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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 ofthe 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 inUnited 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 inUnited 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
General Overview
Jupiter Wellness started as a CBD/sun care company developing SPF products with the potential to protect users from the sun while making them healthier. Those products were founded on science and the belief the Company could create research-backed solutions to enhance the well-being of their customers. Today the Company is focusing its scientific approach on developing prescription and/or over-the-counter, or OTC, topical CBD products that have potential therapeutic and medical applications. Specifically, the Company is exploring the use of topical CBD solutions for the treatment of atopic dermatitis (eczema) (JW-100), first-degree burns and sun exposure (JW-300), and herpes labialis (cold sores) (JW-400). InFebruary 2021 , the Company announced the results of its 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 CBD and aspartame combination topical formulation), a CBD-only topical formulation, or a placebo topical formulation. After 14 days, the average reduction in the Investigator's 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 CBD-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 CBD and aspartame, was shown to significantly reduce the ISGA score in atopic dermatitis patients after two weeks of use. The combination of CBD and aspartame was more effective at reducing ISGA scores than CBD alone. 2 Table of Contents InNovember 2021 ,Jupiter Wellness received an official written response from a Type B pre-Investigational New Drug (IND) meeting with theU.S. Food and Drug Administration (FDA) for JW-100, a topical drug for 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. OnNovember 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 CBD, plays a pivotal role in maintaining healthy skin by modulating pain sensation, cell proliferation, and inflammation. The Company's strategy for the treatment of skin indications is, therefore, to focus on the use of CBD-containing topical formulations and to explore potential combinations of CBD and other agents that may augment and act synergistically with CBD. The Company will explore this strategy by conducting controlled clinical trials to try to ultimately gain FDA approval for specific indications. In addition to CBD-containing products, the Company is advancing several non-CBD formulations to address psoriasis and vitiligo (Photocil), increase the effectiveness of minoxidil to treat hair loss (Minoxidil Booster), COVID-19 induced tinnitus (JW-600), women's sexual wellness (JW-500), and jellyfishsting prevention sunscreen (NoStingz). RJ-101 was born out of clinical trials designed to establish a topical treatment for the restoration of nipple sensitivity for breast augmentation patients, in addition to patients who had undergone chemotherapy or lumpectomy surgery following a cancer diagnosis. During early studies, women reported not only increased sensitivity but also increased libido. The Company plans to file for a pre-IND meeting with theUS FDA within the next 12 months and intends to seek Orphan Drug Designation. An expedited 505(b)(2) regulatory pathway for development is anticipated as the current formulation contains an already approved drug. The Company is also positioning itself to generate revenues through the licensing of its intellectual property (IP).Jupiter Wellness signed agreements to license their minoxidil booster to Taisho, a$2.6 billion revenue company andJapan's leading seller of minoxidil products. Taisho plans on launching the product commercially in 2023. InIndia , the Company inked a deal withCosmofix Technovation Pvt Ltd and Sanpellegrino Cosmetics to license the minoxidil booster and Photocil products. Additional licensing opportunities for these products are being pursued primarily in overseas markets.
In Q2 and Q3 2022, the Company established itself as a Contract Research Organization (CRO) through the acquisition of
OnNovember 30, 2020 , the Company acquiredSRM Entertainment, Limited , aHong Kong Special Administrative Region ofthe 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 inOrlando Florida ,Beijing China ,Japan , and other places throughout the worldwide theme park industry. Market Opportunity
The market for hemp, and products based on extracts of hemp, is expected to grow substantially over the coming years. It is estimated byBDS Analytics and Arcview Market Research that the collective market for CBD sales in theU.S. will surpass$20 billion by 2024 and that there will be a compound annual growth rate of 49 percent by 2024 across all distribution channels. While CBD is an integral part of the Company's operations, a pivot is underway moving away from consumer CBD products toward scientifically-backed products that show promise as potential OTC and prescription products to address a wide range of conditions including hair loss, eczema, burns, and sexual wellness. Specifically, each of the Company's core products addresses a large market
with unmet needs. 3 Table of Contents According toGrand View Research , theU.S. sun care market size was estimated at$1.95 billion in 2016. The growing consumer awareness regarding the ill-effects of over exposure to ultraviolet, or UV, rays on the undefended skin is expected to propel growth. The sun care market is a highly competitive market and product differentiation in the sun care market is low. Given the relatively low amount of product differentiation, we see an opportunity to carve out a unique market share with our CBD-infused sun care products. We cannot make any claims as to such benefits prior to performing certain testing. We see an opportunity, although there can be no assurance that we will be successful, to become the leading manufacturer of CBD-infused sun care products, marketing the CaniSun brand through an extensive digital and social media awareness campaign. We announced the launch of our CaniSun sun care line of SPF 30, SPF 50 and SPF 55 face lotion onJune 6, 2019 . We also sell our CBD-infused lip balm and CBD-infused SPF 30 sunscreen spray on our website Canisun.com. Market Strategy The Company plans to seek acquisition opportunities including but not limited to other CBD, non-CBD, and OTC therapeutic brands and companies. The Company may market such products as they are currently comprised or may seek to add CBD to the product. In the event the Company decides to add CBD to such products, they intend to first conduct FDA-regulated clinical trials for safety and efficacy testing.Jupiter Wellness also intends to continue selling its consumer products online directly to consumers through its own website, and other third-party marketplaces as these sites permit. Business-to-business sales (B2B) are being pursued for all the Company's products. Focusing on B2B and business-to-consumer (B2C) sales/distribution will generally be accomplished through mass merchandise retail (MMR), wholesale, e-commerce, and strategic licensing of intellectual property (IP). The Company has in place a sales team working to develop and maintain relationships with MMR as well as smaller specialty retailers. Wholesale sales are primarily developed through contracted brokers to assist in saturating independent retailers like smaller pharmacies, doctor offices, and drug stores. E-commerce initiatives focus heavily on brand awareness and creating analytics-driven marketing campaigns to drive conversions and develop customer loyalty. Lastly, the Company is actively engaged in the strategic licensing of IP, including formulations and know-how, to companies and partners around the world. Website The Company expects to continually update and expand upon its corporate website and consumer-facing retail websites and further refine its online retail strategies on an ongoing basis. JupiterWellness.com is the Company's primary corporate website, which will serve as the primary source of information aboutJupiter Wellness for investors and contain press releases, product development pipeline, lab reports, media coverage, and additional information about each of the Company's product candidates. The Company anticipates that each brand will have a front-facing website dedicated to retail sales and brand-specific information. For example, the Company's line of sun care products, NoStingz, has a website at NoStingzSPF.com and allows for the online retail purchase of the entire product line. As the Company expands its brands they anticipate utilizing the same strategy and dedicating a new e-commerce website to each brand moving forward. The Company is also building websites dedicated to servicing wholesale and larger distributor clients. SRM Acquisition
OnNovember 30, 2020 ,Jupiter Wellness entered into and closed the Exchange Agreement with SRM, aHong Kong Special Administrative Region ofthe People's Republic of China limited company and wholly owned subsidiary of Vinco, and SRM Shareholders, under whichJupiter Wellness acquired 100% of the SRM Common Stock from the SRM Shareholders in exchange for 200,000 shares of the Company's common stock. 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 inOrlando 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, the Company additionally intends to seek to sell its sun care products in amusement parks and related beach-adjacent properties such as cruise lines and ocean resorts.Jupiter Wellness is currently pursuing the sale of its jellyfish protection sun care products for sale in these locations. 4 Table of Contents Recent Developments InJuly 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. OnNovember 3, 2021 , the Company filed a registration statement with theSecurities and Exchange Commission to sponsor Jupiter Wellness Acquisition Corporation ("JWAC") a SPAC, dedicated to investing in AI based therapeutics and diagnostics. OnDecember 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 ofSeptember 30, 2022 , the Company had invested$2,908,300 inJupiter Wellness Sponsor LLC ("JWSL"), an affiliate, which in turn invested the funds to JWAC OnJanuary 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 2Green 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, onJanuary 17, 2022 , the Board determined that 100,000 options that have previously been issued under the 2021 Equity Plan toBrian 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. OnJune 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) onJuly 20, 2022 , the Company's four executive officers (Messrs. John, Miller, and McKinnon andDr. Wilson ), all of whom are on the Company's Board of Directors except forMr. McKinnon , each cancelled 2,750 options issued to them inAugust 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 onJuly 25, 2022 , making the corresponding change to the Company's books and records with regard to the 11,000 shares; and (2) onJuly 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 inthe United States of America ("GAAP") and pursuant to the rules and regulations ofUS 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 , aNevada limited liability company,SRM Entertainment, Limited , aHong Kong private limited company, andJupiter 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 nine months endedSeptember 30, 2022 and 2021 audited financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles, orU.S. GAAP, and the rules and regulations of theSecurities 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 Table of Contents
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
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 ofSeptember 30, 2022 orDecember 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 Nine Months For the Year Ended September 30, Ended December 31, 2022 2021 2021 2020 Numerator: Net (loss)$ (6,692,957 ) $ (11,155,267 ) $ (28,100,245 ) $ (6,289,205 )
Denominator:
Denominator for basic earnings per share - Weighted- average common shares issued and outstanding during the period 22,191,644 14,151,337 16,603,788 7,325,708 Denominator for diluted earnings per share 22,191,644 14,151,337 16,603,788 7,325,708 Basic (loss) per share$ (0.30 ) $ (0.79 ) $ (1.69 ) $ (0.86 ) Diluted (loss) per share$ (0.30 ) $ (0.79 ) $ (1.69 ) $ (0.86 ) 6 Table of Contents 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;
? 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 ofDecember 31, 2021 , the Company recorded an allowance of$104,851 against accounts receivable acquired in connection with the acquisition ofSRM Entertainment and as ofSeptember 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 Nine-months endedSeptember 30, 2022 and year endedDecember 31, 2021 and the cumulative translation gains and losses as ofSeptember 30, 2022 andDecember 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 Table of Contents 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 $132,117 and $917,714 for
the Nine months ended September 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 theCompany; 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
InSeptember 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 beginningJanuary 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. InFebruary 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 afterDecember 15, 2018 , including interim periods within those annual periods and is to be retrospectively applied. The Company has adopted this standard beginningJanuary 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
The following table provides selected financial data about us for the three months ended
September 30, 2022 September 30, 2021
Sales $ 1,569,925 $ 687,928
Cost of Sales 1,155,617 685,769
Gross Profit (Loss) 413,308 2,159
Total expenses (2,745,734 ) (4,810,589 )
Net Loss $ (2,232,426 ) $ (4,808,430 )
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Revenues
We generated $1,569,925 in revenues for the three months ended September 30,
2022 compared to $687,928 revenues in the three months ended September 30, 2021 .
As a result of the Covid-19 pandemic, revenues were depressed in 2021 and we are
now experiencing a greater demand for our products.
Operating Expenses and Other Income (Expense)
We had total operating expenses and other income and expense of$2,745,734 for the three months endedSeptember 30, 2022 compared to$4,810,589 for the three months endedSeptember 30, 2021 . Operating expenses for the three months endedSeptember 30, 2022 were in connection with our daily operations as follows: (i) marketing expenses of$9,575 ; (ii) research and development of$3,876 ; (iii) legal and professional expenses of$942,618 , consisting of corporate advisory services, annual report preparation fees and general corporate governance fees; (iv) rent and utilities of$49,022 ; (v) depreciation and amortization of$23,186 ; (vi) general and administrative expenses of$872,365 , consisting of payroll and related taxes, travel, meals and entertainment, office supplies and expense, compensation related to management transition agreements and other normal office and administration expenses; (vii) stock based compensation of$295,860 ; (viii) and net interest expense of$549,232 . Operating expenses for the three months endedSeptember 30, 2021 were in connection with our daily operations as follows: (i) marketing expenses of$13,996 ; (ii) research and development of$721,998 ; (iii) legal and professional expenses of$554,553 , consisting of corporate advisory services, annual report preparation fees and general corporate governance fees; (iv) rent and utilities of$7,565 ; (v) depreciation and amortization of$27,839 ; (vi) general and administrative expenses of$407,801 , consisting of payroll and related taxes, travel, meals and entertainment, office supplies and expense and other normal office and administration expenses; (vii) stock based compensation of$1,875,471 ; (viii) net interest expense of$1,196,261 (which includes$1,145,182 of amortization of original issue discount and Warrant discount on convertible promissory notes); and (ix) other loss of$5,105 . Income/Losses
Net losses were
For the Nine months ended
The following table provides selected financial data about us for the Nine months ended
Nine Months Ended
September 30, 2022 September 30, 2021
Sales $ 5,291,136 $ 1,331,862
Cost of Sales 4,255,374 1,123,134
Gross Profit (Loss) 1,035,762 208,728
Total expenses (7,728,719 ) (11,363,995 )
Net Loss $ (6,692,957 ) $ (11,155,267 )
Revenues
We generated$5,291,136 in revenues for the nine months endedSeptember 30, 2022 compared to$1,331,862 revenues in the Nine months endedSeptember 30, 2021 . As a result of the Covid-19 pandemic, revenues were depressed in 2021 and we are now experiencing a greater demand for our products. Operating Expenses
We had total operating expenses of
Operating expenses for the nine months endedSeptember 30, 2022 were in connection with our daily operations as follows: (i) marketing expenses of$78,719 ; (ii) research and development of$132,117 ; (iii) legal and professional expenses of$1,753,640 , consisting of corporate advisory services, annual report preparation fees, investor relations, and general corporate governance fees; (iv) rent and utilities of$130,974 ; (v) depreciation and amortization of$72,617 ; (vi) general and administrative expenses of$2,899,489 , consisting of payroll and related taxes, travel, meals and entertainment, office supplies and expense and other normal office and administration expenses; (vii) stock based compensation of$543,029 ; (viii) net interest expense of$1,118,134 (which includes$876,926 of amortization of original issue discount and Warrant discount on convertible promissory notes) and (ix) a$1,000,000 impairment
of a promissory note. Operating expenses for the nine months endedSeptember 30, 2021 were in connection with our daily operations as follows: (i) marketing expenses of$386,228 ; (ii) research and development of$917,714 ; (iii) legal and professional expenses of$1,567,022 , consisting of corporate advisory services, annual report preparation fees and general corporate governance fees; (iv) rent and utilities of$60,318 ; (v) depreciation and amortization of$71,045 ; (vi) general and administrative expenses of$1,795,686 , consisting of payroll and related taxes, travel, meals and entertainment, office supplies and expense and other normal office and administration expenses; (vii) stock based compensation of$5,538,820 ; (viii) net interest expense of$1,691,257 (which includes$1,560,334 of amortization of original issue discount and Warrant discount on convertible promissory notes) and (ix) a net gain of$664,095 (which includes a gain of$669,200 on settlement of note payable in connection with the Magical Beast Omnibus Agreement and$5,105 other loss). Income/Losses
Net losses were
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