Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1 - NATURE OF OPERATIONS AND CONSOLIDATION
NutraLife
BioSciences, Inc. F/K/A NutraFuels, Inc. (“We” or the “Company”) is the producer and distributor of nutritional
supplements that uses micro molecular formulae and a utilization of an oral spray to provide faster and more efficient absorption. Our
products are sold to private label distributers who sell the products we manufacture under their own brand name as well as under our
own brand name.
NOTE
2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting
Principles (“GAAP”) in the United States of America (“U.S.”) as promulgated by the Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) and with the rules and regulations of the U.S Securities
and Exchange Commission (“SEC”). In our opinion, the accompanying unaudited condensed consolidated financial statements contain
all adjustments (which are of a normal recurring nature) necessary for a fair presentation. Interim results are not necessarily indicative
of results for a full year. Therefore, the interim unaudited condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and the notes thereto contained in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2020, from which the accompanying condensed consolidated balance sheet dated December 31, 2020 was derived.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Precision Analytic Testing,
LLC, NutraDerma Technologies, Inc., PhytoChem Technologies, Inc., and TransDermalRX, Inc. We operate as one reportable segment. All intercompany
transactions and balances have been eliminated in consolidation.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments” (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its
estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the
implementation guidance. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives
and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” which amended the effective date of the various topics.
As the Company is a smaller reporting company, the provisions of ASU 2016-13 and the related amendments are effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2022 (quarter ending March 31, 2023 for the Company). Entities
are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is effective. The Company will evaluate the impact of ASU 2016-13 on the Company’s consolidated financial
statements in a future period closer to the date of adoption.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”),
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general
principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance became effective
starting the quarter ended March 31, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated
financial statements and related disclosures.
In
August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,”
which simplifies and clarifies certain calculation and presentation matters related to convertible equity and debt instruments. Specifically,
ASU-2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement
to account for beneficial conversion features on such instruments. Accounting Standards Update 2020-06 also provides clearer guidance
surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation
of Diluted EPS. The guidance under ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company
adopted this standard using a modified retrospective approach effective January 1, 2021. The adoption of this standard does not have
a material impact on the Company’s consolidated financial statements and related disclosures.
Management
does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material
effect on the accompanying consolidated financial statements.
Use
of Estimates
The
preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates.
Cash
The
Company maintains its cash in bank deposit accounts, which may, at times, may exceed federally insured limits. The Company did not have
cash balances in excess of FDIC insured limits at September 30, 2021 and December 31, 2020.
Inventories
Inventories
are stated at lower of cost or net realizable value utilizing the weighted average method of valuation and consist of raw materials and
finished goods. The Company reduces inventory on hand to its net realizable value on an item-by-item basis when it is apparent that the
expected realizable value of an inventory item falls below its original cost. A charge to cost of sales results when the estimated net
realizable value of specific inventory items declines below cost. Management regularly reviews the Company’s inventories for such
declines in value. Inventory consists of the following:
SCHEDULE
OF INVENTORIES
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
Raw Materials
|
|
$
|
429,554
|
|
|
$
|
356,901
|
|
|
Finished Goods
|
|
|
141,003
|
|
|
|
210,626
|
|
|
Inventories
|
|
$
|
570,557
|
|
|
$
|
567,527
|
|
Allowance
for Doubtful Accounts
We
establish the existence of bad debts through a review of several factors including historical collection experience, current aging status
of the customer accounts, and financial condition of our customers. The allowance for doubtful accounts is $0 as of September 30, 2021
and December 31, 2020.
Property
and Equipment
All
property and equipment are recorded at cost and depreciated over their estimated useful lives, generally three, seven and twelve years,
using the straight-line method. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from their respective
accounts, and the resulting gain or loss is included in the results of operations. Repairs and maintenance charges, which do not increase
the useful lives of the assets, are charged to operations as incurred. Leasehold improvements are amortized over their estimated useful
lives or the remaining term of the lease, whichever is shorter.
Impairment
of Long-Lived Assets
A
long-lived asset is tested for impairment whenever events or changes in circumstances indicate that its carrying value amount may not
be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds the sum of the undiscounted cash flows
resulting from its use and eventual disposition. The impairment loss is measured as the amount by which the carrying amount of the long-lived
assets exceeds its fair value.
Impairment
charges would be included with costs and expenses in the Company’s condensed consolidated statements of operations and would result
in reduced carrying amounts of the related assets on the Company’s condensed consolidated balance sheets. No adjustments were made
to long-lived assets during the nine month periods ended September 30, 2021, and 2020.
Revenue
Recognition
The
Company accounts for revenue under the guidance of FASB ASC 606, “Revenue from Contracts from Customers” (“ASC 606”).
ASC
606 prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of revenue
to be recognized. Under the guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a
customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction
price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The
Company generates revenues from the sale of products. The product is invoiced, and the revenue is recognized upon shipment or once transfer
of risk has passed to the customer, which is the point at which the Company has satisfied its performance obligation.
Payments
received in advance from customers are recorded as customer deposits until earned, at which time revenue is recognized.
We
recognize certain revenues under bill and hold arrangements with certain customers when the Company has fulfilled all of its performance
obligations, the units are segregated for the specific customer only, and the goods are ready for physical transfer to the customer in
accordance with their defined contract delivery schedule. For any requested bill and hold arrangement, we make an evaluation as to whether
the bill and hold arrangement qualifies for revenue recognition. The customer must initiate the request for the bill and hold arrangement.
The customer must make a fixed commitment to purchase the items. The risk of ownership is passed to the customer, and payment terms are
not modified.
The
Company’s revenues accounted for under ASC 606 do not require significant estimates or judgements based on the nature of the Company’s
revenue. The Company’s contracts do not include multiple performance obligations or variable consideration. All of the Company’s
sales resulted from contracts with customers for the nine months ended September 30, 2021 and 2020.
Income
Taxes
The
Company recorded no income tax expense for the three and nine months ended September 30, 2021 and 2020 because the estimated annual effective
tax rate was zero. As of September 30, 2021, the Company continues to provide a valuation allowance against its net deferred tax assets
since the Company believes it is more than likely than not that its deferred tax assets will not be realized.
Net
Loss Per Share
Basic
loss per share excludes dilution and is computed by dividing the loss attributable to stockholders by the weighted-average number of
shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings
of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares
outstanding for the period and dilutive potential shares outstanding unless consideration of such dilutive potential shares would result
in anti-dilution. The following equity and debt securities were excluded from the computation of net loss per share.
SCHEDULE
OF WARRANTS AND CONVERTIBLE NOTES EXCLUDED FROM COMPUTATION OF NET LOSS PER SHARE
|
|
|
September 30, 2021
|
|
|
September 30,2020
|
|
|
|
|
|
(Shares)
|
|
|
|
(Shares)
|
|
|
Warrants
|
|
|
94,487,348
|
|
|
|
22,560,598
|
|
|
Series B Preferred Stock
|
|
|
4,038,309
|
|
|
|
-
|
|
|
Convertible notes payable, and accrued interest
|
|
|
10,341,666
|
|
|
|
3,089,378
|
|
|
|
|
|
108,867,323
|
|
|
|
25,649,976
|
|
Related
Party Transactions
All
transactions with related parties are in the normal course of operations and are measured at the exchange amount.
Leases
The
Company accounts for leases under FASB ASU 2016-02, “Leases” (ASC 842) and other associated standards, which defines a lease
as any contract that conveys the right to use a specific asset for a period of time in exchange for consideration. ASC 842 requires the
recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet and the disclosure of
key information about certain leasing arrangements. Under ASC 842, all leases are required to be recorded on the balance sheet and are
classified as either operating leases or finance leases (formerly called capital leases). The lease classification affects the expense
recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split,
where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is recorded in interest
expense.
Leases
are classified as a finance lease if any of the following criteria are met:
|
|
1.
|
The
lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
|
|
|
2.
|
The
lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
|
|
|
3.
|
The
lease term is for the major part of the remaining economic life of the underlying asset.
|
|
|
4.
|
The
present value of the sum of lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of
the fair value of the underlying asset.
|
|
|
5.
|
The
underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease
term.
|
For
any leases that do not meet the criteria identified above for finance leases, the Company treats such leases as operating leases. As
of September 30, 2021, the Company has two finance leases and three operating leases.
Under
the current guidance, both finance and operating leases are reflected on the balance sheet as lease or “right-of -use” assets
and lease liabilities. There are some exceptions, which the Company has elected in its accounting policies. For leases with terms of
twelve months or less, or below the Company’s general capitalization policy threshold, the Company elects an accounting policy
to not recognize lease assets and lease liabilities for all asset classes. The Company recognizes lease expense for such leases generally
on a straight-line basis over the lease term.
The
Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate,
or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain to
be exercised. Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for separately.
In general, the Company will assess if non-lease components are fixed and determinable, or variable, when determining if the component
should be included in the lease liability. For purposes of calculating the present value of the lease obligations, the Company utilizes
the implicit interest rate within the lease agreement when known and/or determinable, and otherwise utilizes its incremental borrowing
rate at the time of the lease agreement. The related right-of-use asset is initially measured at cost, which primarily comprises of the
initial amount of the lease liability.
Lease
expense for operating leases consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis
over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial
lease liability. Lease expense for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over
the lease term and interest expense determined on an amortized cost basis. The lease payments are allocated between a reduction of the
lease liability and interest expense.
Intangible
Asset
Intangible
asset represents the value assigned to intellectual property and is amortized based on the economic benefit expected to be realized.
NOTE
3 - LIQUIDITY AND GOING CONCERN CONSIDERATIONS
Our
condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business. We sustained a net loss of $4,037,838 for the nine
months ended September 30, 2021, and have an accumulated deficit of $45,768,639 at September 30, 2021. We had cash used in operating
activities of approximately $959,286 for the nine months ended September 30, 2021. These conditions raise substantial doubt about our
ability to continue as a going concern.
In
December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in China and began to spread around the world in
early 2020. In reaction to decreased supply of and increased demand for sanitizer products, the Company shifted its manufacturing to
produce sanitizer products. The Company’s other business operations have been impacted negatively by COVID-19 due to government
restrictions and the overall adverse effect on the global economy. The Company expects COVID-19 to continue to negatively impact its
operating results and its ability to obtain financing.
The
Company is currently in the process of raising capital to complete and finalize the build-out of its facility in Deerfield Beach for
the purpose of consolidating its operations. The structure of the capital raise is currently in development. The Company is continuing
its path to profitability through increased business development, marketing and sales of the Company’s multiple lines of topical,
ingestible and skincare health and wellness products. The Company is also focused on completing an efficacy clinical study on its patented
mosquito bug patch with plans upon a successful conclusion to launch globally in the very near future, adding to the Company’s
suite of wellness products.
Failure
to successfully continue to grow operational revenues could harm our profitability and adversely affect our financial condition and results
of operations. We face all of the risks inherent in a new business, including the need for significant additional capital, management’s
potential underestimation of initial and ongoing costs, and potential delays and other problems in connection with establishing sales
channels.
We
are continuing our plan to further grow and expand operations and seek sources of capital to pay our contractual obligations as they
come due. Management believes that its current operating strategy will provide the opportunity for us to continue as a going concern
as long as we are able to obtain additional financing; however, there is no assurance this will occur. The accompanying consolidated
financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
NOTE
4 – PROPERTY AND EQUIPMENT, NET
A
summary of property and equipment at September 30, 2021 and December 31,2020 is as follows:
SUMMARY
OF PROPERTY AND EQUIPMENT
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
1,959,694
|
|
|
$
|
1,959,694
|
|
|
Leasehold improvements
|
|
|
840,728
|
|
|
|
840,728
|
|
|
Property and equipment, at cost
|
|
|
2,800,422
|
|
|
|
2,800,422
|
|
|
Less: accumulated depreciation
|
|
|
(530,133
|
)
|
|
|
(485,761
|
)
|
|
Property and equipment, net
|
|
$
|
2,270,289
|
|
|
$
|
2,314,661
|
|
Depreciation
expense for the three months ended September 30, 2021 and 2020 totaled $17,449 and $15,389, respectively.
Depreciation
expense for the nine months ended September 30, 2021 and 2020 totaled $44,372 and $48,641, respectively.
NOTE
5 – INTANGIBLE ASSET, NET
In
February 2019, the Company acquired certain intellectual property consisting of patent rights. The aggregate purchase price paid in connection
with the patent purchase was $714,640, consisting of $130,000 cash, and 3,300,000 shares of the Company’s common stock valued at
$0.177 per share or an aggregate of $584,640. Of the 3,300,000 shares, 1,800,000 shares were provided at closing and 1,500,000 were to
be provided one year thereafter. These shares have not been issued and the Company is in negotiations with the seller to extend the issuance
of the shares. As such, the Company recognized a liability for stock to be issued of $265,500 at both September 30, 2021, and December
31, 2020. The acquired patent is amortized over its remaining estimated useful life of approximately 11 years. Amortization for the three
months ended September 30, 2021 and 2020 totaled $16,242 and $16,225 respectively. Amortization for the nine months ended September 30,
2021 and 2020 totaled approximately $48,726 and $48,726. respectively. Total accumulated amortization for September 30, 2021 and December
31, 2020 was $173,248 and $124,522, respectively. The estimated annual amortization expense for the next five years and thereafter is
as follows:
SCHEDULE
OF ESTIMATE AMORTIZATION EXPENSE
|
|
|
|
|
|
|
2021 (remainder of year)
|
|
$
|
16,242
|
|
|
2022
|
|
|
65,000
|
|
|
2023
|
|
|
65,000
|
|
|
2024
|
|
|
65,000
|
|
|
2025
|
|
|
65,000
|
|
|
Thereafter
|
|
|
265,150
|
|
|
Estimated Amortization Expense
|
|
$
|
541,392
|
|
There
is no impairment recorded for the three and nine months ended September 30, 2021 and 2020.
NOTE
6 – INVESTMENT
On
November 2, 2020 in connection with a manufacturing, distribution and sales agreement with a third party distributor (the “Distributor”),
the Company issued 12.5 million of its common shares for 250 shares of non-trading convertible preferred stock of the Distributor. Each
convertible preferred share is convertible into 1,000 shares of the Distributor’s common stock. The Distributor’s common
shares are currently traded in the over the counter market. On the first business day following the 180-day anniversary of closing, if
the share price of the Distributor is less than $4.00, the Distributor will provide the Company its common stock valued at $1 million,
less 250,000 common shares, for no additional consideration. On the one-year anniversary of closing, if the share price of the Distributor
is less than $4.00, the Distributor will provide the Company its common stock valued at $1 million, less 250,000 shares, less the number
of shares provided on the 181st day anniversary, for no additional consideration.
The
Company determined to initially value the convertible preferred stock investment using the Black-Scholes option pricing model using the
following inputs: stock price: $4.00, exercise price: $4.00, expected term: one year, and risk free rate 0.13%.
The
Company made this investment to realize strategic benefits for its business, rather than to generate income or capital gains. Because
the Company owns less than 20% on an as converted basis of the Distributor, and cannot exercise significant influence over operating
and financial policies of the Distributor, the Company accounts for the investment under ASC 321, “Equity Securities” (“ASC
321”). Under ASC 321, for each reporting period, the Company completes a qualitative assessment considering impairment indicators
to evaluate whether the investment is impaired.
The
investment balance as of September 30, 2021 and December 31, 2020 is $383,326. There is no impairment recorded for the three and nine
months ended September 30, 2021.
NOTE
7 – ACCRUED EXPENSES
A
summary of accrued expenses is as follows:
SUMMARY
OF ACCRUED EXPENSES
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Officer – Bonus
|
|
$
|
475,000
|
|
|
$
|
400,000
|
|
|
Accrued Expenses - Other
|
|
|
27,050
|
|
|
|
15,456
|
|
|
Accrued Interest – Related Party
|
|
|
134,176
|
|
|
|
91,048
|
|
|
Accrued Interest
|
|
|
200,788
|
|
|
|
103,811
|
|
|
Other Current Liabilities
|
|
|
94,385
|
|
|
|
52,849
|
|
|
Accrued Rent
|
|
|
11,853
|
|
|
|
123,331
|
|
|
Accrued Expenses
|
|
$
|
943,252
|
|
|
$
|
786,495
|
|
NOTE
8 – NOTES PAYABLE
Notes
Payable
In
January 2021, the Company entered into a Note Exchange Agreement whereby a note holder of the Company agreed to exchange their current
note that was in default, for a new promissory note and a warrant to acquire 1,200,000 shares of common stock. The warrant is exercisable
at $0.08 per share and expires three years from the date of the new promissory note.
During
the six month period ended June 30, 2021, the Company received proceeds aggregating $215,000 in connection with multiple short-term promissory
notes with due dates ranging from January to March 2022. The notes bear interest at 10% for the terms of the notes.
During
the quarter ended September 30,2021, the Company received proceeds aggregating $297,500 in connection with two convertible promissory
notes with due dates ranging from August to September 2022. The notes contained original issue discounts totaling $30,000. Each noteholder
has the right to convert any or all of the principal face amount of the notes to the Company’s common stock at a price of $0.08
per share.
During
the nine month period ended September 30, 2021 an aggregate of 12,787,500 warrants were issued to the noteholders as additional consideration.
The warrants are exercisable at $0.08 per share and expire three years from the date of each respective note.
The
warrants to purchase common stock issued to the noteholders were treated as debt discounts. The gross proceeds of the notes were allocated
to debt and warrants issued on a relative fair value basis.
The
warrants’ relative fair value was calculated using the Black-Scholes Merton valuation model with the following inputs: an expected
and contractual life of three years, an assumed volatility ranging from 191.0%-229.93%, zero dividend rate, and risk free rate ranging
from 0.18%-0.56%.
The
debt discounts associated with the warrants are amortized through the maturity date of the notes, on a straight-line basis which approximates
the effective interest method due to the short-term nature of the notes. Amortization of the debt discount is reported as finance costs
in the Statement of Operations.
The
Company allocated $370,267 of the gross proceeds of the warrants on a relative fair value basis, which has been recorded as a debt discount.
During
the quarter ended June 30, 2021, the Company entered into debt settlement agreements with two of its noteholders whereby the Company
issued 1,997,312 shares of its common stock as well as warrants to acquire 7,989,250 shares of common stock. The warrants are exercisable
at $0.08 per share and expire two years from the date of issuance.
The
amount converted was an aggregate of $125,010 of principal and $34,774 of accrued interest
Convertible
Note Payable to Shareholder
In
June 2019, the Company entered into an Investment Agreement that included a secured convertible 5.75% promissory note payable for $1,000,000
with a shareholder. The note is subject to a security agreement whereby the first four Ennea Processors the Company has committed to
commercialize and monetize will be secured as collateral for the note as well as current and future assets of the Company and its subsidiaries.
The payment terms of the note were interest only payments from July 7, 2019 through December 7, 2019 and commencing January 7, 2020,
the Company was to make equal monthly installment payments that include principal and interest through the Maturity Date of December
7, 2020.
Included
in the Investment Agreement is a royalty agreement whereby the investor received 500,000 shares of the Company’s common stock and
will be entitled to a royalty of 8.5% from the revenue generated from the “collateral processors” while the principal is
outstanding and 5% thereafter on the first two collateral processors for a period of 10 years.
In
addition to the collateral, the note is secured by a Pledge Agreement from a related-party that included a mortgage lien on certain real
property as additional collateral.
The
collateral processors are not yet in service. Therefore, revenue generated from them and the related royalties due cannot be estimated
at this time and will be expensed as incurred in the future.
The
Company is currently in default of this note, however, the parties are in negotiation to reach settlement terms.
Debt
Discounts
Total
amortization associated with all debt discounts was $116,816 and $297,325 for the three and nine months ended September 30, 2021, and
$59,180 and $622,204 for the three and nine months ended September 30, 2020.
Note
Payable, SBA
On
April 23, 2020, the Company received an aggregate of $254,700 related to its filing under the Paycheck Protection Program (“PPP”)
and Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) from Trust Bank, N.A. (the “Lender”).
The PPP loan of $244,700 was forgiven on March 12, 2021 and recognized as other income.
On
February 26, 2021, the Company received an aggregate of $243,275 (“Second Draw”) related to its filing under the PPP and
CARES Act from the Lender. The payment terms of the note were as follows:
|
|
1.
|
Commencing
on the date that is one (1) month after the earlier of the following dates: (i) the date (A) Lender receives the applicable forgiveness
amount from the Small Business Association (“SBA”) related to the note or (B) Lender receives notice or confirmation
that SBA has determined that the Company is ineligible for forgiveness of the note or (ii) the date that is ten (10) months after
the end of the Forgiveness Covered Period (as defined in the note agreement)
|
|
|
2.
|
If
the Company has not applied for forgiveness of this note by such date, in either case consisting of consecutive monthly payments
of principal and interest, with the principal component of each such payment based upon the level amortization of principal over
a five year period from the date the loan evidenced by this note is funded (or such later date as may be required by any rules and
regulations promulgated by the SBA with respect to the Paycheck Protection Program that are applicable to Paycheck Protection Program
loans funded on the date the note evidenced by this note was funded) (such date, the “Amortization Commencement Date”)
and a final payment equal to the balance of unpaid principal plus accrued and unpaid interest and any other amounts owed hereunder
due and payable on the date that is sixty (60) months from the Amortization Commencement Date (the “maturity date”)
|
|
|
3.
|
All
payments shall first be applied to any accrued but unpaid interest including, without limitation, any deferred but unpaid interest.
Notwithstanding, in the event the Loan, or any portion thereof, is forgiven pursuant to the Paycheck Protection Program under the
federal CARES Act, the amount so forgiven shall be applied to principal.
|
|
|
4.
|
The
Company may prepay this note at any time without payment of any premium.
|
|
|
5.
|
Interest
shall be accrued at a rate of 1% per annum from the date the loan is funded through maturity.
|
The
Lender is participating in the Paycheck Protection Program to help businesses impacted by the economic impact from COVID-19. Forgiveness
of this loan is only available for principal that is used for the limited purposes that qualify for forgiveness under the SBA’s
requirements; and that to obtain forgiveness, the Company must request it and must provide documentation in accordance with the SBA requirements
and certify that the amounts the Company is requesting to be forgiven qualify under those requirements. The Company elected to treat
the loan as debt under FASB ASC 470. As such, the Company will derecognize the liability when the loan is forgiven, and the Company is
legally released from the loan.
Principal
payments on the Second Draw are due as follows:
SCHEDULE
OF NOTES PAYABLE
|
|
|
|
|
|
|
2022
|
|
$
|
55,918
|
|
|
2023
|
|
|
58,525
|
|
|
2024
|
|
|
59,114
|
|
|
2025
|
|
|
59,708
|
|
|
2026
|
|
|
10,010
|
|
|
Total
|
|
$
|
243,275
|
|
NOTE
9 - STOCKHOLDERS’ EQUITY
In
January 2021, the Company issued 15,000,000 warrants to its Chief Executive Officer, President and sole Director as compensation. The
warrants are exercisable at $0.1025 per share and expire three years from issuance.
In
January 2021, the Company issued 7,500,000 warrants to its Vice President, Neil Catania, as compensation. The warrants are exercisable
at $0.1025 per share and expire three years from issuance.
In
April 2021, the Company issued 2,000,000 warrants to its Production Manager as compensation. The warrants are exercisable at $0.125 per
share and expire three years from issuance.
The
warrants issued as compensation were valued at $2,229,990, calculated using the Black-Scholes Merton valuation model with the following
in puts: an expected and contractual life of three years, an assumed volatility ranging from 191.0% to 224.75%, zero dividend rate, and
a risk free rate ranging from 0.22% to 0.36%.
In
April through September 2021, the Company issued 4,350,000 shares of common stock and 17,400,000 warrants in exchange for cash totaling
$348,000. The warrants have an exercise price of $0.08 per share and expire two years after issuance.
In
July 2021, the Company issued 1,000,000 shares of common stock with an aggregate value of $120,000 for consulting services.
Preferred
Stock
The
Company’s board of directors is authorized to issue, at any time, without further stockholder approval, up to 10,000 shares of
preferred stock. The board of directors has the authority to fix and determine the voting rights, rights of redemption and other rights
and preferences of preferred stock.
Series
A Preferred Stock (“Series A Preferred”)
On
November 30, 2012, the board of directors of the Company created Series A Preferred. The Series A Preferred has the following rights
and preferences:
|
|
1.
|
The
shares are not entitled to dividends or liquidation preferences.
|
|
|
2.
|
Each
share has voting rights equal to 500,000 shares of the Company’s common stock.
|
|
|
3.
|
So
long as Series A Preferred shares are outstanding, the Company cannot take certain actions (as defined in the certificate of designation)
without the consent of the holders of 100% of the Series A Preferred shares.
|
On
November 30, 2012, Edgar Ward, the Company’s President, CEO, and director, was granted 1,000 shares of Series A Preferred for $1,000.
At the option of Mr. Ward, the Series A Preferred shares are redeemable for $1,000.
As
of September 30, 2021 and December 31, 2020, 1,000 shares of Series A Preferred are outstanding.
Series
B Convertible Preferred Stock (“Series B Preferred”)
On
September 30, 2020, the Company designated 110 shares of Preferred Stock as Series B Convertible Preferred Stock. A Series B Holder has
the right from time to time, and at any time following January 1, 2021, to convert each outstanding share of Series B stock into shares
of common stock at a rate of 149,567 shares of common stock for each share of Series B Preferred. Each share of Series B Preferred shall
have a number of votes equal to the number of conversion shares which would be issuable as of the date of such vote. The Series B Preferred
does not have any liquidation preferences. The Series B Preferred will participate in any dividends, distributions or payments to the
holders of the common stock on an as-converted basis. The Series B Preferred is subject to an ownership limitation, pursuant to which
no holder of Series B Preferred will be entitled to convert such investor’s shares of Series B Preferred Stock into shares of common
stock if such conversion would result in ownership of more than 4.99% of the outstanding shares of common stock of the Company. Once
issued, certain shares of the Series B Preferred are redeemable at the election of the Company at any time prior to the Permitted Conversion
Date pursuant to separate written agreements that will be effectuated between holders of the Series B Preferred and the Company.
In
March, 2021, the Company issued 10 shares of Series B Preferred to three consultants as part of their compensation agreements. The consultant
compensation was valued at $164,524 using the trading price of the equivalent common stock on the date of issuance.
During
the third quarter ended September 30 2021, three shares of Series B Preferred was converted to 448,701 shares of common stock.
As
of September 30, 2021 and December 31, 2020, 27 and 20 shares, respectively, of Series B Preferred are outstanding.
NOTE
10 – LEASES
In
conjunction with the new guidance for leases, as defined by the FASB with ASU 2016-02, “Leases (Topic 842),” the Company
has described the existing leases as operating as further described below:
The
Company leases their office and warehouse facilities located in in Coconut Creek, Florida under a non-cancelable operating lease agreement
that expires in February 2022.
In
June 2017, the Company entered into a lease for an additional facility located in Deerfield Beach, Florida under a non-cancelable operating
lease. The term of the lease is for 86 months beginning on January 1, 2018 and calls for yearly 3% increases to base rent, with monthly
payments that commenced in March 2018.
In
July and September of 2019, the Company’s wholly owned subsidiary, Phytochem, entered into two separate lease agreements for office
and warehouse space located in Onalaska, Wisconsin, that commenced on August 1 and October 1, respectively. Each lease is for six-month
terms with four (4) renewal options to extend for six additional months. The Company expects to occupy one of the spaces for the full
term of the lease totaling 30 months. The Company terminated its lease on the other facility in May 2020, without penalty. The remaining
lease calls for an annual 3% increase to base rent.
In
June 2021, the Company entered into a verbal, month-to-month sub-lease agreement for the Wisconsin location. Rental income totaled $30,000
and $50,000 for the three and nine months ended September 30, 2021.
In
addition to rent, the Company pays certain insurance, maintenance, and other costs related to its leased spaces.
As
of December 31, 2020, in the consolidated balance sheet, the Company has right-of-use assets of $661,141 and a lease liability of $711,593,
of which $214,000 was reported as a current liability.
In
the September 30, 2021 condensed consolidated balance sheet, the Company has right-of-use assets of $504,037
and a lease liability of approximately
$549,000,
of which $164,000 is
reported as a current liability.
The
weighted average remaining lease term is 39 months and weighted average discount rate used is 10%.
The
following table presents a reconciliation of the undiscounted future minimum lease payments remaining under the operating lease reported
as operating lease liability on the condensed consolidated balance sheet as of June 30, 2021:
SCHEDULE
OF OPERATING LEASES UNDISCOUNTED FUTURE MINIMUM LEASE PAYMENTS
|
|
|
|
|
|
|
Undiscounted future minimum lease payments:
|
|
|
|
|
|
2021 (remainder of year)
|
|
$
|
62,500
|
|
|
2022
|
|
|
199,000
|
|
|
2023
|
|
|
189,400
|
|
|
2024
|
|
|
195,100
|
|
|
Total undiscounted future minimum lease payments
|
|
|
545,200
|
|
|
Less: amount representing imputed interest
|
|
|
(97,000
|
)
|
|
Operating lease liability
|
|
$
|
549,000
|
|
Supplemental
cash flow information related to leases is as follows, for the nine months ended September 30,
SCHEDULE
OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES
|
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
421,517
|
|
|
$
|
182,214
|
|
Lease
expense for the operating leases was $98,953 and $144,661 for the three months ended September 30, 2021 and 2020, respectively. Lease
expense for the operating leases was $287,448 and $332,374 for the nine months ended September 30, 2021 and 2020, respectively.
Finance
Leases:
The
Company has acquired certain equipment under agreements that are classified as finance leases. The cost of the equipment under finance
leases is included in the balance sheet as property and equipment. The finance lease equipment was approximately $110,000 as of September
30, 2021 and December 31, 2020, with related accumulated depreciation of $11,827 and $8,950, respectively.
Minimum
lease payments required by these finance leases are as follows:
Undiscounted
future minimum lease payments:
SCHEDULE
OF FINANCE LEASES UNDISCOUNTED FUTURE MINIMUM LEASE PAYMENTS
|
|
|
|
|
|
|
2021 (remainder of year)
|
|
$
|
6,200
|
|
|
2022
|
|
|
17,000
|
|
|
2023
|
|
|
2,100
|
|
|
Total undiscounted future minimum lease payments
|
|
|
25,300
|
|
|
Less: amount representing interest
|
|
|
(2,842
|
)
|
|
Less: current portion
|
|
|
(21,000
|
)
|
|
Present value of minimum lease payments, net of current portion
|
|
$
|
1,458
|
|
NOTE
11 - COMMITMENTS AND CONTINGENCIES
The
Company is subject to asserted claims and liabilities that arise in the ordinary course of business. The Company maintains insurance
policies to mitigate potential losses from these actions. In the opinion of management, the amount of the ultimate liability with respect
to those actions will not materially affect the Company’s financial position or results of operations.
As
of September 30, 2021, the Company is not aware of any asserted claims.