Item 7. Management’s Discussion and Analysis
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking
statements
The
following discussion of the Company’s historical performance and financial condition should be read together with the consolidated
financial statements and related notes in “ Item 8. Financial Statements and Supplemental Data ” of this Report. This discussion
contains forward-looking statements based on the views and beliefs of our management, as well as assumptions and estimates made by our
management. These statements by their nature are subject to risks and uncertainties, and are influenced by various factors. As a consequence,
actual results may differ materially from those in the forward-looking statements. See “ Item 1A. Risk Factors ” of this Report
for the discussion of risk factors and see “ Cautionary Statement Regarding Forward-Looking Statements ” for information on
the forward-looking statements included below.
The
following discussion is based upon our consolidated financial statements included elsewhere in this Report, which have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies.
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Introduction
Our
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“ MD&A ”) is provided
in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial
condition, and cash flows. MD&A is organized as follows:
●
Key
Performance Indicators. Indicators describing our performance for the periods presented.
●
Plan
of Operations. A description of our plan of operations for the next 12 months including required funding.
●
Results
of Operations. An analysis of our financial results comparing the years ended December 31, 2024 and 2023.
●
Liquidity
and Capital Resources. An analysis of changes in our balance sheets and cash flows and discussion of our financial condition.
●
Critical
Accounting Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and
judgments incorporated in our reported financial results and forecasts.
See
also “ Glossary of Industry Terms ” above for information on certain of the terms used below.
Plan
of Operations
We
had working capital deficit of $1.3 million as of December 31, 2024. With our current cash on hand, expected revenues, and based on our
current average monthly expenses, we currently anticipate the need for additional funding in order to continue our operations at their
current levels and to pay the costs associated with being a public company for the next 12 months. We may also require additional funding
in the future to expand or complete acquisitions.
Our
plan for the next 12 months is to continue using the same marketing and management strategies and continue providing a quality product
with excellent customer service while also seeking to expand our operations organically or through acquisitions as funding and opportunities
arise. As our business continues to grow, customer feedback will be integral in making small adjustments to improve products and our
overall customer experience.
We
are headquartered in Dallas, Texas and intend to grow our business both organically and through identifying acquisition targets over
the next 12 months in the technology, health and wellness space, funding permitting. Specifically, we plan to continue to make additional
and ongoing technology enhancements to our platform, further develop, market and advertise additional men’s health and wellness
related products on our telemedicine platform, and identify strategic acquisitions that complement our vision. As these opportunities
arise, we will determine the best method for financing such acquisitions and growth which may include the issuance of debt instruments,
common stock, preferred stock, or a combination thereof, all of which may result in significant dilution to existing shareholders.
We
may seek additional funding in the future through equity financings, debt financings or other capital sources, including collaborations
with other companies or other strategic transactions. We may not be able to obtain financing on acceptable terms or at all. The terms
of any financing may adversely affect the holdings or rights of our shareholders and/or create significant dilution. Although we continue
to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to
fund continued operations, if at all.
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Strategic
Alternatives
In
October 2024, the Board of Directors of the Company initiated a process to evaluate potential strategic alternatives with the intent
to unlock and maximize shareholder value, including but not limited to potential mergers, acquisitions, divestitures and business combinations,
acquisitions of businesses, entry into new lines of business, business expansions, joint ventures, and other key strategic transactions
outside the ordinary course of the Company’s current business. This initiative is being be undertaken in parallel with the Company’s
current business operations. In consultation with financial and legal advisors, the Company intends to consider a broad range of strategic,
operational and financial alternatives, and is exploring a full range of options. There is no assurance that the strategic review process
will result in the approval or completion of any specific transaction or outcome. The Company has not established a timeline for completion
of the review process and does not intend to comment further unless and until its Board of Directors has approved a definitive course
of action, or it is determined that other disclosure is necessary or appropriate.
Results
of Operations
We
had revenues of $615,873 for the year ended December 31, 2024, compared to revenues of $731,493 for the year ended December 31, 2023,
which decrease was mainly due to issued involving the transition and migration from our original telemedicine and software platform to
our new telehealth platform.
Cost
of revenues was $93,296 and $154,900 for the years ended December 31, 2024 and 2023, respectively, which decrease was due to and in correlation
with our decreased revenues for the same period.
Cost
of revenues – related party, representing amounts paid to Epiq Scripts, our related party pharmacy for pharmacy services, totaled
$142,613 and $145,092 for the years ended December 31, 2024 and 2023, which slight decrease in the current period was due to our decreased
revenues for the same period.
During 2024, we further developed our website capabilities and prepared
for our re-launch of our website. Travel expenses of $199,822 and $301 170, for the years ended December 31, 2024 and 2023, respectively,
related to cost associated with meeting with vendors, travel for promotional events and other travel related expenses. We had a loss on
sale of assets of $18,387 for the year ended December 31, 2024, compared to $0 for the year ended December 31, 2023. On May 15, 2024,
the Company disposed of $119,819 of equipment to Epiq Scripts, a related party, in an arm’s length transaction. The equipment was
sold for $65,000, realizing a loss on sale of assets of $18,387.
Advertising
and marketing expenses in the amount of $1,478,663 and $2,097,505, for the years ended December 31, 2024 and 2023, respectively, related
to digital marketing and advertising expenses, various branding initiatives and promotional events. The decrease was related to a reduction
in advertising and marketing, while we develop our internal software front and backend development of our website re-launch.;
Salaries and benefits were $1,063,781 and $977,890 for the years ended
December 31, 2024 and 2023, respectively, which increase was due to the engagement of new employees as we ramped up our internal operations
in the current period.
Investor relations expenses were $453,749 and $1,100,465, for the years
ended December 31, 2024 and 2023, respectively, related to awareness of our stock to the public market. The decrease was due to lowering
costs after our initial IPO in 2023.
Stock-based
compensation totaled $2,355,193 and $2,155,114 (including a total of $2,106,265 and $1,530,659 attributed to stock issued for services
and $248,682 and $624,463 attributed to stock-based compensation from issuances of options and warrants) for the years ended December
31, 2024 and 2023, respectively, which increase was due to us having issued less stock for compensation during the 2023 period.
We had $13,700 and $0 of interest expense for the year ended December 31,
2024 and 2023 respectively, compared to interest income of $0 and $6,473 for the year ended December 31, 2024 and 2023, respectively,
which increase in interest expense was due to interest accrued on certain notes payable during the 2024 period and an increase
in imputed interest income was related to cancelation of imputed interest from repayment of related party notes payable during 2023.
We had $721,533 and $0 of amortization expense for the year ended December
31, 2024 and 2023, respectively, in connection with the amortization of our patents.
We had a net loss of $8,707,226 for the year ended December 31, 2024, compared
to a net loss of $9,212,417 for the year ended December 31, 2023, a decrease in net loss of $505,191 from the prior period due to less
overall expenses required to operate the business during the 2024 period.
Liquidity
and Capital Resources
As of December 31, 2024, we had $58,653 of cash on-hand, compared to $739,006
of cash on-hand of December 31, 2023. We also had $16,942 of security deposit, representing the security deposit on our leased office
space and $59,493 of right of use asset in connection with our office space lease. $2,806 of property and equipment, net, consisting of
computers, office and custom product packaging equipment. and $15,232,617 of patents, net of amortization, which we acquired pursuant
to the Patent Purchase Agreements described in greater detail above under “Item 1. Business— Material Agreements—Patent Purchase Agreements .”
Cash decreased mainly due to funds used for general operating expenses.
As of December 31, 2024, the Company had total current liabilities of $1,425,463,
consisting of $837,501 of accounts payable and accrued liabilities, $64,962 of right-of-use liability, operating lease, notes payable
of $150,000 (discussed below), and $373,000 of other liabilities related to amounts owed to Intramont in connection with the purchase
of intellectual property.
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As
of December 31, 2024, we had $16,092,044 in total assets, $1,425,463 in total liabilities, working capital deficit of $1.3 million and
a total accumulated deficit of $20,806,595.
We have mainly relied on related party loans, as well as funds raised through
the sale of securities, mainly through the private placement offerings, our IPO and our Follow On Offering, each discussed below, and
revenues generated from sales of our Pharmaceutical Products, to support our operations since inception. We have primarily used our available
cash to pay operating expenses. We do not have any material commitments for capital expenditures.
We have experienced recurring net losses since inception. We believe that
we will continue to incur substantial operating expenses in the foreseeable future as we continue to invest to market and sell our Pharmaceutical
Products and to attract customers, expand the product offerings and enhance technology and infrastructure. These efforts may prove more
expensive than we anticipate, and we may not succeed in generating commercial revenues or net income to offset these expenses. Accordingly,
we may not be able to achieve profitability, and we may incur significant losses for the foreseeable future. Our independent registered
public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of December 31, 2024. As of December
31, 2024, our current capital resources, combined with the net proceeds from the offering, are not expected to be sufficient for us to
fund operations for the next 12 months. We need to raise funding in addition to the funding raised in our IPO and Follow On Offering,
to support our operations in the future. We may also seek to acquire additional businesses or assets in the future, which may require
us to raise funding. We currently anticipate such funding being raised through the offering of debt or equity. Such additional financing,
if required, may not be available on favorable terms, if at all. If debt financing is available and obtained, our interest expense may
increase and we may be subject to the risk of default, depending on the terms of such financing. If equity financing is available and
obtained it may result in our shareholders experiencing significant dilution. If such financing is unavailable, we may be forced to curtail
our business plan, which may cause the value of our securities to decline in value. We currently have availability of approximately $23.8
million under the ELOC, which funding we may request from the Purchaser from time to time, subject to the terms thereof, and which funding,
if requested may cause dilution to existing shareholders. Additionally, we may receive funding upon the exercise of outstanding warrants
from time to time, which exercises may cause dilution to existing shareholders.
To support our existing operations or any future expansion of business,
including the ability to execute our growth strategy, we must have sufficient capital to continue to make investments and fund operations.
We have plans to pursue an aggressive growth strategy for the expansion of operations through marketing to attract new customers for our
Pharmaceutical Products.
Cash
Flows
Year ended
December 31,
2024
Year ended
December 31,
2023
Cash provided by (used in):
Operating activities
$ (4,863,776 )
$ (6,997,375 )
Investing activities
65,000
(3,519 )
Financing activities
4,128,268
7,057,040
Net increase (decrease) in cash
$ (670,508 )
$ 56,146
Net cash used in operating activities was $4,863,776 for the year ended
December 31, 2024, which was mainly due to $8,707,226 of net loss, offset by $2,106,265 of common stock issued for services, $248,682
of options vested for stock-based compensation and $721,533 for amortization of intangible assets.
Net
cash used in operating activities was $6,997,375 for the year ended December 31, 2023, which was mainly due to $9,212,417 of net loss,
offset by $1,530,651 of common stock issued for services, and $624,563 of options vested for stock-based compensation.
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Net
cash provided by investing activities was $65,000 for the year ended December 31, 2024, compared to $3,519 used in investing activities
for the year ended December 31, 2023, which were for the sale of equipment and the purchase of equipment, respectively.
Net
cash provided by financing activities was $4,128,268 for the year ended December 31, 2024, which was mainly due to $2,650,000 of funds
raised from the sale of preferred stock for cash, $1,328,268 from the sale of common stock for cash and $150,000 in notes payable.
Net
cash provided by financing activities was $7,057,040 for the year ended December 31, 2023, which was mainly due to $6,200,000 of funds
raised in the IPO and Follow On Funding and $1,024,500 in proceeds from the exercise of warrants, offset by repayments of notes payable
of $78,260 and repayments of related party notes payable of $89,200.
Related
Party Loans and Advances
The
Company has previously received various related party loans and advances which are discussed in greater detail below under “ Item
13. Certain Relationships and Related Transactions, and Director Independence—Related Party Transactions—Related Party Loans
and Advances ”.
Convertible
Debt
On
October 18, 2024, the Company entered into a $150,000 promissory note (the “Cohen Note”) with Cohen Enterprises, Inc. to
evidence, document and memorialize (a) $50,000 loaned to the Company from Cohen Enterprises on March 18, 2024, and (b) $100,000 loaned
to the Company from Cohen Enterprises on April 1, 2024, which amounts previously accrued no interest and were due on demand. The Cohen
Note in the principal amount of $150,000, accrues interest at the rate of 8% per annum (12% upon the occurrence of an event of default),
with interest accruing monthly in arrears and payable at maturity or earlier acceleration. The Cohen Note is due upon the earlier of
January 2, 2025, and upon acceleration by Cohen Enterprises pursuant to the terms thereof upon default, or automatically upon certain
bankruptcy events occurring. The Cohen Note may be prepaid without penalty, is unsecured and contains customary representations and covenants
of the Company. The note includes customary events of default, and allows Cohen Enterprises the right to accelerate the amount due under
the note upon the occurrence of such event of default, subject to certain cure rights.
On
December 13, 2024, Cohen Enterprises entered into a Note Purchase Agreement with Mill End Capital Ltd. (“ Mill End ”
and the “ Note Purchase ”). Pursuant to the Note Purchase, Mill End purchased all of Cohen Enterprises rights under
the Cohen Note, issued by the Company as borrower, to Cohen Enterprises, as lender, in the original amount of $150,000, in consideration
for $150,000. The terms of the note remain unchanged, however, the note is no longer considered a related party note.
On
January 15, 2025, the Company entered into a Debt Conversion Agreement (the “ Debt Conversion Agreement ”) with Mill
End. Pursuant to the Debt Conversion Agreement, the Company and Mill End agreed to convert the entire $150,000 owed by the Company
under the Promissory Note (the “ Converted Note ”), into an aggregate of 100,000 shares of restricted common stock of
the Company (the “Debt Conversion Shares”), based on an agreed conversion price of $1.50 per share.
Pursuant
to the Debt Conversion Agreement, which included customary representations and warranties of the parties, Mill End agreed that the shares
of common stock issuable in connection therewith were in full and complete satisfaction of amounts owed under the Converted Note.
On
January 27, 2025, the Company entered into a First Amendment to Payment Plan Letter Agreement (the “ 1 st Amendment ”)
with MAAB Global Ltd. (“ MAAB ”). MAAB had previously purchased rights to $500,000 owed by the Company to Barstool Sports,
Inc. (“ Barstool ” and the “ Debt ”) on January 10, 2025, which amount was non-interest bearing, and
due pursuant to the terms of a Payment Plan Letter Agreement entered into between Barstool and the Company on August 27, 2024.
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Pursuant
to the 1 st Amendment, the Company and MAAB agreed to amend the terms of the Debt to allow MAAB the right, exercisable
at any time, to convert the $500,000 of Debt into shares of the Company’s common stock at a conversion price of $1.50 per share.
As
a result of the conversion of the Promissory Note, pursuant to the terms of the Debt Conversion Agreement, at a conversion price of $1.50
per share, the exercise price of those certain common stock warrants issued by the Company in connection with its December 2025 Series
B Convertible Preferred Stock offering (warrants to purchase up to 1,650,000 shares of common stock with exercise prices from between
$2.59 and $2.71 per share); and those certain common stock warrants to purchase 320,000 shares of common stock granted to the Purchaser
in connection with the SPA (with an exercise price of $2.53 per share), were automatically re-priced pursuant to the anti-dilutive terms
thereof, to have an exercise price equal to the Conversion Price of the Debt Conversion Agreement, $1.50 per share, effective upon the
date of the Debt Conversion Agreement.
Additionally,
as a result of the conversion of the Promissory Note, pursuant to the terms of the Debt Conversion Agreement, at a conversion price of
$1.50 per share, the conversion price of the Company’s Series B Preferred Stock was automatically adjusted, pursuant to the designation
of such Series B Preferred Stock, to have a conversion price of $2.25 per share, the floor price thereunder, effective upon the date
of the Debt Conversion Agreement.
Funding
Arrangements
2022
Private Placement
In
August 2022, the Company initiated a private placement of up to $2 million of units to accredited investors, with each unit consisting
of one-fifteenth of one share of common stock and a warrant to purchase one-fifteenth of one share of common stock, at a price of $1.00
per unit. The warrants have a five-year term (from each closing date that units were sold) and an exercise price of $15.00 per whole
share. If at any time after the six-month anniversary of the issuance date, there is no effective registration statement registering,
or no current prospectus available for the resale of the shares of common stock issuable upon exercise the warrants, the holder of the
warrants may elect a cashless exercise of the warrants. Boustead Securities, LLC, the representative of the underwriters in our initial
public offering (“ IPO ”), served as the placement agent in connection with the private placement. In total, we sold
an aggregate of 2,000,000 units for $2,000,000 to 23 accredited investors between August 16, 2022 and December 22, 2022, the end date
of the offering.
Initial
Public Offering
On
March 23, 2023, we consummated our IPO of 83,334 shares of common stock at a price to the public of $60.00 per share, pursuant to that
certain Underwriting Agreement, dated March 20, 2023 (the “ Underwriting Agreement ”), between the Company and Boustead
Securities, LLC, as representative (“ Boustead ”) of several underwriters named in the Underwriting Agreement. The Company
received gross proceeds of approximately $5 million, before deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company upon the sale of the shares. In connection with the IPO, the Company also granted Boustead a 45-day option to
purchase up to an additional 12,500 shares of its common stock, which expired unexercised.
At
the same time, and as part of the same registration statement, but pursuant to a separate prospectus (the “ Resale Prospectus ”)
the Company registered the sale of 317,667 shares of common stock, including 133,334 shares of common stock issuable upon the exercise
of outstanding warrants to purchase shares of common stock with an exercise price of $15.00 per share, of which warrants to purchase
65,033 shares of common stock remain outstanding, and unexercised, as of the date of this Report.
As
additional consideration in connection with the IPO, we granted Boustead, the representative of the underwriters named in the Underwriting
Agreement for the IPO, warrants to purchase 5,834 shares of common stock with an exercise price of $75.00 per share, which are exercisable
beginning six months after the effective date of the registration statement filed in connection with the IPO (March 20, 2023) and expire
five years after such effectiveness date.
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Follow
On Offering
On
December 15, 2023, we entered into another underwriting agreement (the “ Underwriting Agreement ”) with Boustead, as
representative of the underwriters named on Schedule 1 thereto (the “ Underwriters ”), relating to a public
offering of 266,667 shares of the Company’s common stock to the Underwriters at a purchase price to the public of $4.50 per share
and also granted to the Underwriters a 45-day option to purchase up to 40,000 additional shares of its common stock, solely to cover
over-allotments, if any, at the public offering price less the underwriting discounts (the “ Follow On Offering ”).
The
Follow On Offering closed on December 19, 2023. As a result, the Company sold 266,667 shares of its common stock for total gross proceeds
of $1.2 million.
The
net proceeds to the Company from the Offering, after deducting the underwriting discounts and commissions and offering expenses, were
approximately $1.0 million. The Company used the net proceeds from the Offering to finance the marketing and operational expenses associated
with its Mango ED and GROW hair growth products, to hire additional personnel to build organizational talent, to develop and maintain
software, and for working capital and other general corporate purposes.
On
December 19, 2023, pursuant to the Underwriting Agreement, the Company issued a common stock purchase warrant to Boustead for the purchase
of 18,667 shares of common stock at an exercise price of $5.70, subject to adjustments. The warrant is exercisable at any time and from
time to time, in whole or in part, until December 14, 2029, and may be exercised on a cashless basis.
On
January 18, 2024, the Underwriters notified the Company that they were exercising their over-allotment option in full to purchase an
additional 40,000 shares of common stock, which sale closed on January 22, 2024. The net proceeds to the Company from the sale of the
40,000 shares of common stock, after deducting underwriting discounts and expenses, was approximately $160,000. Inclusive of the full
exercise of the over-allotment option, a total of 306,667 shares of common stock were issued and sold in the Offering.
On
January 22, 2024, pursuant to the Underwriting Agreement, the Company also issued a common stock purchase warrant to Boustead for the
purchase of 2,800 shares of common stock at an exercise price of $5.625, subject to adjustments. The warrant is exercisable at any time
and from time to time, in whole or in part, until December 14, 2028, and may be exercised on a cashless basis.
April
2024 Securities Purchase Agreement
Effective
on April 5, 2024 (the “ Initial Closing Date ”), we agreed to definitive terms on a Securities Purchase Agreement dated
April 4, 2024 (as amended from time to time, the “ SPA ”), with an institutional accredited investor (the “ Purchaser ”),
pursuant to which the Company agreed to sell to the Purchaser, and the Purchaser agreed to purchase from the Company, 1,500 shares of
Series B Convertible Preferred Stock (“ Series B Preferred Stock ”) of the Company for $1,650,000, and warrants (the
“ Initial Warrants ”), to purchase up to 220,000 shares of common stock, of the Company, for an aggregate purchase price
of $1,500,000. On the Initial Closing Date, the Company sold the Purchaser 500 shares of Series B Preferred Stock (the “Initial
Closing Shares”) and the Initial Warrants, for an aggregate of $500,000. The Initial Warrants have a term of five years.
On
April 26, 2024, the Company partially closed a planned second closing under the SPA (the “Second Closing”), the Purchaser
paid $150,000 to the Company, and in consideration therefore the Company issued the Purchaser 150 shares of Series B Preferred Stock.
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On
May 17, 2024, the Company closed the remaining portion of the Second Closing, the Purchaser paid $100,000 to the Company, and in consideration
therefore the Company issued the Purchaser 100 shares of Series B Preferred Stock.
On
April 28, 2024, the Company and the Purchaser entered into an Omnibus Amendment Agreement No. 1 (the “ Amendment ”),
which amended the SPA to, adjust the closings which were to take place under the SPA as follows:
#
Initial Stated Value of
Preferred Stock to be issued
by installment
Warrants to be issued
Closing Date
Aggregate Purchase
Price by
installment
(USD)
Initial Closing
$ 550,000
220,000
Initial Closing Date
$ 500,000
Second Closing
$ 275,000
On or before June 30, 2024 (the “ Second Closing Date ”)
$ 250,000
Third Closing
$ 825,000
100,000
On or before June 30, 2024
$ 750,000
Fourth Closing
$ 1,100,000
Such date as is no later than 180 days (the “ Fourth Closing Date ”) after the shares of Common Stock issuable in respect of the Series B Preferred Stock sold in each of the Initial Closing, Second Closing, the Third Closing, and the Fourth Closing have been registered under the Securities Act, subject to any limitations pursuant to Rule 415 (as defined in the Registration Rights Agreement)
$ 1,000,000.00
Total
$ 2,750,000
320,000
$ 2,500,000
On
April 26, 2024, the Company partially closed the Second Closing. The Purchaser paid $150,000 to the Company and in consideration therefore
the Company issued the Purchaser 150 shares of Series B Preferred Stock.
On
May 17, 2024, the Company closed the remaining portion of the Second Closing. The Purchaser paid $100,000 to the Company and in consideration
therefore the Company issued the Purchaser 100 shares of Series B Preferred Stock.
On
May 21, 2024, the Purchaser converted 50 shares of Series B Preferred Stock into 18,063 shares of Common Stock of the Company, pursuant
to the terms of such Series B Preferred Stock.
On
May 22, 2024, the Purchaser converted 155 shares of Series B Preferred Stock into 55,994 shares of Common Stock of the Company, pursuant
to the terms of such Series B Preferred Stock.
On
May 24, 2024, the Purchaser converted 150 shares of Series B Preferred Stock into 54,188 shares of Common Stock of the Company, pursuant
to the terms of such Series B Preferred Stock.
On
July 9, 2024, the Purchaser converted 135 shares of Series B Preferred Stock into 35,779 shares of Common Stock of the Company, pursuant
to the terms of such Series B Preferred Stock.
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On
July 25, 2024, the Purchaser converted 10 shares of Series B Preferred Stock into 2,245 shares of Common
Stock of the Company, pursuant to the terms of such Series B Preferred Stock.
On
June 28, 2024 (the “ Third Closing Date ”), the Company sold the Purchaser 750 shares of Series B Preferred Stock (the
“ Third Closing Shares ”) and (a) warrants to purchase up to 66,667 shares of common stock at an exercise price of $7.50
per share; and (b) warrants to purchase up to 33,333 shares of common stock at an exercise price of $15.00 per share (collectively, (a)
and (b), the “ Additional Warrants ”, and together with the Initial Warrants, the “ Warrants ”, and
the shares of common stock issuable upon exercise of the Warrants, the “ Warrant Shares ”). The Additional Warrants
were exercisable on or after October 4, 2024, and for five years thereafter.
If
at any time the Warrants are outstanding there occurs any share split, share dividend, share combination recapitalization or other similar
transaction involving the common stock (each, a “ Share Combination Event ”, and such date thereof, the “ Share
Combination Event Date ”) and the Event Market Price (defined below) is less than the then exercise price then in effect, then
on the sixth trading day immediately following such Share Combination Event Date, the Exercise Price then in effect on such sixth trading
day is automatically reduced (but in no event increased) to the Event Market Price. The “ Event Market Price ” means,
with respect to any Share Combination Event Date, the quotient determined by dividing (x) the sum of the volume weighted average price
of the common stock for each of the five trading days ending and including the trading day immediately preceding the sixth trading day
after such Share Combination Event Date, divided by (y) five. In connection with the Reverse Stock Split, the exercise price of the Warrants
was automatically adjusted to $2.53 per share, and has subsequently been adjusted to $1.50 per share as a result of certain dilutive
issuances.
On
August 22, 2024, the conditions to closing were satisfied, and the Company sold the Purchaser an additional 500 shares of Series B Preferred
Stock (“ Fourth Closing Shares ”) for $500,000 in connection with a partial closing of the Fourth Closing.
On
September 26, 2024, the Company sold the Purchaser an additional 250 shares of Series B Preferred Stock (the “ Additional Fourth
Closing Shares ”) for $250,000 in connection with a partial closing of the Fourth Closing.
On
September 26, 2024, 140 shares of Series B Preferred Stock (with an aggregate stated value of $154,000) were converted by the holder
into 47,903 shares of common stock at a conversion price of $3.21 per share.
On
October 2, 2024, 190 shares of Series B Preferred Stock (with an aggregate stated value of $209,000) were converted by the holder into
66,923 shares of common stock at a conversion price of $3.12 per share.
On
October 18, 2024, 200 shares of Series B Preferred Stock (with an aggregate stated value of $220,000) were converted by the holder into
93,299 shares of common stock at a conversion price of $2.36 per share.
On
January 15, 2025, the Company sold the Purchaser the final 250 shares of Series B Preferred Stock (the “ Final Fourth Closing
Shares ”) for $250,000 in connection with a partial and final closing of the Fourth Closing.
On
February 12, 2025, a holder of the Company’s Series B Convertible Preferred Stock converted 216 shares of Series B Convertible
Preferred Stock (with an aggregate stated value of $237,600) into 105,600 shares of common stock of the Company pursuant to the terms
of such Series B Convertible Preferred Stock, including the current conversion price of $2.25 per share.
The
Company’s stockholders at the 2024 Annual Meeting of Stockholders held on June 17, 2024 approved the issuance of more than 19.99%
of the outstanding Common Stock upon the conversion of the shares of Series B Convertible Preferred Stock and upon the exercise of warrants
in accordance with Nasdaq Listing Rule 5635(d).
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Boustead
Securities, LLC served as the Company’s financial advisor in connection with the Purchase Agreement and related transactions.
On March 17, 2025, with the approval
of the shareholders of the Company at the special meeting of shareholders held on the same date, the Company submitted to the Secretary
of the State of Texas, an amendment to the Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock
of Mangoceuticals, Inc. (the “ Series B Designation ”), to: (a) reduce the conversion price set forth therein to a fixed
price of $1.50 per share (subject to customary adjustments for stock splits) (compared to having a fixed conversion price of $2.25 prior
to the amendment)(the “ Conversion Price ”); (b) reduce the floor price set forth therein from $2.25 to $1.50 per share
(subject to customary adjustments for stock splits)(the “ Floor Price ”); (c) remove the dividend rights set forth therein
(except for standard participatory rights for dividends declared on the Company’s common stock); and exclude the Company’s
current wholly-owned subsidiary, Mango & Peaches Corp. (“ Mango & Peaches ”), from the definition of Change of
Control Transaction thereunder (as a result, the issuance of securities of Mango & Peaches to Mr. Jacob Cohen, the Company’s
Chief Executive Officer and Chairman, will not be a Change of Control Transaction, trigger an event of default under the Series B Preferred
Stock or be deemed an Equity Condition (as defined in the designation of the Series B Preferred Stock)(the “ Designation Amendment ”).
The
Company’s Series B Convertible Preferred Stock (“ Series B Preferred Stock ”), currently have the following rights
and privileges:
Dividend
Rights . If the Company declares a dividend or makes a distribution of cash (or any other distribution treated as a dividend under
Section 301 of the Internal Revenue Code) on its shares of common stock, each holder of shares of Series B Preferred Stock shall be entitled
to participate in such dividend or distribution in an amount equal to the largest number of whole shares of common stock into which all
shares of Series B Preferred Stock held of record by such holder are convertible as of the record date for such dividend or distribution,
if any, or, if there is no specified record date, as of the date of such dividend or distribution. Notwithstanding the foregoing, holders
shall have no right of participation in connection with dividends or distributions made to stockholders of shares of common stock consisting
solely shares of common stock.
So
long as any Series B Preferred Stock remain outstanding, the Company is prohibited from effecting or entering into an agreement to effect
any issuance by the Company or any of its subsidiaries of common stock, common stock equivalents, Series B Preferred Stock or preferred
share equivalents (or a combination of units thereof) involving a Variable Rate Transaction, except for an equity line of credit. “ Variable
Rate Transaction ” means a transaction in which the Company issues or sells any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive additional shares of common stock or Series B Preferred Stock
either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices
of or quotations for the common stock or Series B Preferred Stock at any time after the initial issuance of such debt or equity securities,
or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of
such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business
of the Company or the market for the common stock or Series B Preferred Stock or (ii) enters into, or effects a transaction under, any
agreement, including, but not limited to, an “at-the-market offering”, whereby the Company may issue securities at a future
determined price.
Liquidation
Preference . Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “ Liquidation ”),
the holders of the Series B Preferred Stock are entitled to receive out of the assets, whether capital or surplus, of the Company an
amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and
owing, for each share of Series B Preferred Stock, before any distribution or payment shall be made to the holders of any junior securities,
and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders
of the Series B Preferred Stock shall be ratably distributed among the holders of the Series B Preferred Stock in accordance with the
respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or
Change of Control Transaction (each as described in the Series B Destination) is not deemed a Liquidation.
Conversion
Rights . Each holder of Series B Preferred Stock may, at its option, convert its shares of Series B Preferred Stock (each
a “ Series B Conversion ”) into that number of shares of common stock equal to the Stated Value of such share of Series
B Preferred Stock, divided by $1.50 (the “ Conversion Price ”).
In
the event the Company does not comply with the terms of the designation and timely issue shares of common stock upon conversion to the
holder, the Company is liable for damages in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of preferred
shares being converted, $50 per trading day (increasing to $100 per trading day on the fifth trading day and increasing to $200 per trading
day on the tenth trading day after such damages begin to accrue) for each trading day after the date due that the shares are delivered.
The designation also provides for customary buy-in rights to the holders for failure of the Company to timely deliver conversion shares.
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The
Series B Designation includes a conversion limitation prohibiting any holder and their affiliates from converting the Series B Preferred
Stock into common stock in the event that upon such conversion their beneficial ownership of the Company’s common stock would exceed
4.99%.
The
Conversion Price is subject to anti-dilutive rights in the event that the Company issues any shares of common stock or common stock equivalents
with a value less than the then conversion price, subject to certain customary exceptions for equity plan issuances, securities already
outstanding, and certain strategic acquisitions (the “ Anti-Dilutive Rights ”).
Additionally,
if at any time the Series B Preferred Stock are outstanding there occurs any share split, share dividend, share combination recapitalization
or other similar transaction involving the common stock (each, a “ Share Combination Event ”, and such date thereof,
the “ Share Combination Event Date ”) and the Event Market Price (defined below) is less than the then Conversion Price
then in effect, then on the sixth trading day immediately following such Share Combination Event Date, the Conversion Price then in effect
on such sixth trading day is automatically reduced (but in no event increased) to the greater of the (i) Event Market Price; and (ii)
the Conversion Price (the “ Reverse Split Reset Terms ”). The “ Event Market Price ” means, with respect
to any Share Combination Event Date, the quotient determined by dividing (x) the sum of the volume weighted average price of the common
stock for each of the five trading days ending and including the trading day immediately preceding the sixth trading day after such Share
Combination Event Date, divided by (y) five.
Voting
Rights . The Series B Preferred Stock have no voting rights, except in connection with the Protective Provisions discussed
below.
Provisions .
So long as any shares of Series B Preferred Stock are outstanding, the Company cannot without first obtaining the approval of the holders
of a majority of the then outstanding shares of Series B Preferred Stock, voting together as a class (collectively, the “ Protective
Provisions ”):
(a)
Amend any provision of the Series B Designation;
(b)
Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series B Preferred Stock;
(c)
Amend the Certificate of Formation of the Company (including by designating additional series of Preferred Stock) in a manner which adversely
affects the rights, preferences and privileges of the Series B Preferred Stock;
(d)
Effect an exchange, or create a right of exchange, cancel, or create a right to cancel, of all or any part of the shares of another class
of shares into shares of Series B Preferred Stock; or
(e)
Alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect adversely the shares
of such series.
Additionally,
so long as any Series B Preferred Stock shares remain outstanding, neither the Company nor any subsidiary thereof shall redeem, purchase
or otherwise acquire, directly or indirectly, any junior securities; pay any dividends (other than on Series B Preferred Stock), or enter
into any variable rate transaction.
Events
of Default . An “ Event of Default ” under the Series B Designation includes the occurrence of any of the events
described below:
(a)
if at any time the common stock is no longer DWAC eligible;
(b)
a registration statement of the Company is not filed within sixty (60) days of the date Series B Preferred Stock was first issued in
connection with certain shares of Series B Preferred Stock sold in 2024 and January 2025, which requirement has been met;
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(c)
the Company fails to obtain stockholder approval of the issuance of more than 20% of the Company’s outstanding common stock in
connection with the sale of certain securities within one hundred twenty (120) days of the first sale thereof (which requirement was
timely met);
(d)
the Company shall fail to deliver shares issuable upon a conversion prior to the fifth trading day after such shares are required to
be delivered;
(e)
the Company shall fail to have available a sufficient number of authorized and unreserved common stock shares to issue to any holder
upon a conversion completed under the Series B Designation;
(f)
the Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of
any documents entered into in connection with the sale of Series B Preferred Stock, and such failure or breach shall not, if subject
to the possibility of a cure by the Company, have been cured within 10 business days after the date on which written notice of such failure
or breach shall have been delivered;
(g)
the Company shall redeem junior securities or pari passu securities;
(h)
the Company shall be party to a Change of Control Transaction (as defined in the Series B Preferred Stock designation);
(i)
the Company shall enter bankruptcy;
(j)
any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective
property or other assets for more than $500,000 (provided that amounts covered by the Company’s insurance policies are not counted
toward this $500,000 threshold), and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a
period of thirty (30) trading days;
(k)
the electronic transfer by the Company of common stock shares through the Depository Trust Company is no longer available or is subject
to a “ freeze ” and/or “ chill ”, which continues for a period of five trading days; or
(l)
the common shares shall cease trading on an approved trading market, and such failure shall continue for a period of five trading days.
Following
an Event of Default, (a) the Stated Value increases automatically by an amount equal to 17.5% of the Stated Value as of the date
of the Event of Default; and (b) the conversion price of the Series B Preferred Stock is adjusted to the lesser of (i) the then applicable
conversion price and (ii) a price per share equal to sixty five percent (65%) of the average of the three lowest trading prices for the
Company’s common stock during the twenty (20) trading days preceding the relevant conversion.
Negative
Covenants : As long as any shares of Series B Preferred Stock are outstanding, unless a simple majority of holders of the Series B
Preferred Stock have otherwise given prior written consent, the Company shall not, and shall not permit any of the subsidiaries to, directly
or indirectly:
(a)
amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially
and adversely affects any rights of any holder;
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(b)
repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of common stock, common
stock equivalents or junior securities, other than as to (i) certain pre-approved purchases agreed to by the holders of the Series B
Preferred Stock and (ii) the repurchase of common shares or common share equivalents of departing officers and directors of the Company,
provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors for so long as the Series Preferred
Stock are outstanding;
(c)
pay cash dividends or distributions on junior securities of the Company;
(d)
enter into any transaction with any affiliate of the Company which would be required to be disclosed in any public filing with the SEC,
unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of
the Company (even if less than a quorum otherwise required for board approval);
(e)
redeem any junior securities or pay any dividends (other than on the Series B Preferred Stock); or
(f)
enter into any agreement with respect to any of the foregoing.
Redemption
Rights . At any time while the Series B Preferred Stock are outstanding, and on any date following stockholder approval of the issuance
of more than 20% of the Company’s common stock upon conversion of certain shares of Series B Preferred Stock certain shares of
Series B Preferred Stock sold in 2024 and January 2025 (which has occurred to date), the Company has the right to redeem fifty (50%)
of the Stated Value then outstanding, and an additional fifty (50%) percent of the Stated Value then outstanding upon the written consent
of the holders of the Series B Preferred Stock (each, the “ Company Optional Redemption Amount ”) on the Company Optional
Redemption Date (each as defined below) (a “ Company Optional Redemption ”). If redeemed within ninety (90) calendar
days from the date of issuance, the Series B Preferred Stock shares subject to redemption shall be redeemed by the Company in cash at
a price (the “ Company Optional Redemption Price ”) equal to 110% of the Stated Value being redeemed as of the Company
Optional Redemption Date, plus all accrued but unpaid dividends and all other amounts due to a holder, if any. If redeemed within ninety-one
(91) calendar days after the date of issuance, but no later than one hundred twenty (120) calendar days from the date of issuance, the
Series B Preferred Stock subject to redemption shall be redeemed by the Company in cash at a Company Optional Redemption Price equal
to 115% of the Stated Value being redeemed as of the Company Optional Redemption Date, plus all accrued but unpaid dividends and all
other amounts due to holders, if any. If redeemed after one hundred twenty (120) calendar days from the date of issuance, the Series
B Preferred Stock subject to redemption shall be redeemed by the Company in cash at a Company Optional Redemption Price equal to 120%
of the Stated Value being redeemed as of the Company Optional Redemption Date, plus all accrued but unpaid dividends and all other amounts
due to any holder, if any. The Company may deliver only one Company Optional Redemption Notice and such Company Optional Redemption Notice
shall be irrevocable.
The
Company may not deliver a Company Optional Redemption Notice, and any Company Optional Redemption Notice delivered by the Company shall
not be effective, unless all of the Equity Conditions have been met on each trading day during the period beginning on the date notice
of the redemption is provided and ending on the redemption date, which cannot be less than 10 nor more than 20 days.
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“ Equity
Conditions ” means, during the period in question: (a) the Company shall have duly honored all conversions scheduled to occur
or occurring by virtue of one or more notices of conversion of the applicable holder on or prior to the dates so requested or required,
if any; (b) the Company shall have paid all liquidated damages and other amounts owing to the applicable holder in respect of the preferred
shares; (c) (i) there is an effective registration statement or Rule 144 can be relied upon pursuant to which either: (A) the Company
may issue conversion shares [except in the case of a redemption, where only the shares being redeemed are subject to this requirement];
or (B) the holders are permitted to utilize the prospectus thereunder to resell all of the common shares issuable pursuant to certain
transaction documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable
future); or (ii) all of the conversion shares issuable pursuant to the applicable transaction documents may be resold pursuant to Rule
144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Company
as set forth in a written opinion letter to such effect, addressed and acceptable to the transfer agent and the affected holders; or
(iii) all of the conversion shares may be issued to the holder pursuant to Section 3(a)(9) of the Securities Act and immediately resold
without restriction; (d) the common shares are trading on a trading market and all of the common shares issuable pursuant to the applicable
transaction documents are listed or quoted for trading on such trading market (and the Company believes, in good faith, that trading
of the common shares on a trading market will continue uninterrupted for the foreseeable future); (e) there is a sufficient number of
authorized, but unissued and otherwise unreserved, common shares for the issuance of all of the shares then issuable pursuant to the
applicable transaction documents; (f) the issuance of the common shares in question to the applicable holder would not violate the beneficial
ownership limitation set forth in the designation; (g) there has been no public announcement of a pending or proposed Fundamental Transaction
(as defined in the designation) or Change of Control Transaction (as defined in the designation) that has not been consummated; (h) the
applicable holder is not in possession of any information provided by the Company, any of its subsidiaries, or any of their officers,
directors, employees, agents or affiliates, that constitutes, or may constitute, material non-public information.
ELOC
Also
on the Initial Closing Date, the Company entered into an Equity Purchase Agreement (the “ ELOC ”) with the Purchaser
pursuant to which the Purchaser committed to purchase up to $25,000,000 (the “ Maximum Amount ”) of the Company’s
common stock (the “ Financing ”). On the Initial Closing Date, the Company issued 66,667 shares of the Company’s
common stock to the Purchaser as a commitment fee (the “ Commitment Shares ”). In connection with the Financing, on
the Closing Date, the Company and the Purchaser also entered into a Registration Rights Agreement (the “ ELOC RRA ”).
Upon
filing and effectiveness of a Registration Statement on Form S-1 to register the Advance Shares (defined below), which was declared effective
on May 9, 2024, and provided other closing conditions are met, from time to time over the term of the ELOC, the Company has the right,
but not the obligation, to direct the Purchaser to purchase shares of the Company’s common stock (the “ Advance Shares ”)
in a maximum amount of one hundred percent (100%) of the average daily trading volume over the five trading days preceding the applicable
advance date. At any time and from time to time during the 2-year term of the ELOC (the “ Commitment Period ”), the
Company may deliver a notice to Purchaser (the “ Advance Notice ”) and shall deliver the Advance Shares to Purchaser
via DWAC (as defined in the ELOC) on the next trading day. The purchase price (the “ Purchase Price ”) for the Advance
Shares shall equal 90.0% of the gross proceeds received by the Purchaser for the resale of the Advance Shares during the three consecutive
trading days immediately following the date an Advance Notice is delivered (the “ Valuation Period ”). The closing of
an Advance Notice shall occur within two trading days following the end of the respective Valuation Period, whereby the Purchaser shall
deliver the Investment Amount (as defined below) to the Company by wire transfer of immediately available funds. The Company shall not
deliver another Advance Notice to Purchaser within one trading day of a prior closing of Advance Shares. The “ Investment Amount ”
means the aggregate Purchase Price for the Advance Shares purchased by the Purchaser, minus clearing costs payable to the Purchaser’s
broker or to the Company’s transfer agent for the issuance of the Advance Shares.
The
right of the Company to issue and sell the Advance Shares to the Purchaser is subject to the satisfaction of certain closing conditions,
including, but not limited to, (i) a Registration Statement on Form S-1 registering for resale by the Purchaser of the Advance Shares
and Commitment Shares being declared effective by the SEC, which has occurred to date, (ii) accuracy of the Company’s representations
and warranties, (iii) the Company’s performance under the ELOC in all material respects, (iv) no suspension of trading or delisting
of common stock, (v) the limitation of the Purchaser’s beneficial ownership of the Company’s common stock to no more than
4.99% of the Company’s then outstanding common stock, (vi) the Company maintaining its DWAC-eligible status, (vii) the Company
maintaining a sufficient share reserve, and (viii) the closing price of the Company’s common stock on the date the Advance Notice
is received must exceed $0.15. To date, the Company has sold a total of 305,000 shares for gross proceeds of $1,185,019 before fees,
discounts and expenses under the ELOC.
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The
ELOC terminates upon the first to occur of April 4, 2026; the date that $25,000,000 in Advance Shares have been purchased by the Purchaser;
the date that the Company terminates the ELOC, which may be terminated in the Company’s option at any time following effectiveness
of the Registration Statement registering the resale of the Advance Shares, except that the ELOC can’t be terminated at any time
the Purchaser holds any Advance Shares; and upon the Company entering into bankruptcy protection (such period of time that the ELOC is
in place, the “ Commitment Period ”).
While
the Company has the obligation to maintain such share reserve while the ELOC is effective, the Company does not have the obligation to
sell any Advance Shares to the Purchaser. Additionally, neither the Purchaser, nor any affiliate of the Purchaser acting on its behalf
or pursuant to any understanding with it, will execute any short sales during the period from the date hereof to the end of the Commitment
Period.
The
Company has agreed, among other things, to indemnify the Purchaser and its affiliates with respect to certain liabilities and to pay
all fees and expenses incident to the Company’s obligations under the ELOC RRA
Additional
Private Sales of Series B Preferred Stock and Common Stock
Effective
on December 18, 19, and 31, 2024 and January 3, 6 and 6, 2025, we agreed to definitive terms on Securities Purchase Agreements (the “ SPAs ”),
with certain institutional accredited investors (the “ Purchasers ”), pursuant to which the Company sold the Purchasers,
and the Purchasers purchased from the Company, 250 shares of Series B Preferred Stock for $250,000, and warrants to purchase 330,000
shares of common stock with an exercise price of $2.71 per share, 100 shares of Series B Preferred Stock for $100,000, and warrants to
purchase 132,000 shares of common stock with an exercise price of $2.57 per share, 50 shares of Series B Preferred Stock for $50,000,
and warrants to purchase 60,000 shares of common stock, with an exercise price of $2.57 per share; 300 shares of Series B Preferred Stock
for $300,000, and warrants to purchase 396,000 shares of common stock with an exercise price of $2.61 per share; 500 shares of Series
B Preferred Stock for $500,000, and warrants to purchase 660,000 shares of common stock with an exercise price of $2.59 per share; and
50 shares of Series B Preferred Stock for $50,000, and warrants to purchase 66,000 shares of common stock with an exercise price of $2.59
per share, respectively. Each of the SPAs closed on the dates they were entered into, and the warrants were granted on the same dates.
The
SPAs provide that until the 18 th month anniversary of the applicable closing date, the Purchasers have the right to participate
in any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents or any offering of debt or any
other type of financing, or a combination thereof (other certain customary exempt issuances)(each a “ Subsequent Financing ”),
in an amount not to exceed the amount of the Purchaser’s subscription, on the same terms, conditions and price provided for in
the Subsequent Financing.
The
SPAs contain customary representations, warranties and covenants by the Company (including a restriction on entering into any variable
rate transaction for a period of 180 days from the applicable closing date), customary conditions to closing, indemnification obligations
of the Company and the Purchasers, other obligations of the parties and termination provisions.
If
at any time following the Initial Exercise Date (as defined below) of the warrants, there is no effective registration statement registering,
or the prospectus contained therein is not available for the shares of common stock issuable upon exercise of the warrants, the warrants
can be exercised on a cashless basis as described in greater detail in the Common Share Purchase Warrants entered into to evidence the
warrants (the “ Warrant Agreements ”). The warrants are exercisable on or after 180 days from their grant date (“ Initial
Exercise Date ”), and for five years thereafter.
The
warrants contain provisions that prohibit exercise if the holder thereof, together with its affiliates, would beneficially own in excess
of 4.99% of the number of the Company’s shares of common stock outstanding immediately after giving effect to such exercise. A
holder of the warrants may increase or decrease this percentage, but not in excess of 9.99%, by providing at least 61 days’ prior
notice to the Company. In the event of certain corporate transactions, a holder of the Warrants will be entitled to receive, upon exercise
of the warrants, the kind and amount of securities, cash or other property that the holder would have received had it exercised the warrants
immediately prior to such transaction.
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If
the Company or any subsidiary at any time while the warrants are outstanding, shall sell, enter into an agreement to sell or grant any
option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any
option to purchase or other disposition) any common stock or common stock equivalents, at an effective price per share less than the
exercise price of the warrants then in effect (such lower price, the “ Base Share Price ” and such issuances collectively,
a “ Dilutive Issuance ”) then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive
Issuance the exercise price shall be reduced and only reduced to equal the Base Share Price. No adjustment however is to be made for
certain customary Exempt Issuances (as defined in the SPAs).
The
warrants also include customary buy-in rights in the event the Company fails to timely deliver the shares of common stock issuable upon
exercise thereof.
If
at any time the warrants are outstanding there occurs any share split, share dividend, share combination recapitalization or other similar
transaction involving the common stock (each, a “ Share Combination Event ”, and such date thereof, the “ Share
Combination Event Date ”) and the Event Market Price (defined below) is less than the then exercise price then in effect, then
on the sixth trading day immediately following such Share Combination Event Date, the exercise price then in effect on such sixth trading
day is automatically reduced (but in no event increased) to the Event Market Price. The “ Event Market Price ” means,
with respect to any Share Combination Event Date, the quotient determined by dividing (x) the sum of the volume weighted average price
of the common stock for each of the five trading days ending and including the trading day immediately preceding the sixth trading day
after such Share Combination Event Date, divided by (y) five.
As
a result of a dilutive issuance, the exercise price of the warrants was automatically reduced to $1.50 per share.
On
February 3, 2025, the Company entered into a Subscription Agreement with an accredited investor and sold 70,000 shares of the Company’s
restricted common stock for a total of $105,000, $1.50 per share. The Subscription Agreement included customary representations and warranties
of the purchaser and the Company.
On
February 7, 2025, the Company entered into a Subscription Agreement with an accredited investor and sold 155,555 shares of the Company’s
restricted common stock for a total of $350,000 (or $2.25 per share). The Subscription Agreement included customary representations and
warranties of the purchaser and the Company.
Need
for Future Funding
As
discussed above, our current capital resources are not expected to be sufficient for us to fund operations for the next 12 months. We
believe we will need to raise additional funding to support our operations in the future. We may also seek to acquire additional businesses
or assets in the future, which may require us to raise funding. We currently anticipate such funding, if required, being raised through
the offering of debt or equity, and/or through additional sales under the ELOC. Such additional financing, if required, may not be available
on favorable terms, if at all. If debt financing is available and obtained, our interest expense may increase and we may be subject to
the risk of default, depending on the terms of such financing. If equity financing is available and obtained it may result in our shareholders
experiencing significant dilution. If such financing is unavailable, we may be forced to curtail our business plan, which may cause the
value of our securities to decline in value.
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Critical
Accounting Policies and Estimates
The
preparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States
of America (“ GAAP ”) requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities and expenses. “ Note 2 – Summary of Significant Accounting Policies ” to the audited consolidated financial statements
included under “ Item 8. Financial Statements and Supplementary Data, ” below describes the significant accounting policies
used in the preparation of the financial statements. Certain of these significant accounting policies and estimates have a higher degree
of inherent uncertainty and require significant judgments. Accordingly, actual results could differ from those estimates. To the extent
that there are differences between our estimates and actual results, our future financial statement presentation, financial condition,
results of operations and cash flows will be affected.
A
critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management
to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations.
Specifically, critical accounting estimates have the following attributes: (1) we are required to make assumptions about matters that
are highly uncertain at the time of the estimate; and (2) different estimates we could reasonably have used, or changes in the estimate
that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates
and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience
and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new
events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor
and have been included in the financial statements as soon as they became known. Based on a critical assessment of our accounting policies
and the underlying judgments and uncertainties affecting the application of those policies, management believes that our consolidated financial statements
are fairly stated in accordance with GAAP and present a meaningful presentation of our financial condition and results of operations.
We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation
of our consolidated financial statements:
Share-Based
Compensation – Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of
Financial Accounting Standards Board (“ FASB ”) Accounting Standards Codification (“ ASC ”) 718, which
requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for
an award of equity instruments over the shorter of period the employee or director is required to perform the services in exchange for
the award or the vesting period. ASC 718 also requires measurement of the cost of employee and director services received in exchange
for an award based on the grant-date fair value of the award. Pursuant to ASC 505-50, for share-based payments to non-employees, compensation
expense is determined at the “ measurement date. ” The expense is recognized over the service period of the award. Until
the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation
expense based on the fair value of the award at the reporting date. Additionally, we used this same methodology when determining the
fair value of our restricted common stock issuances to managers and other related parties.
Estimating
the Fair Value of Common Stock – We are required to estimate the fair value of the common stock underlying our stock-based
awards and warrants when performing the fair value calculations using the Black-Scholes option pricing model
Our
determination of the fair value of stock options with time-based vesting on the date of grant utilizes the Black-Scholes option pricing
model, and is impacted by our common stock price as well as other variables including, but not limited to, expected term that options
will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected
dividends. Estimating the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes
option pricing model, is affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect
the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require
significant analysis and judgment to develop.
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Warrants
– In accordance with ASC 480, the Company classifies as equity any contracts that (i) require physical settlement or net-share
settlement or (ii) gives the Company a choice of net-cash settlement in its own shares. The Company classifies as liabilities any contracts
that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is
outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares.
The
Company accounts for its currently issued warrants in conjunction with the Company’s ordinary shares in permanent equity. These
warrants are indexed to the Company’s stock and meet the requirements of equity classification as prescribed under ASC 815-40.
Warrants classified as equity are initially measured at fair value, and subsequent changes in fair value are not recognized so long as
the warrants continue to be classified as equity. The value of the warrant is based on accepted valuation procedures and practices that
rely substantially on the third-party professional’s use of numerous assumptions and its consideration of various factors that
are relevant to the operation of the Company.
JOBS
Act and Recent Accounting Pronouncements
The
JOBS Act provides that an “ emerging growth company ” can take advantage of the extended transition period provided
in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “ emerging
growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private
companies. We have elected to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act,
for complying with new or revised accounting standards that have different effective dates for public and private companies until the
earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act.
We
have implemented all new accounting pronouncements that are in effect and may impact our financial statements and we do not believe that
there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or
results of operations.
Recently
Issued Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial
Accounting Standards Board (“ FASB ”) that are adopted by the Company as of the
specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective,
will not have a material impact on the Company’s financial statements upon adoption.
In
August 2020, the FASB issued ASU 2020-06, “ Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) ” (“ ASU 2020-06 ”).
ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible
instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims
to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15,
2023, and interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required
under this item.
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