UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

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

 

For the Quarterly Period Ended September 30, 2015

Commission File Number: 000-55144

 

NutraFuels, Inc.

(Exact name of registrant as specified in its charter)

 

                                                   6601 Lyons Road, Suite L-6

                                                         Coconut Creek, FL                 33073

                                        (Address of principal executive offices)    (Zip Code)

   Telephone 888-509-8901

(Registrant’s telephone number, including area code)

 

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 periods 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

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

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

(Do not check if a smaller reporting company)

 

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 September 30, 2015, and December 15, 2015 we had 22,917,114 and 25,164,114 shares of common stock outstanding, respectively.

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TABLE OF CONTENTS

 

 

 

PART I - FINANCIAL INFORMATION	PAGE
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk	15
Item 4. Controls and Procedures	16
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings	16
Item 1A. Risk Factors	16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3. Defaults Upon Senior Securities	18
Item 4. Mine Safety Disclosures	18
Item 5. Other Information	18
Item 6. Exhibits	22
SIGNATURES	23

 

 

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PART I: FINANCIAL INFORMATION

NutraFuels, Inc. CONDENSED BALANCE SHEET ASSETS
		September 2015	December 31, 2014
		(unaudited)
Current Assets
Cash		$ 21,886	$ 25,053
Accounts Receivable, net		33,162	1,679
Inventory, net		112,292	70,000
Prepaid Expenses		1,828,689	0
Total Current Assets		1,996,029	96,732
Property, Plant and Equipment, net of accumulated depreciation of $139,862 and $98,534, respectively		240,509	248,963
		$ 2,236,538	$ 345,695
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts Payable		$ 41,194	$ 34,010
Accrued Liability		351,276	236,280
Convertible Debt, net of discount of $83,590 and $162,160		791,411	617,840
Convertible Debt – Related Party		210,000	210,000
Notes Payable, net of discount of $0 and $8,106		55,000	46,894
Notes Payable – Related Party		462,500	150,000
Derivative Liability		275,000	-
Liability for Stock to be issued		107,900	-
Total Current Liabilities		2,294,281	1,295,024
Long Term Liabilities
Convertible Debt, net of discount of $211,816 and $0		63,184	-
Total Long Term Liabilities		63,184	-
Total Liabilities		2,357,465	1,295,024
Commitments and Contingencies
Shareholders’ Deficit
Preferred Stock: par value .0001; Authorized 10,000; issued and             outstanding 1,000 and 1,000, respectively		-	-
Common Stock; par value .0001; Authorized 499,990,000; issued         and outstanding 22,917,114 and 22,282,114, respectively		2,292	2,228
Additional Paid In Capital		6,516,483	3,904,936
Accumulated Deficit		(6,639,702)	(4,856,493)
Total Shareholders’ Deficit		(120,927)	(949,329)
Total Liabilities and Shareholders’ Deficit		$ 2,236,538	$ 345,695

See Notes to Unaudited Condensed Financial Statements

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See Notes to Unaudited Condensed Financial Statements

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NutraFuels, Inc. CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
			For the Nine Months Ended September 30, 2015	For the Nine Months Ended September 30, 2014
OPERATING ACTIVITIES
Net Loss			$ (1,783,208)	$ (1,317,331)
Adjustment to reconcile net loss to net cash used in    operations:
Stock Compensation			615,822	29,314
Depreciation			41,327	39,307
Amortization of Debt Discount			244,861	191,427
Reclassification of Down Payment for Equipment			-	(22,400)
Income from Indebtedness			-	(7,956)
Changes in operating assets and liabilities:
Accounts receivable			(31,483)	(2,435)
Subscription Receivable			-	25,000
Inventory			(42,292)	810
Accrued expenses			114,996	62,787
Accounts payable			7,185	(74,999)
Net Cash used in Operating Activities			(832,792)	(1,076,476)
INVESTING ACTIVITIES
Purchase of fixed assets			(32,875)	(4,724)
Net cash used in Investing Activities			(32,875)	(4,724)
FINANCING ACTIVITIES
Common stock issued for cash			180,000	650,000
Proceeds from issuance of Debt			370,000	420,000
Proceeds from issuance of Debt – Related Party			312,500	-
Repayments of Debt – Related Party			-	(25,000)
Net provided by Financing Activities			862,500	1,045,000
Net Cash Decrease for the Period			(3,167)	(36,200)
Cash at beginning of Period			25,053	63,255
Cash at end of Period			$ 21,886	27,055
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income Taxes			$ -	$ -
Interest			$ -	$ -
NONCASH INVESTING AND FINANCIING ACTIVITIES
Debt Discount from Beneficial Conversion Feature			$ 370,000	$ 43,822
Shares issued for the Issuance of Debt			$ -	$ 52,778
Warrants issued for the issuance of Debt			$ -	$ 290,000

See Notes to Unaudited Condensed Financial Statements

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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS:

NOTE 1 – DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

NutraFuels, Inc. (“We”, or the “Company”) is the producer and distributor of nutritional supplements that uses micro molecular formulae and a utilization of an oral spray to provide faster and more efficient absorption.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, the accompanying unaudited financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation. Operating results for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to the financial statements and the footnotes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission.

Certain reclassifications have been made to the comparative period condensed financial statements in order to conform to the current period classifications.  

NOTE 2 – GOING CONCERN

These accompanying condensed financial statements have been prepared assuming that we will continue as a going concern.  As shown in the accompanying condensed financial statements, we have sustained losses from inception, including a net loss of approximately $1,800,000 for the nine month period ended September 30, 2015, and we have working capital and accumulated deficits that raise substantial doubt about our ability to continue as a going concern.  In response to these conditions, we seek to raise additional capital through the sale of debt or equity securities, or through borrowings from financial institutions or individuals. The condensed financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

NOTE 3 – CONVERTIBLE DEBT & NOTES PAYABLE

In February 2015, we sold 25,000 units to an investor in exchange for $25,000.  The 25,000 units consist of: (i) 25,000 shares of our common stock; (ii) 2-year options to purchase 25,000 shares of our common stock at $0.20, and (iii) a 2-year convertible promissory note in the amount of $25,000. The note is non-interest bearing and is convertible into shares of our common stock at the higher of (a) twenty five cents ($.25) or (b) fifty percent (50%) of the average closing price of our shares as reported by the OTC Markets for the 10 trading days prior to the day of conversion.    

The conversion rights embedded in the note are accounted for as a derivative financial instrument because of the beneficial conversion feature embedded therein.  The beneficial conversion feature was valued and recorded at the date of issuance at fair value, and recorded as a debt discount.  

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The proceeds received were allocated first to the derivative liability, with the residual allocated between the shares and options issued based on their relative fair values, as follows:

Residual value of shares				$ 0
Residual fair value of options				$ 0
Fair value of BCF (derivative)				$ 25,000

The note was recorded net of a full discount in the amount of $25,000, which is being amortized over the initial term of the note.  At September 30, 2015, the unamortized balance of the debt discount is $17,295.

In April 2015, we sold 250,000 units to an investor in exchange for $250,000.  The 250,000 units consist of: (i) 250,000 shares of our common stock; (ii) 2-year options to purchase 250,000 shares of our common stock at $0.20, and (iii) a 2-year convertible promissory note in the amount of $250,000. The note bears 10% interest and is convertible into shares of our common stock at the higher of (a) twenty five cents ($.25) or (b) fifty percent (50%) of the average closing price of our shares as reported by the OTC Markets for the 10 trading days prior to the day of conversion.    

The conversion rights embedded in the note are accounted for as a derivative financial instrument because of the beneficial conversion feature embedded therein.  The beneficial conversion feature was valued and recorded at the date of issuance at fair value, and recorded as a debt discount.  

The proceeds received were allocated first to the derivative liability, with the residual allocated between the shares and options issued based on their relative fair values, as follows:

Residual value of shares				$ 0
Residual fair value of options				$ 0
Fair value of BCF (derivative)				$ 250,000

The note was recorded net of a full discount in the amount of $250,000, which is being amortized over the initial term of the note.  As of September 30, 2015, the unamortized balance of the debt discount is $194,521.

In August 2015, we entered into convertible promissory notes with four individual investors for a total amount of $95,000.  The notes are interest bearing at a fixed rate of ten percent (10%) and are convertible into shares at $0.10 per share.

The notes were recorded net of a full discount in the amount of $95,000, which is being amortized over the initial term of the note. Each note has a term of one (1) year. At September 30, 2015, the unamortized balance of the debt discount for the four (4) promissory notes total $83,590.

In August 2015, we extended the maturity of our $100,000 promissory note to August 26, 2016.

During the third quarter of 2015, we received $50,000 in net proceeds from related party loans.

 

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Scheduled Debt Principal Maturities
Scheduled principal maturities for debt issuances at September 30, 2015 is as follows:
Year ended December 31, 2015						$            210,000
Year ended December 31, 2016						930,000
Year ended December 31, 2017						275,000
Total						1,415,000
Less Unamortized Debt Discount						(295,406)
Plus General Operating Loans						462,500
Balance as of September 30, 2015						$        1,582,094

NOTE 4 – SHAREHOLDERS’ EQUITY

During February 2015, we issued 25,000 shares of our common stock and warrants to purchase 25,000 shares of our common stock in connection with the sale of 25,000 units. (see Note 3).

During March 2015, we issued 60,000 shares of our common stock for consulting services rendered to us.  We valued these shares at $1.94 per share, the closing stock price on the date of issuance.

During April 2015, we issued 100,000 shares of our common stock for consulting services rendered to us. We value these shares at $0.51 per share, the closing stock price on the date of issuance.

During April 2015, we issued 250,000 shares of our common stock and warrants to purchase 250,000 shares of our common stock in connection with the sale of 250,000 units (see Note 3).

During June 2015, we issued 200,000 shares of our common stock and warrants to purchase 200,000 shares of our common stock in connection with the sale of 200,000 units.

During August 2015, we received $40,000 in exchange for 400,000 shares of our common stock and warrants to purchase 400,000 shares of our common stock in connection with the sale of 400,000 units. The 400,000 shares were issued in October 2015 and the $40,000 received has been recorded under Liabilities for Stock to be issued under the Liabilities section of the Balance Sheet.

During September 2015, we received $30,000 in exchange for 300,000 shares of our common stock and warrants to purchase 300,000 shares of our common stock in connection with the sale of 300,000 units. The 300,000 shares were issued in October 2015 and the $30,000 received has been recorded under Liabilities for Stock to be issued under the Liabilities section of the Balance Sheet.

On July 18, 2015, we entered into a consulting agreement with WT Consulting Group, LLC. For consulting services rendered, we will pay a $2,000 per month retainer for services as well as 25,000 restricted shares per month. The above compensation for consulting services under this agreement will begin July 18, 2015.

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In July 2015, we entered into an amendment to our agreement with Sullivan Media Group, Inc., a Nevada Corporation (“SMG”). In connection with the amendment, we agree to issue warrants to acquire approximately 4,500,000 shares of our common stock, which were issued in August 2015.

In connection to the above agreement we recorded a prepaid expense of $2,239,211. Based on the services rendered from November 1, 2014 to September 30, 2015 we recognized stock compensation expense of $410,522. The prepaid expense balance as of September 30, 2015 is $1,828,689.  

We determined the fair value of the warrants using a Black Scholes option pricing model with the following inputs:

Risk-free interest rate			0.73	%
Dividend yield			-	%
Volatility factor			145	%
Expected life (years)			2

The volatility was determined by referring to the average historical volatility of a peer group of public companies because we do not have a trading history from which to determine historical volatility. The risk free interest rate was determined as of September 30, 2015 through the Federal Reserve System historical data of daily interest rates.

On August 1, 2015, we entered into a consulting agreement with Peter Cianci. In consideration for future consulting services, we agreed to issue shares of its common stock in exchange for services rendered on a deal by deal basis. Thirty thousand common shares were issued to Peter Cianci on October 1, 2015. In connection to the services rendered and shares issued we recognized stock compensation expense and a Liability for Stock to be issued.

On August 1, 2015, we entered into a consulting agreement with Five Star Labs, LLC. In consideration for future consulting services, we agreed to issue restricted shares on a deal by deal basis. This compensation is deemded fully earned at such time as Five Star Labs, LLC provides its services. The shares were issued on October 1, 2015. In connection to the services rendered and shares issued we recognized stock compensation expense and a Liability for Stock to be issued.

NOTE 5 – COMMITMENTS & CONTINGENCIES

During January 2014, we were granted a license to market nutritional supplements under the TapouT XT name to retail locations worldwide. Under the license agreement, we were required to pay a royalty fee to Nutra Evolution of 12.5% of net sales. The agreement provided us with an initial test period of four years, until January 31, 2018, to distribute the product. We paid $85,000 in conjunction with the license. At the expiration of this four year period, we had the option to extend the license for three (3) consecutive three (3) year terms.

The agreement originally required us to pay minimum royalties of $400,000 during the first contract year; $750,000 during the second contract year and $1,000,000 each year thereafter.  Subsequent to March 31 2015, we terminated the license agreement and no longer are obligated to pay the minimum royalties.

In late April 2014, we entered into an agreement with Sullivan Media Group, a Nevada corporation, to conduct market research in promotion of our NutraFuels brand.  

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Through the second quarter of 2015 we have paid Sullivan Media Group a total of $155,000 to begin Phase 2 of our agreement, which will finalize the rebranding, repackaging, and re-launch of our NutraFuels product line.

In February 2015, we entered into an agreement with GenCap Securities, LLC (“GenCap”), to serve as our exclusive placement agent, on a best efforts basis, in connection with a proposed securities offering of up to $10,000,000.  The agreement terminates upon the earlier of: (i) 90 days after execution, or (ii) consummation of an offering. After 90 days, this agreement may be terminated by either party upon 15 days notice.

We are obligated to pay to GenCap: (i) a monthly retainer fee in the amount of $15,000, payable upon a financing facilitated by GenCap; and (ii) a placement fee ranging from 5.5% to 12.0% of the funds raised, based on the type of security sold.

To date, GenCap has not secured funding for us, and no payments have been made.  

On April 14, 2015, we entered into a consulting agreement with Benchmark Advisory Partners, LLC. In consideration for future consulting services, we agreed to pay a fixed fee of three hundred thousand restricted shares of our stock, payable in one hundred thousand share installments on April 14, 2015, June 14, 2015, and August 14, 2015. We paid the initial installment. The agreement was terminated in June 2015.

On August 1, 2015, we entered into a consulting agreement with Peter Cianci. In consideration for future consulting services, we agreed to issue shares of its common stock in exchange for services rendered. Thirty thousand common shares were issued to Peter Cianci on October 1, 2015.

On August 1, 2015, we entered into a consulting agreement with Five Star Labs, LLC. In consideration for future consulting services, we agreed to issue restricted shares on a deal by deal basis. This compensation is deemed fully earned at such time as Five Star Labs, LLC provides its services. The shares were issued on October 1, 2015.

On October 1, 2015, we entered into a consulting agreement with Osprey Capital Advisors. For consideration for the advisory and consulting services rendered, we agreed to pay 2,000,000 restricted shares of stock with piggyback registration rights. One Million (1,000,000) shares will be issued upon execution of the agreement and One Million shares (1,000,000) are due Sixty (60) days thereafter. In addition to the shares, $50,000 cash is due, $25,000 due on October 1, 2015 and $25,000 payable 30 days after October 1, 2015.

NOTE 6 – SUBSEQUENT EVENTS

On August 1, 2015, we entered into a consulting agreement with Peter Cianci. In consideration for future consulting services, we agreed to issue shares of its common stock in exchange for services rendered. Thirty thousand restricted common shares were issued to Peter Cianci on October 1, 2015.

On August 1, 2015, we entered into a consulting agreement with Five Star Labs, LLC. In consideration for future consulting services, we agreed to issue restricted shares on a deal by deal basis. This compensation is deemed fully earned at such time as Five Star Labs, LLC provides its services. The shares were issued on October 1, 2015.

On October 1, 2015, we entered into a consulting agreement with Osprey Capital Advisors. For consideration for the advisory and consulting services rendered, we agreed to pay 2,000,000 restricted shares of stock with piggyback registration rights. One Million (1,000,000) shares will be issued upon execution of the agreement and One Million shares (1,000,000) are due Sixty (60) days thereafter. In addition to the shares, $50,000 cash is due, $25,000 due on October 1, 2015 and $25,000 payable 30 days after October 1, 2015.

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On October 13, 2015, we received $10,000 in exchange for 100,000 shares of our common stock and warrants to purchase 100,000 shares of our common stock in connection with the sale of 100,000 units.

On October 19, 2015, we received $50,000 in exchange for 500,000 shares of our common stock and warrants to purchase 500,000 shares of our common stock in connection with the sale of 500,000 units.

On October 22, 2015, we received $10,000 in exchange for 100,000 shares of our common stock and warrants to purchase 100,000 shares of our common stock in connection with the sale of 100,000 units.

On October 22, 2015, we received $10,200 in exchange for 102,000 shares of our common stock and warrants to purchase 102,000 shares of our common stock in connection with the sale of 102,000 units.

On October 22, 2015, we received $5,000 in exchange for 50,000 shares of our common stock and warrants to purchase 50,000 shares of our common stock in connection with the sale of 50,000 units.

On November 2, 2015, we entered into stock warrant purchase agreement for 50,000 shares.

On November 2, 2015, we entered into stock warrant purchase agreement for 10,000 shares.

On November 2, 2015, we entered into stock warrant purchase agreement for 5,000 shares.

On November 13, 2015, we received $10,000 in exchange for 100,000 shares of our common stock and warrants to purchase 100,000 shares of our common stock in connection with the sale of 100,000 units.

On November 17, 2015, we received $10,000 in exchange for 100,000 shares of our common stock and warrants to purchase 100,000 shares of our common stock in connection with the sale of 100,000 units.

On November 17, 2015, we entered into a cashless stock warrant purchase agreement for 15,000 shares.

On November 17, 2015, we received $5,000 in exchange for 50,000 shares of our common stock and warrants to purchase 50,000 shares of our common stock in connection with the sale of 50,000 units.

On November 25, 2015, we received $20,000 in exchange for 200,000 shares of our common stock and warrants to purchase 200,000 shares of our common stock in connection with the sale of 200,000 units.

On November 19, 2015, we received $25,000 in exchange for 250,000 shares of our common stock and warrants to purchase 250,000 shares of our common stock in connection with the sale of 250,000 units.

On December 7, 2015, we received $5,000 in exchange for 50,000 shares of our common stock and warrants to purchase 50,000 shares of our common stock in connection with the sale of 50,000 units.

On December 10, 2015, we received $15,000 in exchange for 150,000 shares of our common stock and warrants to purchase 150,000 shares of our common stock in connection with the sale of 150,000 units.

During December 2015, we received $25,000 in exchange for 250,000 shares of our common stock and warrants to purchase 250,000 shares of our common stock in connection with the sale of 250,000 units.

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CAUTIONARY NOTE FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results, and any other statements that are not historical facts.

From time to time, forward-looking statements also are included in our other periodic reports on Form 10-K, Forms 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors”.

OVERVIEW

 

NutraFuels, Inc. (also will be referred as, “us”, “we”, or “our”) is the producer of nutritional oral spray supplements that provides a faster and more efficient absorption of nutrients than traditional methods of delivery such as other ingestible pill, capsule and liquid products. 

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We were founded as NutraFuels, LLC in 2010. We have progressively added the needed equipment to expand our operations to offer our products on a national level.  

We have continually invested for the long term, adding larger facilities, purchasing necessary equipment, and other application development to expand sales and marketing.  This has increased our costs in the near-term. Many of these investments had and will continue to occur in the advance of experiencing any near-term benefit.

During the nine month period ending September 30, 2015, we launched our rebranded products under the name NutraSpray and commenced development of our new website at www.nutraspray.com.

We currently offer the following products:

·

Sleep support,

·

Energy boost,

·

Hair Skin & Nails, 

·

Headache Relief, and

·

Weight Loss/Garcinia Cambogia.

Components of Results of Operations

Revenues

 

We derive our revenues from sales of our products. We recognize our revenues from the point of sale and shipment. For the nine months ended September 30, 2015 our revenues were $123,328.  Our revenues increased during the period ending September 30, 2015, because we recently completed our rebranding, repackaging, and re-launch of our 2015 product line and began taking purchase orders for our new product lines.

Should we not have sufficient revenues to meet operating costs, we will require additional capital. We have no commitments or assurances that it will ever be successful in obtaining adequate future financing.  There can be no assurance that our continuing efforts to execute our business plan will be successful and that we will be able to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. As of September 30, 2015 we did not have sufficient cash to sustain us for the next twelve months and we will require additional capital to continue. In the event that future financing does not materialize, we may be unable to pay our obligations as they become due or continue as a going concern, any of which circumstances would have a material adverse effect on our business, prospects, financial condition and results of operations.

Costs and Expenses

The Cost of Goods Sold was heavily concentrated in labor and overhead costs.

Advertising costs continued to be some of our largest operational expenses.  As we progress through the rest of 2015 and the re-launch of our product line into the national and international market, we are anticipating more marketing expenditures to research, advertise, market, promote, and enhance our brand.  

The remaining significant expenses related to professional fees associated with our SEC filings and accrued interest as it relates to debt securities issued from current and prior years.

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Results of Operations

In comparison to the prior year nine months and quarter ended September 30, 2014, sales have increased by over 131.6% and 781.0% respectively.  

Advertising costs have been driven by marketing research and the implementation of the rebranding initiatives.

Selling, General, and Administrative Costs are lower than the prior year, as there has been less stock compensation issued for services performed by employees or outside parties.

Finally, interest expense is higher due to the issuance of debt securities to finance operations.

LIQUIDITY AND CAPITAL RESOURCES

In addition to revenue, our primary source of cash stems from issuance of equity and debt securities.  We are dependent upon the proceeds from the offer and sale of securities to fund our operations.  

							Nine Months Ending Ended September 30,
							2015		2014
Net Cash used in Operating Activities							$ (832,792)		$ (1,076,476)
Net cash used in Investing Activities							$ (32,875)		$ (4,724)
Net cash provided by Financing Activities							$ 862,500		$ 1,045,000

Operating

During the nine months ended September 30, 2015, in addition to fixed & variable overhead costs, other operational expenditures primarily consisted of payments to vendors, professional fees, and advertising costs.

Investing

During the nine months ended September 30, 2015, our investments in fixed assets were limited to equipment purchases.

SIGNIFICANT ACCOUNTING POLICIES

We report revenues and expenses using the accrual method of accounting for financial and tax reporting purposes.

USE OF ESTIMATES

Management uses estimates and assumption in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.

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INCOME TAXES

We account for income taxes under ASC 740 “Income Taxes” which codified SFAS 109, “Accounting for Income Taxes” and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Accounting Standards Codification Topic 820, “Disclosures About Fair Value of Financial Instruments,” requires us to disclose, when reasonably attainable, the fair market values of our assets and liabilities, which are deemed to be financial instruments. Our financial instruments consist primarily of cash.

PER SHARE INFORMATION

We compute net loss per share accordance with FASB ASC 205 “Earnings per Share”. FASB ASC 205 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement.

Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive.

STOCK OPTION GRANTS

We have not granted any stock options to our officers and directors since our inception. Upon the further development of our business, we will likely grant options to directors and officers consistent with industry standards for nutritional and dietary supplement companies.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

 

Smaller reporting companies are not required to provide the information required by this item.

 

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Item 4.    Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s President, Chief Financial Officer, Secretary, Treasurer and Director, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure for the reasons discussed below.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in the Company’s internal controls over financial reporting during the nine month period ending September 30, 2015, or in other factors that could significantly affect these controls, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II:  OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business.  To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.

Item 1A.   Risk Factors

Smaller reporting companies are not required to provide the information required by this item.

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Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

On April 14, 2015, we entered into a consulting agreement with Benchmark Advisory Partners, LLC. In consideration for future consulting services, we agreed to pay a fixed fee of three hundred thousand restricted shares of our stock, payable in one hundred thousand share installments on April 14, 2015, June 14, 2015, and August 14, 2015. We paid the initial 100,000 common shares. The agreement was terminated in June 2015.

In August 2015, we issued 4,500,000 shares of our common stock to Sullivan Media Group, Inc., a Nevada Corporation for services rendered.

On July 18, 2015, we entered into a consulting agreement with WT Consulting Group, LLC. For consulting services rendered, we agreed to pay a $2,000 per month retainer and 25,000 common shares per month for services.

During August 2015, we issued 400,000 shares of our common stock and warrants to purchase 400,000 shares of our common stock in connection with the sale of 400,000 units.

On October 1, 2015, we issued 30,000 of our common stock to Peter Cianci.

On October 1, 2015, we issued 40,000 shares to Five Star Labs, LLC for services rendered.

On August 14, 2015, we entered into a promissory note, whereby we are obligated to pay James R. Stewart the sum of $25,000 plus interest at the rate of 10%. Under the terms of the amended note, the note’s maturity date is August 14, 2016. The note is convertible into shares of our common stock at the price of $.10 per share.

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On August 14, 2015, we entered into a promissory note, whereby we are obligated to pay Barbara Ludwig the sum of $20,000 plus interest at the rate of 10%. Under the terms of the amended note, the note’s maturity date is August 14, 2016. The note is convertible into shares of our common stock at the price of $.10 per share.

On August 14, 2015, we entered into a promissory note, whereby we are obligated to pay Ann Noble the sum of $25,000 plus interest at the rate of 10%. Under the terms of the amended note, the note’s maturity date is August 14, 2016. The note is convertible into shares of our common stock at the price of $.10 per share.

On August 15, 2015, we granted Edward and Patricia Sullivan 1,791,369 warrants in exchange for services rendered to us. The warrants may be exercised for a period of two years after the grant date.

On August 27, 2015, we amended an August 26, 2013 promissory note, whereby we are obligated to pay Craig Hetherington the sum of $100,000 plus interest at the rate of 15%. Under the terms of the amended note, the note’s maturity date is August 26, 2016. The note is convertible into shares of our common stock at the price of $1.00 per share.

During September 2015, we issued 300,000 shares of our common stock and warrants to purchase 300,000 shares of our common stock in connection with the sale of 300,000 units.

On October 1, 2015, we entered into a consulting agreement with Osprey Capital Advisors. For consideration for the advisory and consulting services rendered, we issued 2,000,000 restricted shares of stock with piggyback registration rights to Osprey for their services.

Item 3.     Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

During the nine month period ending September 30, 2015, we sold our rebranded and repackaged products under the brand name, NutraSpray. Our newly designed products are focused on providing retailers with a flexible merchandising approach by offering our product in three sizes, single, three day and thirty day. We believe by offering our product in multiple amounts, we promote trial and upsell to larger packages.

We also completed development of marketing and point of sale items that make our product easy to locate and distinguishable from other nutritional products.  

In connection with our rebranded products, applied for trademark protection of our brand names NutraPro, NutraSpray and OralSpray.

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Our products are sold through our new website at www.nutraspray.com. We plan to optimize traffic at our website with popular keywords, phrases and descriptive meta-tags to increase our visibility on keyword search page results and drive customers to our website. We utilize top search engines (e.g. Yahoo, Google and Bing) to conduct PPC (“pay per click”) campaigns to obtain prominent page placement by purchasing targeted “keywords” to increase traffic and order volume. Website orders are paid for upon order. Once an order is placed though our website, it is processed and delivered from our manufacturing facility to the customer using the shipping method selected at the customer’s expense.

In connection with our relaunched products we increased our staff in the second quarter of 2015 and presently our staff consists of:

·

Our Chief Executive Officer and President, Edgar Ward oversees our day to day operations and manufacturing facility,

·

Neal Catania, our Vice President works closely with Edgar Ward and provides us with approximately 42 hours per month of services,

·

6 full time employees who assist in our manufacturing facility,

·

3 sales staff employees, and

·

2 employees who provides clerical services.

Manufacturing

We manufacture, package, label and store 100% of our products at our 7,000 square foot facility located at 6601 Lyons Rd. L-6 Coconut Creek, Florida. Our products are non-addictive and delivered as oral sprays.

By manufacturing our own products, we believe that we maintain better control over product quality and availability while also reducing production costs.

Our manufacturing process generally consists of the following operations: (i) sourcing ingredients for products, (ii) warehousing raw ingredients, (iii) measuring ingredients for inclusion in products, and (iv) blending using automatic equipment.

The next step in the manufacturing process is bottling and packaging. This involves filling, capping, coding, labeling and placing the product in packaging with appropriate tamper-evident features. The product is then sent out for testing on each batch produced for microbial contaminants. Once cleared with a certificate of analysis the packaged product is sent to our customers.

The FDA requires companies manufacturing homeopathic medicines to have their facilities certified as Good Manufacturing Practices ("GMPs").   

Our manufacturing facility has been fully compliant with its GMP certification. Our quality control program seeks to ensure the superior quality of our products and that they are manufactured in accordance with current GMPs.

Our processing methods are monitored closely to ensure that only quality ingredients are used to ensure product purity.

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Periodically, we retain the services of outside GMP audit firms to assist in our efforts to comply with GMPs.  In 2014, we used the services of ASI Food Safety Consultants, Inc., a GMP audit firm to assist us with our GMP compliance.

Sales

Our products are sold at retail locations in the U.S. We use the services of outside sales representatives who sell our products on a non-exclusive basis and are compensated based upon a percentage of the sales generated by them. Commissions range from 10% to 15%. We employ a sales staff of three employees.

Our Products

Our new packaging is focused on providing retailers with a flexible merchandising approach by offering our product in two sizes, single pack 10 serving and three packs 30 servings.

We believe by offering our product in multiple amounts, we promote trial and upsell to larger packages.

We currently offer the following products under our NutraSpray product line:

Sleep Support

Our Sleep Support contains Melatonin, GABA, and Valerian Root. The product is designed to promote relaxation and the quality of restful sleep. Melatonin, GABA and Valerian Root are non-habit forming.

Hair, Skin & Nails

HSN contains four essential nutrients including Biotin, MSM, Collagen and Horsetail. The formula is designed to support healthy hair, skin and nails in quick and effective oral spray.

Headache Relief

Our Headache Relief product contains Turmacin and is designed to act as a fast acting anti-inflammatory herbal pain relief product. Turmacin is a water extract of Turmeric.

Weight Loss

Our Weight Loss spray contains Garcina Cambogia and is designed to burn fat by blocking the enzyme, citrate lyase, which helps turn sugars and starches into fat. Our weight loss product is also designed to suppress the appetite, by increasing the level of satiety—satisfaction received from food—making it easier to eat less.

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Energy Boost with Vitamin B12

Our Energy Boost contains Vitamin B12 and is designed to help food you eat convert into energy.

Material Agreements

On August 27, 2015, we entered into a sales broker agency agreement with Strategic Business Systems LLC (SBS) whereby SBS agreed to act as our non-exclusive sales agent of our products in the U.S in exchange for a 15% commission of gross sales generated by SBS. The agreement has a term of one year and may be renewed annually at our option.

On July 1, 2015, we entered into an amendment of an agreement dated July 17, 2014, with Sullivan Media Group, Inc., a Nevada Corporation (“SMG”).  The agreement requires SMG to provide us up to 40 hours of services per month beginning on November 1, 2014, and ending on November 1, 2019. The services include brand identity and imaging and marketing services. In exchange for these services, we are required to issue warrants to purchase 4,478,420 shares of our common stock.

On August 1, 2015, we entered into a consulting agreement with Peter Cianci. In consideration for future consulting services, we agreed to issue shares of its common stock in exchange for services rendered. Thirty thousand common shares were issued to Peter Cianci on October 1, 2015.

On August 1, 2015, we entered into a consulting agreement with Five Star Labs, LLC. In consideration for future consulting services, we agreed to issue restricted shares on a deal by deal basis. This compensation is deemed fully earned at such time as Five Star Labs, LLC provides its services. The shares were issued on October 1, 2015.

On October 1, 2015, we entered into a consulting agreement with Osprey Capital Advisors. For consideration for the advisory and consulting services rendered, we agreed to pay 2,000,000 restricted shares of stock with piggyback registration rights. One Million (1,000,000) shares will be issued upon execution of the agreement and One Million shares (1,000,000) are due Sixty (60) days thereafter. In addition to the shares, $50,000 cash is due, $25,000 due on October 1, 2015 and $25,000 payable 30 days after October 1, 2015. We are in default of the agreement.

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Item 6.    Exhibits

 

Exhibit No.

Description

10.24

Sales Broker Agreement with Strategic Business Systems, LLC

10.25

Agreement with Sullivan Media

10.26

Warrant Agreement with Edward and Patricia Sullivan

10.27 

Warrant Agreement with Michael Perog

10.28

Warrant Agreement with Mitsukp Takezawa

10.29

Amended Convertible Note dated August 27, 2015 with Craig Hetherington

10.30

Amended Convertible Note dated June 23, 2015 with Craig Hetherington

10.31

Convertible Note with James R. Stewart

10.32

Convertible Note with Ann Noble

10.33

Unit Subscription with G&C Investment Corp

10.34

Consulting Agreement with WT Consulting

10.35

Agreement with Peter Cianci 

10.36

Agreement with Five Star Labs, LLC

10.37

Agreement with O Spray Capital/ Advisors

31.1* Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1* Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002

 

* Filed herewith.

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SIGNATURES

 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

 

NutraFuels, Inc.

/s/ Edgar Ward

Name: Edgar Ward
Position: President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer

(Duly Authorized, Principal Executive Officer and Principal Financial Officer)

Dated: December 17, 2015

 

 

 

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