This Form 10-Q contains forward-looking statements rather than historical facts
that involve risks and uncertainties. You can identify these statements by the
use of forward- looking words such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. Such forward-looking statements
discuss our current expectations of future results of operations or financial
condition. However, there may be events in the future that we are unable to
accurately predict or control and there may be risks, uncertainties and events
that may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements, which could have a material adverse
effect on our business, operating results and financial condition. The
forward-looking statements included herein are only made as of the date of the
filing of this Form 10-Q, and we undertake no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Life On Earth, Inc.
(the "Company," "our" or "we"), should be read in conjunction with the notes
thereto. In the opinion of management, the unaudited condensed consolidated
financial statements presented herein reflect all adjustments (consisting only
of normal recurring adjustments) necessary for fair presentation. Interim
results are not necessarily indicative of results to be expected for the entire
year.
We prepare our financial statements in accordance with accounting principles
generally accepted in the United States of America, which require that
management make estimates and assumptions that affect reported amounts. Actual
results could differ from these estimates.
COMPANY OVERVIEW
Life On Earth, Inc. is a cloud enterprise software developer/ provider that
enables rapid innovation to keep enterprise operations safe, compliant and
manageable. The Company's products offered are designed to help organizations
innovate and modernize legacy systems while minimizing cost and risk of business
disruptions and ensure regulatory compliance. Through its recent acquisition of
SmartAxiom, Inc., the Companynow has the capabilities of offering software that
manages and secures the Internet-of-Things (IoT) through patented, lite
blockchain technology running among those devices at the edge of the Internet
and enabling them to defend themselves. Our peer-to-peer distributed ledgers
improve security, latency, reliability and manageability. We have uniquely
created, through our SmartAxiom subsidiary, the endpoint-to-cloud blockchain
solution, while our IoT Smart Contracts allow for process intelligence and
management of the process. The SmartAxiom technology is proving value in
verticals such as smart buildings, manufacturing lines and shipment tracking. It
interoperates with enterprise systems such as IBM Blockchain and Microsoft Azure
and is proven on many ARM and Intel based microcontrollers such as those from
Intel, NXP, Renesas, Marvell, and Broadcom.
The Company previously was a brand accelerator and incubator Company that was
focused on building and scaling concepts in the natural consumer products
category ("CPG"). During the year ended May 31, 2021, the Company discontinued
the wholesale beverage distribution operations, and the Company announced its
intention divest away from its business as a Consumer-Packaged Goods ("CPG")
Company. Accordingly, the Company's results of operations for the year ended May
31, 2020, reflect a charge in the aggregate amount of $786,436,
On November 11, 2019, the Board of Directors and a majority of the voting power
approved a resolution to effectuate a 5:1 Reverse Stock Split. and an increase
in authorized Shares of Common Stock from One Hundred million (100,000,000) to
Two Hundred million (200,000,000) shares of common stock, $0.001 par value. The
Company received approval from FINRA on March 25, 2020 and, on that date, the
reverse stock split became effective. All share and per share information has
been retroactively adjusted to reflect the impact of this reverse stock split.
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Life On Earth, Inc. was incorporated in April 2013.
On May 11, 2021, LFER acquired SmartAxiom with all their assets including
intellectual properties, Patents and core Internet of Things (IoT) software that
enables securing sensor devices and communication to the cloud-based software.
The agreed purchase price was $6,250,000 paid as follows: (a) $1,950,000 by
issuing 13,000,000 shares of the Company's common stock, upon closing; (b)
$2,100,000 by issuing 210,000 shares of the Company's Series D convertible
preferred shares (each share of the Company's Series D convertible preferred is
convertible into 10 shares of the Company's common stock); and, (c) $2,200,000
to be paid pursuant to a full earnout based on SmartAxiom GAAP revenue
recognition in the amount of $1,500,000 within the first eighteen months after
closing date of the acquisition. The earnout will be prorated based on the
SmartAxiom revenues received over an eighteen-month period.
Pending Acquisition of the CareClix Group
On December 17, 2021, we entered into a Stock Purchase Agreement (the
"Agreement") with CareClix Holdings, Inc., a Florida corporation ("SOLI"). On
December 31, 2031, under the terms of a Management Operating Agreement, we
agreed to a partial closing of the transaction set forth in the SPA (the
"Transaction") with the final closing to occur on the effectiveness of a
registration statement for the shares to be issued as part of the consideration.
In the partial closing, we acquired 100% ownership of the operating subsidiaries
of SOLI, which include CareClix, Inc., a Virginia corporation, CareClix
Services, Inc., a Florida corporation, MyCareClix, Inc., a Florida corporation,
and CareClix RPM, Inc., a Florida corporation (collectively, the "CareClix
Group"). In exchange for ownership of the CareClix Group, we will issue the
following securities to the common shareholders of SOLI:
· 50,000,000 shares of our common stock; and shares of a new class of preferred
stock to be designated as Series E Preferred Stock. The shares of Series E
Preferred stock to be designated and issued to the shareholders of CareClix
shall be up to approximately 2,100,000 Series E Preferred shares with a
convertibility ratio, under the current share structure, of 100 to 1 into our
shares of common stock with conversion occurring automatically when our
Articles of Incorporation have been amended to authorize sufficient common
shares for the conversion.
· 4,000,000 shares of our Series A Preferred Stock, over a period of time, to Mr.
Charles Scott, the Chairman and majority shareholder of SOLI, with 2,500,000
shares issued at the December 31, 2021 partial closing, 600,000 shares to be
issued 45 days after closing, and 900,000 shares to be issued 90 days after
closing. Shares of our Series A Preferred Stock, which are not convertible and
do not receive dividends, are entitled to cast 50 votes per share on all
matters submitted to the vote or consent of our shareholders.
Upon the final closing of the Transaction, the former shareholders of SOLI will
hold approximately seventy percent of our issued and outstanding common equity
on a fully diluted basis and will hold the majority of our total shareholder
voting power.
The final closing of the Transaction is subject to the effectiveness of a
registration statement on Form S-4 to be filed registering the issuance of our
shares of common stock and shares of Series E Preferred Stock to the common
shareholders of CareClix. We are undertaking to file the S-4 registration
statement, which will be filed as soon as a pending audit of the financial
statements of the acquired CareClix companies is completed.
Pending the final Closing, SOLI and LFER will complete the operational changes
under the Management Operating Agreement effective December 31, 2021, so that
the CareClix Group and LFER can begin acting as a unit pending the effective
date of the S-4 registration statement and issuance by LFER of the remainder of
the agreed consideration. In the event that the final closing is not completed
by May 31, 2022, unless extended by agreement, then the partial closing will be
rescinded and the CareClix Group will be returned to SOLI. Following the final
Closing, there will be no affiliation, as shareholder, debtor, creditor or
otherwise, between SOLI and LFER.
As part of the partial closing of the transaction, 2,500,000 shares of Series A
voting preferred stock of LFER were issued to the current majority shareholder
of the Company as part of the consideration.
We are acquiring the CareClix Group in order to expand into the Telemedicine and
Medical Software Services industry. The group of companies under the CareClix
Group will operate as our wholly owned subsidiaries and include a telemedicine
medical services company, a direct-to-consumer company, a software-as-a-platform
company, and an RPM (remote patient monitoring) company.
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Our principal executive offices are located at 1345 6th Ave. 2nd Floor, New York
NY 10022 and our telephone number (646) 844-9897.
Coronavirus Risks
In December 2019, a novel strain of coronavirus was reported to have surfaced in
Wuhan, China, which has and is continuing to spread throughout China and other
parts of the world, including the United States. On January 30, 2020, the World
Health Organization declared the outbreak of the coronavirus disease (COVID-19)
a "Public Health Emergency of International Concern." On January 31, 2020, U.S.
Health and Human Services Secretary Alex M. Azar II declared a public health
emergency for the United States to aid the U.S. healthcare community in
responding to COVID-19, and on March 11, 2020 the World Health Organization
characterized the outbreak as a "pandemic".
The ultimate extent of the impact of any epidemic, pandemic or other health
crisis on our business, financial condition and results of operations will
depend on future developments, which are highly uncertain and cannot be
predicted, including new information that may emerge concerning the severity of
such epidemic, pandemic or other health crisis and actions taken to contain or
prevent their further spread, among others. The significant outbreak of COVID-19
has resulted in a widespread health crisis that has adversely affected the
economies and financial markets worldwide, and may continue to do so, which
could adversely affect our business, results of operations and financial
condition.
Sales and Distribution
The Company markets and sells its logistics solutions based on proprietary
patented technologies. The logistics solution consists of a multi-tenant cloud
system managing BlockTracker cellular tracking devices, which sense location,
temperature, vibration, pressure and light level. The device can also act as a
gateway and connect to additional nearby sensors via Bluetooth Low Energy (BLE).
It has one temperature logger per box and reports to one BlockTracker per
installed box. The management system, built with SmartAxiom's Tenacious cloud
backend, shows shipment location and condition, and notifies by short messaging
service (SMS) when monitored parameters like temperature, humidity, light,
vibration etc. exceed configured parameter, has geofencing and tools to activate
devices and assemble shipments. The company has developed complete end-to-end
solution for multiple industries with Supply Chain Management, Warehouse and
Asset Management, and Industrial IoT solutions. These solutions are targeted to
serve the fastest-growing IoT base edge computing, mobility (tracking and
visualizing distributed assets) and manufacturing industry IoT solution markets.
The Company also provides custom solution services to adopt and integrate its
standard solution to customer environments and specification through its
consulting, integration and support services group. The custom solutions focus
is solving customers' cyber security and vulnerabilities in their IoT business
environment with patented IoT technologies.
Production and Distribution
The Company strategy is to create end-to-end solution and partner with platform
technologies providers and system integrators. Our focus is to develop solutions
and provide customization, integration and support to our partners. We have a
small team of highly technical and experienced personnel to support our various
partners that include Renesas (our IoT platform partner), Amazon & Microsoft
(our Cloud platform partners), IBM (Block Chain software partner) and several
system integrators and technologies providers. Our primary software development
is conducted in California, USA. We also have an offshore development and
support center in India. In addition, we have expert resources in Dublin,
Ireland.
Competition
Our SmartAxiom product line has multiple competitors for Internet of things
(IoT) security technologies, which include Mocana, DeviceAuthority, Xage and
Atonomy. However, these vendors do not address the distributed block chain
technologies, nor do they have any rival patents in this space. In the logistics
industry there are literally hundreds of competitors. Our competitors have
greater operational histories, financial resources and personnel than we do. On
the other hand, we have a comprehensive solution protected by our patented
technologies such as the edge security software with distributed blockchain
security for IoT devices.
The Company's solution differentiators and advantage of our technologies-based
solution is the robust end-to-end solution.
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Government Regulation
There are no government regulations that we need to adhere to support IoT
solutions.
Employees
The Company currently has three full-time employees, as follows: a CEO, COO, and
President, and its wholly owned subsidiary, SmartAxiom, Inc., has 6 full-time
employees and 8 subcontractors and services providers.
Certain positions, such as senior sales executives, solution architects and
customer support for both the Company and its wholly owned subsidiary, are being
filled with paid independent contractors or insider owners who do not receive
cash compensation but may receive stock compensation. In certain regions of the
United States, we utilize the services of direct sales and distribution
companies. The Company also outsources its logistics to third parties, which can
reduce the need for employees in these roles.
Intellectual Property Protection
The Company has secured a registered trademark for its name and logo. The
Company also has trademarks registered for the Victoria's Kitchen and Just Chill
brands. No Trademarks have been filed to date with respect to
SmartAxiom. SmartAxiom owns two issued patents U.S. Patent No. 10,924,466
(System and method for IOT security) and 11,032,293 (System and method for
managing and securing a distributed ledger for a decentralized peer-to-peer
network). These patents will expire at on May 2, 2039 and December 8, 2039.
The Company has secured a registered trademark for its name and logo. The
Company also has trademarks registered for the Victoria's Kitchen and Just Chill
brands.
Issued Patents
The Company has 3 currently pending patent applications and 2 issued patents as
stated below:
1. Patent No. 11,032,293 - June 8, 2021 (same as application no. 16/272,358
and publication no. 2019-0253434 A1 published 8/15/2019). Title -
SYSTEM AND METHOD FOR MANAGING AND SECURING A DISTRIBUTED LEDGER FOR A
DECENTRALIZED PEER-TO-PEER NETWORK
a. Currently pending Continuation application of above issued patent -
17/340,928 - filed 6/7/2021 Title -
SYSTEM AND METHOD FOR MANAGING AND SECURING A DISTRIBUTED LEDGER FOR A
DECENTRALIZED PEER-TO-PEER NETWORK
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2. Patent No.: US 10,924,466 B2, Pub. Date of Patent: Feb.16,2021 (same as
application no. 16/048,140 and publication no. 2029-0036906 A1 Published
1/31/2019)
a. Currently pending Continuation application of above issued patent -
Application No. 17/169,356 (same as publication no. 2021-0160233 A1 published
February 5, 2021) title - SYSTEM AND METHODS FOR IOT SECURITY
Published not issued yet patent applications.
3. Published Patent Number: US 2019/0273623 Al, Pub. Date: Sep. 5, 2019 -
currently pending no issued. Title - Systems and Methods for a Blockchain
Multi-Chain Smart Contract Time Envelope.
GOING CONCERN QUALIFICATION
Several conditions and events cast substantial doubt about the Company's ability
to continue as a going concern. The Company incurred net losses from inception
of approximately $19,700,000, has limited revenues, and requires additional
financing in order to finance its business activities on an ongoing basis. The
Company's future capital requirements will depend on numerous factors including,
but not limited to, whether it successfully acquires revenue generating
companies or assumes new businesses that generate material revenues.
At November 30, 2021, we had cash on hand of approximately $42,000 and an
accumulated deficit of approximately $19,700,000. See "Liquidity and Capital
Resources."
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
("GAAP") requires management to make judgments, assumptions and estimates that
affect the amounts reported in our financial statements and accompanying notes.
The discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates based on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form our basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions, or if management made different judgments or utilized
different estimates. Many of our estimates or judgments are based on anticipated
future events or performance, and as such are forward-looking in nature, and are
subject to many risks and uncertainties, including those discussed below and
elsewhere in this Report. We do not undertake any obligation to update or revise
this discussion to reflect any future events or circumstances. There are certain
critical accounting estimates that we believe require significant judgment in
the preparation of our consolidated financial statements. We have identified
below our accounting policies that we use in arriving at key estimates that we
consider critical to our business operations and the understanding of our
results of operations. This is not a complete list of all of our accounting
policies, and there may be other accounting policies that are significant to us.
For a detailed discussion on the application of these and our other accounting
policies, see Note 1 to Consolidated Financial Statements of this Report.
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Revenue Recognition
The Company recognizes revenue under ASU No. 2014-09, "Revenue from Contracts
with Customers (Topic 606)," ("ASC 606"). The core principle of the revenue
standard is that a company should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in exchange for those
goods or services. The Company only applies the five-step model (as described in
Note 1 to the Consolidated Financial Statements of this Report) to contracts
when it is probable that the Company will collect the consideration it is
entitled to in exchange for the goods and services transferred to the customer.
Revenue consists of the gross sales price, less allowances for which provisions
are made at the time of sale, and less certain other discounts, allowances, and
rebates that are accounted for as a reduction from gross revenue. Costs incurred
by the Company for shipping and handling charges are included in cost of goods
sold.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of acquired businesses over
the estimated fair value of the identifiable net assets acquired. Goodwill and
other intangibles are reviewed for impairment annually or more frequently when
events or circumstances indicates that the carrying value of a reporting unit
more likely than not exceeds its fair value. The goodwill impairment test is
applied by performing a qualitative assessment before calculating the fair value
of the asset. If, on the basis of qualitative factors, it is considered more
likely than not that the fair value of the asset is greater than the carrying
amount, further testing of goodwill for impairment is not required. If the
carrying amount of the asset exceeds the asset's fair value, an impairment loss
is recognized in an amount equal to that excess, limited to the total amount of
goodwill allocated to that asset. Identifiable intangible assets acquired in
business combinations are recorded at the estimated acquisition date fair value.
Finite lived intangible assets are amortized over the shorter of the contractual
life or their estimated useful life using the straight-line method, which is
determined by identifying the period over which the cash flows from the asset
are expected to be generated. As part of the Company's annual review of goodwill
and intangibles we performed a detail analysis of the intangibles recorded as
they relate to the acquisitions of JC and VK. Based on this analysis, the
Company recorded an impairment charge of $299,000 related to the JC acquisition
as of May 31, 2020. The Company also wrote off the goodwill recorded in the VK
acquisition, in the amount of $195,000.
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Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
stockholders.
Inflation
The amounts presented in the financial statements do not provide for the effect
of inflation on our operations or financial position. The net operating losses
shown would be greater than reported if the effects of inflation were reflected
either by charging operations with amounts that represent replacement costs or
by using other inflation adjustments.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2021 AND NOVEMBER 30, 2020:
Sales
Sales for the three months ended November 30, 2021 were approximately $55,000
compared to $0 for the three months ended November 30, 2020, as a result of
sales by our SA subsidiary.
Operating Expenses
Operating expenses totaled approximately $695,000 for the three months ended
November 30, 2021 as compared to approximately ($35,000) for the three months
ended November 30, 2020. The increase in operating expenses of $730,000 was
primarily related to the acquisition of SA and consisted of several factors,
including, increased professional fees of $70,000, increased salaries and
benefits of $78,000, increased other selling, general and administrative
expenses of $30,000 and increased amortization of $267,000, and, increased
officers compensation of $285,000.
Other Expense
During the three months ended November 30, 2021, the Company recorded interest
and financing costs of approximately $171,000 as compared to approximately
$263,000 during the three months ended November 30, 2020. Interest and financing
costs primarily result from the amortization of deferred financing balances that
were incurred by the Company to finance operations.
Net Loss
For the three months ended November 30, 2021, we incurred a net loss of
$811,450, compared to a net loss of $344,585 for the three months ended November
30, 2020.
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FOR THE SIX MONTHS ENDED NOVEMBER 30, 2021 AND NOVEMBER 30, 2020:
Sales
Sales for the six months ended November 30, 2021 were approximately $81,000
compared to $25,000 for the six months ended November 30, 2020, as a result of
increased sales by our SA subsidiary.
Operating Expenses
Operating expenses totaled approximately $1,274,000 for the six months ended
November 30, 2021 as compared to approximately $247,000 for the six months ended
November 30, 2020. The increase in operating expenses of $1,027,000 was
primarily related to the acquisition of SA and consisted of several factors,
including, increased professional fees of $99,000, increased officers'
compensation of $233,000, increased salaries and benefits of $117,000, increased
other selling, general and administrative expenses of $48,000 and increased
amortization of $532,000.
Other Expense
During the six months ended November 30, 2021, the Company recorded interest and
financing costs of approximately $330,000 as compared to approximately $353,000
during the six months ended November 30, 2020. Interest and financing costs
primarily result from the amortization of deferred financing balances that were
incurred by the Company to finance operations. During the six months ended
November 30, 2021, the Company recorded a credit for the fair value of
contingent consideration of $352,000 as compared to charge of $60,000 during the
three months ended November 30, 2020, related to the acquisition of Just Chill,
which had arisen from the measurement of LFER stock on the 12-month anniversary
of the acquisition and subsequent Balance Sheet reporting dates. The contingency
shares were issued to the JCG Group during the six months ended November 30,
2021. During the six months ended November 30, 2021, the Company recorded a
credit for the fair value of derivative liability of $111,000 as compared to a
charge of $56,000 during the six months ended November 30, 2020. During the six
months ended November 30, 2021, the underlying note of the derivative liability
has been converted to 2,138,775 shares of the Company's common stock and the
Company no longer has an obligation for the derivative liability.
Net Loss
For the six months ended November 30, 2021, we incurred a net loss of
$1,060,065, compared to a net loss of $717,202 for the six months ended November
30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 2021, we held current assets in the amount of $75,081
consisting of cash and cash equivalents in the amount of $42,369, accounts
receivable of $31,033, and prepaid expenses of $1,679. Our current liabilities
as of November 30, 2021 totaled $5,492,229, and consisted of accounts payable
and accrued expenses in the amount of $2,302,664, an accrued contingent
liability related to our acquisition of Smart Axiom in the amount of $2,314,127,
notes payable of $87,790, convertible notes of payable of $611,750, and lines of
credit in the amount of $33,494. Our working capital deficit as of November 30,
2021 was $5,417,148. Our recent financings have consisted primarily of private
issuances of convertible notes and preferred stock.
During the six months ended November 30, 2021, the Company received $158,500
from the sale of 158,500 shares of Series C Preferred Stock and received $88,000
from the issuance of a notes payable to related parties, $61,000 from the sale
of Series C Preferred Stock to a related party, and, $65,000 from the issuance
of a convertible note payable.
During the year ended May 31, 2021, the Company received $100,000 from the
issuance of 100 shares of the Company's Series B Preferred Stock., and, received
$220,000 from the issuance of the 220 shares of the Company's Series C Preferred
Stock. During June 2021, the Company received $170,000 from the issuance of 170
shares of the Company's Series C Preferred Stock. During the year ended May 31,
2021, the Company received $70,000 from the issuance of convertible notes
payable and $30,000 from the issuance of a term note and paid $9,000 of notes
payable to related parties.
For the six months ended November 30, 2021, our operating activities used
$79,734 in cash, compared to $135,156 during the six months ended November 30,
2020. For the six months ended November 30, 2021, financing activities provided
a net $182,797 in cash, compared to a net $134,304 in cash for the six months
ended November 30, 2020. Investing activities used $95,323 in cash during the
six months ended November 30, 2021, compared to $0 for the six months ended
November 30, 2020. Our cash and cash equivalents increased by a net $7,740
during the six months ended November 30, 2021.
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LIFE ON EARTH, INC. 