Healthy Extracts Inc 10-Q for FY2021 Q3
Healthy Extracts Inc. (HYEX)
About this 10-Q
Healthy Extracts Inc filed this 10-Q on November 15, 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
- $447.99K
- down 16.5% from $536.65K a year earlier
- Net loss
- $672.47K
- compared with net income of $1.81M 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
| TRANSITION REPORT PURSUANT TO 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 its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s
telephone number, including area code (
Indicate
by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the previous 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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
(Do not check if a smaller reporting company) |
☐ | 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 ☐
As of November 15, 2021, there were shares of common stock, $0.001 par value, issued and outstanding.
HEALTHY EXTRACTS INC.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading: “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
-1-
| ITEM 1 | Financial Statements |
| HEALTHY EXTRACTS, INC. |
| CONSOLIDATED BALANCE SHEETS |
| (Unaudited) |
| SEPTEMBER 30, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| Fixed assets, net of accumulated depreciation of $ | ||||||||
| Patents/Trademarks | ||||||||
| Goodwill | ||||||||
| Total other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Notes payable | ||||||||
| Notes payable - related party | ||||||||
| Convertible debt, net of discount of $0.00 and $0.00, respectively | ||||||||
| Convertible debt - related party, net of discount of $0.00 and $0.00, respectively | ||||||||
| Accrued interest payable | ||||||||
| Accrued interest payable - related party | ||||||||
| Derivative liabilities | ||||||||
| Total current and total liabilities | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Preferred stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
-2-
| HEALTHY EXTRACTS, INC. |
| CONSOLIDATED STATEMENT OF OPERATIONS |
| FOR THE 3 AND 9 MONTHS ENDING SEPTEMBER 30, 2021 AND 2020 |
| (Unaudited) |
| FOR THE 3 MONTHS ENDED | FOR THE 9 MONTHS ENDED | |||||||||||||||
| SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUE | ||||||||||||||||
| Gross revenue | $ | $ | $ | $ | ||||||||||||
| Less selling fees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net revenue | ||||||||||||||||
| COST OF REVENUE | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Impairment of assets | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value on derivative | ( | ) | ( | ) | ||||||||||||
| Loss on extinguishment of debt | ||||||||||||||||
| SBA loan forgiveness | ||||||||||||||||
| Gain on sale of asset | ||||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net gain/(loss) before income tax provision | ( | ) | ( | ) | ( | ) | ||||||||||
| NET GAIN/(LOSS) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Loss per share - basic and diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
-3-
| HEALTHY EXTRACTS, INC. |
| CONSOLIDATED STATEMENT OF CASH FLOWS |
| (Unaudited) |
| FOR THE 9 MONTHS | ||||||||
| ENDING | ||||||||
| SEPTEMBER 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Gain/(Loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Warrants issued for services | ||||||||
| Non-cash compensation | ||||||||
| Change in fair value on derivative liability | ( | ) | ||||||
| Loss on extinguishment of debt | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Accrued interest receivable | ||||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable - related party | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Accrued interest payable | ( | ) | ||||||
| Accrued interest payable - related party | ( | ) | ||||||
| Net Cash used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of fixed assets | ||||||||
| Trademarks | ( | ) | ( | ) | ||||
| Payments of note receivable | ||||||||
| Cash flows provided by (used in) Investing Activities: | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Purchase of BergaMet | ||||||||
| Purchase of UBN | ( | ) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from issuance of convertible debt, | ( | ) | ||||||
| Payments for repayment of convertible debt | ||||||||
| Proceeds from issuance of noted payable | ( | ) | ||||||
| Proceeds from issuance of noted payable - related party | ( | ) | ||||||
| Payments for repayment of notes payable - related party | ||||||||
| Net Cash provided by Financing Activities | ||||||||
| Increase (decrease) in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
-4-
| HEALTHY EXTRACTS, INC. |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) |
| FOR THE 9 MONTHS ENDING SEPTEMBER 30, 2021 |
| (Unaudited) |
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance - December 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of shares acquisition of UBN | — | |||||||||||||||||||||||||||
| Issuance of common stock for debt conversion | — | |||||||||||||||||||||||||||
| Issuance of common stock for debt conversion | — | |||||||||||||||||||||||||||
| Issuance of common stock for debt conversion | — | |||||||||||||||||||||||||||
| Issuance of common stock for cash | — | |||||||||||||||||||||||||||
| Issuance of common stock for cash | — | |||||||||||||||||||||||||||
| Issuance of common stock for cash | — | |||||||||||||||||||||||||||
| Issuance of common stock for cash | — | |||||||||||||||||||||||||||
| Net (loss) gain for the period | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Issuance of common stock for cash | — | |||||||||||||||||||||||||||
| Issuance of common stock for cash | — | |||||||||||||||||||||||||||
| Issuance of common stock for cash | — | |||||||||||||||||||||||||||
| Issuance of common stock for cash | — | — | ||||||||||||||||||||||||||
| Issuance of common stock for debt | — | |||||||||||||||||||||||||||
| Issuance of common stock for services | — | |||||||||||||||||||||||||||
| Issuance of common stock for services | — | |||||||||||||||||||||||||||
| Issuance of common stock for services | — | |||||||||||||||||||||||||||
| Issuance of common stock for services | — | |||||||||||||||||||||||||||
| Net (loss) gain for the period | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
-5-
HEALTHY EXTRACTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Healthy
Extracts, Inc. (the “Company”) was incorporated in the State of Nevada on
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2021 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s form 10-K for the year ended December 31, 2020 filed with the SEC on February 19, 2021.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash
Cash includes cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.
Accounts Receivables
Accounts receivables are recorded at the invoice amount and do not bear interest.
Inventory
Inventories
consist of health supplements held for sale in the ordinary course of business. The Company uses the weighted average cost method to
value its inventories at the lower of cost or market. An allowance for inventory was established in 2018 and is evaluated each quarter
to determine if all items are still sellable due to expiration dates. As of September 30, 2021 and 2020, the total of inventory which
was written off as an inventory allowance was $
-6-
Property and Equipment
The Company’s property and equipment are recorded at cost and depreciated using the straight-line method over the useful lives of the assets, generally from three to seven years. Upon sale or disposal of property and equipment, the related asset cost and accumulated depreciation or amortization are removed from the respective accounts and any gain or loss is reflected in current operations.
Indefinite-Lived Intangible Assets
Indefinite-lived
intangible assets established in connection with business combinations consist of patents, trademarks, and trade names. The impairment
test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset
with its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
With the acquisition of Ultimate Brain Nutrients on April 3, 2020 the Company added a purchasing value of $
As of September 30, 2021, the Company believes that based upon qualitative factors, no impairment of indefinite-lived intangible assets is necessary.
Goodwill
In accordance with Goodwill and Other Intangible Assets, goodwill is defined as the excess of the purchase price over the fair value assigned to individual assets acquired and liabilities assumed and is tested for impairment at the reporting unit level on an annual basis in the Company’s fourth fiscal quarter or more frequently if indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of the Company’s reporting units with each respective reporting unit’s carrying amount, including goodwill. The fair value of reporting units is generally determined using the income approach. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the second step of the goodwill impairment test is performed to determine the amount of any impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The Company sees the goodwill to have a ten-year useful life. No goodwill impairment indicators were present, for the goodwill listed on the books as of September 30, 2021, after working through our analysis of goodwill during the year ending September 30, 2021.
The Company has determined that the method applied represents the fair value of the asset group principally because the valuation of the intangibles with the asset group is based on the anticipated cash flows related to the revenue stream from its customers. The asset group excludes goodwill, long term non-operational assets and liabilities and cash. As such, the principal value from the asset group relates to the cash inflows from its customers and the cash outflows required to service these customers. The fair value for the asset group consists of the following:
| ● | Fair value of net revenues: computed using the income approach. The key input to these computations is the anticipated cash inflows from customers. These valuations include 100% of the cash inflows related to the customer base, and taking cash outflows into consideration. |
| ● | Fair value of working capital (including accounts receivable, inventory, accrued expenses, and accounts payables). Due to the short-term nature of the working capital, book value has been determined to be fair value. These accounts represent either avoided future outflows (inventory, prepaids) or future cash flows (accrued expense, AP and AR) related to customer sales. |
| ● | Fair value of five years of revenue (2021 to 2025): we discounted our cash flows to the anticipated cash projected to be received. We also projected the anticipated cash outflows required to service these customers. If the asset group was to be valued as a whole, we would expect an income approach based on the revenues being generated from the customers and expenses required to service those customers, appropriately adjusted for the working capital position. The sum of these values reasonably approximates this approach. |
-7-
The Company’s revenue streams align directly with the intangibles, which were recorded as a result of the BergaMet acquisition in fiscal 2019. For purposes of the Step 2 recoverability test under ASC 360 subsection 2.3., the net revenues from BergaMet customers base were used. The revenue stream fairly reflects anticipated future cash flows; accordingly, the intangibles associated with these revenue streams have been tested with the expected cash flows.
Due to the purchase of Ultimate Brian Nutrients, LLC being a related party transaction and the new division recording no revenue as of June 30, 2020, the Company found the goodwill to be impaired. Due to the impairment the Company expensed the goodwill related to the purchase as of June 30, 2020.
Revenue Recognition
Beginning January 1, 2019, the Company implemented ASC 606, Revenue from Contracts with Customers. Although the new revenue standard is expected to have an immaterial impact, if any, on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, ongoing contract review requirements, and gathering of information provided for disclosures
The Company recognizes revenue and cost of goods sold from product sales or services rendered when control of the promised goods are transferred to our clients in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. Our recognizes revenue policy includes all sales channels which include the Company website channel or any other selling channel like Amazon, doctors’ offices, and walk-in sales. To achieve this core principle, we apply the following five steps: identify the contract with the client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues when or as the Company satisfies a performance obligation.
The Company recognizes revenue and cost of goods sold from each sale upon shipment of the promised goods to the customers.
Concentration
There is no concentration of revenue for the months ended September 30, 2020 and the nine months ended September 30, 2021 because the revenue was earned from multiple customers.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. For the period ending September 30, 2020 and September 30, 2021, the Company did not have any amounts recorded pertaining to uncertain tax positions.
-8-
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The derivative liability in connection with the conversion feature of the convertible debt, classified as a Level 3 liability, is the only financial liability measure at fair value on a recurring basis.
The change in Level 3 financial instrument is as follows:
Schedule of Fair Value of Financial Liability on Recurring Basis
| Balance, January 1, 2021 | $ | |||
| Issued during the year ended September 30, 2021 | ||||
| Change in fair value recognized in operations | ( | ) | ||
| Converted during the year ended September 30, 2021 | ||||
| Balance, September 30, 2021 | $ |
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements of five–step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract cost, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting period beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
The Company’s revenues are recognized when control of the promised goods or services is transferred to our clients (upon shipment of goods) in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps: (1) Identify the contract with a client; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to performance obligations in the contract; and (5) Recognize revenues when or as the Company satisfies a performance obligation.
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We adopted ASC 2014-09 on January 1, 2019. Although the new revenue standard is expected to have an immaterial impact, if any, on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities with them.
Convertible Instruments
The Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities. During the months ended September 30, 2021, the Company issued $200,000 of convertible debt with a bifurcated conversion option.
Common Stock Purchase Warrants
The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification is required.
Gain on Extinguishment of debt
Note Satisfaction Agreements
The Company entered into a Note Satisfaction Agreement with each of Auctus Fund, Crown Bridge Partners, LLC, Power Up Lending Group Ltd., GS Capital Partners LLC, Oakmore Opportunity Fund I LP, and Adar Bays, LLC. All of these entities were holders of the Company’s convertible debt, and these Note Satisfaction Agreements terminate their convertible notes unless the Company fails to perform its payment obligations. The Company agreed to pay these note holders an aggregate of $520,658 plus interest. The Company paid an aggregate of $353,908 on or before February 15, 2019. The balance owed and outstanding of $160,000 plus interest was agreed to be purchased by some third-party individuals. During the third quarter 2020, these third-party individuals decided to convert the outstanding notes into 2,400,000 shares of the Company’s common stock.
-10-
Various other holders of Convertible Promissory Notes agreed to convert their notes for an aggregate of 806,015 shares of common stock prior to the Exchange. As a result of these transactions, no convertible promissory notes remain outstanding, except for those convertible notes subject to revival if the Company fails to make payments pursuant to the Note Satisfaction Agreements.
NOTE 3 – GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated minimal revenues
from operations. Since its inception, the Company has been engaged substantially in financing activities and developing its business
plan and incurring startup costs and expenses. As a result, the Company incurred accumulated net losses from Inception (December 19,
2014) through the period ended September 30, 2021 of $
NOTE 4 – RELATED PARTY
For
the months ended September 30, 2021 and 2020, the Company had expenses totaling $
NOTE 5 – CONVERTIBLE DEBT – RELATED PARTY
In 2020, the Company converted the outstanding convertible debt which was due to a related party.
NOTE 6 – NOTES PAYABLE
As of September 30, 2021, the Company had the following:
Schedule of Notes Payable
| Unsecured
debt with shareholders of the Company, no due date, | ||||
| Unsecured
debt with shareholders of the Company, no due date, | ||||
| TOTAL | $ |
As
of September 30, 2021, the Company has an outstanding total of $
-11-
NOTE 7 – CONVERTIBLE DEBT
As of September 30, 2021, the Company had the following:
Schedule of Convertible Debt
| Unsecured
convertible debt, due | ||||
| Unsecured
convertible debt, due | ||||
| 13
unsecured convertible debt were issued during the second quarter 2021, due | ||||
| 7
unsecured convertible debt were issued during the third quarter 2021, due | ||||
| SUBTOTAL | ||||
| Less: Discount | ||||
| TOTAL | $ |
Below represent the Black-Scholes Option Pricing Model calculations for the above convertible note payables:
| Payee | Number of options valued | Value of Convertible Option | ||||||
| Unsecured Convertible debt #1 | $ | |||||||
| Unsecured Convertible debt #2 | $ | |||||||
| Unsecured Convertible debt #3 | $ | |||||||
| Unsecured Convertible debt #4 | $ | |||||||
| Unsecured Convertible debt #5 | $ | |||||||
| Unsecured Convertible debt #6 | $ | |||||||
| Unsecured Convertible debt #7 | $ | |||||||
| Unsecured Convertible debt #8 | $ | |||||||
| Unsecured Convertible debt #9 | $ | |||||||
| Unsecured Convertible debt #10 | $ | |||||||
| Unsecured Convertible debt #11 | $ | |||||||
| Unsecured Convertible debt #12 | $ | |||||||
| Unsecured Convertible debt #13 | $ | |||||||
| Unsecured Convertible debt #14 | $ | |||||||
| Unsecured Convertible debt #15 | $ | |||||||
| Unsecured Convertible debt #16 | $ | |||||||
| Unsecured Convertible debt #17 | $ | |||||||
| Unsecured Convertible debt #18 | $ | |||||||
| Unsecured Convertible debt #19 | $ | |||||||
| Unsecured Convertible debt #20 | $ | |||||||
| Unsecured Convertible debt #21 | $ | |||||||
| Unsecured Convertible debt #22 | $ | |||||||
As
of September 30, 2021, the Company has an outstanding total of $
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The convertible promissory notes #1 is in default but management has not been able to make contact with this party, due to them living out of the country. We have calculated the derivative liability as if it is in default (but the note’s default interest rate stays the same at 8%) and will still accrue appropriate interest until the note is fully satisfied or converted into the Company’s common stock.
The Company has determined that the conversion feature embedded in the notes referred to above that contain a potential variable conversion amount constitutes a derivative which has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt.
NOTE 8 – STOCKHOLDERS’ EQUITY
Authorized Stock
The Company has authorized 75,000,000 common shares with a par value of $0.001 per share. Each common share entitles the holder to one vote on any matter on which action of the stockholders of the corporation is sought. During February 2017, the Company increased the authorized number of shares to . Also, the Company increased the authorized preferred stock to shares and designated shares of preferred stock to Series A Convertible Preferred Stock. During January 2018, the Company increased its authorized number of common shares to . During April 2018, the Company increased its authorized number of common shares to . The Board of Directors, in the future, has the authority to increase the authorized capital up to 4,000,000,000 shares based on shareholder approval.
The
shareholders of the Company approved a reverse stock split at a ratio of between 1-for-100 and 1-for 250.
On October 16, 2017, the Company filed an Amended and Restated Certificate of Designation of the Rights, Preferences, Privileges and Restrictions of the Series A Convertible Preferred Stock (the “Amended Certificate”) with the Secretary of State of the State of Nevada. The Amended Certificate reduces the number of preferred shares designated as Series A Preferred Stock from shares to shares. The Amended Certificate also changes the conversion and voting rights of the Series A Preferred Stock. The Series A Preferred Stock is now convertible into the number of shares of our common stock equal to 0.00006% of our outstanding common stock upon conversion. The voting rights of the Series A Preferred Stock are now equal to the number of shares of common stock into which the Series A Preferred Stock may convert.
As
of June 30, 2021, there are no outstanding shares of preferred stock.
Common Share Issuances
During the year ended September 30, 2021, the Company issued 10,592,778 shares of common stock. During the third quarter 2021, the Company issued 1,177,778 shares of common stock for advertising and broker fees. On March 18, 2021, the Company raised $340,000 note payable agreement which 1,200,000 shares of the Company’s common stock were issued to the note holder. Additionally, 2,000,000 shares of common stock were issued to a company helping secure the note. Furthermore, 715,000 shares of common stock were issued for marketing services while 1,000,000 shares of common stock were issued for advertising services. During January 2021 the company converted 4,500,000 of securities purchase agreement into common stock shares.
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During the year ended December 31, 2020, the Company issued 41,727,651 shares of common stock. On several dates in September 2020, the Company raised $295,000 in direct security purchase agreement which equal to 5,900,000 shares of the Company’s common stock. During the fourth quarter of 2020, the Company raised $155,000 in direct security purchase agreement which equal to 3,100,000 shares of the Company’s common stock.
Warrant Issuances
In December 2020, the Company issued 7,500,000 warrants to three individuals at $0.05 per share. These warrants will need to be exercised between the date of issue and three years thereafter. As of September 30, 2021, there were 7,512,000 warrants outstanding, of which 4,000 warrants are fully vested.
Stock Issued for Services
On January 28, 2019, the Company entered into a marketing and sales consulting agreement with an individual for a period of six months. On March 18, 2021, the Company issued 715,000 shares of common stock as the compensation for this agreement. Additionally on March 18, 2021, the Company issued 2,000,000 shares of common stock to a company helping secure the note. During the second and third quarters of 2021, the Company entered into several broker agreements to help raise capital for the Company. 1,177,778 shares of common stock were issued in the third quarter as broker fees. And additional 1,000,000 shares of common stock were issued in the second quarter as advertising fees.
Share Conversion Agreements
All of the holders of the Company’s Series A Convertible Preferred Stock (the “Preferred Holders”) entered into a Preferred Stock Conversion Agreement. Pursuant to the Conversion Agreements, the Preferred Holders converted their shares of preferred stock into common stock, effective as of the Exchange. As a result, no shares of the Company’s Series A Convertible Preferred Stock are outstanding. An aggregate of 15,592,986 shares of common stock were issued to the Preferred Holders. The Preferred Holders agreed to convert each share of Series A Convertible Preferred Stock into eighteen (18) shares of common stock and agreed to retire a total of 467,057 shares of Series A Convertible Preferred Stock. The Company cancelled the retired shares.
Omnibus Stock Grant and Option Plan
On May 30, 2020, the Company proposed a stock options agreement in the amount of 10,550,000 shares with a strike price of $0.05 to sixteen individuals. This plan was approved by the Company by the end of the third quarter 2020. Purchase price under the plan is defined as: unless otherwise permitted by applicable law, the purchase price of Shares to be offered under the Plan shall not be less than eighty-five percent (85%) of the Fair Market Value of a Share on the date of grant (100% for 10% shareholders).
NOTE 9 – ACQUISITIONS
Acquisition of Ultimate Brain Nutrients, LLC
On April 3, 2020, the Company entered into a Share Exchange Agreement by and among Grey Cloak Tech Inc., Ultimate Brain Nutrients, LLC, a Delaware limited liability company (“UBN”), and the members of UBN, whereby we issued and exchanged shares of our common stock for all of the outstanding equity securities of UBN. UBN is now our wholly-owned subsidiary. The shares of common stock issued in the Exchange are equal to approximately 42.5% of our outstanding common stock immediately following the exchange.
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The assets acquired and liabilities assumed as part of our acquisition were recognized at their fair values as of the effective acquisition date, April 3, 2020. The following table summarizes the fair values assigned to the assets acquired and liabilities assumed.
Schedule of fair value of Assets Acquired and Fair value Assumed
| Cash | $ | ( | ) | |
| Current assets | ||||
| Current liabilities | ||||
| Net assets acquired | $ |
The
purchase price method was used when calculating the fair market value of the UBN purchase. On April 3, 2020 the closing stock price for
GRCK was $. The total number of shares exchanged multiplied by the closing stock price equaled a purchase value of $
NOTE 10 – BUSINESS SEGMENT INFORMATION
As of September 30, 2021, the Company operated in two reportable segments (Corporate and Health Supplements) supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the YTD ended September 30, 2021.
Schedule of Reportable segments
| CONSOLIDATED | HEALTH SUPPLEMENTS | CORPORATE | ||||||||||||||
| BergaMet | UBN | |||||||||||||||
| Revenue | ||||||||||||||||
| Less Selling Fees | ( | ) | ( | ) | ||||||||||||
| Cost of Revenue | ||||||||||||||||
| Long-lived Assets | ||||||||||||||||
| Gain (Loss) Before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Identifiable Assets | ||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||
The following table presents selected financial information about the Company’s reportable segments for the Quarters ended September 30, 2021.
| CONSOLIDATED | HEALTH SUPPLEMENTS | CORPORATE | ||||||||||||||
| BergaMet | UBN | |||||||||||||||
| Revenue | ||||||||||||||||
| Less Selling Fees | ( | ) | ( | ) | ||||||||||||
| Cost of Revenue | ||||||||||||||||
| Long-lived Assets | ||||||||||||||||
| Gain (Loss) Before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Identifiable Assets | ||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||
NOTE 11 – SUBSEQUENT EVENTS
Notes Conversion
During the first part of the fourth quarter 2021, the Company converted 22 of the notes to common stock in total of $625,000. A total of 12,746,900 of common stock shares were issued in this conversion.
Offering Circular
During the third quarter of the 2021, the Company qualified a Regulation A offering with the U.S. Securities and Exchange Commission.
COVID-19
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The Company is monitoring this closely, and although operations have not been materially affected by the coronavirus outbreak to date, the ultimate severity of the outbreak is uncertain. Further the uncertain nature of its spread globally may impact our business operations resulting from quarantines of employees, customers, and third-party service providers. At this time, the Company is unable to estimate the impact of this event on its operations.
The Company evaluated its September 30, 2021 financial statements for subsequent events through November 15, 2021, the date the financial statements were available to be issued.
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| ITEM 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.
Summary Overview
We were formed in December 2014. We had revenues of $748,377 in the year ended December 31, 2019 and $1,276,559 in the year ended December 31, 2020. As of September 30, 2021, we had revenues of $903,142 for the first nine months of 2021.
BergaMet NA, LLC
On February 4, 2019, we issued and exchanged shares of our common stock for all of the outstanding equity securities of BergaMet. BergaMet is now our wholly-owned subsidiary. The shares of common stock issued in the Exchange were equal to approximately 80.1% of our outstanding common stock immediately following the exchange.
The acquisition of BergaMet has been extremely beneficial to us. BergaMet was an established company that was already generating revenues when we acquired it. BergaMet also has unique products that fit nicely with our existing business. We plan on expanding our product line to other nutraceuticals.
BergaMet generated all of our revenue in 2020.
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Ultimate Brain Nutrients, LLC
On April 3, 2020, we entered into a Share Exchange Agreement with Ultimate Brain Nutrients, LLC, a Delaware limited liability company (“UBN”), and the members of UBN. UBN is now our wholly-owned subsidiary. The shares of common stock issued in the Exchange were equal to approximately 42.5% of our outstanding common stock immediately following the exchange.
UBN is a science-based company that develops unique, plant-based superior health technology neuro-products that provide natural brain solutions. UBN has numerous proprietary products, with four unique patent-pending formulations and one patent issued.
Financial results for UBN are included in this Management’s Discussion and Analysis.
Going Concern
As a result of our financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2020 and 2019 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. From inception (December 19, 2014) through the end of December 31, 2020, we have incurred accumulated net losses of $12,956,498. In order to continue as a going concern we must effectively balance many factors and generate more revenue so that we can fund our operations from our sales and revenues. If we are not able to do this we may not be able to continue as an operating company. At our current revenue and burn rate, we have an immediate cash need, and thus we must raise capital by issuing debt or through the sale of our stock. However, there is no assurance that our existing cash flow will be adequate to satisfy our existing operating expenses and capital requirements.
Results of Operations for the Three and Nine Months Ended September 30, 2021 and 2020
Introduction
We had revenues of $447,986 and $903,142 for the three and nine months ended September 30, 2021, compared to $536,647 and $1,152,245 for the three and nine months ended September 30, 2020. Revenues for the three months ended June 30, 2021 were $243,886. Our revenues for the three months ended September 30, 2021 were 83% higher than the immediately preceding quarter.
Our operating expenses were $692,940 and $1,873,858 for the three and nine months ended September 30, 2021, compared to $437,240 and $2,669,073 for the three and nine months ended September 30, 2020. Operating expenses for the three months ended June 30, 2021 were $464,831 for the three months ended June 30, 2021. Our operating expenses for the three months ended September 30, 2021 were 49% higher than the immediately preceding quarter.
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Revenues and Net Operating Loss
Our revenue, operating expenses, net operating loss, and net gain (loss) for the three and nine months ended September 30, 2021 and 2020 were as follows:
| Three
Months Ended | Three
Months Ended | Nine Months
| Nine Months Ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | 447,986 | $ | 536,647 | $ | 903,142 | $ | 1,152,245 | ||||||||
| Cost of Revenue | 72,250 | 226,532 | 147,456 | 443,178 | ||||||||||||
| Gross Profit | 307,625 | 306,567 | 646,737 | 697,479 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 692,940 | 437,240 | 1,873,858 | 1,089,190 | ||||||||||||
| Impairment of Assets | — | — | — | 1,579,883 | ||||||||||||
| Total operating expenses | 692,940 | 437,240 | 1,873,858 | 2,669,073 | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expenses, net of interest income | (19,242 | ) | (10,120 | ) | (48,598 | ) | (72,226 | ) | ||||||||
| Change in fair value on derivative | (307,746 | ) | 1,907,444 | (1,287,971 | ) | 1,050,109 | ||||||||||
| Loss on extinguishment of debt | — | 46,836 | — | 46,836 | ||||||||||||
| SBA Loan Forgiveness | 39,833 | — | 39,833 | — | ||||||||||||
| Gain on sale of asset | — | — | — | — | ||||||||||||
| Total other income (expense) | (287,155 | ) | 1,944,160 | (1,296,736 | ) | 1,024,719 | ||||||||||
| Net income (loss) | $ | (672,470 | ) | $ | 1,813,487 | $ | (2,523,857 | ) | $ | (946,876 | ) | |||||
Revenues
We had revenues of $447,986 and $903,142 for the three and nine months ended September 30, 2021, compared to $536,647 and $1,152,245 for the three and nine months ended September 30, 2020., a decrease of $88,661, or 16%, for the three month period and a decrease of $249,103, or 22%, for the nine month period. Revenues for the three months ended June 30, 2021 were $243,886.
Cost of Revenue
Our cost of revenue for the three and nine months ended September 30, 2021 were $72,250 and $147,456, or 16% and 16% of revenue, respectively, compared to $226,532 and $443,178, or 42% and 38% of revenue, respectively, for the three and nine months ended September 30, 2020.
General and Administrative
General and administrative expenses were $692,940 and $1,873,858 for the three and nine months ended September 30, 2021, compared to $437,240 and $1,089,190 for the three and nine months ended September 30, 2020. In the three months ended September 30, 2021, general and administrative expenses consisted mainly of consulting fees $154,952, professional fees $51,463, salary and wages $36,217, advertising $148,231, and postage $23,023. In the nine months ended September 30, 2021, general and administrative expenses consisted mainly of professional fees $593,179, consulting fees $534,702, salary and wages $109,236, postage $36,956, advertising $400,954, and transfer agent and filing fees of $19,837.
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Impairment of Assets
In the three and nine months ended September 30, 2020, we recorded impairment of assets of $1,579,883. This is a result of our purchase of Ultimate Brain Nutrients, LLC being a related party transaction and the new division recording no revenue as of September 30, 2020.
Other Income (Expense)
Other income (expense) was $(287,155) and (1,296,736) for the three and nine months ended September 30, 2021, compared to $1,944,160 and $1,024,719 for the three and nine months ended September 30, 2020, a decrease of $2,231,315, or 115%, for the three month period and $2,321,455, or 227%, for the nine month period. In the three months ended September 30, 2021, other income (expense) consisted of interest expense, net of interest income of $(19,242), change in fair value on derivative of $(307,746), and SBA loan forgiveness of $39,833. Change in fair value of derivative was related to the conversion of convertible debts into common stock shares. In the nine months ended September 30, 2021, other income (expense) consisted of interest expense, net of interest income of $(48,598), change in fair value on derivative of $(1,287,971), and SBA loan forgiveness of $39,833.
Net Income (Loss)
Net income (loss) was $(672,470) and $(2,523,857), or $(0.00) and $(0.01) per share, for the three and nine months ended September 30, 2021.
Our net income (loss) various from period to period primarily because of the change in fair value on derivative.
Liquidity and Capital Resources
Introduction
During the nine months ended September 30, 2021, we were unable to generate sufficient revenues and had negative operating cash flows. Our cash on hand as of December 31, 2020 was $59,201, and as of September 30, 2021 was $115,138. The increase in cash on hand from December 31, 2020 to September 30, 2021 was primarily from our net cash used in operating activities of $(942,175), offset by net cash used in investing activities of $(84,888) and net cash provided by financing activities of $1,083,000. Our monthly cash flow burn rate for 2021 (not including inventory purchases) was approximately $92,000. We have strong short and medium term cash needs. We anticipate that these needs will be satisfied through increased revenues and the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
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Our cash, current assets, total assets, current liabilities, and total liabilities as of September 30, 2021 and December 31, 2020, respectively, are as follows:
| September 30, | December 31, | Increase/ | ||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Cash | $ | 115,138 | $ | 59,201 | $ | 55,937 | ||||||
| Total Current Assets | 2,731,893 | 2,490,158 | 241,735 | |||||||||
| Total Assets | 3,438,227 | 3,115,430 | 322,797 | |||||||||
| Total Current and Total Liabilities | 2,448,423 | 261,604 | 2,186,819 | |||||||||
Our total current assets and total assets increased during the nine months ended September 30, 2021 primarily as a result of our increase in cash of $55,937 and decrease in inventory of $115,487. Our total current and total liabilities increased by $2,186,819 during the nine months ended September 30, 2021 primarily because of an increase in convertible debt of $858,000, derivative liabilities of $1,287,971, and accrued liabilities of $44,913. Our accumulated deficit increased during the nine months ended September 30, 2021 by $2,523,857 to $15,480,355.
In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
Cash Requirements
Our cash on hand as of September 30, 2021 was $115,138. Based on our current level of revenues and monthly burn rate of approximately $92,000 per month, we will need to continue to fund operations by raising capital from the sale of our stock and debt financings.
Sources and Uses of Cash
Operating Activities
We had net cash used in operating activities of $(942,175) for the nine months ended September 30, 2021, compared to $(2,888,854) for the nine months ended September 30, 2020. We use our cash for normal business operations. Our net cash used in operating activities for the nine months ended September 30, 2021 consisted of our net loss of $2,523,857, plus a decrease in inventory of $115,487, offset by a change in fair value on derivative liability of $1,287,971 and warrants issued for services of $434,836.
Investing Activities
We had $(84,888) in cash flows provided by investing activities for the nine months ended September 30, 2021, compared to $(64,240) for the nine months ended September 30, 2020. In both cases, these were related to our trademarks.
Financing Activities
Our net cash provided by financing activities for the nine months ended September 30, 2021 was $1,083,000, compared to $3,199,131 for the nine months ended September 30, 2020. Our net cash provided by financing activities consisted of proceeds from the issuance of common stock of $225,000 and proceeds from the issuance of convertible debt of $858,000.
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| 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 |
(a) Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2021, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in our Annual Report on Internal Control Over Financial Reporting filed in our Annual Report on Form 10-K.
Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all errors and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b) Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report, the three month period ended September 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
| ITEM 1 | Legal Proceedings |
We are not a party to or otherwise involved in any legal proceedings.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
| ITEM 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 |
From May through September 2021, we issued convertible promissory notes with an aggregate face value of $625,000, plus warrants to acquire an aggregate of 6,250,000 shares of our common stock, to a total of twenty (20) investors. The notes are convertible into our common stock at the election of the holder at $0.05 per share. The warrants are exercisable for a period of five (5) years at $0.075 per share. In connection with the sale of the notes and warrants to U.S. investors, HP Securities, Inc. or its affiliates was paid ten percent (10%) of the offering proceeds from investors introduced by them in cash, and issued one million (1,000,000) shares of our common stock and warrants to acquire 100,000 shares of our common stock at an exercise price of $0.05 per share; Carter Terry & Co was issued 177,778 shares of our common stock.
The note, warrants, and common stock were offered and sold in reliance on an exemption from registration pursuant to Rule 506(b) of Regulation D promulgated under Section 4(a)(2) of the Securities Act of 1933, as amended. The investors have acquired the securities for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof. The securities were not issued through any general solicitation or advertisement.
| ITEM 3 | Defaults Upon Senior Securities |
There have been no events which are required to be reported under this Item.
| ITEM 4 | Mine Safety Disclosures |
Not applicable.
| ITEM 5 | Other Information |
None.
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| ITEM 6 | Exhibits |
(a) Exhibits
| Exhibit No. | Name and/or Identification of Exhibit | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
| 32.1 | Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 100.INS | XBRL Instance Document | |
| 100.SCH | XBRL Schema Document | |
| 100.CAL | XBRL Calculation Linkbase Document | |
| 100.DEF | XBRL Definition Linkbase Document | |
| 100.LAB | XBRL Labels Linkbase Document | |
| 100.PRE | XBRL Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Healthy Extracts, Inc. | |||
| Dated: November 15, 2021 | /s/ Kevin Pitts | ||
| By: | Kevin “Duke” Pitts | ||
| Its: | President | ||
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