On March 21, 2017, the Company issued and sold a convertible promissory note in the aggregate principal amount of $53,000 in return for the payment in cash. The note bears interest of 12% of the principal amount of the note, payable with the note’s aggregate principal amount outstanding on the maturity date, December 31, 2017.
The note is convertible, in whole or in part into shares of the Company’s common stock, $0.001 par value at a per share conversion price equal to 60% of the average of the three lowest trade prices for the Common Stock in the 15 trading days previous to the effective date of each such conversion. The note may not be prepaid by the Company without penalty. To the extent the debt holder does not elect to convert the note as described above, the principal amount of the note not so converted shall be payable in cash on the maturity date.
The note is not convertible for 180 days. The Company analyzed the conversion options in the convertible promissory note for derivative accounting consideration under ASC 815, Derivative and Hedging, and determines that the transactions do not qualify for derivative treatment. The Company then analyzed the convertible note for Beneficial Conversion Features (BCF) and concluded there were no BCF on the convertible note.
Each Selling Shareholder has a warrant to purchase up to 50% of the shares owned with an exercise price of $0.60 per shares with the warrant termination on the one-year anniversary of the first day that the Common Stock is traded on the OTCQB marketplace.
A summary of the changes in the Company’s common share purchase warrants is presented below:
As at June 30, 2017, the following common share purchase warrants were outstanding and exercisable:
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 1 “Financial Statements” in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed below
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Overview
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The Company was organized under the laws of the State of Nevada on July 29, 2014 and is a marketer and distributor of very unique all natural mineral based fertilizers. We do not produce the fertilizer. The Company strives to be environmentally friendly in the production of a fertilizer that we believe will reduce the worldwide dependence on chemical fertilizers and provide a safe and healthy alternative to help in the worldwide production of food.
In the fertilization process, there are more than 60 different minerals present in plant tissue. Farmers are well aware of the consequences of low levels of minerals in pastures, which is why animal feed is enriched with minerals. In most cases, the elements needed by a plant are also needed by animals. There are seven minerals needed in the diet of animals, and they are iron, copper, zinc, manganese, iodine, cobalt and selenium. If these elements are not present, the health of the animal is affected through slower development and depressed immune systems.
Products
There are two (2) fertilizer products.
“IHO – Agro Mineral,” a fertilizer consisting of mineral extracts from various salts, including sea salt, found naturally on the surface of the Earth; and
“IHO-Bio,” a fertilizer consisting of a mixture of mineral extracts from various salts, including sea salt, as well as various plant extracts, including seaweed. It contains all the micronutrients present in “IHO – Agro Mineral”, plus plant extracts rich in amino acids, vitamins and natural plant hormones.
The “IHO-Agro Mineral” fertilizer is a natural product that we believe will reduce the use of chemical fertilizers. It’s ecological, which creates healthier conditions while also increasing production and higher profits. We believe the product provides an increase in soil minerals by adding a micronutrient fertilizer. We believe the “IHO-Agro Mineral” fertilizer will help fruit trees increase their production and will be able to be used on crops that are growing in locked, saturated soil. We believe the “IHO-Agro Mineral” fertilizer will be able to be used in pastures to increase mineral content.
We believe the “IHO-Agro Bio” fertilizer will be able to be used for fruit trees that bear no fruit. We believe it will also be able to be used when solids are depleted; we believe it will increase mineralization and increase agricultural production, and also increase germination.
The Company did not itself develop the fertilizer. The Panamanian Entity developed the fertilizer and is owned by the Company’s sole officer and sole director, Mr. Ioan Hossu. The Company has obtained an exclusive license with the Panamanian entity to market and sell the fertilizer.
Benefits of HO-Agro Products vs. Agro-Chemical Fertilizers
Typically, fertilizers represent 30% to 40% of input costs for many key crops. These costs differ from country to country. Most agro-chemical fertilizer prices fluctuate in accordance with international energy costs. In contrast, IHO-Agro products are not oil dependent, and the energy used to manufacture these products is minimal. Even in case of natural disasters, should no electricity be available, the Panamanian entity could continue to manufacture the products, as they are not energy dependent. We do recommend (depending on the crops) two to four gallons of our product to be used for each hectare. While getting additional benefits from IHO-Agro products, we believe the costs of fertilizing will be much lower than using chemical fertilizers. These costs will depend on where the products are used, as different import tariffs and taxes will be applied. Even so, we believe the costs will be significantly lower. Farmers will get the assurance fertilizer costs will not increase due to an increase in the price of oil. We believe the benefits will include:
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Plants more resistant to insects and disease. Farmers may need to use less pesticides and fungicides, therefore the costs associated with dispersing them is diminished or eliminated.
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Farmers will not incur any additional costs associated with the usage of IHO-Agro products, as they can readily use their existing farm equipment.
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Depending on the extraction method employed in the process, we believe that soils treated with these minerals will meet the standards required in the United States and the European Union for Organic Certification which will allow farmers to charge more for their crops.
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We believe there will be no negative impact on the environment as a result of manufacturing, and there will be no environmental pollution associated with the process. We believe that, except for water (and perhaps table salt), the process will not generate any types of residue, or by-products.
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Increase in mineral and vitamin content is possible.
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We believe that seeds will germinate sooner and thus plants will reach maturity sooner.
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We believe the use of our products will lead to longer producing plants, e.g. coffee plants that could start producing earlier, and yield more beans, extending the harvest longer.
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Sales and Marketing
The Company will continue to expand sales to all regions of the world through sales and marketing campaigns and programs using both internal and external resources via various media such as television, radio, printed, digital, website.
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All authorized distributors through legal distribution agreements will be responsible for various sales targets as defined by IHO-Agro in their respective regions and will be responsible for representing the IHO products in those markets in accordance with such distribution agreements.
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IHO-Agro will maintain and further develop the IHO-Agro brand.
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Authorized distributors will be responsible for the advertising and marketing costs associated with sales activities specific to their respective authorized territories.
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The following events and uncertainties will have the following impact on future activities; Market conditions that would erode the selling price of fertilizer in the open market due to competition, supply and demand and increased input/raw material costs. The financial condition of the manufacturer could prevent its supply of product to the company.
Results of Operations
For the three months ended June 30th, 2017 versus June 30th, 2016
Revenue
For the three months ended June 30, 2017 and 2016, we recognized revenue, net of related party cost of Nil and Nil, respectively. This is primarily attributable to timing of orders received during this period compared to the same last period.
Operating Expenses
For the three months ended June 30, 2017 and 2016, we incurred operating expenses of $28,226 and $155,658, respectively. This decrease in operating expenses is primarily attributable to a decrease in consulting services. All expenses incurred from inception have been general and administrative expenses. General and administrative expenses consist of sales and marketing, license and certification of product expenses, consulting and professional fees such as legal, accounting, travel and entertainment, office supplies, computer and software.
Net Loss
During the three months ended June 30, 2017 and 2016, we incurred a net loss of $28,226 and $155,658, respectively, an decrease of $127,432. This decrease was due mainly to streamlining of operations and administrative cost savings in the areas of advertising, branding and marketing, legal and professional fees, registration and filing fees, equipment
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rentals, and business travel. Further, a consulting expense for marketing and sales efforts in the form of stock-based compensation totaled $120,000 during the previous quarter versus nil in the current period. As we did not generate any revenues during the three months ended June 30, 2017, our net loss equaled our operating expenses.
For the nine months ended June 30th, 2017 versus June 30th, 2016
Revenue
The Company recognized $58,556 in revenue from the sale of IHO Bio fertilizer product during the nine months ended June 30, 2016, comparable with $NIL for the nine months June 30, 2017. This decrease was mainly due to a significant sale of IHO Bio fertilizer to a distribution partner during the nine months June 30, 2016 which did not occur in the nine months ended June 30, 2017.
Operating Expenses
During the nine months ended June 30, 2017 and 2016, we incurred total operating expenses of $287,927 and $265,946, respectively. This increase was mainly due to streamlining of operations and administrative cost savings in the areas of advertising, branding and marketing, legal and professional fees, supplies, business travel, and stock-based compensation. Further, consulting expense for marketing and sales efforts in the form of stock-based compensation totaled $210,000 during the nine months ended June 30, 2017 versus 120,000 in the same period last year.
Net Loss
During the nine months ended June 30, 2017 and 2016, we incurred a net loss of $287,927 and $207,390, respectively. This increase was mainly due to the sale of IHO Bio fertilizer, streamlining of operations and administrative cost savings in the areas of advertising, branding and marketing, legal and professional fees, supplies, business travel, and stock-based compensation. Further, consulting expense for marketing and sales efforts in the form of stock-based compensation totaled $210,000 during the nine months ended June 30, 2017 versus 120,000 in the nine months June 30, 2016.
Liquidity and Capital Resources
The Company has incurred losses and cumulative negative cash flows from operations through to September 30, 2016 and for the nine months ended June 30, 2017. The Company does not expect to be profitable for the fiscal year ended September 30, 2017. The Company expects that general and administrative expense will continue to increase and, as a result, will need additional capital to fund our operations. The Company intends to finance its operations with cash on hand combined with (i.) an unknown number of proceeds from sales from distribution partners in fiscal 2016; and (ii) proceeds of sale from the Company’s common stock at $0.60 per share on the OTCQB marketplace.
The ability of the Company to realize its business plan is dependent upon, among other things, obtaining additional financing to continue operations, and development of its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings.
The Company’s liquidity will be affected by the following trends; demands, commitments, events or uncertainties; the increase in rent, advertising, testing and certification/license costs, commissions to sales and distribution partners and increase in consulting and professional fees as the company grows. Demands from purchases for open terms or longer credit terms could impact cash flow.
Additional funding may not be available on favorable terms, if at all. The Company intends to continue to fund its business by way of equity or debt financing and advances from related parties. In the event we seek to raise additional capital through the issuance of debt or its equivalents, this will result in increased interest expense. If we raise additional capital through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. We cannot provide any assurance that we will be able to raise the working capital as needed in the future on terms acceptable to us, if at all.
If we are unable to raise capital as needed, we are required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results, or cease our operations entirely.
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These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Going Concern
The Company has only begun to realize revenues and has incurred net losses since inception. In addition, at June 30, 2017, there is an accumulated deficit of $1,006,413. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
There can be no assurance that sufficient funds required during this year or thereafter will be generated from operations or available from external sources such as debt or equity financings, or other potential sources. The inability to generate cash flow from operations or to raise capital from external sources will force the Company to substantially curtail and cease operations, therefore, having a material adverse effect on its business. Furthermore, there can be no assurance that any funds, if available, will possess attractive terms or not have a significant dilutive effect on the Company’s existing stockholders.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Inflation
We do not believe that inflation has had a material effect on our results of operations.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to select appropriate accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts or revenues and expenses during the reporting period. Actual results could differ from those estimates.
Intangible Assets
Identifiable intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually, or more frequently if circumstances indicate a possible impairment may exist. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives, generally on a straight-line basis, and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Share Based Payments
The Company recognizes compensation expense for all equity–based payments in accordance with ASC 718 “Share-based payments". Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.
Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for share–based payments granted to non–employees in accordance with ASC 505, “Equity Based Payments to Non–Employees”. The Company determines the fair value of the stock–based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other
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measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.