HEALTHY EXTRACTS INC. 10-K

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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, 2023 and 2022 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, 2023, we have incurred accumulated net losses of $18,399,673. 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 Years Ended December 31, 2023 and 2022 Introduction We had revenues of $2,485,866 for the year ended December 31, 2023, as compared to $2,251,469 for the year ended December 31, 2022, an increase of $234,397, or 10%. Our cost of revenue was $864,055 for the year ended December 31, 2023, as compared to $879,951 for the year ended December 31, 2022, a decrease of $15,896, or 2%. 44 Revenues and Net Operating Loss Our revenues, operating expenses, and net operating loss for the years ended December 31, 2023 and 2022 were as follows: Year Ended December 31, 2023 Year Ended December 31, 2022 Increase/ (Decrease) Revenue $ 2,485,866 $ 2,251,469 $ 234,397 Cost of Revenue 864,055 879,951 (15,896) Operating expenses: General and administrative 3,865,654 2,283,107 1,582,546 Total operating expenses 3,865,654 2,283,107 1,582,546 Net operating loss Other income/(expense) (229,088) (71,531) 157,557 Net gain/(loss) $ (2,472,931) $ (983,121) $ 1,489,810 Revenues We had revenues of $2,485,866 for the year ended December 31, 2023, as compared to $2,251,469 for the year ended December 31, 2022, an increase of $234,397, or 10%. The increase in revenues was mainly due to our increased focus on the Amazon marketplace. Cost of Revenue Our cost of revenue was $864,055 for the year ended December 31, 2023, as compared to $879,951 for the year ended December 31, 2022, a decrease of $15,896, or 2%, and consisted of wholesale product costs and packaging. General and Administrative General and administrative expense was $3,865,654 and $2,283,107 for the years ended December 31, 2023 and 2022, an increase of $1,582,546, or 69%. The increase was related to stock compensation expenses. In the year ended December 31, 2023, general and administrative expenses consisted mainly of stock based compensation of $1,494,191, consulting fees of $592,093, accounting and legal fees of $258,187 and salaries and wages of $198,554. In the year ended December 31, 2022, general and administrative expenses consisted mainly of consulting fees of $608,819, broker fees of $383,938, selling expenses of $595,318, accounting and legal fees of $145,062, and salaries and wages of $145,589. Net Operating Gain/Loss As a result of the items discussed above, our net operating loss was $2,243,843 and $911,590 for the years ended December 31, 2023 and 2022, respectively, an increase of $1,332,253, or 146%. 45 Other Income and Expense Other income (expense) was $(229,088) and $(71,531) for the years ended December 31, 2023 and 2022, respectively, an increase of $157,557, or 220%. For the year ended December 31, 2023, our other income (expense) consisted of interest expenses, net of interest income of $(176,948) and change in fair value on derivative of $(52,140). For the year ended December 31, 2022, our other income (expense) consisted of interest expenses, net of interest income of $(64,690) and change in fair value on derivative of $(9,484), offset by a gain on the sale of asset of $2,643. Net Gain/(Loss) Our net gain (loss) for the year ended December 31, 2023 was $(2,472,931), or $0.85 per share, and our net gain (loss) for the ended December 31, 2022 was $(983,121), or $(0.34) per share, an increase of $1,489,810, or 152%. Liquidity and Capital Resources Introduction During the years ended December 31, 2023 and 2022, we had negative operating cash flows. Our cash on hand as of December 31, 2023 was $19,441. Our monthly cash flow burn rate in 2023 was approximately $35,000. Although we have strong short term cash needs, as our operating expenses increase, we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through 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 December 31, 2023 and 2022 were as follows: December 31, 2023 December 31, 2022 Change Cash $ 19,441 $ 65,651 $ (46,210) Total Current Assets 1,899,678 2,043,587 (143,909) Total Assets 2,635,014 2,781,118 (146,104) Total Current Liabilities 1,680,424 902,788 777,636 Total Liabilities $ 1,680,424 $ 902,788 $ 777,636 Our cash decreased by $46,210 as of December 31, 2023 as compared to December 31, 2022. Our total current assets decreased by $143,909 because of our decrease in cash, as well as accounts receivable and inventory. Our total assets decreased by $146,104 for the same reasons. Our current and total liabilities increased by $777,636, from $902,788 as of December 31, 2022 to $1,680,424 as of December 31, 2023. Our total liabilities as of the year ended December 31, 2023 consisted primarily of convertible debt, net of discount of $608,601, notes payable of $361,093, and accrued liabilities of $215,069. 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. 46 Cash Requirements Our cash on hand as of December 31, 2022 was $19,441. Our monthly cash flow burn rate in 2023 was approximately $35,000. Although we have strong short term cash needs, as our operating expenses increase, we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs. Sources and Uses of Cash Operations Our net cash used in operating activities for the years ended December 31, 2023 and 2022 was $415,749 and $390,621, respectively, an increase of $25,128, or 6%. Our net cash used in operating activities for the year ended December 31, 2023 consisted primary of a net loss of $2,472,931, offset primarily by an adjustment for warrants issued for services of $1,639,191 and changes in inventory of $192,845. Our net cash used in operating activities for the year ended December 31, 2022 consisted of a net loss of $983,121 offset by an adjustment for warrants issued for services of $402,100, an increase in inventory of $138,838, and an increase in accounts payable of $54,048. Investments Our cash flow provided by (used in) investing activities for the years ended December 31, 2023 and 2022 was $zero and ($5,344), respectively. Financing Our net cash provided by financing activities for the years ended December 31, 2023 and 2022 was $369,539 and $239,518, respectively, an increase of $130,021, or 54%. The increase in 2023 was due primarily to proceeds from the issuance of notes payable of $713,283 and proceeds from the issuance of convertible debt of $362,963, offset by the repayment of notes payable of $657,560 and repayment of convertible debt of $110,535. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 2 to our consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material. Management considers the following policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. 47 Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments. Recent Accounting Pronouncements Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a material effect on our financial statements. Inventory Inventories consist of health supplements held for sale in the ordinary course of business. The Company uses the weighted average cost method to value its inventories at the lower of cost and net realizable value. The components of inventory cost include raw materials, labor, and overhead. Net realizable value is determined using various assumptions with regard to excess or slow-moving inventories, expiration dates, current and future product demand, production planning, and market conditions. A change in any of these variables could result in an adjustment to inventory. An allowance for inventory was established in 2018 and is evaluated each quarter to determine if all items are still sellable due to expiration dates. As of December 31, 2023 and 2022, the total of inventory which was written off as an inventory allowance was $ 1,611,257 and $1,914,891. DECEMBER 31, DECEMBER 31, 2023 2022 Inventory Inventory Classes: Raw Materials $ 1,387,426 $ 1,483,764 Finished Goods 225,567 310,600 Work in process 13,290 24,764 Total inventory $ 1,626,283 $ 1,819,128 Revenue Recognition The Company applies Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers (ASC 606). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes all of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires us to identify distinct performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. When distinct performance obligations exist, the Company allocates the contract transaction price to each distinct performance obligation. The 48 standalone selling price is used to allocate the transaction price to the separate performance obligations. The Company recognizes revenue when, or as, the performance obligation is satisfied. Generally, revenues are recognized at the time of shipment to the customer with the price being fixed and determinable and collectability assured, provided title and risk of loss is transferred to the customer. Most of our shipping and handling costs are built into the transaction price, but if the customer asks for express shipping, the costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales. The Company’s subsidiary, BergaMet N.A., LLC, recognizes revenue from our main source – e-commerce revenue. Here is a list of all the sales channels which include the Company’s subsidiary website channel or any other selling channel like Amazon, doctors’ offices, and walk-in sales. All of our customer sales for Healthy Extracts Inc. and Ultimate Brain Nutrients, LLC are recognized as revenue under the subsidiary of BergaMet N.A., LLC. All three divisions of the Company sell plant-based nutraceuticals to our end using customers. The Company evaluates the criteria outlined in ASC 606-10-55, Principal versus Agent Considerations, currently we are the principal and have not engaged any agents at this time. Currently, we have not recognized any revenues under the agent considerations. Revenue is recognized when, or as, control of a promised merchandise or service is shipped to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring title of those products or services and are recorded net of and discounts or allowances. Shipping costs paid by the customer are included in revenue. Merchandise sales are fulfilled with inventory held in our warehouse in Henderson, NV. Therefore, the Company’s contracts have a single performance obligation (shipment of product). If the Company receives a request for refund on a customer obligation, the Company will refund the full cost of the obligation due to our money back guarantee. Revenue recognition is evaluated through the following five-step process: 1. identification of the contract with a customer; 2. identification off the performance obligations in the contract; 3. determination of the transaction price; 4. allocation of the transaction price to the performance obligations in the contract; and 5. recognition of revenue when or as a performance obligation is satisfied. These steps are met when an order is received, a price agreed and the product shipped or delivered to that customer. ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this Item. 49