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 29 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 Nine months Ended September 30, 2023 and 2022 Introduction We had revenues of $613,541 and $1,816,968 for the three and nine months ended September 30, 2023, compared to $499,653 and $1,432,850 for the three and nine months ended September 30, 2022. Our cost of revenue for the three and nine months ended September 30, 2023 were $120,309 and $760,825, compared to $68,551 and $402,788 for the three and nine months ended September 30, 2022. Our operating expenses were $754,026 and $2,977,998 for the three and nine months ended September 30, 2023, compared to $485,568 and $1,744,326 for the three and nine months ended September 30, 2022. Our operating expenses consisted entirely of general and administrative expenses. Our net loss was $247,924 and $2,094,316 for the three and nine months ended September 30, 2023, compared to $170,223 and $1,026,538 for the three and nine months ended September 30, 2022. Revenues and Net Operating Loss Our revenue, operating expenses, other income (expense), and net loss for the three and nine months ended September 30, 2023 and 2022 were as follows: Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2023 2022 2023 2022 Revenue $ 613,541 $ 499,653 1,816,968 1,432,850 Cost of Revenue 120,309 68,551 760,825 402.788 Gross Profit 493,233 431,102 1,056,143 1,030,062 Operating expenses: General and administrative 754,026 485,568 2,977,998 1,744,326 Total operating expenses 754,026 485,568 2,977,998 1,744,326 Other income (expense) Interest expenses, net of interest income (24,502) (11,336) (138,774) (68,657) Change in fair value on derivative 37,371 (104,421) (33,687) (246,260) Gain on sale of asset - - - 2,643 Total other income (expense) 12,869 (115,757) (172,461) (312,274) Net income (loss) $ (247,924) $ (170,223) (2,094,316) (1,026,538) 30 Revenues We had revenues of $613,541 and $1,816,968 for the three and nine months ended September 30, 2023, compared to $499,653 and $1,432,850 for the three and nine months ended September 30, 2022, an increase of $113,889, or 23%, and $384,118, or 27%, respectively. Revenues for the three and six months ended June 30, 2023 were $588,484 and $1,203,427, respectively. 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 nine months ended September 30, 2023 were $120,309 and $760,825, compared to $68,551 and $402,788 for the three and nine months ended September 30, 2022, an increase of $51,758, or 76%, and $358,037, or 89%, respectively. Gross profit for the three and nine months ended September 30, 2023 was $493,233 and $1,056,143, compared to $431,102 and $1,030,062 for the three and nine months ended September 30, 2022, an increase of $62,131, or 14%, and $26,081, or 3%, respectively. Cost of revenue as a percentage of revenues was 20% and 42% for the three and nine months ended September 30, 2023, compared to 14% and 28% for the three and nine months ended September 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 $754,026 and $2,977,998 for the three and nine months ended September 30, 2023, compared to $485,568 and $1,744,326 for the three and nine months ended September 30, 2022, an increase of $268,458, or 55%, and $1,233,672, or 71%, respectively. In the three months ended September 30, 2023, general and administrative expenses consisted mainly of consulting fees of $140,593, stock based compensation $125,614, advertising of $271,978, accounting and legal fees of $86,948, and salary and wages of $79,520. In the three months ended September 30, 2022, general and administrative expenses consisted mainly of advertising of $ 139,563, consulting fees of $160,465, professional fees of $23,773, and salary and wages of $37,428. During the three months ended September 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 potential acquisition have been included. Other Income (Expense) Other income (expense) was $12,869 and $(172,461) for the three and nine months ended September 30, 2023, compared to $(115,757) and $(312,274) for the three and nine months ended September 30, 2022, an increase of $128,626, or 111%, and a decrease of $139,813, or 45%, respectively. In the three months ended September 30, 2023, other income (expense) consisted of interest expenses, net of interest income of $(24,502) and change in fair value on derivative of $37,371. In the three months ended September 30, 2022, other income (expense) consisted of interest expense, net of interest income of $(138,774) and change in fair value on derivative of $(333,687). Change in fair value of derivative was related to the conversion of convertible debts into common stock shares . 31 Net Income (Loss) Net income (loss) was $(247,924) and $(2,094,316), or $0.00 and $0.01 per share, for the three and nine months ended September 30, 2023, compared to $(170,223) and $(1,026,538), or $0.00 and $0.00 per share, for the three and nine months ended September 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 nine months ended September 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 and as of September 30, 2023 was $46,391. Our monthly cash flow burn rate for the nine months ended September 30, 2023 was approximately $39,000. 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 September 30, 2023 and December 31, 2022, respectively, are as follows: September 30, December 31, Increase/ 2023 2022 (Decrease) Cash $ 46,391 $ 65,651 $ (19,260) Total Current Assets 1,904,671 2,043,587 (138,916) Total Assets 2,640,556 2,781,118 (140,562) Total Current and Total Liabilities 1,616,071 902,788 713,283 Our total current assets and total assets decreased slightly during the nine months ended September 30, 2023 primarily as a result of our decrease in inventory of $291,553, offset in part by an increase in our offering costs of $135,202 and right of use asset of $86,279. Our accumulated deficit increased during the nine months ended September 30, 2023 by $2,094,316 to $18,021,058. 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 September 30, 2023 was $46,391. Based on our current level of revenues and monthly burn rate of approximately $39,000 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 $471,373 for the nine months ended September 30, 2023, compared to $243,658 for the nine months ended September 30, 2022. We 32 use our cash for normal business operations. Our net cash used in operating activities for the nine months ended September 30, 2023 consisted of our net loss of $2,094,316, offset in part by our warrants issued for services of $1,275,471 and increase in inventory of $291,553. Our net cash used in operating activities for the nine months ended September 30, 2022 consisted of our net loss of $1,026,538, offset in part by our warrants issued for services of $402,100 and change in fair value on derivative liability of $246,260. Investing Activities We had zero cash flows provided by investing activities for the nine months ended September 30, 2023, compared to $(5,344) for the nine months ended September 30, 2022. Financing Activities Our net cash provided by financing activities for the nine months ended September 30, 2023 was $452,113, compared to $100,788 for the nine months ended September 30, 2022. Our net cash provided by financing activities consisted of proceeds from the issuance of notes payable of $627,000 and proceeds from the issuance of convertible debt of $350,000, offset by repayment of notes payable of $530,740 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.