HEALTHY EXTRACTS INC. 10-Q

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission. Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects. The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States. Overview We are a platform for acquiring, developing, patenting, marketing, and distributing plant-based nutraceuticals. Our products have not been evaluated by the FDA or any similar regulatory body for safety and efficacy. Our proprietary and patented products target select high-growth categories within the multibillion-dollar nutraceuticals market, such as heart, brain and immune health. Our mission is to acquire or create products with health and performance benefits that have mass consumer appeal. Guided by this mission, our first two acquisitions formed our current operating subsidiaries, Bergamet, which offers nutraceutical heart and immune health products, and UBN, which offers nutraceutical products for brain health. Through published research from outside sources, our Bergamet products have been shown to support heart health, support immune response, and address metabolic syndrome. Our Financial Condition and Going Concern Issues As a result of our financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2022 and 2021 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. From inception (December 19, 2014) through the end of December 31, 2022, we have incurred accumulated net losses of $15,926,742. In order to continue as a going concern we must effectively balance many factors and generate more revenue so that we can fund our operations from our sales and revenues. If we are not able to do this, we may not be able to continue as an operating company. At our current revenue and burn rate, we have an immediate cash need, and thus we must raise capital by issuing debt or through the sale of our stock. However, there is no assurance that our existing cash flow will be adequate to satisfy our existing operating expenses and capital requirements. Results of Operations for the Three Months Ended March 31, 2023 and 2022 Introduction We had revenues of $614,943 for the three months ended March 31, 2023, compared to $551,654 for the three months ended March 31, 2022. Our cost of revenue for the three months ended March 31, 2023 were $337,102, compared to $226,949 for the three months ended March 31, 2022. 16 Our operating expenses were $683,029 for the three months ended March 31, 2023, compared to $370,357 for the three months ended March 31, 2022, an increase of $312,672, or 84%. Our operating expenses consisted entirely of general and administrative expenses. Revenues and Net Operating Loss Our revenue, operating expenses, net operating loss, and net gain (loss) for the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended Three Months Ended March 31, March 31, 2023 2022 Revenue $ 614,943 $ 551,654 Cost of Revenue 337,102 226,949 Gross Profit 277,841 324,705 Operating expenses: General and administrative 683,029 370,357 Total operating expenses 683,029 370,357 Other income (expense) Interest expenses, net of interest income (89,060) (32,957) Change in fair value on derivative (84,908) 78,978 Loss on extinguishment of debt - - SBA Loan Forgiveness - - Gain on sale of asset - 2,643 Total other income (expense) (173,968) 48,664 Net income (loss) $ (579,157) $ 3,011 Revenues We had revenues of $614,943 for the three months ended March 31, 2023, compared to $551,654 for the three months ended March 31, 2022, an increase of $63,290, or 11%. Our cost of revenue for the three months ended March 31, 2023 were $337,102, or 55% of revenue, compared to $226,949 for the three months ended March 31, 2022, or 41% of revenue. Cost of Revenue Cost of revenue was $337,102 for the three months ended March 31, 2023, compared to $226,949 for the three months ended March 31, 2022, an increase of $110,153, or 49%. Gross profit was $277,841 for the three months ended March 31, 2023, compared to $324,705 for the three months ended March 31, 2022, a decrease of $46,864, or 14%. Cost of revenue as a percentage of revenues was 55% for the three months ended March 31, 2023, compared to 41% for the three months ended March 31, 2022. General and Administrative General and administrative expenses were $683,029 for the three months ended March 31, 2023, compared to $370,357 for the three months ended March 31, 2022. In the three months ended March 31, 2023, general and administrative expenses consisted mainly of advertising of $175,870, consulting fees of $193,405, professional fees of $104,233, and salary and wages of $35,157. In the three months ended March 31, 2022, general and administrative expenses consisted mainly of advertising of $162,329, consulting fees of $97,750, professional fees of $43,870, and salary and wages of $35,489. 17 Other Income (Expense) Other income (expense) was $(173,968) for the three months ended March 31, 2023, compared to $48,664 for the three months ended March 31, 2022, a decrease of $222,632, or 457%. In the three months ended March 31, 2023, other income (expense) consisted of interest expenses, net of interest income of $(89,060) and change in fair value on derivative of $(84,908). In the three months ended March 31, 2022, other income (expense) consisted of interest expense, net of interest income of $(32,957) and change in fair value on derivative of $78,978. Change in fair value of derivative was related to the conversion of convertible debts into common stock shares . Net Income (Loss) Net income (loss) was ($579,157) and $3,011, or $0.00 and $0.00 per share, for the three months ended March 31, 2023 and 2021. Our net income (loss) various from period to period primarily because of the change in fair value on derivative. Liquidity and Capital Resources Introduction During the three months ended March 31, 2023, we were unable to generate sufficient revenues and had negative operating cash flows. Our cash on hand as of December 31, 2022 was $65,651, and as of March 31, 2023 was $213,204. The increase in cash on hand was primarily from our net cash provided by financing activities of $457,812, offset in part by our net cash used in operating activities of $(310,259). Our monthly cash flow burn rate for the three months ended March 31, 2023 was approximately $26,000. We have strong short and medium term cash needs. We anticipate that these needs will be satisfied through increased revenues and the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs. Our cash, current assets, total assets, current liabilities, and total liabilities as of March 31, 2023 and December 31, 2022, respectively, are as follows: March 31, December 31, Increase/ 2023 2022 (Decrease) Cash $ 213,204 $ 65,651 $ 147,553 Total Current Assets 2,002,808 1,990.572 12,235 Total Assets 2,825,422 2,781,118 44,304 Total Current and Total Liabilities 1,510,248 902,788 607,460 Our total current assets and total assets increased during the three months ended March 31, 2023 primarily as a result of our increase in cash of $147,553 and prepaid acquisition costs of $32,617, offset by our decrease in inventory of $164,922. Our accumulated deficit increased during the three months ended March 31, 2023 by $579,157 to $16,505,898. In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts. Cash Requirements Our cash on hand as of March 31, 2023 was $213,204. Based on our current level of revenues and monthly burn rate of approximately $26,000 per month, we will need to continue to fund operations by raising capital from the sale of our stock and debt financings. 18 Sources and Uses of Cash Operating Activities We had net cash used in operating activities of $(310,259) for the three months ended March 31, 2023, compared to $(108,408) for the three months ended March 31, 2022. We use our cash for normal business operations. Our net cash used in operating activities for the three months ended March 31, 2023 consisted of our net loss of $579,157 plus our decrease in accounts receivable of $29,604, offset by our increase in inventory of $164,922, change in fair value on derivative liability of $84,908, and increase in accounts payable of $23,170. Our net cash used in operating activities for the three months ended March 31, 2022 consisted of our net gain of $3,011 plus our increase in accounts payable of $68,153, offset by our change in fair value on derivative liability of $(78,978), decrease in accrue liabilities of $(54,767), and decrease in inventory of $(50,558). Investing Activities We had zero cash flows provided by investing activities for the three months ended March 31, 2023, compared to $(7,987) for the three months ended March 31, 2023. Financing Activities Our net cash provided by financing activities for the three months ended March 31, 2023 was $457,812, compared to $(13,417) for the three months ended March 31, 2022. Our net cash provided by financing activities consisted of proceeds from the issuance of convertible debt of $167,819, proceeds from issuance of note payable of $136,705, payments for repayment of convertible debt of $110,535, and payments for repayment of notes payable of $75,370, offset by expenses for the purchase of Hyperion and OP&M of $(32,617). ITEM 3 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, we are not required to provide the information required by this Item.