Notes
to Unaudited Condensed Consolidated Financial Statements
June
30, 2021
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Nutra
Pharma Corp. (“Nutra Pharma”), is a holding company that owns intellectual property and operates in the biotechnology industry.
Nutra Pharma was incorporated under the laws of the state of California on February 1, 2000, under the original name of Exotic-Bird.com.
Through
its wholly-owned subsidiary, ReceptoPharm, Inc. (“ReceptoPharm”), Nutra Pharma conducts drug discovery research and development
activities. In October 2009, Nutra Pharma launched its first consumer product called Cobroxin®, an over-the-counter pain
reliever designed to treat moderate to severe chronic pain. In May 2010, Nutra Pharma launched its second consumer product called Nyloxin®,
an over-the-counter pain reliever that is a stronger version of Cobroxin® and is designed to treat severe chronic pain.
In December 2014, Nutra Pharma launched Pet Pain-Away, an over-the-counter pain reliever designed to treat pain in cats and dogs. In
October 2019, Nutra Pharma launched Equine Pain-Away™, an over-the-counter topical pain reliever designed to treat pain and inflammation
in horses. In March 2021, Nutra Pharma launched Luxury Feet™, an over-the-counter pain reliever designed specifically to treat
foot pain and inflammation especially for women that wear high heels and stilettos.
Basis
of Presentation and Consolidation
The
Unaudited Condensed Consolidated Financial Statements and notes are presented in accordance with the rules and regulations of the Securities
and Exchange Commission and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2020. In the opinion of management, all adjustments considered necessary for a fair presentation have been included
and are of a normal, recurring nature. Interim results are not necessarily indicative of results for a full year. Therefore, the interim
Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes
thereto contained in the Company’s Annual Report on Form 10-K.
The
accompanying Unaudited Condensed Consolidated Financial Statements include the results of Nutra Pharma and its wholly-owned subsidiaries
Designer Diagnostics Inc. and ReceptoPharm (collectively “the Company”, “us”, “we” or “our”).
We operate as one reportable segment. Designer Diagnostics Inc. has been inactive since June 2011. All intercompany transactions and
balances have been eliminated in consolidation.
Reclassification
of Prior Year Presentation
Certain
prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on
the reported results of operations.
Liquidity
and Going Concern
Our
Unaudited Condensed Consolidated Financial Statements are presented on a going concern basis, which contemplate the realization of assets
and satisfaction of liabilities in the normal course of business. We have experienced recurring, significant losses from operations,
and have an accumulated deficit of $99,331,405
at June 30, 2021. In addition, we have a significant
amount of indebtedness in default, a working capital deficit of $38,362,250
and a stockholders’ deficit of $39,244,098
at June 30, 2021.
There
is substantial doubt regarding our ability to continue as a going concern which is contingent upon our ability to secure additional financing,
increase ownership equity and attain profitable operations. In addition, our ability to continue as a going concern must be considered
in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in
which we operate.
We
do not have sufficient cash to sustain our operations for a period of twelve months from the issuance date of this report and will require
additional financing in order to execute our operating plan and continue as a going concern. Since our sales are not currently adequate
to fund our operations, we continue to rely principally on debt and equity funding; however, proceeds from such funding have not been
sufficient to execute our business plan. Our plan is to attempt to secure adequate funding until sales of our pain products are adequate
to fund our operations. We cannot predict whether additional financing will be available, and/or whether any such funding will be in
the form of equity, debt, or another form. In the event that these financing sources do not materialize, or if we are unsuccessful in
increasing our revenues and profits, we will be unable to implement our current plans for expansion, repay our obligations as they become
due and continue as a going concern.
The
accompanying Unaudited Condensed Consolidated Financial Statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable
to continue as a going concern.
Impact
of COVID-19 on our Operations
The
ramifications of the outbreak of the novel strain of COVID-19 are filled with uncertainty and changing quickly. Our operations have continued
during the COVID-19 pandemic and we have not had significant disruption. Beginning in June 2020, the Company experienced a delay in retail
rollout as a downstream implication of the slowing economy. We also closed our Coral Springs office in effort to save money. During May
2020, we received approval from the Small Business Administration (“SBA”) to fund our request for a PPP loan for $64,895.
We used the proceeds primarily for payroll costs. We expect forgiveness of this loan under the current terms of requirement by the SBA.
During April and June 2020, we obtained a loan in the amount of $150,000 from SBA under its Economic Injury Disaster Loan assistance
program. We used the proceeds primarily for rent, payroll, utilities, accounting and legal expenses (See Note 6).
The
Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial
results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include
the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue
to be taken in response to the pandemic; and the distribution of testing and a vaccine.
Use
of Estimates
The
accompanying Unaudited Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted
in the United States of America which require management to make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expense. Significant estimates include our ability to continue as going concern, the recoverability
of inventories and long-lived assets, the recoverability of amounts due from officer, the valuation of stock-based compensation and certain
debt and derivative liabilities, recognition of loss contingencies and deferred tax valuation allowances. Actual results could differ
from those estimates. Changes in facts and circumstances may result in revised estimates, which would be recorded in the period in which
they become known.
Revenue
from Contracts with Customers
The
Company accounts for revenue from contracts with customers in accordance with Financial Accounting Standard Board (“FASB”)
Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).
Under ASC Topic 606, revenue recognition has a five-step process: a) Determine whether a contract exists; b) Identify the performance
obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance
obligations are satisfied.
Our
revenues are primarily derived from customer orders for the purchase of our products. We recognize revenues as performance obligations
are fulfilled upon shipment of products. We record revenues net of promotions and discounts. For certain product sales to a distributor,
we record revenue including a portion of the cash proceeds that is remitted back to the distributor.
Accounting
for Shipping and Handling Costs
We
account for shipping and handling as fulfillment activities and record amounts billed to customers as revenue and the related shipping
and handling costs as cost of sales.
Accounts
Receivable and Allowance for Doubtful Accounts
We
grant credit without collateral to our customers based on our evaluation of a particular customer’s credit worthiness. Accounts
receivable are due 30 days after the issuance of the invoice. In addition, allowances for doubtful accounts are maintained for potential
credit losses based on the age of the accounts receivable and the results of periodic credit evaluations of our customers’ financial
condition. Accounts receivable are written off after collection efforts have been deemed to be unsuccessful. Accounts written off as
uncollectible are deducted from the allowance for doubtful accounts, while subsequent recoveries are netted against the provision for
doubtful accounts expense. We generally do not charge interest on accounts receivable. We use third party payment processors and are
required to maintain reserve balances, which are included in accounts receivable.
Accounts
receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated
allowances for uncollectible accounts. No allowance for doubtful account is deemed to be required at June 30, 2021 and December 31, 2020.
Inventories
Inventories,
which are stated at the lower of average cost or net realizable value, consist of packaging materials, finished products, and raw venom
that is utilized to make the API (active pharmaceutical ingredient). The raw unprocessed venom has an indefinite life for use. We classify
inventory as short-term or long-term inventory based on timing of when it is expected to be consumed. The Company regularly reviews inventory
quantities on hand. If necessary, it records a net realizable value adjustment for excess and obsolete inventory based primarily on its
estimates of product demand and production requirements. Write-downs are charged to cost of goods sold. We performed an evaluation of
our inventory and related accounts at June 30, 2021 and December 31, 2020, and increased the reserve on supplier advances for future
venom purchases included in prepaid expenses and other current assets by $0 and $21,303, respectively. At both June 30, 2021 and December
31, 2020, the total valuation allowance for prepaid venom was $246,162.
Financial
Instruments and Concentration of Credit Risk
Our
financial instruments include cash, accounts receivable, accounts payable, accrued expenses, loans payable, due to officers and derivative
financial instruments. Other than certain warrant and convertible instruments (derivative financial instruments) and liabilities to related
parties (for which it was impracticable to estimate fair value due to uncertainty as to when they will be satisfied and a lack of similar
type transactions in the marketplace), we believe the carrying values of our financial instruments approximate their fair values because
they are short term in nature or payable on demand. Our derivative financial instruments are carried at a measured fair value.
Balances
in various cash accounts may at times exceed federally insured limits. We have not experienced any losses in such accounts. We do not
hold or issue financial instruments for trading purposes. In addition, for the three months ended June 30, 2021, there was one customer
accounted for 31% of the total revenues. For the three months ended June 30, 2020, there was no customer accounted for more than 10%
of the total revenues. For the six months ended June 30, 2021, there was one customer that accounted for 33% of the total revenues. For
the six months ended June 30, 2020, there was one customer that accounted for 43% of the total revenues. As of June 30, 2021 and December
31, 2020, 98.5% and 100% of the accounts receivable balance are reserves due from two payment processors.
Operating
Lease Right-of-Use Asset and Liability
The
Company accounts for leases in accordance with Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as
amended (“ASC Topic 842”). This standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset
and a lease liability on the balance sheet for all leases with terms longer than 12 months and classify as either operating or finance
leases.
In
accordance with ASC Topic 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease
based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use
of a distinct identified asset, whether we obtain the right to substantially all the economic benefit from the use of the asset, and
whether we have the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet
as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance
sheet leases with terms of one year or less under practical expedient in paragraph ASC 842-20-25-2.
Lease
liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term.
The implicit rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing
rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental
borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing
rate.
Derivative
Financial Instruments
Management
evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded
at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative
instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities
are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument
could be required within 12 months of the balance sheet date.
We
do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
Convertible
Debt
For
convertible debt that does not contain an embedded derivative that requires bifurcation, the conversion feature is evaluated to determine
if the rate of conversion is below market value and should be categorized as a beneficial conversion feature (“BCF”). A BCF
related to debt is recorded by the Company as a debt discount and with the offset recorded to equity. The related convertible debt is
recorded net of the discount for the BCF. The discount is amortized as additional interest expense over the term of the debt with the
resulting debt discount being accreted over the term of the note.
The
Fair Value Measurement Option
We
have elected the fair value measurement option for convertible debt with embedded derivatives that require bifurcation, and record the
entire hybrid financing instrument at fair value under the guidance of ASC Topic 815, Derivatives and Hedging (“ASC Topic
815”). The Company reports interest expense, including accrued interest, related to this convertible debt under the fair value
option, within the change in fair value of convertible notes and derivatives in the accompanying consolidated statement of operations.
Derivative
Accounting for Convertible Debt and Options and Warrants
The
Company evaluated the terms and conditions of the convertible debt under the guidance of ASC Topic 815, Derivatives and Hedging.
The conversion terms of some of the convertible notes are variable based on certain factors, such as the future price of the Company’s
common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The
number of shares of common stock issuable upon conversion of the debt is indeterminate. Due to the fact that the number of shares of
common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional
convertible debt and options and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15, Embedded
Derivatives, the fair values of the convertible debt, options and warrants and shares to be issued were recorded as derivative liabilities
on the issuance date and revalued at each reporting period.
Property
and Equipment
Property
and equipment is recorded at cost. Expenditures for major improvements and additions are added to property and equipment, while replacements,
maintenance and repairs which do not extend the useful lives are expensed. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets of 3 – 7 years.
Long-Lived
Assets
The
carrying value of long-lived assets is reviewed annually and on a regular basis for the existence of facts and circumstances that may
suggest impairment. If indicators of impairment are present, we determine whether the sum of the estimated undiscounted future cash flows
attributable to the long-lived asset in question is less than its carrying amount. If less, we measure the amount of the impairment based
on the amount that the carrying value of the impaired asset exceeds the discounted cash flows expected to result from the use and eventual
disposal of the impaired assets.
Income
Taxes
The
Company recorded no income tax expense for the three and six months ended June 30, 2021 and 2020 because the estimated annual effective
tax rate was zero. As of June 30, 2021, the Company continues to provide a valuation allowance against its net deferred tax assets since
the Company believes it is more likely than not that its deferred tax assets will not be realized.
The
Company adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) effective
as of January 1, 2021. The standard is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes
certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
The new standard did not have a material effect on the accompanying consolidated financial statements.
Stock-Based
Compensation
We
account for stock-based compensation in accordance with FASB ASC Topic 718, Stock Compensation (“ASC Topic 718”).
ASC Topic 718, which requires that the cost resulting from all share-based transactions be recorded in the financial statements over
the respective service periods. It establishes fair value as the measurement objective in accounting for share-based payment arrangements
and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees.
The statement also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services
from non-employees in share-based payment transactions.
Net
Income (Loss) Per Share
Net
income (loss) per share is calculated in accordance with FASB ASC Topic 260, Earnings per Share. Basic income (loss) per share
is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income
(loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock
equivalents outstanding. During periods in which we incur losses, common stock equivalents, if any, are not considered, as their effect
would be anti-dilutive or have no effect on earnings per share. Any common shares issued as of a result of the exercise of conversion
options and warrants would come from newly issued common shares from our remaining authorized shares.
SCHEDULE OF NET INCOME (LOSS) PER SHARE
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
|
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Basic and diluted numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) - basic
|
|
$
|
3,362,218
|
|
|
$
|
(1,506,489
|
)
|
|
$
|
(30,697,937
|
)
|
|
$
|
676,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of convertible notes
|
|
|
(1,647,754
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,818,618
|
)
|
|
Interest on convertible debt
|
|
|
58,330
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,167
|
|
|
Net income (loss) - diluted
|
|
$
|
1,772,794
|
|
|
$
|
(1,506,489
|
)
|
|
$
|
(30,697,937
|
)
|
|
$
|
(1,125,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
- basic
|
|
|
7,248,545,868
|
|
|
|
6,623,845,012
|
|
|
|
7,156,417,062
|
|
|
|
6,448,086,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
4,513,333,690
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,523,893,291
|
|
|
Weighted-average common shares
outstanding - diluted (1)
|
|
|
11,761,879,558
|
|
|
|
6,623,845,012
|
|
|
|
7,156,417,062
|
|
|
|
12,971,980,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
(1)
|
Includes potential common shares that are in excess of authorized
shares.
|
For the three months
ended June 30, 2021 and 2020, the following items were not included in the calculation of dilutive loss per share as the effect is anti-dilutive:
SCHEDULE
OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF NET LOSS PER SHARE
|
|
|
June
30, 2021
|
|
|
June
30, 2020
|
|
|
Options
and warrants
|
|
|
-
|
|
|
|
46,500,000
|
|
|
Convertible notes payable
at fair value
|
|
|
-
|
|
|
|
5,161,486,089
|
|
|
Convertible
notes payable
|
|
|
-
|
|
|
|
1,865,425,000
|
|
|
Total
|
|
|
-
|
|
|
|
7,073,411,089
|
|
For
the six months ended June 30, 2021 and 2020, the following items were not included in the calculation of dilutive loss per share
as the effect is anti-dilutive:
|
|
|
June
30, 2021
|
|
|
June
30, 2020
|
|
|
Options and warrants
|
|
|
200,275,000
|
|
|
|
46,500,000
|
|
|
Convertible notes payable at fair value
|
|
|
774,465,232
|
|
|
|
-
|
|
|
Convertible notes payable
|
|
|
3,992,826,154
|
|
|
|
-
|
|
|
Total
|
|
|
4,967,566,386
|
|
|
|
46,500,000
|
|
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016- 13”), which
significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not
measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that
requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13
credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of
a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present
the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for
credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold
for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk
of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently
generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit
losses on trade receivables under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual
periods, beginning after December 15, 2022 for smaller reporting companies. Early adoption is permitted. The Company will evaluate the
impact of ASU 2016-13 on the Company’s consolidated financial statements in a future period closer to the date of adoption.
In
August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which simplifies and clarifies certain calculation and presentation matters related to convertible and equity and debt instruments. Specifically,
ASU-2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement
to account for beneficial conversion features on such instruments. Accounting Standards Update 2020-06 also provides clearer guidance
surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation
of Diluted EPS. The guidance under ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company
will adopt this standard using a modified retrospective approach effective January 1, 2022. The Company is currently evaluating the impact
of this standard, and does not believe that it will have a material effect on the accompanying consolidated financial statements.
In
May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50),
Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU
2021-04”), which will clarify and reduce diversity in practice. Specifically, the new standard includes a recognition model comprising
four categories of transactions and corresponding accounting treatment for each category. The category that would apply to a modification
or an exchange of an equity-classified warrant would depend on the substance of the modification transaction (e.g. a financing transaction
to raise equity versus one to raise debt). This recognition model is premised on the idea that the accounting for the transaction should
not differ from what it would have been had the issuer of the warrants paid cash instead of modifying the warrants. ASU 2021-04 will
be effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. Early adoption is permitted.
This ASU will be applied prospectively to modifications or exchanges occurring on or after the effective date of the ASU. The Company
is currently evaluating the impact this new guidance will have on its condensed consolidated financial statements.
All
other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
2.
FAIR VALUE MEASUREMENTS
Certain
assets and liabilities that are measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020 are measured in accordance
with FASB ASC Topic 820-10-05, Fair Value Measurements. FASB ASC Topic 820-10-05 defines fair value, establishes a framework for
measuring fair value and expands the disclosure requirements regarding fair value measurements for financial assets and liabilities as
well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial
statements.
The
statement requires fair value measurement be classified and disclosed in one of the following three categories:
|
Level 1:
|
Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;
|
|
Level 2:
|
Quoted prices in markets
that are not active or inputs which are observable either directly or indirectly for substantially the full term of the asset or
liability; and
|
|
Level 3:
|
Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market
activity).
|
The
following table summarizes our financial instruments measured at fair value at June 30, 2021 and December 31, 2020:
SUMMARY OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
|
|
|
Fair
Value Measurements at June 30, 2021
|
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
1,096,554
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,096,554
|
|
|
Derivative liabilities
|
|
$
|
25,953,370
|
|
|
$
|
-
|
|
|
$
|
25,953,370
|
|
|
$
|
-
|
|
|
Convertible notes at fair value
|
|
$
|
5,039,868
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,039,868
|
|
|
|
|
Fair
Value Measurements at December 31, 2020
|
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
189,543
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
189,543
|
|
|
Derivative liabilities
|
|
$
|
3,377,633
|
|
|
$
|
-
|
|
|
$
|
3,377,633
|
|
|
$
|
-
|
|
|
Convertible notes at fair value
|
|
$
|
1,832,439
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,832,439
|
|
The
following table shows the changes in fair value measurements for the warrant liability using significant unobservable inputs (Level 3)
during the six months ended June 30, 2021 and the year ended December 31, 2020:
SUMMARY OF CHANGES IN FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS
|
Description
|
|
June
30,
2021
|
|
|
December
31, 2020
|
|
|
Beginning balance
|
|
$
|
189,543
|
|
|
$
|
1,411
|
|
|
Purchases, issuances, and settlements
|
|
|
-
|
|
|
|
143,369
|
|
|
Total loss included in earnings (1)
|
|
|
907,011
|
|
|
|
44,763
|
|
|
Ending balance
|
|
$
|
1,096,554
|
|
|
$
|
189,543
|
|
|
(1)
|
The gain related to the
revaluation of our warrant liability is included in “Change in fair value of convertible notes and derivatives” in the
accompanying consolidated statement of operations.
|
We
valued our warrants using a Dilution-Adjusted Black-Scholes Model. Assumptions used include (1) 0.05% to 0.07% risk-free rate, (2) warrant
life is the remaining contractual life of the warrants, (3) expected volatility of 240%, (4) zero expected dividends, (5) exercise price
set forth in the agreements, (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued
if the instrument is converted.
We
valued derivative liabilities using the number of potential convertible shares for warrants in equity and convertible notes with fixed
conversion price that are recorded at amortized cost times the closing stock price of our restricted common stock at June 30, 2021. These
derivative liabilities are recorded due to the fact that the number of shares of common stock issuable could exceed the Company’s
authorized share limit and the equity environment is tainted, and therefore all convertible debt and options and warrants should be accounted
for as liabilities.
The
following table summarizes assumptions and the significant terms of the convertible notes for which the entire hybrid instrument is recorded
at fair value at June 30, 2021 and December 31, 2020:
SUMMARY OF ASSUMPTIONS AND THE SIGNIFICANT TERMS
|
|
|
|
|
|
|
|
|
|
|
Conversion
Price - Lower of Fixed
Price or Percentage of VWAP
for Look-back Period
|
|
Debenture
|
|
Face
Amount
|
|
Interest
Rate
|
|
Default
Interest
Rate
|
|
Discount
Rate
|
|
Anti-Dilution
Adjusted
Price
|
|
%
of stock price for look-back period
|
|
Look-back
Period
|
|
June
30, 2021
|
|
$
|
722,446
|
|
8%-10%
|
|
20%-24%
|
|
N/A
|
|
$0.00050-$0.0037
|
|
|
50%-60%
|
|
3
to 25 Days
|
|
December
31, 2020
|
|
$
|
766,101
|
|
8%-10%
|
|
20%-24%
|
|
N/A
|
|
$0.00050-$0.00064
|
|
|
50%-60%
|
|
3 to 25
Days
|
Using
the stated assumptions summarized in the table above, we calculated the inception date and reporting period fair values of each note
issued. The following table shows the changes in fair value measurements for the convertible notes at fair value using significant unobservable
inputs (Level 3) during the six months ended June 30, 2021 and the year ended December 31, 2020:
SUMMARY OF CHANGES IN FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS
|
Description
|
|
June
30,
2021
|
|
|
December
31, 2020
|
|
|
Beginning balance
|
|
$
|
1,832,439
|
|
|
$
|
5,814,047
|
|
|
Purchases and issuances
|
|
|
117,000
|
|
|
|
25,981
|
|
|
Day one loss on value of hybrid instrument
(1)
|
|
|
1,973,612
|
|
|
|
318,174
|
|
|
Loss (gain) from change in fair value (1)
|
|
|
3,501,696
|
|
|
|
(1,931,927
|
)
|
|
Gain on settlement
|
|
|
-
|
|
|
|
(1,609,294
|
)
|
|
Debt discount
|
|
|
-
|
|
|
|
22,344
|
|
|
Repayments in cash
|
|
|
(40,480
|
)
|
|
|
(5,782
|
)
|
|
Conversion to common stock
|
|
|
(2,344,399
|
)
|
|
|
(801,104
|
)
|
|
Ending balance
|
|
$
|
5,039,868
|
|
|
$
|
1,832,439
|
|
|
(1)
|
The losses (gains) related
to the valuation of the convertible notes are included in “Change in fair value of convertible notes and derivatives”
in the accompanying consolidated statement of operations.
|
3.
INVENTORIES
Inventories
are valued at the lower of cost or net realizable value on an average cost basis. At June 30, 2021 and December 31, 2020, inventories
were as follows:
SCHEDULE OF INVENTORIES
|
|
|
June
30,
2021
|
|
|
December
31,
2020
|
|
|
Raw Materials
|
|
$
|
130,151
|
|
|
$
|
78,880
|
|
|
Finished Goods
|
|
|
2,732
|
|
|
|
5,271
|
|
|
Total Inventories
|
|
|
132,883
|
|
|
|
84,151
|
|
|
Less: Long-term inventory
|
|
|
(98,880
|
)
|
|
|
(78,880
|
)
|
|
Current portion
|
|
$
|
34,003
|
|
|
$
|
5,271
|
|
4.
PROPERTY AND EQUIPMENT
Property
and equipment consists of the following at June 30, 2021 and December 31, 2020:
SCHEDULE OF PROPERTY AND EQUIPMENT
|
|
|
June
30,
2021
|
|
|
December
31, 2020
|
|
|
Computer equipment
|
|
$
|
25,120
|
|
|
$
|
25,120
|
|
|
Furniture and fixtures
|
|
|
34,757
|
|
|
|
34,757
|
|
|
Lab equipment
|
|
|
95,685
|
|
|
|
65,521
|
|
|
Telephone equipment
|
|
|
12,421
|
|
|
|
12,421
|
|
|
Office equipment – other
|
|
|
16,856
|
|
|
|
16,856
|
|
|
Leasehold improvements
|
|
|
73,168
|
|
|
|
73,168
|
|
|
Total
|
|
|
258,007
|
|
|
|
227,843
|
|
|
Less: Accumulated depreciation
|
|
|
(216,486
|
)
|
|
|
(213,101
|
)
|
|
Property and equipment, net
|
|
$
|
41,521
|
|
|
$
|
14,742
|
|
We
review our long-lived assets for recoverability if events or changes in circumstances indicate the assets may be impaired. At June 30,
2021, we believe the carrying values of our long-lived assets are recoverable. Depreciation expense for the six-months ended June 30,
2021 and 2020 was $3,385 and $1,424, respectively, and for the three-months ended June 30, 2021 and 2020 was $2,012 and $712, respectively.
5.
DUE TO/FROM OFFICER
At
June 30, 2021, the balance due to our President and CEO, Rik Deitsch, is $192,378, which is an unsecured demand loan that bears interest
at 4%. During the six months ended June 30, 2021, we advanced $107,250 to and collected $21,900 from Mr. Deitsch and the companies owned
by him. Additionally, accrued interest on the demand loan was $3,891 and is included in the due to officer account. The Company has fully
reserved receivables from companies owned by the Company’s CEO. The reserve was $475,970 as of June 30, 2021, which represents
a full valuation allowance for amounts owed by these companies. For the six months ended June 30, 2021 and 2020, we recorded a bad debt
expense of $73,000 and a bad debt recovery of $70,500, respectively. For the three months ended June 30, 2021 and 2020, we recorded a
bad debt expense of $20,000 and a bad debt recovery of $31,000, respectively.
At
December 31, 2020, the balance due to our President and CEO, Rik Deitsch, was $200,837, which is an unsecured demand loan that bears
interest at 4%. During the year ended December 31, 2020, we advanced $22,150 to and collected $254,000 from Mr. Deitsch and the Companies
owned by him. Additionally, accrued interest on the demand loan was $7,675 and is included in the due to officer account. The Company
has fully reserved receivables from companies owned by the Company’s CEO. The reserve was $402,970 as of December 31, 2020, which
represents a full valuation allowance for amounts owed by these Companies.
6.
DEBTS
Debts
consist of the following at June 30, 2021 and December 31, 2020:
SCHEDULE OF DEBT
|
|
|
June
30,
2021
|
|
|
December
31,
2020
|
|
|
Notes payable – Unrelated
third parties (Net of discount of $2,780 and $1,500, respectively) (2)
|
|
$
|
1,316,094
|
|
|
$
|
1,346,057
|
|
|
Convertible notes payable – Unrelated
third parties (Net of discount of $185,315 and $101,448, respectively) (3)
|
|
|
2,772,586
|
|
|
|
1,276,902
|
|
|
Convertible notes payable, at fair value (4)
|
|
|
5,039,868
|
|
|
|
1,832,439
|
|
|
Other advances from an unrelated third party
(5)
|
|
|
225,000
|
|
|
|
225,000
|
|
|
SBA notes payable(6)
|
|
|
214,795
|
|
|
|
214,795
|
|
|
Ending balances
|
|
|
9,568,343
|
|
|
|
4,895,193
|
|
|
Less: Long-term portion-Convertible Notes payable-Unrelated
third parties
|
|
|
(979,654
|
)
|
|
|
(48,477
|
)
|
|
Less: Long-term portion- SBA notes payable
|
|
|
(148,438
|
)
|
|
|
(204,070
|
)
|
|
Current portion
|
|
$
|
8,440,251
|
|
|
$
|
4,642,646
|
|
|
(1)
|
During 2010 we borrowed
$200,000 from one of our directors. Under the terms of the loan agreement, this loan was expected to be repaid in nine months to
a year from the date of the loan along with interest calculated at 10% for the first month plus 12% after 30 days from funding. We
are in default regarding this loan. The loan is under personal guarantee by Mr. Deitsch. We repaid the principal balance in full
as of December 31, 2016. We repaid $40,000 of the accrued interest during the first and second quarters of 2021. At June 30, 2021
and December 31, 2020, we owed this director accrued interest of $148,899 and $179,522, respectively. The interest expense for the
three-months ended June 30, 2021 and 2020 was $4,432 and $4,914, respectively, and for the six-months ended June 30, 2021 and 2020
was $9,377 and $9,635, respectively.
|
|
|
|
|
(2)
|
At June 30, 2021 and December
31, 2020, the balance of $1,316,094 and $1,346,057 net of discount of $2,780 and $1,500, respectively, consisted of the following
loans:
|
|
|
●
|
In August 2016, we issued
two Promissory Notes for a total of $200,000 ($100,000 each) to a company owned by a former director of the Company. The Notes carry
interest at 12% annually and were originally due on the date that was six-months from the execution and funding of the note. The
principal balance of $101,818 and accrued interest of $21,023 were settled on February 15, 2019 for $104,000 with scheduled payments
through May 1, 2020. During the first quarter of 2020, the settlement was further amended to $88,500. We recorded a gain on settlement
of debt in other income for $15,500 during the first quarter of 2020. The settlement balance of $88,500 was repaid in full during
November 2020. At June 30, 2021 and December 31, 2020, we owed principal balance of $91,156, and accrued interest of $46,342 and
$40,917, respectively. The remaining principal balance of $91,156 and accrued interest of $46,342 is being disputed in court and
negotiation for settlement. (See Note 12).
|
|
|
|
|
|
|
●
|
On August 2, 2011 under
a settlement agreement with Liquid Packaging Resources, Inc. (“LPR”), we agreed to pay LPR a total of $350,000 in monthly
installments of $50,000 beginning August 15, 2011 and ending on February 15, 2012. We signed the first amendment to the settlement
agreement where we agreed to pay $175,000, which was the balance outstanding at December 31, 2011(this includes a $25,000 penalty
for non-payment). We repaid $25,000 during the six months ended March 31, 2012. We did not make all of the payments under such amendment
and as a result pursuant to the original settlement agreement, LPR had the right to sell 142,858 shares (5,714,326 shares pre reverse
stock split) of our free trading stock held in escrow by their attorney and receive cash settlements for a total amount of $450,000
(the initial $350,000 plus total default penalties of $100,000). LPR sold the note to Southridge Partners, LLP (“Southridge”)
for consideration of $281,772 in June 2012. In August 2013 the debt of $281,772 reverted back to LPR.
|
|
|
|
|
|
|
●
|
At December 31, 2012, we
owed University Centre West Ltd. approximately $55,410 for rent, which was assigned and sold to Southridge, and it is currently outstanding
and carries no interest.
|
|
|
|
|
|
|
●
|
In April 2016, we issued
a promissory note to an unrelated third party in the amount of $10,000 bearing interest at 10% annually. The note was due in one
year from the execution and funding of the note. The note is in default and negotiation of settlement. At June 30, 2021 and December
31, 2020, the accrued interest is $5,272 and $4,769.
|
|
|
|
|
|
|
●
|
In May 2016, the Company
issued a promissory note to an unrelated third party in the amount of $75,000 bearing monthly interest at a rate of 2%. The note
was due in six months from the execution and funding of the note. During April 2017, we accepted the offer of a settlement to issue
5,000,000 common shares as a repayment of $25,000. The note is in default and in negotiation of settlement. At June 30, 2021 and
December 31, 2020, the outstanding principal balance is $50,000 and accrued interest is $68,200 and $62,167.
|
|
|
|
|
|
|
●
|
In June 2016, the Company
issued a promissory note to an unrelated third party in the amount of $50,000 bearing monthly interest at a rate of 2%. The note
was due in six months from the execution and funding of the note. The note is in default and negotiation of settlement. At June 30,
2021 and December 31, 2020, the outstanding principal balance is $50,000 and accrued interest is $61,400 and $55,367, respectively.
|
|
|
●
|
A promissory note originally
issued to an unrelated third party in August 2016 was restated in September 2019 in the amount of $333,543 bearing monthly interest
at a rate of 2.0% and was due September 2020. In connection with this restated note, we issued 20,000,000 shares of our common stock.
During September 2020, we issued a total of 10,000,000 restricted shares due to the default on repayments. The shares were valued
at fair value of $6,000. The common stock was valued at $5,895 and recorded as a debt discount that was amortized over the life of
the note. Amortization for this debt discount was fully amortized at December 31, 2020. The Note is in default and negotiation of
settlement. At June 30, 2021 and December 31, 2020, the principal balance is $333,543, and the accrued interest is $146,759 and $106,511,
respectively.
|
|
|
|
|
|
|
●
|
On September 26, 2016,
we issued a promissory note to an unrelated third party in the amount of $75,000 bearing interest at 10% annually. The note was due
in one year from the execution and funding of the note. In March 2018, $15,000 of the principal balance of the note was assigned
to an unrelated third party and is in negotiation of settlement. In January 2019, the remaining principal balance of $60,000 and
accrued interest of $15,900 was restated in the form of a Convertible Note (See Note 6(4)). At June 30, 2021 and December 31, 2020,
the principal balance outstanding is $15,000, and the accrued interest is $1,371.
|
|
|
|
|
|
|
●
|
In October 2016, we issued
a promissory note to an unrelated third party in the amount of $50,000 bearing monthly interest at a rate of 2%. The note was due
in six months from the execution and funding of the note. The note is in default and in negotiation of settlement. At June 30, 2021
and December 31, 2020, the accrued interest is $57,700 and $51,667, respectively.
|
|
|
|
|
|
|
●
|
In June 2017, we issued
a promissory note to an unrelated third party in the amount of $12,500 bearing interest at 10% annually. The note was due in one
year from the execution and funding of the note. The note is in default and in negotiation of settlement. At June 30, 2021 and December
31, 2020, the accrued interest is $5,111 and $4,483, respectively.
|
|
|
|
|
|
|
●
|
During July 2017, we received
a loan for a total of $200,000 from an unrelated third party. The loan was repaid through scheduled payments through August 2017
along with interest on average 15% annum. During June 2018, the loan was settled with two unrelated third parties for $130,401 and
$40,000, respectively, with the monthly scheduled repayments of approximately $5,000 and $2,000 per month to each unrelated party
through July 2020. The Company repaid a total of $34,976, $42,698, and $44,478 during 2018, 2019 and 2020, respectively. Additionally,
repayment of $14,376 was made during the first quarter of 2021. At June 30, 2021 and December 31, 2020, the principal balance is
$33,874 and $48,250, respectively. The portion of settlement of $130,401 was repaid in full as of March 31, 2021. The remaining balance
of $33,874 is in default and negotiation of settlement.
|
|
|
|
|
|
|
●
|
In July 2017, we issued
a promissory note to an unrelated third party in the amount of $50,000 with original issue discount of $10,000. The note was due
in six months from the execution and funding of the note. The note is in default and in negotiation of settlement. At June 30, 2021
and December 31, 2020, the principal balance of the note is $50,000.
|
|
|
●
|
During September 2018 and
2019, a promissory note originally issued to an unrelated third party in September 2017 was amended in the amount of $36,000 including
original issuance discount of $6,000 each due in September 2019 and 2020. The Note was further restated in September 2020. The restated
principal balance was $33,000 with the original issuance discount of $3,000 and was due March 2021. The original issue discount is
amortized over the term of the loan. Repayments of $7,000, $5,000, and $6,500 have been made during 2018, 2019, and 2020, respectively.
Additionally, repayment of $1,000 was made during the first quarter of 2021. The Note is under personal guarantee by Mr. Deitsch.
At December 31, 2020, the principal balance of the note is $29,500 net of debt discount of $1,500. The remaining debt discount of
$1,500 was fully amortized as of March 2021. During March 2021, the remaining balance of $30,000 was sold to an unrelated third party
in the form of a convertible note at a fixed conversion price of $0.01 per share (See Note 6(3)). The new note carries interest at
12% with scheduled monthly payments of $1,000 beginning in April 2021 through March 2024.
|
|
|
|
|
|
|
●
|
During January 2020, a
promissory note originally issued to an unrelated third party in October 2017 in the amount of $60,000
and the Note of $76,076
originally issued in July 2016 plus accrued
interest of $12,149
were combined and restated at a rate of 2.0% monthly due July 2020. During July 2020, the restated Note of $148,225
plus accrued interest of $18,701
was further restated. The new principal balance
was $166,926
that carries interest at a rate of 2.0%
monthly and was due January 2021. During February 2021, we issued 29,072,500
shares of common stock to satisfy the accrued
interest of $23,258
with fair value of $343,056
(See Note 7). The settlement of accrued interest
resulted in a loss on settlement of debt for $319,798
in other expense. The principal balance of
$166,926
was further restated. The restated balance
is $183,619
with an original issuance discount of $16,693
and was due August 2021. Amortization for
the six months ended June 30, 2021 for this discount is $13,913.
At December 31, 2020, the principal balance and accrued interest was $166,926
and $18,917.
At June 30, 2021, the restated principal balance is $180,839
net of debt discount of $2,780.
The note is in default and negotiation of settlement.
|
|
|
|
|
|
|
●
|
In November 2017, we issued
a promissory note to an unrelated third party in the amount of $120,000 with original issuance discount of $20,000. During March
2020, $50,000 of the Note was settled for 125,000,000 shares with a fair value of $87,500. We recorded a loss on settlement in other
expense for $37,500 in March 2020. An additional 36,000,000 shares were issued to satisfy the default provision of the original note
and 10,000,000 shares were issued along with the restatement. The total fair value of issued stock was $32,200. The remaining balance
of $70,000 was restated with additional issuance discount of $14,000. The $84,000 due in September 2020 is in default and negotiation
of further settlement. At June 30, 2021 and December 31, 2020, the principal balance of the loan is $84,000.
|
|
|
|
|
|
|
●
|
In November 2017, we issued
a promissory note to an unrelated third party in the amount of $18,000 with original issuance discount of $3,000. The note is in
default and in negotiation of settlement. The note was due in six months from the execution and funding of the note. At June 30,
2021 and December 31, 2020, the principal balance of the note is $18,000 and the accrued interest is $2,000.
|
|
(3)
|
At June 30, 2021 and December
31, 2020, the balance of $2,772,586 and $1,276,902 net of discount of $185,315 and $101,448, respectively, consisted of the following
convertible loans:
|
|
|
●
|
In October 2017, we issued
a promissory note to an unrelated third party in the amount of $60,000 with original issuance discount of $10,000 and a conversion
option. The note was due in six months from the execution and funding of the note. The loan is in default and in negotiation of settlement.
At June 30, 2021 and December 31, 2020, the principal balance of the note is $60,000.
|
|
|
|
|
|
|
●
|
During January through
December 2018, we issued convertible notes payable to the 20 unrelated third parties for a total of $618,250 with original issue
discount of $62,950. The notes were due in six months from the execution and funding of each note. The notes are convertible into
shares of Company’s common stock at a conversion price ranging from $0.0003 to $0.001 per share. The total discount of $255,655
and original issuance discount of $62,950 have been fully amortized during 2019 for $28,421.
|
During
February 2019, we issued convertible notes payable of $70,000 with original issuance discount of $5,000. The notes were due in six months
from the execution and funding of each note. The notes are convertible into shares of Company’s common stock at a conversion price
of $0.0005 per share. During December 2019, $22,000 of the Note was amended to extend the maturity date to June 2020. During August 2020,
the convertible promissory notes of $38,500 was amended to add additional original issuance discount (OID) of $7,550 due February 2021.
During October 2020, a convertible promissory note of $16,500 was amended to add additional OID of $1,650 due April 2021. In connection
with the issuance of amended convertible notes, the Company granted the following warrants at an exercise price of $0.001 per share.
The warrants were valued using the Black-Scholes method and recorded as a debt discount. No warrants have been exercised. The Company
classified embedded conversion features in the warrants as a derivative liability. The warrants were valued at their fair value of $729,469
and $123,900 on June 30, 2021 and December 31, 2020 (See Note 8). The debt discounts associated with the warrants in August was for $38,500.
The debt discounts associated with the warrants in October was for $16,500. The debt discounts are amortized over the life of the notes.
|
Month
of
Issuance
|
|
Number
of
Warrants
|
|
Fair
Value
of
Warrants
|
|
Month
of
Expiration
|
|
|
December, 2019
|
|
|
44,000,000
|
|
$
|
7,370
|
|
|
August,
2020
|
|
|
August, 2020
|
|
|
92,100,000
|
|
$
|
38,500
|
|
|
August,
2021
|
|
|
October, 2020
|
|
|
36,300,000
|
|
$
|
16,500
|
|
|
October,
2022
|
|
During
May 2019, we restated two convertible notes payable with additional original issue discount of $6,400. The two restated notes were due
in August 2019 and are in default.
During
November and December 2019, we issued two convertible promissory notes to the unrelated third party for $159,500 with original issuance
discount of $14,500. The notes were due six months from the execution and funding of the notes. The Noteholder had the right to convert
the note into shares of Common Stock at a fixed conversion price ranging from $0.0002 to $0.000275. The Notes are in default and negotiation
of settlement.
During
2019, repayments of $13,500 were made in cash to three of the Notes. Six of the Notes for a total of $87,100 were repaid in stocks as
the part of settlement of issuances of 800,000,000 shares of common stocks during December 2019.
At
December 31, 2019, the principal balance of the notes, net of discount of $17,370 was $736,180. The remaining debt discount of $17,370
has been fully amortized during the fiscal year 2020. Two of the above mentioned convertible notes payable were settled in March and
April, 2021. One of the above mentioned convertible notes payable was repaid in cash for $10,000.
During
the year ended December 31, 2020, we issued convertible notes payable of $555,600 with original issuance discount of $53,600. $287,400
of these notes were due in a year, and $268,200 of the Notes are due in six months from the execution and funding of each note. The notes
are convertible into shares of Company’s common stock at a conversion price ranging from $0.0002 to 0.0008 per share. During July
2020, we issued a total of 1,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $22,000
originated in December 2019. The shares were valued at fair value of $700 (See Note 7). In addition, in connection with the issuance
of two of the above mentioned convertible notes of $57,500 with original issuance discount of $7,500 due in one year, the Company granted
the 71,875,000 warrants at an exercise price of $0.002 per share that expire one year from the date of issuance. The warrants are valued
using the Black-Scholes method and recorded as a debt discount. No warrants have been exercised. The debt discounts associated with the
warrants and OID for $50,000 and $7,500, respectively, are amortized over the life of the notes. Amortization for the year ended December
31, 2020 was $83,720. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were
valued at their fair value of $367,085 and $65,634 using the Black-Scholes method on June 30, 2021 and December 31, 2020 (See Note 8).
At
December 31, 2020, the principal balance of the notes, net of discount of $101,448 is $1,276,902.
During
the first quarter of 2021, we issued convertible promissory notes to the unrelated third parties for a total of $717,667 with original
issuance discount of $93,609. During the second quarter of 2021, we issued convertible promissory notes to the unrelated third parties
for a total of $864,225 with original issuance discount of $112,725. The Noteholders have the right to convert the note into shares of
Common Stock at a conversion price ranging from $0.0003 to $0.002 per share. The notes are due one year from the execution and funding
of the notes.
During
March 2021, the remaining balance of promissory note of $30,000 originally issued in September 2018 was sold to an unrelated third party
in the form of a convertible note at a fixed conversion price of $0.01 per share (See Note 6(2)). The new note carries interest at 12%
with scheduled monthly payments of $1,000 beginning in April 2021 through March 2024. Repayment of $2,842 has been made during the second
quarter of 2021. The principal balance as of June 30, 2021 is $27,158, and the interest expense for the three months ended June 30, 2021
is $1,158.
During
March 2021, in connection with the settlement of the $6,000 of the Note of $11,000 originated in November 2018, we issued 11,000,000
shares of common stocks in satisfaction of $6,000 of the Note with a fair value of $104,500 (Note 7) and made a repayment of $5,000 in
cash. The settlement resulted in a loss on settlement of debt in other expense for $98,500. During April 2021, in connection with this
settlement of the remaining balance of $8,500 of the Note of $12,000 originated in December 2018, we issued 2,000,000 shares of common
stocks in satisfaction of $4,000 of the Note with a fair value of $15,200 (Note 7) and made a repayment of $4,500 in cash. The settlement
resulted in a loss on settlement of debt in other expense for $11,200.
At
the date of this report, $1,152,200 of the above mentioned convertible notes payable are in default and in negotiation of settlement.
The total discount amortization on all notes for the three and six months ended June 30, 2021 was $58,330 and $122,469, respectively.
At June 30, 2021, the principal balance of the notes, net of discount of $185,315 is $2,772,586.
|
|
(4)
|
At June 30, 2021 and December
31, 2020, the balance of $5,039,868 and $1,832,439, respectively, consisted of the following convertible loans:
|
|
|
●
|
The remaining balance of
$20,000 of a Convertible Note of $120,000 originated in March 2016 is in default and negotiation of settlement. The conversion price
is equal to 55% of the average of the three lowest volume weighted average prices for the three consecutive trading days immediately
prior to but not including the conversion date. At June 30, 2021 and December 31, 2020, the convertible notes payable with principal
balance of $20,000 plus accrued interest of $19,138 and $17,128, respectively, at fair value, were recorded at $71,160 and $69,433,
respectively.
|
|
|
●
|
During May 2017, we issued
a Convertible Debenture in the amount of $64,000 to an unrelated third party. The note was due on May 4, 2018. The Note holder has
the right to convert the note into shares of Common Stock at a sixty percent (60%) of the lowest trading price of our restricted
common stock for the twenty trading days preceding the conversion date. We have accrued interest at default interest rate of 20%
after the note’s maturity date. After prior conversions, at June 30, 2021 and December 31, 2020, the remaining principal of
$12,629 plus accrued interest of $13,571 and $12,308, respectively, at fair value, were recorded at $45,781 and $49,875, respectively.
The remaining principal balance of the Note is in default.
|
|
|
|
|
|
|
●
|
During February through
August 2018, we issued seven convertible promissory notes to an unrelated third party due one year from the execution dates. The
principal balance of these Notes on December 31, 2019 was $511,319. During September 2020, the Note holder received a total of 107,133,333
shares of our restricted common stock in satisfaction of the principal balance of $22,000 and accrued interest of $10,140. During
October 2020, the Note holder received a total of 107,817,770 shares of our restricted common stock in satisfaction of the principal
balance of $22,000 and accrued interest of $10,345. During October 2020, the Note holder sold the remaining debt principal value
as of October 22, 2020 of $509,301 and accrued interest of $234,417 for $250,000 to a non-related party. The new note of $250,000
carries interest at 8%. The Noteholder has the right to convert the note into shares of our restricted common stock at sixty percent
of the lowest trading price of our restricted common stock for the twenty-five prior trading days including the conversion date.
In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $286,969. At June 30, 2021
and December 31, 2020, the convertible note payable with principal balance of $250,000 plus accrued interest of $13,808 and $3,890,
respectively, at fair value, were recorded at $525,463 and $521,370.
|
|
|
●
|
During July 2018, we issued
a convertible debenture in the amount of $50,000 to an unrelated third party. The note carries interest at 8% and was due in July
2019, unless previously converted into shares of restricted common stock. We have accrued interest at default interest rate of 24%
after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at fifty five
percent of the average three lowest trading price of our restricted common stock for the fifteen trading days including the date
of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative
loss of $46,734. At June 30, 2021 and December 31, 2020, the convertible note payable with principal balance of $50,000 plus accrued
interest of $27,441 and $21,490, at fair value, was recorded at $143,006 and $146,232, respectively.
|
|
|
|
|
|
|
●
|
During August 2018, we
issued a convertible debenture in the amount of $20,000 to an unrelated third party. The note carries interest at 8% and was due
in August 2019, unless previously converted into shares of restricted common stock. We have accrued interest at default interest
rate of 24% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at
fifty five percent of the average three lowest trading price of our restricted common stock for the fifteen trading days including
the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one
derivative loss of $17,829. At June 30, 2021 and December 31, 2020, the convertible note payable with principal balance of $20,000
plus accrued interest of $10,503 and $8,123, at fair value, was recorded at $56,327 and $57,524, respectively.
|
|
|
|
|
|
|
●
|
During January 2019, the
principal balance of $60,000 from a promissory note of $75,000 originated in September 2016 (See Note 6(2)) and accrued interest
of $15,900 was restated in the form of a Convertible Note. The new note of $75,900 was due in one year from the restatement of the
note. The Noteholder has the right to convert the note into shares of Common Stock at 50% discount to the average trading price of
the three lowest closing stock prices for the twenty days prior to the notice of conversion. In connection with the issuance of the
convertible note payable, we recorded a day-one derivative loss of $75,900. During November 2020, the Note holder assigned $20,000
of the $75,900 convertible note restated in January 2019 to a third party. The third party subsequently received a total of 100,000,000
shares of our restricted common stock in satisfaction the $20,000 of the Note with a fair value of $140,000. At June 30, 2021 and
December 31, 2020, the convertible note payable of $55,900, at fair value, was recorded at $117,209 and $129,832. The note was due
January 2021. The Note is in default and negotiation of settlement.
|
|
|
●
|
During
February 2019, we issued a convertible promissory note to an unrelated third party in the amount up to $1,000,000 paid upon tranches.
The note is due two years from the execution and funding of the note per tranche. The Noteholder has the right to convert the note
into shares of Common Stock at a conversion price of the lower of $0.0005 or 50% discount to the average trading price of the three
lowest closing stock prices for the twenty days prior to the notice of conversion. The eight total tranches of the Note in the amount
of $372,374 and $20,199 have been funded during 2019 and 2020, respectively. An additional two tranches of the Note for a total of
$117,000 have been funded, and repayment of $40,480 has been made during the first and second quarter of 2021. $15,000 has been funded
after June 30, 2021. In connection with issuance of the convertible note, the Noteholder agreed to eliminate two outstanding Notes
of $27,000 and the accrued interest of $11,412 that were held by the Noteholder’s defunct entities. In connection with the
issuance of the convertible note payable tranches during the six months ended June 30, 2021, we recorded a day-one derivative loss
of $1,973,612 for the period. During May and June 2019, the Note holder made conversions of a total of 750,000,000 shares of stock
satisfying the principal balance of $100,000 for a fair value of $275,000. During January 2020 through February 2020, the Note holder
received a total of 500,000,000 shares of our restricted common stock in satisfaction the $175,000 of the Note with a fair value
of $425,000. During February through June 2021, the Note holder received a total of 240,350,000 shares of our restricted common stock
in satisfaction the $120,175 of the Note with a fair value of $2,344,399 (See Note 7). The remaining balance of $88,917 is due June
2023. At June 30, 2021 and December 31, 2020, the convertible note payable with principal balance of $73,917 and $117,572, at fair
value, was recorded at $960,922 and $282,173.
|
|
|
|
Number of
|
|
Fair Value
of
|
|
|
Date
|
|
shares
converted
|
|
Debt
Converted
|
|
|
2/25/2021
|
|
|
137,700,000
|
|
$
|
1,500,930
|
|
|
3/3/2021
|
|
|
67,380,000
|
|
$
|
599,682
|
|
|
4/26/2021
|
|
|
27,070,000
|
|
$
|
192,197
|
|
|
6/1/2021
|
|
|
5,700,000
|
|
$
|
35,340
|
|
|
6/24/2021
|
|
|
2,500,000
|
|
$
|
16,250
|
|
|
|
●
|
During June 2019, we
issued a convertible promissory note to an unrelated third party for $240,000 with original issuance discount of $40,000. The note
was due one year from the execution and funding of the notes. In connection with the issuance of this note, we issued 16,000,000
shares of our restricted common stock. The common stock was valued at $4,688 and recorded as a debt discount that was amortized over
the life of the note. The Noteholder has the right to convert the note into shares of Common Stock at a conversion price of the
lower of $0.0005 or 50% discount to the average trading price of the three lowest closing stock prices for the twenty days prior to
the notice of conversion. In connection with the issuance of the convertible note payable, we
recorded a day-one derivative loss of $240,000. Amortization for the debt discount was fully amortized as of June 30, 2020 for
$22,344. At June 30, 2021 and December 31, 2020, the convertible note payable with principal balance of $240,000, at fair value, was
recorded at $3,120,000 and $576,000. The Note is in default and negotiation of settlement.
|
|
|
|
|
|
|
(5)
|
At June 30, 2021 and December
31, 2020, the balance of $225,000 consisted of the advances received from a third party during the periods from May 2019 through
May 2020 in connection with a Joint Venture proposal. The deposits were considered as payments towards the purchase of equity in
the joint venture. The joint venture is currently on hold pending the outcome of the lawsuit with the Securities and Exchange Commission
(see Note 12).
|
|
|
|
|
|
|
(6)
|
During
May 2020, we entered into a two-year loan agreement with the U. S. Small Business Administration for a Payroll Protection Program
(PPP) loan, for $64,895 with an annual interest rate of one percent (1%), with a term of twenty-four (24) months, whereby a portion
of the loan proceeds have been used for certain labor costs, office rent costs and utilities, which may be subject to a loan
forgiveness, pursuant to the terms of the SBA/PPP program.
During
April and June 2020, the Company executed the standard loan documents required for securing a loan from the SBA under its Economic
Injury Disaster Loan assistance program (the “EIDL Loan”) considering the impact of the COVID-19 pandemic on the Company’s
business. Pursuant to the Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL
Loan was $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum. Installment
payments, including principal and interest, are due 24 months from the date of the SBA Loan Agreement in the amount of $731. The
balance of principal and interest is payable over a 360-month period from the date of the SBA Loan Agreement. In connection therewith,
the Company received a $5,000 advance, which does not have to be repaid. We recorded it as other income in April 2020. The SBA requires
that the Company collateralize the loan to the maximum extent up to the loan amount. If business fixed assets do not “fully
secure” the loan the lender may include trading assets (using 10% of current book value for the calculation), and must take
available equity in the personal real estate (residential and investment) of the principals as collateral.
The
accrued interest as of June 30, 2021 and December 31, 2020 for the above mentioned PPP and EIDL loans are $6,797 and $3,660, respectively.
At
June 30, 2021, the future minimum principal payments for the above mentioned PPP and EIDL loans are as follows:
|
SCHEDULE OF FUTURE MINIMUM PRINCIPAL PAYMENT
|
Years
|
|
Amount
|
|
|
2021(6 months
remaining)
|
|
$
|
10,725
|
|
|
2022
|
|
|
56,290
|
|
|
2023
|
|
|
3,283
|
|
|
2024
|
|
|
3,408
|
|
|
2025
|
|
|
3,538
|
|
|
Thereafter
|
|
|
137,551
|
|
|
|
|
|
214,795
|
|
|
Less:
Long-term portion - SBA notes payable
|
|
|
(148,438
|
)
|
|
Current portion
|
|
$
|
66,357
|
|
7.
STOCKHOLDERS’ DEFICIT
Series
A Preferred Stock
Effective
October 30, 2017, pursuant to authority of its Board of Directors, the Company filed a Certificate of Determination to authorize the
issuance of 20,000,000 shares of stock designated “preferred shares”, issuable from time to time in one or more series and
authorize the Board of Directors to fix the number of shares constituting any such series, and to determine or alter the dividend rights,
dividend rate, conversion rights, voting rights, right and terms of redemption (including sinking fund provisions), the redemption price
or prices and the liquidation preference of any wholly unissued series of such preferred shares, and the number of shares constituting
any such series.
Effective
October 30, 2017 the Board of Directors authorized the issuance of 3,000,000 shares of Series A Preferred Stock (“Series A Preferred”).
Terms of the Series A Preferred include the following:
|
|
1.
|
The Series A Preferred
votes with the Company’s common stock as a single class on all matters or consents for the Company’s common stockholders.
Each share of Series A Preferred is entitled to one thousand votes per share.
|
|
|
|
|
|
|
2.
|
The Series A Preferred
will not be entitled to dividends unless the Company pays cash dividends or dividends in other property to holders of outstanding
shares of common stock, in which event, each outstanding share of the Series A Preferred will be entitled to receive dividends of
cash or property in an amount or value equal to one thousand multiplied by the amount paid in respect of one share of common stock.
Any dividend payable to the Series A Preferred will have the same record and payment date and terms as the dividend payable on the
common stock.
|
|
|
3.
|
Upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of all shares of Series A Preferred then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount in cash equal to $0.133
in cash per share before any distribution is made on any shares of the Company’s common stock. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the application of all amounts available for payments with respect to Series
A Preferred would not result in payment in full of Series A Preferred, the holders shall share equally and ratably in any distribution
of assets of the Company in proportion to the full liquidation preference to which each is entitled.
|
|
|
|
|
|
|
4.
|
The Series A Preferred does not have any redemption
rights.
|
Common
Stock Issued for Conversion of Convertible Debt
During
February through June 2021, the Note holder received a total of 240,350,000 shares of our restricted common stock in satisfaction the
$120,175 of the Note with a fair value of $2,344,399 (See Note 6)
SCHEDULE OF COMMON STOCK ISSUED FOR CONVERSION OF DEBT
|
|
|
Number of
|
|
|
Fair Value
of
|
|
|
Date
|
|
shares
converted
|
|
|
Debt
Converted
|
|
|
2/25/2021
|
|
|
137,700,000
|
|
|
$
|
1,500,930
|
|
|
3/3/2021
|
|
|
67,380,000
|
|
|
$
|
599,682
|
|
|
4/26/2021
|
|
|
27,070,000
|
|
|
$
|
192,197
|
|
|
6/1/2021
|
|
|
5,700,000
|
|
|
$
|
35,340
|
|
|
6/24/2021
|
|
|
2,500,000
|
|
|
$
|
16,250
|
|
Common
Stock Issued for Settlement of Debt
During
February 2021, we issued 29,072,500 shares of common stock to satisfy the accrued interest of $23,258 on a promissory note of $166,926
restated in July 2020 with fair value of $343,056. The settlement of accrued interest resulted in a loss on settlement of debt in other
expense for $319,798 (See Note 6).
During
March 2021, in connection with the settlement of a Note of $11,000 originated in November 2018, we issued 11,000,000 shares of common
stock in satisfaction of $6,000 of the Note with a fair value of $104,500 and made a repayment of $5,000 in cash. The settlement resulted
in a loss on settlement of debt in other expense for $98,500 (See Note 6).
During
April 2021, in connection with the settlement of the remaining balance of $8,500 of the Note of $12,000 originated in December 2018,
we issued 2,000,000 share of common stocks in satisfaction of $4,000 of the Note with a fair value of $15,200. The settlement resulted
in a loss on settlement of debt in other expense for $11,200 (See Note 6).
Common
Stock Issued for Debt Modification and Penalty
During
January 2021, we issued a total of 25,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note
of $166,926 amended in July 2020. The shares were valued at fair value of $107,500 (See Note 6).
Common
Stock Issued for Consulting Service
During
June 2021, the Company signed an agreement with a consultant for services for six months for which the Company is to issue a total of
30,000,000 shares of the Company’s restricted common stock. 5,000,000 of the shares were issued upon execution of the agreement
and 5,000,000 shares will be issued every 30 days through November 2021. The 5,000,000 shares issued upon execution were valued at $33,000.
The equity compensation charge of $1,445 has been recorded during June 2021. The remaining unrecognized compensation cost of $31,555
will be recognized by the Company over the remaining service period. Additional 10,000,000 shares have been issued after June 30, 2021
(See Note 13).
8.
STOCK WARRANTS
Common
Stock Warrants
On
March 3, 2016, in connection with the issuance of a convertible note, we granted five-year warrants to purchase an aggregate of 2,500,000
shares of our common stock at an exercise price of $0.03 per share. The warrants were valued at their fair value of $0 and $9 using the
Black-Scholes method at June 30, 2021 and December 31, 2020. The warrants expired in March 2021.
During
December 2019, the Company granted 44,000,000 warrants at an exercise price of $0.001 per share in connection with amendment of one convertible
notes payable of $22,000. The warrants were valued at $7,370 using the Black-Scholes method and recorded as a debt discount and additional
paid in capital. The warrants expired in August 2020.
During
August and October 2020, in connection with the issuance of amended convertible notes, the Company granted the following warrants at
an exercise price of $0.001 per share. The warrants were valued using the Black-Scholes method and recorded as a debt discount. No warrants
have been exercised. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were
valued at their fair value of $729,469 and $123,900 using the Black-Scholes method on June 30, 2021 and December 31, 2020.
SCHEDULE OF WARRANTS ISSUED
|
Month
of Issuance
|
|
Number
of
Warrants
|
|
Month
of
Expiration
|
|
|
August, 2020
|
|
|
92,100,000
|
|
|
August,
2021
|
|
|
October, 2020
|
|
|
36,300,000
|
|
|
October,
2022
|
|
During
November and December 2020, in connection with the issuance of two convertible notes, the Company granted the following warrants at an
exercise price of $0.002 per share. The warrants are valued using the Black-Scholes method and recorded as a debt discount. No warrants
have been exercised. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were
valued at their fair value of $367,085 and $65,634 using the Black-Scholes method on June 30, 2021 and December 31, 2020.
A
summary of warrants outstanding in conjunction with private placements of common stock were as follows during the year ended December
31, 2020 and the six months ended June 30, 2021:
SUMMARY OF WARRANTS OUTSTANDING
|
|
|
Number
Of
shares
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
Balance December
31, 2019
|
|
|
52,500,000
|
|
$
|
0.0028
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Issued
|
|
|
200,275,000
|
|
|
0.0014
|
|
|
Expired
|
|
|
(50,000,000
|
)
|
|
0.0015
|
|
|
Balance December 31, 2020
|
|
|
202,775,000
|
|
$
|
0.0017
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Issued
|
|
|
-
|
|
|
-
|
|
|
Expired
|
|
|
(2,500,000
|
)
|
|
0.03
|
|
|
Balance June 30, 2021
|
|
|
200,275,000
|
|
$
|
0.0014
|
|
The
following table summarizes information about fixed-price warrants outstanding as of June 30, 2021 and December 31, 2020:
SUMMARY OF FIXED PRICE WARRANTS OUTSTANDING
|
|
|
Exercise
Price
|
|
Weighted
Average
Number
Outstanding
|
|
Weighted
Average
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
June 30, 2021
|
|
$
|
0.001-0.002
|
|
|
201,131,354
|
|
|
0.44
years
|
|
$
|
0.0014
|
|
|
December 31, 2020
|
|
$
|
0.001-0.03
|
|
|
51,086,612
|
|
|
0.93
years
|
|
$
|
0.0017
|
|
At
June 30, 2021, the aggregate intrinsic value of all warrants outstanding and expected to vest was $1,029,638. The intrinsic value of
warrant share is the difference between the fair value of our restricted common stock and the exercise price of such warrant share to
the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders
of in-the-money warrants had they exercised their warrants on the last trading day of the year and sold the underlying shares at the
closing stock price on such day. The intrinsic value calculation is based on $0.0065, the closing stock price of our restricted common
stock on June 30, 2021. There were 200,275,000 in-the-money warrants at June 30, 2021.
9.
ACCRUED EXPENSES
Accrued
expenses consisted of the following:
SCHEDULE OF ACCRUED EXPENSES
|
|
|
June
30,
2021
|
|
|
December
31, 2020
|
|
|
Accrued consulting fees
|
|
$
|
161,550
|
|
|
$
|
166,900
|
|
|
Accrued settlement expenses
|
|
|
-
|
|
|
|
35,000
|
|
|
Accrued payroll taxes
|
|
|
205,062
|
|
|
|
215,581
|
|
|
Accrued interest
|
|
|
400,953
|
|
|
|
351,830
|
|
|
Accrued others
|
|
|
8,229
|
|
|
|
11,121
|
|
|
Total
|
|
$
|
775,794
|
|
|
$
|
780,432
|
|
10.
PREPAID EXPENSES
Prepaid
expenses and other current assets consist of the following:
SCHEDULE OF PREPAID EXPENSES
|
|
|
June
30,
2021
|
|
|
December
31, 2020
|
|
|
Supplier advances for future purchases
|
|
$
|
270,162
|
|
|
$
|
246,162
|
|
|
Reserve for supplier advances
|
|
|
(246,162
|
)
|
|
|
(246,162
|
)
|
|
Net supplier advances
|
|
|
24,000
|
|
|
|
-
|
|
|
Prepaid professional fees
|
|
|
24,650
|
|
|
|
10,000
|
|
|
Deferred stock compensation
|
|
|
31,555
|
|
|
|
-
|
|
|
Total
|
|
$
|
80,205
|
|
|
$
|
10,000
|
|
We
performed an evaluation of our inventory and related accounts at June 30, 2021 and December 31, 2020, and increased the reserve on supplier
advances for future venom purchases by $0 and $21,303, respectively. At June 30, 2021 and December 31, 2020, the total valuation allowance
for prepaid venom is $246,162.
11.
CONVERTIBLE NOTES RECEIVABLE
On
March 10, 2021, we purchased a convertible note from an unrelated third party (the “Third Party”) for a total of $26,950
with original issuance discount of $2,450. The note is convertible into common shares for $0.01 per common share and matures on March
10, 2022. The original issuance discount is amortized over the life of note. The debt discount as of June 30, 2021 was $1,835.
On
May 20, 2021, we purchased a convertible note from the Third Party for a total of $145,200 with original issuance discount of $13,200.
The note is convertible into common shares for $0.01 per common share and matures on May 20, 2022. The original issuance discount is
amortized over the life of note. The debt discount as of June 30, 2021 was $12,100.
Amortization
for all the convertible notes receivable was $1,715 recognized as other income in the statement of operations for the three and six months
ended June 30, 2021.
12.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
February 2016, we entered into our current three-year operating lease for monthly payments of approximately $3,200 which expired in February
2019. We continued the lease on a month-to-month basis until May 2020 when it was terminated.
ReceptoPharm
leases a lab and renewed its operating lease agreement for five years beginning August 1, 2017 for monthly payments of approximately
$6,900 with a 5% increase each year. In February of 2021, we signed an updated lease with extended terms through January 1, 2023. The
lease calls for monthly payments of approximately $6,500 with a 4% increase each year.
SCHEDULE
OF LEASE COST AND BALANCE SHEET INFORMATION
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Lease cost
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
40,198
|
|
|
$
|
89,021
|
|
|
Short-term lease cost
|
|
|
-
|
|
|
|
18,698
|
|
|
Total lease cost
|
|
$
|
40,198
|
|
|
$
|
107,719
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet information
|
|
|
|
|
|
|
|
|
|
Operating ROU Assets
|
|
$
|
136,651
|
|
|
$
|
144,010
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations, current portion
|
|
|
73,632
|
|
|
|
82,873
|
|
|
Operating lease obligations, non-current portion
|
|
|
39,611
|
|
|
|
60,447
|
|
|
Total operating lease obligations
|
|
$
|
113,243
|
|
|
$
|
143,320
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in years)
– operating leases
|
|
|
1.50
|
|
|
|
1.67
|
|
|
Weighted average discount rate-operating leases
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information related
to leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement
of operating lease liabilities
|
|
$
|
62,917
|
|
|
$
|
98,780
|
|
Future
minimum payments under these lease agreements are as follows:
SCHEDULE OF FUTURE MINIMUM PAYMENTS UNDER LEASE AGREEMENTS
|
December
31,
|
|
Total
|
|
|
2021 (Remaining
6 months)
|
|
$
|
39,511
|
|
|
2022
|
|
|
81,080
|
|
|
Total
future lease payments
|
|
$
|
120,591
|
|
|
Less
imputed interest
|
|
|
7,348
|
|
|
Total
|
|
$
|
113,243
|
|
Consulting
Agreements
During
July 2015, we signed an agreement with a company to provide for consulting services for five years. In connection with the agreement,
500,000 shares of our restricted common stock and a one year 8% note of $50,000 were granted. The shares were valued at $0.18 per share.
As the services provided were in dispute, the shares and note payable have not been issued as of June 30, 2021. We have accrued the $142,500
in accrued expense and equity compensation.
During
October 2015, the Company signed an agreement with a consultant for consulting services for a year. In connection with the agreement,
2,500,000 shares of the Company’s restricted common stock were granted and the Company was to make monthly cash payments of $3,000.
As of December 31, 2016, the Company recorded an equity compensation charge of $31,750, however, only 1,000,000 of the shares have been
issued. As of June 30, 2021 and December 31, 2020, $19,150 has been recorded in accrued expense to account for the 1,500,000 shares of
common stock that have not been issued.
Litigation
Paul
Reid et al. v. Nutra Pharma Corp. et al.
On
August 26, 2016, certain of former ReceptoPharm employees and a former ReceptoPharm consultant filed a lawsuit in the 17th Judicial Circuit
in and for Broward County, Florida (Case No. CACE16–015834) against Nutra Pharma and ReceptoPharm to recover $315,000 allegedly
owing to them under a settlement agreement reached in an involuntary bankruptcy action that was brought by the same individuals in 2012
and for payment of unpaid wages/breach of written debt confirms.
On
June 24, 2021, the parties entered into a confidential settlement agreement of the lawsuit. Nutra Pharma has fully performed under the
settlement and considers the case fully resolved.
Get
Credit Healthy, Inc. v. Nutra Pharma Corp. and Rik Deitsch, Case No. CACE 18-017055
On
August 1, 2018, Get Credit Healthy, Inc. filed a lawsuit against the Company and Rik Deitsch (collectively the “Defendants”)
in the 17th Judicial Circuit Court in and for Broward County, Florida (Case No. CACE 18-017055) to recover $100,000 allegedly owed under
an amended promissory note dated April 12, 2017. Counsel for Get Credit Healthy, Inc. requested an early mediation conference in an attempt
to resolve our dispute. We agreed to this request, and mediation took place on February 15, 2019. At December 31, 2018, we owed principal
balance of $101,818 and accrued interest of $21,023. The lawsuit was settled on February 15, 2019 for $104,000 and was further amended.
The repayments were made in full as of November 2020 (See Note 6).
CSA
8411, LLC v. Nutra Pharma Corp., Case No. CACE 18-023150
On
October 12, 2018, CSA 8411, LLC filed a lawsuit against the Company in the 17th Judicial Circuit Court in and for Broward County, Florida
(Case No. CACE 18-023150) to recover $100,000 allegedly owed under an amended promissory note dated April 12, 2017. On November 1, 2018,
the Company filed its Answer and Affirmative Defenses to the Complaint. The Company believes that this lawsuit is without merit. Moreover,
the Company believes that it has a number of valid defenses to this claim. Among other things, the owner of CSA 8411, LLC violated the
terms of a Binding Memorandum of Understanding by failing to invest in the Company and fraudulently inducing the Company to enter into
the subject amended promissory note (contrary to the Get Credit Healthy lawsuit discussed above, we are certain that this individual
is the majority owner of CSA 8411, LLC). Opposing counsel reached out to schedule mediation, and mediation was set for June 21, 2019
in Plantation, FL however the mediation was unsuccessful. At June 30, 2021, we owed principal balance of $91,156 and accrued interest
of $46,342 (See Note 6) if the defenses and our new claims are deemed to be of no merit.
Defendant
also filed affirmative claims against the Plaintiff, its owner Dan Oran and several related entities. The case has not been set for trial
as of this date.
Securities
and Exchange Commission v. Nutra Pharma Corporation, Erik Deitsch, and Sean Peter McManus
On
September 28, 2018, the United States Securities and Exchange Commission (the “SEC”) filed a lawsuit in the United States
District Court for the Eastern District of New York (Case No. 2:18-cv-05459) against the Company, Mr. Deitsch, and Mr. McManus. The lawsuit
alleges that, from July 2013 through June 2018, the Company and the other defendants’ defrauded investors by making materially
false and misleading statements about the Company and violated anti-fraud and other securities laws.
The
violations alleged against the Company by the SEC include: (a) raising over $920,000 in at least two private placement offerings for
which the Company failed to file required registration statements with the SEC; (b) issuing a series of materially false or misleading
press releases; (c) making false statements in at least one Form 10-Q; and (d) failing to make required public filings with the SEC to
disclose the Company’s issuance of millions of shares of stock. The lawsuit makes additional allegations against Mr. McManus and
Mr. Deitsch, including that Mr. McManus acted as a broker without SEC registration and defrauded at least one investor by making false
statements about the Company, that Mr. Deitsch engaged in manipulative trades of the Company’s stock by offering to pay more for
shares he was purchasing than the amount the seller was willing to take, and that Mr. Deitsch failed to make required public filings
with the SEC. The lawsuit seeks both injunctive and monetary relief.
On
May 29, 2019 (following each of the defendants filing motions to dismiss), the SEC filed a First Amended Complaint which generally alleged
the same conduct as its original Complaint, but accounted for certain guidance provided by the United States Supreme Court in a case
that had been recently decided. Each of the defendants then moved to dismiss the SEC’s First Amended Complaint. On March 31, 2020,
the Court entered an Order granting in part and denying in part the various motions to dismiss. Following that Order, the SEC filed a
Second Amended Complaint (the operative pleading) and the defendants have filed their answers which generally deny liability. At this
time, discovery is closed and the SEC has indicated an intent to file a summary judgment motion regarding certain non-fraud claims asserted
in its Second Amended Complaint. The defendants have opposed the SEC’s request to file such motion(s). The Court conducted a hearing
on February 23, 2021 and set an initial briefing schedule for the SEC’s Motion for Partial Summary Judgment wherein the Plaintiffs’
Motion for Partial Summary Judgment was due on April 5, 2021, the Defendants’ Consolidated (i.e., collectively, Nutra Pharma Corporation,
Erik “Rik” Deitsch, and Sean McManus) Response Brief to the SEC’s Motion was due May 3, 2021, and the Plaintiffs’
Reply Brief was due on May 19, 2021. On March 23, 2021, the Plaintiff filed a Motion for Extension of Time to file the Motion for Partial
Summary Judgment. On April 9, 2021, the Plaintiff filed a Motion for Partial Summary Judgment, Defendants’ filed a Memorandum of
Law in Opposition to Plaintiff’s Motion on May 7, 2021, and Plaintiff filed its Reply brief on May 21, 2021. At this time, the
Court has not ruled on the pending Motion. The Company disputes the allegations in this lawsuit and continues to vigorously defend against
the SEC’s claims. Mr. Deitsch and Mr. McManus have similarly defended the lawsuit since its filing and each contest liability.
The Company does not believe that it engaged in any fraudulent activity or made any material misrepresentations concerning the Company
and/or its products.
13.
SUBSEQUENT EVENTS
Convertible
Notes Payable
Pursuant
to the Note agreement in the amount up to $1,000,000 signed in February 2019, the principal balance of the note is $73,917 at June 30,
2021. Proceeds of $15,000 have been funded subsequent to June 30, 2021. The remaining balance of $88,917 is due June 2023.
During
July and August 2021, we issued convertible promissory notes to the unrelated third parties for a total of $415,150 with original issuance
discount of $54,150. The Noteholders have the right to convert the note into shares of Common Stock at a conversion price of $0.002 per
share. The notes are due one year from the execution and funding of the notes.
Common
Stock Issued for Consulting Service
During
July and August 2021, 10,000,000 shares have been issued pursuant to the agreement signed in June 2021 with a consultant for services
for six months for which the Company is to issue a total of 30,000,000 shares of the Company’s restricted common stock through
November 2021.
Convertible
notes receivable
On
August 5, 2021, we purchased a convertible note from the Third Party for a total of $55,000 with original issuance discount of $5,000.
The note is convertible into common shares for $0.01 per common share and mature on August 5, 2022.