UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from __________ to __________
Commission
File Number:
(Exact name of Registrant as specified in its charter)
| (State of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (zip code)
(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 period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ |
| ☐ | 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 ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
As of August 22, 2022, shares of common stock, par value $0.001 per share, were issued and outstanding.
SENTIENT BRANDS HOLDINGS INC.
FORM 10-Q
June 30, 2022
TABLE OF CONTENTS
| i |
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
Unless otherwise indicated, references in this report to “we,” “us” or the “Company” refer to Sentient Brands Holdings Inc. and its subsidiaries.
| ii |
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
SENTIENT BRANDS HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2022 (unaudited) | December 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Inventory | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| FIXED ASSETS (net of Depreciation) | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Notes Payable | ||||||||
| Convertible notes payable | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| STOCKHOLDERS’ DEFICIENCY | ||||||||
| Preferred Stock – Par Value of $0; shares authorized; and shares issued and outstanding as of June 30, 2022 and December 31, 2021 | ||||||||
| Common Stock – Par Value of $; shares authorized; shares issued and outstanding as of June 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIENCY | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES STOCKHOLDERS’ DEFICIENCY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
SENTIENT BRANDS HOLDINGS INC.
CONDENSED STATEMENTS OF OPERATIONS
( UNAUDITED)
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Advertising and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Legal and professional | ||||||||||||||||
| Office rent | ||||||||||||||||
| Management fees | ||||||||||||||||
| Product development cost | ||||||||||||||||
| Interest expenses | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Discount amortization | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER COMMON SHARE – BASIC AND DILUTED | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
SENTIENT BRANDS HOLDINGS INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(UNAUDITED)
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid in | Accumulated | |||||||||||||||||||||||||
| June 30, 2022 | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock | — | |||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balances June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| June 30, 2021 | ||||||||||||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||
| Canceled shares | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
SENTIENT BRANDS HOLDINGS INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Accounts payable written off | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | ( | ) | ||||||
| Advances to supplier | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| INVESTMENT ACTIVITIES: | ||||||||
| Purchase of office equipment | ||||||||
| NET CASH USED IN INVESTMENT ACTIVITIES | ||||||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from Convertible notes | ||||||||
| Net proceeds from issuance of common stock | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| INCREASE (DECREASE) IN CASH | ( | ) | ( | ) | ||||
| CASH-BEGINNING OF YEAR | ||||||||
| CASH-END OF the quarter. | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
SENTIENT BRANDS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Business description
The financial statements presented are those of Sentient Brands Holdings Inc. (the “Company”). The Company was incorporated under the laws of the State of California on March 22, 2004, until changing its state of incorporation from California to Nevada in 2021, as further described below. The Company is a next-level product development and brand management company with a focus on building innovative brands in the Luxury and Premium Market space. The Company has a Direct-to Consumer business model focusing on the integration of CBD, wellness and beauty for conscious consumers. The Company incorporates an omnichannel approach in its marketing strategies to ensure that its products are accessible across both digital and retail channels. The Company develops and nurtures Lifestyle Brands with carefully thought-out ingredients, packaging, fragrance and design. The Company’s leadership team has extensive experience in building world-class brands such as Hugo Boss, Victoria’s Secret, Versace, and Bath Body Works. The Company is focused on two key market segments targeting: wellness and responsible luxury, which the Company believes represent unique opportunities for its Oeuvre product line. The Company intends to leverage its in-house innovation capabilities to launch new products that “disrupt” adjacent product categories. We plan to grow by leveraging our deep connections within our existing network and attract consumers through increased brand awareness and investing in unique social media marketing. The Company’s goal is to create customer experiences that have sustainable resonance with consumers and consistently implement strategies that result in long-term profit growth for our investors.
On December 9, 2020, the Company filed a Certificate
of Amendment of Articles of Incorporation (the “Certificate”) with the State of California to (i) effect a forward stock split
of its outstanding shares of common stock at a ratio of
In connection with the above, the Company filed an Issuer Company-Related Action Notification Form with the Financial Industry Regulatory Authority. The Forward Stock Split and the Name Change was implemented by FINRA on March 2, 2021. Our symbol on OTC Markets was INTBD for 20 business days from March 2, 2021 (the “Notification Period”). Our new CUSIP number is 81728V 102. As a result of the name change, our symbol was changed to “SNBH” following the Notification Period. All share and per share information has been retroactively adjusted to reflect this forward stock split.
In addition, on January 29, 2021, the Company, merged with and into its wholly owned subsidiary, Sentient Brands Holdings Inc., a Nevada corporation, pursuant to an Agreement and Plan of Merger between Sentient Brands Holdings Inc., a California corporation, and Sentient Brands Holdings Inc., a Nevada corporation. Sentient Brands Holdings Inc., a Nevada corporation, continued as the surviving entity of the migratory merger. Pursuant to the migratory merger, the Company changed its state of incorporation from California to Nevada and each share of its common stock converted into one share of common stock of the surviving entity in the migratory merger. No dissenters’ rights were exercised by any of the Company’s stockholders in connection with the migratory merger.
Following the consummation of the migratory merger, the articles of incorporation and bylaws of the Nevada corporation that was newly-created as a wholly owned subsidiary of the Company became the articles of incorporation and bylaws for the surviving entity in the migratory merger.
NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN
Basis of Presentation
These interim consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
| 5 |
Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2021 filed with the Securities and Exchange Commission on April 29, 2022.
Going concern
The Company currently has limited operations. These unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business.
As reflected in the accompanying unaudited
consolidated financial statements, the Company had an accumulated deficit of $
The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
Uses of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted accounting principles accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. Actual results could differ from those estimates.
Cash
The Company considers all short-term highly liquid investments with an original maturity date of purchase of three months or less to be cash equivalents.
Revenue Recognition
During the six months ended June 30, 2022 our revenue recognition policy was in accordance with ASC 605, “Revenue Recognition”, which requires the recognition of sales following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
Authoritative guidance on Earnings per Share requires dual presentation of basic and diluted earnings or loss per share (“EPS”) for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution; diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic loss per share is computed by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company, unless the effect is to reduce a loss or increase earnings per share.
| 6 |
In accordance with ASC No. 718, Compensation – Stock Compensation (“ASC 718”), the Company measures the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services.
During the six months ended June 30, 2022, and 2021, there were stock based awards issued or outstanding.
Fair value of financial instruments
We value our financial assets and liabilities on a recurring basis using the fair value hierarchy established in Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures.
ASC 820 describes three levels of inputs that may be used to measure fair value, as follows:
Level 1 input, which include quoted prices in active markets for identical assets or liabilities.
Level 2 inputs, which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and
Level 3 inputs, which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.
Income Taxes
Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred
tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment. The U.S. federal income tax rate is
NOTE 4. INVENTORIES
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the moving average method and net realizable value is the estimated selling price less costs of disposal in the ordinary course of business. The cost of inventories includes direct costs plus shipping and packaging materials.
As of June 30, 2021, Company inventories valued at
approximately $
NOTE 5. CONVERTIBLE NOTES PAYABLE
On April 27, 2021 (the “Issuance Date”),
the Company entered into a Securities Purchase Agreement with an accredited investor (the “April 2021 Investor”) providing
for the sale by the Company to the April 2021 Investor of a
On September 23, 2021 (the “Issuance Date”),
the Company issued an
| 7 |
On November 18, 2021 (the “Issuance Date”),
the Company entered into a Securities Purchase Agreement with an accredited investor (the “November 2021 Investor”) providing
for the sale by the Company to the November 2021 Investor of a
On February 15, 2022, the Company issued an
On February 23, 2022, the Company issued an
On March 28, 2022, the Company issued an
NOTE 6. NOTES PAYABLE
On January 3, 2020, specific terms were reached between
the Company and Pure Energy 714 LLC on the remaining $
During 2021 and 2022, the Company received proceeds
from various loans from Adriatic Advisors LLC. At June 30, 2022 and December 31, 2021, the Company had $
NOTE 7. STOCKHOLDERS’ (DEFICIENCY)
Preferred stock
The Company is authorized to issue shares of Preferred Stock, par value $ per share. As of June 30, 2022, and December 31, 2021, shares of Series B Preferred Stock were issued and outstanding.
For five years from the date of issuance, the Series B Preferred Stock shall have the number of votes equal to fifty-one percent (51%) of the cumulative total vote of all classes of stock of the Corporation, common or preferred, whether such other class of stock is voting as a single class or the other classes of stock are voting together as a single group, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, or any other class of preferred stock, and shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock and any class of preferred stock entitled to vote, with respect to any question upon which holders of Common Stock or any class of preferred stock have the right to vote. After five years, the Series B Preferred Stock shall automatically, and without further action by the Corporation, be cancelled and void, and may not be reissued. Company is authorized to issue shares of Preferred Stock, par value $ per share. As of June 30, 2022 and December 31, 2021, shares of Series B Preferred Stock were issued and outstanding.
Common stock
There were no issuances of common stock during the six months ending June 30, 2022.
| 8 |
On June 29, 2021, the Company sold shares
of common stock to an accredited investor in consideration for an aggregate purchase price of $
On March 3, 2021, the forward stock split of its outstanding
shares of common stock at a ratio of
In addition, on January 29, 2021, the Company, merged with and into its wholly owned subsidiary, Sentient Brands Holdings Inc., a Nevada corporation, pursuant to an Agreement and Plan of Merger between Sentient Brands Holdings Inc., a California corporation, and Sentient Brands Holdings Inc., a Nevada corporation. Sentient Brands Holdings Inc., a Nevada corporation, continued as the surviving entity of the migratory merger. Pursuant to the migratory merger, the Company changed its state of incorporation from California to Nevada and each share of its common stock converted into one share of common stock of the surviving entity in the migratory merger. No dissenters’ rights were exercised by any of the Company’s stockholders in connection with the migratory merger.
NOTE 8. COMMITMENTS AND CONTINGENCIES
On December 26, 2019, the Company entered into an
Employment Agreement (the “Furlan Agreement”) with George Furlan pursuant to which Mr. Furlan was appointed as the Company’s
Chief Executive Officer. The Furlan Agreement provides for a base salary of $60,000 per year with such base salary being increased to
$
On January 8, 2020, the Company entered into an Executive
Consulting Agreement (the “Mansour Agreement”) with James Mansour pursuant to which Mr. Mansour was appointed as an Executive
Consultant. The Mansour Agreement provides for a base salary of $
NOTE 9. SUBSEQUENT EVENTS
The Company evaluates events that occur after the period end date through the date the financial statements are available to be issued. Accordingly, management has evaluated subsequent events through the date these financial statements are issued and has determined that the following subsequent events require disclosure in these financial statements.
Subsequent to June 30, 2022, the Company received
loans in the aggregate amount of $
On August 16, 2022, the Company adopted that certain Sentient Brands Holdings Inc. 2022 Equity Incentive Plan (the “Plan”). On August 19, 2022 the Company filed a registration statement on Form S-8 (the “Form S-8”) with the Securities and Exchange Commission for the purpose of registering under the Securities Act of 1933, as amended, shares of common stock issuable under the Plan.
On August 16, 2022, the Company entered into a
Settlement and Release Agreement with Anthony L.G., PLLC (“ALG”) and Laura Anthony, Esq. (“LA”) pursuant to
which ALG agreed to forgive $
On August 19, 2022, the Company issued a common share
purchase warrant (the “Warrant”) to Adriatic Advisors LLC (“Adriatic Advisors”) to purchase
| 9 |
Subsequent to the end of the quarter, the
Company and an employee agreed to settle in full an unpaid salary amount of $
|
Subsequent to the end of the quarter, the Company and an independent contractor agreed
to settle in full an unpaid amount of $
On August 19, 2022, the Company and an accredited
investor entered into an extension agreement pursuant to which the parties agreed to extend the maturity date of a loan, previously extended
by the accredited investor to the Company on April 27, 2021 in the amount of $
|
The Company claims an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) for the issuances of the above securities pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act. The investors in these securities are accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities Act.
The foregoing information is a summary of each of the agreements involved in the transaction described above, is not complete, and is qualified in its entirety by reference to the full text of those agreements, each of which is attached an exhibit to this Quarterly Report on Form 10-Q. Readers should review those agreements for a complete understanding of the terms and conditions associated with this transaction.
| 10 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and financial condition of Sentient Brands Holdings Inc. for the three and six months ended June 30, 2022 and 2021 should be read in conjunction with the Sentient Brands Holdings Inc. unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements and Business sections in our Form 10-K as filed with the Securities and Exchange Commission on April 23, 2021. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements .
Unless otherwise indicated, references to the “Company,” “us” or “we” refer to Sentient Brands Holdings Inc. and its subsidiaries.
Overview
Sentient Brands Holdings Inc., headquartered in New York City, is a next-level product development and brand management company with a focus on building innovative brands in the Luxury and Premium Market space. The Company has a Direct-to Consumer business model focusing on the integration of CBD, wellness and beauty for conscious consumers. The Company incorporates an omnichannel approach in its marketing strategies to ensure that its products are accessible across both digital and retail channels. The Company develops and nurtures Lifestyle Brands with carefully thought-out ingredients, packaging, fragrance and design. The Company’s leadership team has extensive experience in building world-class brands such as Hugo Boss, Victoria’s Secret, Versace, and Bath Body Works. The Company is focused on two key market segments targeting: wellness and responsible luxury, which the Company believes represent unique opportunities for its Oeuvre product line. The Company intends to leverage its in-house innovation capabilities to launch new products that “disrupt” adjacent product categories. We plan to grow by leveraging our deep connections within our existing network and attract consumers through increased brand awareness and investing in unique social media marketing. The Company’s goal is to create customer experiences that have sustainable resonance with consumers and consistently implement strategies that result in long-term profit growth for our investors.
Principal Products and Services
All of our proprietary formulations contain clean, vegan, ethically and environmentally responsible ingredients. The Company currently has one main product line and two other product lines in development. The Company’s current active product line is Oeuvre.
Oeuvre
Oeuvre - ”A Body of Art” – is a next generation CBD luxury skin care line and lifestyle brand. The foundation of our system of products is our proprietary OE Complex: Botanicals + Gemstones + Full flower Hemp infused formulation. Each product in the Oeuvre Artistry Collection optimizes three functions: cellular energy, moisture balance, and nutrient utilization. Four products comprise the Oeuvre collection:
| ● | Purifying Exfoliator | |
| ● | Replenishing Facial Oil | |
| ● | Ultra-Nourishing Face Cream | |
| ● | Revitalizing Eye Cream |
Drawing inspiration from petals, leaves, roots, minerals, and gemstones, Oeuvre celebrates the artistry of well-being and beauty, inside and out. Oeuvre products are non-toxic, ungendered products made with zero GMO, retinyl palmitate, petroleum, mineral oil, parabens, sulfates, and synthetic colors.
Oeuvre Target Market
Oeuvre is our luxury segment product line. With Oeuvre, we are targeting a large and influential consumer class of individuals that are “HENRYs” – High-Earners-Not-Rich-Yet. These individuals have discretionary income and may be wealthy in the future. HENRYs earn between $100,000 and $250,000 annually. They are typically digitally fluent, are frequent online shoppers, and are discretionary spenders. Therefore, ouvreskincare.com offers inclusive, aspirationally affordable luxury products positioned for them.
We believe the benefit of onboarding this consumer demographic to Oeuvre are twofold: securing valuable present customers and building relationships and business with those most likely to be among affluent consumers in the future. By the year 2025, Millennials and Generation Z reportedly will represent more than 40% of the overall luxury goods market, according to a 2019 report published by Boston Consulting Group. We seek to target such consumer group for the sale of our Oeuvre products.
On social media, we will target the following audiences for the Oeuvre brand:
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| ● | Women aged 30+ | |
| ● | Luxury Skincare Enthusiasts | |
| ● | CBD Enthusiasts | |
| ● | Crystal Lovers | |
| ● | Wellness Audience | |
| ● | Makeup Artists | |
| ● | Art | |
| ● | Beauty | |
| ● | Influencers | |
| ● | Bloggers | |
| ● | Stores |
Future Product Lines
The Company has additional Oeuvre product skews planned for introduction by the end of 2022:
| ● | Oeuvre fragrance amulets | |
| ● | CBD infused candles | |
| ● | CBD infused women’s fragrance | |
| ● | OE complex bath and body regime |
Introduction of Recreational THC Beverages
The Company plans on introducing a luxury lifestyle THC beverage brand in the future. Upon development, product formulation, brand concept, packaging, and marketing presentations will be designed to appeal to an upscale, sophisticated target audience. The Company is currently working with a formulator in developing unique formulation attributes to achieve specific desired effects. This product launch is expected during the fourth quarter of 2022.
Integrating the Metaverse
The Metaverse is a 3D experiential internet space focused on social connection in which users can interact with computer-generated virtual worlds across a range of technologies. The Company intends to integrate the Metaverse, including AI, Web 3.0 and non-fungible tokens (NFT’s), within our social media platforms and interactive product displays.
Suppliers
The Company has several third-party suppliers and is not reliant on any particular supplier for its product offerings. Many of our products contain CBD derived from industrial hemp or cannabis which we obtain from third parties. Hemp cultivation can be impacted by weather patterns and other natural events, but we have not yet faced any supply issues to date with obtaining raw materials for our products.
Distribution
We have two primary methods through which we sell our products:
| 1. | Direct to Consumer online e-commerce platform | |
| 2. | Wholesale partners |
Marketing Strategy
We support brand launches with social media and marketing campaigns, including utilizing influencers. Leading marketing and public relations firms are engaged by the Company to spearhead the launch of Oeuvre, and will likely be engaged for our future planned brand launches as well.
Sentient Brands Growth Strategies:
In order to grow our Company, Sentient Brands intends to:
| ● | Create a leading consumer packaged goods company; | |
| ● | Partner with established distributers and retailers; | |
| ● | Focus on operational excellence and product quality; and | |
| ● | Establish ongoing communication with the capital markets |
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Our mission is to create the next generation of CBD consumer brands. The Company believes it has assembled a highly accomplished team of branding and marketing professionals who have a combined experience and track record of successfully launching and operating major brands in the consumer market space, which the Company believes will provide it with a competitive edge in the industry.
Customers
The Company launched its Oeuvre product line in the fourth quarter of 2021. The Company’s sales channels are direct to consumer and wholesale.
Intellectual Property
The Company’s Oeuvre brand is trademarked in the United States, with a European trademark application pending. The Company expects to rely on trade secrets and proprietary know-how protection for our confidential and proprietary information, however we have not yet taken security measures to protect this information.
Competition
We have experienced, and expect to continue to experience, intense competition from a number of companies.
The current market for hemp-derived CBD products is highly competitive, consisting of publicly-trade and privately-owned companies, many of which are more adequately capitalized than the Company. The Company’s current publicly listed competitors include Charlotte’s Web, CV Sciences, Elixinol, Abacus, and Green Growth Brands, and private companies such as BeBoe, St. Jane, Mary’s, Lord Jones, Bluebird Folium Biosciences, Global Cannabinoids, and Pure Kana. In addition, public and private U.S. and Canadian companies have entered the hemp-derived CBD consumer market or have announced plans to do so. This market is highly fragmented, and according to the Hemp Business Journal, the vast majority of industry participants generate less than $2 million in annual revenue. We see this an opportunity to create a foothold in the CBD consumer marketplace with the goal of building Sentient Brands as a major brand name in this space.
Industry Overview
The market for products based on extracts of hemp and cannabis is expected to grow substantially over the coming years. Arcview Market Research and BDS Analytics are forecasting the combined market to reach nearly $45 billion within the U.S. in the year 2024. While much of this market is expected to be comprised of high potency THC-based products that will be sold in licensed dispensaries, certain research firms are still predicting the market to grow to $5.3 billion, $12.6 billion, and $2.2 billion by 2024 for the product areas of low THC cannabinoids, THC-free Cannabinoids and pharmaceutical cannabinoids, respectively.
On December 20, 2018, President Donald J. Trump signed into law the Agriculture Improvement Act of 2018, otherwise known as the “Farm Bill.” Prior to its passage, hemp, a member of the cannabis family, and hemp-derived CBD, were classified as a Schedule I controlled substances, and illegal under the Controlled Substances Act (“CSA”). Under Section 10113 of the Farm Bill, hemp cannot contain more than 0.3 percent THC. THC refers to the chemical compound found in cannabis that produces the psychoactive “high” associated with cannabis. Any cannabis plant that contains more than 0.3 percent THC would be considered non-hemp cannabis or marijuana under federal law and would thus face no legal protection under this new legislation and would be an illegal Schedule 1 drug under the CSA.
With the passage of the Farm Bill, hemp cultivation is broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes. It also puts no restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced in a manner consistent with the law.
Recent Developments
Covid-19
A novel strain of coronavirus (“Covid-19”) emerged globally in December 2019 and has been declared a pandemic. The extent to which Covid-19 will impact our customers, business, results and financial condition will depend on current and future developments, which are highly uncertain and cannot be predicted at this time. While the Company’s day-to-day operations beginning March 2020 have been impacted, we have suffered less immediate impact as most staff can work remotely and can continue to develop our product offerings.
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On April 18, 2020, the Company, through its subsidiary Jaguaring Company, entered into Paycheck Protection Program Promissory Note and Agreement with KeyBank National Association, pursuant to which the Company received loan proceeds of $231,500 (the “PPP Loan”). The PPP Loan was made under, and is subject to the terms and conditions of, the PPP which was established under the CARES Act and is administered by the U.S. Small Business Administration. The term of the PPP Loan is two years with a maturity date of April 18, 2022 and contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan will be deferred for the first six months of the term of the PPP Loan until November 18, 2020. Principal and interest are payable monthly and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during the eight-week period following the funding of the PPP Loan. The Company has been using the proceeds of the PPP Loan, for Qualifying Expenses. On December 8, 2021 the Company received notification from Key Bank that our forgiveness application has been approved in full by the Small Business Administration, or SBA.
Forward Stock Split / Increase of Authorized / Name Change / Migratory Merger
On December 9, 2020, the Company filed a Certificate of Amendment of Articles of Incorporation (the “Certificate”) with the State of California to (i) effect a forward stock split of its outstanding shares of common stock at a ratio of 7 for 1 (the “Forward Stock Split”), (ii) increase the number of authorized shares of common stock from 50,000,000 shares to 500,000,000 shares, and (iii) effectuate a name change (the “Name Change”). Fractional shares that resulted from the Forward Stock Split will be rounded up to the next highest number. As a result of the Name Change, the Company’s name changed from “Intelligent Buying, Inc.” to “Sentient Brands Holdings Inc.”. The Certificate was approved by the majority of the Company’s shareholders and by the Board of Directors of the Company. The effective date of the Forward Stock Split and the Name Change was March 2, 2021.
In connection with the above, the Company filed an Issuer Company-Related Action Notification Form with the Financial Industry Regulatory Authority. The Forward Stock Split and the Name Change was implemented by FINRA on March 2, 2021. Our symbol on OTC Markets was INTBD for 20 business days from March 2, 2021 (the “Notification Period”). Our new CUSIP number is 81728V 102. As a result of the name change, our symbol was changed to “SNBH” following the Notification Period.
In addition, on January 29, 2021, the Company, merged with and into its wholly owned subsidiary, Sentient Brands Holdings Inc., a Nevada corporation, pursuant to an Agreement and Plan of Merger between Sentient Brands Holdings Inc., a California corporation, and Sentient Brands Holdings Inc., a Nevada corporation. Sentient Brands Holdings Inc., a Nevada corporation, continued as the surviving entity of the migratory merger. Pursuant to the migratory merger, the Company changed its state of incorporation from California to Nevada and each share of its common stock converted into one share of common stock of the surviving entity in the migratory merger. No dissenters’ rights were exercised by any of the Company’s stockholders in connection with the migratory merger.
Following the consummation of the migratory merger, the articles of incorporation and bylaws of the Nevada corporation that was newly-created as a wholly owned subsidiary of the Company became the articles of incorporation and bylaws for the surviving entity in the migratory merger.
The foregoing information is a summary of each of the matters described above, is not complete, and is qualified in its entirety by reference to the full text of the exhibits, each of which is attached an exhibit to this Form 10-Q Quarterly Report. Readers should review those exhibits for a complete understanding of the terms and conditions associated with this matter.
Government Regulation
The United States Food Drug Administration (“FDA”) is generally responsible for protecting the public health by ensuring the safety, efficacy, and security of (1) prescription and over the counter drugs; (2) biologics including vaccines, blood blood products, and cellular and gene therapies; (3) foodstuffs including dietary supplements, bottled water, and baby formula; and, (4) medical devices including heart pacemakers, surgical implants, prosthetics, and dental devices.
Regarding its regulation of drugs, the FDA process requires a review that begins with the filing of an investigational new drug (IND) application, with follow on clinical studies and clinical trials that the FDA uses to determine whether a drug is safe and effective, and therefore subject to approval for human use by the FDA.
Aside from the FDA’s mandate to regulate drugs, the FDA also regulates dietary supplement products and dietary ingredients under the Dietary Supplement Health and Education Act of 1994. This law prohibits manufacturers and distributors of dietary supplements and dietary ingredients from marketing products that are adulterated or misbranded. This means that these firms are responsible for evaluating the safety and labeling of their products before marketing to ensure that they meet all the requirements of the law and FDA regulations, including, but not limited to the following labeling requirements: (1) identifying the supplement; (2) nutrition labeling; (3) ingredient labeling; (4) claims; and, (5) daily use information.
The FDA has not approved cannabis, marijuana, hemp or derivatives as a safe and effective drug for any indication. As of the date of this filing, we have not, and do not intend to file an IND with the FDA, concerning any of our products that contain CBD derived from industrial hemp or cannabis. Further, our products containing CBD derived from industrial hemp are not marketed or sold using claims that their use is safe and effective treatment for any medical condition subject to the FDA’s jurisdiction.
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Government Approvals
The Company does not currently require any government approvals for its operations or product offerings. In August 2019, the DEA affirmed that CBD preparations at or below the 0.3 percent delta-9 THC threshold, is not a controlled substance, and a DEA registration is not required. As a result of the 2018 Farm Bill, the FDA has been tasked with developing CBD regulations. The FDA has not yet published regulations.
Research and Development
We are continuously in the process of identifying and/or developing potential new products to offer to our customers. Our expenditures on research and development have historically been small and immaterial compared to our other business expenditures. We are currently developing new formulations for additional product lines.
Employees
We believe that our success depends upon our ability to attract, develop and retain key personnel. We currently employ two full-time employees. The Company relies on the services of independent contractors. None of our employees are covered by collective bargaining agreements, and management considers relations with our employees to be in good standing. Although we continually seek to add additional talent to our work force, management believes that it currently has sufficient human capital to operate its business successfully.
Our compensation programs are designed to align the compensation of our employees with our performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance.
The health and safety of our employees is our highest priority, and this is consistent with our operating philosophy. Since the onset of the COVID-19 pandemic, employees, including our specialized technical staff, are working from home or in a virtual environment unless they have a requirement to be in the office for short-term tasks and projects.
The primary mailing address for the Company is 590 Madison Avenue, 21st Floor, New York, New York 10022. The Company’s telephone number is (646) 202-2897. The Company’s website is https://www.sentientbrands.com/.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the three months ended June 30, 2022 and 2021
Revenue
During the three months ending June 30, 2022 and 2021, we generated minimal revenue due to the Company’s reorganization and development of our new product lines and related marketing preparations.
Operating Expenses
For the three months ended June 30, 2022, and 2021, operating expenses consisted of the following:
| 2022 | 2021 | |||||||
| Advertising and marketing | 6,865 | 12,800 | ||||||
| General and administrative | 12,303 | 5,624 | ||||||
| Legal and professional | 215,399 | 55,070 | ||||||
| Office rent | — | 418 | ||||||
| Management fees | 15,000 | 21,000 | ||||||
| Product development | — | 2,773 | ||||||
| Interest Expense | 40,871 | 43,266 | ||||||
| TOTAL OPERATING EXPENSES | 290,439 | 140,849 | ||||||
| ● | Our advertising and marketing costs mainly include consulting fees for branding, social media and creation of marketing materials for our brand. Advertising and marketing costs were $6,865 for the three months ended June 30, 2022 compared to $12,800 for the three months ended June 30, 2021. The decrease of $5,935 was attributable to the Company decision to reduce these expenses while management develops its strategy. We terminated our relationship with our former marketing executive and are pursuing alternate marketing strategies which we expect to have implemented during the third or fourth quarter of 2022. |
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| ● | General and administrative increased $6,679 to $12,303 for the three months ended June 30, 2022 from $5,624 for the same period in 2021. The increase is due to increased fees associated with SEC filings and stock transfer fees. | |
| ● | Legal and professional fees primarily consisted of accounting fees, legal service fees, consulting fees, investor relations service charges and other fees incurred for service related to becoming and being a public company. For the three months ended June 30, 2022, professional fees increased compared to the same period in 2021 by approximately $160,000. This increase is primarily attributed to the accrual of severance costs totaling $85,000 for James Mansour who resigned in May 2022. We also accrued unpaid amounts to an employee and consultant totaling $64,500. The remaining increase is due to increased accounting and legal fees. We are transitioning away from a full time accounting chief financial officer to a part time consultant; however, there was an overlap in this quarter as the transition occurred. We expect professional fees to increase as we incur significant costs associated with our public company reporting requirements, and costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. | |
| ● | Our management fees are comprised mainly of salaries paid to our management staff. During the three months period ending June 30, 2022, management fees decreased by $6,000 compared to the same period in 2021 due to the departure of our former marketing executive. | |
| ● | Interest expense is related to our convertible and other notes payable. During the three months ending June 30, 2022, interest expense decreased by $2,395 compared to the same period in 2021. |
Loss from Operations
The Company’s operating loss for the three month period ended June 30, 2022, and 2021 was $294,510 and $140,849, respectively.
Income Taxes
We did not have any income taxes expense for the three months ended June 30, 2022 and 2021 since we incurred losses in these periods.
Net Loss
The Company’s net loss for the three month period ended June 30, 2022 and 2021 was $294,510 and $143,479, respectively.
Comparison of Results of Operations for the Six Months ended June 30, 2022 and 2021
Revenue
During the six months ending June 30, 2022 and 2021, we generated minimal revenue due to the Company’s reorganization and development of our new product lines and related marketing preparations.
Operating Expenses
For the six months ended June 30, 2021 and 2020, operating expenses consisted of the following:
| 2022 | 2021 | |||||||
| Advertising and Marketing | 38,613 | 12,800 | ||||||
| Selling Expenses | — | — | ||||||
| General and Administrative | 19,887 | 10,485 | ||||||
| Legal and Professional | 311,039 | 121,877 | ||||||
| Office rent | — | 458 | ||||||
| Management Fees | 69,000 | 42,000 | ||||||
| Product development cost | — | 2,885 | ||||||
| Interest expenses | 70,032 | 43,266 | ||||||
| TOTAL OPERATING EXPENSES | 508,571 | 233,771 | ||||||
| ● | Our advertising and marketing costs mainly include consulting fees for branding, social media and creation of marketing materials for our brand. Advertising and marketing costs were $38,613 for the six months ended June 30, 2022 compared to $12,800 for the three months ended June 30, 2021. The increase of $25,813 was attributable to extensive marketing efforts taken by the Company during the first three months of 2022. We have recently made an effort to reduce these expenses while management develops an alternate strategy. We terminated our relationship with our former marketing executive and are pursuing alternate marketing strategies which we expect to have implemented during the third or fourth quarter of 2022. |
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| ● | General and administrative increased $9,402 to $19,887 for the six months ended June 30, 2022 from $10,485 for the same period in 2021. The increase is due to increased fees associated with SEC filings and stock transfer fees. | |
| ● | Legal and professional fees primarily consisted of accounting fees, legal service fees, consulting fees, investor relations service charges and other fees incurred for service related to becoming and being a public company. Legal and professional fees increased $123,662 to $245,539 for the six month ended June 30, 2022 from $121,877 for the same period in 2021. This increase is primarily to the accrual of severance costs totaling $85,000 for James Mansour who resigned in May 2022. We also accrued unpaid amounts to an employee and consultant totaling $64,500. The remaining increase is due to increased legal and accounting fees related to the Company’s SEC filings and other organizational matters. We expect professional fees to increase as we incur significant costs associated with our public company reporting requirements, and costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. | |
| ● | Office rent are monthly lease payments for our principal executive offices in New York. These were discontinued during 2021. | |
| ● | Our management fees are comprised mainly of salaries paid to our management staff. During the six months period ending June 30, 2022, management fees increased by $27,000 compared to the same period in 2021 as we hired executives to assist with our product sales and management. These fees are expected to reduce throughout the year due to the departure of our former marketing executive. | |
| ● | Interest expense is related to our convertible and other notes payable. During the six months ending June 30, 2022, interest expense increased by $26,766 compared to the same period in 2021 due to the increase in debt over that time. |
Loss from Operations
The Company’s operating loss for the six-month period ended June 30, 2022 and 2021 was $512,341 and $233,669, respectively.
Other Income
We had other income of $6,750 for the six months ended June 30, 2021 consist mainly of gain from settling accounts payables. There was no other income during the first six months of 2022.
Income Taxes
We did not have any income taxes expense for the six months ended June 30, 2022 and 2021 since we incurred losses in these periods.
Net Loss
The Company’s net loss for the six-month period ended June 30, 2021 and 2020 was $512,341 and $229,549, respectively.
Liquidity and Capital Resources
As of June 30, 2022, we had total current assets of $244,690, consisting of $223 in cash and $244,467 in inventories. Our total current liabilities as of June 30, 2022 were $1,721,012. We had a working capital deficit of $1,476,322 as of June 30, 2022, compared with a working capital deficit of $934,421 as of December 31, 2021.
Cash Flows from Operating Activities
Operating activities used $273,759 in cash for the six months ended June 30, 2022, compared with cash used of $362,811 for the six months ended June 30, 2022. Our negative operating cash flow for the six months ended June 30, 2022, was the result of our net loss of $512,342, offset by non cash depreciation and amortization expense of $4,855, a decrease in inventory of $14,314 and increase in accrued expenses and payables $219,414. Our negative operating cash flow for the six months ended June 30, 2021, was largely the result of the result out net loss of $229,548, this loss was offset by non cash depreciation and amortization expense of $2,510 and a decrease in advance to suppliers of $154,893. We used cash for the purchase of inventory of $258,781 and for a decrease in accounts payable and accrued expenses of $31,885.
Cash Flows from Financing Activities
There were no cash flow from investment activities for the six months ended June 30, 2022 and 2021.
Cash Flows from Financing Activities
Net cash flows provided by financing activities during the six months ended June 30, 2022, amounted to $177,784 compared with cash flows provided by financing activities of $303,730 for the same period in 2021. Our positive cash flows for the six months ended June 30, 2022 consisted of proceeds from short term loans payable. Our positive cash flows for the six months ended June 30, 2021 consisted of proceeds from short term loans payable of $302,630 and a sale of stock for $1,100 respectively.
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Going Concern
As of June 30, 2022, we have an accumulated deficit of $2,833,251. Our ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and our ability to achieve and maintain profitable operations. While we are expanding our best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.
Covid 19
A novel strain of coronavirus (“Covid-19”) emerged globally in December 2019 and has been declared a pandemic. The extent to which Covid-19 will impact our customers, business, results and financial condition will depend on current and future developments, which are highly uncertain and cannot be predicted at this time. While the Company’s day-to-day operations beginning March 2020 have been impacted, we have suffered less immediate impact as most staff can work remotely and can continue to develop our product offerings. That said we have seen our business opportunities develop more slowly as business partners and potential customers are dealing with Covid-19 issues, working remotely and these issues are causing delays in decision making and finalization of negotiations and agreements.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
We presently do not have any contractual obligations.
Off-balance Sheet Arrangements
We presently do not have off-balance sheet arrangements.
Inflation
The effect of inflation on our revenue and operating results was not significant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of June 30, 2022, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.
Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of June 30, 2022, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:
| 1. | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending June 30, 2022. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
| 2. | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
| 3. | Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. |
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.
We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.
Changes in Internal Controls over Financial Reporting
There were no changes (including corrective actions with regard to material weakness) in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business, operating results, cash flows or financial condition.
ITEM 1A. RISK FACTORS
Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2021. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 15, 2022, the Company issued an 18% Promissory Note in the principal amount of $60,025 to an accredited investor. The note matures on the earlier of (i) the closing of the Company’s next equity financing, or (ii) August 15, 2022. At the note holder’s sole election on the maturity date, the note holder may convert the interest accrued on the note into shares of common stock of the Company at $0.05 per share.
On February 23, 2022, the Company issued an 18% Promissory Note in the principal amount of $25,025 to an accredited investor. The note matures on the earlier of (i) the closing of the Company’s next equity financing, or (ii) August 23, 2022. At the note holder’s sole election on the maturity date, the note holder may convert the interest accrued on the note into shares of common stock of the Company at $0.05 per share.
On March 28, 2022, the Company issued an 18% Promissory Note in the principal amount of $11,025 to an accredited investor. The note matures on the earlier of (i) the closing of the Company’s next equity financing, or (ii) September 28, 2022. At the note holder’s sole election on the maturity date, the note holder may convert the interest accrued on the note into shares of common stock of the Company at $0.05 per share.
On April 11, 2022, the Company issued an 18% Promissory Note in the principal amount of $8,550 to an accredited investor. The note matures on the earlier of (i) the closing of the Company’s next equity financing, or (ii) October 11, 2022. At the note holder’s sole election on the maturity date, the note holder may convert the interest accrued on the note into shares of common stock of the Company at $0.05 per share.
On April 22, 2022, the Company issued an 18% Promissory Note in the principal amount of $17,025 to an accredited investor. The note matures on the earlier of (i) the closing of the Company’s next equity financing, or (ii) October 22, 2022. At the note holder’s sole election on the maturity date, the note holder may convert the interest accrued on the note into shares of common stock of the Company at $0.05 per share.
On April 25, 2022, the Company issued an 18% Promissory Note in the principal amount of $12,525 to an accredited investor. The note matures on the earlier of (i) the closing of the Company’s next equity financing, or (ii) October 25, 2022. At the note holder’s sole election on the maturity date, the note holder may convert the interest accrued on the note into shares of common stock of the Company at $0.05 per share.
On May 9, 2022, the Company issued an 18% Promissory Note in the principal amount of $15,025 to an accredited investor. The note matures on the earlier of (i) the closing of the Company’s next equity financing, or (ii) November 19, 2022. At the note holder’s sole election on the maturity date, the note holder may convert the interest accrued on the note into shares of common stock of the Company at $0.05 per share.
On May 19, 2022, the Company issued an 18% Promissory Note in the principal amount of $15,025 to an accredited investor. The note matures on the earlier of (i) the closing of the Company’s next equity financing, or (ii) November 19, 2022. At the note holder’s sole election on the maturity date, the note holder may convert the interest accrued on the note into shares of common stock of the Company at $0.05 per share.
On June 14, 2022, the Company issued an 18% Promissory Note in the principal amount of $5,025 to an accredited investor. The note matures on the earlier of (i) the closing of the Company’s next equity financing, or (ii) December 14, 2022. At the note holder’s sole election on the maturity date, the note holder may convert the interest accrued on the note into shares of common stock of the Company at $0.05 per share.
The Company claims an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) for the private placement of the above notes pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act. The investor in the above notes is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities Act. As of the date hereof, the Company is obligated on an aggregate of $96,050 in the above notes issued to the investor. The above notes are a debt obligation arising other than in the ordinary course of business which constitute a direct financial obligation of the Company.
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The foregoing information is a summary of each of the agreements involved in the transaction described above, is not complete, and is qualified in its entirety by reference to the full text of those agreements, each of which is attached an exhibit to this Quarterly Report on Form 10-Q. Readers should review those agreements for a complete understanding of the terms and conditions associated with this transaction.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
On June 3, 2022, James Mansour and the Company mutually terminated the Executive Consulting Agreement (the “Mansour Agreement Termination”) previously entered into between the Company and Mr. Mansour on January 8, 2020 (the “Mansour Agreement”). As of the date of the Mansour Agreement Termination, the Company accrued Mr. Mansour’s unpaid fees under the Mansour Agreement totaling $85,000 (the “Outstanding Amount”). In addition, as a result of and in connection with the Mansour Agreement Termination, pursuant to the terms of the Restricted Stock Purchase Agreement (the “RSPA”) entered into between Mr. Mansour and the Company concurrently with the Mansour Agreement, no unvested shares of common stock vest to Mr. Mansour subsequent to the Mansour Agreement Termination. Accordingly, any vesting of shares of common stock pursuant to the RSPA ceased as of the date of the Mansour Agreement Termination, resulting in the total number of shares of common stock vested to Mr. Mansour of 628,598 as of the date of the Mansour Agreement Termination.
As previously reported, on June 20, 2022, Dante Jones was appointed as the Interim Chief Executive Officer, Interim President, Interim Chief Financial Officer, Interim Treasurer and Interim Secretary of the Company. Mr. Jones replaced George Furlan who resigned as the Interim Chief Executive Officer, Interim President, Interim Chief Financial Officer, Interim Treasurer and Interim Secretary and as a director of the Company on June 20, 2022. Effective as of his June 20, 2022 resignation as interim executive officer and director, Mr. Furlan is no longer a member of the Board of Directors of the Company and Mr. Jones is the sole director of the Company. Mr. Furlan will continue to serve as the Chief Operating Officer of the Company, which he has served as since December 26, 2019. Mr. Furlan’s resignation as interim executive officer and director was not the result of any disagreements with management. Mr. Jones has served as a director of the Company since February 14, 2020.
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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* Filed herewith
# Indicates management contract or compensatory plan.
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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 hereunto duly authorized.
| SENTIENT BRANDS HOLDINGS INC. | ||
| Date: August 22, 2022 | By: | /s/ Dante Jones |
| Dante Jones | ||
| Interim Chief Executive Officer, Interim President and Director (Principal Executive Officer) | ||
| Date: August 22, 2022 | By: | /s/ Dante Jones |
| Dante Jones | ||
| Interim Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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