LIMITLESS X HOLDINGS INC. Forward-Looking Statements and Associated Risks.
This Annual Report contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "expect," "believe," "anticipate," "estimate," or "continue," or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships. (See "Cautionary Note Concerning Forward-Looking Statements.") INTRODUCTION As previously reported on a Current Report on Form 8-K filed with theSEC onMay 13, 2022 ,Bio Lab Naturals, Inc. ("Bio Lab "), entered into a Share Exchange Agreement (the "Share Exchange Agreement") withLimitless X, Inc. , aNevada corporation ("LimitlessX"), and its 11 shareholders (the "LimitlessX Acquisition") onMay 11, 2022 (the "Merger"). The parties completed and closed the LimitlessX Acquisition onMay 20, 2022 by issuing an aggregate of 3,233,334 shares of common stock ofBio Lab to the LimitlessX shareholders (the "Acquisition Closing"). According to the terms of the Share Exchange Agreement,Bio Lab then issued an additional 300,000 shares of common stock to the LimitlessX shareholders pro rata to their interests in approximately six months from the Acquisition Closing as part of the Limitless Acquisition. Concurrently with the LimitlessX Acquisition,Jaspreet Mathur , the founder and principal shareholder of LimitlessX, also purchased fromHelion Holdings LLC , 500,000 shares ofBio Lab's Class A Preferred Convertible Stock, which at all times have a number of votes equal to 60% of all of the issued and outstanding shares of common stock ofBio Lab . For accounting purposes, the Merger was accounted for as a "reverse merger" with LimitlessX as the accounting acquiror (legal acquiree) andBio Lab as the accounting acquiree (legal acquiror). and, consequently, the transaction was treated as a recapitalization ofBio Lab . Since LimitlessX was deemed to be the accounting acquiror in the Merger, the historical financial information for periods prior to the Merger reflect the financial information and activities solely of LimitlessX and not ofBio Lab . No step-up in basis or intangible assets or goodwill was recorded in this transaction.
On
46 RESULTS OF OPERATION
For the Year Ended
For the period from
September 27, 2021
For the (Date of formation)
year ended through
December 31, 2022 December 31, 2021 Changes
Amount % of Sales Amount % of Sales Amount %
Revenue
Product sales$ 40,364,955 69 %$ 302,371 100 %$ 40,062,584 13249 % Service revenue 18,308,341 31 % - 0 % 18,308,341 N/A Rentals 15,000 0 % - 0 % 15,000 N/A Total revenue 58,688,296 100 % 302,371 100 % 58,385,925 19309 % Cost of sales Cost of sales 6,942,680 12 % 3,258 1 % 6,939,422 212996 % Cost of sales - other 358 0 % - 0 % 358 N/A Total cost of sales 6,943,038 12 % 3,258 1 % 6,939,780 213007 % Gross profit 51,745,258 88 % 299,113 99 % 51,446,145 17200 % Operating expenses: General and administrative 1,938,640 3 % 12,054 4 % 1,926,586 15983 % Advertising and marketing 47,164,700 80 % 194,679 64 % 46,970,021 24127 % Stock compensation for services 1,117,782 2 % - 0 % 1,117,782 N/A Transaction fees 3,201,599 5 % 1,416 0 % 3,200,183 226002 % Merchant fees 2,459,670 4 % 20,092 7 % 2,439,578 12142 % Royalty fees 1,114,403 2 % - 0 % 1,114,403 N/A Professional fees 1,647,787 3 % 14,000 5 % 1,633,787 11670 % Payroll and payroll taxes 1,306,565 2 % 17,794 6 % 1,288,771 7243 % Rent 205,497 0 % 11,508 4 % 193,989 1686 % Dad debt expense 1,300,855 2 % - 0 % 1,300,855 N/A Consulting fees, related party 43,500 0 % - 0 % 43,500 N/A Total operating expenses 61,500,998 105 % 271,543 90 % 61,229,455 22549 % Income (loss) from operations (9,755,740 ) -17 % 27,570 9 % (9,783,310 ) -35485 % Other income (expense) Interest expense (348,017 ) -1 % - 0 % (348,017 ) N/A Other income 57,756 0 % - 0 % 57,756 N/A Gain on disposal of assets 28,397 0 % - 0 % 28,397 N/A Total other income (expense), net (261,864 ) 0 % - 0 % (261,864 ) N/A Income (loss) before income taxes (10,017,604 ) -17 % 27,570 9 % (10,045,174 ) -36435 % Income tax provision 6,402 0 % 22,906 8 % (16,504 ) -72 % Net income (loss)$ (10,024,006 ) -17 %$ 4,664 2 %$ (10,028,670 ) -215023 % 47
Product Sales - Our product sales increased by 13,249% to$40.4 million for the year endedDecember 31, 2022 as compared to$302,371 for the period fromSeptember 27, 2021 throughDecember 31, 2021 . Sales increase was primarily due to us being in operation for 12 months in 2022 compared to one month in 2021. In 2022, there was a shift in our marketing strategies, including strategic advertisement placements with celebrities and more effective product placement. Service Revenue - Our service revenue increased by$18.3 million to$18.3 million for the year endedDecember 31, 2022 as compared to$0 for the period fromSeptember 27, 2021 throughDecember 31, 2021 . Our service revenue increase was primarily due to us being in operation for 12 months in 2022 compared to one month in 2021. In 2022, we began our digital marketing services. Cost of Sales - Our cost of sales increased from$3,258 , 1% of sales, to$76.9 million , 12% of sales. This increase was primarily due to us being in operations for 12 months in 2022 compared to one month in 2021. As operations increased during the period, so did our costs for freight, inventory, and other supplies.
Gross Profit - Gross profit for the year ended
Operating Expenses - During the year endedDecember 31, 2022 , we recognized$61.5 million in operating expenses compared to$271,543 for the period fromSeptember 27, 2021 throughDecember 31, 2021 . The increase of$61.2 million was due to us being in operations for 12 months compared to one month in 2021. The increase of our operating expenses were primarily due to advertising and marketing, transaction fees, merchant fees, royalty fees, and bad debt expense.
? Our advertising and marketing expense increased by
in marketing strategies to heavily push our related products by using
performance marketers and celebrity endorsements.
advertising and marketing expenses are commission fees to performance
marketers.
? The increase in transaction fees and merchant fees are directly related to the
increased number of transactions during the year.
? Beginning on
and distributorship license agreements of 4.00% of gross sales, excluding
returns, chargebacks, and other such allowances. Thus, the royalty fees
increased during the period.
? The increase in bad debt expense was due to management providing a reserve
based on aging of the holdback receivables that they determine should be uncollectible. 48
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities During the year endedDecember 31, 2022 , net cash used in operating activities was$9.1 million . The cash used in operating activities was primary due to net loss and timing of settlement of assets and liabilities including stock compensation expenses. Investing Activities Net cash provided by investing activities for the year endedDecember 31, 2022 was$28,397 . During the year endedDecember 31, 2022 ,$28,397 was provided by proceeds from the disposition of an asset. Financing Activities Net cash provided by financing activities for the year endedDecember 31, 2022 was$14.9 million . This amount was incurred by increased borrowings from related parties, shareholders, and investors. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and the accompanying notes. The amounts of assets and liabilities reported on our balance sheet and the amounts of revenues and expenses reported for each of our fiscal periods are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, stock based compensation and the valuation of deferred taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of the financial statements: Revenue Recognition We recognize revenue when performance obligations under the terms of a contract with our customers are satisfied. We have determined that fulfilling and delivering products is a single performance obligation. Revenue is recognized at the point in time when we have satisfied our performance obligation and the customer has obtained control of the products. This generally occurs when the product is delivered to or picked up by the customer based on applicable shipping terms, which is typically within 15 days. Revenue is measured as the amount of consideration expected to be received in exchange for fulfilled product orders, While customers generally have a right to return defective or non-conforming products, past experience has demonstrated that product returns have been immaterial. Customer remedies for defective or non-conforming products may include a refund or exchange. As a result, the right of return is estimated and recorded as a reduction in revenue at the time of sale, if necessary. Our customer contracts identify product quantity, price, and payment terms. Payment terms are granted consistent with industry standards. Although some payment terms may be more extended, the majority of the our payment terms are less than 30 days. As a result, revenue is not adjusted for the effects of a significant financing component. Amounts billed and due from customers are classified as Accounts Receivables on the Balance Sheet.
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