During three months ended April 30, 2014, the holders of the Convertible Note Payable dated February 28, 2013 to elect and convert principal and accrued interest in the amounts show below into share of common stock at a rate of $0.01 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement that provided for conversion.
During the three months ended April 30, 2014, the Company signed Convertible Promissory Notes that refinance non-interest bearing advances into convertible notes payable. The Convertible Promissory Note bears interest at 10% per annum and are payable along with accrued interest on the maturity date. The Convertible Promissory Note and unpaid accrued interest are convertible into common stock the option of the holder.
The Company evaluated the terms of the new note in accordance with ASC Topic No. 815 - 40,Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion features did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the note and was deemed less than the market value of underlying common stock at the inception of the note. Therefore, the Company recognized beneficial conversion features in the amounts of $395,662 on April 30, 2014. The beneficial conversion features were recorded as an increase in additional paid-in capital and a discount to the Convertible Notes Payable. Discounts to the Convertible Notes Payable are amortized to interest expense over the life of the note.
During three months ended April 30, 2014, the holders of our convertible notes elected to convert principal and interest into shares of common stock as detailed below:
Discount on Beneficial Conversion Feature of Convertible Notes Payable
During the three months ended April 30, 2014, the Company signed Convertible Promissory Notes that refinance non-interest bearing advances into convertible notes payable. The Convertible Promissory Note bears interest at 10% per annum and are payable along with accrued interest on the maturity date. The Convertible Promissory Note and unpaid accrued interest are convertible into common stock the option of the holder.
| | | | | | | | | | | |
Date Issued | | Maturity Date | | Interest
Rate | | Conversion
Rate Per
Share | | Amount
of Note |
April 30, 2014 | | April 30, 2016 | | 10 | % | | $ | 0.05 | | $ | 395,662 |
The Company recognized a beneficial conversion features in the amount of $395,662 on April 30, 2014. The beneficial conversion features were recorded as an increase in additional paid-in capital and a discount to the Convertible Notes Payable.
Note 7. Acquisition of Diamond Anvil
On February 11, 2014, the Company purchased the outstanding stock of Diamond Anvil Designs (“Diamond Anvil”) for a total purchase price of $150,000. The terms of the acquisition required a down payment of $25,000 and monthly installments of $10,000 until the full purchase price is paid. We had paid $70,000 of the purchase price as of April 30, 2014. We have paid $90,000 as of June 23, 2014.
The acquisition of CMI was accounted for as a purchase of a business. Diamond Anvil has no assets, liabilities or operations on the date of acquisition. All amounts paid for the acquisition have been expensed in general and administrative expense as of April 30, 2014.
Note 8. Subsequent Events
On May 7, 2014, the holders of the Convertible Note Payable dated February 28, 2013, elected to convert principal and accrued interest in the amount of $8,000 into 800,000 shares of common stock at a rate of $0.01 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement.
On May 14, 2014, the holders of the Convertible Note Payable dated February 28, 2013, elected to convert principal and accrued interest in the amount of $6,329 into 632,946 shares of common stock at a rate of $0.01 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement.
On May 21, 2014, the holders of the Convertible Note Payable dated July 31, 2013, elected to convert principal and accrued interest in the amount of $20,000 into 400,000 shares of common stock at a rate of $0.05 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Neutra Corp. is a development stage company incorporated in Florida on January 11, 2011 to market and participate in the Nutraceutical space by bringing products derived from all natural and organic origins. Along with participating in the actual nutraceutical products, we plan to research and bring new technology to the Nutraceutical space. Nutraceutical natural medicine is an alternative system that focuses on natural remedies and the body’s vital ability to heal and maintain itself. One of the nutraceutical sub-markets is the new thriving medical cannabis market, in which we will be doing our due diligence and participating. We intend to entrust the manufacturing to a nutraceutical contractor to private label all of our products and to sell them under our unique brand. In accordance with ASC 915, we are considered to be in the development stage. We have established a fiscal year end of January 31.
On January 11, 2013, the Company executed an Option Agreement with Purlife Distributors Inc, and authorized distributor of DrivePur and Purteq products in Canada, (hereafter referred to as “Purlife”. Purlife owns rights to market, in Canada, environmentally friendly, sustainable and long-lasting antimicrobial solutions for indoor and outdoor surfaces. The Option Agreement shall be for a period of ninety (90) days beginning from the date of the agreement. The Company will pay Purlife a $5,000 non-refundable payment. Under the option agreement, the Company, will have the right to conduct a due diligence review of Purlife with complete access to data, patent applications, financial statements and other pertinent information. From the Option Agreement, the Company was able to form a Joint Venture with Purlife on February 1, 2013.
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On February 1, 2013, the Company entered into a Joint Venture Agreement with Purlife. The Joint Venture was created towards developing and marketing the brands represented by Purlife. Purlife will execute the business plan or other programs as agreed to as well as make any necessary disbursements on behalf of the Joint Venture, and collect and distribute profits in accordance with the ownership percentages. The Joint Venture will allocate profits for a period of 3 years with the Company receiving 10% and the Joint Venture receiving 90%. All loss and disbursements incurred by Purlife in acquiring, holding and protecting the business interest and the net profits shall, during the period of the venture be paid by Purlife. All losses incurred by the Parties will be limited to their financial contribution to the Joint Venture. The Company will provide consulting to the Joint Venture and participate in strategic and operation decisions as required.
The Company will be a way of providing start up and operating expenses such as to facilitate the completion of the undertaking of the Business.
During the year ended January 31, 2014, the Company paid a total of $150,000 to fund the cash flow requirements as set forth in an approved budget prepared by Purlife. These payments are included in general and administrative expense on the statement of operations. The Company has no further obligation to continue funding.
On May 30, 2013, the Company entered into a joint venture agreement with Field of View Technologies, LLC. (the “Field of View JV”). The purpose of the Field of View JV is to develop, produce and market a new cannabis inhalation delivery system. Under the terms of the agreement, the Company will provide funding for the project and provide consulting services to the Field of View JV. Field of View Technologies, LLC will develop the product and manage the joint venture. In exchange, the Company will receive 25% of the profit on all inhalation cannabinoid delivery systems for a period of 36 months. The Company has committed to fund $175,000 of the costs of the Field of View JV.
On June 5, 2013, the Company entered into a joint venture agreement with Vertigo Technologies, LLC. (the “Vertigo JV”). The purpose of the Vertigo JV is to develop post-production equipment in the horticultural market. Under the terms of the agreement, the Company will provide funding for the project. Vertigo Technologies, LLC will develop the product and manage the joint venture. In exchange, the Company will receive 30% of the profit on all cannabinoid post production technology products for a period of 36 months. The Company has committed to fund $85,000 of the costs of the Vertigo JV.
On August 25, 2013, the Company entered into a joint venture agreement with Second Wave Ventures, LLC. (the “Second Wave JV”). The purpose of the Second Wave JV is to develop, produce and market nutraceutical products and deliver systems. Under the terms of the agreement, the Company will provide funding for the operations of the joint venture. In exchange, the Company will receive 30% of the profits on all products and delivery systems within the nutraceutical market. The Company has committed to fund $85,000 under the Second Wave JV which will be paid in weekly payments of $5,000.
On August 27, 2013, the Company entered into a joint venture agreement with Surface to Air Solutions, LLC. (the “S2O2 JV”). The purpose of the S2O2 JV is to work together to develop, produce and market new services and products that are utilized within the market of horticultural production. Under the terms of the agreement, the Company will provide management, marketing and other consulting services to the S2O2 JV. In addition, the Company will re-design the web marketing material for the joint venture. NTRR will fund up to $100,000 of the operating costs of the S2O2 JV at its discretion. After an initial payment of $10,000 on September 1, 2013, funding will be made in weekly installments of $7,500. In exchange, NTRR will receive 25% of the profits on all products and services that are used within the horticultural market.
On February 11, 2014, the Company acquired Diamond Anvil Designs, a developer of smoke-free nutraceutical delivery systems. Diamond Anvil Designs is a development stage startup vapor pen company that is designing an all-purpose vapor pen. Currently most vapor pens are manufactured only to be used for tobacco, so we feel this an underdeveloped area of the market.
In their audit report dated March 15, 2014; our auditors have expressed an opinion that substantial doubt exists as to whether we can continue as an ongoing business. If we do not raise additional capital within twelve months, we may be required to suspend or cease the implementation of our business plan.
We have not generated any revenues to date and our activities have been limited to developing our business plan, developing and launching our website, research and development of products and trial testing of our initial formulations. We will not have the necessary capital to fully develop or execute our business plan until we are able to secure additional financing. There can be no assurance that such financing will be available on suitable terms. We need to raise an additional $400,000 to implement our business plan over the next twelve months. Our current cash on hand is insufficient to commercialize our products or fully develop our business strategy. If we are unable to raise adequate additional funds or if those funds are not available on terms that are acceptable to us, we will not be able to execute our business plan and we may cease operations.
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We have no revenues; have incurred losses since inception, have been issued a going concern opinion from our auditors and rely upon the sale of our securities and borrowing to fund operations.
Critical Accounting Policies
We prepare our Consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends, and other factors that management believes to be important at the time the condensed Consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our condensed Consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
For a full description of our critical accounting policies, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the year ended January 31, 2014 on Form 10-K.
Results of Operations
Three months ended April 30, 2014 compared to the three months ended April 30, 2013.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $208,387 and $187,340 for the three months ended April 30, 2014 and ended 2013, respectively. The increase was increased marketing costs.
Interest Expense
Interest expense increased from $31,592 for the three months ended April 30, 2013 to $151,920 for the three months ended April 30, 2014. Interest expense for the three months ended April 30, 2014 included amortization of discount on convertible notes payable in the amount of $131,067, compared to $28,962 for the comparable period of 2013. The remaining amount is the result of the Company entering into interest-bearing convertible notes payable.
Net Loss
We incurred a net loss of $360,307 for the three months ended April 30, 2014 as compared to $218,932 for the comparable period of 2013. The increase in the net loss resulted from the increase in interest expense discussed above.
Liquidity and Capital Resources
At April 30, 2014, we had cash on hand of $114,101. The company has negative working capital of $110,446 . Net cash used in operating activities for the three months ended April 30, 2014 was $228,475. Cash on hand is adequate to fund our operations for less than three months. We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order to implement our business plan fully. There is no guarantee that we will be able to attain fund when we need them or that funds will be available on terms that are acceptable to the Company. We have no material commitments for capital expenditures as of April 30, 2014.
Additional Financing
Additional financing is required to continue operations. Although actively searching for available capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance that such financing will be available.
Off Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Report on Internal Control over Financial Reporting
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of April 30, 2014. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of April 30, 2014, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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1. | As of April 30, 2014, we did not maintain effective controls over the control environment. Specifically we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. |
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2. | As of April 30, 2014, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness. |
Our management, including our principal executive officer and principal financial officer, who is the same person, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to 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, have been detected.
Change in Internal Controls Over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
ITEM 1A. RISK FACTORS
Not applicable to a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered equity securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has not defaulted upon senior securities.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to the Company.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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3.1 | Articles of Incorporation (1) |
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3.2 | Bylaws (1) |
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31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer and principal financial and account officer. |
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32.1 | Section 1350 Certification of principal executive officer and principal financial accounting officer. |
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101* | XBRL data files of Financial Statement and Notes contained in this Quarterly Report on Form 10-Q. (2),(4) |
__________
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(1) | Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on November 3, 2010 |
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(2) | In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.” |
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(3) | Filed or furnished herewith |
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(4) | To be submitted by amendment |
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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.
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| Neutra Corp. |
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Date: June 23, 2014 | BY: /s/ Sydney Jim |
| Sydney Jim |
| President, Secretary, Treasurer, Principal Executive Officer, Principal Financial and Accounting Officer, and Sole Director |
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