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Form 10-Q Jupiter Wellness, Inc. For: Jun 30

August 15, 2022 6:41 AM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022

 

or

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission File Number 001-39569

 

JUPITER WELLNESS, INC.

(Exact name of registrant as specified in charter)

 

Delaware   83-2455880
(State or other jurisdiction   (IRS Employer
of incorporation or organization)   Identification No.)
     
1061 E. Indiantown Road, Suite 110    
Jupiter, FL   33477
(Address of principal executive offices)   (Zip Code)

 

(561) 244-7100
(Registrant’s telephone number, including area code)

 

Not Applicable

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of exchange on which registered
Common Stock, $.001 par value per share   JUPW   Nasdaq
Warrants to purchase shares of common stock   JUPWW   Nasdaq

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ YES ☐ NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ YES ☒ NO

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of August 12, 2022, there were 21,513,888 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements F-1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
     
Item 4. Controls and Procedures 11
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 12
     
Item 1A. Risk Factors 13
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
     
Item 3. Defaults Upon Senior Securities 13
     
Item 4. Mine Safety Disclosures 13
     
Item 5. Other Information 13
     
Item 6. Exhibits 13
     
SIGNATURES 14

 

 

 

PART I - FINANCIAL INFORMATION

 

This Quarterly Report on Form 10-Q includes the accounts of Jupiter Wellness, Inc., a Delaware corporation (“Jupiter Wellness”). References in this Report to “we”, “our”, “us” or the “Company” refer to Jupiter Wellness, Inc. and its consolidated subsidiaries unless the context dictates otherwise.

 

FORWARD LOOKING STATEMENTS

 

Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “will,” “may,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” “forecasts,” “potential,” “continue,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results and the development of our products, are forward-looking statements.

 

Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We file reports with the Securities and Exchange Commission (“SEC”). The public can read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

 

1

 

Item 1. Financial Statements

 

Jupiter Wellness, Inc.

 

  Page
   
Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021 (Audited) F-2
Consolidated Statements of Operations for the Three-Months and Six-Months Ended June 30, 2022 and 2021 (Unaudited) F-3
Consolidated Statements of Changes in Shareholders’ Equity for the Six-Months Ended June 30, 2022 (Unaudited) and year ended December 31, 2021 (Audited) F-4
Consolidated Statements of Cash Flows for the Six-Months Ended June 30, 2022 and 2021 (Unaudited) F-5
Notes to the Consolidated Financial Statements (Unaudited) F-6

 

F-1

 

Jupiter Wellness, Inc.

 

Condensed Consolidated Balance Sheets

As of June 30, 2022 and December 31, 2021

 

   June 30,   December 31, 
   2022   2021 
   (Unaudited)   (Audited) 
Assets          
Cash  $5,000,684   $11,754,558 
Inventory   387,967    304,266 
Account receivable   1,609,270    695,319 
Prepaid expenses and deposits   741,323    617,302 
Investment in affiliate   2,908,300    2,908,300 
           
Total current assets   10,647,544    16,279,745 
           
Right of use assets   721,924    797,311 
Intangible assets, net   327,975    364,417 
Intellectual property   375,000    375,000 
Prepaid Clinical research agreement costs   1,300,000    - 
Goodwill   941,937    941,937 
Fixed assets   71,760    109,055 
Total assets  $14,386,140   $18,867,465 
           
Liabilities and Shareholders’ Equity          
           
Accounts Payable  $1,073,327   $1,242,928 
Convertible notes, net of discounts   1,397,450    - 
           
Current portion of lease liability   134,560    118,102 
Accrued liabilities   415,145    160,508 
Covid – 19 SBA Loan   47,981    47,547 
Total current Liabilities   3,068,463    1,569,085 
           
Long-term portion lease liability   620,868    695,961 
Total liabilities   3,689,331    2,265,046 
           
Preferred stock, $0.001 par value, 100,000 shares authorized of which none are issued and outstanding   -    - 
Treasury stock, $0.001 par value, 256,460 shares repurchased   (196,831)   - 
Common stock, $.001 par value, 100,000,000 shares authorized, of which 21,705,647 and 24,046,001 shares issued and outstanding as of June 30, 2022 and December 31, 2021   21,706    24,046 
Additional paid-in capital   50,322,111    51,668,019 
Common stock payable   285,000    285,000 
Accumulated deficits   (39,735,177)   (35,374,646)
Total Shareholders’ Equity   10,696,809    16,602,419 
           
Total Liabilities and Shareholders’ Equity  $14,386,140   $18,867,465 

 

The accompanying notes are an integral part of these unaudited financial statements

 

F-2

 

Jupiter Wellness, Inc.

 

Condensed Consolidated Statement of Operations

For the Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

 

   2022   2021   2022   2021 
   Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2021   2022   2021 
Revenue                    
Sales  $3,000,582   $595,088   $3,722,211   $643,934 
Cost of Sales   2,495,339    413,913    3,099,757    437,365 
Gross profit   505,243    181,175    622,454    206,569 
                     
Operating expense                    
General and administrative expenses   1,397,810    3,839,316    3,414,083    6,727,610 
Impairment of Promissory Note   -    -    1,000,000   - 
Operating expense   

1,397,810

    

3,839,316

    

4,414,083

    

6,727,610

 
Other income / (expense)                    
Interest income   365    871    941    2,149 
Interest expense   (548,554)   (493,804)   (574,656)   (497,145)
Other income / (expense)           4,813    669,200 
Total other income (expense)   (548,189)   (492,933)   (568,902)   174,204 
                     
Net (loss)  $(1,440,756)  $(4,151,074)  $(4,360,531)  $(6,346,837)
                     
Net (loss) per share:                    
Basic  $(0.07)  $(0.37)   (0.19)   $(0.56) 
                     
Weighted average number of shares                    
Basic   21,949,416    11,359,797    22,527,989    11,265,828 

 

The accompanying notes are an integral part of these unaudited financial statements

 

F-3

 

Jupiter Wellness, Inc.

 

Condensed Statement of Changes in Shareholders’ Equity

For the Six Months Ended June 30, 2022 (Unaudited) and

Year Ended December 31, 2021 (Audited)

 

   Shares   Amount   Shares   Amount   Payable   Capital   Deficits   Total 
               Common   Additional         
   Treasury Shares   Common Stock   Stock   Paid-In   Accumulated     
   Shares   Amount   Shares   Amount   Payable   Capital   Deficits   Total 
Balance, December 31, 2020   -    -    10,655,833   $10,656   $   $11,657,286   $(7,274,401)  $4,393,541 
                                         
Common stock issued in public offering   -    -    11,066,258    11,066        28,307,248        28,318,314 
Common Stock issued for intellectual property   -    -    125,175    125        524,875        525,000 
Common stock issued upon conversion of notes   -    -    186,832    187        560,309        560,496 
Common stock issued for services   -    -    1,789,496    1,790    285,000    4,054,193        4,340,983 
Common stock issued upon exercise of cashless options   -    -    222,407    222        (222)        
Contributed capital   -    -                70,818        70,818 
Fair value of Stock options granted to Officers and Directors   -    -                5,046,982        5,046,982 
Fair value of warrants and beneficial conversion feature in connection with convertible promissory Notes   -    -                1,446,530        1,446,530 
Net Loss   -    -                    (28,100,245)   (28,100,245)
Balance, December 31, 2021   -    -    24,046,001   $24,046   $285,000   $51,668,019   $(35,374,646)  $16,602,419 
                                         
Shares issued for services   -    -    100,000    100    -    104,900    -    105,000 
Treasury shares purchased   2,690,354    (2,776,725)   (2,690,354)   (2,690)        2,690    -    (2,776,725)
Treasury shares cancelled   (2,433,894)   2,579,894    -    -    -    (2,579,894)   -    - 
Shares issued in connection with convertible promissory note   -    -    250,000    250    -    277,250    -    277,500 
Fair value of warrants issued and issue discounts with convertible note   -    -    -    -    -    706,977    -    706,977 
Stock options issued for services   -    -    -    -    -    142,169    -    142,169 
Net Loss   -    -    -    -    -    -    (4,360,531)   (4,360,531)
Balance, June 30, 2022   256,460    (196,831)   21,705,647   $21,706   $285,000   $50,322,111   $(39,735,177)  $10,696,809 

 

The accompanying notes are an integral part of these financial statements

 

F-4

 

Jupiter Wellness, Inc.

 

Condensed Consolidated Statement of Cash Flows

For the Six Months Ended June 30, 2022 and 2021

(Unaudited)

 

   2022   2021 
   Six Months Ended June 30, 
   2022   2021 
Cash flows from operating activities:          
Net (loss)  $(4,360,531)  $(6,346,837)
Stock Based compensation   105,000    3,663,350 
Depreciation & Amortization   47,249    44,423 
Impairment of note receivable   1,000,000    - 
Fair value of options issued for services   142,169    - 
Amortization of debt discount   501,927    458,849 
Bad debt   

2,266

    - 
Gain on Settlement   -    (669,200)
           
Adjustments to reconcile net income to net cash provided by (used in) operating activities          
Prepaid expenses and deposits   (124,021)   24,648 
Right of Entry asset   75,387    29,157 
Accounts receivable   (916,217)   (160,012)
Inventory   (83,701)   (29,138)
Accounts payable   (169,601)   (290,663)
Accrued liabilities   129,128    43,507 
Legal fees   -    25,000 
Lease liability   (58,635)   (30,138)
Net cash (used in) operating activities   (3,709,580)   (3,237,054)
           
Cash flows from investing activities:          
Purchase of assets   (16,512)   (51,646)
Cash paid for research agreement   (1,300,000)   - 
Cash paid for third party note   (1,000,000)   - 
Proceeds from sale of assets   

43,000

    - 
Net cash (used in) financing activities   (2,273,512)   (51,646)
           
Cash flows from financing activities:          
Cash paid for treasury stock   (2,776,725)   - 
Proceeds from convertible debt, net of offering costs   1,880,000    2,967,500 
Borrowings on debt   

241,272

    - 
Payments on debt   (115,329)   - 
Net cash (used in) provided by investing activities   (770,782)   2,967,500 
           
Net (decrease) in cash and cash equivalents   (6,753,874)   (321,200)
           
Cash and cash equivalents at the beginning of the period   11,754,558    4,262,168 
           
Cash and cash equivalents at the end of the period  $5,000,684   $3,940,968 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $-   $- 
Non-cash items:          
Common stock issued in conversion of promissory notes  $-   $560,496 
Fair value of Warrants issued and beneficial conversion   -    - 
Feature in connection with convertible notes  $706,977   $1,446,531 
Common stock issued in connection with promissory notes  $277,500     
Treasury shares cancelled  $

2,579,894

   $- 
Cashless exercise of options  $-   $222 

 

The accompanying notes are an integral part of these unaudited financial statements

 

F-5

 

JUPITER WELLNESS, INC.

 

Notes to Financial Statements

For the Six Months Ended June 30, 2022 and

Year Ended December 31, 2021

 

Note 1 - Organization and Business Operations

 

Jupiter Wellness, Inc. (the “Company”) was formed on October 24, 2018 under the laws of the State of Delaware, and is headquartered in Jupiter, Florida. The Company researches, develops, licenses, and sells various products in the wellness field focused on hair, skin, and sexual health. Its PhotocilTM, and Minoxidil Booster, are currently licensed to sell in over 30 countries worldwide and is a leading developer of cannabidiol based medical therapeutics and wellness products. The Company has a clinical pipeline of prescription skin care therapeutics addressing indications including eczema, burns, herpes cold sores, and skin cancer.

 

On November 30, 2020 the Company acquired SRM Entertainment, Limited, a Hong Kong Special Administrative Region of the People’s Republic of China limited company (“SRM”). SRM has relationships with and supplies the amusement park industry with exclusive products that are often only available to consumers inside the relevant amusement park, entertainment venues and theme hotels throughout the worldwide theme park industry.

 

Note 2 - Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Jupiter Wellness, Inc., a Florida corporation, Magical Beasts, LLC, a Nevada limited liability company and SRM Entertainment, Limited, a Hong Kong private limited company. All intercompany accounts and transactions have been eliminated.

 

Emerging Growth Company Status

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

F-6

 

Use of Estimates

 

The preparation of financial statements in conformity with US 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 amounts of expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all short-term investments with a maturity of three months or less when purchased to be cash and equivalents for purposes of the statement of cash flows. There were $982,919 cash equivalents as of June 30, 2022 and none at December 31, 2021.

 

Inventory

 

Inventories are stated at the lower of cost or market. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. Inventory is based upon the average cost method of accounting.

 

Investments Held-to-Maturity

 

Investments that the Company’s management has the “positive intent and ability” to hold through maturity are classified and accounted for as hold-to-maturity investments (“HTM”). HTM investments are carried at amortized cost in the financial statements. For investments classified as HTM, no unrealized gains and losses will be recognized in financial statements.

 

Segment Reporting

 

The Company has two reportable segments: (i) sales and development of cannabidiol based skin care and therapeutic products and (ii) sales of merchandise sold to theme parks.

 

Net Loss per Common Share

 

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants, convertible securities and preferred stock, unless the effect is to reduce a loss or increase earnings per share. As such, options, warrants, convertible securities, and preferred stock are not considered in the calculations, as the impact of the potential common shares would be to decrease the loss per share.

 

   2022     2021     2021   2020 
   For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 
   2022     2021     2021   2020 
Numerator:                          
Net (loss)  $ (1,440,756 )   $ (4,151,074 )   $(4,360,531)  $(6,346,837)
            
Denominator:                          
Denominator for basic earnings per share - Weighted- average common shares issued and outstanding during the period   

21,949,416

     

11,359,797

     22,527,989    11,265,828 
Denominator for diluted earnings per share   

21,949,416

     

11,359,797

     22,527,989    11,265,828 
Basic (loss) per share  $

(0.07

)   $

(0.37

)   $(0.19)  $(0.56)
Diluted (loss) per share  $

(0.07

)   $

(0.37

)   $(0.19)  $(0.56)

 

F-7

 

Fair Value of Financial Instruments

 

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.

 

Revenue Recognition

 

The Company generates its revenue from the sale of its products directly to the end user or through a distributor (collectively the “customer”).

 

The Company recognizes revenues by applying the following steps in accordance with FASB Accounting Standards Codification 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

  identify the contract with a customer;
     
  identify the performance obligations in the contract;
     
  determine the transaction price;
     
  allocate the transaction price to performance obligations in the contract; and
     
  recognize revenue as the performance obligation is satisfied.

 

The Company’s performance obligations are satisfied when goods or products are shipped on a FOB shipping point basis as title passes when shipped. Our products are generally paid in advance of shipment or standard net 30 days and we offer no specific right of return, refund or warranty related to our products except for cases of defective products of which there have been none to date.

 

Accounts Receivable and Credit Risk

 

Accounts receivable are generated from sales of the Company’s products. The Company provides an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. During the year ended December 31, 2021, the Company had recorded an allowance of $104,851 against accounts receivable of SRM Entertainment, the Company had recognized no additional allowance for doubtful collections for the three months ended June 30, 2022.

 

Impairment of Long-Lived Assets

 

We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate.

 

F-8

 

Goodwill and Intangible Assets

 

Goodwill is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit.

 

We conducted our annual impairment tests of goodwill as of December 31, 2021 and 2020. As a result of these tests, we recorded an impairment to the carrying value of Goodwill in the amount of $308,690 in the year ended December 31, 2020. There was no impairment in 2021.

 

Intangible assets consist of patents and trademarks, purchased customer contracts, purchased customer and merchant relationships, purchased trade names, purchased technology, and non-compete agreements. Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to twenty years. No significant residual value is estimated for intangible assets. We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate.

 

The Company’s evaluation of its long-lived assets resulted in $300,000 of intangible impairment expense during the year ended December 31, 2021. There was no impairment for the six months ended June 30, 2022.

 

Foreign Currency Translation

 

Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the period. Equity accounts are translated at historical exchange rates. Cumulative gains and losses from foreign currency transactions and translation for the six-months ended June 30, 2022 and the year ended December 31, 2021 were not material.

 

Research and Development

 

The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $103,025 and $60,529 for the six-months ended June 30, 2022 and 2021, respectively.

 

Stock based compensation

 

The Company recognizes compensation costs to employees under FASB Accounting Standards Codification 718 “Compensation - Stock Compensation” (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options and warrants. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.

 

On October 24, 2018, the inception date, the Company adopted ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.

 

F-9

 

Income Taxes

 

The Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.

 

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. Since the Company was incorporated on October 24, 2018, the evaluation was performed for 2018 tax year which would be the only period subject to examination. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.

 

The Company’s deferred tax asset at December 31, 2021 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $4,865,890 less a valuation allowance in the amount of approximately $4,865,890. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance in the year ended December 31, 2021.

 

Related parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

F-10

 

Recent Accounting Pronouncements

 

In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for non-employee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will be effective for us in the first quarter of our fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company has adopted this standard beginning January 1, 2019. The adoption of this standard has not had a significant impact on the Company’s results of operations, financial condition, cash flows, and financial statement disclosures.

 

In February 2016, Topic 842, “Leases” was issued to replace the leases requirements in Topic 840, “Leases”. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods and is to be retrospectively applied. The Company has adopted this standard beginning January 1, 2019. The adoption of this standard has not had a significant impact on the Company’s results of operations, financial condition, cash flows, and financial statement disclosures.

 

Note 3 - Accounts Receivable

 

At June 30, 2022 and December 31, 2021, the Company had accounts receivable of $1,609,270 and $695,319 (net of an allowance of $104,851 and $104,851), respectively.

 

Note 4 - Prepaid Expenses and Deposits

 

At June 30, 2022 and December 31, 2021, the Company had prepaid expenses and deposits of $741,323 and $617,302, respectively consisting primarily of deposits and prepayments on purchase orders.

 

Note 5 - Inventory

 

At June 30, 2022 and December 31, 2021, the Company had inventory of $387,967 and $304,266, consisting of finished goods, raw materials and packaging supplies.

 

Note 6 Investment in Affiliate

 

At June 30, 2022 and December 31, 2021, the Company had purchased 1,437,500 Founders shares and 288,830 Private Placement Units of Wellness Acquisition Corp. (“JWAC”), a special purpose acquisition company (“SPAC”), for $2,908,300. The Investment is being accounted for as a Hold-to-Maturity Investment.

 

On November 3, 2021, JWAC filed a registration statement (“IPO”) with the Securities and Exchange Commission with an initial funding of $100M. On December 6, 2021 the IPO was deemed effective. The total amount raised in the IPO was $138,000,000.

 

F-11

 

Note 7 Note Receivable

 

On December 8, 2021, the Company issued a Secured Promissory Note (the “Note”) in the amount of $10,000,000 to Next Frontier Pharmaceuticals, Inc. (“NFP”) and entered into a Stock Purchase Agreement (“SPA”) for the Company to acquire NFP. The Note has a term of six months and interest at eight percent (8%). On January 6, 2022 the company issued an additional Secured Promissory Note to NFP under the same terms for up to $5,000,000, of which $1,000,000 was funded on January 7, 2022.

 

In February 2022, NFP terminated the SPA and in March 2022, the Company issued a Notice of Default on the NFP Note (see Subsequent Event Footnote 19). As a result, the Company has determined that the Notes have been impaired and has taken an impairment charge of $10,000,000 against the 2021 earnings and $1,000,000 against the 2022 earnings.

 

Note 8 - Intangible Assets

 

In connection with the acquisition of Magical Beasts (see Note 15 below), the Company allocated the purchase price to intangible assets as follows:

 

Tradenames & trademarks  $151,800 
Customer base   651,220 
Non-compete   154,500 
Goodwill   308,690 
   $1,266,210 

 

The Non-compete has an estimated life of two years, the Customer base has an estimated life of fifteen years and the Tradenames & trademarks and Goodwill have indefinite lives and will be reviewed at each subsequent reporting period to determine if the assets have been impaired. At December 31, 2020, Goodwill was analyzed by management, assisted by a third party valuation company, and determined that the Goodwill associated with the acquisition of Magical Beasts has been impaired and as a result the Company recognized a charge to earnings of $308,690 in the year ended December 31, 2020. Additionally, the Intangibles were analyzed by management, assisted by a third-party valuation company, and determined that the Intangible associated with the acquisition of Magical Beasts had also been impaired and as a result the Company recognized an additional charge to earnings of $731,628 in the year ended December 31, 2020. The balance of the Intangible Assets at December 31, 2020 attributable to Magical Beasts was $122,501.

 

During the first two quarters of 2021, the Company amortized $25,847 of the remaining Intangible Assets attributable to Magical Beasts. In the third quarter management determined that the balance of $96,654 had been impaired and was recognized as a charge to earnings. As of December 31, 2021, the Company had no remaining Intangible Assets attributable to Magical Beasts.

 

In connection with the acquisition of SRM Entertainment, Limited (see Note 16 below), the Company allocated the purchase price to intangible assets as follows:

 

      
Distribution Agreements  $437,300 
Goodwill   941,937 
   $1,379,237 

 

The Distribution Agreements have an estimated life of six years and Goodwill has an indefinite life and will be reviewed at each subsequent reporting period to determine if the assets have been impaired.

 

Amortization for the six-months ended June 30, 2022 was $36,442 and the year ended December 31, 2021 was $72,883. The balance of the Intangible Assets at June 30, 2022 and December 31, 2021 attributable to SRM totals $327,975 and $364,417, respectively.

 

During the year ended December 31, 2021, the Company entered into two licensing agreements for the rights to use certain patented technologies. The Company paid a total of $675,000 for the rights, consisting of $150,000 in cash and $525,000 in shares of the Company’s common stock. In early 2022, the Company terminated one of the licensing agreements and as a result, the company considered the terminated license to be impaired and took a charge to of $300,000 to 2021 earnings. The balance of Intellectual property at June 30, 2022 and December 31, 2021 was $375,000 which includes Patents and other formulations used in our development of future products.

 

During the six months ended June 30, 2022, the Company entered into a Clinical Research Agreement to research new treatments for post COVID-19 syndrome and symptoms and other projects which include treatments for respiratory diseases (such as influenza), herpes, eczema, and other skin indications. As of June 30, 2022, the Company had paid $1,300,000 of the approximate $3,000,000 budget. The payments shall be amortized over the respective term of the research.

 

Note 9 – Financed Insurance Premiums

 

During the six-months ended June 30, 2022, the Company financed a total of $241,272 for its General Liability and Director & Officer insurance premiums over the twelve months coverage period. The average interest rate is 9.3%. At June 30, 2022 the outstanding balance was $145,171.

 

F-12

 

Note 10 - Convertible Notes Payable

 

At December 31, 2020, the Company had a total of $525,000 plus accrued interest of $32,856 due on convertible promissory notes. In January 2021, the Company received conversion notices from all of the note holders to convert the $525,000 principal balance of its convertible promissory notes plus $35,496 accrued interest through the date of conversion, into 186,832 shares of the Company’s common stock ($3.00 per share conversion price). The shares were issued in January 2021.

 

The 2021 Notes:

 

In May 2021, the Company issued three Convertible Promissory Notes totaling $3,150,000 ($2,500,000, $500,000 and $150,000) (the “2021 Notes”). The 2021 Notes were issued with an Original Issue Discount (“OID”) of five percent (5%), a term of six months, an annual interest rate of eight percent (8%) and convertible into shares of the Company’s common stock at a conversion price of $6.00 per share. Additionally, the Company issued a total of 525,000 warrants in connection with the 2021 Notes. The fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on the respective reporting date as follows:

 

                Market         
                Price         
Reporting   Relative   Term   Exercise   on Grant   Volatility   Risk-free 
Date   Fair Value   (Years)   Price   Date   Percentage   Rate 
 05/10/2021   $1,026,300    5   $6.00   $4.27    299%   0.0080 
 05/05/2021   $203,532    5   $6.00   $4.21    299%   0.0080 
 05/19/2021   $62,033    5   $6.00   $4.30    312%   0.0089 

 

During the year ended December 31, 2021, the 2021 Notes were paid in full in cash.

 

Total interest expense for the Company was $1,736,106 for the year ended December 31, 2021.

 

The Company recorded $604,031 related to the Convertible Promissory Notes during the year ended December 31, 2021, which included $157,500 of original issues discounts and $1,446,530 of warrant and beneficial conversion features expense related to the convertible notes.

 

The 2022 Notes:

 

On April 20, 2022, the Company entered into a $1,500,000 Loan Agreement and a $500,000 Loan Agreement (collectively the Agreements”). Pursuant to the Agreements, the Company issued two Convertible Promissory Notes in the principal amounts of $1,500,000 and $500,000 (the “2022 Notes”). In connection with the Notes the Company issued Common Stock Purchase Warrants for 1,100,000 shares 360,000 shares of the Company’s common stock (the “Warrants”). The Notes have a maturity date of October 20, 2022. In connection with the 2022 Notes, the Company issued a total of 250,000 shares as origination shares valued at fair market value of $277,500. There is no beneficial conversion feature since the conversion price is grater then the fair value of the shares.

 

The 2022 Notes have an original issuance discount of five percent (5%), $10,000 in legal fees, an interest rate of eight percent (8%), and a conversion price of $2.79 per share, subject to an adjustment downward if the Company is in default of the terms of the Notes. The Warrants have a five (5) year term, an exercise price of $2.79 per share, have a cashless conversion feature until such time as the shares underlying the Warrants are included in an effective registration and certain anti-dilution protection.

 

The fair value of origination shares and warrants issued in connection with the 2022 Note totals $984,477.

 

The fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on the respective reporting date as follows:

 

                Market         
                Price         
Reporting  

   Term   Exercise   on Grant   Volatility   Risk-free 
Date   Fair Value   (Years)   Price   Date   Percentage   Rate 
 04/20/2022   $1,245,279    5   $2.79   $1.11    281%   0.0287 

 

The following table sets forth a summary of the principal balances of the Company’s convertible promissory notes activity for the year and six-months ended June 30, 2022:

 

Balance, December 31, 2020  $525,000 
Conversions of Notes   (525,000)
2021 Notes   3,150,000 
Cash payments on Notes   (3,150,000 
Principal Balance, December 31, 2021   - 
2022 Notes   2,000,000 
Principal Balance, June 30, 2022  $2,000,000 

 

Interest expense for the six-months ended June 30, 2022 totaled $574,656 which includes $501,927 amortization of the origination shares and warrants discounts in connection with the 2022 Notes.

 

F-13

 

Note 11 - Note payable issued in acquisition

 

In connection with the Acquisition of Magical Beasts, LLC (see Note 15), the Company issued a non-interest bearing $1,000,000 promissory note (“Note”), due upon the earlier of i) the closing of a public offering or ii) December 31, 2020. The note has been valued at its discounted amount of $950,427. During the year ended December 31, 2020, the Company recognized $49,573 of interest expense for the accretion of the discount.

 

In August 2020, a Nevada court imputed a judgement of Ms. Whitley (the former owner of Magical Beasts, LLC) to Magical Beasts (see Note 15 Legal proceedings) and advised the Company that before paying any funds under the note to Ms. Whitley, the Company must first satisfy the judgement to the Plaintiff. In October 2020, the Company, Ms. Whitley and the Plaintiff in the judgement action against Ms. Whitley reached an agreement whereby Ms. Whitley agreed that of the $1,000,000 payable to Ms. Whitley, the first $336,450 would be paid to the Plaintiff which the Company has paid in full with a cash payment of $300,000 and the issuance of 8,500 shares of its common stock leaving a balance of $691,500 at December 31, 2020.

 

In January 2021, the Company entered into an Omnibus Amendment to the original Purchase Agreement (see Note 15) which satisfied the Company’s obligation on the Note.

 

Note 12 – Covid-19 SBA Loans

 

During the year ended December 31, 2020, the Company applied for and received $28,878 under the Federal Paycheck Protection Program (“PPP”) and $55,700 under the Economic Injury Disaster Loan Program (“EIDL”), both of which are administered through the Small Business Administration (“SBA”). Under the guidelines of the PPP, the SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses. During 2021, the PPP loans were forgiven, resulting in a gain of $34,499, and the SBA notified the Company that the terms of the EIDL are a term of 30 years and an interest rate of 3.75%. The balance of the EIDL at June 30, 2022 and December 31, 2021 was $47,981 and $47,547, respectively.

 

Note 13 - Capital Structure

 

Common Stock - The Company is authorized to issue a total of 100,000,000 shares of common stock with par value of $0.001 and 100,000 shares of preferred stock with par value of $0.001. As of June 30, 2022 and December 31, 2021, there were 21,705,647 shares of common stock (net of 2,690,354 repurchased by the Company) and 24,046,001 shares of common stock issued and outstanding, respectively, and no shares of preferred stock were issued and outstanding.

 

Year ended December 31, 2021 issuances:

 

Conversion of Convertible Promissory Notes:

 

During the year ended December 31, 2021, the Company converted $525,000 of convertible promissory notes and accrued interest of $35,496 into 186,832 shares of its common stock. The Notes were converted per the terms of the respective Notes and the Company did not recognize any gain or loss on the conversion. (see Note 8 – Convertible Promissory Notes).

 

Exercise of Cashless Stock Options

 

During the year ended December 31, 2021, a former Director of the Company exercised a portion of his stock options under the cashless provisions and was issued 47,470 shares of the Company’s stock, an officer of the Company exercised a portion of his stock options under the cashless provisions and was issued 15,884 shares of the Company’s stock and Ms. Whitley (see Note 14) exercised her stock options under the cashless provisions and was issued 159,053 shares of the Company’s stock.

 

Shares issued for services

 

During the year ended December 31, 2021, the Company entered into twelve Consulting Agreements under the terms of which the Company issued 1,422,000 shares of its common stock. The shares were issued at their respective fair value based on the Company’s Nasdaq closing price of the shares on the date of the agreements. Additionally, the Company issued 367,496 shares of its common stock to employees. The Company recognized a total of $ 4,340,983 as stock-based compensation in the year ended December 31, 2021.

 

F-14

 

Shares issued for Intellectual Property

 

During the year ended December 31, 2021, 2021, the Company entered into two license agreements for the use of certain patented technology under the terms of which the Company issued a total of 125,175 shares of its common stock valued at a total of $525,000 and paid an additional $150,000 in cash. In 2021, the Company impaired one of the license agreements totaling $300,000. The remining balance of $375,000 is carried as Intellectual properties on the balance sheet of the Company. The shares were issued at their respective fair value based on the Company’s Nasdaq closing price of the shares on the date of the agreements.

 

Shares issued in Public Offering

 

In July 2021, the company closed an underwritten public offering (the “Offering”) of 11,066,258 shares (the “Company Offering Shares”) of common stock, par value $0.001 per share and warrants (the “Company Warrants”) to purchase up to 11,607,142 shares of Common Stock. The Warrants will be exercisable immediately upon issuance with an exercise price of $2.79 per share and will expire on the fifth anniversary of the original issuance date. The net proceeds from the Offering, after deducting underwriting discounts and commissions and Offering expenses, were $28,318,314, which includes net proceeds from partial exercise of the underwriter’s option to purchase 442,650 Company Warrants.

 

Six Months ended June 30, 2022 issuances:

 

Shares issued for services

 

During the six-months ended June 30, 2022, the Company entered into an Investor Relations Consulting Agreement under the terms of which the Company issued 100,000 shares of its common stock. The shares were issued at their respective fair value based on the Company’s Nasdaq closing price of the shares on the date of the agreements. The Company recognized a total of $105,000 as stock-based compensation during the six- months ended June 30, 2022.

 

In November 2021, the Company engaged Oppenheimer & Co. to repurchase shares of the Company’s common stock from the public market. At December 31, 2021, Oppenheimer had not repurchased any of the Company’s securities and as of June 30, 2022 Oppenheimer had purchased 2,690,354 shares of the Company’s common stock at a total costs of $ 2,776,726 (average of $1.03 per share). As of June 30, 2022, the Company had cancelled 2,433,894 of the shares at a cost of $2,579,894. These repurchased and retired shares are included in the Equity section of the June 30, 2022 Balance Sheet as Treasury Stock.

 

The following table sets forth the issuances of the Company’s shares of common stock for the year and six-months ended June 30, 2022 as follows:

 Schedule of Stock Holders

         
Balance December 31, 2020   10,655,833 
Conversion of Promissory Notes   186,832 
Exercise of stock options   222,407 
Stock based compensation   367,496 
Consulting Services Shares   1,422,000 
Intellectual property   125,175 
Public offering   11,066,258 
Balance December 31, 2021   24,046,001 
Shares issued for services   100,000 
Loan origination shares for promissory note   250,000 
Shares repurchased from the market   (2,690,354)
Balance June 30, 2022   21,705,647 

 

Common Stock Payable

 

During the year ended 2021, the Company entered into two consulting agreement which call for a cash component and a stock component. At June 30, 2022 and December 31, 2021 the Company had accrued a total of $285,000 of stock payable relating to the agreements.

 

F-15

 

Note 14 - Warrants and Options

 

Convertible Note Warrants: During the six-months ended June 30, 2022, the Company issued 1,460,000 warrants with an exercise price of $2.79 and five year terms in connection with two convertible promissory notes, and during 2021 in connection with the issuance of three convertible promissory notes, the Company issued 525,000 warrants with an exercise price of $6.00 and five-year term (see Note 10).

 

                Market         
                Price         
Reporting   Relative   Term   Exercise   on Grant   Volatility   Risk-free 
Date   Fair Value   (Years)   Price   Date   Percentage   Rate 
 5/5/2020-5/19/21   $1,888,495    5   $6.00   $4.26    299%   0.0080 
 04/20/22   $706,977    5   $2.79   $1.11    281%.   0.0287 

 

Public Offering Warrants: In connections with the Company’s public offering (see Note 13), the Company issued 11,607,142 warrants to the purchasers of the common stock, exercisable immediately at an exercise price of $2.79 and 442,650 warrants to the underwriter immediately exercisable at $3.50.

                Market         
                Price         
Reporting   Relative   Term   Exercise   on Grant   Volatility   Risk-free 
Date   Fair Value   (Years)   Price   Date   Percentage   Rate 
 7/26/2021   $20,921,265    5   $2.79   $2.03    331%   0.0033 
 7/26/2021    786,395    5   $3.50   $2.03    331%   0.0033 

 

The following tables summarize all warrants outstanding as of June 30, 2022 and December 31, 2021, and the related changes during the period.

 

Exercise price is the weighted average for the respective warrants and end of period.

 

   Number of   Exercise 
   Warrants   Price 
Stock Warrants          
Balance at December 31, 2020   1,123,333   $8.30 
Warrants issued in connection with Convertible Notes (see note 10)   525,000    6.00 
Warrants issued in connection with the Public offering (see note 13)   12,049,792    2.82 
Balance at December 31, 2021   13,698,125   $3.24 
Warrants issued in connection with Convertible Notes (see note 10)   1,460,000    2.79 
Balance at June 30, 2022   

15,158,125

   $

3.04

 
           
Warrants Exercisable at June 30, 2022 and December 31, 2021   13,698,125   $3.04 

 

Options

 

During the six-months ended June 30, 2022 the Company entered into an Investor Relations Consulting Agreement under the terms of which the Company issued 300,000 two-year options with an exercise price of $1.00.

 

During the year ended December 31, 2021, the Company issued a total of 4,383,950 options with an exercise price between $0.25 and $5.59 each with a three-year term to its Officers and Directors.

 

The fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on the respective reporting date.

 

                 Market         
    Number            Price on         
Reporting   of   Term    Exercise   Grant   Volatility   Fair 
Date   Options   (Years)    Price   Date   Percentage   Value 
1/01/216/30/21    306,730    3    $0.25 - 5.59   $3.78 - 5.59    148% - 209%  $1,244,179 
7/1/21-9/30/21    777,220    5    $1.77   $1.58    127%  $816,158 
10/01/2112/31/21    3,300,000    3    $1.30   $1.30    129%  $2,983,393 
01/01/22    300,000    2    $1.00   $0.80    126%  $142,169 

 

During the six-months ended June 30, 2022, the Company cancelled a total of 211,000 options to management and reallocated these to cover shares of the Company’s stock to be issued under the Company’s Incentive Stock Plan.

 

During the six-months ended June 30, 2022, the Company recognized $142,169 as compensation expense. The Company recognized $5,046,982 as compensation expense in the financial statements for the year ended December 31, 2021. At June 30, 2022 and December 31, 2021, the Company had 4,975,619 and 4,675,610 options outstanding, respectively.

 

F-16

 

Note 15 - Acquisition of Magical Beasts, LLC

 

Effective February 21, 2020, Jupiter Wellness Inc., a Florida corporation (“Jupiter Sub”), our wholly-owned subsidiary, entered into a membership interest purchase agreement with Magical Beasts LLC (“Magical Beasts”), a Nevada limited liability corporation, and Krista Whitley, its sole interest holder, pursuant to which Jupiter Sub acquired all of the membership interests in Magical Beasts (the “Magical Beasts Acquisition”) in exchange for the following consideration:

 

$250,000 cash at closing;
   
A $1,000,000 promissory note, non-interest bearing payable by us, due upon the earlier of i) the closing of this offering or ii) December 31, 2020 valued at its discounted amount of $950,427; and
   
an option to purchase 250,000 restricted shares of our common stock at an exercise price of $1.00 per share valued at $156,612. The fair value of these options was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on the reporting date. The market price was valued based upon the last price paid by third parties for shares of our common stock.

 

    Number of           Market         
Reporting   Options   Term   Exercise   Price on   Volatility     
Date   Granted   (Years)   Price   Grant Date   Percentage   Fair Value 
2/21/20    250,000    5   $1.00   $1.00    77%  $156,612 

 

In connection with the Magical Beasts Acquisition, Jupiter Sub shall enter into an executive employment agreement with Krista Whitley to act as our Director of Marketing, however, until such agreement is entered into, Jupiter Sub shall pay Krista Whitley an annual salary of $150,000.

 

Valuation and Purchase Price Allocation

 

According to ASC 805, the standard of value to be used in the application of purchase accounting rules is fair value. The Company utilized fair value defined in Statement of Financial Accounting Standard No. 820–10–35–37 Fair Value Measurements and Disclosures. The determination of the fair value of the consideration and related allocation of the purchase price was determined by management of the Company with the assistance of a qualified professional valuation firm.

 

The fair value of the consideration is as follows:    
     
Cash  $250,000 
Promissory Note, net of discount   950,427 
Stock Options   156,612 
Total Consideration paid  $1,357,039 
The purchase price allocation is as follows:     
      
Tangible assets     
Cash  $4,609 
Inventory   86,220 
Total tangible assets   90,829 
      
Intangible assets     
Tradename-Trademarks   151,800 
Customer base   651,220 
Non-compete   154,500 
Total Intangibles   957,520 
Goodwill   308,690 
   $1,357,039 

 

F-17

 

On July 6, 2020, Brian Menke (the “Plaintiff”) in Nevada court seeking to enforce a judgement that he had obtained in 2012 against Krista Whitley, the former owner and manager of Magical Beasts LLC., in the amount of $250,000. In July 2020, the Plaintiff brought a claim in Nevada State Court to impute such judgement to the Company’s wholly owned subsidiary, Magical Beasts, LLC. On August 6, 2020, the court imputed the judgement to Magical Beasts and advised the Company that before paying any funds to Ms. Whitley, they must first satisfy the judgement to the Plaintiff. On October 12, 2020, the Company, Ms. Whitley and the Plaintiff reached a settlement agreement whereby the Company agreed that of the $1,000,000 note payable to Ms. Whitley, the first $336,450 be paid to the Plaintiff. Ms. Whitley in turn agreed that such payments would be applied to the $1,000,000 owed to Ms. Whitley that was to be paid from the proceeds of the offering and the Plaintiff agreed to withdraw the case against Magical Beasts without prejudice. In November, the Company made a cash payment of $300,000 to the Plaintiff and issued 8,500 shares of its common stock valued at $8,500. The $308,500 was recorded as an offset to the $1,000,000 note.

 

On January 25, 2021, the Company entered into an Omnibus Amendment to: (1) the Confidential Membership Interest Purchase Agreement, dated February 21, 2020; (2) the Sales Distributor Agreement, dated February 21, 2020; and (3) the Executive Employment Agreement, dated March 31, 2020 (the “Agreements”). Pursuant to the Omnibus Amendment, the parties (i) acknowledge that the Company has fully satisfied its obligation of $334,000 to the Plaintiff as Ms. Whitley’s judgment creditors; (ii) agree that in satisfaction of the remaining balance due to Ms. Whitley under the Agreements, she is to be paid $150,000 in cash; (iii) agree that starting April 1, 2020, Whitley shall be entitled to individually market and sell the Bella line of products remaining in the Company’s inventory, as identified in the Omnibus Amendment, and the Company will relinquish its rights to the Bella brand; (iv) agree that the number of shares issuable upon exercise of the common stock purchase options granted to Ms. Whitley under the Agreements shall be reduced from 250,000 to 185,000, Ms. Whitely may utilize a cashless exercise feature to exercise such options, subject to a six (6) month holding period on the shares, and Ms. Whitley shall not be permitted to sell an amount of shares in any week which exceeds 10% of the Company’s total weekly trading volume in the prior week; (v) agree that Ms. Whitley’s Employment Agreement shall terminate on March 31, 2021 and shall not renew; (vi) acknowledge that Ms. Whitley has been paid $5,541 for unreimbursed expenses on or about December 30, 2020; and (vii) the balance of the note due Whitley be forgiven.

 

As a result of the above, the Company recognized a gain of $669,200 comprised of the forgiveness of debt of $691,500 and the write-off of the unamortized portion of Whitley’s the non-compete agreement of $22,300.

 

In February 2021, Ms. Whitley exercised her 185,000 options (see Omnibus Agreement above) using the cashless option feature and was issued 159,053 shares of the Company’s restricted common stock in full satisfaction of the option agreement.

 

Note 16 – Acquisition of SRM Entertainment

 

On November 30, 2020, Jupiter Wellness, Inc. (the “Company”), entered into and closed on a share exchange agreement (the “Exchange Agreement”) with SRM Entertainment, LTD, a Hong Kong Special Administrative Region of the People’s Republic of China limited company (“SRM”) and wholly owned subsidiary of Vinco Ventures, Inc., a Nevada corporation formerly known as Edison Nation, Inc. (“Vinco”), and the shareholders of SRM set forth in the Exchange Agreement (the “SRM Shareholders”), pursuant to which the Company acquired 100% of the shares of SRM’s common stock (the “SRM Common Stock”) from the SRM Shareholders in exchange for 200,000 shares of the Company’s common stock, valued at $1,040,000, subject to a leak out provision and escrow of 50,000 shares of the Company’s common stock. Upon closing, and pursuant to the Exchange Agreement, the Company delivered 150,000 shares of its common stock to SRM and placed 50,000 shares in escrow (“Escrow Shares”). Pursuant to the Exchange Agreement, the Company shall release the Escrow Shares upon SRM generating $200,000 in cash receipts and revenue prior to January 15, 2021. The SRM Shareholders shall forfeit their right to receive the Escrow Shares if SRM does not generate $200,000 in cash receipts and revenue prior to December 31, 2020. Pursuant to the Exchange Agreement, the Company assumed all of the financial obligations of SRM, as well as its employees and offices. As a result of the Exchange Agreement, SRM became a wholly-owned subsidiary of the Company.

 

F-18

 

Valuation and Purchase Price Allocation:

 

According to ASC 805, the standard of value to be used in the application of purchase accounting rules is fair value. The Company utilized fair value defined in Statement of Financial Accounting Standard No. 820–10–35–37 Fair Value Measurements and Disclosures. The determination of the fair value of the consideration and related allocation of the purchase price was determined by management of the Company.

 

The fair value of the consideration is as follows:    
     
Shares of the Company’s common stock issued   200,000 
Market value of Company’s common stock (11/30/20 Nasdaq closing price)  $5.20 
Consideration paid  $1,040,000 
Net tangible liabilities assumed   339,237 
Total consideration  $1,379,237 

 

  

The purchase price allocation is as follows:    
     
Distribution Agreements  $437,300 
Goodwill   941,937 
Total purchase price allocation  $1,379,237 

 

Note 17 - Commitments and Contingencies

 

The Company entered into a new office lease Effective July 1, 2021. The primary term of the lease is five years with one renewal option for an additional three years. Minimum annual lease payments for the primary term and one renewal are as follows:

 

Primary Period  Amount  Amount During Renewal Period  Amount 
July 1 to June 30, 2022  $180,456  July 1 to June 30, 2027  $240,662 
July 1 to June 30, 2023  $201,260  July 1 to June 30, 2028  $247,882 
July 1 to June 30, 2024  $224,330  July 1 to June 30, 2029  $255,319 
July 1 to June 30, 2025  $229,312        
July 1 to June 30, 2026  $233,653        

 

Under the new standard for lease reporting, the Company recorded a Right of Use Asset (“ROU”) and an offsetting lease liability of $870,406 representing the present value of the future payments under the lease calculated using an 8% discount rate (the current borrowing rate of the company). The ROU and lease liability are amortized over the five-year life of the lease. The unamortized balances at June 30, 2022 were ROU asset of $759,910, current portion of the lease liability of $164,170 and lease liability of $ $620,868. The unamortized balances as of December, 2021 were ROU of $797,311, the current portion of the lease liability of $118,102 and non-current portion of the lease liability was $695,961. Additionally, the Company recognized accreted interest expense of $16,089 and $33,885, respectively, for the new lease during the six-months ended June 30, 2022 and the year ended December 31, 2021.

 

F-19

 

Legal Proceedings

 

On August 6, 2020, the Company, Messrs. John and Miller and certain affiliated entities filed a lawsuit in the United States District Court, Southern District of New York against Robert Koch, Bedford Investment Partners, LLC, Kaizen Advisors, LLC and certain other unnamed defendants. The lawsuit alleges that Mr. Koch and the other defendants are attempting to extort the Company and Messrs. John and Miller to issue the defendants shares of the Company’s common stock which they claim are owed to them. The Company asserts that they have no oral or written agreement with Mr. Koch or any of his affiliates that entitle him to shares of the Company’s common stock. The Company’s complaint seeks actual damages in the amount of $5,000,000 and punitive damages in the amount of $5,000,000. In response, Mr. Koch and Bedford Investment Partners, LLC (together, the “Koch Parties”) filed their answer and counterclaim, repeating the same claims that caused the Company to file the lawsuit. On October 6, 2020, the Company moved for judgment on the pleadings to dismiss the defendants’ counterclaim in its entirety. On April 24, 2021, the Company’s motion was granted and all counterclaims were dismissed with prejudice, except the breach-of-contract and unjust enrichment claims. On June 04, 2021 the Koch Parties filed a Second Amended Counterclaim, re-alleging their previous breach-of-contract and unjust enrichment counterclaims. On June 25, 2021, the Company filed a motion to dismiss defendants’ Second Amended Counterclaim, which the parties briefed in summer 2021. On February 14, 2022, the court dismissed all of the Koch Parties’ counterclaims except to the extent that they alleged unjust enrichment against Jupiter and Mr. John. On March 22, 2022, the Parties engaged in a Settlement Conference before The Honorable Sarah L. Cave, which did not resolve the case. On March 25, 2022, The Honorable Lewis J. Liman granted Jupiter and Mr. John permission to move for summary judgment dismissing the Koch Parties’ unjust enrichment counterclaim, and scheduled a jury trial to begin no earlier than November 14, 2022.

 

The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on its financial position, results of operations or liquidity.

 

Note 18 – Segment Reporting

 

The Company has two reportable segments: (i) sales and development of cannabidiol based skin and wellness care and therapeutic products and (ii) sales of merchandise sold to theme parks. Sales of the theme park merchandise are made through the Company’s wholly owned subsidiary SRM Entertainment, Inc. Condensed financial information for the six-months ended June 30, 2022 and 2021 follow;

 

      2022   2021 
Jupiter Wellness  Revenue  $39,950   $115,189 
   Cost of Sales   19,504    55,695 
   Gross Profit (Loss)  $20,446   $59,494 
              
SRM Entertainment  Revenue  $3,682,261   $528,745 
   Cost of Sales   3,080,253    381,670 
   Gross Profit (Loss)  $602,008   $147,075*
              
Combined  Revenue  $3,722,211   $643,934 
   Cost of Sales   3,099,757    437,365 
   Gross Profit (Loss)  $622,454   $206,569 

 

Note 19 - Subsequent Events

 

In November 2021, the Company engaged Oppenheimer & Co. to repurchase shares of the Company’s common stock from the public market. At December 31, 2021, Oppenheimer had not repurchased any of the Company’s securities and as of June 30, 2022 Oppenheimer had purchased 2,690,354 shares of the Company’s common stock at a total costs of $2,776,726 (average of $1.03 per share). As of June 30, 2022, the Company had cancelled 2,433,894 of the shares at a cost of $2,579,894. Through August 10, 2022, Oppenheimer has purchased an additional 135,263 shares at a cost of $103,319.

 

On June 28, 2022 the Company received a letter from Nasdaq stating that, because the Company made certain share issuances outside of a shareholder approved equity compensation plan, Nasdaq had determined that the Company did not comply with Listing Rule 5635(c). On July 26, 2022, the Company submitted a final compliance plan to Nasdaq consisting of the following corrective actions: (1) on July 20, 2022, the Company’s four executive officers (Messrs. John, Miller, and McKinnon and Dr. Wilson), all of whom are on the Company’s Board of Directors except for Mr. McKinnon, each cancelled 2,750 options issued to them in August 2021 pursuant to an Incentive Stock Option Forfeiture Agreement. The cancellation of the 11,000 options in total enabled the issuance of 11,000 shares to a non-executive employee that took place in 2021 to be reallocated to be accounted for as if it was originally issued under the 2020 Equity Incentive Plan. The Company’s Board of Directors passed a resolution on July 25, 2022, making the corresponding change to the Company’s books and records with regard to the 11,000 shares; and (2) on July 26, 2022, the same four executive officers, returned, and the Company cancelled, a total of 56,496 shares of common stock issued to them in 2021 outside of a shareholder approved equity compensation plan. Following the remedial measures, the Company was informed that the Company has regained compliance with the Rule and that this matter is now closed.

 

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to June 30, 2022 to the date these financial statements were issued and has determined that it does not have any additional material subsequent events to disclose in these financial statements.

 

F-20

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

FORWARD LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

 

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.

 

As used in this quarterly report and unless otherwise indicated, the terms “we”, “us”, “our”, “JUPW” and the “Company” mean Jupiter Wellness, Inc.

 

General Overview

 

Jupiter Wellness, Inc. (“Company,” “Jupiter Wellness” “we,” “us,” and “our”) was originally incorporated in the State of Delaware on October 24, 2018. Our principal business address is 1061 E. Indiantown Rd #110, Jupiter, FL 33477.

 

Jupiter Wellness, Inc. researches, develops, licenses, and sells various products in the wellness field focused on hair, skin, and sexual health. Its PhotocilTM and Minoxidil Booster, are currently licensed to sell in over 30 countries worldwide. Its product NoStingz is sold in the US. The Company’s clinical pipeline of -enhanced skin care therapeutics address indications including eczema, burns, herpes cold sores... In February 2021, we announced the results of our novel Cannabidiol-Aspartame combination treatment JW-100 clinical trial which has shown it significantly Reduces ISGA Score in Eczema patients. A double blinded placebo controlled interventional study was conducted. Subjects were assigned to apply, at home, one of three treatments: JW-100 (a cannabidiol and aspartame combination topical formulation), a cannabidiol only topical formulation, or a placebo topical formulation. After 14 days, the average reduction in the Investigators Static Global Assessment (ISGA) score was calculated for each group. Additionally, the proportion of subjects achieving (ISGA) score 0 (clear) or 1 (almost clear) with at least 2 grade improvement from baseline was recorded for each arm of the study. 50% of subjects in the JW-100 arm achieved ISGA clear or almost clear (1 or 2) with at least a 2-grade improvement from baseline after treatment versus 20% and 15% in the CANNABIDIOL-only and placebo arms, respectively. The percentage of subjects achieving clear or almost clear with at least a 2-grade improvement from baseline was found to be statistically significant (p=0.028). JW-100, a novel topical formulation containing cannabidiol and aspartame, was shown to significantly reduce ISGA score in atopic dermatitis patients after two weeks of use. The combination of cannabidiol and aspartame was more effective at reducing ISGA scores than cannabidiol alone. A Phase 3 study, a head-to-head comparison with marketed product Eucrisa, is in progress. An OTC system for the treatment of Eczema based on this approach is planned for launch in 2023.

 

Photocil will be launched in Q4 2022. The minoxidil booster product is scheduled to be launched in Japan by Taisho Pharmaceuticals in 2023. The sexual wellness product is completing clinical studies and formulation development and will be ready for product launch in 2023,

 

2

 

In parallel, we plan to initiate the development of other products. We originally anticipated developmental studies to be completed in 2020, however, these studies were delayed due to COVID-19.

 

In November 2021, Jupiter Wellness received an official written response from a Type B pre-Investigational New Drug (IND) meeting with the U.S. Food and Drug Administration (FDA) for JW-100, a topical drug the treatment of eczema. The main purpose of the pre-IND meeting was to evaluate the drug development plan for JW-100. Jupiter Wellness believes that the written response from the FDA supports the Company’s approach and its overall drug development strategy to enable the filing of an IND for its clinical studies on JW-100.

 

On November 16, 2021, Jupiter Wellness announced the results of a double-blinded placebo controlled clinical trial on JW-300 showing efficacy for the treatment of developing burns (sunburn).

 

The endocannabinoid system, which is a body system affected by cannabidiol, plays a pivotal role in maintaining a healthy skin through modulating pain sensation, cell proliferation and inflammation. Our strategy for treatment of skin indications is, therefore, to focus on the use of cannabidiol containing topical formulations and to explore potential combinations of cannabidiol and other agents that may augment and act synergistically with cannabidiol. We will explore this strategy by conducting controlled clinical trials to try to ultimately gain FDA approval for specific indications.

 

On November 30, 2020, the Company acquired SRM Entertainment, Limited, a Hong Kong Special Administrative Region of the People’s Republic of China limited company (“SRM”). SRM has relationships with and supplies the amusement park industry with exclusive products that are often only available to consumers inside the relevant amusement park, entertainment venues and theme hotels in Orlando Florida, Beijing China, Japan and other places throughout the worldwide theme park industry.

 

All of the testing on these products is standard testing for suncare products. Such testing protocols are not intended to test for any effects of adding cannabidiol. In addition to these tests that were conducted to support the claims on the package, each batch is also tested for appearance, color, odor, pH, viscosity, specific gravity, analytical for the sunscreen active ingredients, and microbial content testing.

 

Our products are tested each time they are manufactured. DCR Labs manufactures our products and has represented to us that it is compliant with the FDA’s Current Good Manufacturing Practice, or CGMP, regulations in accordance with 21 CFR 210/211 required for Over-the-Counter drug products. DCR Labs has self-imposed health and safety standards to ensure compliance with the FDA’s CGMPs.

 

3

 

We expect to continually update and expand upon our corporate website and further refine our online retail strategies on an ongoing basis. JupiterWellness.com is our primary corporate website, which will serve as the primary source of information about us for investors and contain press releases, clinical trial pipeline, lab reports, blog posts, and additional information about each of our brands. We anticipate that each brand will have its own front-facing website dedicated to retail sales and brand specific information. For example, our line of sun care products, CaniSun, has its own website at CaniSun.com and allows for online retail purchase of the entire product line. As we expand our brands (CaniSkin and CaniDermRX), we anticipate utilizing the same strategy and dedicating a new e-commerce website to each brand moving forward. We are also building a website dedicated to servicing our wholesale and larger distributor clients. This website will have more information about each product and provide a central location for larger retailers to find more in-depth information about all of our brands in one place.

 

We plan to leverage our websites with a social media presence across multiple platforms designed to utilize product reviews to increase brand loyalty, brand recognition and sales. The references to our website in this prospectus are inactive textual references only. The information on our website is neither incorporated by reference into this prospectus nor intended to be used in connection with this offering. We also see growth potential in developing retail locations. We intend to utilize cross-promotion marketing campaigns with our products and product category expansion that leverages our existing distribution channels. We have built an e-commerce platform designed to connect us directly to consumers. We use the platform to sell products, educate customers and build brand loyalty.

 

CaniSkin Brand and CaniDermRX Brand

 

We are currently developing other products such as cannabidiol -infused skin care lotion under the CaniSkin brand. Specifically, a cannabidiol -infused moisturizing face serum is under development. We must first finalize the formula to be used in the face serum, and, once approved, the product candidate will undergo stability testing. We intend to sell the product, provided it first passes stability testing, on our website for CaniSkin products. Additionally, we are developing innovative dermatological treatments under the CaniDermRX brand that are specialized to treat atopic dermatitis and other dermatological conditions such as burns, skin cancer and herpes cold sores, respectively. Subject to obtaining FDA approval, we intend for our experimental-stage product for the treatment of atopic dermatitis to compete with Dupixent, an FDA-approved product for treating atopic dermatitis, and for our experimental-stage product for the treatment of herpes cold sores to compete with Silvadene and Abreva, FDA-approved products for treating herpes cold sores. These products require more extensive testing to show both safety and efficacy.

 

In addition, we plan to seek acquisition opportunities in the branded consumer products space, including but not limited to other OTC therapeutic brands and skin care brands that can be developed, manufactured, marketed and distributed under our CaniSkin and CaniDermRX brand names.

 

We filed a provisional patent number 62/884,955 on 08/09/2019 on an Aspartame/ cannabidiol combination and intend to develop products containing a combination of cannabidiol and Aspartame under the CaniDermRX name for the treatment of pain and inflammation. On February 11, 2021, the US Patent Published our US Patent Application 20210038513 and on April 5, 2021 we filed the International filing through PCT Application PCT/US 2020/045408. We believe that our CaniDermRX product candidates have the potential to treat many skin indications such as atopic dermatitis, pruritis-itch, non-atopic dermatitis/eczema, psoriasis, dermatomyositis, scleroderma, seborrheic dermatitis, actinic keratosis, epidermolysis bullosa and cutaneous neoplasias. Aspartame is a rigorously tested food ingredient. Reviews by major governmental regulatory bodies have previously found the ingredient safe for consumption at higher levels than we contemplate using in our CaniDermRX product candidates. We believe that our formulations that include Aspartame, such as topical crème, lip balm, powder and dog treats, are well-tolerated by, and safe for, users. We believe that infusing cannabidiol in our products may help alleviate irritation that may be caused by applying sun care products and may lead to reduced inflammation. In human skin, receptors of the endocannabinoid system are found in differentiated keratinocytes, hair follicle cells, sebaceous glands, immune cells, and sensory neurons. Activation of cannabinoid receptor type 2, or CB2, for which cannabidiol is a ligand receptor in these cells has been shown to reduce pain and itch sensation, regulate keratinocyte differentiation and proliferation, decrease hair follicle growth, and modulate the release of damage-induced keratins and inflammatory mediators to control the homeostasis of the skin environment.

 

SRM Acquisition

 

On November 30, 2020, we entered into and closed the Exchange Agreement with SRM, a Hong Kong Special Administrative Region of the People’s Republic of China limited company and wholly owned subsidiary of Vinco, and SRM Shareholders, pursuant to which we acquired 100% of the SRM Common Stock from the SRM Shareholders in exchange for 200,000 shares of the Company’s common stock, the resale of which is subject to a leak out provision and escrow of 50,000 shares of the Company’s common stock. Upon closing, and pursuant to the Exchange Agreement, the Company delivered the 150,000 shares of its common stock to SRM and placed 50,000 shares in escrow (“Escrow Shares”). Pursuant to the Exchange Agreement, the Company shall release the Escrow Shares upon SRM generating $200,000 in cash receipts and revenue prior to January 15, 2021. The Escrow shares have not been released as of the date hereof. Pursuant to the Exchange Agreement, the Company assumed all of the financial obligations of SRM, as well as its employees and offices. As a result of the Exchange Agreement, SRM became a wholly-owned subsidiary of the Company.

 

SRM has relationships with and supplies the amusement park industry with exclusive products such as toys, lights, fans and other items that are sold in amusement parks. SRM has developed, manufactured and supplied the amusement park industry with exclusive products that are often only available to consumers inside the relevant amusement park, entertainment venues and theme hotels in Orlando Florida, Beijing China, Japan and other places throughout the worldwide theme park industry. . SRM has developed unique products in conjunction with suppliers of products for core licensed items for major well-known brands, themes, characters and movies.

 

Products developed by SRM are generally shipped directly to the theme park without warehousing at the Company’s facilities. SRM does not have long-term agreements with its customers, and instead develops products on an item-by-item basis subject to purchase orders from its customers.

 

Through SRM, we additionally intend to seek to sell our sun care products in the amusement parks. We recently developed a line of non- cannabidiol infused sun care products for sale in the amusement parks.

 

4

 

Recent Developments

 

In July 2021, the Company closed an underwritten public offering (the “Offering”) of 11,066,258 shares (the “Company Offering Shares”) of common stock, par value $0.001 per share and warrants (the “Company Warrants”) to purchase up to 11,607,142 shares of Common Stock. The Warrants will be exercisable immediately upon issuance with an exercise price of $2.79 per share and will expire on the fifth anniversary of the original issuance date. The net proceeds from the Offering, after deducting underwriting discounts and commissions and Offering expenses, were $28,318,314, which includes net proceeds from partial exercise of the underwriter’s option to purchase 1,741,071 Company Warrants, representing 15% of the Company Warrants sold in the base offering.

 

On November 3, 2021, the Company filed a registration statement with the Securities and Exchange Commission to sponsor Jupiter Wellness Acquisition Corporation (“JWAC”) a SPAC, dedicated to investing in AI based therapeutics and diagnostics. On December 9, 2021, JWAC consummated the initial public offering (“IPO”) of 13,800,000 at a price of $10.00 per unit, generating gross proceeds of $138,000,000. Simultaneously with the closing of the IPO, JWAC consummated the sale of 629,000 placement units at a price of $10.00 per placement unit in a private placement generating gross proceeds of $6,290,000. As of June 30, 2022, the Company had invested $2,908,300 in Jupiter Wellness Sponsor LLC (“JWSL”), an affiliate, which in turn invested the funds to JWAC

 

On January 20, 2022 the Company received a letter from Nasdaq stating that, because the Company made the Share Grants not pursuant to the 2021 Equity Plan despite them considered to be S-8 eligible, Nasdaq had determined that the Company did not comply with Listing Rule 5635(c). It was brought to our attention that 180,000 shares of common stock, out of the total 1,020,000 shares of common stock to consultants (the “Consulting Share Awards”) that were issued to three consultants, Greentree Financial (100,000 shares), Inc., L&H Inc. (20,000 shares), and Tee 2 Green Enterprises, Ltd. (60,000 shares), during the relevant period (the “Share Grants”), should have been issued pursuant to the 2021 Equity Plan because the Share Grants were considered to be S-8 eligible. As a result, the inadvertent issuance of the Share Grants to the mentioned-above three consultants was not made in compliance with Listing Rule 5635(c). The Company subsequently notified Nasdaq that the Board has approved the reallocation of the Share Grants to be accounted for as if they were originally issued under the 2021 Equity Plan, and has made the corresponding change to the Company’s books and records. However, since the 2021 Equity Plan has previously been exercised in full, to allow for the reallocation of the Share Grants under the 2021 Equity Plan, on January 17, 2022, the Board determined that 100,000 options that have previously been issued under the 2021 Equity Plan to Brian John, and 100,000 options issued to Dr. Glynn Wilson be cancelled, a revocation to which Messrs. John and Wilson have agreed. Following the remedial measures the Company was informed that the Company has regained compliance with the Rule and that this matter is now closed. 

 

On June 28, 2022 the Company received a letter from Nasdaq stating that, because the Company made certain share issuances outside of a shareholder approved equity compensation plan, Nasdaq had determined that the Company did not comply with Listing Rule 5635(c). On July 26, 2022, the Company submitted a final compliance plan to Nasdaq consisting of the following corrective actions: (1) on July 20, 2022, the Company’s four executive officers (Messrs. John, Miller, and McKinnon and Dr. Wilson), all of whom are on the Company’s Board of Directors except for Mr. McKinnon, each cancelled 2,750 options issued to them in August 2021 pursuant to an Incentive Stock Option Forfeiture Agreement. The cancellation of the 11,000 options in total enabled the issuance of 11,000 shares to a non-executive employee that took place in 2021 to be reallocated to be accounted for as if it was originally issued under the 2020 Equity Incentive Plan. The Company’s Board of Directors passed a resolution on July 25, 2022, making the corresponding change to the Company’s books and records with regard to the 11,000 shares; and (2) on July 26, 2022, the same four executive officers, returned, and the Company cancelled, a total of 56,496 shares of common stock issued to them in 2021 outside of a shareholder approved equity compensation plan. Following the remedial measures, the Company was informed that the Company has regained compliance with the Rule and that this matter is now closed.

 

Basis of Presentation

 

The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Jupiter Wellness, Inc., a Florida corporation, Magical Beasts, LLC, a Nevada limited liability company, SRM Entertainment, Limited, a Hong Kong private limited company, and Jupiter Wellness Investments, Inc., a Florida corporation. All intercompany accounts and transactions have been eliminated.

 

Significant Accounting Policies and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements for the six months ended June 30, 2022 and 2021 audited financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and the rules and regulations of the Securities and Exchange Commission. The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

 

5

 

Emerging Growth Company Status

 

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are expressed in United States Dollars. Significant accounting policies are summarized below:

 

Cash and Cash Equivalents

 

The Company considers all short-term investments with a maturity of three months or less when purchased to be cash and equivalents for purposes of the statement of cash flows. There were no cash equivalents as of June 30, 2022 or December 31, 2021.

 

Net Loss per Common Share

 

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants, convertible securities and preferred stock, unless the effect is to reduce a loss or increase earnings per share. As such, options, warrants, convertible securities and preferred stock are not considered in the calculations, as the impact of the potential common shares would be to decrease the loss per share.

 

   For the Six Months   For the Year 
   Ended June 30,   Ended December 31, 
   2022   2021   2021   2020 
Numerator:                
Net (loss)  $(4,360,531)  $(6,346,837)  $(28,100,245)  $(6,289,205)
                     
Denominator:                    
Denominator for basic earnings per share - Weighted- average common shares issued and outstanding during the period   22,527,989    11,265,828    16,603,788    7,325,708 
Denominator for diluted earnings per share   22,527,989    11,265,828    16,603,788    7,325,708 
Basic (loss) per share  $(0.19)  $(0.56)  $(1.69)  $(0.86)
Diluted (loss) per share  $(0.19)  $(0.56)  $(1.69)  $(0.86)

 

6

 

Revenue Recognition

 

The Company generates its revenue from the sale of its products directly to the end user or distributor (collectively the “customer”).

 

The Company recognizes revenues by applying the following steps in accordance with FASB Accounting Standards Codification 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

  identify the contract with a customer;
     
  identify the performance obligations in the contract;
     
  determine the transaction price;
     
  allocate the transaction price to performance obligations in the contract; and
     
  recognize revenue as the performance obligation is satisfied.

 

The Company’s performance obligations are satisfied when goods or products are shipped on an FOB shipping point basis as title passes when shipped. Our product is generally paid in advance of shipment or standard net 30 days and we offer no specific right of return, refund or warranty related to our products except for cases of defective products of which there have been none to date.

 

Accounts Receivable and Credit Risk

 

Accounts receivable are generated from sales of the Company’s products. The Company provides an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. As of December 31, 2021, the Company recorded an allowance of $104,851 against accounts receivable acquired in connection with the acquisition of SRM Entertainment and as of June 30, 2022, the Company had recognized no additional allowance for doubtful collections.

 

Foreign Currency Translation

 

Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the period. Equity accounts are translated at historical exchange rates. Gains and losses from foreign currency transactions and translation for the six-months ended June 30, 2022 and year ended December 31, 2021 and the cumulative translation gains and losses as of June 30, 2022 and December 31, 2021 were not material.

 

Inventory

 

Inventories are stated at the lower of cost or market. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. Inventory is based upon the average cost method of accounting.

 

Fair Value of Financial Instruments

 

The fair value of our assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.

 

7

 

Income Taxes

 

We account for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.

 

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on our evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Since we were incorporated on October 24, 2018, the evaluation was performed for 2018 tax year, which would be the only period subject to examination. We believe that our income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material changes to our financial position. Our policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.

 

The Company’s deferred tax asset at December 31, 2021 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $4,865,890 less a valuation allowance in the amount of approximately $4,865,890. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance in the years ended December 31, 2021 and 2020.

 

Research and Development

 

The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $128,241 and $195,716 for the six months ended June 30, 2022 and 2021, respectively.

 

Stock Based Compensation

 

We recognize compensation costs to employees under FASB Accounting Standards Codification 718 “Compensation - Stock Compensation” (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options and warrants. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.

 

On October 24, 2018, the inception date (“Inception”), we adopted ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.

 

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Related parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Recent Accounting Pronouncements

 

In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company has adopted this standard beginning January 1, 2019. The adoption of this standard did not have a significant impact on our results of operations, financial condition, cash flows, and financial statement disclosures.

 

In February 2016, Topic 842, “Leases” was issued to replace the leases requirements in Topic 840, “Leases”. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods and is to be retrospectively applied. The Company has adopted this standard beginning January 1, 2019. The adoption of this standard did not have a significant impact on our results of operations, financial condition, cash flows, and financial statement disclosures.

 

Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our financial statements.

 

Results of Operations

 

For the three months ended June 30, 2022 and 2021

 

The following table provides selected financial data about us for the three months ended June 30, 2022 and 2021, respectively.

 

   June 30, 2022   June 30, 2021 
Sales  $3,000,582   $595,088 
Cost of Sales   2,495,339    413,913 
Gross Profit (Loss)   505,243    181,175 
Total expenses   (1,945,999)   (4,332,249)
Net Loss  $(1,440,756)  $(4,151,074)

 

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Revenues

 

We generated $3,000,582 in revenues for the three months ended June 30, 2022 compared to $595,088 revenues in the three months ended June 30, 2021. As a result of the Covid-19 pandemic, revenues wer