Notes
to Financial Statements
For
the Three Months Ended March 31, 2023 and
Year
Ended December 31, 2022
Note
1 - Organization and Business Operations
Jupiter
Wellness is committed to supporting health and wellness by developing innovative solutions to a range of conditions. We take pride in
our research and development of over-the-counter (OTC) products and intellectual property, which aim to address some of the most prevalent
health and wellness concerns today. Our product pipeline includes a diverse range of products, such as hair loss treatments, eczema creams,
vitiligo solutions, and psoriasis products, that cater to different health and wellness needs. We are dedicated to staying up-to-date
with the latest scientific research and technology, ensuring that our products are effective, safe, and meet the highest industry standards.
To
achieve our mission, we rely on a team of highly skilled and experienced professionals who are committed to advancing our vision of health
and wellness. Our team includes scientists, researchers, product developers, and business experts who collaborate to create new products
and enhance existing ones. We also partner with industry leaders and organizations to leverage the latest technologies and expand our
reach.
We
generate revenue through various channels, including the sales of our OTC and consumer products, as well as licensing royalties. Our
products are available through various retailers and e-commerce platforms, making them accessible to a broad customer base. Additionally,
we collaborate with other companies to license our intellectual property, creating additional revenue streams and expanding our global
presence.
Going
Concern Consideration
As
of March 31, 2023 and December 31, 2022, the Company had an accumulated deficits of $51,905,848 and $50,597,674, respectively, and cash
flow used in operations of $1,469,427, for the quarter ended March 31, 2023 and $6,395,942 and $7,567,645 for the years ended December
31, 2022 and 2021. The Company has incurred and expects to continue to incur significant costs in pursuit of its expansion and development
plans. As of March 31, 2023 and December 31, 2022, the Company had $3,737,259 and $1,931,068, respectively, in cash and working capital
of $4,367,081 and $2,245,979, respectively. These conditions have raised doubt about the Company’s ability to continue as a going
concern as noted by our auditors, M&K CPAS, PLLC.
Note
2 - Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”).
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Jupiter Wellness, Inc.,
a Florida corporation, Magical Beasts, LLC, a Nevada limited liability company and SRM Entertainment, Limited, a Hong Kong private limited
company. All intercompany accounts and transactions have been eliminated.
Emerging
Growth Company Status
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities
Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth
companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden
parachute payments not previously approved.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP 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 of expenses during the reporting period. Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all short-term investments with a maturity of three months or less when purchased to be cash and equivalents for purposes
of the statement of cash flows. There were no cash equivalents as of March 31, 2023 or December 31, 2022.
Inventory
Inventories
are stated at the lower of cost or market. The Company periodically reviews the value of items in inventory and provides write-downs
or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods
sold. Inventory is based upon the average cost method of accounting. During the three months ended March 31, 2023, the Company had
no write-downs or write-offs. During the year ended December 31, 2022, the Company determined that certain of our inventory items
were either slow moving, expired or discontinued. As a result, the Company wrote-off a total of $152,432
of inventory, consisting of raw materials of $23,623,
finished goods of $123,094
and packaging of $5,715
for the year ended December 31, 2022.
Investments
Held-to-Maturity
Investments
that the Company’s management has the “positive intent and ability” to hold through maturity are classified and accounted
for as hold-to-maturity investments (“HTM”). HTM investments are carried at amortized cost in the financial statements. For
investments classified as HTM, no unrealized gains and losses will be recognized in financial statements.
Segment
Reporting
The
Company has two reportable segments: (i) sales and development of cannabidiol (CBD) based skin care and therapeutic products and (ii)
sales of merchandise sold to theme parks.
Net
Loss per Common Share
Net
income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income
(loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during
the period. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such
as options, warrants, convertible securities and preferred stock, unless the effect is to reduce a loss or increase earnings per share.
As such, options, warrants, convertible securities, and preferred stock are not considered in the calculations, as the impact of the
potential common shares would be to decrease the loss per share.
Schedule
of Net Loss per Common Share
| | |
2023 | | |
2022 | |
| | |
For the Three Months | |
| | |
Ended March 31, | |
| | |
2023 | | |
2022 | |
| Numerator: | |
$ | (1,308,174 | ) | |
$ | (2,919,775 | ) |
| Net (loss) | |
| | | |
| | |
| Net (loss) | |
$ | (1,308,174 | ) | |
$ | (2,919,775 | ) |
| | |
| | | |
| | |
| Denominator: | |
| | | |
| | |
| Denominator for basic earnings per share - Weighted-average common shares issued
and outstanding during the period | |
| 25,551,752 | | |
| 23,134,059 | |
| Denominator for diluted earnings per share | |
| 25,551,752 | | |
| 23,134,059 | |
| Basic (loss) per share | |
$ | (0.05 | ) | |
$ | (0.13 | ) |
| Diluted (loss) per share | |
$ | (0.05 | ) | |
$ | (0.13 | ) |
Fair
Value of Financial Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value
Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to
their short-term nature.
Revenue
Recognition
The
Company generates its revenue from the sale of its products directly to the end user or through a distributor (collectively the “customers”).
The
Company recognizes revenues by applying the following steps in accordance with FASB Accounting Standards Codification 606 “Revenue
from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods
or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange
for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to
be recognized as it fulfills its obligations under each of its agreements:
| |
● |
identify
the contract with a customer; |
| |
|
|
| |
● |
identify
the performance obligations in the contract; |
| |
|
|
| |
● |
determine
the transaction price; |
| |
|
|
| |
● |
allocate
the transaction price to performance obligations in the contract; and |
| |
|
|
| |
● |
recognize
revenue as the performance obligation is satisfied. |
The
Company’s performance obligations are satisfied when goods or products are shipped on a FOB shipping point basis as title passes
when shipped. Our products are generally paid in advance of shipment or standard net 30 days and we offer no specific right of return,
refund or warranty related to our products except for cases of defective products of which there have been none to date.
Accounts
Receivable and Credit Risk
Accounts
receivable are generated from sales of the Company’s products. The Company provides an allowance for doubtful collections, which
is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. During the three
months ended March 31, 2023 and year ended December 31, 2022, the Company recognized no allowance for doubtful collections.
Impairment
of Long-Lived Assets
We
evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted
future net cash flow the asset is expected to generate.
Goodwill
and Intangible Assets
Goodwill
is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level by first performing
a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying
value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to
its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered
impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating
results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit.
We
conducted an evaluation of our goodwill as of March 31, 2023 and December 31, 2022 and there was no impairment in the three months ended
March 31, 2023 and the year ended December 31, 2022.
Intangible
assets consist of patents and trademarks, purchased customer contracts, purchased customer and merchant relationships, purchased trade
names, purchased technology, and non-compete agreements. Intangible assets are amortized over the period of estimated benefit using the
straight-line method and estimated useful lives ranging from one to twenty years. No significant residual value is estimated for intangible
assets. We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate
that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds
the undiscounted future net cash flow the asset is expected to generate.
The
Company’s evaluation of its long-lived assets resulted in an impairment expense of $1,450,000 during the year ended December 31,
2022 and no impairment during the three months ended March 31, 2023.
Foreign
Currency Translation
Assets
and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts
are translated at the average exchange rates prevailing during the period. Equity accounts are translated at historical exchange rates.
Cumulative gains and losses from foreign currency transactions and translation for the three-months ended March 31, 2023 and the year
ended December 31, 2022 were not material.
Research
and Development
The
Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research
and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred.
Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed
when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs
related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses
of $33,148 and $103,025 for the three-months ended March 31, 2023, and 2022, respectively.
Stock
Based Compensation
The
Company recognizes compensation costs to employees under FASB Accounting Standards Codification 718 “Compensation - Stock Compensation”
(“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements
based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required
to provide services. Share based compensation arrangements include stock options and warrants. As such, compensation cost is measured
on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the
option grant.
On
October 24, 2018, the inception date, the Company adopted ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation
(which currently only includes share-based payments to employees) to include share-based payments issued to non-employees for goods or
services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.
Income
Taxes
The
Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax
assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities
and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation
allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes
a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination
by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim
period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain
tax positions requiring recognition in the Company’s financial statements. Since the Company was incorporated on October 24, 2018,
the evaluation was performed for 2018 tax year which would be the only period subject to examination. The Company believes that its income
tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material changes
to its financial position. The Company’s policy for recording interest and penalties associated with audits is to record such items
as a component of income tax expense.
The
Company’s deferred tax asset at December 31, 2022 consists of net operating loss carry forwards calculated using federal and state
effective tax rates equating to approximately $7,110,329 less a valuation allowance in the amount of approximately $7,110,329. Due to
the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance in the year ended
December 31, 2022.
Related
parties
The
Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure
of related party transactions.
Pursuant
to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities
would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15,
to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing
trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company;
f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies
of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and
g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership
interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting
parties might be prevented from fully pursuing its own separate interests.
The
consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements,
expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include:
a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal
amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary
to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of
the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that
used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not
otherwise apparent, the terms and manner of settlement.
Recent
Accounting Pronouncements
In
June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for non-employee share-based payment transactions. The amendments
specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed
in a grantor’s own operations by issuing share-based payment awards. The standard will be effective for us in the first quarter
of our fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company has adopted
this standard beginning January 1, 2019. The adoption of this standard has not had a significant impact on the Company’s results
of operations, financial condition, cash flows, and financial statement disclosures.
In
February 2016, Topic 842, “Leases” was issued to replace the leases requirements in Topic 840, “Leases”. The
main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases
classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments
(the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with
a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize
lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a
straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.
Topic 842 will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual
periods and is to be retrospectively applied. The Company has adopted this standard beginning January 1, 2019. The adoption of this standard
has not had a significant impact on the Company’s results of operations, financial condition, cash flows, and financial statement
disclosures.
Note
3 - Accounts Receivable
At
March 31, 2023 and December 31, 2022, the Company had accounts receivable of $860,724 and $647,530, respectively.
Note
4 - Prepaid Expenses and Deposits
At
March 31, 2023 and December 31, 2022, the Company had prepaid expenses and deposits of $909,521 and $814,114, respectively consisting
primarily of deposits and prepayments on purchase orders.
Note
5 - Inventory
At
March 31, 2023 and December 31, 2022, the Company had inventory of $265,878 and $441,404, consisting of finished goods, raw materials
and packaging supplies.
Note
6 – Investment in Affiliate
At
December 31, 2022, the Company had invested $ in Jupiter Wellness Sponsor LLC (“JWSL”), a limited liability company
formed for the sole purpose of sponsorship of Jupiter Wellness Acquisition Corp. (“JWAC”), a special purpose acquisition
company (“SPAC”) and an unconsolidated subsidiary. Mr. Brian John, our CEO, is the managing member of JWSL and Chief Executive
Officer of JWAC. During the three months ended March 31, 2023, the Company loaned an additional $300,000 to JWAC to cover costs related
to the shareholder meeting regarding the approval of a proposed merger (see Note 16 – Subsequent Event).
On
November 3, 2021, JWAC filed a registration statement (“IPO”) with the Securities and Exchange Commission with an initial
funding of $100M. On December 6, 2021 the IPO was deemed effective. The total amount raised in the IPO was $138,000,000.
At
March 31, 2023, JWSL holds Founders shares of JWAC and 288,830 Private Placement Units of JWAC for the benefit of the Company.
At
March 31, 2023 and December 31, 2022, the Company also had loans totaling $22,823 and $9,073, respectively, to an affiliate.
Note
7 – Note Receivable
On
December 8, 2021, the Company issued a Secured Promissory Note (the “Note”) in the amount of $10,000,000 to Next Frontier
Pharmaceuticals, Inc. (“NFP”) and entered into a Stock Purchase Agreement (“SPA”) for the Company to acquire
NFP. The Note has a term of six months and interest at eight percent (8%). On January 6, 2022 the company issued an additional Secured
Promissory Note to NFP under the same terms for up to $5,000,000, of which $1,000,000 was funded on January 7, 2022.
In
February 2022, NFP terminated the SPA and in March 2022, the Company issued a Notice of Default on the NFP Note (see Subsequent Event
Footnote 19). As a result, the Company has determined that the Notes have been impaired and has taken an impairment charge of $10,000,000
against the 2021 earnings and $1,000,000 against the 2022 earnings.
Note
8 - Intangible Assets
SRM
Entertainment
In
connection with the acquisition of SRM Entertainment, Limited (see Note xx below), the Company allocated the purchase price to intangible
assets as follows:
Schedule
of Purchase Price to Intangible Assets
| | |
| | |
| Distribution Agreements | |
$ | 437,300 | |
| Goodwill | |
| 941,937 | |
| Total | |
$ | 1,379,237 | |
The
Distribution Agreements have an estimated life of six years and Goodwill has an indefinite life and will be reviewed at each subsequent
reporting period to determine if the assets have been impaired.
Amortization
for the three months ended March 31, 2023 and 2022 was $18,221 and $18,221, respectively. The balance of the Intangible Assets at March
31, 2022 and December 31, 2021 attributable to SRM totals $273,312 and $291,533, respectively.
Licensing
agreements
During
the year ended December 31, 2021, the Company entered into two licensing agreements for the rights to use certain patented technologies.
The Company paid a total of $675,000 for the rights, consisting of $150,000 in cash and $525,000 in shares of the Company’s common
stock. In early 2022, the Company terminated one of the licensing agreements and as a result, the company considered the terminated license
to be impaired and took a charge of $300,000 to 2021 earnings. During 2022, the Company evaluated the remaining license agreement and
determined that its carrying value had been impaired and took a charge of $375,000 to 2022 earnings. The balance of Intellectual property
at March 31, 2023 and December 31, 2022 was $0.
Clinical
Research Agreement
During
the year ended December 31, 2022, the Company entered into a Clinical Research Agreement to research new treatments for post COVID-19
syndrome and symptoms and other projects which include treatments for respiratory diseases (such as influenza), herpes, eczema, and other
skin indications. As of December 31, 2022, the Company had paid $1,500,000 of the approximate $3,000,000 budget. The payments were being
amortized over 24 months, the respective term of the research. During 2022, the Company evaluated the remaining research agreement and
determined that its carrying value had been impaired and took a charge of $1,075,000 to 2022 earnings. The balance at December 31, 2022
was $0.
Note
9 – Accrued Liabilities
At
March 31, 2023 and December 31, 2022, the Company had accrued liabilities totaling $585,042 and $366,619, respectively, consisting of
$149,918 and $110,905 of accrued interest on convertible notes, $148,552 and $130,000 in accrued commissions, $164,772 and $0 in Financed
Insurance Premiums as described below, and other accrues liabilities of $121,800 and $125,714, respectively.
Financed
Insurance Premiums
During
the three months ended March 31, 2023, the Company financed a total of $199,097 for its General Liability and Director & Officer
insurance premiums over the twelve month coverage period. The average interest rate is 13.9%. At March 31, 2023 the outstanding balance
was $164,772.
During
the year ended December 31, 2022, the Company financed a total of $241,272 for its General Liability and Director & Officer insurance
premiums over the twelve month coverage period. The average interest rate is 9.3%. At December 31, 2022 the outstanding balance was
$0.
Note
10 - Convertible Notes Payable – Related Parties
On
April 20, 2022, the Company entered into a $1,500,000 Loan Agreement and a $500,000 Loan Agreement (collectively the “Agreements”).
Pursuant to the Agreements, the Company issued two Convertible Promissory Notes in the principal amounts of $1,500,000 and $500,000 (the
“Notes”). In connection with the Notes the Company issued Common Stock Purchase Warrants for 1,100,000 shares and 360,000
shares of the Company’s common stock (the “Warrants”). The Notes originally had a maturity date of October 20, 2022,
but has been extended to April 20, 2023. In connection with the Notes, the Company issued a total of 250,000 shares as Origination Shares
valued at fair market value of $277,500. There is no beneficial conversion feature since the conversion price is grater then the fair
value of the shares.
The
Notes have an original issuance discount of five percent (5%), $10,000 in legal fees, an interest rate of eight percent (8%), and a conversion
price of $2.79 per share, subject to an adjustment downward if the Company is in default of the terms of the Notes. The Warrants have
a five (5) year term, an exercise price of $2.79 per share, have a cashless conversion feature until such time as the shares underlying
the Warrants are included in an effective registration and certain anti-dilution protection.
The
fair value of origination shares and warrants issued in connection with the 2022 Note totals $984,477.
The
fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions
for Black-Scholes valuation model on the respective reporting date as follows:
Schedule
of Assumptions for Black-Scholes Valuation Model
| | |
| | |
| | |
| | |
| | |
Market | | |
| |
| | |
| | |
| | |
| | |
| | |
Price on | | |
| |
| | |
Fair | | |
Term | | |
Exercise | | |
Grant | | |
Volatility | | |
Risk-free | |
| Reporting Date | |
Value | | |
(Years) | | |
Price | | |
Date | | |
Percentage | | |
Rate | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| 04/20/2022 | |
$ | 1,245,279 | | |
| 5 | | |
$ | 2.79 | | |
$ | 1.11 | | |
| 281 | % | |
| 0.0287 | |
The
following table sets forth a summary of the principal balances of the Company’s convertible promissory notes activity for the year
and three months ended March 31, 2023:
Schedule
of Convertible promissory Notes
| Principal Balance, December 31, 2021 | |
$ | - | |
| The Notes | |
| 2,000,000 | |
| Principal Balance, March 31, 2023 and December 31, 2022 | |
$ | 2,000,000 | |
Interest
expense for the three months ended March 31, 2023 on the Notes totals $39,013. Total interest expense for the year ended December 31,
2022, totaled $1,286,368 which includes $1,104,477 amortization of the origination shares and warrants discounts in connection with the
Notes.
Note
11 – Covid-19 SBA Loans
During
the year ended December 31, 2020, the Company applied for and received $55,700 under the Economic Injury Disaster Loan Program (“EIDL”),
which is administered through the Small Business Administration (“SBA”). During 2021, the SBA notified the Company that the
terms of the EIDL are a term of 30 years and an interest rate of 3.75%. The balance of the EIDL at March 31, 2023 and December 31, 2022
was $49,416 and $47,533, respectively.
Note
12 - Capital Structure
Common
Stock - The Company is authorized to issue a total of 100,000,000 shares of common stock with par value of $0.001 and 100,000
shares of preferred stock with par value of $0.001. As of March 31, 2023 and December 31, 2022, there were 26,654,675 shares of common
stock and 22,338,888 shares of common stock issued and outstanding, respectively, and no shares of preferred stock were issued and outstanding.
Year
ended December 31, 2022 issuances
Treasury
Shares Purchased
In
November 2021, the Company engaged Oppenheimer & Co. to repurchase shares of the Company’s common stock from the public market.
During the year ended December 31, 2022, the Company purchased 2,825,617 shares of its common stock for $2,880,045 from the public market
and cancelled all of these repurchased shares.
Share
and warrants issued in connection with convertible debt
During
the year ended December 31, 2022, The Company issued 250,000 shares (the “Origination Shares”) in connection with the issuance
of two convertible promissory notes (see Note 10 - Convertible Notes Payable) with a total face value of $2,000,000. The Origination
Shares were valued at fair market value of $277,500.
Shares
issued for services
During
the year ended December 31, 2022, the Company entered into six Consulting Agreements under the terms of which the Company issued 925,000
shares of its common stock. The shares were issued at their respective fair value based on the Company’s Nasdaq closing price of
the shares on the date of the agreements. The Company recognized a total of $1,054,125 as stock-based compensation in the year ended
December 31, 2022 in connection with these issuances. As of March 31, 2023 and December 31, 2022, the Company had not issued 300,000
of these shares which are included in common stock payable.
Management
return and cancellation of shares
On
September 28, 2022 the Company received a letter from Nasdaq stating that, because the Company made certain share issuances outside of
a shareholder approved equity compensation plan, Nasdaq had determined that the Company did not comply with Listing Rule 5635(c). On
July 26, 2022, the Company submitted a final compliance plan to Nasdaq consisting of the following corrective actions: (1) on July 20,
2022, the Company’s four executive officers (Messrs. John, Miller, and McKinnon and Dr. Wilson), all of whom are on the Company’s
Board of Directors except for Mr. McKinnon, each cancelled 2,750 options issued to them in August 2021 pursuant to an Incentive Stock
Option Forfeiture Agreement. The cancellation of the 11,000 options in total enabled the issuance of 11,000 shares to a non-executive
employee that took place in 2021 to be reallocated to be accounted for as if it was originally issued under the 2020 Equity Incentive
Plan. The Company’s Board of Directors passed a resolution on July 25, 2022, making the corresponding change to the Company’s
books and records with regard to the 11,000 shares; and (2) on July 26, 2022, the same four executive officers, returned, and the Company
cancelled, a total of 56,496 shares of common stock issued to them in 2021 outside of a shareholder approved equity compensation plan.
Following the remedial measures, the Company was informed that the Company has regained compliance with the Rule and that this matter
is now closed.
Three
Months ended March 31, 2023 issuances:
Shares
issued in Public Offering
Concurrently
to the PIPE Agreement and Offering of Stock Warrants (see Note 13 below), the Company entered into a Securities Purchase Agreement (the “RD Agreement”) with certain
purchasers, pursuant to which on January 23, 2023, 4,315,787
shares of common stock, par value $0.001
(the “Common Stock”), at a price of $0.70
per share were issued to the purchasers (the “RD Offering”). The Common Stock was issued pursuant to a Registration
Statement on Form S-3 filed by the Company with the Securities and Exchange Commission (the “Commission”) on September
28, 2022 (File No. 333-267644) and declared effective on November 9, 2022. The aggregate gross proceeds to the Company from both the
PIPE Offering and the RD Offering were approximately $4.1
million, with the purchase price of one share, one 3-year warrant and one 5-year warrant as $0.95.
The net proceeds were $3,450,675.
The
following table sets forth the issuances of the Company’s shares of common stock for the year and three months ended March 31,
2023 as follows:
Schedule
of Stock Holders
| | |
| | |
| Balance December 31, 2021 | |
| 24,046,001 | |
| Shares issued for services | |
| 925,000 | |
| Loan origination shares for promissory note | |
| 250,000 | |
| Shares repurchased from the market | |
| (2,825,617 | ) |
| Management shares cancelled | |
| (56,496 | ) |
| | |
| | |
| Balance December 31, 2022 | |
| 22,338,888 | |
| | |
| | |
| Public offering | |
| 4,315,787 | |
| Balance March 31, 2023 | |
| 26,654,675 | |
Common
Stock Payable
During
the year ended 2021, the Company entered into two consulting agreement which call for a cash component and a stock component and
during the year ended December 31, 2022, the Company entered into another consulting agreement which called for a cash component and
a stock component. At March 31, 2023 and December 31, 2022, the Company had accrued a total of $477,000
in stock payable relating to the consulting agreements.
Note
13 - Warrants and Options
Warrants
Convertible
Note Warrants: During the year ended December 31, 2022, the Company issued a total of 2,260,000 warrants with an exercise price of
between $1.00 and $2.79 with five-year terms in connection with two convertible promissory notes (see Note 10).
Schedule
of Fair Value of Warrants Using Black Scholes Method
| | |
| | |
| | |
| | |
Market | | |
| | |
| |
| | |
| | |
| | |
| | |
Price | | |
| | |
| |
| Reporting | |
Relative | | |
Term | | |
Exercise | | |
on Grant | | |
Volatility | | |
Risk-free | |
| Date | |
Fair Value | | |
(Years) | | |
Price | | |
Date | | |
Percentage | | |
Rate | |
| 04/20/22 | |
$ | 706,977 | | |
| 5 | | |
$ | 2.79 | | |
$ | 1.11 | | |
| 281 | % | |
| 0.0287 | |
| 11/11/22 | |
$ | 937,207 | | |
| 5 | | |
$ | 1.00 | | |
$ | 1.28 | | |
| 211 | % | |
| 0.0432 | |
PIPE
Warrants: On January 19, 2023, in a private placement, the Company entered into a Securities Purchase Agreement (the “PIPE
Agreement”) with certain purchasers, for the issuance of 8,631,574
common stock warrants (the “PIPE Offering”) at a price of $0.125
per warrant, comprised of two common stock warrants (the “Common Warrants,”), each to purchase up to one share of Common
Stock per Common Warrant with an exercise price of $1.00
per share , with (a) 4,315,787
Common Warrants being immediately exercisable for three years following 6 months from the closing of the PIPE Offering, and (b) 4,315,787
Common Warrants being immediately exercisable for five years following 6 months from the closing of the PIPE Offering. On February 15, 2023, the Company filed an S-1 Registration Statement (File
No. 333-269794) covering the underlying shares of the Warrants. The S-1 is yet to be declared effective.
Schedule
of Fair Value of Warrants Using Black Scholes Method
| | |
| | |
| | |
| | |
Market | | |
| | |
| |
| | |
| | |
| | |
| | |
Price | | |
| | |
| |
| Reporting | |
Relative | | |
Term | | |
Exercise | | |
on Grant | | |
Volatility | | |
Risk-free | |
| Date | |
Fair Value | | |
(Years) | | |
Price | | |
Date | | |
Percentage | | |
Rate | |
| 7/24/2021 | |
$ | 2,311,614 | | |
| 3 | | |
$ | 1.00 | | |
$ | 0.65 | | |
| 287 | % | |
| 0.0388 | |
| 7/24/2021 | |
$ | 2,602,996 | | |
| 5 | | |
$ | 1.00 | | |
$ | 0.65 | | |
| 371 | % | |
| 0.0361 | |
The
following tables summarize all warrants outstanding as of March 31, 2023 and December 31, 2022, and the related changes during the period.
Exercise
price is the weighted average for the respective warrants and end of period.
Summary
of Warrant Outstanding
| | |
Number of | | |
Exercise | |
| | |
Warrants | | |
Price | |
| | |
| | |
| |
| Balance at December 31, 2021 | |
| 13,698,125 | | |
$ | 3.24 | |
| Warrants issued in connection with Convertible Notes | |
| 1,460,000 | | |
| 2.79 | |
| Warrants issued in connection with Convertible Notes | |
| 800,000 | | |
| 1.00 | |
| Balance at December 31, 2022 | |
| 15,958,126 | | |
$ | 3.09 | |
| Warrants issued in Public Offering | |
| 8,631,574 | | |
| 1.00 | |
| Balance at March 31, 2023 | |
| 24,589,699 | | |
$ | 2.36 | |
| | |
| | | |
| | |
| Warrants Exercisable at March 31, 2022 | |
| 15,958,126 | | |
$ | 3.09 | |
Stock Options | |
| | | |
| | |
During
the year ended December 31, 2022, the Company entered into an Investor Relations Consulting Agreement under the terms of which the Company
issued 300,000 two-year options, immediately vested, with an exercise price of $1.00. The Company recorded an expense of $142,169 in
connection with this issuance. Additionally, the Company issued a total of 3,250,000 options with an exercise price between $0.76 and
$0.84 each with a five-year term to its Officers, Directors, and employees. The Company recorded an expense of $2,048,270 in connection
with the Officers’, Directors’, and employees’ issuance.
The
fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions
for Black-Scholes valuation model on the respective reporting date.
Schedule
of Fair Value of Warrants Using Black Scholes Method
| | |
| | |
| | |
| | |
| | |
Market | | |
| |
| | |
Number | | |
| | |
| | |
| | |
Price on | | |
| |
| Reporting | |
of | | |
Term | | |
Exercise | | |
Grant | | |
Volatility | | |
Fair | |
| Date | |
Options | | |
(Years) | | |
Price | | |
Date | | |
Percentage | | |
Value | |
| 01/01/22 | |
| 300,000 | | |
| 2 | | |
$ | 1.00 | | |
$ | 0.80 | | |
| 126 | % | |
$ | 142,169 | |
| 12/30/2022 | |
| 3,250,000 | | |
| 5 | | |
$ | 0.76 - 0.84 | | |
$ | 0.77 | | |
| 166 | % | |
$ | 2,048,270 | |
At
March 31, 2023 and December 31, 2022, the Company had 8,030,950 options outstanding.
Note
14 - Commitments and Contingencies
The
Company entered into a new office lease Effective July 1, 2021. The primary term of the lease is five years with one renewal option for
an additional three years. Minimum annual lease payments for the primary term and one renewal are as follows:
Schedule
of Minimum Annual Lease Payments
| Primary Period | |
Amount | | |
Amount During Renewal Period | |
Amount | |
| July 1 to June 30, 2022 | |
$ | 180,456 | | |
July 1 to June 30, 2027 | |
$ | 240,662 | |
| July 1 to June 30, 2023 | |
$ | 201,260 | | |
July 1 to June 30, 2028 | |
$ | 247,882 | |
| July 1 to June 30, 2024 | |
$ | 224,330 | | |
July 1 to June 30, 2029 | |
$ | 255,319 | |
| July 1 to June 30, 2025 | |
$ | 229,312 | | |
| |
| | |
| July 1 to June 30, 2026 | |
$ | 233,653 | | |
| |
| | |
Under
the new standard for lease reporting, the Company recorded a Right of Use Asset (“ROU”) and an offsetting lease liability
of $870,406 representing the present value of the future payments under the lease calculated using an 8% discount rate (the current borrowing
rate of the company). The ROU and lease liability are amortized over the five-year life of the lease. The unamortized balances at March
31, 2023 were ROU asset of $603,918, current portion of the lease liability of $185,850 and non-current portion of lease liability of
$461,094. At December 31, 2022, the unamortized balances were ROU asset of $643,977, the current portion of the lease liability was
$164,170 and non-current portion of the lease liability was $519,659.
Additionally,
the Company recognized accreted interest expense of $13,431 and $60,626 and rent expense of $53,490 and $231,790 for the lease during
the three months ended March 31, 2023 and year ended December 31, 2022, respectively.
Legal
Proceedings
The
Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course
of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have
a material adverse effect on its financial position, results of operations or liquidity.
On
August 6, 2020, the Company, Messrs. John and Miller and certain affiliated entities filed a lawsuit in the United States District Court,
Southern District of New York against Robert Koch, Bedford Investment Partners, LLC, Kaizen Advisors, LLC and certain other unnamed defendants.
The lawsuit alleged that Mr. Koch and the other defendants were attempting to extort the Company and Messrs. John and Miller to issue
the defendants shares of the Company’s common stock which they claim are owed to them. The Company asserted that they have no oral
or written agreement with Mr. Koch or any of his affiliates that entitle him to shares of the Company’s common stock. The Company’s
complaint seeks actual damages in the amount of $5,000,000 and punitive damages in the amount of $5,000,000. In response, Mr. Koch and
Bedford Investment Partners, LLC (together, the “Koch Parties”) filed their answer and counterclaim, repeating the same claims
that caused the Company to file the lawsuit, and claiming damages of over $10 million. On October 6, 2020, the Company moved for judgment
on the pleadings to dismiss the defendants’ counterclaim in its entirety. On April 24, 2021, the Company’s motion was granted,
and all counterclaims were dismissed with prejudice, except the breach-of-contract and unjust enrichment claims. On June 04, 2021, the
Koch Parties filed a Second Amended Counterclaim, re-alleging their previous breach-of-contract and unjust enrichment counterclaims.
On June 25, 2021, the Company filed a motion to dismiss defendants’ Second Amended Counterclaim, which the parties briefed in summer
2021. On February 14, 2022, the court dismissed all of the Koch Parties’ counterclaims except to the extent that they alleged unjust
enrichment against Jupiter and Mr. John. On March 22, 2022, the Parties engaged in a Settlement Conference before The Honorable Sarah
L. Cave, which did not resolve the case. On March 25, 2022, The Honorable Lewis J. Liman granted Jupiter and Mr. John permission to move
for summary judgment dismissing the Koch Parties’ unjust enrichment counterclaim; the parties briefed that motion in spring 2022.
On January 30, 2023, Judge Liman largely granted Jupiter and Mr. Koch’s motion, eliminating all of the Koch Parties’ remedy
theories except for their restitution claim for transferring the domain www.cbdbrands.net to Jupiter. In doing so, Judge Liman suggested
that a jury could find that the Koch Parties would be fully compensated if the parties simply unwound the domain transfer, or that the
jury might quantify the website’s value by looking to the amounts that the Koch Parties had paid for other, similar websites: between
$12.17 and $65.98. After Judge Liman issued this order, the Parties settled all claims and Jupiter and Mr. John filed a proposed order
of dismissal of all claims with prejudice. Under the order, Jupiter did not pay any amount in settlement of the claims. On February 17,
2023, Judge Liman so-ordered that proposed order and closed the case.
Note
15 – Segment Reporting
The
Company has two reportable segments: (i) sales and development of cannabidiol (CBD) based skin and wellness care and therapeutic products
and (ii) sales of merchandise sold to theme parks. Sales of the theme park merchandise are made through the Company’s wholly owned
subsidiary SRM Entertainment, Inc. Condensed financial information for the three-months ended March 31, 2023 and 2022, follow;
Schedule
of Business Combination Segment Allocation
| | |
| |
2023 | | |
2022 | |
| Jupiter Wellness | |
Revenue | |
$ | 34,788 | | |
$ | 14,524 | |
| | |
Cost of Sales | |
| 23,965 | | |
| 12,398 | |
| | |
Gross Profit (Loss) | |
$ | 10,823 | | |
$ | 2,126 | |
| | |
| |
| | | |
| | |
| SRM Entertainment | |
Revenue | |
$ | 1,086,888 | | |
$ | 707,105 | |
| | |
Cost of Sales | |
| 851,066 | | |
| 592,020 | |
| | |
Gross Profit (Loss) | |
$ | 2,365,822 | | |
$ | 115,085 | |
| | |
| |
| | | |
| | |
| Combined | |
Revenue | |
$ | 1,121,676 | | |
$ | 721,629 | |
| | |
Cost of Sales | |
| 875,031 | | |
| 604,418 | |
| | |
Gross Profit (Loss) | |
$ | 246,645 | | |
$ | 117,211 | |
Note
16 - Subsequent Events
Jupiter Wellness Acquisition Corp.’s (“JWAC”) filed a
Current Report on Form 8-K filed with the Securities Exchange Commission on May 2, 2023. JWAC’s stockholders approved JWAC’s
business combination with Chijet Inc., and its affiliates including Chijet Motor Company Inc. (the “Business Combination”),
at its Special Meeting of Stockholders held on May 2, 2023. Based on these results, JWAC is striving to meet all necessary closing conditions
as described in the Proxy Statement/Prospectus, and if successful, the Company hopes to close the Business Combination by May 15, 2023.
In
accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to March 31, 2023 to the date these financial statements
were issued and has determined that it does not have any additional material subsequent events to disclose in these financial statements.