NLBS NutraLife Biosciences Inc (CE)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 - NATURE OF OPERATIONS AND CONSOLIDATION

NutraLife BioSciences, Inc. F/K/A NutraFuels, Inc. (“We” or the “Company”) is the producer and distributor of nutritional supplements that uses micro molecular formulae and a utilization of an oral spray to provide faster and more efficient absorption. Our products are sold to private label distributers who sell the products we manufacture under their own brand name as well as under our own brand name.

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America (“U.S.”) as promulgated by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and with the rules and regulations of the U.S Securities and Exchange Commission (“SEC”). In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Therefore, the interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, from which the accompanying condensed consolidated balance sheet dated December 31, 2019 was derived.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Precision Analytic Testing, LLC, NutraDerma Technologies, Inc., PhytoChem Technologies, Inc., and TransDermalRX, Inc. We operate as one reportable segment. All intercompany transactions and balances have been eliminated in consolidation.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15th, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplifies and clarifies certain calculation and presentation matters related to convertible and equity and debt instruments. Specifically, ASU-2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments. Accounting Standards Update 2020-06 also provides clearer guidance surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation of Diluted EPS. The guidance under ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company will adopt this standard using a modified retrospective approach effective January 1, 2021. The Company is currently evaluation the effects of adoption on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

Reclassifications

Reclassifications occurred to certain prior period amounts in order to conform to the current presentation. The reclassifications have no effect on the reported net loss.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Equivalents

The Company maintains its cash in bank deposit accounts, which may, at times, may exceed federally insured limits. The Company did not have cash balances in excess of FDIC insured limits at June 30, 2020 and December 31, 2019.

Inventories

Inventories are stated at lower of cost or net realizable value utilizing the weighted average method of valuation and consist of raw materials and finished goods. The Company reduces inventory on hand to its net realizable value on an item-by-item basis when it is apparent that the expected realizable value of an inventory item falls below its original cost. A charge to cost of sales results when the estimated net realizable value of specific inventory items declines below cost. Management regularly reviews the Company’s inventories for such declines in value. Inventory consists of the following:

Allowance for Doubtful Accounts

We establish the existence of bad debts through a review of several factors including historical collection experience, current aging status of the customer accounts, and financial condition of our customers. The allowance for doubtful accounts is $5,919 and $1,500 for periods ended June 30, 2020 and December 31, 2019, respectively.

Property and Equipment

All property and equipment are recorded at cost and depreciated over their estimated useful lives, generally three, seven and twelve years, using the straight-line method. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from their respective accounts, and the resulting gain or loss is included in the results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred. Leasehold improvements are amortized over their estimated useful lives or the remaining term of the lease, whichever is shorter. Financed assets of $103,342 are included in property and equipment, net as of June 30, 2020 and $105,258 as of December 31, 2019.

Impairment of Long-Lived Assets

A long-lived asset is tested for impairment whenever events or changes in circumstances indicate that its carrying value amount may not be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds the sum of the undiscounted cash flows resulting from its use and eventual disposition. The impairment loss is measured as the amount by which the carrying amount of the long-lived assets exceeds its fair value.

Impairment charges would be included with costs and expenses in the Company’s condensed consolidated statements of operations and would result in reduced carrying amounts of the related assets on the Company’s condensed consolidated balance sheets. No adjustments were made to long-lived assets during the three or six month periods ended June 30, 2020 and 2019, respectively.

Revenue Recognition

The Company accounts for revenue under the guidance of FASB ASC 606, “Revenue from Contracts from Customers” (“ASC 606”).

ASC 606 prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of revenue to be recognized. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company generates revenues from the sale of products. The product is invoiced, and the revenue is recognized upon shipment or once transfer of risk has passed to the customer, which is the point at which the Company has satisfied its performance obligation.

Payments received in advance from customers are recorded as customer deposits until earned, at which time revenue is recognized.

We recognize certain revenues under bill and hold arrangements with certain customers when the Company has fulfilled all of its performance obligations, the units are segregated for the specific customer only, and the goods are ready for physical transfer to the customer in accordance with their defined contract delivery schedule. For any requested bill and hold arrangement, we make an evaluation as to whether the bill and hold arrangement qualifies for revenue recognition. The customer must initiate the request for the bill and hold arrangement. The customer must make a fixed commitment to purchase the items. The risk of ownership is passed to the customer, and payment terms are not modified.

The Company’s revenues accounted for under ASC 606 do not require significant estimates or judgements based on the nature of the Company’s revenue. The Company’s contracts do not include multiple performance obligations or variable consideration. All of the Company’s sales resulted from contracts with customers for the six months ended June 30, 2020 and 2019.

Income Taxes

The Company recorded no income tax expense for the three and six months ended June 30, 2020 and 2019 because the estimated annual effective tax rate was zero. As of June 30, 2020, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more than likely than not that its deferred tax assets will not be realized.

Net Loss Per Share

Basic loss per share excludes dilution and is computed by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless consideration of such dilutive potential shares would result in anti-dilution. The following warrants and convertible notes were excluded from the computation of net loss per share.

Related Party Transactions

All transactions with related parties are in the normal course of operations and are measured at the exchange amount.

Leases

On January 1, 2019, the Company adopted FASB ASU 2016-02, “Leases” (ASC 842) and other associated standards, which defines a lease as any contract that conveys the right to use a specific asset for a period of time in exchange for consideration. ASC 842 requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet and the disclosure of key information about certain leasing arrangements. As permitted by ASC 842, the Company elected the adoption date of January 1, 2019, which is the initial date of application. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC Topic 840, “Leases”, or ASC 840, which did not require the recognition of operating lease liabilities on the balance sheet, and is not comparative. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases (formerly called capital leases). The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is recorded in interest expense. The expense recognition for operating leases and finance leases under ASC 842 is substantially consistent with ASC 840. As a result, there is no significant difference in the Company’s results of operations presented in the consolidated statement of operations for each period presented.

Leases are classified as a finance lease if any of the following criteria are met:

For any leases that do not meet the criteria identified above for finance leases, the Company treats such leases as operating leases. As of June 30, 2020, the Company has two finance leases and three operating leases.

Under the new guidance, both finance and operating leases are reflected on the balance sheet as lease or “right-of -use” assets and lease liabilities. There are some exceptions, which the Company has elected in its accounting policies. For leases with terms of twelve months or less, or below the Company’s general capitalization policy threshold, the Company elects an accounting policy to not recognize lease assets and lease liabilities for all asset classes. The Company recognizes lease expense for such leases generally on a straight-line basis over the lease term.

The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain to be exercised. Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for separately. In general, the Company will assess if non-lease components are fixed and determinable, or variable, when determining if the component should be included in the lease liability. For purposes of calculating the present value of the lease obligations, the Company utilizes the implicit interest rate within the lease agreement when known and/or determinable, and otherwise utilizes its incremental borrowing rate at the time of the lease agreement. The related right-of-use asset is initially measured at cost, which primarily comprises of the initial amount of the lease liability.

Lease expense for operating leases consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.

Intangible Asset

Intangible asset represents the value assigned to intellectual property and is amortized based on the economic benefit expected to be realized.

NOTE 3 - LIQUIDITY AND GOING CONCERN CONSIDERATIONS

Our condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We sustained a net loss of approximately $1,338,000 for the six months ended June 30, 2020, and have an accumulated deficit of approximately $40,178,000 at June 30, 2020. These conditions raise substantial doubt about our ability to continue as a going concern.

In December 2019, a novel strain of coronavirus was reported to have surfaced in China. The spread of this virus caused various business disruptions including temporary closures to the Company’s offices and facilities. While these disruptions are currently expected to be temporary, there is considerable uncertainty around the duration. Therefore, the Company expects this matter to negatively impact its operating results. The related financial impact and duration cannot be reasonably estimated at this time.

The Company is currently in the process of raising capital to complete and finalize the build-out of its facility in Deerfield Beach for the purpose of consolidating its operations. The structure of the capital raise is currently in development. The Company is continuing its path to profitability through increased business development, marketing and sales of the Company’s multiple lines of topical, ingestible and skincare health and wellness products. The Company is also focused on completing an efficacy clinical study on its patented mosquito bug patch with plans upon a successful conclusion to launch globally in the very near future, adding to the Company’s suite of wellness products.

Failure to successfully continue to grow operational revenues could harm our profitability and adversely affect our financial condition and results of operations. We face all of the risks inherent in a new business, including the need for significant additional capital, management’s potential underestimation of initial and ongoing costs, and potential delays and other problems in connection with establishing sales channels.

We are continuing our plan to further grow and expand operations and seek sources of capital to pay our contractual obligations as they come due. Management believes that its current operating strategy will provide the opportunity for us to continue as a going concern as long as we are able to obtain additional financing; however, there is no assurance this will occur. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Depreciation expense for the three months ended June 30, 2020 and 2019 totaled $17,459 and $50,132, respectively.

Depreciation expense for the six months ended June 30, 2020 and 2019 totaled $33,252 and $66,524, respectively.

NOTE 5 – INTANGIBLE ASSET

In February 2019, the Company acquired certain intellectual property consisting of patent rights. The aggregate purchase price paid in connection with the patent purchase was $714,640, consisting of $130,000 cash, and 3,300,000 shares of the Company’s common stock valued at $0.177 per share or an aggregate of $584,640. Of the 3,300,000 shares, 1,800,000 shares were provided at closing and 1,500,000 were to be provided one year thereafter. These shares have not been issued and the Company is in negotiations with the seller to extend the issuance of the shares. The acquired patent is amortized over its remaining estimated useful life of approximately 11 years. Amortization for the three months ended June 30, 2020 and 2019 totaled approximately $16,300 and $16,200, respectively. Amortization for the six months ended June 30, 2020 and 2019 totaled approximately $32,500 and $21,600. The estimated annual amortization expense for the next five years and thereafter is as follows:

A summary of the intangible asset at June 30, 2020 and December 31, 2019 is as follows:

NOTE 7 – NOTES PAYABLE

During the quarter ended March 31, 2020, the Company received proceeds aggregating $345,000 in connection with multiple short-term promissory notes with due dates ranging from February to June 2020. The notes bear interest at 0% to 12% for the terms of the notes. Each noteholder has the right to convert all the outstanding principal and accrued unpaid interest to the Company’s common stock at a price ranging from $.085 to $.10 per share. Additionally, an aggregate of 3,250,000 shares were issued to the noteholders as additional consideration.

The common stock issued to the noteholders are treated as debt discounts. The gross proceeds of the notes were allocated to debt and common shares issued on a relative far value basis. The notes also included a beneficial conversion feature (BCF).

The debt discounts associated with the BCF and common stock issuances are amortized through the earlier of the conversion of the notes into common stock, or the maturity date of the notes, on a straight-line basis which approximates the effective interest method due to the short-term nature of the notes. Amortization of the debt discount is reported as finance costs in the Statement of Operations.

The Company allocated $314,100 of the gross proceeds of the convertible notes to the stock issuances on a relative fair value basis, which has been recorded as a debt discount. Total amortization associated with stock issuances debt discount was $50,187 and $395,924 for the three and six months ended June 30, 2020, respectively.

Because the effective conversion prices of these notes were less than the fair value of the underlying common stock on the issuance date, the Company allocated $51,900, the intrinsic value of that beneficial conversion feature, to additional paid-in capital.

Total amortization associated with the beneficial conversion feature debt discount was $35,557 and $147,414 for the three and six months ended June 30, 2020.

CARES Act

On April 23, 2020, the Company received an aggregate of $254,700 related to its filing under the Paycheck Protection Program and Coronavirus Aid, Relief, and Economic security Act (the “CARES Act”) from Truist Bank. The payment terms of the note are as follows:

The Lender is participating in the Paycheck Protection Program to help businesses impacted by the economic impact from COVID-19. Forgiveness of this loan is only available for principal that is used for the limited purposes that qualify for forgiveness under the Small Business Administration’s (the “SBA”) requirements; and that to obtain forgiveness, the Company must request it and must provide documentation in accordance with Small Business Administration (the “SBA”) requirements and certify that the amounts the Company is requesting to be forgiven qualify under those requirements. The Company elected to treat the loan as debt under FASB ASC 470. As such, the Company will derecognize the liability when the loan is forgiven, and the Company is legally released from the loan.

Principal payments on this note are due as follows:

The loan was forgiven on March 12, 2021.

In February 2021, the Company received additional proceeds from the same Lender under the Paycheck Protection Program and CARES Act in the amount of $243,275, at an interest rate of 1% per annum. Similar terms apply. Forgiveness of the loan is dependent upon approval of the SBA and while the Company expects forgiveness of this loan under the current terms of requirement by the SBA, there can be no assurance or certainty that forgiveness will in fact occur.

NOTE 8 - STOCKHOLDERS’ EQUITY

During the quarter ended March 31, 2020, the Company issued 1,538,461 shares of common stock for $.065 per share, for an aggregate of $100,000.

During the quarter ended March 31, 2020, the Company issued 470,229 shares of common stock for services aggregating $47,023, valued using the trading price on the date of issuance.

In April, 2020 the Company issued 384,615 shares of common stock for $.065 per share for an aggregate of $25,000.

The Company recorded $51,900 to additional paid-in capital during the six months ended June 30, 2020 resulting from the beneficial conversion feature of convertible debt issued during the first quarter of 2020.

Series A Preferred Stock

The Company has 10,000 shares of Preferred Stock authorized. 1,000 shares has been designated as Series A Preferred Stock and is not entitled to dividends or liquidation preferences. Each share has voting rights equal to 500,000 shares of the Company’s common stock. In 2012, Edgar Ward, the Company’s President, CEO, and director, was granted 1,000 shares of Series A voting stock for $1,000.

Series B Preferred Stock

In September 2020, the Company authorized 110 shares of Series B Convertible Preferred Stock. A Series B Holder will have the right from time to time, and at any time following January 1, 2021, to convert each outstanding share of Series B stock into shares of common stock at a rate of 149,567 shares of common stock for each share of Series B Preferred Stock. Each share of Series B Preferred Stock shall have a number of votes equal to the number of conversion shares which would be issuable as of the date of such vote. The Series B Preferred Stock does not have any liquidation preferences.

Subsequent issuances:

In November 2020, the Company issued 12,500,000 shares of common stock in exchange for 250 shares of Series X Convertible Preferred Stock of Lord Global Corporation in connection with a Stock Purchase Agreement.

In September 2020, the Company issued 20 shares of Series B Convertible Preferred Stock to three consultants as part of their compensation arrangements.

NOTE 9 – LEASES

In conjunction with the new guidance for leases, as defined by the FASB with ASU 2016-02, Leases (Topic 842), the Company has described the existing leases as operating as further described below:

The Company leases their office and warehouse facilities located in in Coconut Creek, Florida under a non-cancelable operating lease agreement that expires in February 2022.

In June 2017, the Company entered into a lease for an additional facility located in Deerfield Beach, Florida under a non-cancelable operating lease. The term of the lease is for 86 months beginning on January 1, 2018 and calls for yearly 3% increases to base rent, with monthly payments that commenced in March 2018.

In July and September of 2019, the Company’s wholly owned subsidiary, Phytochem, entered into two separate lease agreements for office and warehouse space located in Onalaska, Wisconsin, that commenced on August 1 and October 1, respectively. Each lease is for six-month terms with four (4) renewal options to extend for six additional months. The Company expects to occupy one of the spaces for the full term of the lease totaling 30 months. The Company terminated its lease on the other facility in May 2020, without penalty. The remaining lease calls for an annual 3% increase to base rent.

In the June 30, 2020 condensed consolidated balance sheet, the Company has recorded right-of-use assets of $808,721 and a lease liability of $808,921, of which $202,000 is reported as a current liability. The weighted average remaining lease term is 49 months and weighted average discount rate used is 10%.

The following table presents a reconciliation of the undiscounted future minimum lease payments remaining under the operating lease reported as operating lease liability on the condensed consolidated balance sheet as of June 30, 2020:

Supplemental cash flow information related to leases is as follows, for the six months ended June 30,

Lease expense for the operating leases was $124,573 and $57,503 for the three months ended June 30, 2020 and 2019, respectively. Lease expense for the operating leases was $187,713 and $137,818 for the six months ended June 31, 2020 and 2019, respectively.

Finance Leases:

The Company has acquired certain equipment under agreements that are classified as finance leases. The cost of the equipment under finance leases is included in the balance sheet as property and equipment. The finance lease equipment was approximately $110,000 as of June 30, 2020 and December 31, 2019, with related accumulated depreciation of $7,032 and $5,114, respectively.

Minimum lease payments required by these finance leases are as follows:

Undiscounted future minimum lease payments:

NOTE 10-COMMITMENTS AND CONTINGENCIES

The Company is subject to asserted claims and liabilities that arise in the ordinary course of business. The Company maintains insurance policies to mitigate potential losses from these actions. In the opinion of management, the amount of the ultimate liability with respect to those actions will not materially affect the Company’s financial position or results of operations.

In June 2020, a claim was filed against the Company for a breach of confidentiality imposed by a non-disclosure agreement signed by both the Company and plaintiff. The claim was dismissed in February 2021.