for prepaid venom is $246,162.

 

F- 26
 

 

11. CONVERTIBLE NOTES RECEIVABLE

 

On March 10, 2021, we purchased a convertible note from an unrelated third party (the “Third Party”) for a total of $26,950 with original issuance discount of $2,450. The note is convertible into common shares for $0.01 per common share and matures on March 10, 2022. The original issuance discount is amortized over the life of note. The debt discount as of June 30, 2021 was $1,835.

 

On May 20, 2021, we purchased a convertible note from the Third Party for a total of $145,200 with original issuance discount of $13,200. The note is convertible into common shares for $0.01 per common share and matures on May 20, 2022. The original issuance discount is amortized over the life of note. The debt discount as of June 30, 2021 was $12,100.

 

Amortization for all the convertible notes receivable was $1,715 recognized as other income in the statement of operations for the three and six months ended June 30, 2021.

 

12. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

In February 2016, we entered into our current three-year operating lease for monthly payments of approximately $3,200 which expired in February 2019. We continued the lease on a month-to-month basis until May 2020 when it was terminated.

 

ReceptoPharm leases a lab and renewed its operating lease agreement for five years beginning August 1, 2017 for monthly payments of approximately $6,900 with a 5% increase each year. In February of 2021, we signed an updated lease with extended terms through January 1, 2023. The lease calls for monthly payments of approximately $6,500 with a 4% increase each year.

    June 30,     December 31,  
    2021     2020  
Lease cost                
Operating lease cost   $ 40,198     $ 89,021  
Short-term lease cost     -       18,698  
Total lease cost   $ 40,198     $ 107,719  
                 
Balance sheet information                
Operating ROU Assets   $ 136,651     $ 144,010  
                 
Operating lease obligations, current portion     73,632       82,873  
Operating lease obligations, non-current portion     39,611       60,447  
 Total operating lease obligations   $ 113,243     $ 143,320  
                 
Weighted average remaining lease term (in years) – operating leases