The number of shares of our Common Stock to be outstanding before this Offering is based on 2,954,104 shares of our Common Stock outstanding as of September 29, 2023, giving effect to the anticipated reverse stock split of our outstanding Common Stock on a 1-for-120 basis, and assuming no exercise of the underwriters’ over-allotment option and no exercise of any Underwriters’ Warrants, and includes or excludes the following, as applicable:
·excludes 148,386 shares of Common Stock issuable upon the closing of the acquisition of Hyperion, L.L.C. and Online Publishing & Marketing, LLC. The number of shares of Common stock will be equal to $1,250,000 based on a 30% premium to the price paid per share of Common Stock in this Offering, but in no event more than ninety percent (90%) of the volume weighted average price for our common stock for the ninety (90) trading days up to and including the trading day immediately before the day the price is finally determined for securities sold in this Offering;
11
·excludes 140 shares of Common Stock issuable upon the exercise of outstanding warrants with an exercise price of $7,500.00 per share;
·excludes 62,500 shares of Common Stock issuable upon the exercise of outstanding warrants with an exercise price of $6.00 per share;
·excludes 54,167 shares of Common Stock issuable upon the exercise of outstanding warrants with an exercise price of $9.00 per share;
·excludes 87,084 shares of Common Stock issuable upon the exercise of outstanding options with an exercise price of $6.00 per share; and
·excludes 133,125 shares of Common Stock represented by Restricted Stock Units and 300,000 shares of Common Stock represented by Restricted Stock Awards.
The actual number of shares of our Common Stock to be outstanding before this Offering will be determined based on the actual public offering price and the final reverse stock split ratio, as determined by the Board.
SUMMARY FINANCIAL INFORMATION
|
| As of and for
the Six Months
Ended
June 30,
|
| As of and for
the Year
Ended
December 31,
|
| As of and for
the Year
Ended
December 31,
|
Healthy Extracts Inc.
|
| 2023
(unaudited)
|
| 2022
(audited)
|
| 2021
(audited)
|
|
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
| $
| 1,203,427
| $
| 2,251,469
| $
| 1,676,598
|
Net operating income (loss)
| $
| (1,661,061)
| $
| (911,589)
| $
| (1,889,178)
|
Net income (loss)
| $
| (1,846,392)
| $
| (983,121)
| $
| (1,987,122)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
| $
| 92,501
| $
| 65,651
| $
| 222,098
|
Current assets
| $
| 1,925,214
| $
| 1,990,572
| $
| 2,313,404
|
Total assets
| $
| 2,662,214
| $
| 2,781,118
| $
| 3,029,579
|
|
|
|
|
|
|
|
Current liabilities
| $
| 1,481,418
| $
| 902,788
| $
| 558,841
|
Total liabilities
| $
| 1,481,418
| $
| 902,788
| $
| 558,841
|
Accumulated deficit
| $
| (17,773,134)
| $
| (15,926,742)
| $
| (14,943,620)
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
| $
|
(0.168)
| $
|
(0.344)
| $
| (0.747)
|
12
SUMMARY PRO-FORMA FINANCIAL INFORMATION
Healthy Extracts Inc.
|
| As of and for
the Six Months
Ended
June 30,
|
| As of and for
the Year
Ended
December 31,
|
|
Hyperion, L.L.C.
OP&M
|
| 2023
(unaudited)
|
| 2022
(unaudited)
|
|
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
| $
| 5,731,915
| $
| 12,912,954
|
|
Net operating income (loss)
| $
| 3,450,995
| $
| 7,846,699
|
|
Net income (loss)
| $
| (1,013,580)
| $
| (914,193)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
| $
| 1,142,501
| $
| 1,862,991
|
|
Current assets
| $
| 3,610,785
| $
| 4,736,017
|
|
Total assets
| $
| 8,071,431
| $
| 5,744,743
|
|
|
|
|
|
|
|
Current liabilities
| $
| 1,897,787
| $
| 1,281,379
|
|
Total liabilities
| $
| 1,897,787
| $
| 1,281,379
|
|
Accumulated equity (deficit)
| $
| (18,030,285)
| $
| (13,341,707)
|
|
Total stockholders’ equity
| $
| 6,173,644
|
| 4,463,365
|
|
Net loss per common share – basic and diluted
|
$
|
(0.225)
| $
|
(0.201)
|
|
On January 13, 2023, we entered into the Acquisition Agreement to acquire Hyperion and OPM in exchange for $3,050,000 in cash and the issuance of $1,250,000 in shares of our common stock (approximately 192,901 shares valued at $6.48), to the former owner of Hyperion and OPM, resulting in Hyperion and OPM becoming a wholly-owned subsidiaries of our company.
For financial accounting purposes, the acquisition of Hyperion and OPM by us (referred to as the “Merger”) will be valued under the purchase price method. Accordingly, financial statements presented following the Merger will be viewed as being fairly valued as of January 13, 2023 or the date the acquisition is closed, and represent the operations of our company prior to the Merger. We expect to continue to operating Hyperion and OPM under the names Green Valley Natural Solutions and Online Publishing and Marketing.
13
Prior to the Merger, all the companies involved in the Merger had fiscal year ends of December 31, respectively. The accompanying pro forma condensed combined financial statements are prepared based on a December 31 year end. The pro forma condensed combined balance sheet at December 31, 2022 and June 30, 2023 combines the historical consolidated balance sheets of Hyperion, OPM and our company, giving effect to the Merger as if it had been consummated on June 30, 2023. The pro forma condensed combined statement of operations for the period ended December 31, 2022 and June 30, 2023 combines the historical consolidated statements of income of Hyperion, OMP, and our company, giving effect to the Merger as if it had occurred on January 1, 2022. The pro forma combined financial data should be read in connection with the notes to our pro forma condensed combined financial statements and our separate historical audited consolidated financial statements and the related notes year ended December 31, 2022 and June 30, 2023.
The unaudited pro forma condensed combined financial statements included herein have been prepared for informational purposes only and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The pro forma financial statements reflect all transaction accounting adjustments required by Rule 11-02(a)(6)(i); however, management believes that the disclosures are adequate to make the information presented not misleading.
The pro forma adjustments represent management’s estimates based on information available at this time. The pro forma combined financial statements are not necessarily indicative of what the financial position or results of operations actually would have been had the acquisition been completed at the dates indicated. In addition, the pro forma combined financial statements do not purport to project the future financial position or operating results of the consolidated company. The pro forma combined financial statements do not give consideration to the impact of possible revenue enhancements, expense efficiencies, future underwriting decisions or changes in the book of business that may result from the acquisition.
14
RISK FACTORS
Any investment in our common stock is speculative and involves a high degree of risk. You should consider carefully the risk factors related to our business described below, together with the other information and financial statements contained in this prospectus, before you decide to buy our common stock. There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If one or more of these risks actually occurs, our business will suffer, and as a result our financial condition or results of operations will be adversely affected. In this case, the market price of our common stock could decline, and you could lose all or part of your investment in our common stock.
Risk Factors Related to our Business
We rely on a single supplier relationship for licensing and manufacturing, and the termination of that agreement could have material effect on the cost of our products and the manufacturing of our finished goods.
In August 2021, we signed an exclusive U.S. and Canada licensing and manufacturing agreement with Gelteq, a developer of ingestible gel technology, under which we agreed to develop and manufacture an advanced oral delivery system for our plant-based heart, immune and brain health formulations. Through this agreement we secured the exclusive rights to use Gelteq’s gelification process in the U.S. and Canada for the development and marketing of natural ingestible gels that contain our Citrus Bergamot or UBN ingredients. In the event either party terminates that agreement, our ability to obtain and manufacture our products will be interrupted, and we may not be able to find a replacement at the same cost.
We have a limited operating history in our current business, we are not profitable, and we do not expect to be profitable in the near future. There is no assurance our future operations will result in revenues sufficient to obtain or sustain profitability. If we cannot generate sufficient revenues to operate profitably, we may suspend or cease operations.
We were incorporated on December 19, 2014, but we have changed our business focus with the acquisition of BergaMet in 2019 and UBN in 2020. We have not fully developed our current business operations and have not yet to generate significant revenue from such operations. Our ability to continue as a going concern is dependent upon our ability to further establish and then grow our business and to obtain adequate financing in order to reach profitable levels of operations. In that regard we have no proven history of performance, earnings or success.
Our net loss from inception to December 31, 2022, was ($15,926,742), and as of June 30, 2023 was ($17,773,134). Based on our cash position of $65,651 as of December 31, 2022, and $92,501 as of June 30, 2023, we have a pressing need to raise additional capital from the sale of our stock or debt (including but also following this offering). Such funding may not be available, or may be available only on terms which are not beneficial and/or acceptable to us.
Our ability to achieve profitability and positive cash flow in the future is dependent upon our ability to attract new customers who will buy our nutritional supplement products and services, and our ability to generate sufficient revenue through the sale of those products and services.
Based upon current plans, we expect to incur operating losses in future periods because we will be incurring expenses that may exceed revenues. We cannot guarantee that we will be successful in generating sufficient revenues in the future. In the event we cannot generate sufficient revenues and/or secure additional financing, we may be forced to cease operations.
15
Our success is linked to the size and growth rate of the vitamin, mineral and supplement market and an adverse change in the size or growth rate of that market could have a material adverse effect on us.
An adverse change in size or growth rate of the vitamin, mineral and supplement market could have a material adverse effect on us. Underlying market conditions are subject to change based on economic conditions, consumer preferences and other factors that are beyond our control, including media attention and scientific research, which may be positive or negative. In addition, the vitamin, mineral and supplement market is heavily saturated, and the demand for and market acceptance of new products and services in the market is uncertain. While we predict that the overall vitamin, mineral and supplement market will continue to grow, it is difficult to predict the future growth rates, if any, to the size of our market. We cannot assure you that our market will continue to develop, that the public’s interest in personalized health and wellness will continue, or that our products and services will become widely adopted. If our market does not further develop, develops more slowly than expected, or becomes saturated with competitors, or if our products and services do not achieve market acceptance, our business, financial condition, and operating results could be adversely affected.
We are highly dependent upon consumers’ perception of the safety and quality of our products and if we fail to maintain adequate quality standards for our products and services, or if our products become subject to regulatory investigations, our business may be adversely affected and our reputation harmed.
Our products, including nutritional supplements, may contain defects or may not perform as intended. These defects could result in a product recall, market withdrawal, negative publicity or other events that would result in harm to our reputation, loss of customers or revenue, health and safety issues for our customers, product liability claims, refunds, order cancellations, or lack of market acceptance of our products and services. Any such defects, errors, or vulnerabilities would require us to take remedial action, which could require us to allocate significant customer support resources to address any such problems. Further, if we make acquisitions, we may encounter difficulties in integrating acquired technologies into our services and in augmenting those technologies to meet the quality standards that are consistent with our brand and reputation.
Our agreements with customers, distribution partners, and other third parties may include indemnification provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred in connection with any such defects or errors of our products or services, or other liabilities relating to or arising from our products or services. Some of these indemnity agreements provide for uncapped liability for which we would be responsible, and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, financial condition, and results of operations. Although we attempt to contractually limit our liability with respect to such indemnity obligations, we are not always successful and may still incur substantial liability related to such claims. In addition, although we carry general liability insurance, our insurance against this liability may not be adequate to cover a potential claim, and such coverage may not be available to us on acceptable terms, or at all. Any dispute with a customer or other third party with respect to such obligations could have adverse effects on our relationship with such customer or other third party, our reputation, or demand for our platform. Any of the foregoing could adversely affect our business, financial condition, and results of operations.
Negative public perception may also arise from regulatory actions or investigations, regardless of whether those investigations involve us. We are highly dependent upon consumers’ perception of the safety and quality of our products as well as similar products distributed by other companies. Thus, the mere publication of reports asserting that such products may be harmful or adverse public reports or other media
16
attention regarding the safety, efficacy and quality of nutritional supplements in general, or our products specifically, or associating the consumption of nutritional supplements with illness, questioning the benefits of nutritional supplements in general, or our products specifically, or claiming that such products do not perform as marketed, labeled and advertised, could have a material adverse effect on us, regardless of whether these reports are scientifically supported. Any such adverse public reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products as directed and the content of such public reports and other media attention may be beyond our control. Publicity related to nutritional supplements may also result in increased regulatory scrutiny of our industry. Adverse publicity may have a material adverse effect on our business, financial condition, results of operations and cash flows. There can be no assurance of future favorable scientific results and media attention or of the absence of unfavorable or inconsistent findings.
Our success depends on our ability to maintain the value and reputation of our brands.
We believe that our customers associate our name with quality products and services and that the strength of our brands is important to attracting and retaining customers. We rely on our trusted brands to differentiate our products and services from those of our competitors in a crowded and saturated market for nutritional supplements. Maintaining, protecting, and enhancing our brands depends largely on the success of our marketing efforts, ability to provide consistent, high-quality products, services, features, content and support. We believe that the importance of our brands will increase as competition further intensifies. Accordingly, brand promotion activities aimed at bolstering our brands may require substantial expenditures. Our brands could be harmed if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity. Our brands could be harmed if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity. Our brands could also be harmed if any of our influencers receive negative publicity, or if our products and services do not perform as intended.
We may fail to attract, acquire or retain customers at our current or anticipated future growth rate, or may fail to do so in a cost-effective manner, which would adversely affect our business, financial condition and results of operations.
Our continued growth depends, in part, on our ability to attract, acquire and retain customers in a cost-effective manner. Numerous factors, however, may impede our ability to attract, acquire or retain customers, including our failure to attract, effectively train, retain, and motivate sales and marketing personnel, our failure to educate customers and health professionals about the benefits of our products, our failure to develop or expand relationships with our suppliers, our inability to convert initial adoption into ongoing recurring revenue and our failure to provide customer support once products are delivered.
We rely on internet search engines, lead generators, and social networking sites to help drive traffic to our website and the sale of our products, and if we fail to appear prominently in the search results or fail to drive traffic through paid advertising, our traffic and product sales would decline and our business would be adversely affected.
We depend in part on internet search engines (such as Google), lead generators, and social networking sites (such as Facebook) to drive traffic to our website and the sale of our products. Our ability to maintain and increase the number of visitors directed to our website is not entirely within our control. Our competitors may increase their search engine optimization efforts and outbid us for placement on various sites or search terms on various search engines, resulting in their websites receiving a higher search result page ranking than ours. Additionally, internet search engines could revise their methodologies in a way that would adversely affect our search result rankings. If internet search engines modify their search algorithms in ways that are detrimental to us, if sites refuse to display any or all of our products in certain geographic markets, or if our competitors’ efforts are more successful than ours, overall growth in our
17
customer base could slow or our customer base could decline. Our website has experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our website through internet search engines, lead generators, or social networking sites could harm our business and operating results.
Our success depends, in part, on our existing customers continuing to purchase our products. Our customers have no obligation to purchase our products, and in the normal course of business, some customers may decide to purchase less or none of our products. If we acquire fewer customers than expected, or fewer customers purchase our existing products or try our new products, then our business, financial condition and results of operations may be adversely affected. Our business depends on the effectiveness of our advertising and marketing programs, including the strength of our social media presence, to attract and retain customers.
Our business success depends on our ability to attract and retain customers. Our ability to attract and retain customers depends significantly on the effectiveness of our advertising and marketing practices. From time-to-time, we use the success stories of our customers, and utilize brand ambassadors, spokespersons and social media influencers, including in some cases celebrities, in our advertising and marketing programs to communicate on a personal level with consumers. Any actions taken by these individuals that harm their personal reputation or image, or their decision to stop using our services and products, could have an adverse impact on the advertising and marketing campaigns in which they are featured. We and our brand ambassadors, spokespersons and social media influencers also use social media channels as a means of communicating with customers. Unauthorized or inappropriate use of these channels could result in harmful publicity or negative consumer experiences, which could have an adverse impact on the effectiveness of our marketing in these channels. In addition, substantial negative commentary by others on social media platforms could have an adverse impact on our reputation and ability to attract and retain customers. If our advertising and marketing campaigns do not generate a sufficient number of customers, our business, financial condition and results of operations will be adversely affected.
If we are unable to anticipate customer preferences and successfully develop new and innovative products in a timely manner or effectively manage the introduction of new or enhanced products, then our business may be adversely affected.
Part of our success is our ability to innovate and introduce new products focused on our consumer demands. To maintain our success and increase our customer base, we must continue to develop products with differentiated benefits and anticipate and react to changing health professional and consumer demands in a timely manner. Our products and services are subject to changing consumer preferences that cannot be predicted with certainty. If we are unable to introduce new or enhanced products in a timely manner, or our new or enhanced products are not accepted by our customers, then our competitors may introduce competitive products faster than us, which could negatively affect our rate of growth. Moreover, our new products may not receive customer acceptance because preferences could shift rapidly to alternative nutritional supplements, and our future success depends in part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing customer preferences could lead to, among other things, lower sales, pricing pressure, lower gross margins, and excess inventory levels. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address them will partially depend upon our continued ability to develop and introduce innovative, high-quality product offerings. Development of new or enhanced products and services may require significant time and financial investment, which could result in increased costs and a reduction in our profit margins.
18
If we are unable to sustain pricing levels for our products, our business could be adversely affected.
The prices for our nutritional supplement products reflect their high quality, safety and benefits. If we are unable to sustain pricing levels for our products, whether due to competitive pressure or otherwise, then our gross profits could be reduced. Further, our decisions regarding the development of new products are based on assumptions about future pricing. If there is price compression in the market after these decisions are made, then it could lower our gross profits and have a negative effect on our results of operations.
We face intense competition from competitors that are larger, more established and that possess greater resources than we do, and if we are unable to compete effectively, we may be unable to gain sufficient market share to sustain profitability.
Numerous manufacturers and distributors compete actively for consumers. There can be no assurance that we will be able to compete in this intensely competitive environment. In addition, nutritional supplements can be purchased in a wide variety of channels of distribution. These channels include mass market retail stores and the Internet. Because these markets generally have low barriers to entry, additional competitors could enter the market at any time. Private label products of our customers also provide competition to our products. Additional national or international companies may seek in the future to enter or to increase their presence in our distribution channels or the vitamin, mineral supplement market. Increased competition in either or both could have a material adverse effect on us.
Adverse economic conditions may harm our business.
Our business depends on global economic conditions. Unstable market conditions make it difficult for our clients and us to accurately forecast and plan future business activities, and could cause our customers to reduce or delay their spending with us. Economic downturns or unstable market conditions may cause customers to decrease their budgets, which could reduce spend on our products and adversely affect our business, financial condition and results of operations. As we explore new countries to expand our business, economic downturns or unstable market conditions in any of those countries could result in our investments not yielding the returns we anticipate.
Generally, the United States and other key international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, and overall uncertainty with respect to the economy, including with respect to tariff and trade issues. In particular, the economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector, uncertainty over the future of the Eurozone and volatility in the value of the pound sterling and the Euro, including instability surrounding Brexit. We have operations, as well as current and potential new customers, throughout the United Kingdom and most of Europe. If economic conditions in the United Kingdom and Europe and other key markets for our platform continue to remain uncertain or deteriorate further, it could adversely affect our customers’ ability or willingness to subscribe to our platform, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions or affect renewal rates, all of which could harm our operating results.
Inflation or other changes in economic conditions that affect demand for nutritional supplements could adversely affect our revenue. Uncertainty about current global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit markets, negative financial news and/or declines in income or asset values, each of which could have a material negative effect on the demand for our products. Other factors that could influence demand include conditions in the residential
19
real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.
Overall tightening of the labor market, increases in labor costs or any possible labor unrest may adversely affect our business and results of operations.
Our business, particularly the manufacturing of our products, requires a substantial number of personnel. Any failure to retain stable and dedicated labor by us may lead to disruption to our business operations, including the manufacturing of our products. Although we have not experienced any material labor shortage to date, we have observed an overall tightening and increasingly competitive labor market. We have experienced, and expect to continue to experience, increases in labor costs due to increases in salary, social benefits and employee headcount. We compete with other companies in our industry and other labor-intensive industries for labor, and we may not be able to offer competitive remuneration and benefits compared to them. If we are unable to manage and control our labor costs, our business, financial condition and results of operations may be materially and adversely affected.
Our operating results could be adversely affected if we are unable to accurately forecast customer demand for our products and services and adequately manage our inventory.
To ensure adequate inventory supply, we must forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers, based on our estimates of future demand for particular products and services. Failure to accurately forecast our needs may result in manufacturing delays or increased costs. Our ability to accurately forecast demand could be affected by many factors, including changes in customer demand for our products and services, changes in demand for the products and services of our competitors, widespread acceptance of personalized health recommendations and nutritional supplements, unanticipated changes in general market conditions, and the weakening of economic conditions or consumer confidence in future economic conditions. This risk may be exacerbated by the fact that we may not carry a significant amount of inventory and may not be able to satisfy short-term demand increases. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margins to suffer and could impair the strength and our brand. Further, lower than forecasted demand could also result in excess manufacturing capacity or reduced manufacturing efficiencies, which could result in lower margins. Conversely, if we underestimate customer demand, our suppliers and manufacturers may not be able to deliver products to meet our requirements or we may be subject to higher costs in order to secure the necessary production capacity. An inability to meet customer demand and delays in the delivery of our products to our customers could result in reputational harm and damaged customer relationships and have an adverse effect on our business, financial condition, and operating results.
We acquire ingredients for our products from foreign suppliers and may be negatively affected by the risks associated with international trade and importation issues.
We acquire ingredients for a number of our products from suppliers outside of the United States. Accordingly, the acquisition of these ingredients is subject to the risks generally associated with importing raw materials, including, among other factors, delays in shipments, changes in economic and political conditions, quality assurance, health epidemics affecting the region of such suppliers (including the COVID-19 pandemic), nonconformity to specifications or laws and regulations, tariffs, trade disputes and foreign currency fluctuations (particularly as it relates to the tariffs currently imposed on certain products originating from China). While we inspect 100% of the lots received from third party suppliers,
20
we cannot assure you that raw materials received from suppliers or finished products from manufacturers outside of the United States will conform to all specifications, laws and regulations or our internal standards. There have in the past been quality and safety issues in our industry with certain items imported from overseas. We may incur additional expenses and experience shipment delays due to preventative measures adopted by the U.S. governments, our suppliers and our company.
Ingredient and packaging costs are volatile and may rise significantly, which may negatively impact the profitability of our business.
Costs of ingredients and packaging are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, fluctuations in currency and exchange rates, weather conditions, natural or man-made disasters, consumer demand and changes in governmental trade and agricultural programs. Continued volatility in the prices of the core ingredients and other supplies we purchase could increase our cost of goods sold and reduce our profitability.
We do not use hedges or forward pricing for availability of any core ingredients. As such, any material upward movement in core ingredient pricing could negatively impact our margins if we are not able to pass these costs on to our consumers, or our sales if we are forced to increase its prices. If we are not successful in managing our ingredient and packaging costs, if we are unable to increase our prices to cover increased costs or if such price increases reduce our sales volumes, then such increases in costs will adversely affect our business, financial condition and results of operations.
Certain of our core ingredient contracts have minimum volume commitments that could require purchases without matching revenues during weaker sales periods. Future core ingredient prices may be impacted by new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by suppliers, natural disasters, volatility in the price of crude oil and related petrochemical products and changes in exchange rates.
A disruption in the service, a significant increase in the cost of our primary delivery and shipping services for our products or a significant disruption at shipping ports could adversely affect our business.
We use a variety of shipping services for delivery of our products to users and brick-and-mortar and online retail partners, including air carriers and ocean shipping services. We have experienced and could continue to experience increased congestion and new import and export restrictions implemented at ports on which we rely for our business. In many cases, we have had to secure alternative transportation, such as air freight, or use alternative routes, at increased costs, to run our supply chain.
In the event of any significant interruption in service by shipping providers or at airports or shipping ports, we may be unable to engage alternative suppliers or to receive or ship goods through alternate sites in order to deliver our products in a timely and cost-efficient manner. As a result, we could experience delays, increased shipping costs and lost sales as a result of missed delivery deadlines and product demand cycles. For example, at times during the COVID-19 pandemic, shipping of our products has been delayed, which has inconvenienced our users and brick-and-mortar and online retail partners. Furthermore, if the cost of delivery or shipping services were to increase significantly and the additional costs could not be covered by product pricing, our results of operations could be adversely affected.
21
In particular, we are dependent upon major shipping companies, including FedEx, for the shipment of our products to and from our third-party logistics partner facilities. Changes in shipping terms, or the inability of these third-party shippers to perform effectively, could affect our responsiveness to our users and brick-and-mortar and online retail partners. Increases in our shipping costs may adversely affect our financial results if we are unable to pass on these higher costs to our users or brick-and-mortar and online retail partners.
We will require additional financing in the future, and we can provide no assurance that such funding will be available on terms that are acceptable to us, or at all.
We will require additional financing in the future in order to grow our business, and are faced with the risk that funding will be unavailable in sufficient amounts or on terms acceptable to us, if at all, when needed. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted, and the terms of those securities may include liquidation or other preferences that materially adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to make capital expenditures, declare dividends, or otherwise conduct our business. If we are unable to obtain any funding we need on a timely basis, we may be required to significantly curtail, delay or discontinue development of new products, the commercialization of our products or expansion into new geographies, which could materially affect our business, financial condition, and results of operations.
Our competitors may develop nutritional supplement products that are less expensive, safer or otherwise more appealing, which may diminish or eliminate the commercial success of any potential product that we may commercialize.
If our competitors (most of whom are larger and have more resources than we do) develop and bring to market nutritional supplement products that are less expensive, safer or otherwise more appealing than our current and potential products, or that reach the market before our current and potential products, we may not achieve commercial success. The market may choose to continue utilizing existing products for any number of reasons, including familiarity with or pricing of these existing products. The failure of any of our products to compete with products marketed by our competitors would impair our ability to generate revenue, which would have a material adverse effect on our future business, financial condition, results of operations, and cash flows. Our competitors may:
·develop and market products that are less expensive, safer, or otherwise more appealing than our products;
·commercialize competing products before we or our partners can launch our products; and
·initiate or withstand substantial price competition more successfully than we can.
22
Our auditors have substantial doubt about our ability to continue as a going concern.
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our auditor’s report reflects that our ability to continue as a going concern is dependent upon our ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. If we are unable to continue as a going concern, our stockholders will lose their investment. We will be required to seek additional capital to fund future growth and expansion. No assurance can be given that such financing will be available or, if available, that it will be on commercially favorable terms. Moreover, favorable financing may be dilutive to our stockholders.
After this offering, one of our shareholders and his adult children will continue to own a significant percentage of our Common Stock and will maintain the ability to substantially influence all matters submitted to stockholders for approval.
After this offering, one of our shareholders, Jay Decker, will own approximately 33% of our outstanding shares of Common Stock (approximately 31% if the underwriters exercise their over-allotment option in full). As of September 29, 2023, Decker owns slightly less than 50% of our outstanding shares of Common Stock. For as long as Decker retains a significant ownership of our shares of Common Stock, he will be able to substantially influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, he will substantially influence the election of directors and approval of any merger, consolidation or sale of all or substantially all our assets. This concentration of voting power could delay or prevent an acquisition of us on terms that other stockholders may desire or result in management that our stockholders disagree with. In addition, Mr. Decker’s adult children own and will continue to own a significant portion of our outstanding Common Stock. See “Security Ownership of Certain Beneficial Owners and Management”.
Our current officers and directors may set salaries and perquisites in the future which we are unable to support with our current assets.
Although our officers and directors have written employment or services agreements, our officers and directors may decide to award themselves higher salaries and other benefits but all changes to these agreements will need to be approved by the Board of Directors. We do not have significant revenues, and there is no guarantee that we will have significant revenue in the near future. If we do not increase our revenues, we will be unable to support any higher salaries or other benefits for management, which may cause us to cease operations.
We may engage in strategic transactions that fail to enhance stockholder value.
From time to time, we may consider possible strategic transactions, including the potential acquisitions or licensing of products or technologies or acquisition of companies, and other alternatives with the goal of maximizing stockholder value. Our pending acquisitions of Hyperion and OPM are examples of this strategy. We may never complete a strategic transaction, and in the event that we do complete a strategic transaction, implementation of such transactions may impair stockholder value or otherwise adversely affect our business. Any such transaction may require us to incur non-recurring or other charges and may pose significant integration challenges and/or management and business disruptions, any of which could harm our results of operation and business prospects.
23
We may not be able to gain or sustain market acceptance for our products and services.
Failure to establish a brand and presence in the marketplace on a timely basis could adversely affect our financial condition and results of operations. Moreover, there can be no assurance that we will successfully complete our development and introduction of new products and services or that any such products and services will achieve acceptance in the marketplace. We may also fail to develop and deploy new products and services on a timely basis.
We have a significant amount of unsold inventory, which could affect our assets and our profitability.
As of December 31, 2021, we had over $1.9 million in inventory, after writing off over $400,000 in citrus bergamot bulk extract inventory for the year. We believe this is the only product in our inventory that has a material risk of spoilage. The amount of our inventory exceeds our revenues for the year ended December 31, 2021. As of December 31, 2022, we had over $1.8 million in inventory, and we wrote off approximately $97,000 in inventory in 2022. As of June 30, 2023, we had over $1.4 million in inventory. Our inventory could spoil or be damaged, or we could never sell it, affecting the assets on our balance sheet as well as our future profitability. Our build-up in inventory peaked at the end of 2020 and we have been able to continue to reduce our inventory through increased sales. We do not anticipate any further inventory write-offs. Even though our supply agreement with H&AD S.r.L. requires us to purchase a minimum of 4,000 kilograms of BPF in 2023, we believe our sales will increase to a level that supports this amount of product purchases without any further inventory write-offs.
We are subject to and affected by extensive governmental regulations.
We are subject to and affected by extensive governmental regulations, including, among other things, regulations pertaining to (i) the formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products, and (ii) product claims and advertising (including direct claims and advertising by us, as well as claims and advertising by distributors for which we may be held responsible)
We could be found not to be in compliance with existing regulations as a result, among other things, of the ambiguous nature of certain of the regulations, the considerable interpretive and enforcement discretion given to regulators or misconduct by distributors, who are generally independent contractors over whom we have limited control. Enforcement actions that could be undertaken by state and federal regulators include product seizures, injunctions against further product distribution, requests for product recall, and possible criminal prosecution. Any assertion or determination that we or our distributors are not in compliance with existing regulations could have a material adverse effect on our revenues.
In addition, the adoption of new regulations, or changes in the interpretation of existing regulations, could have a material adverse effect on us. For example, in September 1997 the FDA) issued regulations governing the labeling and marketing of dietary supplement products.
In addition, claims made with respect to weight management, dietary supplement, personal care or other products of ours may change the regulatory status of the products. For example, it is possible that the FDA could take the position that claims made in connection with certain of our products place those products within the scope of an FDA “over-the counter” (OTC) drug monograph. OTC monographs prescribe permissible ingredients and appropriate labeling language, and require the marketer or supplier of the products to register and file annual drug listing information with the FDA.
24
The U.S. Federal Trade Commission (“FTC”), which exercises jurisdiction over the advertising of all our products, has in the past instituted enforcement actions against dietary supplement companies for false and misleading advertising of certain products. These enforcement actions have resulted in consent decrees and monetary payments by the companies involved. In addition, the FTC has increased its scrutiny of the use of testimonials.
We received a warning letter from the FDA in November 2022 regarding one of our products.
On November 14, 2022, BergaMet NA, LLC, our subsidiary, received a warning letter from the FDA regarding claims we allegedly make about our Cholesterol Command product. Specifically, the warning letter related to claims on our website, Facebook page, and the webpage of a retailer claim that the products are intended for use in the cure, mitigation, treatment, or prevention of disease because they reduce cholesterol or are an anti-inflammatory. On December 1, 2022, we responded to the warning letter notifying the FDA that we had hired a third-party to review our advertising and revise portions of our website, Facebook page, and online product listings. This was the only warning letter we received from the FDA to date, and we are awaiting their response.
There can be no assurance that the FDA will not pursue this action further. If the FDA were to pursue this action, we may have to cease selling our Cholesterol Command product. Any action brought by the FDA (or any ramifications of such action, including, without limitation, a required withdrawal of Cholesterol Command from the market) would have a material adverse effect on our reputation, sales efforts and results of operations.
Economic uncertainties or downturns could materially adversely affect our business.
Current or future economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy including conditions resulting from changes in gross domestic product growth, the continued sovereign debt crisis, financial and credit market fluctuations, political deadlock, natural catastrophes, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments.
General worldwide economic conditions have experienced a significant downturn and continue to remain unstable. These conditions make it extremely difficult for us to forecast and plan future business activities accurately, and they could cause our potential customers to reevaluate their decisions to purchase our product, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times our potential customers may tighten their advertising budgets which may impact their spend on local inventory based digital marketing products. To the extent purchases of our products are perceived by potential customers to be discretionary, sales of our products may never occur. Also, customers may choose to seek other methods to achieve the benefits our products provide.
We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or industries in which we operate do not improve, or worsen from present levels, our business, results of operations, financial condition and cash flows could be adversely affected.
25
We are dependent on the services of key personnel and failure to attract qualified management could limit our growth and negatively impact our results of operations.
We are highly dependent on the principal members of our management team, including our President, Kevin “Duke” Pitts, and our Chief Financial Officer, Robert Madden. At this time, we do not know of the availability of such experienced management personnel or how much it may cost to attract and retain such personnel. The loss of the services of any member of senior management or the inability to hire experienced technical or programing personnel could have a material adverse effect on our financial condition and results of operations.
Other companies may claim that we have infringed upon their intellectual property or proprietary rights.
We do not believe that our products and services violate third-party intellectual property rights; however, we have not had an independent party conduct a study of possible patent infringements. Nevertheless, we cannot guarantee that claims relating to violation of such rights will not be asserted by third parties. If any of our products or services are found to violate third-party intellectual property rights, we may be required to expend significant funds to re-engineer or cause to be re-engineered one or more of those products or services to avoid infringement, or seek to obtain licenses from third parties to continue offering our products and services without substantial re-engineering, and such efforts may not be successful.
In addition, future patents may be issued to third parties upon which our products and services may infringe. We may incur substantial costs in defending against claims under any such patents. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which effectively could block our ability to further develop or commercialize some or all of our products or services in the United States or abroad, and could result in the award of substantial damages against us. In the event of a claim of infringement, we may be required to obtain one or more licenses from third parties. There can be no assurance that we will be able to obtain such licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain any such license could be costly and have a material adverse effect on our business.
As a part of our business strategy, we have made and expect to continue to make acquisitions. These acquisitions could disrupt our operations and harm our operating results.
An element of our strategy includes expanding our product offerings and gaining access to new skills and other resources through strategic acquisitions when attractive opportunities arise. Acquiring additional businesses and the implementation of other elements of our business strategy are subject to various risks and uncertainties. Some of these factors are within our control and some are outside our control. These risks and uncertainties include, but are not limited to, the following:
• any acquisition may result in significant expenditures of cash, stock and/or management resources,
• acquired businesses may not perform in accordance with expectations,
• we may encounter difficulties and costs with the integration of the acquired businesses,
• management’s attention may be diverted from other aspects of our business,
• we may face unexpected problems entering geographic and product markets in which we have limited or no direct prior experience,
26
• we may lose key employees of acquired or existing businesses,
• we may incur liabilities and claims arising out of acquired businesses,
• we may be unable to obtain financing, and
• we may incur indebtedness or issue additional capital stock, which could be dilutive to holders of our common stock.
There can be no assurance that attractive acquisition opportunities will be available to us, that we will be able to obtain financing for or otherwise consummate any acquisitions or that any acquisitions which are consummated will prove to be successful. There can be no assurance that we can successfully execute all aspects of our business strategy.
Our success depends on our ability to protect our proprietary technology.
Our success depends, to a significant degree, upon the protection of our proprietary technology, and that of any licensors. Legal fees and other expenses necessary to obtain and maintain appropriate patent protection could be material. Currently, no material aspect of our business is protected by registered patents, copyrights or trademarks. Insufficient funding may inhibit our ability to obtain and maintain such protection. Additionally, if we must resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive, and could involve a high degree of risk to our proprietary rights if we are unsuccessful in, or cannot afford to pursue, such proceedings.
We may also rely on trademarks, trade secrets and contract law to protect certain of our proprietary technology. There can be no assurance that any trademarks will be approved, that such contract will not be breached, or that if breached, we will have adequate remedies. Furthermore, there can be no assurance that any of our trade secrets will not become known or independently discovered by third parties.
Our future growth may be inhibited by the failure to implement new technologies.
Our future growth is partially tied to our ability to improve our knowledge and implementation of mobile, AI, machine learning, and other advanced technologies in a retail environment, which is a rapidly changing market. The inability to successfully implement commercially technologies in response to market conditions in a manner that is responsive to our customers’ requirements could have a material adverse effect on our business.
Our common stock is governed under The Securities Enforcement and Penny Stock Reform Act of 1990.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years; (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years; or (iii) average annual revenue of at least $6,000,000, if such issuer has been in continuous operation for less than three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
27
Risks Related to our Acquisition and Integration of Hyperion, L.L.C. and
Online Publishing & Marketing, LLC
We have incurred and expect to incur substantial costs related to the acquisition of Hyperion and OPM and subsequent integration efforts.
We have incurred and expect to incur a number of non-recurring costs associated with our acquisition of Hyperion and OPM. These costs include legal, accounting, consulting and other advisory fees, closing, integration and other related costs.
In addition, upon closing of the acquisitions, we will pay to the selling parties $1.75 million in cash and execute promissory notes in the aggregate principal amount of $1.3 million. These obligations may have a negative impact on our operating results.
After the acquisition of Hyperion and OPM, integration may be more difficult, costly, or time-consuming than expected, and we may not realize the anticipated benefits of the underlying acquisition.
The anticipated benefits of our pending acquisition of Hyperion and OPM, including product candidate diversification and revenue growth, may not be realized fully or at all or may take longer to commercialize than expected and integration may result in additional and unforeseen expenses. An inability to realize the full extent of the anticipated benefits, as well as any delays encountered in the integration process, could have an adverse effect upon our operating results.
In addition, we and Hyperion and OPM will have operated independently prior to the completion of the acquisition. It is possible that the now-active integration process could result in the loss of one or more key employees, including employees of Hyperion and OPM, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures, and policies that adversely affect each company’s ability to maintain relationships with clients, customers, depositors, and employees or to achieve the anticipated benefits of the acquisition. Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on our business and operations during this transition period and for an undetermined period.
We may not have discovered certain liabilities or other matters related to Hyperion and OPM, which may adversely affect the future financial performance of the combined company.
In the course of the due diligence review that we conducted prior to the execution of the Acquisition Agreement, we may not have discovered, or may have been unable to properly quantify, certain liabilities of Hyperion and OPM or other factors that may have an adverse effect on the business, results of operations, financial condition, and cash flows of the combined company.
Our estimates and judgments related to the acquisition accounting methods used to record the purchase price allocation related to the merger may be inaccurate.
With respect to our proposed acquisition of Hyperion and OPM (and other acquisitions we may undertake in the future), our management will make significant accounting judgments and estimates related to the application of acquisition accounting of the acquisition under GAAP, as well as the underlying valuation models. Our business, operating results, and financial condition could be materially adversely impacted in future periods if the accounting judgments and estimates prove to be inaccurate.
28
We may not satisfy all of the closing conditions to complete the acquisition of Hyperion and OPM.
The completion of the acquisitions is subject to the following material closing conditions, and there can be no assurance that the transactions will be completed as described (conditions that have been waived or satisfied are identified below):
•we will have entered into a new lease agreement for at least a twelve-month period at the current Hyperion and OPM locations;
•a key employee of Hyperion and OPM will have entered into a consulting agreement with us (this condition will be waived by us as the employee is no longer deemed necessary);
•our independent auditor will have completed an audit of the financial statements of Hyperion and OPM (this condition has been satisfied);
•we will have closed on one or more rounds of financing for an aggregate amount of no less than $4,000,000, of which at least $250,000 will be from selling parties to the transaction; and
•we will have commenced trading, or been approved to commence trading, on either the Nasdaq or the NYSE American Exchange.
In the event we do not complete the transactions, we will have incurred a substantial amount of fees and expenses without adding any value or benefit.
Existing stockholders will experience additional dilution from the issuance of our Common Stock to complete the Hyperion and OPM acquisitions.
If we close on the acquisitions of Hyperion and OPM, we will issue $1,250,000 worth of our common stock to the selling parties. The number of shares will be determined at the time of the closing, based on a 30% premium to the price paid per share of common stock in this offering, but in no event more than ninety percent (90%) of the volume weighted average price for our common stock for the ninety (90) trading days up to and including the trading day immediately before the day the price is finally determined for securities sold in this offering. The issuance of our Common Stock to close the acquisitions will have a dilutive impact on our shareholders. As a result, our net income per share could decrease in future periods and the market price of our common stock could decline.
Risk Factors Related to the Offering and Our Securities Generally
Existing stockholders will experience significant dilution from the sale of our Common Stock.
The sale of our Common Stock pursuant to this Offering will have a dilutive impact on our shareholders. As a result, our net income per share could decrease in future periods and the market price of our common stock could decline.
The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock.
29
The market prices and trading volume of our shares of Common Stock may experience rapid and substantial price volatility, which could cause purchasers of our Common Stock to incur substantial losses.
The market prices and trading volume of shares of Common Stock of other small publicly traded companies with a limited number of shares available to purchasers, have experienced rapid and substantial price volatility unrelated to the financial performance of those companies. Similarly, subsequent to this Offering, shares of our Common Stock may experience similar rapid and substantial price volatility unrelated to our financial performance, which could cause purchasers of our Common Stock in this Offering to incur substantial losses, which may be unpredictable and not bear any relationship to our business and financial performance. Extreme fluctuations in the market price of our Common Stock may occur in response to strong and atypical retail investor interest, including on social media and online forums, the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our Common Stock and our other securities, access to margin debt, trading in options and other derivatives on our shares of Common Stock and any related hedging and other trading factors:
If there is extreme market volatility and trading patterns in our Common Stock, it may create several risks for investors in this Offering, including the following:
·the market price of our Common Stock may experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals;
·if our future market capitalization reflects trading dynamics unrelated to our financial performance or prospects, purchasers of our Common Stock could incur substantial losses as prices decline once the level of market volatility has abated;
·if the future market price of our Common Stock declines, purchasers of shares of Common Stock in this Offering may be unable to resell such shares at or above the price at which they acquired them. We cannot assure such purchasers that the market of our Common Stock will not fluctuate or decline significantly in the future, in which case investors in this Offering could incur substantial losses.
Further, we may incur rapid and substantial increases or decreases in our Common Stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting us. Accordingly, the market price of our Common Stock may fluctuate dramatically, and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, many of which are beyond our control, that could negatively affect the market price of our Common Stock or result in fluctuations in the price or trading volume of our Common Stock, including:
·actual or anticipated variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet market expectations with regard to our earnings;
·our current inability to pay dividends or other distributions;
·publication of research reports by analysts or others about us or the industry in which we operate, including the nutraceutical industry which may be unfavorable, inaccurate, inconsistent or not disseminated on a regular basis;
·changes in market valuations of similar companies;
·market reaction to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the holdings of our existing stockholders;
·additions or departures of key personnel;
·actions by institutional or significant stockholders;
·short interest in our Common Stock or our other securities and the market response to such
30
short interest;
·the dramatic increase in the number of individual holders of our Common Stock and their participation in social media platforms targeted at speculative investing;
·speculation in the press or investment community about our company or industries in which we operate;
·strategic actions by us or our competitors, such as acquisitions or other investments;
·legislative, administrative, regulatory or other actions affecting our business, our industry, including positions taken by the FDA;
·investigations, proceedings, or litigation that involve or affect us;
·the occurrence of any of the other risk factors included in this registration statement of which this prospectus forms a part; and
·general market and economic conditions.
If our initial listing application for our Common Stock is not approved by Nasdaq, we will not be able to consummate the Offering and will terminate this Offering.
Approval of our initial listing application for our Common Stock by Nasdaq will be subject to, among other things, our fulfillment of the following conditions: (i) the Offering of the Shares is completed and closed; and (ii) we have raised a sufficient amount of equity necessary to qualify for the minimum equity requirements necessary to list our Common Stock on Nasdaq. Currently we are endeavoring to satisfy the standard for admission on Nasdaq requiring $5 million in stockholders’ equity and $15 million market value of publicly held shares of Common Stock. If we fail to meet the minimum requirements for initial listing on Nasdaq, we will not be able to consummate the Offering and will terminate this Offering. There is no assurance that our Common Stock will ever be listed on Nasdaq or that we will be able to comply with such applicable initial listing standards. Failure to have our Common Stock listed on Nasdaq would make it more difficult for our stockholders to dispose of our Common Stock and more difficult to obtain accurate price quotations on our Common Stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our Common Stock is not traded on a national securities exchange.
The Nasdaq Stock Market LLC may delist our Common Stock from trading on Nasdaq, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
In the event that our Nasdaq initial listing application for our Common Stock is approved, should we fail to satisfy the continued listing requirements for remaining listed on Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, The Nasdaq Stock Market LLC may take steps to delist our Common Stock. Such a delisting would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below Nasdaq’s minimum bid price requirement or prevent future non-compliance with such listing requirements.
If we cannot maintain the listing of our Common Stock for trading on Nasdaq, we could face significant material adverse consequences, including:
·a limited availability of market quotations for our Common Stock;
·reduced liquidity for our Common Stock;
·a determination that our Common Stock is a “penny stock” which will require brokers
31
trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Common Stock;
·a limited amount of news and analyst coverage; and
·a decreased ability to issue additional Common Stock or obtain additional financing in the future.
Even if the reverse stock split of our outstanding shares of Common Stock currently achieves the requisite increase in the market price of our Common Stock for listing of our Common Stock on Nasdaq, we cannot assure you that the market price of our Common Stock will remain high enough for such reverse split to have the intended effect of complying with Nasdaq’s minimum bid price requirement.
In connection with this Offering and the initial listing of our Common Stock on Nasdaq, we expect to effect a reverse stock split of our Common Stock at the ratio we believe necessary to allow us to obtain Nasdaq approval of our initial listing application to list our Common Stock on Nasdaq. Even if such reverse stock split achieves the requisite increase in the market price of our Common Stock for listing of our common stock on Nasdaq, there can be no assurance that the market price of our Common Stock following such reverse stock split will remain at the level required for continuing compliance with such requirements. It is not uncommon for the market price of a company’s Common Stock to decline in the period following a reverse stock split. If the market price of our Common Stock declines following the effectuation of such reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our Common Stock outstanding, such as negative financial or operational results, could adversely affect the market price of our Common Stock and thus jeopardize our ability to meet or maintain Nasdaq’s minimum bid price requirement.
If we are unable to satisfy these requirements or standards, we would not be able to meet Nasdaq’s initial listing application, which could cause us to terminate the Offering. We can provide no assurance that any such action taken by us would allow our Common Stock to be listed on Nasdaq, stabilize the market price or improve the liquidity of our common stock, prevent the price of our Common Stock from dropping below Nasdaq’s minimum bid price requirement, or prevent future non-compliance with Nasdaq’s listing requirements.
The anticipated reverse stock split to be effected by us in connection with this Offering may decrease the liquidity of the shares of our Common Stock.
The liquidity of the shares of our Common Stock may be affected adversely by a reverse stock split to be effected by us in connection with this Offering given the reduced number of shares of our Common Stock that will be outstanding following such reverse stock split, especially if the market price of our Common Stock does not increase as a result of such reverse stock split. In addition, such reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our Common Stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares of Common Stock and greater difficulty effecting such sales.
Following such anticipated reverse stock split, the resulting market price of our Common Stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.
Although we believe that a higher market price of our Common Stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that
32
the market price of our Common Stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our Common Stock may not necessarily improve.
As a result of when the post-reverse split price of our Common Stock will be made available upon the anticipated listing of our Common Stock on Nasdaq, potential investors in this Offering will not have an opportunity to check the actual post-reverse split market price of our Common Stock before confirming their purchases of shares of Common Stock in this Offering.
The post-split price of our Common Stock will only be available following the SEC declaring the registration statement of which this prospectus forms a part effective and upon the anticipated initial listing of the Common Stock on Nasdaq, which will occur prior to the closing of the Offering of the Shares. Because such post-reverse split price will not be available until the SEC declares such registration statement effective and in connection with the pricing of this Offering of the Shares and such initial listing, potential investors may not be able to check the actual post-reverse split market price of our Common Stock on Nasdaq before confirming purchases of shares of Common Stock in the Offering.
A significant portion of our total outstanding shares of Common Stock are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our Common Stock to drop significantly, even if our business is performing well.
As a result of this Offering and the initial listing of our Common Stock on Nasdaq sales of a substantial number of shares of our Common Stock in the public market could occur at any time, subject to certain restrictions described below. All of the Shares will be freely tradable without restrictions or further registration under the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act (“Rule 144”). These sales, or the perception in the market that holders of a large number of shares of our Common Stock intend to sell shares, could reduce the market price of our Common Stock. After this Offering, assuming no exercise of the Underwriters’ over-allotment option and no exercise of any Underwriters’ Warrants, we will have outstanding 2,954,104 shares of Common Stock based on the number of our shares of Common Stock outstanding as of September 29, 2023, 563,327 of which may be resold in the public market immediately without restriction, and the rest of which may be sold pursuant to Rule 144. Also, we intend to register all shares of Common Stock that we may issue under our equity compensation plan on a registration statement on Form S-8. Upon such registration, such shares can be freely sold in the public market upon issuance, subject to the terms of applicable award agreements, volume limitations applicable to affiliates and the lock-up agreements described in the “Shares Eligible for Future Sale” section of this prospectus.
If you purchase our shares of Common Stock in this Offering at the public offering price, you will suffer immediate dilution of your investment.
The public offering price of the Shares will be substantially higher than the net tangible book value per share of our Common Stock. Therefore, if you purchase shares of Common Stock in this Offering at such price, you will pay an public offering price per share of Common Stock that substantially exceeds our net tangible book value per share after such Offering. Based on the assumed public offering price of $6.48 per share, you will experience immediate dilution of $4.11 per share, representing the difference between the assumed public offering price per share of our Common Stock and our as adjusted net tangible book value per share of $2.37 after giving effect to this Offering of the Shares. See “Dilution.” In addition, to the extent any Underwriters’ Warrants, or any of our outstanding options or other warrants are exercised, you will incur further dilution.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our Common Stock, the price of our Common Stock could decline.
33
The trading market for our Common Stock may rely, in part, on the research and reports that industry or financial analysts publish about us or our business. If securities analysts do not commence coverage of us, the trading price of our Common Stock could decrease. Additionally, if one or more of the analysts covering our business downgrade their evaluations of our Common Stock, the price of our Common Stock could decline. If one or more of these analysts cease to cover our Common Stock, we could lose visibility in the market for our Common Stock, which in turn could cause our Common Stock price to decline.
The price of our Common Stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our Common Stock in this Offering.
The public offering price for the shares of our Common Stock sold in this Offering will be determined by negotiation between the representatives of the underwriters and us. This price may not reflect the market price of our Common Stock following this Offering. In addition, the market price of our Common Stock is likely to be highly volatile due to many factors, including:
·the success of competitive products or technologies;
·commencement or termination of collaborations;
·regulatory or legal developments in the United States and other countries;
·developments or disputes concerning patent applications, issued patents or other proprietary rights;
·the recruitment or departure of key personnel;
·the level of expenses related to any of our product candidates or product development programs;
·the results of our efforts to discover, develop, acquire or in-license additional product candidates;
·actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
·our inability to obtain or delays in obtaining adequate product supply for any approved product or inability at acceptable prices;
·disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
·significant lawsuits, including patent or stockholder litigation;
·variations in our financial results or those of companies that are perceived to be similar to us;
·market conditions in the nutraceutical sector;
·general economic, industry and market conditions; and
·the other factors described in this “Risk Factors” section.
An active trading market for our Common Stock may not develop and you may not be able to resell your shares at or above the public offering price.
Prior to this Offering, there has been a limited public market for shares of our Common Stock. Although we have applied to list our Common Stock on Nasdaq, an active trading market for our Common Stock may never develop or be sustained following this Offering. The public offering price of our Common Stock will be determined through negotiations between us and the underwriters. This public offering price may not be indicative of the market price of our Common Stock after this Offering. In the absence of an active trading market for our Common Stock, investors may not be able to sell their Common Stock at or above the public offering price or at the time that they would like to sell. An inactive market may also impair our ability to raise capital by selling shares of our Common Stock and may impair our ability to acquire other companies, products or technologies by using shares of our Common Stock as consideration.
34
We have broad discretion in the use of our cash, including the net proceeds from the Shares sold in this Offering, and may not use them effectively.
Our management will have broad discretion in the application of our cash, including the net proceeds from this Offering of the Shares, and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our Common Stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business or cause the price of our Common Stock to decline. Pending their use, we may invest our cash, including the net proceeds from this Offering of the Shares, in a manner that does not produce income or that loses value.
Raising additional capital will likely cause dilution to our existing stockholders and restrict our operations.
We will likely seek to raise additional capital following this offering through a combination of public and private equity offerings, debt financings. To the extent that we raise additional capital through the sale of equity or debt securities, your ownership interest will be diluted and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or any of our product candidates, or grant licenses on terms unfavorable to us.
We will incur increased costs as a result of operating as a smaller reporting public company, and our management will be required to devote substantial time to new compliance initiatives.
As a smaller reporting public company, we will incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel, who do not have extensive experience in operating a public company, will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.
Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
35
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future.
36
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are only predictions and involve known and unknown risks and uncertainties, including the risks outlined under “Risk Factors” and elsewhere in this prospectus.
Forward-looking statements contained in this prospectus include, but are not limited to, statements about the following:
·our estimates regarding the potential market opportunity for our products;
·our ability to identify and develop new product candidates;
·the anticipated benefits of our pending acquisition of Hyperion and OPM;
·our ability to identify, recruit and retain key personnel;
·our commercialization and marketing capabilities and strategy;
·the implementation of our business model, strategic plans for our business, product candidates and technology;
·the rate and degree of market acceptance and utility of our products and products in development;
·our competitive position;
·our intellectual property position and our ability to protect and enforce our intellectual property;
·our financial performance;
·developments and projections relating to our competitors and our industry;
·our ability to obtain additional funding;
·our expectations related to the use of proceeds from this Offering;
·our estimates regarding expenses, future revenue, capital requirements and needs for or ability to obtain additional financing;
·the impact of laws and regulations; and
37
·the impact that general economic conditions and the uncertainty of the U.S. and global economy, particularly the continuing COVID-19 pandemic, inflation in the U.S., globally supply chain disruptions and the sanctions imposed on Russia as a result of its invasion of Ukraine has had and will have on our industry, market, business and product candidates.
Forward-looking statements are subject to a number of significant risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievement. We are not under any duty to update any of the forward-looking statements after the date of this annual report to conform these statements to actual results, unless required by law.
38
USE OF PROCEEDS
We estimate that the net proceeds from our issuance and sale in this Offering of 1,543,210 Shares will be approximately $9.2 million (or $10,579,998 if the underwriters exercise in full their option to purchase additional shares of Common Stock), assuming no exercise of any Underwriters’ Warrants and an assumed public offering price of $6.48 per share, and after deducting estimated underwriting discounts and estimated offering expenses payable by us.
Each $0.50 increase (decrease) in the assumed public offering price of $6.48 per share would increase (decrease) the net proceeds to us from this Offering by approximately $709,000, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and assuming no exercise of any Underwriters’ Warrants, and after deducting the underwriting discounts and estimated offering expenses payable by us. Similarly, each 500,000 increase (decrease) in the number of shares offered by us, as set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us by $2,980,800, assuming the assumed public offering price per share remains the same and assuming no exercise of any Underwriters’ Warrants, and after deducting the underwriting discounts and estimated offering expenses payable by us.
As of December 31, 2022 and June 30, 2023, we had cash and short-term investments of approximately $65,000 and $92,000, respectively. We intend to use the net proceeds from this Offering, together with our existing cash, as follows:
·approximately $3.1 million to complete the acquisition of Hyperion, L.L.C. and Online Publishing & Marketing, LLC; and
·any remaining balance for general corporate purposes, including general and administrative expenses and working capital.
We believe that our current cash, along with the net proceeds from this Offering, will be sufficient for us to fund our operating expenses and capital expenditure requirements into 2024.
The amounts and timing of our actual expenditures will depend on numerous factors, including the amount of cash used in our operations. Although we have no present intention or commitment to do so, we may use a portion of the net proceeds for the acquisition of, or investment in, technologies, intellectual property or businesses that complement our business.
Our expected use of net proceeds from this Offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with complete certainty all of the particular uses for the net proceeds to be received upon the completion of the Offering or the actual amounts that we will spend on the uses set forth above. We may find it necessary or advisable to use the net proceeds for other purposes, and our management will retain broad discretion over the allocation of the net proceeds of this Offering. Pending the uses described above, we may invest the net proceeds from this Offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
39
DIVIDEND POLICY
We have not declared or paid a cash dividend on our capital stock in our last two fiscal years and we do not expect to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, for use in our business. Any dividends declared in the future will be at the discretion of our Board of Directors and subject to any restrictions that may be imposed by our lenders.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2023:
·on an actual basis; and
·on an as-adjusted basis, after giving effect to the sale of an assumed, 1,543,210 shares of our Common Stock in this Offering at an assumed offering price of $6.48 per share, after deducting the underwriting discounts and estimated offering expenses payable by us.
·on a pro forma basis, after giving effect to the acquisition of Hyperion and OPM ($3,050,000 in cash and $1,250,000 of Common Stock (192,902 Shares of Common Stock based on an assumed price of $6.48)), this offering of an assumed 1,543,210 shares of our Common Stock at an assumed offering price of $6.48 per share, after deducting the underwriting discounts and estimated offering expenses payable by us.
The information in this table is illustrative only and our capitalization following the closing of the offering will be adjusted based upon the actual public offering price and other terms of this offering determined at pricing.
|
| Actual
|
|
| As adjusted
|
|
| Pro forma as adjusted
|
Cash and Cash Equivalents
| $
| 92,501
| $
|
| 9,085,621
|
| $
| 6,235,621
|
Total Debt
| $
| 1,023,863
| $
|
| 1,023,863
|
| $
| 1,023,863
|
Capitalization
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, (50,000,000 shares authorized, 2,879,104 shares issued and outstanding, actual; 4,422,314 shares issued and outstanding, as adjusted; and 4,615,215 shares issued and outstanding, on a pro-forma as-adjusted basis)
| $
| 345,492
|
| $
| 347,036
|
| $
| 347,229
|
Additional paid in capital
| $
| 18,608,436
|
| $
| 27,600,013
|
| $
| 28,849,820
|
Accumulated deficit
| $
| (17,773,134)
|
| $
| (17,773,134
| )
| $
| (17,773,134)
|
Total Stockholders Equity / (Deficit)
| $
| 1,180,795
|
| $
| 10,173,915
|
| $
| 11,423,915
|
Total Capitalization
| $
| 2,204,658
|
| $
| 11,197,778
|
| $
| 12,447,778
|
40
DILUTION
We are registering for sale to new investors up to an assumed 1,543,210 shares at an assumed $6.48 per share. Our existing shareholders paid approximately $6.34 per share for their shares. The shares for other existing shareholders may have been paid for in cash or were issued for assets contributed to us or services provided to us. The following table sets forth on a pro forma basis at June 30, 2023, the differences between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us, and the average price paid per share (assuming a proposed public offering price of $6.48 per share).
|
| Shares
Purchased
|
| Total
Consideration
|
| Average Price Per Share
|
|
| Amount
|
| Percent
|
| Amount
|
| Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing
Stockholders
|
| 2,879,104
|
| 65%
| $
| 18,255,071
|
|
65%
| $
| 6.34
|
|
|
|
|
|
|
|
|
|
|
|
New Investors
|
| 1,543,210
|
| 35%
| $
| 10,000,000
|
| 35%
| $
| 6.48
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
| 4,422,314
|
| 100%
| $
| 28,255,071
|
| 100%
| $
| 6.39
|
The difference between the public offering price per share of common stock and the net tangible book value per share of common stock after this Offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing the net tangible book value (total assets less intangible assets and total liabilities) by the number of outstanding shares of common stock. The dilution calculations we have set forth in this section reflect an offering price of $6.48 per share.
As of June 30, 2023, we had a net tangible book value of $465,655 or $0.16 (net book value ($1,180,795) less intangible assets ($521,881) and goodwill ($193,260) per share of issued and outstanding common stock. After giving effect to the sale of the shares proposed to be offered in the Offering of 1,543,210 shares and upon closing of the Hyperion and OPM acquisition, we will issue to the Hyperion and OPM Shareholders shares of our Common Stock with a fair market value of $1,250,000, based on the assumed public offering price of $6.48, will issue and additional 192,901 shares, the adjusted net tangible book value is $10,938,243 or $2.37 per share (actual net book value ($465,655) plus proceeds from the share issuance ($10,000,000) less the offering expenses ($1,078,023) plus the acquisition equity – less goodwill ($1,669,243) less acquisition costs ($118,632). This represents an immediate increase in net tangible book value of $2.21 per share to existing shareholders and an immediate dilution of $4.11 per share to new investors.
The following table illustrates such per share dilution:
Proposed public offering price (per share)
|
|
| $
| 6.48
|
| Net tangible book value per share at June 30, 2023
| $
| 0.16
|
|
|
| Increase in net tangible book value per share attributable to the proceeds of the maximum offering
| $
| 2.21
|
|
|
Pro forma net tangible book value per share after the offering
|
|
| $
| 2.37
|
|
|
|
|
|
Dilution to new investors
| $
| 4.11
|
|
|
41
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with and is qualified in its entirety by and should be read together with our financial statements and the related notes thereto appearing elsewhere in this prospectus. This discussion contains certain forward-looking statements that involve risks and uncertainties, as described under the heading “Cautionary Note Regarding Forward-Looking Statements.” Actual results could differ materially from those projected in the forward-looking statements.
Overview
We are a platform for acquiring, developing, patenting, marketing, and distributing plant-based nutraceuticals. Our products have not been evaluated by the FDA or any similar regulatory body for safety and efficacy. Our proprietary and patented products target select high-growth categories within the multibillion-dollar nutraceuticals market, such as heart, brain and immune health. Our mission is to acquire or create products with health and performance benefits that have mass consumer appeal.
Guided by this mission, our first two acquisitions formed our current operating subsidiaries, Bergamet, which offers nutraceutical heart and immune health products, and UBN, which offers nutraceutical products for brain health. Based on published research from third-party sources, we believe our Bergamet products have been shown to support heart health, support immune response, and address metabolic syndrome.
On January 13, 2023, we entered into a definitive agreement to acquire nutraceutical manufacturer, Hyperion, and its digital marketing affiliate OPM. We intend to use a portion of the proceeds from this offering to fund this acquisition. Hyperion products have been formulated to support brain, memory, vision, sinus and digestive health, as well as healthy sleep and aging. OPM provides online advertising and marketing for Hyperion as well as other companies in the health and wellness space. The closing of these two acquisitions is expected to occur following the completion of and using the proceeds from this Offering. We anticipate the acquisition of Hyperion and OPM to be transformative to our business, significantly strengthening our manufacturing, marketing and distribution capabilities, expanding our nutraceutical product portfolio, adding positive cash flow, and significantly increasing our annualized gross revenues. Revenues for Hyperion and OPM were over $10 million for the year ended December 31, 2022.
We expect the combination of these synergistic and accretive acquisitions to help accelerate our growth and expand our market reach. Our existing natural heart and brain health formulations are perfect for cross selling with Hyperion’s Green Valley Natural Solutions branded product line. Likewise, we see Green Valley sales benefiting from our established broad marketing channels, which includes subscription-based direct-to-consumer sales, national grocery stores, wholesale distribution, and a strong presence on Amazon. We also anticipate that the greater financial and operational strength afforded by these two acquisitions to better enable us to make future strategic complementary acquisitions, including some of which we have identified and are currently evaluating.
Our Financial Condition and Going Concern Issues
As a result of our financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2022 and 2021 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. From inception (December 19, 2014) through the end of December 31, 2022, we have incurred accumulated net losses of $15,926,742. In order to continue as a going concern we must effectively balance many factors and generate more revenue so that we can fund our operations from our sales and revenues.
42
If we are not able to do this, we may not be able to continue as an operating company. At our current revenue and burn rate, we have an immediate cash need, and thus we must raise capital by issuing debt or through the sale of our stock. However, there is no assurance that our existing cash flow will be adequate to satisfy our existing operating expenses and capital requirements.
Results of Operations for the Three and Six Months Ended June 30, 2023 and 2022
Introduction
We had revenues of $588,484 and $1,203,427 for the three and six months ended June 30, 2023, compared to $469,812 and $933,198 for the three and six months ended June 30, 2022. Our cost of revenue for the three and six months ended June 30, 2023 were $303,415 and $640,517, compared to $195,556 and $334,238 for the three and six months ended June 30, 2022.
Our operating expenses were $1,540,942 and $2,223,972 for the three and six months ended June 30, 2023, compared to $888,401 and $1,258,758 for the three and six months ended June 30, 2022. Our operating expenses consisted entirely of general and administrative expenses.
Our net loss was $1,267,235 and $1,846,392 for the three and six months ended June 30, 2023, compared to $859,326 and $856,315 for the three and six months ended June 30, 2022.
43
Revenues and Net Operating Loss
Our revenue, operating expenses, other income (expense), and net loss for the three and six months ended June 30, 2023 and 2022 were as follows:
|
| Three Months
Ended
|
| Three Months
Ended
|
| Six Months
Ended
|
| Six Months
Ended
|
|
| June 30,
|
| June 30,
|
| June 30,
|
| June 30,
|
|
| 2023
|
| 2022
|
| 2023
|
| 2022
|
|
|
|
|
|
|
|
|
|
Revenue
| $
| 588,484
| $
| 469,812
|
| 1,203,427
|
| 933,198
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
| 303,415
|
| 195,556
|
| 640,517
|
| 334,238
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
| 285,069
|
| 274,255
|
| 562,911
|
| 598,960
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
| 1,540,942
|
| 888,401
|
| 2,223,972
|
| 1,258,758
|
Total operating expenses
|
| 1,540,942
|
| 888,401
|
| 2,223,972
|
| 1,258,758
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expenses, net of interest income
|
| (25,212)
|
| (24,365)
|
| (114,272)
|
| (57,322)
|
Change in fair value on derivative
|
| 13,850
|
| (220,817)
|
| (71,058)
|
| (141,839)
|
Gain on sale of asset
|
| -
|
| -
|
| -
|
| 2,643
|
Total other income (expense)
|
| (11,362)
|
| (245,181)
|
| (185,331)
|
| (196,517)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
| $
| (1,267,235)
| $
| (859,326)
|
| (1,846,392)
|
| (856,315)
|
Revenues
We had revenues of $588,484 and $1,203,427 for the three and six months ended June 30, 2023, compared to $469,812 and $933,198 for the three and six months ended June 30, 2022, an increase of $118,672, or 25%, and $270,230, or 29%, respectively. Revenues for the three months ended December 31, 2022 were $583,287. We expect strong growth to increase as our direct consumer sales and marketing efforts continue to perform.
Cost of Revenue
Our cost of revenue for the three and six months ended June 30, 2023 were $303,415 and $640,517, compared to $195,556 and $334,238 for the three and six months ended June 30, 2022, an increase of $107,859, or 55%, and $306,279, or 92%, respectively. Gross profit for the three and six months ended June 30, 2023 was $285,069 and $562,911, compared to $274,255 and $598,960 for the three and six months ended June, 30, 2022, an increase of $10,814, or 4%, and a decrease of $36,049, or 6%, respectively.
Cost of revenue as a percentage of revenues was 52% and 53% for the three and six months ended June 30, 2023, compared to 42% and 36% for the three and six months ended June 30, 2022. Cost of revenue was higher in 2023 compared to 2022 because of higher material and shipping costs.
General and Administrative
Our general and administrative expenses were $1,540,942 and $2,223,972 for the three and six months ended June 30, 2023, compared to $888,401 and $1,258,758 for the three and six months ended
44
June 30, 2022, an increase of $652,541, or 73%, and $965,214, or 77%, respectively. In the three months ended June 30, 2023, general and administrative expenses consisted mainly of consulting fees of $766,405, stock based compensation $432,047, advertising of $168,148, accounting and legal fees of $30,883, and salary and wages of $36,813. In the three months ended June 30, 2022, general and administrative expenses consisted mainly of advertising of $149,690, consulting fees of $133,200, professional fees of $28,123, and salary and wages of $36,388. During the three months ended June 30, 2023, part of the increase in costs were due to a catch up of stock compensation that occurred. Additionally, some of the incremental costs of the Company’s uplist have not been deferred and have been included.
Other Income (Expense)
Other income (expense) was $(11,362) and $(185,331) for the three and six months ended June 30, 2023, compared to $(245,181) and $(196,517) for the three and six months ended June 30, 2022, a decrease of $233,819, or 95%, and $11,186, or 6%, respectively. In the six months ended June 30, 2023, other income (expense) consisted of interest expenses, net of interest income of $(25,212) and change in fair value on derivative of $13,850. In the three months ended June 30, 2022, other income (expense) consisted of interest expense, net of interest income of $(24,365) and change in fair value on derivative of $(220,817). Change in fair value of derivative was related to the conversion of convertible debts into common stock shares.
Net Income (Loss)
Net income (loss) was $(1,267,235) and $(1,846,392), or $0.00 and $0.01 per share, for the three and six months ended June 30, 2023, compared to $(859,326) and $(856,315), or $0.00 and $0.00 per share, for the three and six months ended June 30, 2022.
Our net income (loss) varies from period to period primarily because of the change in fair value on derivative and our increase in general and administrative expenses.
Liquidity and Capital Resources
Introduction
During the three and six months ended June 30, 2023, we were unable to generate sufficient revenues and had negative operating cash flows. Our cash on hand as of December 31, 2022 was $65,651, as of March 31, 2023 was $213,204, and as of June 30, 2023 was $92,501. The increase in cash on hand at March 31, 2023 was primarily from our net cash provided by financing activities. Our monthly cash flow burn rate for the six months ended June 30, 2023 was approximately $67,250. We have strong short and medium term cash needs. We anticipate that these needs will be satisfied through increased revenues and the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2023 and December 31, 2022, respectively, are as follows:
| June 30,
|
| December 31,
|
| Increase/
|
| 2023
|
| 2022
|
| (Decrease)
|
|
|
|
|
|
|
Cash
| $
| 92,501
|
| $
| 65,651
|
| $
| 26,850
|
Total Current Assets
| 1,925,780
|
|
| 2,043,587
|
| (117,807)
|
Total Assets
| 2,662,214
|
|
| 2,781,118
|
| (118,904)
|
Total Current and Total Liabilities
| 1,481,418
|
|
| 902,788
|
| 578,631
|
45
Our total current assets and total assets decreased slightly during the six months ended June 30, 2023 primarily as a result of our decrease in inventory of $354,503, offset in part by our increase in right of use asset and prepaid acquisition costs. Our accumulated deficit increased during the six months ended June 30, 2023 by $1,846,392 to $17,773,134.
In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
Cash Requirements
Our cash on hand as of June 30, 2023 was $92,501. Based on our current level of revenues and monthly burn rate of approximately $67,250 per month, we will need to continue to fund operations by raising capital from the sale of our stock and debt financings.
Sources and Uses of Cash
Operating Activities
We had net cash used in operating activities of $403,493 for the six months ended June 30, 2023, compared to $157,319 for the six months ended June 30, 2022. We use our cash for normal business operations. Our net cash used in operating activities for the six months ended June 30, 2023 consisted of our net loss of $1,846,392, offset in part by our warrants issued for services of $1,148,857, and increase in inventory of $354,503. Our net cash used in operating activities for the three months ended June 30, 2022 consisted of our net loss of $856,315, offset in part by our warrants issued for services of $422,300, an increase in accounts payable of $76,874, and an increase in accounts receivable of $33,148.
Investing Activities
We had zero cash flows provided by investing activities for the six months ended June 30, 2023, compared to $(5,344) for the six months ended June 30, 2022.
Financing Activities
Our net cash provided by financing activities for the six months ended June 30, 2023 was $430,342, compared to $99,970 for the six months ended June 30, 2022. Our net cash provided by financing activities consisted of proceeds from the issuance of notes payable of $431,000, proceeds from the issuance of convertible debt of $350,000, and loan origination fees of $68,888, offset by repayment of notes payable of $309,011 and repayment of convertible debt of $110,535.
Results of Operations for the Years Ended December 31, 2022 and 2021
Introduction
We had revenues of $2,251,469 for the year ended December 31, 2022, as compared to $1,676,598 for the year ended December 31, 2021, an increase of $574,871, or 34%. Our cost of revenue was $879,951 for the year ended December 31, 2022, as compared to $981,520 for the year ended December 31, 2021, a decrease of $101,568, or 10%.
46
Revenues and Net Operating Loss
Our revenues, operating expenses, and net operating loss for the years ended December 31, 2022 and 2021 were as follows:
|
| Year Ended
December 31, 2022
|
| Year Ended
December 31, 2021
|
| Increase/
(Decrease)
|
|
|
|
|
|
|
|
Revenue
|
| $
| 2,251,469
|
|
| $
| 1,676,598
|
|
| $
| 574,871
|
|
Cost of Revenue
|
|
| 879,951
|
|
|
| 981,520
|
|
|
| (101,568)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
| 2,283,107
|
|
|
| 2,584,256
|
|
|
| (301,148)
|
|
Total operating expenses
|
|
| 2,283,107
|
|
|
| 2,584,256
|
|
|
| (301,148)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense)
|
|
| (71,531)
|
|
|
| (97,945)
|
|
|
| (26,414)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain/(loss)
|
| $
| (983,121)
|
|
| $
| (1,987,122)
|
|
| $
| (1,004,000)
|
|
Revenues
We had revenues of $2,251,469 and $1,676,598 for the years ended December 31, 2022 and 2021, respectively, an increase of $574,871, or 34%. The increase in revenues was mainly due to our increased focus on the Amazon marketplace. With the additional focus on Amazon marketplace along with adding their fulfillment program, we were able to increase sales through this channel by over $1 million from 2021 to 2022.
Cost of Revenue
Cost of revenue was $879,951 and $981,520 for the years ended December 31, 2022 and 2021, respectively, a decrease of $101,568, or 10%, and consisted of wholesale product costs and packaging. Additionally, most of the variance was due to the increase in the cost of product merchandise sold during the year. In 2022, most of our items sold had a higher cost due to manufacturing and shipping increases, an increase of $226,169. But we also recognized a difference in inventory adjustment for the two years. In 2022 our inventory adjustment was $96,811 compared to $424,548, a decrease of $327,737. During 2021, we had some raw product that expired, and we wrote off those goods, while in 2022 we did not have any product expire.
General and Administrative
General and administrative expense was $2,283,107 and $2,584,256 for the years ended December 31, 2022 and 2021, a decrease of $301,148, or 12%. The decrease was related to the reduction in consulting and professional fees during 2022. In the year ended December 31, 2022, general and administrative expenses consisted mainly of consulting fees of $608,819, broker fees of $383,938, selling expenses of $595,318, accounting and legal fees of $145,062, and salaries and wages of $145,589. In the year ended December 31, 2021, general and administrative expenses consisted mainly of consulting of $1,010,902, selling expenses of $560,883, accounting and legal fees of $323,658, salary and wages of $147,938, and transfer agent and filing fees of $46,778.
47
Net Operating Gain/Loss
As a result of the items discussed above, our net operating loss was $911,590 and $1,889,177 for the years ended December 31, 2022 and 2021, respectively, a reduction of $977,587, or 52%.
Other Income and Expense
Other income (expense) was $(71,531) and $(97,945) for the years ended December 31, 2022 and 2021, respectively, a decrease of $26,414, or 27%. For the year ended December 31, 2022, our other income (expense) consisted of interest expenses, net of interest income of $(64,690) and change in fair value on derivative of $(9,484), offset by a gain on the sale of asset of $2,643. For the year ended December 31, 2021, our other income (expense) consisted of interest expenses, net of interest income of $(52,453) and change in fair value on derivative of $(85,325), offset by SBA loan forgiveness of $39,833.
Net Gain/(Loss)
Our net gain (loss) for the year ended December 31, 2022 was $(983,121), or $0.00 per share, and our net gain (loss) for the ended December 31, 2021 was $(1,987,122), or $(0.01) per share, a decrease of $1,004,000, or 51%.
Liquidity and Capital Resources
Introduction
During the years ended December 31, 2022 and 2021, we had negative operating cash flows. Our cash on hand as of December 31, 2022 was $65,651. Our monthly cash flow burn rate in 2022 (not including inventory purchases) was approximately $28,000. Although we have strong short term cash needs, as our operating expenses increase, we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
Our cash, current assets, total assets, current liabilities, and total liabilities as of December 31, 2022 and 2021 were as follows:
| December 31,
2022
| December 31,
2021
| Change
|
|
|
|
|
|
Cash
| $
| 65,651
| $
| 222,098
| $
| (156,447)
|
Total Current Assets
|
| 1,990,572
|
| 2,313,404
|
| (322,832)
|
Total Assets
|
| 2,781,118
|
| 3,029,579
|
| (248,461)
|
Total Current Liabilities
|
| 902,788
|
| 558,841
|
| 343,947
|
Total Liabilities
| $
| 902,788
| $
| $558,841
| $
| 343,947
|
Our cash decreased by $156,447 as of December 31, 2022 as compared to December 31, 2021. Our total current assets decreased by $322,832 because of our decrease in cash, as well as accounts receivable and inventory. Our total assets decreased by $74,371, despite our decrease in current assets, as a result of our increase in prepaid acquisition costs, deposits, and fixed assets (net of accumulated depreciation).
Our current and total liabilities increased by $343,947, from $558,841 as of December 31, 2021 to $902,788 as of December 31, 2022. Our total liabilities as of the year ended December 31, 2022 consisted primarily of convertible det of $317,284 and notes payable of $275,370.
48
In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
Cash Requirements
Our cash on hand as of December 31, 2022 was $65,651. Our monthly cash flow burn rate in 2022 (not including inventory purchases) was approximately $28,000. Although we have strong short term cash needs, as our operating expenses increase, we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
Sources and Uses of Cash
Operations
Our net cash used in operating activities for the years ended December 31, 2022 and 2021 $352,578 and $901,298, respectively, a decrease of $548,720, or 61%. Our net cash used in operating activities for the year ended December 31, 2022 consisted of a net loss of $983,121 offset by an adjustment for warrants issued for services of $402,100, an increase in inventory of $138,838, and an increase in accounts payable of $54,048. Our net cash used in operating activities for the year ended December 31, 2021 consisted primary of a net loss of $1,987,122, plus a decrease in accounts receivable of $120,066, offset by an adjustment for warrants issued for services of $608,836 and changes in inventory of $459,717.
Investments
Our cash flow provided by (used in) investing activities for the years ended December 31, 2022 and 2021 was ($7,987) and $(96,004), respectively, a decrease of $88,017. All of our investing activities in 2021 was as a result of a reduction in the value of our trademarks.
Financing
Our net cash provided by financing activities for the years ended December 31, 2022 and 2021 was $204,119 and $1,160,199, respectively, a decrease of $956,081, or 82%. The decrease in 2022 was due to proceeds from the issuance of convertible debt of $323,600 and from the issuance of notes payable of $380,000, offset primarily by the repayment of convertible debt of $193,465 and repayment of notes payable of $294,630.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.
Management considers the following policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.
49
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.
Recent Accounting Pronouncements
Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a material effect on our financial statements.
Inventory
Inventories consist of health supplements held for sale in the ordinary course of business. The Company uses the weighted average cost method to value its inventories at the lower of cost and net realizable value. The components of inventory cost include raw materials, labor, and overhead. Net realizable value is determined using various assumptions with regard to excess or slow-moving inventories, expiration dates, current and future product demand, production planning, and market conditions. A change in any of these variables could result in an adjustment to inventory.
An allowance for Inventory was established in 2018 and is evaluated each quarter to determine if all items are still sellable due to expiration dates. As of December 31, 2022 and 2021, the total of inventory which was written off as an inventory allowance was $1,914,891 and $1,914,891. The inventory allowance did not change in 2022 and 2021 due to the fact that the inventory allowance was created due to some raw product expiring and we wrote-off that total amount in the prior years. The inventory write-offs in the current two periods were just inventory adjustments that were made to increase/decrease to inventory counts and not due to expiring product. The Company has not needed to write-off any expiring product in the current reporting period. All of the current inventory on hand is sellable and not spoiled or expires within twelve months.
|
| December 31,
|
|
| December 31,
|
|
| 2022
|
|
| 2021
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Classes:
|
|
|
|
|
|
|
|
Raw Materials
|
| $
| 3,398,655
|
|
| $
| 3,672,699
|
Finished Goods
|
|
| 310,600
|
|
|
| 194,490
|
Work in process
|
|
| 24,764
|
|
|
| 5,668
|
Total inventory
|
|
| 3,734,019
|
|
|
| 3,872,857
|
Inventory allowance
|
|
| (1,914,891)
|
|
|
| (1,914,891)
|
Total inventory
|
|
| 1,819,128
|
|
|
| 1,957,966
|
50
Revenue Recognition
We apply Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers (ASC 606). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes all of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires us to identify distinct performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. When distinct performance obligations exist, we allocate the contract transaction price to each distinct performance obligation. The standalone selling price is used to allocate the transaction price to the separate performance obligations. We recognize revenue when, or as, the performance obligation is satisfied.
Generally, revenues are recognized at the time of shipment to the customer with the price being fixed and determinable and collectability assured, provided title and risk of loss is transferred to the customer. Most of our shipping and handling costs are built into the transaction price, but if the customer asks for express shipping, the costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales.
Our subsidiary, BergaMet N.A., LLC, recognizes revenue from our main source – e-commerce revenue. Our sales channels include Bergmet’s website channel or any other selling channel like Amazon, doctors’ offices, and walk-in sales. All of our customer sales for Healthy Extracts Inc. and Ultimate Brain Nutrients, LLC are recognized as revenue under the subsidiary of BergaMet N.A., LLC. All three divisions of the Company sell plant-based nutraceuticals to our end using customers.
We evaluate the criteria outlined in ASC 606-10-55, Principal versus Agent Considerations, currently we are the principal and have not engaged any agents at this time. Currently, we have not recognized any revenues under the agent considerations.
Revenue is recognized when, or as, control of a promised merchandise or service is shipped to the customer, in an amount that reflects the consideration to which we expect to be entitled in exchange for transferring title of those products or services and are recorded net of and discounts or allowances. Shipping costs paid by the customer are included in revenue. Merchandise sales are fulfilled with inventory held in our warehouse in Henderson, NV. Therefore, our contracts have a single performance obligation (shipment of product).
If we receive a request for refund on a customer obligation, we will refund the full cost of the obligation due to our money back guarantee.
Revenue recognition is evaluated through the following five-step process:
1.identification of the contract with a customer;
2.identification off the performance obligations in the contract;
3.determination of the transaction price;
4.allocation of the transaction price to the performance obligations in the contract; and
5.recognition of revenue when or as a performance obligation is satisfied.
These steps are met when an order is received, a price agreed and the product shipped or delivered to that customer.
51
Debt with Warrants
In accordance with ASC Topic 470-20-25, when the Company issues debt with warrants, the Company treats the fair value of the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations using the straight-line method. The offset to the contra-liability is recorded as either equity or liability in the Company’s consolidated balance sheets depending on the accounting treatment of the warrants. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.
Convertible Debt – Derivative Treatment
When the Company issues debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: (a) one or more underlyings, typically the price of our common stock; (b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; (c) no initial net investment, which typically excludes the amount borrowed; and (d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both (a) indexed to its own stock; and (b) classified in stockholders’ equity in its balance sheet.
If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using a Black-Sholes option pricing model upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. If the convertible debt is viewed as short-term, management chooses to expense the full debt discount in the period incurred is recorded as a gain or loss in the consolidated statement of operations. If the convertible debt is viewed as long-term, the debt discount is amortized through interest expense over the life of the debt using the straight-line method.
52
BUSINESS
Overview
We are a platform for acquiring, developing, patenting, marketing, and distributing plant-based nutraceuticals. Our proprietary and patented products target select high-growth categories within the multibillion-dollar nutraceuticals market, such as heart, brain and immune health.
Our current principal geographic markets are customers in the United States looking for nutraceutical products focused on their own heart and brain health and immune support. Our products have not been evaluated by the FDA or any similar regulatory body for safety and efficacy.
The term “nutraceutical” is derived from the combination of the words “nutrient,” which means a nourishing food component, and “pharmaceutical,” meaning a medical drug. The term was coined in 1989 by Stephen DeFelice, founder and chairman of the Foundation for Innovation in Medicine.
Nutraceuticals are generally considered to be substances that beyond their nutritional value can be used to achieve a benefit for an existing physiological condition or provide protection against potential ailments. Nutraceuticals may be used to improve health, delay the aging process, help prevent chronic disease, increase life expectancy, or support the structure or function of the body.
In the U.S., nutraceutical products are regulated as drugs, food ingredients and dietary supplements. The term is not defined the same in all countries but is usually defined as a product isolated from foods and generally sold in medicinal forms not usually associated with food.
The primary philosophy behind nutraceuticals is the focus on prevention and the body’s ability use natural rather artificially derived substances to treat disease or dysfunction — or as the Greek physician and father of modern medicine Hippocrates famously espoused, “Let food be your Medicine.”
Today, the role of nutraceuticals in human health and wellbeing has become one of the most active and important areas of scientific investigation, with the latest findings presenting wide-raging implications for consumers, health care providers, regulators, nutritional supplement producers and distributors. Our mission is to acquire or create products with health and performance benefits that have mass consumer appeal.
Guided by this mission, our first two acquisitions (in 2019 and 2020, respectively) formed our current operating subsidiaries, Bergamet, which offers nutraceutical heart and immune health products, and UBN, which offers nutraceutical products for brain health.
Based on published research from third-party sources, we believe our Bergamet products have been shown to support heart health, support immune response, and address metabolic syndrome. Our UBN brain health formulations have been in development for more than 20 years, over which time its effects have been supported by third-party research studies.
On January 13, 2023, we entered into a definitive agreement to acquire nutraceutical manufacturer, Hyperion and its digital marketing affiliate OPM, both based in Lexington, Virginia. We intend to use a portion of the proceeds from this offering to fund this acquisition. See “Use of Proceeds.”
53
Hyperion products have been formulated to support brain, memory, vision, sinus and digestive health, as well as healthy sleep and aging. OPM provides online advertising and marketing for Hyperion as well as other companies in the health and wellness space. The closing of these two acquisitions is expected to occur following the completion of and using the proceeds from this Offering. See “Recent Developments – Acquisitions.”
We anticipate the acquisition of Hyperion and OPM to be transformative to our business, significantly strengthening our manufacturing, marketing and distribution capabilities, expanding our nutraceutical product portfolio, adding positive cash flow, and significantly increasing our annualized gross revenues. Revenues for Hyperion and OPM were over $10 million for the year ended December 31, 2022.
We expect the combination of these synergistic and accretive acquisitions to help accelerate our growth and expand our market reach. Our existing natural heart and brain health formulations are perfect for cross selling with Hyperion’s Green Valley Natural Solutions branded product line. Likewise, we see Green Valley sales benefiting from our established broad marketing channels, which includes subscription-based direct-to-consumer sales, national grocery stores, wholesale distribution, and a strong presence on Amazon.
We also anticipate that the greater financial and operational strength afforded by these two acquisitions to better enable us to make future strategic complementary acquisitions, including some of which we have identified and are currently evaluating.
Our Products
Heart & Immune Health
Our products which are intended to promote heart and immune health have been developed by our BergaMet subsidiary. Bergamot Polyphenolic Fraction Gold (“BPF”) is the active ingredient in these products, and our 47% BPF Bergamet products are currently the only heart health supplements distributed in North America that contain Citrus Bergamot SuperFruit. This exclusive superfruit is of the bergamot orange family, a fragrant citrus fruit about the size of a common orange but with a yellow or green color similar to a lime, depending on its ripeness.
Our Citrus Bergamot SuperFruit varietal, with its 47% BPF, has a high concentration of polyphenols and flavonoids of the citrus bergamia or bergamot orange fruit species. BPF is comprised of five polyphenols (Naringin, Neohesperidin, Brutieridin, Melitidin, and Neoeriocitrin).
BergaMet currently holds the exclusive rights to distribute Citrus Bergamot SuperFruit 47% BPF products in the online and direct to consumer channels in the U.S. and Canada pursuant to a supply agreement with H&AD S.r.L., an Italian limited company, which we entered into on January 1, 2019 and amended on November 1, 2021. The supply agreement has a term of five years and is renewable for up to four additional and successive three-year terms. We have minimum purchase obligations under the agreement, which require us to purchase at least 4,000 kilograms of BPF in 2023 at a current price of approximately US $155.00 per kilogram, for a total purchase obligation of approximately $620,000 for 2023. Through 2022, we have paid H&AD a total of approximately $1.2 million for BPF product. The agreement is mutually exclusive in that (i) we cannot purchase BPF from any third-party, sell or distribute any similar product in the territory, sell the product outside the territory, or produce the product ourselves, and (ii) H&AD will not supply or sell the product to any third-party in the territory. Each party may terminate the agreement upon a breach by the other party.
54
Bergamot is a rare citrus fruit native to the Calabrian region of Southern Italy. Due to the fruit’s sensitivity to certain weather and soil conditions, this region accounts for 80 percent of the worldwide production of bergamot. Bergamot has been used for decades in the Calabrian regions for its beneficial effects in promoting overall health, particularly in support of cholesterol, cardiovascular, and metabolic health.
Citrus bergamot contains five antioxidant polyphenols in unusually concentrated amounts, which are believed to help protect the human body’s trillions of cells from free radical damage. The juice and albedo of bergamot has a profile of flavanoid and glycosides, such as neoeriocitrin, neohesperidin, naringin, rutin, neodesmin, rhoifolin, and poncirin.
Naringin has been shown to be beneficial in animal models of atherosclerosis, while neoeriocitrin and rutin have been found to exhibit a strong capacity to prevent low-density lipoprotein (“LDL”) from oxidation. Importantly, bergamot juice is rich in brutieridine and melitidine with an ability to inhibit HMG-CoA reductase, which inhibits the liver’s ability to produce LDL, resulting in reduced cholesterol levels in liver cells.
Bergamot Products
We develop, manufacture and distribute bergamot-based products in tablet and capsule form under the following brands:
·BergaMet Pro+
·BergaMet Mega+O
·BergaMet HERHEART
·BergaMet Cholesterol Command
·BergaMet SPORTSHEART
·BergaMet CLINICAL IMMUNE
All of our BergaMet products are vegan friendly, non-GMO and gluten-free, and produced and tested by certified U.S. facilities, all as represented to us by our supplier, H&AD. Our HerHeart, Cholesterol Command, and Pro+ products are vegan, non-GMO, and gluten-free, as represented to us by our supplier, Norax Supplements.
55
In published research from third-party sources, our Citrus Bergamot has been shown to support heart health, support immune response and address metabolic syndrome. Our Citrus Bergamot has also been shown to naturally reduce cholesterol by lowering LDL and increasing high-density lipoprotein (“HDL”).
According to the CDC, nearly 94 million U.S. adults aged 20 years or older have high cholesterol levels that puts them at risk of heart disease. Every year an estimated 35 million people are prescribed statins to lower cholesterol, according to drugs.com, but these drugs can cause numerous negative side effects.
A peer-reviewed study demonstrated that the naturally-derived, bergamot polyphenolic fraction (BPF) contained in our Citrus Bergamot can significantly enhance the beneficial effects of rosuvastatin, one of the most prescribed drugs for reducing cardiometabolic risk.
Brain Health
Our UBN subsidiary develops plant-based health technology neuro-products that have been shown to improve brain health, including memory, cognition, focus and neuro-energy. UBN's mission is to naturally create better lifestyles with superior health technology and products.
UBN’s KETONOMICS® proprietary formulations, which are intended to enhance brain activity, focus, headache and cognitive behavior, provide many sales and intellectual property licensing opportunities.
UBN’s all-natural, sugar-free and caffeine-free proprietary formulations are the result of 20 years of scientific research by third-parties and are positioned to provide consumer neuro-products that are natural brain solutions.
UBN’s KETONOMICS® supplementation has also been studied in sports physiology, with specific regard to its potential benefits for competitive performance and endurance.
UBN offers several proprietary products, with four patent-pending formulations and two patents issued covering brain activity, focus, headache and cognitive behavior.
UBN Products
We have launched four brain health products based upon our proprietary Fuel4Thought® (F4T®) formulations. These brain health products are sold under the following product labels:
·UBN ACTIVATE: a proprietary natural formulation that has been demonstrated to increase key brain activity by as much as 46%. This product is sold direct-to-consumer via our UBN website, either as a singular sale or monthly subscription.
·UBN RELIEF: intended for migraine sufferers, this proprietary, patent-pending natural formulation has been shown to provide relief from symptoms often associated with migraine headaches, while also increasing brain and cognitive activation. This product is sold direct-to consumer on our website as singular sale or monthly subscription, as well as sold in the retail marketplace.
56
·Brain Activate - Gel, a proprietary gel pack formulation which was launched in collaboration with and under the brand name of our top brand influencer, Whitney Johns. The concentrated natural gel formulation provides the perfect “brain food” for sustained mental energy and attention without added sugars. It is sold direct-to-consumer on whitneyjohns.com as a singular sale or by subscription. The gel packs are developed by Gelteq, a global leader in ingestible gel technology. Gelteq gels offer a super-convenient way to consume substances that have a positive impact on mental skills (sometimes referred to as “nootropics”) and other nutrients.
·Brain Activate - ENERGY Gel: a proprietary gel pack nootropic formulation with caffeine. It is specially formulated to support focus, memory, cognition, mood and brain health, as well as reduce brain fog and support natural sleep patterns. The product was developed and launched in collaboration with Whitney Johns, and is sold direct-to-consumer on whitneyjohns.com as a singular sale or monthly subscription.
Our F4T® formulation includes C8 MCT (derived from coconut extract), Nuementix (spearmint), FloraGLO, and highly concentrated medium chain triglycerides, F4T® MCT, which are derived from our patented extraction process. F4T® C8 MCTs have been shown to elevate the level of ketones in the brain. “C8” refers to the eight-carbon chain that characterizes this specific fatty acid. As a result, manufacturers have taken to purifying MCT oil derived from coconuts so it contains only caprylic acid. That's because caprylic acid (C8) seems to be the most metabolically active medium-chain fatty acid.
The F4T® formulation also includes a proprietary blend of other key ingredients, including a naturally sourced nootropic spearmint extract that is demonstrated to support mental focus during the day without disrupting sleep at night and a protective antioxidant found naturally in the body that helps the brain function optimally and promotes better mood and sleep habits. It also includes a natural marigold extract that is scientifically shown to block blue light and replenish lutein, which is critical for optimum eye health. The antioxidant function comes from the Neumentix that contains a combination of polyphenols from Kemin’s proprietary spearmint extract. The complex contains rosmarinic, salvianolic, lithospermic and caftaric acids (and more) that act as antioxidants in the brain. The formulation has been in development for more than 20 years, over which time it has gained support by third-party research studies.
The above EEG brain scan images are from a study that showed a 46% increase in brain activation after a subject consumed our active ingredients. The concentrated formulation provides the perfect “brain food” for sustained mental energy and attention. There can be no assurance that our formulations will produce the same results as this study using just our active ingredients.
57
The brain activation described above is measured by electroencephalographic (EEG) electrodes placed on the surface of the skull overlying the major anatomic lobes of the brain (frontal, parietal, temporal, occipital). The activation is measured in microvolts of energy and reflects brain physiological function; the higher the voltage, the higher the functional activity. Functional magnetic resonance imaging (fMRI) of the brain has documented correlation between performance and health tasks and the “lighting up” of the relevant brain cortex areas. Activation of the following areas correlate with the related desirable brain function: frontal lobe - cognition, integration; parietal lobe - sensory, awareness, spatial orientation; temporal lobe - motor, language, memory; occipital lobe - visual function. The subjects in our intervention groups consumed the active supplement containing our formulation of C8 MCT, Neumentix, and Floragio. In the acute study, the assessments were made 90 minutes after consumption and in the long-term study, the assessments were made 30 days after consumption. Study one (acute) had 11 subjects (8 intervention and 3 control) and study two (long term) had 18 subjects (13 intervention and 5 control). Subjects underwent EEG voltage measurement with auditory reaction time (WaviMed System) and vision and trail making testing (Senaptec Sensory Station). Trail making testing (“TMT”), while not using sample sizes believed to be statistically significant, is one of the most widely used tests for cognitive impairment, is believed to measure several functions, particularly cognitive flexibility, alternating attention, sequencing, visual search, and motor speed. Brain activation improved in 20 of the 21 intervention group subjects with voltage increases ranging from no change to 200%, average 46% increase. This activation level correlated positively with improvements in reaction time, vision and trail making tests. Parameter changes were statistically significant with a strong improvement trend for the auditory reaction time measures. The tests were conducted by Dr. Neil Wolkodoff in a strict prospective, randomized manner. The results were double blinded with regard to intervention versus placebo group results and all data was deposited into a blind pool until completion of the trials when the results were unblinded and statistically analyzed. An independent third party transposed the EEG voltage readings into a computer generated “brain image” for peer reviewed publication purposes. No caffeine, steroids or other stimulants were consumed by any study subjects.
We are in the development phase for new products focused on Alzheimer’s disease and dementia. We are finalizing development of additional non-FDA approved, brain health products which focus on dementia and Alzheimer’s disease. We expect to have our development processes completed in 2024.
Gel-Pack Exclusive Licensing and Manufacturing Agreement
In August 2021, we signed an exclusive U.S. and Canada licensing and manufacturing agreement with Gelteq, a third party developer of ingestible gel technology, under which we agreed to develop and manufacture an advanced oral delivery system for our plant-based heart, immune and brain health formulations. The agreement has a three-year term and can be terminated by either party in the event of a breach, and contains a minimum order amount of 500,000 units of product (of which 250,000 units must have been purchased during the first 12 months). The agreement is mutually exclusive in that Gelteq is to be the exclusive manufacturer of all gel products that contain bergamot by us in the territory, and that they will not manufacture gels containing bergamot for any other company in the territory. Finally, we paid Gelteq a license fee of $150,000 and 5% of the total price of products purchased by us.
58
| Through this agreement we secured the exclusive rights to use Gelteq’s gelification process in the U.S. and Canada for the development and marketing of natural ingestible gels that contain our Citrus Bergamot or UBN ingredients. Among the many benefits, we believe our new exclusive gel pack format will make our products easier and more convenient to consume.
|
|
Citrus Bergamot has been traditionally taken in tablet form which presents several drawbacks. Tablets require a liquid to facilitate swallowing or prevent choking (which still may occur), and proper digestion and absorption can sometimes be challenging. The liquid extract form of Bergamot is typically not preferred due to its unpleasant bitter taste.
|
The proprietary ingredients used in in our UBN product line are typically available in powder form, with this requiring it be mixed with a liquid in a separate container. This can be messy and inconvenient for today’s on-the-go lifestyles. In contrast, a single-serving, gel pack containing our health-promoting formulations can be easily consumed anytime, anywhere with no liquid or mixing required.
We also believe this gel-based oral delivery technology can be superior to pills, tablets, powders and other delivery methods in terms of greater bioavailability, targeted release times and pleasant taste, while reducing the risk of choking.
We have launched two gel pack products using our patent-protected Fuel4Thought® (F4T®) formulation with Whitney Johns, including Brain Activate - Gel (without caffeine) and Brain Activate - ENERGY Gel. We plan to next introduce heart and immune health gel packs that exclusively feature Citrus Bergamot SuperFruit in 2024.
59
Our Markets
The overall nutraceutical market is growing at a 7.8% CAGR and is expected to reach $441 billion by 2026, according to ReportLinker. Driving this growth are multiple factors, including changing lifestyles, growing consumer desire to move away from expensive prescription medicine and undesirable side effects, aging population and increased life expectancy. Our current principal geographic markets are customers in the United States looking for nutraceutical products focused on their own heart and brain health and immune support.
A growing self-care trend is also driving strong demand for nutraceuticals. Given increasingly hectic lifestyles, and the lack of time for preparing and consuming the required nutrients through a regular diet, the desire to replenish or augment essential nutrients with nutraceuticals is also increasing.
Our BergaMet all-natural Citrus Bergamot SuperFruit formulations address an expanding global heart health ingredients market that is projected to grow at a 4.6% CAGR to reach $55.3 billion by 2027, according to ResearchAndMarkets. This growth is largely being driven by concerns about cardiovascular disease, which remains the leading cause of premature death globally according to the World Health Organization.
Our UBN products tap the fast-growing market for brain health, which is growing at a 9.4% CAGR to reach $15.7 billion by 2030, according to Grandview Research. This market is being driven in part by the rise in the aging adult population in North America and Europe, with consumers increasingly using brain health supplements to prevent or treat mental conditions such as memory loss or dementia, or to improve mental cognition, energy and focus.
Americans consume unhealthy energy shots and drinks every day, with this alone generating over $12.5 billion per year in industry sales. Within this growing market, UBN is advancing its position to meet rising consumer demand for healthy options backed by third-party research studies. Our KETONOMICS® proprietary formulations have been proven to naturally elevate brain energy and function, including memory, cognition and focus.
Our UBN RELIEF product for migraine suffers also address a huge market opportunity, with an estimated 39 million people suffering from migraine headaches in the U.S. and 1 billion worldwide, according to the American Migraine Foundation.
We anticipate launching a gut health gel pack. The new gut health product will allow us to address a large and expanding global gut health market that is growing at a 7.9% CAGR to reach nearly $72 billion by 2027, according to Fortune Business Insights. Our gut health products are ready to be manufactured but have not yet been introduced to the market. Gut health is the balance between helpful and harmful bacteria and yeast in the digestive system.
60
Go-to-Market Strategy
Our approach to the market has been to implement a multi-channel marketing strategy that includes major eCommerce websites, distributors, white and private label, direct-to-consumer, influencer and affiliate programs, and traditional retail marketplaces.
As a key part of our multi-channel strategy, Amazon.com has been generating strong sales, particularly with its popular ‘Subscribe & Save’ option helping to further expand our recurring revenue stream. Amazon complements our direct-to-consumer channel on our BergaMet and UBN websites that offer a subscription-based option. Last year our Citrus Bergamot SuperFruit formulations also became available for purchased on Walmart.com.
In the third quarter of 2022, we launched our premium Citrus Bergamot SuperFruit heart health supplement, BergaMet PRO+, on Fullscript.com, the nation’s leading care delivery platform for integrative medicine. This made BergaMet PRO+ available to the more than 70,000 healthcare professionals and their more than 5 million patients on the Fullscript care platform.
The Fullscript launch followed the entry of our natural formulations for brain health into the retail marketplace through Natural Grocers stores nationwide. Natural Grocers is the nation's largest family-operated organic and natural grocery retailer. The retailer also provides extensive free nutrition education programs that help consumers make informed nutritional health choices. The initial two products sold by Natural Grocers where our Ultimate Brain Nutrients (UBN) ACTIVATE and UBN RELIEF.
Influencer Program
We introduced our influencer program in the Fall of 2021 as a cost-effective and efficient way to expand our sales, brand awareness and market share. According to the social commerce platform Poshmark, about 41% of consumers discover new brands from influencers and 33% through social media marketing.
61
We believe our influencer program is ideally suited for influencers who have more than 500,000 followers in the health and wellness, sports and healthcare markets, and particularly those who would like to enhance their personal brand with unlimited revenue potential. Through this program, qualified influencers can easily introduce their own personally branded nutraceutical products, with Healthy Extracts providing the backend of product development, manufacturing, distribution, order fulfillment and customer service.
As our first major influencer under this program, we teamed with popular fitness coach and entrepreneur, Whitney Johns. Whitney is an accomplished fitness athlete, model, personal trainer and nutrition advocate who has garnerd more than a million followers across Instagram, Facebook, TikTok, Twitter, and YouTube. Some of her popularity is due to her personalized diet and fitness program, Find Your Fit with Whit, which helps individuals from all walks of life achieve their personal nutritional and fitness goals. We entered into a Private Label Agreement with her on October 11, 2021, pursuant to which we granted her the exclusive right to private label our Ultimate Brain Nutrients ACTIVATE and BergaMetNA sports performance and hormone balancing products in the field of female fitness, and granted her the right of first refusal for private label rights on any new products and technology in the field. We have also developed our gut health and ACTIVATE gel pack products with her, which are ready to manufacture but which have not been introduced to the market yet. The agreement is for three years and was subsequently verbally amended for us to pay her a flat monthly fee of $4,000 instead of the sales and volume-based compensation model in the original agreement. The agreement can be terminated by either party on 90 days’ written notice. Through June 30, 2023, we have paid her a total of $28,000 under this agreement. We also granted her RSU’s for 500,000 shares of our common stock with a purchase price of $0.01 per share. The verbal amendment will be in place until otherwise agreed between the parties.
Whitney Johns’ new product line of brain, physical performance and women’s hormone health products are based upon our proven all-natural Citrus Bergamot SuperFruit and Ultimate Brain Nutrients formulations. This means they are also vegan-friendly, non-GMO, gluten-free and organic, and made in a certified U.S. facility. Moreover, they are supported by published research from third-party sources, which helps influencers like Whitney to provide their full-throated endorsement of our proprietary formulations.
The first Whitney products have included Whitney Johns Nutrition BRAIN ACTIVATE (in powder and gel format), ACTIVE for enhanced physical performance, and WOMEN’S HORMONE SUPPORT. These products are available from whitneyjohns.com as well as on Whitney’s Amazon.com store, with both channels offering subscription options.
62
Future Growth Drivers
New Sales Channels and Product Launches
In order to drive continued sales growth and leverage our growing customer base, we are planning to expand our product portfolio to include supplements that support gut health as well as introduce more products in gel-pack format. We anticipate this to include a new Whitney Johns gut health gel-pack as well as a new gel pack option for our Ultimate Brain Nutrients RELIEF.
We plan to further expand our sales channels as well as our portfolio of natural formulations for heart and brain health and other indications.
Strategic Acquisitions
The market for nutraceutical products is highly fragmented, which create many acquisition opportunities. As part of our primary mission, we will continue to evaluate potential acquisition opportunities that could expand our product portfolio and benefit from our marketing strength and multi-channel distribution.
We anticipate that the greater financial and operational strength afforded by the aforementioned planned acquisitions of Hyperion and OPM will better enable us to make future strategic complementary acquisitions.
63
Intellectual Property
Patents
We have filed formulation patent applications related to general brain health as well as patents particularly focused on migraine headaches. The platform includes general utility patents with additional disclosure of methods of manufacture as indicated below. Categories of ingredients are listed in both the independent (standalone) and the dependent (successor claims with specifics, variations and limitations) claims. “Comprising” language is utilized wherever it is allowed by the U.S. Patent and Trademark Office (PTO) whereby the patented formulation includes but is not limited to the elements listed in the claim. Markush groups and claims are used so that categories can include alternative ingredients from a selected group that share structural similarities or common functions. Expiration dates for issued patents are listed, expiration for pending patents will be 17 years after the date of issuance, and all patents are in the United States.
Prophylaxis and Mitigation of Migraine Headaches Using Medium Chain Triglycerides, Ketone Ester, and Other Ketogenic Sources. Filed January 10, 2018 (PTO Application No. 15/743,448); pending approval. “Parent Patent” related to migraine headaches and covers the methods of reducing frequency of migraine onset and symptoms as well as augmenting the effects of pharmaceutical and non-pharmaceutical inventions. Includes techniques of providing adequate levels of dietary ketogenic MCT. The invention provides a mixture of caprylic and capric acids; these triglycerides may either be enriched or purified with coconut oil. Relates to Activate product line.
Prophylaxis and Mitigation of Migraine Headaches Using Medium Chain Triglycerides, Ketone Ester, and Other Ketogenic Sources. Filed April 22, 2019 (PTO Application No. 16/501,502); pending approval. “Divisional” filing from the “Parent” to address restriction requirements and identifies additional distinct claims. Relates to preventing, arresting or reducing the frequency and severity of a migraine headache. Additional filing September 30, 2020 (PTO Application No. 17/011/650); pending approval. This composition is comprised of a dietary ketone wherein this unique ingredient is intended to address migraines with disclosure of a related method of manufacture. The supplement manufacturing method also contains ketogenic MCT in combination with a pharmaceutical agent. Relates to the Activate product line.
Compositions of Medium Chain Triglycerides and Plant-Based Nutrients for Brain Health. Filed December 19, 2018 (PTO Application No. 16/350,663); response to PTO comments September 9, 2019; written amendment acknowledged; pending approval. Relates to enhancement of metabolic energy pathways to improve attention, cognition, memory, analytical and executive functions. Formulation categories include medium chain triglycerides (MCT), polyphenol-rich phytonutrients, brain carotenoid antioxidants, dietary vitamins and minerals and miscellaneous nutrients. Relates to Activate and BergaMet product lines.
Compositions of Ketogenic Sources, Micronutrients and Phytochemicals for Prophylaxis and Mitigation of Migraine Headache. Patent issued December 10, 2019 (Patent No. 10,500,182). Expiration December 10, 2036. This “Continuation-in-Part” filing from the “Parent” repeats a portion of the original specifications but adds subject matter not previously disclosed. Relates to preventing, arresting or reducing the frequency and severity of a migraine with disclosure of the method of manufacture. The comprehensive composition of categories includes ketogenic sources, phytonutrients, vitamins, mineral co-factors, antioxidants and miscellaneous nutrients. Relates to the Activate product line.
64
Compositions of Ketogenic Agents, Cannabinoids, Plant-Derived Substances and Micronutrients. Patent issued February 9, 2021 (U.S. Patent No. 10,912,758). Expiration February 9, 2038. Relates to modulation of metabolic pathways to benefit human performance, endurance and cardiometabolic health as well as improving cognition, executive function and women’s health. Formulation categories include ketogenic agents, cannabinoids, polyphenols, dietary nutrients, antioxidants and mineral co-factors. Relates to Activate and BergaMet product lines. Contains ability to include hemp-derived cannabinoids in unique product formulations whenever allowable under federal law.
Qualified Health Claim (QHC)
We filed a QHC petition for Fuel for migraine health with the Center for Food Safety and Nutrition of the FDA in July 2019. The preponderance of third-party scientific evidence to support the claim has been submitted. The FDA acknowledged that our petition met the requirements under 21 CFR 101.70 and was submitted in the proper legal format. In light of increased administrative burdens from the COVID-19 pandemic, the FDA has requested extended decision delays to which we agreed. A final decision is now expected before the end of 2023.
Trademark
A trademark owned by us that supports the entire brain health product platform is: KETONOMICS. The trademark received registration approval April 29, 2014 (Registration Number 4523135) and will not expire while it is in commercial use. This Service Mark has broad application in the “Goods and Services” category and covers: “Medical and scientific research in the field of brain metabolism and physiological metabolism; Product development in the field of brain metabolism and physiological metabolism; Research and development and consultation related thereto in the field of brain metabolism and physiological metabolism; Research and development of new products; Scientific research consulting in the field of brain metabolism and physiological metabolism.”
Competition
We compete with other manufacturers, distributors and marketers of vitamins, minerals, herbs, and other nutritional supplements both within and outside the U.S.
The competitive landscape is similar to other supplements. Our higher percentage of BPF Gold 47% distinguishes us as a high-quality competitor. We promote our products consistently with online marketing.
Our key competitor is Ortho Molecular, who distributors through medical offices. We are priced similarly to their product. They sell a 38% BPF product.
Our key competitors on digital marketing and Amazon are Doublewood, Secrets, Naomi, and Jarrow. Doublewood, Jarrow, and Naomi are priced higher or similar. Secrets uses a lower quality citrus bergamot and are considered a price and low-quality competitor. We intend to distinguish ourselves from these competitors through better digital marketing and brand loyalty.
The nutritional supplement industry is highly fragmented and competition for the sale of nutritional supplements comes from many sources. Such products are sold primarily through retailers (drug store chains, supermarkets, and mass market discount retailers), health and natural food stores, and direct sales channels (network marketing and internet sales).
65
The nutritional supplement industry is highly competitive, and we expect the level of competition to remain high over the near term. We do not believe it is possible to accurately estimate the total number or size of our competitors. The nutritional supplement industry has undergone some consolidation in the recent past and we expect that trend may continue in the near term.
We have high gross margin categories, with our gross margin ranging from 60% to 80%, depending on product and market channel.
Based upon our exclusive U.S. and Canadian licensing and manufacturing agreement with Gelteq, we believe we are able to offer a gel-pack delivery system that our competition in North America cannot provide. Gelteq is a customizable platform for supplement delivery, in that each gel formulation is tailored to solve a particular problem and deliver a specific outcome.
As the exclusive North American provider of H&AD’s Citrus Bergamot SuperFruit, our heart and immune products have several advantages. For example, our BergaMet PRO+ product has 47% BPF Gold potency as compared to the closest competitor at only 38% BPF. BPF is an extract derived from the fruit’s juice, peel, and pulp, is comprised of five polyphenols (Naringin, Neohesperidin, Brutieridin, Melitidin, and Neoeriocitrin), and its potency is determined by the concentration of these five polyphenols achieved during the extraction process. The potency of BPF is widely compared by Bergamot users in making their purchase decisions because a higher potency may lead to greater benefits, and is generally considered more desirable in the marketplace.
Backed by published research from third-party sources, our citrus bergamot has been shown to support heart health, support immune response, and address metabolic syndrome.
Employees
On the Healthy Extracts holding company level, our employees are comprised of our company’s two officers, each of which is a full-time employee. Our BergaMet subsidiary has two full-time employees. Our UBN subsidiary currently does not have its own employees since it uses outside contract help on an as-needed basis, with management provided by our officers.
We anticipate all of our employees will continue to work for us for the foreseeable future. We plan to hire appropriate personnel on an as-needed basis and utilize the services of independent contractors as needed.
We anticipate that our planned acquisition of Hyperion and OPM will add approximately 14 employees, which will continue to work out of their existing facilities in Lexington, Virginia.
Recent Developments
Pending Acquisitions
On January 13, 2023, we entered into an Acquisition Agreement for the acquisition of Hyperion, L.L.C. and Online Publishing & Marketing, LLC, both Virginia limited liabilities companies, by merging them into our newly-formed wholly-owned subsidiaries, Green Valley Natural Solutions, LLC (“Green Valley”) and Online Publishing & Marketing, LLC (“OPM”), both Nevada limited liability companies. The closing of the acquisition will take place following the satisfaction of certain closing conditions, including a capital raise of at least $4,000,000 and the commencement of trading, or approval for the commencement of trading, of our common stock on the Nasdaq Capital Market. The total purchase price for the acquisitions will be $1,750,000 in cash, $1,300,000 in the form of secured promissory notes, and $1,250,000 worth of
66
our common stock (based on a 30% premium to the price paid per share of common stock in the above-referenced capital raise, but in no event more than ninety percent (90%) of the volume weighted average price for our common stock for the ninety (90) trading days up to and including the trading day immediately before the day the price is finally determined for securities sold in the capital raise).
Hyperion markets and sells 14 nutraceutical supplements in capsule form, allowing customers to easily incorporate them into their daily routines. Their line of supplements has been specifically formulated to cater to the needs of the 55-plus age demographic. Hyperion's business model is to provide valuable and informative content to consumers who actively seek to enhance their overall well-being using natural methods. They use targeted marketing efforts directed at both existing customers and affiliate partners.
None of Hyperion’s products have been evaluated by the FDA or any similar regulatory body for safety, efficacy, or effectiveness. Hyperion’s products are not patented, and Hyperion makes no specific claims as to the health benefits of its products.
Hyperion’s material nutraceutical products include:
·Genesis - Intended to support normal healthy telomeres. Telomeres protect the ends of chromosomes from becoming frayed or tangled. Two of the main ingredients are Telos95 and cycloastragenol.
·Bone and Muscle Defense – Intended to support healthy bones and muscles. Contains OsteoSine® and myHMB®️ derived from the amino acid leucine.
·Triple Joint Relief - Intended to support healthy joints and mobility. Boswellia and a form of turmeric called Turmacin with BCM-95 are two of the main ingredients.
·Stem Cell - Intended to support healthy aging, energy levels, and immune support. Its formula includes a form of the Sea Buckthorn berry called CyanthOx™30. CyanthOx™30 is a powerful nutrient that can support stem cells in the body.
·Advanced Brain Power - Intended to support memory, focus, and circulation with a formulation of Biotin, Chromium, Luteolin, Baicalin and Resveratrol.
·Colon Ultra Cleanse - Intended to support colon health to safely fight bloating, abdominal pressure, diarrhea, and gastric discomfort. Key Ingredients include soluble Psyllium fiber, Senna leaf extract, and Goldenseal.
·Eye Vitality Plus - Intended to support healthy vision, the protection and rebuilding of your macular shield, and helping your eyes stay moist and lubricated. Ingredients are AREDS-2 based formula includes Lutein and MaquiBright™.
·Iuvinus - A Combination of vitamin and nutrients formulated to support blood flow and circulation. Featured ingredients include a vitamin K2 called K2Vital Delta®, D3 and Resveratrol.
·Comfort Pro - Formulated to support a reduction in constipation. Features a unique strain of probiotic called BB-536.
67
·My Sinus Miracle - Intended to support sinus health as well as supporting a healthy immune system and respiratory function. Contains a combination of South African geranium root, elderberry fruit extract, quercetin, and the potent antioxidant amino acid, N-acetyl-cysteine.
·My Sleep Miracle - Herbs and nutrients used traditionally for thousands of years help support relieving stress and anxiety. Formulated with KSS-66 Ashwagandha, Chamomile Extract, and L-Theanine.
·Vital Force - Natural mix of herbs and plant extracts supports immune system function and health of your cells. Combined with 11 other vitamins and nutrients Vital Force also contains Setria® and N-Acetyl L-Cysteine (NAC) to support healthy glutathione levels.
The combination of the businesses is expected to significantly increase our current annualized gross revenues. Hyperion is also expected to strengthen our manufacturing and distribution capabilities, as well as expand our product portfolio with 15 proprietary nutraceutical formulations sold under the brand, Green Valley Natural Solutions. Green Valley’s formulations of natural, plant-based ingredients are believed to be beneficial for brain, memory, vision, sinus and digestive health, as well as healthy sleep and aging.
Green Valley Natural Solutions products are manufactured and shipped direct-to-consumer from specially temperature-controlled warehouses leased in Shenandoah Valley, Virginia. These facilities would add an East Coast presence to our existing warehouse and shipping facilities in Nevada, with this expected to lower customer shipping costs and order delivery times.
Hyperion’s relationships with high-quality contract manufacturers is also expected to lower our manufacturing costs, as well as improve supply chain efficiencies and economies of scale.
OPM specializes in creating digital and affiliate marketing content for Hyperion and will enhance our overall marketing strategy and audience reach. They also bring a large email distribution list of hundreds of thousands of potential customers with a new affiliate marketing channel. OPM also produces engaging digital content such as educational videos and newsletters.
The planned acquisition of Hyperion and OPM is expected to add approximately 14 employees, who would continue to work out of the existing facilities in Lexington, Virginia.
We expect these two synergistic and accretive acquisitions to accelerate and support our growth and expand our market reach. Our natural heart and brain health formulations are perfect for cross selling or private labeling with Green Valley products, such as their stem cell restore formulation that are sold across various marketing channels. Likewise, Green Valley sales would benefit from our established marketing channels, which includes subscription-based direct-to-consumer, national grocery stores, and a strong presence on Amazon.
On a pro forma basis upon the closing of the acquisitions, we would generate over $12 million in annualized gross revenue, including significant recurring revenue being generated by subscriptions. The anticipated positive cash flow would fund future revenue growth from new product introductions and market expansion, as well as other potential strategic acquisitions.
68
The completion of the acquisitions is subject to the following material closing conditions, and there can be no assurance that the transactions will be completed as described (conditions that have been waived or satisfied are identified below):
•we will have entered into a new lease agreement for at least a twelve month period at the current Hyperion and OPM location;
•a key employee of Hyperion and OPM will have entered into a consulting agreement with our affiliate (this condition will be waived by us as the employee is no longer deemed necessary);
•our independent auditor will have completed an audit of the financial statements of Hyperion and OPM (this condition has been satisfied);
•we will have closed on one or more rounds of financing for an aggregate amount of no less than $4,000,000, of which at least $250,000 will be from selling parties to the transaction; and
•we will have commenced trading, or been approved to commence trading, on either the Nasdaq or the NYSE American Exchange
Governmental Controls, Approval and Licensing Requirements
Our products have not been evaluated by the FDA or any similar regulatory body for safety and efficacy.
Federal laws related to the advertising, distribution and sale of health supplements.
We expect that the formulation, manufacturing, packaging, labeling, advertising, distribution and sale (hereafter, “sale” or “sold” may be used to signify all of these activities) of our vitamin and nutritional supplement products will be subject to regulation by one or more federal agencies, primarily the FDA and the Federal Trade Commission (“FTC”), and to a lesser extent the Consumer Product Safety Commission (“CPSC”), the United States Department of Agriculture, and the Environmental Protection Agency. Our activities are also regulated by various governmental agencies for the states and localities in which our products are sold, as well as by governmental agencies in certain countries outside the United States in which our products are sold. Among other matters, regulation by the FDA and the FTC is concerned with product safety and claims made with respect to a product’s ability to provide health-related benefits. Specifically, the FDA, under the Federal Food, Drug, and Cosmetic Act (“FDCA”), regulates the formulation, manufacturing, packaging, labeling, distribution, and sale of food, including dietary supplements and over-the-counter (“OTC”) drugs. The FTC regulates the advertising of these products. The National Advertising Division (“NAD”) of the Council of Better Business Bureaus oversees an industry-sponsored, self-regulatory system that permits competitors to resolve disputes over advertising claims. The NAD has no enforcement authority of its own, but may refer matters that appear to violate the FTC Act or the FDCA to the FTC or the FDA for further action, as appropriate.
All of the nutritional supplement products that we plan to sell are classified as dietary supplements. The FDA’s revision of nutrition labeling requirements also affects the nutrition labeling of certain dietary supplements. Our affected manufacturers may have revised labels on some of their dietary supplements to comply with the new requirements. Our manufacturers review our labels prior to each product run to assure compliance. Moreover, these manufacturers may need to reformulate their products to maintain eligibility for certain marketing claims.
The Dietary Supplement Health and Education Act (“DSHEA”) was enacted in 1994, amending the FDCA. Among other things, DSHEA prevents the FDA from regulating dietary ingredients in dietary supplements as “food additives” and allows the use of statements of nutritional support on product labels and in labeling. DSHEA establishes a statutory class of “dietary supplements,” which includes vitamins,
69
minerals, herbs, amino acids and other dietary ingredients for human use to supplement the diet. Dietary ingredients marketed in the United States before October 15, 1994 may be marketed without the submission of a “new dietary ingredient” (“NDI”) premarket notification to the FDA. Dietary ingredients not marketed in the United States before October 15, 1994 may require the submission, at least 75 days before marketing, of an NDI notification containing information establishing that the ingredient is reasonably expected to be safe for its intended use. The FDA has issued final regulations under DSHEA.
As required by Section 113(b) of the Food Safety Modernization Act, the FDA published in July 2011 a draft guidance document clarifying when the FDA believes a dietary ingredient is an NDI, when a manufacturer or distributor must submit an NDI premarket notification to the FDA, the evidence necessary to document the safety of an NDI and the methods for establishing the identity of an NDI. Industry strongly objected to several aspects of the draft guidance. In 2016, the FDA issued revised draft guidance on what constitutes an NDI and NDI notification requirements. Regardless of whether the FDA finalizes this draft guidance, the FDA has recently acted more aggressively to remove ingredients from the market that the FDA views as unlawful dietary ingredients. This trend, if it continues, may limit the dietary supplement market. Several bills to amend DSHEA in ways that would make this law less favorable to consumers and industry have been proposed in Congress. We are very careful to assure all of the ingredients we utilized are not a “new NDI” and meets the FDA draft guidance.
The FDA issued a Final Rule on GMPs for dietary supplements on June 22, 2007. The GMPs cover manufacturers and holders of finished dietary supplement products, including dietary supplement products manufactured outside the United States that are imported for sale into the United States. Among other things, the new GMPs: (a) require identity testing on all incoming dietary ingredients, (b) call for a “scientifically valid system” for ensuring finished products meet all specifications, (c) include requirements related to process controls, including statistical sampling of finished batches for testing and requirements for written procedures and (d) require extensive recordkeeping. We have reviewed the GMPs and have taken steps to ensure compliance. While we believe we are in compliance, there can be no assurance that our operations or those of our suppliers will be in compliance in all respects at all times. Additionally, there is a potential risk of increased audits as the FDA and other regulators seek to ensure compliance with the GMPs.
On December 22, 2006, Congress passed the Dietary Supplement and Nonprescription Drug Consumer Protection Act, which went into effect on December 22, 2007. The law requires, among other things, that companies that manufacture or distribute nonprescription drugs or dietary supplements report serious adverse events allegedly associated with their products to the FDA and institute recordkeeping requirements for all adverse events (serious and non-serious). There is a risk that consumers, the press and government regulators could misinterpret reported serious adverse events as evidence of causation by the ingredient or product complained of, which could lead to additional regulations, banned ingredients or products, increased insurance costs and a potential increase in product liability litigation, among other things.
All states regulate foods and drugs under laws that generally parallel federal statutes. We are also subject to state consumer health and safety regulations, such as the California Safe Drinking Water and Toxic Enforcement Act of 1986 (“Proposition 65”). Violation of Proposition 65 may result in substantial monetary penalties and compliance with Proposition 65 is a major focus. Contemplated changes in the Proposition 65 labeling requirements could potentially lead to substantial costs. Current legislation in Massachusetts regarding restrictions on weight loss and sports nutrition products could also impact the marketing of dietary supplements generally. Further, state attorneys general have pressured industry to adopt DNA testing for herbal-based products to assure plant identity, and have taken other actions relating to dietary ingredient status. It is uncertain whether these efforts will have a material impact on the dietary supplement market.
70
On November 14, 2022, BergaMet NA, LLC, our subsidiary, received a warning letter from the FDA regarding claims we allegedly make about our Cholesterol Command product. Specifically, the warning letter related to claims on our website, Facebook page, and the webpage of a retailer claim that the products are intended for use in the cure, mitigation, treatment, or prevention of disease because they reduce cholesterol or are an anti-inflammatory. On December 1, 2022, we responded to the warning letter notifying the FDA that we had hired a third-party to review our advertising and revise portions of our website, Facebook page, and online product listings. This was the only warning letter we received from the FDA to date, and we are awaiting their response. There can be no assurance that the FDA will not pursue this action further. If the FDA were to pursue this action, we may have to cease selling our Cholesterol Command product. Any action brought by the FDA (or any ramifications of such action, including, without limitation, a required withdrawal of Cholesterol Command from the market) would have a material adverse effect on our reputation, sales efforts and results of operations.
Currently, our products are only distributed in the United States. If we distribute products in Canada or elsewhere in the future, we will go through the appropriate approval process.
Description of Property
We do not currently own, lease or use any office space as we operate on a virtual basis. However, we lease warehouse facilities under an operating lease that expires in 2025. Prior to February 4, 2022, we leased a warehouse facility on a month-to-month basis. Our rent obligations for 2023 through 2025 are as follows: 2023 - $68,042, 2024 - $70,883, and 2025 - $5,926. Total rent for the year ended December 31, 2022 was $63,745.
71
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names, ages, and biographical information of each of our current directors and executive officers, and the positions held by each person, and the date such person became a director or executive officer. Our executive officers are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Family relationships among any of the directors and officers are described below.
Name
| Age
|
| Position(s)
|
|
|
|
|
Kevin “Duke” Pitts
|
| 64
|
|
| President, Director (2018)
|
|
|
|
|
|
|
Robert Madden
|
| 51
|
|
| Secretary, Chief Financial Officer (2022)
|
|
|
|
|
|
|
William Bossung
|
| 64
|
|
| Director (2014)
|
|
|
|
|
|
|
Bill Croyle
|
| 71
|
|
| Director (2019)
|
Kevin “Duke” Pitts, age 64, was appointed to our Board of Directors on September 28, 2018, and as our President on September 24, 2019. Mr. Pitts is a proven leader who has 30 years of senior management experience within a technology-driven industry. Mr. Pitts has been the President and Owner of Envision Enterprises, a consumer electronic integration business, where he has worked since 2007. Earlier in his career, Mr. Pitts served as the Director of Direct Marketing at Dish Network, the well-known satellite television provider. His deep experience in senior management and marketing will be of great value to us.
Robert Madden, age 51, was appointed as our Secretary and Chief Financial Officer on June 2, 2022. Mr. Madden has been working in the accounting industry for over 30 years. From 1990 to 2012 he worked for several companies starting as a staff accountant, then assistant controller position, finally the company controller position. During that time, he worked in the wholesale apparel, advertising, television, and special event industries. From 2012 to 2015, he took a sabbatical and lived overseas volunteering for different NGO’s and non-profit organizations. During the sabbatical, he volunteered for a British NGO, worked as their CFO, and was the driving force in getting the organization registered with 2 foreign nations. In 2016, he moved back to the United States and started an accounting consulting business. From 2016 to the present, he was hired to fill either a Controller or CFO position for several private and public companies, including United Concerts from 2016 through 2018, Bakken Water Transportation Services, Inc. from 2019 to the present, Geopulse Exploration, Inc. from 2016 through 2019, and Humatech, Inc. from 2021 to the present. He graduated from the University of Utah with a bachelor’s degree in accounting and from Westminster College with an MBA with a certificate of accounting.
William Bossung, age 64, has served as a member of the Board of Directors since our inception, and was our Secretary and Chief Financial Officer from our inception until June 2, 2022. Mr. Bossung has a diverse background in Corporate Finance, Insurance and accounting. From 2003 to August 2006 Mr. Bossung was co-founder of BCF Technology, an insurance software company that was ultimately sold to Vertafore in August of 2006. During January 2012 Mr. Bossung co-founded Splash Beverage Group, (SBEV) a beverage distribution company that distributes both alcohol and non-alcohol products. The company’s products are sold in over 25,000 retail locations Mr. Bossung is the managing partner of Bishop Equity Partners LLC, a small boutique private equity firm that invests in both private and public companies. From 1997 to 2002 Mr. Bossung was the Director of Corporate Finance of Chadmoore Wireless Group, the
72
company was engaged in the business of wireless communications utilizing 800 MHZ frequencies. Chadmoore aggregated over 5500 Specialized Mobile Radio licenses from the Federal Communications Commission, the licenses were acquired by Nextel, then merged into the Sprint PCS wireless network. Mr. Bossung currently holds an Insurance License and earned a bachelor’s degree in accounting and finance from Bloomsburg State University. Our founders believed that Mr. Bossung’s broad experience in corporate financing and accounting, dating back to 2003, made him an attractive candidate to serve on our board of directors.
Bill Croyle, age 71, was appointed to our Board of Directors on September 24, 2019. Mr. Croyle is a private investor and an accomplished Senior Executive with more than 40 years of success across the IT, energy, manufacturing, telecommunications, venture capital, and finance industries. His broad areas of expertise include mergers and acquisitions, negotiations, service contracts and delivery, executive development and mentoring, and managing complexities. Since 2009 Bill has been a founder, owner or executive of EnTX Group, Impact Legacy Partners, FB Oilfield Special Tools and Western Energy Advisors. He is Chairman of the Colorado Chapter of the Marine Corps Scholarship Foundation, and he has served on the boards of Hill City Silica LLC, the University of Colorado Advocates program, the Association for Corporate Growth/Denver, and the Denver Consulting Alliance. Bill served in the Marine Corps 1972-1974. Mr. Croyle holds Certificates in Energy Finance and Management from the University of Denver and International Trade from World Trade Center Denver. He graduated from the University of California, Santa Barbara, with a BA in History and minor in French. Our directors believed that Mr. Croyle’s experience as a business founder and finance certifications made him an attractive candidate to serve on our board of directors.
Family Relationships
There are no family relationships between any of our officers or directors.
Other Directorships; Director Independence
Other than as set forth above, none of our officers and directors are directors of any company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCQB on which shares of our common stock are quoted does not have any director independence requirements. The NASDAQ definition of “independent director” means a person other than an executive officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Mr. Bossung and Mr. Croyle are independent directors within the meaning of the NASDAQ rules.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
73
Except as set forth below, to our knowledge, none of our officers, directors, or beneficial owners of more than ten percent of our common stock failed to file on a timely basis reports required by section 16(a) of the Exchange Act during the most recent fiscal or prior fiscal year.
Board Committees
Our Board of Directors maintains separate audit, nominating and compensation committees. The members of all three committees are only our two independent directors, William Bossung and Bill Croyle
Audit Committee. Our audit committee consists of two independent directors. The members of the audit committee are William Bossung and Bill Croyle. The audit committee will consist exclusively of directors who are financially literate. In addition, Mr. Bossung is considered an “audit committee financial expert” as defined by the SEC’s rules and regulations. The audit committee responsibilities include:
·Review and reassess the adequacy of the Audit Committee Charter annually and submit the Charter to the Board for approval.
·Review our annual audited financial statements and any reports or other financial information as the Committee may request, including, without limitation, any material submitted to any governmental body, or the public, including any certification, report, opinion or review rendered by the registered public accountants. Discuss major issues and significant changes regarding accounting and auditing principles and practices as well as the adequacy of internal controls that could significantly affect our financial statements.
·Review any reports to management prepared by the internal auditing department, together with management’s response. Review with management and the registered public accountants significant financial reporting issues and judgments made in connection with the preparation of our financial statements.
·Review with management and the registered public accountants our annual report on Form 10-K and our quarterly report on Form 10-Q prior to its filing or prior to the release of earnings. The chair of the Committee may represent the entire Committee for purposes of these reviews.
·Review our major financial risk exposures and the steps management has taken to monitor and control such exposures.
·Establish procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters; and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.
·The Committee shall be directly responsible for the appointment, compensation, and oversight of the work of our registered public accounting firm. The Committee shall monitor the independence and effectiveness and approve the fees and other compensation to be paid to the registered public accountants. On an annual basis, the Committee should review and discuss with the accountants all significant relationships the accountants have with us to confirm the accountants’ independence.
·Meet with the registered public accountants to review the scope, accuracy, completeness and overall quality of the annual financial statements.
·Receive from the registered public accountants the information they are required to communicate to the Committee under generally accepted auditing standards, including, without limitation a formal written statement delineating all relationships between the registered public accountants and us, consistent with Independence Standards Board Standard No. 1, engage in a dialogue with the registered public accountants with respect to any disclosed relationships or services that may impact the objectivity and independence
74
of the registered public accountants, and recommend that the Board take appropriate action to enhance the independence of the registered public accountants, and reapprove all auditing services (which may entail providing comfort letters in connection with securities underwritings) and all non-audit services as provided for under Section 202 of Sarbanes-Oxley Act of 2002.
·In consultation with the registered public accountants, review the integrity of our financial reporting processes, both internal and external.
·Meet with management and the registered public accountants to review the planning and staffing of the audit.
·Discuss with the registered public accountants the matters required to be discussed by Statement on Auditing Standards No. 61, as modified or amended, relating to the conduct of the audit.
·Review with the registered public accountants any problems or difficulties the accountants may have encountered and any management letter provided by the accountants and our response to that letter. Such review should include any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information, and any changes required in the planned scope of the audit.
·make regular reports to the Board of Directors. The Committee shall also prepare the report required by the rules of the Securities and Exchange Commission to be included our annual proxy statement.
Compensation Committee. Our compensation committee consists of two independent directors. The members of the audit committee are William Bossung and Bill Croyle. The compensation committee responsibilities include:
·Review the competitiveness of our executive compensation programs to ensure (a) the attraction and retention of executives, (b) the motivation of executives to achieve our business objectives, and (c) the alignment of the interests of key leadership with the long-term interests of our shareholders. Assist the Board in establishing CEO annual goals and objectives.
·Review trends in executive compensation, oversee the development of new compensation plans, and, when necessary, approve the revision of existing plans.
·Review and approve the compensation structure for executives.
·Oversee an evaluation of the performance of our executive officers and approve the annual compensation, including salary, bonus, incentive and equity compensation, for the executive officers. Review and approve compensation packages for new executive officers and termination packages for executive officers.
·Review and make recommendations concerning long-term incentive compensation plans, including the use of equity-based plans.
·Periodically review the compensation paid to non-employee directors and make recommendations to the Board for any adjustments. No member of the Committee will act to fix his or her own compensation except for uniform compensation to directors for their services as a director.
·Review periodic reports from management on matters relating to our compensation practices.
·Produce an annual report of the Compensation Committee on executive compensation for our annual proxy statement in compliance with and to the extent required by applicable Securities and Exchange Commission rules and regulations and any relevant listing authority.
·Obtain or perform an annual evaluation of the Committee’s performance and make
75
applicable recommendations about, among other things, changes to the charter of the Committee.
Nominating Committee. Our nominating committee consists of two independent directors. The members of the nominating committee are William Bossung and Bill Croyle. The nominating committee responsibilities include screening and recommending to the full Board director candidates for nomination. The Nominating and Governance Committee will consider stockholder recommendations for candidates for the board of directors, although we do not currently have a process for security holders to send communications to the Board.
During the fiscal years ended December 31, 2021 and 2020, the Board of Directors met as necessary.
Involvement in Certain Legal Proceedings
None of our officers or directors has, in the past ten years, filed bankruptcy, been convicted in a criminal proceeding or named in a pending criminal proceeding, been the subject of any order, judgment, or decree of any court permanently or temporarily enjoining him or her from any securities activities, or any other disclosable event required by Item 401(f) of Regulation S-K.
On November 14, 2022, BergaMet NA, LLC, our subsidiary, received a warning letter from the FDA regarding claims we allegedly make about our Cholesterol Command product. Specifically, the warning letter related to claims on our website, Facebook page, and the webpage of a retailer claim that the products are intended for use in the cure, mitigation, treatment, or prevention of disease because they reduce cholesterol or are an anti-inflammatory. On December 1, 2022, we responded to the warning letter notifying the FDA that we had hired a third-party to review our advertising and revise portions of our website, Facebook page, and online product listings. This was the only warning letter we received from the FDA to date, and we are awaiting their response.
Other than as set forth above, we are not a party to or otherwise involved in any legal proceedings.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
Code of Ethics
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. The full text of our code of business conduct and ethics will be posted on our corporate website and is filed as an exhibit to this registration statement. We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of these provisions, on our corporate website or in filings under the Exchange Act.
76
EXECUTIVE COMPENSATION
Narrative Disclosure of Executive Compensation
Pitts Independent Contractor Agreement
On October 1, 2019, we entered into an Independent Contractor Agreement with Kevin “Duke” Pitts. Pursuant to this agreement, Mr. Pitts has agreed to serve as our President and Chief Executive Officer in exchange for $120,000 per year. The agreement had an expiration date of December 31, 2021, but has been extended indefinitely since then.
Madden Consulting Agreement
Effective June 1, 2022, we entered into a Consulting Agreement with Robert Madden. Pursuant to the agreement, Madden has agreed to serve as our Chief Financial Officer and Secretary in exchange for $42,000 per year. The agreement is effective for one year, and will automatically renew for successive one-year terms.
Summary Compensation Table
The following table sets forth information with respect to compensation earned by our President and our Secretary and Chief Financial Officer for the years ended December 31, 2022 and 2021.
Name and
Principal Position
| Year
| Salary
($)
| Bonus
($)
| Stock
Awards
($)
| Option Awards
($)
| Non-Equity Incentive Plan Compensation ($)
| Nonqualified Deferred Compensation ($)
| All Other
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
Kevin “Duke” Pitts
| 2022
| 110,000
| -0-
| -0-
| -0-
| -0-
| -0-
| -0-
| 110,000
|
President
| 2021
| 110,000
| -0-
| -0-
| -0-
| -0-
| -0-
| -0-
| 110,000
|
| 2020
| 110,000
| -0-
| -0-
| -0-
| -0-
| -0-
| -0-
| 110,000
|
|
|
|
|
|
|
|
|
|
|
William Bossung (1)
| 2022
| -0-
| -0-
| -0-
| -0-
| -0-
| -0-
| -0-
| -0-
|
Secretary and CFO
| 2021
| 65,000
| -0-
| -0-
| -0-
| -0-
| -0-
| -0-
| 65,000
|
| 2020
| 66,000
| -0-
| -0-
| -0-
| -0-
| -0-
| -0-
| 66,000
|
|
|
|
|
|
|
|
|
|
|
Robert Madden (1)
| 2022
| 38,500
| -0-
| -0-
| -0-
| -0-
| -0-
| -0-
| 38,500
|
Secretary and CFO
|
|
|
|
|
|
|
|
|
|
(1)Mr. Bossung resigned as our Secretary and Chief Financial Officer effective June 2, 2022, and was replaced by Robert Madden.
77
Director Compensation
For the years ended December 31, 2022 and 2021, none of the members of our Board of Directors received compensation for his service as a director.
Outstanding Equity Awards at Fiscal Year-End
On June 10, 2020, our Board of Directors approved the Grey Cloak Tech, Inc. 2020 Omnibus Stock Grant and Option Plan and set aside 208,334 shares of our common stock for issuance thereunder. Pursuant to the plan, officers, directors, key employees and certain consultants may be granted stock options (including incentive stock options and non-qualified stock options), restricted stock awards, unrestricted stock awards, or performance stock awards. As of December 31, 2021, we have awarded an aggregate of 162,500 options to twenty-five (25) individuals at an exercise price of $6.00 per share.
On December 26, 2022, we canceled 101,250 of the options and, on that same date, we approved the Healthy Extracts Inc. 2022 Equity Incentive Plan and set aside 433,334 shares of our common stock for issuance thereunder. On December 26, 2022, we approved the grant of a total of 133,125 Restricted Stock Units on April 28, 2023 at $1.20 per share, and the grant of 300,000 Restricted Stock Awards upon our uplisting with a strike price of $0.00 to $1.20 to a total of sixteen (16) individuals.
78
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 29, 2023, certain information with respect to our equity securities owned of record or beneficially by (i) each of our Officers and Directors; (ii) each person who owns beneficially more than 10% of each class of our outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
Name and Address (1)
|
|
Common Stock Beneficial Ownership
|
| Percentage of Common Stock Beneficial Ownership
(Before Offering) (2)
|
| Percentage of Common Stock Beneficial Ownership
(After Offering) (12)
|
|
|
|
|
|
|
|
Kevin “Duke” Pitts (3)(5)
|
| 218,584
|
| 6.93%
|
| 4.65%
|
|
|
|
|
|
|
|
William Bossung (3)(6)
|
| 53,452
|
| 1.81%
|
| 1.19%
|
|
|
|
|
|
|
|
Bill Croyle (3)(4)(7)
|
| 12,197
|
| <1%
|
| <1%
|
|
|
|
|
|
|
|
Robert Madden (3)(8)
|
| 50,000
|
| 1.66%
|
| 1.10%
|
|
|
|
|
|
|
|
Jay Decker (9)
|
| 1,480,395
|
| 49.49%
|
| 32.65%
|
|
|
|
|
|
|
|
Shelton Decker (10)
|
| 209,447
|
| 7.06%
|
| 4.64%
|
|
|
|
|
|
|
|
Logan Decker (11)
|
| 219,031
|
| 7.36%
|
| 4.85%
|
|
|
|
|
|
|
|
All Officers and Directors as a Group (4 Persons)
|
| 334,234
|
| 10.16%
|
| 6.92%
|
| (1)
| Unless otherwise indicated, the address of the shareholder is c/o Healthy Extracts Inc.
|
|
|
|
| (2)
| Unless otherwise indicated, based on 2,954,104 shares of common stock issued and outstanding. Shares of common stock subject to convertible preferred stock and options or warrants currently exercisable, or exercisable or convertible within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
|
|
|
|
| (3)
| Indicates one of our officers or directors.
|
|
|
|
| (4)
| Includes 5,531 shares of common stock held by BMJ Estate Matters, LLC, of which Mr. Croyle is the controlling party.
|
|
|
|
| (5)
| Includes 200,000 Restricted Stock Awards that have not vested.
|
|
|
|
| (6)
| Includes 208 Restricted Stock Units that have not vested.
|
|
|
|
79
| (7)
| Includes 2,500 Restricted Stock Units that have not vested.
|
|
|
|
| (8)
| Includes 50,000 Restricted Stock Awards that have not vested.
|
| (9)
| Includes warrants to acquire 37,500 shares of common stock at $6.00 per share. Jay Decker disclaims any ownership of securities held by his adult sons.
|
|
|
|
| (10)
| Shelton Decker is the adult son of Jay Decker. Includes warrants to acquire 12,500 shares of common stock at $6.00 per share.
|
|
|
|
| (11)
| Logan Decker is the adult son of Jay Decker. Includes warrants to acquire 12,500 shares of common stock at $6.00 per share and 8,750 Restricted Stock Units that have vested and 834 Restricted Stock Units that have not vested.
|
|
|
|
| (12)
| Unless otherwise indicated, based on 4,497,314 shares of common stock issued and outstanding. Shares of common stock subject to convertible preferred stock and options or warrants currently exercisable, or exercisable or convertible within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
|
The issuer is not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the issuer, other than as set forth above. There are no classes of stock other than common stock issued or outstanding.
There are no current arrangements which will result in a change in control.
80
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pitts Independent Contractor Agreement
On October 1, 2019, we entered into an Independent Contractor Agreement with Kevin “Duke” Pitts. Pursuant to this agreement, Mr. Pitts has agreed to serve as our President and Chief Executive Officer in exchange for $120,000 per year. The agreement had an expiration date of December 31, 2021, but has been extended indefinitely since then.
Madden Consulting Agreement
Effective June 1, 2022, we entered into a Consulting Agreement with Robert Madden. Pursuant to the agreement, Madden has agreed to serve as our Chief Financial Officer and Secretary in exchange for $42,000 per year. The agreement is effective for one year, and will automatically renew for successive one-year terms.
Jay Decker Transactions
We have entered into numerous transactions with Jay Decker, our majority shareholder, as follows:
BergaMet Acquisition
On February 4, 2019, we acquired BergaMet NA, LLC, a Delaware limited liability company (“BergaMet”). BergaMet is a wholly-owned subsidiary through which we conduct our nutraceuticals business. As a result of the acquisition, Jay Decker became our majority shareholder upon our issuance to him of 711,216 shares of our common stock. The shares of common stock issued in the acquisition were equal to approximately 80.1% of our outstanding common stock immediately following the closing.
Ultimate Brain Nutrients, LLC Acquisition
On April 3, 2020, we acquired Ultimate Brain Nutrients, LLC, a Delaware limited liability company (“UBN”). UBN is a wholly-owned subsidiary through which we conduct our plant-based neuro-products business. As a result of the acquisition, Jay Decker became a significantly larger shareholder upon our issuance to him of 374,234 shares of our common stock. The shares of common stock issued in the acquisition were equal to approximately 42.5% of our outstanding common stock immediately following the closing.
Note Conversion Agreements and Advance Conversion Agreements
Effective April 13, 2020, we entered into a total of eighteen (18) agreements (16 Note Conversion Agreements and 2 Advance Conversion Agreements) whereby an aggregate of $1,508,408 in outstanding principal and accrued interest was converted into an aggregate of 327,074 shares of our common stock. The conversion price was either $3.60 per share or $6.00 per share, depending on the individual agreement. The conversions included notes and advances held by our officers and directors and our largest shareholder, as follows:
81
Name
| Aggregate Principal and Interest
|
Aggregate Shares
|
Jay W. Decker
| $1,282,231
| 278,484
|
William Bossung
| $65,677
| 18,243
|
First Capital Properties LLC
| $16,180
| 4,494
|
Shelton S. Decker
| $33,717
| 6,518
|
Logan B. Decker
| $33,717
| 6,518
|
Kevin Pitts
| $51,255
| 8,543
|
Innovation Group Holdings, LLC
| $25,627
| 4,271
|
Note Conversion Agreements
Effective September 2, 2020, we entered into five (5) Note Conversion Agreements whereby an aggregate of $1,791,383 in outstanding principal and accrued interest was converted into an aggregate of 298,564 shares of our common stock. The conversion price was $6.00 per share. The conversions included a note held by our largest shareholder, as follows:
Name:
| No. of Shares
|
Jay W. Decker
| 256,125
|
Genuine Partners
| 14,105
|
Dan Bishop
| 18,334
|
James Knox
| 8,334
|
Matthew Dee Grabau
| 1,667
|
Total
| 298,564
|
Securities Purchase Agreements
Effective October 15, 2020, we entered into four (4) Securities Purchase Agreements whereby we sold and issued 49,167 shares of our common stock at $6.00 per share for aggregate consideration of $295,000. The purchasers included our officers and directors and our largest shareholder, as follows:
Name
| Aggregate Principal and Interest
|
Aggregate Shares
|
Jay W. Decker
| $100,000
| 16,667
|
Shelton S. Decker
| $50,000
| 8,334
|
Logan B. Decker
| $50,000
| 8,334
|
Dr. Gerald Haase
| $95,000
| 15,834
|
Total
| $295,000
| 49,167
|
Securities Purchase Agreements
On February 10, 2021, and effective December 29, 2020, we entered into Securities Purchase Agreements with Shelton Decker and Logan Decker for the purchase and sale of an aggregate of 16,667 shares of our common stock at $6.00 per share, as follows:
82
Name:
| No. of Shares
|
Logan Decker
| 8,334
|
Jay Decker
| 8,334
|
Total
| 16,667
|
Promissory Notes
On February 10, 2021, we issued promissory notes to Jay Decker dated December 14, 2020 and December 21, 2020 in the principal amount of $100,000 and $70,000 respectively.
On January 20, 2022, we issued a promissory note to Jay Decker in the principal amount of $185,000. In conjunction therewith and on the same date, we issued to Jay Decker warrants to purchase 16,667 shares of our common stock at an exercise price of $6.00 per share.
On June 24, 2022, we entered into a Note Conversion Agreement with Jay Decker whereby Decker converted $17,000 in principal and $31.07 in interest on an outstanding convertible note into 2,838 shares of our common stock at a conversion price of $6.00 per share.
Warrants
On February 10, 2021, but effective December 21, 2020, we issued warrants to purchase an aggregate of 62,500 shares of our common stock, at an exercise price of $6.00 per share, as follows (the “Warrants”), for consulting services rendered:
Name:
| No. of Warrants
|
Jay Decker
| 37,500
|
Logan Decker
| 12,500
|
Shelton Decker
| 12,500
|
Total
| 62,500
|
On January 20, 2022, we issued a promissory note to Jay Decker in the principal amount of $185,000. In conjunction therewith and on the same date, we issued to Jay Decker warrants to purchase 16,667 shares of our common stock at an exercise price of $6.00 per share.
Restricted Stock Units and Restricted Stock Awards
On December 26, 2022, we approved the grant of a total of 133,125 Restricted Stock Units at $1.20 per share, and the grant of 300,000 Restricted Stock Awards upon our uplisting with a strike price of $0.00 to $1.20 to a total of sixteen (16) individuals. On April 28, 2023 the RSU’s were granted and issued. Bill Croyle received 6,667 of the RSU’s and William Bossung received 20,834 of the RSU’s. Kevin Pitts received 200,000 of the RSA’s and Robert Madden received 50,000 of the RSA’s.
Director Independence
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCQB on which shares of common stock are quoted does not have any director independence requirements. The NASDAQ definition of “Independent Officer” means a person other than an Executive Officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. According to the NASDAQ definition, Mr. Bossung and Mr. Croyle are independent directors.
83
DESCRIPTION OF SECURITIES
The following description summarizes the material terms and provisions of our common stock, preferred stock and warrants. The following description of our capital stock does not purport to be complete and is subject to, and qualified in its entirety by, our articles of incorporation, warrants, and bylaws. The terms of our common stock, preferred stock and warrants may also be affected by Nevada law.
Our authorized capital stock consists of 50,000,000 shares of common stock, par value $0.001, and 750,000 shares of preferred stock, par value $0.001. As of September 29, 2023, there were 2,954,104 shares of our common stock issued and outstanding, and no shares of preferred stock issued or outstanding.
Common Stock. Each shareholder of our common stock is entitled to a pro rata share of cash distributions made to shareholders, including dividend payments. The holders of our common stock are entitled to one vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of our directors or any other matter. Therefore, the holders of more than 50% of the shares voted for the election of those directors can elect all of the directors. The holders of our common stock are entitled to receive dividends when and if declared by our Board of Directors from funds legally available therefore. Cash dividends are at the sole discretion of our Board of Directors. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of our liabilities and after provision has been made for each class of stock, if any, having any preference in relation to our common shareholders of shares of our common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to our common stock.
Preferred Stock. We are authorized to issue 750,000 shares of preferred stock, par value $0.001 per share. No shares of preferred stock are issued or outstanding, and no series of preferred stock has been created.
Options, Restricted Stock and Warrants.
There are currently outstanding options to acquire 87,084 shares of Common Stock at $6.00 per share, warrants to acquire 116,667 shares of Common Stock at either $6.00 or $9.00 per share, warrants to acquire 140 shares of Common Stock at $7,500 per share, Restricted Stock Units to acquire 133,125 shares of Common Stock at $1.20 per share, and 300,000 unvested Restricted Stock Awards.
84
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK
The following discussion is a summary of the material United States federal income tax consequences to Non-U.S. Holders (as defined below) of the ownership and disposition of our common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other United States federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-United States tax laws are not discussed. This discussion is based on the United States Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the United States Internal Revenue Service, or the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder of our common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS will not take, or that a court will not sustain, a contrary position to that discussed below regarding the tax consequences of the ownership and disposition of our common stock.
This discussion is limited to Non-U.S. Holders that hold our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all United States federal income tax consequences relevant to a Non-U.S. Holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income or the alternative minimum tax. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:
·certain United States expatriates and former citizens or long-term residents of the United States;
·persons holding our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
·banks, insurance companies, and other financial institutions;
·brokers, dealers or certain traders in securities;
·“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid United States federal income tax;
·partnerships or other entities or arrangements treated as partnerships for United States federal income tax purposes (and investors therein);
·tax-exempt organizations or governmental organizations;
·persons deemed to sell our common stock under the constructive sale provisions of the Code;
·persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation;
·tax-qualified retirement plans;
·“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds;
85
·persons who own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below); and
·persons subject to special tax accounting rules as a result of any item of gross income with respect to the stock being taken into account in an applicable financial statement.
If an entity treated as a partnership for United States federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership generally will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships (or other entities treated as partnerships for United States federal income tax purposes) holding our common stock and the partners in such partnerships (or other entities treated as partnerships for United States federal income tax purposes) should consult their tax advisors regarding the United States federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-UNITED STATES TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a “Non-U.S. Holder” is any beneficial owner of our common stock that is neither a “U.S. person” nor an entity treated as a partnership for United States federal income tax purposes.
A U.S. person is any person that, for United States federal income tax purposes, is or is treated as any of the following:
·an individual who is a citizen or resident of the United States;
·a corporation, or an entity treated as a corporation, created or organized in the United States or under the laws of the United States, any state thereof, or the District of Columbia, or other entity treated as such for United States federal income tax purposes;
·an estate, the income of which is subject to United States federal income tax regardless of its source; or
·a trust that (1) is subject to the primary supervision of a United States court and all substantial decisions of which are subject to the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a United States person for United States federal income tax purposes.
86
Distributions
As described in the section titled “Dividend Policy,” we do not anticipate declaring or paying dividends to holders of our common stock in the foreseeable future. However, if we do make distributions of cash or property on our common stock, such distributions will constitute dividends for United States federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent those distributions exceed our current and accumulated earnings and profits, amounts not treated as dividends for United States federal income tax purposes will constitute a return of capital and will first be applied against and reduce a Non-U.S. Holder’s adjusted tax basis in our common stock owned by such Non-U.S. Holder, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “-Sales or Other Taxable Dispositions of Common Stock.”
Subject to the discussion below on effectively connected income, backup withholding and foreign accounts, dividends paid to a Non-U.S. Holder of our common stock will be subject to United States federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder timely furnishes a valid IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate of United States withholding tax, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the United States federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must timely furnish to the applicable withholding agent a valid IRS Form W-8ECI (or applicable successor form), certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States.
Any such effectively connected dividends will be subject to United States federal income tax on a net income basis at regular rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Sales or Other Taxable Dispositions of Common Stock
Subject to the discussion below regarding backup withholding and foreign accounts, a Non-U.S. Holder generally will not be subject to United States federal income tax on any gain realized upon the sale or other taxable disposition of our common stock unless:
·the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable);
·the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or
87
·our common stock constitutes a United States real property interest, or USRPI, by reason of our status as a United States real property holding corporation, or USRPHC, for United States federal income tax purposes.
Gain described in the first bullet point above generally will be subject to United States federal income tax on a net income basis at regular rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point above will be subject to United States federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by certain United States source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed United States federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Generally, a corporation is a USRPHC if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-United States real property interests and our other business assets, there can be no assurance that we currently are not a USRPHC or will not become a USRPHC in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a Non-U.S. Holder of our common stock will not be subject to United States federal income tax if our common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, and such Non-U.S. Holder owned, actually and constructively, 5% or less of our common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition thereof or the Non-U.S. Holder’s holding period.
NON-U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING ANY POTENTIALLY APPLICABLE INCOME TAX TREATIES THAT MAY PROVIDE FOR DIFFERENT RULES.
Information Reporting and Backup Withholding
Payments of distributions on our common stock will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the Non-U.S. Holder is a United States person and the Non-U.S. Holder either certifies its non-United States status, such as by furnishing a valid IRS Form W-8BEN, IRS Form W-8BEN-E or IRS Form W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any distributions on our common stock paid to the Non-U.S. Holder, regardless of whether any tax was actually withheld.
In addition, proceeds of the sale or other taxable disposition of our common stock within the United States, or conducted through certain United States-related brokers, generally will not be subject to backup withholding or information reporting if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such Non-U.S. Holder is a United States person, or the Non-U.S. Holder otherwise establishes an exemption. Proceeds of a disposition of our common stock conducted through a non-United States office of a non-United States broker that does not have certain enumerated relationships with the United States generally will not be subject to backup withholding or information reporting. Non-U.S. Holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules to them.
88
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder’s United States federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-United States financial institutions and certain other non-United States entities. Specifically, a 30% withholding tax may be imposed on distributions on our common stock paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the United States Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of distributions on our common stock. While withholding under FATCA also would have applied to payments of gross proceeds from the sale or other disposition of such stock on or after January 1, 2019, proposed Treasury Regulations eliminate FATCA withholding on payments of such gross proceeds. In its preamble to these proposed Treasury Regulations, the U.S. Treasury Department stated that taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE POTENTIAL APPLICATION OF WITHHOLDING UNDER FATCA TO THEIR INVESTMENT IN OUR COMMON STOCK.
89
UNDERWRITING
We intend to enter into an underwriting agreement with Spartan Capital Securities, LLC, as the representative of the underwriters and the lead book-running manager of this Offering. Subject to the terms and conditions of the underwriting agreement, each underwriter will agree to purchase from us the number of Shares set forth opposite its name below.
Underwriter
|
| Number of Shares
|
Spartan Capital Securities, LLC
|
| 1,543,210
|
Total
|
| 1,543,210
|
We have been advised by the underwriters that they propose to offer the Shares directly to the public at the public offering price set forth on the cover page of this prospectus. Any Shares sold by the underwriters to securities dealers will be sold at the public offering price less a selling concession not in excess of $0.00 per share. The underwriters may allow, and these selected dealers may re-allow, a concession of not more than $0.00 per share to other brokers and dealers.
We intend for the underwriting agreement to provide that the underwriters’ obligation to purchase the Shares that we are offering will be subject to the terms and conditions described therein.
Over-Allotment Option
We intend to grant to the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to 231,481 additional shares of Common Stock from us at the initial offering price set forth on the cover page of this prospectus, less the underwriting discount. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the Offering of the Shares offered by this prospectus.
Underwriting Discount and Expenses
The following table shows the assumed public offering price, underwriting discount of 8%, and proceeds before expenses to us. The information assumes either no exercise or full exercise of the option we granted to the underwriters to purchase additional shares of Common Stock.
|
|
| Total
|
| Per share of Common Stock
|
| No exercise of Over-Allotment Option
|
| Full exercise of Over-Allotment Option
|
Initial public offering price
| $6.48
|
| $10,000,000
|
| $11,500,000
|
Underwriting discounts
| $0.52
|
| $800,000
|
| $920,000
|
Proceeds, before expenses, to us
| $5.96
|
| $9,200,000
|
| $10,580,000
|
We estimate expenses payable by us in connection with this Offering, other than the underwriting discounts referred to above, will be approximately $280,000. We have agreed to reimburse the underwriters for all reasonable travel and other out-of-pocket expenses, including fees and disbursements related to its legal counsel, in an amount not to exceed $200,000 in the aggregate.
90
Determination of Public Offering Price
The public offering price of the Shares will be determined by negotiations between us and the underwriters. Among the factors considered in determining the public offering price of the shares of Common Stock will be our historical stock price, the history and prospects of other companies in the industry in which we compete; our financial information; an assessment of our management and their experience; an assessment of our business potential and earning prospects; the prevailing securities markets at the time of this Offering; the recent market prices of, and the demand for, publicly traded shares of generally comparable companies; and other factors deemed relevant. Neither we nor the underwriters can assure that the shares of Common Stock will trade in the public market at or above the public offering price for such shares.
Underwriters’ Warrants
In addition, we intend to agree to issue to the underwriters the Underwriters’ Warrants, exercisable for up to 88,735 shares of Common Stock, which is equal to 5% of the total number of Shares sold in this Offering (including any such shares of Common Stock sold to cover over-allotments, if any) at an exercise price equal to $7.128 per share (110% of the public offering price of $6.48 per share of Common Stock). The Underwriters’ Warrants may be purchased in cash or via cashless exercise and will be exercisable at any time after the closing of this Offering of the Shares until the fifth anniversary of the date of commencement of sales of such shares of Common Stock. The Underwriters’ Warrants and the shares of Common Stock underlying the Underwriters’ Warrants will be deemed compensation by FINRA, and therefore will be subject to FINRA Rule 5110. In accordance with FINRA Rule 5110, neither the Underwriters’ Warrants nor any of our shares of Common Stock issued upon exercise of the Underwriters’ Warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days beginning on the date of commencement of sales of the Shares, subject to certain exceptions set forth in FINRA Rule 5110(e)(2).
Stabilization
In connection with this Offering of the Shares, the underwriters may engage in stabilizing transactions and syndicate covering transactions and purchases to cover positions created by short sales.
Stabilizing transactions permit bids to purchase shares of Common Stock so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the Common Stock while the Offering of the Shares is in progress.
Syndicate covering transactions involve purchases of Common Stock in the open market after the distribution has been completed in order to cover syndicate short positions. Since there is no over-allotment option, if the underwriters would have a naked short position, it can be closed out only by buying shares of Common Stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares of Common Stock in the open market that could adversely affect investors who purchase shares of Common Stock in this Offering.
91
Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the security originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our Common Stock or preventing or retarding a decline in the market price of our Common Stock. As a result, the price of our Common Stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our Common Stock. These transactions may be effected on Nasdaq, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Indemnification
We intend to agree, pursuant to the underwriting agreement, to indemnify the underwriters and selected dealers against certain liabilities, including certain liabilities arising under the Securities Act, or to contribute to payments that the underwriters or selected dealers may be required to make for these liabilities.
Listing on the Nasdaq Capital Market
We have applied to list our Common Stock on Nasdaq.
Electronic Distribution
A prospectus in electronic format may be made available on websites maintained by the underwriters, or selling group members, if any, participating in this Offering. The underwriters may agree to allocate a number of shares of our Common Stock for sale to its online brokerage account holders.
Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing, and brokerage activities. The underwriters and their respective affiliates may in the future perform various financial advisory, investment banking, and other services for us, for which they may receive customary fees and commissions. In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may effect transactions for their own account or the accounts of customers, and hold on behalf of themselves or their customers long or short positions in our debt or equity securities or loans, and may do so in the future. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to their customers that they acquire, long or short positions in such securities and instruments.
92
Selling Restrictions
No action has been taken by us or the underwriters that would permit a public offering of the shares of Common Stock in any jurisdiction where action for that purpose is required. None of our shares of Common Stock included in this Offering may be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sales of any of the shares of Common Stock offered hereby be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons who receive this prospectus are advised to inform themselves about and to observe any restrictions relating to this Offering of shares of Common Stock and the distribution of this prospectus. This prospectus is neither an offer to sell nor a solicitation of any offer to buy the shares of Common Stock in any jurisdiction where that would not be permitted or legal.
LEGAL MATTERS
The validity of the securities offered by this prospectus have been passed upon for us by Clyde Snow & Sessions, PC, Salt Lake City, Utah. The underwriters of this offering are being represented by Ellenoff Grossman & Schole LLP, New York, New York.
EXPERTS
The audited financial statements of Healthy Extracts Inc., Hyperion, L.L.C., and Online Publishing & Marketing LLC as of December 31, 2022 and 2021 appearing in this prospectus which is part of a registration statement have been so included in reliance on the reports of BF Borgers CPA PC, given on the authority of such firm as experts in accounting and auditing.
INTEREST OF NAMED EXPERTS AND COUNSEL
Clyde Snow & Sessions, PC serves as our legal counsel in connection with this offering. Brian A. Lebrecht, a shareholder at Clyde Snow & Sessions, owns 4,167 shares of our common stock and Restricted Stock Units to acquire 4,167 shares of Common Stock at $1.20 per share.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1, together with all amendments and exhibits thereto, under the Securities Act of 1933 with respect to the common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. You should refer to the registration statement and its exhibits and schedules for further information. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference.
Copies of documents we file with the Commission, including this prospectus, the registration of which it is a part and the related exhibits, may be read and copies at the Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the Commission are also available through the Commission’s website at the following address: http://www.sec.gov.
93
We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance therewith, file periodic reports, proxy statements and other information with the Commission. Such periodic reports, proxy statements and other information are available for inspection and copying at the Public Reference Room and website of the SEC referred to above. We also furnish our shareholders with annual reports containing our financial statements audited by an independent registered public accounting firm and quarterly reports containing our unaudited financial information. We maintain a website at www.healthyextractsinc. You may access our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act with the Commission free of charge at our website as soon as reasonably practicable after this material is electronically filed with, or furnished to, the Commission. The reference to our website or web address does not constitute incorporation by reference of the information contained at that site.
INCORPORATION BY REFERENCE
We “incorporate by reference” information from other documents that we file with the SEC into this prospectus, which means that we disclose important information to you by referring you to those documents. The information incorporated by reference is deemed to be part of this prospectus except for any information that is superseded by information included directly in this prospectus, and the information that we file later with the SEC will automatically supersede this information. Any statement contained in this prospectus or any prospectus supplement or a document incorporated by reference in this prospectus or in any prospectus supplement will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in any other subsequently filed document that is incorporated by reference in this prospectus modifies or superseded the statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus. You should not assume that the information in this prospectus is current as of the date other than the date on the cover page of this prospectus.
We are incorporating by reference into this prospectus any additional documents that we may file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the effective date of the registration statement and prior to the termination of the offering.
You may request a copy of any document incorporated by reference in this prospectus and any exhibit specifically incorporated by reference in those documents, at no cost, by writing or telephoning us at the following address or phone number:
Healthy Extracts Inc.
7375 Commercial Way, Suite 125
Henderson, NV 89011
(702) 463-1004
Attn: Kevin “Duke” Pitts
94