UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For
the quarterly period ended |
||
Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ |
Commission File
No.
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) |
(Address of Principal Executive Offices, Including Zip Code)
(Registrant’s telephone number, including area code)
1749 Victorian Avenue, #C-350, Sparks, Nevada 89431
(Former name, former address and former fiscal year, if changed since last report)
Securities Registered under Section 12(b) of the Exchange Act: None
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 [ ]
Indicate by check
mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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).
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 [ ] | 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
The number of shares outstanding of the registrant’s Common Stock, $.001 par value (being the only class of its common stock), is as of November 13, 2024.
1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
2
Ludwig Enterprises, Inc.
Consolidated Balance Sheets
| September 30, | December 31, | |||||||||
| 2024 | 2023 | |||||||||
| (Unaudited) | ||||||||||
| Assets | ||||||||||
| Current Assets | ||||||||||
| Cash | $ | $ | ||||||||
| Prepaid expenses | ||||||||||
| Deferred offering cost | ||||||||||
| Total Current Assets | ||||||||||
| Total Assets | $ | $ | ||||||||
| Liabilities and Stockholders' Deficit | ||||||||||
| Current Liabilities | ||||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||||
| Notes payable | ||||||||||
| Convertible notes payable, net | ||||||||||
| Advance from investor | ||||||||||
| Total Current Liabilities | ||||||||||
| Total Liabilities | ||||||||||
| Stockholders' Deficit | ||||||||||
| Preferred stock: authorized; $ par value, shares issued and outstanding | ||||||||||
| Common stock: authorized; $ par value, and shares issued and outstanding, respectively | ||||||||||
| Common stock issuable | ||||||||||
| Additional paid in capital | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Total Stockholders' Deficit | ( | ) | ( | ) | ||||||
| Total Liabilities and Stockholders' Deficit | $ | $ | ||||||||
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
3
Ludwig Enterprises, Inc.
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administration expenses | $ | $ | ||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Net loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Inducement expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Finance expense | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per common share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
\The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
4
Ludwig Enterprises, Inc.
Consolidated Statements of Changes in Stockholders’ Deficit
For the Three and Nine months Ended September 30, 2024 and 2023
(Unaudited)
(Unaudited)
| Convertible | Additional | ||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock Issuable | Paid in | Accumulated | |||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( |
$ | ( | |||||||||||||||
| Common stock issuable for services | - | - | |||||||||||||||||||||
| Common stock issuable for conversion of debt including inducement expense | - | - | |||||||||||||||||||||
| Warrants issued for commitment fee | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | ( |
( | ||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | $ | ( |
$ | ( | |||||||||||||||
| Common stock issuable for services | - | ( |
( |
||||||||||||||||||||
| Common stock issuable for conversion of debt including inducement expense | - | ( |
( |
||||||||||||||||||||
| Net loss | - | - | - | ( |
( | ||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | $ | ( |
$ | ( | |||||||||||||||
| Common stock issued for services | - | - | |||||||||||||||||||||
| Common stock issued for research and development expenses | - | - | |||||||||||||||||||||
| Common stock issuable for services | - | - | |||||||||||||||||||||
| Warrants issued for inducement expense | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | ( |
( | ||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | $ | ( |
$ | ( | |||||||||||||||
5
| Convertible | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock Issuable | Common Stock Returnable | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||||
| Stock issued for license fee ($0.37.share) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock issued for services ($0.10 - $0.36/share) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| March 31, 2023 | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Stock issued for services ($0.10 - $0.143/share) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Conversion of debt to common stock ($0.11/share) including inducement expense | — | |
|
— | — | |
|
|||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| June 30, 2023 | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Stock issued for services ($0.173/share) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Common stock issuable in connection with the extension of notes and convertible notes including inducement expense ($0.179/share) | — | — | |
|
— | |
|
|||||||||||||||||||||||||||||||||||||
| Stock repurchased and returnable in exchange for note payable ($0.001) - related party - net | — | — | — | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| September 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements
6
Ludwig Enterprises, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock issued for services | ||||||||
| Stock issued for research and development | ||||||||
| Stock issuable for services | ||||||||
| Stock warrants issued for finance expense | ||||||||
| Stock issued for license fee | ||||||||
| Amortization of debt discount | ||||||||
| Inducement expense | ||||||||
| Provision for obsolete inventory | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Deferred offering cost | ( | ) | ||||||
| Proceeds from convertible notes payable - net | ||||||||
| Repayment of convertible note and guaranteed interest | ( | ) | ||||||
| Cash advance from investor | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash financing activity | ||||||||
| Original issuance debt and guaranteed interest as debt discount | $ | $ | ||||||
| Conversion of notes payable into common stock | $ | $ | ||||||
| Stock repurchased and returnable in exchange for note payable - related party - net | $ | $ | ||||||
The accompanying condensed unaudited notes are an integral part of these unaudited consolidated financial statements.
7
LUDWIG ENTERPRISES, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Note 1–- Organization and Nature of Operations
Organization and Nature of Operations
Ludwig Enterprises, Inc. (collectively, “we,” “us,” “our” or the “Company”), a Nevada Corporation (incorporated February 2006). In August 2024, the Board of Directors of the Company and the holders of 81.48% of the outstanding voting securities of the Company approved an amendment to the Company’s Articles of Incorporation, as amended, to change the Company’s corporate name to “Revealia, Inc.” The name change is pending approval of the State of Nevada and from FINRA.
The Company is currently seeking to develop products and services through the use of cutting-edge technologies in the health care industry.
Formation of Subsidiaries
On May 18, 2022, the Company formed mRNA for Life, Inc. (“mRNA”), a Wyoming corporation, which is a wholly-owned subsidiary of the Company. mRNA is expected to produce supplements to address clinical diagnoses from mRNA cheek swabs.
On November 18, 2022, the Company formed Precision Genomics, Inc. (“PGI”), a Wyoming corporation, which is a wholly-owned subsidiary of the Company. PGI will be developing proprietary medical artificial intelligence (“AI”) technology that uses mRNA inflammatory language to potentially capture an inflammatory snapshot of disease and the body’s response to treatment.
On June 6, 2023, the Company formed Exousia Ai, Inc. (“EXO”), a Wyoming corporation, which is a wholly-owned subsidiary of the Company. EXO was formed to focus on studying the expression of differentially expressed mRNA genes in various chronic inflammatory diseases.
Liquidity, Going Concern and Management’s Plans
These 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.
As reflected in the accompanying financial statements, for the nine months ended September 30, 2024, the Company had:
| · | Net
loss of $ |
| · | Net
cash used in operations was $ |
Additionally, at September 30, 2024, the Company had:
| · | Accumulated
deficit of $ |
| · | Stockholders’
deficit of $ |
| · | Working
capital deficit of $ |
The Company has cash
on hand of $
These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these financial statements are issued.
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
8
Management’s strategic plans include the following:
| · | Execute business operations more fully during the year ended December 31, 2024, |
| · | Seek out strategic acquisitions of health care technology; and |
| · | Explore prospective partnership opportunities |
Note 2–- Summary of Significant Accounting Policies
Basis of Presentation
The Company prepares its financial statements in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying interim financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2024, are not necessarily indicative of the results for the full year. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these unaudited interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the year ended December 31, 2023, contained in the Company’s Form 10-K filed with the SEC on April 16, 2024.
Principles of Consolidation
These consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries mRNA and EXO. All intercompany transactions and balances have been eliminated.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management 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 and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and other assumptions, which include both quantitative and qualitative assessments that it believes to be reasonable under the circumstances.
Significant estimates during the nine months ended September 30, 2024 and 2023 include valuation of stock-based compensation, uncertain tax positions, and the valuation allowance on deferred tax assets.
Fair Value of Financial Instruments
The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
| · | Level 1–- Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
| · | Level 2–- Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
| · | Level 3–-Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
9
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
Although the Company believes that the recorded fair value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.
The Company’s financial instruments are carried at historical cost. At September 30, 2024 and December 31, 2023, respectively, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
ASC 825-10 ”Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (“fair value option”). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding financial instruments.
Cash and Cash Equivalents and Concentration of Credit Risk
For purposes of the statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.
At September 30, 2024 and December 31, 2023, respectively, the Company did not have any cash equivalents.
The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC, which is $250,000.
At September 30, 2024 and December 31, 2023, the Company’s cash balances exceeded FDIC insured limits by $0. The Company did not have any losses on cash in excess of the insured FDIC limit.
Revenue recognition
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. |
Research and Development
The Company accounts for research and development costs in accordance with ASC 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 development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. 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 $
10
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the statements of operations.
The Company recognized
$
Deferred Offering Costs
Pursuant to ASC 340-10-S99-1, costs directly attributable to an offering of equity securities are deferred and would be charged against the gross proceeds of the offering as a reduction of additional paid-in capital. Deferred offering costs consist of underwriting, legal, accounting, and other expenses incurred through the balance sheet date that are directly related to the proposed public offering. Should the proposed public offering prove to be unsuccessful, these deferred costs, as well as additional expenses to be incurred, will be expensed.
As at September 30, 2024 and December 31, 2023, deferred offering costs consisted of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| General and administrative expenses | $ | $ | ||||||
| $ | $ | |||||||
The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options and common stock warrant.
The fair value of stock-based compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
When determining fair value, the Company considers the following assumptions in the Black-Scholes model:
| · | Exercise price, |
| · | Expected dividends, |
| · | Expected volatility, |
| · | Risk-free interest rate; and |
| · | Expected life of option |
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible preferred stock, convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future.
At September 30, 2024 and December 31, 2023, respectively, the Company had the following common stock equivalents, which are potentially dilutive equity securities:
11
| September 30, 2024 | December 31, 2023 | |||||||
| Convertible Preferred Stock | ||||||||
| Convertible notes | ||||||||
| Common stock issuable | ||||||||
| Warrant | ||||||||
Each share of preferred stock (7,000,000 shares) is convertible into 100 shares of common stock.
New Accounting Standard Adopted
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.
This guidance was adopted on January 1, 2024. The adoption of ASU 2022-03 did not have a material impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements
We have evaluated all recently issued, but not yet effective, accounting pronouncements and do not believe that these accounting pronouncements will have any material impact on our consolidated financial statements or disclosures upon adoption.
12
Note 3 – Notes Payable and Convertible Notes Payable
Notes Payable - Net
Notes payable are summarized as follows:
| Maturity | Interest | September 30, | December 31, | ||||||||||
| Issue Date | Date | Rate | Collateral | 2024 | 2023 | ||||||||
| $ | $ | ||||||||||||
| Notes payable | $ | $ | |||||||||||
| (1) | In November 2023, the convertible notes were amended to remove the conversion features and the Company reclassified $640,000 from convertible notes to notes payable | ||||||||||||
| (2) | In October 2024, the Company entered into agreements with 6 noteholders, extending the maturity on their notes to April 1, 2025. In consideration thereof, each noteholder will, upon a successful uplisting to a senior exchange, be repaid their original purchase price and the OID discount and any accrued interest will be converted to common stock at a price of $0.10/share. | ||||||||||||
| (3) | In October 2024, the Company entered into agreements with 6 noteholders, extending the maturity on their notes to April 1, 2025. In consideration thereof, each noteholder will, upon a successful uplisting to a senior exchange, be repaid 50% of their original principal and the balance of the any accrued interest will be converted to common stock at a price of $0.10/share. | ||||||||||||
Convertible Notes Payable - Net
The Company had the following activity related to its convertible notes payable:
| Balance - December 31, 2023 | $ | |||
| Proceeds (face amount of note) | ||||
| Guaranteed interest recorded to convertible note payable | ||||
| Original issue debt discount | ( | ) | ||
| Guaranteed interest – debt discount | ( | ) | ||
| Repayments including guaranteed interest | ( | ) | ||
| Amortization of debt discount | ||||
| Balance - September 30, 2024 | $ |
Convertible Notes Payable are summarized as follows:
| September 30, | December 31, | |||||||||||
| Issue Date | Maturity Date | Interest Rate | Collateral | 2024 | 2023 | |||||||
| $ | ||||||||||||
| $ | $ | |||||||||||
| Convertible notes payable | $ | |||||||||||
13
Notes Issued in 2024
In February, 2024, the Company entered into a securities purchase agreement (the “SPA”), pursuant to which the Company agreed to issue to the Investor a Promissory Note (the “Note”), dated February 12, 2024, in the principal amount of $50,000. The Note was funded by the Investor on February 15, 2024, with the Company receiving funding of $40,000, net of OID of $15,000, including guaranteed interest of 10% per calendar year, or $5,000. The Note matures on May 12, 2024. In July, 2024 the Company extended the maturity on the note to October 1, 2024. In consideration thereof, the noteholder received a warrant to purchase 2 shares of the Company’s common stock for each $1 of indebtedness they held, at an exercise price of $0.30 per share and an expiration date of July 16, 2026. The shares underlying each warrant are to be included in the Company’s next-filed registration statement with the Securities and Exchange Commission on Form S-1. Only upon an event of default that shall not have been cured, the Note is convertible into shares of the Company’s common stock at any time at a conversion price equal to the lowest traded price of the Common Stock during the thirty (30) business days prior to the relevant notice of conversion; provided, however, that the Investor may not convert the Note to the extent that such conversion would result in the investor’s beneficial ownership of the Company’s common stock being in excess of 9.99% of the Company’s then-issued and outstanding common stock. The Note was repaid on May 9, 2024.
Between March 2024 and August, 2024, the Company entered into securities purchase agreements (the “SPAs”) with 13 individuals, pursuant to which the Company agreed to issue to the Investors Promissory Notes (the “Notes”), in the aggregate principal amount of $484,000 with an interest rate of 8% per annum. The Notes mature twelve (12) months from the dates of issue. The principal amounts of the notes together with any accrued interest are convertible into common shares at any time prior or at maturity at a price of $0.10 per common share. The Notes, together with any accrued interest, shall automatically convert into common shares at a price of $0.10 per share upon the successful uplisting of the Company’s common stock onto the NASDAQ, CBOE or NYSE American stock exchanges.
Inducements
In March 2024, the Company recorded 2,080,000 shares of common stock issuable as inducements to 7 individuals for the extension of 7 promissory notes to July 1, 2024, which shares were valued at $0.25 per share. All shares were issued in April 2024. The Company recognized the extensions as debt extinguishment and recorded $520,000 as inducement expense.
In July 2024, the
Company entered into agreements with 16 noteholders, extending the maturity on their notes to October 1, 2024. In consideration thereof,
each noteholder received a warrant to purchase 2 shares of the Company’s common stock for each $1 of indebtedness they held, for
an aggregate of 16 warrants exercisable into
Interest expense
During the nine months
ended September 30, 2024 and 2023, the Company recorded interest expense for notes payable and convertible notes of $
14
Note 4 – Commitments and Contingencies
On September 5, 2023, we entered into an employment agreement with Marvin S. Hausman, M.D., pursuant to which Dr. Hausman serves as our Chief Executive Officer. Under his employment agreement, we will pay Dr. Hausman $5,000 per month. In addition, we will pay Dr. Hausman an amount equal to 10% of gross sales revenues attributable to Dr. Hausman’s efforts, in perpetuity.
On September 5, 2023, we entered into an employment agreement with Thomas Terwilliger, pursuant to which Mr. Terwilliger serves as our Chief Operating Officer, Treasurer and Secretary. Under his employment agreement, we will pay Mr. Terwilliger $5,000 per month. In addition, we will pay Mr. Terwilliger an amount equal to 10% of gross sales revenues attributable to Mr. Terwilliger’s efforts, in perpetuity. On November 28, 2023, Mr. Terwilliger resigned as Chief Operating Officer, but continued to provide limited services to the company on an outsourced basis. As of July 2024, Mr. Terwilliger no longer provides services to the Company and his agreement has been terminated.
On November 15, 2023, we entered into a Financial
Advisory Services Agreement with Thornhill Advisory Group, Inc. (f/k/a EverAsia Financial Group, Inc.), a financial consulting firm owned
by Scott J. Silverman, who, in conjunction with the execution the CFO Agreement, was appointed as our Chief Financial Officer. Under the
CFO Agreement, the Company is obligated to make monthly payments of $
Beginning from the
execution date of the CFO Agreement and continuing until the Company raises $
| Funds Raised | Paid Monthly | Accrued Monthly |
| $ |
$ |
$ |
| $ |
$ |
$ |
Upon the Company’s
raising of $
shall pay the entire monthly payment without accrual.
On April 1, 2024,,Jose Antonio
Reyes. signed an Offer Letter for his employment as our Chief Operating Officer. In September 2024, Mr. Reyes was named as our Chief Executive
Officer. Pursuant to the terms of his employment, the Company is obliged to make monthly payments to Mr. Reyes of $
Beginning from the execution date of the Offer Letter
and continuing until the Company raises $
| Funds Raised | Paid Monthly | Accrued Monthly |
| $ |
$ |
$ |
| $ |
$ |
$ |
Upon the Company’s raising
of $
On April 1, 2024,,Marvin S. Hausman.,
M.D. signed an Offer Letter for his employment as our Chief Science Officer. Additionally, Dr. Hausman serves as our Chairman of the Board
of Directors. Pursuant to the terms of his employment, the Company is obliged to make monthly payments to Dr. Hausmanof $
Beginning from the execution date of the Offer Letter
and continuing until the Company raises $
| Funds Raised | Paid Monthly | Accrued Monthly |
| $ |
$ |
$ |
| $ |
$ |
$ |
Upon the Company’s raising
of $
15
From September 5, 2023 until April
1, 2024, Marvin S. Hausman, M.D., served as our Chief Executive Officer. Under his employment agreement, we paid Dr. Hausman $
From July 1, 2022, to September
5, 2023, Dr. Hausman provided services on behalf of our company, pursuant to a consulting agreement. Under his consulting agreement, we
paid Dr. Hausman $
In August 2024, the Company acquired patent pending
(“Patent”) for an mRNA Neuro Panel and Serotonin Assay, which Patent was lodged by Nova on or about April 26, 2024, as U.S.
Patent Application 18/705375, International Publication Number WO 2023/077245, captioned as “Diagnosing, Monitoring and Treating
Neurological Disease with Psychoactive Tryptamine Derivatives and mRNA Measurements” (“IP” or “Patent”)
from Nova Mentis Life Science Corp. in exchange for the issuance of shares of common stock with a fair market value of $
In August 2024, the
Company acquired patent pending (“Patent”) for an mRNA Neuro Panel and Serotonin Assay, which Patent was lodged by Nova on
or about April 26, 2024, as U.S. Patent Application 18/705375, International Publication Number WO 2023/077245, captioned as “Diagnosing,
Monitoring and Treating Neurological Disease with Psychoactive Tryptamine Derivatives and mRNA Measurements” (“IP”
or “Patent”) from Nova Mentis Life Science Corp. in exchange for the issuance of shares of common stock with a fair
market value of $
Note 5 – Stockholders’ Deficit
The Company has two (2) classes of stock:
Common Stock
| · | shares authorized |
| · | $ par value |
| · | Voting
at |
Preferred Stock
In May 2022 and December 2022, the Company’s Articles of Incorporation, as amended, authorized the issuance of shares of preferred stock which may be amended from time to time in one or more series. The Board of Directors is authorized to determine, prior to issuing any such series of preferred stock and without any vote or action by the shareholders, the rights, preferences, privileges and restrictions of the shares of such series, including dividend rights, voting rights, terms of redemption, the provisions of any purchase, retirement or sinking fund to be provided for the shares of any series, conversion and exchange rights, the preferences upon any distribution of the assets of the Company, including in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, and the preferences and relative rights among each series of preferred stock.
The Board of Directors has made the following designations of its preferred stock.
16
Series A, Convertible Preferred Stock
| · | shares authorized. |
| · | $ par value. |
| · | Conversion feature–-each share of preferred stock is convertible into 100 shares of common stock. |
| · | Voting–-on
an as converted basis with common stock, at the applicable conversion rate ( |
| · | Dividends–-accrued only upon declaration of the board of directors, at the applicable conversion rate. |
| · | Mandatorily redeemable (automatic conversion) on January 1, 2025. (See below amendment) |
| · | Anti-dilution provision – rights exist for the period of two years after the convertible preferred shares were converted into common stock. Additionally, holders of the convertible preferred stock will have full ratchet anti-dilution protection rights at the rate of 65% calculated on a fully diluted basis. (See below amendment) |
In connection with the issuance of these Series A, convertible preferred shares, the Company determined that there were no provisions within ASC 815 that were met, which would require derivative liability accounting treatment. Specifically, as noted below, upon amending the terms of the Series A, convertible preferred stock, at that time, there had been no new stock issuances of any type which may have triggered the anti-dilution provision.
In December 2022, the Company amended its articles of incorporation related to certain terms of its Series A, convertible preferred stock. At that time, the Company, along with approval from its convertible preferred stockholders agreed to remove provisions related to mandatory redemption as well as anti-dilution rights.
At September 30, 2024 and December 31, 2023, the Company had shares issued and outstanding. See below for related issuances.
Equity Transactions for fiscal year 2024
During the nine months ended September 30, 2024, the Company issued shares of common stock as follows:
| · |
shares of common stock to three individuals as bonuses for their services valued at $
per share, the closing price on the date of issue as quoted on OTCMarkets.com, for a total
of $ |
| · |
shares of common stock to an individual for his services. Such shares of common stock were
issued as compensation ( shares pursuant to a consulting agreement and shares
as a performance bonus) valued at $ per share, the closing price on the date of issue
as quoted on OTCMarkets.com, for a total of $ |
| · |
shares of common stock for marketing and advertising service valued at $ |
| · |
shares of common stock as inducements to enter into promissory notes with the Company, valued
at $ per share, the closing price on the date of issue as quoted on OTCMarkets.com, for
a total of $ |
| · |
shares of common stock for research and development activities valued at $ per share,
the closing price on the date of issue as quoted on OTCMarkets.com, for a total of $ |
During the nine months ended September 30, 2024, the Company recorded shares of common stock issuable for marketing and advertising service valued at $.
Securities Purchase Agreement
On February 12, 2024, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”), together with
a registration rights agreement (the “Registration Rights Agreement”) with an institutional investor (the “Investor”),
pursuant to which the Company has the right to sell to the Investor up to $ in shares of its common stock (“Common
Stock”), subject to certain limitations. The Investor was also issued a five-year warrant (the “Warrant”) to purchase
Under the terms and subject to the conditions of the Purchase Agreement, the Investor is obligated to purchase up to $5,000,000 in shares of Common Stock (subject to certain limitations) from time to time over the period commencing on the date of the Purchase Agreement and ending on June 30, 2025. The price per share of Common Stock shall be eighty percent (80%) of the lowest traded price of the Common Stock for the six trading days following the closing date associated with the purchase notice delivered by the Company to the Investor. The maximum amount of each purchase notice shall be the lesser of (a) $250,000 or (b) two hundred fifty percent (250%) of the average daily trading volume during the six business days prior to the date associated with the purchase notices delivered by the Company to the Investor.
17
The Company’s sales of shares of Common Stock to the Investor under the Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by the Investor and its affiliates, at any single point in time, of more than 4.99% of the then-outstanding shares of the Common Stock; provided, however, that the Investor may increase the beneficial ownership limitation up to 9.99%, at its sole discretion, upon sixty-one (61) days’ prior written notice to the Company.
The Company agreed with the Investor that it will not enter into any other equity line or similar agreements without the prior consent of the Investor.
Pursuant to the terms of the Registration Rights Agreement, the Company shall file a registration statement with the SEC with respect to the shares of Common Stock issuable to the Investor pursuant to the Purchase Agreement and the Warrant Shares within 20 calendar days.
The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties and agreements of the Company and the Investor and customary conditions to completing future sale transactions, indemnification rights and obligations of the parties.
The Company has not sold any shares to the Investor as of September 30, 2024.
Equity Incentive Plan
In August 2024 the Company adopted a stock incentive plan in order to attract and retain employees and other service providers. In connection therewith, the Company filed with the SEC a Registration Statement on Form S-8 under Section 5 of the Securities Act of 1933, initially registering shares of common stock of the Company.
Note 6 – Warrants
In February 2024,
the Company issued
In July 2024, the
Company issued
A summary of activity of the warrants during the nine months ended September 30, 2024, is follows:
| Number of | Weighted average | Weighted average | |||
| Warrant | Exercise price | Remaining life (year) | |||
| Outstanding at December 31, 2023 | $ | - | |||
| Grant | |
|
|||
| Exercised | - | - | - | ||
| Cancelled | - | - | - | ||
| Outstanding at September 30, 2024 | |
$ | |
||
| Exercisable at September 30, 2024 | |
$ | |
The intrinsic value of the warrants as of September 30, 2024, is $. All of the outstanding warrants are exercisable as of September 30, 2024.
Valuation
The Company utilizes the Black-Scholes model to value its warrants. The Company utilized the following assumptions:
| Nine months ended | ||||
| September 30, 2024 | ||||
| Expected term | - years | |||
| Expected average volatility | - | % | ||
| Expected dividend yield | ||||
| Risk-free interest rate | - | % | ||
18
Note 7 – Subsequent Events
In October 2024, the Company entered into agreements with 16 noteholders, extending the maturity on their notes to April 1, 2025. In consideration thereof, each noteholder will, upon a successful uplisting to a senior exchange, be repaid their original principal and any accrued interest will be converted to common stock at a price of $0.10/share.
In October 2024, the Company entered into agreements with 1 noteholders, extending the maturity on their note to April 1, 2025. In consideration thereof, the noteholder will, receive 500,000 shares of common stock.
In November, 2024, the Company entered into securities purchase agreements (the “SPAs”) with 3 individuals, pursuant to which
the Company agreed to issue to the Investors Promissory Notes (the “Notes”), in the aggregate principal amount of $94,708
with an interest rate of 8% per annum. The Notes mature twelve (12) months from the dates of issue. The principal amounts of the notes
together with any accrued interest are convertible into common shares at any time prior or at maturity at a price of $0.10 per common
share. The Notes, together with any accrued interest, shall automatically convert into common shares at a price of $0.10 per share upon
the successful uplisting of the Company’s common stock onto the NASDAQ, CBOE or NYSE American stock exchanges.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and the notes thereto appearing elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors,” “Cautionary Statement Regarding Forward Looking Statements” and elsewhere herein. Please see the notes to our Financial Statements for information about our Critical Accounting Policies and Recently Issued Accounting Pronouncements.
Forward looking Statements
There are “forward looking statements” contained herein. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this quarterly report to conform forward-looking statements to actual results. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:
| ● | Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; |
| ● | Our failure to earn revenues or profits; |
| ● | Inadequate capital to continue business; |
| ● | Volatility or decline of our stock price; |
| ● | Potential fluctuation in quarterly results; |
| ● | Rapid and significant changes in markets; |
| ● | Litigation with or legal claims and allegations by outside parties; and |
| ● | Insufficient revenues to cover operating costs. |
The following discussion should be read in conjunction with the unaudited financial statements and the notes thereto which are included in this quarterly report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ substantially from those anticipated in any forward-looking statements included in this discussion as a result of various factors.
Overview
We are an innovative technology and health related company that is developing products that use mRNA-based genetic markers with the potential to measure the presence of inflammation, and, as a result, inflammatory driven diseases and monitor patient response to treatment. Advancements in medical technology have awarded us with cutting edge genetic tools, unheard of even a generation ago. These genetic tools have the potential to not only achieve early detection of diseases but also to support customized treatments that may improve patient outcomes. Our company is at the forefront of this new era of medicine with development of products that will embody our proprietary mRNA genomic technology that has the potential of screening for genetic biomarkers for inflammatory driven diseases, including, but not limited to, heart disease, diabetes, preeclampsia, cancer and “long COVID.”
Current Financial Condition Summary
We had a net loss of $2,861,013 for the nine months ended September 30, 2024. Additionally, we had net cash used in operating activities of $523,983 for the nine months ended September 30, 2024. At September 30, 2024, we had a working capital deficit of $2,329,074, an accumulated deficit of $7,103,495 and a stockholders’ deficit of $2,329,074, which could have a material impact on our ability to obtain needed capital.
20
Results of Operations
Nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. For the nine months ended September 30, 2024 and 2023, we had revenue from services of $13,254 and $0, respectively. We expect that revenues from sales of our planned products will begin during the first quarter of 2025, assuming we are able to obtain needed funding of approximately $1,500,000, of which there is no assurance.
Operating Expenses. Total operating expenses for the nine months ended September 30, 2024 and 2023, were $1,245,751 and $1,274,036 respectively. The decrease in operating expenses during the nine months ended September 30, 2024, was primarily due to a significant decrease in our activities relating to research and development, as well as the reduction in payments of monthly fees to our key consultants and fees for professional services, including accounting and legal.
General and Administrative Expenses. The increase of $113,832 in general and administrative expenses for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, was primarily due to the decrease in our payments of monthly fees to our key consultants and fees for professional services, including accounting and legal.
Research and Development. The $286,591 and $428,708 in research and development expenses for the nine months ended September 30, 2024 and 2023, respectively, were incurred due to our determining to make expenditures in the development of our planned products, including the payment of product study-relate expenses. While we expect to continue to incur research and development expenses, we are unable to predict the level of such expenditures, due to the uncertainty of the level of funding that will be available to us.
Other Income/Expense. Total other expense for the nine months ended September 30, 2024 and 2023, were $1,628,516 and $732,706, respectively. The increase in total other expense during the nine months ended September 30, 2024, was primarily due to an increase in inducement expense associated with our extending notes payable that had reached maturity, an issuance of warrants as a financing expense and an increase in interest expense. The increases were offset by a decrease in amortization of debt discount.
Amortization of Debt Discount. During the nine months ended September 30, 2024, we incurred $15,000 in amortization of debt discount for OID and guaranteed interest on a convertible note payable. During the nine months ended September 30, 2023, we incurred amortization of debt discount expense of $434,514. We are unable to predict with any certainty our amortization of debt discount expense for all of 2024.
Interest Expense. Interest expense for the nine months ended September 30, 2024, was higher than for the nine months ended September 30, 2023, $38,612 versus $9,175. We anticipate that our interest expense for all of 2024 will be higher but are unable to make any prediction in this regard.
Net Loss. We incurred a net loss of $2,861,013 for the nine months ended September 30, 2024, as compared to a net loss of $2,006,742 for the nine months ended September 30, 2023. The increase in net loss for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, was primarily due to an increase interest expense, stock-based inducement and financing expenses of $1,613,516, by a decrease of $28,285 in operating expenses, a decrease of $419,514 in amortization of debt discount and an increase in interest expense of $29,437. Should we be able to obtain needed capital, as we continue to expand our business activities, we expect that our operating expenses for all of 2024 will be in excess of those incurred during the year ended December 31, 2023. However, we are unable to predict our actual operating expenses for all of 2024, due to the uncertainty surrounding our ability to obtain capital.
Liquidity and Capital Resources
September 30, 2024. At September30, 2024, the Company had $43,352 in cash and a working capital deficit of $2,329,074 compared to $108,335 in cash and a working capital deficit of $1,461,565 at December 31, 2023. The Company has sufficient working capital to fund current operating expenses at least through the third quarter of 2024. To the extent the Company requires additional funds beyond such time, we will need to obtain additional debt or equity-based capital from third parties to implement our full business plans. There is no assurance that we will be successful in obtaining such additional capital.
Cash Flows
Net Cash Used in Operating Activities. Net cash used in operating activities was $523,983 during the nine months ended September 30, 2024, compared to $320,700 used during the nine months ended September 30, 2023.
21
Net Cash Used in Investing Activities. Net cash used in investing activities was $-0- during the nine months ended September 30, 2024, compared to $-0- during the nine months ended September 30, 2023.
Net Cash Provided by Financing Activities. Net cash provided by financing activities was $459,000 of net cash during the nine months ended September 30, 2024, as compared to $70,000 provided during the nine months ended September 30, 2023. All of the cash provided by financing activities was proceeds from convertible promissory notes issued and an advance.
Notes Payable and Convertible Promissory Notes
In February, 2024, the Company entered into a securities purchase agreement (the “SPA”), pursuant to which the Company agreed to issue to the Investor a Promissory Note (the “Note”), dated February 12, 2024, in the principal amount of $50,000. The Note was funded by the Investor on February 15, 2024, with the Company receiving funding of $40,000, net of OID of $15,000, including guaranteed interest of 10% per calendar year, or $5,000. The Note matures on May 12, 2024. In July, 2024 the Company extended the maturity on the note to October 1, 2024. In consideration thereof, the noteholder received a warrant to purchase 2 shares of the Company’s common stock for each $1 of indebtedness they held, at an exercise price of $0.30 per share and an expiration date of July 16, 2026. The shares underlying each warrant are to be included in the Company’s next-filed registration statement with the Securities and Exchange Commission on Form S-1. Only upon an event of default that shall not have been cured, the Note is convertible into shares of the Company’s common stock at any time at a conversion price equal to the lowest traded price of the Common Stock during the thirty (30) business days prior to the relevant notice of conversion; provided, however, that the Investor may not convert the Note to the extent that such conversion would result in the investor’s beneficial ownership of the Company’s common stock being in excess of 9.99% of the Company’s then-issued and outstanding common stock.
Between March 2024 and August, 2024, the Company entered into securities purchase agreements (the “SPAs”) with 13 individuals, pursuant to which the Company agreed to issue to the Investors Promissory Notes (the “Notes”), in the aggregate principal amount of $484,000 with an interest rate of 8% per annum. The Notes mature twelve (12) months from the dates of issue. The principal amounts of the notes together with any accrued interest are convertible into common shares at any time prior or at maturity at a price of $0.10 per common share. The Notes, together with any accrued interest, shall automatically convert into common shares at a price of $0.10 per share upon the successful uplisting of the Company’s common stock onto the NASDAQ, CBOE or NYSE American stock exchanges.
Notes payable are summarized as follows:
| Maturity | Interest | September 30, | December 31, | |||||||||
| Issue Date | Date | Rate | Collateral | 2024 | 2023 | |||||||
| June 2012(1)(2) | April 2025 | 8% | Unsecured | $ | 6,240 | $ | 6,240 | |||||
| May 2014(1)(2) | April 2025 | 8% | Unsecured | 3,456 | 3,456 | |||||||
| June 2016(1)(2) | April 2025 | 8% | Unsecured | 38,216 | 38,216 | |||||||
| January 2017(1)(2) | April 2025 | 8% | Unsecured | 7,344 | 7,344 | |||||||
| November 2020(1)(2) | April 2025 | 12% | Unsecured | 46,480 | 46,480 | |||||||
| March 2021(1)(2) | April 2025 | 8% | Unsecured | 5,400 | 5,400 | |||||||
| November 2021(1),(2) | April 2025 | 0% | Unsecured | 250,000 | 250,000 | |||||||
| February 2022(1),(2) | April 2025 | 0% | Unsecured | 150,000 | 150,000 | |||||||
| August 2023(1),(2) | April 2025 | 8% | Unsecured | 122,873 | 122,873 | |||||||
| January 2023 (1) (2) | April 2025 | 0% | Unsecured | 100,000 | 100,000 | |||||||
| October 2022 (1) (2) | April 2025 | 0% | Unsecured | 440,000 | 440,000 | |||||||
| November 2022 (1) (2) | April 2025 | 0% | Unsecured | 100,000 | 100,000 | |||||||
| Notes payable | $ | 1,270,009 | $ | 1,270,009 | ||||||||
| (1) | In November 2023, the convertible notes were amended to remove the conversion features and the Company reclassified $640,000 from convertible notes to notes payable | |||||||||||
| (2) | In October 2024, the Company entered into agreements with 16 noteholders, extending the maturity on their notes to April 1, 2025. In consideration thereof, each noteholder will, upon a successful uplisting to a senior exchange, be repaid their original purchase price and the OID discount and any accrued interest will be converted to common stock at a price of $0.10/share. | |||||||||||
22
Convertible Notes Payable - Net
The Company had the following activity related to its convertible notes payable:
| Balance - December 31, 2023 | $ | 100,000 | ||
| Proceeds (face amount of note) | 534,000 | |||
| Guaranteed interest recorded to convertible note payable | 5,000 | |||
| Original issue debt discount | (10,000 | ) | ||
| Guaranteed interest – debt discount | (5,000 | ) | ||
| Repayments including guaranteed interest | (55,000 | ) | ||
| Amortization of debt discount | 15,000 | |||
| Balance - September 30, 2024 | $ | 584,000 |
Convertible Notes Payable are summarized as follows:
| September 30, | December 31, | |||||||||||
| Issue Date | Maturity Date | Interest Rate | Collateral | 2024 | 2023 | |||||||
| October 2023 | April 2025 | 8% | Unsecured | $ | 100,000 | 100,000 | ||||||
| March 2024 | March 2025 | 8% | Unsecured | 150,000 | - | |||||||
| March 2024 | March 2025 | 8% | Unsecured | 50,000 | - | |||||||
| March 2024 | March 2025 | 8% | Unsecured | 50,000 | - | |||||||
| April 2024 | April 2025 | 8% | Unsecured | 10,000 | - | |||||||
| April 2024 | April 2025 | 8% | Unsecured | 20,000 | - | |||||||
| May 2024 | May 2025 | 8% | Unsecured | 10,000 | - | |||||||
| May 2024 | May 2025 | 8% | Unsecured | 100,000 | - | |||||||
| July 2024 | July 2025 | 8% | Unsecured | 5,000 | - | |||||||
| July 2024 | July 2025 | 8% | Unsecured | 15,000 | - | |||||||
| July 2024 | July 2025 | 8% | Unsecured | 10,000 | - | |||||||
| July 2024 | July 2025 | 8% | Unsecured | 4,000 | - | |||||||
| July 2024 | July 2025 | 8% | Unsecured | 50,000 | - | |||||||
| August 2024 | August 2025 | 8% | Unsecured | 10,000 | - | |||||||
| $ | 584,000 | $ | 100,000 | |||||||||
| Convertible notes payable | 584,000 | $ | 100,000 | |||||||||
Inducements
In March 2024, the Company recorded 2,080,000 shares of common stock issuable as inducements to 7 individuals for the extension of 7 promissory notes to July 1, 2024, which shares were valued at $0.25 per share. All shares were issued in April 2024. The Company recorded $520,000 as inducement expense.
In July 2024, the Company entered into agreements with 16 noteholders, extending the maturity on their notes to October 1, 2024. In consideration thereof, each noteholder received a warrant to purchase 2 shares of the Company’s common stock for each $1 of indebtedness they held, for an aggregate of 16 warrants exercisable into 2,541,276 shares of common stock, at an exercise price of $0.30 per share and an expiration date of July 16, 2026. The Company recorded $377,774 as inducement expense. In October, 2024, the Notes were further extended to April, 2025.
Advances
On March 28, 2024, an individual advanced the Company $50,000. There are no repayment terms on the advance as they are still under negotiation.
In October 2024, the Company entered into agreements with 1 noteholders, extending the maturity on their note to April 1, 2025. In consideration thereof, the noteholder will, receive 500,000 shares of common stock.
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Going Concern
The unaudited consolidated financial statements included herein have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As reflected in the financial statements, we had a working capital deficit of $2,329,074 at September 30, 2024, and had a net loss of $2,861,013 for the nine months ended September 30, 2024, which raises substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of the financial statements.
Off Balance Sheet Arrangements
At September 30, 2024, we did not have any off balance sheet arrangements that we believe have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies
Our accounting policies are more fully described in our unaudited financial statements. The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on our best knowledge of current and anticipated events, actual results could differ from the estimates.
We have identified the following accounting policies as those that require significant judgments, assumptions and estimates and that have a significant impact on our financial condition and results of operations. These policies are considered critical because they may result in fluctuations in our reported results from period to period, due to the significant judgments, estimates and assumptions about complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.
Intangible asset. Intangible assets with an indefinite life, consist of store operating rights, are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired.
Intangible assets with finite lives, consist of customer lists, are initially recorded at cost and amortized on a straight-line basis over the estimated economic useful lives of the respective assets.
Fair Value of Financial Instruments. The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
| ● | Level 1 – Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; | |
| ● | Level 2 – Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and | |
| ● | Level 3 – Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
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Derivative Liabilities. The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic No. 480, (“ASC 480”), “Distinguishing Liabilities from Equity” and FASB ASC Topic No. 815, (“ASC 815”) “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each reporting period, with any increase or decrease in the fair value recorded in the results of operations (other income/expense) as change in fair value of derivative liabilities. The Company uses a binomial pricing model to determine fair value of these instruments.
Debt Discount. For certain notes issued, the Company may provide the debt holder with an original issue discount and other direct financing expenses. The original issue discount and financing expenses are recorded as a debt discount, reducing the face amount of the note, and is amortized to interest expense over the life of the debt, in the Consolidated Statements of Operations.
Research and Development. The Company accounts for research and development costs in accordance with ASC 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 development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.
Stock-based Compensation. The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options.
The fair value of stock-based compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
When determining fair value, the Company considers the following assumptions in the Black-Scholes model:
| ● | Exercise price, | |
| ● | Expected dividends, | |
| ● | Expected volatility, | |
| ● | Risk-free interest rate; and | |
| ● | Expected life of option. |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Management is responsible for establishing and maintaining adequate disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in its reports filed pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely and reliable financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America.
As of the quarter ended September 30, 2024, our principal executive officer and principal financial officer completed an assessment of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e), to determine the existence of any material weaknesses or significant deficiencies under the Exchange Act. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company's financial reporting.
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Based on that evaluation, we concluded that our disclosure controls and procedures over financial reporting were not effective as of September 30, 2024.
Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We have no pending legal or administrative proceedings.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit Description
101.* INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document. |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
_______________________
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LUDWIG ENTERPRISES, INC.
By: /s/ Jose Antonio Reyes. Jose Antonio Reyes Chief Executive Officer |
Dated: November 14, 2024 |
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