The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
Notes to Unaudited Condensed Consolidated Financial Statements
(1) NATURE OF OPERATIONS
West Coast Ventures Group Corp. (our, us, we, WCVC or the Company) was originally incorporated as Energizer Tennis, Corp. on June 16, 2011 in the State of Nevada. On October 4, 2017, effective for accounting purposes on June 30, 2017, WCVC entered into an agreement to acquire Nixon Restaurant Group, Inc. in a transaction accounted for as a reverse acquisition. Nixon Restaurant Group, Inc. (NRG) was formed on October 12, 2015, under the laws of the State of Florida. On October 19, 2015, NRG issued 20 million shares of common stock to acquire 100% of the ownership interests in J&F Restaurants, LLC, Illegal Burger, LLC and Illegal Burger Writer Square LLC, Colorado Limited Liability Companies, under common ownership. The transaction was accounted for as a corporate reorganization between entities under common control. These consolidated financial statements reflect the reorganized capital structure retrospectively for all periods presented.
The Company operates 6 restaurants in the Denver, Colorado metro area and 1 in the Ft. Lauderdale, Florida metro area. El Senor Sol - Evergreen is a Mexican restaurant which was opened in 2011. The Company opened the first Illegal Burger restaurant in August 2013. It is co-located with the El Senor Sol restaurant. The second Illegal Burger was opened in Arvada in April 2014. The third Illegal Burger is located in Writer Square in downtown Denver and opened in January 2016. The fourth Illegal Burger is located in the Capital Hill area of Denver and opened in June 2016.The fifth Illegal Burger is located in Glendale area of Denver and opened in October 2018. The first of the Companys newest concept - Illegal Pizza - opened in Lauderhill, Florida in June 2019. The Company plans to continue opening Illegal Burger and Illegal Pizza restaurants, a quick casual high end restaurant with full liquor licenses. The Company expects to locate in other areas of the country over time.
The Company completed its Illegal Burger Franchise Offering documents in May 2019. Illegal Burger Franchising has retained a marketing group to assist with the startup of its offering of franchises and to pre-qualify potential franchisees. The Company hopes to have its first franchise sales in the third quarter 2019.
The Company began its operations in Illegal Brands in June 2019, offering its own branded CBD infused water and CBD powder packets, first through its restaurant locations. Illegal Brands expects to offer these products to third parties on a wholesale basis.
The accompanying condensed consolidated financial statements include the activities of West Coast Ventures Group Corp., Nixon Restaurant Group, Inc., J&F Restaurant, LLC (El Senor and Illegal Burger Evergreen), Illegal Burger, LLC (Arvada), Illegal Burger Writer Square, LLC, Illegal Burger Capital Hill, LLC, Illegal Burger CitiSet, LLC, Illegal Pizza, LLC, Illegal Brands, LLC, Illegal Burger Franchising, LLC and Illegal Brands IP, LLC, its wholly owned subsidiaries.
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES
a) Basis of Presentation
The comparative amounts presented in these condensed consolidated financial statements are the historical results of West Coast Ventures Group, Corp. inclusive of its wholly owned subsidiaries. The Company has reflected the results on a consolidated basis for all periods presented. All intercompany balances and transactions have been eliminated in consolidation
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP") in the United States of America ("U.S.") as promulgated by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") and with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). In our opinion, the accompanying unaudited condensed consolidated interim financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation. Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
F-6
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES, continued
b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates in the accompanying condensed unaudited consolidated financial statements involved the valuation of share-based compensation.
c) Accounts Receivable
Accounts receivable is primarily the amount due from the merchant account processor of debit and credit card payments and amounts due from online delivery services; such as, UberEats, Door Dash, etc.
d) Property and Equipment
All property and equipment are recorded at cost and depreciated over their estimated useful lives, generally three, five or seven years, using the straight-line method. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from their respective accounts, and the resulting gain or loss is included in the results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.
e) Pre-opening Expenses
The Company accumulates the non-capitalizable expenses, such as rent, staffing and training, prior to opening a new location and reports them on a separate line item in the Condensed Consolidated Statement of Operations such that these costs do not skew results from ongoing restaurant operations. In the month in which a new location opens all ongoing expenses are then included with ongoing restaurant operations.
f) Operating Leases
Effective January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) which supersedes the lease accounting requirements in Accounting Standards Codification (ASC) 840,
Leases
(Topic 840). Please refer to Recent Accounting Pronouncements below for additional information on the adoption of Topic 842 and the impact upon adoption to the Companys consolidated financial statements.
Under Topic 842, we applied a dual approach to all leases whereby we are a lessee and classifies leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the Company. Lease classification is evaluated at the inception of the lease agreement. Regardless of classification, we record a right-of-use asset and a lease liability for all leases with a term greater than 12 months. Our leases, for the premises we occupy for the Illegal Burger Arvada, Illegal Burger Writer Square, Illegal Burger Capital Hill and Illegal Burger CitiSet were classified as operating leases as of January 1, 2019. Our leases, for the premises we occupy for the Illegal Pizza Lauderhill and the new corporate office were classified as operating leases as of May 1, 2019 and June 1, 2019, respectively. Operating lease expense is recognized on a straight-line basis over the term of the lease.
As a result of adopting this ASU, the Company has recorded a $26,866 effect on the financial statements for the six months ended June 30, 2019.
F-7
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES, continued
f) Operating Leases
, continued
We identify leases in our contracts if the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. We do not allocate lease consideration between lease and non-lease components and record a lease liability equal to the present value of the remaining fixed consideration under the lease. Any interest rate implicit in our leases are generally not readily determinable. Accordingly, we use our estimated incremental borrowing rate at the commencement date of the lease to determine the present value discount of the lease liability. We estimate the incremental borrowing rate for each lease based on an evaluation of our expected credit rating and the prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the term of the lease. The right-of-use asset for each lease is equal to the lease liability, adjusted for unamortized initial direct costs and lease incentives. We exclude options to extend or terminate leases from the calculation of the lease liability unless it is reasonably certain the option will be exercised.
g) Net Loss Per Share
Basic loss per share excludes dilution and is computed by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless consideration of such dilutive potential shares would result in anti-dilution. There were no dilutive common stock equivalents for the periods ended June 30, 2019 and 2018.
h) Income Taxes
The Company follows the provisions of ASC 740-10, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
The tax years 2017, 2016, and 2015 for the Company remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.
i) Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities of three months or less when acquired, to be cash equivalents. We had no financial instruments that qualified as cash equivalents.
F-8
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES, continued
j) Financial Instruments and Fair Value Measurements
ASC 825-10 Financial Instruments, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
ASC 825 also requires disclosures of the fair value of financial instruments. The carrying value of the Companys current financial instruments, which include cash and cash equivalents, accounts payable and accrued liabilities approximates their fair values because of the short-term maturities of these instruments.
FASB ASC 820 Fair Value Measurement clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following is the Companys assets and liabilities measured at fair value on a recurring and nonrecurring basis at June 30, 2019 and December 31, 2018, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):
|
|
|
|
| |
|
June 30, 2019
|
|
December 31, 2018
|
Level 3 - Embedded Derivative Liability
|
$
|
1,686,929
|
|
$
|
201,891
|
Changes in Level 3 assets measured at fair value for the three months ended March 31, 2019 were as follows:
|
| |
Balance, December 31, 2018
|
$
|
201,891
|
Initial valuation of new embedded derivatives
|
|
392,956
|
Extinguishment upon conversion or settlement
|
|
741,426
|
Change in fair value of derivatives
|
|
350,656
|
Balance, June 30, 2019
|
$
|
1,686,929
|
F-9
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES,
continued
k) Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion, payment or exercise of a convertible note containing an embedded derivative instrument, the instrument is marked to fair value at the conversion date and the debt and derivative are removed from the balance sheet, The shares issued upon conversion of the note are recorded at their fair value and a gain or loss on extinguishment is recognized, as applicable.
Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
l) Impairment of Long-Lived Assets
A long-lived asset is tested for impairment whenever events or changes in circumstances indicate that its carrying value amount may not be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds the sum of the undiscounted cash flows resulting from its use and eventual disposition. The impairment loss is measured as the amount by which the carrying amount of the long-lived assets exceeds its fair value.
m) Related Party Transactions
All transactions with related parties are in the normal course of operations and are measured at the exchange amount.
n) Recent Accounting Pronouncements
The Company recognizes revenue in accordance with ASU 2017-04
A
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under this updated standard, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity also should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if any. This guidance is effective prospectively and is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
o) Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers. This new revenue recognition standard has a five step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied.
The Companys condensed consolidated financial statements are prepared under the accrual method of accounting. Revenues are recognized when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. This occurs only when the product is ordered and subsequently delivered.
F-10
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES,
continued
p) Inventories
Inventories consist of food, beverages, and supplies valued at the lower of cost (first-in, first-out method) or market.
q) Intangible Assets
Intangible assets are being amortized using straight line method over the remaining life of the location lease term, generally five, seven or ten years.
(3) LIQUIDITY AND GOING CONCERN CONSIDERATIONS
Our condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We sustained a net loss of approximately $2.3 million for the six months ended June 30, 2019 and have an accumulated deficit of approximately $6.0 million and a negative working capital of approximately $4.6 million at June 30, 2019, inclusive of indebtedness. These conditions raise substantial doubt about our ability to continue as a going concern.
Failure to successfully continue to grow restaurant operation revenues could harm our profitability and materially adversely affect our financial condition and results of operations. We face all of the risks inherent in a new business, including the need for significant additional capital, managements potential underestimation of initial and ongoing costs, and potential delays and other problems in connection with establishing and opening restaurant operations.
We are continuing our plan to further grow and expand restaurant operations and seek sources of capital to pay our contractual obligations as they come due. Management believes that its current operating strategy will provide the opportunity for us to continue as a going concern as long as we are able to obtain additional financing; however, there is no assurance this will occur. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
The independent auditors report on our consolidated financial statements for the year ended December 31, 2018 contained an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern.
F-11
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(4) FIXED ASSETS
Fixed assets consisted of the following:
|
|
|
| |
|
|
June 30, 2019
(unaudited)
|
|
December 31, 2018
|
Beginning balance
|
|
$
484,842
|
|
$
408,325
|
Additions: Equipment
|
|
288,692
|
|
95,558
|
Additions: Leasehold improvements
|
|
23,947
|
|
34,959
|
Landlord reimbursements
|
|
-
|
|
(54,000)
|
Accumulated depreciation
|
|
(280,221)
|
|
(250,394)
|
|
|
|
|
|
Ending Balance
|
|
$
517,260
|
|
$
234,448
|
Depreciation expense was $15,306 and $29,827 and $15,126 and $30,857 for the three and six months ended June 30, 2019 and 2018, respectively.
(5) INTANGIBLE ASSETS
In March 2015, as part of the acquisition of the Writer Square downtown location, the Company purchased the rights to negotiate a lease from the landlord for $125,000 in cash. The Company is amortizing this value over the remaining term of the lease.
In March 2016, as part of the acquisition of the Capital Hill location, the Company purchased the existing liquor license for $4,300 in cash. The Company is amortizing this value over the remaining term of the lease.
In September 2018, as part of the development of the CitiSet location, the Company acquired a liquor license for $5,286 in cash. The Company is amortizing this value over the remaining term of the lease.
In April 2019, as part of the acquisition of the Lauderhill location the Company paid a $50,000 assignment fee in cash to the landlord to assume the remaining 8 years of the existing lease. The Company is amortizing this value over the remaining term of the lease.
In June 2019, as part of the development of the Lauderhill location, the Company acquired a liquor license for $1,698 in cash. The Company is amortizing this value over the remaining term of the lease.
In June 2019, the Company paid $16,000 for the final franchise documents enabling Illegal Burger Franchising to offer franchises for sale. The Company is amortizing this value over 10 years.
In June 2019, the Company paid $2,025 for the trademark applications for two new versions of the Companys existing trademarked logo. The Company is amortizing this value over 10 years.
Amortization expense was $3,472 and $6,597 and $6,465 and $12,930 for the three and six months ended June 30, 2019 and 2018, respectively.
F-12
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(6) NET ACQUIRED LIABILITIES OF DISCONTINUED OPERATIONS
As a result of the reverse acquisition on October 4, 2017, we acquired approximately $0.5 million of liabilities, net of assets, of the former operations of West Coast Ventures Group Corp. (which have been discontinued). During 2017 we issued 3,000,000 shares of our common stock to extinguish $30,000 of indebtedness. We are evaluating the means to relieve the Company of these liabilities.
(7) STOCKHOLDER LOAN
The principal stockholder of the Company has loaned the Company funds at various times on an undocumented loan basis with no stated interest rate. These loans were made principally to complete the conversion of the Illegal Burger - Arvada (2014) and Illegal Burger - Writer Square (2015 and 2016) and Illegal Burger Capital Hill (2016) locations. This stockholder loan balance was $45,152 and $206,434 at June 30, 2019 and December 31, 2018, respectively.
(8) NOTES PAYABLE TO THIRD PARTIES
a) Future Receivables Sale Agreements
During 2018, 2017, 2016 and 2015, the Company entered into several agreements to obtain advances against future restaurant credit/debit card sales. The agreements provides for funding of various percentages of future qualified credit/debit merchant card receivables. Proceeds received from sales of future receivables during 2018 and 2017 totaled $140,000 and $166,082, respectively. In June 2019, the Company entered into a new agreement for the sale of future receivables, under which the Company received $175,000 from a party with an existing relationship with the Company, although there was a zero balance with this party at the time of entering into this transaction. At June 30, 2019 and December 31, 2018, the total payable balances inclusive of interest under the factoring agreements were $333,488 and $154,770, respectively.
b) One Year Notes
In February 2016, the Company entered into a one year note with a third party for a loan of $88,000. This note was payable daily in the amount of $377 paid via ACH draft from the J&F Restaurants, LLC - El Senor Sol Evergreen bank account. This note carries interest at a 7% rate. This note was renewed on December 30, 2016, and the Company received $74,548 in cash, which is net of the $10,452 remaining balance. The new note is payable as a percentage of future qualified credit/debit merchant card receivables. The loan balance was $11,706 and $28,038 at June 30, 2019 and December 31, 2018, respectively.
In April 2019, the Company entered into a one year note with a third party for a loan of $100,000. This note carries a 20% interest rate and is collateralized by a second mortgage on the founder and CEOs residence. The loan balance, including interest, was $104,548 at June 30, 2019.
c) Convertible Notes - Variable Conversion
In the second quarter 2019, the Company entered into nine convertible notes in exchange for $591,000 in cash with a principal amount of $669,000. These notes mature seven in nine months, one in ten months and one in one year and carry a 12% interest rates. The notes convert into shares of the Companys common stock at a price of 55% and 50% of the average of the two lowest trade prices and the lowest trade price for the Common Stock during the 20 Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Based on the variable conversion terms the beneficial conversion rights embedded in these convertible notes were recorded as a derivative liability in the amount of $960,354 with a related debt discount of $602,580, and an immediate loss of $291,355.
In the second quarter 2019, the Company paid off three convertible notes in cash in the amount of $504,812.
F-13
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(8) NOTES PAYABLE TO THIRD PARTIES
, continued
In the first quarter 2019, the Company entered into five convertible notes in exchange for $424,000 in cash. These notes mature one in nine months and four in one year and carry 12%, 10% and 8% interest rates. The notes convert into shares of the Companys common stock at a price of 55% and 50% of the average of the two lowest trade prices and the lowest trade price for the Common Stock during the 20 and 25 Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Based on the variable conversion terms the beneficial conversion rights embedded in these convertible notes were recorded as a derivative liability in the amount of $467,348 with a related debt discount of $432,166, and an immediate loss of $35,182.
In the first quarter 2019, the Company paid off two convertible notes in cash in the amount of $101,181.
In the fourth quarter 2018, the Company entered into a convertible note in exchange for $138,000 in cash. This note matures in nine months and carries a 12% interest rate. The note converts into shares of the Companys common stock at a price of 61% of the average of the two lowest trade prices and the lowest trade price for the Common Stock during the 15 Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Based on the variable conversion terms the beneficial conversion rights embedded in these convertible notes has been recorded as a derivative liability in the amount of $189,380, with a related debt discount of $138,000, and an immediate loss of $51,380.
In the fourth quarter 2018, the Company paid off one convertible note in cash in the amount of $225,000.
In the third quarter 2018, the Company entered into two convertible notes in exchange for $68,000 in cash. These notes mature in nine months and carries a 12% interest rate. These notes convert into shares of the Companys common stock at a price of 61% of the average of the two lowest trade prices and the lowest trade price for the Common Stock during the 15 Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Based on the variable conversion terms the beneficial conversion rights embedded in these convertible notes has been recorded as a derivative liability in the amount of $151,769, with a related debt discount of $68,000, and an immediate loss of $83,763.
In the third quarter 2018, the Company paid off three convertible notes in cash in the amount of $257,975.
d) Convertible Notes - Fixed Conversion
In the second quarter 2019, the Company entered into one convertible note in exchange for $100,000 in cash. This note matures in one year and carry a 20% interest rates. The note converts into shares of the Companys common stock at a price of $0.04 per share of Common Stock from October 10, 2019 to maturity. At maturity it is convertible at $0.05 per share as long as Companys Volume Weighted Average Price, (VWAP) for the ten trading days prior to the conversion notice is greater than $0.07 per share. If the VWAP is below $0.07, then the conversion formula is $0.05xVWAP/$0.07. Based on the conversion terms the beneficial conversion rights embedded in this convertible note was recorded as a dept discount in the amount of $56,250.
During the fourth quarter of 2018, one of the parties that purchased one of the variable conversion price convertible notes assigned $50,000 of their note to a third party for $50,000 in cash. This new party immediately amended the assigned note portion to a fixed conversion rate of $0.01 per share of the Companys common stock. The maturity date of this note was extended to December 31, 2021. The Company recognized no gain or loss associated with this modification. During the second quarter 2019, $39,000 of this note was converted to 3,900,000 shares of common stock.
During the third quarter of 2018, two parties related to each other purchased, through assignment, three of the variable conversion price convertible notes then outstanding. These parties immediately amended the notes to replace the variable conversion rate with a fixed conversion rate of $0.0035 per share of the Companys common stock. The maturity dates of the three notes was extended to 2020 and 2021.
F-14
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(8) NOTES PAYABLE TO THIRD PARTIES
, continued
e) Third Party Note Payable
In March 2015, the Company entered into an agreement with a third party lender, who extended a $3,000,000 Senior Secured Note. Under the terms of this agreement a first draw was entered into in the amount of $375,000 as a Revolving Note. The lender retained $59,713 of this draw as fees. Under the terms of this Note, the Company was required to replace their credit card/debit card merchant processing to the lender. The lender retained 100% of the credit card/debit card transactions, and forwarded four wire transfers to the Company over a six week period. The credit card/debit card transactions for this six week period amounted to $84,534. The lender remitted $42,379 of this amount to the Company. Of the $42,155 retained by the lender, $14,861 was applied as principal reduction, $7,088 was applied to interest expense and the remaining $20,206 was charged as fees. The Senior Secured Note also called for the payment of a $75,000 investment banking fee.
In May 2015, when it was determined that this repayment structure was not practical for a restaurant operation, the lender agreed to restructure the Revolving Note into a Replacement Promissory Note. This Replacement Promissory Note carries interest at a stated rate of 18% with a maturity of June 1, 2016. The lender charged the Company a $25,000 penalty to convert the Revolving Note into a Replacement Promissory Note. The Replacement Promissory Note called for interest only payments in June, July and August 2015. Starting in September the terms called for the payment of interest, principal starting at $33,649 increasing monthly to $38,474 in June 2016, as the interest on the then outstanding balance fell. In addition the Replacement Promissory Note called for the payment of a $106,000 Redemption Premium as part of the total monthly payment of $49,651.
As a direct result of delays in opening the new Writer Square location, the lender agreed to interest only payments via ACH draft every Monday. In June 2015, the Company paid $1,080 per week, which was increased to $1,200 per week for July 1 through October 15, 2015. It was then increased to $1,500 per week from October 16, 2015 through the third week of March 2016, when it was increased to $2,000 per week.
At both June 30, 2019 and December 31, 2018 the principal balance of the loan was $322,220. The Company also accrued the $25,000 conversion penalty, the $75,000 investment banking fee and the $106,000 redemption premiums as accrued interest because the Replacement Promissory Note allows for prepayment but all these
A
fees were due upon prepayment.
Certain third parties have advanced funds to WCVC to fund its ongoing operations. These advances have been formalized into demand notes payable, which, at September 30, 2017, amount to $54,039 and carry a 5% interest rate. WCVC has a $250,000 note payable which is due in April 2018 and carries a 5% interest rate. These liabilities have been incorporated into liabilities from discontinued operations.
(9) OPERATING LEASES
Adoption of ASC Topic 842, Leases
On January 1, 2019, the Company adopted Topic 842 using the modified retrospective method applied to leases that were in place as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840. The Companys leases consists of operating leases that relate to real estate rental agreements. All of the value of the Companys lease portfolio relates to real estate lease agreements that were entered into starting in May 2014.
Practical Expedients and Elections
The Company elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that exist prior to adoption of the new standard. We also elected the short-term lease recognition exemption for all leases that qualify.
F-15
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(9) OPERATING LEASES
, continued
Discount Rate Applied to Property Operating Lease
To determine the present value of the minimum future lease payments for operating leases at January 1, 2019, the Company was required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the
A
incremental borrowing rate or
A
IBR). The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the interest rate average for its latest borrowings.
Right of Use Assets
Right of use assets are included in the unaudited condensed consolidated Balance Sheet as follows:
Non-current assets
Right of use assets, net of amortization - $1,624,858.
Total operating lease cost
Individual components of the total lease cost incurred by the Company is as follows:
|
|
| |
|
Three Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2019
|
Operating lease expense
|
$113,206
|
|
$189,487
|
Minimum rental payments under operating leases are recognized on a straight light basis over the term of the lease.
Maturity of operating leases
The amount of future minimum lease payments under operating leases at June 30, 2019 are as follows:
| |
|
Operating Lease
|
Undiscounted future minimum lease payments:
|
|
2019 (6 months remaining)
|
$
257,339
|
2020
|
426,062
|
2021
|
305,589
|
2022
|
234,752
|
2023
|
246,641
|
Thereafter
|
776,442
|
|
|
Total
|
2,246,825
|
Amount representing imputed interest
|
(577,132)
|
|
|
Total operating lease liability
|
$
1,669,693
|
Current portion of operating lease liability
|
$
272,370
|
Operating lease liability, non-current
|
$
1,397,323
|
F-16
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(10) STOCKHOLDERS EQUITY
At June 30, 2019 and December 31, 2018, the Company has 650,000,000 and 250,000,000 shares of par value $0.001 common stock authorized and 56,725,543 and 33,906,532 issued and outstanding, respectively. At June 30, 2019 and December 31, 2018, the Company has 10,000,000 shares of par value $0.001 preferred stock authorized and 500,000 issued and outstanding.
Common Stock
In the second quarter 2019, the Company issued 1,933,333 shares of common stock as an inducement for the extension of convertible debt, valued at $94,730. The Company issued 3,900,000 shares of common stock valued at $316,500 to settle $39,000 of convertible debt pursuant to the modification of terms to fixed conversion rate. The Company issued 3,333,333 shares of common stock in exchange for services valued at $239,333. The Company issued 5,000,000 shares of common stock in exchange for $50,000 in cash and $279,990 in fixed assets. The Company issued 386,589 shares of common stock in exchange for one-half of the first year rent on the Companys corporate office, valued at $26,520. The Company issued 1,247,449 shares of common stock in exchange for $67,124 in cash.
In the first quarter 2019, the Company issued 1,713,307 shares of common stock as a commitment fee for its equity line of credit, valued at $90,000. The Company issued 5,305,000 shares of common stock valued at $300,885 to settle $18,568 of convertible debt pursuant to the modification of terms to fixed conversion rate.
In the fourth quarter 2018, the Company issued 10,000,000 shares of common stock to the Companys principal officer to settle $100,000 of accrued payroll for him. The Company issued 4,625,000 shares of common stock valued at $289,375 to settle $16,187 of convertible debt and recorded a loss of $273,188.
In the third quarter 2018 the Company issued 750,000 shares of common stock in exchange for services valued at $18,750. The Company issued 764,205 shares of common stock valued at $19,769 to settle $7,102 of convertible debt and recorded a loss of $12,767. The Company issued 5,111,000 shares of common stock in exchange for $27,220 in cash.
The Company repurchased and retired 1,546,727 shares of common stock for $34,000 in cash under a settlement agreement with a convertible note holder.
In the second quarter 2018 the Company issued 650,000 shares of common stock in exchange for services valued at $59,000. The Company issued 3,349,783 shares of common stock valued at $266,729 to settle $94,226 of convertible debt. The CEO of the Company and his spouse contributed 22,000,000 shares of common stock valued at $3,140,000 to the Company which cancelled the shares, pursuant to a request from OTC Markets as part of the approval to list the common stock on the OTCQB.
In the first quarter 2018 the Company issued 100,000 shares of common stock in exchange for services valued at $22,600. The Company issued 340,000 shares of common stock valued at $85,000 as a debt inducement. The Company issued 1,155,829 shares of common stock valued at $216,140 to settle $16,528 of convertible debt and 50,898 shares of common stock valued at $9,518 upon the cash-less exercise of a warrant.
Preferred stock
The rights and privileges of the Series A preferred stock are solely as a super voting stock, whereby each one share of Series A holds votes amounting to the equivalent of 100,000 shares of common stock. Therefore, the 500,000 shares of Series A issued and outstanding hold aggregate votes equal to 500,000,000 common shares. The Series A shares have no dividend rights, no liquidation preferences, are not transferable and can be redeemed by the holder for $5,000 in cash from the Company for the entire 500,000 share block at the holders option.
F-17
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(11) COMMITMENTS AND CONTINGENCIES
a) Real Property Leases
The Company leases 7 (seven) restaurant spaces and its corporate office from unrelated parties. Rent expense paid was $111,509 and $209,038 and $211,294 and $102,188 for the three and six months ended June 30, 2019 and 2018.
Future minimum lease payments under these real property lease agreements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
For the Year Ending December 31,
|
|
ESSE
|
|
IBE
|
|
IBA
|
|
IBWS
|
|
IBCH
|
|
IBCS
|
|
IPL
|
2019 (6 months)
|
|
$
8,000
|
|
$
5,600
|
|
$
37,398
|
|
$
51,322
|
|
$
33,739
|
|
$
31,800
|
|
$
31,807
|
2020
|
|
$
-
|
|
$
-
|
|
$
77,038
|
|
$
102,643
|
|
$
69,501
|
|
$
65,400
|
|
$
64,690
|
2021
|
|
$
-
|
|
$
-
|
|
$
25,931
|
|
$
102,643
|
|
$
23,394
|
|
$
67,200
|
|
$
66,151
|
2022
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
104,354
|
|
$
-
|
|
$
69,000
|
|
$
67,648
|
2023
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
112,908
|
|
$
-
|
|
$
70,800
|
|
$
69,183
|
Thereafter
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
206,997
|
|
$
-
|
|
$
354,000
|
|
$
235,757
|
Total minimum lease payments
|
|
$
8,000
|
|
$
5,600
|
|
$
140,367
|
|
$
680,867
|
|
$
126,634
|
|
$
658,200
|
|
$
535,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WCVC
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
2019 (6 months)
|
|
$
13,260
|
|
$
212,925
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
26,520
|
|
$
405,792
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
13,260
|
|
$
298,579
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
$
-
|
|
$
241,002
|
|
|
|
|
|
|
|
|
|
|
2023
|
|
$
-
|
|
$
252,891
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
$
-
|
|
$
796,754
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
53,040
|
|
$
2,207,943
|
|
|
|
|
|
|
|
|
|
|
ESSE: El Senor Sol - Evergreen; IBE: Illegal Burger - Evergreen; IBA: Illegal Burger - Arvada; IBWS - Illegal Burger - Writer Square; IBCH - Illegal Burger - Capital Hill; IBCS - Illegal Burger - CitiSet; IPL - Illegal Pizza - Lauderhill; WCVC - corporate office
The Companys leases for El Senor Sol
B
Evergreen locations expire on August 31, 2019.
F-18
WEST COAST VENTURES GROUP CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(11) COMMITMENTS AND CONTINGENCIES
, continued
b) Other
The Company is subject to asserted claims and liabilities that arise in the ordinary course of business. The Company maintains insurance policies to mitigate potential losses from these actions. In the opinion of management, the amount of the ultimate liability with respect to those actions will not materially affect the Companys financial position or results of operations.
c) Litigation
On October 8, 2018, the creditor holding the First Amended Senior Secured Note from Illegal Burger, LLC filed suit in Broward County, Florida. The creditor is demanding $565,267 plus interest, costs and attorney fees. The Company expects to either negotiate a settlement agreement or to vigorously defend this action. This action is in the discovery phase.
(12) CONCENTRATIONS OF CREDIT RISK
a) Cash
The Company maintains its cash in bank deposit accounts, which may, at times, may exceed federally insured limits. The Company had no cash balance in excess of FDIC insured limits at June 30, 2019 and December 31, 2018.
(13) SUBSEQUENT EVENTS
a) Convertible Notes - Variable Conversion
In the third quarter 2019, the Company entered into five convertible notes in exchange for $437,400. Two of these notes mature in 9 months and three in one year. These notes carry an interest rates of 8% and 12% and one has a 10% Original issue Discount (OID). The OID will be recorded as a debt discount and amortized over the life of the loan. The notes convert into shares of the Companys common stock at a price of 50%, 55% and 60% of the lowest trade price for the Common Stock during the 10 and 20 Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. Based on the variable conversion terms the beneficial conversion rights embedded in these convertible notes has been recorded as a derivative liability in the amount of $545,329, with a related debt discount of $378,536, and an immediate loss of $166,793.
The Company paid off in cash two convertible notes in the amount of $303,834.
d) Stockholders Equity
In the third quarter 2019, the Company issued 100,000 shares of common stock valued at $5,450 as a debt inducement fee. The Company issued 7,005,246 shares of common stock valued at $281,651 to settle $80,320 of debt. The Company issued 1,537,246 shares of common stock valued at $32,282 for cash under a securities purchase agreement from October 2018.
F-19