Notes
to Unaudited Consolidated Condensed Financial Statements
June
30, 2019
NOTE
1 – SUMMARY OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Concentrations
of Credit Risk
We
maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually
monitor our banking relationships and consequently have not experienced any losses in our accounts. We believe we are not exposed
to any significant credit risk on cash. As of June 30, 2019, all of the Company’s other current asset and deposits on acquisition
are expected to be returned to the Company.
Reclassifications
Certain
reclassifications have been made to the prior year financial information to conform to the presentation used in the financial
statements for the three and six months ended June 30, 2019. There is no effect on the accumulated deficit as the result of these
reclassifications.
Principles
of Consolidation
The
accompanying unaudited interim consolidated condensed financial statements include the accounts of the Company and its wholly
owned subsidiaries, Supreme Sweets Acquisition Corp. and TruFood Provisions Co. All
financial information has been prepared in conformity with accounting principles generally accepted in the United States of America.
All significant intercompany transactions and balances have been eliminated. The subsidiaries
have had no significant net activity.
Receivables
The
Company had other current assets of $339,813 as a result of it’s now terminated purchase agreement with Supreme Sweets Acquisition
Corp, and deposits on acquisition of $102,552 from its stock purchase agreement with Recipe Food Co. (see above). The Company
has evaluated the collectability of both assets and concluded that it was highly unlikely that either receivable was collectible;
therefore, as of June 30, 2019, both receivables have fully been written off
Fair
value of financial instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37
establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three
(3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical
assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by
Paragraph 820-10-35-37 are described below:
Level
1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level
2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
Level
3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.
The
carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate
their fair value because of the short maturity of those instruments. The Company’s notes payable approximates the fair value
of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar
financial arrangements at June 30, 2019 and December 31, 2018.
Recently
issued accounting pronouncements
The
Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact
on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Cruzani, Inc. and Subsidiaries
Notes to Unaudited Consolidated Condensed
Financial Statements
June 30, 2019
NOTE
2 – GOING CONCERN
The
accompanying unaudited interim consolidated condensed financial statements have been prepared in conformity with generally accepted
accounting principles which contemplate continuation of the Company on a going-concern basis. The going concern basis assumes
that assets are realized, and liabilities are extinguished in the ordinary course of business at amounts disclosed in the consolidated
financial statements. The Company has incurred recurring losses from operations and has an accumulated deficit of $78,952,182.
The Company’s ability to continue as a going concern depends upon its ability to obtain adequate funding to support its
operations through continuing investments of debt and/or equity by qualified investors/creditors, internally generated working
capital and monetization of intellectual property assets. These factors raise substantial doubt about the Company’s ability
to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. Management is currently pursuing a business strategy which includes raising
the necessary funds to finance the Company’s development and marketing efforts.
NOTE
3 – LOANS PAYABLE
The
loan payable balances are as follows:
|
|
Rate
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Loan 1
|
|
|
1
|
%
|
|
$
|
27,000
|
|
|
$
|
27,000
|
|
Loan 2
|
|
|
1
|
%
|
|
|
3,000
|
|
|
|
3,000
|
|
Loan 3
|
|
|
8
|
%
|
|
|
64,000
|
|
|
|
39,000
|
|
Loan 4
|
|
|
8
|
%
|
|
|
160,500
|
|
|
|
155,400
|
|
Total
|
|
|
|
|
|
$
|
254,500
|
|
|
$
|
224,400
|
|
Above
notes are past due as of the issuance of these financial statements.
NOTE
4 – CONVERTIBLE NOTES
On
January 18, 2019, the Company executed a promissory note with Travel Data Solutions LLC for $35,000, of which it has received
$25,000. The note bears interest at 10% and matures on January 31, 2020. The specific terms of conversion are still being negotiated.
Commencing on January 31, 2019 and on the last day of each month thereafter, the Company shall pay to the Holder Three Thousand
Two Hundred Eight dollars and Thirty-Three cents ($3,208.33) of which Two Thousand Nine Hundred Sixteen Dollars and Sixty-Six
cents ($2,916.66) represents payment towards the outstanding Principal Amount and Two Hundred Nineteen Dollars and Sixty-Six cents
($219.66) represents accrued interest thereon.
The
following table summarizes the convertible notes as of June 30, 2019:
Note Holder
|
|
Date
|
|
Maturity
Date
|
|
Interest
|
|
|
Balance
December 31,
2018
|
|
|
Additions
|
|
|
Conversions /
Transfers
|
|
|
Balance
June 30,
2019
|
|
Third party individual
|
|
7/25/13
|
|
12/31/16
|
|
|
12
|
%
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
500,000
|
|
Adar Bays, LLC
|
|
2/11/16
|
|
2/11/17
|
|
|
24
|
%
|
|
|
68,004
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,004
|
|
GW Holdings Group, LLC
|
|
5/17/16
|
|
5/17/17
|
|
|
24
|
%
|
|
|
24,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,000
|
|
Travel Data Solutions
|
|
11/18/17
|
|
11/30/19
|
|
|
10
|
%
|
|
|
150,000
|
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
100,000
|
|
GW Holdings Group, LLC
|
|
3/16/18
|
|
3/15/19
|
|
|
24
|
%
|
|
|
36,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,750
|
|
Travel Data Solutions
|
|
1/18/2019
|
|
1/31/20
|
|
|
10
|
%
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
L2 Capital, LLC
|
|
various
|
|
various
|
|
|
24
|
%
|
|
|
882,014
|
|
|
|
22,776
|
|
|
|
(33,149
|
)
|
|
|
871,641
|
|
Total
|
|
|
$
|
1,660,768
|
|
|
$
|
47,776
|
|
|
$
|
(83,149
|
)
|
|
$
|
1,625,395
|
|
Less debt discount
|
|
|
|
(209,029
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,451,739
|
|
|
|
|
|
|
|
|
|
|
$
|
1,625,395
|
|
Cruzani, Inc. and Subsidiaries
Notes to Unaudited Consolidated Condensed
Financial Statements
June 30, 2019
NOTE
5 – DERIVATIVE LIABILITIES
The
embedded conversion options of the Company’s convertible debentures summarized in Note 4, and its convertible preferred
Series E stock. contain conversion features that qualify for embedded derivative classification. The fair value of these liabilities
are re-measured at the end of every reporting period and the change in fair value is reported in the statement of operations as
a gain or loss on derivative financial instruments.
The
table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:
Balance at December 31, 2017
|
|
$
|
409,948
|
|
Addition of new derivative liabilities
|
|
|
1,127,281
|
|
Change in fair value of embedded conversion option
|
|
|
(708,663
|
)
|
Derecognition of derivatives upon settlement of convertible notes
|
|
|
(394,642
|
)
|
Balance at December 31, 2018
|
|
|
433,924
|
|
Addition of new derivative liabilities
|
|
|
194,547
|
|
Change in fair value of embedded conversion option
|
|
|
235,940
|
|
Derecognition of derivatives upon settlement of convertible preferred stock
|
|
|
(145,929
|
)
|
Derecognition of derivatives upon settlement of convertible notes
|
|
|
(79,783
|
)
|
Balance at June 30, 2019
|
|
$
|
638,699
|
|
The
Company uses Level 3 inputs for its valuation methodology for its conversion option liabilities as their fair values were determined
by using the Binomial option pricing model based on various assumptions. The model incorporates the price of a share of the Company’s
common stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As,
required, these are classified based on the lowest level of input that is significant to the fair value measurement.
The
following table shows the assumptions used in the calculations of its derivatives:
|
|
Expected Volatility
|
|
Risk-free
Interest Rate
|
|
|
Expected
Dividend Yield
|
|
|
Expected Life
(in years)
|
At December 31, 2018
|
|
335.58%
|
|
|
2.45
|
%
|
|
|
0
|
%
|
|
0.25 – 0.45
|
At June 30, 2019
|
|
254.61% - 261.36%
|
|
|
2.09
|
%
|
|
|
0
|
%
|
|
0.25 – 0.63
|
NOTE
6 – WARRANTS
In
connection with the issuance of the convertible note (the “Note”) with L2 Capital, LLC (“L2”) and funding
of the initial tranche of $50,000 on the Note, the Company also issued a common stock purchase warrant to purchase up to 381,905
shares of the Company’s common stock pursuant to the terms therein as a commitment fee. At the time that each subsequent
tranche under the Note is funded by L2 in cash, then on such funding date, the warrant shares shall immediately and automatically
be increased by the quotient of 100% of the face value of the respective tranche and 110% of the VWAP of the common stock on the
Trading Day (as defined in the Note) immediately prior to the funding date of the respective tranche. As of December 31, 2018,
the Company had received multiple tranches for which it issued warrants to purchase shares of the Company’s common stock.
These
warrants have a variable exercise price per the above and expire in five years. The aggregate fair value of the warrants,
which was allocated against the debt proceeds totaled $280,438 based on the Black Scholes Merton pricing model using the following
estimates: exercise price ranging from $0.001 – 0.0071, 2.80% – 2.94% risk free rate, 252.42 – 258.24% volatility
and expected life of the warrants of 5 years. The fair value was credited to additional paid in capital and debited to debt discount
to be amortized over the term of the loan.
Range of Exercise Prices
|
|
Number Outstanding 6/30/2019
|
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average
Exercise Price
|
|
$0.001 – 0.0071
|
|
|
22,669,092
|
|
|
4.19 years
|
|
$
|
0.0011
|
|
Cruzani, Inc. and Subsidiaries
Notes to Unaudited Consolidated Condensed
Financial Statements
June 30, 2019
NOTE
7 – COMMON STOCK
In
November 20, 2018, the Company and its stockholders approved a 1 for 20 reverse stock split. The reverse stock split was deemed
effective by the Financial Industry Regulatory Authority (“FINRA”) on January 10, 2019. All shares throughout these
financial statements have been retroactively adjusted to reflect the reverse stock split.
During
the six months ended June 30, 2019, L2 Capital, LLC converted $33,149 of principal into 16,660,864 shares of common stock.
During
the six months ended June 30, 2019, Device Corp. converted $9,700 and $1,050 of principal and interest, respectively, into 12,500,000
shares of common stock. The loans from Device Corp have no specific terms of conversion and have therefore not been classified
as convertible. The shares were valued on the date of conversion at the closing stock price, for a loss on conversion of debt
of $46,250.
During
the six months ended June 30, 2019, Geneva Roth Remark Holdings converted 52,715 Series E preferred shares into 66,381,384 shares
of common stock.
During
the six months ended June 30, 2019, Geneva Roth Remark Holdings purchased 33,500 shares of Series E preferred stock for total
cash proceeds of $33,500.
NOTE
8 – PREFERRED STOCK
Series
A Convertible Preferred Stock, has a par value of $0.01, may be converted at the holder’s election into shares of
common stock at the conversion rate of ten shares of common stock for one share of Series A Preferred Stock. Each share is
entitled to 10 votes, voting with the common stock as a single class, has liquidation rights of $2.00 per share and is not entitled
to receive dividends. As of June 30, 2019 and December 31, 2018, there are 3,381,520 and 3,381,520 shares of Series A preferred
stock outstanding, respectively.
Series
B Convertible Preferred Stock, has a par value of $0.01, may be converted at the holder’s election into shares of
common stock at the conversion rate of 4,000 shares of common stock for one share of Series B Preferred Stock. Each share
is entitled to 4,000 votes, voting with the common stock as a single class, has liquidation rights of $0.01 per share and is not
entitled to receive dividends. As of June 30, 2019 and December 31, 2018, there are 5,000 and 5,000 shares of Series B preferred
stock outstanding, respectively.
Series
C Convertible Preferred Stock, has a par value of $0.01, may be converted at the holder’s election into shares of
common stock at the conversion rate of 400 shares of common stock for one share of Series C Preferred Stock. Each share is
entitled to 400 votes, voting with the common stock as a single class, has liquidation rights of $0.01 per share and is entitled
to receive four hundred times the dividends declared and paid with respect to each share of Common Stock. As of June 30, 2019
and December 31, 2018, there are 5,000,000 and 5,000,000 shares of Series C preferred stock outstanding, respectively.
Series
D Convertible Preferred Stock, has a par value of $0.0001, may be converted at a ratio of the Stated Value plus dividends
accrued but unpaid divided by the fixed conversion price of $0.0015, which conversion price is subject to adjustment. Series D
is non-voting, has liquidation rights to be paid in cash, before any payment to common or junior stock, 140% of the Stated Value
($2.00) per share plus any dividends accrued but unpaid thereon and is entitled to 8% cumulative dividends. As of June 30, 2019
and December 31, 2018, there are 125,000 and 125,000 shares of Series D preferred stock outstanding, respectively.
Series
E Convertible Preferred Stock, has a par value of $0.001, and a stated value of $1.00 per share, subject to adjustment.
The shares of Series E Convertible Preferred Stock can convert at a conversion price that is equal to the amount that is 61% of
the lowest trading price of the Company’s common stock during the 20 trading days immediately preceding such conversion.
The shares of Series E Convertible Preferred Stock are subject to redemption by the Company at its option from the date of issuance
until the date that is 180 days therefrom, subject to premium that ranges from 120% to 145%, increasing by 5% during each 30-day
period following issuance. Series E carries a 12% cumulative dividend, which will increase to 22% upon an event of default, is
non-voting, and has liquidation rights to be paid in cash, before any payment to common or junior stock. The Series E are mandatorily
redeemable after twelve months, and therefore have been classified as mezzanine equity.
On
July 1, 2018, the Company entered into a Stock Purchase Agreement with Device Corp. (“Device”) whereby Device will
purchase up to $250,000 Series E preferred stock for $1 per share. As of June 30, 2019, the Company has received $166,331 for
the purchase of the Series E. The shares have not yet been issued and are classified as Series E preferred to be issued as mezzanine
equity.
On
January 15, 2019, the Company entered into a Stock Purchase Agreement with Geneva Roth Remark Holdings, Inc. (“Geneva”)
whereby Geneva will purchase 53,000 shares of Series E preferred stock for $53,000. As of June 30, 2019, and December 31, 2018,
there are 86,785 and 53,000 shares of Series E preferred stock outstanding, respectively. As of June 30, 2019, the Company fair
valued its Series E preferred stock derivative liability at $164,937.
During
the six months ended June 30, 2019, Geneva Roth Remark Holdings converted 52,715 Series E preferred shares into 66,381,384 shares
of common stock.
Cruzani, Inc. and Subsidiaries
Notes to Unaudited Consolidated Condensed
Financial Statements
June 30, 2019
NOTE
9 – RELATED PARTY TRANSACTIONS
Per
the terms of Mr. Dickson’s employment agreement, he is to be compensated $120,000 per year. For the year ended December
31, 2018, he was paid $52,000, and $68,000 has been credited to accrued compensation. For the six months ended June 30, 2019,
he was paid $16,000. As of June 30, 2019, $112,000 has been credited to accrued compensation.
NOTE
10 – COMMITMENTS AND CONTINGENCIES
During
the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation,
it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to
the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that
an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of June
30, 2019, the Company is not aware of any additional contingent liabilities that should be reflected in the financial statements.
On
February 13, 2017, Baum Glass & Jayne PLLC (“Plaintiff”) obtained a default judgment against the Company in the
amount of $27,083.74. Plaintiff has not attempted enforced collection. The amount was included in accounts payable as of June
30, 2019 and December 31, 2018.
On
June 20, 2018, GW Holdings Group, Inc. (“GW”) filed a lawsuit against the Company, in which GW alleges that the Company
breached two Stock Purchase Agreements that GW entered into with the Company. On July 11, 2018, the Company filed a motion to
dismiss which was granted by the court on March 13, 2019. A notice of appeal filed by GW is pending. As of June
30, 2019, the Company has a note payable balance of $60,750 due to GW. Since GW’s original complaint has been dismissed
and no further action has been taken by the court, no additional liability has been accrued.
On
September 21, 2018, Pro Drive Outboards, LLC (“Pro-Drive”) filed a lawsuit against the Company, in which Pro-Drive
alleges that the Company breached a contract that Pro-Drive entered into with the Company. Pro-Drive is seeking damages in excess
of $500,000. The Company has filed an answer, including the defenses of defective service of process and statute of limitations,
and the case is currently pending. Because this case has not progressed beyond a motion to dismiss and any pending outcome
is currently unknown the Company has not accrued any amount related to this lawsuit.
NOTE
11 – SUBSEQUENT EVENTS
Management
has evaluated subsequent events pursuant to the requirements of ASC Topic 855, from the balance sheet date through the date the
financial statements were issued and has determined that no material subsequent events exist other than the following.
Subsequent
to June 30, 2019, Geneva Roth Remark Holdings converted 51,800 shares of Series E
preferred stock into 128,107,458 shares of common stock.
On
July 8, 2019, Mr. Dickson entered into a Securities Purchase Agreement (“Purchase Agreement”) with Conrad Huss to
sell 5,000,000 shares of Series C Preferred and 5,000 shares of Series B preferred Stock held by Mr. Dickson. As a result, Mr.
Huss acquired the right to vote 99.06 % of the voting control of the Company. The Series B Preferred Stock is also convertible
into common stock which, in the aggregate, would represent up to .01% of the outstanding common stock after the conversion. The
Series B Preferred Stock is also convertible into common stock which, in the aggregate, would represent up to 99.05% of the outstanding
common stock after the conversion.
On
July 8, 2019, Everett Dickson, who had been the sole officer of the Company, resigned as an officer of the Company, and Conrad
Huss was appointed the Interim President and Chief Executive Officer of the Company. Mr. Huss is the sole beneficial owner of
5,000,000 and 5,000 shares of Series B and C Preferred Stocks, respectively. Mr. Dickson also resigned as a director of the Company,
effective on July 8th, 2019. Mr. Dickson’s resignation was not the result of any disagreement with the management of the Company.