Glucose Health, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation CAUTIONARY NOTE REGARDING FORWARD LOOKING STATMENTS Some of the statements in this report are “forward-looking statements.” These forward-looking statements involve certain known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar expressions identify forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update and revise any forward-looking statements or to publicly announce the result of any revisions to any of the forward-looking statements in this report to reflect any future or developments. However, the Private Securities Litigation Reform Act of 1995 is not available to us as a penny stock issuer and thus we may not rely on the statutory safe harbor from liability for forward-looking statements. Further, Section 27A(b)(2)(D) of the Securities Act of 1933 and Section 21E(b)(2)(D) of the Securities Exchange Act of 1934 expressly state that the safe harbor for forward looking statements does not apply to statements made in connection with any offering. Overview We are a manufacturer of dietary supplements formulated to help maintain healthy blood sugar, triglycerides and cholesterol and digestive health and our business focus is serving the consumer market segment of persons concerned about pre-diabetes and/or Type-2 diabetes. Our principal product is Glucose Health® and we are in the early stages of manufacturing, marketing and distributing this product. For the period ending March 31, 2017, we generated $473 of gross profit before operating expenses, a loss from operations and a net loss per share. On October 1, 2014, the Company entered into an Intellectual Property Purchase Agreement to purchase the “Glucose Health Natural Blood Sugar Maintenance” product. The product concept is a dietary supplement formulated from natural ingredients shown in certain clinical research, such as that published by the National Institutes of Health, National Library of Medicine website (see www.glucosehealth.com/clinical-trials), to have a beneficial impact upon blood glucose, triglyceride and cholesterol levels. The Centers for Disease Control and Prevention (CDC) publishes a National Diabetes Statistics Report annually. Their 2014 Report estimates 2 of 5 presently healthy Americans will develop Type-2 diabetes in their lifetime. We believe this CDC Report and other similar research points to a large and growing market of consumers likely concerned with pre-diabetes or Type-2 diabetes, including many of whom are also likely seeking natural products such as Glucose Health® to proactively maintain their good health. After the purchase of the product, the Company undertook a series of steps to achieve a final product offering that would be considered efficacious as well as pleasant tasting by our target consumer market, being persons concerned with pre-diabetes and Type-2 diabetes, and would offer a value proposition relative to our competition to be considered for stocking by national and regional pharmacy retailers. To assist in achieving our final product objectives, we retained a former head of beverage product development at Nestle. We retained an attorney specializing in compliance with Food and Drug Administration (FDA) and regulations pertaining to dietary supplements and Federal Trade Commission (FTC) regulations, necessary, in part, to enable our product to be stocked by national pharmacy retailers. We also undertook several actions to establish and build our Glucose Health® brand. The Company conducted a design competition related to its packaging artwork and product logo and retained an experienced product packaging graphic artist to assist with all digital and print representations of the product. The Company filed for and received trademark protection for Glucose Health® with the United States Trademark and Patent Office (USPTO). While our primary sales and marketing focus is achieving sales to consumers through national and regional pharmacies, secondarily, we intend to also market the product directly to customers via our dedicated product website and through other online marketplaces. 3 Table of Contents Recent Developments On January 6, 2016, the Company executed a General Merchandise Supplier Agreement ("Agreement") with Wal-Mart Stores, Inc. On January 27, 2016, the Company notified OTC Markets, Inc. of its intention to not renew its OTCQB service. The Company filed Form 8-A12G in fiscal 2015 registering a class of securities under the 1934 Securities Exchange Act. Accordingly, the Company does not make use of the OTC Markets Disclosure and News Service and instead files its periodic and annual reports and audited financial statements with the Securities and Exchange Commission. On February 4, 2016, the Company's Chief Executive Officer and Chief Financial Officer, Murray Fleming, was appointed to the board of directors of Glucose Health, Inc. ("Company"). On February 5, 2016, James Hodge resigned from the board of directors. On March 8, 2016, the Company received a series of material purchase orders from the Customer pursuant to a General Merchandise Supplier Agreement ("Agreement") with Wal-Mart Stores, Inc., executed January 6, 2016. On October 4, 2016, the Company executed a non-recourse receivables financing agreement with Citibank, N.A. (Citibank) whereby receivables due to the Company are assumed from Wal-Mart Stores Inc. by Citibank and paid subject to an interest premium based upon LIBOR. As of March 31, 2017, the Company’s Glucose Health® Daily Blood Sugar Maintenance Blueberry Tea Mix (60-Day Supply) product is stocked in the "Diabetic Supplies" section of most Walmart pharmacies in all 50 states. Our Plan of Operation for the Next Twelve Months Our principal business strategy for the next twelve months will be to implement marketing and sales initiatives and earn significant revenues from the manufacture and distribution of our Glucose Health® product. Our sales initiatives will be focused upon securing repeat purchase orders for Glucose Health® from national and regional pharmacy retailers. Our marketing initiatives will be primarily to support Glucose Health® channel sales through national and regional partners. We intend to begin advertising in and sponsoring, various print, digital and social media platforms, which align with the interest of our customers in natural products including dietary supplements related to metabolic syndrome, pre-diabetes and Type-2 diabetes. Secondarily to our primary sales and marketing initiatives above, we also intend to grow our online sales of Glucose Health® through sales from our product website and sales through other online marketplaces. We also intend to further develop our Glucose Health® product to introduce flavor variations of our proprietary formula and to introduce a variety of packaging options to our target consumer market segment. Use of Estimates The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, bad debts, investments, intangible assets, and income taxes. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Results of Operations The following discussion should be read in conjunction with our unaudited financial statements and related footnotes included in Item 1 of this periodic report. These unaudited financial statements and related footnotes should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 29, 2017. 4 Table of Contents For the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 Revenues We generated revenues of $15,111 and $120 for the periods ended March 31, 2017 and 2016, respectively. We hope to fully implement our plan of operations by December 31, 2017 and generate greater revenues, of which there is no assurance. Gross profit We reported a gross profit of $473 and $60 for the periods ended March 31, 2017 and 2016, respectively. We hope to fully implement our plan of operations by December 31, 2017 and generate greater profits, of which there is no assurance, and retain and invest such profits in expanding our operations. Operating expenses For the period ended March 31, 2017, we had total operating expenses of $28,786, as compared to total operating expenses of $12,335 for the period ended March 31, 2016. The increase of $16,451 or 133%, in our operating expenses between the two periods is due to a $6,878 increase in professional fees and a $4,602 increase in advertising expense and a $1,814 increase in insurance expense. We will continue to incur significant legal and accounting expenses related to maintaining our status as a publicly-traded company subject to the Securities Exchange Act of 1934, requiring the filing of periodic reports and audited financial statements with the Securities and Exchange Commission. Net loss For the period ended March 31, 2017, we had a net loss of $29,009 or $0.01 per share with $696 of this net loss for the period related to the recording of interest expense. In comparison, for the period ended March 31, 2016, we had a net loss of $29,263 or $0.01 per share with $16,988 of this net loss for the period related to the recording of interest expense. We expect to incur net losses for the foreseeable future as we are in the initial stages of implementing our plan of operations. Liquidity and Capital Resources At March 31, 2017, our total assets were $18,865 consisting of $9,008 cash, $9,632 accounts receivable and $225 of intangible assets. This compares to our total assets of $51,632 at March 31, 2016, consisting of $1,946 in cash, $8,310 inventory, $3,150 in accounts receivable and $38,226 in prepaid expenses and other assets. At March 31, 2017, our current liabilities totaled $542,431, consisting of $191,454 in accounts payable and accrued expenses, $35,000 in notes payable, related party, $5,000 in notes payable, $112,157 in convertible notes payable, related party, $163,820 in convertible notes payable and $35,000 in other notes payable. This compares to our current liabilities at March 31, 2016 of $454,763, consisting of $94,920 in accounts payable and accrued expenses, $6,075 in notes payable, $147,478 in related party convertible notes payable and $206,290 in convertible notes payable. We had a working capital deficit for 2017 and 2016 of $523,791 and $403,431, respectively. We continue to rely upon funding from two private firms, one which is beneficially owned by the Company’s CEO, to meet our working capital requirements and continue our operations. Unless we continue secure additional funding from these firms, or others, of which there can be no assurance, we may not be able to continue our operations. At March 31, 2017 and 2016, we had no other liabilities and no long-term commitments or contingencies. 5 Table of Contents Going Concern Our independent registered public accounting firm has questioned our ability to continue operations as a “going concern.” While we expect to continue to grow our revenues and our gross profits from sales of Glucose Health®, there is no assurance of this occurring, and in the interim as we implement our plan of operations, we will seek to raise funds to meet our working capital needs principally through sales of our securities. However, we cannot guarantee that we will be able to obtain sufficient additional funds when needed, or that such funds, even if available, will be obtainable on terms satisfactory to us. As a result, our independent registered public accounting firm believes that substantial doubt exists about our ability to continue operations. Material Commitments Notes payable, related party: On May 1, 2016, the Company issued a $35,000 note to a corporation owned by the Company’s CEO. The loan bears interest at 24% per annum and has a maturity date of December 31, 2016. $35,000 remains outstanding as of March 31, 2017. On March 11, 2016, the Company issued a $35,000 note to a corporation owned by the Company's CEO. The loan bears interest at 24% per annum and has a maturity date of July 11, 2016. On July 29, 2016, the loan was repaid in full. Notes payable: On September 15, 2016, the Company issued a $5,000 note to a corporation. The loan bears interest at 12% per annum and is payable on demand. $5,000 remains outstanding at March 31, 2017. Convertible notes payable, related party: The Company consolidated 18 separate convertible promissory notes of various principal amounts and fixed conversion prices, all bearing 5% interest per annum, issued to a corporation owned by the Company’s CEO during the period from August 4, 2014 through April 1, 2016, into a single convertible promissory note of $112,157, bearing 5% interest per annum with a pro-rata fixed conversion price of $0.011, plus $5,939 accrued interest not subject to additional interest. The consolidation was for the purposes of administrative simplification and no inducement nor benefit was given to the corporation owned by the Company’s CEO. The current net note balance is $112,157. Convertible notes payable: The Company consolidated 20 separate convertible promissory notes of various principal amounts and fixed conversion rates, all bearing 5% interest per annum, issued to corporation during the period from August 2, 2013 through April 1, 2016, into a single convertible promissory note of $169,065, bearing 5% interest per annum with a pro-rata fixed conversion price of $0.008, plus $12,516 accrued interest not subject to additional interest. The consolidation was for the purposes of administrative simplification and no inducement nor benefit was given to the corporation. The current net note balance is $163,820. Other notes payable: On December 10, 2013, the Company issued a convertible note to an individual. The loan bears interest at 5% per annum, has a fixed conversion price of $0.015 and a maturity date of June 10, 2014. $3,000 remains outstanding at March 31, 2017. On December 10, 2013, the Company issued a convertible note to an individual. The loan bears interest at 5% per annum, has a fixed conversion price of $0.015 and a maturity date of June 10, 2014. $5,000 remains outstanding at March 31, 2017. On June 11, 2013, the Company issued three convertible notes to three corporations. The loans bear interest at 5% per annum with fixed conversion prices of $0.0065 and maturity dates of August 11, 2013. $18,377 remains outstanding as of March 31, 2017. On January 25, 2013, the Company issued a $12,000 note to an individual. $6,000 remains outstanding at March 31, 2017. 6 Table of Contents On April 20, 2012, the Company issued a convertible note to an individual. The loan bears interest at 5% per annum, has a fixed conversion price of $0.009 and a maturity date of October 20, 2012. $2,500 remains outstanding as of March 31, 2017. At March 31, 2017, accrued interest on the above notes and convertible notes amounted to $39,164. Off-Balance Sheet Arrangements We have no-off balance sheet contractual arrangements, as that term is defined in Item 303(a)(4) of Regulation S-K. Item 3. Quantitative and Qualitative Disclosure About Market Risk As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information requested by this item, as provided by Regulation S-K Item 305(e).