On August 6, 2015, KBM Worldwide converted $840 of principal related to the April 30, 2014, convertible note, into 8,400,000 shares of the Company's common stock at $ 0.000100 per share. The remaining principal balance due after the conversion was $63,255.
On August 6, 2015, JMJ Financial converted $693 of principal related to the December 10, 2014, convertible note, into 12,595,000 shares of the Company's common stock at $ 0.000055 per share. The remaining principal balance due after the conversion was $50,229.
On August 12, 2015, KBM Worldwide converted $815 of principal related to the April 30, 2014, convertible note, into 13,583,333 shares of the Company's common stock at $ 0.000060 per share. The remaining principal balance due after the conversion was $62,440.
On August 18, 2015, Typenex Co-Investment, LLC converted $1,310 of principal related to the December 2, 2014, convertible note, into 27,300,000 shares of the Company's common stock at $ 0.000048 per share. The remaining principal balance due after the conversion was $37,115.
On August 21, 2015, JMJ Financial converted $862 of principal related to the December 10, 2014, convertible note, into 15,680,000 shares of the Company's common stock at $ 0.000055 per share. The remaining principal balance due after the conversion was $49,367.
On August 27, 2015, JMJ Financial converted $905 of principal related to the December 10, 2014, convertible note, into 16,460,000 shares of the Company's common stock at $ 0.000055 per share. The remaining principal balance due after the conversion was $48,462.
On August 27, 2015, Evolution Capital Partners, LLC converted $3,400 of principal related to the August 18, 2013, convertible note, into 8,500,000 shares of the Company's common stock at $ 0.000400 per share. The remaining principal balance due after the conversion was $121,600.
On September 8, 2015, Typenex Co-Investment, LLC converted $1,699 of principal related to the December 2, 2014, convertible note, into 35,400,000 shares of the Company's common stock at $ 0.000048 per share. The remaining principal balance due after the conversion was $35,416.
On September 29, 2015, at the time of Mr. Doron’s resignation, Mr. Doron received a convertible note from the Company in the aggregate principal amount of $299,382 in satisfaction of his accrued salary and stock payables. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holder's option at 100% of the closing bid price of such common stock on the trading day immediately preceding the conversion. The Company determined that the variable conversion price exceeded the authorized number of shares results in the need for bifurcation into a separate derivative liability valued at fair market value. On October 31, 2015, the Company estimated the fair market value of the derivative liability associated with the bifurcated conversion feature to be $4,291 and a discount on the note of $4,291.
On October 5, 2015, KBM Worldwide converted $1,630 of principal related to the April 30, 2014, convertible note, into 13,583,333 shares of the Company's common stock at $ 0.000120 per share. The remaining principal balance due after the conversion was $60,810.
On October 6, 2015, KBM Worldwide converted $700 of principal related to the April 30, 2014, convertible note, into 5,833,333 shares of the Company's common stock at $ 0.000120 per share. The remaining principal balance due after the conversion was $60,110.
On October 6, 2015, KBM Worldwide converted $1,630 of principal related to the April 30, 2014, convertible note, into 13,583,333 shares of the Company's common stock at $ 0.000120 per share. The remaining principal balance due after the conversion was $58,480.
On October 7, 2015, KBM Worldwide converted $2,725 of principal related to the April 30, 2014, convertible note, into 19,464,286 shares of the Company's common stock at $ 0.000140 per share. The remaining principal balance due after the conversion was $55,755.
On October 9, 2015, KBM Worldwide converted $2,725 of principal related to the April 30, 2014, convertible note, into 19,464,286 shares of the Company's common stock at $ 0.000140 per share. The remaining principal balance due after the conversion was $53,030.
On October 12, 2015, KBM Worldwide converted $2,920 of principal related to the April 30, 2014, convertible note, into 19,466,667 shares of the Company's common stock at $ 0.000150 per share. The remaining principal balance due after the conversion was $50,110.
On October 15, 2015, KBM Worldwide converted $5,525 of principal related to the April 30, 2014, convertible note, into 24,021,739 shares of the Company's common stock at $ 0.000230 per share. The remaining principal balance due after the conversion was $44,585.
On October 15, 2015, LG Capital Funding, LLC converted $3,053 of principal related to the December 2, 2014, convertible note, into 13,157,887 shares of the Company's common stock at $ 0.000232 per share. The remaining principal balance due after the conversion was $67,141.
On October 20, 2015, KBM Worldwide converted $5,540 of principal related to the April 30, 2014, convertible note, into 14,205,128 shares of the Company's common stock at $ 0.000390 per share. The remaining principal balance due after the conversion was $39,045.
As of October 31, 2015 and July 31, 2015, the Company estimated the fair market value of the derivative liability to be $427,456 and $93,204, with a change in fair value of $419,666 respectively. See note 12.
NOTE 10 – INCOME TAXES
The tax provision for interim periods is determined using an estimate of the Company's effective tax rate for the full year adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company makes a cumulative adjustment.
At October 31, 2015 and July 31, 2015, the Company has a full valuation allowance against its deferred tax assets as it believes it is more likely than not that these benefits will not be realized.
The Company files income tax returns in the U.S. federal tax jurisdiction and state of Utah tax jurisdiction. The tax year for 2015 remains open for federal and/or state tax jurisdictions.
NOTE 11 – STOCK TRANSACTIONS
On October 6, 2015, the Company amended its Articles of Incorporation to authorize the issuance of 25,000,000 shares of preferred stock in addition to its authorized shares of common stock, and on the same date, designated 1,000,000 of such shares as Series A Preferred Stock. Each share of Series A Preferred Stock converts into one share of common stock but has 10,000 votes.
As of October 31, 2015 and July 31, 2015, the Company has 750,000,000 shares of common stock authorized with a par value of $.001, and 533,165,512 and 252,467,187 shares of common stock issued and outstanding, respectively.
During the three-month period ended October 31, 2015, the Company issued 280,698,325 shares of common stock related to convertible notes.
KBM Worldwide made 10 conversions for 151,605,438 shares and $25,050 in principal during the three months ended October 31 2015. On August 6, 2015, KBM Worldwide converted $840 of principal related to the April 30, 2014, convertible note, into 8,400,000 shares of the Company's common stock at $ 0.000100 per share. The remaining principal balance due after the conversion was $63,255. On August 12, 2015, KBM Worldwide converted $815 of principal related to the April 30, 2014, convertible note, into 13,583,333 shares of the Company's common stock at $ 0.000060 per share. The remaining principal balance due after the conversion was $62,440. On October 5, 2015, KBM Worldwide converted $1,630 of principal related to the April 30, 2014, convertible note, into 13,583,333 shares of the Company's common stock at $ 0.000120 per share. The remaining principal balance due after the conversion was $60,810. On October 6, 2015, KBM Worldwide converted $700 of principal related to the April 30, 2014, convertible note, into 5,833,333 shares of the Company's common stock at $ 0.000120 per share. The remaining principal balance due after the conversion was $60,110. On October 6, 2015, KBM Worldwide converted $1,630 of principal related to the April 30, 2014, convertible note, into 13,583,333 shares of the Company's common stock at $ 0.000120 per share. The remaining principal balance due after the conversion was $58,480. On October 7, 2015, KBM Worldwide converted $2,725 of principal related to the April 30, 2014, convertible note, into 19,464,286 shares of the Company's common stock at $ 0.000140 per share. The remaining principal balance due after the conversion was $55,755. On October 9, 2015, KBM Worldwide converted $2,725 of principal related to the April 30, 2014, convertible note, into 19,464,286 shares of the Company's common stock at $ 0.000140 per share. The remaining principal balance due after the conversion was $53,030. On October 12, 2015, KBM Worldwide converted $2,920 of principal related to the April 30, 2014, convertible note, into 19,466,667 shares of the Company's common stock at $ 0.000150 per share. The remaining principal balance due after the conversion was $50,110. On October 15, 2015, KBM Worldwide converted $5,525 of principal related to the April 30, 2014, convertible note, into 24,021,739 shares of the Company's common stock at $ 0.000230 per share. The remaining principal balance due after the conversion was $44,585. On October 20, 2015, KBM Worldwide converted $5,540 of principal related to the April 30, 2014, convertible note, into 14,205,128 shares of the Company's common stock at $ 0.000390 per share. The remaining principal balance due after the conversion was $39,045.
Typenex Co-Investment, LLC made 2 conversions for 62,700,000 shares and $3,010 in principal during the three months ended October 31 2015. On August 18, 2015, Typenex Co-Investment, LLC converted $1,310 of principal related to the December 2, 2014, convertible note, into 27,300,000 shares of the Company's common stock at $ 0.000048 per share. The remaining principal balance due after the conversion was $37,115. On September 8, 2015, Typenex Co-Investment, LLC converted $1,699 of principal related to the December 2, 2014, convertible note, into 35,400,000 shares of the Company's common stock at $ 0.000048 per share. The remaining principal balance due after the conversion was $35,416.
JMJ Financial made 3 conversions for 44,735,000 shares and $2,460 in principal during the three months ended October 31 2015. On August 6, 2015, JMJ Financial converted $693 of principal related to the December 10, 2014, convertible note, into 12,595,000 shares of the Company's common stock at $ 0.000055 per share. The remaining principal balance due after the conversion was $50,229. On August 21, 2015, JMJ Financial converted $862 of principal related to the December 10, 2014, convertible note, into 15,680,000 shares of the Company's common stock at $ 0.000055 per share. The remaining principal balance due after the conversion was $49,367. On August 27, 2015, JMJ Financial converted $905 of principal related to the December 10, 2014, convertible note, into 16,460,000 shares of the Company's common stock at $ 0.000055 per share. The remaining principal balance due after the conversion was $48,462.
LG Capital Funding, LLC made 1 conversion for 13,157,887 shares and $3,053 in principal during the three months ended October 31 2015. On October 15, 2015, LG Capital Funding, LLC converted $3,053 of principal related to the December 2, 2014, convertible note, into 13,157,887 shares of the Company's common stock at $ 0.000232 per share. The remaining principal balance due after the conversion was $67,141.
Evolution Capital Partners, LLC made 1 conversion for 8,500,000 shares and $3,400 in principal during the three months ended October 31 2015. On August 27, 2015, Evolution Capital Partners, LLC converted $3,400 of principal related to the August 18, 2013, convertible note, into 8,500,000 shares of the Company's common stock at $ 0.000400 per share. The remaining principal balance due after the conversion was $121,600.
As of October 31, 2015 and July 31, 2015, the Company has 25,000,000 and 0 shares of preferred stock authorized, respectively, with a par value of $.001, and 1,000,000 and 0 shares of Series A Preferred Stock common stockissued and outstanding, respectively.
On October 15, 2015, Zen Family LP, an entity controlled by our founder and director, Tracy Gibbs, returned 1,000,000 shares of the Company’s common stock to the Company for cancellation and was issued 1,000,000 shares of the Company’s Series A Preferred Stock.
Equity Purchase Agreement
The Company entered into an equity purchase agreement with Southridge Partners II, LP ("Southridge") on December 9, 2013. Pursuant to the Equity Purchase Agreement, Southridge committed to purchase up to $10,000,000 of the Company's common stock, over a period of time terminating on the earlier of: (i) 24 months from the effective date of a registration statement to be filed in connection therewith or (ii) the date on which Southridge has purchased shares of common stock pursuant to this agreement for an aggregate maximum purchase price of $10,000,000; such commitment is subject to certain conditions. The purchase price to be paid by Southridge will be 90% of the average of the lowest three (3) daily volume weighted average prices for the Company's common stock for the ten (10) trading days immediately following clearing of the Estimated Put Shares (defined below) (such purchase price the "Put Purchase Price") under the Equity Purchase Agreement.
The Company will deliver to Southridge, simultaneously with delivery of a Put Notice, a number of Shares equal to 125% of the Investment Amount divided by the closing price of the Company's common stock on the day preceding the Put Notice date (the "Estimated Put Shares"). The actual number of Shares purchased by Southridge for the Investment Amount shall then be calculated by dividing the Investment Amount by the Put Purchase Price. Any excess Estimated Put Shares shall then be returned to the Company.
The number of Shares sold to Southridge at any time shall not exceed the number of such shares that, when aggregated with all other shares of common stock of the Company then beneficially owned by Southridge, would result in Southridge owning more than 9.99% of all of the Company's common stock then outstanding. Also as part of the equity purchase agreement, the Company issued a promissory note to Southridge for $50,000, with 0% interest. This note matures on May 31, 2014 and is not convertible into common stock. Finally, as part of the equity purchase agreement, Southridge is prohibited from executing any short sales of the Company's common stock during the term of the equity purchase agreement.
The Company will not be entitled to put shares to Southridge:
· unless there is an effective registration statement under the Securities Act to cover the resale of the shares by Southridge; | |
· unless the common stock continues to be quoted on the OTC Bulletin Board and has not been suspended from trading; | |
· if an injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the shares to Southridge; |
· if the Company has not complied with their obligations and are otherwise in breach of or in default under, the Equity Purchase Agreement, our registration rights agreement (the "Registration Rights Agreement") with Southridge or any other agreement executed in connection therewith with Southridge; |
· since the date of the filing of the Company's most recent filing with the Securities and Exchange Commission no event that had or is reasonably likely to have a Material Adverse Effect (as defined in the Equity Purchase Agreement) has occurred; and |
· to the extent that such shares would cause Southridge's beneficial ownership to exceed 9.99% of our outstanding shares. |
The Equity Purchase Agreement further provides that Southridge is entitled to customary indemnification from the Company for any losses or liabilities it suffers as a result of any breach of any provisions of the Equity Purchase Agreement or the Registration Rights Agreement, or as a result of any lawsuit brought by a third-party arising out of or resulting from Southridge's execution, delivery, performance or enforcement of the Equity Purchase Agreement or the Registration Rights Agreement or from material misstatements or omissions in the prospectus accompanying the registration statement for the resale of the shares issued to Southridge.
As of October 31, 2015, 2,107,554 shares have been issued under the Equity Purchase Agreement representing $137,120 in cash received.
NOTE 12 – DERIVATIVE LIABILITY
FASB ASC 820 defines fair value, establishes a framework for measuring fair value under U.S. generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FASB ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, with the first two inputs considered observable and the last input considered unobservable, that may be used to measure fair value as follows:
| · | Level one -- Quoted market prices in active markets for identical assets or liabilities; |
| · | Level two – Inputs, other than level one inputs, that are either directly or indirectly observable; and |
| · | Level three -- Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use. |
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company has one liability measured at fair value on a recurring basis, which consists of a derivative liability on certain convertible notes payable (see note 11). As of October 31, 2015 this derivative liability had an estimated fair value of $427,456. The Company has no assets that are measured at fair value on a recurring basis.
The following table presents information about our derivative liability, which was our only financial instrument measured at fair value on a recurring basis using significant inputs other than level one inputs that are either directly or indirectly observable (Level 2) as of October 31, 2015:
| Balance at July 31, 2015 | | $ | 93,204 | |
| Conversions | | | (70,817 | ) |
| Change in Fair Value of Derivative | | | 400,778 | |
| Issuances | | | 4,291 | |
| | | | | |
| Balance at October 31, 2015 | | $ | 427,456 | |
The fair value of this derivative liability was calculated using the multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. These models are based on future projections of the various potential outcomes. The features in the notes that were analyzed and incorporated into the model included the conversion feature with the reset provisions; redemption provisions; and the default provisions. Assumptions used to calculate the fair value of the derivative liability were as follows:
| | | October 31, | |
| | | 2015 | |
| Expected term in years | | 0-.26 years | |
| Risk-free interest rates | | | 0.01-0.28 | % |
| Volatility | | | 194 -202 | % |
| Dividend yield | | | 0 | % |
In addition to the assumptions above, the Company also takes into consideration whether or not the Company would participate in another round of financing and if that financing is registered or not and what that stock price would be for the financing at that time. The Company notes that the notes have matured and is no longer calculating a derivative value for these notes.
NOTE 13 – INDUSTRY SEGMENT, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
Geographic Sales Regions
We currently sell and distribute our products six geographic regions: North Asia, Greater China, South Asia/Pacific, Europe, Middle East, and Americas. The following table sets forth the revenue for each of the geographic regions for the three months ended October 31, 2015 and 2015:
| | | Three Months Ended October 31, | |
| | | 2015 | | | 2014 | |
| | | | | | | | | | | | | |
| Americas | | $ | 125,942 | | | | 30.78 | % | | $ | 363,088 | | | | 56.62 | % |
| North Asia | | | 95,761 | | | | 23.40 | | | | 2,020 | | | | 0.32 | |
| Greater China | | | 61,670 | | | | 15.07 | | | | 152,105 | | | | 23.72 | |
| South Asia/Pacific | | | 125,417 | | | | 30.65 | | | | 123,978 | | | | 19.33 | |
| Middle East | | | - | | | | - | | | | 46 | | | | 0.01 | |
| Europe | | | 426 | | | | 0.10 | | | | - | | | | - | |
| | | $ | 409,216 | | | | 100.00 | % | | $ | 641,237 | | | | 100.00 | % |
The table below lists our equipment, net, by geographic area for the three months ended October 31, 2015 and July 31, 2015:
| | | Three Months Ended October 31, | |
| | | 2015 | | | 2014 | |
| | | | | | | | | | | | | |
| Americas | | $ | 8,717 | | | | 100.00 | % | | $ | 13,832 | | | | 100.00 | % |
| North Asia | | | - | | | | - | | | | - | | | | - | |
| Greater China | | | - | | | | - | | | | - | | | | - | |
| South Asia/Pacific | | | - | | | | - | | | | - | | | | - | |
| Europe | | | - | | | | - | | | | - | | | | - | |
| | | $ | 8,717 | | | | 100.00 | % | | $ | 13,832 | | | | 100.00 | % |
The table below lists revenue generated by each of the Company's product lines during the three months ended October 31, 2015 and 2014:
| | Three Months Ended October 31, | |
| | 2015 | | 2014 | |
| | | | | | | | | |
| Product Sales | | $ | 406,416 | | | | 99.32 | % | | $ | 634,661 | | | | 98.97 | % |
| NBA Services | | | 2,800 | | | | 0.68 | | | | 6,576 | | | | 1.03 | |
| Educational Services | | | - | | | | - | | | | - | | | | - | |
| | | $ | 409,216 | | | | 100.00 | % | | $ | 641,237 | | | | 100.00 | % |
Significant Customers
Three customer’s make up 50.6% and 36.7% of total sales as of the three months ended October 31, 2015 and 2014, respectively.
NOTE 14 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through December 29, 2015, which is the date the financial statements were available to be issued. The Company identified the following subsequent events through December 29, 2015:
On or about November 10, 2015, the Company signed a new loan forbearance agreement, requiring the immediate payment of $25,578, including interest of $940 and $2,000 in legal fees, in which, KeyBank agreed to allow Nutranomics to pay interest only on the loan in December and with a balloon payment of all principal and interest due in January 2016.
On or about November 17, 2015, the Company rescinded the agreement executed on January 26, 2015, wherein the Company entered into a Share Exchange Agreement with Nutriband Ltd., an Irish private limited company ("Nutriband"), and its shareholders to acquire 100% of Nutriband in exchange for (1) the issuance of 3,172,554 shares of the Company's common stock to Nutriband's shareholder, Gareth Sheridan, and (2) the payment of a perpetual 10% royalty on gross global sales of all Nutriband products to the Nutriband shareholders. Nutranonics, Inc. and Nutriband, and the Company simultaneously canceled its employment agreement with Mr. Sheridan.
On November 24, 2015, Edward J. Eyring, II, M.D. resigned as Chief Executive Officer, Chief Financial Officer, and Secretary of Nutranomics, Inc. (the “Company”), and on December 3, 2015, Tracy Gibbs was appointed as Interim Chief Executive Officer, Chief Financial Officer, and Secretary of the Company. Dr. Eyring will remain General Manager overseeing Company operations.
On December 13, 2015, the Company increased the authorized number of shares of common stock to five billion.
On December 15, 2015, Evolution Capital Partners, LLC converted $2000 of principal related to the August 18, 2013, convertible note, into 20,000,000 shares of the Company's common stock at $ 0.0001 per share. The remaining principal balance due after the conversion was $119,600.
On December 21, 2015, Evolution Capital Partners, LLC converted 22,000 of principal related to the August 18, 2013, convertible note, into 27,500,000 shares of the Company's common stock at $ 0.0008 per share. The remaining principal balance due after the conversion was $97,600.
On December 22, 2015, the Company received a cease and desist letter from Gennesar Nutraceuticals, LLC for breach of the amended license agreement entered into on August 24, 2015, wherein the Company had an exclusive license to produce and sell the Gennesar product, “Gen Epic.” Gennesar alleges among other things that the Company without consent altered the formulation and packaging of “Gen Epic.” The Company is consulting with litigation counsel regarding an appropriate response.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction to Interim Consolidated Financial Statements.
Certain statements made in this Form 10-Q are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate and, therefore, there can be no assurance the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "believe," "anticipate," "future," "potential," "estimate," "encourage," "opportunity," "growth," "leader," "expect," "intend," "plan," "expand," "focus," "through," "strategy," "provide," "offer," "allow," commitment," "implement," "result," "increase," "establish," "perform," "make," "continue," "can," "ongoing," "include" or the negative of such terms or comparable terminology. All forward-looking statements included in this Form 10-Q are based on information available to us as of the filing date of this report, and the Company assumes no obligation to update any such forward-looking statements, except as required by law. Our actual results could differ materially from the forward-looking statements.
The interim consolidated financial statements included herein have been prepared by Nutranomics, Inc. (“Nutranomics” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in this filing.
In the opinion of management, all adjustments have been made consisting of normal recurring adjustments and consolidating entries, necessary to present fairly the consolidated financial position of the Company and subsidiaries as of October 31, 2015, the results of its consolidated statements of comprehensive income/(loss) for the three month periods ended October 31, 2015 and October 31, 2014, and its consolidated cash flows for the three month periods ended October 31, 2015 and October 31, 2014. The results of consolidated operations for the interim periods are not necessarily indicative of the results for the full year.
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Going Concern
The Company’s financial statements are prepared using generally accepted accounting principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has generally had net losses after consideration of income taxes. Further, the Company has negative working capital and insufficient cash flows from operation as of October 31, 2015, and does not have the requisite liquidity to pay its current obligations. These factors, among others, raise substantial doubt about its ability to continue as a going concern. Management will seek to increase revenues and reduce costs, while raising capital through the sale of its stock. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
RESULTS OF OPERATIONS
The following summary of our results of operations should be read in conjunction with our financial statements for the three-month period ended October 31, 2015 and 2014.
Our operating results for the three-month period ended Oct 31, 2015 and 2014, are summarized as follows:
| | | The Three Months Ended
October 31, | |
| | | 2015 | | | 2014 | |
| | | | | | | |
| Revenues | | $ | 409,216 | | | $ | 641,237 | |
| Cost of Sales | | $ | 190,297 | | | $ | 299,670 | |
| Operating Expenses | | $ | 553,698 | | | $ | 290,132 | |
| Change in fair value of derivative | | $ | (419,666 | ) | | $ | - | |
| Interest Expense | | $ | (119,457 | ) | | $ | (90,591 | ) |
| Net Income (Loss) | | $ | (873,802 | ) | | $ | (39,156 | ) |
Revenues and Cost of Sales
Our business model currently generates revenues from two primary sources:
1) Product sales: 99.32% and 98.87% for the three months ended October 31, 2015 and 2014, respectively; and
2) Nutritional Blood Analysis (NBA) services: 0.68% and 1.03% for the three months ended October 31, 2015 and 2014, respectively.
Our revenues from product sales decreased from $634,661 in the three months ended October 31, 2014, to $406,416 in the three months ended October 31, 2015, a decrease of 35.96% totaling $228,245. The decrease was due to a decrease in product sales with loss of our larger customers. The revenues from NBA services decreased from $6,576 in the three months ended October 31, 2014, to $2,800 in the three months ended October 31, 2015, a decrease of $3,776. The decrease was due to the Company decreasing its efforts in NBA activity in the three months ended October 31, 2015.
Revenues derived from sales in the Americas totaled $125,942, or 30.78%, in the three months ended October 31, 2015, as compared to $363,088, or 56.62%, in the three months ended October 31, 2014. Revenues derived from sales outside of the Americas totaled $283,274, or 69.22%, in the three months ended October 31, 2015, as compared to $278,149, or 43.38%, in the three months ended October 31, 2014.
Revenues derived from product sales totaled $406,416, or 99.32%, in the three months ended October 31, 2015, as compared to $634,661, or 98.97%, in the comparable period in 2014. The company also derived revenue from NBA services in the amount of $2,800, or .68%, in the three months ended October 31, 2015 as compared to $6,576, or 1.03%, in the three months ended October 31, 2014. The company did not derive revenues from educational services in 2015 or 2014.
Our cost of sales decreased from $299,670 in the three months ended October 31, 2014, to $190,297 in the three months ended October 31, 2015, a decrease of 36.50% totaling $109,373. The decrease directly relates to the decrease in product sales in 2014 and loss of the larger customers with lower profit margins.
Interest expense increased from $90,591 in the three months ended October 31, 2014, to $119,457 in the three months ended October 31, 2015, an increase of 31.86% totaling $28,866. The increase is due to the Company entering into two convertible notes during the quarter.
Three of our customers make up approximately 37.57% of our total sales for three months ending October 31, 2015, as compared to one customer making up approximately 37.57% of our total sales for the same period in 2014, and three of our suppliers make up approximately 71.07% and 71.07% of our total purchases for the three months ending October 31, 2015 and 2014. While we have had simple purchase orders with this customer and these suppliers in the past (for quantities of our supplements and supplement ingredients at various prices and negotiated on a case-by-case basis), we do not have and have never had production or supply agreements with this customer or these suppliers, we do not have purchase or supply agreements with this customer or these suppliers governing future orders, and were we to lose this customer or these suppliers, our business would be harmed. Our revenues would significantly decline were we to lose this customer, and our cost of goods sold would increase were we to lose these suppliers.
Expenses
Our operating expenses for the three months ended October 31, 2015 and 2014, are outlined in the table below:
| | The Three Months Ended
October 31, | |
| | 2015 | | 2014 | |
| | | | | |
| General and administrative | | $ | 71,265 | | | $ | 63,785 | |
| Advertising and Marketing | | $ | 15,286 | | | $ | 24,771 | |
| Professional fees | | $ | 92,927 | | | $ | 59,269 | |
| Salaries and wages | | $ | 374,220 | | | $ | 142,307 | |
Our total operating expenses for the three months ended October 31, 2015, were $553,698 as compared to $290,132 for the comparable period in 2014, an increase of 90.84% totaling $263,566. The increase in operating expenses during the three months ended October 31, 2015 as compared to the same period in 2014 was due to stock based compensation paid to the former CEO upon his resignation.
General and administrative expense increased from $63,785 in the three months ended October 31, 2015, to $71,265 in the comparable period in 2014, an increase of 11.73% totaling $7,480. The decrease is due mostly to decreases in office expenses, supplies, and travel costs offset by bad debt written off in the three months ended October 31, 2015 compared to the same period in 2014.
Advertising and marketing expense decreased from $24,771 in the three months ended October 31, 2014 to $15,286 in the comparable period in 2015, a decrease of 38.29% totaling $9,485. The decrease is due to the Company decreasing their efforts in the three months ended October 31, 2015, compared to the same period in 2014.
Professional fees increased from $59,269 in the three months ended October 31, 2015, to $92,927 in the three months ended October 31, 2014, an increase of 56.79% totaling $33,658. The increase is due increased legal fees associated with litigation, contracts, and convertible notes.
Salaries and wages expenses increased from $142,307 in the three months ended October 31, 2014, to $374,220 during the same period in 2015, an increase of 162.97% totaling $231,913. The increase is due to stock-based compensation paid to former the CEO based upon his resignation.
Equity Compensation
The Company issued a convertible note with a principal amount of $299,382 dollars to the Company's former CEO during the three months ended October 31, 2015.
Liquidity and Financial Condition
| Working Capital | | | | | | |
| | | October 31, | | | July 31, | |
| | | 2015 | | | 2015 | |
| | | | | | | |
| Current Assets | | $ | 393,942 | | | $ | 432,725 | |
| Current Liabilities | | $ | 2,562,534 | | | $ | 1,757,222 | |
| Working Capital (deficit) | | $ | (2,168,592 | ) | | $ | (1,324,497 | ) |
| Cash Flows | | | | | |
| | The Three Months Ended | |
| | October 31, | |
| | 2015 | | 2014 | |
| | | | | | | |
| Net Cash Provided by (Used in) Operating Activities | | $ | (32,827 | ) | | | (20,714 | ) |
| Net Cash Used in Financing Activities | | $ | (661 | ) | | | 24,563 | |
| Increase in Cash during the Period | | $ | (33,488 | ) | | | 3,849 | |
| Cash and Cash Equivalents, End of Period | | $ | 56,898 | | | | 83,084 | |
The Company had current assets of $393,942 during the three months ended October 31, 2015, as compared to $432,725 as of July 31, 2015; the decrease is mostly due to the Company’s decrease in inventory, partially offset by an increase in cash and cash equivalents and accounts receivable. The Company had current liabilities of $2,562,534 during the three months ended October 31, 2015, as compared to $1,757,222 as of July 31, 2015. The increase is mainly due to an increase in current portions of long-term liabilities as the notes are closer to maturity. The change is offset by decreases in accounts payable and accrued expenses, lines of credit, related party payable and notes payable due to the Company paying down balances in the current period and an increase in note derivative liability due to the current valuation of the derivative instruments. The Company has incurred cumulative losses since inception of $6,848,914. As of October 31, 2015, the Company had a working capital deficit of $2,168,592 primarily due to a decrease in cash from sales during the three months ended October 31, 2015, as compared to the same period in 2014.
Cash from operating activities decreased to ($32,827) during the three months ended October 31, 2015, as compared to ($20,714) in the comparable period in 2014. The increase was mostly due to changes in net income (loss), amortization of debt discount, accounts receivable, inventory, unearned revenue and accounts payable.
Cash from financing activities increased to ($661) during the three months ended October 31, 2015, as compared to 24,563 in the comparable period in 2014. The increase was due to an increase in borrowing under convertible notes in the current period.
Cash used in investing activities were $0 during the three months ended October 31, 2014, and in the same period in 2015. The Company did not have any activity in either prior.
The future of the Company as an operating business will depend on its ability to obtain sufficient capital contributions and/or financing as may be required to sustain its operations. Management’s plan to address these issues includes a continued exercise of cost controls to conserve cash and obtaining additional debt and/or equity financing.
As we continue our business operations, we will continue to experience net negative cash flows from operations, pending receipt of significant revenues that generate a positive sales margin.
The Company expects that additional operating losses will occur until net margins gained from sales revenue is sufficient to offset the costs incurred for marketing, sales and product development. Until the Company has achieved a sales level sufficient to break even, it will not be self-sustaining or be competitive in the areas in which it intends to operate.
The Company’s management team believes that its success depends on the Company’s ability to raise additional capital and increase product sales. The Company is currently expanding into Southeast Asia and the European Union. By selling in multiple international markets, the Company believes that it will be able to successfully implement its business plan and achieve profitability.
As of October 31, 2015, the existing capital and anticipated funds from operations were not sufficient to sustain Company operations or the business plan over the next twelve months. We anticipate substantial increases in our cash requirements which will require additional capital to be generated from the sale of common stock, the sale of preferred stock, equipment financing, debt financing and bank borrowings, to the extent available, or other forms of financing to the extent necessary to augment our working capital. In the event we cannot obtain the necessary capital to pursue our strategic business plan, we may have to significantly curtail our operations. Failure to obtain additional financing would have a material adverse effect on our business operations. There is no assurance that the Company will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to the Company.
Recent global events, as well as domestic economic factors, have limited the access of many companies to both debt and equity financing. As such, no assurance can be made that financing will be available or available on terms acceptable to the Company, and, if available, it may take the form of debt or equity. In either case, any financing will have a negative impact on our financial condition and may result in an immediate and substantial dilution to our existing stockholders.
Although the Company intends to engage in a subsequent equity offering of its securities to raise additional working capital for operations, the Company has no firm commitments for any additional equity funding at the present time. Insufficient financial resources may require the Company to delay or eliminate all or some of its development, marketing and sales plans, which could have a material adverse effect on the Company’s business, financial condition and results of operations. There is no certainty that the expenditures to be made by the Company will result in a profitable business proposed by the Company.
Subsequent Events
On or about November 10, 2015, the Company signed a new loan forbearance agreement, requiring the immediate payment of $25,578, including interest of $940 and $2,000 in legal fees, in which, KeyBank agreed to allow Nutranomics to pay interest only on the loan in December and with a balloon payment of all principal and interest due in January 2016.
On or about November 17, 2015, the Company (Nutranomics, Inc.) rescinded the agreement executed on January 26, 2015, wherein the Company entered into a Share Exchange Agreement with Nutriband Ltd., an Irish private limited company ("Nutriband"), and its shareholders to acquire 100% of Nutriband in exchange for (1) the issuance of 3,172,554 shares of the Company's common stock to Nutriband's shareholder, Gareth Sheridan, and (2) the payment of a perpetual 10% royalty on gross global sales of all Nutriband products to the Nutriband shareholders, and the Company simultaneously canceled its employment agreement with Mr. Sheridan.
On November 24, 2015, Edward J. Eyring, II, M.D. resigned as Chief Executive Officer, Chief Financial Officer, and Secretary of Nutranomics, Inc. (the “Company”), and on December 3, 2015, Tracy Gibbs was appointed as Interim Chief Executive Officer, Chief Financial Officer, and Secretary of the Company. Dr. Eyring will remain General Manager overseeing Company operations.
On December 13, 2015 the Company increased the authorized number of common stock shares to 5 billion.
On December 15, 2015, Evolution Capital Partners, LLC converted $2000 of principal related to the August 18, 2013, convertible note, into 20,000,000 shares of the Company's common stock at $ 0.0001 per share. The remaining principal balance due after the conversion was $119,600.
On December 21, 2015, Evolution Capital Partners, LLC converted $22,000 of principal related to the August 18, 2013, convertible note, into 27,500,000 shares of the Company's common stock at $ 0.0008 per share. The remaining principal balance due after the conversion was $97,600.
On December 22, 2015, the Company received a cease and desist letter from Gennesar Nutraceuticals, LLC for breach of the amended license agreement entered into on August 24, 2015, wherein the Company had an exclusive license to produce and sell the Gennesar product, “Gen Epic.” Gennesar alleges among other things that the Company without consent altered the formulation and packaging of “Gen Epic.” The Company is consulting with litigation counsel regarding an appropriate response.
Critical Accounting Policies
Our financial statements are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 2 of our financial statements are included in the Company’s Current Report on Form 10-K filed on November 13, 2015. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause an effect on our results of operations, financial position or liquidity for the periods presented in this report.
Revenue Recognition
Our revenue is derived from the service revenue from Nutritional Blood Analysis, sale of retail products, and revenue derived from educational services.
The Company’s revenue recognition policy is in accordance with the requirements of Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (“SAB 104”), and other applicable revenue recognition guidance under US GAAP. Sales revenue is recognized for our retail and wholesale customers when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectibility is reasonably assured — generally when products are shipped to the customer and services are rendered, except in situations in which title passes upon receipt of the products by the customer. In this case, revenues are recognized upon notification that customer receipt has occurred. The Company accrues an estimated amount for sales returns and allowances related to defective or returned products at the time of sale based on its ability to estimate sales returns and allowances using historical information. As of July 31, 2013 and 2012, the Company calculated the amount to be less than 1% of sales so no allowance was accrued in either year. Shipping and handling fees and related freight costs and supplies associated with shipping products to customers are included as a component of cost of sales. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
The Company also recognizes revenues from the distribution of its product through trade partners. Related revenues consist of product costs, distribution fees, testing and labeling costs, as well as any associated administrative fees. The Company recognizes these revenues after the product has been shipped from the outsource manufacturer to the trade partner. The Company has contractual obligation to pay the outsource manufacturers, and as a principal in these arrangements the Company includes the total product price as revenue in accordance with applicable accounting guidance. The Company has separately negotiated contractual relationships with its trade partners, and under contracts with these trade partners the Company assumes the credit risk of product produced by the outsource manufacturer and dispensed to the trade partner.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As the Company is a "smaller reporting company," this item is not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term "disclosure controls and procedures" to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer's management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are not effective as of such date. The Chief Executive Officer and Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:
| 1. | A lack of independent directors; |
| 2. | Lack of in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions; |
| 3. | Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting; |
| 4. | Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes. |
To remediate our internal control weaknesses, management intends to implement the following measures:
| · | | The Company will add a sufficient number of independent directors to the board and form an Audit Committee. |
| · | | The Company will add sufficient accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements. |
| · | | The Company will hire staff technically proficient at applying U.S. GAAP to financial transactions and reporting. |
| · | | Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures. |
The additional hiring is wholly contingent upon the Company's ability to increase its cash flow as a result of its operations. Management hopes to have sufficient funds in the coming fiscal year to begin to institute the above measures but provides no assurances that it will be able to do so.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred in the nine months ended October 31, 2015, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
Limitations on the Effectiveness of Controls
The Company's management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
On June 17, 2013, the Company’s subsidiary, Health Education Corporation (“Health Education”), served a complaint on Ignite Naturals, Inc., a customer (“Ignite”), for breach of contract and failure to pay amounts owed by Ignite for its purchase orders with Health Education, and seeking general damages of $146,353. Ignite subsequently removed the case from Utah state court to federal district court, and filed an Answer and Counterclaim, which the Company answered on September 9, 2013. Ignite’s counsel subsequently withdrew from the case, the court ordered Defendant to have new counsel appear within 21 days, and on November 18, 2013, the court entered an order ordering Defendant to, within 14 days of the order, show cause why sanctions against Defendant should not be imposed for failure to appoint counsel. On December 10, 2013, for Defendant’s failure to appear at the initial pretrial conference or show cause why sanctions against Defendant were not appropriate, the court entered an order imposing terminating sanctions on Defendant and directing the court clerk to enter judgment in favor of Health Education for $146,353. On December 12, 2013, the court entered judgment in favor of Health Education against Ignite for $146,353.
On November 22, 2013, the Company, through counsel, sent a demand to Zions Bank (“Zions”) in connection with the three wires sent by Zions pursuant to oral instructions received from the person fraudulently identifying himself as Dr. Gibbs via telephone (totaling $208,920), for an immediate credit to the Company’s bank account of all unrecovered funds from those wires (totaling $54,028). On January 7, 2014, the Company settled with Zions in full, and Zions paid the Company $27,014.
On March 20, 2014, the Company’s subsidiary, Health Education Corporation (“Health Education”), was served a copy of a complaint filed by EpicEra Incorporated (“Epic”) in the Utah Third Judicial District Court for the return of a $100,000 deposit paid by Epic to Health Education for the supply of nutritional products. On April 16, 2014, Health Education answered the Complaint and filed a counterclaim against Epic and third-party claims against eCosway USA, Inc. (“eCosway,” which is Epic’s owner), and its principals, for breach of a non-disclosure and non-circumvention agreement, unjust enrichment, fraud, and fraudulent nondisclosure. Health Education’s claims alleged that (1) eCosway and its principals have defrauded Health Education and engaged in a scheme of corporate espionage to misappropriate Health Education’s proprietary information and trade secrets to launch their new multilevel marketing company, Epic; (2) under the fraudulent guise of partnering with Health Education to have Health Education formulate and produce the health products to be sold by Epic’s distributors, eCosway and its principals signed a non-disclosure and non-circumvention agreement that they had no intention of honoring in order to gain access to Health Education’s proprietary information so that they could steal that information and use it for their own benefit; (3) Health Education relied upon the non-disclosure and non-circumvention agreement and misrepresentations of Epic, eCosway, and its principals, and disclosed the proprietary information and formulations, which Epic then appropriated as its own. Health Education’s claims request general damages as well as punitive damages. On May 6, 2015, fact discovery concluded, and expert discovery has also concluded. Epic filed a motion for summary judgment on or about June 2, 2015, Health Education opposed the motion on or about June 19, 2015, and a hearing was scheduled for September 9, 2015. After receiving arguments, the court ruled that EpicEra’s motion for summary judgment was denied in part and granted in part, ordering that the case would be tried regarding whether Nutranomics was entitled to offset the Epic deposit by purchases it made and labor it used in performing on the purchase order with EpicEra, and as to the breach of contract claim filed by Nutranomics against EpicEra for not fulfilling the purchase order agreement, while Nutranomics’s claims against eCosway and Glenn Jensen for Breach of the Non-Disclosure and Non-Circumvention agreement were dismissed based on insufficient proof of damages. On September 30, 2015, Wrona, Gordon & DuBois withdrew as counsel for Nutranomics. On November 21, 2015, the Company obtained the counsel of TR Spencer and Associates, LLP, which represented the Company at a pretrial conference on November 25, 2015. The trial is scheduled for January 27, 2015.
On January 16, 2015, the Company was served a copy of a complaint filed by NHK Laboratories, Inc., in the Superior Court of California, County of Los Angeles, arising out of an alleged breach of contract by the Company and seeking $79,770 in principal, plus interest and attorney fees. The Company retained local counsel who answered the complaint. On October 21, 2015, the court ordered Nutranomics to provide additional documentation to the plaintiff, and Nutranomics has provided the requested documentation. The parties are currently discussing potential settlement terms.
On June 24, 2015, KBM Worldwide, Inc. and Vis Vires Group, Inc., two of the Company's creditors, sent the Company notices of default for the Company's failure to comply with the reporting requirements of the Exchange Act.
On or about October 16, 2015, the Company’s subsidiary, Health Education Corporation (“Health Education”), and our founder and director, Tracy Gibbs (“Gibbs”), were served a copy of a complaint filed by KeyBank in the Utah Third Judicial District Court for breach of contract of a loan made by KeyBank to Health Education and guaranteed by Gibbs (the “Loan”). The Loan was entered into on or August 28, 2012, and KeyBank alleged that it was owed outstanding principal of approximately $173,370.80, with additional amounts due for accrued interest, late fees, and attorney fees. Health Education negotiated a repayment plan with KeyBank, entering into a forbearance agreement on or about November 9, 2015, with an effective date of November 5, 2015, pursuant to which Health Education would immediately pay KeyBank $25,578.01, interest only of approximately $914.40 on December 1, 2015, and the full amount due under the loan documents, or approximately $156,506.75 on or before December 31, 2015, with both Health Education and Gibbs signing confessions of judgment to be filed by KeyBank if the agreed amounts were not paid. On November 10, 2015, Health Education paid KeyBank $25,578.01 as agreed.
On December 22, 2015, the Company received a cease and desist letter from Gennesar Nutraceuticals, LLC for breach of the amended license agreement entered into on August 24, 2015, wherein the Company had an exclusive license to produce and sell the Gennesar product, “Gen Epic.” Gennesar alleges among other things that the Company without consent altered the formulation and packaging of “Gen Epic.” The Company is consulting with litigation counsel regarding an appropriate response.
Management of the Company has conducted a diligent search and concluded that, other than as disclosed herein, there were no commitments, contingencies, or legal matters pending at the balance sheet dates that have not been disclosed.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
During the three-month period ended October 31, 2015, the Company issued 280,698,325 shares of common stock related to convertible notes.
KBM Worldwide made 10 conversions for 151,605,438 shares and $25,050 in principal during the three months ended October 31 2015. On August 6, 2015, KBM Worldwide converted $840 of principal related to the April 30, 2014, convertible note, into 8,400,000 shares of the Company's common stock at $ 0.000100 per share. The remaining principal balance due after the conversion was $63,255. On August 12, 2015, KBM Worldwide converted $815 of principal related to the April 30, 2014, convertible note, into 13,583,333 shares of the Company's common stock at $ 0.000060 per share. The remaining principal balance due after the conversion was $62,440. On October 5, 2015, KBM Worldwide converted $1,630 of principal related to the April 30, 2014, convertible note, into 13,583,333 shares of the Company's common stock at $ 0.000120 per share. The remaining principal balance due after the conversion was $60,810. On October 6, 2015, KBM Worldwide converted $700 of principal related to the April 30, 2014, convertible note, into 5,833,333 shares of the Company's common stock at $ 0.000120 per share. The remaining principal balance due after the conversion was $60,110. On October 6, 2015, KBM Worldwide converted $1,630 of principal related to the April 30, 2014, convertible note, into 13,583,333 shares of the Company's common stock at $ 0.000120 per share. The remaining principal balance due after the conversion was $58,480. On October 7, 2015, KBM Worldwide converted $2,725 of principal related to the April 30, 2014, convertible note, into 19,464,286 shares of the Company's common stock at $ 0.000140 per share. The remaining principal balance due after the conversion was $55,755. On October 9, 2015, KBM Worldwide converted $2,725 of principal related to the April 30, 2014, convertible note, into 19,464,286 shares of the Company's common stock at $ 0.000140 per share. The remaining principal balance due after the conversion was $53,030. On October 12, 2015, KBM Worldwide converted $2,920 of principal related to the April 30, 2014, convertible note, into 19,466,667 shares of the Company's common stock at $ 0.000150 per share. The remaining principal balance due after the conversion was $50,110. On October 15, 2015, KBM Worldwide converted $5,525 of principal related to the April 30, 2014, convertible note, into 24,021,739 shares of the Company's common stock at $ 0.000230 per share. The remaining principal balance due after the conversion was $44,585. On October 20, 2015, KBM Worldwide converted $5,540 of principal related to the April 30, 2014, convertible note, into 14,205,128 shares of the Company's common stock at $ 0.000390 per share. The remaining principal balance due after the conversion was $39,045.
Typenex Co-Investment, LLC made 2 conversions for 62,700,000 shares and $3,010 in principal during the three months ended October 31 2015. On August 18, 2015, Typenex Co-Investment, LLC converted $1,310 of principal related to the December 2, 2014, convertible note, into 27,300,000 shares of the Company's common stock at $ 0.000048 per share. The remaining principal balance due after the conversion was $37,115. On September 8, 2015, Typenex Co-Investment, LLC converted $1,699 of principal related to the December 2, 2014, convertible note, into 35,400,000 shares of the Company's common stock at $ 0.000048 per share. The remaining principal balance due after the conversion was $35,416.
JMJ Financial made 3 conversions for 44,735,000 shares and $2,460 in principal during the three months ended October 31 2015. On August 6, 2015, JMJ Financial converted $693 of principal related to the December 10, 2014, convertible note, into 12,595,000 shares of the Company's common stock at $ 0.000055 per share. The remaining principal balance due after the conversion was $50,229. On August 21, 2015, JMJ Financial converted $862 of principal related to the December 10, 2014, convertible note, into 15,680,000 shares of the Company's common stock at $ 0.000055 per share. The remaining principal balance due after the conversion was $49,367. On August 27, 2015, JMJ Financial converted $905 of principal related to the December 10, 2014, convertible note, into 16,460,000 shares of the Company's common stock at $ 0.000055 per share. The remaining principal balance due after the conversion was $48,462.
LG Capital Funding, LLC made 1 conversion for 13,157,887 shares and $3,053 in principal during the three months ended October 31 2015. On October 15, 2015, LG Capital Funding, LLC converted $3,053 of principal related to the December 2, 2014, convertible note, into 13,157,887 shares of the Company's common stock at $ 0.000232 per share. The remaining principal balance due after the conversion was $67,141.
Evolution Capital Partners, LLC made 1 conversion for 8,500,000 shares and $3,400 in principal during the three months ended October 31 2015. On August 27, 2015, Evolution Capital Partners, LLC converted $3,400 of principal related to the August 18, 2013, convertible note, into 8,500,000 shares of the Company's common stock at $ 0.000400 per share. The remaining principal balance due after the conversion was $121,600.
On October 15, 2015, Zen Family LP, an entity controlled by our founder and director, Tracy Gibbs, returned 1,000,000 shares of the Company’s common stock to the Company for cancellation and was issued 1,000,000 shares of the Company’s Series A Preferred Stock.
The issuances of these shares were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as there was no general solicitation, and the transactions did not involve a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
| Exhibit No. | Description |
| 2.1 | Share Exchange Agreement with Health Education and the Shareholders of Health Education dated September 13, 2013 (incorporated by reference to our Form 8-K filed on September 24, 2013) |
| 3.1 | Articles of Incorporation (incorporated by reference to our Registration Statement on Form S-1 filed on December 19, 2008) |
| 3.2 | Bylaws (incorporated by reference to our Registration Statement on Form S-1 filed on December 19, 2008) |
| 3.3 | Articles of Merger filed with the Nevada Secretary of State on September 9, 2013 with an effective date of September 19, 2013 (incorporated by reference to our Current Report on Form 8-K filed on September 19, 2013) |
| 3.4 (1) | |
| 3.5 (1) | |
| 3.6 (1) | |
| 10.1 | License Agreement with Tracy Gibbs for US Patent Number 7,235,390 B2, dated June 14, 2007 (incorporated by reference to our Amendment No. 2 to Current Report on Form 8-K/A filed on December 12, 2013) |
| 10.2 | Employment Agreement with Nathan Jenson, dated May 14, 2012 (incorporated by reference to our Amendment No. 2 to Current Report on Form 8-K/A filed on December 12, 2013) |
| 10.3 | Office Lease Agreement with Unity Investments, LLC (incorporated by reference to our Amendment No. 2 to Current Report on Form 8-K/A filed on December 12, 2013) |
| 10.4 (1) | Amended License Agreement with Gennesar Nutraceuticals, LLC d/b/a Genesar Nutraceuticles dated August 25, 2014 |
| 10.5 | Bill of Sale and Assignment dated January 26, 2015 (incorporated by reference to our Form 8-K filed on February 2, 2015) |
| 16.1 | Letter from Sadler, Gibb & Associates, L.L.C., dated September 25, 2013 regarding change in registered public accounting firm (incorporated by reference to our Amendment No. 1 to Current Report on Form 8-K/A filed on September 27, 2013) |
| 16.2 | Letter from Mantyla McReynolds, LLC, dated May 22, 2014, regarding change in registered public accounting firm (incorporated by reference to our Current Report on Form 8-K filed on May 23, 2014) |
| 21 | List of Subsidiaries: Health Education Corporation d/b/a Nutranomics, a Utah company |
| 31.1 (1) | |
| 31.2 (1) | |
| 32.1 (1) | |
| 32.2 (1) | |
| 101.SCH (1) | XBRL Taxonomy Extension Schema Document |
| 101.CAL (1) | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF (1) | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB (1) | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE (1) | XBRL Taxonomy Extension Presentation Linkbase Document |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | Nutranomics, Inc. |
| | | |
| Date: December 31, 2015 | By: | /s/ Tracy Gibbs | |
| | | Tracy Gibbs |
| | | Chief Executive Officer |
| | | Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Date: December 31, 2015 | /s/ Tracy Gibbs | |
| | Tracy Gibbs, Chief Executive Officer, Chief Financial Officer, and Director | |
| | | |
| Date: December 31, 2015 | /s/ Tracy Gibbs | |
| | Tracy Gibbs, Director | |
