Notes to Consolidated Financial Statements
May 31, 2022 (Unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Innovation1 Biotech Inc. (the “Company”) was formed under the laws of the state of Nevada on July 20, 2017, under the name of Gridiron BioNutrients, Inc. to develop and distribute a retail line of health water infused with probiotics and minerals. Effective March 31, 2022, as approved by the shareholders, the name of the Company was changed from Gridiron BioNutrients, Inc. (trading symbol GVMP) to Innovation1 Biotech Inc. (trading symbol IVBT).
The Company is currently developing products using five proprietary preclinical prodrugs, all fully synthetic without connection to botanical sourcing: a mushroom-derived psychedelic molecule for treatment post-traumatic stress disorder and depression, a novel cannabinoid and tree bark derived psychedelic for treatment of addiction and three additional novel cannabinoid prodrugs addressing clinical indications of refractory epilepsy, burn wounds and uveitis. The Company also owns a currently patented nutraceutical complex specially designed and formulated to contribute and help maintain normal energy metabolism, improve mood and reduce fatigue for those suffering from fibromyalgia and chronic fatigue syndrome.
The Company has elected an August 31st year end.
On December 22, 2020, the Company filed Articles of Amendment to its Articles of Incorporation, as amended, which were effective on January 8, 2021 (the “Effective Date”), which effected a three hundred eight for one (308:1) reverse stock split of its outstanding common stock.
Change in Control
On November 5, 2021, the Company completed the asset acquisition of ST BioSciences, Ltd., consisting substantially of intellectual property assets, relating to Mioxal® as discussed in Note 3 – Asset Acquisition. The closing of the acquisition resulted in a change of control of the Company. As part of the acquisition, Mr. Orr stepped down as the Company’s Chief Executive Officer and assumed the role of the Company’s Chief Financial Officer. Mr. Orr has since resigned from his position and as a director. Pursuant to the terms of the Asset Purchase Agreement, Jeffrey J. Kraws was appointed as the Company’s Chief Executive Officer and a director of the Company. In addition, the Company agreed to appoint Jason Frankovich as a director of the Company subject to the Company’s compliance with Rule 14F-1 of the Exchange Act.
Going Concern
The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company had no revenue and a net operating loss of $3,738,811 for the nine months ended May 31, 2022. The Company has working capital deficit of $28,703,258 and an accumulated deficit of $7,114,440 as of May 31, 2022. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months after the issuance of this financial statement. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The ability of the Company to fully commence its operations is dependent upon, among other things, obtaining additional financing to continue operations and execution of its business plan. In response to these concerns, management plans to fund operations through additional debt and equity financing. Debt instruments may be convertible or non-convertible and will vary based on the Company’s needs and financing options available at such times. There can be no assurance that management’s plan will be successful.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of accounting policies for Innovation1 is presented to assist in understanding the Company’s financial statements. The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“US GAAP”), which have been consistently applied in the preparation of the financial statements.
The accompanying unaudited financial information as of and for the three and the nine months ended May 31, 2022 and 2021 has been prepared in accordance with GAAP in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three and nine months ended May 31, 2022 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
INNOVATION1 BIOTECH INC.
Notes to Consolidated Financial Statements
May 31, 2022 (Unaudited)
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended August 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on December 10, 2021.
The condensed consolidated balance sheet at August 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.
Principals of Consolidation
The consolidated financial statements represent the results of Innovation1 Biotech, Inc, its wholly-owned subsidiary, Gridiron Ventures and the assets, processes, and results therefrom. All intercompany transactions and balances have been eliminated. All financial information has been prepared in conformity with US GAAP.
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 as of the date of the financial statements. Actual results could differ from those estimates. Estimates are used when accounting for fair value calculations, including those related to embedded conversion features of outstanding convertible notes payable.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. The Company did not have any cash equivalents as of May 31, 2022 and August 31, 2021.
Fair Value of Financial Instruments
Fair value of certain of the Company’s financial instruments including cash, prepaid expenses, accounts payable, accrued expenses, notes payable, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.
Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.
Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.
INNOVATION1 BIOTECH INC.
Notes to Consolidated Financial Statements
May 31, 2022 (Unaudited)
Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.
The Company did not have any Level 1, Level 2 or Level 3 assets and liabilities at May 31, 2022 and August 31, 2021.
Other receivable
During the nine months ended May 31, 2022, the Company discovered duplicate withdrawals from its payroll processing company and has recorded a receivable on its condensed consolidated balance sheet at May 31, 2022. There were $56,421 and $0 outstanding other receivable as of May 31, 2022 and August 31, 2021, respectively.
Trademark
Trademark costs are capitalized as incurred to the extent the Company expects the costs incurred to result in a trademark being awarded. The trademarks are deemed to have an indefinite life and are reviewed for impairment loss considerations annually. As of May 31, 2022 and August 31, 2021, the Company had trademarks totaling $1,680.
Property and Equipment
Property and equipment are carried at cost. Expenditures for maintenance and repairs are expensed in the period incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
Depreciation is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets and the modified accelerated cost recovery system for federal income tax purposes. The estimated useful lives of depreciable computers and other equipment are three years.
With the asset acquisition as discussed in Note 3 – Asset Acquisition the Company wrote off the remaining property and equipment as impaired in the accompanying statement of operations. Depreciation expense was $261 and $299 for the three months ended May 31, 2022 and 2021, respectively, and $261 and $1,115 for the nine months ended May 31, 2022 and. 2021, respectively.
Leases
Operating lease right of use (“ROU”) assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
The Series B and Series B1 Convertible Preferred shares would convert to 8,083,542 shares of the Company’s common stock in addition to the 20,020,239 outstanding shares at May 31, 2022. The Series B Convertible Preferred shares would convert to 22,694,514 shares of the Company’s common stock in addition to the 188,616 outstanding shares at May 31, 2021. The Company calculates diluted earnings per share by dividing the Company’s net income available to common shareholders less preferred dividends by the diluted weighted average number of shares outstanding during the period. The conversion of the Company’s Series B and Series B1 Convertible Preferred shares are excluded from the computation of diluted earnings per share as they are anti-dilutive due to the Company’s operating losses for the three and nine months ended May 31, 2022 and 2021.
INNOVATION1 BIOTECH INC.
Notes to Consolidated Financial Statements
May 31, 2022 (Unaudited)
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising costs totaling $3,631 and $156 during the three months ended May 31, 2022 and 2021, respectively, and $3,838 and $521 during the nine months ended May 31, 2022 and 2021 respectively.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. Implementation of this ASU had no material impact on the consolidated financial statements.
As of May 31, 2022, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.
NOTE 3 – ASSET ACQUISITION
On October 27, 2021, the Company entered into an asset acquisition agreement with ST BioSciences, Ltd., a company organized under the laws of England and Wales (“STB”), of certain Transferred Assets, consisting substantially of their intellectual property relating to Mioxal®, a nutraceutical complex composed of essential amino acids, natural coenzymes and minerals. The Company acquired certain intellectual property, and patent rights, and no tangible assets, assumed certain liabilities related to the acquisition of Mioxal by STB, as discussed below, and some outstanding employee payments. The acquisition was completed pursuant to the terms of the Amended and Restated Asset Purchase Agreement dated November 5, 2021. As consideration for the acquisition, the Company paid $850,000 in cash and issued 19,831,623 shares of Common Stock to STB valued at $40,654,827 or $2.05 per share based on the closing market price on November 5, 2021, which at the closing of the acquisition represented approximately 70% of the Company’s outstanding shares of Common Stock on a fully diluted basis, for an aggregate purchase price of $41,504,827, resulting in a change in control of the Company. The shares were issued in December 2021.
The Mioxal® intellectual property, including the patent rights, was acquired by STB from Ingenius Biotech S.L, a Spanish corporation (“Ingenius”) on September 10, 2021. The Ingenius milestone and stock payments set forth in the Purchase Agreement between Ingenius and STB, were assumed by the Company in aggregate of $39,500,000 and are recorded in current and long-term liabilities in the accompanying consolidated balance sheets. The first installment of $1,500,000 was due on January 15, 2022, the second installment of $1,500,000 on April 15, 2022 and a $3,500,000 payment was due within thirty business days following the occurrence of the milestone event. The milestone, a signed sales agreement with a third party to distribute Mioxal throughout Europe, was not reached and therefore the requirement for the milestone payment was forfeited and will never be owed. In addition, $15,000,000 will be paid through the issuance of the Company’s common stock in three tranches beginning twelve months from execution of agreement with STB on September 10, 2021, as follows:
INNOVATION1 BIOTECH INC.
Notes to Consolidated Financial Statements
May 31, 2022 (Unaudited)
| · | On September 10, 2022 - $4,000,000 |
| · | On September 10, 2023 - $5,000,000 |
| · | On September 10, 2024 - $6,000,000 |
| · | Total stock to be issued - $15,000,000 |
The remaining balance is to be paid on an earn-out basis whereunder Ingenius will earn an 8% royalty on all sales generated by Mioxal® until the balance is satisfied.
On January 13, 2022, the Company entered into Amendment No. 1 to Purchase Agreement with Ingenius Biotech S.L. to modify the terms of the agreement dated September 10, 2021. Under the amended agreement, the first installment of $1,500,000 is now due on June 30, 2022, with an additional extension of the due date to August 30, 2022, and the second installment is now due on December 31, 2022.
The assets and liabilities assumed have been recorded at the fair values as follows:
Mioxal® | | | 81,249,827 | |
Other intangible assets | | | 178,000 | |
Less liabilities assumed: | | | | |
Mioxal® liability assumed | | | (39,500,000 | ) |
Other liabilities assumed | | | (423,000 | ) |
Net value acquired in asset acquisition | | | 41,504,827 | |
The Mioxal® asset has a 24-year life and will be tested for impairment on an annual basis. During the three and nine months ended May 31, 2022, amortization of $846,494 and $1,692,989 was expensed. The other intangible assets for $178,000 have a 21-year life. During the three and nine months ended May 31, 2022, amortization of $2,119 and $4,238 was expensed.
NOTE 4 – EQUITY INVESTMENT
On April 27, 2020, under the Libertas Participation Agreement, the Company received 45,053 Warrants of QSI Holding Company, a private company, (“QSI” and “QSI Warrants”) to purchase common stock priced at $3.111 per share for common stock par value $0.00001 expiring the 7th anniversary after the issue date. Upon issuance, the Company valued the warrants using the Black Scholes model yielding a total value of $58,443. The Company used the following assumptions upon measurement: QSI Holding Company value per common share of $3.4520, a life of 7 years, an exercise price of $3.111, a risk-free rate of 0.56% and volatility of 32%. In addition, the Company recorded a discount of $58,443 and will record income over the 7-year life of the warrants. On November 8, 2021, the Company entered into a Warrant Assignment Agreement to assign the QSI Warrants to Calvary Fund 1 LP (“Calvary”). In consideration of the assignment of the Warrant, Calvary forgave the principal and interest owed by the Company under the Calvary $150,000 promissory note dated August 30, 2021. The warrants are recorded as an equity investment in the accompanying consolidated balance sheets for $0 and $11,132 at May 31, 2022 and August 31, 2021, respectively. The Company recorded other income of $0 and $2,087, respectively for the three months ended May 31, 2022 and 2021, respectively, and $0 and $6,262 for the nine months ended May 31, 2022 and 2021, respectively, in the accompanying condensed consolidated statement of operations.
NOTE 5 – NOTES PAYABLE
Short-Term Notes Payable
On September 14, 2017, the Company issued a $10,000 promissory note to a limited liability company. The loan bears interest at 5% and had a maturity date of September 15, 2018. The unpaid balance including accrued interest was $12,356 and $11,856 at May 31, 2022 and 2021, respectively. The Company is in default with the repayment terms of the note. Interest of $126 was expensed during the three months ended May 31, 2022 and 2021. Interest of $374 was expensed during the nine months ended May 31, 2022 and 2021.
On August 30, 2021, the Company issued a $150,000 promissory note to Calvary. The loan bears interest at 18% and has a maturity date of August 30, 2022. On November 8, 2021, the Company entered into a Warrant Assignment Agreement to assign the QSI Holding Company, Inc. (“QSI”) Warrants issued on April 29, 2020 from QSI to the Company, to Calvary. In consideration of the assignment of the Warrant, Calvary forgave the Company from the principal and interest owing under the Calvary $150,000 promissory note dated August 30, 2021 to fully satisfy the principal and interest owed under the promissory note. The unpaid principal and interest on the date of the assignment of the Warrant to Calvary was $155,088. Investments were reduced by $11,132 and the Company recorded a gain on debt extinguishment of $143,956 in the accompanying consolidated statement of operations. The unpaid balance including accrued interest was $0 and $150,074 at May 31, 2022 and August 31, 2021, respectively.
INNOVATION1 BIOTECH INC.
Notes to Consolidated Financial Statements
May 31, 2022 (Unaudited)
NOTE 6 – RELATED PARTY TRANSACTIONS
As of May 31, 2022, and August 31, 2021, the Company owed $0 and $64,600, respectively to our former President and Director. The balance due is recorded as related party payable in the accompanying condensed consolidated balance sheets.
NOTE 7 – LEASE LIABILITY
On January 1, 2022, we adopted ASC Topic 842 – Leases. Under this new guidance, lessees are required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases. Upon adoption, we recognized operating lease right-of-use (“ROU”) assets and corresponding lease liabilities of $619,825.
Lessee accounting
We determine if an arrangement is or contains a lease at inception. Our assessment is based on (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period and (3) whether we have the right to direct the use of the asset. Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for the majority of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. The lease classification affects the expense recognition in the income statement. Operating lease costs are recorded entirely in operating expenses. Finance lease costs are split, where amortization of the ROU asset is recorded in operating expenses and an implied interest component is recorded in interest expense.
Under the guidance of ASC 842, operating leases are included in right-of-use assets, current lease liabilities, and noncurrent lease liabilities on our balance sheets. ROU assets and lease liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at transition date in determining the present value of future payments. The ROU asset includes any lease payments made but excludes lease incentives and initial direct costs incurred, if any. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
Lease extensions
Many leases have options to either extend or terminate the lease. In determining the lease term, we considered all available contract extensions that are reasonably certain of occurring.
Operating leases
On January 1, 2022, the Company entered into an operating lease for office space. The lease is effective for 3 years from the commencement date with automatic renewal at the expiration date. The lease agreement may be terminated earlier upon ninety days’ prior written notice by either party. The lease requires adjustment upon renewal with an increase to the monthly rent by 10% of the monthly rent due for the month preceding such renewal date or market rate, whichever is the greater amount.
The following table summarizes balance sheet data related to leases at May 31, 2022 and August 31, 2021:
| | May 31, 2022 | | | August 31, 2021 | |
Assets | | | | | | |
Operating lease right of use assets | | $ | 619,825 | | | $ | - | |
Less accumulated depreciation | | | (86,087 | ) | | | - | |
Total operating lease right of use assets | | $ | 533,738 | | | $ | - | |
| | | | | | | | |
Liabilities | | | | | | | | |
Operating lease liability, current | | $ | 194,305 | | | $ | - | |
Operating lease liability, noncurrent | | | 350,099 | | | | - | |
Total lease liabilities | | $ | 544,404 | | | $ | - | |
Operating lease liability is presented net of lease payments. The Company is required to make monthly payments of $20,000. During the nine months ended May 31, 2022, the Company paid $75,421 towards the lease liability and $24,579 in interest expense.
INNOVATION1 BIOTECH INC.
Notes to Consolidated Financial Statements
May 31, 2022 (Unaudited)
NOTE 8 – STOCKHOLDERS’ EQUITY
Dividends
During the year ended August 31, 2018, the Company issued Series A Convertible Preferred Stock, which accrues dividends at a rate of 5% annually. The Company exchanged the Series A Convertible Preferred for Series B Preferred Stock. As a result of the Exchange agreement, the dividends on the Series A Convertible Preferred Stock was reduced to $0 in the accompanying consolidated balance sheets. The Series B and Series B1 Convertible Preferred Stock accrues dividends at a rate of 10% annually. There was $650,226 and $138,195 of dividends payable at May 31, 2022 and August 31, 2021, respectively. The dividends have not been declared and are accrued in the accompanying condensed consolidated balance sheets as a result of a contractual obligation in the Company’s Series B and Series B1 Preferred Stock offering.
Preferred Stock
There were no shares of Series A Convertible Preferred Stock issued and outstanding as of May 31, 2022 and August 31, 2021.
The Company designated 2,694,514 shares of Series B Convertible Preferred Stock in April 2021.
On September 7, 2021, the Company consummated the initial tranche of its $2 million financing contemplated by that certain Series B-1 Purchase Agreement between the Company and an investor pursuant to which the Company agreed to issue and sell the investor up to 2,694,514 shares of its newly designated Series B-1 Convertible Preferred Stock (the “Series B-1 Preferred”) at a Stated Value per share price of $0.742245 (or $2,000,000 in the aggregate). At the initial closing, the Company issued 673,628 shares of Series B-1 Preferred to the investor and received $500,000 in gross proceeds. On October 28, 2021, the Company consummated the second tranche of the Series B-1 Preferred Stock investment, issuing an additional 673,628 shares of its Series B-1 Preferred Stock to the investor at a price per share of $0.742245 or $500,000.00 in the aggregate. On November 9, 2021, the Company consummated the third and final tranche of the Series B-1 Preferred Stock investment, issuing an additional 1,347,256 shares of its Series B-1 Preferred Stock to the investor a price per share of $0.742245 or $1,000,000.00 in the aggregate. The aggregate gross proceeds of $2,000,000 was used by the Company as working capital.
On November 24, 2021, the Company entered into, and consummated the financing contemplated by, that certain Series B-1 Purchase Agreement between the Company and an investor, pursuant to which the Company issued and sold to the investor 2,694,514 shares of its Series B-1 Preferred at a per share price of $0.742245, or $2,000,000. The aggregate gross proceeds of $2,000,000 was used by the Company as working capital.
There were 8,083,542 and 2,694,514 shares of Series B and Series B-1 Convertible Preferred Stock issued and outstanding as of May 31, 2022 and August 31, 2021, respectively.
Common Stock
On January 8, 2021, a 308-to-1 reverse stock split was declared effective. In accordance with the terms of all such instruments, the conversion ratio of the Company’s outstanding Series A Convertible Preferred Stock and its various convertible promissory notes, together with the exercise price of its outstanding warrants, were proportionally adjusted to give effect to the reverse stock split.
The Company is authorized to issue up to 200,000,000 shares of $0.001 par value common stock.
As discussed in Note 3 – Asset Acquisition, on November 5, 2021, the Company completed the acquisition of all of the assets, including intellectual property assets, relating to Mioxal®, a nutraceutical complex composed of essential amino acids, natural coenzymes and minerals, and assumed certain liabilities held by ST BioSciences, Ltd., a company organized under the laws of England and Wales (“STB”). As part consideration for the acquisition, the issued 19,831,623 shares of Common Stock valued at $40,654,827 or $2.05 per share.
INNOVATION1 BIOTECH INC.
Notes to Consolidated Financial Statements
May 31, 2022 (Unaudited)
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. As of the date of this report, there are no pending legal proceedings to which the Company is a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental authorities.
In December 2019, a novel strain of COVID-19 was reported in China. Since then, the COVID-19 has spread globally including across North America and the United States. The spread of COVID-19 from China to other countries has resulted in the World Health Organization (WHO) declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020.
Due to the COVID-19 pandemic, there has been and will continue to be uncertainty and disruption in the global economy and financial markets. As the COVID-19 pandemic begins to subside, it has, and could continue to result in shelter-in-place and other similar restrictions being eased. The full extent of the impact of the COVID-19 pandemic on our business, results of operations, cash flows and financial position will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the prevalence and severity of any variants, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may experience significant impacts to our business because of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.
As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require updates to our estimates and judgments or revisions due to COVID-19 to the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained, and would be recognized in the financial statements as soon as they become known. Actual results could differ from estimates and any such differences may be material to the financial statements.
NOTE 10 – DERIVATIVE LIABILITY
As of May 31, 2022 and August 31, 2021, the Company had no derivative liability in the accompanying condensed consolidated balance sheet, and (gain) loss on change in fair value of the derivative liability of $0 and $(881,779) for the three months ended May 31, 2022 and 2021, respectively, and $0 and ($1,454,480) for the nine months ended May 31, 2022 and 2021, respectively, in the accompanying consolidated statement of operations. In addition, the Company amortized $0 to interest accretion during the three months ended May 31, 2022 and 2021, respectively, and $0 and $114,599 to interest accretion during the nine months ended May 31, 2022 and 2021, respectively, in the accompanying consolidated statement of operations for the preferred stock warrants and derivative convertible notes payable.
NOTE 11 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date of May 31, 2022, through the date which the consolidated financial statements were issued. Based upon the review, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.