UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File Number: 001-41290

SMART FOR LIFE, INC.

(Exact name of registrant as specified in its charter)

Nevada		81-5360128
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

990 Biscayne Blvd., Suite 505, Miami, FL		33132
(Address of principal executive offices)		(Zip Code)

(786) 749-1221

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		SMFL		N/A⁽¹⁾

(1)

On March 21, 2025, the Nasdaq Stock Market LLC (“Nasdaq”) filed a Form 25 with the U.S. Securities and Exchange Commission to complete the delisting of the Company’s common stock from The Nasdaq Capital Market, which became effective on March 31, 2025. The deregistration of the common stock under Section 12(b) of the Act will be effective 90 days, or such shorter period as the U.S. Securities and Exchange Commission may determine, after filing of the Form 25. The common stock is currently quoted on the OTC Pink Market maintained by the OTC Markets Group, Inc. under the symbol “SMFL.”

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐		Accelerated filer ☐
	Non-accelerated filer ☒		Smaller reporting company ☒
			Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 23, 2025, there were 7,090,728 shares of the registrant’s common stock issued and outstanding.

Smart for Life, Inc.

Quarterly Report on Form 10-Q

Period Ended June 30, 2024

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SMART FOR LIFE, INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

		Page

Condensed Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023		2
Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2024 and 2023 (unaudited)		3
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Three and Six Months ended June 30, 2024 and 2023 (unaudited)		4
Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2024 and 2023 (unaudited)		6
Notes to Unaudited Condensed Consolidated Financial Statements		7

SMART FOR LIFE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2024 AND DECEMBER 31, 2023

(UNAUDITED)

	June 30, 2024			December 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash	$	31,703		$	154,666
Accounts receivable, net		76,761			128,304
Inventory		964,359			1,424,989
Related party receivable, net		750,791			325,942
Prepaid expenses and other current assets		57,392			152,752
Current assets of discontinued operations		—			145,057
Total current assets		1,881,006			2,331,710

Property and equipment, net		176,346			264,937
Intangible assets, net		6,995,194			7,135,748
Goodwill		3,045,000			3,045,000
Deposits and other assets		66,291			98,945
Operating lease right-of-use assets		1,129,940			2,164,862
Assets of discontinued operations		—			4,618,025
Total other assets		11,412,771			17,327,517
Total assets	$	13,293,777		$	19,659,227

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	4,031,369		$	4,078,434
Accrued expenses		3,188,612			4,093,419
Accrued expenses, related parties		394,651			264,141
Contract liabilities		460,820			500,820
Preferred stock dividends payable		—			450,562
Operating lease liability, current		219,906			1,104,443
Debt, current, net of debt discounts		3,273,276			10,702,731
Debt, current – related party		29,547			—
Current liabilities of discontinued operations		—			861,358
Total current liabilities		11,598,181			22,055,908

Long-term liabilities:
Operating lease liability, noncurrent		979,828			1,152,900
Debt, noncurrent, net of debt issuance cost		1,797,603			2,190,615
Debt, noncurrent – related party		220,543			—
Liabilities of discontinued operations, noncurrent		—			647,258
Total long-term liabilities		2,997,974			3,990,773
Total liabilities		14,596,155			26,046,681

Commitments and contingencies

Stockholders’ Deficit:
Series B Preferred Stock, $0.0001 par value, 5,000,000 shares authorized, 19,512 and 26,239 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		2			3
Series C Preferred Stock, $0.0001 par value, 5,000,000 shares authorized, 9,731 and 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		1			—
Common Stock, $0.0001 par value, 7,936,508 shares authorized, 2,464,600 and 373,526 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		246			37
Additional paid in capital		71,472,725			61,280,662
Accumulated deficit		(72,775,351	)		(67,668,156	)
Total stockholders’ deficit		(1,302,378	)		(6,387,454	)
Total liabilities and stockholders’ deficit	$	13,293,777		$	19,659,227

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Revenues:
Products	$	877,799		$	1,324,364		$	1,356,592		$	2,585,351
Advertising		—			10,616			115			355,471
Total revenues		877,799			1,334,980			1,356,707			2,940,822
Cost of revenues:
Products		471,715			1,012,458			742,963			1,981,142
Advertising		—			9,121			—			278,515
Total cost of revenues		471,715			1,021,579			742,963			2,259,657
Gross profit		406,084			313,401			613,744			681,165
Operating expenses:
General and administrative		319,736			1,410,904			962,083			2,405,748
Compensation – administrative		514,684			1,285,447			890,398			2,620,137
Professional services		285,289			916,302			1,143,641			1,220,298
Consulting fees – related parties		—			—			—			27,547
Impairment of intangible assets		—			466,737			—			466,737
Depreciation and amortization expense		323,126			(38,610	)		646,253			397,185
Total operating expenses		1,442,835			4,040,780			3,642,375			7,137,652
Operating loss		(1,036,751	)		(3,727,379	)		(3,028,631	)		(6,456,487	)
Other income (expense):
Other income (expense)		(38,675	)		281,700			(61,762	)		304,852
Gain on debt extinguishment		92,396			189,705			92,396			189,705
Loss on sale of subsidiaries		(148,954	)		—			(132,491	)		—
Interest expense		(1,078,886	)		(560,581	)		(2,066,140	)		(1,923,626	)
Total other income (expense)		(1,174,119	)		(89,176	)		(2,167,997	)		(1,429,069	)
Loss from continuing operations	$	(2,210,870	)	$	(3,816,555	)	$	(5,196,628	)	$	(7,885,556	)
Income (loss) from discontinued operations	$	(152	)	$	(403,441	)	$	89,433		$	(618,755	)
Net loss	$	(2,211,021	)	$	(4,219,996	)	$	(5,107,195	)	$	(8,504,311	)
Loss per share, basic and diluted	$	(2.48	)	$	(122.71	)	$	(4.73	)	$	(360.70	)
Weighted average shares outstanding, basic and diluted		891,200			34,391			1,079,313			23,577

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

For the Three and Six Months Ended June 30, 2024

	Preferred Stock						Common Stock				Additional Paid-In			Accumulated
	Shares			Amount			Shares		Amount		Capital			Deficit			Total
Balance, January 1, 2024		26,239		$	3			373,526	$	37	$	61,280,662		$	(67,668,156	)	$	(6,387,454	)
Exercise of warrants		—			—			3,572		—		38,000			—			38,000
Stock-based compensation		—			—			—		—		27,613			—			27,613
Conversion of series B preferred stock to common stock		(6,727	)		(1	)		10,678		1		—			—			—
Conversion of series C preferred stock to common stock		(16,688	)		(2	)		238,399		24		(22	)		—			—
Common stock issued for services		—			—			9,377		1		91,249			—			91,250
Common stock issued for conversion of notes payable		—			—			285,305		29		1,695,833			—			1,695,862
Series C preferred stock issued for conversion of notes payable		36,507			4			—		—		3,650,677			—			3,650,681
Conversion of Series A dividends to common stock		—			—			102,172		10		450,554			—			450,564
Net loss		—			—			—		—		—			(2,896,174	)		(2,896,174	)
Balance, March 31, 2024		39,331		$	4			1,023,029	$	102	$	67,234,566		$	(70,564,330	)	$	(3,329,658	)
Exercise of warrants		—			—			183,370		18		569,885			—			569,903
Conversion of Series C preferred stock to common stock		(10,088	)		(1	)		144,120		14		(13	)		—			—
Common stock issued for conversion of notes payable		—			—			1,069,759		107		3,499,004			—			3,499,111
Warrant exercise for debt settlement		—			—			44,322		4		142,536			—			142,540
Stock-based compensation		—			—			—		—		26,747			—			26,747
Net loss		—			—			—		—		—			(2,211,021	)		(2,211,021	)
Balance, June 30, 2024		29,243		$	3			2,464,600	$	245	$	71,472,725		$	(72,775,351	)	$	(1,302,378	)

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

For the Three and Six Months Ended June 30, 2023

	Preferred Stock					Common Stock				Additional Paid-In		Accumulated
	Shares			Amount		Shares		Amount		Capital		Deficit			Total
Balance, January 1, 2023		1,000		$	—		77,614	$	8	$	42,630,425	$	(44,992,415	)	$	(2,361,984	)
Exercise of warrants		—			—		978		—		119		—			119
Stock based compensation		—			—		—		—		52,473		—			52,473
Net loss		—			—		—		—		—		(4,284,315	)		(4,284,316	)
Balance, March 31, 2023		1,000		$	—		78,592		8	$	42,683,017	$	(49,276,730	)	$	(6,593,707	)
Conversion of notes and interest to series B preferred stock		29,398			3		—		—		6,462,688		—			6,462,691
Conversion of series A preferred stock		(1,000	)		—		477		—		—		—			—
Stock based compensation		—			—		—		—		27,735		—			27,735
Stock issued as compensation for license agreement and note amendments		—			—		160		—		99,199		—			99,199
Conversion of board fees to series B preferred stock		135			—		—		—		30,000		—			30,000
Conversion of accrued compensation to series B preferred stock		5,285			1		—		—		1,178,310		—			1,178,311
Exercise of warrants		—			—		41,839		4		5,425,017		—			5,425,021
Shares issued for cash, net		—			—		13,738		1		2,151,309		—			2,151,310
Net loss		—			—		—		—		—		(4,219,996	)		(4,219,996	)
Balance, June 30, 2023		34,818		$	4		134,806	$	13	$	58,057,275	$	(53,496,726	)	$	4,560,564

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SMART FOR LIFE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

	Six Months Ended June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(5,107,195	)	$	(8,504,311	)
Adjustments to reconcile net loss to net cash used in operating activities:
Debt issuance cost		220,135			1,021,292
Loss on sales of subsidiaries		132,491			—
Depreciation and amortization expense		646,254			397,185
Gain on extinguishment of debt		(81,144	)		(189,705	)
Impairment on intangible assets		—			466,737
Stock-based compensation		54,360			80,208
Non-cash conversion of payables to debt		1,115,852			—
Non-cash finance fees		559,694			—
Non-cash expenses paid with debt		99,179			—
Non-cash financing expenses – stock issued for services		91,250			99,200
Non-cash operating lease costs, net		(22,687	)		11,535
Provision for bad debt		—			91,320
Changes in operating assets and liabilities:
Accounts receivable, net		51,543			49,953
Inventory		460,630			625,755
Prepaid expenses and other current assets		95,360			(39,700	)
Deposits and other assets		32,654			(158,974	)
Accounts payable		(47,066	)		(371,498	)
Accrued expenses		(270,962	)		957,616
Accrued expenses, related parties		130,510			297,324
Contract liabilities		(40,000	)		(9,312	)
Discontinued operations		467,570			24,462
Net cash used in operating activities		(1,411,573	)		(5,150,913	)

Cash flows from investing activities:
Additions to property and equipment		—			(3,450	)
Net cash used in investing activities		—			(3,450	)

Cash flows from financing activities:
Receipts from related parties		1,245,453			89,000
Payments to related parties		(1,420,304	)		—
Proceeds from issuance of common stock, net		—			2,151,310
Proceeds from exercise of warrants		1,781,500			5,425,140
Proceeds from debt		163,500			2,053,071
Repayments on debt		(231,244	)		(4,309,934	)
Repayment of debt of discontinued operations		(250,295	)		—
Net cash provided by financing activities		1,288,610			5,408,587

Net increase (decrease) in cash		(122,963	)		254,224
Cash, beginning of period		154,666			60,790
Cash, end of period	$	31,703		$	315,014

Supplemental disclosure of cash flow information:
Interest paid	$	17,096		$	242,605

Non-cash investing and financing activities:
Debt issued in connection with acquisition	$	—		$	65,129
Stock issued for exercise of warrants	$	607,903		$	—
Warrant exercise for debt settlement		142,540			—
Non-cash original issue debt discount		26,113			—
Conversion of notes payable to equity		142,779			—
Conversion of interest to equity		512,335			—
Conversion of interest to notes payable	$	121,510		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SMART FOR LIFE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

Note 1 — Description of Business

Smart for Life, Inc., formerly Bonne Santé Group, Inc. (“SMFL”), is a Nevada corporation which was originally formed in the State of Delaware on February 7, 2017 and converted to a Nevada corporation on April 10, 2023. Structured as a global holding company, it is engaged in the development, marketing, manufacturing, acquisition, operation and sale of a broad spectrum of nutraceutical and related products with an emphasis on health and wellness.

On March 8, 2018, SMFL acquired 51% of Millenium Natural Manufacturing Corp. and Millenium Natural Health Products, Inc. On October 8, 2019, SMFL entered into an agreement to acquire the remaining 49% of these companies, subject to certain conditions which were subsequently met. On September 30, 2020, the name of Millenium Natural Manufacturing Corp. was changed to Bonne Sante Natural Manufacturing, Inc. (“BSNM”), and on November 24, 2020, Millenium Natural Health Products Inc. was merged into BSNM. Based in Doral, Florida, BSNM operates a 22,000 square-foot FDA-certified manufacturing facility. It manufactures nutritional products for a significant number of customers. On March 6, 2024, the Company entered into a sale and leaseback agreement relating to BSNM as more fully described under Note 2.

On July 1, 2021, SMFL acquired Doctors Scientific Organica, LLC d/b/a Smart for Life, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. On August 27, 2021, SMFL transferred all of the equity interests of Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. to Doctors Scientific Organica, LLC. On May 19, 2022, SMFL acquired Lavi Enterprises, LLC. On the same date, SMFL transferred all of the equity interests of Lavi Enterprises, LLC to Doctors Scientific Organica, LLC. On December 13, 2022, Oyster Management Services, Ltd. was converted to a limited liability company known as Oyster Management Services, L.L.C. As a result of the foregoing, Oyster Management Services, L.L.C., Lawee Enterprises, L.L.C., U.S. Medical Care Holdings, L.L.C. and Lavi Enterprises, LLC are now wholly owned subsidiaries of Doctors Scientific Organica, LLC (collectively, “DSO”). Based in Riviera Beach, Florida, DSO operates a 30,000 square-foot FDA-certified manufacturing facility. DSO manufactures and sells weight management foods and related products. Additionally, DSO provides manufacturing services for other customers.

On August 24, 2021, Smart for Life Canada Inc. (“DSO Canada”) was established as a wholly owned subsidiary of Doctors Scientific Organica, LLC in Canada. SMFL Canada sells retail products through a retail store location in Montreal Canada and the same location also acts as distribution center for international direct to consumer and big box customers. On January 8, 2024, the retail store location was closed.

On November 8, 2021, SMFL acquired 100% of Nexus Offers, Inc. (“Nexus”). Nexus is a network platform in the affiliate marketing space. Affiliate marketing is an advertising model in which a product vendor compensates third-party digital marketers to generate traffic or leads for the product vendor’s products and services. The third-party digital marketers are referred to as affiliates, and the commission fee incentivizes them to find ways to promote the products being sold by the product vendor. Based in Miami, Florida, Nexus operates virtually.

On December 6, 2021, SMFL acquired 100% of GSP Nutrition Inc. (“GSP”). GSP is a sports nutrition company that offers nutritional supplements for athletes and active lifestyle consumers. Based in Miami, Florida, GSP operates virtually.

On July 29, 2022, SMFL acquired Ceautamed Worldwide, LLC and its wholly-owned subsidiaries Wellness Watchers Global, LLC and Greens First Female LLC (collectively, “Ceautamed”). Ceautamed is based in Boca Raton, Florida and owns the Greens First line of branded products which have been specifically marketed to the healthcare provider sector. On January 29, 2024, the Company entered into an asset purchase agreement pursuant to which the Company agreed to sell nearly all of the assets of Ceautamed for a 49% ownership interest in a new limited liability company, First Health FL LLC, or First Health. The agreement included an option for the 51% owner to purchase the remaining 49% for $1.00 at an unspecified future date. On October 1, 2024, such owner elected to exercise the option, effective as of October 2, 2024, paid to the Company the option price of $1.00, and the Company delivered the remaining 49% interest in First Health to such owner.

On August 15, 2022, SMFL entered into a joint venture with a seller of Ceautamed to form Smart Acquisition Group, LLC. This subsidiary was 50% owned by the Company and 50% owned by Stuart Benson, the former owner and principal of Ceautamed. This company was formed to expand M&A growth initiatives through the identification, negotiation, financing and acquisition of companies by SMFL. On September 22, 2023, we dissolved this subsidiary.

Note 2 — Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements reflect the consolidated operations of SMFL and its wholly owned subsidiaries DSO, DSO Canada, Nexus, GSP and BSNM (collectively, the “Company”), and are prepared in the United States Dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Ceautamed has been deemed to be a discontinued operation. Intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current year presentation.

Reclassifications - Discontinued Operations to Continued Operations

The 2023 financials have been reclassified from reporting BSNM as discontinued operations to continued operations due to a change in the plan of the sale / leaseback of BSNM. In December 2023, with the board’s approval, the Company planned to sell BSNM. The Company had a buyer, who signed an offer letter, but was unable to work out the economics of the deal and therefore had not closed the transaction. Following this, in October 2024, management and the board revised its decision to sell BSNM and continue operating the business line. Also in October 2024, the Company started moving most of the equipment and much of the usable inventory to its Riviera Beach facility. The Company also surrendered the BSNM facility in November 2024 back to the landlord. As a result, the classification of BSNM has been revised in accordance with Accounting Standards Codification (“ASC”) 360-10, Property, Plant, and Equipment. The results of BSNM have been reclassified from discontinued operations to continuing operations for all periods presented to ensure comparability of the financial statements. The impact of the reclassification on previously reported amounts is summarized below:

1. Reclassification of $505,643 of operating income, $834,487 in cost of goods sold, $1,167,481 in expenses and $58,808 in other expense from discontinued operations to continuing operations.

2. Adjustment to depreciation and amortization expenses, as BSNM is no longer classified as held for sale.

3. Reclassification of $1,401,300 in assets and $3,062,749 in liability balances to reflect continuing operations.

The comparative financial statements for the years ended December 31, 2023 and 2024, have been adjusted accordingly.

Ceautamed has been deemed to be a discontinued operation (see Note 3).

These reclassifications did not impact previously reported net income, earnings per share, or the Company’s consolidated financial position.

Basis of Presentation

The Company’s fiscal year end is December 31. The Company uses the accrual method of accounting. The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. The balance sheet as of December 31, 2023 has been derived from audited consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

The unaudited financial information included in this report includes all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results of the full fiscal year.

The condensed consolidated financial statements included in this report should be read in conjunction with the financial statements and notes thereto included in the Company’s financial statements for the fiscal year ended December 31, 2023.

On April 24, 2023, the Company effected a 1-for-50 reverse stock split of its outstanding common stock. The impact of this transaction is reflected within all common stock, options, and warrant information retrospectively in these condensed consolidated financial statements.

On August 2, 2023, the Company effected a 1-for-3 reverse stock split of its authorized and outstanding common stock. The impact of this transaction is reflected within all common stock, options, and warrant information retrospectively in these consolidated financial statements. As a result of the reverse stock split, the Company’s authorized common stock decreased to 166,666,667 shares.

On October 27, 2023, the Company effected a 1-for-3 reverse stock split of its authorized and outstanding common stock. The impact of this transaction is reflected within all common stock, options, and warrant information retrospectively in these consolidated financial statements. As a result of the reverse stock split, the Company’s authorized common stock decreased to 55,555,556 shares.

On April 22, 2024, the Company effected a 1-for-7 reverse stock split of its authorized and outstanding common stock. The impact of this transaction is reflected within all common stock, options, and warrant information retrospectively in these consolidated financial statements. As a result of the reverse stock split, the Company’s authorized common stock decreased to 7,936,508 shares.

Liquidity, Capital Resources and Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained recurring losses and has a deficiency in working capital of approximately $9.7 million at June 30, 2024, which raises substantial doubt about its ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates include, among other items, assessing the collectability of receivables, the realization of deferred taxes, useful lives and recoverability of tangible and intangible assets, assumptions used in the valuation of options, the computation of revenue based on the proportional delivery of services, and accruals for commitments and contingencies. Some of these estimates can be subjective and complex and, consequently, actual results could differ materially from those estimates.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three (3) months or less to be cash equivalents. At June 30, 2024 and December 31, 2023, there were no cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable consists primarily of receivables from customers. The balance is presented net of an allowance for expected credit losses. The Company monitors the financial condition of its customers and records the allowance for expected credit losses on receivables when it believes customers are unable to make their required payments based on factors such as delinquencies and aging trends. The allowance for expected credit loss is the Company’s best estimate of the amount of probable credit losses related to existing accounts receivable. Accounts receivable are presented net of an allowance for expected credit losses of $22,686 and $22,686 at June 30, 2024 and December 31, 2023, respectively.

Inventory

Inventory consists of raw materials, packaging materials, and finished goods and is valued at the lower of cost (first-in, first-out) (replacement cost or net realizable value). An allowance for inventory obsolescence is provided for slow moving or obsolete inventory to write down historical cost to net realizable value. The Company primarily performs its manufacturing for functional foods and nutraceuticals in the form of bars, cookies, powders, tablets and capsules.

The allowance for obsolescence is an estimate established through charges to cost of goods sold. Management’s judgment in determining the adequacy of the allowance is based upon several factors which include, but are not limited to, analysis of slow-moving inventory, analysis of the selling price of inventory, the predetermined shelf life of the product, and management’s judgment with respect to current economic conditions. Given the nature of the inventory, it is reasonably possible the Company’s estimate of the allowance for obsolescence will change in the near term.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major betterments and additions are charged to the asset accounts, while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are charged to expense as incurred. The Company provides for depreciation and amortization over the estimated useful lives of various assets using the straight-line method ranging from 3-7 years.

Goodwill

The Company allocates goodwill to reporting units based on the reporting unit expected to benefit from the business combination. The Company evaluates its reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on December 31 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

No goodwill impairments were recognized during the three and six months ended June 30, 2024 and 2023.

Intangible Assets

Intangible assets consist of customer contracts, developed technology, non-compete agreements, license agreements, and intellectual property acquired in the acquisitions of BSNM, DSO, Nexus, GSP, and Ceautamed. The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives which ranges from 3 to 15 years.

Long-Lived Assets

The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results.

Lease Right-of-Use Assets and Liabilities

The Company records a right-of-use asset and lease liability on the condensed consolidated balance sheets for all leases with terms longer than 12 months. Leases are classified either as finance or operating with the classification affecting the pattern of expense recognition.

Related Parties

The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions (see Note 13).

Debt Issuance Costs

In accordance with ASC 835-30, “Other Presentation Matters,” the Company has reported debt issuance cost as a deduction from the carrying amount of debt and amortizes these costs using the effective interest method over the term of the debt as interest expense.

Fair Value Measurement

Under ASC Topic 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). ASC Topic 820 establishes a hierarchy for inputs to valuation techniques used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that reflect assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. There are three levels to the hierarchy based on the reliability of inputs, as follows:

	Level 1 -	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

	Level 2 -	Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets and liabilities in markets that are not active.

	Level 3 -	Unobservable inputs for the asset or liability. The degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

The Company’s cash and cash equivalents are measured using Level 1 inputs and include cash on hand, deposits in banks, certificates of deposit and money market funds. Due to their short-term nature, the carrying amounts reported in the consolidated balance sheets approximate the fair value of cash and cash equivalents.

The Company has certain assets that are measured at fair value on a non-recurring basis including those described in Note 6, and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value.

Certain nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The estimated fair value of financial instruments is determined using the best available market information and appropriate valuation methodologies. Considerable judgment is necessary, however, in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange, or the value that ultimately will be realized upon maturity or disposition. In the evaluation of the estimated value of such assets, data for determining the value of the estimates are utilized based on the relevant facts and circumstances. The use of different market assumptions may have a material effect on the estimated fair value amounts.

Revenue Recognition

The Company evaluates and recognizes revenues by:

●

identifying the contract(s) with the customer,

●

identifying the performance obligations in the contract,

●

determining the transaction price,

●

allocating the transaction price to performance obligations in the contract; and

●

recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

Products (BSNM, DSO, GSP, and Ceautamed)

The Company generates product revenues by manufacturing and packaging of nutraceutical products as a contract manufacturer for customers. The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. The Company’s general payment terms are short-term in duration. For the three months ended June 30, 2024, revenue was made up of contract manufacturing of $0 and $794,240, and online marketing of $478,792 and $530,124, respectively. For the six months ended June 30, 2024, revenue was made up of contract manufacturing of $0 and $1,279,009, online marketing of $1,354,092 and $1,298,088, wholesale of $0 and $8,254, and direct marketing of $2,500 and $0, respectively. The Company does not have significant financing components or payment terms. The Company records deferred revenues for prepaid amounts from customers due to no performance obligations being met at such time. The Company had unsatisfied performance obligations of $456,762 and $496,762 at June 30, 2024 and December 31, 2023, respectively.

Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

Advertising /Marketing (Nexus)

Nexus generates advertising revenue when sales of listed products are sold by product vendors through its network as a result of the marketing efforts of digital marketers. The products on the network come from several different customers, which pay Nexus a specific amount per sale, the amount of which is dictated by the customer. The revenue is recognized upon the sale of a product by the customer, net of fraudulent traffic or disputed transactions. A portion of the specific amount received by Nexus for that sale is paid out to the digital marketer as a commission, which is recorded in cost of sales.

Nexus’ general payment terms are short-term in duration. Nexus does not have significant financing components or payment terms. Nexus had unsatisfied performance obligations of $4,058 at June 30, 2024 and December 31, 2023.

Freight

Freight costs for the six months ended June 30, 2024 and 2023 were $73,705 and $89,167, respectively. Freight costs for the three months ended June 30, 2024 and 2023 were $41,732 and $30,693, respectively.

Advertising

Advertising costs are expensed as incurred. Advertising costs for the six months ended June 30, 2024 and 2023 were $177,595 and $851,794, respectively. Advertising costs for the three months ended June 30, 2024 and 2023 were $106,562 and $225,702, respectively.

Paycheck Protection Program

The Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with ASC 470, “Debt.” Debt is extinguished when either the debtor pays the creditor or the debtor is legally released from being the primary obligor, either judicially or by the creditor.

Stock-based Compensation

The Company recognizes expense for stock options and warrants granted over the vesting period based on the fair value of the award at the grant date and valued using a Black-Scholes option pricing model to determine the fair market value of the stock options and warrants. Forfeitures are reduced from options and warrants outstanding and the Company calculates the amount of tax benefit available by tracking each stock option award on an employee-by-employee basis and on a grant-by-grant basis. The Company then compares the recorded expense to the tax deduction received for each stock option and warrant grant. The Company’s policy is to recognize forfeitures as they occur.

Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, “Income Taxes”. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. At June 30, 2024 and December 31, 2023, the Company had no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company’s tax years subject to examination by tax authorities generally remain open for three (3) years from the date of filing.

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. Due to the continued losses, the Company has recorded a full valuation allowance at the end of June 30, 2024 and December 31, 2023.

Employee Retention Credits

In accordance with the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), the Company filed for Employee Retention Credits for applicable periods in 2020 and 2021. As amounts to be refunded are subject to IRS calculations, and the timing for processing of the credits are unknown, the Company recognizes as other income amounts refunded upon the receipt of the payment. During the six months ended June 30, 2024 and 2023, the Company received $0 and $586,556, respectively.

Recent Accounting Standards Adopted

On August 5, 2020, the Financial Accounting Standards Board (“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),” which 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 GAAP. This ASU is effective for fiscal years beginning after December 31, 2023. The adoption of this guidance did not materially impact the financial statements.

Recent Accounting Standards Not Yet Effective

In December 2023, the FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures”. The ASU is intended to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation, as well as income taxes paid disaggregated by jurisdiction. The ASU is effective for annual periods beginning after December 15, 2024 and should be applied on a prospective basis, but retrospective application is permitted. We are currently assessing the impact that this ASU will have on the Company’s financial statements.

In March 2024, the FASB issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concept Statements”. The ASU is part of the Board’s standing project to make “Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements.” We are currently assessing the impact that this ASU will have on the Company’s financial statements.

In November 2024, the FASB issued ASU No. 2024-03, “Disaggregation of Income Statement Expenses”. The ASU is intended to improve financial reporting by requiring disaggregated disclosure of certain costs and expenses. The ASU is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The ASU may be applied on either a prospective or retrospective basis. We are currently assessing the impact that this ASU will have on the Company’s financial statements.

The Company has reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a material impact on the Company’s financial statements.

Note 3 — Discontinued Operations

ASC 360, “Property, Plant, and Equipment” requires that a long-lived asset (disposal group) to be sold shall be classified as held for sale in the period in which a set of criteria have been met, including criteria that the sale of the asset (disposal group) is probable, and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. On January 29, 2024, the Company contributed nearly all of the assets of Ceautamed into First Health for a 49% ownership of First Health.

For comparability purposes, certain prior period line items relating to the assets held for sale have been reclassified and presented as discontinued operations for all periods presented in the accompanying consolidated statements of operations, consolidated statements of cash flows, and the consolidated balance sheets.

In accordance with ASC 205-20-S99, “Allocation of Interest to Discontinued Operations,” the Company elected to not allocate consolidated interest expense to discontinued operations where the debt is not directly attributable to or related to discontinued operations.

The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations in the consolidated balance sheets as of June 30, 2024 and December 31, 2023:

	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash	$	—	$	29,872
Accounts receivable, net		—		18,688
Inventory		—		89,997
Prepaid expenses and other current assets		—		6,500
Total current assets		—		145,057

Property and equipment, net		—		4,188
Intangible assets, net		—		3,765,962
Operating lease right-of-use assets		—		702,818
Total other assets		—		4,472,968
Total assets	$	—	$	4,618,025

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	—	$	528,129
Accrued expenses		—		109,623
Contract liabilities		—		99,408
Lease liability, current		—		72,431
Debt, current, net of debt discounts		—		51,767
Total current liabilities		—		861,358

Long-term liabilities:
Lease liability, noncurrent		—		647,258
Total long-term liabilities		—		647,258
Total liabilities	$	—	$	1,508,616

The following information presents the major classes of line items constituting the after-tax loss from discontinued operations in the consolidated statements of operations for the six months ended June 30, 2024 and 2023:

	June 30, 2024			June 30, 2023
Revenues
Products	$	158,612		$	991,492
Cost of revenues
Products		18,989			562,872
Gross profit		139,624			428,620
Operating expenses
General and administrative		28,542			93,596
Compensation		18,205			125,286
Professional services		—			(4,000	)
Depreciation and amortization expense		—			546,203
Total operating expenses		46,747			761,085
Operating profit (loss)		92,877			(332,465	)
Other income (expense)
Other income (expense)		—			8,826
Gain on extinguishment of debt		—			67,332
Interest expense		(3,444	)		(147,133	)
Total other income (expense)		(3,444	)		(70,976	)
Net income (loss) from discontinued operations		89,433			(403,441	)
Income tax expense		—			—
Net income (loss)	$	89,433		$	(403,441	)

Note 4 — Inventory

Inventory consisted of the following:

	June 30, 2024		December 31, 2023
Raw materials	$	270,800	$	386,860
Packaging materials		659,430		755,059
Finished goods		34,129		283,070
		964,359		1,424,989
Less: allowance for obsolescence		—		—
	$	964,359	$	1,424,989

Note 5 — Property and Equipment

Property and equipment consisted of the following:

	Estimated Useful Lives (in Years)	June 30, 2024			December 31, 2023
Furniture and fixtures	7	$	4,461		$	9,135
Equipment – manufacturing	5		1,338,218			1,338,218
Building and equipment	5		3,840			3,840
Leasehold improvements	3		75,061			90,100
			1,421,580			1,441,293
Less: accumulated depreciation and amortization			(1,245,234	)		(1,176,356	)
Property and equipment, net		$	176,346		$	264,937

Depreciation and amortization expense for the six months ended June 30, 2024 and 2023 totaled $82,019 and $126,581, respectively, which is included in depreciation and amortization expense. Depreciation and amortization expense for the three months ended June 30, 2024 and 2023 totaled $41,009 and $46,250, respectively, which is included in depreciation and amortization expense.

Note 6 — Intangible Assets

Intangible assets consisted of the following:

	Estimated Useful Lives (in Years)	June 30, 2024			December 31, 2023
Goodwill		$	3,045,000		$	3,045,000

Customer contracts	7-10	$	5,805,749		$	5,483,263
Developed technology	15		1,660,000			1,660,000
Non-compete agreements	3		840,000			840,000
Patents	5-10		230,000			230,000
Tradename	10-15		2,010,000			2,010,000
Total intangible assets			10,545,749			10,223,263
Less: amortization			(3,550,555	)		(3,087,515	)
Intangibles, net		$	6,995,194		$	7,135,748

Amortization for the six months ended June 30, 2024 and 2023 was $564,234 and $270,604, respectively, which is included in depreciation and amortization expense. Amortization of the three months ended June 30, 2024 and 2023 totaled $282,117 and $(84,860), respectively, which is included in depreciation and amortization expense.

The future amortization is as follows:

Years Ending December 31:
2024 (remainder of year)	$	564,233
2025		1,015,571
2026		858,466
2027		858,466
2028		724,350
Thereafter		2,974,108
Total	$	6,995,194

Note 7 — Leases

Leases Involving Real Estate

Leases of distribution and manufacturing facilities, customer support centers and the Company’s corporate headquarters have lease terms that generally range from 5 to 7 years.

Rental payments on these leases typically provide for fixed minimum payments that increase over the lease term at predetermined amounts. Certain leases of real estate provide for rental increases based on the consumer price index, which are included in the Company’s measurement of lease payments based on the rate or index in effect at lease commencement and are therefore included in the measurement of the lease liabilities.

Leases Involving Equipment

Equipment leases have lease terms that generally range from less than 4 years to 5 years. Rental payments on these leases typically provide for fixed minimum payments that increase over the lease term at predetermined amounts, are included in the measurement of lease payments, and are included in the measurement of lease liabilities. Certain of the leases involving equipment have purchase options. When those options are reasonably certain of being exercised, the Company reflects such purchase options when measuring the lease term and lease payments for those leases.

Financial Information

The following provides information about the Company’s right of use assets and lease liabilities as of June 30, 2024 and December 31, 2023:

	Balance Sheet Classification	June 30, 2024		December 31, 2023
Right of use assets operating leases	Operating leases right-of-use asset	$	1,129,940	$	2,164,862

Lease liabilities
Current
Operating leases	Operating lease liabilities, current portion		219,906		1,104,443
Noncurrent
Operating leases	Operating lease liabilities, non-current portion		979,828		1,152,900
Total lease liabilities		$	1,199,734	$	2,257,343

The components of the Company’s lease costs for the six months ended June 30, 2024 and 2023 are as follows:

		Income Statement Classification		June 30, 2024				June 30, 2024
Rent expense		General and administration		$	176,229			$	263,431

Supplemental cash flow information related to Company’s leases for the six months ended June 30, 2024:

		Operating Leases
Cash paid for amounts included in the measurement of lease liabilities		$	173,067

Weighted average remaining lease term and weighted average discount rate for the Company’s leases as of June 30, 2024:

	Operating Leases
Weighted average remaining term (in years)		4.17
Weighted average discount rate		12.00	%

Annual maturity analysis of the Company’s lease liabilities as of June 30, 2024:

		Operating Leases
2024	$	173,932
2025		357,409
2026		368,132
2027		379,176
2028		259,718
Thereafter		—
Total payments		1,538,367
Less: interest		(338,633	)
Present value of lease liability		1,199,734
Less: Current portion of lease liabilities		(219,906	)
Noncurrent portion of lease liabilities	$	979,828

Note 8 — Debt

Original Issue Discount Subordinated Debentures

In June 2022, the Company commenced offerings of original issue discount subordinated debentures. As of June 30, 2024, the Company has completed multiple closings and issued debentures in the aggregate principal amount of $5,277,241, of which $189,613 was issued with issuances costs of $26,113, and $2,086,977 of principal and $472,178 of interest was converted into shares of the Company’s stock for the six months ended June 30, 2024. The debentures contain an original issue discount of 15%, or an aggregate original issue discount of $726,706. As a result, the total purchase price was $4,550,535. The debentures bear interest at a rate of 17.5% per annum and are due from January 2024 through January 2025. The outstanding principal amount and all accrued interest is due and payable on the earlier of (i) the completion of the Company’s next equity financing in which it receives gross proceeds in excess of $20 million, (ii) twenty-four months after the date of issuance or (iii) within 30 days after election of repayment from the holder so long as the election is after the 6-month anniversary of the debenture. The Company may voluntarily prepay the debentures in whole or in part without premium or penalty. The debentures contain customary events of default for a loan of this type. The debentures are unsecured and are subordinated in right of payment to the prior payment in full of all senior indebtedness and are pari passu in right of payment to any other unsecured indebtedness incurred by the Company in favor of any third party. The outstanding principal balance of the debentures was $2,518,110 and $4,415,476, the unamortized debt issuance cost was $17,334 and $84,774 and accrued interest was $778,810 and $1,053,260 as of June 30, 2024 and December 31, 2023, respectively.

On February 21, 2024, the Company received a judgement on an original issue discount subordinated debenture dated August 26, 2022, whereby the outstanding amount of the debenture was amended to $399,306, inclusive of legal fees. On May 30, 2024, the Company entered into a memorandum of understanding with the holder and the parties executed a conversion agreement to convert a portion of the outstanding balance of the debenture totaling $256,765 into 79,840 shares of common stock and the outstanding balance of $142,540 to be exchanged for prepaid warrants exercisable for 44,322 warrant shares. As of June 30, 2024, the outstanding principal balance of the debenture was $0 and accrued interest was $0.

Original Issue Discount Secured Subordinated Note

On July 29, 2022, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which it sold an original issue discount secured subordinated note in the principal amount of $2,272,727 to such investor. The note contains an original issue discount of 12%, or $272,727. As a result, the total purchase price was $2,000,000, the proceeds of which were used to fund the acquisition of Ceautamed. The note shall bear interest at the rate of 16% per annum and matures on July 29, 2027. The outstanding principal and all accrued interest shall be amortized on a 60-month straight-line basis. The Company may prepay the principal and all accrued and unpaid interest on the note without penalty, in whole or in part; provided however, in no event before January 15, 2023, unless with the explicit prior written approval of the holder. The note contains customary events of default for a loan of this type. The note is guaranteed by BSNM, DSO, Nexus, GSP and Ceautamed and is secured by a security interest in all of the assets of the Company and such guarantors; provided that such security interest is subordinate to the rights of the lenders under any senior indebtedness (as defined in the note). On January 26, 2024, the note was modified increasing the principal amount to $2,800,452 inclusive of interest and finance fees, and the interest changed to 13%. For the six months ended June 30, 2024, $1,600,598 was converted into shares of common stock. The outstanding principal balance of the note was $1,199,854 and $2,182,853, the unamortized debt issuance cost was $54,625 and $172,807 and accrued interest was $66,666 and $494,700 as of June 30, 2024 and December 31, 2023, respectively.

Acquisition Notes – Related Parties

On July 1, 2021, the Company issued a 6% secured subordinated promissory note in the principal amount of $3,000,000 to a related party, Sasson E. Moulavi (“Dr. Moulavi”), in connection with the acquisition of DSO. This note accrued interest at 6% per annum and the outstanding principal and interest was amortized on a straight-line basis and was payable quarterly in accordance with the amortization schedule, with all amounts due and payable on July 1, 2024. On November 29, 2022, the Company entered into a letter agreement with Sasson E. Moulavi to amend the terms of the note. Pursuant to the letter agreement, the parties agreed to amend and restate the note to amend the amortization schedule, with the first payment deferred until February 15, 2023 and all amounts due and payable on August 15, 2024. In exchange for the agreement of Dr. Moulavi to enter into the letter agreement, the Company agreed to (i) issue to Dr. Moulavi 100,000 shares of common stock under the Company’s 2022 Equity Incentive Plan and (ii) pay to Dr. Moulavi a fee of $50,000 in cash, which shall be paid upon completion of the Company’s anticipated debt financing and is included in debt balance. On February 6, 2024, $123,930 of principal was converted into 121,500 shares of common stock. On February 21, 2024, $100,400 of principal was converted into 125,500 shares of common stock. On February 28, 2024, $126,028 of principal was converted into 128,600 shares of common stock. On February 29, 2024, the outstanding balance and accrued interest of $1,038,592 and $167,667, respectively, was converted into 12,063 shares of series C preferred stock and 53,659 shares of common stock. The outstanding principal balance of this note was $0 and $1,388,950 and accrued interest was $0 and $37,697 as of June 30, 2024 and December 31, 2023, respectively.

On November 8, 2021, the Company issued a 5% secured subordinated promissory note in the principal amount of $1,900,000 to related parties, Justin Francisco and Steven Rubert, in connection with the acquisition of Nexus. This note accrued interest at 5% per annum and the outstanding principal and interest was amortized on a straight-line basis and was payable quarterly in accordance with the amortization schedule attached to the note, with all amounts due and payable on November 8, 2024. During the year ended December 31, 2023, the outstanding balance including accrued interest was converted into series B preferred stock. As of June 30, 2024, the outstanding principal balance of this note was $0 and accrued interest was $0.

On July 29, 2022, the Company issued secured subordinated convertible promissory notes in the aggregate principal amount of $2,150,000 in connection with the acquisition of Ceautamed, which are partially with a related party. The notes bore interest at the rate of 5% per annum with all principal and accrued interest being due and payable in one lump sum on July 29, 2025; provided that upon an event of default (as defined in the notes), such interest rate shall increase to 10%. On January 29, 2024, the notes were forgiven as part of the transaction in which the assets of Ceautamed were contributed into First Health. The outstanding principal balance of these notes was $0 and accrued interest was $0 as of June 30, 2024 and December 31, 2023.

On July 29, 2022, the Company issued secured subordinated promissory notes in the aggregate principal amount of $2,150,000 in connection with the acquisition of Ceautamed, which are partially with a related party. The notes shall bear interest at the rate of 5% per annum and mature on July 29, 2025; provided that upon an event of default (as defined in the notes), such interest rate shall increase to 10%. The outstanding principal and all accrued interest shall be amortized on a five-year straight-line basis and payable quarterly in accordance with the amortization schedule to the notes. The Company may redeem all or any portion of the notes at any time without premium or penalty. The notes contain customary covenants and events of default for loans of this type, including upon any default under the senior indebtedness (as defined in the notes). The notes are guaranteed by Ceautamed and are secured by a security interest in all of the assets of such guarantors; provided that such security interest is subordinate to the rights of the lenders under any such senior indebtedness. On January 29, 2024, $1,097,997 of this note was forgiven as part of the transaction in which the assets of Ceautamed were contributed into First Health. Also on January 29, 2024, the remaining balance of $1,094,496 was modified to $351,293. The outstanding principal balance of these notes was $51,193 and $2,189,493 and accrued interest was $1,287 and $237,430 as of June 30, 2024 and December 31, 2023, respectively.

On July 29, 2022, the Company issued secured subordinated promissory notes in the aggregate principal amount of $1,300,000 in connection with the acquisition of Ceautamed, which are partially with a related party. The notes bore interest at the rate of 5% per annum with all principal and accrued interest being due and payable in one lump sum ninety (90) days from the date of the note; provided that upon an event of default (as defined in the notes), such interest rate shall increase to 10%. On November 28, 2022, the Company entered into letter agreements with the holders of most of the notes to amend the terms of these notes. Pursuant to letter agreements, the parties agreed to extend the maturity date to June 1, 2023 and agreed to a seven month payment schedule, with the first payment due December 1, 2022. The parties also agreed to increase the default interest rate from 10% to 15%. The Company also agreed that if an event of default (as defined in the notes) has occurred and is continuing, then the Company shall not create any senior indebtedness (as defined in the notes) without the consent of the holders of a majority of the principal amount of the notes. In exchange for the agreement of the holders to enter into the letter agreements, the Company agreed to pay certain amendment fees as more particularly described in the letter agreements. The Company is in the process of negotiating a similar extension of one remaining note in the principal amount of $100,000. The Company may redeem all or any portion of the notes at any time without premium or penalty. The notes contain customary covenants and events of default for loans of this type, including upon any default under the senior indebtedness (as defined in the notes). The notes are guaranteed by Ceautamed and are secured by a security interest in all of the assets of such guarantors; provided that such security interest is subordinate to the rights of the lenders under any such senior indebtedness. On January 29, 2024, $1,210,000 of this note was forgiven as part of the transaction in which the assets of Ceautamed were contributed into First Health. The outstanding principal balance of this note was $90,000 and $90,000 and accrued interest was $8,775 and 6,500 as of June 30, 2024 and December 31, 2023, respectively.

Other Promissory Notes and Cash Advances

Promissory Notes

On July 1, 2021, the Company entered into a loan agreement with Diamond Creek Capital, LLC for a term loan in the principal amount of up to $3,000,000. The loan bore interest at a rate of 15.0% per annum, provided that upon an event of default, such rate would increase by 5%. The loan was due and payable on the earlier of July 1, 2022 or upon completion of the Company’s initial public offering (the “IPO”). The Company repaid $1,325,000 of the principal balance and $27,604 of the interest from the proceeds of the IPO. In connection with such repayment, the lender agreed that the remaining loan was due and payable on July 1, 2023. On April 20, 2023, the Company entered into an amendment to the loan agreement, which provided that the Company would make a payment towards the reduction of principal in the amount of $250,000 within two business days of certain events, which did not occur. On January 29, 2024, this note was fully paid as part of the transaction in which the assets of Ceautamed were contributed into First Health. The outstanding principal balance of this note was $0 and $542,163 and accrued interest was $0 and $0 as of June 30, 2024 and December 31, 2023, respectively.

In 2018, the Company entered into an amended note agreement and convertible promissory note for $200,000 with a third party. The outstanding amount was $100,000 and $100,000 and accrued interest was $167,351 and $149,351 as of June 30, 2024 and December 31, 2023, respectively. The amended loan agreement and convertible promissory note (convertible at fair value of shares) was in default as of June 30, 2024.

On October 12, 2022, the Company issued promissory notes in the principal amount of $258,000 to third parties. These promissory notes bear interest of 15% to 20% and are payable on December 2022 and January 2023. During the year ended December 31, 2023, the Company made various principal and interest payments on the notes. On May 26, 2023, only the remaining principal balance of $105,000 was converted into 471 shares of the Company’s series B preferred stock, the accrued interest was not converted. The outstanding principal balance was $0 and accrued interest was $11,999 as of June 30, 2024 and December 31, 2023.

On November 2, 2022, the Company issued a promissory note to a board member in the principal amount of $50,000. This note bears interest at a rate of 12% and is due on demand. During the year ended December 31, 2023, the principal balance was paid in full, however the accrued interest was not paid. The outstanding amount was $0 and accrued interest was $2,387 as of June 30, 2024 and December 31, 2023.

On December 6, 2022, the Company issued a promissory note to a board member in the principal amount of $30,000. This note bore interest at a rate of 12% and was due on demand. The remaining principal balance of $30,000 as of May 26, 2023 was converted into 135 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On December 21, 2022, the Company issued a promissory note to a board member in the principal amount of $100,000. This note bore interest at a rate of 12% and was due on demand. The remaining principal balance of $100,000 as of May 26, 2023 was converted into 449 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On February 8, 2023, the Company issued a promissory note to a board member in the principal amount of $50,000. This note bore interest at a rate of 12% and was due on demand. The remaining principal balance as of May 26, 2023 was converted into 225 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On February 14, 2023, the Company issued a promissory note to a third party in the principal amount of $50,000. This note bore interest at a rate of 12% and was due on demand. During the year ended December 31, 2023, the Company made various principal and interest payments on the note. The remaining principal balance of $20,000 as of May 26, 2023 was converted into 90 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On February 19, 2023, the Company issued a promissory note to a third party in the principal amount of $50,000. This note bore interest at a rate of 12% and was due on August 26, 2023. The remaining principal balance as of May 26, 2023 was converted into 225 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On March 7, 2023, the Company issued a promissory note to a board member in the principal amount of $137,000. This note bears interest at a rate of 12% and is due on demand. During the year ended December 31, 2023, the Company made various principal and interest payments on the notes. On May 26, 2023, $50,000 of principal and $1,137 of interest was converted into 230 shares of the Company’s series B preferred stock. The outstanding amount was $51,294 and $51,294 and accrued interest was $9,278 and 5,312 as of June 30, 2024 and December 31, 2023, respectively.

On April 13, 2023, the Company issued a promissory note to a third party in the principal amount of $59,000. This note bore interest at a rate of 12% and was due on demand. The remaining principal balance as of May 26, 2023, was converted into 265 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On April 21, 2023, the Company issued a promissory note to a board member in the principal amount of $53,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $30,000 and $30,000 and accrued interest was $1,600 and $800 as of June 30, 2024 and December 31, 2023, respectively.

On June 22, 2023, the Company issued an original issue discount promissory note to a board member in the principal amount of $118,000. This note bears interest at a rate of 17.5% and is due on demand. The outstanding amount was $56,400 and $118,000, an unamortized discount was $0 and $0, and accrued interest was $15,756 and $10,862 as of June 30, 2024 and December 31, 2023, respectively.

On July 12, 2023, the Company issued a promissory note to a third party in the principal amount of $25,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $25,000 and $25,000 and accrued interest was $2,910 and $1,414 as of June 30, 2024 and December 31, 2023, respectively.

On August 10, 2023, the Company issued a promissory note to a board member in the principal amount of $50,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $50,000 and $50,000 and accrued interest was $5,342 and $2,351 as of June 30, 2024 and December 31, 2023, respectively.

On August 15, 2023, the Company issued a promissory note to a board member in the principal amount of $30,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $30,000 and $30,000 and accrued interest was $3,156 and $1,361 as of June 30, 2024 and December 31, 2023, respectively.

On August 24, 2023, the Company issued a promissory note to a third party in the principal amount of $60,000. This note bears interest at a rate of 12% and is due on demand. On May 25, 2023, the principal of $60,000 and interest of $6,451 were converted into 346 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On September 7, 2023, the Company issued a promissory note to a board member in the principal amount of $35,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $35,000 and $35,000 and accrued interest was $3,418 and $1,323 as of June 30, 2024 and December 31, 2023, respectively.

On September 14, 2023, the Company issued a promissory note to a third party in the principal amount of $100,000. This note bears interest at a rate of 12% and is due on demand. On February 29, 2024, the principal of $100,000 and accrued interest of $5,523 were converted into 1,055 shares of the Company’s series C preferred stock. The outstanding amount was $0 and $100,000 and accrued interest was $0 and $3,551 as of June 30, 2024 and December 31, 2023, respectively.

On September 29, 2023, the Company issued a promissory note to a board member in the principal amount of $35,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $35,000 and $35,000 and accrued interest was $3,164 and $1,070 as of June 30, 2024 and December 31, 2023, respectively.

On October 4, 2023, the Company issued a promissory note to a board member in the principal amount of $15,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $15,000 and $15,000 and accrued interest was $1,332 and $434 as of June 30, 2024 and December 31, 2023, respectively.

On October 11, 2023, the Company issued a promissory note to a third party in the principal amount of $24,000. This note bears interest at a rate of 12% and is due on demand. On February 29, 2024, the principal of $24,000 and accrued interest of $6,157 was converted into 302 shares of the Company’s series C preferred stock. The outstanding amount was $0 and $24,000 and accrued interest was $0 and $639 as of June 30, 2024 and December 31, 2023, respectively.

On November 14, 2023, the Company issued a promissory note to a board member in the principal amount of $30,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $30,000 and $30,000 and accrued interest was $2,259 and $464 as of June 30, 2024 and December 31, 2023, respectively.

On November 30, 2023, the Company issued a promissory note to a board member in the principal amount of $15,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $15,000 and $15,000 and accrued interest was $1,050 and $153 as of June 30, 2024 and December 31, 2023, respectively.

Promissory Note - Related Party

On March 5, 2024, the Company issued a promissory note to a related party in the principal amount of $250,000. This note bears interest at a rate of 12% and is due on March 5, 2029. At June 30, 2024, the outstanding amount was $250,000 and accrued interest was $9,616.

Cash Advances

In July 2022, the Company entered into a cash advance agreement for $650,000 with a required repayment amount of $897,750, which requires weekly payments of approximately $40,806. The outstanding amount was $97,846 and $147,500 as of June 30, 2024 and December 31, 2023, respectively.

In August 2022, the Company entered into a cash advance agreement for $100,000 with a required repayment amount of $146,260, which requires weekly payments of approximately $6,200. The outstanding amount was $2,020 and $4,360 as of June 30, 2024 and December 31, 2023, respectively.

In September 2022, the Company entered into a cash advance agreement for $243,750 with a required repayment amount of $372,500, which requires weekly payments of approximately $15,000. The outstanding amount was $12,584 as of June 30, 2024 and December 31, 2023.

In November 2022, the Company entered into cash advance agreements for $592,236 with a required repayment amount of $994,460, which requires weekly payments of approximately $52,422. The outstanding amount was $0 and $83,037 and unamortized debt issuance cost of $0 and $0 as of June 30, 2024 and December 31, 2023, respectively.

In December 2022, the Company entered into cash advance agreements for $293,000 with a required repayment amount of $439,207, which requires weekly payments of approximately $39,905. The outstanding balance was $8,271 and unamortized debt issuance cost was $0 as of June 30, 2024 and December 31, 2023.

In June 2023, the Company refinanced the January 2023 agreements with balances of $284,029 and entered into cash advance agreements and received an additional $107,071 with a required repayment amount of $604,035, which requires weekly payments of approximately $48,625. The outstanding amount was $0 and $497,158 and unamortized debt issuance cost was $0 and $0 as of June 30, 2024 and December 31, 2023, respectively.

In July 2023, the Company entered into cash advance agreements for $74,950 with a required repayment amount of $74,950, which requires weekly payments of approximately $7,495. The outstanding amount was $7,974 and $30,974 as of June

SEC Form 10-Q filed by Smart for Life Inc.