Notes
to Financial Statements
For
the Six Months Ended June 30, 2022 and
Year
Ended December 31, 2021
Note
1 - Organization and Business Operations
Jupiter
Wellness, Inc. (the “Company”) was formed on October 24, 2018 under the laws of the State of Delaware, and is headquartered
in Jupiter, Florida. The Company researches, develops, licenses, and sells various products in
the wellness field focused on hair, skin, and sexual health. Its PhotocilTM,
and Minoxidil Booster, are currently licensed to sell in over 30 countries worldwide and is a leading developer of cannabidiol
based medical therapeutics and wellness products. The Company has a clinical pipeline of prescription skin care therapeutics addressing
indications including eczema, burns, herpes cold sores, and skin cancer.
On
November 30, 2020 the Company acquired SRM Entertainment, Limited, a Hong Kong Special Administrative Region of the People’s Republic
of China limited company (“SRM”). SRM has relationships with and supplies the amusement park industry with exclusive products
that are often only available to consumers inside the relevant amusement park, entertainment venues and theme hotels throughout the worldwide
theme park industry.
Note
2 - Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”).
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Jupiter Wellness, Inc.,
a Florida corporation, Magical Beasts, LLC, a Nevada limited liability company and SRM Entertainment, Limited, a Hong Kong private limited
company. All intercompany accounts and transactions have been eliminated.
Emerging
Growth Company Status
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities
Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth
companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden
parachute payments not previously approved.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP 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
and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all short-term investments with a maturity of three months or less when purchased to be cash and equivalents for purposes
of the statement of cash flows. There were $982,919 cash equivalents as of June 30, 2022 and none at December 31, 2021.
Inventory
Inventories
are stated at the lower of cost or market. The Company periodically reviews the value of items in inventory and provides write-downs
or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold.
Inventory is based upon the average cost method of accounting.
Investments
Held-to-Maturity
Investments
that the Company’s management has the “positive intent and ability” to hold through maturity are classified and accounted
for as hold-to-maturity investments (“HTM”). HTM investments are carried at amortized cost in the financial statements. For
investments classified as HTM, no unrealized gains and losses will be recognized in financial statements.
Segment
Reporting
The
Company has two reportable segments: (i) sales and development of cannabidiol based skin care and therapeutic products and (ii) sales
of merchandise sold to theme parks.
Net
Loss per Common Share
Net
income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income
(loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during
the period. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such
as options, warrants, convertible securities and preferred stock, unless the effect is to reduce a loss or increase earnings per share.
As such, options, warrants, convertible securities, and preferred stock are not considered in the calculations, as the impact of the
potential common shares would be to decrease the loss per share.
Schedule
of Net Loss per Common Share
| |
2022 |
|
|
2021 |
|
|
2021 | | |
2020 | |
| |
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, | |
| |
2022 |
|
|
2021 |
|
|
2021 | | |
2020 | |
Numerator: | |
|
|
|
|
|
|
|
|
| | | |
| | |
Net (loss) | |
$ |
(1,440,756 |
) |
|
$ |
(4,151,074 |
) |
|
$ | (4,360,531 | ) | |
$ | (6,346,837 | ) |
| |
|
|
|
|
|
|
|
|
| | | |
| | |
Denominator: | |
|
|
|
|
|
|
|
|
| | | |
| | |
Denominator for basic earnings per share - Weighted- average common shares
issued and outstanding during the period | |
|
21,949,416 |
|
|
|
11,359,797 |
|
|
| 22,527,989 | | |
| 11,265,828 | |
Denominator for diluted earnings per share | |
|
21,949,416 |
|
|
|
11,359,797 |
|
|
| 22,527,989 | | |
| 11,265,828 | |
Basic (loss) per share | |
$ |
(0.07 |
) |
|
$ |
(0.37 |
) |
|
$ | (0.19 | ) | |
$ | (0.56 | ) |
Diluted (loss) per share | |
$ |
(0.07 |
) |
|
$ |
(0.37 |
) |
|
$ | (0.19 | ) | |
$ | (0.56 | ) |
Fair
Value of Financial Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value
Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to
their short-term nature.
Revenue
Recognition
The
Company generates its revenue from the sale of its products directly to the end user or through a distributor (collectively the “customer”).
The
Company recognizes revenues by applying the following steps in accordance with FASB Accounting Standards Codification 606 “Revenue
from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods
or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange
for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to
be recognized as it fulfills its obligations under each of its agreements:
|
● |
identify
the contract with a customer; |
|
|
|
|
● |
identify
the performance obligations in the contract; |
|
|
|
|
● |
determine
the transaction price; |
|
|
|
|
● |
allocate
the transaction price to performance obligations in the contract; and |
|
|
|
|
● |
recognize
revenue as the performance obligation is satisfied. |
The
Company’s performance obligations are satisfied when goods or products are shipped on a FOB shipping point basis as title passes
when shipped. Our products are generally paid in advance of shipment or standard net 30 days and we offer no specific right of return,
refund or warranty related to our products except for cases of defective products of which there have been none to date.
Accounts
Receivable and Credit Risk
Accounts
receivable are generated from sales of the Company’s products. The Company provides an allowance for doubtful collections, which
is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. During the year
ended December 31, 2021, the Company had recorded an allowance of $104,851 against accounts receivable of SRM Entertainment, the Company
had recognized no additional allowance for doubtful collections for the three months ended June 30, 2022.
Impairment
of Long-Lived Assets
We
evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted
future net cash flow the asset is expected to generate.
Goodwill
and Intangible Assets
Goodwill
is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level by first performing
a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying
value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to
its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered
impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating
results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit.
We
conducted our annual impairment tests of goodwill as of December 31, 2021 and 2020. As a result of these tests, we recorded an impairment
to the carrying value of Goodwill in the amount of $308,690 in the year ended December 31, 2020. There was no impairment in 2021.
Intangible
assets consist of patents and trademarks, purchased customer contracts, purchased customer and merchant relationships, purchased trade
names, purchased technology, and non-compete agreements. Intangible assets are amortized over the period of estimated benefit using the
straight-line method and estimated useful lives ranging from one to twenty years. No significant residual value is estimated for intangible
assets. We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate
that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds
the undiscounted future net cash flow the asset is expected to generate.
The
Company’s evaluation of its long-lived assets resulted in $300,000 of intangible impairment expense during the year ended December
31, 2021. There was no impairment for the six months ended June 30, 2022.
Foreign
Currency Translation
Assets
and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts
are translated at the average exchange rates prevailing during the period. Equity accounts are translated at historical exchange rates.
Cumulative gains and losses from foreign currency transactions and translation for the six-months ended June 30, 2022 and the year ended
December 31, 2021 were not material.
Research
and Development
The
Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research
and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred.
Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed
when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs
related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses
of $103,025 and $60,529 for the six-months ended June 30, 2022 and 2021, respectively.
Stock
based compensation
The
Company recognizes compensation costs to employees under FASB Accounting Standards Codification 718 “Compensation - Stock Compensation”
(“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements
based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required
to provide services. Share based compensation arrangements include stock options and warrants. As such, compensation cost is measured
on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the
option grant.
On
October 24, 2018, the inception date, the Company adopted ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation
(which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or
services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.
Income
Taxes
The
Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax
assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities
and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation
allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes
a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination
by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim
period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain
tax positions requiring recognition in the Company’s financial statements. Since the Company was incorporated on October 24, 2018,
the evaluation was performed for 2018 tax year which would be the only period subject to examination. The Company believes that its income
tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change
to its financial position. The Company’s policy for recording interest and penalties associated with audits is to record such items
as a component of income tax expense.
The
Company’s deferred tax asset at December 31, 2021 consists of net operating loss carry forwards calculated using federal and state
effective tax rates equating to approximately $4,865,890 less a valuation allowance in the amount of approximately $4,865,890. Because
of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance in the year ended
December 31, 2021.
Related
parties
The
Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure
of related party transactions.
Pursuant
to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities
would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15,
to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing
trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company;
f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies
of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and
g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership
interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting
parties might be prevented from fully pursuing its own separate interests.
The
consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements,
expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include:
a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal
amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary
to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of
the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that
used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not
otherwise apparent, the terms and manner of settlement.
Recent
Accounting Pronouncements
In
June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for non-employee share-based payment transactions. The amendments
specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed
in a grantor’s own operations by issuing share-based payment awards. The standard will be effective for us in the first quarter
of our fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company has adopted
this standard beginning January 1, 2019. The adoption of this standard has not had a significant impact on the Company’s results
of operations, financial condition, cash flows, and financial statement disclosures.
In
February 2016, Topic 842, “Leases” was issued to replace the leases requirements in Topic 840, “Leases”. The
main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases
classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments
(the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with
a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize
lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a
straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.
Topic 842 will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual
periods and is to be retrospectively applied. The Company has adopted this standard beginning January 1, 2019. The adoption of this standard
has not had a significant impact on the Company’s results of operations, financial condition, cash flows, and financial statement
disclosures.
Note
3 - Accounts Receivable
At
June 30, 2022 and December 31, 2021, the Company had accounts receivable of $1,609,270 and $695,319 (net of an allowance of $104,851 and
$104,851), respectively.
Note
4 - Prepaid Expenses and Deposits
At
June 30, 2022 and December 31, 2021, the Company had prepaid expenses and deposits of $741,323 and $617,302, respectively consisting
primarily of deposits and prepayments on purchase orders.
Note
5 - Inventory
At
June 30, 2022 and December 31, 2021, the Company had inventory of $387,967 and $304,266, consisting of finished goods, raw materials
and packaging supplies.
Note
6 – Investment in Affiliate
At
June 30, 2022 and December 31, 2021, the Company had purchased Founders shares and 288,830 Private Placement Units of Wellness
Acquisition Corp. (“JWAC”), a special purpose acquisition company (“SPAC”), for $2,908,300. The Investment is
being accounted for as a Hold-to-Maturity Investment.
On
November 3, 2021, JWAC filed a registration statement (“IPO”) with the Securities and Exchange Commission with an initial
funding of $100M. On December 6, 2021 the IPO was deemed effective. The total amount raised in the IPO was $138,000,000.
Note
7 – Note Receivable
On
December 8, 2021, the Company issued a Secured Promissory Note (the “Note”) in the amount of $10,000,000 to Next Frontier
Pharmaceuticals, Inc. (“NFP”) and entered into a Stock Purchase Agreement (“SPA”) for the Company to acquire
NFP. The Note has a term of six months and interest at eight percent (8%). On January 6, 2022 the company issued an additional Secured
Promissory Note to NFP under the same terms for up to $5,000,000, of which $1,000,000 was funded on January 7, 2022.
In
February 2022, NFP terminated the SPA and in March 2022, the Company issued a Notice of Default on the NFP Note (see Subsequent Event
Footnote 19). As a result, the Company has determined that the Notes have been impaired and has taken an impairment charge of $10,000,000
against the 2021 earnings and $1,000,000 against the 2022 earnings.
Note
8 - Intangible Assets
In
connection with the acquisition of Magical Beasts (see Note 15 below), the Company allocated the purchase price to intangible assets
as follows:
Schedule
of Purchase Price to Intangible Assets
Tradenames & trademarks | |
$ | 151,800 | |
Customer base | |
| 651,220 | |
Non-compete | |
| 154,500 | |
Goodwill | |
| 308,690 | |
| |
$ | 1,266,210 | |
The
Non-compete has an estimated life of two
years, the Customer base has an estimated life
of fifteen years and the Tradenames & trademarks and Goodwill have indefinite lives and will be reviewed at each subsequent reporting
period to determine if the assets have been impaired. At December 31, 2020, Goodwill was analyzed by management, assisted by a third
party valuation company, and determined that the Goodwill associated with the acquisition of Magical Beasts has been impaired and as
a result the Company recognized a charge to earnings of $308,690
in the year ended December 31, 2020. Additionally,
the Intangibles were analyzed by management, assisted by a third-party valuation company, and determined that the Intangible associated
with the acquisition of Magical Beasts had also been impaired and as a result the Company recognized an additional charge to earnings
of $731,628
in the year ended December 31, 2020. The balance
of the Intangible Assets at December 31, 2020 attributable to Magical Beasts was $122,501.
During
the first two quarters of 2021, the Company amortized $25,847 of the remaining Intangible Assets attributable to Magical Beasts. In the
third quarter management determined that the balance of $96,654 had been impaired and was recognized as a charge to earnings. As of December
31, 2021, the Company had no remaining Intangible Assets attributable to Magical Beasts.
In
connection with the acquisition of SRM Entertainment, Limited (see Note 16 below), the Company allocated the purchase price to intangible
assets as follows:
The
Distribution Agreements have an estimated life of six years and Goodwill has an indefinite life and will be reviewed at each subsequent
reporting period to determine if the assets have been impaired.
Amortization
for the six-months ended June 30, 2022 was $36,442 and the year ended December 31, 2021 was $72,883. The balance of the Intangible Assets
at June 30, 2022 and December 31, 2021 attributable to SRM totals $327,975 and $364,417, respectively.
During
the year ended December 31, 2021, the Company entered into two licensing agreements for the rights to use certain patented technologies.
The Company paid a total of $675,000 for the rights, consisting of $150,000 in cash and $525,000 in shares of the Company’s common
stock. In early 2022, the Company terminated one of the licensing agreements and as a result, the company considered the terminated license
to be impaired and took a charge to of $300,000 to 2021 earnings. The balance of Intellectual property at June 30, 2022 and December
31, 2021 was $375,000 which includes Patents and other formulations used in our development of future products.
During
the six months ended June 30, 2022, the Company entered into a Clinical Research Agreement to research new treatments for post COVID-19
syndrome and symptoms and other projects which include treatments for respiratory diseases (such as influenza), herpes, eczema, and other
skin indications. As of June 30, 2022, the Company had paid $1,300,000 of the approximate $3,000,000 budget. The payments shall be amortized
over the respective term of the research.
Note
9 – Financed Insurance Premiums
During
the six-months ended June 30, 2022, the Company financed a total of $241,272 for its General Liability and Director & Officer insurance
premiums over the twelve months coverage period. The average interest rate is 9.3%. At June 30, 2022 the outstanding balance was $145,171.
Note
10 - Convertible Notes Payable
At
December 31, 2020, the Company had a total of $525,000 plus accrued interest of $32,856 due on convertible promissory notes. In January
2021, the Company received conversion notices from all of the note holders to convert the $525,000 principal balance of its convertible
promissory notes plus $35,496 accrued interest through the date of conversion, into 186,832 shares of the Company’s common stock
($3.00 per share conversion price). The shares were issued in January 2021.
The
2021 Notes:
In
May 2021, the Company issued three Convertible Promissory Notes totaling $3,150,000 ($2,500,000, $500,000 and $150,000) (the “2021
Notes”). The 2021 Notes were issued with an Original Issue Discount (“OID”) of five percent (5%), a term of six months,
an annual interest rate of eight percent (8%) and convertible into shares of the Company’s common stock at a conversion price of
$6.00 per share. Additionally, the Company issued a total of 525,000 warrants in connection with the 2021 Notes. The fair value of these
warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes
valuation model on the respective reporting date as follows:
Schedule
of Assumptions for Black-Scholes Valuation Model
| | |
| | |
| | |
| | |
Market | | |
| | |
| |
| | |
| | |
| | |
| | |
Price | | |
| | |
| |
Reporting | | |
Relative | | |
Term | | |
Exercise | | |
on Grant | | |
Volatility | | |
Risk-free | |
Date | | |
Fair Value | | |
(Years) | | |
Price | | |
Date | | |
Percentage | | |
Rate | |
| 05/10/2021 | | |
$ | 1,026,300 | | |
| 5 | | |
$ | 6.00 | | |
$ | 4.27 | | |
| 299 | % | |
| 0.0080 | |
| 05/05/2021 | | |
$ | 203,532 | | |
| 5 | | |
$ | 6.00 | | |
$ | 4.21 | | |
| 299 | % | |
| 0.0080 | |
| 05/19/2021 | | |
$ | 62,033 | | |
| 5 | | |
$ | 6.00 | | |
$ | 4.30 | | |
| 312 | % | |
| 0.0089 | |
During
the year ended December 31, 2021, the 2021 Notes were paid in full in cash.
Total
interest expense for the Company was $1,736,106 for the year ended December 31, 2021.
The
Company recorded $604,031 related to the Convertible Promissory Notes during the year ended December
31, 2021, which included $157,500 of original issues discounts and $1,446,530 of warrant and beneficial conversion features expense related
to the convertible notes.
The
2022 Notes:
On
April 20, 2022, the Company entered into a $1,500,000
Loan Agreement and a $500,000
Loan Agreement (collectively the Agreements”). Pursuant to the Agreements, the Company issued two Convertible Promissory Notes
in the principal amounts of $1,500,000
and $500,000
(the “2022 Notes”). In connection with the Notes the Company issued Common Stock Purchase Warrants for 1,100,000
shares 360,000
shares of the Company’s common stock (the “Warrants”). The Notes have a maturity date of October
20, 2022. In connection with the 2022 Notes, the Company issued a total of 250,000
shares as origination shares valued at fair market value of $277,500.
There is no beneficial conversion feature since the conversion price is grater then the fair value of the shares.
The
2022 Notes have an original issuance discount of five percent (5%), $10,000 in legal fees, an interest rate of eight percent (8%), and
a conversion price of $2.79 per share, subject to an adjustment downward if the Company is in default of the terms of the Notes. The
Warrants have a five (5) year term, an exercise price of $2.79 per share, have a cashless conversion feature until such time as the shares
underlying the Warrants are included in an effective registration and certain anti-dilution protection.
The fair value of origination shares and warrants
issued in connection with the 2022 Note totals $984,477.
The
fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions
for Black-Scholes valuation model on the respective reporting date as follows:
The
following table sets forth a summary of the principal balances of the Company’s convertible promissory notes activity for the year
and six-months ended June 30, 2022:
Schedule
of Convertible Promissory Notes
Balance, December 31, 2020 | |
$ | 525,000 | |
Conversions of Notes | |
| (525,000 | ) |
2021 Notes | |
| 3,150,000 | |
Cash payments on Notes | |
| (3,150,000 | |
Principal Balance, December 31, 2021 | |
| - | |
2022 Notes | |
| 2,000,000 | |
Principal Balance, June 30, 2022 | |
$ | 2,000,000 | |
Interest
expense for the six-months ended June 30, 2022 totaled $574,656
which includes $501,927
amortization of the origination shares and warrants discounts in connection with the 2022 Notes.
Note
11 - Note payable issued in acquisition
In
connection with the Acquisition of Magical Beasts, LLC (see Note 15), the Company issued a non-interest bearing $1,000,000 promissory
note (“Note”), due upon the earlier of i) the closing of a public offering or ii) December 31, 2020. The note has been valued
at its discounted amount of $950,427. During the year ended December 31, 2020, the Company recognized $49,573 of interest expense for
the accretion of the discount.
In
August 2020, a Nevada court imputed a judgement of Ms. Whitley (the former owner of Magical Beasts, LLC) to Magical Beasts (see Note
15 Legal proceedings) and advised the Company that before paying any funds under the note to Ms. Whitley, the Company must first satisfy
the judgement to the Plaintiff. In October 2020, the Company, Ms. Whitley and the Plaintiff in the judgement action against Ms. Whitley
reached an agreement whereby Ms. Whitley agreed that of the $1,000,000 payable to Ms. Whitley, the first $336,450 would be paid to the
Plaintiff which the Company has paid in full with a cash payment of $300,000 and the issuance of 8,500 shares of its common stock leaving
a balance of $691,500 at December 31, 2020.
In
January 2021, the Company entered into an Omnibus Amendment to the original Purchase Agreement (see Note 15) which satisfied the Company’s
obligation on the Note.
Note
12 – Covid-19 SBA Loans
During
the year ended December 31, 2020, the Company applied for and received $28,878 under the Federal Paycheck Protection Program (“PPP”)
and $55,700 under the Economic Injury Disaster Loan Program (“EIDL”), both of which are administered through the Small Business
Administration (“SBA”). Under the guidelines of the PPP, the SBA will forgive loans if all employee retention criteria are
met, and the funds are used for eligible expenses. During 2021, the PPP loans were forgiven, resulting in a gain of $34,499, and the
SBA notified the Company that the terms of the EIDL are a term of 30 years and an interest rate of 3.75%. The balance of the EIDL at
June 30, 2022 and December 31, 2021 was $47,981 and $47,547, respectively.
Note
13 - Capital Structure
Common
Stock - The Company is authorized to issue a total of 100,000,000 shares of common stock with par value of $0.001 and 100,000
shares of preferred stock with par value of $0.001. As of June 30, 2022 and December 31, 2021, there were 21,705,647 shares of common
stock (net of 2,690,354 repurchased by the Company) and 24,046,001 shares of common stock issued and outstanding, respectively, and no
shares of preferred stock were issued and outstanding.
Year
ended December 31, 2021 issuances:
Conversion
of Convertible Promissory Notes:
During
the year ended December 31, 2021, the Company converted $525,000 of convertible promissory notes and accrued interest of $35,496 into
186,832 shares of its common stock. The Notes were converted per the terms of the respective Notes and the Company did not recognize
any gain or loss on the conversion. (see Note 8 – Convertible Promissory Notes).
Exercise
of Cashless Stock Options
During
the year ended December 31, 2021, a former Director of the Company exercised a portion of his stock options under the cashless provisions
and was issued 47,470 shares of the Company’s stock, an officer of the Company exercised a portion of his stock options under the
cashless provisions and was issued 15,884 shares of the Company’s stock and Ms. Whitley (see Note 14) exercised her stock options
under the cashless provisions and was issued 159,053 shares of the Company’s stock.
Shares
issued for services
During
the year ended December 31, 2021, the Company entered into twelve Consulting Agreements under the terms of which the Company issued 1,422,000
shares of its common stock. The shares were issued at their respective fair value based on the Company’s Nasdaq closing price of
the shares on the date of the agreements. Additionally, the Company issued 367,496 shares of its common stock to employees. The Company
recognized a total of $ 4,340,983 as stock-based compensation in the year ended December 31, 2021.
Shares
issued for Intellectual Property
During
the year ended December 31, 2021, 2021, the Company entered into two license agreements for the use of certain patented technology under
the terms of which the Company issued a total of 125,175 shares of its common stock valued at a total of $525,000 and paid an additional
$150,000 in cash. In 2021, the Company impaired one of the license agreements totaling $300,000. The remining balance of $375,000 is
carried as Intellectual properties on the balance sheet of the Company. The shares were issued at their respective fair value based on
the Company’s Nasdaq closing price of the shares on the date of the agreements.
Shares
issued in Public Offering
In
July 2021, the company closed an underwritten public offering (the “Offering”) of 11,066,258 shares (the “Company Offering
Shares”) of common stock, par value $0.001 per share and warrants (the “Company Warrants”) to purchase up to 11,607,142
shares of Common Stock. The Warrants will be exercisable immediately upon issuance with an exercise price of $2.79 per share and will
expire on the fifth anniversary of the original issuance date. The net proceeds from the Offering, after deducting underwriting discounts
and commissions and Offering expenses, were $28,318,314, which includes net proceeds from partial exercise of the underwriter’s
option to purchase 442,650 Company Warrants.
Six
Months ended June 30, 2022 issuances:
Shares
issued for services
During
the six-months ended June 30, 2022, the Company entered into an Investor Relations Consulting Agreement under the terms of which the
Company issued 100,000 shares of its common stock. The shares were issued at their respective fair value based on the Company’s
Nasdaq closing price of the shares on the date of the agreements. The Company recognized a total of $105,000 as stock-based compensation
during the six- months ended June 30, 2022.
In
November 2021, the Company engaged Oppenheimer & Co. to repurchase shares of the Company’s common stock from the public market.
At December 31, 2021, Oppenheimer had not repurchased any of the Company’s securities and as of June 30, 2022 Oppenheimer had purchased
2,690,354 shares of the Company’s common stock at a total costs of $ 2,776,726 (average of $1.03 per share). As of June 30, 2022, the Company had cancelled 2,433,894 of the shares
at a cost of $2,579,894. These repurchased
and retired shares are included in the Equity section of the June 30, 2022 Balance Sheet as Treasury Stock.
The
following table sets forth the issuances of the Company’s shares of common stock for the year and six-months ended June 30, 2022
as follows:
Schedule of Stock Holders
|
|
|
|
|
Balance December 31, 2020 | |
| 10,655,833 | |
Conversion of Promissory Notes | |
| 186,832 | |
Exercise of stock options | |
| 222,407 | |
Stock based compensation | |
| 367,496 | |
Consulting Services Shares | |
| 1,422,000 | |
Intellectual property | |
| 125,175 | |
Public offering | |
| 11,066,258 | |
Balance December 31, 2021 | |
| 24,046,001 | |
Shares issued for services | |
| 100,000 | |
Loan origination shares for promissory note | |
| 250,000 | |
Shares repurchased from the market | |
| (2,690,354 | ) |
Balance June 30, 2022 | |
| 21,705,647 | |
Common
Stock Payable
During
the year ended 2021, the Company entered into two consulting agreement which call for a cash component and a stock component. At June
30, 2022 and December 31, 2021 the Company had accrued a total of $285,000 of stock payable relating to the agreements.
Note
14 - Warrants and Options
Convertible
Note Warrants: During the six-months ended June 30, 2022, the Company issued 1,460,000 warrants with an exercise price of $2.79 and
five year terms in connection with two convertible promissory notes, and during 2021 in connection with the issuance of three convertible
promissory notes, the Company issued 525,000 warrants with an exercise price of $6.00 and five-year term (see Note 10).
Schedule of Fair Value of Warrants Using Black Scholes Method
| | |
| | |
| | |
| | |
Market | | |
| | |
| |
| | |
| | |
| | |
| | |
Price | | |
| | |
| |
Reporting | | |
Relative | | |
Term | | |
Exercise | | |
on Grant | | |
Volatility | | |
Risk-free | |
Date | | |
Fair Value | | |
(Years) | | |
Price | | |
Date | | |
Percentage | | |
Rate | |
| 5/5/2020-5/19/21 | | |
$ | 1,888,495 | | |
| 5 | | |
$ | 6.00 | | |
$ | 4.26 | | |
| 299 | % | |
| 0.0080 | |
| 04/20/22 | | |
$ | 706,977 | | |
| 5 | | |
$ | 2.79 | | |
$ | 1.11 | | |
| 281 | %. | |
| 0.0287 | |
Public
Offering Warrants: In connections with the Company’s public offering (see Note 13), the Company issued 11,607,142 warrants
to the purchasers of the common stock, exercisable immediately at an exercise price of $2.79 and 442,650 warrants to the underwriter
immediately exercisable at $3.50.
Schedule of Fair Value of Warrants Using Black Scholes Method
| | |
| | |
| | |
| | |
Market | | |
| | |
| |
| | |
| | |
| | |
| | |
Price | | |
| | |
| |
Reporting | | |
Relative | | |
Term | | |
Exercise | | |
on Grant | | |
Volatility | | |
Risk-free | |
Date | | |
Fair Value | | |
(Years) | | |
Price | | |
Date | | |
Percentage | | |
Rate | |
| 7/26/2021 | | |
$ | 20,921,265 | | |
| 5 | | |
$ | 2.79 | | |
$ | 2.03 | | |
| 331 | % | |
| 0.0033 | |
| 7/26/2021 | | |
| 786,395 | | |
| 5 | | |
$ | 3.50 | | |
$ | 2.03 | | |
| 331 | % | |
| 0.0033 | |
The
following tables summarize all warrants outstanding as of June 30, 2022 and December 31, 2021, and the related changes during the period.
Exercise
price is the weighted average for the respective warrants and end of period.
Summary of Warrant Outstanding
| |
Number of | | |
Exercise | |
| |
Warrants | | |
Price | |
Stock Warrants | |
| | | |
| | |
Balance at December 31, 2020 | |
| 1,123,333 | | |
$ | 8.30 | |
Warrants issued in connection with Convertible Notes (see note 10) | |
| 525,000 | | |
| 6.00 | |
Warrants issued in connection with the Public offering (see note 13) | |
| 12,049,792 | | |
| 2.82 | |
Balance at December 31, 2021 | |
| 13,698,125 | | |
$ | 3.24 | |
Warrants issued in connection with Convertible Notes (see note 10) | |
| 1,460,000 | | |
| 2.79 | |
Balance at June 30, 2022 | |
| 15,158,125 | | |
$ | 3.04 | |
| |
| | | |
| | |
Warrants Exercisable at June 30, 2022 and December 31, 2021 | |
| 13,698,125 | | |
$ | 3.04 | |
Options
During
the six-months ended June 30, 2022 the Company entered into an Investor Relations Consulting Agreement under the terms of which the Company
issued 300,000 two-year options with an exercise price of $1.00.
During
the year ended December 31, 2021, the Company issued a total of 4,383,950 options with an exercise price between $0.25 and $5.59 each
with a three-year term to its Officers and Directors.
The
fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions
for Black-Scholes valuation model on the respective reporting date.
Schedule of Fair Value of Warrants Using Black Scholes Method
| | |
| | |
| |
|
| | |
Market | | |
| | |
| |
| | |
Number | | |
| |
|
| | |
Price
on | | |
| | |
| |
Reporting | | |
of | | |
Term | |
|
Exercise | | |
Grant | | |
Volatility | | |
Fair | |
Date | | |
Options | | |
(Years) | |
|
Price | | |
Date | | |
Percentage | | |
Value | |
1/01/21 –
6/30/21 | | |
| 306,730 | | |
| 3 | |
|
$ | 0.25
- 5.59 | | |
$ | 3.78
- 5.59 | | |
| 148%
- 209 | % | |
$ | 1,244,179 | |
7/1/21-9/30/21 | | |
| 777,220 | | |
| 5 | |
|
$ | 1.77 | | |
$ | 1.58 | | |
| 127 | % | |
$ | 816,158 | |
10/01/21 – 12/31/21 | | |
| 3,300,000 | | |
| 3 | |
|
$ | 1.30 | | |
$ | 1.30 | | |
| 129 | % | |
$ | 2,983,393 | |
01/01/22 | | |
| 300,000 | | |
| 2 | |
|
$ | 1.00 | | |
$ | 0.80 | | |
| 126 | % | |
$ | 142,169 | |
During
the six-months ended June 30, 2022, the Company cancelled a total of 211,000 options to management and reallocated these to cover shares
of the Company’s stock to be issued under the Company’s Incentive Stock Plan.
During
the six-months ended June 30, 2022, the Company recognized $142,169 as compensation expense. The Company recognized $5,046,982 as compensation
expense in the financial statements for the year ended December 31, 2021. At June 30, 2022 and December 31, 2021, the Company had 4,975,619
and 4,675,610 options outstanding, respectively.
Note
15 - Acquisition of Magical Beasts, LLC
Effective
February 21, 2020, Jupiter Wellness Inc., a Florida corporation (“Jupiter Sub”), our wholly-owned subsidiary, entered into
a membership interest purchase agreement with Magical Beasts LLC (“Magical Beasts”), a Nevada limited liability corporation,
and Krista Whitley, its sole interest holder, pursuant to which Jupiter Sub acquired all of the membership interests in Magical Beasts
(the “Magical Beasts Acquisition”) in exchange for the following consideration:
● |
$250,000
cash at closing; |
|
|
● |
A
$1,000,000 promissory note, non-interest bearing payable by us, due upon the earlier of i) the closing of this offering or ii) December
31, 2020 valued at its discounted amount of $950,427; and |
|
|
● |
an
option to purchase 250,000 restricted shares of our common stock at an exercise price of $1.00 per share valued at $156,612. The
fair value of these options was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the
assumptions for Black-Scholes valuation model on the reporting date. The market price was valued based upon the last price paid by
third parties for shares of our common stock. |
Schedule of Fair Value of Warrants
| | |
Number of | | |
| | |
| | |
Market | | |
| | |
| |
Reporting | | |
Options | | |
Term | | |
Exercise | | |
Price on | | |
Volatility | | |
| |
Date | | |
Granted | | |
(Years) | | |
Price | | |
Grant Date | | |
Percentage | | |
Fair Value | |
2/21/20 | | |
| 250,000 | | |
| 5 | | |
$ | 1.00 | | |
$ | 1.00 | | |
| 77 | % | |
$ | 156,612 | |
In
connection with the Magical Beasts Acquisition, Jupiter Sub shall enter into an executive employment agreement with Krista Whitley to
act as our Director of Marketing, however, until such agreement is entered into, Jupiter Sub shall pay Krista Whitley an annual salary
of $150,000.
Valuation
and Purchase Price Allocation
According
to ASC 805, the standard of value to be used in the application of purchase accounting rules is fair value. The Company utilized fair
value defined in Statement of Financial Accounting Standard No. 820–10–35–37 Fair Value Measurements and Disclosures.
The determination of the fair value of the consideration and related allocation of the purchase price was determined by management
of the Company with the assistance of a qualified professional valuation firm.
Schedule
of Fair Value Consideration
The fair value of the consideration is as follows: | |
| |
| |
| |
Cash | |
$ | 250,000 | |
Promissory Note, net of discount | |
| 950,427 | |
Stock Options | |
| 156,612 | |
Total Consideration paid | |
$ | 1,357,039 | |
The purchase price allocation is as follows: | |
| | |
| |
| | |
Tangible assets | |
| | |
Cash | |
$ | 4,609 | |
Inventory | |
| 86,220 | |
Total tangible assets | |
| 90,829 | |
| |
| | |
Intangible assets | |
| | |
Tradename-Trademarks | |
| 151,800 | |
Customer base | |
| 651,220 | |
Non-compete | |
| 154,500 | |
Total Intangibles | |
| 957,520 | |
Goodwill | |
| 308,690 | |
| |
$ | 1,357,039 | |
On
July 6, 2020, Brian Menke (the “Plaintiff”) in Nevada court seeking to enforce a judgement that he had obtained in 2012 against
Krista Whitley, the former owner and manager of Magical Beasts LLC., in the amount of $250,000. In July 2020, the Plaintiff brought a
claim in Nevada State Court to impute such judgement to the Company’s wholly owned subsidiary, Magical Beasts, LLC. On August 6,
2020, the court imputed the judgement to Magical Beasts and advised the Company that before paying any funds to Ms. Whitley, they must
first satisfy the judgement to the Plaintiff. On October 12, 2020, the Company, Ms. Whitley and the Plaintiff reached a settlement agreement
whereby the Company agreed that of the $1,000,000 note payable to Ms. Whitley, the first $336,450 be paid to the Plaintiff. Ms. Whitley
in turn agreed that such payments would be applied to the $1,000,000 owed to Ms. Whitley that was to be paid from the proceeds of the
offering and the Plaintiff agreed to withdraw the case against Magical Beasts without prejudice. In November, the Company made a cash
payment of $300,000 to the Plaintiff and issued 8,500 shares of its common stock valued at $8,500. The $308,500 was recorded as an offset
to the $1,000,000 note.
On
January 25, 2021, the Company entered into an Omnibus Amendment to: (1) the Confidential Membership Interest Purchase Agreement, dated
February 21, 2020; (2) the Sales Distributor Agreement, dated February 21, 2020; and (3) the Executive Employment Agreement, dated March
31, 2020 (the “Agreements”). Pursuant to the Omnibus Amendment, the parties (i) acknowledge that the Company has fully satisfied
its obligation of $334,000 to the Plaintiff as Ms. Whitley’s judgment creditors; (ii) agree that in satisfaction of the remaining
balance due to Ms. Whitley under the Agreements, she is to be paid $150,000 in cash; (iii) agree that starting April 1, 2020, Whitley
shall be entitled to individually market and sell the Bella line of products remaining in the Company’s inventory, as identified
in the Omnibus Amendment, and the Company will relinquish its rights to the Bella brand; (iv) agree that the number of shares issuable
upon exercise of the common stock purchase options granted to Ms. Whitley under the Agreements shall be reduced from 250,000 to 185,000,
Ms. Whitely may utilize a cashless exercise feature to exercise such options, subject to a six (6) month holding period on the shares,
and Ms. Whitley shall not be permitted to sell an amount of shares in any week which exceeds 10% of the Company’s total weekly
trading volume in the prior week; (v) agree that Ms. Whitley’s Employment Agreement shall terminate on March 31, 2021 and shall
not renew; (vi) acknowledge that Ms. Whitley has been paid $5,541 for unreimbursed expenses on or about December 30, 2020; and (vii)
the balance of the note due Whitley be forgiven.
As
a result of the above, the Company recognized a gain of $669,200 comprised of the forgiveness of debt of $691,500 and the write-off of
the unamortized portion of Whitley’s the non-compete agreement of $22,300.
In
February 2021, Ms. Whitley exercised her 185,000 options (see Omnibus Agreement above) using the cashless option feature and was issued
159,053 shares of the Company’s restricted common stock in full satisfaction of the option agreement.
Note
16 – Acquisition of SRM Entertainment
On
November 30, 2020, Jupiter Wellness, Inc. (the “Company”), entered into and closed on a share exchange agreement (the “Exchange
Agreement”) with SRM Entertainment, LTD, a Hong Kong Special Administrative Region of the People’s Republic of China limited
company (“SRM”) and wholly owned subsidiary of Vinco Ventures, Inc., a Nevada corporation formerly known as Edison Nation,
Inc. (“Vinco”), and the shareholders of SRM set forth in the Exchange Agreement (the “SRM Shareholders”), pursuant
to which the Company acquired 100% of the shares of SRM’s common stock (the “SRM Common Stock”) from the SRM Shareholders
in exchange for 200,000 shares of the Company’s common stock, valued at $1,040,000, subject to a leak out provision and escrow
of 50,000 shares of the Company’s common stock. Upon closing, and pursuant to the Exchange Agreement, the Company delivered 150,000
shares of its common stock to SRM and placed 50,000 shares in escrow (“Escrow Shares”). Pursuant to the Exchange Agreement,
the Company shall release the Escrow Shares upon SRM generating $200,000 in cash receipts and revenue prior to January 15, 2021. The
SRM Shareholders shall forfeit their right to receive the Escrow Shares if SRM does not generate $200,000 in cash receipts and revenue
prior to December 31, 2020. Pursuant to the Exchange Agreement, the Company assumed all of the financial obligations of SRM, as well
as its employees and offices. As a result of the Exchange Agreement, SRM became a wholly-owned subsidiary of the Company.
Valuation
and Purchase Price Allocation:
According
to ASC 805, the standard of value to be used in the application of purchase accounting rules is fair value. The Company utilized fair
value defined in Statement of Financial Accounting Standard No. 820–10–35–37 Fair Value Measurements and Disclosures.
The determination of the fair value of the consideration and related allocation of the purchase price was determined by management
of the Company.
Schedule of Fair Value Consideration
The fair value of the consideration is as follows: | |
| |
| |
| |
Shares of the Company’s common stock issued | |
| 200,000 | |
Market value of Company’s common stock (11/30/20 Nasdaq closing price) | |
$ | 5.20 | |
Consideration paid | |
$ | 1,040,000 | |
Net tangible liabilities assumed | |
| 339,237 | |
Total consideration | |
$ | 1,379,237 | |
Schedule of Purchase Price Allocation
The purchase price allocation is as follows: | |
| |
| |
| |
Distribution Agreements | |
$ | 437,300 | |
Goodwill | |
| 941,937 | |
Total purchase price allocation | |
$ | 1,379,237 | |
Note
17 - Commitments and Contingencies
The
Company entered into a new office lease Effective July 1, 2021. The primary term of the lease is five years with one renewal option for
an additional three years. Minimum annual lease payments for the primary term and one renewal are as follows:
Schedule of Minimum Annual Lease Payments
Primary Period | |
Amount | |
Amount During Renewal Period | |
Amount | |
July 1 to June 30, 2022 | |
$ | 180,456 | |
July 1 to June 30, 2027 | |
$ | 240,662 | |
July 1 to June 30, 2023 | |
$ | 201,260 | |
July 1 to June 30, 2028 | |
$ | 247,882 | |
July 1 to June 30, 2024 | |
$ | 224,330 | |
July 1 to June 30, 2029 | |
$ | 255,319 | |
July 1 to June 30, 2025 | |
$ | 229,312 | |
| |
| | |
July 1 to June 30, 2026 | |
$ | 233,653 | |
| |
| | |
Under
the new standard for lease reporting, the Company recorded a Right of Use Asset (“ROU”) and an offsetting lease liability
of $870,406 representing the present value of the future payments under the lease calculated using an 8% discount rate (the current borrowing
rate of the company). The ROU and lease liability are amortized over the five-year life of the lease. The unamortized balances at June
30, 2022 were ROU asset of $759,910, current portion of the lease liability of $164,170 and lease liability of $ $620,868. The unamortized
balances as of December, 2021 were ROU of $797,311, the current portion of the lease liability of $118,102 and non-current portion of
the lease liability was $695,961. Additionally, the Company recognized accreted interest expense of $16,089 and $33,885, respectively,
for the new lease during the six-months ended June 30, 2022 and the year ended December 31, 2021.
Legal
Proceedings
On
August 6, 2020, the Company, Messrs. John and Miller and certain affiliated entities filed a lawsuit in the United States District Court,
Southern District of New York against Robert Koch, Bedford Investment Partners, LLC, Kaizen Advisors, LLC and certain other unnamed defendants.
The lawsuit alleges that Mr. Koch and the other defendants are attempting to extort the Company and Messrs. John and Miller to issue
the defendants shares of the Company’s common stock which they claim are owed to them. The Company asserts that they have no oral
or written agreement with Mr. Koch or any of his affiliates that entitle him to shares of the Company’s common stock. The Company’s
complaint seeks actual damages in the amount of $5,000,000 and punitive damages in the amount of $5,000,000. In response, Mr. Koch and
Bedford Investment Partners, LLC (together, the “Koch Parties”) filed their answer and counterclaim, repeating the same claims
that caused the Company to file the lawsuit. On October 6, 2020, the Company moved for judgment on the pleadings to dismiss the defendants’
counterclaim in its entirety. On April 24, 2021, the Company’s motion was granted and all counterclaims were dismissed with prejudice,
except the breach-of-contract and unjust enrichment claims. On June 04, 2021 the Koch Parties filed a Second Amended Counterclaim, re-alleging
their previous breach-of-contract and unjust enrichment counterclaims. On June 25, 2021, the Company filed a motion to dismiss defendants’
Second Amended Counterclaim, which the parties briefed in summer 2021. On February 14, 2022, the court dismissed all of the Koch Parties’
counterclaims except to the extent that they alleged unjust enrichment against Jupiter and Mr. John. On March 22, 2022, the Parties engaged
in a Settlement Conference before The Honorable Sarah L. Cave, which did not resolve the case. On March 25, 2022, The Honorable Lewis
J. Liman granted Jupiter and Mr. John permission to move for summary judgment dismissing the Koch Parties’ unjust enrichment counterclaim,
and scheduled a jury trial to begin no earlier than November 14, 2022.
The
Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course
of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have
a material adverse effect on its financial position, results of operations or liquidity.
Note
18 – Segment Reporting
The
Company has two reportable segments: (i) sales and development of cannabidiol based skin and wellness care and therapeutic products and
(ii) sales of merchandise sold to theme parks. Sales of the theme park merchandise are made through the Company’s wholly owned
subsidiary SRM Entertainment, Inc. Condensed financial information for the six-months ended June 30, 2022 and 2021 follow;
Schedule of Business Combination Segment Allocation
| |
| |
2022 | | |
2021 | |
Jupiter Wellness | |
Revenue | |
$ | 39,950 | | |
$ | 115,189 | |
| |
Cost of Sales | |
| 19,504 | | |
| 55,695 | |
| |
Gross Profit (Loss) | |
$ | 20,446 | | |
$ | 59,494 | |
| |
| |
| | | |
| | |
SRM Entertainment | |
Revenue | |
$ | 3,682,261 | | |
$ | 528,745 | |
| |
Cost of Sales | |
| 3,080,253 | | |
| 381,670 | |
| |
Gross Profit (Loss) | |
$ | 602,008 | | |
$ | 147,075 | * |
| |
| |
| | | |
| | |
Combined | |
Revenue | |
$ | 3,722,211 | | |
$ | 643,934 | |
| |
Cost of Sales | |
| 3,099,757 | | |
| 437,365 | |
| |
Gross Profit (Loss) | |
$ | 622,454 | | |
$ | 206,569 | |
Note
19 - Subsequent Events
In
November 2021, the Company engaged Oppenheimer & Co. to repurchase shares of the Company’s common stock from the public market.
At December 31, 2021, Oppenheimer had not repurchased any of the Company’s securities and as of June 30, 2022 Oppenheimer had purchased
2,690,354
shares of the Company’s common stock at
a total costs of $2,776,726
(average of $1.03
per share). As of June 30, 2022, the Company
had cancelled 2,433,894
of the shares at a cost of $2,579,894.
Through August 10, 2022, Oppenheimer has purchased an additional 135,263
shares at a cost of $103,319.
On June 28, 2022 the Company received
a letter from Nasdaq stating that, because the Company made certain share issuances outside of a shareholder approved equity compensation
plan, Nasdaq had determined that the Company did not comply with Listing Rule 5635(c). On July 26, 2022, the Company submitted a final
compliance plan to Nasdaq consisting of the following corrective actions: (1) on July 20, 2022, the Company’s four executive officers
(Messrs. John, Miller, and McKinnon and Dr. Wilson), all of whom are on the Company’s Board of Directors except for Mr. McKinnon,
each cancelled 2,750 options issued to them in August 2021 pursuant to an Incentive Stock Option Forfeiture Agreement. The cancellation
of the 11,000 options in total enabled the issuance of 11,000 shares to a non-executive employee that took place in 2021 to be reallocated
to be accounted for as if it was originally issued under the 2020 Equity Incentive Plan. The Company’s Board of Directors passed
a resolution on July 25, 2022, making the corresponding change to the Company’s books and records with regard to the 11,000 shares;
and (2) on July 26, 2022, the same four executive officers, returned, and the Company cancelled, a total of 56,496 shares of common stock
issued to them in 2021 outside of a shareholder approved equity compensation plan. Following the remedial measures, the Company was informed
that the Company has regained compliance with the Rule and that this matter is now closed.
In
accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to June 30, 2022 to the date these financial statements
were issued and has determined that it does not have any additional material subsequent events to disclose in these financial statements.