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NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Healthy Extracts, Inc. (the “Company”) was incorporated in the
State of Nevada on December 19, 2014 as Grey Cloak Tech Inc. On
October 23, 2020, we changed our name from Grey Cloak Tech Inc. to
Healthy Extracts Inc. to more accurately reflect our business. The
Company has acquired BergaMet NA, LLC and ultimate Brain Nutrients,
LLC which market and sell health supplemental products.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
statements and with the instructions to Form 10-Q and Article 8 of
Regulation S-X of the United States Securities and Exchange
Commission (“SEC”). Accordingly, they do not contain all
information and footnotes required by accounting principles
generally accepted in the United States of America for annual
financial statements. In the opinion of the Company’s management,
the accompanying unaudited consolidated financial statements
contain all the adjustments necessary (consisting only of normal
recurring accruals) to present the financial position of the
Company as of March 31, 2022 and the results of operations and cash
flows for the periods presented. The results of operations for the
months ending March 31, 2022 are not necessarily indicative of the
operating results for the full fiscal year or any future period.
These unaudited consolidated financial statements should be read in
conjunction with the financial statements and related notes thereto
included in the Company’s form 10-K for the year ended December 31,
2021 filed with the SEC on April 1, 2022.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Cash
Cash includes cash in banks, money market funds, and certificates
of term deposits with maturities of less than three months from
inception, which are readily convertible to known amounts of cash
and which, in the opinion of management, are subject to an
insignificant risk of loss in value.
Accounts Receivables
Accounts receivables are recorded at the invoice amount and do not
bear interest.
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 or
market. 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 March 31, 2022 and 2021, the total
of inventory which was written off as an inventory allowance was
$1,914,891 and $1,808,904.
6
Property and Equipment
The Company’s property and equipment are recorded at cost and
depreciated using the straight-line method over the useful lives of
the assets, generally from three to seven years. Upon sale or
disposal of property and equipment, the related asset cost and
accumulated depreciation or amortization are removed from the
respective accounts and any gain or loss is reflected in current
operations.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets established in connection with
business combinations consist of patents, trademarks, and trade
names. The impairment test for identifiable indefinite-lived
intangible assets consists of a comparison of the estimated fair
value of the intangible asset with its carrying value. If the
carrying value exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess. With the acquisition
of Ultimate Brain Nutrients on April 3, 2020 the Company added a
purchasing value of $315,604 in patents to its balance sheet.
As of March 31, 2022, the Company believes that based upon
qualitative factors, no impairment of indefinite-lived intangible
assets is necessary.
Goodwill
In accordance with Goodwill and Other Intangible Assets, goodwill
is defined as the excess of the purchase price over the fair value
assigned to individual assets acquired and liabilities assumed and
is tested for impairment at the reporting unit level on an annual
basis in the Company's fourth fiscal quarter or more frequently if
indicators of impairment exist. The performance of the test
involves a two-step process. The first step of the impairment test
involves comparing the fair value of the Company's reporting units
with each respective reporting unit's carrying amount, including
goodwill. The fair value of reporting units is generally determined
using the income approach. If the carrying amount of a reporting
unit exceeds the reporting unit's fair value, the second step of
the goodwill impairment test is performed to determine the amount
of any impairment loss. The second step of the goodwill impairment
test involves comparing the implied fair value of the reporting
unit's goodwill with the carrying amount of that goodwill. The
Company sees the goodwill to have a ten-year useful life. No
goodwill impairment indicators were present, for the goodwill
listed on the books as of March 31, 2022, after working through our
analysis of goodwill during the months ending March 31, 2022.
The Company has determined that the method applied represents the
fair value of the asset group principally because the valuation of
the intangibles with the asset group is based on the anticipated
cash flows related to the revenue stream from its customers. The
asset group excludes goodwill, long term non-operational assets and
liabilities and cash. As such, the principal value from the asset
group relates to the cash inflows from its customers and the cash
outflows required to service these customers. The fair value for
the asset group consists of the following:
·Fair
value of net revenues: computed using the income approach. The key
input to these computations is the anticipated cash inflows from
customers. These valuations include 100% of the cash inflows
related to the customer base, and taking cash outflows into
consideration.
·Fair
value of working capital (including accounts receivable, inventory,
accrued expenses, and accounts payables). Due to the short-term
nature of the working capital, book value has been determined to be
fair value. These accounts represent either avoided future outflows
(inventory, prepaids) or future cash flows (accrued expense, AP and
AR) related to customer sales.
·Fair
value of five years of revenue (2021 to 2025): we discounted
our cash flows to the anticipated cash projected to be received. We
also projected the anticipated cash outflows required to service
these customers. If the asset group was to be valued as a whole, we
would expect an income approach based on the revenues being
generated from the customers and expenses required to service those
customers, appropriately adjusted for the working capital position.
The sum of these values reasonably approximates this
approach.
The Company’s revenue streams align directly with the intangibles,
which were recorded as a result of the BergaMet acquisition in
fiscal 2019. For purposes of the Step 2 recoverability test under
ASC 360 subsection 2.3., the net revenues from BergaMet customers
base were used. The revenue stream fairly reflects anticipated
future cash flows; accordingly, the intangibles associated with
these revenue streams have been tested with the expected cash
flows.
7
Due to the purchase of Ultimate Brian Nutrients, LLC being a
related party transaction and the new division recording no revenue
as of June 30, 2020, the Company found the goodwill to be impaired.
Due to the impairment the Company expensed the goodwill related to
the purchase as of June 30, 2020.
Revenue Recognition
Beginning January 1, 2019, the Company implemented ASC
606, Revenue from Contracts with Customers. Although the new
revenue standard is expected to have an immaterial impact, if any,
on our ongoing net income, we did implement changes to our
processes related to revenue recognition and the control activities
within them. These included the development of new policies based
on the five-step model provided in the new revenue standard,
ongoing contract review requirements, and gathering of information
provided for disclosures.
The Company recognizes revenue and cost of goods sold from product
sales or services rendered when control of the promised goods are
transferred to our clients in an amount that reflects the
consideration to which we expect to be entitled in exchange for
those goods and services. Our revenue policy includes all sales
channels which include the Company website channel or any other
selling channel like Amazon, doctors’ offices, and walk-in sales.
To achieve this core principle, we apply the following five steps:
identify the contract with the client, identify the
performance obligations in the contract, determine the transaction
price, allocate the transaction price to performance obligations in
the contract and recognize revenues when or as the Company
satisfies a performance obligation.
The Company recognizes revenue and cost of goods sold from each
sale upon shipment of the promised goods to the customers.
Concentration
There is no concentration of revenue for the months ended March 31,
2021 and for the months ended March 31, 2022 because the revenue
was earned from multiple customers.
Income Taxes
The Company accounts for income taxes using the asset and liability
method in accordance with ASC 740, “Accounting for Income Taxes”.
The asset and liability method provides that deferred tax assets
and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities and for operating
loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using the currently enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. The Company records a valuation allowance to reduce
deferred tax assets to the amount that is believed more likely than
not to be realized. For the period ending March 31, 2021 and March
31, 2022, the Company did not have any amounts recorded pertaining
to uncertain tax positions.
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value
Measurements and Disclosures”, which defines fair value as
used in numerous accounting pronouncements, establishes a framework
for measuring fair value and expands disclosure of fair value
measurements.
The estimated fair value of certain financial instruments,
including cash and cash equivalents are carried at historical cost
basis, which approximates their fair values because of the
short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value
hierarchy, which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. ASC 820 describes three levels of inputs that
may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets
or liabilities
Level 2 — quoted prices for similar assets and liabilities in
active markets or inputs that are observable
8
Level 3 — inputs that are unobservable (for example cash flow
modeling inputs based on assumptions)
The derivative liability in connection with the conversion feature
of the convertible debt, classified as a Level 3 liability, is the
only financial liability measure at fair value on a recurring
basis.
The change in Level 3 financial instrument is as follows:
|
Balance, January 1, 2021
|
|
$ 92,527
|
|
Issued
during the months ended March 31, 2022
|
|
(84,500)
|
|
Change
in fair value recognized in operations
|
|
5,522
|
|
Converted during the year ended March 31, 2022
|
|
0
|
|
Balance, March 31, 2022
|
|
$ 13,549
|
Recent Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
ASU 2014-09 amends the guidance for revenue recognition to replace
numerous, industry specific requirements and converges areas under
this topic with those of the International Financial Reporting
Standards. The ASU implements of five–step process for customer
contract revenue recognition that focuses on transfer of control,
as opposed to transfer of risk and rewards. The amendment also
requires enhanced disclosures regarding the nature, amount, timing
and uncertainty of revenues and cash flows from contracts with
customers. Other major provisions include the capitalization and
amortization of certain contract cost, ensuring the time value of
money is considered in the transaction price, and allowing
estimates of variable consideration to be recognized before
contingencies are resolved in certain circumstances. The amendments
in this ASU are effective for reporting period beginning after
December 15, 2016, and early adoption is prohibited. Entities can
transition to the standard either retrospectively or as a
cumulative-effect adjustment as of the date of adoption.
The Company’s revenues are recognized when control of the promised
goods or services is transferred to our clients (upon shipment of
goods) in an amount that reflects the consideration to which we
expect to be entitled in exchange for those goods and services. To
achieve this core principle, we apply the following five steps: (1)
Identify the contract with a client; (2) Identify the performance
obligations in the contract; (3) Determine the transaction price;
(4) Allocate the transaction price to performance obligations in
the contract; and (5) Recognize revenues when or as the Company
satisfies a performance obligation.
We
adopted ASC 2014-09 on January 1, 2019. Although the new revenue
standard is expected to have an immaterial impact, if any, on our
ongoing net income, we did implement changes to our processes
related to revenue recognition and the control activities with
them.
Convertible Instruments
The Company evaluates and account for conversion options embedded
in convertible instruments in accordance with ASC 815
“Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options
from their host instruments and account for them as free-standing
derivative financial instruments according to certain criteria. The
criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are
not clearly and closely related to the economic characteristics and
risks of the host contract, (b) the hybrid instrument that embodies
both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair
value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has been
determined that the embedded conversion options should not be
bifurcated from their host instruments) as follows: The Company
records when necessary, discounts to convertible notes for the
intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying
common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts
under these arrangements are amortized over the term of the related
debt to their stated date of redemption.
9
The Company accounts for the conversion of convertible debt when a
conversion option has been bifurcated using the general
extinguishment standards. The debt and equity linked derivatives
are removed at their carrying amounts and the shares issued are
measured at their then-current fair value, with any difference
recorded as a gain or loss on extinguishment of the two separate
accounting liabilities. During the months ended March 31, 2021, the
Company issued $340,000 of convertible debt with a bifurcated
conversion option.
Common Stock Purchase Warrants
The Company classifies as equity any contracts that require
physical settlement or net-share settlement or provide a choice of
net-cash settlement or settlement in the Company’s own shares
(physical settlement or net-share settlement) provided that such
contracts are indexed to our own stock as defined in ASC 815-40
(“Contracts in Entity's Own Equity”). The Company classifies as
assets or liabilities any contracts that require net-cash
settlement (including a requirement to net cash settle the contract
if an event occurs and if that event is outside our control) or
give the counterparty a choice of net-cash settlement or settlement
in shares (physical settlement or net-share settlement). The
Company assesses classification of common stock purchase warrants
and other free-standing derivatives at each reporting date to
determine whether a change in classification is required.
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has
generated minimal revenues from operations. Since its inception,
the Company has been engaged substantially in financing activities
and developing its business plan and incurring startup costs and
expenses. As a result, the Company incurred accumulated net losses
from Inception (December 19, 2014) through the period ended March
31, 2022 of $14,940,609. Due to our negative cash flow, the Company
has substantial doubt about the entity’s ability to continue as a
going concern within one year after the date that the financial
statements are issued. In addition, the Company’s development
activities since inception have been financially sustained through
equity financing. Management plans to keep seeking funding through
debt and equity financing which are intended to mitigate the
conditions that have raise substantial doubt about the entity’s
ability to continue as a going concern.
NOTE 4 – RELATED PARTY
For the months ended March 31, 2022 and 2021, the Company had
expenses totaling $0 and $18,000 respectively, to an officer and
director for salaries, which is included in general and
administrative expenses on the accompanying statement of
operations. As of March 31, 2022, there was a total of convertible
debt of $0.00 and accrued interest payable of $0.00 due to an
officer and director, employees, and shareholders.
NOTE 5 – NOTES PAYABLE
As of March 31, 2022, the Company had the following:
|
Unsecured debt with shareholders of the Company, no due date, 0%
interest,
|
866
|
|
Unsecured debt with shareholders of the Company, no due date, 8%
interest,
|
150,000
|
|
Unsecured debt with shareholders of the Company, no due date, 8%
interest,
|
200,000
|
|
|
|
|
TOTAL
|
$ 350,866
|
As
of March 31, 2022, the Company has an outstanding total of $19,684
in interest accrued for the above notes.
10
NOTE 6 – CONVERTIBLE DEBT
As of March 31, 2022, the Company had the following:
|
Unsecured convertible debt, due 01/19/17, 8% interest, default
interest at 18%, converts at a 54% discount to market price based
on the lowest trading prices in the last 20 days trading price
|
6,750
|
|
|
|
|
SUBTOTAL
|
6,750
|
|
Less:
Discount
|
-
|
|
TOTAL
|
$ 6,750
|
Below represent the Black-Scholes Option Pricing Model calculations
for the above convertible note payables:
As
of March 31, 2022, the Company has an outstanding total of $3,061
in accrued interest for the above convertible note.
The convertible promissory notes #1 is in default but management
has not been able to make contact with this party, due to them
living out of the country. We have calculated the derivative
liability as if it is in default (but the note’s default interest
rate stays the same at 8%) and will still accrue appropriate
interest until the note is fully satisfied or converted into the
Company’s common stock.
The Company has determined that the conversion feature embedded in
the notes referred to above that contain a potential variable
conversion amount constitutes a derivative which has been
bifurcated from the note and recorded as a derivative liability,
with a corresponding discount recorded to the associated debt.
NOTE 7 – STOCKHOLDERS’ EQUITY
Authorized Stock
The Company has authorized 75,000,000 common shares with a par
value of $0.001 per share.
Each common share entitles the holder to one vote on any matter on
which action of the stockholders of the corporation is sought.
During February 2017, the Company increased the authorized number
of shares to 500,000,000. Also, the Company increased the
authorized preferred stock to 75,000,000 shares and designated
25,000,000 shares of preferred stock to Series A Convertible
Preferred Stock. During January 2018, the Company increased its
authorized number of common shares to 1,000,000,000. During April
2018, the Company increased its authorized number of common shares
to 2,500,000,000. The Board of
Directors, in the future, has the authority to increase the
authorized capital up to 4,000,000,000 shares based on shareholder
approval.
The Company effectuated a reverse stock split of 1-for-250 as of
July 23, 2018.
On
October 16, 2017, the Company filed an Amended and Restated
Certificate of Designation of the Rights, Preferences, Privileges
and Restrictions of the Series A Convertible Preferred Stock (the
“Amended Certificate”) with the Secretary of State of the State of
Nevada. The Amended Certificate reduces the number of preferred
shares designated as Series A Preferred Stock from 25,000,000
shares to 1,333,334 shares. The Amended Certificate also changes
the conversion and voting rights of the Series A Preferred Stock.
The Series A Preferred Stock is now convertible into the number of
shares of our common stock equal to 0.00006% of our outstanding
common stock upon conversion. The voting rights of the Series A
Preferred Stock are now equal to the number of shares of common
stock into which the Series A Preferred Stock may convert.
As
of March 31, 2022, there are no outstanding shares of preferred stock.
All the preferred stock was converted in common stock on February
4, 2019. See recent developments for details.
11
Common Share Issuances
During the period ended March 31, 2022, the Company issued 507,917
shares of common stock while cancelling a total of 800,267 shares
of common stock.
During the fourth quarter 2021, the Company issued 3,500,000 shares
of common stock for consulting fees. Additionally, the Company
raised during the year over $900,000 in direct security purchase
agreements which were converted into 15,403,983 shares of the
Company’s common stock. During the third quarter 2021, the
Company issued 1,177,778 shares of common stock for advertising and
broker fees. On March 18, 2021, the Company raised $340,000 note
payable agreement which 1,200,000 shares of the Company’s common
stock were issued to the note holder. Additionally, 2,000,000
shares of common stock were issued to a company helping secure the
note. Furthermore, 715,000 shares of common stock were issued for
marketing services while 1,000,000 shares of common stock were
issued for advertising services. During January 2021 the company
converted 4,500,000 of securities purchase agreement into common
stock shares.
Warrant Issuances
During the period ending December 31, 2021, the Company issued
14,000,000 warrants to 25 parties at a per share price between
$0.05 and $0.075. As of March 31, 2022, there were 14,012,000
warrants outstanding, of which 14,004,000 warrants are fully
vested.
Stock Issued for Services
On
March 18, 2021, the Company issued 715,000 shares of common stock
as the compensation for this agreement. Additionally on March 18,
2021, the Company issued 2,000,000 shares of common stock to a
company helping secure the note. During the second and third
quarters of 2021, the Company entered into several broker
agreements to help raise capital for the Company. 1,177,778 shares
of common stock were issued in the third quarter as broker fees.
And additional 1,000,000 shares of common stock were issued in the
second quarter as advertising fees.
No
shares were issued for services during the period ending March 31,
2022.
Share Conversion Agreements
All of the holders of the Company’s Series A Convertible Preferred
Stock (the “Preferred Holders”) entered into a Preferred
Stock Conversion Agreement. Pursuant to the Conversion Agreements,
the Preferred Holders converted their shares of preferred stock
into common stock, effective as of the Exchange. As a result, no
shares of the Company’s Series A Convertible Preferred Stock are
outstanding. An aggregate of 15,592,986 shares of common stock were
issued to the Preferred Holders. The Preferred Holders agreed to
convert each share of Series A Convertible Preferred Stock into
eighteen (18) shares of common stock and agreed to retire a total
of 467,057 shares of Series A Convertible Preferred Stock. The
Company cancelled the retired shares.
Omnibus Stock Grant and Option Plan
On
December 31, 2021, the Company approved stock option agreements in
the amount of 7,500,000 shares with a strike price of $0.05 to
twenty-one individuals.
Offering Circular
During the first part of the 2021, the Company filed a Regulation A
Offering Circular with the U.S. Securities and Exchange Commission.
The Offering Circular was qualified during August 2021.
12
NOTE 8 – BUSINESS SEGMENT INFORMATION
As of March 31, 2022, the Company operated in two reportable
segments (Corporate and Health Supplements) supported by a
corporate group which conducts activities that are non-segment
specific. The following table presents selected financial
information about the Company’s reportable segments for the months
ended March 31, 2022.
|
|
CONSOLIDATED
|
HEALTH SUPPLEMENTS
|
CORPORATE
|
|
|
BergaMet
|
UBN
|
|
|
Revenue
|
551,654
|
551,654
|
-
|
-
|
|
Less Selling Fees
|
(88,267)
|
(88,267)
|
|
|
|
Cost of Revenue
|
138,681
|
138,681
|
-
|
-
|
|
Long-lived Assets
|
732,030
|
193,260
|
538,771
|
-
|
|
Gain (Loss) Before
Income Tax
|
3,011
|
(19,171)
|
(663)
|
22,846
|
|
Identifiable
Assets
|
2,124,842
|
2,124,842
|
-
|
-
|
|
Depreciation and
Amortization
|
(768)
|
(768)
|
-
|
-
|
NOTE 9 – SUBSEQUENT EVENTS
COVID-19
On March 11, 2020, the World Health Organization declared the novel
strain of coronavirus (COVID-19) a global pandemic and recommended
containment and mitigation measures worldwide. The Company is
monitoring this closely, and although operations have not been
materially affected by the coronavirus outbreak to date, the
ultimate severity of the outbreak is uncertain. Further the
uncertain nature of its spread globally may impact our business
operations resulting from quarantines of employees, customers, and
third-party service providers. At this time, the Company is unable
to estimate the impact of this event on its operations.
The Company evaluated its March 31, 2022 financial statements for
subsequent events through April 28, 2022, the date the financial
statements were available to be issued.
ITEM
2Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Our Management’s Discussion and Analysis contains not only
statements that are historical facts, but also statements that are
forward-looking (within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). Forward-looking statements are, by their very nature,
uncertain and risky. These risks and uncertainties include
international, national and local general economic and market
conditions; demographic changes; our ability to sustain, manage, or
forecast growth; our ability to successfully make and integrate
acquisitions; raw material costs and availability; new product
development and introduction; existing government regulations and
changes in, or the failure to comply with, government regulations;
adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating
results; changes in business strategy or development plans;
business disruptions; the ability to attract and retain qualified
personnel; the ability to protect technology; and other risks that
might be detailed from time to time in our filings with the
Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Statement
reflect the good faith judgment of our management, such statements
can only be based on facts and factors currently known by them.
Consequently, and because forward-looking statements are inherently
subject to risks and uncertainties, the actual results and outcomes
may differ materially from the results and outcomes discussed in
the forward-looking statements. You are urged to carefully review
and consider the various disclosures made by us in this report and
in our other reports as we attempt to advise interested parties of
the risks and factors that may affect our business, financial
condition, and results of operations and prospects.
The following discussion and analysis of financial condition and
results of operations of the Company is based upon, and should be
read in conjunction with, its unaudited financial statements and
related notes elsewhere in this Form 10-Q, which have been prepared
in accordance with accounting principles generally accepted in the
United States.
13
Summary Overview
We were incorporated on December 19, 2014 in the State of Nevada.
We had revenues of $1,465,782 in the year ended December 31, 2021
and $1,276,559 in the year ended December 31, 2020. We had revenues
of $463,386 for the three months ended March 31, 2022.
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.
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.
Overview
BergaMet NA, LLC
On February 4, 2019, we issued and exchanged shares of our common
stock for all of the outstanding equity securities of BergaMet.
BergaMet is an established company that was already generating
revenues when we acquired it.
Ultimate Brain Nutrients, LLC
On April 3, 2020, we issued and exchanged shares of our common
stock for all of the outstanding equity securities of UBN. UBN is a
science-based company that develops unique, plant-based health
technology neuro-products that provide natural brain solutions. UBN
has numerous proprietary products, with four unique patent-pending
formulations and two patents issued.
Going Concern
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, 2021 and 2020
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, 2021, we have
incurred accumulated net losses of $14,943,620. 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. 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 Months Ended March 31, 20221 and
2021
Introduction
We had revenues of $463,386 for the three months ended March 31,
2022, compared to $170,433 for the three months ended March 31,
2021. Revenues for the three months ended December 31, 2021 were
$671,589. Our cost of revenue for the three months ended March 31,
2022 were $138,681, compared to $41,442 for the three months ended
March 31, 2021.
14
Our operating expenses were $370,357 for the three months ended
March 31, 2022, compared to $716,087 for the three months ended
March 31, 2021, a decrease of $345,729, or 48%. Our operating
expenses consisted entirely of general and administrative
expenses.
Revenues and Net
Operating Loss
Our revenue, operating expenses, net operating loss, and net gain
(loss) for the three months ended March 31, 2022 and 2021 were as
follows:
|
|
|
Three Months
Ended
|
|
Three Months
Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2022
|
|
2021
|
|
|
|
|
|
|
|
Revenue
|
$
|
463,386
|
$
|
170,433
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
138,681
|
|
41,442
|
|
|
|
|
|
|
|
Gross Profit
|
|
324,705
|
|
128,991
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
General and administrative
|
|
370,357
|
|
716,087
|
|
Total operating
expenses
|
|
370,357
|
|
716,087
|
|
|
|
|
|
|
|
Other income
(expense)
|
|
|
|
|
|
Interest expenses, net of interest income
|
|
(32,957)
|
|
(15,759
|
|
Change in fair value on derivative
|
|
78,978
|
|
(690,780)
|
|
Loss on extinguishment of debt
|
|
-
|
|
-
|
|
SBA
Loan Forgiveness
|
|
-
|
|
-
|
|
Impairment of Assets
|
|
-
|
|
-
|
|
Gain on sale of asset
|
|
2,643
|
|
-
|
|
Total other income
(expense)
|
|
48,664
|
|
(706,540)
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
3,011
|
$
|
(1,293,636)
|
Revenues
We had revenues of $463,386 for the three months ended March 31,
2022, compared to $170,433 for the three months ended March 31,
2021, a, increase of $292,953, or 172%. Revenues for the three
months ended December 31, 2021 were $671,589. Our cost of revenue
for the three months ended March 31, 2022 were $138,681, or 30% of
revenue, compared to $41,442 for the three months ended March 31,
2021, or 24% of revenue.
Cost of Revenue
Cost of revenue was $138,681 for the three months ended March 31,
2022, compared to $41,442 for the three months ended March 31,
2021, an increase of $97,239, or 235%. Gross profit was $324,705
for the three months ended March 31, 2022, compared to $128,991 for
the three months ended March 31, 2021, an increase of $195,714, or
152%.
Cost of revenue as a percentage of revenues was 30% for the three
months ended March 31, 2022, compared to 24% for the three months
ended March 31, 2021.
General and Administrative
General and administrative expenses were $370,357 for the three
months ended March 31, 2022, compared to $716,087 for the three
months ended March 31, 2021. In the three months ended March 31,
2022, general and administrative expenses consisted mainly of
advertising $162,329, consulting fees $97,750, professional fees
43,870, and salary and wages $35,489. In the three months ended
March 31, 2021, general and administrative expenses
15
consisted mainly of consulting fees
$172,500, professional fees $368,960, salary and wages $30,446,
advertising $82,729, and postage $7,625.
Other Income (Expense)
Other income (expense) was $48,664 for the three months ended March
31, 2022, compared to $(706,540) for the three months ended March
31, 2021, an increase of $755,204, or 107%. In the three months
ended March 31, 2022, other income (expense) consisted of interest
expenses, net of interest income of $(32,957), change in fair value
on derivative of $78,978, and gain on sale of asset of $2,643. In
the three months ended March 31, 2021, other income (expense)
consisted of interest expense, net of interest income of $(15,759)
and change in fair value on derivative of $(690,780). 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 $3,011 and $(1,293,636), or $0.00 and $0.00
per share, for the three months ended March 31, 2022 and 2021.
Our net income (loss) various from period to period primarily
because of the change in fair value on derivative.
Liquidity and Capital Resources
Introduction
During the three months ended March 31, 2022, we were unable to
generate sufficient revenues and had negative operating cash flows.
Our cash on hand as of December 31, 2021 was $222,098, and as of
March 31, 2022 was $92,286. The decrease in cash on hand was
primarily from our net cash used in operating activities of
$(108,408), plus net cash used in investing activities of $(7,987)
and net cash provided by financing activities of $(13,417). Our
monthly cash flow burn rate for 2021 (not including inventory
purchases) was approximately $37,000, and for the three months
ended March 31, 2022 it was approximately $36,000. 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 March 31, 2022 and December 31, 2021,
respectively, are as follows:
|
|
March 31,
|
|
December 31,
|
|
Increase/
|
|
|
2022
|
|
2021
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
Cash
|
$
|
92,286
|
|
$
|
222,098
|
|
$
|
(129,812)
|
|
Total Current Assets
|
2,209,981
|
|
|
2,313,404
|
|
(103,423)
|
|
Total Assets
|
2,949,158
|
|
|
3,029,579
|
|
(80,421)
|
|
Total Current and Total Liabilities
|
503,826
|
|
|
558,841
|
|
(55,015)
|
Our total current assets and total assets decreased during the
three months ended March 31, 2022 primarily as a result of our
decrease in cash of $129,812 and accounts receivable of $24,169,
offset by our increase in inventory of $50,558. Our total current
and total liabilities decreased by $55,015 during the three months
ended March 31, 2022 primarily because of a decrease in accrued
liabilities of $54,767 and derivative liabilities of $78,978,
offset by an increase in accounts payable of $68,153 and
convertible debt of $35,000. Our accumulated deficit decreased
during the three months ended March 31, 2022 by $3,011 to
$14,940,609.
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.
16
Cash Requirements
Our cash on hand as of March 31, 2022 was $92,286. Based on our
current level of revenues and monthly burn rate of approximately
$36,000 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 $(108,408) for the
three months ended March 31, 2022, compared to $(635,261) for the
three months ended March 31, 2021. We use our cash for normal
business operations. Our net cash used in operating activities for
the three months ended March 31, 2022 consisted of our net gain of
$3,011 plus our increase in accounts payable of $68,153, offset by
our change in fair value on derivative liability of $(78,978),
decrease in accrue liabilities of $(54,767), and decrease in
inventory of $(50,558). Our net cash used in operating activities
for the three months ended March 31, 2021 consisted of our net loss
of $1,293,636, plus a decrease in inventory of $61,961, offset by a
change in fair value on derivative liability of $690,780 and
accrued interest payable of $50,298.
Investing
Activities
We had $(7,987) in cash flows provided by investing activities for
the three months ended March 31, 2022, compared to $(37,888) for
the three months ended March 31, 2021.
Financing
Activities
Our net cash provided by financing activities for the three months
ended March 31, 2022 was $(13,417), compared to $846,880 for the
three months ended March 31, 2021. Our net cash provided by
financing activities consisted of proceeds from the issuance of
convertible debt of $202,000, offset primarily by payments for
repayment of convertible debt of $(167,000).
ITEM
3Quantitative and Qualitative Disclosures About Market
Risk
As a
smaller reporting company, we are not required to provide the
information required by this Item.
ITEM
4Controls and Procedures
(a)Disclosure
Controls and Procedures
We conducted an evaluation, with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or the Exchange Act,
as of March 31, 2022, to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities Exchange
Commission’s rules and forms, including to ensure that information
required to be disclosed by us in the reports filed or submitted by
us under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal
financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that as of March 31,
2022, our disclosure controls and procedures were not effective at
the reasonable assurance level due to the material weaknesses
identified and described in our Annual Report on Internal Control
Over Financial Reporting filed in our Annual Report on Form
10-K.
Our principal executive officers do not expect that our disclosure
controls or internal controls will prevent all errors and all
fraud. Although our disclosure controls and procedures were
designed to provide reasonable assurance of achieving their
objectives and our principal executive officers have determined
that our disclosure controls and procedures are effective at doing
so, a control system, no matter how well conceived and operated,
can provide only reasonable, not absolute assurance that the
objectives of the system are met. Further, the design of a control
system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered
17
relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be
circumvented if there exists in an individual a desire to do so.
There can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions.
(b)Changes
in Internal Control over Financial Reporting
No change in our system of internal control over financial
reporting occurred during the period covered by this report, the
three month period ended March 31, 2022, that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM
1Legal Proceedings
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.
ITEM
1ARisk Factors
As a smaller reporting company, we are not required to provide the
information required by this Item.
ITEM
2Unregistered Sales of Equity Securities and Use of
Proceeds
There have been no events which are required to be reported under
this Item.
ITEM
3Defaults Upon Senior Securities
There have been no events which are required to be reported under
this Item.
ITEM
4Mine Safety Disclosures
Not applicable.
ITEM
5Other Information
None.
18
ITEM
6Exhibits
(a)Exhibits
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
Healthy Extracts,
Inc.
|
|
|
|
|
|
|
|
Dated: May 13, 2022
|
/s/ Kevin Pitts
|
|
|
By:Kevin
“Duke” Pitts
|
|
|
Its:President
|
|
|
|
|
|
|
20