Notes
to Unaudited Condensed Consolidated Financial Statements
March
31, 2022
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, 2021. 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 audited Consolidated Financial Statements
and notes thereto contained in the Company’s Annual Report on Form 10-K from which the accompanying condensed consolidated balance
sheet dated December 31, 2021 was derived.
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.
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 $76,715,527
at March 31, 2022. In addition, we have a significant
amount of indebtedness in default, a working capital deficit of $15,695,921
and a stockholders’ deficit of $15,773,936
at March 31, 2022.
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, reported to have started in December 2019 and spread globally, 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. 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. The entire loan was forgiven in November 2021. During April and June 2020, we
obtained the loan in the amount of $150,000
from the 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 March 31, 2022 and December 31,
2021.
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 March 31, 2022 and December 31, 2021, and increased the reserve on supplier advances for future
venom purchases included in prepaid expenses and other current assets by $0 and $48,000, respectively. At both March 31, 2022 and December
31, 2021, the total valuation allowance for prepaid venom was $294,162.
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 March 31, 2022, one customer
accounted for 38% of the total revenues. For the three months ended March 31, 2021, one customer accounted for 35%
of the total revenues. As of March 31, 2022 and December 31, 2021, 98%
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 was issued before
the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity that did
not contain an embedded derivative that required bifurcation, the conversion feature was evaluated to determine if the
rate of conversion was below market value and should be categorized as a beneficial conversion feature (“BCF”). A
BCF related to debt was recorded by the Company as a debt discount and with the offset recorded to equity. The related convertible
debt was recorded net of the discount for the BCF. The discount was 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 months ended March 31, 2022 and 2021 because the estimated annual effective tax
rate was zero. As of March 31, 2022, 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.
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
| | |
2022 | | |
2021 | |
| | |
Three Months Ended | |
| | |
March 31, | |
| | |
2022 | | |
2021 | |
| Basic and diluted numerator: | |
| | | |
| | |
| | |
| | | |
| | |
| Net income (loss) - basic | |
$ | 5,013,462 | | |
$ | (34,016,256 | ) |
| | |
| | | |
| | |
| Effect of dilutive securities: | |
| | | |
| | |
| Change in fair value of convertible notes | |
| (1,419,982 | ) | |
| - | |
| Interest on convertible debt | |
| 83,010 | | |
| - | |
| Net income (loss) - diluted | |
$ | 3,676,490 | | |
$ | (34,016,256 | ) |
| | |
| | | |
| | |
| Basic and diluted denominator: | |
| | | |
| | |
| | |
| | | |
| | |
| Weighted-average common shares outstanding - basic | |
| 7,349,511,658 | | |
| 7,063,264,603 | |
| | |
| | | |
| | |
| Effect of dilutive securities: | |
| | | |
| | |
| Convertible debt | |
| 6,616,740,008 | | |
| - | |
| Options and warrants | |
| 528,846,429 | | |
| - | |
| Weighted-average common shares outstanding - diluted (1) | |
| 14,495,098,095 | | |
| 7,063,264,603 | |
| | |
| | | |
| | |
| Net income (loss) per share - basic and diluted | |
$ | 0.00 | | |
$ | (0.00 | ) |
| (1) |
Includes
potential common shares that are in excess of authorized shares. |
The
following table summarizes the weighted average securities that were excluded from the diluted per share calculation because (1) for
the three months ended March 31, 2022, the exercise prices of the options and warrants were greater than the average market price of
the common shares and (2) for the three months ended March 31, 2021, the effect of including these potential shares was antidilutive
due to a net loss:
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF NET LOSS PER SHARE
| | |
March 31,
2022 | | |
March 31,
2021 | |
| Options and warrants | |
| - | | |
| 200,275,000 | |
| Convertible notes payable at fair value | |
| - | | |
| 811,113,312 | |
| Convertible notes payable | |
| - | | |
| 3,484,497,853 | |
| Total | |
| - | | |
| 4,495,886,165 | |
Recent
Adopted Accounting Pronouncements
As
of January 1, 2022, the Company adopted 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 adoption did not have a material effect on the accompanying consolidated financial
statements.
As
of January 1, 2022, the Company adopted 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. The adoption did not have a material
effect on the accompanying consolidated financial statements.
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.
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 March 31, 2022 and December 31, 2021 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 March 31, 2022 and December 31, 2021:
SUMMARY OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
Fair Value Measurements at March 31, 2022 | |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Liabilities: | |
| | | |
| | | |
| | | |
| | |
| Warrant liability | |
$ | 410,885 | | |
$ | - | | |
$ | - | | |
$ | 410,885 | |
| Derivative liabilities | |
$ | 5,700,380 | | |
$ | - | | |
$ | 5,700,380 | | |
$ | - | |
| Convertible notes at fair value | |
$ | 1,729,427 | | |
$ | - | | |
$ | - | | |
$ | 1,729,427 | |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
Fair Value Measurements at December 31, 2021 | |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Liabilities: | |
| | | |
| | | |
| | | |
| | |
| Warrant liability | |
$ | 710,585 | | |
$ | - | | |
$ | - | | |
$ | 710,585 | |
| Derivative liabilities | |
$ | 9,826,759 | | |
$ | - | | |
$ | 9,826,759 | | |
$ | - | |
| Convertible notes at fair value | |
$ | 2,855,709 | | |
$ | - | | |
$ | - | | |
$ | 2,855,709 | |
The
following table shows the changes in fair value measurements for the warrant liability using significant unobservable inputs (Level 3)
during the three months ended March 31, 2022 and the year ended December 31, 2021:
SUMMARY OF CHANGES IN FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS
| Description | |
March 31,
2022 | | |
December 31,
2021 | |
| Beginning balance | |
$ | 710,585 | | |
$ | 189,543 | |
| Purchases, issuances, and settlements | |
| 50,000 | | |
| 590,885 | |
| Total gain included in earnings (1) | |
| (349,700 | ) | |
| (69,843 | ) |
| Ending balance | |
$ | 410,885 | | |
$ | 710,585 | |
| (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) 0.46% to 1.06% risk-free rate, (2) warrant
life is the remaining contractual life of the warrants, (3) expected volatility of 283%-310%, (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 March 31, 2022.
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 March 31, 2022 and December 31, 2021:
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 |
| March 31, 2022 | |
$ | 736,446 | | |
8%-10% | |
20%-24% | |
N/A | |
$0.00050-$0.00080 | |
| 50%-60% | | |
3 to 25 Days |
| December 31, 2021 | |
$ | 762,446 | | |
8%-10% | |
20%-24% | |
N/A | |
$0.00050-$0.00097 | |
| 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 three months ended March 31, 2022 and the year ended December 31, 2021:
SUMMARY OF CHANGES IN FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS
| Description | |
March 31, 2022 | | |
December 31,
2021 | |
| Beginning balance | |
$ | 2,855,709 | | |
$ | 1,832,439 | |
| Purchases and issuances | |
| - | | |
| 132,000 | |
| Day one loss on value of hybrid instrument (1) | |
| - | | |
| 2,042,612 | |
| Loss (gain) from change in fair value (1) | |
| (1,070,282 | ) | |
| 1,233,538 | |
| Repayments in cash | |
| (20,000 | ) | |
| (40,480 | ) |
| Conversion to common stock | |
| (36,000 | ) | |
| (2,344,399 | ) |
| Ending balance | |
$ | 1,729,427 | | |
$ | 2,855,709 | |
| (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 March 31, 2022 and December 31, 2021, inventories
were as follows:
SCHEDULE OF INVENTORIES
| | |
March 31, 2022 | | |
December 31, 2021 | |
| Raw Materials | |
$ | 153,647 | | |
$ | 126,349 | |
| Finished Goods | |
| 8,677 | | |
| 3,820 | |
| Total Inventories | |
| 162,324 | | |
| 130,169 | |
| Less: Long-term inventory | |
| (98,480 | ) | |
| (98,880 | ) |
| Current portion | |
$ | 63,844 | | |
$ | 31,289 | |
4.
PROPERTY AND EQUIPMENT
Property
and equipment consists of the following at March 31, 2022 and December 31, 2021:
SCHEDULE OF PROPERTY AND EQUIPMENT
| | |
March 31, 2022 | | |
December 31,
2021 | |
| Computer equipment | |
$ | 25,120 | | |
$ | 25,120 | |
| Furniture and fixtures | |
| 34,757 | | |
| 34,757 | |
| Lab equipment | |
| 162,557 | | |
| 104,564 | |
| Telephone equipment | |
| 12,421 | | |
| 12,421 | |
| Office equipment – other | |
| 16,856 | | |
| 16,856 | |
| Leasehold improvements | |
| 73,168 | | |
| 73,168 | |
| Total | |
| 324,879 | | |
| 266,886 | |
| Less: Accumulated depreciation | |
| (227,477 | ) | |
| (222,185 | ) |
| Property and equipment, net | |
$ | 97,402 | | |
$ | 44,701 | |
We
review our long-lived assets for recoverability if events or changes in circumstances indicate the assets may be impaired. At March 31,
2022, we believe the carrying values of our long-lived assets are recoverable. Depreciation expense for the three-months ended March
31, 2022 and 2021 was $5,292 and $1,373, respectively.
5.
DUE TO/FROM OFFICER
At
March 31, 2022, the balance due to Rik Deitsch, and the companies owned by him is $140,560,
which is an unsecured demand loan that bears interest at 4%.
During the three months ended March 31, 2022, we repaid $72,600
to and collected $12,157
from Mr. Deitsch and the companies owned
by him. Additionally, accrued interest on the demand loan was $1,277
and is included in the due to officer account.
At
December 31, 2021, the balance due to Rik Deitsch, and the companies owned by him is $199,726,
which is an unsecured demand loan that bears interest at 4%.
During the year ended December 31, 2021, we repaid $182,741
to and collected $105,780
from Mr. Deitsch and the companies owned
by him. Additionally, accrued interest on the demand loan was $7,520
and is included in the due to officer account.
6.
DEBTS
Debts
consist of the following at March 31, 2022 and December 31, 2021:
SCHEDULE
OF DEBT
| | |
March 31,
2022 | | |
December 31, 2021 | |
| Notes payable – Unrelated third parties (Net of discount of $4,375 and $0, respectively) (2) | |
$ | 1,304,899 | | |
$ | 1,135,257 | |
| Convertible notes payable – Unrelated third parties (Net of discount of $239,612 and $283,429, respectively) (3) | |
| 3,965,734 | | |
| 3,751,760 | |
| Convertible notes payable, at fair value (4) | |
| 1,729,427 | | |
| 2,855,709 | |
| Other advances from an unrelated third party (5) | |
| 225,000 | | |
| 225,000 | |
| SBA notes payable(6) | |
| 149,900 | | |
| 149,900 | |
| Ending balances | |
| 7,374,960 | | |
| 8,117,626 | |
| Less: Long-term portion-Notes payable-Unrelated third parties | |
| (59,572 | ) | |
| - | |
| Less: Long-term portion-Convertible Notes payable-Unrelated third parties | |
| (149,536 | ) | |
| (369,401 | ) |
| Less: Long-term portion- SBA notes payable | |
| (148,580 | ) | |
| (147,779 | ) |
| Current portion | |
$ | 7,017,272 | | |
$ | 7,600,446 | |
| (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 in cash during the first and second quarters of
2021, and $10,000 of accrued interest in common stocks during the fourth quarter of 2021. During the first quarter of 2022, we repaid
$5,000 of accrued interest. In April 2022, we repaid $10,000 of accrued interest. At March 31, 2022 and December 31, 2021, we owed
this director accrued interest of $147,047 and $147,768, respectively. The interest expense for the three-months ended March 31,
2022 and 2021 was $4,279 and $4,945, respectively. |
| |
|
| (2) |
At
March 31, 2022 and December 31, 2021, the balance of $1,304,899 and $1,135,257 net of discount of $4,375 and $0, 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 March 31, 2022 and December 31, 2021, we owed principal balance of $91,156, and accrued
interest of $54,553 and $51,856, respectively. The remaining principal balance of $91,156 and accrued interest of $54,553 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 three 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 March
31, 2022 and December 31, 2021, the accrued interest is $6,033 and $5,783. |
| |
|
|
| |
● |
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 March 31, 2022 and December 31, 2021, the outstanding principal balance is $50,000 and accrued interest is $77,334 and $74,334. |
| |
|
|
| |
● |
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 March 31, 2022 and December 31, 2021, the outstanding principal balance is $50,000 and accrued interest is $70,534
and $67,534, 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 March 31, 2022 and December 31, 2021, the principal balance is $333,543, and the accrued interest is
$207,686 and $187,673, 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 March 31, 2022 and December
31, 2021, 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 March 31, 2022 and December 31, 2021, the accrued interest is $66,834 and $63,834, 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
March 31, 2022 and December 31, 2021, the accrued interest is $6,063 and $5,750, 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 March 31, 2022 and December 31, 2021, the principal
balance is $33,874. 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 March 31, 2022 and December 31, 2021, 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. |
| |
|
|
| |
● |
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 due in September 2020. We
repaid $10,000 during the first quarter of 2022. The $74,000 is in default and negotiation of further settlement. At March 31, 2022
and December 31, 2021, the principal balance of the loan is $74,000. |
| |
|
|
| |
● |
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 March 31, 2022 and December 31, 2021, the principal balance of the note is $18,000 and the accrued interest is $2,000. |
| |
|
|
| |
● |
During
January 2022, the Company received a loan for $199,000
from a non-related party. The loan is expected
to be repaid through scheduled payments through July 2023 along with interest on average 63.76%
annum. The Company has recorded loan costs in
the amount of $4,975
for the loan origination fees paid at inception
date. The total loan cost is amortized over the term of the loan. The amortization of loan cost for the three months ended March
31, 2022 is $600.
The loan is under personal guarantee by Mr. Deitsch. We repaid $14,982
during the first of quarter of 2022. At March
31, 2022, the principal balance, net of debt discount of $4,375,
is $179,643. |
| (3) |
At
March 31, 2022 and December 31, 2021, the balance of $3,965,734 and $3,751,760 net of discount of $239,612 and $283,429, 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 March 31, 2022 and December 31, 2021, 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 $55,000 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 August and October 2020, the convertible promissory notes for a total of $55,000 was amended to
add additional original issuance discount (OID) for a total of $9,200. In connection with the issuance of amended convertible notes,
the Company granted the total of 128,400 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. 92,100,000 and $36,300,000 of the warrants were amended to expire in August 2022 and October
2022, respectively. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were
valued at their fair value of $94,748 and $195,178 on March 31, 2022 and December 31, 2021 (See Note 8). |
| |
|
|
| |
|
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
February, November and December 2019, we issued three convertible promissory notes to the unrelated third party for $174,500 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. 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 two Notes of $57,500 were further
amended to due August 2022. 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. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were valued
at their fair value of $40,187 and $106,032 using the Black-Scholes method on March 31, 2022 and December 31, 2021 (See Note 8).
At
December 31, 2020, the principal balance of the notes, net of discount of $101,448 is $1,276,902. The total discount amortization on
all notes was $83,720.
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. During the third quarter of 2021, we issued convertible promissory
notes to the unrelated third parties for a total of $539,351 with original issuance discount of $70,350. During the fourth quarter of
2021, we issued convertible promissory notes to the unrelated third parties for a total of $358,800 with original issuance discount of
$46,800. 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. On January 1, 2022, $228,563 of the Notes issued
during January to April 2021 were amended to extend the due date to August 29, 2022.
During
December 2021, in connection with the issuance of three of the above mentioned convertible notes of $172,500 with original issuance discount
of $22,500 due in one year, the Company granted the 246,428,571 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 $150,000 and $22,500, respectively, are amortized over the life
of the notes. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were valued
at their fair value of $206,063 and $409,374 using the Black-Scholes method on March 31, 2022 and December 31, 2021, respectively (See
Note 8).
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 $7,323 has been made through December
31, 2021. Repayment of $2,343 was made during the first quarter of 2022. The principal balance as of March 31, 2022 and December 31,
2021 is $22,677, and the interest expense for the three-months ended March 31, 2022 and 2021 is $657 and $0, respectively.
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 and made a repayment of $5,000 in cash. The
settlement resulted in a loss on settlement of debt 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 and made a repayment of $4,500 in cash. The settlement resulted in a loss on settlement
of debt for $11,200.
During
August 2021, the promissory note of $166,926 was restated in the form of a convertible note at a fixed conversion price of $0.002 per
share. The restated balance is $183,619 with an original issuance discount of $16,693 and was due February 2022. During February 2022,
we issued 20,866,250 shares of common stock to satisfy the principal balance of $16,693 with fair value of $54,252 (See Note 7). The
settlement of balance of $16,693 resulted in a loss on settlement of debt for $37,559 in other expense. The remaining balance of $166,926
was further restated in the form of a convertible note at a fixed conversion price of $0.002 per share due August 2022.
During
the first quarter of 2022, we issued convertible promissory notes to the unrelated third parties for a total of $172,500 with original
issuance discount of $22,500. The Noteholders have the right to convert the note into shares of Common Stock at a conversion price ranging
from $0.0005 to $0.0008 per share. The notes are due one year from the execution and funding of the notes.
During
January 2022, in connection with the issuance of one of the above mentioned convertible notes of $57,500 with original issuance discount
of $7,500 due in one year, the Company granted the 82,142,857 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. The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were valued
at their fair value of $69,887 using the Black-Scholes method on March 31, 2022 (See Note 8).
At
the date of this report, $2,010,454 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 months ended March 31, 2022 and 2021 was $133,010 and $64,138, respectively. At
March 31, 2022, the principal balance of the notes, net of discount of $239,612 is $3,965,734. At December 31, 2021, the principal balance
of the notes, net of discount of $283,430 is $3,751,760.
| (4) |
At
March 31, 2022 and December 31, 2021, the balance of $1,729,427 and $2,855,709, 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 March 31, 2022 and December 31, 2021, the convertible
notes payable with principal balance of $20,000 plus accrued interest of $22,183 and $21,183, respectively, at fair value, were recorded
at $56,244 and $84,768, 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 March 31, 2022 and December 31, 2021, the remaining
principal of $12,629 plus accrued interest of $14,202 and $12,308, respectively, at fair value, were recorded at $83,476 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. 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. We have increased the outstanding principal due by 10% and accrued
interest at default interest rate of 24% after the note’s maturity date. At March 31, 2022 and December 31, 2021, the convertible
note payable with principal balance of $275,000 plus accrued interest of $48,932 and $32,657, respectively, at fair value, were recorded
at $647,863 and $946,639. |
| |
|
|
| |
● |
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 March 31, 2022 and December 31, 2021, the convertible note payable with principal balance
of $50,000 plus accrued interest of $36,449 and $33,490, at fair value, was recorded at $148,199 and $202,491, 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 March 31, 2022 and December 31, 2021, the convertible note payable with principal balance
of $20,000 plus accrued interest of $14,106 and $12,923, at fair value, was recorded at $58,468 and $79,815, 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 March 31, 2022 and December 31, 2021, the convertible note payable of $55,900, at fair value, was recorded at $105,411 and $156,000.
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 three tranches of the Note for a total
of $132,000 have been funded, and repayment of $40,480 has been made during the year ended December 31, 2021. Repayment of $20,000
was made during the first quarter of 2022. 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 year ended December 31, 2021, we recorded a day-one
derivative loss of $2,042,612. 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. During February 2022, the Noteholder received 12,000,000
shares of our restricted common stock in satisfaction the $6,000 of the Note with a fair value of $36,000 (See Note 7). The remaining
balance of $62,917 is due September 2023. At March 31, 2022 and December 31, 2021, the convertible note payable with principal balance
of $62,917 and $88,917, at fair value, was recorded at $138,418 and $355,668. |
| |
|
|
| |
● |
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.
At March 31, 2022 and December 31, 2021, the convertible note payable with principal balance of $240,000, at fair value, was recorded
at $528,000 and $960,000. The Note is in default and negotiation of settlement. |
| (5) |
At
March 31, 2022 and December 31, 2021, 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. We used the proceeds primarily for payroll costs. The entire loan was forgiven in November
2021.
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 30 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 March 31, 2022 and December 31, 2021 for the EIDL loans are $10,313 and $8,906, respectively. |
SCHEDULE OF FUTURE MINIMUM PRINCIPAL PAYMENT
| Years | |
Amount | |
| 2022(2 months remaining) | |
$ | 525 | |
| 2023 | |
| 3,222 | |
| 2024 | |
| 3,345 | |
| 2025 | |
| 3,472 | |
| 2026 | |
| 3,605 | |
| Thereafter | |
| 135,731 | |
| Total | |
| 149,900 | |
| Less: Long-term portion - SBA notes payable | |
| (148,580 | ) |
| Current portion | |
$ | 1,320 | |
7.
STOCKHOLDERS’ DEFICIT
Authorized
Shares
On
November 18, 2021, we obtained written consents from stockholders holding a majority of our outstanding voting stock to approve an amendment
of the Company’s articles of incorporation, as amended, to increase the number of authorized shares of common stock from 8,000,000,000
to 12,000,000,000.
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 voted 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 was not entitled to dividends unless the Company paid 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 was 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 would have the same record and payment date and terms as the dividend payable on the
common stock. |
| |
|
|
| |
3. |
The
Series A Preferred did not have any redemption rights. |
Effective
November 15, 2021, the Board of Directors authorized an exchange of 3,000,000 shares of Series A Preferred Stock held by Mr. Deitsch
for an equal number of Series B Preferred Stock.
Upon
return of 100% of Series A Preferred Stock to the Company, the entire class of Series A Preferred Stock was cancelled and the associated
Certificate of Determination was filed with the Secretary of State of California.
Series
B Preferred Stock
Effective
March 2021, pursuant to authority of its Board of Directors, the Company filed a Certificate of Determination for its Series B Preferred
Stock. The Series B Preferred Stock has a par value of $0.001 per shares and consists of 12,000,000 shares.
Terms
of the Series B Preferred include the following:
| |
1. |
The
Series B 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 B Preferred is entitled to one thousand votes per share. |
| |
|
|
| |
2. |
The
Series B 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 B 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 B 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 B 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 B Preferred would not result in payment in full of Series B 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 B Preferred does not have any redemption rights. |
During
November 2021, the Board of Directors approved resolutions for the issuance of a total of 9,000,000 shares of Series B Preferred stock
to Mr. Deitsch to discharge $540,000 of his accrued salary. The shares were valued at the accrued payable amount by agreement of the
parties.
Effective
November 15, 2021, the Board of Directors authorized an exchange of 3,000,000 shares of Series A Preferred Stock held by Mr. Deitsch
for an equal number of Series B Preferred Stock.
Common
Stock Issued for Conversion of Convertible Debt
During
February 2022, the Noteholder received 12,000,000 shares of our restricted common stock in satisfaction the $6,000 of the Note with a
fair value of $36,000 (See Note 6).
Common
Stock Issued for Settlement of Debt
During
February 2022, in connection with the settlement of $16,693
of the promissory note of $183,619
restated in August 2021, we issued 20,866,250
shares of common stock with fair value of $54,252.
The settlement resulted in a loss on settlement of debt in other expense of $37,559
(See Note 6).
Common
Stock Issued for Consulting Service
During
July 2021, the Company signed an agreement with a consultant for services for twelve months. The 5,000,000
shares issued upon execution were valued at $41,000.
The equity compensation charge of $10,250
has been recorded for the three months ended
March 31, 2022. The remaining unrecognized compensation cost of $10,250
will be recognized by the Company over the remaining
service period.
8.
STOCK WARRANTS
Common
Stock Warrants
During
August 2020, convertible promissory notes of $38,500
were amended with additional original issuance
discount of $7,550
due February 2021. These notes were further amended
on January 1, 2022 to be due in August 2022. During October 2020, a convertible promissory note
of $16,500
was amended to add additional OID of $1,650
due October 2022. 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. The Company classified embedded conversion features in the warrants as a derivative
liability. The warrants were valued at their fair value of $94,748
and $195,178
on March 31, 2022 and December 31, 2021(see Note
6).
SCHEDULE
OF WARRANTS ISSUED
| Month of Issuance | |
Number of Warrants | | |
Month of Expiration | |
| August, 2020 | |
| 92,100,000 | | |
| August, 2022 | |
| October, 2020 | |
| 36,300,000 | | |
| October, 2022 | |
During
November and December, 2020, 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 in connection with the issuance of the two convertible notes of $57,500
with original issuance discount of $7,500
due in one year. The two Notes of $57,500
were further amended on January 1, 2022
to be due in August 2022. 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 $40,187
and $106,032
using the Black-Scholes method on March 31, 2022
and December 31, 2021(See Note 6).
During
December 2021, in connection with the issuance of three of the convertible notes of $172,500 with original issuance discount of $22,500
due in one year, the Company granted the 246,428,571 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 Company classified embedded conversion features in the warrants as a derivative liability. The warrants were valued at their fair
value of $206,063 and $409,374 using the Black-Scholes method on March 31, 2022 and December 31, 2021(See Note 6).
During
January 2022, in connection with the issuance of the convertible note of $57,500 with original issuance discount of $7,500 due in one
year, the Company granted the 82,142,857 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 Company
classified embedded conversion features in the warrants as a derivative liability. The warrants were valued at their fair value of $69,887
using the Black-Scholes method on March 31, 2022 (See Note 6).
A
summary of warrants outstanding in conjunction with private placements of common stock were as follows during the year ended December
31, 2021 and the three months ended March 31, 2022:
SUMMARY
OF WARRANTS OUTSTANDING
| | |
Number Of
shares | | |
Weighted
average
exercise price | |
| | |
| | |
| |
| Balance December 31, 2020 | |
| 202,775,000 | | |
$ | 0.0017 | |
| Exercised | |
| - | | |
| - | |
| Issued | |
| 410,403,571 | | |
| 0.0014 | |
| Expired | |
| (166,475,000 | ) | |
| 0.0015 | |
| Balance December 31, 2021 | |
| 446,703,571 | | |
$ | 0.0017 | |
| Exercised | |
| - | | |
| - | |
| Issued | |
| 82,142,857 | | |
| 0.0020 | |
| Expired | |
| - | | |
| - | |
| Balance March 31, 2022 | |
| 528,846,429 | | |
$ | 0.0018 | |
The
following table summarizes information about fixed-price warrants outstanding as of March 31, 2022 and December 31, 2021:
SUMMARY
OF FIXED PRICE WARRANTS OUTSTANDING
| | |
Exercise Price | | |
Weighted Average Number Outstanding | | |
Weighted Average Contractual Life | | |
Weighted Average Exercise
Price | |
| March 31, 2022 | |
$ | 0.001-0.002 | | |
| 528,846,429 | | |
| 0.63 years | | |
$ | 0.0018 | |
| December 31, 2021 | |
$ | 0.001-0.002 | | |
| 446,703,571 | | |
| 0.67 years | | |
$ | 0.0017 | |
At
March 31, 2022, the aggregate intrinsic value of all warrants outstanding and expected to vest was $12,840. 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 $0.0011, the closing stock price of our restricted common stock on March 31,
2022. There were 128,400,000 in-the-money warrants at March 31, 2022.
9.
ACCRUED EXPENSES
Accrued
expenses consisted of the following:
SCHEDULE OF ACCRUED EXPENSES
| | |
March 31, 2022 | | |
December 31,
2021 | |
| Accrued consulting fees | |
$ | 161,550 | | |
$ | 161,550 | |
| Accrued payroll taxes | |
| 218,603 | | |
| 215,543 | |
| Accrued interest | |
| 502,719 | | |
| 469,040 | |
| Accrued others | |
| 3,891 | | |
| 5,337 | |
| Total | |
$ | 886,763 | | |
$ | 851,470 | |
10.
PREPAID EXPENSES
Prepaid
expenses and other current assets consist of the following:
SCHEDULE OF PREPAID EXPENSES
| | |
March 31, 2022 | | |
December 31,
2021 | |
| Supplier advances for future purchases | |
$ | 309,162 | | |
$ | 294,162 | |
| Reserve for supplier advances | |
| (294,162 | ) | |
| (294,162 | ) |
| Net supplier advances | |
| 15,000 | | |
| - | |
| Prepaid professional fees | |
| 63,150 | | |
| 65,650 | |
| Deferred stock compensation | |
| 10,250 | | |
| 20,500 | |
| Total | |
$ | 88,400 | | |
$ | 86,150 | |
We
performed an evaluation of our inventory and related accounts at March 31, 2022 and December 31, 2021, and increased the reserve on supplier
advances for future venom purchases by $0 and $48,000, respectively. At March 31, 2022 and December 31, 2021, the total valuation allowance
for prepaid venom is $294,162.
11.
CONVERTIBLE NOTES RECEIVABLE
During
March through November 2021, we purchased five convertible notes from an unrelated third party (the “Third Party”) for a
total of $286,550 with original issuance discount of $26,050. The notes are convertible into common shares for $0.01 per common share
and mature in one year from the funding of the Notes. The original issuance discount is amortized over the lives of notes.
During
March 2022, we purchased a convertible note from the Third Party for a total of $4,400 with original issuance discount of $400. The note
is convertible into common shares for $0.01 per common share and matures in August 2022. The original issuance discount is amortized
over the life of note.
The
debt discount as of March 31, 2022 and December 31, 2021 was $6,965 and $13,070.
Amortization
for all the convertible notes receivable was $6,505 and $0 recognized as other income in the statement of operations for the three months
ended March 31, 2022 and 2021, respectively. $26,950 of the Notes expired on March 10, 2022. We are working on restructuring and converting
the Notes into common stock of the Third Party.
12.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
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
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Lease cost | |
| | | |
| | |
| Operating lease cost | |
$ | 20,099 | | |
$ | 80,396 | |
| Short-term lease cost | |
| - | | |
| - | |
| Total lease cost | |
$ | 20,099 | | |
$ | 80,396 | |
| | |
| | | |
| | |
| Balance sheet information | |
| | | |
| | |
| Operating ROU Assets | |
$ | 74,988 | | |
$ | 93,811 | |
| | |
| | | |
| | |
| Operating lease obligations, current portion | |
| 58,832 | | |
| 77,673 | |
| Operating lease obligations, non-current portion | |
| - | | |
| - | |
| Total operating lease obligations | |
$ | 58,832 | | |
$ | 77,673 | |
| | |
| | | |
| | |
| Weighted average remaining lease term (in years) – operating leases | |
| 0.75 | | |
| 1 | |
| 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 | |
$ | 20,117 | | |
$ | 95,846 | |
Future
minimum payments under these lease agreements are as follows:
SCHEDULE
OF OPERATING LEASE LIABILITY MATURITY TABLE
| December 31, | |
Total | |
| 2022 (Remaining 9 months) | |
$ | 60,810 | |
| Total future lease payments | |
$ | 60,810 | |
| Less imputed interest | |
| 1,978 | |
| Total | |
$ | 58,832 | |
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 March 31, 2022. 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 March 31, 2022 and December 31, 2021, $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
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 March 31, 2022, we owed principal balance of $91,156 and accrued interest
of $54,553 (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
During
April and May 2022, we issued convertible promissory notes to the unrelated third parties for a total of $270,250 with original issuance
discount of $35,250. The Noteholders have the right to convert the note into shares of Common Stock at a conversion price ranging from
$0.0006 to $0.0008 per share. The notes are due one year from the execution and funding of the notes.