10-K 1 hyex-20231231.htm HEALTHY EXTRACTS INC. - FORM 10-K SEC FILING Healthy Extracts Inc. - Form 10-K SEC filing
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2023

 

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 000-55572

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Healthy Extracts Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

(State or other jurisdiction of

incorporation or organization)

 

47-2594704

(I.R.S. Employer

Identification No.)

 

7375 Commercial Way, Suite 125

Henderson, NV

(Address of principal executive offices)

 

89011

(Zip Code)

 

Registrant’s telephone number, including area code (720) 463-1004

 

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 No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No

 



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. Yes No

 

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).

Yes No

 

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

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant 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.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of April 1, 2024 was $18,465,134, based on the closing price of $6.23 on June 30, 2023.

 

As of April 1, 2024, there were 2,963,906 shares of common stock, par value $0.001, issued and outstanding.

 

Documents Incorporated by Reference

 

None.



 

 

 

 

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HEALTHY EXTRACTS INC.

 

FORM 10-K ANNUAL REPORT

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023

 

TABLE OF CONTENTS

 

PART I

 

 

 

ITEM 1

BUSINESS

1

ITEM 1A

RISK FACTORS

22

ITEM 1B

UNRESOLVED STAFF COMMENTS

40

ITEM 1C

CYBERSECURITY

40

ITEM 2

PROPERTIES

41

ITEM 3

LEGAL PROCEEDINGS

41

ITEM 4

MINE SAFETY DISCLOSURES

41

 

 

 

PART II

 

 

 

ITEM 5

MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

42

ITEM 6

RESERVED

43

ITEM 7

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

44

ITEM 7A

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

49

ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

50

ITEM 9

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

51

ITEM 9A

CONTROLS AND PROCEDURES

51

ITEM 9B

OTHER INFORMATION

53

ITEM 9C

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

53

 

 

 

PART III

 

 

 

ITEM 10

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

54

ITEM 11

EXECUTIVE COMPENSATION

59

ITEM 12

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

61

ITEM 13

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

63

ITEM 14

PRINCIPAL ACCOUNTING FEES AND SERVICES

66

 

 

 

PART IV

 

 

 

ITEM 15

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

66

ITEM 16

FORM 10-K SUMMARY

70

 



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

 

Our Business

 

We are a platform for acquiring, developing, patenting, marketing, and distributing plant-based nutraceuticals. Our proprietary and patented products target select high-growth categories within the multibillion-dollar nutraceuticals market, such as heart, brain and immune health.

 

Nutraceuticals are generally considered to be substances that beyond their nutritional value can be used to achieve a benefit for an existing physiological condition or provide protection against potential ailments. Our current principal geographic markets are customers in the United States looking for nutraceutical products focused on their own heart and brain health and immune support. Our products have not been evaluated by the U.S. Food and Drug Administration (“FDA”) or any similar regulatory body for safety and efficacy.

 

The primary philosophy behind nutraceuticals is the focus on prevention and the body’s ability to use natural rather than artificially derived substances to treat disease or dysfunction — or as the Greek physician and father of modern medicine Hippocrates famously espoused, “Let food be your Medicine.”  

 

Today, the role of nutraceuticals in human health and wellbeing has become one of the most active and important areas of scientific investigation, with the latest findings presenting wide-ranging implications for consumers, health care providers, regulators, nutritional supplement producers and distributors. Our mission is to acquire or create products with health and performance benefits that have mass consumer appeal.

 

Guided by this mission, our first two acquisitions (in 2019 and 2020, respectively) formed our current operating subsidiaries, Bergamet NA, LLC (“Bergamet”), which offers nutraceutical heart and immune health products, and Ultimate Brain Nutrients, LLC (“UBN”), which offers nutraceutical products for brain health.

 

Based on published research from third-party sources, we believe our Bergamet products have been shown to support heart health, support immune response, and address metabolic syndrome. Our UBN brain health formulations have been in development for more than 20 years, over which time its effects have been supported by third-party research studies.


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Our Markets

 

The overall nutraceutical market is growing at a 7.8% compounded annual growth rate (“CAGR”) and is expected to reach $441 billion by 2026, according to ReportLinker. Driving this growth are multiple factors, including changing lifestyles, growing consumer desire to move away from expensive prescription medicine and undesirable side effects, aging population and increased life expectancy. Our current principal geographic markets are customers in the United States looking for nutraceutical products focused on their own heart and brain health and immune support.

 

A growing self-care trend is also driving strong demand for nutraceuticals. Given increasingly hectic lifestyles, and the lack of time for preparing and consuming the required nutrients through a regular diet, the desire to replenish or augment essential nutrients with nutraceuticals is also increasing.

 

Our BergaMet all-natural Citrus Bergamot SuperFruitTM formulations address an expanding global heart health ingredients market that is projected to grow at a 4.6% CAGR to reach $55.3 billion by 2027, according to ResearchAndMarkets. This growth is largely being driven by concerns about cardiovascular disease, which remains the leading cause of premature death globally according to the World Health Organization.

 

Our UBN products tap the fast-growing market for brain health, which is growing at a 9.4% CAGR to reach $15.7 billion by 2030, according to Grandview Research. This market is being driven in part by the rise in the aging adult population in North America and Europe, with consumers increasingly using brain health supplements to prevent or treat mental conditions such as memory loss or dementia, or to improve mental cognition, energy and focus.

 

Our UBN RELIEF product for migraine suffers also address a huge market opportunity, with an estimated 39 million people suffering from migraine headaches in the U.S. and 1 billion worldwide, according to the American Migraine Foundation.

 

Our Competitive Strengths

 

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 competitive, and we expect the level of competition to remain high over the near term.

 

We believe the following our are competitive strengths: 

 

High Gross Margins. We have high gross margin categories, with our gross margin ranging from 60% to 80%, depending on product and market channel.

 

Nutraceutical Delivery System. Through our exclusive U.S. and Canada licensing and manufacturing agreement with Gelteq Pty Ltd. (“Gelteq”), a third party global leader in ingestible gel technology, we believe we are able to offer a gel-pack delivery system that our competition in North America cannot provide. Gelteq provides a customizable platform for supplement delivery, in that each gel formulation is tailored to solve a particular problem and deliver a specific outcome.


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Higher BPF Content. As the leading North American provider of the world’s highest strength Citrus Bergamot SuperFruit, our heart and immune products have specific advantages. For example, our BergaMet PRO+ product has 47% Bergamot Polyphenolic Fraction Gold (“BPF Gold”) potency as compared to our closest competitor at only 38% BPF. BPF is an extract derived from the fruit’s juice, peel, and pulp, is comprised of five polyphenols (Naringin, Neohesperidin, Brutieridin, Melitidin, and Neoeriocitrin), and its potency is determined by the concentration of these five polyphenols achieved during the extraction process. The potency of BPF is widely compared by Bergamot users in making their purchase decisions because a higher potency may lead to greater benefits, and is generally considered more desirable in the marketplace.

 

Backed by published research from third-parties, our citrus bergamot has been shown to support heart health, support immune response, and address metabolic syndrome.

 

Our Competitive Challenges

 

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 competitive, and we expect the level of competition to remain high.  Our ability to scale our business and grow our revenue depends on our ability to maintain the value and reputation of our brands in the face of this competition.

 

The nutritional supplement industry is highly fragmented and competition for the sale of nutritional supplements comes from many sources. Such 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 some consolidation in the recent past and we expect that trend may continue in the near term.

 

We have a limited operating history in our current business, 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.

 

We face intense competition from competitors that are larger, more established and that possess greater resources than we do, and if we are unable to compete effectively, we may be unable to gain sufficient market share to sustain profitability. If our competitor’s 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 operational or financial 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 


3 


·initiate or withstand substantial price competition more successfully than we can. 

 

Our Financial Condition and Ability to Continue as a Going Concern

 

Our net loss from inception to December 31, 2023 was $18,399,673, and we had only very limited cash resources at December 31, 2023 of $19,441. 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 business will fail and stockholders will lose their investment in our company. Even after competition of this offering, 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, financing will likely be dilutive to our stockholders.

 

Future Anticipated Growth Drivers

 

New Sales Channels and Product Launches

 

In order to drive continued sales growth and leverage our growing customer base, we are planning to expand our product portfolio to include supplements that support gut health (the balance between helpful and harmful bacteria and yeast in the digestive system) as well as introduce more products in gel-pack format. Our gut health products are ready to be manufactured but have not yet been introduced to the market.

 

We plan to further expand our sales channels as well as our portfolio of natural formulations for heart and brain health and other indications.

 

Strategic Acquisitions

 

The market for nutraceutical products is highly fragmented, which create many acquisition opportunities. As part of our primary mission, we will continue to evaluate potential acquisition opportunities that could expand our product portfolio and benefit from our marketing strength and multi-channel distribution.

 

Employees

 

On the Healthy Extracts holding company level, our employees are comprised of our company’s two officers, each of which is a full-time employee. Our BergaMet subsidiary has two full-time employees. Our UBN subsidiary currently does not have its own employees since it uses outside contract help on an as-needed basis, with management provided by our officers.

 

We anticipate all of our employees will continue to work for us for the foreseeable future. We plan to hire appropriate personnel on an as-needed basis and utilize the services of independent contractors as needed.


4 


 

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. As a result of the acquisition, Jay Decker became our majority shareholder. The shares of common stock issued in the acquisition were equal to approximately 80.1% of our outstanding common stock immediately following the closing.

 

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. As a result of the acquisition, Jay Decker became a significantly larger shareholder. The shares of common stock issued in the acquisition were equal to approximately 42.5% of our outstanding common stock immediately following the closing.

 

Corporate Information

 

Our corporate headquarters are located at 7375 Commercial Way, Suite 125, Henderson, NV 89011, and our telephone number is (702) 463-1004. Our websites are www.healthyextractsinc.com, www.bergametna.com, and www.tryubn.com. Information contained on our websites is not incorporated into, and does not constitute any part of, this annual report.

 

Recent Developments

 

Reverse Stock Split

 

On August 21, 2023, our majority shareholders approved by written consent, declared it advisable and in our best interest, to amend our Articles of Incorporation to (a) effect a reverse split of our outstanding Common Stock within a range of 1-for-25 to 1-for-150, the exact ratio and timing to be determined by our board of directors (“Board”) no later than December 31, 2023, and (b) reduce our authorized common stock to fifty million (50,000,000) shares. On August 22, 2023, our Board of Directors approved the same stock split range and decrease in authorized common stock. On December 29, 2023, we effectuated a 1-for-120 reverse split of our common stock and decreased our authorized common stock to fifty million (50,000,000) shares. Unless specifically provided otherwise herein, all share numbers and prices in this Annual Report reflect the effectiveness of the 1-for-120 reverse stock split of our Common Stock.

 

Summary of Risk Factors

 

There are a number of risks related to our business and our common stock that you should consider. You should carefully consider all the information presented in the section titled “Risk Factors” in this Annual Report. Some of the principal risks related to our business include the following:

 

We rely on a single supplier relationship for licensing and manufacturing, and the termination of that agreement could have material effect on the cost of our products and the manufacturing of our finished goods. 

 

We have a limited operating history in our current business, 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. 


5 


 

We answered a warning letter from the FDA in November 2022 regarding one of our products. 

 

Our success is linked to the size and growth rate of the vitamins, minerals and supplements market and an adverse change in the size or growth rate of that market could have a material adverse effect on us; 

 

Our success depends on our ability to maintain the value and reputation of our brands; 

 

We may fail to attract, acquire or retain customers at our current or anticipated future growth rate, or may fail to do so in a cost-effective manner, which would adversely affect our business, financial condition and results of operations; 

 

If we are unable to anticipate customer preferences and successfully develop new and innovative products in a timely manner or effectively manage the introduction of new or enhanced products, then our business may be adversely affected; 

 

We are highly dependent upon consumers’ perception of the safety, quality, and efficacy of our products as well as similar products distributed by other companies in our industry, and adverse publicity and negative public perception regarding particular ingredients or products or our industry in general could limit our ability to increase revenue and grow our business; 

 

We face intense competition from competitors that are larger, more established and that possess greater resources than we do, and if we are unable to compete effectively, we may be unable to gain sufficient market share to sustain profitability; 

 

Because we depend on outside suppliers with whom we do not have long-term agreements for raw materials, we may be unable to obtain adequate supplies of raw materials for our products at favorable prices or at all, which could result in product shortages and back orders for our products, with a resulting loss of sales and profitability; 

 

A disruption in the service, a significant increase in the cost of our primary delivery and shipping services for our products or a significant disruption at shipping ports could adversely affect our business; 

 

We will require additional financing in the future, and we can provide no assurance that such funding will be available on terms that are acceptable to us, or at all. 

 

One of our shareholders and his adult children will continue to own a significant percentage of our Common Stock and will maintain the ability to substantially influence all matters submitted to stockholders for approval. 

 

We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs, and the lack of adequate financing could negatively impact our business; 


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We and our suppliers are subject to numerous laws and regulations that apply to the manufacturing and sale of nutritional supplements, and compliance with these laws and regulations, as they currently exist or as modified in the future, may increase our costs, limit or eliminate our ability to sell certain products, subject us or our suppliers to the risk of enforcement action, or otherwise adversely affect our business, results of operations and financial condition; and 

 

Our success is dependent on the accuracy, reliability, and proper use of sophisticated and dependable information processing systems and management information technology and any interruption in these systems could have a material adverse effect on our business, financial condition and results of operations. 

 

These and other risks are more fully described in the section titled “Risk Factors” in this Annual Report. If any of these risks actually occurs, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. As a result, you could lose all or part of your investment in our common stock.

 

As used in this annual report, the term “success” generally means (unless the specific context requires otherwise) our ability to establish and grow our brand, scale our manufacturing, marketing and sales activities, integrate acquired products or internally develop new products, grow our revenues and, ultimately, establish cash flow positive and profitable operations.

 

Overview

 

We are a platform for acquiring, developing, patenting, marketing, and distributing plant-based nutraceuticals. Our proprietary and patented products target select high-growth categories within the multibillion-dollar nutraceuticals market, such as heart, brain and immune health.

 

Our current principal geographic markets are customers in the United States looking for nutraceutical products focused on their own heart and brain health and immune support. Our products have not been evaluated by the FDA or any similar regulatory body for safety and efficacy.

 

The term “nutraceutical” is derived from the combination of the words “nutrient,” which means a nourishing food component, and “pharmaceutical,” meaning a medical drug. The term was coined in 1989 by Stephen DeFelice, founder and chairman of the Foundation for Innovation in Medicine.

 

Nutraceuticals are generally considered to be substances that beyond their nutritional value can be used to achieve a benefit for an existing physiological condition or provide protection against potential ailments. Nutraceuticals may be used to improve health, delay the aging process, help prevent chronic disease, increase life expectancy, or support the structure or function of the body.

 

In the U.S., nutraceutical products are regulated as drugs, food ingredients and dietary supplements. The term is not defined the same in all countries but is usually defined as a product isolated from foods and generally sold in medicinal forms not usually associated with food.

 

The primary philosophy behind nutraceuticals is the focus on prevention and the body’s ability use natural rather artificially derived substances to treat disease or dysfunction — or as the Greek physician and father of modern medicine Hippocrates famously espoused, “Let food be your Medicine.”  

 

Today, the role of nutraceuticals in human health and wellbeing has become one of the most active and important areas of scientific investigation, with the latest findings presenting wide-raging implications


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for consumers, health care providers, regulators, nutritional supplement producers and distributors. Our mission is to acquire or create products with health and performance benefits that have mass consumer appeal.

 

Guided by this mission, our first two acquisitions (in 2019 and 2020, respectively) formed our current operating subsidiaries, Bergamet, which offers nutraceutical heart and immune health products, and UBN, which offers nutraceutical products for brain health.

 

Based on published research from third-party sources, we believe our Bergamet products have been shown to support heart health, support immune response, and address metabolic syndrome. Our UBN brain health formulations have been in development for more than 20 years, over which time its effects have been supported by third-party research studies.

 

Our Products

 

Heart & Immune Health

 

Our products which are intended to promote heart and immune health have been developed by our BergaMet subsidiary. Bergamot Polyphenolic Fraction Gold (“BPF”) is the active ingredient in these products, and our  47% BPF Bergamet products are currently the only heart health supplements distributed in North America that contain Citrus Bergamot SuperFruit. This exclusive superfruit is of the bergamot orange family, a fragrant citrus fruit about the size of a common orange but with a yellow or green color similar to a lime, depending on its ripeness.

 

Our Citrus Bergamot SuperFruit varietal, with its 47% BPF, has a high concentration of polyphenols and flavonoids of the citrus bergamia or bergamot orange fruit species. BPF is comprised of five polyphenols (Naringin, Neohesperidin, Brutieridin, Melitidin, and Neoeriocitrin).

 

BergaMet currently holds the rights to distribute Citrus Bergamot SuperFruit 47% BPF products in the online and direct to consumer channels in the U.S. and Canada pursuant to a supply agreement with H&AD S.r.L., an Italian limited company, which we entered into on January 1, 2019 and amended on November 1, 2021. The supply agreement has a term of five years and is renewable for up to four additional and successive three-year terms. Through 2023, we have paid H&AD a total of approximately $1.2 million for BPF product. The agreement is mutually exclusive in that (i) we cannot purchase BPF from any third-party, sell or distribute any similar product in the territory, sell the product outside the territory, or produce the product ourselves, and (ii) H&AD will not supply or sell the product to any third-party in the territory. Each party may terminate the agreement upon a breach by the other party.

 

Bergamot is a rare citrus fruit native to the Calabrian region of Southern Italy. Due to the fruit’s sensitivity to certain weather and soil conditions, this region accounts for 80 percent of the worldwide production of bergamot. Bergamot 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 health.

 

Citrus bergamot contains five antioxidant polyphenols in unusually concentrated amounts, which are believed to help protect the human body’s trillions of cells from free radical damage. The juice and albedo of bergamot has a 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 low-density lipoprotein (“LDL”) from


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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.

 

Bergamot Products

 

We develop, manufacture and distribute bergamot-based products in tablet and capsule form under the following brands:

 

·BergaMet Pro+ 

·BergaMet Mega+O 

·BergaMet HERHEART 

·BergaMet Cholesterol Command 

·BergaMet SPORTSHEART 

·BergaMet CLINICAL IMMUNE 

 

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All of our BergaMet products are vegan friendly, non-GMO and gluten-free, and produced and tested by certified U.S. facilities, all as represented to us by our supplier, H&AD. Our HerHeart, Cholesterol Command, and Pro+ products are vegan, non-GMO, and gluten-free, as represented to us by our supplier, Norax Supplements.

 

In published research from third-party sources, our Citrus Bergamot has been shown to support heart health, support immune response and address metabolic syndrome. Our Citrus Bergamot has also been shown to naturally reduce cholesterol by lowering LDL and increasing high-density lipoprotein (“HDL”).

 

According to the CDC, nearly 94 million U.S. adults aged 20 years or older have high cholesterol levels that puts them at risk of heart disease. Every year an estimated 35 million people are prescribed statins to lower cholesterol, according to drugs.com, but these drugs can cause numerous negative side effects.

 

A peer-reviewed study demonstrated that the naturally-derived, bergamot polyphenolic fraction (BPF) contained in our Citrus Bergamot can significantly enhance the beneficial effects of rosuvastatin, one of the most prescribed drugs for reducing cardiometabolic risk.


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Brain Health

 

Our UBN subsidiary develops plant-based health technology neuro-products that have been shown to improve brain health, including memory, cognition, focus and neuro-energy. UBN's mission is to naturally create better lifestyles with superior health technology and products.

 

UBN’s KETONOMICS® proprietary formulations, which are intended to enhance brain activity, focus, headache and cognitive behavior, provide many sales and intellectual property licensing opportunities.

 

UBN’s all-natural, sugar-free and caffeine-free proprietary formulations are the result of 20 years of scientific research by third-parties 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 offers several proprietary products, with four patent-pending formulations and two patents issued covering brain activity, focus, headache and cognitive behavior.

 

UBN Products

 

We have launched four brain health products based upon our proprietary Fuel4Thought® (F4T®) formulations. These brain health products are sold under the following product labels:

 

·UBN ACTIVATE: a proprietary natural formulation that has been demonstrated to increase key brain activity by as much as 46%. This product is sold direct-to-consumer via our UBN website, either as a singular sale or monthly subscription. 

 

·UBN RELIEF: intended for migraine sufferers, this proprietary, patent-pending natural formulation has been shown to provide relief from symptoms often associated with migraine headaches, while also increasing brain and cognitive activation. This product is sold direct-to consumer on our website as singular sale or monthly subscription, as well as sold in the retail marketplace. 

 

·Brain Activate - Gel, a proprietary gel pack formulation which was launched in collaboration with and under the brand name of our top brand influencer, Whitney Johns. The concentrated natural gel formulation provides the perfect “brain food” for sustained mental energy and attention without added sugars. It is sold direct-to-consumer on whitneyjohns.com as a singular sale or by subscription. The gel packs are developed by Gelteq, a global leader in ingestible gel technology. Gelteq gels offer a super-convenient way to consume substances that have a positive impact on mental skills (sometimes referred to as “nootropics”) and other nutrients.  

 

·Brain Activate - ENERGY Gel: a proprietary gel pack nootropic formulation with caffeine. It is specially formulated to support focus, memory, cognition, mood and brain health, as well as reduce brain fog and support natural sleep patterns. The product was developed and launched in collaboration with Whitney Johns, and is sold direct-to-consumer on whitneyjohns.com as a singular sale or monthly subscription. 


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Our F4T® formulation includes C8 MCT (derived from coconut extract), Nuementix (spearmint), FloraGLO, and highly concentrated medium chain triglycerides, F4T® MCT, which are derived from our patented extraction process. F4T® C8 MCTs have been shown to elevate the level of ketones in the brain. “C8” refers to the eight-carbon chain that characterizes this specific fatty acid. As a result, manufacturers have taken to purifying MCT oil derived from coconuts so it contains only caprylic acid. That's because caprylic acid (C8) seems to be the most metabolically active medium-chain fatty acid.

 

The F4T® formulation also includes a proprietary blend of other key ingredients, including a naturally sourced nootropic spearmint extract that is demonstrated to support mental focus during the day without disrupting sleep at night and a protective antioxidant found naturally in the body that helps the brain function optimally and promotes better mood and sleep habits. It also includes a natural marigold extract that is scientifically shown to block blue light and replenish lutein, which is critical for optimum eye health. The antioxidant function comes from the Neumentix that contains a combination of polyphenols from Kemin’s proprietary spearmint extract. The complex contains rosmarinic, salvianolic, lithospermic and caftaric acids (and more) that act as antioxidants in the brain. The formulation has been in development for more than 20 years, over which time it has gained support by third-party research studies.

 

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The above EEG brain scan images are from a study that showed a 46% increase in brain activation after a subject consumed our active ingredients. The concentrated formulation provides the perfect “brain food” for sustained mental energy and attention. There can be no assurance that our formulations will produce the same results as this study using just our active ingredients.

 

The brain activation described above is measured by electroencephalographic (EEG) electrodes placed on the surface of the skull overlying the major anatomic lobes of the brain (frontal, parietal, temporal, occipital). The activation is measured in microvolts of energy and reflects brain physiological function; the higher the voltage, the higher the functional activity. Functional magnetic resonance imaging (fMRI) of the brain has documented correlation between performance and health tasks and the “lighting up” of the relevant brain cortex areas. Activation of the following areas correlate with the related desirable brain function: frontal lobe - cognition, integration; parietal lobe - sensory, awareness, spatial orientation; temporal lobe - motor, language, memory; occipital lobe - visual function. The subjects in our intervention groups consumed the active supplement containing our formulation of C8 MCT, Neumentix, and Floragio. In the acute study, the assessments were made 90 minutes after consumption and in the long-term study, the assessments were made 30 days after consumption. Study one (acute) had 11 subjects (8 intervention and 3 control) and study two (long term) had 18 subjects (13 intervention and 5 control). Subjects underwent EEG voltage measurement with auditory reaction time (WaviMed System) and vision and trail making testing (Senaptec Sensory Station). Trail making testing (“TMT”), while not using sample sizes believed to be statistically significant, is one of the most widely used tests for cognitive impairment, is believed to measure several functions, particularly cognitive flexibility, alternating attention, sequencing, visual search,


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and motor speed. Brain activation improved in 20 of the 21 intervention group subjects with voltage increases ranging from no change to 200%, average 46% increase. This activation level correlated positively with improvements in reaction time, vision and trail making tests. Parameter changes were statistically significant with a strong improvement trend for the auditory reaction time measures. The tests were conducted by Dr. Neil Wolkodoff in a strict prospective, randomized manner. The results were double blinded with regard to intervention versus placebo group results and all data was deposited into a blind pool until completion of the trials when the results were unblinded and statistically analyzed. An independent third party transposed the EEG voltage readings into a computer generated “brain image” for peer reviewed publication purposes. No caffeine, steroids or other stimulants were consumed by any study subjects.

 

We are in the development phase for new products focused on Alzheimer’s disease and dementia. We are finalizing development of additional non-FDA approved, brain health products which focus on dementia and Alzheimer’s disease. We expect to have our development processes completed in 2024.

 

Gel-Pack Exclusive Licensing and Manufacturing Agreement

 

In August 2021, we signed an exclusive U.S. and Canada licensing and manufacturing agreement with Gelteq, a third party developer of ingestible gel technology, under which we agreed to develop and manufacture an advanced oral delivery system for our plant-based heart, immune and brain health formulations. The agreement has a three-year term and can be terminated by either party in the event of a breach, and contains a minimum order amount of 500,000 units of product (of which 250,000 units must have been purchased during the first 12 months). The agreement is mutually exclusive in that Gelteq is to be the exclusive manufacturer of all gel products that contain bergamot by us in the territory, and that they will not manufacture gels containing bergamot for any other company in the territory. Finally, we paid Gelteq a license fee of $150,000 and 5% of the total price of products purchased by us.

 

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Through this agreement we secured the exclusive rights to use Gelteq’s gelification process in the U.S. and Canada for the development and marketing of natural ingestible gels that contain our Citrus Bergamot or UBN ingredients. Among the many benefits, we believe our new exclusive gel pack format will make our products easier and more convenient to consume.

 

Citrus Bergamot has been traditionally taken in tablet form which presents several drawbacks. Tablets require a liquid to facilitate swallowing or prevent choking (which still may occur), and proper digestion and absorption can sometimes be challenging. The liquid extract form of Bergamot is typically not preferred due to its unpleasant bitter taste.

 

The proprietary ingredients used in in our UBN product line are typically available in powder form, with this requiring it be mixed with a liquid in a separate container. This can be messy and inconvenient for today’s on-the-go lifestyles. In contrast, a single-serving, gel pack containing our health-promoting formulations can be easily consumed anytime, anywhere with no liquid or mixing required.

 

We also believe this gel-based oral delivery technology can be superior to pills, tablets, powders and other delivery methods in terms of greater bioavailability, targeted release times and pleasant taste, while reducing the risk of choking.


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We have launched two gel pack products using our patent-protected Fuel4Thought® (F4T®) formulation with Whitney Johns, including Brain Activate - Gel (without caffeine) and Brain Activate - ENERGY Gel. We plan to next introduce heart and immune health gel packs that exclusively feature Citrus Bergamot SuperFruit in 2024.

 

Our Markets

 

The overall nutraceutical market is growing at a 7.8% CAGR and is expected to reach $441 billion by 2026, according to ReportLinker. Driving this growth are multiple factors, including changing lifestyles, growing consumer desire to move away from expensive prescription medicine and undesirable side effects, aging population and increased life expectancy. Our current principal geographic markets are customers in the United States looking for nutraceutical products focused on their own heart and brain health and immune support.

 

A growing self-care trend is also driving strong demand for nutraceuticals. Given increasingly hectic lifestyles, and the lack of time for preparing and consuming the required nutrients through a regular diet, the desire to replenish or augment essential nutrients with nutraceuticals is also increasing.

 

Our BergaMet all-natural Citrus Bergamot SuperFruit formulations address an expanding global heart health ingredients market that is projected to grow at a 4.6% CAGR to reach $55.3 billion by 2027, according to ResearchAndMarkets. This growth is largely being driven by concerns about cardiovascular disease, which remains the leading cause of premature death globally according to the World Health Organization.

 

Our UBN products tap the fast-growing market for brain health, which is growing at a 9.4% CAGR to reach $15.7 billion by 2030, according to Grandview Research. This market is being driven in part by


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the rise in the aging adult population in North America and Europe, with consumers increasingly using brain health supplements to prevent or treat mental conditions such as memory loss or dementia, or to improve mental cognition, energy and focus.

 

Americans consume unhealthy energy shots and drinks every day, with this alone generating over $12.5 billion per year in industry sales. Within this growing market, UBN is advancing its position to meet rising consumer demand for healthy options backed by third-party research studies. Our KETONOMICS® proprietary formulations have been proven to naturally elevate brain energy and function, including memory, cognition and focus.

 

Our UBN RELIEF product for migraine suffers also address a huge market opportunity, with an estimated 39 million people suffering from migraine headaches in the U.S. and 1 billion worldwide, according to the American Migraine Foundation.

 

We anticipate launching a gut health gel pack. The new gut health product will allow us to address a large and expanding global gut health market that is growing at a 7.9% CAGR to reach nearly $72 billion by 2027, according to Fortune Business Insights. Our gut health products are ready to be manufactured but have not yet been introduced to the market. Gut health is the balance between helpful and harmful bacteria and yeast in the digestive system.

 

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Go-to-Market Strategy

 

Our approach to the market has been to implement a multi-channel marketing strategy that includes major eCommerce websites, distributors, white and private label, direct-to-consumer, influencer and affiliate programs, and traditional retail marketplaces.

 

As a key part of our multi-channel strategy, Amazon.com has been generating strong sales, particularly with its popular ‘Subscribe & Save’ option helping to further expand our recurring revenue stream. Amazon complements our direct-to-consumer channel on our BergaMet and UBN websites that offer a subscription-based option. Last year our Citrus Bergamot SuperFruit formulations also became available for purchased on Walmart.com.

 

In the third quarter of 2022, we launched our premium Citrus Bergamot SuperFruit heart health supplement, BergaMet PRO+, on Fullscript.com, the nation’s leading care delivery platform for integrative


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medicine. This made BergaMet PRO+ available to the more than 70,000 healthcare professionals and their more than 5 million patients on the Fullscript care platform.

 

The Fullscript launch followed the entry of our natural formulations for brain health into the retail marketplace through Natural Grocers stores nationwide. Natural Grocers is the nation's largest family-operated organic and natural grocery retailer. The retailer also provides extensive free nutrition education programs that help consumers make informed nutritional health choices. The initial two products sold by Natural Grocers where our Ultimate Brain Nutrients (UBN) ACTIVATE and UBN RELIEF.

 

Influencer Program

 

We introduced our influencer program in the Fall of 2021 as a cost-effective and efficient way to expand our sales, brand awareness and market share. According to the social commerce platform Poshmark, about 41% of consumers discover new brands from influencers and 33% through social media marketing.

 

We believe our influencer program is ideally suited for influencers who have more than 500,000 followers in the health and wellness, sports and healthcare markets, and particularly those who would like to enhance their personal brand with unlimited revenue potential. Through this program, qualified influencers can easily introduce their own personally branded nutraceutical products, with Healthy Extracts providing the backend of product development, manufacturing, distribution, order fulfillment and customer service.

 

As our first major influencer under this program, we teamed with popular fitness coach and entrepreneur, Whitney Johns. Whitney is an accomplished fitness athlete, model, personal trainer and nutrition advocate who has garnerd more than a million followers across Instagram, Facebook, TikTok, Twitter, and YouTube. Some of her popularity is due to her personalized diet and fitness program, Find Your Fit with Whit, which helps individuals from all walks of life achieve their personal nutritional and fitness goals. We entered into a Private Label Agreement with her on October 11, 2021, pursuant to which we granted her the exclusive right to private label our Ultimate Brain Nutrients ACTIVATE and BergaMet NA sports performance and hormone balancing products in the field of female fitness, and granted her the right of first refusal for private label rights on any new products and technology in the field. We have also developed our gut health and ACTIVATE gel pack products with her, which are ready to manufacture but which have not been introduced to the market yet. The agreement is for three years and was subsequently verbally amended for us to pay her a flat monthly fee of $4,000 instead of the sales and volume-based compensation model in the original agreement. The agreement can be terminated by either party on 90 days’ written notice. Through September 30, 2023, we have paid her a total of $38,000 under this agreement2. We also granted her RSU’s for 500,000 shares of our common stock with a purchase price of $0.01 per share. The verbal amendment will be in place until otherwise agreed between the parties.

 

Whitney Johns’ new product line of brain, physical performance and women’s hormone health products are based upon our proven all-natural Citrus Bergamot SuperFruit and Ultimate Brain Nutrients formulations. This means they are also vegan-friendly, non-GMO, gluten-free and organic, and made in a certified U.S. facility. Moreover, they are supported by published research from third-party sources, which helps influencers like Whitney to provide their full-throated endorsement of our proprietary formulations.

 

The first Whitney products have included Whitney Johns Nutrition BRAIN ACTIVATE (in powder and gel format), ACTIVE for enhanced physical performance, and WOMEN’S HORMONE SUPPORT. These products are available from whitneyjohns.com as well as on Whitney’s Amazon.com store, with both channels offering subscription options.


2 NTD: update to 12/31/23


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Future Growth Drivers

 

New Sales Channels and Product Launches

 

In order to drive continued sales growth and leverage our growing customer base, we are planning to expand our product portfolio to include supplements that support gut health as well as introduce more products in gel-pack format. We anticipate this to include a new Whitney Johns gut health gel-pack as well as a new gel pack option for our Ultimate Brain Nutrients RELIEF.

 

We plan to further expand our sales channels as well as our portfolio of natural formulations for heart and brain health and other indications.

 

Strategic Acquisitions

 

The market for nutraceutical products is highly fragmented, which create many acquisition opportunities. As part of our primary mission, we will continue to evaluate potential acquisition opportunities that could expand our product portfolio and benefit from our marketing strength and multi-channel distribution.

 

Intellectual Property

 

Patents

 

We have filed formulation patent applications related to general brain health as well as patents particularly focused on migraine headaches. The platform includes general utility patents with additional disclosure of methods of manufacture as indicated below. Categories of ingredients are listed in both the independent (standalone) and the dependent (successor claims with specifics, variations and limitations) claims. “Comprising” language is utilized wherever it is allowed by the U.S. Patent and Trademark Office


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(PTO) whereby the patented formulation includes but is not limited to the elements listed in the claim. Markush groups and claims are used so that categories can include alternative ingredients from a selected group that share structural similarities or common functions. Expiration dates for issued patents are listed, expiration for pending patents will be 17 years after the date of issuance, and all patents are in the United States.

 

Prophylaxis and Mitigation of Migraine Headaches Using Medium Chain Triglycerides, Ketone Ester, and Other Ketogenic Sources. Filed January 10, 2018 (PTO Application No. 15/743,448); pending approval. “Parent Patent” related to migraine headaches and covers the methods of reducing frequency of migraine onset and symptoms as well as augmenting the effects of pharmaceutical and non-pharmaceutical inventions. Includes techniques of providing adequate levels of dietary ketogenic MCT. The invention provides a mixture of caprylic and capric acids; these triglycerides may either be enriched or purified with coconut oil. Relates to Activate product line.

 

Prophylaxis and Mitigation of Migraine Headaches Using Medium Chain Triglycerides, Ketone Ester, and Other Ketogenic Sources. Filed April 22, 2019 (PTO Application No. 16/501,502); pending approval. “Divisional” filing from the “Parent” to address restriction requirements and identifies additional distinct claims. Relates to preventing, arresting or reducing the frequency and severity of a migraine headache. Additional filing September 30, 2020 (PTO Application No. 17/011/650); pending approval. This composition is comprised of a dietary ketone wherein this unique ingredient is intended to address migraines with disclosure of a related method of manufacture. The supplement manufacturing method also contains ketogenic MCT in combination with a pharmaceutical agent. Relates to the Activate product line.

 

Compositions of Medium Chain Triglycerides and Plant-Based Nutrients for Brain Health. Filed December 19, 2018 (PTO Application No. 16/350,663); response to PTO comments September 9, 2019; written amendment acknowledged; pending approval. Relates to enhancement of metabolic energy pathways to improve attention, cognition, memory, analytical and executive functions. Formulation categories include medium chain triglycerides (MCT), polyphenol-rich phytonutrients, brain carotenoid antioxidants, dietary vitamins and minerals and miscellaneous nutrients. Relates to Activate and BergaMet product lines.

 

Compositions of Ketogenic Sources, Micronutrients and Phytochemicals for Prophylaxis and Mitigation of Migraine Headache. Patent issued December 10, 2019 (Patent No. 10,500,182). Expiration December 10, 2036. This “Continuation-in-Part” filing from the “Parent” repeats a portion of the original specifications but adds subject matter not previously disclosed. Relates to preventing, arresting or reducing the frequency and severity of a migraine with disclosure of the method of manufacture. The comprehensive composition of categories includes ketogenic sources, phytonutrients, vitamins, mineral co-factors, antioxidants and miscellaneous nutrients. Relates to the Activate product line.   

 

Compositions of Ketogenic Agents, Cannabinoids, Plant-Derived Substances and Micronutrients. Patent issued February 9, 2021 (U.S. Patent No. 10,912,758). Expiration February 9, 2038. Relates to modulation of metabolic pathways to benefit human performance, endurance and cardiometabolic health as well as improving cognition, executive function and women’s health. Formulation categories include ketogenic agents, cannabinoids, polyphenols, dietary nutrients, antioxidants and mineral co-factors. Relates to Activate and BergaMet product lines. Contains ability to include hemp-derived cannabinoids in unique product formulations whenever allowable under federal law.

 

Qualified Health Claim (QHC)

 

We filed a QHC petition for Fuel for migraine health with the Center for Food Safety and Nutrition


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of the FDA in July 2019. The preponderance of third-party scientific evidence to support the claim has been submitted. The FDA acknowledged that our petition met the requirements under 21 CFR 101.70 and was submitted in the proper legal format. In light of increased administrative burdens from the COVID-19 pandemic, the FDA has requested extended decision delays to which we agreed. A final decision is now expected before the end of 2023.

 

Trademark

 

A trademark owned by us that supports the entire brain health product platform is: KETONOMICS. The trademark received registration approval April 29, 2014 (Registration Number 4523135) and will not expire while it is in commercial use. This Service Mark has broad application in the “Goods and Services” category and covers: “Medical and scientific research in the field of brain metabolism and physiological metabolism; Product development in the field of brain metabolism and physiological metabolism; Research and development and consultation related thereto in the field of brain metabolism and physiological metabolism; Research and development of new products; Scientific research consulting in the field of brain metabolism and physiological metabolism.”  

 

Competition

 

We compete with other manufacturers, distributors and marketers of vitamins, minerals, herbs, and other nutritional supplements both within and outside the U.S.

 

The competitive landscape is similar to other supplements. Our higher percentage of BPF Gold 47% distinguishes us as a high-quality competitor. We promote our products consistently with online marketing.

 

Our key competitor is Ortho Molecular, who distributors through medical offices. We are priced similarly to their product.  They sell a 38% BPF product.

 

Our key competitors on digital marketing and Amazon are Doublewood, Secrets, Naomi, and Jarrow. Doublewood, Jarrow, and Naomi are priced higher or similar. Secrets uses a lower quality citrus bergamot and are considered a price and low-quality competitor. We intend to distinguish ourselves from these competitors through better digital marketing and brand loyalty.

 

The nutritional supplement industry is highly fragmented and competition for the sale of nutritional supplements comes from many sources. Such 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 some consolidation in the recent past and we expect that trend may continue in the near term.

 

We have high gross margin categories, with our gross margin ranging from 60% to 80%, depending on product and market channel.

 

Based upon our exclusive U.S. and Canadian licensing and manufacturing agreement with Gelteq, we believe we are able to offer a gel-pack delivery system that our competition in North America cannot provide. Gelteq is a customizable platform for supplement delivery, in that each gel formulation is tailored to solve a particular problem and deliver a specific outcome.


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As the exclusive North American provider of H&AD’s Citrus Bergamot SuperFruit, our heart and immune products have several advantages. For example, our BergaMet PRO+ product has 47% BPF Gold potency as compared to the closest competitor at only 38% BPF. BPF is an extract derived from the fruit’s juice, peel, and pulp, is comprised of five polyphenols (Naringin, Neohesperidin, Brutieridin, Melitidin, and Neoeriocitrin), and its potency is determined by the concentration of these five polyphenols achieved during the extraction process. The potency of BPF is widely compared by Bergamot users in making their purchase decisions because a higher potency may lead to greater benefits, and is generally considered more desirable in the marketplace.

 

Backed by published research from third-party sources, our citrus bergamot has been shown to support heart health, support immune response, and address metabolic syndrome.

 

Employees

 

On the Healthy Extracts holding company level, our employees are comprised of our company’s two officers, each of which is a full-time employee. Our BergaMet subsidiary has two full-time employees. Our UBN subsidiary currently does not have its own employees since it uses outside contract help on an as-needed basis, with management provided by our officers.

 

We anticipate all of our employees will continue to work for us for the foreseeable future. We plan to hire appropriate personnel on an as-needed basis and utilize the services of independent contractors as needed.

 

Governmental Controls, Approval and Licensing Requirements

 

Our products have not been evaluated by the FDA or any similar regulatory body for safety and efficacy.

 

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 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.


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All 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 revised labels on some of their dietary supplements to comply with the new requirements. Our manufacturers review our labels prior to each product run to assure compliance. Moreover, these manufacturers may need to reformulate their products to maintain eligibility for certain marketing claims.

 

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. We are very careful to assure all of the ingredients we utilized are not a “new NDI” and meets the FDA draft guidance.

 

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.


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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.

 

On November 14, 2022, BergaMet NA, LLC, our subsidiary, received a warning letter from the FDA regarding claims we allegedly make about our Cholesterol Command product. Specifically, the warning letter related to claims on our website, Facebook page, and the webpage of a retailer claim that the products are intended for use in the cure, mitigation, treatment, or prevention of disease because they reduce cholesterol or are an anti-inflammatory. On December 1, 2022, we responded to the warning letter notifying the FDA that we had hired a third-party to review our advertising and revise portions of our website, Facebook page, and online product listings. This was the only warning letter we received from the FDA to date, and we are awaiting their response. There can be no assurance that the FDA will not pursue this action further. If the FDA were to pursue this action, we may have to cease selling our Cholesterol Command product. Any action brought by the FDA (or any ramifications of such action, including, without limitation, a required withdrawal of Cholesterol Command from the market) would have a material adverse effect on our reputation, sales efforts and results of operations.

 

Currently, our products are only distributed in the United States. If we distribute products in Canada or elsewhere in the future, we will go through the appropriate approval process. 

 

Description of Property

 

We do not currently own, lease or use any office space as we operate on a virtual basis. However, we lease warehouse facilities under an operating lease that expires in 2025. Prior to February 4, 2022, we leased a warehouse facility on a month-to-month basis. Our rent obligations for 2023 through 2025 are as follows: 2023 - $65,335, 2024 - $69,635, and 2025 - $5,822. Total rent for the year ended December 31, 2022 and 2023 was $63,745 and $65,335.


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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 is speculative and involves a high degree of risk. You should consider carefully the risk factors related to our business described below, together with the other information and financial statements contained in this annual report, before you decide to buy our common stock. There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If one or more of these risks 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 of our common stock could decline, and you could lose all or part of your investment in our common stock.

 

Risk Factors Related to our Business

 

We rely on a single supplier relationship for licensing and manufacturing, and the termination of that agreement could have material effect on the cost of our products and the manufacturing of our finished goods.

 

In August 2021, we signed an exclusive U.S. and Canada licensing and manufacturing agreement with Gelteq, a developer of ingestible gel technology, under which we agreed to develop and manufacture an advanced oral delivery system for our plant-based heart, immune and brain health formulations. Through this agreement we secured the exclusive rights to use Gelteq’s gelification process in the U.S. and Canada for the development and marketing of natural ingestible gels that contain our Citrus Bergamot or UBN ingredients. In the event either party terminates that agreement, our ability to obtain and manufacture our products will be interrupted, and we may not be able to find a replacement at the same cost.

 

We have a limited operating history in our current business, 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 in 2019 and UBN in 2020. We have not fully developed our current business operations and have not yet to generate significant revenue from such operations.  Our ability to continue as a going concern is dependent upon our ability to further establish and then grow our business and to obtain adequate financing in order 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, 2023, was ($18,399,673). Based on our cash position of $19,441 as of December 31, 2023, we have a pressing need to raise additional capital from the sale of our stock or debt (including but also following this offering). 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 achieve profitability and positive cash flow in the future 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


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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 success is linked to the size and growth rate of the vitamin, mineral and supplement market and an adverse change in the size or growth rate of that market could have a material adverse effect on us.

 

An adverse change in size or growth rate of the vitamin, mineral and supplement market could have a material adverse effect on us. Underlying market conditions are subject to change based on economic conditions, consumer preferences and other factors that are beyond our control, including media attention and scientific research, which may be positive or negative. In addition, the vitamin, mineral and supplement market is heavily saturated, and the demand for and market acceptance of new products and services in the market is uncertain. While we predict that the overall vitamin, mineral and supplement market will continue to grow, it is difficult to predict the future growth rates, if any, to the size of our market. We cannot assure you that our market will continue to develop, that the public’s interest in personalized health and wellness will continue, or that our products and services will become widely adopted. If our market does not further develop, develops more slowly than expected, or becomes saturated with competitors, or if our products and services do not achieve market acceptance, our business, financial condition, and operating results could be adversely affected.

 

We are highly dependent upon consumers’ perception of the safety and quality of our products and if we fail to maintain adequate quality standards for our products and services, or if our products become subject to regulatory investigations, our business may be adversely affected and our reputation harmed.

 

Our products, including nutritional supplements, may contain defects or may not perform as intended. These defects could result in a product recall, market withdrawal, negative publicity or other events that would result in harm to our reputation, loss of customers or revenue, health and safety issues for our customers, product liability claims, refunds, order cancellations, or lack of market acceptance of our products and services. Any such defects, errors, or vulnerabilities would require us to take remedial action, which could require us to allocate significant customer support resources to address any such problems. Further, if we make acquisitions, we may encounter difficulties in integrating acquired technologies into our services and in augmenting those technologies to meet the quality standards that are consistent with our brand and reputation.

 

Our agreements with customers, distribution partners, and other third parties may include indemnification provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred in connection with any such defects or errors of our products or services, or other liabilities relating to or arising from our products or services. Some of these indemnity agreements provide for uncapped liability for which we would be responsible, and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, financial condition, and results of operations. Although we attempt to contractually limit our liability with respect to such indemnity obligations, we are not always successful and may still incur substantial liability related to such claims. In addition, although we carry general liability insurance, our insurance against this liability may not be adequate to cover a potential claim, and such coverage may not be available to us on acceptable terms, or at all. Any dispute with a customer or other third party with respect to such obligations could have adverse effects on our relationship with such customer or other third party, our reputation, or demand for our platform. Any of the foregoing could adversely affect our business, financial condition, and results of operations.


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Negative public perception may also arise from regulatory actions or investigations, regardless of whether those investigations involve us. We are highly dependent upon consumers’ perception of the safety and quality of our products as well as similar products distributed by other companies. Thus, the mere publication of reports asserting that such products may be harmful or adverse public reports or other media attention regarding the safety, efficacy and quality of nutritional supplements in general, or our products specifically, or associating the consumption of nutritional supplements with illness, questioning the benefits of nutritional supplements in general, or our products specifically, or claiming that such products do not perform as marketed, labeled and advertised, could have a material adverse effect on us, regardless of whether these reports are scientifically supported. Any such adverse public reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products as directed and the content of such public reports and other media attention may be beyond our control. Publicity related to nutritional supplements may also result in increased regulatory scrutiny of our industry. Adverse publicity may have a material adverse effect on our business, financial condition, results of operations and cash flows. There can be no assurance of future favorable scientific results and media attention or of the absence of unfavorable or inconsistent findings.

 

Our success depends on our ability to maintain the value and reputation of our brands.

 

We believe that our customers associate our name with quality products and services and that the strength of our brands is important to attracting and retaining customers. We rely on our trusted brands to differentiate our products and services from those of our competitors in a crowded and saturated market for nutritional supplements. Maintaining, protecting, and enhancing our brands depends largely on the success of our marketing efforts, ability to provide consistent, high-quality products, services, features, content and support. We believe that the importance of our brands will increase as competition further intensifies. Accordingly, brand promotion activities aimed at bolstering our brands may require substantial expenditures. Our brands could be harmed if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity. Our brands could be harmed if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity. Our brands could also be harmed if any of our influencers receive negative publicity, or if our products and services do not perform as intended.

 

We may fail to attract, acquire or retain customers at our current or anticipated future growth rate, or may fail to do so in a cost-effective manner, which would adversely affect our business, financial condition and results of operations.

 

Our continued growth depends, in part, on our ability to attract, acquire and retain customers in a cost-effective manner. Numerous factors, however, may impede our ability to attract, acquire or retain customers, including our failure to attract, effectively train, retain, and motivate sales and marketing personnel, our failure to educate customers and health professionals about the benefits of our products, our failure to develop or expand relationships with our suppliers, our inability to convert initial adoption into ongoing recurring revenue and our failure to provide customer support once products are delivered.

 

We rely on internet search engines, lead generators, and social networking sites to help drive traffic to our website and the sale of our products, and if we fail to appear prominently in the search results or fail to drive traffic through paid advertising, our traffic and product sales would decline and our business would be adversely affected.

 

We depend in part on internet search engines (such as Google), lead generators, and social networking sites (such as Facebook) to drive traffic to our website and the sale of our products. Our ability to maintain and increase the number of visitors directed to our website is not entirely within our control. Our competitors may increase their search engine optimization efforts and outbid us for placement on various sites or search terms on various search engines, resulting in their websites receiving a higher search


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result page ranking than ours. Additionally, internet search engines could revise their methodologies in a way that would adversely affect our search result rankings. If internet search engines modify their search algorithms in ways that are detrimental to us, if sites refuse to display any or all of our products in certain geographic markets, or if our competitors’ efforts are more successful than ours, overall growth in our customer base could slow or our customer base could decline. Our website has experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our website through internet search engines, lead generators, or social networking sites could harm our business and operating results.

 

Our success depends, in part, on our existing customers continuing to purchase our products. Our customers have no obligation to purchase our products, and in the normal course of business, some customers may decide to purchase less or none of our products. If we acquire fewer customers than expected, or fewer customers purchase our existing products or try our new products, then our business, financial condition and results of operations may be adversely affected. Our business depends on the effectiveness of our advertising and marketing programs, including the strength of our social media presence, to attract and retain customers.

 

Our business success depends on our ability to attract and retain customers. Our ability to attract and retain customers depends significantly on the effectiveness of our advertising and marketing practices. From time-to-time, we use the success stories of our customers, and utilize brand ambassadors, spokespersons and social media influencers, including in some cases celebrities, in our advertising and marketing programs to communicate on a personal level with consumers. Any actions taken by these individuals that harm their personal reputation or image, or their decision to stop using our services and products, could have an adverse impact on the advertising and marketing campaigns in which they are featured. We and our brand ambassadors, spokespersons and social media influencers also use social media channels as a means of communicating with customers. Unauthorized or inappropriate use of these channels could result in harmful publicity or negative consumer experiences, which could have an adverse impact on the effectiveness of our marketing in these channels. In addition, substantial negative commentary by others on social media platforms could have an adverse impact on our reputation and ability to attract and retain customers. If our advertising and marketing campaigns do not generate a sufficient number of customers, our business, financial condition and results of operations will be adversely affected.

 

If we are unable to anticipate customer preferences and successfully develop new and innovative products in a timely manner or effectively manage the introduction of new or enhanced products, then our business may be adversely affected.

 

Part of our success is our ability to innovate and introduce new products focused on our consumer demands. To maintain our success and increase our customer base, we must continue to develop products with differentiated benefits and anticipate and react to changing health professional and consumer demands in a timely manner. Our products and services are subject to changing consumer preferences that cannot be predicted with certainty. If we are unable to introduce new or enhanced products in a timely manner, or our new or enhanced products are not accepted by our customers, then our competitors may introduce competitive products faster than us, which could negatively affect our rate of growth. Moreover, our new products may not receive customer acceptance because preferences could shift rapidly to alternative nutritional supplements, and our future success depends in part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing customer preferences could lead to, among other things, lower sales, pricing pressure, lower gross margins, and excess inventory levels. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address them will partially depend upon our continued ability to develop and introduce innovative, high-quality product offerings. Development of new or enhanced products and services may require significant time and financial investment, which could result in increased costs and a reduction in our profit margins.


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If we are unable to sustain pricing levels for our products, our business could be adversely affected.

 

The prices for our nutritional supplement products reflect their high quality, safety and benefits. If we are unable to sustain pricing levels for our products, whether due to competitive pressure or otherwise, then our gross profits could be reduced. Further, our decisions regarding the development of new products are based on assumptions about future pricing. If there is price compression in the market after these decisions are made, then it could lower our gross profits and have a negative effect on our results of operations.

 

We face intense competition from competitors that are larger, more established and that possess greater resources than we do, and if we are unable to compete effectively, we may be unable to gain sufficient market share to sustain profitability.

 

Numerous manufacturers and distributors compete actively for consumers. There can be no assurance that we will be able to compete in this intensely competitive environment. In addition, nutritional supplements can be purchased in a wide variety of channels of distribution. These channels include mass market retail stores and the Internet. Because these markets generally have low barriers to entry, additional competitors could enter the market at any time. Private label products of our customers also provide competition to our products. Additional national or international companies may seek in the future to enter or to increase their presence in our distribution channels or the vitamin, mineral supplement market. Increased competition in either or both could have a material adverse effect on us.

 

Adverse economic conditions may harm our business.

 

Our business depends on global economic conditions. Unstable market conditions make it difficult for our clients and us to accurately forecast and plan future business activities, and could cause our customers to reduce or delay their spending with us. Economic downturns or unstable market conditions may cause customers to decrease their budgets, which could reduce spend on our products and adversely affect our business, financial condition and results of operations. As we explore new countries to expand our business, economic downturns or unstable market conditions in any of those countries could result in our investments not yielding the returns we anticipate.

 

Generally, the United States and other key international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, and overall uncertainty with respect to the economy, including with respect to tariff and trade issues. In particular, the economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector, uncertainty over the future of the Eurozone and volatility in the value of the pound sterling and the Euro, including instability surrounding Brexit. We have operations, as well as current and potential new customers, throughout the United Kingdom and most of Europe. If economic conditions in the United Kingdom and Europe and other key markets for our platform continue to remain uncertain or deteriorate further, it could adversely affect our customers’ ability or willingness to subscribe to our platform, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions or affect renewal rates, all of which could harm our operating results.

 

Inflation or other changes in economic conditions that affect demand for nutritional supplements could adversely affect our revenue. Uncertainty about current global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit markets, negative financial news and/or declines in income or asset values, each of which could have a material negative effect on the


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demand for our products. Other factors that could influence demand include conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.

 

Overall tightening of the labor market, increases in labor costs or any possible labor unrest may adversely affect our business and results of operations.

 

Our business, particularly the manufacturing of our products, requires a substantial number of personnel. Any failure to retain stable and dedicated labor by us may lead to disruption to our business operations, including the manufacturing of our products. Although we have not experienced any material labor shortage to date, we have observed an overall tightening and increasingly competitive labor market. We have experienced, and expect to continue to experience, increases in labor costs due to increases in salary, social benefits and employee headcount. We compete with other companies in our industry and other labor-intensive industries for labor, and we may not be able to offer competitive remuneration and benefits compared to them. If we are unable to manage and control our labor costs, our business, financial condition and results of operations may be materially and adversely affected.

 

Our operating results could be adversely affected if we are unable to accurately forecast customer demand for our products and services and adequately manage our inventory.

 

To ensure adequate inventory supply, we must forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers, based on our estimates of future demand for particular products and services. Failure to accurately forecast our needs may result in manufacturing delays or increased costs. Our ability to accurately forecast demand could be affected by many factors, including changes in customer demand for our products and services, changes in demand for the products and services of our competitors, widespread acceptance of personalized health recommendations and nutritional supplements, unanticipated changes in general market conditions, and the weakening of economic conditions or consumer confidence in future economic conditions. This risk may be exacerbated by the fact that we may not carry a significant amount of inventory and may not be able to satisfy short-term demand increases. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margins to suffer and could impair the strength and our brand. Further, lower than forecasted demand could also result in excess manufacturing capacity or reduced manufacturing efficiencies, which could result in lower margins. Conversely, if we underestimate customer demand, our suppliers and manufacturers may not be able to deliver products to meet our requirements or we may be subject to higher costs in order to secure the necessary production capacity. An inability to meet customer demand and delays in the delivery of our products to our customers could result in reputational harm and damaged customer relationships and have an adverse effect on our business, financial condition, and operating results.

 

We acquire ingredients for our products from foreign suppliers and may be negatively affected by the risks associated with international trade and importation issues.

 

We acquire ingredients for a number of our products from suppliers outside of the United States. Accordingly, the acquisition of these ingredients is subject to the risks generally associated with importing raw materials, including, among other factors, delays in shipments, changes in economic and political conditions, quality assurance, health epidemics affecting the region of such suppliers (including the COVID-19 pandemic), nonconformity to specifications or laws and regulations, tariffs, trade disputes and foreign currency fluctuations (particularly as it relates to the tariffs currently imposed on certain


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products originating from China). While we inspect 100% of the lots received from third party suppliers, we cannot assure you that raw materials received from suppliers or finished products from manufacturers outside of the United States will conform to all specifications, laws and regulations or our internal standards. There have in the past been quality and safety issues in our industry with certain items imported from overseas. We may incur additional expenses and experience shipment delays due to preventative measures adopted by the U.S. governments, our suppliers and our company.

 

Ingredient and packaging costs are volatile and may rise significantly, which may negatively impact the profitability of our business.

 

Costs of ingredients and packaging are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, fluctuations in currency and exchange rates, weather conditions, natural or man-made disasters, consumer demand and changes in governmental trade and agricultural programs. Continued volatility in the prices of the core ingredients and other supplies we purchase could increase our cost of goods sold and reduce our profitability.

 

We do not use hedges or forward pricing for availability of any core ingredients. As such, any material upward movement in core ingredient pricing could negatively impact our margins if we are not able to pass these costs on to our consumers, or our sales if we are forced to increase its prices. If we are not successful in managing our ingredient and packaging costs, if we are unable to increase our prices to cover increased costs or if such price increases reduce our sales volumes, then such increases in costs will adversely affect our business, financial condition and results of operations.

 

Certain of our core ingredient contracts have minimum volume commitments that could require purchases without matching revenues during weaker sales periods. Future core ingredient prices may be impacted by new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by suppliers, natural disasters, volatility in the price of crude oil and related petrochemical products and changes in exchange rates.

 

A disruption in the service, a significant increase in the cost of our primary delivery and shipping services for our products or a significant disruption at shipping ports could adversely affect our business.

 

We use a variety of shipping services for delivery of our products to users and brick-and-mortar and online retail partners, including air carriers and ocean shipping services. We have experienced and could continue to experience increased congestion and new import and export restrictions implemented at ports on which we rely for our business. In many cases, we have had to secure alternative transportation, such as air freight, or use alternative routes, at increased costs, to run our supply chain.

 

In the event of any significant interruption in service by shipping providers or at airports or shipping ports, we may be unable to engage alternative suppliers or to receive or ship goods through alternate sites in order to deliver our products in a timely and cost-efficient manner. As a result, we could experience delays, increased shipping costs and lost sales as a result of missed delivery deadlines and product demand cycles. For example, at times during the COVID-19 pandemic, shipping of our products has been delayed, which has inconvenienced our users and brick-and-mortar and online retail partners. Furthermore, if the cost of delivery or shipping services were to increase significantly and the additional costs could not be covered by product pricing, our results of operations could be adversely affected.

 

In particular, we are dependent upon major shipping companies, including FedEx, for the shipment of our products to and from our third-party logistics partner facilities. Changes in shipping terms, or the inability of these third-party shippers to perform effectively, could affect our responsiveness to our users and brick-and-mortar and online retail partners. Increases in our shipping costs may adversely affect our


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financial results if we are unable to pass on these higher costs to our users or brick-and-mortar and online retail partners.

 

We will require additional financing in the future, and we can provide no assurance that such funding will be available on terms that are acceptable to us, or at all.

 

We will require additional financing in the future in order to grow our business, and are faced with the risk that funding will be unavailable in sufficient amounts or on terms acceptable to us, if at all, when needed. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted, and the terms of those securities may include liquidation or other preferences that materially adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to make capital expenditures, declare dividends, or otherwise conduct our business. If we are unable to obtain any funding we need on a timely basis, we may be required to significantly curtail, delay or discontinue development of new products, the commercialization of our products or expansion into new geographies, which could materially affect our business, financial condition, and results of 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 (most of whom are larger and have more resources than we do) develop and bring to 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. 

 

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


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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.

 

One of our shareholders and his adult children owns a significant percentage of our Common Stock and has the ability to substantially influence all matters submitted to stockholders for approval.

 

One of our shareholders, Jay Decker, owns slightly less than 50% of our outstanding shares of Common Stock. For as long as Decker retains a significant ownership of our shares of Common Stock, he will be able to substantially influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, he will substantially influence the election of directors and approval of any merger, consolidation or sale of all or substantially all our assets. This concentration of voting power could delay or prevent an acquisition of us on terms that other stockholders may desire or result in management that our stockholders disagree with. In addition, Mr. Decker’s adult children own and will continue to own a significant portion of our outstanding Common Stock.  See “Security Ownership of Certain Beneficial Owners and Management”.

 

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. Future strategic transactions we engage in may require us to incur additional charges or expenses.  Moreover, our pending and future strategic acquisitions or other transactions may pose significant integration challenges and/or management and business disruptions, and we may not receive the anticipated benefits of such transactions, 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.

 

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 citrus bergamot bulk extract inventory for the year. We believe this is the only product in our inventory  


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that has a material risk of spoilage. The amount of our inventory exceeds our revenues for the year ended December 31, 2021. As of December 31, 2022, we had over $1.8 million in inventory, and we wrote off approximately $97,000 in inventory in 2022. As of December 31, 2023, we had over $1.6 million in inventory. 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. Our build-up in inventory peaked at the end of 2020 and we have been able to continue to reduce our inventory through increased sales. We do not anticipate any further inventory write-offs.

 

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 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. 

 

We received a warning letter from the FDA in November 2022 regarding one of our products.

 

On November 14, 2022, BergaMet NA, LLC, our subsidiary, received a warning letter from the FDA regarding claims we allegedly make about our Cholesterol Command product. Specifically, the warning letter related to claims on our website, Facebook page, and the webpage of a retailer claim that the products are intended for use in the cure, mitigation, treatment, or prevention of disease because they reduce cholesterol or are an anti-inflammatory. On December 1, 2022, we responded to the warning letter notifying the FDA that we had hired a third-party to review our advertising and revise portions of our website, Facebook page, and online product listings. This was the only warning letter we received from the FDA to date.


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There can be no assurance that the FDA will not pursue this action further. If the FDA were to pursue this action, we may have to cease selling our Cholesterol Command product. Any action brought by the FDA (or any ramifications of such action, including, without limitation, a required withdrawal of Cholesterol Command from the market) would have a material adverse effect on our reputation, sales efforts and results of operations.

 

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, Robert Madden. 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.

 

As a part of our business strategy, we have made and expect to continue to make acquisitions. These acquisitions could disrupt our operations and harm our operating results.

 

An element of our strategy includes expanding our product offerings and gaining access to new skills and other resources through strategic acquisitions when attractive opportunities arise. Acquiring additional businesses and the implementation of other elements of our business strategy are subject to various risks and uncertainties. Some of these factors are within our control and some are outside our control. These risks and uncertainties include, but are not limited to, the following:

 

  any acquisition may result in significant expenditures of cash, stock and/or management resources, 

 

  acquired businesses may not perform in accordance with expectations, 

 

  we may encounter difficulties and costs with the integration of the acquired businesses, 

 

  management’s attention may be diverted from other aspects of our business, 

 

  we may face unexpected problems entering geographic and product markets in which we have limited or no direct prior experience, 

 

  we may lose key employees of acquired or existing businesses, 

 

  we may incur liabilities and claims arising out of acquired businesses, 

 

  we may be unable to obtain financing, and 

 

  we may incur indebtedness or issue additional capital stock, which could be dilutive to holders of our common stock. 

 

There can be no assurance that attractive acquisition opportunities will be available to us, that we will be able to obtain financing for or otherwise consummate any acquisitions or that any acquisitions which are consummated will prove to be successful. There can be no assurance that we can successfully execute all aspects of our business strategy.

 

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


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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.

 

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.

 

Risk Factors Related to Our Securities Generally

 

The market prices and trading volume of our shares of Common Stock may experience rapid and substantial price volatility, which could cause purchasers of our Common Stock to incur substantial losses. 

 

The market prices and trading volume of shares of Common Stock of other small publicly traded companies with a limited number of shares available to purchasers, have experienced rapid and substantial price volatility unrelated to the financial performance of those companies. Similarly, shares of our Common Stock may experience similar rapid and substantial price volatility unrelated to our financial performance, which could cause purchasers of our Common Stock to incur substantial losses, which may be unpredictable and not bear any relationship to our business and financial performance. Extreme fluctuations in the market price of our Common Stock may occur in response to strong and atypical retail investor interest, including on social media and online forums, the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our Common Stock and our other securities, access to margin debt, trading in options and other derivatives on our shares of Common Stock and any related hedging and other trading factors:

 

If there is extreme market volatility and trading patterns in our Common Stock, it may create several risks for investors, including the following:


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·the market price of our Common Stock may experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals; 

·if our future market capitalization reflects trading dynamics unrelated to our financial performance or prospects, purchasers of our Common Stock could incur substantial losses as prices decline once the level of market volatility has abated; 

·if the future market price of our Common Stock declines, purchasers of shares of Common Stock may be unable to resell such shares at or above the price at which they acquired them. We cannot assure such purchasers that the market of our Common Stock will not fluctuate or decline significantly in the future, in which case investors in this Offering could incur substantial losses. 

 

Further, we may incur rapid and substantial increases or decreases in our Common Stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting us. Accordingly, the market price of our Common Stock may fluctuate dramatically, and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, many of which are beyond our control, that could negatively affect the market price of our Common Stock or result in fluctuations in the price or trading volume of our Common Stock, including:

 

·actual or anticipated variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet market expectations with regard to our earnings; 

·our current inability to pay dividends or other distributions; 

·publication of research reports by analysts or others about us or the industry in which we operate, including the nutraceutical industry which may be unfavorable, inaccurate, inconsistent or not disseminated on a regular basis; 

·changes in market valuations of similar companies; 

·market reaction to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the holdings of our existing stockholders; 

·additions or departures of key personnel; 

·actions by institutional or significant stockholders; 

·short interest in our Common Stock or our other securities and the market response to such short interest; 

·the dramatic increase in the number of individual holders of our Common Stock and their participation in social media platforms targeted at speculative investing; 

·speculation in the press or investment community about our company or industries in which we operate; 

·strategic actions by us or our competitors, such as acquisitions or other investments; 

·legislative, administrative, regulatory or other actions affecting our business, our industry, including positions taken by the FDA; 

·investigations, proceedings, or litigation that involve or affect us; 

·the occurrence of any of the other risk factors included in this annual report; and 

·general market and economic conditions. 


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Following the recent reverse stock split of our outstanding shares of Common Stock, we cannot assure you that the market price of our Common Stock will remain at the same level.

 

On December 29, 2023, we effectuated a 1-for-120 reverse stock split of our Common Stock. There can be no assurance that the market price of our Common Stock following such reverse stock split will remain at the same level. It is not uncommon for the market price of a company’s Common Stock to decline in the period following a reverse stock split. If the market price of our Common Stock declines following the effectuation of such reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our Common Stock outstanding, such as negative financial or operational results, could adversely affect the market price of our Common Stock.

 

The recent reverse stock split may decrease the liquidity of the shares of our Common Stock.

 

The liquidity of the shares of our Common Stock may be affected adversely by our recent reverse stock split given the reduced number of shares of our Common Stock that will be outstanding following such reverse stock split, especially if the market price of our Common Stock does not increase as a result of such reverse stock split. In addition, such reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our Common Stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares of Common Stock and greater difficulty effecting such sales.

 

Following our recent reverse stock split, the resulting market price of our Common Stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.

 

Although we believe that a higher market price of our Common Stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our Common Stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our Common Stock may not necessarily improve.

 

A significant portion of our total outstanding shares of Common Stock are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our Common Stock to drop significantly, even if our business is performing well.

 

Sales of a substantial number of shares of our Common Stock in the public market could occur at any time, subject to certain restrictions described below. All of the Shares will be freely tradable without restrictions or further registration under the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act (“Rule 144”). These sales, or the perception in the market that holders of a large number of shares of our Common Stock intend to sell shares, could reduce the market price of our Common Stock. We have outstanding 2,963,906 shares of Common Stock, 597,265 of which may be resold in the public market immediately without restriction, and the rest of which may be sold pursuant to Rule 144. Also, we intend to register all shares of Common Stock that we may issue under our equity compensation plan on a registration statement on Form S-8. Upon such registration, such shares can be freely sold in the public market upon issuance, subject to the terms of applicable award agreements, volume limitations applicable to affiliates and lock-up agreements.


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If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our Common Stock, the price of our Common Stock could decline.

 

The trading market for our Common Stock may rely, in part, on the research and reports that industry or financial analysts publish about us or our business. If securities analysts do not commence coverage of us, the trading price of our Common Stock could decrease. Additionally, if one or more of the analysts covering our business downgrade their evaluations of our Common Stock, the price of our Common Stock could decline. If one or more of these analysts cease to cover our Common Stock, we could lose visibility in the market for our Common Stock, which in turn could cause our Common Stock price to decline.

 

An active trading market for our Common Stock may not develop and you may not be able to resell your shares at or above the public offering price.

 

Prior to this Offering, there has been a limited public market for shares of our Common Stock. An active trading market for our Common Stock may never develop or be sustained. In the absence of an active trading market for our Common Stock, investors may not be able to sell their Common Stock at the time that they would like to sell. An inactive market may also impair our ability to raise capital by selling shares of our Common Stock and may impair our ability to acquire other companies, products or technologies by using shares of our Common Stock as consideration.

 

We have broad discretion in the use of our cash, and may not use it effectively.

 

Our management will have broad discretion in the application of our cash, and could spend it in ways that do not improve our results of operations or enhance the value of our Common Stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business or cause the price of our Common Stock to decline. Pending their use, we may invest our cash in a manner that does not produce income or that loses value.

 

Raising additional capital will likely cause dilution to our existing stockholders and restrict our operations.

 

We will likely seek to raise additional capital through a combination of public and private equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or debt securities, your ownership interest will be diluted and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or any of our product candidates, or grant licenses on terms unfavorable to us.

 

We will incur increased costs as a result of operating as a smaller reporting public company, and our management will be required to devote substantial time to new compliance initiatives.

 

As a smaller reporting public company, we will incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel, who do not have extensive experience in operating a public company, will need to devote a substantial


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amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.

 

Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

 

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future.


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CAUTIONARY NOTE REGARDING 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.

 

Forward-looking statements contained in this annual report include, but are not limited to, statements about the following:

 

·our estimates regarding the potential market opportunity for our products; 

 

·our ability to identify and develop new product candidates; 

 

·our ability to identify, recruit and retain key personnel; 

 

·our commercialization and marketing capabilities and strategy; 

 

·the implementation of our business model, strategic plans for our business, product candidates and technology; 

 

·the rate and degree of market acceptance and utility of our products and products in development; 

 

·our competitive position; 

 

·our intellectual property position and our ability to protect and enforce our intellectual property; 

 

·our financial performance; 

 

·developments and projections relating to our competitors and our industry; 

 

·our ability to obtain additional funding; 

 

·our expectations related to the use of proceeds from this Offering; 

 

·our estimates regarding expenses, future revenue, capital requirements and needs for or ability to obtain additional financing; 

 

·the impact of laws and regulations; and 


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·the impact that general economic conditions and the uncertainty of the U.S. and global economy, particularly the continuing COVID-19 pandemic, inflation in the U.S., globally supply chain disruptions and the sanctions imposed on Russia as a result of its invasion of Ukraine has had and will have on our industry, market, business and product candidates. 

 

Forward-looking statements are subject to a number of significant risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this annual report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this annual report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this annual report. You should read this annual report and the documents that we have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect.

 

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 1C – CYBERSECURITY

 

A consistent and holistic approach to cybersecurity is important to achieving our strategic business objectives and protecting our intellectual property. Because we sell many of our products through e-commerce platforms, we would be indirectly affected by a variety of cybersecurity threats such as ransomware and denial-of-service attacks that affect most industry sectors. Our customers, suppliers and other business partners face similar cybersecurity threats, and a cybersecurity incident impacting us or any of these entities could materially adversely affect our operations, performance and results of operations. We are continually evaluating best practices and methods to protect us from a wide range of potential threats.

 

The Board oversees our processes for identifying and mitigating risks, including cybersecurity risks. Our management periodically briefs the Board on our cybersecurity and information security policies and plans. In the event of an incident, we have developed an incident response plan, which sets forth the steps to be followed from incident detection and assessment to mitigation, recovery and notification and reporting, including notifying functional areas, as well as senior leadership and the Board, as appropriate.


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We continue to evaluate our cybersecurity requirements to address the evolving cybersecurity risks that we face in an increasingly technically capable environment. Our management manages our cybersecurity policies, with the goal of preventing cybersecurity incidents, if possible, while also maintaining IT system performance and data integrity to minimize the business impact should an incident occur.

 

Although we take cybersecurity risks seriously, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us.

 

ITEM 2 – PROPERTIES

 

We do not currently own, lease or use any office space as we operate on a virtual basis. However, we lease warehouse facilities under an operating lease that expires in 2025. Prior to February 4, 2022, we leased a warehouse facility on a month-to-month basis. Our rent obligations for 2024 through 2025 are as follows: 2024 - $69,635, and 2025 - $5,822. Total rent for the year ended December 31, 2023 was $65,335. 

 

ITEM 3 – 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.

 

On November 14, 2022, BergaMet NA, LLC, our subsidiary, received a warning letter from the FDA regarding claims we allegedly make about our Cholesterol Command product. Specifically, the warning letter related to claims on our website, Facebook page, and the webpage of a retailer claim that the products are intended for use in the cure, mitigation, treatment, or prevention of disease because they reduce cholesterol or are an anti-inflammatory. On December 1, 2022, we responded to the warning letter notifying the FDA that we had hired a third-party to review our advertising and revise portions of our website, Facebook page, and online product listings. This was the only warning letter we received from the FDA to date.

 

Other than as set forth above, we are not a party to or otherwise involved in any legal proceedings.

 

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 


41 


 

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 an unsolicited basis on the OTCQB tier of the marketplace maintained by OTC Markets Group, Inc. under the symbol “HYEX.” Our stock is piggyback qualified for broker-dealer quotations. 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, 2023 and 2022, as provided by Nasdaq, after giving effect to the 1-for-120 reverse stock split on December 29, 2023. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.

 

Fiscal Year

Ended

December 31,

 

 

 

 

 

 

 

Transaction Prices

 

Period

 

High

 

Low

 

2024

 

 

First Quarter (through March 18, 2024)

 

 

$4.05

 

 

$1.03

 

 

 

 

 

 

 

2023

 

Fourth Quarter

 

$7.20

 

$3.24

 

 

Third Quarter

 

$7.20

 

$3.60

 

 

Second Quarter

 

$6.96

 

$5.50

 

 

First Quarter

 

$7.02

 

$4.32

 

 

 

 

 

 

 

2022

 

Fourth Quarter

 

$8.28

 

$4.80

 

 

Third Quarter

 

$8.52

 

$4.93

 

 

Second Quarter

 

$9.12

 

$4.91

 

 

First Quarter

 

$6.96

 

$3.72

 

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 18, 2024, there were 2,963,906 shares of our common stock issued and outstanding and held by approximately 119 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


42 


upon such factors as earnings levels, capital requirements, our financial condition and other factors deemed relevant by the Board of Directors.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We do not have any disclosure related to this item. 

 

Recent Issuance of Unregistered Securities

 

Restricted Stock Units and Restricted Stock Awards

 

On December 26, 2022, we approved the Healthy Extracts Inc. 2022 Equity Incentive Plan and set aside 433,334 shares of our common stock for issuance thereunder. On December 26, 2022, we approved the grant of a total of 133,125 Restricted Stock Units on April 28, 2023 at $1.20 per share, and the grant of 300,000 Restricted Stock Awards upon our uplisting with a strike price of $0.00 to $1.20 to a total of sixteen (16) individuals.3

 

The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, there was no solicitation involved in the offerings, and the parties were either sophisticated or accredited.

 

ITEM 6 – RESERVED

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 


3 NTD: Confirm no other issuances through 12/31/23.


43 


 

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Overview

 

We are a platform for acquiring, developing, patenting, marketing, and distributing plant-based nutraceuticals. Our products have not been evaluated by the FDA or any similar regulatory body for safety and efficacy. Our proprietary and patented products target select high-growth categories within the multibillion-dollar nutraceuticals market, such as heart, brain and immune health. Our mission is to acquire or create products with health and performance benefits that have mass consumer appeal.

 

Guided by this mission, our first two acquisitions formed our current operating subsidiaries, Bergamet, which offers nutraceutical heart and immune health products, and UBN, which offers nutraceutical products for brain health.  Based on published research from third-party sources, we believe our Bergamet products have been shown to support heart health, support immune response, and address metabolic syndrome.

 

Our Financial Condition and Going Concern Issues

 

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, 2023 and 2022 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, 2023, we have incurred accumulated net losses of $18,399,673. 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, 2023 and 2022

 

Introduction

 

We had revenues of $2,485,866 for the year ended December 31, 2023, as compared to $2,251,469 for the year ended December 31, 2022, an increase of $234,397, or 10%. Our cost of revenue was $864,055 for the year ended December 31, 2023, as compared to $879,951 for the year ended December 31, 2022, a decrease of $15,896, or 2%.

 


44 


 

Revenues and Net Operating Loss

 

Our revenues, operating expenses, and net operating loss for the years ended December 31, 2023 and 2022 were as follows:

 

 

 

Year Ended

December 31, 2023

 

Year Ended

December 31, 2022

 

Increase/

(Decrease)

 

 

 

 

 

 

 

Revenue

 

$

2,485,866

 

 

$

2,251,469

 

 

$

234,397

 

Cost of Revenue

 

 

864,055

 

 

 

879,951

 

 

 

(15,896)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

3,865,654

 

 

 

2,283,107

 

 

 

1,582,546

 

Total operating expenses

 

 

3,865,654

 

 

 

2,283,107

 

 

 

1,582,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating loss

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense)

 

 

(229,088)

 

 

 

(71,531)

 

 

 

157,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain/(loss)

 

$

(2,472,931)

 

 

$

(983,121)

 

 

$

1,489,810

 

 

Revenues

 

We had revenues of $2,485,866 for the year ended December 31, 2023, as compared to $2,251,469 for the year ended December 31, 2022, an increase of $234,397, or 10%. The increase in revenues was mainly due to our increased focus on the Amazon marketplace.

 

Cost of Revenue

 

Our cost of revenue was $864,055 for the year ended December 31, 2023, as compared to $879,951 for the year ended December 31, 2022, a decrease of $15,896, or 2%, and consisted of wholesale product costs and packaging.

 

General and Administrative

 

General and administrative expense was $3,865,654 and $2,283,107 for the years ended December 31, 2023 and 2022, an increase of $1,582,546, or 69%. The increase was related to stock compensation expenses. In the year ended December 31, 2023, general and administrative expenses consisted mainly of stock based compensation of $1,494,191, consulting fees of $592,093, accounting and legal fees of $258,187 and salaries and wages of $198,554. In the year ended December 31, 2022, general and administrative expenses consisted mainly of consulting fees of $608,819, broker fees of $383,938, selling expenses of $595,318, accounting and legal fees of $145,062, and salaries and wages of $145,589.

 

Net Operating Gain/Loss

 

As a result of the items discussed above, our net operating loss was $2,243,843 and $911,590 for the years ended December 31, 2023 and 2022, respectively, an increase of $1,332,253, or 146%.

 


45 


 

Other Income and Expense

 

Other income (expense) was $(229,088) and $(71,531) for the years ended December 31, 2023 and 2022, respectively, an increase of $157,557, or 220%. For the year ended December 31, 2023, our other income (expense) consisted of interest expenses, net of interest income of $(176,948) and change in fair value on derivative of $(52,140).  For the year ended December 31, 2022, our other income (expense) consisted of interest expenses, net of interest income of $(64,690) and change in fair value on derivative of $(9,484), offset by a gain on the sale of asset of $2,643.

 

Net Gain/(Loss)

 

Our net gain (loss) for the year ended December 31, 2023 was $(2,472,931), or $0.85 per share, and our net gain (loss) for the ended December 31, 2022 was $(983,121), or $(0.34) per share, an increase of $1,489,810, or 152%.

 

Liquidity and Capital Resources

 

Introduction

 

During the years ended December 31, 2023 and 2022, we had negative operating cash flows. Our cash on hand as of December 31, 2023 was $19,441. Our monthly cash flow burn rate in 2023 was approximately $35,000. 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.

 

Our cash, current assets, total assets, current liabilities, and total liabilities as of December 31, 2023 and 2022 were as follows:

 

 

December 31,
2023

December 31,
2022

Change

 

 

 

 

 

Cash

$

19,441

$

65,651

$

(46,210)

Total Current Assets

 

1,899,678

 

2,043,587

 

(143,909)

Total Assets

 

2,635,014

 

2,781,118

 

(146,104)

Total Current Liabilities

 

1,680,424

 

902,788

 

777,636

Total Liabilities

$

1,680,424

$

902,788

$

777,636

 

Our cash decreased by $46,210 as of December 31, 2023 as compared to December 31, 2022. Our total current assets decreased by $143,909 because of our decrease in cash, as well as accounts receivable and inventory. Our total assets decreased by $146,104 for the same reasons.

 

Our current and total liabilities increased by $777,636, from $902,788 as of December 31, 2022 to $1,680,424 as of December 31, 2023. Our total liabilities as of the year ended December 31, 2023 consisted primarily of convertible debt, net of discount of $608,601, notes payable of $361,093, and accrued liabilities of $215,069.

 

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.

 


46 


Cash Requirements

 

Our cash on hand as of December 31, 2022 was $19,441. Our monthly cash flow burn rate in 2023 was approximately $35,000. 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, 2023 and 2022 was $415,749 and $390,621, respectively, an increase of $25,128, or 6%. Our net cash used in operating activities for the year ended December 31, 2023 consisted primary of a net loss of $2,472,931, offset primarily by an adjustment for warrants issued for services of $1,639,191 and changes in inventory of $192,845. Our net cash used in operating activities for the year ended December 31, 2022 consisted of a net loss of $983,121 offset by an adjustment for warrants issued for services of $402,100, an increase in inventory of $138,838, and an increase in accounts payable of $54,048.

 

Investments

 

Our cash flow provided by (used in) investing activities for the years ended December 31, 2023 and 2022 was $zero and ($5,344), respectively.

 

Financing

 

Our net cash provided by financing activities for the years ended December 31, 2023 and 2022 was $369,539 and $239,518, respectively, an increase of $130,021, or 54%. The increase in 2023 was due primarily to proceeds from the issuance of notes payable of $713,283 and proceeds from the issuance of convertible debt of $362,963, offset by the repayment of notes payable of $657,560 and repayment of convertible debt of $110,535.

 

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. 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.

 


47 


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.

 

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 and net realizable value. The components of inventory cost include raw materials, labor, and overhead.  Net realizable value is determined using various assumptions with regard to excess or slow-moving inventories, expiration dates, current and future product demand, production planning, and market conditions.  A change in any of these variables could result in an adjustment to inventory.

 

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, 2023 and 2022, the total of inventory which was written off as an inventory allowance was $1,611,257 and $1,914,891.

 

 

 

DECEMBER 31,

 

DECEMBER 31,

 

 

2023

 

2022

Inventory

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory Classes:

 

 

 

 

 

 

 Raw Materials

 

$

1,387,426 

 

$

1,483,764 

 Finished Goods

 

 

225,567 

 

 

310,600 

 Work in process

 

 

13,290 

 

 

24,764 

Total inventory

 

$

1,626,283 

 

$

1,819,128 

 

Revenue Recognition

 

The Company applies Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers (ASC 606).  ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes all of the existing revenue recognition guidance.  This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires us to identify distinct performance obligations.  A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.  When distinct performance obligations exist, the Company allocates the contract transaction price to each distinct performance obligation.  The


48 


standalone selling price is used to allocate the transaction price to the separate performance obligations. The Company recognizes revenue when, or as, the performance obligation is satisfied.

 

Generally, revenues are recognized at the time of shipment to the customer with the price being fixed and determinable and collectability assured, provided title and risk of loss is transferred to the customer.  Most of our shipping and handling costs are built into the transaction price, but if the customer asks for express shipping, the costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales.

 

The Company’s subsidiary, BergaMet N.A., LLC, recognizes revenue from our main source – e-commerce revenue.  Here is a list of all the sales channels which include the Company’s subsidiary website channel or any other selling channel like Amazon, doctors’ offices, and walk-in sales.  All of our customer sales for Healthy Extracts Inc. and Ultimate Brain Nutrients, LLC are recognized as revenue under the subsidiary of BergaMet N.A., LLC.  All three divisions of the Company sell plant-based nutraceuticals to our end using customers.

 

The Company evaluates the criteria outlined in ASC 606-10-55, Principal versus Agent Considerations, currently we are the principal and have not engaged any agents at this time.  Currently, we have not recognized any revenues under the agent considerations.

 

Revenue is recognized when, or as, control of a promised merchandise or service is shipped to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring title of those products or services and are recorded net of and discounts or allowances.  Shipping costs paid by the customer are included in revenue.  Merchandise sales are fulfilled with inventory held in our warehouse in Henderson, NV.  Therefore, the Company’s contracts have a single performance obligation (shipment of product).

 

If the Company receives a request for refund on a customer obligation, the Company will refund the full cost of the obligation due to our money back guarantee.  

 

Revenue recognition is evaluated through the following five-step process:

 

1.identification of the contract with a customer; 

2.identification off the performance obligations in the contract; 

3.determination of the transaction price; 

4.allocation of the transaction price to the performance obligations in the contract; and 

5.recognition of revenue when or as a performance obligation is satisfied. 

 

These steps are met when an order is received, a price agreed and the product shipped or delivered to that customer.

 

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.

 


49 


 

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Report of Independent Registered Public Accounting Firm

F-1

 

 

Balance Sheets as of December 31, 2023 and 2022

F-2

 

 

Statement of Operations for the years ended December 31, 2023 and 2022

F-3

 

 

Statement of Stockholders’ Deficit for the years ended December 31, 2023 and 2022

F-4

 

 

Statement of Cash Flows for the years ended December 31, 2023 and 2022

F-5

 

 

Notes to Financial Statements

F-6 to F-22


50 


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. as of December 31, 2023 and 2022, 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, 2023 and 2022, 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 significant operating losses 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.

Critical Audit Matter

 

Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

 

We determined that there are no critical audit matters.

 

/S/ BF Borgers CPA PC (PCOAB ID 5041)

We have served as the Company's auditor since 2020

Lakewood, CO

April 1, 2024


F-1


 

 

HEALTHY EXTRACTS, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2023 AND 2022

(Audited)

 

 

 

 

 

 

 

 

 

 

DECEMBER 31

 

DECEMBER 31,

 

 

 

 

 

 

2023

 

2022

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

  Cash

 

 

 

 

 

$19,441 

 

$65,651 

  Accounts receivable

 

 

 

 

 

30,440 

 

105,794 

  Inventory, net

 

 

 

 

 

1,626,283 

 

1,819,128 

  Offering costs

 

 

 

 

 

151,931 

 

- 

  Prepaid acquisition costs

 

 

 

 

 

- 

 

53,015 

  Right of use asset, net

 

 

 

 

 

71,583 

 

- 

 

Total current assets

 

 

 

 

1,899,678 

 

2,043,587 

 

 

 

 

 

 

 

 

 

 

  Fixed assets

 

 

 

 

 

3,306 

 

5,501 

  Patents/Trademarks

 

 

 

 

 

521,881 

 

521,881 

  Deposit

 

 

 

 

 

16,890 

 

16,890 

  Goodwill

 

 

 

 

 

193,260 

 

193,260 

 

Total other assets

 

 

 

 

 

735,336 

 

737,531 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

 

 

 

$2,635,014 

 

$2,781,118 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

$116,842  

 

$91,316  

Accrued liabilities

 

 

 

215,069  

 

94,554  

Lease liabilities - current

 

 

 

65,229  

 

-  

Lease liabilities - long-term

 

 

 

9,222  

 

-  

Notes payable

 

 

 

361,093  

 

275,370  

Notes payable - related party

 

 

 

83,366  

 

866  

Convertible debt, net of discount

 

 

 

608,601  

 

317,284  

Accrued interest payable

 

 

 

64,386  

 

21,387  

Accrued interest payable - related party

 

 

 

2,465  

 

-  

Derivative liabilities

 

 

 

154,150  

 

102,011  

 

Total current and total liabilities

 

 

 

1,680,424  

 

902,788  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

  Preferred stock, $0.001 par value, 75,000,000 shares authorized, none and none shares issued and outstanding, respectively

 

-  

 

-  

  Common stock, $0.001 par value, 50,000,000 shares authorized, 2,954,104 shares issued and outstanding as of December 31, 2023, and 2,876,437 shares issued and outstanding as of December 31, 2022, respectively

 

354,492  

 

345,172  

  Additional paid-in capital

 

 

 

 

 

18,999,770  

 

17,459,899  

  Accumulated deficit

 

 

 

 

 

(18,399,673) 

 

(15,926,742) 

 

Total stockholders' equity

 

 

 

 

954,590  

 

1,878,330  

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$2,635,014  

 

$2,781,118  

 

The accompanying notes are an integral part of these audited consolidated financial statements.


F-2


 

 

HEALTHY EXTRACTS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDING DECEMBER 31, 2023 AND 2022

(Audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

FOR THE YEAR ENDING

 

 

 

 

 

 

DECEMBER 31

 

 

 

 

 

2023

 

2022

 

 

 

 

 

 

 

 

 

REVENUE

 

 

 

 

 

 

 

   Revenue

 

 

 

 

$2,485,866  

 

$2,251,469  

 

Net revenue

 

 

 

 

2,485,866  

 

2,251,469  

 

 

 

 

 

 

 

 

 

COST OF REVENUE

 

 

 

 

 

 

 

   Cost of goods sold

 

 

 

 

864,055  

 

879,951  

 

Total cost of revenue

 

 

 

 

864,055  

 

879,951  

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

 

 

1,621,810  

 

1,371,517  

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

   Direct cost of revenue

 

 

 

 

-  

 

-  

   General and administrative

 

 

 

 

3,865,654  

 

2,283,107  

   Impairment of assets

 

 

 

 

-  

 

-  

 

Total operating expenses

 

 

 

 

3,865,654  

 

2,283,107  

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

   Interest expense, net of interest income

 

 

 

 

(176,948) 

 

(64,690) 

   Change in fair value on derivative

 

 

 

 

(52,140) 

 

(9,484) 

   Gain on sale of asset

 

 

 

 

-  

 

2,643  

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

 

 

(229,088) 

 

(71,531) 

 

 

 

 

 

 

 

 

 

Net income/(loss) before income tax provision

 

 

 

(2,472,931) 

 

(983,121) 

 

 

 

 

 

 

 

 

 

NET INCOME/(LOSS)

 

 

 

 

$(2,472,931) 

 

$(983,121) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income/(Loss) per share - basic and diluted

 

 

 

 

$(0.85) 

 

$(0.34) 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding - basic and diluted

 

2,915,410  

 

2,854,290  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these audited consolidated financial statements.


F-3


 

HEALTHY EXTRACTS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEAR ENDING DECEMBER 31, 2023 AND 2022

(Audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Accumulated

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2021

 

 

 

2,819,868  

 

$338,384  

 

17,075,974  

 

$(14,943,620) 

 

$2,470,738  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelation of common stock for debt

 

 

(800,267) 

 

(800) 

 

(53,013) 

 

-  

 

(53,813) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

507,917  

 

508  

 

24,888  

 

-  

 

25,396  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

6,740,000  

 

6,740  

 

395,360  

 

-  

 

402,100  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock - Note Conversion

 

340,621  

 

341  

 

16,690  

 

-  

 

17,031  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) for the period

 

 

 

-  

 

-  

 

-  

 

(983,121) 

 

(983,121) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2022

 

 

 

80,068  

 

$345,173  

 

17,459,899  

 

$(15,926,741) 

 

$1,878,330  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

320,000  

 

320  

 

15,680  

 

-  

 

16,000  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of restricted stock units

 

 

-  

 

-  

 

298,153  

 

-  

 

298,153  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of options and warrants issued

 

 

-  

 

-  

 

785,038  

 

-  

 

785,038  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock-restricted stock units issued

 

9,000,000  

 

9,000  

 

441,000  

 

-  

 

450,000  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) for the period

 

 

 

-  

 

-  

 

-  

 

(2,472,931) 

 

(2,472,931) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2023

 

 

 

2,954,104  

 

354,492  

 

18,999,770  

 

(18,399,673) 

 

954,590  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these audited financial statements.


F-4


 

HEALTHY EXTRACTS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Audited)

 

 

 

 

 

 

 

FOR THE YEAR ENDING

 

 

DECEMBER 31

 

2023

 

2022

Cash Flows from Operating Activities:

 

 

 

 

Net Income/(Loss)

 

$(2,472,931) 

 

$(983,121) 

 

 

 

 

 

Adjustments to reconcile net loss to net cash

 

 

 

 

used in operating activities:

 

 

 

 

Depreciation and amortization

 

2,195  

 

878  

Warrants issued for services

 

1,639,191  

 

402,100  

Change in fair value on derivative liability

 

52,140  

 

9,484  

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

75,353  

 

27,547  

Inventory

 

192,845  

 

138,838  

Offering Costs

 

(151,931) 

 

-  

Cost in acquisition of Hyperion/OP&M

 

53,015  

 

(53,015) 

Right of use asset, net

 

(71,583) 

 

-  

Deposits

 

-  

 

(16,890) 

Accounts payable

 

25,526  

 

54,048  

Accrued liabilities

 

120,515  

 

35,291  

Accrued interest payable

 

42,999  

 

8,337  

Accrued interest payable - related party

 

2,465  

 

(14,118) 

Lease liability - current

 

65,229  

 

-  

Lease liability - long-term

 

9,222  

 

-  

Net Cash used in Operating Activities

 

(415,749) 

 

(390,621) 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

-  

 

(7,987) 

Gain on sale of asset

 

-  

 

2,643  

Cash flows provided by (used in) Investing Activities:

 

-  

 

(5,344) 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

(90,000) 

 

(11,386) 

Proceeds from issuance of convertible debt,

 

362,963  

 

463,630  

Payments for repayment of convertible debt

 

(110,535) 

 

(318,095) 

Proceeds from issuance of noted payable

 

713,283  

 

275,370  

Payments for repayment of notes payable

 

(657,560) 

 

-  

Proceeds from issuance of noted payable - related party

 

107,500  

 

-  

Payments for repayment of noted payable - related party

 

(25,000) 

 

(170,000) 

Loan origination fees

 

68,888  

 

-  

Net Cash provided by Financing Activities

 

369,539  

 

239,518  

 

 

 

 

 

Increase (decrease) in cash

 

(46,210) 

 

(156,447) 

Cash at beginning of period

 

65,651  

 

222,098  

Cash  at end of period

 

$19,441  

 

$65,651  

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these audited consolidated financial statements.


F-5


HEALTHY EXTRACTS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023 and 2022

 

 

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Healthy Extracts Inc. (the “Company”) was incorporated in the State of Nevada on December 19, 2014 as Grey Cloak Tech Inc. On October 23, 2020, we changed our name from Grey Cloak Tech Inc. to Healthy Extracts Inc. to more accurately reflect our business. The Company has acquired BergaMet NA, LLC and Ultimate Brain Nutrients, LLC which market and sell health supplemental products.

 

On January 13, 2023 the Company entered into definitive agreement to acquire nutraceutical manufacturer, Hyperion, and its digital marketing affiliate, Online Publishing and Marketing.  The total purchase price for the acquisitions was $1,750,000 in cash, $1,300,000 in the form of secured promissory notes, which was due in twelve months once the purchase had occurred, and $1,250,000 worth of our common stock.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying audited 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 audited 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, 2023 and the results of operations and cash flows for the periods presented. The results of operations for the year ended December 31, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period. These audited 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, 2022 filed with the SEC on March 31, 2023.

 

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.

 

In regards to inventory write-offs and allowances, our Company determines the net realizable value by using the various factors as following:  excess or slow-moving inventories (12 months or more of inventory on hand), expiration dates (within 12 months of the current reporting period), current and future product demand, production planning, and market conditions.  If any of these factors are found in the reporting period, management will review each item and determine if any additional allowances or write-offs need to be made.  A change in any of these variable’s factors could result in an adjustment to inventory. Management has provided for any risks in the current inventory allowance booked.  

 

As for revenue adjustments for discounts, allowances and refunds, we treat each of these items differently. When it comes to revenue discounts, we will create the invoice for the product sold which will include any discounts given.  These discounts usually happen for a short period of time for sales that we will offer around holidays.  Due to the revenue being recognized once the order has shipped, less any applicable discount, we book this transaction at the net order transaction amount.  In regards to allowances and refunds for revenue adjustments, due to our refund percentage is less than 1% we decided the need for an estimated adjustment for allowances and refunds was not material.  If we


F-6


do receive any returned orders, we will directly book those orders as refunds the day we receive the call from the customer requesting the refund. We will book the credit memo at the full value of the customer original order.

 

Cash

 

Cash includes cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.

 

Accounts Receivables

 

Accounts receivables are recorded at the invoice amount and do not bear interest.

 

Inventory

 

Inventories consist of health supplements held for sale in the ordinary course of business. The Company uses the weighted average cost method to value its inventories at the lower of cost and net realizable value. In pursuant to ASC 330-10-50-6, the components of inventory cost include raw materials, labor, and overhead.  Additionally, the weighted average cost per unit is used as a basis to determine the cost amounts removed from inventory as the aggregate number of units expected to be delivered under each order. Finally, the net realizable value is determined by using the various factors as following:  excess or slow-moving inventories (12 months or more of inventory on hand), expiration dates (within 12 months of the current reporting period), current and future product demand, production planning, and market conditions. If any of these factors are found in the reporting period, management will review each item and determine if any additional allowances or write-offs need to be made.  A change in any of these variable’s factors could result in an adjustment to inventory.

 

An allowance for inventory was established in 2018 and is evaluated each quarter to determine if all items are still sellable due to the factors listed above.  As of December 31, 2023 and December 31, 2022, the total of inventory allowance was $1,611,257 and $1,914,891.  The following are the classes held in inventory as of December 31, 2023 and December 31, 2022:

 

 

 

DECEMBER 31,

 

 

DECEMBER 31,

 

2023

 

 

2022

Inventory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory Classes:

 

 

 

 

 

 

 

 Raw Materials

 

$

2,998,683 

 

 

$

3,398,655 

 Finished Goods

 

 

225,567 

 

 

 

310,600 

 Work in process

 

 

13,290 

 

 

 

24,764 

Total inventory

 

 

3,237,540 

 

 

 

3,734,019 

Inventory allowance

 

 

(1,611,257)

 

 

 

(1,914,891)

Total inventory, net

 

$

1,626,283 

 

 

$

1,819,128 

 

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 it carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. With the acquisition of Ultimate Brain Nutrients on April 3, 2020 the Company added a purchasing value of $315,604 in patents to its balance sheet.

 

As of December 31, 2023, the Company believes that based upon qualitative factors, no impairment of indefinite-lived intangible assets is necessary.

 


F-7


 

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. No goodwill impairment indicators were present, for the goodwill listed on the books as of December 31, 2023, after working through our analysis of goodwill during the year ended December 31, 2023.

 

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 (2023 to 2027):  we discounted our cash flows to the anticipated cash projected to be received. We also projected the anticipated cash outflows required to service these customers. If the asset group was to be valued as a whole, we would expect an income approach based on the revenues being generated from the customers and expenses required to service those customers, appropriately adjusted for the working capital position. The sum of these values reasonably approximates this approach. 

 

The Company’s revenue streams align directly with the intangibles, which were recorded as a result of the BergaMet acquisition in fiscal 2019. For purposes of the Step 2 recoverability test under ASC 360 subsection 2.3., the net revenues from BergaMet customers base were used. The revenue stream fairly reflects anticipated future cash flows; accordingly, the intangibles associated with these revenue streams have been tested with the expected cash flows.

 

Debt with Warrants

 

In accordance with ASC Topic 470-20-25, when the Company issues debt with warrants, the Company treats the fair value of the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations using the straight-line method. The offset to the contra-liability is recorded as either equity or liability in the Company’s consolidated balance sheets depending on the accounting treatment of the warrants. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations. 

 

Convertible Debt – Derivative Treatment

 

When the Company issues debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: (a) one or more underlying’s, typically the price of our common stock; (b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; (c) no initial net investment, which typically excludes the amount borrowed; and (d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both (a) indexed to its own stock; and (b) classified in stockholders’ equity in its balance sheet. 

 


F-8


 

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using a Black-Scholes Option-Pricing model upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt using the straight-line method.

 

Revenue Recognition

 

The Company applies Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers (ASC 606).  ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes all of the existing revenue recognition guidance.  This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires us to identify distinct performance obligations.  A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.  When distinct performance obligations exist, the Company allocates the contract transaction price to each distinct performance obligation. The standalone selling price is used to allocate the transaction price to the separate performance obligations. The Company recognizes revenue when, or as, the performance obligation is satisfied.

 

Mostly, revenues are recognized at the time of shipment to the customer with the price being fixed and determinable and collectability assured, provided title and risk of loss is transferred to the customer.  Most of our shipping and handling costs are built into the transaction price, but if the customer asks for express shipping, the costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales.

 

The Company’s subsidiary, BergaMet N.A., LLC, recognizes revenue from our main source – e-commerce revenue.  Here is a list of all the sales channels which include the Company’s subsidiary website channel or any other selling channel like Amazon, doctors’ offices, and walk-in sales.  All of our customer sales for Healthy Extracts, Inc. and Ultimate Brain Nutrients, LLC are recognized as revenue under the subsidiary of BergaMet N.A., LLC.  All three divisions of the Company sell plant-based nutraceuticals to our end using customers.

 

The Company evaluates the criteria pursuant to ASC 606-10-55.  Some of the different considerations that we use because of their significance are as follows:  Collectability - payment has to be made prior to shipment unless the customer has agreed upon terms. Guaranties – we offer a money back to customers if they are unhappy with our products.  Principal versus Agent Considerations - currently we are the principal and have not engaged an agent at this time and we have not recognized any revenues under the agent considerations.  

 

Revenue is recognized when, or as, control of a promised merchandise or service is shipped to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring title of those products or services and are recorded net of and discounts or allowances.  Shipping costs paid by the customer are included in revenue.  Merchandise sales are fulfilled with inventory held in our warehouse in Henderson, NV.  Therefore, the Company’s contracts have a single performance obligation (shipment of product).

 

If the Company receives a request for refund on a customer obligation, the Company will refund the full cost of the obligation due to our money back guarantee.  Historically, we have done a valuation of our sales allowance account (customer returns).  In 2023 our return percentage was 0.008% of sales and 2022 was 0.009% of sales.  Due to the low refund percentage management decided there was not a need for an estimated adjustment for allowances and refunds due to materiality.

 

Revenue recognition is evaluated through the following five-step process:

 

6.identification of the contract with a customer; 

7.identification off the performance obligations in the contract; 

8.determination of the transaction price; 

9.allocation of the transaction price to the performance obligations in the contract; and 

10.recognition of revenue when or as a performance obligation is satisfied. 

 

These steps are met when an order is received, a price agreed and the product shipped or delivered to that customer.

 


F-9


 

Concentration

 

There is no concentration of revenue for the year ended December 31, 2022 and for the year ended December 31, 2023 because the revenue was earned from multiple customers.

 

Income Taxes

 

The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the accounting bases and the tax bases of the Company’s assets and liabilities. The deferred tax assets and liabilities are computed using enacted tax rates in effect for the year in which the temporary differences are expected to reverse.

 

The Company's deferred income taxes include certain future tax benefits.  The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

 

The Company has adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At December 31, 2023 and 2022, there were no uncertain tax positions that required accrual.

 

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. If the convertible debt is viewed as short-term, management chooses to expense the full debt discount in the period incurred is recorded as a gain or loss in the consolidated statement of operations.

 

The Company measures and reports certain financial instruments as liabilities at fair value on a recurring basis.  The fair value of these instruments as of December 31, 2023 and December 31, 2022 was as follows:

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

Fair Value at December 31, 2021

 $

92,527

 

 

 

-

 

 

 

-

 

 

$

92,527

Derivative liability

 

102,011

 

 

 

-

 

 

 

-

 

 

 

102,011

Fair Value at December 31, 2022

 $

102,011

 

 

 

-

 

 

 

-

 

 

$

102,011

Derivative liability

 

154,150

 

 

 

-

 

 

 

-

 

 

 

154,150

Fair Value at December 31, 2023

 $

154,150

 

 

 

-

 

 

 

-

 

 

$

154,150

 


F-10


December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Derivative liability

 

 

-

 

 

 

-

 

 

 

 154,150

 

 

$

  154,150

 

 

December 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Derivative liability

 

 

-

 

 

 

-

 

 

 

   102,011

 

 

$

    102,011

 

 

The details of derivative liability transactions for the year ended December 31, 2023 and December 31, 2022 are as follows:

 

The change in Level 3 financial instrument fair value is as follows:

 

Balance, December 31, 2021

 

$          92,527

Issued during the year ended December 31, 2022

 

264,952

Derivative liabilities debt premium

 

(43,269)

Change in fair value recognized in operations

 

(212,199)

Converted during the year ended December 31, 2022

 

(0)

Balance, December 31, 2022

 

$        102,011

Issued during the year ended December 31, 2023

 

145,067

Derivative liabilities debt discount

 

29,167

Change in fair value recognized in operations

 

(83,923)

Converted during the year ended December 31, 2023

 

(38,172)

Balance, December 31, 2023

 

$        154,150

 

The Company did not transfer any assets or liabilities measured at fair value on a recurring basis between levels during the year ending December 31, 2023 and December 31, 2022.

 

The Company determines the fair value of the derivative liability based on Level 3 inputs using the Black-Scholes option pricing model.  The significant unobservable input assumptions that can significantly change the fair value includes common share price; amount of principal and accrued interest convertible into shares as of the conversion date, and the number of shares issuable upon conversion; expected exercise price; expected term; volatility; and risk-free interest rate.

 

Convertible Instruments

 

Convertible debt – derivative treatment

 

The Company evaluates and accounts 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.

 

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using the Black-Sholes option pricing model upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. If the convertible debt is viewed as short-term, management chooses to expense the full debt discount in the period incurred is recorded as a gain or loss in the consolidated statement of operations.  The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the consolidated statement of operations.

 


F-11


Convertible debt – beneficial conversion feature

 

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, any discounts, if applicable, 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, if applicable, under these arrangements are amortized over the term of the related debt to their stated date of redemption.

 

Debt modifications and extinguishments

 

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 under change in fair value on derivative, in the consolidated operation statements, as a gain or loss on extinguishment of the two separate liabilities. During the year ended December 31, 2023, the Company issued $388,888 of convertible debt.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements of five–step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract cost, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting period beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.

 

The Company’s revenues are recognized when control of the promised goods or services is transferred to our clients (upon shipment of goods) in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps: (1) Identify the contract with a client; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to performance obligations in the contract; and (5) Recognize revenues when or as the Company satisfies a performance obligation.

 

We adopted ASC 2014-09 on January 1, 2019. Although the new revenue standard is expected to have an immaterial impact, if any, on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities with them.

 

The Company leases its office and warehouse space under non-cancellable capital leases.  The Company accounts for this lease in accordance with ASC 842. Right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Since our lease arrangements do not provide an implicit rate, we use our estimated incremental borrowing rate for the expected remaining lease term at commencement date in determining the present value of future lease payments.

 

The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

Capital lease expense is recognized on a straight-line basis over the lease term. Variable lease payments are not included in the lease payments to measure the lease liability and are expensed as incurred.

 

Finance lease expense is comprised of both interest expense, which is recognized using the effective interest method, and amortization of the right-of-use assets. These expenses are presented consistently with the presentation of other interest expense and amortization or depreciation of similar assets.

 

Common area maintenance fees (or CAMs) and other charges related to leases are expensed as incurred. See Note 5 — Right-of-Use Assets and Lease Liabilities for further discussion of the Company’s lease activities.

 


F-12


Common Stock Purchase Warrants

 

The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 (“Contracts in Entity's Own Equity”). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification is required.

 

NOTE 3 – GOING CONCERN

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated minimal revenues from operations. Since its inception, the Company has been engaged substantially in financing activities and developing its business plan and incurring startup costs and expenses. As a result, the Company incurred accumulated net losses from Inception (December 19, 2014) through the year ended December 31, 2023 of $18,336,268. Due to our negative cash flow, the Company has substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. In addition, the Company’s development activities since inception have been financially sustained through equity financing. Management plans to keep seeking funding through debt and equity financing which are intended to mitigate the conditions that have raise substantial doubt about the entity’s ability to continue as a going concern.

 

NOTE 4 – RELATED PARTY

 

For the year ended December 31, 2023 and December 31, 2022, the Company had expenses totaling $0 and $1,000 respectively, to an officer and director for salaries, which is included in general and administrative expenses on the accompanying consolidated statement of operations.

 

Note

 

Issuance Date

 

Maturity Date

 

Interest Rate

 

Original
Principal
Amount

 

Balance at
December
31, 2023

 

Balance at
December
31, 2022

Unsecured debt A

 

March 2019, March and June 2020

 

No due date

 

0%

 

$866

 

$866

 

$866

Unsecured debt H

 

September 1, 2023

 

January 1, 2024

 

10%

 

$82,500

 

$82,500

 

$866

Total notes payable

 

 

 

 

 

 

 

$83,366

 

$83,366

 

$866

Debt discount and deferred financing costs

 

 

 

 

 

 

 

-

 

-

 

-

Total notes payable, net

 

 

 

 

 

 

 

$83,366

 

$83,366

 

$866

 

Unsecured debt A:  On March 2, 2020, the Company received an unsecured loan of $200 from a shareholder.  Additionally, during in March and June 2019, the Company received an additional loan of $666 from another shareholder.  Both of these notes are unsecured and do not have a payment due date at an interest rate of 0.00%.

 

Unsecured debt H:  On September 1, 2023, the Company received an unsecured line of credit in the principal of up to $82,500 with a loan origination fee in the amount of $7,500, which was amortized over the life of the line of credit.  The net proceeds from this line of credit were $75,000.  The loan is unsecured and is due for repayment on January 1, 2024.  Interest will accrue at an interest rate of 10% per annum on any unpaid principal amount.  If the Company defaults on the loan, the holder of the note can declare all or any portion of the unpaid balance with all accrued interest immediately due and payable. As of December 31, 2023, the outstanding principal balance of unsecured debt G totaled $75,000.

 

NOTE 5 – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

 

In February 2022, the Company entered into a lease agreement for our warehouse facilities located at 7375 Commercial Way Suite 125, Henderson, Nevada 89011 with a term of 35 month 25 days and will expire in 2025.  Prior to February 4, 2022 the company was leasing a warehouse facility on a month-to-month lease. The average monthly base rent for the first 12 months is approximately $5,333.  For the next 24 months of the lease, the average monthly base rent will be approximately $5,694.  As part of the agreement the Company will be responsible to share any


F-13


property operating expenses estimated as $1,017 per month. Pursuant to ASC 842, the estimated operating expenses was included with the base rent and was included in the calculations of the right of use assets.  The Company recorded operating lease right-of-use of $175,765 and lease liabilities for operating lease of $175,765.

 

Supplemental statements of operations information related to leases are as follows:

 

 

 

Year Ended

December 31, 2023

Lease Cost

 

 

 

Cash paid for amounts included in the measurement of lease liabilities for the first quarter 2022

 

$

              -   

Weighted average remaining lease term – operating leases (in years)

 

 

1.08 

Average discount rate – operating leases

 

 

9.80%

 

 

 

 

 

 

December 31, 2023

Operating leases

 

 

 

Right-of-use assets, net of amortization of $104,182

 

$

71,583

 

 

 

 

Short-term operating lease liabilities

 

$

(65,229)

Long-term operating lease liabilities

 

 

(9,222)

Total operating lease liabilities

 

$

(74,452)

 

The following table summarizes the future undiscounted cash payments reconciled to the lease liability:

 

Year Ending

 

Operating Leases

2022 (remaining eleven months)

 

$

              -   

2023

 

 

              -   

2024

 

 

69,635 

2025

 

 

5,822 

2026 and thereafter

 

 

             -   

Total lease payments

 

$

75,457 

Less: Imputed interest/present value discount

 

$

(1,005)

Present value of lease liabilities

 

$

74,452 

 

NOTE 6 – NOTES PAYABLE

 

As of December 31, 2023, the Company had the following:

 

Note

 

Issuance Date

 

Maturity Date

 

Interest Rate

 

Original Principal Amount

 

Balance at December 31, 2023

 

Balance at December 31, 2022

Unsecured debt B

 

February 22, 2022

 

February 15, 2023

 

10%

$

200,000

 

-

 

75,370

Secured debt C

 

October 7, 2022

 

October 7, 2023

 

12.99%

 

200,000

 

-

 

200,000

Unsecured debt D

 

March 20, 2023

 

August 17, 2024

 

10%

 

330,000

 

166,486

 

-

Secured debt E

 

May 19, 2023

 

May 18, 2024

 

12.99%

 

131,000

 

-

 

-

Secured debt F

 

July 26, 2023

 

May 18, 2024

 

12.99%

 

196,000

 

110,399

 

-

Secured debt G

 

December 19, 2023

 

December 18, 2024

 

10%

 

94,600

 

92,526

 

-

Total notes payable

 

 

 

 

 

 

$

1,151,600

 

369,411

 

$275,370

Debt discount and deferred financing costs

 

 

 

 

 

 

 

-

 

-

 

-

Total notes payable, net

 

 

 

 

 

 

$

1,151,600

 

369,411

 

$275,370

 


F-14


Unsecured debt B:  On February 22, 2022, the Company received an unsecured loan in the principal of $200,000 with a loan origination fee in the amount of $20,000, which was fully expensed as interest expense in this period.  The net proceeds from this loan were $180,000.  The loan is unsecured and the initial payment of $17,804 was due on April 22, 2022.  There will be ten monthly payments due on the 22nd day of each following month, beginning on May 22, 2022 through Feb 15, 2023.  During fourth quarter of 2022, the note holder agreed to forgo two months of payments and add them to the back end of the note, which extended the due date of the note to April 25, 2023.  Interest will accrue at an interest rate of 10% per annum on any unpaid principal amount.  If the Company defaults on the loan, the default interest will increase to 16% per annum.  During 2022, the Company made a total in principal payments of $124,630 towards unsecured debt B.  During 2023, the Company has made additional principal payments towards unsecured debt B totaling $75,370 which settled the entire principal balance in full.  As of December 31, 2023, the principal balance of the note was paid off.

 

Secured debt C:  On October 7, 2022, the Company agreed to a secured loan by any consigned inventory held at fulfillment centers and any rights, title or interest in their account.  The principal loan amount was $200,000 and will have a loan term of twelve months with an annual interest rate of 12.99%, with a default rate of 14.99%.  The first three months of payment will be interest only payments of $2,165 and the remaining nine payments will be principal and interest payments of $23,442.  Interest payments will begin November 8, 2022 and Installment payments, including principal and interest, will begin February 8, 2023. During 2023, the Company has made principal payments totaling $200,000 towards the secured debt C which settled the entire principal balance in full.  As of December 31, 2023 the principal balance of secured debt C was paid off.

 

Unsecured debt D:  On March 20, 2023, the Company received an unsecured loan in the principal of $330,000 with a loan origination fee in the amount of $30,000, which was fully expensed as interest expense in this period.  The net proceeds from this loan were $300,000.  The loan is unsecured and the initial payment of $23,359 will be due on June 17, 2023.  There will be fourteen monthly payments due on the 17th day of each following month, beginning on July 17, 2023 through August 17, 2024.  Interest will accrue at an interest rate of 10% per annum on any unpaid principal amount.  If the Company defaults on the loan, the default interest will increase to 16% per annum.  During 2023, the Company made a total in principal payments of $163,514 towards the unsecured debt D.  As of December 31, 2023, the outstanding principal balance of unsecured debt D totaled $166,486.

 

Secured debt E:  On May 19, 2023, the Company agreed to a secured loan by any consigned inventory held at fulfillment centers and any rights, title or interest in their account.  The principal loan amount was $131,000 and will have a loan term of twelve months with an annual interest rate of 12.99%, with a default rate of 14.99%.  The first payment of principal and interest will be $11,700 and will be due June 19, 2023 with an additional eleven payments due each 19th of the month.  During 2023, the Company has made principal payments totaling $10,282 towards the secured debt E.  As of December 31, 2023 the principal balance of secured debt E was paid off.

 

Secured debt F:  On July 26, 2023, the Company agreed to a secured loan by any consigned inventory held at fulfillment centers and any rights, title or interest in their account.  The principal loan amount was $196,000 and will have a loan term of twelve months with an annual interest rate of 12.99%, with a default rate of 14.99%.  The first payment of principal and interest will be $17,505 and will be due August 26, 2023 with an additional eleven payments due each 26th of the month.  During 2023, the Company has made principal payments totaling $85,601 towards the secured debt F.  As of December 31, 2023 the principal balance of secured debt E was $110,399.

 

Secured debt G:  On December 19, 2023, the Company agreed to a secured loan by any rights, title or interest in their account.  The principal loan amount was $86,000 and will have a loan term of twelve months.  The note has a cost of funds equal to 10% of the loan amount or $8,600 and will be due upon acceptance of the loan amount.  A total of $283 of the interest has been expensed in 2023.  Payment will be made daily at a repayment rate of 14% of daily sales. and will be due December 21, 2023 and will continue until full amount owed is paid.  During 2023, the Company has made principal payments totaling $2,074 towards the secured debt E.  As of December 31, 2023 the principal balance of secured debt E was $92,526.


F-15


 

NOTE 7 – CONVERTIBLE DEBT

 

As of December 31, 2023, the Company had the following convertible debt outstanding:

 

Note

 

Issuance Date

 

Maturity Date

 

Interest Rate

 

Original Principal Amount

 

Balance at December 31, 2023

 

Balance at December 31, 2022

Convertible promissory note #1

 

July 28, 2016

 

January 19, 2017

 

8%

$

15,000

$

6,750

$

6,750

Convertible promissory note #2

 

May 25, 2022

 

August 5, 2023

 

10%

 

154,000

 

-   

 

110,535

Convertible promissory note #3

 

May 12, 2022

 

May 1, 2023

 

12%

 

200,000

 

200,000

 

200,000

Convertible promissory note #4

 

January 24, 2023

 

April 24, 2024

 

0%

 

388,888

 

401,851

 

                 -   

Total notes payable

 

 

 

 

 

 

$

757,888

$

608,601

$

317,285

Debt discount and deferred financing costs

 

 

 

 

 

 

 

           -   

 

              -   

 

                   -   

Total notes payable, net

 

 

 

 

 

 

$

757,888

$

608,601

$

317,285

 

Convertible promissory note #1:

 

On July 28, 2016, the Company executed the convertible promissory note #1 in the principal amount of $15,000, which is in default but management has not been able to make contact with this party, due to them living out of the country.  The due date for this note was January 19, 2017 at an interest rate of 8%, with a default interest rate of 18%.  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 conversion option for this note coverts at a 54% discount to the market price based on the lowest trading prices in the last 20 days trading period.  The outstanding balance on convertible promissory note #1 as of December 31, 2023 was $6,750.

 

The fair value of the derivative as of December 31, 2023 was determined to be $21,185 using the Black-Scholes option pricing model based on the following assumptions:  common share price of $0.06 per share; expected exercise price of $0.0169 per share; volatility of 133%; expected dividend yield of zero; and annual risk-free interest rate of 5.44%.  The derivatives are classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period.  The Company originally recorded a derivative liability in the amount of $9,649.  The fair value of the derivative liability is remeasured each reporting period using the Black-Scholes option pricing model, and the change in fair value is recorded as an adjustment to the derivative liabilities account with the unrealized gains or losses reflect in other income – change in fair value on derivative.

 

Convertible promissory note #2:

 

On May 25, 2022, the Company executed the convertible promissory note #2 in the principal amount of $154,000 with a loan origination fee in the amount of $15,400, which was fully expensed as interest expense in this period.    The net proceeds from this note were $138,600.  The loan is unsecured and the initial repayment of $14,488 was due on October 5, 2022.  There will be ten additional monthly payments due on the 5th day of each following month, beginning on November 5, 2022 through August 5, 2023.  Interest will accrual at an interest rate of 10% per annum on any unpaid principal amount.  If the Company defaults on the loan, the default interest will increase to 16% per annum.  During 2022, the Company has made principal payments totaling $43,465 towards the outstanding balance on convertible promissory note #2.  During 2023, the Company has made additional principal payments towards convertible promissory note #2 totaling $110,535 which settled the entire principal balance in full.  As of December 31, 2023, the principal balance of the note was paid off the principal balance of the note was paid off.

 

The fair value of the derivative was determined to be $0, due to being paid off, using the Black-Scholes option pricing model based, prior to the note being paid off, on the following assumptions:  common share price of $0.06 per share; expected exercise price of $0.05 per share; volatility of 133%; expected dividend yield of zero; and annual risk-free interest rate of 5.44%.  The derivatives are classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period.  The Company originally recorded a derivative liability in the amount of $89,895.


F-16


The fair value of the derivative liability is remeasured each reporting period using the Black-Scholes option pricing model, and the change in fair value is recorded as an adjustment to the derivative liabilities account with the unrealized gains or losses reflect in other income – change in fair value on derivative.

 

Convertible promissory note #3:

 

On May 12, 2022, the Company executed the convertible promissory note #3 in the principal amount of $200,000. The loan is unsecured and the principal and any unpaid accrued interest shall be due and payable on May 12, 2023. Interest shall accrue at the rate of 12% per annum.  The outstanding balance on convertible promissory note #3 as of December 31, 2023 was $200,000. At any time on or after July 24, 2023, the holder shall have the right, at his option, to convert the principal amount of the note, or any portion of such principal amount, plus accrued but unpaid interest into shares of the Company’s common stock. The Company has been advised the holder of convertible promissory note #3 will be converting the full value of the outstanding principal and interest in the near future.  The conversion price shall be $0.05 per share.

 

The fair value of the derivative was determined to be $76,919 using the Black-Scholes option pricing model based on the following assumptions:  common share price of $0.06 per share; expected exercise price of $0.05 per share; volatility of 133%; expected dividend yield of zero; and annual risk-free interest rate of 5.44%.  The derivatives are classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period.  The Company originally recorded a derivative liability in the amount of $184,011.  The fair value of the derivative liability is remeasured each reporting period using the Black-Scholes option pricing model, and the change in fair value is recorded as an adjustment to the derivative liabilities account with the unrealized gains or losses reflect in other income – change in fair value on derivative.

 

Convertible promissory note #4:

 

On January 24, 2023, the Company executed the convertible promissory note #4 in the principal amount of $388,888 with a loan origination fee in the amount of $38,888, which was fully expensed as interest expense in this period, additionally there were $12,500 of legal costs and $31,500 of agent fees in which were also fully expenses in this period.  The net proceeds from this loan were $306,000.  The loan is unsecured and the principal and any unpaid accrued interest shall be due and payable on October 24, 2023 with an interest rate of 0%.  Any unpaid balance at that time will start to accrue interest at a default rate of 20% per annum. On October 31, 2023 the note was extended to April 24, 2024 for an additional fee in the amount of $38,889. The additional fee will be amortized over the six month and in 2023 $12,962 was expensed.  The outstanding balance on convertible promissory note #4 as of December 31, 2023 was $401,851.  The holder shall have the right, at his option, to convert the principal amount of the note, or any portion of such principal amount, plus accrued but unpaid interest into shares of the Company’s common stock.  The conversion price means ninety percent (90%) of the lowest VWAP of our common stock for the five (5) consecutive Trading Days immediately preceding the date of the issuance of a Conversion Election.

 

The fair value of the derivative was determined to be $56,047 using the Black-Scholes option pricing model based on the following assumptions:  common share price of $0.06 per share; expected exercise price of $0.0425 per share; volatility of 133%; expected dividend yield of zero; and annual risk-free interest rate of 5.44%.  The derivatives are classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period.  The Company originally recorded a derivative liability in the amount of $174,234.  The fair value of the derivative liability is remeasured each reporting period using the Black-Scholes option pricing model, and the change in fair value is recorded as an adjustment to the derivative liabilities account with the unrealized gains or losses reflect in other income – change in fair value on derivative.

 

NOTE 8 – DERIVATIVE LIABILITY

 

The Company evaluated the notes under the requirements of ASC 480 “Distinguishing Liabilities From Equity” (ASC 480) and concluded that the notes do not fall within the scope of ASC 480. The Company next evaluated the notes under the requirements of ASC 815 “Derivatives and Hedging Activities” and determined that the scope exception to ASC 815’s derivative accounting provisions does not apply. The Company then evaluated the embedded derivative criteria in ASC 815, and concluded that the conversion features meet all the embedded derivative criteria in ASC 815, and therefore, the conversion features meet the definition of an embedded derivative that should be separated from the notes and accounted for as a derivative liability.

 


F-17


 

The derivative liabilities were valued using a Black-Scholes option pricing model with the following average assumptions:

 

   

December 31, 2023

 

Upon Issuance 2023

 

December 31, 2022

 

Upon Issuance 2022

Stock Price

$0.06

 

$0.048

 

$0.04

 

$ 0.043-0.066

Exercise Price

$ 0.017-0.05

 

$0.045

 

$ 0.0224-0.05

 

$ 0.0224-0.05

Expected Life

0

 

0.75

 

0 - 0.59

 

1.0 - 1.2

Volatility  

133%

 

145%

 

168%

 

194.52 - 197.12%

Dividend Yield

0%

 

0%

 

0%

 

0%

Risk-Free Interest Rate

5.44%

 

4.57%

 

4.02%

 

0.53 - 0.61%

Convertible Notes

595,638 

 

388,888 

 

317,285 

 

356,000 

Total Fair Value

$154,153 

 

$174,234 

 

$102,011 

 

$273,906 

 

The expected life of the note was based on the remaining contractual term of the instruments. The Company uses the historical volatility of its Common Stock to estimate the future volatility for its Common Stock. The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank.

 

Consolidated Statement of Operations – Change in fair value on derivative

 

During the year ended December 31, 2022, , the following transactions were recorded in the account “change in fair value on derivative”: (i)  as a result of the issuance of convertible notes, the Company recorded derivative liabilities of $(264,952); (ii) the Company viewed the convertible debt derivatives as short term and thus chose to record as other income the debt premium associated with the derivative liabilities incurred during this period in the amount of $43,269; and (iii) the change in the fair value of these derivative liabilities for the year ended December 31, 2022 resulted in a gain of $212,199.

 

During the year ended December 31, 2023, the following transactions were recorded in the account “change in fair value on derivative”: (i) as a result of the issuance of convertible notes, the Company recorded derivative liabilities of $(145,067); (ii) the Company viewed the convertible debt derivatives as short term and thus chose to expense the debt discounts associated with the derivative liabilities incurred during this period in the amount of $(29,167); (iii) the changes in the fair value of these derivative liabilities for the year ended December 31, 2023 resulted in a gain of $83,920; and (iv) the Company  recorded a gain on debt extinguishment of $38,172 to account for the extinguishment of derivative liabilities associated with the settlement or the conversion of the convertible debt accounted for as a derivative liability.

 

The details of derivative liability transactions for the period ended December 31, 2023 and December 31, 2022 are as follows:

 

The change in Level 3 financial instrument fair value is as follows:

 

Balance, December 31, 2021

 

$          92,527

Issued during the year ended December 31, 2022

 

264,952

Derivative liabilities debt premium

 

(43,269)

Change in fair value recognized in operations

 

(212,199)

Converted during the year ended December 31, 2022

 

(0)

Balance, December 31, 2022

 

$        102,011

Issued during the year ended December 31, 2023

 

145,067

Derivative liabilities debt discount

 

29,167

Change in fair value recognized in operations

 

(83,923)

Converted during the year ended December 31, 2023

 

(38,172)

Balance, December 31, 2023

 

$        154,150

 


F-18


 

NOTE 9 – INCOME TAXES

 

The effective income tax rate for the years ended December 31, 2023 and 2022 differs from the U.S. Federal statutory rate due to the following:

 

 

December 2023

 

December 2022

Federal statutory income tax rate

 

$678,297  

 

(166,169) 

Change in valuation allowance

 

(678,297) 

 

166,169  

 

 

$-  

 

$-  

 

The components of the deferred tax assets and liabilities at December 31, 2023 and 2022 are as follows:

 

 

December 2023

 

December 2022

Long-term deferred tax assets:

 

 

 

 

 Federal net operating loss carryforwards

 

678,297  

 

166,169  

 Valuation allowance

 

(678,297) 

 

(166,169) 

Net long-term deferred tax assets

 

$-  

 

$-  

 

NOTE 10 – STOCKHOLDERS’ EQUITY

 

Authorized Stock 

 

The Company has authorized 75,000,000 common shares with a par value of $0.001 per share. Each common share entitles the holder to one vote on any matter on which action of the stockholders of the corporation is sought. During February 2017, the Company increased the authorized number of shares to 500,000,000. Also, the Company increased the authorized preferred stock to 75,000,000 shares and designated 25,000,000 shares of preferred stock to Series A Convertible Preferred Stock. During January 2018, the Company increased its authorized number of common shares to 1,000,000,000. During April 2018, the Company increased its authorized number of common shares to 2,500,000,000. The Board of Directors, in the future, has the authority to increase the authorized capital up to 4,000,000,000 shares based on shareholder approval.  On December 29, 2023 the Company decreased its authorized number of common shares to 50,000,000.

 

The Company effectuated a reverse stock split of 120-for-1 as of December 29, 2023.

 

On October 16, 2017, the Company filed an Amended and Restated Certificate of Designation of the Rights, Preferences, Privileges and Restrictions of the Series A Convertible Preferred Stock (the “Amended Certificate”) with the Secretary of State of the State of Nevada. The Amended Certificate reduces the number of preferred shares designated as Series A Preferred Stock from 25,000,000 shares to 1,333,334 shares. The Amended Certificate also changes the conversion and voting rights of the Series A Preferred Stock. The Series A Preferred Stock is now convertible into the number of shares of our common stock equal to 0.00006% of our outstanding common stock upon conversion. The voting rights of the Series A Preferred Stock are now equal to the number of shares of common stock into which the Series A Preferred Stock may convert.

 

As of December 31, 2023, there are no outstanding shares of preferred stock. All the preferred stock was converted in common stock on February 4, 2019.

 

Common Share Issuances

 

During the months ended March 31, 2023, the Company issued 320,000 shares of common stock.  During the months ended June 30, 2023, the Company did not issue any shares of common stock.  During the months ended September 30, 2023, the Company issued 9,000,000 shares of common stock for the Restricted Stock Units which were executed.  The holders paid the Company $0.01 for each share of common stock and the value of each share was $0.05.  There were no shares issued during the fourth quarter 2023.

 

There were no shares issued during the fourth quarter 2022.  During the third quarter 2022, the Company issued 340,000 shares of common stock for consulting fees along with issuing 340,621 shares of common stock to convert an outstanding note payable to a shareholder.  On May 19, 2022, the Company issued 4,400,000 shares of common stock for broker and consulting fees.  On April 22 and 25, 2022, the Company issued 2,000,000 shares of common stock for broker and funding fees.  On February 4, 2022, the Company issued 507,917 shares of common stock in a direct security purchase agreement.  On January 10, 2022, the Company cancelled 200,267 shares of common stock.  Further, on March 4, 2022, the Company cancelled 600,000 shares of common stock.

 


F-19


Warrant Issuances

 

During the month ending March 31, 2023, the Company issued 61,846 warrants to 2 unrelated parties at a per share price of $5.6592.  On February 2, 2022, the Company issued 16,667 warrants to an individual at a per share price of $6.00.  As of December 31, 2023, there were 195,180 warrants outstanding, of which 195,180 warrants are fully vested.

 

 

 

 

Weighted-

 

 

 

Weighted-

Average

 

 

 

Average

Remaining

Aggregate

 

 

Exercise

Contractual

Intrinsic

 

Warrants

Price

Life (Years)

Value

 

 

 

 

 

Outstanding at December 31, 2022

133,333

$7.22

2.17

               -

Granted

61,846

6.00

1.11

               -

Forfeited

               -

               -

               -

               -

Exercised

               -

               -

               -

               -

Outstanding at December 31, 2023

195,180

$6.83

1.17

$             -

 

 

 

 

 

Vested and expected to vest at December 31, 2023

195,180

$6.83

 

$             -

 

 

 

 

 

Exercisable at December 31, 2023

195,180

$6.83

 

$             -

 

At December 31, 2023, the intrinsic value of these stock warrants was $0 as the exercise price of these stock warrants were greater than the market price.

 

Stock Issued for Services

 

On March 6, 2023, the Company issued 320,000 shares of common stock for consulting fees at a per share price of $0.05.

 

On September 13, 2022, the Company issued 340,000 shares of common stock for consulting fees at a per share price of $0.05.  During the period ending June 30, 2022, the Company issued 6,400,000 shares of common stock for broker, consulting, and funding fees at a per share price of $0.05.

 

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.  These options are immediately vest and will expire in five years.

 


F-20


 

The following summary of options activity for the year ended December 31, 2023 is presented below:

 

 

 

 

Weighted-

 

 

 

Weighted-

Average

 

 

 

Average

Remaining

Aggregate

 

 

Exercise

Contractual

Intrinsic

 

Options

Price

Life (Years)

Value

 

 

 

 

 

Outstanding at December 31, 2022

32,083

$6.00

2.13

38,500

Granted

6,250

6.00

3.42

7,500

Forfeited

             -

             -

             -

             -

Exercised

             -

             -

             -

             -

Outstanding at December 31, 2023

38,333

$6.00

2.34

$46,000

 

 

 

 

 

Vested and expected to vest at December 31, 2023

38,333

$6.00

 

$46,000

Exercisable at December 31, 2023

38,333

$6.00

 

$46,000

 

At December 31, 2023, the intrinsic value of these stock options was $46,000 as the exercise price of these stock options were less than the market price.

 

On December 26, 2022, the Company canceled 101,250 stock options with a strike price of $6.00.

 

The following summary of restricted stock units’ activity for the three months ended December 31, 2023 is presented below:

 

 

 

 

 

 

Weighted-

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

 

 

 

 

 

Non-vested at December 31, 2022

 

 

-

 

 

 

-

Granted

 

 

133,125 

 

 

 

6.00

Vested

 

 

(74,167)

 

 

 

6.00

Forfeited

 

 

-

 

 

 

-

Non-vested at December 31, 2023

 

 

58,958 

 

 

 

6.00

 

The total fair value of restricted stock units vested during the three months ended September 30, 2023 was $445,000 and is included in selling, general and administrative expenses in the accompanying consolidation statements of operations.  As of December 31, 2023, the amount of unvested compensation related to issuances of restricted stock units’ fair value was $423,910.  This amount will be amortized and expensed over the life of the contract and will be included in selling, general and administrative expenses in the accompanying consolidation statements of operations.

 

The fair value of share options, units, and warrants are estimated using the Black-Scholes option pricing method based on the following weighted-average assumptions:

 

 

 

Year Ending December 31,

 

 

2023

 

 

2022

 

Risk-free interest rate

 

 

5.18

%

 

 

2.75

%

Average expected term (years)

 

 

4.7 years

 

 

 

4.75 years

 

Expected volatility

 

 

106.5

%

 

 

194.8

%

Expected dividend yield

 

 

-

 

 

 

-

 


F-21


 

NOTE 11 – BUSINESS SEGMENT INFORMATION

 

As of December 31, 2023, 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, 2023.

 

 

CONSOLIDATED

HEALTH SUPPLEMENTS

CORPORATE

BergaMet

UBN

Revenue

2,485,866 

2,485,866 

-    

 -    

Cost of Revenue

813,614 

813,614 

 -    

 -    

Long-lived Assets

732,030 

193,260 

538,771 

 -    

Gain (Loss) Before Income Tax

(2,422,489)

(219,975)

(5,113)

(2,197,401)

Identifiable Assets

1,676,724 

1,676,724 

 -    

-    

Depreciation and Amortization

2,195 

2,195 

 -    

-

 

As of December 31, 2022, the Company operated in two reportable segments (Corporate and Health Supplements) supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the year ended December 31, 2022.

 

 

CONSOLIDATED

HEALTH SUPPLEMENTS

CORPORATE

BergaMet

UBN