NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
1. Business
Vynleads, Inc. (“Vynleads”) was incorporated as
a Delaware corporation on July 15, 2015. We are a provider of health and wellness information principally targeted to people who are
pre-diabetes or who have type 2 diabetes. We provide information to our customers who are seeking to make healthy choices by providing
clear, generic blueprints, education, resources, and support. Our core product is our proprietary Lifestyle Blueprint, a digital guide
that provides dietary recommendations for a very low calorie eight-week diet together with information focusing on what, how and how
much a person eats, nutritional information and how a person’s body does and does not use food to enable our customers to continue
leading a more successful lifestyle. We also offer nutritional supplements and monthly subscriptions to our proprietary newsletter which
covers a wide variety of healthy living-related topics.
Our corporate headquarters are located in Rock Hill, South
Carolina.
2. Going Concern
Our financial statements have been presented on a going concern
basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since July 15,
2015, the date of our inception, we have experienced recurring operating losses and negative operating cash flows, and have financed
our recent working capital requirements primarily through the issuance of debt. During the years ended December 31, 2021 and 2020, we
have reported net losses of $271,581 and $379,630, respectively. As of December 31, 2021, our working capital deficit was $491,866, our
accumulated deficit was $1,987,278, and we had cash used in operations of $130,513. As a result, management believes that there is substantial
doubt about our ability to continue as a going concern.
Despite our current sales, expense, cash flow projections,
and aggregate cash and holdback receivable from our merchant, net of reserve for refunds, of $15,764, we will require substantial funds
to expand service and product offerings into additional areas, market and promote our services and product offerings; and develop and
grow our infrastructure and corporate organization. Our capital requirements depend on numerous factors, including but not limited to
our ability to generate sufficient revenues to pay our operating expenses.
Our ability to meet our current and projected obligations depends
on our ability to generate sufficient sales and to control expenses and will require that we seek additional capital through private
and/or public financing sources. There can be no assurances that we will achieve our forecasted financial results or that we will be
able to raise additional capital to operate our business. Any such failure would have a material adverse impact on our liquidity and
financial condition and could force us to curtail or discontinue operations entirely and could require us to file for protection under
bankruptcy laws. These conditions raise substantial doubt as to our ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome from this uncertainty.
3. Summary of
Critical Accounting Policies
Accounting Principles
The financial statements and accompanying notes are prepared
in accordance with U.S. generally accepted accounting principles (“GAAP”).
Use
of Accounting Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make certain 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 revenue and expenses
during the reporting period. We believe that judgement is involved in determining our reserve for refunds, our holdback reserve, and
valuation of stock-based compensation. We evaluate our estimates and assumptions as facts and circumstances dictate. As future events
and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences
could be material to the Financial Statements.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Cash
Cash includes cash on hand, is deposited at one area bank and
may exceed federally insured limits at times. We consider all highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents. The carrying amounts reported in the balance sheets for cash and cash equivalents approximate their fair value.
Holdback Receivable
Holdback receivable includes a merchant holdback net of a reserve
for returns, which reserve is $58 and $42 as of December 31, 2021 and 2020, respectively.
Revenue Recognition
The Company accounts for revenue in accordance with Accounting
Standard Codification (“ASC”) Topic 606. Revenues are recognized when the Company satisfies a performance obligation by transferring
control of the promised goods or services to our customers at a point in time, in an amount specified in the contract with our customer
and that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company also assesses
our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment
experience and financial condition.
We generate revenues primarily from (i) internet content subscriptions
and (ii) sales of nutritional supplements. Revenues are recognized upon the acceptance of subscription membership or shipment of nutritional
supplements, provided that an order has been received or a contract executed, there are no uncertainties regarding customer acceptance,
the sales price is fixed or determinable and collection is deemed reasonably assured. If uncertainties regarding customer acceptance
exist, we recognize revenues when those uncertainties are resolved, and title has been transferred to the customer. Amounts collected
or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.
Our percentages of revenue by type for years ended December
31, 2021 and 2020 are as follows:
| Percentage of Revenue by Type | |
| | | |
| | |
| | |
Year ended December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Internet content subscriptions | |
| 0.0 | % | |
| 15.2 | % |
| Nutritional supplements | |
| 100.0 | % | |
| 84.8 | % |
Shipping and Handling Costs
We include shipping and handling fees billed to customers as
revenue and shipping and handling costs for shipments to customers as cost of revenue.
Advertising Costs
Advertising costs for the years ended December 31, 2021 and
2020 were $0 and $895, respectively. Advertising costs are expensed as incurred or at the first time the advertising activity takes place.
Loss Per
Share
Basic loss per common share is computed by dividing net loss
by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is based upon the weighted-average
common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period.
Common equivalent shares result from the assumed exercise of outstanding stock options and warrants, the proceeds of which are then assumed
to have been used to repurchase outstanding common stock using the treasury stock method. In addition, the numerator is adjusted for
any changes in income (loss) that would result from the assumed conversion of potential shares. Potentially dilutive shares, which were
excluded from the diluted loss per share calculations because the effect would be antidilutive or the options and warrants exercise prices
were greater than the average market price of the common shares, were 585,766 shares for the years ended December 31, 2021 and 2020.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Income Taxes
The provision for income taxes includes federal, state, local
and foreign taxes. Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective
tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled.
We evaluate the realizability of our deferred tax assets and establish a valuation allowance when it is more likely than not that all
or a portion of deferred tax assets will not be realized.
We account for uncertain tax positions using a “more-likely-than-not”
threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including,
but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective
settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate
this tax position on a quarterly basis. We also accrue for potential interest and penalties, if applicable, related to unrecognized tax
benefits in income tax expense.
Stock-Based Compensation
We account for stock based instruments issued to employees
and non-employees for services in accordance with Accounting Standard Codification (“ASC”) Topic 718.
Stock-based compensation is measured at the grant date based
on the estimated fair value of the award and is recognized as an expense over the requisite service period. Accordingly, the Black-Scholes
option pricing model is utilized to derive an estimated fair value.
The Black-Scholes pricing model requires the consideration
of the following six variables for purposes of estimating fair value:
| · | the stock option exercise price; |
| · | the expected term of the option; |
| · | the grant date price of our common stock, which is issuable upon exercise of the option; |
| · | the expected volatility of our common stock; |
| · | the expected dividends on our common stock (we do not anticipate paying dividends in the foreseeable future); and |
| · | the risk-free interest rate for the expected option term. |
Expected Dividends. We have never declared or paid any
cash dividends on any of our capital stock and do not expect to do so in the foreseeable future. Accordingly, we use an expected dividend
yield of zero to calculate the grant-date fair value of a stock option.
Expected Volatility. The expected volatility is a measure
of the amount by which our stock price is expected to fluctuate during the expected term of options granted. We determine the expected
volatility solely based upon the historical volatility of our common stock over a period commensurate with the option’s expected
term. We do not believe that the future volatility of our common stock over an option’s expected term is likely to differ significantly
from the past.
Risk-Free Interest Rate. The risk-free interest rate
is the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the option’s expected term on
the grant date.
Expected Term. For option grants subsequent to the adoption
of the fair value recognition provisions of the accounting standards, the expected life of stock options granted is based on the actual
vesting date and the end of the contractual term.
Grant Date Price of Common Stock. The closing market
price of our common stock on the date of grant.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Fair
Value of Financial Instruments
We follow Accounting Standards Codification 820-10 (“ASC
820-10”), “Fair Value Measurements and Disclosures,” for fair value measurements. ASC 820- 10 defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition
of fair value, which focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of
fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value
measurement based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.
The hierarchy established under ASC 820-10 gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
| |
Level 1 - Pricing inputs are quoted prices available in active
markets for identical investments as of the reporting date. As required by ASC 820-10, we do not adjust the quoted price for these investments,
even in situations where we hold a large position and a sale could reasonably impact the quoted price. |
| |
Level 2 - Pricing inputs are quoted prices for similar investments,
or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market
data. Level 2 includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to these investments. |
| |
Level 3 - Pricing inputs are unobservable for the investment,
that is, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing
the asset or liability. Level 3 includes investments that are supported by little or no market activity. |
The carrying amounts of our cash, holdback receivable, prepaid
expense and other current asset, accounts payable and accrued expenses approximate their fair values due to their short-term maturities
as of December 31, 2021 and 2020.
Recent Accounting Pronouncements
We have evaluated all issued but not yet effective accounting
pronouncements and determined that, other than the following, they are either immaterial or not relevant to us.
4. Related Party Transactions
On March 16, 2021, the Company executed a note payable to Mr. Sergei Stetsenko,
a member of our Board of Directors, in the amount of $15,000, interest accrues at 5% per annum, unsecured, and due after six months of
execution, or the date in which the Company secures one million dollars in total investment capital, whichever occurs first. Accrued interest
on December 31, 2021 is $596. This note is currently in default.
During the year ended December 31, 2021 and 2020, we paid to Mr. Bezusov
$0 and $2,000, respectively. We are not a party to an employment agreement with Mr. Bezusov and the compensation he is paid for his services
is determined by the board of directors.
On June 14, 2018, we entered into an employment agreement with Mr. Mannine
pursuant to which he was engaged to serve as our Chief Executive Officer. Mr. Mannine’s compensation includes a grant of 10 year
options to purchase 100,000 shares of our common stock at an exercise price of $0.225 per share, which vested upon the effectiveness of
the registration statement on December 7, 2018.
During the year ended December 31, 2020, Mr. Mannine personally paid $3,040
of company expenses. This is reflected as contributed capital in the financial statements.
On September 21, 2020, Mr. Mannine voluntarily agreed to cancel the
employment agreement and waive all cash due and any related accruals. During the years ended December 31, 2021 and 2020, $130,000
and $116,443,
respectively, are included as part of selling, general and administrative expense. The salary forgiven is recorded as in-kind
contribution of service provided by Mr. Mannine (See Notes 8 and 10).
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
On May 21, 2018, we entered into an Amended and Restated Strategic Financing
& Corporate Development Agreement with CRG which was amended and restated an earlier agreement entered into in October 2017. We have
engaged this company to serve as our non-exclusive strategic financing and corporate development services provider and to render certain
advice and services to us as we may reasonably request concerning equity or debt financings, strategic planning, merger and acquisition
possibilities, and business development activities. The scope of services under this agreement also includes introducing us to one or
more non-U.S. persons, as that term is defined in Regulation S under the Securities Act, in connection with possible debt or equity financings
or potential lenders. The initial term of the agreement expired in May 2020, but pursuant to the terms of the agreement, renews automatically
for one-year periods unless notice of non-renewal is provided by either party at least 30 days prior to the renewal term commencement.
The agreement was renewed until May 2022.
As compensation under the terms of this agreement, we agreed to pay
CRG Finance AG certain fees for transactions which are consummated during the term of the agreement and for a one year period following
the termination of the agreement, including:
| · | a fee equal to 7% of the proceeds received by us plus a warrant exercisable into 7% of the shares of our common stock at the offering
price of our shares for sales by us of equity or equity-linked securities to non-U.S. Persons introduced to us by CRG Finance AG; |
| · | a fee equal to 1% of the total gross cash proceeds or non-cash consideration received by us, together with a five year warrant exercisable
into 1% of the securities issued or to be issued by us in a business combination with a non-U.S. person first introduced to us by CRG
Finance AG; |
| · | a fee equal to 1% of consideration received by us in any debt financing not convertible into equity, including, but not limited to,
a revolving credit line or credit enhancement instrument, including on an insured or guarantee basis, with a non-U.S. Person first introduced
to us by CRG Finance AG; and |
| · | a fee equal to 2% of any revenue-producing contract, fee-sharing arrangement, licensing, royalty or similar agreement with a non-U.S.
Person first introduced to us by CRG Finance AG. |
In addition to the foregoing fees, we have agreed to reimburse CRG
Finance AG for its pre-approved out of pocket expenses it incurs under the terms of the agreement. The agreement contains customary confidentiality
and indemnification provisions.
5. Income Taxes
For the year ended December 31, 2021, the provision for income
taxes was $0. For the year ended December 31, 2020 the provision for income taxes was $1,154. Deferred tax assets have been reduced
to an amount deemed recoverable from the use of loss carrybacks.
As of December 31, 2021,
we have net operating loss carryforwards of approximately
$1.8 million. Our net operating loss carryforwards
will be subject to annual limitations, as discussed above,
which could reduce or defer the utilization
of the losses as a result of an ownership change as
defined in Section 382 of the Internal Revenue Code. Net operating losses of approximately
$1.39 million may be carried forward indefinitely subject to limitation. Net operating losses of approximately $407,000 will begin expiring
in 2037. Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 21% to income (loss)
before income taxes. The reasons for these differences are:
| Income Tax Rate Reconciliation | |
| | | |
| | | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| | |
Tax | | |
Rate | | |
Tax | | |
Rate | |
| Taxes computed at statutory rate | |
| | | |
| | | |
| | | |
| | |
| Federal | |
$ | (57,032 | ) | |
| 21.00 | % | |
$ | (79,480 | ) | |
| 21.00 | % |
| State | |
| (10,727 | ) | |
| 3.95 | % | |
| (14,950 | ) | |
| 3.95 | % |
| Total taxes at blended statutory rate | |
$ | (67,759 | ) | |
| 24.95 | % | |
$ | (94,430 | ) | |
| 24.95 | % |
| Increase (decrease) resulting from: | |
| | | |
| | | |
| | | |
| | |
| Effect of tax rate change | |
| — | | |
| 0.00 | % | |
| — | | |
| 0.00 | % |
| Nondeductible expenses | |
| — | | |
| 0.00 | % | |
| — | | |
| 0.00 | % |
| State income tax refund | |
| — | | |
| 0.00 | % | |
| — | | |
| 0.00 | % |
| Other | |
| 385 | | |
| -0.14 | % | |
| 3,318 | | |
| -0.88 | % |
| Change in valuation allowance | |
| 67,374 | | |
| -24.81 | % | |
| 92,266 | | |
| -24.38 | % |
| Total income tax (benefit) expense | |
$ | — | | |
| -0.00 | % | |
$ | 1,154 | | |
| -0.31 | % |
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
The tax
effect of significant components of our deferred tax assets and liabilities at December 31, 2021 and 2020, are as follows:
| Deferred Tax Assets and Liabilities | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| Deferred tax assets: | |
| | | |
| | |
| Net operating loss carryforward | |
$ | 509,708 | | |
$ | 441,506 | |
| Amortization of intangibles | |
| 7,485 | | |
| 8,317 | |
| Reserve for refunds | |
| 15 | | |
| 11 | |
| Stock compensation | |
| 3,774 | | |
| 774 | |
| Charitable contribution carryforward | |
| 3,355 | | |
| 3,355 | |
| Total deferred tax assets | |
| 524,337 | | |
| 456,963 | |
| Less: Valuation allowance | |
| (524,337 | ) | |
| (456,963 | ) |
| Net deferred tax assets | |
$ | — | | |
$ | — | |
In assessing the realizability of deferred tax assets, we consider
whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies
in making this assessment.
Because of our historical earnings history, the net deferred
tax asset for 2021 has been reduced based on the amount deemed recoverable from the use of loss carrybacks. The change in the valuation
allowance was an increase of $67,374 and $92,266 for the years ended December 31, 2021 and 2020, respectively.
6. Notes
Payable
On December
1, 2021, the Company executed a note payable to an individual in the amount of $15,000, interest accrues at 5% per annum, unsecured, and
due after one year of execution, or the date in which the Company secures one million dollars in total investment capital, whichever occurs
first. Accrued interest on December 31, 2021 is $62
On September
28, 2021, the Company executed a note payable to an individual in the amount of $50,000, interest accrues at 5% per annum, unsecured,
and due after one year of execution, or the date in which the Company secures one million dollars in total investment capital, whichever
occurs first. Accrued interest on December 31, 2021 is $644.
On August 4, 2021,
the Company executed a note payable to an individual in the amount of $15,000,
interest accrues at 5%
per annum, unsecured, and due
after six months of execution, or the date in which the Company secures one million dollars in total investment capital, whichever occurs
first. Accrued interest on December 31, 2021 is $306.
This note is currently in default.
On May 10, 2021,
the Company executed a note payable to an individual in the amount of $20,000, interest accrues at 5% per annum, unsecured, and due after
six months of execution, or the date in which the Company secures one million dollars in total investment capital, whichever occurs first.
Accrued interest on December 31, 2021 is $644. This note is currently in default.
On April 15, 2021,
the Company executed a note payable to an individual in the amount of $10,000, interest accrues at 5% per annum, unsecured, and due after
six months of execution, or the date in which the Company secures one million dollars in total investment capital, whichever occurs first.
Accrued interest on December 31, 2021 is $356. This note is currently in default.
On March 16, 2021, the Company executed a note payable to Mr. Sergei Stetsenko,
a member of our Board of Directors, in the amount of $15,000, interest accrues at 5% per annum, unsecured, and due after six months of
execution, or the date in which the Company secures one million dollars in total investment capital, whichever occurs first. Accrued interest
on December 31, 2021 is $596. The note is currently in default.
On February 3, 2021, the Company executed a note payable to an individual
in the amount of $10,000, interest accrues at 5% per annum, unsecured, and due after six months of execution, or the date in which the
Company secures one million dollars in total investment capital, whichever occurs first. On November 19, 2021, the Company fully repaid
the note payable and $400 of related accrued interest.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
On December 17, 2020, the Company executed a note payable to an individual
in the amount of $19,500, interest accrues at 5% per annum, unsecured, and due after six months of execution, or the date in which the
Company secures one million dollars in total investment capital, whichever occurs first. Accrued interest on December 31, 2021 and December
31, 2020 is $1,015 and $40, respectively. This note is currently in default.
On October 27, 2020, the Company executed a note payable to an individual
in the amount of $10,000, interest accrues at 5% per annum, unsecured, and due after six months of execution, or the date in which the
Company secures one million dollars in total investment capital, whichever occurs first. Accrued interest on December 31, 2021 and December
31, 2020 is $590 and $90, respectively. This note is currently in default.
On May 5, 2020, the Company received loan proceeds in the amount of $27,000
from Bank of America (the “Lender”) under the Paycheck Protection Program (“PPP”). The PPP, established as part
of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act), provides for loans to qualifying business for amounts up
to 2.5 times of the average monthly payroll expenses of the qualifying business. The loan matures on April 20, 2022 and bears an interest
rate of 1.00% fixed per annum, payable monthly commencing on October 20, 2020. The loan is forgivable if the proceeds are used for eligible
purposes. We have used the entire loan amount for qualifying expenses and the forgiveness is pending the completion of the application.
The company received a $6,250 courtesy credit from the lender on September 15, 2021. The loan balance at December 31, 2021 is $20,750.
The monthly payment beginning October 4, 2021 is $3,433. The Company has submitted the application for forgiveness of the PPP Loan in accordance with the terms of the CARES Act and are in discussions
with Bank of America (the lender). During the loan forgiveness process, repayment is temporarily deferred for borrowers until the SBA
remits the final loan forgiveness amount to the lender. If granted full forgiveness, Bank of America confirmed that interest and penalties
would be removed along with the principal of the loan.
On November 18, 2019, the Company executed a note payable to an
individual in the amount of $50,000,
interest accrues at 5%
per annum, unsecured, and due
after six months of execution, or the date in which the Company secures one million dollars in total investment capital, whichever
occurs first. On May 14, 2020, $1,250
of accrued interest was paid. Accrued interest on December 31, 2021 and December 31, 2020 is $4,010
and $1,510,
respectively. This note is currently in default.
On November 18, 2019, the Company executed a note payable to an individual
in the amount of $25,000, interest accrues at 5% per annum, unsecured, and due after six months of execution, or the date in which the
Company secures one million dollars in total investment capital, whichever occurs first. Accrued interest on December 31, 2021 and December
31, 2020 is $2,630 and $1,380, respectively.This note is currently in default.
7. Economic Injury Disaster Loan
On April 14, 2020, the Company received a grant in the amount of $2,000
which does not have to be repaid from the SBA under its Economic Injury Disaster Loan (“EIDL”)
assistance program in light of the impact of the COVID-19 pandemic on the business. The amount is included in “other income”
in our statement of operations.
8. Commitments and Contingencies
Employment Agreement
On June 14, 2018, we entered into an employment agreement with Mr. Mannine
pursuant to which he was engaged to serve as our Chief Executive Officer. The initial term of the agreement expires in June 2023, subject
to successive automatic one- year renewals unless a non-renewal notice is received by either party at least 90 days prior to the expiration
of the then current renewal term.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Mr. Mannine’s compensation includes:
| · | an annual base salary of $130,000, subject to an annual review with an increase
of at least 5% per annum as determined by the board of directors; |
| · | an annual bonus as determined by the board of directors; |
| · | a grant of 10-year options to purchase 100,000 shares of our common stock
at an exercise price of $0.225 per share which vest upon the effectiveness of a registration statement to be filed with the Securities
and Exchange Commission; |
| · | participation in all benefit plans we may offer our employees; and |
| · | 20 paid vacation days annually. |
Mr. Mannine's employment agreement may be terminated, and he is entitled
to certain payments upon such termination, as follows:
| · | if we should terminate Mr. Mannine’s employment without “cause”
or if he should resign for “good reason" or if a “change of control” occurs, we are obligated to pay him a lump-sum
severance payment equal to the sum of three months’ base salary, plus one month for every year he was employed and 50% of three
years annual bonus (based on the prior year’s compensation); |
| · | if Mr. Mannine’s employment is terminated as a result of his death
or disability, he is entitled to receive his base salary and a pro-rata annual bonus, if any, based on the year during which such termination
is effective; or |
| · | if we should terminate Mr. Mannine for “cause,” or if he voluntarily
terminates the agreement, he is entitled to receive his base salary only through the date of termination, and he is not be entitled to
any other compensation for the calendar year during which the termination occurs or any subsequent calendar period, including, but not
limited to, any annual bonus, if any, that has not already been paid. |
The employment agreement with Mr. Mannine contains customary
confidentiality, non-compete and indemnification clauses. On September 21, 2020, Mr. Mannine agreed to voluntarily cancel the employment
agreement.
During the years ended December 31, 2021 and 2020, Mr. Mannine
voluntarily agreed to waive all cash due and any related accruals. The salary forgiven for the years ended December 31, 2021 and
2020 of $130,000
and $116,443
are included as part of selling, general and administrative expense. The salary forgiven is treated as in-kind contribution of
service and reflected as contributed capital in the financial statements (See Notes 4 and 10).
Commitments
On May 21, 2018, we entered into
an Amended and Restated Strategic Financing & Corporate Development Agreement with CRG which was amended and restated an earlier agreement
entered into in October 2017. We have engaged this company to serve as our non-exclusive strategic financing and corporate development
services provider and to render certain advice and services to us as we may reasonably request concerning equity or debt financings, strategic
planning, merger and acquisition possibilities, and business development activities. The scope of services under this agreement also includes
introducing us to one or more non-U.S. persons, as that term is defined in Regulation S under the Securities Act, in connection with possible
debt or equity financings or potential lenders. The initial term of the agreement expired in May 2019, but pursuant to the terms of the
agreement, renews automatically for one-year periods unless notice of non-renewal is provided by either party at least 30 days prior to
the renewal term commencement. The agreement was renewed until May 2022.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
As compensation
under the terms of this agreement, we agreed to pay CRG Finance AG certain fees for transactions which are consummated during the term
of the agreement and for a one year period following the termination of the agreement, including:
| · | a fee equal to 7% of the proceeds received by us plus a warrant exercisable into 7% of the shares
of our common stock at the offering price of our shares for sales by us of equity or equity-linked securities to non-U.S. Persons introduced
to us by CRG Finance AG; |
| · | a fee equal to 1% of the total gross cash proceeds or non-cash consideration received by us,
together with a five year warrant exercisable into 1% of the securities issued or to be issued by us in a business combination with a
non-U.S. person first introduced to us by CRG Finance AG; |
| · | a fee equal to 1% of consideration received by us in any debt financing not convertible into
equity, including, but not limited to, a revolving credit line or credit enhancement instrument, including on an insured or guarantee
basis, with a non-U.S. Person first introduced to us by CRG Finance AG; and |
| · | a fee equal to 2% of any revenue-producing contract, fee-sharing arrangement, licensing, royalty
or similar agreement with a non-U.S. Person first introduced to us by CRG Finance AG. |
In addition to the foregoing fees,
we have agreed to reimburse CRG Finance AG for its pre-approved out of pocket expenses it incurs under the terms of the agreement. The
agreement contains customary confidentiality and indemnification provisions.
On February 12, 2020, we entered
a consulting agreement with Primoris Group Inc (“Primoris”). Primoris was issued 200,000 common shares at a fair value of
$45,000 ($0.225 per share) on June 30, 2020. 100,000 shares are restricted from resale or transfer by Primoris per the consulting agreement
until February 12, 2021. The consultant has an option to register 100,000 on any future registration statement. In addition to any restrictions
imposed by the agreement, all the shares require an exemption for resale to the public. For the years ended
December 31, 2021 and December 31, 2020, we have recorded stock-based compensation of $0 and $3,937, respectively. As of December 31,
2021 and December 31, 2020, $0 and $5,625, respectively, is recorded in prepaid expense related to the consulting agreement.
Under terms of the consulting agreement,
we agree to pay Primoris $8,000 per month payable in advance of the month in which services are to be rendered as a consulting fee. As
of December 31, 2021 and December 31, 2020, $96,000 and $84,000 are recorded as accrued expenses, respectively. The agreement was not
renewed upon expiration date.
Contingencies
In April 2016, we entered into a Promotion and Royalty Agreement
(the “Agreement”) with a consultant to obtain certain promotional services from him (the “Promoter”), including
the use of his name and appearance. In consideration for the services rendered by the Promoter, we agreed to use commercially reasonable
efforts to promote and sell a book authored by him (the “Book”) and to pay him a percentage of the sales of the Book after
deductions for all direct costs of fulfilling such sales (the “Royalty”). During the course of 2017, the Promoter initiated
a series of informal claims and filed unauthorized uniform commercial code financing statements (“UCC Liens”) in several
states as liens against us and certain of our officers, directors, and founders, alleging non- payment for the Royalty amounts due under
the Agreement. We dispute the Promoter’s claims and have determined that any and all amounts due to the Promoter under the Agreement
have been paid in full. We have succeeded in removing certain of the UCC Liens and are pursuing action to remove the remaining unauthorized
UCC Liens. We do not believe that the claims of the Promoter are valid in any respect.
9. Concentration
of Credit Risk and Major Customers and Suppliers
None of our revenues are concentrated with any single customer
composing 10% or more of our total revenues.
We purchase our inventory of herbal/natural supplements from
one supplier. While we believe that we will be able to find a secondary supplier, there could be a manufacturing delay in the transition
to a new supplier and such a supply interruption would materially impact our business for some period of time.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
10.
Stockholders Deficit
Our authorized capital stock consists of 50,000,000 shares
of common stock, par value $0.0001 per share, and 5,000,000 shares of blank check preferred stock, par value $0.0001 per share. As of
December 31, 2021 and 2020, there are 11,599,830 and 11,599,830 shares of common stock outstanding, respectively and there are no shares
of preferred stock issued and outstanding at either date.
Contributed Capital
On September 21, 2020, Mr.
Mannine voluntarily agreed to cancel his employment agreement and waive all cash due and any related accruals. The salary forgiven
for the year ended December 31, 2021 and 2020 of $
and $
are included as part of selling, general and administrative expense. The salary forgiven is treated
as in-kind contribution of service and reflected as contributed capital in the financial statements (See notes 4 and 8).
During the year ended December 31, 2020, Mr. Mannine personally paid $3,040
of company expenses. This is reflected as contributed capital in the financial statements.
Consulting Agreement
On February 12, 2020, we entered
a consulting agreement with Primoris Group Inc (“Primoris”). Primoris was issued 200,000
common shares at a fair value of $45,000
($0.225
per share) on June 30, 2020. 100,000
shares are restricted from resale or transfer by Primoris per the consulting agreement
until February 12, 2021. The consultant has an option to register 100,000 on any future registration statement. In addition to any restrictions
imposed by the agreement, all the shares require an exemption for resale to the public. The agreement was not renewed upon expiration
date.
Preferred Stock
Our board of directors, without further stockholder approval,
may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences,
qualifications, limitations and restrictions of the shares of each series. The rights, preferences, limitations and restrictions of different
series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights,
redemption provisions, sinking fund provisions and other matters. Our board of directors may authorize the issuance of preferred stock,
which ranks senior to our common stock for the payment of dividends and the distribution of assets on liquidation. In addition, our board
of directors can fix limitations and restrictions, if any, upon the payment of dividends on both classes of our common stock to be effective
while any shares of preferred stock are outstanding.
Warrants
On October 10, 2017, we entered
into the Financing
Agreement with CRG, as more fully
described in Notes 4
and 8. In connection with the related equity financing as of December 31, 2017, CRG had
earned 368,111
fully vested five-year warrants with an exercise price of $0.225.
The related warrants were issued in January 2018. We determined that the warrant had an initial fair value of $34,405 and was
recorded as a direct offering cost in Stockholders’ equity with a net effect of zero. We estimated the fair value of this
warrant using the Black-Scholes option pricing model, based on the following assumptions: the recent cash offering price of $0.225
as the estimated fair value of the underlying common stock at the valuation measurement date; no dividend yield for all of the
years; expected volatility of 45%; risk-free interest rate of 2.2% and an expected life of 5 years.
During January 2018, as part of the Private Placement more
fully described in Note 4, CRG earned an additional 17,655 fully vested common stock warrants with an exercise price of $0.225. These
additional warrants were issued to CRG on January 30, 2018. We determined that the warrant had an initial fair value of $1,670 and was
recorded as a direct offering cost in Stockholders’ equity with a net effect of zero. We estimated the fair value of this warrant
using the Black-Scholes option pricing model, based on the following assumptions: the recent cash offering price of $0.225 as the estimated
fair value of the underlying common stock at the valuation measurement date; no dividend yield for all of the years; expected volatility
of 45%; risk-free interest rate of 2.51% and an expected life of 5 years.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
On March 8, 2018, we entered into an advisory agreement with
a scientific advisor to provide certain services to us. Pursuant to the agreement, we issued 100,000 five-year common stock warrants at
an exercise price of $0.90. Such warrants vest subject to certain milestones. As of December 31, 2021 and 2020, 100,000 and 100,000 of
these warrants have vested. We determined that the warrant had an initial fair value of $1,905. We estimated the fair value of this warrant
using the Black- Scholes option pricing model, based on the following assumptions: the recent cash offering price of $0.225 as the estimated
fair value of the underlying common stock at the valuation measurement date; no dividend yield for all of the years; expected volatility
of 45%; risk-free interest rate of 2.63% and an expected life of 5 years.
During the years ended December 31, 2021 and 2020, we have recorded
stock-based compensation expense of $0 and $224, respectively, which is included in our selling, general and administrative expense on
the accompanying Statements of Operations.
As of December 31, 2021 and December 31, 2020, the intrinsic
value for warrants outstanding and exercisable is $28,932 and $144,662, respectively.
The following table summarizes information about the warrants
outstanding and exercisable as of December 31, 2021 and 2020:
| Warrants outstanding and exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2021 |
|
2020 |
|
| |
|
Warrants |
|
Weighted
Average
Exercise
Price |
|
Warrants |
|
Weighted
Average
Exercise
Price |
|
| Outstanding, beginning of year |
|
|
485,766 |
|
$ |
0.364 |
|
|
485,766 |
|
$ |
0.364 |
|
| Granted |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Exercised |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Forfeited |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Expired |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Outstanding, end of year |
|
|
485,766 |
|
$ |
0.364 |
|
|
485,766 |
|
$ |
0.364 |
|
| Exercisable, end of year |
|
|
485,766 |
|
$ |
0.364 |
|
|
485,766 |
|
$ |
0.364 |
|
As of December 31, 2021
| Warrants outstanding and exercisable by range of exercise price |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Warrants Outstanding |
|
Warrants Exercisable |
|
|
Range of
Exercise Price |
|
Number
Outstanding |
|
Remaining
Average
Contractual
Life (In Years) |
|
Weighted
Average
Exercise Price |
|
Number
Exercisable |
|
Weighted
Average
Exercise Price |
|
| $0.225 -$0.90 |
|
485,766 |
|
1.10 |
|
$0.364 |
|
485,766 |
|
$0.364 |
|
As of December 31, 2020
| |
|
Warrants Outstanding |
|
Warrants Exercisable |
|
|
Range of
Exercise Price |
|
Number
Outstanding |
|
Remaining
Average
Contractual
Life (In Years) |
|
Weighted
Average
Exercise Price |
|
Number
Exercisable |
|
Weighted
Average
Exercise Price |
|
| $0.225 -$0.90 |
|
485,766 |
|
2.10 |
|
$0.364 |
|
485,766 |
|
$0.364 |
|
11. Stock Option Plan
In December 2017 our board of directors adopted our 2017 Equity
Incentive Plan, or the “2017 Plan.” Our stockholders ratified the 2017 Plan in December 2017. The purpose of the 2017 Plan
is to encourage ownership in our company by our officers, directors, employees and consultants, and to incentivize and align the interests
of the plan participants with the interests of our stockholders. We have reserved 1,100,000 shares of our common stock for issuance under
the 2017 Plan. Grants pursuant to the 2017 Plan may be: i) incentive stock options; ii) non-statutory stock options; iii) stock awards,
including shares of our common stock and stock units; and iv) stock appreciation rights.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
The board of directors or a committee of the board of directors
administers the 2017 Plan. Presently, the 2017 Plan is administered by our board of directors. The term of each plan option and the manner
in which it may be exercised is determined by the board of directors or a committee of the board of directors, provided that no option
may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee
owning more than 10% of the common stock, no more than five years after the date of the grant. The terms of grants or any other type of
award under the plan are determined by the board of directors or committee of the board of directors at the time of grant. The 2017 Plan
provides that the maximum value of any award during any calendar year cannot exceed $1,000,000.
Any option granted under the plan must provide for an exercise
price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any ISO
granted under the 2017 Plan to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of
fair market value on the date of the grant. The 2017 Plan further provides that with respect to ISOs the aggregate fair market value of
the common stock underlying the options which are exercisable by any plan participant during any calendar year cannot exceed $100,000.
Option awards may provide for the exercise by means of cash, consideration received by us under a broker-assisted sale and remittance
program, cashless exercise, any other consideration legally permitted, or a combination of the foregoing. The 2017 Plan administrator
may also determine the method of payment of the exercise price at the time the option is being exercised. Grants under the 2017 Plan are
not transferrable.
Generally, options which are exercisable at the date of the
plan participant’s termination from our employment or severance of the relationship with our company must be exercised within three
months of the termination date; the plan administrator may extend the exercise period of the option for a separated plan participant providing
that the extended date does not go beyond the original expiration date of the option. Similarly, generally options which are exercisable
at the date of the plan participant’s disability or death must be exercised within six months of the termination date in the event
of the disability of the plan participant or 12 months following the plan participant’s death. In our discretion, any outstanding
options held by a plan participant terminated for cause may be immediately cancelled.
In the event there is a “change in control” of our
company as defined in the 2017 Plan, as determined by the board of directors or the committee, we may in our discretion: i) provide for
the assumption or substitution of, or adjustment (including to the number and type of shares and exercise or purchase price applicable)
to, each outstanding award; ii) accelerate the vesting of options and terminate any restrictions on stock awards; and/or iii) provide
for termination of awards as a result of the change in control on such terms and conditions as it deems appropriate, including providing
for the cancellation of awards for a cash or other payment to the participant.
The number of shares of our common stock underlying any outstanding
but unexercised option and the exercise price of that option will be proportionally adjusted in the event of a stock split, stock combinations,
dividends, and similar corporate events.
On June 14, 2018, pursuant to the employment agreement with
Mr. Mannine, more fully described in Note 8, we issued 100,000 stock options with an exercise price of $0.225. Such options fully vest
upon the effectiveness of a registration statement on Form S-1. We determined that the options had an initial fair value of $13,221. We
estimated the fair value of these options using the Black-Scholes option pricing model, based on the following assumptions: the recent
cash offering price of $0.225 as the estimated fair value of the underlying common stock at the valuation measurement date; no dividend
yield for all of the years; expected volatility of 45%; risk-free interest rate of 2.2% and an expected life of 10 years. We amortized
the fair value over the period from their issuance on June 14, 2018 through December 7, 2018, the date on which the registration statement
was declared effective.
As of December 31, 2021 and December 31, 2020, the intrinsic
value for option outstanding and exercisable is $7,500 and $37,500, respectively.
VYNLEADS, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
The following table summarizes information about stock options
outstanding and exercisable as of as of December 31, 2021 and 2020:
| Options outstanding and exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2021 |
|
2020 |
|
| |
|
Options |
|
Weighted
Average
Exercise
Price |
|
Options |
|
Weighted
Average
Exercise
Price |
|
| Outstanding, beginning of year |
|
|
100,000 |
|
$ |
0.225 |
|
|
100,000 |
|
$ |
0.225 |
|
| Granted |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Exercised |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Forfeited |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Expired |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Outstanding, end of year |
|
|
100,000 |
|
$ |
0.225 |
|
|
100,000 |
|
$ |
0.225 |
|
| Exercisable, end of year |
|
|
100,000 |
|
$ |
0.225 |
|
|
100,000 |
|
$ |
0.225 |
|
| Options available for future grant, end of year |
|
|
1,000,000 |
|
|
|
|
|
1,000,000 |
|
|
|
|
As of December 31, 2021
| Options outstanding by exercise price range |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding |
|
Options Exercisable |
|
|
Range of
Exercise Price |
|
Number
Outstanding |
|
Remaining
Average
Contractual
Life (In Years) |
|
Weighted
Average
Exercise Price |
|
Number
Exercisable |
|
Weighted
Average
Exercise Price |
|
| $0.225 |
|
100,000 |
|
6.93 |
|
$0.225 |
|
100,000 |
|
$0.225 |
|
As of December 31, 2020
| |
|
Options Outstanding |
|
Options Exercisable |
|
|
Range of
Exercise Price |
|
Number
Outstanding |
|
Remaining
Average
Contractual
Life (In Years) |
|
Weighted
Average
Exercise Price |
|
Number
Exercisable |
|
Weighted
Average
Exercise Price |
|
| $0.225 |
|
100,000 |
|
7.93 |
|
$0.225 |
|
100,000 |
|
$0.225 |
|
12. Subsequent Events
On January 26, 2022, the Company
executed a note payable to an individual in the amount of $20,000, interest accrues at 5% per annum, unsecured, and due after one year
of execution, or the date in which the Company secures one million dollars in total investment capital, whichever occurs first.
On February 10, 2022, the Company
executed a note payable to an individual in the amount of $20,000, interest accrues at 5% per annum, unsecured, and due after one year
of execution, or the date in which the Company secures one million dollars in total investment capital, whichever occurs first.