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. Based on published research from third-party sources, we believe 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 and Six Months Ended June 30, 2023 and 2022 Introduction We had revenues of $588,484 and $1,203,427 for the three and six months ended June 30, 2023, compared to $469,812 and $933,198 for the three and six months ended June 30, 2022. Our cost of revenue for the three and six months ended June 30, 2023 were $303,415 and $640,517, compared to $195,556 and $334,238 for the three and six months ended June 30, 2022. Our operating expenses were $1,540,942 and $2,223,972 for the three and six months ended June 30, 2023, compared to $888,401 and $1,258,758 for the three and six months ended June 30, 2022. Our operating expenses consisted entirely of general and administrative expenses. 22 Our net loss was $1,267,235 and $1,846,392 for the three and six months ended June 30, 2023, compared to $859,326 and $856,315 for the three and six months ended June 30, 2022. Revenues and Net Operating Loss Our revenue, operating expenses, other income (expense), and net loss for the three and six months ended June 30, 2023 and 2022 were as follows: Three Months Ended Three Months Ended Six Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2023 2022 2023 2022 Revenue $ 588,484 $ 469,812 1,203,427 933,198 Cost of Revenue 303,415 195,556 640,517 334,238 Gross Profit 285,069 274,255 562,911 598,960 Operating expenses: General and administrative 1,540,942 888,401 2,223,972 1,258,758 Total operating expenses 1,540,942 888,401 2,223,972 1,258,758 Other income (expense) Interest expenses, net of interest income (25,212) (24,365) (114,272) (57,322) Change in fair value on derivative 13,850 (220,817) (71,058) (141,839) Gain on sale of asset - - - 2,643 Total other income (expense) (11,362) (245,181) (185,331) (196,517) Net income (loss) $ (1,267,235) $ (859,326) (1,846,392) (856,315) Revenues We had revenues of $588,484 and $1,203,427 for the three and six months ended June 30, 2023, compared to $469,812 and $933,198 for the three and six months ended June 30, 2022, an increase of $118,672, or 25%, and $270,230, or 29%, respectively. Revenues for the three months ended December 31, 2022 were $583,287. We expect strong growth to increase as our direct consumer sales and marketing efforts continue to perform. Cost of Revenue Our cost of revenue for the three and six months ended June 30, 2023 were $303,415 and $640,517, compared to $195,556 and $334,238 for the three and six months ended June 30, 2022, an increase of $107,859, or 55%, and $306,279, or 92%, respectively. Gross profit for the three and six months ended June 30, 2023 was $285,069 and $562,911, compared to $274,255 and $598,960 for the three and six months ended June, 30, 2022, an increase of $10,814, or 4%, and a decrease of $36,049, or 6%, respectively. Cost of revenue as a percentage of revenues was 52% and 53% for the three and six months ended June 30, 2023, compared to 42% and 36% for the three and six months ended June 30, 2022. Cost of revenue was higher in 2023 compared to 2022 because of higher material and shipping costs. General and Administrative Our general and administrative expenses were $1,540,942 and $2,223,972 for the three and six months ended June 30, 2023, compared to $888,401 and $1,258,758 for the three and six months ended June 30, 2022, an increase of $652,541, or 73%, and $965,214, or 77%, respectively. In the three months ended June 30, 2023, general and administrative expenses consisted mainly of consulting fees of $766,405, stock based compensation $432,047, advertising of $168,148, accounting and legal fees of $30,883, and salary and wages of $36,813. In the three months ended June 30, 2022, general and administrative expenses consisted mainly of advertising of $149,690, consulting fees of $133,200, professional fees of $28,123, and salary and wages of $36,388. During the three months ended June 30, 2023, part of the increase in costs were due to a catch up of stock compensation that occurred. Additionally, some of the incremental costs of the Company’s uplist have not been deferred and have been included. 23 Other Income (Expense) Other income (expense) was $(11,362) and $(185,331) for the three and six months ended June 30, 2023, compared to $(245,181) and $(196,517) for the three and six months ended June 30, 2022, a decrease of $233,819, or 95%, and $11,186, or 6%, respectively. In the six months ended June 30, 2023, other income (expense) consisted of interest expenses, net of interest income of $(25,212) and change in fair value on derivative of $13,850. In the three months ended June 30, 2022, other income (expense) consisted of interest expense, net of interest income of $(24,365) and change in fair value on derivative of $(220,817). 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 $(1,267,235) and $(1,846,392), or $0.00 and $0.01 per share, for the three and six months ended June 30, 2023, compared to $(859,326) and $(856,315), or $0.00 and $0.00 per share, for the three and six months ended June 30, 2022. Our net income (loss) varies from period to period primarily because of the change in fair value on derivative and our increase in general and administrative expenses. Liquidity and Capital Resources Introduction During the three and six months ended June 30, 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, as of March 31, 2023 was $213,204, and as of June 30, 2023 was $92,501. The increase in cash on hand at March 31, 2023 was primarily from our net cash provided by financing activities. Our monthly cash flow burn rate for the six months ended June 30, 2023 was approximately $67,250. 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 June 30, 2023 and December 31, 2022, respectively, are as follows: June 30, December 31, Increase/ 2023 2022 (Decrease) Cash $ 92,501 $ 65,651 $ 26,850 Total Current Assets 1,925,780 2,043,587 (117,807) Total Assets 2,662,214 2,781,118 (118,904) Total Current and Total Liabilities 1,481,418 902,788 578,631 Our total current assets and total assets decreased slightly during the six months ended June 30, 2023 primarily as a result of our decrease in inventory of $354,503, offset in part by our increase in right of use asset and prepaid acquisition costs. Our accumulated deficit increased during the six months ended June 30, 2023 by $1,846,392 to $17,773,134. 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 June 30, 2023 was $92,501. Based on our current level of revenues and monthly burn rate of approximately $67,250 per month, we will need to continue to fund operations by raising capital from the sale of our stock and debt financings. Sources and Uses of Cash Operating Activities We had net cash used in operating activities of $403,493 for the six months ended June 30, 2023, compared to $157,319 for the six months ended June 30, 2022. We use our cash for normal business operations. Our net cash used in 24 operating activities for the six months ended June 30, 2023 consisted of our net loss of $1,846,392, offset in part by our warrants issued for services of $1,148,857, and increase in inventory of $354,503. Our net cash used in operating activities for the three months ended June 30, 2022 consisted of our net loss of $856,315, offset in part by our warrants issued for services of $422,300, an increase in accounts payable of $76,874, and an increase in accounts receivable of $33,148. Investing Activities We had zero cash flows provided by investing activities for the six months ended June 30, 2023, compared to $(5,344) for the six months ended June 30, 2022. Financing Activities Our net cash provided by financing activities for the six months ended June 30, 2023 was $430,342, compared to $99,970 for the six months ended June 30, 2022. Our net cash provided by financing activities consisted of proceeds from the issuance of notes payable of $431,000, proceeds from the issuance of convertible debt of $350,000, and loan origination fees of $68,888, offset by repayment of notes payable of $309,011 and repayment of convertible debt of $110,535. 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.