Healthy Extracts Inc 10-K for FY2021
Healthy Extracts Inc. (HYEX)
About this 10-K
Healthy Extracts Inc filed this 10-K on April 1, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.68M
- up 29.0% from $1.3M a year earlier
- Net loss
- $1.99M
- compared with a net loss of $2.58M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
OR
| 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 (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
| None | N/A | None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o
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.
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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | o | Accelerated filer | o |
| o | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S. C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o
The
aggregate market value of the voting and non-voting common equity held by non-affiliates as March 22, 2022 was $
As of March 22, 2022, there were shares of common stock, par value $0.001, issued and outstanding.
Documents Incorporated by Reference
None.
HEALTHY EXTRACTS INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
PART I
Cautionary Statement Regarding Forward Looking Statements
This Annual 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 possible or assumed future results of operations of the Company set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” 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. The Company’s 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.
ITEM 1 – BUSINESS
Corporate History
We were incorporated on December 19, 2014 in the State of Nevada.
On February 4, 2019, we acquired BergaMet NA, LLC, a Delaware limited liability company (“BergaMet”). BergaMet is a wholly-owned subsidiary through which we conduct our nutraceuticals business.
On April 3, 2020, we acquired Ultimate Brain Nutrients, LLC, a Delaware limited liability company (“UBN”). UBN is a wholly-owned subsidiary through which we conduct our plant-based neuro-products business.
Overview
BergaMet NA, LLC
On February 4, 2019, we issued and exchanged shares of our common stock for all of the outstanding equity securities of BergaMet. BergaMet is an established company that was already generating revenues when we acquired it.
Ultimate Brain Nutrients, LLC
On April 3, 2020, we issued and exchanged shares of our common stock for all of the outstanding equity securities of UBN. UBN is a science-based company that develops unique, plant-based health technology neuro-products that provide natural brain solutions. UBN has numerous proprietary products, with four unique patent-pending formulations and two patents issued.
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The Market
Bergamot
BergaMet, LLC holds the rights to distribute BergaMet products in the United States, Canada, Mexico, and South Korea pursuant to a Supply Agreement with H&AD S.r.L., an Italian limited company. The Supply Agreement was entered into on January 1, 2019, has a term of five (5) years, and is renewable for up to four (4) additional and successive three (3) year terms.
Bergamot, or citrus bergamia, is a rare citrus fruit native to the Calabrian region of Southern Italy. Due to sensitivity to the weather and soil conditions, this region accounts for 80 percent of the worldwide production of bergamot. This superfruit has been used for decades in the Calabrian regions for its beneficial effects in promoting overall health - particularly, in support of cholesterol, cardiovascular, and metabolic health1. Citrus bergamot contains five unique antioxidant polyphenols in unusually concentrated amounts, which help protect your body’s trillions of cells from free radical damage. The juice and albedo of bergamot has a unique profile of flavanoid and glycosides, such as neoeriocitrin, neohesperidin, naringin, rutin, neodesmin, rhoifolin, and poncirin. Naringin has been shown to be beneficial in animal models of atherosclerosis, while neoeriocitrin and rutin have been found to exhibit a strong capacity to prevent LDL from oxidation. Importantly, bergamot juice is rich in brutieridine and melitidine with an ability to inhibit HMG-CoA reductase, which inhibits the liver’s ability to produce LDL, resulting in reduced cholesterol levels in liver cells.
BergaMet sells its bergamot products in capsule form on its website and on distribution sites such as Amazon.
Bergamot Products
Our bergamot products are sold in capsule form under the following product labels:
| ● | BergaMet Pro+ |
| ● | BergaMet Mega+O |
| ● | BergaMet HERHEART |
| ● | BergaMet Cholesterol Command |
| ● | BergaMet SPORTSHEART |
Ultimate Brain Nutrients
Our UBN subsidiary is a science-based company that develops unique, plant-based health technology neuro-products that improve brain health, including memory, cognition, focus and neuro-energy.
UBN’s KETONOMICS® proprietary formulations — targeting brain activity, focus, headache and cognitive behavior — provide multiple intellectual property license opportunities for monetizing the company’s portfolio. Sales and licensing opportunities include multiple beverage formats, individual products, proprietary mixtures and other food platforms.
| 1 | These statements have not been evaluated by the Food and Drug Administration. These products are not intended to diagnose, treat, cure, or prevent any disease. |
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UBN has six unique formulation patents – two issued and four pending – targeting brain activity, focus, headache and cognitive behavior.
UBN’s (http://UBNutrients.com) mission is to naturally ‘Create Better Lifestyles with Superior Health Technology through our science-based products.” UBN’s all-natural, sugar-free and caffeine-free proprietary formulations are the result of 20 years of scientific research and are positioned to provide consumer neuro-products that are natural brain solutions. UBN’s KETONOMICS® supplementation has also been studied in sports physiology, with specific regard to its potential benefits for competitive performance and endurance
UBN Products
Over 50 million Americans consume unhealthy energy shots and drinks each day, while the neuro/energy market generates over $16 billion per year in revenue2. Within this growing market, UBN is advancing its position to meet rising consumer demand for healthy, science-based options with clinical studies. The company’s KETONOMICS® proprietary formulations have been proven to naturally elevate brain energy and function, including memory, cognition and focus.
UBN’s KETONOMICS® supplementation has also been studied in sports physiology, with specific regard to its potential benefits for competitive performance and endurance.
We are currently in the research and development phase on a UBN product called Ultimate Brain Nutrients with its proprietary Fuel for Thought (F4T) formulations. BergaMet has been covering the costs of the product creation and development with our product manufactures, due to UBN’s lack of positive cash flow. As we create and test new flavors of F4T, and once we have product production in place, UBN will begin to sell the product in April 2022. We have been accounting for these costs as inter-company loans.
Patents and Intellectual Property Rights
Our subsidiary, UBN, has four unique patent-pending formulations and two patents issued. We have not otherwise filed for any intellectual property protection. However, we rely on intellectual property law that may include a combination of copyright, trade secret and confidentiality agreements to protect our intellectual property. Our employees and independent contractors will be required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property, and assigning to us any ownership that they may claim in those works. Despite our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.
| Status | Serial No. | Date Filed | Title |
| Pending | 15/743,448 | January 10, 2018 | PROHYLAXIS AND MITIGATION OF MIGRAINE HEADACHES USING MEDIUM CHAIN TRIGLYCERIDES, KETONE ESTER, AND OTHER KETONIC SOURCES |
| Pending/In Appeal | 16/501,502 | April 22, 2019 | PROHYLAXIS AND MITIGATION OF MIGRAINE HEADACHES USING MEDIUM CHAIN TRIGLYCERIDES, KETONE ESTER, AND OTHER KETONIC SOURCES |
| Pending | 16/350,663 | December 19, 2018 | COMPOSITIONS OF MEDIUM CHAIN TRIGLYCERIDES AND PLANT-BASED NUTRIENTS FOR BRAIN HEALTH |
| Issued | 16/350,664 | December 19, 2018 | COMPOSITIONS WITH KETOGENIC AGENTS, CANNABINOIDS, PLANT-DERIVED SUBSTANCES AND MICRONUTRIENTS |
| Issued | 16/501,249 (Patent No. 10,500,182) |
December 17, 2018 | COMPOSITIONS OF KETOGENIC SOURCES, MICRONUTRIENTS AND HYTOCHEMICALS FOR PROPHYLAXIS AND MITIGATION OF MIGRAINE HEADACHE |
| Pending | 17/011,650 | September 3, 2020 | PROPHYLAXIS AND MIIGATION OF MIGRAINE HEADACHES USING MEDIUM CHAIN TRIGLYCERIDES, KETONE ESTERS, AND OTHER KETOGENIC SOURCES |
| 2 | https://financial-news-now.com/nootropic-beverages-set-to-take-over-the-16-billion-dollar-energy-drink-market/ |
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From time to time, we may encounter disputes over rights and obligations concerning intellectual property. While we believe that our product and service offerings do not infringe the intellectual property rights of any third party, we cannot assure you that we will prevail in any intellectual property dispute. If we do not prevail in such disputes, we may lose some or all of our intellectual property protection, be enjoined from further sales of the applications determined to infringe the rights of others, and/or be forced to pay substantial royalties to a third party.
Governmental Controls, Approval and Licensing Requirements
Federal laws related to the advertising, distribution and sale of health supplements.
We expect that the formulation, manufacturing, packaging, labeling, advertising, distribution and sale (hereafter, “sale” or “sold” may be used to signify all of these activities) of our vitamin and nutritional supplement products will be subject to regulation by one or more federal agencies, primarily the Food and Drug Administration (“FDA”) and the Federal Trade Commission (“FTC”), and to a lesser extent the Consumer Product Safety Commission (“CPSC”), the United States Department of Agriculture, and the Environmental Protection Agency. Our activities are also regulated by various governmental agencies for the states and localities in which our products are sold, as well as by governmental agencies in certain countries outside the United States in which our products are sold. Among other matters, regulation by the FDA and the FTC is concerned with product safety and claims made with respect to a product’s ability to provide health-related benefits. Specifically, the FDA, under the Federal Food, Drug, and Cosmetic Act (“FDCA”), regulates the formulation, manufacturing, packaging, labeling, distribution, and sale of food, including dietary supplements and over-the-counter (“OTC”) drugs. The FTC regulates the advertising of these products. The National Advertising Division (“NAD”) of the Council of Better Business Bureaus oversees an industry-sponsored, self-regulatory system that permits competitors to resolve disputes over advertising claims. The NAD has no enforcement authority of its own, but may refer matters that appear to violate the FTC Act or the FDCA to the FTC or the FDA for further action, as appropriate.
Most of the nutritional supplement products that we plan to sell are classified as dietary supplements. The FDA’s revision of nutrition labeling requirements also affects the nutrition labeling of certain dietary supplements. Our affected manufacturers may have to revise labels on some of their dietary supplements in the next two years. Moreover, these manufacturers may need to reformulate their products to maintain eligibility for certain marketing claims.
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The Dietary Supplement Health and Education Act (“DSHEA”) was enacted in 1994, amending the FDCA. Among other things, DSHEA prevents the FDA from regulating dietary ingredients in dietary supplements as “food additives” and allows the use of statements of nutritional support on product labels and in labeling. DSHEA establishes a statutory class of “dietary supplements,” which includes vitamins, minerals, herbs, amino acids and other dietary ingredients for human use to supplement the diet. Dietary ingredients marketed in the United States before October 15, 1994 may be marketed without the submission of a “new dietary ingredient” (“NDI”) premarket notification to the FDA. Dietary ingredients not marketed in the United States before October 15, 1994 may require the submission, at least 75 days before marketing, of an NDI notification containing information establishing that the ingredient is reasonably expected to be safe for its intended use. The FDA has issued final regulations under DSHEA.
As required by Section 113(b) of the Food Safety Modernization Act, the FDA published in July 2011 a draft guidance document clarifying when the FDA believes a dietary ingredient is an NDI, when a manufacturer or distributor must submit an NDI premarket notification to the FDA, the evidence necessary to document the safety of an NDI and the methods for establishing the identity of an NDI. Industry strongly objected to several aspects of the draft guidance. In 2016, the FDA issued revised draft guidance on what constitutes an NDI and NDI notification requirements. Regardless of whether the FDA finalizes this draft guidance, the FDA has recently acted more aggressively to remove ingredients from the market that the FDA views as unlawful dietary ingredients. This trend, if it continues, may limit the dietary supplement market. Several bills to amend DSHEA in ways that would make this law less favorable to consumers and industry have been proposed in Congress.
The FDA issued a Final Rule on GMPs for dietary supplements on June 22, 2007. The GMPs cover manufacturers and holders of finished dietary supplement products, including dietary supplement products manufactured outside the United States that are imported for sale into the United States. Among other things, the new GMPs: (a) require identity testing on all incoming dietary ingredients, (b) call for a “scientifically valid system” for ensuring finished products meet all specifications, (c) include requirements related to process controls, including statistical sampling of finished batches for testing and requirements for written procedures and (d) require extensive recordkeeping. We have reviewed the GMPs and have taken steps to ensure compliance. While we believe we are in compliance, there can be no assurance that our operations or those of our suppliers will be in compliance in all respects at all times. Additionally, there is a potential risk of increased audits as the FDA and other regulators seek to ensure compliance with the GMPs.
On December 22, 2006, Congress passed the Dietary Supplement and Nonprescription Drug Consumer Protection Act, which went into effect on December 22, 2007. The law requires, among other things, that companies that manufacture or distribute nonprescription drugs or dietary supplements report serious adverse events allegedly associated with their products to the FDA and institute recordkeeping requirements for all adverse events (serious and non-serious). There is a risk that consumers, the press and government regulators could misinterpret reported serious adverse events as evidence of causation by the ingredient or product complained of, which could lead to additional regulations, banned ingredients or products, increased insurance costs and a potential increase in product liability litigation, among other things.
All states regulate foods and drugs under laws that generally parallel federal statutes. We are also subject to state consumer health and safety regulations, such as the California Safe Drinking Water and Toxic Enforcement Act of 1986 (“Proposition 65”). Violation of Proposition 65 may result in substantial monetary penalties and compliance with Proposition 65 is a major focus. Contemplated changes in the Proposition 65 labeling requirements could potentially lead to substantial costs. Current legislation in Massachusetts regarding restrictions on weight loss and sports nutrition products could also impact the marketing of dietary supplements generally. Further, state attorneys general have pressured industry to adopt DNA testing for herbal-based products to assure plant identity, and have taken other actions relating to dietary ingredient status. It is uncertain whether these efforts will have a material impact on the dietary supplement market.
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Competition
Nutritional Supplements
We compete with other manufacturers, distributors and marketers of vitamins, minerals, herbs, and other nutritional supplements both within and outside the U.S. The nutritional supplement industry is highly fragmented and competition for the sale of nutritional supplements comes from many sources. These products are sold primarily through retailers (drug store chains, supermarkets, and mass market discount retailers), health and natural food stores, and direct sales channels (network marketing and internet sales).
The nutritional supplement industry is highly competitive and we expect the level of competition to remain high over the near term. We do not believe it is possible to accurately estimate the total number or size of our competitors. The nutritional supplement industry has undergone consolidation in the recent past and we expect that trend may continue in the near term.
Employees
As of the date hereof, we do not have any employees other than our officers and directors. BergaMet has 2 employees, and UBN does not have any employees but uses outside contract help on an as-needed basis. Our officers and directors will continue to work for us for the foreseeable future. We anticipate hiring appropriate personnel on an as-needed basis, and utilizing the services of independent contractors as needed.
ITEM 1A. – RISK FACTORS.
As a smaller reporting company, we are not required to provide a statement of risk factors. Nonetheless, we are voluntarily providing risk factors herein.
Any investment in our common stock involves a high degree of risk. You should consider carefully the following information, together with the other information contained in this Annual Report, before you decide to buy our common stock. If one or more of the following events actually occurs, our business will suffer, and as a result our financial condition or results of operations will be adversely affected. In this case, the market price, if any, of our common stock could decline, and you could lose all or part of your investment in our common stock.
We are providing services to an industry that is heavily regulated and, in some respects, illegal under federal law and the laws of most states. We face risks in developing our product candidates and services and eventually bringing them to market. We also face risks that our business model may become obsolete. The following risks are material risks that we face. If any of these risks occur, our business, our ability to achieve revenues, our operating results and our financial condition could be seriously harmed.
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Risk Factors Related to the Business of the Company
Our operations rely on professionals all over the United States, which was impacted by the global pandemic, causing our resources to be affected. Our business operations have been and may continue to be materially and adversely affected by the coronavirus disease COVID-19.
Throughout 2020, 2021, and into 2022, the COVID-19 outbreak has caused disruptions in our operations, which have resulted in delays on existing projects. A prolonged disruption or any further unforeseen delay in our operations could continue to result in increased costs and reduced revenue.
We cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of its impact. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for sales, the slowdown in regional and national economic growth, weakened liquidity and financial condition of our customers and vendors or other factors that we cannot foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations.
The ongoing COVID-19 pandemic and responses thereto have adversely affected and we expect will continue to adversely affect our supply chain, workforce, approval process, and business operations.
The ongoing COVID-19 pandemic, and related government and social responses, have resulted in widespread impacts on our industry and the economy in general, including closures of businesses not deemed “essential,” limitations on the availability of elective medical procedures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, as well as record declines in stock prices, among other effects. We continue to monitor our operations and government mandates and may elect or be required to limit our access to customers and limit customer use of our products as they are required to prioritize resources to address the public healthcare needs arising from the COVID-19 pandemic. Such disruptions to our activities and operations will negatively impact our business and some of our operating results and may negatively impact our financial condition.
The duration of COVID-19’s impact on our business may be difficult to assess or predict. The widespread pandemic has resulted, and may continue to result for an extended period, in significant disruption of global financial markets, reducing our ability to access capital, which would negatively affect our liquidity. Further, quarantines or government reaction or shutdowns could disrupt our supply chain. Travel and import restrictions may also disrupt our ability to manufacture or distribute our products. Any import or export or other cargo restrictions related to our products or the raw materials used to manufacture our products would restrict our ability to manufacture and ship products and harm our business, financial condition and results of operations. Our key personnel and other employees could also be affected by COVID-19, potentially reducing their availability, and an outbreak such as COVID-19 or the procedures we take to mitigate its effect on our workforce could reduce the efficiency of our operations or prove insufficient. We may delay or reduce certain spending related to certain projects until the travel and logistical impacts related to COVID-19 are lifted, which will delay the completion of such projects.
The global outbreak of COVID-19 continues to rapidly evolve. The ultimate impact of the COVID-19 outbreak is highly uncertain and subject to change, and its duration and extent depends on factors such as the evolution of variants of the virus, and the development and widespread distribution of vaccines. We do not yet know the full extent of potential delays or impacts on our business or the global economy as a whole. However, these effects have harmed our business, financial condition, and results of operations in the near term and could have a continuing material impact on our operations, sales, and ability to continue operations.
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We have a limited operating history, we are not profitable, and we do not expect to be profitable in the near future. There is no assurance our future operations will result in revenues sufficient to obtain or sustain profitability. If we cannot generate sufficient revenues to operate profitably, we may suspend or cease operations.
We were incorporated on December 19, 2014, but we have changed our business focus with the acquisition of BergaMet and UBN and we have not fully developed our current business operations and have not yet experienced significant revenue. Our ability to continue as a going concern is dependent upon our ability to obtain adequate financing and to reach profitable levels of operations. In that regard we have no proven history of performance, earnings or success.
Our net loss from inception to December 31, 2021, was ($14,943,620). Based on our cash position of $222,098 as of December 31, 2021, we will need to raise additional capital from the sale of our stock or debt. Such funding may not be available, or may be available only on terms which are not beneficial and/or acceptable to us.
Our ability to maintain profitability and positive cash flow is dependent upon our ability to attract new customers who will buy our nutritional supplement products and services, and our ability to generate sufficient revenue through the sale of those products and services.
Based upon current plans, we expect to incur operating losses in future periods because we will be incurring expenses that may exceed revenues. We cannot guarantee that we will be successful in generating sufficient revenues in the future. In the event we cannot generate sufficient revenues and/or secure additional financing, we may be forced to cease operations.
Our competitors may develop nutritional supplement products that are less expensive, safer or otherwise more appealing, which may diminish or eliminate the commercial success of any potential product that we may commercialize.
If our competitors market nutritional supplement products that are less expensive, safer or otherwise more appealing than our current and potential products, or that reach the market before our current and potential products, we may not achieve commercial success. The market may choose to continue utilizing existing products for any number of reasons, including familiarity with or pricing of these existing products. The failure of any of our products to compete with products marketed by our competitors would impair our ability to generate revenue, which would have a material adverse effect on our future business, financial condition, results of operations, and cash flows. Our competitors may:
| ● | develop and market products that are less expensive, safer, or otherwise more appealing than our products; |
| ● | commercialize competing products before we or our partners can launch our products; and |
| ● | initiate or withstand substantial price competition more successfully than we can. |
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Our auditors have substantial doubt about our ability to continue as a going concern.
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our auditor’s report reflects that our ability to continue as a going concern is dependent upon our ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. If we are unable to continue as a going concern, our stockholders will lose their investment. We will be required to seek additional capital to fund future growth and expansion. No assurance can be given that such financing will be available or, if available, that it will be on commercially favorable terms. Moreover, favorable financing may be dilutive to our stockholders.
Our controlling stockholders have significant influence over the Company.
Our officers and directors own stock representing approximately 2% of shareholder votes; however, if you add in our controlling shareholder, Jay Decker, they hold approximately 53% of shareholder votes. As a result they will possess a significant influence over our affairs and may have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the company, which in turn could materially and adversely affect the market price of our common stock. Our minority shareholders will be unable to affect the outcome of stockholder voting as long as our officers and directors retain a controlling interest.
Our current officers and directors may set salaries and perquisites in the future which we are unable to support with our current assets.
Although our officers and directors have written employment or services agreements, our officers and directors may decide to award themselves higher salaries and other benefits but all changes to these agreements will need to be approved by the Board of Directors. We do not have significant revenues, and there is no guarantee that we will have significant revenue in the near future. If we do not increase our revenues, we will be unable to support any higher salaries or other benefits for management, which may cause us to cease operations.
We may engage in strategic transactions that fail to enhance stockholder value.
From time to time, we may consider possible strategic transactions, including the potential acquisitions or licensing of products or technologies or acquisition of companies, and other alternatives with the goal of maximizing stockholder value. We may never complete a strategic transaction, and in the event that we do complete a strategic transaction, implementation of such transactions may impair stockholder value or otherwise adversely affect our business. Any such transaction may require us to incur non-recurring or other charges and may pose significant integration challenges and/or management and business disruptions, any of which could harm our results of operation and business prospects.
We may not be able to gain or sustain market acceptance for our products and services.
Failure to establish a brand and presence in the marketplace on a timely basis could adversely affect our financial condition and results of operations. Moreover, there can be no assurance that we will successfully complete our development and introduction of new products and services or that any such products and services will achieve acceptance in the marketplace. We may also fail to develop and deploy new products and services on a timely basis.
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We have a significant amount of unsold inventory, which could affect our assets and our profitability.
As of December 31, 2021, we had over $1.9 million in inventory, after writing off over $400,000 in inventory for the year. The amount of our inventory exceeds our revenues for the year ended December 31, 2021. Our inventory could spoil or be damaged, or we could never sell it, affecting the assets on our balance sheet as well as our future profitability.
We have incurred costs in completing the transactions with BergaMet and UBN, and failure to successfully integrate those businesses into each other and with our own will have an adverse impact on our financial position and prevent us from obtaining the benefits that the transaction would have given us.
We have recently completed our acquisitions of BergaMet and UBN. Our executives have spent considerable time and incurred legal and accounting costs in the acquisitions. If we are unable to fully integrate those businesses into our business or maintain their existing customer base, we will not be able to acquire the technologies, partnerships and potential customers that the transaction was intended given us. The increase in acquisition and integration costs without the corresponding benefit will have an adverse impact on our financial statements and foreclose potential revenue-producing opportunities in the near future.
We are subject to and affected by extensive governmental regulations.
We are subject to and affected by extensive governmental regulations, including, among other things, regulations pertaining to (i) the formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products, and (ii) product claims and advertising (including direct claims and advertising by us, as well as claims and advertising by distributors for which we may be held responsible)
We could be found not to be in compliance with existing regulations as a result, among other things, of the ambiguous nature of certain of the regulations, the considerable interpretive and enforcement discretion given to regulators or misconduct by distributors, who are generally independent contractors over whom we have limited control. Enforcement actions that could be undertaken by state and federal regulators include product seizures, injunctions against further product distribution, requests for product recall, and possible criminal prosecution. Any assertion or determination that we or our distributors are not in compliance with existing regulations could have a material adverse effect on our revenues.
In addition, the adoption of new regulations, or changes in the interpretation of existing regulations, could have a material adverse effect on us. For example, in September 1997 the United States Food and Drug Administration (the “FDA”) issued regulations governing the labeling and marketing of dietary supplement products.
In addition, claims made with respect to weight management, dietary supplement, personal care or other products of ours may change the regulatory status of the products. For example, it is possible that the FDA could take the position that claims made in connection with certain of our products place those products within the scope of an FDA “over-the counter” (OTC) drug monograph. OTC monographs prescribe permissible ingredients and appropriate labeling language, and require the marketer or supplier of the products to register and file annual drug listing information with the FDA.
The U.S. Federal Trade Commission (“FTC”), which exercises jurisdiction over the advertising of all our products, has in the past instituted enforcement actions against dietary supplement companies for false and misleading advertising of certain products. These enforcement actions have resulted in consent decrees and monetary payments by the companies involved. In addition, the FTC has increased its scrutiny of the use of testimonials.
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Economic uncertainties or downturns could materially adversely affect our business.
Current or future economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy including conditions resulting from changes in gross domestic product growth, the continued sovereign debt crisis, financial and credit market fluctuations, political deadlock, natural catastrophes, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments.
General worldwide economic conditions have experienced a significant downturn and continue to remain unstable. These conditions make it extremely difficult for us to forecast and plan future business activities accurately, and they could cause our potential customers to reevaluate their decisions to purchase our product, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times our potential customers may tighten their advertising budgets which may impact their spend on local inventory based digital marketing products. To the extent purchases of our products are perceived by potential customers to be discretionary, sales of our products may never occur. Also, customers may choose to seek other methods to achieve the benefits our products provide.
We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or industries in which we operate do not improve, or worsen from present levels, our business, results of operations, financial condition and cash flows could be adversely affected.
We are dependent on the services of key personnel and failure to attract qualified management could limit our growth and negatively impact our results of operations.
We are highly dependent on the principal members of our management team, including our President, Kevin “Duke” Pitts, and our Chief Financial Officer, William Bossung. At this time, we do not know of the availability of such experienced management personnel or how much it may cost to attract and retain such personnel. The loss of the services of any member of senior management or the inability to hire experienced technical or programing personnel could have a material adverse effect on our financial condition and results of operations.
Other companies may claim that we have infringed upon their intellectual property or proprietary rights.
We do not believe that our products and services violate third-party intellectual property rights; however, we have not had an independent party conduct a study of possible patent infringements. Nevertheless, we cannot guarantee that claims relating to violation of such rights will not be asserted by third parties. If any of our products or services are found to violate third-party intellectual property rights, we may be required to expend significant funds to re-engineer or cause to be re-engineered one or more of those products or services to avoid infringement, or seek to obtain licenses from third parties to continue offering our products and services without substantial re-engineering, and such efforts may not be successful.
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In addition, future patents may be issued to third parties upon which our products and services may infringe. We may incur substantial costs in defending against claims under any such patents. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which effectively could block our ability to further develop or commercialize some or all of our products or services in the United States or abroad, and could result in the award of substantial damages against us. In the event of a claim of infringement, we may be required to obtain one or more licenses from third parties. There can be no assurance that we will be able to obtain such licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain any such license could be costly and have a material adverse effect on our business.
Our success depends on our ability to protect our proprietary technology.
Our success depends, to a significant degree, upon the protection of our proprietary technology, and that of any licensors. Legal fees and other expenses necessary to obtain and maintain appropriate patent protection could be material. Currently, no material aspect of our business is protected by registered patents, copyrights or trademarks. Insufficient funding may inhibit our ability to obtain and maintain such protection. Additionally, if we must resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive, and could involve a high degree of risk to our proprietary rights if we are unsuccessful in, or cannot afford to pursue, such proceedings.
We may also rely on trademarks, trade secrets and contract law to protect certain of our proprietary technology. There can be no assurance that any trademarks will be approved, that such contract will not be breached, or that if breached, we will have adequate remedies. Furthermore, there can be no assurance that any of our trade secrets will not become known or independently discovered by third parties.
Our future growth may be inhibited by the failure to implement new technologies.
Our future growth is partially tied to our ability to improve our knowledge and implementation of mobile, AI, machine learning, and other advanced technologies in a retail environment, which is a rapidly changing market. The inability to successfully implement commercially technologies in response to market conditions in a manner that is responsive to our customers’ requirements could have a material adverse effect on our business.
Risks Related To Our Common Stock
The market price of our common stock may be volatile and may be affected by market conditions beyond our control.
The market price of our common stock is subject to significant fluctuations in response to, among other factors:
| ● | variations in our operating results and market conditions specific to technology companies; |
| ● | changes in financial estimates or recommendations by securities analysts; |
| ● | announcements of innovations or new products or services by us or our competitors; |
| ● | the emergence of new competitors; |
| ● | operating and market price performance of other companies that investors deem comparable; |
| ● | changes in our board or management; |
| ● | sales or purchases of our common stock by insiders; |
| ● | commencement of, or involvement in, litigation; |
| ● | changes in governmental regulations; and |
| ● | general economic conditions and slow or negative growth of related markets. |
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In addition, if the market for stocks in our industry or the stock market in general, experiences a loss of investor confidence, the market price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause the price of our common stock to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to the board of directors and management.
If we are unable to pay the costs associated with being a public, reporting company, we may be forced to discontinue operations.
Our common stock is quoted on the OTCQB tier of the marketplace maintained by OTC Markets Group, Inc. We expect to have significant costs associated with being a public, reporting company, which may raise substantial doubt about our ability to sell our equity securities and/or continue as a going concern. Our ability to continue as a going concern will depend on positive cash flow, if any, from future operations and on our ability to raise additional funds through equity or debt financing. If we are unable to achieve the necessary product sales or raise or obtain needed funding to cover the costs of operating as a public, reporting company, we may be forced to discontinue operations.
Our common stock is listed for quotation on the OTCQB tier of the marketplace maintained by OTC Markets Group, Inc., which may make it more difficult for investors to resell their shares due to suitability requirements.
Our common stock is currently quoted on the OTCQB tier of the marketplace maintained by OTC Markets Group, Inc. Broker-dealers often decline to trade in over-the-counter stocks given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.
Our principal stockholders have the ability to exert significant control in matters requiring stockholder approval and could delay, deter, or prevent a change in control of our company.
Jay Decker has beneficial ownership of our common stock with over 51% of the shareholder votes. As a result, he has the ability to influence matters affecting our shareholders, including the election of our directors, the acquisition or disposition of our assets, and the future issuance of our shares. Because he controls such shares, investors may find it difficult to replace our management if they disagree with the way our business is being operated. Because the influence by these shareholders could result in management making decisions that are in the best interest of those shareholders and not in the best interest of the investors, you may lose some or all of the value of your investment in our common stock. Investors who purchase our common stock should be willing to entrust all aspects of operational control to our current management team.
We do not intend to pay dividends in the foreseeable future.
We do not intend to pay any dividends in the foreseeable future. We do not plan on making any cash distributions in the manner of a dividend or otherwise. Our Board presently intends to follow a policy of retaining earnings, if any.
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Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline.
Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our common stock.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
As a result of disclosure of information in this Annual Report and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and results of operations.
The market for penny stocks has suffered in recent years from patterns of fraud and abuse
Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include:
| ● | control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
| ● | manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
| ● | boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced salespersons; |
| ● | excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and, |
| ● | the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequential investor losses. |
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Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.
Due to the lack of a developed trading market for our securities, you may have difficulty selling your shares.
Our stock currently trades on the OTCQB tier maintained by OTC Markets Group, Inc. There currently is a very limited public trading market for our common stock. The lack of a developed public trading market for our shares may have a negative effect on your ability to sell your shares in the future and it also may have a negative effect on the price, if any, for which you may be able to sell your shares. As a result an investment in the shares may be illiquid in nature and investors could lose some or all of their investment.
Our status as an “emerging growth company” under the JOBS Act OF 2012 may make it more difficult to raise capital when we need to do it.
Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
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Our common stock is governed under The Securities Enforcement and Penny Stock Reform Act of 1990.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years, (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average annual revenue of at least $6,000,000, if such issuer has been in continuous operation for less than three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
The forward looking statements contained in this Annual Report may prove incorrect.
This Annual Report contains certain forward-looking statements, including among others: (i) anticipated trends in our financial condition and results of operations; (ii) our business strategy for expanding distribution; and (iii) our ability to distinguish ourselves from our current and future competitors. These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. In addition to the other risks described elsewhere in this “Risk Factors” discussion, important factors to consider in evaluating such forward-looking statements include: (i) changes to external competitive market factors or in our internal budgeting process which might impact trends in our results of operations; (ii) anticipated working capital or other cash requirements; (iii) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the biotechnology industry; and (iv) various competitive factors that may prevent us from competing successfully in the marketplace. In light of these risks and uncertainties, many of which are described in greater detail elsewhere in this “Risk Factors” discussion, there can be no assurance that the events predicted in forward-looking statements contained in this Annual Report will, in fact, transpire.
General Risk Factors
We will incur ongoing costs and expenses for SEC reporting and compliance, without increased revenue we may not be able to remain in compliance, making it difficult for investors to sell their shares, if at all.
Going forward, we will have ongoing SEC compliance and reporting obligations. Such ongoing obligations will require us to expend additional amounts on compliance, legal and auditing costs. In order for us to remain in compliance, we will require increased revenues to cover the cost of these filings, which could comprise a substantial portion of our available cash resources. If we are unable to generate sufficient revenues to remain in compliance, it may be difficult for you to resell any shares you may purchase, if at all.
We have the right to issue additional common stock without consent of stockholders. This would have the effect of diluting investors’ ownership and could decrease the value of their investment.
We are authorized to issue 2,500,000,000 shares of common stock. Of these authorized shares, 338,091,821 shares are issued and outstanding as of March 22, 2022. Therefore, we are authorized to issue up to an additional 2,161,908,179 unissued shares of our common stock that may be issued by us for any purpose without the further consent or vote of our stockholders that would dilute stockholders’ percentage ownership of our company.
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Our officers and directors can sell some of their stock, which may have a negative effect on our stock price and ability to raise additional capital, and may make it difficult for investors to sell their stock at any price.
Our officers and directors, as a group, are the beneficial owners of 12,120,139 shares of our common stock, representing less than 4% of our total issued shares; however, with the addition of our largest shareholder, they own a combined 190,926,973 shares. Each individual officer, director, and control party may be able to sell up to 1% of our outstanding stock (currently approximately 3,300,000 shares) every 90 days in the open market pursuant to Rule 144, which may have a negative effect on our stock price and may prevent us from obtaining additional capital. In addition, if our officers and directors are selling their stock into the open market, it may make it difficult or impossible for investors to sell their stock at any price.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Annual Report, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are only predictions and involve known and unknown risks and uncertainties, including the risks outlined under “Risk Factors” and elsewhere in this Annual Report.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievement. We are not under any duty to update any of the forward-looking statements after the date of this Annual Report to conform these statements to actual results, unless required by law.
ITEM 1B – UNRESOLVED STAFF COMMENTS
This Item is not applicable to us as we are not an accelerated filer, a large accelerated filer, or a well-seasoned issuer; however, we are voluntarily disclosing that we have not received any written comments from the Commission staff more than 180 days before the end of our fiscal year to which this Annual Report relates regarding our periodic or current reports under the Securities Exchange Act of 1934 and that remain unresolved.
ITEM 2 – PROPERTIES
We do not currently maintain office space.
On January 20, 2022, we entered into a lease agreement for approximately 3,600 square fee of warehouse, distribution, and administrative office space in Henderson, Nevada. The lease is for a period of three (3) years, through January 31, 2025, at a monthly lease rate of $3,891 and increasing thereafter.
ITEM 3 – LEGAL PROCEEDINGS
We are not a party to or otherwise involved in any legal proceedings.
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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 4 – MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is quoted on the OTCQB tier of the marketplace maintained by OTC Markets Group, Inc. under the symbol “HYEX.” Our common stock trades on a limited or sporadic basis and should not be deemed to constitute an established public trading market. There is no assurance that there will be liquidity in the common stock.
The following table sets forth the high and low closing price for each quarter within the fiscal years ended December 31, 2021 and 2020, as provided by Nasdaq. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.
| Fiscal Year | ||||||
| Ended | Transaction Prices | |||||
| December 31, | Period | High | Low | |||
| 2021 | Fourth Quarter | $0.108 | $0.03 | |||
| Third Quarter | $0.139 | $0.06 | ||||
| Second Quarter | $0.08 | $0.052 | ||||
| First Quarter | $0.12 | $0.04 | ||||
| 2020 | Fourth Quarter | $0.11 | $0.04 | |||
| Third Quarter | $0.08 | $0.041 | ||||
| Second Quarter | $0.089 | $0.021 | ||||
| First Quarter | $0.05 | $0.02 | ||||
The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
Holders
As of March 22, 2022, there were 338,091,821 shares of our common stock issued and outstanding and held by 111 holders of record, not including shares held in “street name” in brokerage accounts which is unknown.
Dividend Policy
We have not paid any dividends on our common stock and do not expect to do so in the foreseeable future. We intend to apply our earnings, if any, in expanding our operations and related activities. The payment of cash dividends in the future will be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements, our financial condition and other factors deemed relevant by the Board of Directors.
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Securities Authorized for Issuance under Equity Compensation Plans
On June 10, 2020, our Board of Directors approved the Grey Cloak Tech, Inc. 2020 Omnibus Stock Grant and Option Plan and set aside 25,000,000 shares of our common stock for issuance thereunder. Pursuant to the plan, officers, directors, key employees and certain consultants may be granted stock options (including incentive stock options and non-qualified stock options), restricted stock awards, unrestricted stock awards, or performance stock awards. As of March 22, 2022, we have awarded an aggregate of nineteen million five hundred thousand (19,500,000) options to twenty five (25) individuals at an exercise price of $0.05 per share.
Recent Issuance of Unregistered Securities
All unregistered issuances of securities have been previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
ITEM 6 – RESERVED
As a smaller reporting company we are not required to provide the information required by this Item.
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ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; 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 Annual Report 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.
Summary Overview
We were incorporated on December 19, 2014 in the State of Nevada. We had revenues of $1,465,782 in the year ended December 31, 2021 and $1,276,559 in the year ended December 31, 2020.
On February 4, 2019, we acquired BergaMet NA, LLC, a Delaware limited liability company (“BergaMet”). BergaMet is a wholly-owned subsidiary through which we conduct our nutraceuticals business.
On April 3, 2020, we acquired Ultimate Brain Nutrients, LLC, a Delaware limited liability company (“UBN”). UBN is a wholly-owned subsidiary through which we conduct our plant-based neuro-products business.
Overview
BergaMet NA, LLC
On February 4, 2019, we issued and exchanged shares of our common stock for all of the outstanding equity securities of BergaMet. BergaMet is an established company that was already generating revenues when we acquired it.
Ultimate Brain Nutrients, LLC
On April 3, 2020, we issued and exchanged shares of our common stock for all of the outstanding equity securities of UBN. UBN is a science-based company that develops unique, plant-based health technology neuro-products that provide natural brain solutions. UBN has numerous proprietary products, with four unique patent-pending formulations and two patents issued.
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Going Concern
As a result of our financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2021 and 2020 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. From inception (December 19, 2014) through the end of December 31, 2021, we have incurred accumulated net losses of $14,943,620. In order to continue as a going concern we must effectively balance many factors and generate more revenue so that we can fund our operations from our sales and revenues. If we are not able to do this we may not be able to continue as an operating company. At our current revenue and burn rate, we have an immediate cash need, and thus we must raise capital by issuing debt or through the sale of our stock. However, there is no assurance that our existing cash flow will be adequate to satisfy our existing operating expenses and capital requirements.
Results of Operations for the Years Ended December 31, 2021 and 2020
Introduction
We had revenues of $1,465,782 for the year ended December 31, 2021, as compared to $1,276,559 for the year ended December 31, 2020, an increase of $377,200, or 29%. Our cost of revenue was $770,704 for the year ended December 31, 2021, as compared to $1,855,001 for the year ended December 31, 2020, a decrease of $1,084,297, or 58%. Our cost of revenue exceeded revenue for the year ended December 31, 2020 because we built up our inventory of bergamot product.
Revenues and Net Operating Loss
Our revenues, operating expenses, and net operating loss for the years ended December 31, 2021 and 2020 were as follows:
| Year Ended December 31, 2021 | Year Ended December 31, 2020 | Increase/ (Decrease) | ||||||||||
| Revenue | $ | 1,465,782 | $ | 1,276,559 | $ | 377,200 | ||||||
| Cost of Revenue | 770,704 | 1,855,001 | (1,084,297 | ) | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 2,584,256 | 1,474,891 | 1,109,365 | |||||||||
| Total operating expenses | 2,584,256 | 3,054,774 | (470,518 | ) | ||||||||
| Net operating loss | ||||||||||||
| Other income/(expense) | (97,945 | ) | 1,056,841 | (1,154,786 | ) | |||||||
| Net gain/(loss) | $ | (1,987,122 | ) | $ | (2,576,375 | ) | $ | 589,253 | ||||
Revenues
We had revenues of $1,465,782 and $1,276,559 for the years ended December 31, 2021 and 2020, respectively, an increase of 29%. The increase in revenues was main due to our increased focus on the Amazon marketplace.
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Cost of Revenue
Cost of revenue was $770,704 and $1,855,001 for the years ended December 31, 2021 and 2020, respectively, a decrease of 58%, and consisted of wholesale product costs and packaging. Our cost of revenue exceeded revenue for the year ended December 31, 2020 because we built up our inventory of bergamot product.
General and Administrative
General and administrative expense was $2,584,256 and $1,474,891 for the years ended December 31, 2021 and 2020, an increase of $1,109,365, or 75%. The increase was related to the additional costs of fund raising and the increased administrative costs associated with being a public company. In the year ended December 31, 2021, general and administrative expenses consisted mainly of consulting of $1,010,902, selling expenses of $560,883, accounting and legal fees of $323,658, salary and wages of $147,938, and transfer agent and filing fees of $46,778. In the year ended December 31, 2020, general and administrative expenses consisted mainly of consulting of $607,197, selling expenses of $239,296, accounting and legal fees of $192,198, salary and wages of $156,250, and transfer agent and filing fees of $41,431.
Net Operating Gain/Loss
As a result of the items discussed above, our net operating loss was $1,889,177 and $3,633,216 for the years ended December 31, 2021 and 2020, respectively, a reduction of $1,744,039.
Other Income and Expense
Other income (expense) was $(97,945) and $1,056,841 for the years ended December 31, 2021 and 2020, respectively, a decrease of $1,154,786, of which $1,138,512 was a change in fair value of derivative.
Net Gain/(Loss)
Our net gain (loss) for the year ended December 31, 2021 was $(1,987,122), or $0.01 per share, and our net gain (loss) for the ended December 31, 2020 was $(2,576,375), or $(0.01) per share.
Liquidity and Capital Resources
Introduction
During the years ended December 31, 2021 and 2020, we had negative operating cash flows. Our cash on hand as of December 31, 2021 was $222,098. Our monthly cash flow burn rate in 2021 (not including inventory purchases) was approximately $37,000. Although we have strong short term cash needs, as our operating expenses increase we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs. With the acquisitions of BergaMet and UBN, we expected to see an increase in revenues that would help us maintain the cash we need to operate our business. However, we have incurred additional expenses in these acquisitions and the additional costs to be incurred through this expansion of our operations will increase our need for additional cash flow.
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Our cash, current assets, total assets, current liabilities, and total liabilities as of December 31, 2021 and 2020 are as follows:
| December 31, 2021 | December 31, 2020 | Change | ||||||||||
| Cash | $ | 222,098 | $ | 59,201 | $ | 162,897 | ||||||
| Total Current Assets | 2,313,404 | 2,490,158 | (176,754 | ) | ||||||||
| Total Assets | 3,029,579 | 3,115,430 | (85,850 | ) | ||||||||
| Total Current Liabilities | 558,841 | 261,604 | 297,237 | |||||||||
| Total Liabilities | $ | 558,841 | $ | 261,604 | $ | 297,237 | ||||||
Our cash increased by $162,897 as of December 31, 2021 as compared to December 31, 2020. Our total current assets decreased by $176,754, despite our increase in cash and accounts receivable as a result of our decrease in inventory. Our total assets decreased by $85,850 despite our increase in cash, accounts receivable, and patents/trademarks from the UBN acquisition.
Our current and total liabilities increased by $297,237, from $261,604 as of December 31, 2020 to $558,841 as of December 31, 2021. Our total liabilities as of the year ended December 31, 2021 consisted primarily of notes payable – related party of $170,866 and convertible debt of $171,750.
In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
Cash Requirements
Our cash on hand as of December 31, 2021 was $222,098. Our monthly cash flow burn rate in 2021 (not including inventory purchases) was approximately $37,000. Although we have strong short term cash needs, as our operating expenses increase we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
Sources and Uses of Cash
Operations
Our net cash used in operating activities for the years ended December 31, 2021 and 2020 was $901,298 and $1,902,758, respectively, a decrease of $441,581. Our net cash used in operating activities for the year ended December 31, 2021 consisted primary of a net loss of $1,987,122, plus a decrease in accounts receivable of $120,066, offset by an adjustment for warrants issued for services of $608,836 and changes in inventory of $459,717. Our net cash used in operating activities for December 31, 2020 consisted primarily of a net loss of $2,576,375, plus a change in fair value on derivative liability of $1,053,186 and accrued interest to related party of $490,703, offset by impairment of goodwill of $1,579,883 and changes in inventory of $663,476.
-24-
Investments
Our cash flow provided by (used in) investing activities for the years ended December 31, 2021 and 2020 was $(96,004) and $(115,740), respectively, a decrease of $19,737. The decrease in 2021 was as a result of a reduction in the value of our trademarks.
Financing
Our net cash provided by financing activities for the years ended December 31, 2021 and 2020 was $1,160,199 and $1,944,248, respectively, a decrease of $784,049. The decrease in 2021 was due to proceeds from the issuance of common stock of $995,199 and proceeds from the issuance of convertible debt of $165,000.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.
Management considers the following policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.
Recent Accounting Pronouncements
Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a material effect on our financial statements.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to provide the information required by this Item.
-25-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-26-
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Healthy Extracts Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Healthy Extracts Inc. (the “Company”) as of December 31, 2021 and 2020, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company’s minimal activities raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/
BF Borgers CPA PC
PCAOB
ID
We have served as the Company’s auditor since 2020
March 31, 2022
F-1
| HEALTHY EXTRACTS, INC. |
| CONSOLIDATED BALANCE SHEETS |
| (Audited) |
| DECEMBER 31, | 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.
F-2
| HEALTHY EXTRACTS, INC. |
| CONSOLIDATED STATEMENT OF OPERATIONS |
| FOR THE 12 MONTHS ENDING DECEMBER 31, 2021 AND 2020 |
| (Audited) |
| FOR THE 12 MONTHS ENDED | ||||||||
| DECEMBER 31, | ||||||||
| 2021 | 2020 | |||||||
| REVENUE | ||||||||
| Gross revenue | $ | $ | ||||||
| Less selling fees | ( | ) | ( | ) | ||||
| Net revenue | ||||||||
| COST OF REVENUE | ||||||||
| Cost of goods sold | ||||||||
| Written off inventory | ||||||||
| Total 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.
F-3
| HEALTHY EXTRACTS, INC. |
| CONSOLIDATED STATEMENT OF CASH FLOWS |
| (Audited) |
| FOR THE 12 MONTHS | ||||||||
| ENDING | ||||||||
| DECEMBER 31, | ||||||||
| 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 | ( | ) | ||||||
| Gain on sale of asset | ||||||||
| Impairment of goodwill | ||||||||
| 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 | ||||||||
| Cash received from sale of asset | ||||||||
| Purchase of note receivable | ||||||||
| 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.
F-4
| HEALTHY EXTRACTS, INC. |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) |
| FOR THE 12 MONTHS ENDING DECEMBER 2021 AND 2020 |
| (Audited) |
| 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 | — | |||||||||||||||||||||||||||
| Issuance of common stock for debt | — | |||||||||||||||||||||||||||
| Issuance of common stock for services | — | |||||||||||||||||||||||||||
| Issuance of common stock for debt | — | |||||||||||||||||||||||||||
| Net (loss) gain for the period | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-5
HEALTHY EXTRACTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 December 31, 2021 and the results of operations and cash flows for the periods presented. The results of operations for the year ending December 31, 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.
F-6
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 December 31, 2021 and 2020, the total of inventory
which was written off as an inventory allowance was $
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 December 31, 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 December 31, 2021, after working through our analysis of goodwill during the year ending December 31, 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. |
F-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 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 December 31, 2020 and for the months ended December 31, 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 December 31, 2020 and December 31, 2021, the Company did not have any amounts recorded pertaining to uncertain tax positions.
F-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 December 31, 2021 | ||||
| Change in fair value recognized in operations | ( | ) | ||
| Converted during the year ended December 31, 2021 | ( | ) | ||
| Balance, December 31, 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.
F-9
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 year ended December 31, 2021, the Company issued $9550,000 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.
F-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 December 31, 2021 of $
NOTE 4 – RELATED PARTY
For
the months ended December 31, 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 December 31, 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 December 31, 2021, the Company has an outstanding total of $
F-11
NOTE 7 – CONVERTIBLE DEBT
As of December 31, 2021, the Company had the following:
Schedule of Convertible Debt
| Unsecured
convertible debt, due | ||||
| Unsecured
convertible debt, due | ||||
| 1
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 | $ | |||||||
As
of December 31, 2021, the Company has an outstanding total of $
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.
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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 December 31, 2021, there are no outstanding shares of preferred stock. All the preferred stock was converted in common stock on February 4, 2019. See recent developments for details.
Common Share Issuances
During the year ended December 31, 2021, the Company issued 29,496,761 shares of common stock. During the fourth quarter 2021, the Company issued 3,500,000 shares of common stock for consulting fees. Additionally, the Company raised during the year over $900,000 in direct security purchase agreements which were converted into 15,403,983 shares of the Company’s common stock. During the third quarter 2021, the Company issued 1,177,778 shares of common stock for advertising and broker fees. On March 18, 2021, the Company raised $340,000 note payable agreement which 1,200,000 shares of the Company’s common stock were issued to the note holder. Additionally, 2,000,000 shares of common stock were issued to a company helping secure the note. Furthermore, 715,000 shares of common stock were issued for marketing services while 1,000,000 shares of common stock were issued for advertising services. During January 2021 the company converted 4,500,000 of securities purchase agreement into common stock shares.
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
During the third quarter 2021, the Company issued 6,500,000 warrants to 20 parties at $0.075 per share. 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 December 31, 2021, there were 14,012,000 warrants outstanding, of which 14,004,000 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.
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Share Conversion Agreements
All of the holders of the Company’s Series A Convertible Preferred Stock (the “Preferred Holders”) entered into a Preferred Stock Conversion Agreement. Pursuant to the Conversion Agreements, the Preferred Holders converted their shares of preferred stock into common stock, effective as of the Exchange. As a result, no shares of the Company’s Series A Convertible Preferred Stock are outstanding. An aggregate of 15,592,986 shares of common stock were issued to the Preferred Holders. The Preferred Holders agreed to convert each share of Series A Convertible Preferred Stock into eighteen (18) shares of common stock and agreed to retire a total of 467,057 shares of Series A Convertible Preferred Stock. The Company cancelled the retired shares.
Omnibus Stock Grant and Option Plan
On December 31, 2021, the Company approved stock option agreements in the amount of 7,500,000 shares with a strike price of $0.05 to twenty-one individuals.
On May 30, 2020, the Company approved stock option agreements in the amount of 12,000,000 shares with a strike price of $0.05 to nineteen individuals.
Offering Circular
During the first part of the 2021, the Company filed a Regulation A Offering Circular with the U.S. Securities and Exchange Commission. The Offering Circular was qualified during August 2021.
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.
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 $
F-14
NOTE 10 – BUSINESS SEGMENT INFORMATION
As of December 31, 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 Year ended December 31, 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 | ||||||||||||||||
As of December 31, 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 Quarter ended December 31, 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
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.
On February 22, 2022, the Company entered into a Common Stock Purchase Warrant and a Promissory Note. The warrants are to acquire two million (2,000,000) shares of our common stock, are exercisable for three (3) years at an exercise price of $0.05 per share, and contain a cashless exercise option for the holder. The note is in the principal amount of Two Hundred Thousand Dollars ($200,000), bears interest at a rate of ten percent (10%) per annum, and has a maturity date of February 15, 2023.
On March 1, 2022, the Company paid the remaining balance on the One Hundred Fifty Thousand Dollars ($150,000) promissory note that was due on March 17, 2022.
The Company evaluated its December 31, 2021 financial statements for subsequent events through March 4, 2022, the date the financial statements were available to be issued.
F-15
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are no events required to be disclosed under this Item.
ITEM 9A - 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 December 31, 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 December 31, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in Item 9A(b).
Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error 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.
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(b) Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any disposition of our assets; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 .. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Management identified the following two material weaknesses that have caused management to conclude that, as of December 31, 2018, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:
1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
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To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only our management’s report in this Annual Report.
(c) Remediation of Material Weaknesses
To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.
We also intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.
(d) 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, fourth quarter of the fiscal year ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B – OTHER INFORMATION
None.
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PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth the names, ages, and biographical information of each of our current directors and executive officers, and the positions with the Company held by each person, and the date such person became a director or executive officer of the Company. Our executive officers are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Family relationships among any of the directors and officers are described below.
| Name | Age | Position(s) | ||
| Kevin “Duke” Pitts | 62 | President, Director (2018) | ||
| William Bossung | 63 | Secretary, Chief Financial Officer, Director (2014) | ||
| Bill Croyle | 70 | Director (2019) |
Kevin “Duke” Pitts, age 62, was appointed to our Board of Directors on September 28, 2018, and as our President on September 24, 2019. Mr. Pitts is a proven leader who has 30 years of senior management experience within a technology-driven industry. Mr. Pitts has been the President and Owner of Envision Enterprises, a consumer electronic integration business, where he has worked since 2007. Earlier in his career, Mr. Pitts served as the Director of Direct Marketing at Dish Network, the well-known satellite television provider. His deep experience in senior management and marketing will be of great value to us.
William Bossung, age 63, has served as our Secretary, Chief Financial Officer, and member of the Board of Directors since our inception Mr. Bossung has a diverse background in Corporate Finance, Insurance and accounting. From 2003 to August 2006 Mr. Bossung was co-founder of BCF Technology, an insurance software company that was ultimately sold to Vertafore in August of 2006. During January 2012 Mr. Bossung co-founded Splash Beverage Group, (SBEV) a beverage distribution company that distributes both alcohol and non-alcohol products. The company’s products are sold in over 25,000 retail locations Mr. Bossung is the managing partner of Bishop Equity Partners LLC, a small boutique private equity firm that invests in both private and public companies. From 1997 to 2002 Mr. Bossung was the Director of Corporate Finance of Chadmoore Wireless Group, the company was engaged in the business of wireless communications utilizing 800 MHZ frequencies. Chadmoore aggregated over 5500 Specialized Mobile Radio licenses from the Federal Communications Commission, the licenses were acquired by Nextel, then merged into the Sprint PCS wireless network. Mr. Bossung currently holds an Insurance License and earned a bachelor’s degree in accounting and finance from Bloomsburg State University.
Bill Croyle, age 70, was appointed to our Board of Directors on September 24, 2019. Mr. Croyle is a private investor and an accomplished Senior Executive with more than 40 years of success across the IT, energy, manufacturing, telecommunications, venture capital, and finance industries. His broad areas of expertise include M&A, negotiations, service contracts and delivery, executive development and mentoring, and managing complexities. Since 2009 Bill is has been a founder, owner or executive of EnTX Group, Impact Legacy Partners, FB Oilfield Special Tools and Western Energy Advisors. He is Chairman of the Colorado Chapter of the Marine Corps Scholarship Foundation, and he has served on the boards of Hill City Silica LLC, the University of Colorado Advocates program, the Association for Corporate Growth/Denver, and the Denver Consulting Alliance. Bill served in the Marine Corps 1972-1974. Mr. Croyle holds Certificates in Energy Finance and Management from the University of Denver and International Trade from World Trade Center Denver. He graduated from the University of California, Santa Barbara, with a BA in History and minor in French.
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Family Relationships
There are no family relationships between any of our officers or directors.
Other Directorships; Director Independence
Other than as set forth above, none of our officers and directors is a director of any company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCQB on which shares of common stock are quoted does not have any director independence requirements. The NASDAQ definition of “Independent Officer” means a person other than an Executive Officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. According to the NASDAQ definition, none of our directors are independent.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Except as set forth below, to our knowledge, none of our officers, directors, or beneficial owners of more than ten percent of our common stock failed to file on a timely basis reports required by section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years.
Board Committees
Our Board of Directors does not maintain a separate audit, nominating or compensation committee. Functions customarily performed by such committees are performed by its Board of Directors as a whole. We are not required to maintain such committees under the applicable rules of the OTCQB. We do not currently have an “audit committee financial expert” since we currently do not have an audit committee in place. We intend to create board committees, including an independent audit committee, in the near future.
We do not currently have a process for security holders to send communications to the Board.
During the fiscal years ended December 31, 2021 and 2020, the Board of Directors met as necessary.
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Involvement in Certain Legal Proceedings
None of our officers or directors has, in the past ten years, filed bankruptcy, been convicted in a criminal proceeding or named in a pending criminal proceeding, been the subject of any order, judgment, or decree of any court permanently or temporarily enjoining him or her from any securities activities, or any other disclosable event required by Item 401(f) of Regulation S-K.
Code of Ethics
We have not adopted a written code of ethics, primarily because we believe and understand that our officers and directors adhere to and follow ethical standards without the necessity of a written policy.
ITEM 11 - EXECUTIVE COMPENSATION
Narrative Disclosure of Executive Compensation
Bossung Employment Agreement
On October 17, 2017, we entered into an Employment Agreement with William Bossung, our Chief Financial Officer. Pursuant to Mr. Bossung’s Employment Agreement, we have agreed to pay Mr. Bossung an annual base salary of $140,000, and he may receive employee stock options as determined by the Board of Directors. Mr. Bossung’s employment is “at will” and either party may terminate the agreement at any time.
If terminated without Cause or as a result of Constructive Termination, Mr. Bossung will receive severance equal to three months’ pay at his most recent Base Salary. If Mr. Bossung is terminated for Cause, Disability or death, or voluntarily resigns, he will not receive any severance, only unpaid salary as of the date of termination and vested benefits. The Employment Agreement includes non-compete and non-solicitation provisions that apply during the term of the Employment Agreement and for a period of one year after Mr. Bossung’s termination. Capitalized terms in this section not defined herein have the meaning given to such term in the Employment Agreement.
Mr. Bossung’s Employment Agreement also requires that certain proprietary information of ours be kept confidential. We will be the owner of certain intellectual property conceived or made by Mr. Bossung prior to termination of the Employment Agreement. Mr. Bossung’s Employment Agreement also contains other certain terms and conditions which are common in such agreements, and reference is made herein to the text of the Employment Agreement which is filed herewith as Exhibit 10.1.
Pitts Independent Contractor Agreement
On October 1, 2019, we entered into an Independent Contractor Agreement with Kevin “Duke” Pitts. Pursuant to this agreement, Mr. Pitts has agreed to serve as our President and Chief Executive Officer in exchange for $120,000 per year.
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Summary Compensation Table
The following table sets forth information with respect to compensation earned by our Chief Executive Officer, President, Chief Financial Officer and Chief Technology Officer for the years ended December 31, 2021 and 2020.
Name
and |
Year | Salary |
Bonus |
Stock |
Option |
Non-Equity Incentive Plan Compensation ($) |
Nonqualified Deferred Compensation ($) |
All
Other |
Total ($) |
| Kevin “Duke” Pitts | 2021 | 110,000 | -0- | -0- | -0- | -0- | -0- | -0- | 110,000 |
| President | 2020 | 110,000 | -0- | -0- | -0- | -0- | -0- | -0- | 110,000 |
| William Bossung | 65,000 | -0- | -0- | -0- | -0- | -0- | -0- | 65,000 | |
| Secretary and CFO | 2020 | 66,000 | -0- | -0- | -0- | -0- | -0- | -0- | 66,000 |
Director Compensation
For the years ended December 31, 2021 and 2020, none of the members of our Board of Directors received compensation for his or her service as a director.
Outstanding Equity Awards at Fiscal Year-End
On June 10, 2020, our Board of Directors approved the Grey Cloak Tech, Inc. 2020 Omnibus Stock Grant and Option Plan and set aside 25,000,000 shares of our common stock for issuance thereunder. Pursuant to the plan, officers, directors, key employees and certain consultants may be granted stock options (including incentive stock options and non-qualified stock options), restricted stock awards, unrestricted stock awards, or performance stock awards. As of March 22, 2022, we have awarded an aggregate of nineteen million five hundred thousand (19,500,000) options to twenty five (25) individuals at an exercise price of $0.05 per share.
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ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of March 22, 2022, certain information with respect to our equity securities owned of record or beneficially by (i) each of our Officers and Directors; (ii) each person who owns beneficially more than 10% of each class of our outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
Name and Address (1) |
Common |
Percentage
of Common Stock Beneficial Ownership (2) | ||
| Kevin “Duke” Pitts (3)(5) | 4,430,112 | 1.30% | ||
| William Bossung (3)(6) | 6,526,357 | 1.92% | ||
| Bill Croyle (3)(4)(7) | 1,163,670 | <1% | ||
| Jay Decker (8) | 178,806,834 | 51.96% | ||
| All Officers and Directors as a Group (3 Persons) | 12,120,139 | 3.46% |
| (1) | Unless otherwise indicated, the address of the shareholder is c/o Healthy Extracts Inc. | |
| (2) | Unless otherwise indicated, based on 338,091,821 shares of common stock issued and outstanding. Shares of common stock subject to convertible preferred stock and options or warrants currently exercisable, or exercisable or convertible within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person. | |
| (3) | Indicates one of our officers or directors. | |
| (4) | Includes 663,670 shares of common stock held by BMJ Estate Matters, LLC, of which Mr. Croyle is the controlling party. | |
| (5) | Includes options to acquire 2,200,000 shares of common stock at $0.05 per share. | |
| (6) | Includes options to acquire 2,250,000 shares of common stock at $0.05 per share. | |
| (7) | Includes options to acquire 500,000 shares of common stock at $0.05 per share. | |
| (8) | Includes warrants to acquire 6,000,000 shares of common stock at $0.05 per share. |
The issuer is not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the issuer, other than as set forth above. There are no classes of stock other than common stock issued or outstanding.
There are no current arrangements which will result in a change in control.
On June 10, 2020, our Board of Directors approved the Grey Cloak Tech, Inc. 2020 Omnibus Stock Grant and Option Plan and set aside 25,000,000 shares of our common stock for issuance thereunder. Pursuant to the plan, officers, directors, key employees and certain consultants may be granted stock options (including incentive stock options and non-qualified stock options), restricted stock awards, unrestricted stock awards, or performance stock awards. As of March 22, 2022, we have awarded an aggregate of nineteen million five hundred thousand (19,500,000) options to twenty five (25) individuals at an exercise price of $0.05 per share.
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ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Bossung Employment Agreement
On October 17, 2017, we entered into an Employment Agreement with William Bossung, our Chief Financial Officer. Pursuant to Mr. Bossung’s Employment Agreement, we have agreed to pay Mr. Bossung an annual base salary of $140,000, and he may receive employee stock options as determined by the Board of Directors. Mr. Bossung’s employment is “at will” and either party may terminate the agreement at any time.
If terminated without Cause or as a result of Constructive Termination, Mr. Bossung will receive severance equal to three months’ pay at his most recent Base Salary. If Mr. Bossung is terminated for Cause, Disability or death, or voluntarily resigns, he will not receive any severance, only unpaid salary as of the date of termination and vested benefits. The Employment Agreement includes non-compete and non-solicitation provisions that apply during the term of the Employment Agreement and for a period of one year after Mr. Bossung’s termination. Capitalized terms in this section not defined herein have the meaning given to such term in the Employment Agreement.
Mr. Bossung’s Employment Agreement also requires that certain proprietary information of ours be kept confidential. We will be the owner of certain intellectual property conceived or made by Mr. Bossung prior to termination of the Employment Agreement. Mr. Bossung’s Employment Agreement also contains other certain terms and conditions which are common in such agreements, and reference is made herein to the text of the Employment Agreement which is filed herewith as Exhibit 10.1.
Pitts Independent Contractor Agreement
On October 1, 2019, we entered into an Independent Contractor Agreement with Kevin “Duke” Pitts. Pursuant to this agreement, Mr. Pitts has agreed to serve as our President and Chief Executive Officer in exchange for $120,000 per year.
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.
Through the exchange, we were able to secure funds in BergaMet to pay off debt and provide capital for operations. We paid an aggregate of over $500,000 to retire convertible debt. Prior to the exchange, we also entered into agreements with other holders of convertible debt to convert their notes for an aggregate of 806,015 shares of common stock. We also entered into conversion agreements with the holders of our Series A Convertible Preferred Stock whereby all of the outstanding preferred stock was converted for an aggregate of 15,592,986 shares of common stock. The conversion and repayment of the preferred stock and convertible debt have greatly improved our capitalization structure.
The acquisition of BergaMet has been extremely beneficial to us. In addition to paying off our convertible debt, we are now able to better position ourselves in the market. BergaMet is an established company that was already generating revenues when we acquired it. BergaMet also has unique products that will fit nicely with our existing business. We now plan on expanding our product line to other nutraceuticals.
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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, whereby we issued and exchanged 90,000,960 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 were equal to approximately 42.5% of our outstanding common stock immediately following the exchange. Because six of the seven members of UBN, including our majority shareholder Jay Decker, were also member of BergaMet, this was an affiliated transaction.
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 two patents issued.
Jay Decker Transactions
We have entered into numerous transactions with Jay Decker, our majority shareholder (and his adult children, Logan Decker and Shelton Decker), as follows:
Convertible Notes
On July 31, 2019, we received the last of four (4) signed convertible notes issued to various related parties with an effective date of April 19, 2019. The table below shows the effective date of each note, the amount of the note, the interest rate, the maturity date and the purchaser of the note:
| Date | Amount | Interest Rate |
Maturity Date | Purchaser | |||||||
| 4/19/2019 | $ | 150,000 | 8% | 4/19/2020 | Jay W. Decker | ||||||
| 4/19/2019 | $ | 15,000 | 8% | 4/19/2020 | First Capital Properties LLC | ||||||
| 4/19/2019 | $ | 7,500 | 8% | 4/19/2020 | Logan Bryce Decker | ||||||
| 4/19/2019 | $ | 7,500 | 8% | 4/19/2020 | Shelton Sterling Decker | ||||||
| Total | $ | 180,000 | |||||||||
Each note bears interest at the rate indicated and is due on the maturity date given above. The notes are convertible into shares of our common stock from the date which is 12 months after the date of the note through the later of (i) the maturity date and (ii) the date of payment of the default amount due upon certain change of control transactions or a default of the note. Conversion of the notes is not allowed to the extent the conversion would result in beneficial ownership by the holder and its affiliates of more than 9.99% of our outstanding shares of common stock. The conversion price of the notes is $0.03 per share.
Convertible Notes
On October 3, 2019, we received the last of three (3) signed convertible notes issued to Jay W. Decker, a related party, each with a different effective date. The table below shows the effective date of each note, the amount of the note, the interest rate, the maturity date and the purchaser of the note:
| Date | Amount | Interest Rate | Maturity Date | Purchaser | |||||||
| 6/27/2019 | $ | 105,000 | 8% | 6/27/2020 | Jay W. Decker | ||||||
| 8/27/2019 | $ | 225,000 | 8% | 8/27/2020 | Jay W. Decker | ||||||
| 9/20/2019 | $ | 45,000 | 8% | 9/20/2020 | Jay W. Decker | ||||||
| Total | $ | 375,000 | |||||||||
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Each note bears interest at the rate indicated and is due on the maturity date given above. Conversion of the notes is not allowed to the extent the conversion would result in beneficial ownership by the holder and its affiliates of more than 9.99% of our outstanding shares of common stock. The conversion price of the notes is $0.03 per share.
Note Conversion Agreements and Advance Conversion Agreements
Effective April 13, 2020, we entered into a total of eighteen (18) agreements (16 Note Conversion Agreements and 2 Advance Conversion Agreements) whereby an aggregate of $1,508,407.84 in outstanding principal and accrued interest was converted into an aggregate of 39,248,714 shares of our common stock. The conversion price was either $0.03 per share or $0.05 per share, depending on the individual agreement. The conversions included notes and advances held by our officers and directors and our largest shareholder, as follows:
Name | Aggregate Principal and Interest |
Aggregate Shares | ||||||
| Jay W. Decker | $ | 1,282,231.11 | 33,418,004 | |||||
| William Bossung | $ | 65,677.84 | 2,189,262 | |||||
| First Capital Properties LLC | $ | 16,180.00 | 539,334 | |||||
| Shelton S. Decker | $ | 33,717.78 | 782,223 | |||||
| Logan B. Decker | $ | 33,717.78 | 782,223 | |||||
| Kevin Pitts | $ | 51,255.56 | 1,025,112 | |||||
| Innovation Group Holdings, LLC | $ | 25,627.78 | 512,556 | |||||
Securities Purchase Agreements
Effective October 15, 2020, we entered into four (4) Securities Purchase Agreements whereby we sold and issued 5,900,000 shares of our common stock at $0.05 per share for aggregate consideration of $295,000. The purchasers included our officers and directors and our largest shareholder, as follows:
Name | Aggregate Principal and Interest |
Aggregate Shares | ||||||
| Jay W. Decker | $ | 100,000 | 2,000,000 | |||||
| Shelton S. Decker | $ | 50,000 | 1,000,000 | |||||
| Logan B. Decker | $ | 50,000 | 1,000,000 | |||||
| Dr. Gerald Haase | $ | 95,000 | 1,900,000 | |||||
| Total | $ | 295,000 | 5,900,000 | |||||
Securities Purchase Agreements
On February 10, 2021, and effective December 29, 2020, the Company entered into Securities Purchase Agreements with Shelton Decker and Logan Decker for the purchase and sale of an aggregate of 2,000,000 shares of Company common stock at $0.05 per share, as follows:
| Name: | No. of Shares | |||
| Logan Decker | 1,000,000 | |||
| Jay Decker | 1,000,000 | |||
| Total | 2,000,000 | |||
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Promissory Notes
On February 10, 2021, the Company issued promissory notes to Jay Decker dated December 14, 2020 and December 21, 2020 in the principal amount of $100,000 and $70,000 respectively.
On January 20, 2022, the Company issued a promissory note to Jay Decker in the principal amount of $185,000. In conjunction therewith and on the same date, the Company issued to Jay Decker warrants to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share.
Warrants
On February 10, 2021, but effective December 21, 2020, the Company issued warrants to purchase an aggregate of 7,500,000 shares of the Company’s common stock, at an exercise price of $0.05 per share, as follows (the “Warrants”), for consulting services rendered to the Company:
| Name: | No. of Warrants |
| Jay Decker | 4,500,000 |
| Logan Decker | 1,500,000 |
| Shelton Decker | 1,500,000 |
| Total | 7,500,000 |
On January 20, 2022, the Company issued a promissory note to Jay Decker in the principal amount of $185,000. In conjunction therewith and on the same date, the Company issued to Jay Decker warrants to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share.
Director Independence
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCQB on which shares of common stock are quoted does not have any director independence requirements. The NASDAQ definition of “Independent Officer” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. According to the NASDAQ definition, none of our directors are independent.
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
BF Borgers CPA PC was our independent registered public accounting firm for the years ended December 31, 2021 and 2020.
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Audit and Non-Audit Fees
The following table presents fees for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements for the years ended December 31, 2021 and 2020.
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Audit Fees (1) | $ | 55,000 | $ | 40,600 | ||||
| Audit Related Fees | — | — | ||||||
| Tax Fees | — | — | ||||||
| All Other Fees | — | — | ||||||
| Total | $ | 55,000 | $ | 40,600 | ||||
(1) Audit fees were principally for audit and review services.
Of the fees described above for the years ended December 31, 2021 and 2020, all were approved by the entire Board of Directors.
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following financial statements are filed as part of this report:
| Report of Independent Registered Public Accounting Firm | F-1 |
| Consolidated Balance Sheets as of December 31, 2021 and 2020 | F-2 |
| Consolidated Statement of Operations for the year ended December 31, 2021 and 2020 | F-3 |
| Consolidated Statement of Stockholders’ Deficit for the year ended December 31, 2021 and 2020 | F-4 |
| Consolidated Statement of Cash Flows for the year ended December 31, 2021 and 2020 | F-5 |
| Notes to Consolidated Financial Statements | F-6 to F-15 |
(a)(2) Financial Statement Schedules
We do not have any financial statement schedules required to be supplied under this Item.
(a)(3) Exhibits
Refer to (b) below.
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(b) Exhibits
| (1) | Incorporated by reference from our Registration Statement on Form S-1 dated and filed with the Commission on March 6, 2015. | |
| (2) | Incorporated by reference from our Annual Report on Form 10-K filed with the Commission on June 8, 2018. | |
| (3) | Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 8, 2020 | |
| (4) | Incorporated by reference from our Quarterly Report on Form 10-Q dated and filed with the Commission on May 28, 2020. | |
| (5) | Incorporated by reference from our Annual Report on Form 10-K dated and filed with the Commission on February 19, 2021. | |
| (6) | Incorporated by reference from our Regulation A Offering Statement on Form 1-A dated and filed with the Commission on May 7, 2021. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 31, 2022 | /s/ Kevin “Duke” Pitts | |
| By: | Kevin “Duke” Pitts | |
| Its: | President | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Dated: March 31, 2022 | /s/ Kevin “Duke” Pitts | |
| By: | Kevin “Duke” Pitts | |
| Its: | President | |
| Dated: March 31, 2022 | /s/ William Bossung | |
| By: | William Bossung | |
| Its: | Secretary and Chief Financial Officer |
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LEASE AGREEMENT
(Net)
THIS LEASE AGREEMENT (“Lease”) is made between Schnitzer Properties, LLC, an Oregon limited liability company (“Landlord”), and Healthy Extracts Inc., a Nevada corporation (“Tenant”), dated for reference purposes only, as January 20, 2022 (the “date of this Lease”).
BASIC LEASE INFORMATION
DESCRIPTION OF PREMISES: 7375 Commercial Way, Suite 125, Henderson, Nevada 89011 (the “Premises” as shown on Exhibit A), consisting of approximately 3,632 square feet within Building 7375 (the “Building”) of Landlord’s multi-tenant development known as Henderson Commerce Center II (the “Project” as shown on Exhibit A-1). “Tenant’s Proportionate Share” of the Project is 1.947%.
PERMITTED USE: Tenant shall utilize the Premises for administrative office, warehouse, and distribution of health products and for no other purpose.
LEASE TERM: Thirty-Five (35) Months and Twenty-Five (25) Days
COMMENCEMENT DATE (ANTICIPATED): February 4, 2022 EXPIRATION DATE: January 31, 2025
BASE RENT, OPERATING EXPENSES AND SECURITY DEPOSIT:
| (a) | Base Rent due pursuant to Paragraph 3: | (b) Tenant’s Initial Proportionate Share of First Year | |||
| February 4, 2022 | through | February 28, 2022 | $3,891.00 | Estimated Operating Expenses pursuant to | |
| March 1, 2022 | through | January 31, 2023 | $4,358.00 per month | Paragraph 4.2: $1,017.00 per month. | |
| February 1, 2023 | through | January 31, 2024 | $4,576.00 per month | ||
| February 1, 2024 | through | January 31, 2025 | $4,805.00 per month | (c) Security Deposit pursuant to Paragraph 6: $17,466.00. | |
| NOTICE | TO LANDLORD: | TO TENANT: |
| ADDRESSES: | Schnitzer Properties | Healthy Extracts Inc. |
| c/o Schnitzer Properties | 6445 South Tenaya Way, Suite B110 | |
| 3111 South Valley View Blvd., Suite K-101 | Las Vegas, Nevada 89113 | |
| Las Vegas, Nevada 89102 | Attn: Kevin Pitts | |
| Attn: Property Manager | Email: duke@bergametna.com | |
| Fax: (702) 368-2930 | ||
| BILLING AND TO LANDLORD: | TO TENANT: | |
| PAYMENT | Schnitzer Properties | Healthy Extracts Inc. |
| ADDRESSES: | Unit No. 69 | 6445 South Tenaya Way, Suite B110 |
| P O Box 4900 | Las Vegas, Nevada 89113 | |
| Portland, Oregon 97208-4900 | Attn: Robert Madden | |
| Robert@bergametna.com | ||
| GUARANTOR: None (If any, see Exhibit G) | ||
| TENANT CONTACT: Name: Kevin “Duke” Pitts | Telephone: (702) 505-0471 | Email: duke@bergametna.com |
IN WITNESS WHEREOF, the parties have executed this Lease, effective the date first written above. The Lease consists of Paragraphs 1 through 30 (the “Standard Lease Provisions”) and Exhibits A (Premises), A-1 (Project), B (Insurance), C (Sign Criteria), C-1 (Signage Specifications), D (Tenant Improvements), E (Rules & Regulations), F (Further Provisions), G (Guaranty of Lease- Intentionally Omitted), and Exhibit H (Hazardous Materials Questionnaire) (all of which are incorporated herein by this reference (collectively, this “Lease”). In the event of any conflict between the provisions of the Basic Lease Information and the provisions of the Standard Lease Provisions, the Standard Lease Provisions shall control.
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STANDARD LEASE PROVISIONS
(Net)
1. Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, subject to the following terms and conditions, the Premises located in the Project and described in the Basic Lease Information and shown on the attached Exhibit A. Landlord reserves the right to make such changes, additions and/or deletions to the Project and/or the common areas and parking or other facilities thereof as it shall determine from time to time. Tenant acknowledges that neither Landlord (nor any employee or agent of Landlord) has made any representation or warranty with respect to the suitability or use of the Premises or Project for Tenant’s intended Permitted Use or operations. Landlord shall have no liability to Tenant whatsoever in the event Tenant cannot conduct its Permitted Use and/or intended operations in the Premises and in addition to any other requirements set forth in the Lease, Tenant shall be solely responsible for any and all costs that relate or pertain to alterations necessary or appropriate to make the Premises comply with any codes, regulations, laws or ordinances for such Permitted Use or operations. In addition, Tenant shall provide Landlord with copies of any and all licenses or permits of any kind necessary for it to conduct the Permitted Use at the Premises no later than fifteen (15) days after receipt of the same and upon each subsequent renewal.
2. Term.
2.1 Unless delayed or sooner terminated in accordance herewith, the term of this Lease (the “Term”) shall be as set forth in the Basic Lease Information. If the Term Commencement Date is not the first day of a calendar month, there shall be added to the Term the partial month (“Partial Lease Month”) from the Term Commencement Date through the last day of that calendar month containing the Term Commencement Date.
2.2 The Term shall commence as specified in the Basic Lease Information on the Scheduled Term Commencement Date unless the Landlord has not delivered the Premises to Tenant by that date. In the latter event, the Term Commencement Date shall be the earlier of the date Landlord delivers the Premises to Tenant or the date Tenant takes possession or commences use of any portion of the Premises for any business purpose. Notwithstanding the above, if this Lease requires the construction of Tenant Improvements by Landlord, as more particularly described on the attached Exhibit D, the Premises shall be deemed delivered to Tenant on the date which is the earlier of substantial completion of the Tenant Improvement by Landlord, receipt of a Temporary Certificate of Occupancy from the appropriate governmental authority, or on the date set forth in Exhibit D. Tenant acknowledges that the Tenant has inspected and accepts the Premises in its present condition, “AS-IS” (WITH ALL FAULTS), except for Tenant Improvements (if any) to be constructed by Landlord in the Premises.
2.3 This Lease shall be a binding contractual obligation upon mutual execution and delivery hereof by Landlord and Tenant, notwithstanding the later commencement of the Term. If the Term Commencement Date is delayed, this Lease shall not be void or voidable, the Term shall not be extended (except as provided in Paragraphs 2.1 & 2.2), and Landlord shall not be liable to Tenant for any loss or damage resulting therefrom; provided that Tenant shall not be liable for any Rent for any period prior to the Term Commencement Date unless the delay is caused by Tenant.
2.4 Upon receipt by Landlord of this fully executed Lease, all sums due under the Lease, satisfactory evidence of Tenant’s compliance with the insurance provisions of the Lease and Landlord’s prior written approval, Tenant may occupy the Premises prior to the Term Commencement Date solely for the purpose to install furniture, fixtures and the like. Early occupancy shall not advance the expiration date of the Lease. Tenant shall be responsible for any separately metered utility usage and bound by all other provisions of the Lease, including, without limitation, Base Rent and Operating Expenses and the Rules and Regulations. At no time prior to the Term Commencement Date shall Tenant conduct any business operations in the Premises without Landlord’s prior written consent. During any early occupancy or other period in which Landlord and Tenant are simultaneously occupying and/or performing work in the Premises, Landlord shall control any scheduling, access or related issues.
| 3. | Rent; Payment of Additional Rent; Operating Expenses. |
3.1 Subject to the provisions of this Paragraph 3, Tenant shall pay during the Term as rent for the Premises the sums specified in the Basic Lease Information (as increased from time to time as provided in the Basic Lease Information or as may otherwise be provided in this Lease) (the “Base Rent”). Base Rent shall be payable in consecutive monthly installments, in advance, without prior notice, demand, deduction or offset, commencing on the Term Commencement Date and continuing on the first day of each calendar month thereafter, except that the first full monthly installment of Base Rent shall be payable upon Tenant’s execution of this Lease. If the Term Commencement Date is not the first day of a calendar month, then the Base Rent for the Partial Lease Month shall be prorated based on the actual number of days of that month, and shall be payable on the first day of the calendar month following the Term Commencement Date. Any and all payments which are due, or may become due and owing at any time in the future under the Lease, including but not limited to Rent, Additional Rent, CAM, Expense, Security Deposit, reimbursements, and fines shall be paid only in lawful currency of the United States of America (e.g. USD).
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3.2 All monies to be paid by Tenant hereunder, including Tenant’s Proportionate Share of Operating Expenses as specified in Paragraph 4 (estimated and/or revised), and all other amounts, fees, payments or charges payable hereunder by Tenant (collectively, “Additional Rent”), together with Base Rent, shall (i) each constitute rent payable hereunder (and shall sometimes collectively be referred to herein as “Rent”), (ii) be payable to Landlord in lawful money of the United States when due without any prior demand therefor, except as may be expressly provided to the contrary herein, (iii) be payable to Landlord at Landlord’s Payment Address set forth in the Basic Lease Information or to such other person or to such other place as Landlord may from time to time designate in writing to Tenant, and (iv) if applicable, be prorated based upon the actual number of days for any partial month.
| 4. | Operating Expenses. |
4.1 Operating Expenses. In addition to the Base Rent required to be paid hereunder, Tenant shall pay as Additional Rent, Tenant’s Proportionate Share of the Building and/or Project (as applicable), as defined in the Basic Lease Information, of Operating Expenses in the manner set forth below. Landlord and Tenant acknowledge that if the number of buildings which constitute the Project increases or decreases, or if physical changes are made to the Premises, Building and/or Project or the configuration of any thereof, Landlord may at its discretion adjust Tenant’s Proportionate Share of the Building and/or Project to reflect the change. Landlord’s determination of Tenant’s Proportionate Share of the Building and/or Project shall be conclusive absent manifest error. “Operating Expenses” shall mean all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay, because of or in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building and/or Project and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project other than those expenses and costs which are specifically attributable to Tenant or which are expressly made the financial responsibility of Landlord pursuant to this Lease. Operating Expenses shall also include, but are not limited to, the following:
4.1.1 Taxes. All real property taxes and assessments, possessory interest taxes, sales taxes, personal property taxes, business or license taxes or fees, gross receipts taxes, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit charges, and other impositions, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind (including fees “in-lieu” of any such tax or assessment) which are now or hereafter assessed, levied, charged, confirmed, or imposed by any public authority upon the Landlord, Building, or the Project, its operations or the Rent (or any portion or component thereof), or any tax, assessment or fee imposed in substitution, partially or totally, of any of the above. Operating Expenses shall also include any taxes, assessments, reassessments, or other fees or impositions with respect to the development, leasing, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, Building or Project or any portion thereof, including, without limitation, by or for Tenant, and all increases therein or reassessments thereof whether the increases or reassessments result from increased rate and/or valuation (whether upon a transfer of the Building or Project or any portion thereof or any interest therein or for any other reason). Operating Expenses shall not include inheritance or estate taxes imposed upon or assessed against the interest of any person in the Project, or taxes computed upon the basis of the net income of any owners of any interest in the Project. If it shall not be lawful for Tenant to reimburse Landlord for all or any part of such taxes, the monthly rental payable to Landlord under this Lease shall be revised to net Landlord the same net rental after imposition of any such taxes by Landlord as would have been payable to Landlord prior to the payment of any such taxes.
4.1.2 Insurance. All insurance premiums and costs, including, but not limited to, any deductible amounts, premiums and other costs of insurance incurred by Landlord, including for the insurance coverage required under Paragraph 11.1 below.
4.1.3 Common Area Maintenance.
4.1.3.1 Repairs, replacements, and general maintenance of and for the Building and Project and public and common areas and facilities of and comprising the Building and Project, including, but not limited to, the roof and roof membrane, elevators, mechanical rooms, alarm systems, pest extermination, landscaped areas, parking and service areas, driveways, sidewalks, truck staging areas, rail spur areas, fire sprinkler systems, sanitary and storm sewer lines, utility services, heating/ventilation/air conditioning systems, electrical, mechanical or other systems, telephone equipment and wiring servicing, plumbing, lighting, and any other items or areas which affect the operation or appearance of the Building or Project, which determination shall be at Landlord’s discretion, except for: those items to the extent paid for by the proceeds of insurance; and those items attributable solely or jointly to specific tenants of the Building or Project.
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4.1.3.2 Repairs, replacements, and general maintenance shall include the cost of any improvements made to or assets acquired for the Project or Building that in Landlord’s discretion may reduce any other Operating Expenses, including present or future repair work, are necessary for the health and safety of the occupants of the Building or Project, or for the operation of the Building systems, services and equipment, or are required to comply with any Regulation, such costs or allocable portions thereof to be amortized over such reasonable period as Landlord shall determine, together with interest on the unamortized balance.
4.1.3.3 Payment under or for any easement, license, permit, operating agreement, declaration, restrictive covenant or instrument relating to the Building or Project.
4.1.3.4 All expenses and rental related to services and costs of supplies, materials and equipment used in operating, managing and maintaining the Premises, Building and Project, the equipment therein and the adjacent sidewalks, driveways, parking and service areas, including, without limitation, expenses related to service agreements regarding security, fire and other alarm systems, janitorial services to the extent not furnished by Tenant under Paragraph 7.2 hereof, window cleaning, elevator maintenance, Building exterior maintenance, landscaping and expenses related to the administration, management and operation of the Project.
4.1.3.5 The cost of supplying any services and utilities which benefit all or a portion of the Premises, Building or Project to the extent not furnished by Tenant under Paragraph 7.2 hereof.
4.1.3.6 Legal expenses and the cost of audits by certified public accountants; provided, however, that legal expenses chargeable as Operating Expenses shall not include the cost of negotiating leases, collecting rents, evicting tenants nor shall it include costs incurred in legal proceedings with or against any tenant or to enforce the provisions of any lease.
4.1.3.7 A management fee equal to five percent (5%) of the sum of the Landlord’s effective gross income from the Project which consists of the gross rents charged the tenants of the Project plus expense reimbursements and other operating income.
If the rentable area of the Building and/or Project is not fully occupied during any calendar year of the Term as determined by Landlord, an adjustment shall be made in Landlord’s discretion in computing the Operating Expenses for such year so that Tenant pays an equitable portion of all variable items (e.g., utilities, janitorial services and other component expenses that are affected by variations in occupancy levels) of Operating Expenses, as determined by Landlord; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) of the total variable Operating Expenses from all of the tenants in the Building or Project, as the case may be.
The above enumeration of services and facilities shall not be deemed to impose an obligation on Landlord to make available or provide such services or facilities except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to make the same available or provide the same. Without limiting the generality of the foregoing, Tenant acknowledges and agrees that it shall be responsible for providing adequate security for its use of the Premises, the Building and the Project and that Landlord shall have no obligation or liability with respect thereto, except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to provide the same.
4.2 Payment of Estimated Operating Expenses. “Estimated Operating Expenses” for any particular year shall mean Landlord’s estimate of the Operating Expenses for such calendar year. During the last month of each calendar year during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of the Estimated Operating Expenses for the ensuing calendar year. Tenant shall pay Tenant’s Proportionate Share of the Estimated Operating Expenses together with monthly installments of Base Rent for the calendar year to which the Estimated Operating Expenses applies on the first day of each calendar month during such year, in advance, prorated for any partial month, if applicable. If at any time during the course of the calendar year, Landlord determines that Operating Expenses are projected to vary from the then Estimated Operating Expenses by more than five percent (5%), Landlord may, by written notice to Tenant, revise the Estimated Operating Expenses for the balance of such calendar year, and Tenant’s monthly installments for the remainder of such year shall be adjusted so that by the end of such calendar year Tenant has paid to Landlord Tenant’s Proportionate Share of the revised Estimated Operating Expenses for such year.
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4.3 Computation of Operating Expense Reconciliation. “Operating Expense Reconciliation” shall mean the difference between Estimated Operating Expenses and actual Operating Expenses for any calendar year as determined below. Within one hundred twenty (120) days after the end of each calendar year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement of actual Operating Expenses for the calendar year just ended, accompanied by a computation of Operating Expense Reconciliation. If such statement shows that Tenant’s monthly payment based upon Estimated Operating Expenses are less than Tenant’s Proportionate Share of Operating Expenses, then Tenant shall pay to Landlord the difference within twenty (20) days after receipt of such statement. If such statement shows that Tenant’s payments of Estimated Operating Expenses for the previous calendar year exceed Tenant’s Proportionate Share of Operating Expenses, then (provided that Tenant is not in default under this Lease) Landlord shall pay to Tenant the difference within thirty (30) days after delivery of such statement to Tenant. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement, then the Operating Expense Reconciliation shall be paid by the appropriate party within thirty (30) days after the date of delivery of the statement. Tenant’s Proportionate Share of the Operating Expense Reconciliation shall be prorated based on the actual number of days and the number of calendar months during such calendar year that this Lease is in effect. Notwithstanding anything to the contrary contained in Paragraph 4.1 or 4.2, Landlord’s failure to provide any notices or statements within the time periods specified in those paragraphs shall in no way excuse Tenant from its obligation to pay Tenant’s Proportionate Share of Operating Expenses.
4.4 Net Lease. This shall be a net Lease and Base Rent shall be paid to Landlord net of all costs and expenses, except as specifically provided to the contrary in this Lease. The provisions for payment of Operating Expenses and the Operating Expense Reconciliation are intended to pass on to Tenant and reimburse Landlord for all costs and expenses of the nature described in Paragraph 4.1. incurred in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building and/or Project and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project.
4.5 Tenant Audit. If Tenant disputes the amount set forth in any statement provided by Landlord under Paragraph 4.3 above, Tenant shall have the right, not later than twenty (20) days following receipt of such statement and upon the condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord’s books and records with respect to Operating Expenses for such calendar year to be audited by a certified public accountant selected by Tenant and subject to Landlord’s right of approval. The Operating Expense Reconciliation may be adjusted in accordance with the audit. If the audit discloses a discrepancy in Tenant’s favor in excess of ten percent (10%) of Tenant’s Proportionate Share of the Operating Expenses previously reported, the cost of the audit shall be borne by Landlord; otherwise the cost of the audit shall be paid by Tenant. If Tenant does not request an audit in accordance with the provisions of this Paragraph 4.5 within twenty (20) days after receipt of Landlord’s statement provided pursuant to Paragraph 4.3, such statement shall be final and binding for all purposes hereof. Tenant acknowledges and agrees that any information revealed in the above described audit may contain proprietary and sensitive information and that significant damage could result to Landlord if such information were disclosed to any party other than Tenant’s auditors. Tenant shall not in any manner disclose, provide or make available any information revealed by the audit to any person or entity without Landlord’s prior written consent, which consent may be withheld by Landlord in its sole and absolute discretion. The information disclosed by the audit will be used by Tenant solely for the purpose of evaluating Landlord’s books and records in connection with this Paragraph 4.5.
| 5. | Delinquent Payment; Handling Charges. |
5.1 Delinquent Payments. If any sum payable by Tenant to Landlord under this Lease is not paid when due, Tenant shall also pay a late charge equal to one hundred dollars ($100.00) or ten percent (10%) of the delinquent amount, whichever is greater. In addition, any amount due from Tenant to Landlord which is not paid when due shall bear interest at an annual rate of fifteen percent (15%). Any late charges and interest shall be deemed and constitute Additional Rent under the Lease and shall be paid by Tenant within five (5) calendar days from receipt of any statement or invoice from Landlord. Landlord reserves all other rights and remedies provided to Landlord at law and under this Lease.
5.2 Handling Charges. In the event that any check, draft, or other instrument of payment given by Tenant to Landlord is dishonored or returned for any reason, Tenant shall pay to Landlord the sum of $100 in addition to any Late Charge under the Lease and Landlord, at its option, may require all future Rent be paid by automatic direct deposit, cashier’s check or certified funds. Payments will be applied first to accrued Late Charges and attorney’s fees (if any), second to accrued interest, then to Base Rent and Operating Expenses, and any remaining amount to any other outstanding charges or costs. The acceptance of Late Charges and returned check charges by Landlord will not constitute a waiver of Default nor any other rights or remedies of Landlord.
6. Security Deposit. Upon execution of this Lease, Tenant shall pay to Landlord the amount of Security Deposit specified in the Basic Lease Information. If Tenant fails to comply with respect to any provision of this Lease, Landlord may, but shall not be required to, use, apply or retain all or any part of the Security Deposit. In addition, and not by way of limitation, for purposes of this paragraph, in the event Tenant fails to comply with any of the Rules and Regulations set forth on Exhibit E or adopted hereafter, or if Tenant fails to maintain insurance coverage as specified in Exhibit B, Landlord may retain, in addition to any actual damages it incurs, $150.00 of the Security Deposit. If any portion of the Security Deposit is so used or applied, Tenant shall, within ten (10) days after demand therefor by Landlord, deposit with Landlord funds in an amount sufficient to restore the Security Deposit to the amount required to be maintained by Tenant. Within a reasonable period following expiration or the sooner termination of this Lease, provided that Tenant has performed all of its obligations hereunder, Landlord shall return to Tenant the remaining portion of the Security Deposit, if any. The Security Deposit may be commingled by Landlord with Landlord’s other funds, and no interest shall be paid thereon.
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| 7. | Repairs and Maintenance. |
7.1 Landlord’s Obligations.
7.1.1 Landlord shall, subject to reimbursement by Tenant under Paragraph 4, maintain in good repair, reasonable wear and tear excepted, the structural soundness of the roof, foundations, and exterior walls of the Building together with the common areas and other equipment used in common by tenants in the Project, including the fire sprinkler systems. The term “exterior walls” as used herein shall not include windows, glass or plate glass, doors, dock bumpers or dock plates, special store fronts or office entries. Any damage caused by or repairs necessitated by any negligence or act of Tenant, including, without limitation, any contractor, employee, agent, invitee or visitor of Tenant (each, a “Tenant Party”) may be repaired by Landlord at Landlord’s option and Tenant’s expense. Tenant shall immediately give Landlord written notice of any defect or need of repairs in such components of the Building for which Landlord is responsible, after which Landlord shall have a reasonable opportunity and the right to enter the Premises at all reasonable times to repair same. Landlord’s liability with respect to any defects, repairs, or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance, and there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of repairs, alterations or improvements in or to any portion of the Premises, the Building or the Project or to fixtures, appurtenances or equipment in the Building, except as provided in Paragraph 15. By taking possession of the Premises, Tenant accepts them “as is,” as being in good order, condition and repair and the condition in which Landlord is obligated to deliver them. Landlord has no duty to provide security for any portion of the Project, including, without limitation, the Premises or the common areas. Tenant has assumed sole responsibility and liability for the security of itself, its employees, customers and invitees and their respective property in, on or about the Project. To the extent Landlord elects to provide any security equipment or personnel, Landlord is not warranting the effectiveness of, and Tenant shall not rely on, any such personnel or equipment. Landlord shall not be responsible or liable in any manner for any failure to provide security equipment or personnel, nor for the failure of any such equipment or personnel to prevent injury or property damage in, on or around the Project. Landlord reserves the right to alter, discontinue, change or withdraw any security equipment or personnel at any time without notice and without liability.
7.1.2 At Tenant’s expense, and included in “Common Area Maintenance”, Landlord shall have responsibility for the performance of preventive maintenance, repair and replacement of the heating, ventilation and air conditioning (HVAC) systems serving the Premises. Alternatively, Landlord may, upon notice to Tenant, require Tenant to obtain a regularly scheduled preventative maintenance/service contract at Tenant’s own expense and in such event both the maintenance contractor and the contract must be approved by Landlord. Any service contract obtained by Tenant must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective and a copy thereof delivered to Landlord no later than the date specified by Landlord.
7.2 Tenant’s Obligations.
7.2.1 Tenant shall contract for and pay directly when due for all gas, light, power, telephone and data, sprinkler charges, cleaning, waste disposal in excess of that provided by Landlord, and other utilities and services (the “Services”) used on or from the Premises, penalties, surcharges or the like pertaining thereto. If any such Services are not separately billed or metered to Tenant, Tenant shall pay an equitable share, as determined in good faith by Landlord, of all charges jointly billed or metered with other premises in the Project. Tenant shall also be responsible and pay for any personal property, sales, use or income taxes associated with Tenant’s use or occupancy of the Premises, insurance required to be carried by Tenant under the Lease, and Tenant’s repair and maintenance duties under the Lease.
7.2.2 Tenant shall at all times during the Term at Tenant’s expense maintain all parts of the Premises and such portions of the Building as are within the exclusive control of Tenant in a good, clean and secure condition and promptly make all necessary repairs and replacements, as determined by Landlord, including but not limited to, all windows, glass, doors, walls, including demising walls, and wall finishes, floors and floor covering, ceiling insulation, truck doors, hardware, dock bumpers, dock plates and levelers, plumbing work and fixtures, downspouts, entries, skylights, smoke hatches, roof vents, electrical and lighting systems with materials and workmanship of the same character, kind and quality of the Project. Tenant shall at Tenant’s expense also perform regular removal of trash and debris. In the event Tenant, with Landlord’s prior written approval, desires to add or modify the fire sprinklers in the Premises, any and all costs, expenses and fees, including those that relate or pertain in any way to installation or permitting shall be Tenant’s sole liability and obligation. Upon completion of any approved modification or addition by Tenant, and the written acceptance of the same by Landlord, Landlord will maintain the fire sprinkler system as set forth above. Notwithstanding anything to the contrary contained herein, Tenant shall, promptly reimburse Landlord for the repair to any damage to the Premises or the Building or Project resulting from or caused by any negligence or act of Tenant or a Tenant Party. Nothing herein shall expressly or by implication render Tenant Landlord’s agent or contractor to effect any repairs or maintenance required of Tenant under Paragraph 7.2, as to all which Tenant shall be solely responsible.
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7.2.3 Tenant shall be responsible for and shall pay prior to delinquency any taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, or other charges imposed upon, levied with respect to or assessed against its fixtures, furnishings, equipment, personal property or its Alterations, and on Tenant’s interest pursuant to this Lease, or any increase in any of the foregoing. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
| 8. | Improvements, Alterations & Mechanic’s Liens. |
8.1 Improvements; Alterations.
8.1.1 Tenant shall not make, or allow to be made, any alterations, physical additions, improvements or partitions, including without limitation the attachment of any fixtures or equipment, in, about or to the Premises (“Alterations”) without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to proposed Alterations which: (1) comply with all applicable Regulations (defined below); (2) are, in Landlord’s opinion, compatible with the Building or the Project and its mechanical, plumbing, electrical, heating/ventilation/air conditioning systems, and will not cause the Building or Project or such systems to be required to be modified to comply with any Regulations (including, without limitation, the Americans With Disabilities Act); and (3) will not interfere with the use and occupancy of any other portion of the Building or Project by any other tenant or its invitees. Specifically, but without limiting the generality of the foregoing, Tenant must obtain Landlord’s written consent for all plans and specifications for the proposed Alterations, construction means and methods, all appropriate permits and licenses, any contractor or subcontractor to be employed on the work of Alterations, and the time for performance of such work, and may impose rules and regulations for contractors and subcontractors performing such work. Tenant shall also supply to Landlord any documents and information requested by Landlord in connection with Landlord’s consideration of a request for approval hereunder. Tenant shall cause all Alterations to be accomplished in a good and workmanlike manner, and to comply with all applicable Regulations. Tenant shall at Tenant’s sole expense, perform any additional work required under applicable Regulations due to the Alterations hereunder. No review or consent by Landlord of or to any proposed Alteration or additional work shall constitute a waiver of Tenant’s obligations under this Paragraph 8.1. Tenant shall reimburse Landlord for all costs which Landlord may incur in connection with granting approval to Tenant for any such Alterations, including any costs or expenses which Landlord may incur in electing to have outside architects and engineers review said plans and specifications. All such Alterations shall remain the property of Tenant until the expiration or earlier termination of this Lease, at which time they shall be and become the property of Landlord; provided, however, that Landlord may, at Landlord’s option, require that Tenant, at Tenant’s expense, remove any or all Alterations made by Tenant and restore the Premises by the expiration or earlier termination of this Lease, to their condition existing prior to the construction of any such Alterations. All such removals and restoration shall be accomplished in a first- class and good and workmanlike manner so as not to cause any damage to the Premises or Project whatsoever. If Tenant fails to remove such Alterations or Tenant’s trade fixtures or furniture or other personal property, Landlord may keep and use them or remove any of them and cause them to be stored or disposed of in accordance with applicable law, at Tenant’s sole expense.
8.1.2 Notwithstanding the foregoing, at Landlord’s option (but without obligation), all or any portion of the Alterations shall be performed by Landlord for Tenant’s account and Tenant shall pay Landlord’s estimate of the cost thereof (including a reasonable charge for Landlord’s overhead and profit) prior to commencement of the work. In addition, at Landlord’s election and notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of removing any such Alterations and restoring the Premises to their original condition such cost to include a reasonable charge for Landlord’s overhead and profit as provided above, and such amount may be deducted from the Security Deposit or any other sums or amounts held by Landlord under this Lease.
8.1.3 At least ten (10) business days before beginning construction of any Alteration, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of non-responsibility. Upon substantial completion of construction, if the law so provides, Tenant shall cause a timely notice of completion to be recorded in the office of the recorder of the county in which the Building is located.
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8.2 Mechanic’s Liens. Tenant shall not cause, suffer or permit any mechanic’s or materialman’s lien or claim to be filed or asserted against the Premises or the Project for any work performed, materials furnished, or obligation incurred by or at the request of Tenant or any Tenant Party. In the event any lien is recorded against the Premises or the Project, Tenant shall immediately take all necessary steps to remove or bond around such lien.
| 9. | Use. |
9.1 Permitted Use. Tenant shall continuously occupy and use the Premises only for the Permitted Use stated in the Basic Lease Information (the “Permitted Use”) and shall not create or permit any nuisance or unreasonable interference with or disturbance of any other tenants of Landlord. Tenant shall at its sole cost and expense strictly comply with all existing or future applicable governmental laws, rules, requirements and regulations, and covenants, easements and restrictions of record governing and relating to the use, occupancy or possession of the Premises, or to Tenant’s use of the common areas together with all rules which may now or hereafter be adopted by Landlord affecting the Premises and/or the common areas (collectively “Regulations”). Should any Regulation now or hereafter be imposed on Tenant or Landlord by any governmental body relating to the use or occupancy of the Premises by Tenant or any Tenant Party, then Tenant agrees, at its sole cost and expense, to comply promptly with such Regulations.
9.2 Hazardous Materials. As used in this Lease, the term “Hazardous Material” means any flammable items, hazardous or toxic substances, including any substances defined as or included in the definition of “hazardous substances”, “hazardous wastes”, “hazardous materials” or “toxic substances” now or subsequently regulated under any applicable federal, state or local laws or regulations, including without limitation petroleum-based products, paints, pesticides, asbestos, PCBs and similar compounds, and including any materials subsequently found to have adverse effects on the environment or the health and safety of persons. Tenant shall not cause or permit any Hazardous Material to be generated, produced, brought upon, used, stored, treated or disposed of in or about the Premises, the Building or the Project by Tenant or any Tenant Party without the prior written consent of Landlord. Notwithstanding the foregoing, Tenant may, without Landlord’s prior written consent but in compliance with all applicable laws and Regulations, use legal amount of materials customarily used by occupants of commercial office space, so long as such use does not expose the Premises, the Building or the Project to any risk of contamination or damage or expose Landlord to any liability therefore.
| 10. | Assignment and Subletting. |
10.1 Transfers; Consent. Tenant shall not, without the prior written consent of Landlord, (a) assign, transfer, mortgage, hypothecate, or encumber this Lease or any estate or interest herein, whether directly, indirectly or by operation of law, (b) permit any other entity to become a Tenant hereunder by merger, consolidation, or other reorganization, (c) if Tenant is a corporation, partnership, limited liability company, limited liability partnership, trust, association or other business entity (other than a corporation whose stock is publicly traded), permit, directly or indirectly, the transfer of any ownership interest in Tenant so as to result in (i) a change in the current control of Tenant, (ii) a transfer of twenty-five percent (25%) or more in the aggregate in any twelve (12) month period in the beneficial ownership of such entity or (iii) a transfer of all or substantially all of the assets of Tenant, (d) sublet any portion of the Premises, or (e) grant any license, concession, or other right of occupancy of or with respect to any portion of the Premises, or (f) permit the use of the Premises by any party other than Tenant or a Tenant Party (each of the events listed in this Paragraph 10.1 being referred to herein as a “Transfer”). At least twenty (20) business days prior to the effective date of any proposed Transfer, Tenant shall provide Landlord with a written description of all terms and conditions of the proposed Transfer and all consideration therefor, copies of the proposed documentation, and such information as Landlord may request. Any Transfer made without Landlord’s consent shall be void and shall constitute an Event of Default by Tenant. Tenant shall pay to Landlord $500 as a review fee for each Transfer request and reimburse Landlord for its reasonable attorneys’ fees and all other costs incurred in connection with considering any request for consent to a proposed Transfer. Landlord’s consent to a Transfer shall not release Tenant from its obligations under this Lease (or any guarantor of this Lease of its obligations with respect thereto). Landlord’s consent to any Transfer shall not waive Landlord’s rights as to any subsequent Transfers.
10.2 Cancellation and Recapture. Notwithstanding Paragraph 10.1, Landlord may (but shall not be obligated to), within ten (10) business days after receipt of Tenant’s written request for Landlord’s consent to an assignment or subletting, cancel this Lease as to the portion of the Premises proposed to be sublet or subject to an assignment of this Lease as of the date such proposed Transfer is proposed to be effective and, thereafter, Landlord may lease such portion of the Premises to the prospective transferee (or to any other person or entity or not at all) without liability to Tenant. In the event Landlord does not elect to recapture the Premises, and instead approves the Tenant’s request for an assignment or sublease, any Rent to be charged to a subtenant greater than the Base Rent shall be immediately remitted to Landlord. In the event Landlord exercises the recapture rights, Landlord may also collect the pro-rata share of the unamortized Lease commission, Tenant Improvement and Rent Concession, if any, that relates to the Lease.
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| 11. | Insurance, Waivers, Subrogation and Indemnity. |
11.1 Insurance. Tenant shall maintain throughout the Term insurance policies as required on Exhibit B attached hereto and shall otherwise comply with the obligations and requirements provided on Exhibit B. In the event Tenant fails to maintain the insurance required in Exhibit B, Landlord may charge Tenant an administrative fee which sum shall be deemed Additional Rent in the amount of be One Hundred Fifty Dollars ($150.00) or Landlord’s actual costs, whichever is higher. However, if Tenant fails to provide evidence that it is in compliance with the requirements of the Lease pursuant to Exhibit B within thirty (30) days following delivery of written notice from Landlord, then Landlord may impose an additional charge of $150.00 each time Landlord provide Tenant with notice. Landlord may apply the Security Deposit toward the charges assessed in the manner set forth in Paragraph 6 above. Landlord will secure and maintain insurance coverage in such limits as Landlord may deem reasonable in its sole judgment to afford Landlord adequate protection. Any proceeds of such insurance shall be the sole property of Landlord to use as Landlord determines. Landlord makes no representation that the insurance policies and coverage amounts specified to be carried by Tenant or Landlord under the terms of this Lease are adequate to protect Tenant. Tenant will not do or permit anything to be done within or about the Premises or the Project which will increase the existing rate of any insurance on any portion of the Project or cause the cancellation of any insurance policy covering any portion of the Project. Tenant will, at its sole cost and expense, comply with any requirements of any insurer of Landlord. Tenant will provide, at its own expense, all insurance as Tenant deems adequate to protect its interests.
11.2 Waiver of Subrogation. Without limiting the effect of any other waiver of or limitation on the liability of Landlord set forth herein, neither Landlord nor Tenant shall be liable to the other party or to any insurance company (by way of subrogation or otherwise) for any loss of or damage to tangible property, regardless of negligence of Landlord or Tenant, to the extent such loss or damage would be insured under a policy of insurance required hereunder (or, if greater or broader coverage is actually maintained, then to the extent of such greater or broader coverage).
11.3 Indemnity. Subject to Paragraph 11.2, Tenant shall indemnify, defend by counsel reasonably acceptable to Landlord, protect and hold harmless Landlord and its affiliates, and each of their respective directors, shareholders, partners, lenders, members, managers, contractors, affiliates and employees (collectively, “Landlord Indemnitees”) from and against all claims, losses, liabilities, causes of suit or action, judgments, damages, penalties, costs and expenses (including, without limitation, reasonable attorneys’ fees, consultant’s fees, and court costs) arising from or asserted in connection with the use or occupancy of the Premises, the Building or the Project by Tenant or any Tenant Party, or any negligence or misconduct or omissions of Tenant or of any Tenant Party in or about the Premises or the Project, or Tenant’s breach of any of its covenants under this Lease, except in each case to the extent arising from the gross negligence or willful misconduct of Landlord or any Landlord Indemnitee. Except to the extent expressly provided in this Lease, Tenant hereby waives all claims against and releases Landlord and each Landlord Indemnitee for any injury to or death of persons, damage to property or business loss in any manner related to (i) Tenant’s use and occupancy of the Premises, the Building or the Project by or from any cause whatsoever (other than Landlord’s gross negligence or willful misconduct), (ii) acts of God, (iii) acts of third parties, or (iv) any matter outside of the reasonable control of Landlord. This Paragraph 11.3 shall survive termination or expiration of this Lease.
| 12. | Subordination; Attornment. |
12.1 Subordination. This Lease is subject and subordinate to all present and future ground or master leases of the Project and to the lien of all mortgages or deeds of trust (collectively, “Security Instruments”) now or hereafter encumbering the Project, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of any such Security Instruments, unless the holders of any such mortgages or deeds of trust, or the lessors under such ground or master leases (such holders and lessors are sometimes collectively referred to herein as “Holders”) require in writing that this Lease be superior thereto. Tenant shall, within fifteen (15) days of request to do so by Landlord, execute, acknowledge and deliver to Landlord such further instruments or assurances as Landlord may deem necessary or appropriate to evidence or confirm the subordination or superiority of this Lease to any such Security Instrument.
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12.2 Attornment. Tenant covenants and agrees that in the event that any proceedings are brought for the foreclosure of any mortgage or deed of trust, or if any ground or master lease is terminated, it shall attorn, without any deductions or set-offs whatsoever, to the purchaser upon any such foreclosure sale, or to the lessor of such ground or master lease, as the case may be, if so requested to do so by such purchaser or lessor, and to recognize such purchaser or lessor as “Landlord” under this Lease. In the event that the holder of any such mortgage or deed of trust becomes the “Landlord” under this Lease, such holder shall not be liable for any act or omission of Landlord which occurred prior to such holder’s acquisition of title.
13. Rules and Regulations and Signage. Tenant and its employees and agents shall faithfully observe and comply with the rules and regulations for the Property attached as Exhibit E and such changes to such rules and regulations as Landlord may from time to time reasonably promulgate (the “Rules and Regulations”) and the Signage Criteria which are attached hereto as Exhibit C and C-1, and all such modifications, additions, deletions and amendments thereto as Landlord shall adopt in writing from time to time. Landlord shall not be liable to Tenant for any violation of the Rules and Regulations by any other person, including any other tenant. In the event of a violation by Tenant of any of the Rules and Regulations set forth on Exhibit E or otherwise reasonably established by Landlord pursuant to Paragraph 9.1, or Signage Criteria, or if Tenant shall make use of the Property in violation of Paragraph 9, Landlord may impose a charge against Tenant to correct the violation and to compensate Landlord for the additional administrative costs incurred as a result of Tenant’s violation. The amount of the charge, which sum shall be deemed Additional Rent, shall be (a) the actual cost reasonably incurred by Landlord to remedy the violation and/or to correct the harm caused to Landlord or third parties by Tenant’s violation, and, (b) the fixed sum of One Hundred Fifty Dollars ($150.00) per violation. Only one such charge shall be imposed even though a violating condition may continue for more than one day, if the Tenant promptly corrects the behavior that gave rise to the violation following receipt of written notice from Landlord. However, if Tenant fails to correct the behavior that gave rise to a violation with ten (10) days following written notice from Landlord, or if Tenant commits a subsequent violation of the same type in any twelve (12) month period, then Landlord may impose the foregoing charge as if each day that the violating condition continued were a separate violation. The parties have agreed that the foregoing fixed sum charges are a reasonable estimate of the damages that Landlord would incur in the event of the proscribed behavior by Tenant and are not intended to be a penalty. At Landlord’s option, it may apply a portion of the Security Deposit to the charge.
14. Condemnation. If the entire Project or Premises are taken by right of eminent domain or conveyed by Landlord in lieu thereof (a “Taking”), this Lease shall terminate as of the date of the Taking. If any material portion, but less than all of the Premises or the Building, become subject to a Taking and such Taking will render the Premises untenantable for a period of more than one hundred eighty (180) days, then Tenant may terminate this Lease as of the date of such Taking by giving written notice to Landlord within thirty (30) days after the Taking, and all Rent paid or payable hereunder shall be apportioned between Landlord and Tenant as of the date of such Taking. If any material portion, but less than all, of the Project, Building or the Premises becomes subject to a Taking, or if Landlord is required to pay any of the proceeds received for a Taking to any Holder of any Security Instrument, then Landlord may terminate this Lease by delivering written notice thereof to Tenant within thirty (30) days after such Taking, and all Rent paid or payable hereunder shall be apportioned between Landlord and Tenant as of the date of such Taking. If this Lease is not so terminated, then Base Rent thereafter payable hereunder shall be abated for the duration of the Taking in proportion to that portion of the Premises rendered untenantable by such Taking. If any Taking occurs, then Landlord shall receive the entire award or other compensation for the land on which the Project is situated, the Project, and other improvements taken, and Tenant may separately pursue a claim (to the extent it will not reduce Landlord’s award).
| 15. | Fire or Other Casualty. |
15.1 Repair Estimate; Right to Terminate. If all or any portion of the Premises or the Project is damaged by fire or other casualty (a “Casualty”), Landlord shall, within ninety (90) days after Landlord’s discovery of such damage, deliver to Tenant its good faith estimate (the “Damage Notice”) of the time period following such notice needed to repair the damage caused by such Casualty. Landlord may elect to terminate this Lease in any case where (a) any portion of the Premises or any material portion of the Project are damaged and (b) either (i) Landlord estimates in good faith that the repair and restoration of such damage under Paragraph 15.2 (“Restoration”) cannot reasonably be completed (without the payment of overtime) within two hundred (200) days of Landlord’s actual discovery of such damage, (ii) the Holder of any Security Instrument requires the application of any insurance proceeds with respect to such Casualty to be applied to the outstanding balance of the obligation secured by such Security Instrument, (iii) the cost of such Restoration is not fully covered by insurance proceeds available to Landlord and/or payments received by Landlord from tenants, or (iv) Tenant shall be entitled to an abatement of rent under this Paragraph 15 for any period of time in excess of thirty-three percent (33%) of the remainder of the Term.
15.2 Repair Obligation; Abatement of Rent. Subject to Paragraph 15.1, Landlord shall, within a reasonable time after the discovery by Landlord of any damage resulting from a Casualty, begin with reasonable diligence to restore the Premises to substantially the same condition as existed immediately before such Casualty, except for modifications required by Regulations, and modifications to the Project reasonably deemed desirable by Landlord; provided, however, that Landlord shall not be required as part of the Restoration to repair or replace any of the Alterations, furniture, equipment, fixtures, and other improvements which may have been placed by, or at the request of, Tenant or other occupants in the Premises. Landlord shall have no liability for any inconvenience or annoyance to Tenant or injury to Tenant’s business as a result of any Casualty, regardless of the cause therefor. Base Rent shall abate only if and solely to the extent a Casualty damages the Premises and Tenant is unable to occupy and does not occupy the Premises for the Permitted Use.
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16. Parking. Tenant shall have the right to the nonexclusive use of the parking facilities of the Project for the parking of motor vehicles used by Tenant and Tenant Parties only; such rights are not transferable without Landlord’s approval. The use of such parking facilities shall be subject to any rules and regulations as may be adopted by Landlord from time to time.
17. Events of Default. Each of the following occurrences shall be an “Event of Default” and shall constitute a material default and breach of this Lease by Tenant: (a) any failure by Tenant to pay Rent or any other amount due and payable hereunder when due; (b) the abandonment or vacation of the Premises by Tenant regardless of whether Rent is paid or not; (c) any failure by Tenant to obtain and maintain insurance and/or deliver insurance certificates required under Paragraph 11; (d) any failure by Tenant to execute and deliver any estoppel certificate or other document described in Paragraphs 12 or 23 requested by Landlord, where such failure continues for five (5) days after delivery of written notice of such failure by Landlord to Tenant; (e) any failure by Tenant to fully perform any other obligation of Tenant under this Lease, including but not limited to any Rules or Regulations or Sign Criteria, where such failure continues for thirty (30) days after delivery of written notice of such failure by Landlord to Tenant; (f) the voluntary or involuntary filing of a petition by or against Tenant or any general partner of Tenant or any guarantor (i) in any bankruptcy or other insolvency proceeding, (ii) seeking any relief under any state or federal debtor relief law, or (iii) for the appointment of a liquidator or receiver for all or substantially all of Tenant’s property or for Tenant’s interest in this Lease; (g) the default, repudiation or revocation of any guarantor of Tenant’s obligations hereunder. Any notice of any failure of Tenant required under this Paragraph 17 shall be in lieu of, and not in addition to, any notice required under applicable law.
18. Remedies. Upon the occurrence of any Event of Default by Tenant, Landlord shall have, in addition to any other remedies available at law or in equity, the option to pursue any one (1) or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever:
18.1 Terminate this Lease, and Landlord may recover from Tenant all amounts permitted by law necessary to compensate Landlord for the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease (specifically including, without limitation, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises, the Building, or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant);
18.2 If Landlord does not elect to terminate this Lease on account of any Event of Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due.
18.3 Landlord shall at all times have the right to seek any declaratory, injunctive, or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.
18.4 Following the occurrence of two instances of late payment of any sum due and owing under this Lease in any twelve (12) month period, Landlord may require that all future amounts payable under this Lease shall be payable by cashier’s check or electronic funds transfer, and may require that Tenant increase the Security Deposit to an amount equal to two times the current month’s Rent at the time of the most recent default.
18.5 Cure Tenant’s default at the expense of Tenant (A) immediately and without notice in the case (1) of emergency, (2) where such default unreasonably interferes with any other tenant in the Project, or (3) where such default will result in the violation of any Regulation or the cancellation of any insurance policy maintained by Landlord, and (B) in any other case if such default continues for ten (10) days after notice of such default from Landlord and all costs incurred by Landlord in curing such default(s), including, without limitation, attorneys’ fees, shall be reimbursable by Tenant as Rent hereunder upon demand, together with interest thereon, from the date such costs were incurred by Landlord, at the Default Rate.
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19. Surrender of Premises. No agreement to accept a surrender of the Premises shall be valid unless it is in writing and signed by Landlord. At the expiration or earlier termination of this Lease, Tenant shall deliver to Landlord all keys to the Premises, and Tenant shall deliver to Landlord the Premises in the same condition as existed on the date Tenant took possession under any lease or with any landlord thereof, ordinary wear and tear excepted. In addition, prior to the expiration of the Term or any sooner termination thereof, (a) Tenant shall remove such Alterations as Landlord shall request (even if installed with Landlord’s consent) and shall restore the portion of the Premises affected by such Alterations and such removal to its condition existing immediately prior to the making of such Alterations, (b) Tenant shall remove from the Premises all unattached trade fixtures, furniture, equipment and personal property located in the Premises, including, without limitation, phone equipment, wiring, cabling and all garbage, waste and debris, and (c) Tenant shall repair all damage to the Premises or the Project caused by any such removal including, without limitation, full restoration of all holes and gaps resulting from any such removal and repainting required thereby. All personal property and fixtures of Tenant not so removed shall, to the extent permitted under applicable Regulations, be deemed to have been abandoned by Tenant and may be appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord without notice to Tenant and without any obligation to account for such items.
20. Holding Over. If Tenant holds over after the expiration or earlier termination of the Term hereof, Tenant shall be a month-to-month tenant and otherwise upon the terms, covenants and conditions herein specified and Tenant’s Base Rent shall be at a rate equal to one hundred fifty percent (150%) of the monthly installment of Base Rent payable by Tenant immediately prior to such expiration or termination.
| 21. | Substitution or Demolition. |
21.1 Substitution. Upon at least sixty (60) days prior written notice, Landlord may relocate Tenant within the Project (or to any other facility owned by Landlord or an affiliate of Landlord within the vicinity of the Project) to substitute space. As used in this Paragraph, “substitute space” means space, at Landlord’s sole discretion, containing either (i) up to 500 square feet more than the square footage set forth in the Basic Lease Information or (ii) which is not more than 15 percent greater or lesser than the square footage set forth in the Basic Lease Information, and which is comparable in utility and condition to the Premises. If Landlord exercises this right to relocate Tenant, Landlord shall reimburse Tenant for (a) Tenant’s reasonable out-of-pocket expenses for moving Tenant’s furniture, equipment and supplies from the Premises to the substitute space; (b) the cost of installing leasehold improvements in the substitute space comparable to those in the Premises; (c) reprinting Tenant’s stationery of the same quality and quantity as Tenant’s stationery supply on hand immediately before Landlord’s exercise of this relocation right. In the event Tenant is relocated pursuant to this Paragraph 21, Tenant shall surrender the Premises to Landlord in accordance with all terms and conditions of this Lease prior to the termination of the 60-day period and shall promptly upon Landlord’s request execute an amendment or new Lease which shall designate the substitute space as the “Premises” subject to this Lease and adjust the Base Rent and Additional Rent to reflect any increase or decrease in the floor area of the substitute space or, if Tenant is relocated outside the Project, to execute a new lease in substantially the same form as the existing Lease with the affiliate of Landlord.
21.2 Demolition. Landlord shall have the right to terminate this Lease in the event Landlord elects to demolish 75 percent or more of the total floor area in the building containing the Premises. In such event, Landlord shall give Tenant a notice of termination at least 180 days prior to the effective date of such termination and shall pay Tenant, on the termination date, the cost (less depreciation) of Tenant’s fixtures (other than removable trade fixtures) and of leasehold improvements installed in the Premises at Tenant’s expense. For the purposes of this provision, depreciation of Tenant’s fixtures and leasehold improvements shall be calculated on a straight-line basis over the Term of this Lease (exclusive of any permitted extensions of the Term). Upon payment to Tenant of the amount specified in this paragraph and any prepaid Rent or security deposit, Landlord shall be relieved of all further liability to Tenant hereunder and the Lease shall terminate as of the effective date of such termination except for the rights and obligations accrued as of the date of such termination.
22. Landlord Transfers and Liability. Landlord may, without restriction, sell, assign or transfer in any manner all or any portion of the Project, any interest therein or any of Landlord’s rights under this Lease and then Landlord shall automatically be released from any further obligations hereunder. The liability of Landlord to Tenant for any default by Landlord under the terms of this Lease or with respect to any obligation or liability related to the Premises or the Project shall be recoverable only from the interest of Landlord in the Project, and neither Landlord nor any affiliate thereof shall have any personal liability with respect thereto and in no case shall Landlord be liable to Tenant for any lost profits, damage to business, or any form of special, indirect or consequential damage on account of any breach of this Lease. In the event that the holder of a mortgage or deed of trust on the Premises becomes the “Landlord” under this Lease, such holder shall not be liable for any act or omission of Landlord which occurred prior to such holder’s acquisition of title.
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23. Estoppel Certificates. At any time and from time to time during the Term, Tenant shall, without charge, execute, acknowledge and deliver to Landlord within ten (10) days after Landlord’s request therefor, an estoppel certificate in recordable form containing such factual certifications and other provisions as are commonly found in the estoppel certificate forms requested by institutional lenders and purchasers.
24. Notices. All Notices, demands, consents, or other information desired or required to be given under this Lease shall be effective only if given in writing and sent by one of the following methods and addressed to the appropriate Addresses For Notices set forth in the Basic Lease Information for such party, or at such other address as may be specified from time to time, in writing, or, if to Tenant, at the Premises: (a) certified United States mail, postage prepaid, return receipt requested, (b) nationally recognized express mail courier that provides written evidence of delivery, fees prepaid, (c) United States first-class mail, postage prepaid, (d) personal delivery, or (e) by electronic mail, with a copy sent by United States first-class mail, postage prepaid. Any such notice, demand, consent, or other information shall be deemed given (i) if sent by certified mail, on the date of delivery shown on the receipt card, (ii) if sent by courier, on the date it is recorded by such courier, (iii) if sent by United States first-class mail, three (3) business days from the date mailed, (iv) if delivered personally, upon delivery or, if refused by the intended recipient, upon attempted delivery, or (v) if by electronic mail, three (3) business days from the date a copy of the same is sent by United States first-class mail, postage prepaid.
25. Payment by Tenant; Non-Waiver. Landlord’s acceptance of Rent following an Event of Default shall not waive Landlord’s rights regarding such Event of Default. No waiver by Landlord of any violation or breach of any of the terms contained herein shall waive Landlord’s rights regarding any future violation of such terms. Landlord’s acceptance of any partial payment of Rent shall not waive Landlord’s rights with regard to the remaining portion of the Rent that is due, regardless of any endorsement or other statement on any instrument delivered in payment of Rent or any writing delivered in connection therewith; accordingly, Landlord’s acceptance of a partial payment of Rent shall not constitute an accord and satisfaction of the full amount of the Rent that is due.
26. Certain Rights Reserved by Landlord. Landlord hereby reserves and shall have the following rights with respect to the Premises and the Project: (a) to make inspections, repairs, or improvements, whether structural or otherwise, in and about the Premises or any part thereof; and (b) to enter the Premises at reasonable hours (or at any time in an emergency) to perform repairs, to take any action authorized hereunder, or to show the Premises to prospective purchasers or lenders, or, during the last six (6) months of the Term, prospective tenants.
27. Miscellaneous. If any clause or provision of this Lease is determined to be illegal, invalid, or unenforceable under present or future laws, then the remainder of this Lease shall not be affected thereby. This Lease may not be amended except by instrument in writing signed by Landlord and Tenant. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing signed by Landlord. The terms and conditions contained in this Lease shall inure to the benefit of and be binding upon the parties hereto, and upon their respective successors in interest and legal representatives, except as otherwise herein expressly provided. This Lease constitutes the entire agreement between Landlord and Tenant regarding the subject matter hereof and supersedes all oral statements and prior writings relating thereto. Tenant and the person or persons signing on behalf of Tenant represent and warrant that Tenant has full right, power, and authority to enter into this Lease, and that all persons signing this Lease on its behalf are authorized to do so. If Tenant is comprised of more than one party, each such party shall be jointly and severally liable for Tenant’s obligations under this Lease. All exhibits and attachments attached hereto are incorporated herein by this reference. This Lease shall be governed by and construed in accordance with the laws of the jurisdiction where the Project is located. In any action which Landlord or Tenant brings to enforce its respective rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party, including without limitation, reasonable attorneys’ fees and court costs. Tenant shall not record this Lease or any memorandum hereof. TO THE MAXIMUM EXTENT PERMITTED BY LAW, TENANT WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR WITH RESPECT TO THIS LEASE. This Lease may be executed in any number of counterparts, each of which shall be deemed an original. Time is of the essence as to the performance of each covenant hereunder in which time of performance is a factor.
28. No Broker. Landlord and Tenant each warrant that they have dealt with no real estate broker in connection with this transaction with the exception of the brokers, if any, named in Exhibit F. Landlord and Tenant each agree to hold each other harmless from and against any and all damages, costs and expenses resulting from any claim(s) for a brokerage commission or finder’s fee that may be asserted against either of them by any broker or finder with whom the other has dealt.
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29. Confidentiality. The Tenant and its employees, agents and brokers shall keep confidential all matters concerning the terms of this Lease Agreement and the negotiations which led to it and shall not disclose the fact or substance of the negotiations or the terms to anyone without the prior written consent of the Landlord. Notwithstanding the foregoing, the provisions and preceding negotiations may be revealed to the Tenant’s accountants, attorneys and lenders so long as each such recipient is advised of the necessity for them to also maintain the confidentiality of the information. If any third party demands entitlement to the benefit of similar terms or conditions on the basis that Tenant received such treatment, it will be deemed to be the result of a violation of this confidentiality requirement by Tenant and such violation shall constitute an event of Default under the Lease.
30. Further provisions. Any additional terms and conditions of the Lease, if any, are set forth in the attached Exhibit F.
31. Counterparts. This Agreement may be executed in counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission or email means shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement for all purposes. Signatures of the Parties transmitted by facsimile or email shall be deemed to be their original signatures for any purposes whatsoever.
Submission of this Lease to Tenant for examination and signature is not an option or offer to lease and does not create a reservation or option to lease. This Lease will not become effective or binding until execution and delivery by both Landlord and Tenant.
| Landlord | Tenant | |||
| Schnitzer Properties, LLC, | Healthy Extracts Inc., | |||
| an Oregon limited liability company | a Nevada corporation | |||
| By: |  |
By: |  | |
| Title: | Vp Leasing & Operations | Print Name: | Kevin Pitts | |
| Title: | President | |||
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EXHIBIT A
PREMISES
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EXHIBIT A-1
PROJECT
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EXHIBIT B
INSURANCE
Tenant’s Insurance. Tenant shall, at Tenant’s sole cost and expense, procure and keep in effect from the date of this Lease (or earlier authorized occupancy) and at all times until the end of the Term, the following insurance coverage:
1. Property Insurance. Insurance on all personal property and fixtures of Tenant and all improvements made by or for Tenant to the Premises on an “All Risk” or “Special Form” basis, for the full replacement value of such property.
2. Liability Insurance. Commercial General Liability insurance written on an ISO CG 00 01 10 93 or equivalent form, on an occurrence basis, with a per occurrence limit of at least $1,000,000, and a minimum general aggregate limit of at least $2,000,000, covering bodily injury and property damage liability occurring in or about the Premises or arising out of the use and occupancy of the Premises and/or the Project by Tenant or any Tenant Party. Such insurance shall include contractual liability coverage insuring Tenant’s indemnity obligations under this Lease, and shall be endorsed to name Landlord, any Holder of a Security Instrument and any other party specified by Landlord as an additional insured with regard to liability arising out of the ownership, maintenance or use of the Premises.
3. Worker’s Compensation and Employer’s Liability Insurance. (a) Worker’s Compensation Insurance as required by any Regulation, and (b) Employer’s Liability Insurance in amounts not less than $1,000,000 each accident for bodily injury by accident and for bodily injury by disease, and for each employee for bodily injury by disease.
4. Commercial Auto Liability Insurance. Commercial auto liability insurance with a combined limit of not less than One Million Dollars ($1,000,000) for bodily injury and property damage for each accident. Such insurance shall cover liability relating to any auto (including owned, hired and non-owned autos).
5. Alterations Requirements. In the event Tenant shall desire to perform any Alterations, Tenant shall deliver to Landlord, prior to commencing such Alterations (i) evidence satisfactory to Landlord that Tenant carries “Builder’s Risk” insurance covering construction of such Alterations in an amount and form approved by Landlord, (ii) such other insurance as Landlord shall reasonably require, and (iii) a lien and completion bond or other security in form and amount satisfactory to Landlord.
6. General Insurance Requirements. All coverages described in this Exhibit B shall be endorsed to (i) name Landlord as an additional insured and Tenant shall not allow such insurance to lapse, be terminated or altered without thirty (30) days’ prior written notice to the Landlord; and (ii) be primary and non-contributing with Landlord’s insurance. The property insurance coverage required of Tenant shall be endorsed to waive all rights of subrogation by the insurance carrier against Landlord or shall otherwise state that the carrier shall be so bound by Tenant’s waiver of the carrier’s right of subrogation. If at any time during the Term the amount or coverage of insurance which Tenant is required to carry under this Exhibit B is, in Landlord’s reasonable judgment, materially less than the amount or type of insurance coverage typically carried by owners or tenants of properties located in the general area in which the Premises are located which are similar to and operated for similar purposes as the Premises or if Tenant’s use of the Premises should change with or without Landlord’s consent, Landlord shall have the right to require Tenant to increase the amount or change the types of insurance coverage required under this Exhibit B. All insurance policies required to be carried by Tenant under this Lease shall be written by companies rated AX or better in “Best’s Insurance Guide” and authorized to do business in the State of Nevada. Deductible amounts under all insurance policies required to be carried by Tenant under this Lease shall not exceed $10,000 per occurrence. Tenant shall deliver to Landlord on or before the Term Commencement Date, and thereafter at least thirty (30) days before the expiration dates of the expired policies, certified copies of Tenant’s insurance policies, or a certificate evidencing the same issued by the insurer thereunder, and, if Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at Landlord’s option and in addition to Landlord’s other remedies in the event of a default by Tenant under the Lease, procure the same for the account of Tenant, and the cost thereof (with interest thereon at the Default Rate) shall be paid to Landlord as Additional Rent.
Landlord’s Insurance. All insurance maintained by Landlord shall be for the sole benefit of Landlord and under Landlord’s sole control.
1. Property Insurance. Landlord agrees to maintain property insurance insuring the Building against damage or destruction due to risk including fire, vandalism, and malicious mischief in an amount not less than the replacement cost thereof, in the form and with deductibles and endorsements as selected by Landlord. At its election, Landlord may instead (but shall have no obligation to) obtain “All Risk” coverage, and may also obtain earthquake, pollution, and/or flood insurance in amounts selected by Landlord.
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EXHIBIT C
SIGN CRITERIA
| 1. | Purpose. These Sign Criteria have been established for the purpose of maintaining a consistent overall appearance of the Project and shall be strictly enforced. |
| 2. | Signage. As used herein, Signage shall mean any signs, advertising placards, banners, pennants, names, insignias, trademarks, balloons, flags, decals or other decorative or descriptive material installed on the Project. |
| 3. | Tenant Responsibility. Tenant, at its sole expense, shall be solely responsible for any Signage it uses at the Premises, and shall, at its sole cost and expense conform with these Sign Criteria and all applicable laws, obtain required permits, install, maintain and remove such Signage, as well as restore the Premises to Landlord’s satisfaction after such Signage is removed. |
| 4. | Approved Contractor. Tenant shall contract with a professionally licensed sign company approved by Landlord for the design, fabrication and installation of Tenant’s Signage. |
| 5. | Landlord Approval Required. Tenant shall obtain Landlord’s written approval prior to the installation or removal of any Signage on the Premises. Prior to Tenant’s Signage installation, Tenant shall submit to Landlord for its review and approval, a scaled drawing of Tenant’s proposed Signage including colors, construction details, method of attachment, electrical loads and electrical plans. Any sign installed without the prior approval of Landlord will be brought into conformity or removed at Tenant’s expense. |
| 6. | Permitted Signage. Tenant may place Signage at Tenant’s main entrance to display Tenant’s business name, type of business and/or logo only. Tenant may also install Signage at Tenant’s main entrance to display Tenant’s hours of operation and such other information approved by Landlord in writing. Landlord shall designate the specific location of Tenant’s Signage. |
| 7. | Sign Specifications. All Tenant Signage shall comply with all applicable laws and ordinances, these Sign Criteria and the Sign Specifications attached hereto as Exhibit C-1. |
| 8. | Installation. Tenant shall notify Landlord prior to the installation of any Signage. Tenant or its contractor shall repair any damage to any property caused by such installation work. |
| 9. | Maintenance. Tenant shall maintain its Signage, including the illumination of the same at its sole cost and expense. Landlord may repair or maintain Tenant’s Signage, at Tenant’s expense, if Tenant does not maintain its signage after ten days written notice from Landlord. |
| 10. | Removal. Tenant shall remove all of its Signage upon the expiration or early termination of the Lease. Tenant shall notify Landlord prior to such removal. Landlord, at Tenant’s expense, shall repair any damage to the building required as a result of Tenant’s sign removal. |
| 11. | Interior Signage. Except as provided herein, no signs visible from the exterior of the Premises shall be permitted in the interior of the Premises without Landlord’s prior written consent. |
| 12. | Vehicle Signs. Without restricting Tenant’s right to park its delivery or other vehicles used in the normal course of business on the Project, no signs may be affixed to any vehicles or trailers parked on the Project. |
| 13. | Prohibited Signs. Signs consisting of moving, swinging, rotating, flashing, blinking, scintillating, fluctuating or otherwise animated light are prohibited. Off-premise signs or any sign installed for the purpose of advertising a product, event, person, or subject other than Tenant’s Permitted Use are prohibited, without prior written consent of the Landlord. |
| 14. | No installation without Landlord Approvals. Except as provided herein, no Signage shall be affixed, without Landlord’s prior approval, anywhere on the Project, including but not limited to on the glass, in the window area or on the exterior walls of the building, landscaping areas, sidewalks or the driveways or parking areas of the Project. |
| 15. | Changes. These Sign Criteria are subject to change by Landlord. In the event Landlord changes the Sign Criteria for the Project during the term of this Lease, Landlord may update Tenant’s Signage in compliance with the new Sign Criteria provided that any costs associated with such change shall be at Landlord’s sole expense. |
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EXHIBIT C-1
SIGNAGE SPECIFICATIONS
The signage criteria has been established for the purpose of maintaining the overall appearance of the project. All signage must be submitted to the Landlord for approval before any work can begin.
Identification Signage
| 1. | Tenants Without Retail Sales. |
| a. | Each store-front is allowed a basic identification sign to display company name in Polyurethane (Gatorfoam) 11” microgramme letters 1” thick the color of which shall match the color scheme of the exterior trim color of the building. |
| b. | Corporate or company names will be listed in capital letters only, no lower-case letters are allowed. |
| c. | Letter height will remain consistent at 11” with length of sign varying according to the length of the name display. Lettering styles will be at the discretion of the property owner with script lettering allowed. Logos or symbols are to be centered from top to bottom in the sign area. Names will be mounted on the spandrel, above the midway line, and to the left or right side depending upon store-front door location. The store-front building sign will be restricted to company or corporate name logo or symbol only, no division names, description of services or slogans are allowed in the sign area. |
| d. | The logo when applicable will not exceed more than 50% of the sign face. |
| e. | A margin equal to at least one-half of the height of the type should appear to the left, right, top, and bottom of the store-front. Margin Parameters will not apply to the logo area of the sign. Neutral space between a two-line sign shall be a minimum of one-third the height of the letter type. |
| 2. | Tenants with Retail Sales |
| a. | General Guidelines |
| i. | The store-front building sign will be restricted to company or corporate name and logo or symbol only, no division names, descriptions of services or slogans are allowed in the sign area. |
| ii. | Neutral space between a two-line sign shall be a minimum of 1/3 the height of the letter type. |
| b. | If Tenant only occupies one suite with Freeway Frontage. |
| i. | Maximum letter height is 24” for 1 line of text. |
| ii. | Maximum of two lines of text with 18” maximum letter height. |
| iii. | Signage must be centered on entrance suite and be minimum of 2’ short than suite width up to maximum of 18’. |
| iv. | Maximum of 36 square feet of signage |
| c. | If Tenant has multiple suites with Freeway Frontage. |
| i. | Maximum letter height is 24” for 1 line of text. |
| ii. | Maximum of three lines of text with 18” maximum letter height. |
| iii. | Signage can either be centered on a single entrance of a suite and 2’ shorter than that suite width up to a maximum of 18’ or be centered over multiple suites and be 10’ shorter than the combined suite’s width up to a maximum of 25’. |
| iv. | Maximum of 75 square feet of signage |
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| d. | If Tenant has only one suite without Freeway Frontage. |
| i. | Maximum letter height is 18’’ for 1 line of text. |
| ii. | Maximum of two lines of text with 12” letter height. |
| iii. | Signage must be centered on entrance suite and be a minimum of 2’ shorter than the suite width up to a maximum of 18’. |
| iv. | Maximum of 36 square feet of signage. |
| v. | Signage to be non-illuminated Gatorfoam. |
| e. | If Tenant has multiple suites without Freeway Frontage. |
| i. | Maximum letter height is 18” for 1 line of text. |
| ii. | Maximum of two lines of text with 12” letter height. |
| iii. | Signage can either be centered on a single entrance suite and be 2’ shorter than that suite width up to a maximum of 18’, or be centered over multiple suites and be 10’ shorter than the combined suites width up to a maximum of 25’. |
| iv. | Maximum of 50 square feet of signage. |
| v. | Signage to be non-illuminated Gatorfoam |
Information Signage
| 1. | Front Door Signage |
| i. | Business name, address and operating hours shall be white vinyl Helvetica Regular letter style. Black Mountain Design Review Committee to approve all front door signage prior to installation |
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EXHIBIT D
TENANT IMPROVEMENTS
| 1. | Tenant Improvements. |
| 1.1. | Scope of Work. Landlord shall deliver the space in the following condition (the “Tenant Improvements”) including but not limited to: |
| 1.1.1. | All Tenant Improvements shall be constructed of Landlord’s standard building materials. Otherwise, Premises shall be delivered to Tenant in “As-Is” conditions. Any additional Tenant Improvements shall be at the sole cost of the Tenant and only permissible with prior written consent by Landlord. |
| 1.1.2. | Cleaning: Professionally clean the Premises. |
| 1.1.3. | Tenant shall designate one or more representatives who shall be available throughout the process of design and construction of the Tenant Improvements, for onsite and telephone consultations and decisions as necessary. Tenant’s designated representatives shall have the authority to bind Tenant as to all matters relating to the Tenant Improvements. |
| 1.2. | Construction. Landlord shall engage the services of a General Contractor to construct the Tenant Improvements. The Landlord will provide in-house Project Management services for the duration of the Tenant Improvements. |
| 1.2.1. | Tenant shall be responsible for delays and additional costs in completion of the design and construction of the Tenant Improvements caused by its changes to the Tenant Improvement Plans or by delays caused by Tenant’s special materials that require a long lead-time for delivery. |
| 1.2.2. | If Tenant desires any change to the Tenant Improvements, Tenant shall submit a written request for such change to Landlord’s Project Manager, together with all information necessary to show and explain changes from the approved Tenant Improvement Plans. Any such change shall be subject to Landlord’s approval, which approval shall not be unreasonably withheld. Landlord’s Project Manager shall notify Tenant in writing of the amount, if any, Landlord will charge or credit to Tenant for such change. |
| 1.3. | Cost . The cost to design, permit and construct the Tenant Improvements shall be paid by Landlord. Any and all costs, fees or expenses of any kind or nature that are incurred due to changes requested by Tenant shall be the sole responsibility of Tenant. |
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EXHIBIT E
RULES AND REGULATIONS
Except as otherwise expressly provided in the Lease to which this exhibit is attached, the following Rules and Regulations shall apply:
| 1. | The sidewalk, entries and driveways of the Project shall not be obstructed by Tenant or its agents or used by them for any purpose other than ingress and egress to and from the Premises. |
| 2. | a. Tenant must properly remove and dispose of fats, oils and grease (“FOG”) and shall NOT dispose of FOG down a toilet or a drain. Tenant shall comply with all applicable laws, rules and regulations regarding the disposal of FOG. Tenant acknowledges that if FOG is improperly disposed of, it can cause significant problems in the sewer line and possibly lead to sewer overflows. |
b. Tenant must establish an effective FOG management program for recyclable grease, interceptor and grease trap waste. Tenant must provide Landlord with monthly receipt showing that they have had a certified company effectively clean out and service grease interceptors.
c. Tenant shall be liable for the costs of repairs and any damages that relate or pertain to the failure to maintain and follow an adequate FOG maintenance and disposal system.
| 3. | Tenant and its employees, invitees and guests shall at all times comply with the Nevada Clean Indoor Air Act and there shall be no smoking of any kind in or around the Premises. In addition, no vaping or electronic smoking devices of any nature shall be used in or around the Premises. |
| 4. | Tenant shall not place any objects, including antennas, satellites, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises or on the roof of the Project, without Landlord’s explicit consent. No A-frame signs allowed on the Project, the landscaping or the sidewalks. |
| 5. | Except for seeing-eye dogs or service animals, no animals, including birds or reptiles, shall be allowed in the offices, halls, corridors or common areas in the Project. Feeding of pigeons is strictly prohibited. |
| 6. | Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises including revving and testing of engines, vehicles and car stereo systems. |
| 7. | If Tenant desires data or telephone lines or other electric connections or installations in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant’s expense, with prior written authorization from Landlord. |
| 8. | Tenant shall not install or operate any steam or gas engine or boiler or carry on any mechanical business in the Premises except as specifically approved in the Lease. The use of oil, gas or flammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project. Tenant cannot under any circumstances spray paint objects inside of or outside of leased Premises, unless using a certified paint booth. |
| 9. | Parking any type of recreational vehicles is specifically prohibited on or about the Project. No vehicle of any type shall be stored in the parking areas at any time. In the event a vehicle is disabled, improperly or illegally parked, or the vehicle is without a current license plate and tag, it shall be towed within 24 hours at the Tenant’s expense. There shall be no “For Sale” or other advertising signs on or about any parked vehicle. All vehicles shall be parked in designated parking areas in conformity with all signs and other markings and cannot take more than one designated parking space. All parking will be open parking; numbering or lettering of individual spaces will not be permitted except as specified by Landlord. The parking lot cannot be used for the testing of vehicles, motorcycles, choppers, ATVs, motor scooters and pocket bikes, etc. |
| 10. | Landlord reserves the right to designate areas for employee parking. |
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| 11. | Tenant shall maintain the Premises free from rodents, insects and other pests. Interior extermination/spraying are the Tenant’s responsibility. |
| 12. | Landlord reserves the right to exclude or expel from the Project any person who, in Landlord’s judgment, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project. |
| 13. | a. Tenant agrees that all Tenants’ trash and rubbish shall be deposited in receptacles and that Tenant shall not cause or permit any trash receptacles to remain outside the building. Tenant cannot use on-site compactor/dumpsters for the disposal of any manufacturing materials and by-products, landscaping refuse, glass panes, etc., or for excessive amounts of any type of refuse. The compactor/dumpsters are for ordinary office refuse only. All boxes and pallets must be crushed or broken down before placing them into the compactor. All movable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose. In the event Landlord provides or designates trash receptacles, Tenant agrees, at its own cost and expense, to cause such receptacles to be emptied and trash removed. Tenant agrees to bag trash before depositing it in the authorized trash area. Landlord reserves the right to contract for trash removal and bill Tenant for said service. |
b. Tenant shall not cause any unnecessary labor by reason of Tenant’s carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.
| 14. | Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, exterior electrical lights and fixtures, heating apparatus or any other service equipment affecting the Premises. Any damages caused by lack of notice by Tenant to Landlord will be the responsibility of the Tenant. |
| 15. | Tenant shall not permit storage outside the Premises including, without limitation, outside storage of pallets, trucks, trailers and other vehicles or dumping of waste or refuse or permit any harmful materials to be placed in any drainage or sanitary system or trash receptacle in or about the Premises. |
| 16. | No auction, public or private, will be permitted on the Premises or the Project. No sidewalk sales allowed. |
| 17. | No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord. |
| 18. | The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. |
| 19. | Tenant shall ascertain from Landlord the maximum amount of electrical current that can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants and shall not use more than such safe capacity. Landlord’s consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity. |
| 20. | Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant’s ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises. |
| 21. | No vehicle washing allowed on Property or Premises unless provided by contracted service that does not use Property water. Exterior Property water is for Landlord only and not for the use of the Tenant, unless permission is given to the Tenant by written notice. |
| 22. | No auto/vehicle repair work is to be done anywhere on Property, except the interior of Tenant’s Premises, if that is Tenant’s business activity as stated in the lease. Tenants who repair customer vehicles as part of their business cannot park such vehicles overnight in the parking lot. They must be stored inside the Tenant’s Premises. |
| 23. | The maximum speed limit for all vehicles on the property is 10 miles per hour or as posted, depending on conditions. The Tenant is responsible for compliance of all traffic regulations by it and its employees, vendors, clients and customers. |
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EXHIBIT F
FURTHER PROVISIONS
Paragraph 32: Broker.
Landlord and Tenant each warrant that they have dealt with no real estate broker in connection with this transaction with the exception of Jarrad Katz and Galit Kimerling-Moreau of MDL Group, located at 5960 South Jones Boulevard, Las Vegas, Nevada 89118 who represented the Landlord. Landlord shall pay a commission to such brokers per a separate agreement. Landlord and Tenant each agree to hold the other harmless from and against any and all damages, costs and expenses resulting from any claim(s) for a brokerage commission or finder’s fee that may be asserted against either of them by any broker or finder other than those named above with whom the other has dealt.
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EXHIBIT H
HAZARDOUS MATERIALS QUESTIONNAIRE
This questionnaire is designed to solicit information regarding your proposed use of hazardous or toxic materials. Further information may be requested regarding your plans for hazardous and toxic materials management.
Your cooperation in this matter is appreciated. If you have any questions do not hesitate to call us for assistance.
| I. | PROPOSED LESSEE OR TENANT |
| Healthy Extracts Inc., a Nevada corporation |
| Name (Corporation, Individual, Corporate or Individual DBA, or Public Agency) |
| 6445 South Tenaya Way, Suite B110 |
| Street Address |
| Las Vegas, Nevada 89113 |
| City, State, Zip Code |
| Contact Person & Title: | Kevin Pitts, Treasurer |
| Telephone Number: | (702) 505-0471 | Facsimile Number: |
| II. | LOCATION AND ADDRESS OF PROPOSED LEASE |
| 7375 Commercial Way, Suite 125 |
| Street Address |
| Henderson, Nevada 89011 |
| City, State, Zip Code |
| III. | DESCRIPTION OF PROPOSED FACILITY USE |
Describe proposed use and operation of Premises including principal products or service to be conducted at facility:
| Tenant shall utilize the Premises for administrative office, warehouse, and distribution of health products and for no other purpose. |
Does the operation of your business involve the use, generation, treatment, storage, transfer or disposal of hazardous wastes or materials? Yes or No No . If yes, please complete Section IV.
| IV. | PERMIT DISCLOSURE |
Does the operation of your business require permits, license or plan approval from any of the following agencies?
| U.S. Environmental Protection Agency | Air Quality Management District |
| City or County Sanitation District | Bureau of Alcohol, Firearms and Tobacco |
| State Department of Health Services | City or County Fire Department |
| U.S. Nuclear Regulatory Commission | Regional Water Quality Control Boar |
Indicate permit or license numbers, issuing agency and expiration date or renewal date, if applicable.
If your answer is yes to any of the above questions, please complete Sections V and VI.
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| V. | HAZARDOUS MATERIALS DISCLOSURE |
Will any hazardous or toxic materials or substances be stored onsite? Yes ___No ___ . If yes, please describe the materials or substances to be stored, quantities and proposed method of storage (i.e., drums, cylinders, other), and whether the material is a Solid (S), Liquid (L) or Gas (G):
| Quantity On A | ||||
| Material | Storage Method | Monthly Basis | ||
| Attach all MSDS Sheets. | ||||
Is any facility modification required or planned to mitigate the release of toxic or hazardous substance or wastes into the environment? Yes___ No___. If yes, please describe the proposed facility modifications:
| VI. | HAZARDOUS WASTE DISCLOSURE |
Will any hazardous waste, including recyclable waste, be generated by the operation of your business? Yes ___ No ___. If yes, please list the hazardous waste that will be generated at the facility, its hazard class and volume/frequency of generation on a monthly basis.
| Waste Name | Hazard Class | Volume/Month | ||
| Attach additional sheets if necessary. | ||||
If yes, please also indicate if any such wastes are to be stored within the Premises and the proposed method of storage (i.e., drums, cylinders, other).
| Waste Name | Storage Method | |||
If yes, please also describe the method(s) of disposal for each waste. Indicate where disposal will take place and method of transportation to be used:
Is any treatment or processing of hazardous wastes to be conducted onsite? Yes ___ No ___. If yes, please describe proposed treatment/processing methods:
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Which agencies are responsible for monitoring and evaluating compliance with respect to the storage and disposal of hazardous materials or wastes at or from the Premises? (Please list all agencies)
Have there been any agency enforcement actions regarding the company facilities, or any existing company facilities, or any past, pending or outstanding administrative orders or consent decrees? Yes ___ No ___. If yes, have there been any continuing compliance obligations imposed on your company as a result of decrees or orders? Yes ___ No ___. If yes, please describe:
Has the company been the recipient of requests for information, notice and demand letters, cleanup and abatement orders, or cease and desist orders or other administrative inquiries? Yes ___ No ___. If yes, please describe:
Are there any pending citizen lawsuits, or have any notices of violations been provided to the company or any existing facilities pursuant to the citizens suit provisions of any statute? Yes ___ No ___. If yes, please describe:
Have there been any previous lawsuits against the company regarding environmental concerns? Yes ___ No ___. If yes, please describe how these lawsuits were resolved?
Has an environmental audit ever been conducted at any of your company’s existing facilities? Yes ___ No ___. If yes, please describe the audit, when it was conducted and by whom:
Does your company carry environmental impairment insurance? Yes ___ No ___. If yes, what is the name of the carrier and what are the effective periods and monetary limits of such coverage?
This Hazardous Materials Questionnaire is certified as being true and accurate and has been completed by the party whose signature appears on the Lease on behalf of Tenant as of the date set forth on the Lease.
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EXHIBIT 31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
I, Kevin “Duke” Pitts, certify that:
I have reviewed this Annual Report on Form 10-K of Healthy Extracts Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: March 31, 2022 | /s/ Kevin “Duke” Pitts | |
| By: | Kevin “Duke” Pitts | |
| President |
EXHIBIT 31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
I, William Bossung, certify that:
I have reviewed this Annual Report on Form 10-K of Healthy Extracts Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: March 31, 2022 | /s/ William Bossung | |
| By: | William Bossung | |
| Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Healthy Extracts Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Kevin “Duke” Pitts, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: March 31, 2022 | /s/ Kevin “Duke” Pitts |
| By: Kevin “Duke” Pitts | |
| Its: President |
A
signed original of this written statement required by Section 906 has been provided to Healthy Extracts Inc. and will be retained by
Healthy Extracts Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Healthy Extracts Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, William Bossung, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: March 31, 2022 | /s/ William Bossung |
| By: William Bossung | |
| Its: Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Healthy Extracts Inc. and will be retained by Healthy Extracts Inc. and furnished to the Securities and Exchange Commission or its staff upon request.