UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20222023
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number: 333-239640000-56453
BIO LAB NATURALS,LIMITLESS X HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware | 81-1034163 | |
(State of Incorporation) | (IRS Employer ID Number) |
7400 E. Crestline Circle, Suite 130, Greenwood Village, CO 80111
9454 Wilshire Blvd., #300, Beverly Hills, CA90212
(Address of principal executive offices)Principal Executive Offices)
(720) 273-0433
(855)413-7030
(Registrant’s Telephone number)
(Former Address and phone of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
☒ | No |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 for Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | ||
Non-accelerated filer | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act. [ ] ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ | No |
Indicate the number of shareshares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 2, 2022,15, 2023, there were 10,803,504 shares of the registrant’s common stock, $0.0001 par value, issued and outstanding, not including shares reserved for conversion of notes.outstanding.
TABLE OF CONTENTS
LIMITLESS X HOLDINGS INC.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
LIMITLESS X HOLDINGS INC.
Bio Lab Naturals, Inc. and Subsidiary | ||||||||
Consolidated Balance Sheets | ||||||||
March 31, | December 31, | |||||||
Assets | 2022 | 2021 | ||||||
Current assets | (Unaudited) | (Audited) | ||||||
Cash and cash equivalents | $ | 32,100 | $ | 4,377 | ||||
Due from other | — | 2,425 | ||||||
Prepaid | 8,167 | 11,667 | ||||||
Net property on operating lease | — | 107,106 | ||||||
Total current assets | 40,267 | 125,575 | ||||||
Equipment | ||||||||
Equipment, net of accumulated depreciation, $15,346 and | ||||||||
$12,535, respectively | 51,627 | 54,438 | ||||||
Total assets | $ | 91,894 | $ | 180,013 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 22,866 | $ | 57,257 | ||||
Note payable | 35,000 | 35,000 | ||||||
Note payable, related party | — | 30,000 | ||||||
Total current liabilities | 57,866 | 122,257 | ||||||
Total liabilities | 57,866 | 122,257 | ||||||
Commitments and Contingencies | — | — | ||||||
Stockholders' Equity | ||||||||
Preferred shares, $0.0001 par value, 5,000,000 shares authorized; | ||||||||
Class A Convertible, deemed par value $0.04 per share; 500,000 | ||||||||
shares issued and outstanding at March 31, 2022 and | ||||||||
December 31, 2021 | 50 | 50 | ||||||
Common shares, $0.0001 par value, 200,000,000 shares authorized; | ||||||||
10,803,504 shares issued and outstanding at March 31, 2022 | ||||||||
and December 31, 2021 | 1,080 | 1,080 | ||||||
Additional paid in capital | 35,749,833 | 35,749,833 | ||||||
Retained (deficit) | (35,716,935 | ) | (35,693,207 | ) | ||||
Total stockholders' equity | 34,028 | 57,756 | ||||||
Total liabilities and stockholders' equity | $ | 91,894 | $ | 180,013 | ||||
The accompanying notes are an integral part of these financial statements. |
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2023 | December 31, 2022 | |||||||
(unaudited) | (audited) | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 147,805 | $ | 5,843,323 | ||||
Accounts receivables, net of allowance for doubtful accounts of $232,374 and $0, respectively | 1,787,837 | 895,713 | ||||||
Holdback receivables, net of allowance for doubtful accounts of $0 and $1,300,855, respectively | 1,638,376 | 1,043,991 | ||||||
Inventories, net | 3,500,440 | 3,855,946 | ||||||
Total current assets | 7,074,458 | 11,638,973 | ||||||
Non-Current Assets: | ||||||||
Operating lease right-of-use asset, net | 57,110 | 91,032 | ||||||
Equipment, net | 32,759 | 32,256 | ||||||
Other assets | 106,225 | 78,965 | ||||||
Total non-current assets | 196,094 | 202,253 | ||||||
Total assets | $ | 7,270,552 | $ | 11,841,226 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 4,153,600 | $ | 2,419,051 | ||||
Current portion of operating lease liabilities | 57,838 | 92,195 | ||||||
Royalty payable | 1,399,031 | 1,114,403 | ||||||
Refunds payable | 1,433,401 | 213,930 | ||||||
Chargebacks payable | 635,408 | 118,288 | ||||||
Income tax payable | 17,056 | 17,056 | ||||||
Note payable | 35,000 | 35,000 | ||||||
Convertible note payables | 9,675,000 | 9,175,000 | ||||||
Current portion of loan payables to shareholder | 4,462,028 | 4,462,028 | ||||||
Note payables to related parties | 1,247,011 | 1,247,011 | ||||||
Total current liabilities | 23,115,373 | 18,893,962 | ||||||
Total liabilities | 23,115,373 | 18,893,962 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders’ Deficit | ||||||||
Preferred Stock - $ shares issued and outstanding and at March 31, 2023 and December 31, 2022 | par value; authorized shares;50 | 50 | ||||||
Common Stock- $ shares issued at March 31, 2023 and December 31, 2022 | par value; authorized shares;394 | 394 | ||||||
Additional paid-in-capital | 2,966,162 | 2,966,162 | ||||||
Retained earnings | (18,811,427 | ) | (10,019,342 | ) | ||||
Total stockholders’ deficit | (15,844,821 | ) | (7,052,736 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 7,270,552 | $ | 11,841,226 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LIMITLESS X HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months March 31, | ||||||||
2023 | 2022 | |||||||
Revenue | ||||||||
Product sales | $ | 6,563,037 | $ | 7,075,362 | ||||
Service revenue | 291,764 | - | ||||||
Rentals | 15,000 | - | ||||||
Total revenue | 6,869,801 | 7,075,362 | ||||||
Cost of sales | ||||||||
Cost of sales | 1,229,894 | 882,549 | ||||||
Total cost of sales | 1,229,894 | 882,549 | ||||||
Gross profit | 5,639,907 | 6,192,813 | ||||||
Operating expenses: | ||||||||
General and administrative | 586,206 | 31,534 | ||||||
Advertising and marketing | 10,055,504 | 5,243,678 | ||||||
Transaction fees | 411,268 | 14,481 | ||||||
Merchant fees | 713,194 | 354,683 | ||||||
Royalty fees | 284,628 | - | ||||||
Professional fees | 539,157 | 44,500 | ||||||
Payroll and payroll taxes | 1,335,927 | 70,422 | ||||||
Rent | 41,059 | 43,257 | ||||||
Bad debt expense | 232,374 | - | ||||||
Consulting fees, related party | 7,000 | - | ||||||
Total operating expenses | 14,206,317 | 5,802,555 | ||||||
Income (loss) from operations | (8,566,410 | ) | 390,258 | |||||
Other income (expense) | ||||||||
Interest expense | (225,627 | ) | - | |||||
Total other income (expense), net | (225,627 | ) | - | |||||
Income (loss) before income taxes | (8,792,037 | ) | 390,258 | |||||
Income tax provision | 48 | 81,954 | ||||||
Net income (loss) | $ | (8,792,085 | ) | $ | 308,304 | |||
Net income (loss) per common share - basic and diluted | $ | (2.24 | ) | $ | 0.19 | |||
Weighted average number of common shares | 3,929,834 | 1,621,112 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Bio Lab Naturals, Inc. and Subsidiary | ||||||||
Consolidated Statements of Operations | ||||||||
(Unaudited) | ||||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Sales | $ | — | $ | — | ||||
Cost of sales | ||||||||
Cost of sales - other | 358 | 9,113 | ||||||
Depreciation | 2,810 | 3,760 | ||||||
Total cost of sales | 3,168 | 12,873 | ||||||
Gross profit | (3,168 | ) | (12,873 | ) | ||||
Operating expenses | ||||||||
Consulting fees, related party | 17,500 | 5,000 | ||||||
General and administrative expenses - other | 6,059 | 6,378 | ||||||
Professional fees | 41,020 | 41,189 | ||||||
Total operating expenses | 64,579 | 52,567 | ||||||
Loss from operations | (67,747 | ) | (65,440 | ) | ||||
Other (expense) | ||||||||
Interest expense | (875 | ) | (552 | ) | ||||
Gain (loss) on disposal of assets | 44,894 | (73,046 | ) | |||||
Total other (expense) | 44,019 | (73,598 | ) | |||||
Loss before income taxes | (23,728 | ) | (139,038 | ) | ||||
Income taxes | — | — | ||||||
Net loss | $ | (23,728 | ) | $ | (139,038 | ) | ||
Net loss per common share - basic and diluted | $ | (0.00 | ) | $ | (0.01 | ) | ||
Weighted average number of common shares | 10,803,504 | 10,753,504 | ||||||
* Net loss is less than $0.01 per share. | ||||||||
The accompanying notes are an integral part of these financial statements. |
LIMITLESS X HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Shares | Amount | Shares | Amount | Capital | Earnings | Deficit | ||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In | Retained | Total Stockholder’s | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Deficit | ||||||||||||||||||||||
Balance at December 31, 2022 | 500,000 | $ | 50 | 3,929,834 | $ | 394 | - | $ | 2,966,162 | $ | (10,019,342 | ) | $ | (7,052,736 | ) | |||||||||||||
Net loss | - | - | - | - | - | - | (8,792,085 | ) | (8,792,085 | ) | ||||||||||||||||||
Balance at March 31, 2023 (unaudited) | 500,000 | $ | 50 | 3,929,834 | $ | 394 | - | $ | 2,966,162 | $ | (18,811,427 | ) | $ | (15,844,821 | ) |
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Deficit | ||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Common Stock Issuable | Additional Paid-In | Retained | Total Stockholder’s | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Deficit | ||||||||||||||||||||||||||||
Balance at December 31, 2021 | 500,000 | $ | 50 | 3,496,150 | $ | 350 | 397,000 | $ | 40 | $ | 1,848,384 | $ | 4,664 | $ | 1,853,488 | |||||||||||||||||||||
Issuance of common stock | - | - | 97,000 | 10 | (97,000 | ) | (10 | ) | - | - | - | |||||||||||||||||||||||||
Issuance of common stock issuable | - | - | 300,000 | 30 | (300,000 | ) | (30 | ) | - | - | - | |||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | 308,304 | 308,304 | |||||||||||||||||||||||||||
Balance at March 31, 2022 (unaudited) | 500,000 | $ | 50 | 3,893,150 | $ | 390 | - | $ | - | $ | 1,848,384 | $ | 312,968 | $ | 2,161,792 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LIMITLESS X HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (8,792,085 | ) | $ | 308,304 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation | 1,101 | - | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivables, net | (892,124 | ) | (1,267,350 | ) | ||||
Holdback receivables | (594,385 | ) | (549,347 | ) | ||||
Inventories, net | 355,506 | 127,240 | ||||||
Other assets | (27,260 | ) | - | |||||
Accounts payable and accrued expenses | 1,734,114 | 859,422 | ||||||
Refunds payable | 1,219,471 | 581,135 | ||||||
Royalty payable | 284,628 | - | ||||||
Chargebacks payable | 517,120 | (24,535 | ) | |||||
Income tax payable | - | 81,954 | ||||||
Net cash provided by (used in) operating activities | (6,193,914 | ) | 116,823 | |||||
Cash flows from investing activities: | ||||||||
Purchases of equipment | (1,604 | ) | - | |||||
Net cash used in financing activities | (1,604 | ) | - | |||||
Cash flows from financing activities: | ||||||||
Proceeds from borrowing | 500,000 | - | ||||||
Proceeds from borrowings from shareholder | - | 150,000 | ||||||
Net cash provided by financing activities | 500,000 | 150,000 | ||||||
Net increase (decrease) in cash | (5,695,518 | ) | 266,823 | |||||
Cash – beginning of period | 5,843,323 | 78,856 | ||||||
Cash – end of period | $ | 147,805 | $ | 345,679 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during the periods for: | ||||||||
Interest | $ | 1,167 | $ | - | ||||
Income taxes | $ | - | $ | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Bio Lab Naturals, Inc. and Subsidiary | ||||||||||||||||||||||||||||
Consolidated Statement of Changes in Stockholders' Equity | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
Class A Convertible Preferred | Common Shares | Additional | Total | |||||||||||||||||||||||||
$0.0001 Par Value | $0.0001 Par Value | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||||||||
BALANCES, December 31, 2021 | 500,000 | $ | 50 | 10,803,504 | $ | 1,080 | $ | 35,749,833 | $ | (35,693,207 | ) | $ | 57,756 | |||||||||||||||
Net loss for the period | — | — | — | — | — | (23,728 | ) | (23,728 | ) | |||||||||||||||||||
BALANCES, March 31, 2022 | 500,000 | $ | 50 | 10,803,504 | $ | 1,080 | $ | 35,749,833 | $ | (35,716,935 | ) | $ | 34,028 | |||||||||||||||
The accompanying notes are an integral part of these financial statements. |
LIMITLESS X HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Bio Lab Naturals, Inc. and Subsidiary | ||||||||
Consolidated Statements of Cash Flows | ||||||||
(Unaudited) | ||||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
OPERATING ACTIVITIES | ||||||||
Net loss | $ | (23,728 | ) | $ | (139,038 | ) | ||
Adjustment to reconcile net loss to net cash flows used | ||||||||
in operating activities | ||||||||
Depreciation | 2,810 | 3,760 | ||||||
Loss (gain) on disposal of assets | (44,894 | ) | 73,046 | |||||
Changes in: | ||||||||
Prepaid | 3,500 | — | ||||||
Accounts payable and accrued liabilities | (34,390 | ) | (11,367 | ) | ||||
Net cash (used in) operating activities | (96,702 | ) | (73,599 | ) | ||||
INVESTING ACTIVITIES | ||||||||
Deposits | — | (98,150 | ) | |||||
Proceeds from disposal of assets | 154,425 | 7,425 | ||||||
Net cash provided by (used in) investing activities | 154,425 | (90,725 | ) | |||||
FINANCING ACTIVITIES | ||||||||
Deposit | — | 65,000 | ||||||
Funding from loan | — | 35,000 | ||||||
Funds from related party, net of repayment | (30,000 | ) | 30,000 | |||||
Net cash provided by (used in) financing activities | (30,000 | ) | 130,000 | |||||
Net increase (decrease) in cash | 27,723 | (34,324 | ) | |||||
Cash at beginning of period | 4,377 | 69,065 | ||||||
Cash at end of period | $ | 32,100 | $ | 34,741 | ||||
Supplemental Schedule of Cash Flow Information: | ||||||||
Interest paid | $ | 1,375 | $ | — | ||||
Income taxes paid | $ | — | $ | — | ||||
The accompanying notes are an integral part of these financial statements. |
BIO LAB NATURALS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2022
Note 1 – Organization and History
Vyta Corp (the “Company”) was incorporated in Nevada in June 1996.
On August 20, 2010, it changed its state of incorporation to Delaware and on November 5, 2010 it changed its name toMay 11, 2022, Bio Lab Naturals, Inc. On August 20, 2010, the Company executed, a redomicile merger with its wholly owned subsidiary Vyta Corp (Delaware)Delaware corporation (“Bio Lab”), as result of the merger the Company’s corporate domicile moved from Nevada to Delaware.
Prior to 2011, the Company was involved in various business activities and since then the Company has been seeking a business opportunity.
Effective December 31, 2019, the Company entered into a ReorganizationShare Exchange Agreement (the “Share Exchange Agreement”) with Prime Time Live,Limitless X, Inc., a ColoradoNevada corporation (“PTL”LimitlessX”), whereby PTL merged with a newly formed wholly owned subsidiaryand its 11 shareholders (the “LimitlessX Acquisition”). The parties completed and closed the LimitlessX Acquisition on May 20, 2022 by issuing an aggregate of shares of common stock of Bio Lab to the LimitlessX shareholders (the “Acquisition Closing”). According to the terms of the Company, and the subsidiary being the survivor in exchange for the Company issuing one shareShare Exchange Agreement, Bio Lab then issued an additional shares of its common stock for each shareto the LimitlessX shareholders pro rata to their interests approximately six months from the Acquisition Closing as part of PTL’s 5,500,000the LimitlessX Acquisition. Concurrently with the LimitlessX Acquisition, Jaspreet Mathur, the founder and principal shareholder of LimitlessX, also purchased from Helion Holdings LLC, shares of Bio Lab’s Class A Preferred Convertible Stock, which at all times have a number of votes equal to % of all of the issued and outstanding shares of common stock.stock of Bio Lab.
On June 10, 2022, Bio Lab changed its name to Limitless X Holdings Inc. (“Limitless”).
The LimitlessX Acquisition was accounted for as a “reverse merger” following the completion of the transaction. For accounting purposes, LimitlessX was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of Bio Lab. Accordingly, LimitlessX’s assets, liabilities, and results of operations became the historical financial statements of the registrant. No step-up in basis or intangible assets or goodwill was recorded in this transaction.
The Company (as defined below) is a lifestyle brand, focused in the health and wellness industry. The Company provides nutritional supplements, wellness studies, interactive training videos, and marketing products. The Company’s mission is to provide businesses within its industry a turnkey solution to sell products both online and in retail stores. The Company also provides its own products and wellness videos suitable for a wide range of ages and fitness. Company teams include sales, marketing, user interface design (UI), user experience design (UX), fulfillment, customer support, labeling, product manufacturing, consulting, retailing, and payment processing, among others.
The Company currently offers products online only, but anticipates expanding to brick-and-motor retail stores and the wholesale marketplace in the future. The Company has manufacturing and distribution licensing agreements to market, manufacture, sell, and distribute branded products on behalf of its clients. The Company orders products from third party partner manufacturers that make the products according to the Company’s custom formulations, and brands them using the Company’s licensed trademarks. Products are then marketed and sold direct to consumers online. Orders are fulfilled and shipped directly from the Company’s licensors. The Company plans to offer global marketing services across all areas of the sales process, including market research, brand and product development, and digital advertising operating as an integrated marketing agency.
The Company operates in the following product and service sectors: (i) health products and (ii) digital marketing services. The health products sector includes the sales of health products in three primary vertical markets: (1) health & wellness; (2) beauty & skincare; and (3) the vapor industry. The digital marketing service sector includes digital marketing; digital and print design; social media marketing; and direct-to-consumer marketing.
Note 2 – Summary of Significant Accounting Policies
Principles of Consolidation and Reporting
The accompanying consolidated financial statements include the accounts of Bio Lab Naturals,Limitless X Holdings Inc. (a holding company) and its wholly owned subsidiary.operating subsidiaries: Limitless X, Inc.; Vybe Lab Inc.; and Prime Time Live, Inc. (collectively, the “Company”). All intercompany balances have been eliminated during consolidation.
7 |
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, andstatements. Estimates also affect the reported amounts of revenuesrevenue and expenses during the reporting periods.period. Actual results could differ from those estimates. Significant estimates include the fair value of assets and liabilities, income taxes and the valuation allowances related to accounts receivable, deferred tax assets and contingencies.
Cash and Cash Equivalents
The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. Cash and cash equivalents include demand deposits carried at cost which approximates fair value. The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”).
Concentration of Credit Risk
The Company offers its services to a small number of clients. ThisThe risk of non-payment by these clients is considered minimal and the Company does not generally obtain collateral for sales. The Company continually monitors the credit standing of its clients.
Accounts Receivable, net
Accounts Receivable
receivable, net consists primarily of trade receivables, net of allowances for doubtful accounts. The Company records accounts receivable at net realizable value. This value includes an appropriatesells its products for cash or on credit terms, which are established in accordance with local and industry practices and typically require payment within 30 days of delivery. The Company estimates its allowance for uncollectibledoubtful accounts and the related expected credit loss based upon the Company’s historical credit loss experience, adjusted for asset-specific risk characteristics, current economic conditions, and reasonable forecasts. Accounts receivables are written off when determined to reflectbe uncollectible. For the three months ended March 31, 2023, the Company required an allowance for doubtful accounts of $232,374.
Holdback Receivables
The Company primarily sells its products online using various third party sales affiliates. These affiliates (online marketing campaign companies) are paid certain commission based on their ability to provide the Company’s products through online sales. All payments are processed through various gateways and are settled through the Company’s payment gateway settler. The Company payment gateway settler is not responsible for settlements that are not paid due to processing bank failure. The Company holds responsibility for all the risk in all transactions and processing systems. The payment gateway settler charges a reserve fee to mitigate the risk on their end for any loss anticipated onof funds or damages.
Distributions of the accounts receivable balances and is charged to other income (expense) inholdback receivables from the statements of operations. Management calculates this allowancethird-party payment gateway settler are based on itsseveral criteria, such as return and chargeback history, of write-offs,associated risk for the level of past-due accounts basedspecific business vertical, average transaction amount, and so on. In order to mitigate processing risks, there are policies regarding reserve requirements and payment in arrears in place.
The total holdback receivables balance reflects the 0 to 10% reserve on gross sales and additional reserves by the contractual termsthird-party processor for additional returns and chargebacks if needed. Based on aging of the holdback receivables, and the Company’s relationships with, andCompany has determined that an allowance for doubtful accounts of $1,300,855 or 55% of holdback receivables should be deemed uncollectible recorded as bad debt expense. Thus, the economic statusadjusted holdback receivables balance was $1,043,991 as of its clients. AtDecember 31, 2022. As of March 31, 2022 and December 31, 2021, there are no allowance for uncollectible accounts.
BIO LAB NATURALS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2022
2023, the holdback receivables balance was $Leases1,638,376
Capital Leases.
8 |
The Company follows the provisions of Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842)Inventories, net, and incremental direct costs directly related to lease origination activity
Inventories are expensed.
New lease transactions can be structured as direct financing leases that are non-cancelable "net" leases, contain "hell-or-high-water" provisions under which the lessee must make all lease payments regardless of any defects in the property, and which require the lessee to maintain, service and insure the property against casualty loss and pay all property, sales and other taxes. The re-lease of property that has come off lease may be accounted for as a sales-type lease or as an operating lease, depending on the terms of the re-lease. Leased property that comes off lease and is re-marketed through a sale to the lessee or a third party is accounted for as sale of leased property.
For leases that qualify as direct financing leases, the aggregate lease payments receivable and estimated residual value, if any, are recorded net of unearned income as net investment in leases. The unearned income is recognized as direct finance income on an internal rate of return method calculated to achieve a level yield on the Company’s investment over the lease term. There are no costs or expenses related to direct financing leases since lease income is recorded on a net basis.
For leases that qualify as sales-type leases, the Company recognizes profit or loss at lease inception to the extent the fair value of the property leased differs from the Company's carrying value. The difference between the discounted value of the aggregate lease payments receivable and the property cost, less the discounted value of the residual, if any, and any initial direct costs is recorded as sales-type lease income. For balance sheet purposes, the aggregate lease payments receivable and estimated residual value, if any, are recorded net of unearned income as net investment in leases. Unearned income is recognized as direct finance income over the lease term on an internal rate of return method.
The residual value is an estimate for accounting purposes of the fair value of the lease property at lease termination. The estimates are reviewed periodically to ensure reasonableness, however, the amounts the Company may ultimately realize could differ from the estimated amounts.
The Company has no leases that qualify as capital leases at March 31, 2022 and December 31, 2021.
Operating Leases
Lease contracts which do not meet the criteria of capital leases are accounted for as operating leases. Property on operating leases is recordedvalued at the lower of cost or fairnet realizable value and depreciated on a straight-linefirst-in, first-out basis, overadjusted for the estimated useful lifevalue of inventory that is determined to be excess, obsolete, expired, or unsaleable. Inventories primarily consisted of finished goods.
Advertising and Marketing
Advertising and marketing costs are charged to expense as incurred. Advertising and marketing costs were approximately $10,055,504 and $5,243,678 for the property. Rental income is recorded on a straight-line basis overthree months ended March 31, 2023 and 2022, respectively, and are included in operating expenses in the lease term. See Note 5 – Leases.accompanying statement of income.
Equipment
Equipment is recorded at cost and consists of screen video and related equipment. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation of equipment is over the estimated useful life of five to ten years using the straight-line method for consolidated financial statement purposes. At March 31, 2022 and December 31, 2021, there were net capitalized costs
Schedule of $51,627 and $ $54,438, respectively. Equipment
March 31, 2023 | December 31, 2022 | |||||||
Machinery and equipment | $ | 39,067 | $ | 37,463 | ||||
Total | 39,067 | 37,463 | ||||||
Less: accumulated depreciation | (6,308 | ) | (5,207 | ) | ||||
Total equipment, net | $ | 32,759 | $ | 32,256 |
Depreciation expense for the three months ended March 31, 2023 and 2022 was $1,101and 2021 was $2,810$0, respectively.
Revenue Recognition
Product Sales
The Company recognizes revenue when performance obligations under the terms of a contract with its customer are satisfied. The Company has determined that fulfilling and $3,760, respectively.delivering products is a single performance obligation. Revenue is recognized at the point in time when the Company has satisfied its performance obligation and the customer has obtained control of the products or when the service is fully .. This generally occurs when the product is delivered to or picked up by the customer based on applicable shipping terms, which is typically within 15 days. Revenue is measured as the amount of consideration expected to be received in exchange for fulfilled product orders,
While customers generally have a right to return defective or non-conforming products, past experience has demonstrated that product returns have been immaterial. Customer remedies for defective or non-conforming products may include a refund or exchange. As a result, the right of return is estimated and recorded as a reduction in revenue at the time of sale, if necessary.
The Company’s customer contracts identify product quantity, price, and payment terms. Payment terms are granted consistent with industry standards. Although some payment terms may be extended, the majority of the Company’s payment terms are less than 30 days. As a result, revenue is not adjusted for the effects of a significant financing component. Amounts billed and due from customers are classified as Accounts Receivables on the Balance Sheet.
9 |
During
The Company utilizes third-party contract manufacturers for the manufacture of its products. The Company has evaluated whether it is the principal or agent in these relationships. The Company has determined that it is the principal in all cases as it retains the responsibility for fulfillment and risk of loss, as well as for establishing the price.
In accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, the Company has elected the practical expedient to expense the incremental costs to obtain a contract, because the amortization period would be less than one year, and the practical expedient for shipping and handling costs. Shipping and handling costs incurred to deliver products to customers are accounted for as fulfillment activities, rather than a promised service, and as such are included in Cost of Goods Sold in the Statements of Operations.
Service Revenue
Service revenue consists of digital marketing revenue.
Revenue related to digital marketing is recognized over time as services are provided to the customer. The Company sells digital marketing, digital and print design, social media marketing, and direct-to-consumer marketing and thus uses standalone selling prices as the basis for revenue. Payment for digital marketing services is typically received at the point when control transfers to the customer or in accordance with payment terms customary to the business. There was no deferred revenue related to services revenue as of March 31, 2023 and December 31, 2022.
Cost of Sales
Cost of sales includes the cost of inventory sold during the period, as well as, commission fees, returns, chargebacks, distribution, and, shipping and handling costs. The amount shown is net of various rebates from third-party vendors in the form of payments.
Refunds Payable
If customers are not satisfied for any reason, they may request a full refund, processed to the original form of payment, within 30 days from the order date. If the order has already been shipped, the Company charges a 20% restocking fee. The Company’s estimate of the reserve is based upon the Company’s most historical experience of actual customer returns. Additionally, the Company considers other factors in estimating the reserve, such as hiring a new internal team with more resources for the refund process. For the three months ended March 31, 2021,2023, the average rate of return is 29%. For the three months ended March 31, 2023, the Company sold a used screen and equipmentdetermined the refund reserve to be $1,433,401 by using the last two weeks of sales of the period of $4,872,861 with the average rate of return of 29% for $14,700 and as a result reported a loss on the disposal of assets in the amount of $(73,046).
BIO LAB NATURALS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
three months ended March 31, 2022
Revenue recognition2023.
TheAs of March 31, 2023 and December 31, 2022, refunds payable were $1,433,401 and $213,930, respectively.
Chargebacks Payable
Once customers successfully dispute chargebacks with the payment processor, the Company followsreturns such funds to the provisionspayment processor to return to the customer. For the three months ended March 31, 2023, the average rate of ASU No. 2014 - 09, Revenue from Contracts with Customers (Topic 606), return was 13%. For the three months ended March 31, 2023, the Company determined the chargeback reserve to be $635,408 by using the full retrospective transition method. The Company’s adoptionlast two weeks of ASU 2014 - 09 did not have a material impact on the amount and timing of revenue recognized in its consolidated financial statements.
Under ASU 2014 - 09, the Company recognizes revenue when controlsales of the promised services is transferred to clients, in an amount that reflectsperiod of $4,872,861 with the consideration the Company expects to be entitled to in exchange for those services.
The Company derives its revenues from the renderingaverage rate of entertainment rental services. The Company applies the following five steps in order to determine the appropriate amountchargebacks of revenue to be recognized as it fulfills its obligations under each of its contracts:
Identify the contract with a client;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to performance obligations in the contract; and
Recognize revenue as the performance obligation is satisfied.
Impairment of Long-Lived Assets13
In accordance with authoritative guidance on accounting% for the impairment or disposalthree months ended March 31, 2023.
As of long-lived assets, as set forth in Topic 360 of the ASC, the Company assesses the recoverability of the carrying value of its long-lived assets when events occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.March 31, 2023 and December 31, 2022, chargebacks payable were $635,408 and $118,288, respectively.
Other Comprehensive Loss
The Company has no material components of other comprehensive loss and accordingly, net loss is equal to comprehensive loss for the period.
10 |
Income Taxes
Debt
The
Convertible debt – derivative treatment – When the Company usesissues debt with a conversion feature, it must first assess whether the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized forconversion feature meets the future tax consequences of temporary differences betweenrequirements to be treated as a derivative, as follows: a) one or more underlying terms, typically the accounting bases and the tax basesprice of the Company’s assetscommon stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and liabilities. The deferred tax assets and liabilities are computed using enacted tax ratesd) net settlement provisions, which in effectthe case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the yearscope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in whichshareholders’ equity in its statement of financial position.
If the temporary differences are expectedconversion feature within convertible debt meets the requirements to reverse.
The Company's deferred income taxes include certain future tax benefits. Thebe treated as a derivative, the Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based onestimates the weight of available evidence, it is more likely than not that some portion or allfair value of the deferred income tax asset willconvertible debt derivative using the Black Scholes method upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the Consolidated Statement of Operations. The debt discount is amortized through interest expense over the life of the debt.
If the conversion feature does not be realized.qualify for either the derivative treatment, the convertible debt is treated as traditional debt.
Income Taxes
The Company has adopted ASC guidance regardingaccounting standard on accounting for uncertainty in income taxes. Thistaxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under that guidance, clarifies the accounting for income taxes by prescribingCompany may recognize the minimum recognition thresholdtax benefit from an incomeuncertain tax position is required to meet before being recognized in the consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whetheronly if it is more likely than not that the income tax position will be sustained on examination by taxing authorities based uponon the technical merits upon examination byof the taxing authorities. If the incomeposition. The tax position
BIO LAB NATURALS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2022
is expected to meet the more likely than not criteria, the benefit recordedbenefits recognized in the consolidated financial statements equalsfrom such a position are measured based on the largest amountbenefit that is has a greater than 50% likely to belikelihood of being realized upon its ultimate settlement. At March 31, 2022 and December 31, 2021, there were no uncertain tax positions that required accrual.
Goodwill
The Company calculates earnings per share in accordance with generally accepted accounting principles, goodwill cannot be amortized, however, it must be tested annually for impairment. This impairment test is calculated atFinancial Accounting Standards Board (“FASB”) ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the reporting unit level. The goodwill impairment test has two steps. The first identifies potential impairments by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not necessary. If the carrying value exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied goodwill is less than the carrying amount, a write-down is recorded. Management tests goodwill each year for impairment, or when facts or circumstances indicate impairment has occurred. See Note 4 – Fair Value Measurements.
Loss per Share
Basic net loss per common share of stock is calculated by dividing net loss available to common stockholders by the weighted-averageweighted average number of common shares outstanding during each period. Diluted net loss per common share is calculated by dividing net loss by the weighted-average numberfiscal year. shares of common shares outstanding, including the effect of other dilutive securities. The Company had no potentially dilutive securities issued at and forstock underlying convertible promissory notes during the three months ended March 31, 2022 and 2021.2023 were not included in the computation of diluted Earnings Per Share for the same period as the inclusion would have been antidilutive, given the Company’s net loss.
The Company recognizes compensation cost for equity-based awards based on estimated fair value of the award and records capitalized cost or compensation expense over the requisite service period.
Off-Balance Sheet Arrangements
As part of its ongoing business, the Company has not participated in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. For the period through March 31, 2022, the Company has not been involved in any unconsolidated SPE transactions.
Subsequent Events
The Company evaluates events and transactions after the balance sheet date but before the consolidated financial statements are issued.
Note 3 – Going Concern and Managements’ Plan
The Company’s consolidated financial statements for the three months ended March 31, 2022 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company reported a net loss for the three months ended March 31, 2022 of $(23,728) and an accumulated deficit of $(35,716,935) at March 31, 2022.
The Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern within one year after the date of the issuance of these consolidated financial statements. The future success of the Company is dependent on its ability to attract additional capital and ultimately, upon its ability to develop future profitable operations. There can be no assurance that the Company will be successful in obtaining such financing, or that it will attain positive cash flow from operations. However, management
BIO LAB NATURALS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2022
believes that actions presently being taken to raise additional capital as more fully disclosed in these consolidated financial statements provides the opportunity for the Company to continue as a going concern.
Note 4 – Fair Value Measurements
The Company applies the authoritative guidance applicable to all financial assets and liabilities required to be measured and reported on a fair value basis, as well as to non-financial assets and liabilities measured at fair value on a non-recurring basis, including impairments of long-lived assets. The fair value of an asset or liability is the amount that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in valuing the asset or liability based on market data obtained from sources independent of the Company. Unobservable input are inputs that reflect the Company’s assumptions of what market participants would use in valuing the asset or liability based on the information available in the circumstances.
Financial and non-financial assets and liabilities are classified within the valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The Company’s policy is to recognize transfers in and out of the fair value hierarchy as of the end of the reporting period in which the event or change in circumstances caused the transfer. The Company has consistently applied the valuation techniques discussed below in all periods presented. The hierarchy is organized into three levels based on the reliability of the inputs as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities; or
Level 2: Quoted prices in active markets for similar assets and liabilities and inputs, quoted prices for identical or similar assets or liabilities in markets that are not active and model-derived valuations whose inputs or significant value drivers are observable; or
Level 3: Unobservable pricing inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.
The Company did not measure the financial or non-financial assets and liabilities at March 31, 2022 as there was no event or significant change within the valuation hierarchy for the three months ended March 31, 2022.
Note 5 – Net property on operating lease
On April 5, 2021, the Company entered into an operating lease on a semi-truck video screen unit (the Lease”) and as part of the Lease the lessee had the option to purchase the unit. On January 5, 2022, the lessee exercised their option to purchase the unit at a fair value of $152,000 and for the three months ended the Company recognized a gain on the disposal of the unit in the amount of $44,894.
Note 6 – Debt
Promissory Notes
On March 1, 2021, an individual loaned the Company $35,000 in exchange for an unsecured promissory note that included interest at the rate of ten percent (10%) per annum on the unpaid principal balance with all unpaid principal and interest due on or before March 1, 2022. The maturity date was extended to December 31, 2022. Interest is due and payable on the 1st of each month. At March 31, 2022, the Company owes $35,000 in principal and accrued interest of $292 and for the three months ended March 31, 2022 and 2021 incurred interest expense of $875 and $255, respectively.
BIO LAB NATURALS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2022
Related Party
On March 1, 2021, an affiliate of an officer of the Company, loaned the Company $30,000 in exchange for an unsecured promissory note that included interest at the rate of ten percent (10%) per annum on the unpaid principal balance with all unpaid principal and interest due on or before March 1, 2022. Interest is due and payable on the 1st of each month. On January 7, 2022, the Company repaid the balance of the promissory note in full and for the three months ended March 31, 2022 and 2021 incurred interest expense of $0 and $297, respectively.
Note 7 – Stockholders’ Equity
Preferred Shares
Class A Convertible
At March 31, 2022 and December 31, 2021, there are a total of 500,000 shares of Class A Convertible shares of preferred stock (“Class A”) issued and outstanding. The Class A shares provide that when voting as a single class, the shares shall have the votes and the voting power at all times to be at least 60% of the voting power of the Company. Further, the holders of the Class A shares at their discretion and subject to a change of control and to the qualification by application to either NASQAD or NYSE Emerging Markets, can convert their one share of Class A into two shares of the Company’s common stock, subject to adjustment. In addition, the holder of the shares of Class A is entitled to a liquidation preference of the Company senior to all other securities of the Company.
Common Shares
The Company’s capital stock at March 31, 2022 consists of 200,000,000 authorized shares of $0.0001 par value common stock. At March 31, 2022 and December 31, 2021, there were a total of 10,803,504 shares of common stock issued and outstanding.
Note 8 – Equity Based Payments
The Company accounts for equity-based payment accruals under authoritative guidance as set forth in the Topics of the ASC. The guidance requires all equity-based payments to employees and non-employees, including grants of employee and non-employee stock options and warrants, to be recognized in the consolidated financial statements based at their fair values.
2014 The Company applies the provisions of ASC 718, “Compensation - Stock Compensation,” using a modified prospective application, and the Black-Scholes model to value stock options. Under this application, the Company records compensation expense for all awards granted. Compensation costs will be recognized over the period that an employee provides service in exchange for the award. During the three months ended March 31, 2023 and 2022, the Company granted no securities under its 2020 Stock Incentive Plan and 2022 Stock Option Plan.
11 |
General Concentrations of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and other receivables arising from its normal business activities. The Company has a diversified customer base. The Company controls credit risk related to accounts receivable through credit approvals, credit limits, and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable related credit risk exposure beyond such allowance is limited.
The Company purchases merchandise from six suppliers, and the Company’s three largest suppliers accounted for 95% of total purchases in fiscal 2022. A significant portion of the Company’s inventory is manufactured abroad in Asia. Foreign imports subject the Company to the risks of changes in, or the imposition of new, import tariffs, duties or quotas, new restrictions on imports, loss of “most favored nation” status with the United States for a particular foreign country, antidumping or countervailing duty orders, retaliatory actions in response to illegal trade practices, work stoppages, delays in shipment, freight expense increases, product cost increases due to foreign currency fluctuations or revaluations, public health issues that could lead to temporary closures of facilities or shipping ports, such as the recent outbreak of COVID-19, and other economic uncertainties. If a disruption of trade were to occur from the countries in which the suppliers of the Company’s vendors are located, the Company may be unable to obtain sufficient quantities of products to satisfy its requirements, or the cost of obtaining products may increase.
A substantial amount of the Company’s inventory is manufactured abroad. From time to time, shipping ports experience capacity constraints (such as delays associated with COVID-19), labor strikes, work stoppages or other disruptions that may delay the delivery of imported products. A contract dispute may lead to protracted delays in the movement of the Company’s products, which could further delay the delivery of products to the Company’s online stores and impact net sales and profitability. In addition, other conditions outside of the Company’s control, such as adverse weather conditions or acts of terrorism or war, such as the current conflict in Ukraine, could significantly disrupt operations at shipping ports or otherwise impact transportation of the imported merchandise the Company sells, either through supply chain disruptions or rising freight and fuel costs.
Operating Lease
In accordance with ASC 842, Leases, the Company determines whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, the Company determines whether it should be classified as an operating or finance lease. Operating leases are recorded in the balance sheet as: right-of-use asset (“ROU asset”) and operating lease liability. ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measured based on the present value of lease payments over the lease term. The ROU asset also includes deferred rent liabilities. The Company’s lease arrangements generally do not provide an implicit interest rate. As a result, in such situations the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU asset and liability. Lease expense for the operating lease is recognized on a straight-line basis over the lease term. The Company has a lease agreement with lease and non-lease components, which are accounted for as a single lease component.
Recent Accounting Pronouncements
In December 2019, FASB issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which amends existing guidance related to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the effects adoption of this guidance will have on the financial statements and does not expect that the adoption of this ASU will be material to its financial statements.
12 |
Note 3 – Fair Value Measurements
The Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1. | Observable inputs such as quoted prices in active markets; | |
Level 2. | Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and | |
Level 3. | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. There were no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. There have been no transfers between levels.
13 |
Note 4 – Commitments and Contingencies
Commitments
Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. The Company’s variable lease payments primarily consist of maintenance and other operating expenses from their real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components. The Company has elected to account for these lease and non-lease components as a single lease component.
In accordance with ASC 842, the components of lease expense were as follows:
Schedule of Lease Cost
For the three months ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Operating lease expense | $ | 34,527 | $ | 34,527 | ||||
Total lease expense | $ | 34,527 | $ | 34,527 |
In accordance with ASC 842, other information related to leases was as follows:
Schedule of Other information Related to Leases
For the three months ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Operating cash flows from operating leases | $ | 34,963 | $ | 33,945 | ||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 34,963 | $ | 33,945 |
Weighted-average remaining lease term—operating leases | 0.4 Years | |||
Weighted-average discount rate—operating leases | 3 | % |
In accordance with ASC 842, maturities of operating lease liabilities as of March 31, 2023 were as follows:
Schedule of Maturities of Operating Lease Liabilities
Operating | ||||
Year ending: | Lease | |||
2023 (remaining nine months) | $ | 58,272 | ||
2024 | - | |||
2025 | - | |||
2026 | - | |||
2027 | - | |||
Total undiscounted cash flows | $ | 58,272 | ||
Reconciliation of lease liabilities: | ||||
Weighted-average remaining lease terms | 0.4 Years | |||
Weighted-average discount rate | 3 | % | ||
Present values | $ | 57,838 | ||
Lease liabilities—current | 57,838 | |||
Lease liabilities—long-term | - | |||
Lease liabilities—total | $ | 57,838 | ||
Difference between undiscounted and discounted cash flows | $ | 434 |
14 |
Contingencies
From time to time, the Company may be involved in certain legal actions and claims arising in the normal course of business. Management is of the opinion that such matters will be resolved without material effect on the Company’s financial condition or results of operations.
Note 5 – Debt
Note payable
March 1, 2021 – $35,000
On March 1, 2021, an individual loaned Prime Time Live, Inc. $35,000 in exchange for an unsecured promissory note that included interest at the rate of 10% per annum on the unpaid principal balance with all unpaid principal and interest due on or before March 1, 2022. The maturity date was extended to May 31, 2023. Interest is due and payable on the first day of each month. As of March 31, 2023 and December 31, 2022, the balance was $35,000 and $35,000, respectively.
Convertible note payables
Schedule of Convertible Note Payables
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
August 3, 2022 ($5,000,000) | $ | 5,000,000 | $ | 5,000,000 | ||||
August 3, 2022 ($1,000,000) | 1,000,000 | 1,000,000 | ||||||
August 22, 2022 ($500,000) | 500,000 | 500,000 | ||||||
September 22, 2022 ($250,000) | 250,000 | 250,000 | ||||||
September 25, 2022 ($600,000) | 600,000 | 600,000 | ||||||
September 25, 2022 ($600,000) | 600,000 | 600,000 | ||||||
September 29, 2022 ($50,000) | 50,000 | 50,000 | ||||||
September 29, 2022 ($500,000) | 500,000 | 500,000 | ||||||
October 10, 2022 ($500,000) | 500,000 | 500,000 | ||||||
October 13, 2022 ($750,000) | 75,000 | 75,000 | ||||||
October 13, 2022 ($50,000) | 50,000 | 50,000 | ||||||
October 14, 2022 ($50,000) | 50,000 | 50,000 | ||||||
January 4, 2023 ($500,000) | 500,000 | - | ||||||
Total convertible note payables (current) | $ | 9,675,000 | $ | 9,175,000 |
From August 3, 2022 through November 28, 2022, the Company conducted a convertible note offering for a maximum offering of $15,000,000 and a minimum of $2,000,000 (the “Convertible Note Offering”).
15 |
Pursuant to the terms of the Convertible Note, the principal amount of the Note that may be outstanding from time to time bears interest per annum until paid in full at a rate equal to 6%, compounded annually. The principal and interest of the Note is due and payable to the noteholder on the one-year anniversary of the date of the Note (the “Maturity Date”) unless all principal and interest due under the Note has been converted by the Maturity Date.
The conversion price is equal to $0.25 per share of Common Stock. Any time prior to the Maturity Date, and upon the date of effectiveness of registration of the Notes on a registration statement filed with the Securities and Exchange Commission (the “SEC”), the Note shall automatically convert to shares of common stock of the Company at the Conversion Price (the “Automatic Conversion”); provided however, that in the event that Conversion Shares represent greater than 4.99% of the total Common Shares of the Company (the portion above 4.99% referred to herein as the “Excess Shares”), then the Automatic Conversion shall only apply to such portion of the Note up to 4.99% and not include the Excess Shares. The Notes are convertible at the option of the Noteholder, in holder’s sole discretion, in whole or in part, at any time prior to the Maturity Date or payment in full of the Note, whichever occurs first, all or any portion of principal or interest, into shares of Common Stock of the Company at the Conversion Price.
The Company analyzed the conversion option in the Notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instruments do not qualify for derivative accounting.
As of December 31, 2022, the Company has received $9,175,000 from 12 accredited investors pursuant to the Convertible Note Offering.
As of March 31, 2023, the Company has received $9,675,000 from 13 accredited investors pursuant to the Convertible Note Offering.
Note 6 – Stockholders’ Deficit
Preferred Stock
Class A Convertible Stock
As of March 31, 2023, the Company has authorized The Class A shares provide that when voting as a single class, the shares shall have the votes and the voting power at all times of at least 60% of the voting power of the Company. Further, the holders of the Class A shares at their discretion , can convert their one share of Class A into two shares of the Company’s common stock, subject to adjustment. In addition, the holder of the shares of Class A is entitled to a liquidation preference of the Company senior to all other securities of the Company. shares of preferred stock. At March 31, 2023 and December 31, 2022, there are a total of shares of Class A Convertible shares of preferred stock (“Class A”) issued and outstanding.
Common Stock
As of March 31, 2023, the Company has authorized shares of common stock par value $ per share. At March 31, 2023 and December 31, 2022, there was a total of shares and shares issued and outstanding, respectively.
16 |
The Company accounts for equity-based payment accruals under authoritative guidance as set forth in the Topics of the ASC. The guidance requires all equity-based payments to employees and non-employees, including grants of employee and non-employee stock options and warrants, to be recognized in the consolidated financial statements based at their fair values.
Stock Incentive Plans
Effective January 15, 2020, the Company’sCompany adopted its 2020 Stock Option and Award Plan (the “2020 Stock Incentive Plan”). Under the 2020 Stock Incentive Plan, the Board of Directors may grant options or purchase rights to purchase common stock to officers, employees, and other persons who provide services to the Company or any related company. The participants to whom awards are granted, the type of awards granted, the number of shares covered for each award, and the purchase price, conditions and other terms of each award are determined by the Board of Directors, except that the term of the options shall not exceed 10ten years. A total of 2 million shares of the Company’s common stock are subject tois reserved for the 2020 Stock Incentive Plan. The shares issued for the 2020 Stock Incentive Plan may be either treasury or authorized and unissued shares. During the three months ended March 31, 20222023 and 2021,2022, the Company granted no options under the 2020 Stock Incentive Plan. As of March 31, 2023, there have been shares of common stock granted under the under the 2020 Stock Incentive Plan.
Effective August 9, 2022, the Company adopted its 2022 Incentive and Nonstatutory Stock Option Plan (the “2022 Stock Option Plan”). Under the 2022 Stock Option Plan, the Board of Directors may grant options to purchase common stock to officers, employees, and other persons who provide services to the Company. A total of shares of the Company’s common stock is reserved for the 2022 Stock Option Plan. As of March 31, 2023, there have been options to purchase shares of common stock granted under the 2022 Stock Option Plan.
Effective August 9, 2022, the Company adopted its 2022 Restricted Stock Plan (the “2022 Restricted Stock Plan”). Under the 2022 Restricted Stock Plan, the Board of Directors may grant restricted stock to officers, directors, and key employees. A total of shares of common stock is reserved for the 2022 Restricted Stock Plan. As of March 31, 2023, there have been shares of common stock granted under the 2022 Restricted Stock Plan.
BIO LAB NATURALS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2022
Note 98 – Related Party Transactions
Consulting Fees
During the three months ended March 31, 2023 and 2022, the Company incurred consulting fees in the amount of $17,500$7,000 and $0, respectively, to an officer and an officer of one of its affiliates.
DuringRoyalty Payables
Limitless Performance Inc. (“LPI”), SMILZ INC. (“Smiles”), DIVATRIM INC. (“Divatrim”), and AMAROSE INC. (“Amarose”) are all companies at least 50% owned by a shareholder of the three months endedCompany.
● | On December 1, 2021, the Company entered into a manufacturing and distributorship license agreement with LPI for the Company to distribute LPI products and for payments to LPI for its product designs and distribution rights. The Company shall pay to LPI from time to time royalty payments equal to 4.00% of gross sales, excluding returns, chargebacks, and other such allowances. | |
● | On December 1, 2021, the Company entered into a manufacturing and distributorship license agreement with Smiles for the Company to distribute Smiles products and for payments to Smiles for its product designs and distribution rights. The Company shall pay to Smiles from time to time royalty payments equal to 4.00% of gross sales, excluding returns, chargebacks, and other such allowances. | |
● | On December 1, 2021, the Company entered into a manufacturing and distributorship license agreement with Divatrim for the Company to distribute Divatrim products and for payments to Smiles for its product designs and distribution rights. The Company shall pay to Divatrim from time to time royalty payments equal to 4.00% of gross sales, excluding returns, chargebacks, and other such allowances. | |
● | On December 1, 2021, the Company entered into a manufacturing and distributorship license agreement with Amarose for the Company to distribute Amarose products and for payments to Smiles for its product designs and distribution rights. The Company shall pay to Amarose from time to time royalty payments equal to 4.00% of gross sales, excluding returns, chargebacks, and other such allowances. |
The Company was required to start paying all earned royalties to LPI, Smiles, Divatrim, and Amarose beginning on June 15, 2022. As of March 31, 2021,2023 and December 31, 2022, the Company incurred consulting feesroyalty payable is in the amount of $5,000 to an officer$1,399,031 and an officer of an affiliate.1,114,403, respectively.
Note payables to shareholder
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
December 6, 2021 ($ | )$ | 50,000 | $ | 50,000 | ||||
February 11, 2022 ($ | )150,000 | 150,000 | ||||||
May 8, 2022 ($ | )550,000 | 550,000 | ||||||
May 16, 2022 ($ | )1,100,000 | 1,100,000 | ||||||
May 18, 2022 ($ | )450,000 | 450,000 | ||||||
June 1, 2022 ($ | )500,000 | 500,000 | ||||||
June 30, 2022 ($ | )922,028 | 922,028 | ||||||
August 25, 2022 ($ | )290,000 | 290,000 | ||||||
November 15, 2022 ($ | )450,000 | 450,000 | ||||||
Total loan payables to shareholder (current) | $ | 4,462,028 | $ | 4,462,028 |
December 6, 2021 – $50,000
On December 6, 2021, the Company executed loan documents for securing a loan of $from a shareholder. As of March 31, 2023 and December 31, 2022, the balance was $and $, respectively. Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $, with proceeds to be used for working capital purposes. Beginning on June 1, 2022, the loan requires a payment of $per month which includes principal and interest with an interest rate of %. The total balance of principal and interest of $is due on .
February 11, 2022 – $150,000
On February 11, 2022, the Company executed loan documents for securing a loan of $from a shareholder. As of March 31, 2023 and December 31, 2022, the balance was $and $, respectively. Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $, with proceeds to be used for working capital purposes. Beginning on June 1, 2022, the loan requires a payment of $per month which includes principal and interest with an interest rate of %. The total balance of principal and interest of $is due on .
May 8, 2022 – $550,000
On May 8, 2022, the Company executed loan documents for securing a loan of $from a shareholder. As of March 31, 2023 and December 31, 2022, the balance was $and $, respectively. Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $, with proceeds to be used for working capital purposes. Beginning on June 1, 2022, the loan requires a payment of $per month which includes principal and interest with an interest rate of %. The total balance of principal and interest of $is due on .
19 |
May 16, 2022 – $1,100,000
On May 16, 2022, the Company executed loan documents for securing a loan of $from a shareholder. As of March 31, 2023 and December 31, 2022, the balance was $and $, respectively. Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $, with proceeds to be used for working capital purposes. Interest began accruing at the rate of % on .
May 18, 2022 – $450,000
On May 18, 2022, the Company executed loan documents for securing a loan of $from a shareholder. As of March 31, 2023 and December 31, 2022, the balance was $and $, respectively. Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $, with proceeds to be used for working capital purposes. Interest began accruing at the rate of % on .
June 1, 2022 – $500,000
On June 1, 2022, the Company executed loan documents for securing a loan of $from a shareholder. As of March 31, 2023 and December 31, 2022, the balance was $and $, respectively. Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $, with proceeds to be used for working capital purposes. Beginning on August 1, 2022, the loan requires a payment of $per month which includes principal and interest with an interest rate of %. The total balance of principal and interest of $is due on .
June 30, 2022 – $922,028
On June 30, 2022, the Company executed loan documents for securing a loan of $from a shareholder. As of March 31, 2023 and December 31, 2022, the balance was $and $, respectively. Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $, with proceeds to be used for working capital purposes. Beginning on August 1, 2022, the loan requires a payment of $per month which includes principal and interest with an interest rate of %. The total balance of principal and interest of $is due on .
August 25, 2022 – $290,000
On August 25, 2022, the Company executed standard loan documents required for securing a loan of $from a shareholder due on demand. As of March 31, 2023 and December 31, 2022, the balance was $and $, respectively. Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $to be used for working capital purposes and with an interest rate of %.
November 15, 2022 – $450,000
On November 15, 2022, the Company executed loan documents for securing a loan of $from a shareholder due on demand. As of March 31, 2023 and December 31, 2022, the balance was $and $, respectively. Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $to be used for working capital purposes and with an interest rate of %.
20 |
Note payables to related parties
Schedule of Note Payables to Related Party Transaction
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
April 1, 2022 ($237,610) | $ | 237,610 | $ | 237,610 | ||||
May 10, 2022 ($12,500) | 12,500 | 12,500 | ||||||
May 10, 2022 ($12,500) | 12,500 | 12,500 | ||||||
May 10, 2022 ($20,000) | 20,000 | 20,000 | ||||||
May 31, 2022 ($5,000) | 5,000 | 5,000 | ||||||
May 31, 2022 ($15,000) | 15,000 | 15,000 | ||||||
June 9, 2022 ($15,000) | 15,000 | 15,000 | ||||||
December 31, 2022 ($929,401) | 929,401 | 929,401 | ||||||
Total note payables to related parties (current) | $ | 1,247,011 | $ | 1,247,011 |
April 1, 2022 – $237,610
On April 1, 2022, Limitless X executed loan documents for securing a loan of $237,610 from Emblaze One, a company owned by a shareholder. As of March 31, 2023 and December 31, 2022, the balance was $237,610 and $237,610, respectively.
Pursuant to that certain Loan Authorization and Agreement, Limitless X borrowed an aggregate principal amount of $237,610, with proceeds to be used for working capital purposes. Beginning on September 1, 2022, the loan requires a payment of $20,669 per month which includes principal and interest with an interest rate of 8%. The total balance of principal and interest of $248,032 is due on August 1, 2023.
May 10, 2022 - $12,500
On May 10, 2022, a related party of the Company loaned Prime Time Live, Inc. $12,500 in exchange for a promissory note that includes interest at the rate of 10% per annum on the unpaid principal balance with all unpaid principal and interest due on or before May 10, 2023. Interest began accruing at the rate of 10% on May 10, 2022. As of March 31, 2023 and December 31, 2022, the balance was $12,500 and $12,500, respectively.
May 10, 2022 - $12,500
On May 10, 2022, a related party of the Company loaned Prime Time Live, Inc. $12,500 in exchange for a promissory note that includes interest at the rate of 10% per annum on the unpaid principal balance with all unpaid principal and interest due on or before May 10, 2023. Interest began accruing at the rate of 10% on May 10, 2022. As of March 31, 2023 and December 31, 2022, the balance was $12,500 and $12,500, respectively.
May 10, 2022 - $20,000
On May 10, 2022, a related party of the Company loaned Prime Time Live, Inc. $20,000 in exchange for a promissory note that included interest at the rate of 10% per annum on the unpaid principal balance with all unpaid principal and interest due on or before May 10, 2023. Interest began accruing at the rate of 10% on May 10, 2022. As of March 31, 2023 and December 31, 2022, the balance was $20,000 and $20,000, respectively.
May 31, 2022 - $5,000
On May 31, 2022, a related party of the Company loaned Prime Time Live, Inc. $5,000 in exchange for a promissory note that included interest at the rate of 10% per annum on the unpaid principal balance with all unpaid principal and interest due on or before May 31, 2023. Interest began accruing at the rate of 10% on May 31, 2022. As of March 31, 2023 and December 31, 2022, the balance was $5,000 and $5,000, respectively.
21 |
May 31, 2022 - $15,000
On May 31, 2022, a related party of the Company loaned Prime Time Live, Inc. $15,000 in exchange for a promissory note that included interest at the rate of 10% per annum on the unpaid principal balance with all unpaid principal and interest due on or before May 31, 2023. Interest will began accruing at the rate of 10% on May 31, 2022. As of March 31, 2023 and December 31, 2022, the balance was $15,000 and $15,000, respectively.
June 9, 2022 - $15,000
On May 10, 2022, a related party of the Company loaned Prime Time Live, Inc. $15,000 in exchange for a promissory note that included interest at the rate of 10% per annum on the unpaid principal balance with all unpaid principal and interest due on or before May 10, 2023. Interest began accruing at the rate of 10% on May 10, 2022. As of March 31, 2023 and December 31, 2022, the balance was $15,000 and $15,000, respectively.
December 31, 2022 - $929,401
On December 31, 2022, the Company executed loan documents for securing a loan of $929,401 from Emblaze One, a company owned by a shareholder. As of March 31, 2023 and December 31, 2022, the balance was $929,401 and $929,401, respectively.
Pursuant to that certain Loan Authorization and Agreement, the Company borrowed an aggregate principal amount of $929,401 with an interest rate of 8% to be used for working capital purposes due on December 1, 2023.
Note 9 – Subsequent Events
The Company evaluated all events or transactions that occurred after March 31, 2023. During this period, the Company did not have any material recognizable subsequent events required to be disclosed other than the following:
On May 4, 2023, the Company terminated the 2020 Stock Incentive Plan. |
22 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements and Associated Risks.
This Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will, “expect,” “believe,” “anticipate,” “estimate,” “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.
BasedINTRODUCTION
As previously reported on our financial history since inception, our auditor has expressed substantial doubta Current Report on Form 8-K filed with the SEC on May 13, 2022, Bio Lab Naturals, Inc., a Delaware corporation (“Bio Lab”), entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Limitless X, Inc., a Nevada corporation (“LimitlessX”), and its 11 shareholders (the “LimitlessX Acquisition”) on May 11, 2022. The parties completed and closed the LimitlessX Acquisition on May 20, 2022 by issuing an aggregate of 3,233,334 shares of common stock of Bio Lab to the LimitlessX shareholders (the “Acquisition Closing”). According to the terms of the Share Exchange Agreement, Bio Lab then issued an additional 300,000 shares of common stock to the LimitlessX shareholders pro rata to their interests in approximately six months from the Acquisition Closing as part of the Limitless Acquisition. Concurrently with the LimitlessX Acquisition, Jaspreet Mathur, the founder and principal shareholder of LimitlessX, also purchased from Helion Holdings LLC, 500,000 shares of Bio Lab’s Class A Preferred Convertible Stock, which at all times have a number of votes equal to our ability to continue60% of all of the issued and outstanding shares of common stock of Bio Lab.
For accounting purposes, the LimitlessX Acquisition was accounted for as a going concern. As reflected“reverse merger” with LimitlessX as the accounting acquiror (legal acquiree) and Bio Lab as the accounting acquiree (legal acquiror). and, consequently, the transaction was treated as a recapitalization of Bio Lab. Since LimitlessX was deemed to be the accounting acquiror in the accompanyingLimitlessX Acquisition, the historical financial statements, asinformation for periods prior to the LimitlessX Acquisition reflect the financial information and activities solely of March 31,LimitlessX and not of Bio Lab. No step-up in basis or intangible assets or goodwill was recorded in this transaction.
On June 10, 2022, we had an accumulated deficit totaling $(35,716,935). This raises substantial doubts about our abilityBio Lab changed its name to continue as a going concern.Limitless X Holdings Inc. (“we,” “us,” or “our”).
23 |
Our plan of operations for the next 12 months is as follows:
The Company has been continuing its business, although it did not generate any revenues during the three months ended March 31, 2022. Management continues to reconnect with event services business relationships and thus is experiencing more normal demand for the event services. Therefore, the Company now expects, without any new or additional steps, additional revenues to be generated during the second quarter of 2022 and continued operational status.
Results of HISTORICAL Operations
RESULTS OF OPERATION
For the Three Months Ended March 31, 20222023 Compared to the Three Months Ended March 31, 20212022
For the three months ended | For the three months ended | |||||||||||||||||||||||
March 31, 2023 | March 31, 2022 | Changes | ||||||||||||||||||||||
Amount | % of Sales | Amount | % of Sales | Amount | % | |||||||||||||||||||
Revenue | ||||||||||||||||||||||||
Product sales | $ | 6,563,037 | 96 | % | $ | 7,075,362 | 100 | % | $ | (512,325 | ) | (7 | %) | |||||||||||
Service revenue | 291,764 | 4 | % | - | 0 | % | 291,764 | N/A | ||||||||||||||||
Rentals | 15,000 | 0 | % | - | 0 | % | 15,000 | N/A | ||||||||||||||||
Total revenue | 6,869,801 | 100 | % | 7,075,362 | 100 | % | (205,561 | ) | (3 | %) | ||||||||||||||
Cost of sales | ||||||||||||||||||||||||
Cost of sales | 1,229,894 | 18 | % | 882,549 | 12 | % | 347,345 | 39 | % | |||||||||||||||
Total cost of sales | 1,229,894 | 18 | % | 882,549 | 12 | % | 347,345 | 39 | % | |||||||||||||||
Gross profit | 5,639,907 | 82 | % | 6,192,813 | 88 | % | (552,906 | ) | (9 | %) | ||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
General and administrative | 586,206 | 9 | % | 31,534 | 0 | % | 554,672 | 1,759 | % | |||||||||||||||
Advertising and marketing | 10,055,504 | 146 | % | 5,243,678 | 74 | % | 4,811,826 | 92 | % | |||||||||||||||
Transaction fees | 411,268 | 6 | % | 14,481 | 0 | % | 396,787 | 2,740 | % | |||||||||||||||
Merchant fees | 713,194 | 10 | % | 354,683 | 5 | % | 358,511 | 101 | % | |||||||||||||||
Royalty fees | 284,628 | 4 | % | - | 0 | % | 284,628 | N/A | ||||||||||||||||
Professional fees | 539,157 | 8 | % | 44,500 | 1 | % | 494,657 | 1,112 | % | |||||||||||||||
Payroll and payroll taxes | 1,335,927 | 19 | % | 70,422 | 1 | % | 1,265,505 | 1,797 | % | |||||||||||||||
Rent | 41,059 | 1 | % | 43,257 | 1 | % | (2,198 | ) | (5 | %) | ||||||||||||||
Dad debt expense | 232,374 | 3 | % | - | 0 | % | 232,374 | N/A | ||||||||||||||||
Consulting fees, related party | 7,000 | 0 | % | - | 0 | % | 7,000 | N/A | ||||||||||||||||
Total operating expenses | 14,206,317 | 207 | % | 5,802,555 | 82 | % | 8,403,762 | 145 | % | |||||||||||||||
Income (loss) from operations | (8,566,410 | ) | (125 | %) | 390,258 | 6 | % | (8,956,668 | ) | (2,295 | %) | |||||||||||||
Other income (expense) | ||||||||||||||||||||||||
Interest expense | (225,627 | ) | (3 | %) | - | 0 | % | (225,627 | ) | N/A | ||||||||||||||
Total other income (expense), net | (225,627 | ) | (3 | %) | - | 0 | % | (225,627 | ) | N/A | ||||||||||||||
Income (loss) before income taxes | (8,792,037 | ) | (128 | %) | 390,258 | 6 | % | (9,182,295 | ) | (2,353 | %) | |||||||||||||
Income tax provision | 48 | 0 | % | 81,954 | 1 | % | (81,906 | ) | (100 | %) | ||||||||||||||
Net income (loss) | $ | (8,792,085 | ) | (128 | %) | $ | 308,304 | 4 | % | $ | (9,100,389 | ) | (2,952 | %) |
24 |
Product Sales - Our product sales decreased by 7% to $6.6 million for the three months ended March 31, 2023 as compared to $7.1 million for the three months ended March 31, 2022. In 2023, there was a shift in our marketing strategies, including a change in performance marketers.
Service Revenue - Our service revenue increased by $291,764 to $291,764 for the three months ended March 31, 2023 as compared to $0 for the three months ended March 31, 2022. Our service revenue increase was primarily due to us starting our marketing services in May 2022.
Cost of Sales - Our cost of sales increased from $882,549, 12% of sales, to $1.2 million, 18% of sales. This increase was primarily due to our new product lines that began being sold in November 2022 with lower margins. As operations increased during the period, so did our costs for freight, inventory, and other supplies.
Gross Profit - Gross profit for the three months ended March 31, 2023 was $5.6 million compared to $6.2 million for the three months ended March 31, 2022. The decrease in gross profit of $347,345 was primarily a shift in our marketing strategies, including a change in performance marketers.
Operating Expenses - During the three months ended March 31, 2022 and 2021,2023, we recognized no sales. The Company expects$14.2 million in operating expenses compared to generate revenues in the second quarter of 2022 and for the next 12 months.
Gross profit loss$5.8 million for the three months ended March 31, 20222022. The increase of $8.4 million in operating expenses was $(3,168) comparedprimarily due to $(12,873) for three months ended March 31, 2021. The decrease in gross profit loss of $9,705 pertained primarily to a decrease in cost of sales as a result of no revenues.advertising and marketing, payroll, transaction fees, merchant fees, royalty fees, and bad debt expense.
● | Our advertising and marketing expense increased by $4.8 million due to a shift in marketing strategies to heavily push our related products by using performance marketers and celebrity endorsements. | |
● | The increase in transaction payroll is related to accruals of unpaid salaries. | |
● | The increase in transaction fees and merchant fees are directly related to the increased number of transactions during the three months ended March 31, 2023. | |
● | The increase of $232,374 in bad debt expense was due to accounts receivable being deemed uncollectible. | |
● | Beginning on April 1, 2022, we began accruing royalties per the manufacturing and distributorship license agreements of 4.00% of gross sales, excluding returns, chargebacks, and other such allowances. Thus, the royalty fees increased by $284,628 during the March 31, 2023. |
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
During the three months ended March 31, 2022, we recognized $64,5792023, net cash used in operating expenses comparedactivities was $6.2 million. The cash used in operating activities was primary due to $52,567net loss and timing of settlement of assets and liabilities.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2021. The increase of $12,0122023 was the result primarily from an increase in consulting fees to its officers$1,604.
Financing Activities
Net cash provided by financing activities for the current period.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
During the three months ended March 31, 2022, the Company used cash flows2023 was $500,000. This amount was incurred by increased borrowings from operational activities of $96,702 that was adjusted by non-cash items of depreciation in the amount of $2,810 and a gain on the disposal of assets in the amount of $44,894 as compared to during the three months ended March 31, 2021, the Company used cash flows from operational activities of $73,599 that was adjusted by non-cash items of: deprecation in the amount of $3,760 and a loss on the disposal of assets in the amount of $73,046.investors.
Investing Activities
During the three months ended March 31, 2022, the Company received proceeds from the sale of its property under an operating lease in the amount of $152,000 as well as a received proceeds from the sale of its used screen the amount of $2,425 as compared to during the three months ended March 31, 2021, the Company deposited funds for the refurbish of its trailer and the purchase of a new screen for resale in the amount of $40,000 and $58,150, respectively as well as received proceeds from the sale of its used screen in the amount of $7,425.
Financing Activities
During the three months ended March 31, 2022, the Company repaid a loan from a related party in the amount of $30,000 as compared to during the three months ended March 31, 2021, the Company borrowed funds in the amount of $65,000 and received a deposit on the sale of a new screen in the amount of $65,000.
In order for us to continue as a going concern, we will need to obtain additional debt or equity financing and look for companies with cash flow positive operations that we can acquire. There can be no assurance that we will be able to secure additional debt or equity financing, that we will be able to acquire cash flow positive operations, or that, if we are successful in any of those actions, those actions will produce adequate cash flow to enable us to meet all our future obligations. Most of our existing financing arrangements are short-term. If we are unable to obtain additional debt or equity financing, we may be required to significantly reduce or cease operations.
Going Concern
We have approximately $22,000 in cash as of May 2, 2022, and have incurred operating losses and limited cash flows from operations since inception. As of March 31, 2021, we had accumulated deficit of $(35,716,935) and we will require additional working capital to fund operations through 2022 and beyond. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements included in this Form 10-Q do not include any adjustments related to recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern. The audited financial statements included in the Company’s recent annual report on Form 10-K have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we cease to continue as a going concern.
Based on our financial history since inception, in their report on the financial statements for the period ended December 31, 2021, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. There is no assurance that any revenue will be realized in the future.
There can be no assurance that we will have adequate capital resources to fund planned operations or that any additional funds will be available to us when needed or at all, or, if available, will be available on favorable terms or in amounts required by us. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some or all of our operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.
Short Term
On a short-term basis, we have not generated revenues sufficient to cover our growth-oriented operations plan. Based on prior history, we may continue to incur losses until such a time that our revenues are sufficient to cover our operating expenses and growth-oriented operations plan. As a result, we may need additional capital in the form of equity or loans, none of which is committed as of this filing.
Capital Resources
We have only common stock as our capital resource, and our assets, including cash.
We have no material commitments for capital expenditures within the next year, however, as operations are expanded substantial capital will be needed to pay for expansion and working capital.
Need for Additional Financing
We have limited funds, and such funds may not be adequate to carry out our business plan in the event production industry. Our ultimate success depends upon our ability to raise additional capital. We are investigating the availability, sources, and terms that might govern the acquisition of additional capital.
We have no commitment at this time for additional capital. If we need additional capital, we have no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to us. If not available, our operations will be limited to those that can be financed with our existing capital.
Off Balance Sheet Arrangements
NoneNone.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
DisclosureOur management, with the participation of our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures arepursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and other procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weakness described below, as of March 31, 2023, our disclosure controls and procedures were not designed at a reasonable assurance level and are ineffective to ensureprovide reasonable assurance that information we are required to be discloseddisclose in our reports filedthat we file or submittedsubmit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periodperiods specified in the SEC’sSEC rules and forms. Disclosure controlsforms, and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer/principal financial officerChief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
The material weakness, which relates to internal control over financial reporting, that was identified is:
We did not have sufficient personnel in our accounting and financial reporting functions. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for independent adequate reviewing of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis.
Management has carried out an evaluationbelieves that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our accounting staff consists of a Chief Financial Officer, a bookkeeper, and external accounting consultants, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will eliminate or greatly decrease any control and procedure issues we may encounter in the future.
We will continue to monitor and evaluate the effectiveness of the design and operation of our Company’s disclosure controls and procedures. Dueprocedures and our internal controls over financial reporting on an ongoing basis and are committed to the lack of personneltaking further action and outside directors, management acknowledges that there are deficiencies in these controlsimplementing additional enhancements or improvements, as necessary and procedures. The Company anticipates that with further resources, the Company will expand both management and the board of directors with additional officers and independent directors in order to provide sufficient disclosure controls and procedures.as funds allow.
Changes in Internal Control Over Financial Reporting
There were noWe recently hired a new Chief Financial Officer and have new management. We anticipate that our management, including our Chief Financial Officer, and our independent registered public accounting firm, will discuss the status of our financial controls and procedures and determine what changes are necessary to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP. We anticipate that a number of changes in our internal control over financial reporting (as definedcontrols and procedures will be made in Rule 13a-15(f) or 15d-15(f)) during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.ensuing periods.
26 |
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Our Annual Report on Form 10-K, filed with the SEC, on April 17, 2023, describes important risk factors that could cause our business, financial condition, results of operations, and growth prospects to differ materially from those indicated or suggested by forward-looking statements made in this Quarterly Report on Form 10-Q or presented elsewhere by management from time to time. There have been no material changes with respect toin the risk factors previously disclosedthat appear in the Company’s our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities10-K. Additional risks and Exchange Commission on March 18, 2022.uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS
Exhibits. The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.
31.1 | Certification of Chief Executive Officer Pursuant to Rule | |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 | |
32.1 | Certification of Chief Executive Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as an Inline XBRL document and included in Exhibit 101) |
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant) | ||
Dated: May | By: | /s/ |
(Chief Executive Officer, | ||
Principal Executive Officer) | ||
Dated: May | By: | /s/ |
(Chief Financial Officer, Principal Financial and Accounting | ||
Officer) | ||