Bonk, Inc 10-Q for FY2021 Q3
Bonk, Inc. (BNKK)
About this 10-Q
Bonk, Inc filed this 10-Q on November 12, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $687.93K
- up 285.8% from $178.34K a year earlier
- Net loss
- $4.81M
- compared with a net loss of $607.29K a year earlier
- Diluted EPS
- -$0.24
- compared with -$0.09 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended |
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________ |
Commission File Number
(Exact name of registrant as specified in charter)
| (State or other jurisdiction | (IRS Employer | |
| of incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ ☐ NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act) ☐ YES ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 10, 2021, there were shares of the registrant’s common stock outstanding.
FORM 10-Q
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 11 |
| Item 4. | Controls and Procedures | 11 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 12 |
| Item 1A. | Risk Factors | 13 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 13 |
| Item 3. | Defaults Upon Senior Securities | 13 |
| Item 4. | Mine Safety Disclosures | 13 |
| Item 5. | Other Information | 13 |
| Item 6. | Exhibits | 13 |
| SIGNATURES | 14 | |
PART I - FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q includes the accounts of Jupiter Wellness, Inc., a Delaware corporation (“Jupiter Wellness”). References in this Report to “we”, “our”, “us” or the “Company” refer to Jupiter Wellness, Inc. and its consolidated subsidiaries unless the context dictates otherwise.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “will,” “may,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” “forecasts,” “potential,” “continue,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results and the development of our products, are forward-looking statements.
Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We file reports with the Securities and Exchange Commission (“SEC”). The public can read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
| 1 |
Item 1. Financial Statements
Jupiter Wellness, Inc.
| F-1 |
Condensed Consolidated Balance Sheets
As of September 30, 2021 and December 31, 2020
| Nine Months ended | Year ended | |||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (audited) | |||||||
| Assets | ||||||||
| Cash | $ | $ | ||||||
| Inventory | ||||||||
| Account receivable | ||||||||
| Prepaid expenses and deposits | ||||||||
| Promissory Note from Affiliate | - | |||||||
| Total current assets | ||||||||
| Right of use assets | ||||||||
| Intangible assets | ||||||||
| Intellectual property | - | |||||||
| Goodwill | ||||||||
| Fixed assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Accounts Payable | $ | $ | ||||||
| Convertible notes, net of discounts | - | |||||||
| Contingent note payable issued in acquisition | - | |||||||
| Current portion of lease liability | ||||||||
| Accrued liabilities | ||||||||
| Covid - 19 SBA Loan | ||||||||
| Total current Liabilities | ||||||||
| Long-term portion lease liability | ||||||||
| Total liabilities | ||||||||
| Preferred stock, $ par value, shares authorized of which are issued and outstanding Common stock, $ par value, shares authorized, of which and shares issued and outstanding as of September 30, 2021 and December 31, 2020 | ||||||||
| Additional paid-in capital | ||||||||
| Common stock payable | - | |||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements
| F-2 |
Jupiter Wellness, Inc.
Condensed Consolidated Statement of Operations
For the Three and Nine Months Ended September 30, 2021 and 2020
(Unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | ||||||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expense | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Other income / (expense) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income / (expense) | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net (loss) per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares | ||||||||||||||||
| Basic | ||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements
| F-3 |
Jupiter Wellness, Inc.
Condensed Statement of Changes in Shareholders’ Equity
For the Nine Months Ended September 30, 2021 and Year ended December 31, 2020
(Unaudited)
| Shares | Amount | Payable | Capital | Deficits | Total | |||||||||||||||||||
| Common | Additional | |||||||||||||||||||||||
| Common Stock | Stock | Paid-In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Payable | Capital | Deficits | Total | |||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock options issued in acquisition | — | |||||||||||||||||||||||
| Stock options issued to Officers and employees | — | |||||||||||||||||||||||
| Common stock payable issued as compensation | ( | ) | ||||||||||||||||||||||
| Shares issued in Initial Public Offering (“IPO”) | ||||||||||||||||||||||||
| Common stock payable | ||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | ||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||
| Common stock issued upon exercise of cashless options | ||||||||||||||||||||||||
| Common stock issued upon exercise of cashless options, shares | ||||||||||||||||||||||||
| Fair value of Stock options granted to Officers and Directors | ||||||||||||||||||||||||
| Fair value of warrants issued and beneficial conversion feature in connection with Convertible Promissory Notes | ||||||||||||||||||||||||
| Stock issued for intellectual property | ||||||||||||||||||||||||
| Stock issued for intellectual property , shares | ||||||||||||||||||||||||
| Common stock issued upon conversion of notes | ||||||||||||||||||||||||
| Common stock issued in debt settlement | ||||||||||||||||||||||||
| Common stock issued in acquisition | ||||||||||||||||||||||||
| Common stock issued in Endorsement Agreement | — | |||||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock issued in public offering | ||||||||||||||||||||||||
| Common stock payable | — | |||||||||||||||||||||||
| Common stock issued upon conversion of notes | ||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||
| Common stock issued upon exercise of cashless options | ( | ) | ||||||||||||||||||||||
| Common stock issued as compensation | ||||||||||||||||||||||||
| Fair value of Stock options granted to Officers and Directors | — | |||||||||||||||||||||||
| Fair value of warrants issued and beneficial conversion feature in connection with Convertible Promissory Notes | — | |||||||||||||||||||||||
| Stock issued for intellectual property | ||||||||||||||||||||||||
| Net Loss | — | — | — | — | (11,155,267 | ) | (11,155,267 | ) | ||||||||||||||||
| Balance, September 30, 2021 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these financial statements
| F-4 |
Jupiter Wellness, Inc.
Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2021 and 2020
(Unaudited)
| 2021 | 2020 | |||||||
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||
| Stock Based compensation | ||||||||
| Gain on settlement | ( | ) | - | |||||
| Depreciation & Amortization | ||||||||
| Amortization of debt discount | - | |||||||
| Changes in current operating assets and liabilities: | ||||||||
| Due from third party | - | |||||||
| Prepaid expenses and deposits | ( | ) | ||||||
| Right of Entry asset | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Security deposits and other assets | - | ( | ) | |||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ||||||||
| Lease liability | ( | ) | ( | ) | ||||
| Legal fees | - | |||||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Cash paid for intellectual property | ( | ) | - | |||||
| Net cash paid in acquisition | ( | ) | ( | ) | ||||
| Net cash (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible debt | ||||||||
| Proceeds from public offering | - | |||||||
| Proceeds from exercise of warrants | - | |||||||
| Repayment of convertible debt | ( | ) | - | |||||
| Covid -19 SBA Loan | - | |||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at the beginning of the period | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Acquisition of Magical Beasts, LLC (see note 12) | $ | $ | ||||||
| Common stock issued in conversion of promissory notes | $ | $ | ||||||
| Fair value of warrants issued and beneficial conversion feature in connection with convertible promissory notes | $ | $ | ||||||
| Cashless exercise of options | $ | $ | ||||||
| Initial ROU asset and lease liability | $ | $ | - | |||||
| Fair value of shares issued for intellectual property | $ | $ | - | |||||
The accompanying notes are an integral part of these unaudited financial statements
| F-5 |
JUPITER WELLNESS, INC.
Notes to Financial Statements
For the Nine-Months Ended September 30, 2020
and Year Ended December 31, 2020
Note 1 - Organization and Business Operations
Jupiter Wellness, Inc. (the “Company”) was formed on October 24, 2018 as CBD Brands, Inc. under the laws of the State of Delaware, and is headquartered in Jupiter, Florida. The Company is a cutting-edge developer of cannabidiol (CBD) based medical therapeutics and wellness products. The Company’s clinical pipeline of prescription CBD-enhanced skin care therapeutics addresses indications including eczema, burns, herpes cold sores, and skin cancer. We are in the early stage of manufacturing, distributing, and marketing a diverse line of consumer products infused with CBD.
Going Concern Consideration
As of September 30, 2021 and December 31, 2020, the
Company had an accumulated deficit of $
Note 2 - Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Jupiter Wellness, Inc., a Florida corporation, Magical Beasts, LLC, a Nevada limited liability company and SRM Entertainment, Limited, a Hong Kong private limited company. All intercompany accounts and transactions have been eliminated.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three months or less when purchased to be cash and equivalents for purposes of the statement of cash flows. There were no cash equivalents as of September 30, 2021.
Inventory
Inventories are stated at the lower of cost or market. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. Inventory is based upon the average cost method of accounting.
| F-6 |
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants, convertible securities and preferred stock, unless the effect is to reduce a loss or increase earnings per share. As such, options, warrants, convertible securities, and preferred stock are not considered in the calculations, as the impact of the potential common shares would be to decrease the loss per share.
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator: | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net (loss) | ||||||||||||||||
| Denominator: | ||||||||||||||||
| Denominator for basic earnings per share - Weighted-average common shares issued and outstanding during the period | ||||||||||||||||
| Denominator for diluted earnings per share | ||||||||||||||||
| Basic (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
Revenue Recognition
The Company generates its revenue from the sale of its products directly to the end user or through a distributor (collectively the “customer”).
The Company recognizes revenues by applying the following steps in accordance with FASB Accounting Standards Codification 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
The Company’s performance obligations are satisfied when goods or products are shipped on a FOB shipping point basis as title passes when shipped. Our products are generally paid in advance of shipment or standard net 30 days and we offer no specific right of return, refund or warranty related to our products except for cases of defective products of which there have been none to date.
Our revenue currently is generated from one general product category of health care products with one performance obligation and geographically there are no specific concentrations of our customer base to disaggregate our revenue stream.
Accounts Receivable and Credit Risk
Accounts receivable are generated from sales of the
Company’s products. The Company provides an allowance for doubtful collections, which is based upon a review of outstanding receivables,
historical collection information, and existing economic conditions. As of December 31, 2020, the Company recorded an allowance of $
Foreign Currency Translation
Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the period. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the nine months ended September 30, 2021 and year ended December 31, 2020 and the cumulative translation gains and losses as of September 30, 2021 and December 31, 2020 were not material.
| F-7 |
Research and Development
The Company accounts for research and development
costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”).
Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development
costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed
or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products
are expensed in the period incurred. The Company incurred research and development expenses of $
The Company recognizes compensation costs to employees under FASB Accounting Standards Codification 718 “Compensation - Stock Compensation” (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options and warrants. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
On October 24, 2018, the inception date, the Company adopted ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.
Income Taxes
The Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. Since the Company was incorporated on October 24, 2018, the evaluation was performed for 2018 tax year which would be the only period subject to examination. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material changes to its financial position. The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.
The Company’s deferred tax asset at December
31, 2020 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately
$
Related parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Recent Accounting Pronouncements
In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for non-employee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will be effective for us in the first quarter of our fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company has adopted this standard beginning January 1, 2019. The adoption of this standard has not had a significant impact on the Company’s results of operations, financial condition, cash flows, and financial statement disclosures.
| F-8 |
In February 2016, Topic 842, “Leases” was issued to replace the leases requirements in Topic 840, “Leases”. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods and is to be retrospectively applied. The Company has adopted this standard beginning January 1, 2019. The adoption of this standard has not had a significant impact on the Company’s results of operations, financial condition, cash flows, and financial statement disclosures.
Note 3 - Accounts Receivable
As of September 30, 2021 and December 31, 2020, the
Company had accounts receivable of $
Note 4 - Prepaid Expenses and Deposits
As of September 30, 2021 and December 31, 2020, the
Company had prepaid expenses of $
Note 5 - Inventory
As of September 30, 2021 and December 31, 2020, the
Company had inventory of $
Note 6 – Loans to Affiliates
As of September 30, 2021, the Company had loans totaling
$
Note 7 - Intangible Assets
In connection with the acquisition of Magical Beasts (see Note 12 below), the Company allocated the purchase price to intangible assets as follows:
Schedule of Purchase Price to Intangible Assets
| Tradenames & trademarks | $ | |||
| Customer base | ||||
| Non-compete | ||||
| Goodwill | ||||
| $ |
The Non-compete has an estimated life of years,
the Customer base has an estimated life of years and the Tradenames & trademarks and Goodwill have indefinite lives and will
be reviewed at each subsequent reporting period to determine if the assets have been impaired. At December 31, 2020, Goodwill was analyzed
by management, assisted by a third party valuation company, and determined that the Goodwill associated with the acquisition of Magical
Beasts has been impaired and as a result the Company recognized a charge to earnings of $
In connection with the acquisition of SRM Entertainment, Limited (see Note 13 below), the Company allocated the purchase price to intangible assets as follows:
| Distribution Agreements | $ | |||
| Goodwill | ||||
| $ |
The Distribution Agreements have an estimated life of six years and Goodwill has an indefinite life and will be reviewed at each subsequent reporting period to determine if the assets have been impaired.
Amortization for the nine months ended September 30,
2021 totaled $
During the three months ended September 30, 2021 the Company entered
into two licensing agreements for the rights to use of certain patented technologies. The Company paid a total of $
Note 8 - Convertible Notes Payable – Related Parties
The 2019 Notes:
On July 25, 2019, the Company issued a Convertible
Promissory Note for $
| F-9 |
On December 31, 2019, the Company issued a Convertible
Promissory Note for $
The 2020 Notes:
During the year ended December 31, 2020, the Company issued nine convertible promissory notes totaling $1,075,000 (the “2020 Notes”) as follows:
Schedule of Convertible Promissory Notes Issued
| Amount | Dated | Conversion Rate | ||||||||
| $ | (1) | $ | ||||||||
| (2) | ||||||||||
| (1) | ||||||||||
| (2) | ||||||||||
| (2) | ||||||||||
| (2) | ||||||||||
| (3) | ||||||||||
| (4) | ||||||||||
| (4) | ||||||||||
| $ | ||||||||||
| 1. | |
| 2. | |
| 3. | |
| 4. |
In November 2020, the $
At December 31, 2020, the Company had a total of $
The 2021 Notes:
In May 2021, the Company issued three Convertible
Promissory Notes totaling $
Schedule of Assumptions for Black-Scholes Valuation Model
| Market | ||||||||||||||||||||||||||
| Price | ||||||||||||||||||||||||||
| Reporting | Relative | Term | Exercise | on Grant | Volatility | Risk-free | ||||||||||||||||||||
| Date | Fair Value | (Years) | Price | Date | Percentage | Rate | ||||||||||||||||||||
| 05/10/2021 | $ | $ | $ | % | ||||||||||||||||||||||
| 05/05/2021 | $ | $ | $ | % | ||||||||||||||||||||||
| 05/19/2021 | $ | $ | $ | % | ||||||||||||||||||||||
During the three months ended September 30, 2021, the 2021 Notes were paid in full in cash. The following table sets forth a summary of the principal balances of the Company’s convertible promissory notes activity for the nine months ended September 30, 2021 and year ended December 31, 2020:
Schedule of Convertible Promissory Notes
| Principal Balance, December 31, 2019 | $ | |||
| 2020 Notes | ||||
| Conversions of Notes | ( | ) | ||
| Payments on Notes | ( | ) | ||
| Balance, December 31, 2020 | ||||
| Conversions of Notes | ( | ) | ||
| 2021 Notes | ||||
| Payments on Notes | ( | ) | ||
| Principal Balance, September 30, 2021 | $ |
| F-10 |
The
Company recorded interest expense of $
Total
interest expense for the Company was $
Note 9 - Note payable issued in acquisition
In
connection with the Acquisition of Magical Beasts, LLC (see Note 12), the Company issued a non-interest bearing $
In
August 2020, a Nevada court imputed a judgement of
In January 2021, the Company entered into an Omnibus Amendment to the original Purchase Agreement (see Note 12) which satisfied the Company’s obligation on the Note.
Note 10 – Covid-19 SBA Loans
During
the year ended December 31, 2020, the Company applied for and received $
Note 11 - Capital Structure
Common Stock - The Company is authorized to issue a total of shares of common stock with par value of $ and shares of preferred stock with par value of $. As of September 30, 2021, and December 31, 2020, shares and shares of common stock were issued and outstanding, respectively and shares of preferred stock were issued and outstanding.
Founder Shares
During
2018, shares of the Company’s common stock were issued to the Founders of the Company (“Founder Shares”)
for an aggregate amount of $
Subscription Shares
During
2018 and 2019, fourteen (14) investors submitted subscription agreements to the Company for the purchase of a total shares
of the Company’s Common Stock by cash payment of total $
Regulation A Offering
On
September 21, 2019, the Company filed a Form 1-A Regulation A Offering Statement Under the Securities Act of 1933, as amended, and subsequent
amendments thereto on July 29, 2019 and August 19, 2019 (the “Form 1-A”). On September 5, 2019, the Form 1-A was qualified
by the Securities and Exchange Commission. Pursuant to the Form 1-A, as of December 31, 2019, the Company has sold shares of
its common stock, $ par value per share, at a purchase price of $ per share, resulting in gross proceeds of $
Year ended December 31, 2020 issuances:
Warrant exercise:
During
2020, all of the
Initial Public Offering:
On
November 3, 2020, the Company completed an initial public offering (“IPO”) of
| F-11 |
Conversion of Convertible Promissory Notes:
During
2020, the Company converted $
Endorsement shares:
In connection with the execution of an Endorsement Agreement with Tee-2-Green, the Company issued shares of its common stock valued at $ per share (value at date of the 11/10/20 agreement) for total of stock-based compensation of $.
Consulting Services shares:
During 2020, the Company entered into two Consulting Agreements under the terms of which the Company issued shares of its common stock. The shares were issued at their respective fair value based on the Company’s Nasdaq closing price of the shares on the date of the agreements. The Company recognized a total of $ as stock-based compensation in the year ended December 31, 2020.
Whitley Settlement:
In
connection with the Settlement of creditors of Ms. Whitley, the former owner of Magical Beasts, LLC (see Note 14 Legal proceedings),
the Company issued shares of its common stock valued at $
Officer Shares:
During 2020, the company issued a total of shares of its common stock to its Chairman and its CFO of which shares valued at $ were recorded as common stock payable and stock-based compensation in 2019. The additional shares were valued at $ and recorded as stock-based compensation in 2020. The respective values were determined based upon the last sales of shares of common stock to third parties.
SRM Entertainment Shares:
In connection with the acquisition of SRM Entertainment, Limited (see Note 13 SRM Acquisition), the Company issued shares of its common stock valued at $ based on the closing Nasdaq price at date of agreement.
Nine months ended September 30, 2021 issuances:
Conversion of Convertible Promissory Notes:
During
the nine months ended September 30, 2021, the Company converted $
Exercise of Cashless Stock Options
During
the nine months ended September 30, 2021, a former Director of the Company exercised a portion of his stock options under the cashless
provisions and was issued
Shares issued as compensation
During
the nine months ended September 30, 2021, the Company entered into eight Consulting Agreements under the terms of which the Company issued
Shares issued for Intellectual Property
During
the nine months ended September 30, 2021, the Company entered into two license agreements for the use of certain patented technology
under the terms of which the Company issued a total of shares of its common stock valued at a total of $
Shares issued in Public Offering
In
July 2021, the company closed an underwritten public offering (the “Offering”) of shares (the “Company Offering
Shares”) of common stock, par value $ per share and warrants (the “Company Warrants”) to purchase up to
shares of Common Stock. The Warrants will be exercisable immediately upon issuance with an exercise price of $
| F-12 |
The following table sets forth the issuances of the Company’s shares of common stock for the nine months ended September 30, 2021 and year ending
Schedule of Stock Holders
| December 31, 2020: | ||||
| Balance December 31, 2019 | ||||
| Warrant Exercise Shares | ||||
| Initial Public Offering Shares | ||||
| Conversion of Promissory Notes | ||||
| Endorsement Shares | ||||
| Consulting Services Shares | ||||
| Whitley Settlement Shares | ||||
| Stock based compensation | ||||
| SRM Entertainment Acquisition Shares | ||||
| Balance December 31, 2020 | ||||
| Conversion of Promissory Notes | ||||
| Exercise of stock options | ||||
| Stock based compensation | ||||
| Consulting Services Shares | ||||
| Intellectual property | ||||
| Public offering | ||||
| Balance September 30, 2021 |
Common Stock Payable
The
Company entered into three consulting agreement which call for a cash component and a stock component. At September 30, 2021 the Company
had accrued a total of $
Total
Common Stock Payable at September 30, 2021 was $
Warrants
In
connection with the sales of subscription shares of common stock, discussed in Note 10 above, the Company granted the subscribers a total
of
The fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on the respective reporting date. The market price was valued based upon the last price paid by a third party for shares of our common stock.
| Market | ||||||||||||||||||||||||
| Price | ||||||||||||||||||||||||
| Reporting | Relative | Term | Exercise | on Grant | Volatility | Risk-free | ||||||||||||||||||
| Date | Fair Value | (Years) | Price | Date | Percentage | Rate | ||||||||||||||||||
| $ | $ | $ | % | |||||||||||||||||||||
| $ | $ | $ | % | |||||||||||||||||||||
| $ | $ | $ | % | |||||||||||||||||||||
IPO
Warrants: In connection with the sales of shares of common stock under the Company’s Initial Public Offering (“IPO”)
and S-1 Registration Statement (see Note 10, Initial Public Offering), the Company issued a total of
The fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on the respective reporting date. The market price was valued based upon the Nasdaq closing price for shares of the Company’s common stock on the date of issuance.
| Market | ||||||||||||||||||||||||
| Price | ||||||||||||||||||||||||
| Reporting | Relative | Term | Exercise | on Grant | Volatility | Risk-free | ||||||||||||||||||
| Date | Fair Value | (Years) | Price | Date | Percentage | Rate | ||||||||||||||||||
| $ | $ | $ | % | |||||||||||||||||||||
Endorsement Warrants: In connection with the execution of an Endorsement Agreement with Tee-2-Green, the Company issued warrants with an exercise price of $ and a term of five () years.
The fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on the respective reporting date. The market price was valued based upon the Nasdaq closing price for shares of the Company’s common stock on the date of issuance.
| F-13 |
| Market | ||||||||||||||||||||||||
| Price | ||||||||||||||||||||||||
| Reporting | Relative | Term | Exercise | on Grant | Volatility | Risk-free | ||||||||||||||||||
| Date | Fair Value | (Years) | Price | Date | Percentage | Rate | ||||||||||||||||||
| $ | $ | $ | % | |||||||||||||||||||||
Convertible
Note Warrants: In connection with the issuance of three convertible promissory notes, the Company issued warrants with an
exercise price of $
| Market | ||||||||||||||||||||||||
| Price | ||||||||||||||||||||||||
| Reporting | Relative | Term | Exercise | on Grant | Volatility | Risk-free | ||||||||||||||||||
| Date | Fair Value | (Years) | Price | Date | Percentage | Rate | ||||||||||||||||||
| - | $ | $ | $ | % | ||||||||||||||||||||
Public
Offering Warrants: In connections with the Company’s public offering (see Note 10), the Company issued warrants
to the purchasers of the common stock, exercisable immediately at an exercise price of $
| Market | ||||||||||||||||||||||||
| Price | ||||||||||||||||||||||||
| Reporting | Relative | Term | Exercise | on Grant | Volatility | Risk-free | ||||||||||||||||||
| Date | Fair Value | (Years) | Price | Date | Percentage | Rate | ||||||||||||||||||
| $ | $ | $ | % | |||||||||||||||||||||
| $ | $ | % | ||||||||||||||||||||||
The following tables summarize all warrants outstanding as of September 30, 2021 and December 31, 2020, and the related changes during the period. Exercise price is the weighted average for the respective warrants and end of period.
Summary of Warrant Outstanding
| Number of | Exercise | |||||||
| Warrants | Price | |||||||
| Stock Warrants | ||||||||
| Balance at December 31, 2019 | $ | |||||||
| Warrants issued in connection with the IPO | ||||||||
| Exercised | ( | ) | ||||||
| Warrants issued in Endorsement Agreement | ||||||||
| Balance at December 31, 2020 | $ | |||||||
| Warrants issued in connection with Convertible Notes (see note 7) | ||||||||
| Warrants issued in connection with the Public offering | ||||||||
| Balance at September 30, 2021 | $ | |||||||
| Warrants Exercisable at September 30, 2021 | $ | |||||||
Options
During 2020, certain Directors and a consultant were granted stock options to purchase a total of additional shares of the Company’s common stock. The options have a three-year term with an exercise price between $and $.
During the nine months ended September 30, 2021, the Company issued a total of options with an exercise price between $ and $ each with a three-year term to its Officers and Directors.
The fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on the respective reporting date.
| Market | ||||||||||||||||||||||||
| Price on | ||||||||||||||||||||||||
| Reporting | Number of | Term | Exercise | Grant | Volatility | Fair | ||||||||||||||||||
| Date | Options | (Years) | Price | Date | Percentage | Value | ||||||||||||||||||
| – | $ | - | $ | – | % - | % | $ | |||||||||||||||||
| – | $ | - | $ | - | % - | % | $ | |||||||||||||||||
| - | $ | $ | % | $ | ||||||||||||||||||||
The Company recognized $ and $ as compensation expense in the financial statements for the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively.
At September 30, 2021, the Company had options outstanding.
| F-14 |
Note 13 - Acquisition of Magical Beasts, LLC
Effective February 21, 2020, Jupiter Wellness Inc., a Florida corporation (“Jupiter Sub”), our wholly-owned subsidiary, entered into a membership interest purchase agreement with Magical Beasts LLC (“Magical Beasts”), a Nevada limited liability corporation, and Krista Whitley, its sole interest holder, pursuant to which Jupiter Sub acquired all of the membership interests in Magical Beasts (the “Magical Beasts Acquisition”) in exchange for the following consideration:
| ● | $ | |
| ● | A
$ | |
| ● | an
option to purchase restricted shares of our common stock at an exercise price of $ per share valued at $ |
Schedule of fair value of warrants
| Number of | Market | |||||||||||||||||||||||
| Reporting | Options | Term | Exercise | Price on | Volatility | |||||||||||||||||||
| Date | Granted | (Years) | Price | Grant Date | Percentage | Fair Value | ||||||||||||||||||
| $ | $ | % | $ | |||||||||||||||||||||
In
connection with the Magical Beasts Acquisition, Jupiter Sub shall enter into an executive employment agreement with Krista Whitley to
act as our Director of Marketing, however, until such agreement is entered into, Jupiter Sub shall pay Krista Whitley an annual salary
of $
Valuation and Purchase Price Allocation
According to ASC 805, the standard of value to be used in the application of purchase accounting rules is fair value. The Company utilized fair value defined in Statement of Financial Accounting Standard No. 820–10–35–37 Fair Value Measurements and Disclosures. The determination of the fair value of the consideration and related allocation of the purchase price was determined by management of the Company with the assistance of a qualified professional valuation firm.
The fair value of the consideration is as follows:
Schedule of fair value consideration
| Cash | $ | |||
| Promissory Note, net of discount | ||||
| Stock Options | ||||
| Total Consideration paid | $ | |||
| The purchase price allocation is as follows: | ||||
| Tangible assets | ||||
| Cash | $ | |||
| Inventory | ||||
| Total tangible assets | ||||
| Intangible assets | ||||
| Tradename-Trademarks | ||||
| Customer base | ||||
| Non-compete | ||||
| Total Intangibles | ||||
| Goodwill | ||||
| $ |
In
connection with the promissory note above, the Company recognized amortization of the discount on the note as interest expense of $
On
July 6, 2020, Brian Menke (the “Plaintiff”) in Nevada court seeking to enforce a judgement that he had obtained in 2012 against
Krista Whitley, the former owner and manager of Magical Beasts LLC., in the amount of $
| F-15 |
On
January 25, 2021, the Company entered into an Omnibus Amendment to: (1) the Confidential Membership Interest Purchase Agreement, dated
February 21, 2020; (2) the Sales Distributor Agreement, dated February 21, 2020; and (3) the Executive Employment Agreement, dated March
31, 2020 (the “Agreements”). Pursuant to the Omnibus Amendment, the parties (i) acknowledge that the Company has fully satisfied
its obligation of $
As
a result of the above, the Company recognized a gain of $
In February 2021, Ms. Whitley exercised her options (see Omnibus Agreement above) using the cashless option feature and was issued shares of the Company’s restricted common stock in full satisfaction of the option agreement.
Supplemental proforma financial information
The following shows the proforma results of operations as if the transaction had occurred effective January 1, 2019.
JUPITER WELLNESS, INC.
PROFORMA BALANCE SHEETS
Schedule of Proforma Financial Information
Consolidated Balance | Beasts, LLC | Proforma Adjustments | Notes | Proforma Balance | ||||||||||||||
| December 31, 2020 | ||||||||||||||||||
| Jupiter | Jupiter , | |||||||||||||||||
| Wellness, | Wellness | |||||||||||||||||
| Inc. | Magical | Inc. | ||||||||||||||||
Consolidated Balance | Beasts, LLC | Proforma Adjustments | Notes | Proforma Balance | ||||||||||||||
| Cash | $ | $ | $ | |||||||||||||||
| Current Assets | ||||||||||||||||||
| Total current assets | ||||||||||||||||||
| Intangible assets | ( | ) | (a) | |||||||||||||||
| Goodwill | ||||||||||||||||||
| Other | ||||||||||||||||||
| Total assets | $ | $ | ( | ) | $ | |||||||||||||
| Liabilities | $ | $ | $ | |||||||||||||||
| Note payable issued in acquisition | ||||||||||||||||||
| Total liabilities | ||||||||||||||||||
| Common stock | ||||||||||||||||||
| Additional paid-in capital | ||||||||||||||||||
| Accumulated deficits | ( | ) | ( | ) | (b) | ( | ) | |||||||||||
| Total Shareholders’ Equity | ( | ) | ||||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ( | ) | $ | |||||||||||||
Notes to Proforma Balance Sheets
| (a) | Additional amortization of intangible assets |
| (b) | Income statement effects of notes (a) and (b) above |
| F-16 |
JUPITER WELLNESS, INC.
PROFORMA STATEMENT OF OPERATIONS
Consolidated Balance | Magical Beasts, LLC | Proforma Adjustments | Notes | Proforma Balance | ||||||||||||||
| Year Ended December 31, 2020 | ||||||||||||||||||
| Jupiter | Jupiter | |||||||||||||||||
| Wellness, | Wellness, | |||||||||||||||||
| Inc. | Inc. | |||||||||||||||||
Consolidated Balance | Magical Beasts, LLC | Proforma Adjustments | Notes | Proforma Balance | ||||||||||||||
| Sales | $ | $ | $ | (a) | $ | |||||||||||||
| Cost of sales | (a) | |||||||||||||||||
| Gross profit | ||||||||||||||||||
| Expenses | (a)(b) | |||||||||||||||||
| Net Income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||
(a)Magical Beasts income and cost of sales prior to closing date
(b)Includes additional amortization of intangibles plus expenses of Magical Beasts prior to closing
| F-17 |
Note 14 – Acquisition of SRM Entertainment
On
November 30, 2020, Jupiter Wellness, Inc. (the “Company”), entered into and closed on a share exchange agreement (the “Exchange
Agreement”) with SRM Entertainment, LTD, a Hong Kong Special Administrative Region of the People’s Republic of China limited
company (“SRM”) and wholly owned subsidiary of Vinco Ventures, Inc., a Nevada corporation formerly known as Edison Nation,
Inc. (“Vinco”), and the shareholders of SRM set forth in the Exchange Agreement (the “SRM Shareholders”), pursuant
to which the Company acquired % of the shares of SRM’s common stock (the “SRM Common Stock”) from the SRM Shareholders
in exchange for shares of the Company’s common stock, valued at $, subject to a leak out provision and escrow
of shares of the Company’s common stock. Upon closing, and pursuant to the Exchange Agreement, the Company delivered
shares of its common stock to SRM and placed shares in escrow (“Escrow Shares”). Pursuant to the Exchange Agreement,
the Company shall release the Escrow Shares upon SRM generating $
Valuation and Purchase Price Allocation:
According to ASC 805, the standard of value to be used in the application of purchase accounting rules is fair value. The Company utilized fair value defined in Statement of Financial Accounting Standard No. 820–10–35–37 Fair Value Measurements and Disclosures. The determination of the fair value of the consideration and related allocation of the purchase price was determined by management of the Company.
Schedule of Fair Value Consideration
| The fair value of the consideration is as follows: | ||||
| Shares of the Company’s common stock issued | ||||
| Market value of Company’s common stock (11/30/20 Nasdaq closing price) | $ | |||
| Consideration paid | $ | |||
| Net tangible liabilities assumed | ||||
| Total consideration | $ | |||
Schedule of Purchase Price Allocation
| The purchase price allocation is as follows: | ||||
| Distribution Agreements | $ | |||
| Goodwill | ||||
| Total purchase price allocation | $ |
| F-18 |
Supplemental proforma financial information
The following shows the proforma results of operations as if the transaction had occurred effective January 1, 2019.
JUPITER WELLNESS, INC.
PROFORMA BALANCE SHEETS
Schedule of Proforma Financial Information
| Balance | Ltd. | Adjustments | Notes | Balance | ||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||
| Jupiter Wellness, | Jupiter Wellness, | |||||||||||||||||||
| Inc. | SRM | Inc. | ||||||||||||||||||
| Consolidated | Entertainment, | Proforma | Proforma | |||||||||||||||||
| Balance | Ltd. | Adjustments | Notes | Balance | ||||||||||||||||
| Cash | $ | $ | $ | |||||||||||||||||
| Current Assets | ||||||||||||||||||||
| Total current assets | ||||||||||||||||||||
| Intangible assets | ( | ) | (a) | |||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total assets | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Liabilities | $ | $ | $ | $ | ||||||||||||||||
| Note payable issued in acquisition | ||||||||||||||||||||
| Total liabilities | ||||||||||||||||||||
| Common stock | ||||||||||||||||||||
| Additional paid-in capital | ||||||||||||||||||||
| Accumulated deficits | ( | ) | ( | ) | (a) | ( | ) | |||||||||||||
| Total Shareholders’ Equity | ( | ) | ||||||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | $ | ( | ) | $ | ||||||||||||||
Notes to Proforma Balance Sheets
| (a) | Amortization of intangible assets |
| F-19 |
JUPITER WELLNESS, INC.
PROFORMA STATEMENT OF OPERATIONS
| Balance | Ltd. | Adjustments | Notes | Balance | ||||||||||||||
| Year Ended December 31, 2020 | ||||||||||||||||||
| Jupiter Wellness, | Jupiter Wellness, | |||||||||||||||||
| Inc. | SRM | Inc. | ||||||||||||||||
| Consolidated | Entertainment, | Proforma | Proforma | |||||||||||||||
| Balance | Ltd. | Adjustments | Notes | Balance | ||||||||||||||
| Sales | $ | $ | $ | (a) | ||||||||||||||
| Cost of sales | (a) | |||||||||||||||||
| Gross profit | ||||||||||||||||||
| Expenses | (b)(a) | |||||||||||||||||
| Net Income (loss) | $ | ( | ) | $ | (a)(b) | ( | ) | |||||||||||
| (a) | SRM Entertainment income and cost for the period prior to closing date |
| (b) | Includes additional amortization of intangibles |
| F-20 |
Note 15 - Commitments and Contingencies
The Company entered into a new office lease Effective July 1, 2021. The primary term of the lease is five years with one renewal option for an additional three years. Minimum annual lease payments for the primary term and one renewal are as follows:
Schedule of minimum annual lease payments
| Primary Period | Amount | Amount During Renewal Period | Amount | |||||||
| July 1 to June 30, 2022 | $ | July 1 to June 30, 2027 | $ | |||||||
| July 1 to June 30, 2023 | $ | July 1 to June 30, 2028 | $ | |||||||
| July 1 to June 30, 2024 | $ | July 1 to June 30, 2029 | $ | |||||||
| July 1 to June 30, 2025 | $ | |||||||||
| July 1 to June 30, 2026 | $ | |||||||||
Under
the new standard for lease reporting, the Company recorded a Right of Use Asset (“ROU”) and an offsetting lease liability
of $
Legal Proceedings
On
August 6, 2020, the Company, Messrs. John and Miller and certain affiliated entities filed a lawsuit in the United States District Court,
Southern District of New York against Robert Koch, Bedford Investment Partners, LLC, Kaizen Advisors, LLC and certain other unnamed defendants.
The lawsuit alleges that Mr. Koch and the other defendants are attempting to extort the Company and Messrs. John and Miller to issue
the defendants shares of the Company’s common stock which they claim are owed to them. The Company asserts that they have no oral
or written agreement with Mr. Koch or any of his affiliates that entitle him to shares of the Company’s common stock. The Company’s
complaint seeks actual damages in the amount of $
The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on its financial position, results of operations or liquidity.
Note 16 - Subsequent Events
On
November 3, 2021, the Company filed a registration statement with the Securities and Exchange Commission to sponsor Jupiter Wellness
Acquisition Corporation (“JWAC”) a SPAC, dedicated to investing in AI based therapeutics and diagnostics with an initial
funding target of $
In October the Company issued a total of shares of the Company’s common stock related to consulting services of which were included in Common Stock Payable at September 30, 2021 and were for new agreements.
In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to September 30, 2021 to the date these financial statements were issued and has determined that it does not have any additional material subsequent events to disclose in these financial statements.
| F-21 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.
As used in this quarterly report and unless otherwise indicated, the terms “we”, “us”, “our”, “JUPW” and the “Company” mean Jupiter Wellness, Inc.
General Overview
Jupiter Wellness, Inc. (“Company,” “Jupiter Wellness” “we,” “us,” and “our”) was originally incorporated in the State of Delaware on October 24, 2018. Our principal business address is 1061 E. Indiantown Rd #110, Jupiter, FL 33477.
Jupiter Wellness, Inc. is a cutting-edge developer of cannabidiol (CBD) based medical therapeutics and wellness products. The Company’s clinical pipeline of prescription CBD-enhanced skin care therapeutics address indications including eczema, burns, herpes cold sores, and skin cancer. We are in the early stage of manufacturing, distributing, and marketing a diverse line of consumer products infused with CBD. We have a proprietary, line of products: CaniSun, CaniSkin and CaniDermRX. Under the CaniSun brand, we are marketing patent pending CBD-infused sun care lotion formulas containing various sun protection factors, or SPFs. In addition, we are exploring the use of CBD with other prescription and/or over-the-counter, or OTC, consumer products that have potentially therapeutic and medical applications. Specifically, we are exploring the use of such topical solutions for the treatment of eczema, dermatitis (JW-100), and actinic keratosis (JW-100), a non-prescription lotion/lip balm (JW-200) for the treatment of symptoms of cold sores, and a prescription product for the treatment of burns (JW-101). The CaniDermRX (JW-100) topical solution for the treatment of eczema dermatitis is the lead product candidate and will be further tested in humans as an investigational cosmetic ingredient followed by clinical trials subject to the regulations of the United States Food and Drug Administration (“FDA”) under an investigational new drug, or IND, application. In February 2021, we announced the results of our novel Cannabidiol-Aspartame combination treatment JW-100 clinical trial which has shown it significantly Reduces ISGA Score in Eczema patients. A double blinded placebo controlled interventional study was conducted. Subjects were assigned to apply, at home, one of three treatments: JW-100 (a CBD and aspartame combination topical formulation), a CBD only topical formulation, or a placebo topical formulation. After 14 days, the average reduction in the Investigators Static Global Assessment (ISGA) score was calculated for each group. Additionally, the proportion of subjects achieving (ISGA) score 0 (clear) or 1 (almost clear) with at least 2 grade improvement from baseline was recorded for each arm of the study. 50% of subjects in the JW-100 arm achieved ISGA clear or almost clear (1 or 2) with at least a 2-grade improvement from baseline after treatment versus 20% and 15% in the CBD-only and placebo arms, respectively. The percentage of subjects achieving clear or almost clear with at least a 2-grade improvement from baseline was found to be statistically significant (p=0.028). JW-100, a novel topical formulation containing CBD and aspartame, was shown to significantly reduce ISGA score in atopic dermatitis patients after two weeks of use. The combination of CBD and aspartame was more effective at reducing ISGA scores than CBD alone.
| 2 |
In parallel, we plan to initiate the development of other products. We originally anticipated developmental studies to be completed in 2020, however, these studies were delayed due to COVID-19. We are also actively seeking to acquire or license products in the OTC skin care market that can be infused with CBD and marketed under our CaniSkin and CaniDermRX brand names. There can be no assurances that we will acquire or enter into such partnership or licensing agreements.
The endocannabinoid system, which is a body system affected by CBD, plays a pivotal role in maintaining a healthy skin through modulating pain sensation, cell proliferation and inflammation. Our strategy for treatment of skin indications is, therefore, to focus on the use of CBD containing topical formulations and to explore potential combinations of CBD and other agents that may augment and act synergistically with CBD. We will explore this strategy by conducting controlled clinical trials to try to ultimately gain FDA approval for specific indications.
On November 30, 2020, the Company acquired SRM Entertainment, Limited, a Hong Kong Special Administrative Region of the People’s Republic of China limited company (“SRM”). SRM has relationships with and supplies the amusement park industry with exclusive products that are often only available to consumers inside the relevant amusement park, entertainment venues and theme hotels in Orlando Florida, Beijing China, Japan and other places throughout the worldwide theme park industry.
CaniSun Brand
Under our CaniSun Brand, we developed a patent pending CBD-infused sunscreen with broad-spectrum SPF protection. We have completed lab testing for CBD solubility–infusing clear, colorless, odorless, and 99.5% pure CBD isolate with three different sun care active ingredients, homosalate, octisalate and octocrylene, which have already been approved by the FDA. The CBD-infused sun care market is fairly nascent in the United States; we believe that there are currently no major competitors in the category. We see an opportunity to become the leading manufacturer of CBD-infused sun care products, marketing the CaniSun brand through an extensive digital and social media awareness campaign. We announced the launch of our CaniSun sun care line of SPF 30, SPF 55 and SPF 50 face lotion on June 6, 2019. We also sell our CBD-infused lip balm and CBD-infused SPF 30 sunscreen spray on our website Canisun.com.
We currently have additional CaniSun products in various stages of development as follows:
| i) | CBD-infused SPF 30 Lip Balm, Peppermint and Acai Fragrance | |
| ii) | CBD-infused SPF 15 sunscreen daily lotion; and | |
| iii) | Mineral-based sunscreen lotions (SPF 30 and 50). |
All of the products listed above are in the developmental stage, whereby we are finalizing the formula to be used in each product, respectively. For CBD-infused product candidates in development, such as our CBD-infused SPF 30 Lip Balm and CBD-infused SPF 15 sunscreen lotion, we have already identified the sun care active ingredient formula (which has already been FDA approved) to be infused with CBD. Once the respective formulas for each of our product candidates are created, the product candidates will undergo three months of stability testing. Provided that the product candidates pass the stability testing, we intend to sell the products on our CaniSun website. The formula for our mineral-based sunscreen lotion (SPF 30 and 50) (product iii) above) includes certain minerals instead of chemicals typically used in sunscreen lotions.
Overall, we believe that our currently offered sunscreen products comply with the FDA Final Rule for sunscreen products under 21 CFR 352 Sunscreen products for Over-the-Counter Human Use. Therefore, we believe that our sunscreen products fall within the FDA monograph and that FDA premarket approval and testing is not required. Our products have been tested for SPF Evaluation (SPF rating), Critical Wave Length (Broad Spectrum claim) and Water Resistance, each of which is defined within the monograph and labeled accordingly.
All of the testing on these products is standard testing for suncare products. Such testing protocols are not intended to test for any effects of adding CBD. In addition to these tests that were conducted to support the claims on the package, each batch is also tested for appearance, color, odor, pH, viscosity, specific gravity, analytical for the sunscreen active ingredients, and microbial content testing.
Our products are tested each time they are manufactured. DCR Labs manufactures our products and has represented to us that it is compliant with the FDA’s Current Good Manufacturing Practice, or CGMP, regulations in accordance with 21 CFR 210/211 required for Over-the-Counter drug products. DCR Labs has self-imposed health and safety standards to ensure compliance with the FDA’s CGMPs.
| 3 |
We expect to continually update and expand upon our corporate website and further refine our online retail strategies on an ongoing basis. JupiterWellness.com is our primary corporate website, which will serve as the primary source of information about us for investors and contain press releases, clinical trial pipeline, lab reports, blog posts, and additional information about each of our brands. We anticipate that each brand will have its own front-facing website dedicated to retail sales and brand specific information. For example, our line of sun care products, CaniSun, has its own website at CaniSun.com and allows for online retail purchase of the entire product line. As we expand our brands (CaniSkin and CaniDermRX), we anticipate utilizing the same strategy and dedicating a new e-commerce website to each brand moving forward. We are also building a website dedicated to servicing our wholesale and larger distributor clients. This website will have more information about each product and provide a central location for larger retailers to find more in-depth information about all of our brands in one place.
We plan to leverage our websites with a social media presence across multiple platforms designed to utilize product reviews to increase brand loyalty, brand recognition and sales. The references to our website in this prospectus are inactive textual references only. The information on our website is neither incorporated by reference into this prospectus nor intended to be used in connection with this offering. We also see growth potential in developing retail locations. We intend to utilize cross-promotion marketing campaigns with our products and product category expansion that leverages our existing distribution channels. We have built an e-commerce platform designed to connect us directly to consumers. We use the platform to sell products, educate customers and build brand loyalty.
CaniSkin Brand and CaniDermRX Brand
We are currently developing other products such as CBD-infused skin care lotion under the CaniSkin brand. Specifically, a CBD-infused moisturizing face serum is under development. We must first finalize the formula to be used in the face serum, and, once approved, the product candidate will undergo stability testing. We intend to sell the product, provided it first passes stability testing, on our website for CaniSkin products. Additionally, we are developing innovative dermatological treatments under the CaniDermRX brand that are specialized to treat atopic dermatitis and other dermatological conditions such as burns, skin cancer and herpes cold sores, respectively. Subject to obtaining FDA approval, we intend for our experimental-stage product for the treatment of atopic dermatitis to compete with Dupixent, an FDA-approved product for treating atopic dermatitis, and for our experimental-stage product for the treatment of herpes cold sores to compete with Silvadene and Abreva, FDA-approved products for treating herpes cold sores. These products require more extensive testing to show both safety and efficacy.
In addition, we plan to seek acquisition opportunities in the branded consumer products space, including but not limited to other OTC therapeutic brands and skin care brands that can be developed, manufactured, marketed and distributed under our CaniSkin and CaniDermRX brand names.
We filed a provisional patent number 62/884,955 on 08/09/2019 on an Aspartame/CBD combination and intend to develop products containing a combination of CBD and Aspartame under the CaniDermRX name for the treatment of pain and inflammation. On February 11, 2021, the US Patent Published our US Patent Application 20210038513 and on April 5, 2021 we filed the International filing through PCT Application PCT/US 2020/045408. We believe that our CaniDermRX product candidates have the potential to treat many skin indications such as atopic dermatitis, pruritis-itch, non-atopic dermatitis/eczema, psoriasis, dermatomyositis, scleroderma, seborrheic dermatitis, actinic keratosis, epidermolysis bullosa and cutaneous neoplasias. Aspartame is a rigorously tested food ingredient. Reviews by major governmental regulatory bodies have previously found the ingredient safe for consumption at higher levels than we contemplate using in our CaniDermRX product candidates. We believe that our formulations that include Aspartame, such as topical crème, lip balm, powder and dog treats, are well-tolerated by, and safe for, users. We believe that infusing CBD in our products may help alleviate irritation that may be caused by applying sun care products and may lead to reduced inflammation. In human skin, receptors of the endocannabinoid system are found in differentiated keratinocytes, hair follicle cells, sebaceous glands, immune cells, and sensory neurons. Activation of cannabinoid receptor type 2, or CB2, for which CBD is a ligand receptor in these cells has been shown to reduce pain and itch sensation, regulate keratinocyte differentiation and proliferation, decrease hair follicle growth, and modulate the release of damage-induced keratins and inflammatory mediators to control the homeostasis of the skin environment.
| 4 |
Recent Developments
In July 2021, the Company closed an underwritten public offering (the “Offering”) of 11,066,258 shares (the “Company Offering Shares”) of common stock, par value $0.001 per share and warrants (the “Company Warrants”) to purchase up to 11,607,142 shares of Common Stock. The Warrants will be exercisable immediately upon issuance with an exercise price of $2.79 per share and will expire on the fifth anniversary of the original issuance date. The net proceeds from the Offering, after deducting underwriting discounts and commissions and Offering expenses, were $28,318,314, which includes net proceeds from partial exercise of the underwriter’s option to purchase 1,741,071 Company Warrants, representing 15% of the Company Warrants sold in the base offering.
On November 3, 2021, the Company filed a registration statement with the Securities and Exchange Commission to sponsor Jupiter Wellness Acquisition Corporation (“JWAC”) a SPAC, dedicated to investing in AI based therapeutics and diagnostics with an initial funding target of $100M. As of September 30, 2021, the Company had loaned $293,300 to Jupiter Wellness Sponsor LLC (“JWSL”), an affiliate, which in turn loaned the funds to JWAC. If the offering is successful, JWSL is obligated to purchase 425,000 Units ($4,250,000) in connection with the Offering. The Company’s portion of the obligation would be $2,050,000. In October 2021, the Company amended Brian John’s employment agreement and title to also make him the Chief Investment Officer of Jupiter Wellness, Inc., Jupiter Wellness Investment Corp. and Jupiter Wellness Acquisition Corp.. Pursuant to the amendment, he is entitled to twenty percent (20%) of the net profits realized from any investments made by Mr. John.
Going Concern Consideration
As of September 30, 2021 and December 31, 2020, the Company had an accumulated deficit of $18,429,668 and $7,274,401 and cash flow used in operations of $5,017,173 for the nine months ended September 30, 2021 and $2,732,736 for the year ended December 31, 2020. The Company has incurred and expects to continue to incur significant costs in pursuit of its expansion and development plans. These conditions have raised doubt about the Company’s ability to continue as a going concern as noted by our Auditors, M&K CPAS, PLLC. During the three months ended September 30, 2021, the Company closed an underwritten public offering (the “Offering”) of 11,066,258 shares (the “Company Offering Shares”) of common stock, par value $0.001 per share and warrants (the “Warrants”) to purchase up to 11,607,142 shares of Common Stock. The Warrants will be exercisable immediately upon issuance with an exercise price of $2.79 per share and will expire on the fifth anniversary of the original issuance date. The net proceeds from the Offering, after deducting underwriting discounts and commissions and Offering expenses, were $28,318,314. As of September 30, 2021, the Company had $26,853,307 in cash and working capital of $27,310,095. As a result, Management believes that the Company has sufficient capital to execute its business plan and the need for a going concern opinion has been alleviated.
Basis of Presentation
The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Jupiter Wellness, Inc., a Florida corporation, Magical Beasts, LLC, a Nevada limited liability company, SRM Entertainment, Limited, a Hong Kong private limited company, and Jupiter Wellness Investments, Inc., a Florida corporation. All intercompany accounts and transactions have been eliminated.
Significant Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements for the nine months ended September 30, 2021 and 2020 audited financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and the rules and regulations of the Securities and Exchange Commission. The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
| 5 |
Emerging Growth Company Status
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are expressed in United States Dollars. Significant accounting policies are summarized below:
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three months or less when purchased to be cash and equivalents for purposes of the statement of cash flows. There were no cash equivalents as of September 30, 2021 or December 31, 2020.
Net Loss per Common Share
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants, convertible securities and preferred stock, unless the effect is to reduce a loss or increase earnings per share. As such, options, warrants, convertible securities and preferred stock are not considered in the calculations, as the impact of the potential common shares would be to decrease the loss per share.
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator: | $ | (4,848,430 | ) | $ | (607,289 | ) | $ | (11,155,267 | ) | $ | (1,522,462 | ) | ||||
| Net (loss) | ||||||||||||||||
| Denominator: | ||||||||||||||||
| Denominator for basic earnings per share - Weighted-average common shares issued and outstanding during the period | 19,821,999 | 6,894,000 | 14,151,337 | 6,983,000 | ||||||||||||
| Denominator for diluted earnings per share | 19,821,999 | 6,894,000 | 14,151,337 | 6,983,000 | ||||||||||||
| Basic (loss) per share | $ | (0.24 | ) | $ | (0.09 | ) | $ | (0.79 | ) | $ | (0.22 | ) | ||||
| Diluted (loss) per share | $ | (0.24 | ) | $ | (0.09 | ) | $ | (0.79 | ) | $ | (0.22 | ) | ||||
| 6 |
Revenue Recognition
The Company generates its revenue from the sale of its products directly to the end user or distributor (collectively the “customer”).
The Company recognizes revenues by applying the following steps in accordance with FASB Accounting Standards Codification 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
The Company’s performance obligations are satisfied when goods or products are shipped on an FOB shipping point basis as title passes when shipped. Our product is generally paid in advance of shipment or standard net 30 days and we offer no specific right of return, refund or warranty related to our products except for cases of defective products of which there have been none to date.
Accounts Receivable and Credit Risk
Accounts receivable are generated from sales of the Company’s products. The Company provides an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. As of December 31, 2020, the Company recorded an allowance of $118,761 against accounts receivable acquired in connection with the acquisition of SRM Entertainment and as of September 30, 2021, the Company had recognized no additional allowance for doubtful collections.
Foreign Currency Translation
Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the period. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the nine months ended September 30, 2021 and year ended December 31, 2020 and the cumulative translation gains and losses as of September 30, 2021 and December 31, 2020 were not material.
Inventory
Inventories are stated at the lower of cost or market. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. Inventory is based upon the average cost method of accounting.
Fair Value of Financial Instruments
The fair value of our assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
| 7 |
Income Taxes
We account for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on our evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Since we were incorporated on October 24, 2018, the evaluation was performed for 2018 tax year, which would be the only period subject to examination. We believe that our income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material changes to our financial position. Our policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.
The Company’s deferred tax asset at December 31, 2020 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $936,311 less a valuation allowance in the amount of approximately $936,311. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance in the years ended December 31, 2020 and 2019.
Research and Development
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $917,714 and $98,619 for the nine months ended September 30, 2021 and 2020, respectively.
Stock Based Compensation
We recognize compensation costs to employees under FASB Accounting Standards Codification 718 “Compensation - Stock Compensation” (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options and warrants. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
On October 24, 2018, the inception date (“Inception”), we adopted ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.
| 8 |
Related parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Recent Accounting Pronouncements
In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company has adopted this standard beginning January 1, 2019. The adoption of this standard did not have a significant impact on our results of operations, financial condition, cash flows, and financial statement disclosures.
In February 2016, Topic 842, “Leases” was issued to replace the leases requirements in Topic 840, “Leases”. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods and is to be retrospectively applied. The Company has adopted this standard beginning January 1, 2019. The adoption of this standard did not have a significant impact on our results of operations, financial condition, cash flows, and financial statement disclosures.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
| 9 |
Results of Operations
For the three months ended September 30, 2021 and 2020
The following table provides selected financial data about us for the three months ended September 30, 2021 and 2020, respectively.
| Three Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Sales | $ | 687,928 | $ | 178,335 | ||||
| Cost of Sales | 685,769 | 96,608 | ||||||
| Gross Profit (Loss) | 2,159 | 81,727 | ||||||
| Total expenses | (4,810,589 | ) | (689,016 | ) | ||||
| Net Loss | $ | (4,808,430 | ) | $ | (607,289 | ) | ||
Revenues
We generated $687,928 in revenues for the three months ended September 30, 2021 compared to $178,335 revenues in the three months ended September 30, 2020. As a result of the Covid-19 pandemic, we have experienced, and continue to experience, weakened demand for our traditional products.
Total Expenses
We had total operating expenses of $4,810,589 for the three months ended September 30, 2021 compared to $689,016 for the three months ended September 30, 2020.
Operating expenses for the three months ended September 30, 2021 were in connection with our daily operations as follows: (i) marketing expenses of $13,996; (ii) research and development of $721,998; (iii) legal and professional expenses of $554,553, consisting of corporate advisory services, annual report preparation fees and general corporate governance fees; (iv) rent and utilities of $7,565; (v) depreciation and amortization of $27,839; (vi) general and administrative expenses of $407,801, consisting of payroll and related taxes, travel, meals and entertainment, office supplies and expense and other normal office and administration expenses; (vii) stock based compensation of $1,875,471; and (viii) net interest expense of $1,196,261 (which includes $1,145,182 of amortization of original issue discount and Warrant discount on convertible promissory notes and $3,139 interest income) and (ix) other expense of $5,105.
Operating expenses for the three months ended September 30, 2020 were in connection with our daily operations as follows: (i) marketing expenses of $19,019; (ii) research and development expense of $34,806; (iii) legal and professional expenses of $55,285; (iv) rent and utilities of $24,272; (v) depreciation and amortization of $36,374 (vi) general and administrative expenses of $480,656, consisting of office supplies and expense and other normal office and administration expenses and (vii) net interest expense of $38,604.
Income/Losses
Net losses were $4,808,430 and $607,289 for the three months ended September 30, 2021 and 2020, respectively.
For the nine months ended September 30, 2021 and 2020
The following table provides selected financial data about us for the nine months ended September 30, 2021 and 2020, respectively.
| Nine Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Sales | $ | 1,331,862 | $ | 753,729 | ||||
| Cost of Sales | 1,123,134 | 433,305 | ||||||
| Gross Profit (Loss) | 208,728 | 320,424 | ||||||
| Total expenses | (11,363,995 | ) | (1,842,886 | ) | ||||
| Net Loss | $ | (11,155,267 | ) | $ | (1,522,462 | ) | ||
Revenues
We generated $1,331,862 in revenues for the nine months ended September 30, 2021 compared to $753,729 revenues in the nine months ended September 30, 2020. As a result of the Covid-19 pandemic, we have experienced, and continue to experience, weakened demand for our traditional products.
Operating Expenses
We had total operating expenses of $11,363,995 for the nine months ended September 30, 2021 compared to $1,842,886 for the nine months ended September 30, 2020.
Operating expenses for the nine months ended September 30, 2021 were in connection with our daily operations as follows: (i) marketing expenses of $386,228; (ii) research and development of $917,714; (iii) legal and professional expenses of $1,567,022, consisting of corporate advisory services, annual report preparation fees and general corporate governance fees; (iv) rent and utilities of $60,318; (v) depreciation and amortization of $71,044; (vi) general and administrative expenses of $1,795,686, consisting of payroll and related taxes, travel, meals and entertainment, office supplies and expense and other normal office and administration expenses; (vii) stock based compensation of $5,538,821; (viii) net interest expense of $1,696,545 (which includes $1,560,334 of amortization of original issue discount and Warrant discount on convertible promissory notes) and (ix) a net gain of $664,095 (which includes a gain of $669,200 on settlement of note payable in connection with the Magical Beast Omnibus Agreement and $5,105 other loss).
Operating expenses for the nine months ended September 30, 2020 were in connection with our daily operations as follows: (i) marketing expenses of $54,210; (ii) research and development expense of $98,619; (iii) legal and professional expenses of $208,026; (iv) rent and utilities of $54,370; (v) depreciation and amortization of $79,433 (vi) general and administrative expenses of $1,256,120, consisting of office supplies and expense and other normal office and administration expenses and (vii) net interest expense of $92,108.
Income/Losses
Net losses were $11,155,267 and $1,522,462 for the nine months ended September 30, 2021 and 2020, respectively.
| 10 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2021 (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) are accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the past nine months and previous fiscal year, we implemented significant measures to remediate the previously disclosed ineffectiveness of our internal control over financial reporting, which included an insufficient degree of segregation of duties amongst our accounting and financial reporting personnel, and the lack of a formalized and complete set of policy and procedure documentation evidencing our system of internal controls over financial reporting. The remediation measures consisted of the hiring of individuals with appropriate experience in internal controls over financial reporting, and the modification of our accounting processes and enhancement to our financial controls, including the testing of such controls.
Other than as described above, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the nine months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 11 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 6, 2020, the Company, Messrs. John and Miller and certain affiliated entities filed a lawsuit in the United States District Court, Southern District of New York against Robert Koch, Bedford Investment Partners, LLC, Kaizen Advisors, LLC and certain other unnamed defendants. The lawsuit alleges that Mr. Koch and the other defendants are attempting to extort the Company and Messrs. John and Miller to issue the defendants shares of the Company’s common stock which they claim are owed to them. The Company asserts that they have no oral or written agreement with Mr. Koch or any of his affiliates that entitle him to shares of the Company’s common stock. The Company’s complaint seeks actual damages in the amount of $5,000,000 and punitive damages in the amount of $5,000,000. In response, the defendants filed their answer and counterclaim, repeating the same claims that caused the Company to file the lawsuit. On October 6, 2020, the Company moved for judgment on the pleadings to dismiss the defendants’ counterclaim in its entirety. On April 24, 2021, the Company’s motion was granted and all counterclaims were dismissed with prejudice, except the breach-of-contract and unjust enrichment claims. On June 04, 2021, the defendants filed a Second Amended Counterclaim pursuant to which on June 25, 2021, the Company filed a motion to dismiss defendants’ Second Amended Counterclaim, which again asserted one breach-of-contract and one unjust enrichment counterclaim. Defendants have not yet opposed the motion.
On July 6, 2020, Brian Menke (the “Plaintiff”) in Nevada court seeking to enforce a judgement that he had obtained in 2012 against Krista Whitley, the former owner and manager of Magical Beasts LLC., in the amount of $250,00. In July 2020, the Plaintiff brought a claim in Nevada State Court to impute such judgement to the Company’s wholly owned subsidiary, Magical Beasts, LLC. On August 6, 2020, the court imputed the judgement to Magical Beasts and advised the Company that before paying any funds to Ms. Whitley, they must first satisfy the judgement to the Plaintiff. On October 12, 2020, the Company, Ms. Whitley and the Plaintiff reached a settlement agreement whereby the Company agreed that of the $1,000,000 payable to Ms. Whitley, the first $334,000 be paid to the Plaintiff. Ms. Whitley in turn agreed that such payments would be applied to the $1,000,000 owed to Ms. Whitley that was to be paid from the proceeds of the offering and the Plaintiff agreed to withdraw the case against Magical Beasts without prejudice.
On January 25, 2021, the Company entered into an Omnibus Amendment to: (1) the Confidential Membership Interest Purchase Agreement, dated February 21, 2020; (2) the Sales Distributor Agreement, dated February 21, 2020; and (3) the Executive Employment Agreement, dated March 31, 2020 (the “Agreements”). Pursuant to the Omnibus Amendment, the parties (i) acknowledge that the Company has fully satisfied its obligation of $334,000 to the Plaintiff as Ms. Whitley’s judgment creditors; (ii) agree that in satisfaction of the remaining balance due to Ms. Whitley under the Agreements, she is to be paid $150,000 in cash; (iii)agree that starting April 1, 2020, shall be entitled to individually market and sell the Bella line of products remaining in the Company’s inventory, as identified in the Omnibus Amendment, and the Company will relinquish its rights to the Bella brand; (iv) agree that the number of shares issuable upon exercise of the common stock purchase options granted to Ms. Whitley under the Agreements shall be reduced from 250,000 to 185,000, Ms. Whitely may utilize a cashless exercise feature to exercise such options, subject to a six (6) month holding period on the shares, and Ms. Whitley shall not be permitted to sell an amount of shares in any week which exceeds 10% of the Company’s total weekly trading volume in the prior week; (v) agree that Ms. Whitley’s Employment Agreement shall terminate on March 31, 2021 and shall not renew; and (vi) acknowledge that Ms. Whitley has been paid $5,541 for unreimbursed expenses on or about December 30, 2020; and (vii) the balance of the note due Whitley be forgiven.
As a result of the above the Company recognized a gain of $669,200 comprised of the forgiveness of debt of $691,500 and the write-off of the unamortized portion of Whitley’s the non-compete agreement of $22,300.
| 12 |
Item 1A. Risk Factors
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine months ended September 30, 2021, the Company did not sell any unregistered shares of its Common Stock for cash.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None
Item 6. Exhibits
| Exhibit | ||
| Number | Description | |
| (31) | Rule 13a-14 (d)/15d-14d) Certifications | |
| 31.1 | Section 302 Certification by the Principal Executive Officer | |
| 31.2 | Section 302 Certification by the Principal Financial Officer and Principal Accounting Officer | |
| (32) | Section 1350 Certifications | |
| 32.1* | Section 906 Certification by the Principal Executive Officer | |
| 32.2 | Section 906 Certification by the Principal Financial Officer and Principal Accounting Officer |
| 101* | Interactive Data File | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended..
| 13 |
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.
| Jupiter Wellness, INC. | |
| Dated: November 12, 2021 | /s/ Brian S. John |
| Brian S. John | |
| Chief Executive Officer | |
| (Principal Executive Officer Officer) |
| 14 |