Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASUs, of the Financial Accounting Standards Board, or FASB.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, MYC. All inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our financial statements include, when applicable, disclosures of estimates, assumptions, uncertainties, and markets that could affect our financial statements and future operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.
Fixed Assets and Depreciation
Property, plant, and equipment are stated at cost. For financial reporting, we provide for depreciation using the straight-line method at rates based upon the estimated useful lives of the various assets. Depreciation expense was $246 and $248 for the three months ended March 31, 2023 and 2022, respectively. The estimated useful lives are as follows: buildings and improvements—30 years; machinery and equipment—10-15 years; computer software—3-5 years; vehicles—3-7 years; and land improvements—10-20 years. We assess
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our long-lived assets for impairment whenever there is an indicator of impairment. Impairment losses are evaluated if the estimated undiscounted cash flows from using the assets are less than carrying value. A loss is recognized when the carrying value of an asset exceeds its fair value. There were no impairment losses in the three months ended March 31, 2023 and 2022.
Fair Value of Financial Instruments
The Company accounts for financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in non-active markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are not directly observable but are corroborated by observable market data;
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
There were no changes in the fair value hierarchy leveling during the three months ended March 31, 2023 and 2022.
Income Taxes
The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of March 31, 2023 and December 31, 2022, the Company had a full valuation allowance against its deferred tax assets.
We adopted ASC 740-10-25, Income Taxes—Recognition, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-25, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740-10-25 also provides guidance on derecognition, classification, interest and penalties on income taxes, and accounting in interim periods and requires increased disclosures. We had no material adjustments to our liabilities for unrecognized income tax benefits according to the provisions of ASC 740-10-25.
Stock Based Compensation
We follow ASC 718, Compensation–Stock Compensation, which prescribes accounting and reporting standards for all share-based payment transactions in which employee and non-employee services are acquired. Share-based payments to employees and non-employees, including grants of stock options and warrants, are recognized as compensation expense in the financial statements based on their fair values on the grant date. That expense is recognized over the period required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
Basic and Diluted Net Loss per Share
Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period before giving effect to stock options, stock warrants, restricted stock units and convertible securities outstanding, which are considered to be dilutive common stock equivalents. Diluted net loss per common share is calculated based on the weighted average number of common and potentially dilutive shares outstanding during the period after giving effect to dilutive common stock equivalents. Contingently issuable shares are included in the computation of basic loss per share when issuance of the shares is no longer contingent. The common stock equivalents not included in the computation of earnings per share because the effect was antidilutive, were related to convertible debt and totaled 1,232,966 and 1,377,263 for the three months ended March 31, 2023 and 2022, respectively, and to outstanding warrants that totaled 1,980,039 and 1,496,808 for the three months ended March 31, 2023 and 2022, respectively.
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Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements, other than those disclosed below.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.
NOTE 4 – RELATED PARTY TRANSACTION
During the year ended December 31, 2020, the Company entered into two term promissory notes with Ehave, Inc. (a majority shareholder) in the amount of $125,000. During the year ended December 31, 2021, the Company entered a term promissory note with Ehave, Inc. in the amount of $500,000. The notes mature two years after the issuance date and bear an interest rate of 1.75% per year. During the year ended December 31, 2022, the Company repaid the $625,000 in outstanding principal and interest due on the three promissory notes. As of March 31, 2023 and December 31, 2022, the Company owed $0 and $0, respectively. As of March 31, 2023 and December 31, 2022, the Company owed accrued interest related to these loans of $0 and $0, respectively. During the three months ended March 31, 2023 and 2022, the Company recorded interest expense of $0 and $2,697, respectively, in relation to these notes.
NOTE 5 – PROMISSORY AND CONVERTIBLE NOTES
As of March 31, 2023 and December 31, 2022, the Company had outstanding to various lenders as convertible promissory notes an aggregate amount of $1,100,000. In aggregate, as of March 31, 2023 the principal amount includes $150,000 of original issue discount. All notes are due to mature 24 months from their respective effective date and mature beginning on August 27, 2023 through January 21, 2024 Additionally, the effective interest rate of the notes is 8% and they are convertible into shares of common stock at $1.00 per share.
The following tables reflects a summary of the outstanding principal and interest by each lender and their respective maturity date as of March 31, 2023 and December 31, 2022:
| | | | March 31, 2023 | | December 31, 2022 |
| | Maturity Date | | Total Outstanding*** | | Principal | | Interest | | Total Outstanding*** | | Principal | | Interest |
| | | | | | | | | | | | | | |
Lender A | | 8/27/2023 | | $566,381 | | $500,000 | | $66,381 | | $556,244 | | $500,000 | | $56,244 |
Lender B | | 9/27/2023 | | 62,095 | | 55,000 | | 7,095 | | 60,907 | | 55,000 | | 5,907 |
Lender C | | 10/27/2023 | | 246,239 | | 220,000 | | 26,239 | | 241,528 | | 220,000 | | 21,528 |
Lender E | | 10/21/2023 | | 2,407 | | - | | 2,407 | | 2,407 | | - | | 2,407 |
Lender G | | 1/21/2024 | | 355,844 | | 325,000 | | 30,844 | | 349,504 | | 325,000 | | 24,504 |
| | | | $1,232,966 | | $1,100,000 | | $132,966 | | $1,210,590 | | $1,100,000 | | $110,590 |
| | | | | | | | | | | | | | |
| | | | *** - Total Outstanding = Principal + Interest as of March 31, 2023 and December 31, 2022 |
During the three months ended March 31, 2023 and 2022, the Company recorded an aggregate debt discount of $0 and $325,000, respectively, under the terms of convertible promissory note agreement. The total debt discount recorded during the three months ended March 31, 2022 was allocated between the original issue discount related to cash financing fees of $75,000, as well as $250,000 recorded as an offset to additional paid-in capital in connection with the beneficial conversion feature and warrants (see Note 6).
During the three months ended March 31, 2023 and 2022, the Company recorded debt discount amortization expense in the amount of $135,616 and $154,932, respectively. As of March 31, 2023, the Company had an unamortized debt discount balance of $309,233 with a weighted amortization period of 0.77 years.
NOTE 6 – STOCKHOLDERS’ EQUITY
We are authorized to issue 100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value. Each share of common stock entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
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Mezzanine Equity
The Preferred Shares are recorded as mezzanine equity in accordance with ASC 480, “Distinguishing Liabilities from Equity,” at its initial net carrying value in the amount of $50,000. The Series A Shares are recorded as mezzanine equity in accordance with ASC 480 because the Company may be obligated to issue a variable number of shares at a fixed price known at inception and there is no maximum number of shares that could potentially be issued upon conversion. In this instance, cash settlement would be presumed and the Series A Shares are classified as mezzanine equity in accordance with ASC 480-10-S99. Immediately upon effectiveness of the registration statement registering for resale of all the common stock issuable under the Series A Shares, all outstanding Series A Shares shall automatically convert into common stock.
During the three months ended March 31, 2022, the Company sold 5,000 shares of preferred stock to three shareholders for $150,000 in proceeds as part under a Regulation A offering of Section 3(6) of the Securities Act of 1933. The shares are allowed to convert into common stock by option of the holder at any time based on the fair market value of the common stock at the date of the conversion. As of March 31, 2023 and December 31, 2022, the preferred stock was converted and none remain outstanding.
STOCK BASED COMPENSATION
On January 21, 2022, the Company issued 250,000 shares of common stock to a related party and majority shareholder, Benjamin Kaplan, as part of his compensation for services rendered in accordance with his Agreement (note 7) for services rendered as CEO. The Company expensed $750,000 in relation to this issuance.
On January 24, 2022, the Company issued 12,500 shares of common stock to a consultant for services rendered. The Company expensed $38,188 in relation to this issuance.
On March 17, 2022, the Company issued 59,622 shares of common stock valued at $86,250 as stock-based compensation for consulting services rendered.
Warrants Issued
During the three months ended March 31, 2022, the Company issued 325,000 warrants to purchase common stock as part of the convertible promissory notes discussed above in Note 5.
During the three months ended March 31, 2022, the Company issued 49,814 warrants to purchase common stock as part of the consulting agreement with the Company’s CEO, Ben Kaplan. The warrants were valued at $144,376 and were recorded as stock-based compensation. The warrants were valued using the black-scholes option pricing model with the following terms a) stock price of $2.90, b) exercise price of $0.01, c) discount rate of 2.28%, d) volatility of 371%, d) dividend yield of 0%, and f) term of 1.63 years.
The following table reflects a summary of Common Stock warrants outstanding and warrant activity during the three months ended March 31, 2023
| | Underlying Shares | | | Weighted Average Exercise Price | | | Weighted Average Term (Years) | |
Warrants outstanding at January 1, 2023 (restated) | | | 1,980,039 | | | | $0.93 | | | | 1.28 | |
Granted | | | - | | | | - | | | | - | |
Exercised | | | - | | | | - | | | | - | |
Forfeited | | | - | | | | - | | | | - | |
Warrants outstanding and exercisable at March 31, 2023 | | | 1,980,039 | | | | $0.93 | | | | 1.03 | |
The intrinsic value of warrants outstanding as of March 31, 2023 was $40,600.
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NOTE 7 – COMMITMENTS AND CONTINGENCIES
Related Party Transaction
Mycotopia Consulting Agreement with the CEO
On November 17, 2021, the Company entered into an Executive Consulting Agreement (the “Agreement”) with Benjamin Kaplan (“Kaplan”) whereby Kaplan was appointed as CEO of the Company. We hired Kaplan for an initial term of thirty-six (36) months subject to certain termination provisions, whereby the Agreement will automatically renew for an additional twelve (12) month period. We shall pay Kaplan in the following manner: (i) A consulting fee of $24,000 per month for services performed for a total compensation of $288,000 payable for each twelve (12) month period, (ii) Bonus compensation milestones by offering Kaplan a Warrant to purchase that number of shares of common stock of the Company equal to 5% of the issued and outstanding common shares, on a fully diluted basis, (iii) A significant transaction stock grant whereby Kaplan shall be granted that number of shares of common stock or a new series of preferred shares of the Company, that is convertible into common stock of the Company equal to 5% of the value of all of the consideration, including any stock, cash, or debt, of such completed transaction.
As of March 31, 2023 and December 31, 2022, the Company has recorded $360,000 and $288,000, respectively, for cash compensation as accrued expense in relation to the Mycotopia Consulting Agreement. During the three months ended March 31, 2022 and 2023, the Company has recorded $72,000 and $216,376, respectively, as general and administrative expense, of which $0 and $144,376, respectively, was recorded as stock based compensation in relation to the Warrant issued, in connection with the Mycotopia Consulting Agreement.
Significant terms of the Mycotopia Consulting Agreement are as follows:
Ben Kaplan was granted a Warrant to purchase that number of shares of Mycotopia common stock equal to 5% of the issued and outstanding Mycotopia common shares, on a fully diluted basis. The Warrant has an exercise price of $0.01 USD per share and shall expire November 16, 2023.
Bonus
The Company will pay the CEO a bonus in Mycotopia restricted stock or restricted stock units based on the following EBITDA milestones. For the year ending December 31, 2021, no EBITDA milestones were met, and no amounts have been recorded for the bonus milestones.
Bonus | | | EBITDA Milestones |
$ | 100,000 | | | 1st $1,000,000 |
$ | 100,000 | | | 2nd $1,000,000 |
$ | 100,000 | | | 3rd $1,000,000 |
$ | 100,000 | | | 4th $1,000,000 |
$ | 100,000 | | | 5th $1,000,000 |
The Company will pay the CEO a bonus in restricted stock or restricted stock units based on the following Mycotopia market capitalization by maintaining the below market cap for Mycotopia for a period of 22 consecutive trading days:
Bonus (Shares) | | | Market Capitalization Milestone |
250,000 | | | $ | 30,000,000 |
250,000 | | | $ | 40,000,000 |
250,000 | | | $ | 60,000,000 |
250,000 | | | $ | 80,000,000 |
250,000 | | | $ | 100,000,000 |
Stock Grants – Significant Transactions
Upon the Company closing of a Significant Transaction with Mycotopia, the CEO shall be granted shares of Mycotopia common stock or new series of Mycotopia preferred shares that is convertible into Mycotopia common stock equal to 5% of the value of all the consideration, including any stock, cash or debt of such completed transaction for Mycotopia. The CEO shall earn this grant for each Significant Transaction closed by Mycotopia. A “Significant Transaction” shall mean a financing of at least $500,000 or the closing of
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an acquisition with a valuation of at least $1,000,000 for Mycotopia. As of March 31, 2023 and December 31, 2022, the Company did not grant any equity in relation to a Significant Transaction and no amounts have been accrued.
No significant transactions were entered into during the three months ending March 31, 2023.
Other Expenses
The Company will reimburse the CEO for other expenses of $7,000 per month.
NOTE 8 – SUBSEQUENT EVENTS
The company’s management has evaluated subsequent events occurring after March 31, 2023, the date of our most recent balance sheet, through the date our financial statements were issued.
Subsequent to the three months ended March 31, 2023, the Company issued 38,434 shares of common stock to a medical advisory board member for services rendered.
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Item 2. MANAGEMENT’S DISCUSSION AND ANLAYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.”
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.
Critical Accounting Estimates
We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the Company. Based on this definition, we have the critical accounting estimates identified below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results which are found in Note 3 – Significant Accounting Policies of our 2022 Annual Report on Form 10-K and Note 3 – Significant Accounting Policies in the accompanying consolidated financial statements. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
Stock Based Compensation
ASC 718 Compensation–Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions in which employee and non-employee services are acquired. Share-based payments to employees and non-employees, including grants of stock options and warrants, are recognized as compensation expense in the financial statements based on their fair values on the grant date. That expense is recognized over the period required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
Sales and Cost of Sales
We did not have any revenue or cost of revenue from operations for the three months ended March 31, 2023 and 2022.
Operating Expenses from Operations
Operating expenses from operations for the three months ended March 31, 2023 and 2022, consisted of general and administrative expenses of $145,011 and $1,122,107, respectively. General and administrative expenses consisted primarily of consulting fees, stock-based compensation, board compensation, and legal and professional services. Our decrease in general and administrative expenses is the result of decreased in stock-based compensation, advertising and marketing expenses.
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Other Income (Expense)
Other expense of $157,993 and $182,603 for the three months ended March 31, 2023 and 2022, respectively, consisted of interest expense from convertible notes with debt discounts and interest expense from related parties.
Net Loss
We had a net loss for the three months ended March 31, 2023 and 2022, of $303,004 and $1,304,710, respectively.
Liquidity and Capital Resources
As of March 31, 2023, we had working capital deficiency of $1,195,602 down from a working capital deficiency of $567,844 as of December 31, 2022. As of March 31, 2023, we had current assets of $357,027, consisting solely of cash. As of March 31, 2023 our current liabilities consisted predominantly of accounts payable and accrued interest, and convertible notes payable. We had an accumulated deficit of $8,082,638 as of March 31, 2023, an increase from an accumulated deficit of $7,779,634 as of December 31, 2022.
Operating activities used net cash of $28,872 for the three months ended March 31, 2023, as compared to using net cash of $180,044 for the three months ended March 31, 2022. Investing activities used net cash of $0 and $0, respectively, for the three months ended March 31, 2023 and 2022. Cash provided by financing activities was $0 for the three months ended March 31, 2023, as compared to $395,500 for the three months ended March 31, 2022. We had a cash balance of $357,027 and $385,899 as of March 31, 2023 and December 31, 2022, respectively.
Our monthly operating costs averaged approximately $9,600 per month for the three months ended March 31, 2023, excluding capital expenditures. We plan to fund our operations with our cash on hand and additional financing.
Our consolidated financial statements have been prepared assuming we will continue as a going concern. Our ability to continue our operations as a going concern is dependent on management’s plans, which includes successfully integrating Mycotopia Therapies, Inc. which was acquired subsequent to December 31, 2020. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As a result of a material weakness in our internal control over financial reporting, our Chief Executive Officer
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and Principal Accounting Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2023.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits
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SIGNATURES
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.
| Mycotopia Therapies, Inc. |
| |
Date: July 14, 2023 | By: | /s/ Ben Kaplan |
| Name: | Ben Kaplan |
| Title: | Chief Executive Officer and Principal Accounting Officer |
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