UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Real Brands, Inc.
(Exact name of registrant as specified in its charter)
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Nevada
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90-0093439
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(State or other jurisdiction of
Incorporation or organization)
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(I.R.S. Employer
Identification No.)
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12 Humbert St. North Providence, RI
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02911
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(Address of principal executive offices)
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(Zip Code)
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781-366-7400
(Registrant’s telephone number, including
area code)
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Securities to be registered pursuant to Section
12(b) of the Act:
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Title of each class
to be so registered
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Name of each exchange on which
each class is to be registered
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None
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N/A
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Securities to be registered pursuant to Section 12(g)
of the Act:
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Common Stock, $0.001 par value per share
(Title of class)
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Indicate by a check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
Emerging growth company [ ]
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Smaller reporting company [X]
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TABLE OF CONTENTS
Item 1. Business.
Our Company
Real Brands, Inc. (“RLBD”, “Real Brands”, or the “Company”)
is a publicly traded, vertically integrated, early entrant (2017) in the hemp-derived cannabinol (“CBD”) market that specializes
in hemp CBD oil/isolate extraction, wholesaling of CBD oils and isolate, manufacturing, production and sales of hemp-derived CBD consumer,
celebrity brands, and white label products. Real Brands is listed in the Over the Counter Pink Sheets (“OTC PK”) under the
symbol “RLBD”.
Real
Brands completed a reverse merger to acquire Canadian American Standard Hemp Inc. (“CASH”) on October 26, 2020 (the “Merger”).
Real Brands’ name and trading symbol were maintained, with CASH shareholders acquiring majority control of Real Brands. CASH continues
to operate as a wholly-owned subsidiary of Real Brands under the name CASH Inc. Following the Merger, Thomas Kidrin, CEO of CASH, was
named Chief Executive Officer (CEO) of Real Brands, replacing former Real Brands CEO Jerry Pearring.
BUSINESS
Overview
Real Brands’ primary business is hemp CBD oil/isolate
extraction, wholesaling of CBD oils and isolate, and production and sales of hemp-derived CBD consumer brands. The CBD product market
is large and growing.
The Company’s brand development strategy will
be to leverage existing Company resources into creating online sales, licensing opportunities and a distribution network for proprietary
legal hemp and (eventually) cannabis brands, and other consumer brands.
We are building a high-volume,
low cost ingredient supply chain of consistent CBD distillate and isolate and believe that our proprietary technology system will allow
us to be best positioned to protect gross margins in our wholesale ingredient supply business when more traditional commoditized pricing
takes shape in the market over time.
The Company has also
made a strategic commitment to becoming a brand owner and has committed resources to develop proprietary branded product lines and
is exploring other brands and brand related relationships. The Company has also committed resources to be properly positioned to
create novel formulations for packaged products for retail as needed for its branded products, and to support its ingredient supply
chain customers such as Turning Point Brands, Inc. (NYSE:TPB). The Company is also positioned to manufacture packaged products for
retail but expects to enter into co-packing relationships as volume grows in order to distribute high-quality, low-cost hemp
products such as tinctures (liquids), capsules, topical products, vape cartridges, oral sprays and other products that contain CBD
distillate or isolate as well as other minor cannabinoids.
Other than the Company’s
significant focus on building a high-volume, low-cost ingredient supply chain of consistent CBD distillate and isolate, its primary focus
will be the development of its branded business that today includes American Standard Hemp, Ziggys Hemp Products, WA Brands, Phaze, Zen
Pets Treats and Canni Clear Products. All other corporate initiatives are expected to be central to appropriate vertical integration and
insulating and building the Company’s focused business lines.
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We believe our proprietary technology creates
unique economics in equipment capital expenditures, equipment maintenance, labor savings, energy savings, and processing, as well as strategic partner opportunities in large markets outside the U.S.
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The Company has also made a strategic commitment
to becoming a brand owner and has committed resources to develop its proprietary branded product lines and is exploring other brands and
brand related relationships.
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The Company has also committed resources to be
properly positioned to create novel formulations for packaged products for retail as needed for its branded products, and to support its
ingredient supply chain customers such as Turning Point Brands, Inc.
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The Company is also positioned to manufacture
packaged products for retail but expects to enter into co-packing relationships as volume grows in order to distribute high-quality, low-cost
hemp products such as tinctures (liquids), capsules, topical products, vape cartridges, oral sprays and other products that contain CBD
distillate or isolate.
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Other than the Company’s significant focus
on building a high-volume, low-cost ingredient supply chain of consistent cannabinol CBD distillate and isolate, its primary focus will
be the development of its branded business that today includes American Standard Hemp, Ziggys Hemp Products, WA Brands, Phaze, Zen Pets
Treats and Canni Clear Products.
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Facility
Real Brands’ headquarters is the newly renovated/constructed
CASH owned building and hemp processing facility at 12 Humbert St., in North Providence, RI. We have constructed a new, state-of-the-art
facility in New Providence, Rhode Island that is equipped with our proprietary Halo 5 processing technology system (encompassing chemistry,
mechanical engineering, and computer software) that produces a consistent 99.9% pure CBD distillate and isolate. Halo 5 is a proprietary
chromatography extraction technology utilizing a Simulated Moving Bed (“SMB”) engineered process for chromatographic separation.
The SMB process is advantageous because it provides large quantities of highly purified material and precise pharmaceutical grade molecular
separation at dramatically reduced costs.
We are finishing the build out of our a high-volume, low-cost ingredient supply chain of consistent
CBD distillate and isolate and believe that our proprietary technology system will allow us to be best positioned to protect gross
margins in our wholesale ingredient supply business when more traditional commoditized pricing takes shape in the market over time.
Our Technology
Our HALO.5 Simulated Moving
Bed Chromatography System (SMB) is an integrated 6-column SMB system designed for isolation and purification of chemical compounds at
a high rate of productivity as compared to single column batch chromatography. It has powerful simulation software (Optional Ypso-Facto
Chromworks®) as well as an integrated DAD UV/VIS photometric detectors that allow for rapid and accurate method development. All of
this is combined with application support for specific applications such as cannabinoid isolation and mitigation. The HALO.5 is a powerful
tool for rapid production of purified chemical compounds. We believe that through this device our products can be made more quickly, more
purified, and less expensively than our competitors.
The Company is extracting and refining essential
oils and compounds of interest from certified hemp cultivars through the use of its proprietary processing technology and methodology
as described below. Initial concrete oleo resin extracts are carried out within a closed loop multi-vessel, sanitary stainless-steel
system. This system extracts the compounds of interest through a continuous flow of cryonic chilled food grade ethyl alcohol. All elements
of the extraction process take place at or below ambient temperatures and pressures, mitigating any risk of vapor pressure buildup and
allowing for selective efficient separation of all phytocompounds. All solvent movement is carried out with pneumatic fluid pumps, whose
mechanical functions and electrical components are isolated in an adjacent control room. Solvent recovery is performed under deep vacuum
at or below ambient thus negating the use of any external heat source within the extraction process. Isolation and purification is then
achieved through the use of a proprietary continuous flow, multicolumn, counter current chromatography system. As the entire process
of extraction to isolation is carried out at or below ambient temperature and pressure, all phytochemicals are preserved in their natural
state. Any risk of molecular isomerization or degradation is de minimis. The solvent system consists of food grade ethyl alcohol and
distilled water. The unique methodology allows for full purification to >99% without the implementation of hazardous or environmentally
impactful chemical compounds.
The Company believes its SMB Continues Flow Chromatography
process is a highly engineered process for chromatographic separation. It is used to separate one chemical compound or one class of chemical
compounds from one or more other chemical compounds to provide significant quantities of the purified or enriched material at a lower
cost than could be obtained using simple (batch) chromatography. Standard batch processing is costly and requires constant monitoring.
However, the Company utilizes high efficiency solvent recovery systems 95%+ and continuous flow moving bed chromatography, keeping energy
and overall operational costs very low. Running the Company’s entire self-contained process requires only two semi-skilled employees
per shift.
Due in large part to the Company’s
proprietary manufacturing process, the Company believes it is a very low-cost manufacturer that gives it a distinct advantage
in the industry. This advantage is expected to translate over time into multiple strategic business opportunities and highlight the
Company’s ability to become a large wholesaler of high-quality refined CBD. Also, this allows the Company to become a
critically important low-cost supply chain to distributors, while providing a strategic price protection to its branded product
lines.
The Hemp Industry
Mainstream acceptance
of CBD is expected to continue its general upward trend despite the market challenges and adjustments created by the Covid-19 Pandemic.
Based upon the Brightfield Group’s publicly available market reports between 2018 and 2020, the Brightfield Group
had estimated the US CBD market in 2020 was projected
to reach $4.7 billion in sales, with 14% growth from 2019 sales of $4.1 billion. (Lower than pre-Covid levels of $7 billion for 2020.)
Actual 2020 Sales were $4.6 billion. According to the researchers, the U.S. hemp-derived CBD market will reach $5.3 billion in retail
sales in 2021. This would imply 15% growth over 2020 sales of $4.6 billion.
In
addition, based upon the publicly available market reports from the Brightfield Group, they expect sales to reach $16 billion by 2026,
driven by accelerated growth of ingestibles (tinctures, capsules, drinks). New consumers will enter the market as prices continue to
drop and access expands and online sales will surpass $2 billion in 2021, accounting for 38% of the total American CBD market. This is
down slightly from 42% in 2020, but it’s a good sign that things might be returning to the beginning of normalcy as people return
to in-person retail shopping.
The base of
US CBD consumers is still growing strong and by 2026, the total US CBD market could still reach $16 billion based upon the publicly
available Brightfield Group market reports. The CBD market still exists in a regulatory gray area nearly 2.5 years after the 2018
Farm Bill went into effect. The delay has been particularly impactful for ingestible CBD products like edibles and tinctures. The US
Food and Drug Administration has yet to provide the framework needed to govern how CBD ingestibles can be sold legally. The lack of
regulation has kept large consumer packaged goods companies from entering the market. Federal guidance is needed for these players
to get involved without risking the rest of their business.
Key growth drivers
for CBD will be natural health and wellness trends, product variety, expanded distribution channels, and a growing awareness of the benefits
of CBD as a natural alternative to pharmaceuticals for cancer patients to athletes.
Americans have
utilized hemp in their diets for health and other practical reasons seemingly forever, and hemp is a strong and highly versatile crop
that has many good attributes including a host of scientifically confirmed medicinal properties. There is strong evidence that hemp,
now legally grown in the US, will see a nearly unprecedented investment as hemp is believed to have an ability to grow the US economy
via new jobs and commerce, while providing any number of valuable products including in the healthcare sector.
Hemp has long
been known for its use in textiles, but has nutrients, proteins and essential fatty acids as well. The company is developing and focused
on a wide variety of CBD products derived from hemp, as the market is experiencing growth from different categories including healthy
drinks and medicine.
The beverage
industry and the biotechnology industry have and continue to make huge investments including new companies and established companies
alike. These sectors are just two of many examples, and the Company’s management believes that CBD derived from hemp will ultimately
become a staple in American life, and alleviate any number of health and wellness issues, and generally elevate the quality of life.
Hemp as a crop has some interesting redeeming qualities that farmers enjoy.
Hemp is an extremely hardy crop, and requires less water than many other crops, and also rejuvenates the soil by adding back many critical
nutrients that other crops do not. This can have a stabilizing effect, as sustainable plants often assist in developing sustainable businesses.
The legal distinction from marijuana in the US is that hemp contains less than 0.3% of the cannabinoid chemical THC, which is creaturized
as the most intoxicating, psychoactive component in the cannabis plant family.
Due to
hemp’s nutritional and medicinal qualities, the Company has decided to focus its effort on building a near vertically
integrated business model. That is, it will seek to strategically partner with farmers. A main driver of the Company’s
business model is to exploit in the most positive way its proprietary processing technology and knowhow. Today the Company purchases
hemp biomass on the open market, and then reduces it into a variety of unique cannabinoids, including CBD, CBG, CBN etc. Hemp is
fast becoming a highly sought-after ingredient in food and drink, cosmetics and skincare, and healthcare and general nutrition
centric products. Furthermore, as the 2018 Farm Bill will boost hemp genetics research, the Company expects that many plant
geneticists with an interest in hemp will begin to focus their efforts due to the new and greatly improved legal framework in the
U.S., and at least for the short-term it is very likely the large agriculture companies will take a wait and see attitude, at least
until the majority, if not all of the states publish their regulations, and large consumer markets, and packaged goods
companies’ appetites begin to fit their large size. However, for growth companies, the Company believes there is ample
opportunity as an early-mover to create CBD derived from hemp branded product lines in multiple categories.
On December
20, 2018 President Trump signed into law the 2018 Farm Bill (included in the Agricultural Improvement Act of 2018). Hemp is defined
in the legislation as the cannabis plant with one key difference: hemp cannot contain more than 0.3 percent of
delta-9-tetrahydrocannabinol (“THC”), the compound in the plant most commonly associated with getting a person high. In other
words, hemp cannot get you high. For decades, federal law did not differentiate hemp from other cannabis plants, all of which were
effectively made illegal in 1937 under the Marijuana Tax Act and formally made illegal in 1970 under the Controlled Substances Act
(“CSA”) which banned cannabis of any kind.
Pursuant to the 2018 Farm Bill, hemp products and
their derivatives were removed as a prohibited substance under the CSA, subject to certain
conditions, such as the percent amount of THC in the product, as well as an USDA-approved state regulatory program. On October 31, 2019
the USDA issued an interim final rule regarding the Establishment of a Domestic Hemp Production Program which authorized hemp to be grown
and processed legally in the United States and made it legal to transport in interstate commerce. Although this interim final rule became
effective on the date of publication, there is a possibility it will be modified from its current application.
Specifically, the Farm Bill defined hemp as cannabis
and cannabis derivatives (e.g., CBD) with extremely low (no more than 0.3 percent on a dry weight basis) concentrations of the psychoactive
compound THC, and removed those “hemp” products from the CSA. Subsequent to the enactment
of the 2018 Farm Bill, many companies entered the market, and prominent national retailers began carrying CBD products in different formats,
such as edibles, topicals, vapor products, tinctures, and pet foods.
The Farm Bill did not eliminate federal oversight of CBD products and
in fact explicitly recognized certain federal agencies’ continued jurisdiction. In certain circumstances, hemp products remain subject
to other regulatory bodies, such as the United States Food and Drug Administration (“FDA”), the United States Federal Trade
Commission (“FTC”), state and local regulation, et al. For example, certain marketers of CBD products have received warning
letters from FDA regarding particular health claims made in the promotion of those marketers’ products. Similarly, some states have
banned or proposed to ban smokable hemp “cigarettes.”
FDA, moreover, has approved as a drug EPIDIOLEX for
treatment of various seizures. EPIDIOLEX’s active ingredient is a particular CBD isolate. That approval, while showing that the
safe and effective therapeutic benefits of CBD can be proven, may also prevent the over-the-counter sale of CBD products for the same
purpose in the same formulation.
FDA, on April 2, 2019, announced that it was beginning
to study if and how to regulate CBD products. It is unclear what, if anything, FDA will recommend, including whether to recommend a new
regulatory group, or whether to regulate under its existing Centers, such as dietary supplements. Under dietary supplement regulation,
manufacturers are required to register with FDA and comply with certain defined Good Manufacturing Practices, and refrain from medical
claims. FDA has stated that is does not believe that CBD products would properly be regulated as a dietary supplement without further
action; however, in its April 2 announcement FDA included a statement that products containing CBD might be regulated as dietary supplements.
(Statement from FDA Commissioner Scott Gottlieb, M.D., on new steps to advance agency’s continued evaluation of potential regulatory
pathways for cannabis-containing and cannabis-derived products | FDA. https://www.fda.gov/news-events/press-announcements/statement-fda-commissioner-scott-gottlieb-md-new-steps-advance-agencys-continued-evaluation.)
The Farm Bill explicitly allows the transfer of
hemp-derived products across state lines for commercial or other purposes. It also puts no restrictions on the sale, transport, or
possession of hemp-derived products, so long as those items are produced in a manner consistent with the law.
While the Farm Bill legalizes hemp, it does
not create a system in which people can grow it as freely as they can grow carrots or parsley and this is still a highly
regulated crop in the United States for both personal and industrial production.
Many experts predicted that the newly elected Biden/Harris administration
would remove hemp and marijuana from the list of schedule 1 drugs shortly after taking office. While Biden supports marijuana decriminalization,
efforts to legalize cannabis consumption are likely to continue at the state level for now even though both the House and the Senate are
actively working on a Bill aimed at legalization. In 2021, employers will need to review their policies and ensure that they comply
with evolving laws, particularly those covering medical marijuana patients Once the regulatory uncertainty clears, the Company expects
that major CPG brands waiting on the sidelines will begin to jump and mainstream retailers such as grocery stores, big box outlets, and
warehouse clubs will carry a full slate of CBD products.
The pandemic has been a significant extinction event
for hundreds of small brands in the US CBD market and we believe that Real Brands is well-positioned survivor and ready to benefit from
an expanding market.
In summary, the regulatory landscape remains in flux
and uncertain, but management believes that responsibly manufactured and marketed products are viable under current regulations and will
continue to be as the regulatory structure evolves.
Our Growth Strategy
The Merger of CASH with Real Brands was intended to allow Real Brands
access to the capital markets, and driving shareholder value by leveraging the technology and know-how brought by CASH.
We
have begun to implement the growth strategies described herein and expect to continue to do so over the next several years. Although
the net proceeds of the small financings we have made to date will be available to assist us to implement our growth strategies, we cannot
estimate the ultimate amount of capital needed to achieve our expected growth. We may need additional capital to implement these strategies,
particularly in the event we pursue acquisitions of complementary businesses or technologies.
We intend to grow our business
by:
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Launching multiple web-based platforms to educate
and sell direct to consumers the Company’s owned brands that focus on CBD derived from hemp products.
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Continuing to develop and expand our own proprietary
branded retail line of products.
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Launch a web-based hemp trading platform allowing
us to develop broader, deeper and easier access to hemp biomass, and to build a large-scale wholesale ingredient market for our CBD distillate
and isolate.
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Investing in other entities with hemp-based products
we can supply our CBD distillate and isolate ingredients to that are deemed strategic, and/or add economies of scale.
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Capitalizing on our relationship with Turning
Point Brands, Inc. which is an approximate 20% shareholder.
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Pursue acquisitions within our current core product
offerings to extend our geographic reach and expand our product offerings.
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Licensing our products to create additional revenue
streams.
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Joint venture, develop and market celebrity brand
lines.
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All other corporate initiatives
are expected to be central to appropriate vertical integration and insulating and building the Company’s focused business lines.
Market Strategy
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Building multiple high-throughput,
proprietary, ethanol-based, hemp CBD Isolate and distillate extraction processing systems.
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Become low-cost producer
of CBD Isolate and distillate as a result of proprietary technology.
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Build additional CBD extraction operations similar to Rhode Island plant
through joint-ventures in strategically designated locations. It is anticipated that joint venture partners would be required to have
minimally strategic business, operations and/or access to large quantities of hemp biomass.
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The Company is building
e-commerce retail sites for its CBD hemp-based consumer brands. Branded products will run the spectrum including a host of ingestible,
smokable, and topical products.
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On a case by case basis,
the Company expects to acquire and/or develop brands that adapt well to CBD, and which are conducive to CBD infusion i.e. chocolates,
cosmetics, edibles, drinks, sprays, tinctures, sub-lingual strips, cooking condiments, powders, Vapes, etc.
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Strategic Partner –
Distribution of Brands
Turning Point Brands (TPB)
is a publicly traded company focused on both the production and distribution of traditional smokeless tobacco and Other Tobacco Products.
Their brands included Zig Zag®, Stoker’s® chewing tobacco, Vapor Shark®, among others. After seeing the potential within the growing
CBD industry, TPB identified the Company as a leading CBD extractor and a strategic partnership was formed in the fall of 2018. The partnership
resulted in a $2 million capital infusion in December 2018 followed by an additional $250,000 in November 2020 into the Company.
Company Brands –
CBD Products
The Company has developed
and released several brands American Standard Hemp, Ziggys Hemp Products, WA Brands, Phaze, Canni Clear Products.and Zen Pets Treats –
which all speak to unique groups of consumers. The line of products sold under each brand capture both the current demands within the
marketplace, as well as products geared towards where the company believes the industry is headed.
The company’s
current product lines include:
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300mg / 30ml Tinctures
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150mg / 30ml Pet Tinctures
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250mg / 0.5ml Disposable Vape Pens
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300mg / 60ml Pain Gels
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150mg / 10ml Mint Breath Sprays
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500mg / 1oz Lavender Moisturizers,
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500mg / 1oz Clay Face Masks
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500mg / 1oz Foot Creams
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500mg / 2oz Moisture Recovery Creams
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500mg / 1oz Hydra Renewing Night Cream
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500mg / 1oz Anti-aging Concentrate Serum
Product Innovations by Segment
As awareness surrounding
CBD picks up steam and hemp approaches full legalization in the US, innovation in the space is expanding at a rapid pace. The industry
is moving beyond traditional tinctures and topicals into new realms, like food, drinks and beauty products. Niche consumer groups like
high-performance athletes, pet owners, and women's health consumers are demanding more options to incorporate CBD into their routines
and more products catered to their unique needs, and the market is responding with inventive and original products.
Beauty
CBD-based
products are poised to aggressively grow in the beauty world. Brightfield projections show the beauty and skincare market will be worth
$1.6 billion by 2022.
Personal Care
Consumers
have long been turning to CBD products to improve health and wellness and decrease pain, but the industry is still exploring the best
methods of delivering CBD. The most innovative products in the health and wellness market segment are coming from companies who are catering
to specific consumer demands.
Topicals
Topicals
are a product segment that CBD consumers will be familiar with, but they are also uniquely appealing to the mainstream consumer. People
with chronic pains, joint inflammation, skin irritations, headaches, or muscle aches are generally familiar with topical application of
non-CBD pain relief products. In fact, much of the innovation we are seeing in the topicals market is mimicry of the non-CBD topical
pain relief products; items like roll-on relief, menthol salves, and medicated patches.
Because
of this familiarity and approachability, the topicals market is poised to take off, with Brightfield projecting the segment will earn
revenues on par with tinctures by 2022 - an estimated $5.3 billion.
Sports & Fitness
Studies have shown
how the topical use of CBD interacts with the endocannabinoid system to moderate cytokine release, a key component of the
inflammatory process and block anandamide breakdown, a pain response of the central nervous system. This is great news for high
performance athletes, who struggle constantly with chronic pain, inflammation from muscle strain or swollen joints, and are more
prone to acute injury than the general population. CBD will transform athletic wellness, not only as an alternative to Icy-Hot and
aspirin, but also as an alternative to heavy opioids in post-surgery healing. Athletes are always looking for an edge, and as CBD
becomes more and more well-known for its ability to speed recovery of all sorts, the Company believes that the sports & fitness
industry is going to be a big growth market for CBD products.
Edibles & Drinks
Edibles are a
long-time favorite in the cannabis Industry, but companies are still innovating and finding ways to make their products stand out in
this saturated market. Because of their popularity and their approachability for consumers new to the CBD market, edible products
are expected to maintain one of the highest compound annual growth rates of any CBD product segment. Brightfield expects edibles to
sell over $2.5 billion in products in the year 2022, thanks in large part to the growth of CBD drinks. Beverages infused with CBD
are a hot item right now, with more and more brands embracing nanotechnology to tie CBD to water molecules and increase its
bioavailability exponentially, meaning less CBD is required to achieve pain and stress relief. Drinks on the market right now are
selling at prices less like bottled water and more like craft beer, but the Company believes that this niche segment will gain
appeal for the average CBD consumer, as competition in the market increases and prices drop, spurred in large part by the expected
capital influx from major soda and bottled water lines like Coca-Cola.
Food Service
Entrepreneurs and innovators
in the food service industry are taking notice of CBD's benefits, and many have begun creating their own infused foods and drink products
to appeal to consumers. Some are targeting regular CBD-users by opening cafes and stores that focus primarily on CBD products, like Gron
Cafe. Others, like health-food focused restaurants, are offering CBD-infused products in addition to their normal menu fares, for consumers
who would like a dose of CBD in their daily smoothie or coffee.
Perhaps nobody in the industry has taken more notice of CBD's trendiness
than bars and microbreweries, who are using hemp hops and oils to add flavor to beers and cocktails. From the casual coffee consumer
to the late-night bar-hopper, CBD is making waves amongst food service establishments.
Pet CBD
CBD
dosing for pet pain and anxiety has exploded onto the scene in an unprecedented way. Big pet CBD companies like Pet Releaf
and Canna-Pet are taking a bite out of that huge number by offering pet owners an alternative to powerful opioids and veterinarian-prescribed
pharmaceuticals. In turn, these brands are gaining loyal followings of consumers eager to reduce the joint pains and anxiety of their
four-legged friends. The market is centered on pet edibles (treats) and tinctures, although we expect to see more innovation in delivery
methods as competitors enter the space.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties,
including those in the section entitled “Risk Factors” and elsewhere in this Form 10. These risks include, but are not limited
to, the following:
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our ability to successfully execute our growth and acquisition strategy and effectively manage our growth;
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fluctuations in production schedules and purchase orders may cause our revenues and cash flows to vary from quarter to quarter;
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changes in the competitive environment in our industry and the markets we serve, and our ability to compete effectively;
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our dependence on developing and then maintaining a strong brand image;
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our cash needs and the adequacy of our cash flows and earnings;
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our dependence upon our executive officers, founders, and key employees;
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our ability to attract and retain qualified personnel;
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the effects of operating in a newly legalized industry which is heavily regulated;
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our ability to protect our trademarks or other intellectual property rights;
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insiders, including our executive officers, employees, and directors and their affiliates, will together hold approximately 41% of the voting power of our outstanding capital stock, and therefore will continue to have substantial control over our company which could limit the ability of investors to influence the outcome of key decisions, including a change of control; and
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increased costs as a result of being a public company.
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Corporate Information
Real Brands is the result of a 2020 merger with
Canadian American Standard Hemp Inc. (CASH) that brought together industrial scale hemp CBD oil/isolate extraction and processing,
wholesaling of CBD oils and isolate, and production and sales of numerous hemp-derived CBD consumer brands of smokable, edible and
topical products. Halo 5 is a proprietary chromatography extraction technology utilizing a Simulated Moving Bed (SMB) that provides
the advantage of producing large quantities of highly purified material and precise pharmaceutical grade molecular separation at
dramatically reduced costs. The Company maintains and operates the website www.realbrandsusa.com,
and its consumer product lines are available on www.wabrands.com, www.cashinc.com,
www.zenpetstreats.com and www.americanstandardhemp.com.
Our principal executive offices are located at 11
Royal Road, Brookline, Massachusetts 02445, and our telephone number is (617) 725-8900. Our operating subsidiary is based in
New Providence, RI. Our website address is www.realbrands.com. The information on or that can be accessed through any of our websites
is not incorporated by reference into this Form 10, and you should not consider any such information as part of this Form 10 or in deciding
whether to purchase our common stock.
All of CASH’s hemp processing capabilities and brands, including
American Standard Hemp, Ziggys Hemp Products, WA Brands, Phaze, Canni Clear Products, and Zen Pets Treats, and proprietary product formulations
created by world renowned chemist Dr. Adel Rammal, PhD. were retained following the merger. Dr.
Rammal previously served as CASH’s Chief Scientific Officer and will be staying on at Real Brands in that capacity. Following the
merger, CASH continues to own and operate its web sites: cashinc.com; wabrands.com; ZenPetsTreats.com
and americanstandardhemp.com.
Item 1A. Risk Factors.
Our business is subject to numerous risks, including
but not limited to those set forth below. Our operations and performance could also be subject to risks that do not exist as of the date
of this report but emerge thereafter as well as risks that we do not currently deem material.
General Risks
Our business and future operations may be adversely
affected by epidemics and pandemics, such as the recent COVID-19 outbreak.
We may face risks related to health epidemics and pandemics or other
outbreaks of communicable diseases, which could result in a widespread health crisis that could adversely affect general commercial activity
and the economies and financial markets of the country as a whole. For example, the recent outbreak of COVID-19, has been declared by
the World Health Organization to be a “pandemic,” has spread across the globe, including the United States of America. A health
epidemic or pandemic or other outbreak of communicable diseases, such as the current COVID-19 pandemic, poses the risk that we, or potential
business partners may be disrupted or prevented from conducting business activities for certain periods of time, the durations of which
are uncertain, and may otherwise experience significant impairments of business activities, including due to, among other things, operational
shutdowns or suspensions that may be requested or mandated by national or local governmental authorities or self-imposed by us, our customers
or other business partners. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, our
customers, our potential customers, suppliers or other current or potential business partners, the continued concerns with respect COVID-19,
the measures taken by the local and federal government, actions taken to protect employees, and the impact of the pandemic on various
business activities could adversely affect our results of operations and financial condition.
The accompanying financial statements have been
prepared assuming the company will continue as a going concern.
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern, which contemplates the realization of its assets and the
liquidation of its liabilities in the normal course of business. However, the Company has generated only minimal revenues, has
accumulated a loss since formation and currently lacks the capital to effectively pursue its business plan. This raises substantial
doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that
might result from this uncertainty.
Risks Related to
Our Business and Industry
We may not be able to economically comply with
any new government regulation that may be adopted with respect to the hemp industry.
New legislation or regulation, or the application
of existing laws and regulations to the hemp medical and consumer industries could add additional costs and risks to doing business. We
are subject to regulations applicable to businesses generally and laws or regulations directly applicable to communications over the Internet
and access to e-commerce. Although there are currently few laws and regulations regulating hemp products, it is reasonable to assume that
as hemp use becomes more mainstream that the FDA and/or other federal, state and local governmental
agencies will impose regulations covering the cultivation, purity, privacy, quality control, security and many other aspects of the industry,
all of which will likely raise the cost of compliance thereby reducing profits or even making it more difficult to continue operations,
either of which scenarios, if they occur, could have a negative impact on our business and operations.
If we fail to comply with environmental, health
and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health
and safety laws and regulations, including those governing the handling, use, storage, treatment and disposal of hazardous materials
and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals
and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these
materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the
event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting
damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines
and penalties for failure to comply with such laws and regulations.
We maintain workers’ compensation insurance
to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but this
insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability
or toxic tort claims that may be asserted against us.
In addition, we may incur substantial costs in order to comply with current or future
environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research,
development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties
or other sanctions.
Possible losses associated with non-compliance
with other numerous laws and regulations applicable to our industry.
The production, labeling and
distribution of the products that we distribute are regulated by various federal, state and local agencies. These governmental authorities
may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or the ability to sell
its products in the future. The FDA regulates our products to ensure that the products are not adulterated or misbranded.
We are subject to regulation
by the Department of Agriculture (“DoA”) and other agencies as a result of the manufacture and sale of our CBD
products. The shifting compliance environment and the need to build and maintain robust systems to comply with different regulations
in multiple jurisdictions increases the possibility that we may violate one or more of the requirements. If our operations are found
to be in violation of any of such laws or any other governmental regulations, we may be subject to penalties, including, without limitation,
civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, any of which could adversely affect
our business and financial results.
Failure to comply with FDA
and DoA requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal
prosecutions. Our advertising is subject to regulation by the FTC under the Federal Trade
Commission Act as well as subject to regulation by the FDA under the Dietary Supplement Health and Education Act of 1994 (“DSHEA”).
In recent years, the FTC has initiated numerous investigations of dietary and nutritional supplement products and companies based on
allegedly deceptive or misleading claims. At any point, enforcement strategies of a given agency can change as a result of other litigation
in the space or changes in political landscapes, and could result in increased enforcement efforts, which would materially impact our
business. Additionally, some states also permit advertising and labeling laws to be enforced by state attorney generals, who may seek
relief for consumers, class action certifications, class wide damages and product recalls of products we sell. Private litigations may
also seek relief for consumers, class action certifications, class wide damages and product recalls of products sold by us. Any actions
against us by governmental authorities or private litigants could have a material adverse effect on our business, financial condition
and results of operations.
Changing weather patterns can adversely
impact our agricultural operations causing losses.
Our business can be affected
by unusual weather patterns. The production of some of our products relies on the availability and use of live plant material. Growing
seasons, yields and harvesting operations can be impacted by weather patterns. In addition, severe weather, including drought and hail,
can destroy a crop, which could result in us having no or limited hemp to process. If we are unable to harvest hemp through our proprietary
operations or contract farming arrangements, our ability to meet customer demand, generate sales, and maintain operations will be impacted.
Given the proprietary nature of our crops, it may not be practicable for us to source adequate, or any, replacement hemp to produce our
downstream products.
Our business is dependent on
the outdoor growth and production of Industrial Hemp, an agricultural product. As such, the risks inherent in engaging in agricultural
businesses apply. Potential risks include low yields, the risk that crops may become diseased or victim to insects or other pests and
contamination, or subject to extreme weather conditions such as excess rainfall, freezing temperature, or drought, all of which could
result in low crop yields, decreased availability of Industrial Hemp, and higher acquisition prices. Our ability to obtain adequate (or
any) insurance relating to the foregoing risks may be limited. There can be no guarantee that an agricultural event will not adversely
affect our business and operating results.
Other agricultural production risks which could adversely
impact our business.
Agricultural production by its nature
contains elements of risks and uncertainties which may adversely affect our business and operations, including but not limited to the
following: (i) any future climate change with a potential shift in weather patterns leading to droughts and associated crop losses; (ii)
potential insect, fungal and weed infestations resulting in crop failure and reduced yields; (iii) wild and domestic animal conflicts;
and (iv) crop-raiding, sabotage or vandalism. Adverse weather conditions represent a significant operating risk to us, affecting quality
and quantity of production and the levels of farm inputs. We may also encounter difficulties with the importation of agro-inputs and securing
a supply of spares and maintenance items. In the event of a delay in the delivery from suppliers of agro-inputs and machinery, we may
be unable to achieve our production targets.
Hemp plant specific agricultural risks which could adversely
impact our business.
Hemp plants can be vulnerable to various pathogens
including bacteria, fungi, viruses and other miscellaneous pathogens. Such instances often lead to reduced crop quality, stunted growth
and/or death of the plant. Moreover, hemp is phytoremediative meaning that it may extract toxins or other undesirable chemicals or compounds
from the ground in which it is planted. Various regulatory agencies have established maximum limits for pathogens, toxins, chemicals
and other compounds that may be present in agricultural materials. If our hemp is found to have levels of pathogens, toxins, chemicals
or other undesirable compounds that exceed established limits, we may have to destroy the applicable portions of its hemp crop. Should
our crops be lost due to pathogens, toxins, chemicals or other undesirable compounds, it may have a material adverse effect on our business
and financial condition.
Failure to manage our growth effectively could cause our
business to suffer.
We intend to grow organically
and through selected acquisitions. To manage our growth effectively, we must manage our employees, operations, finances, and investments
efficiently. We also must effectively integrate any companies or businesses we acquire. We may encounter risks and challenges frequently
experienced by growing companies such as our ability to: strengthen our reputation for superior content creation; distinguish ourselves
from our competitors; develop and offer content that meet our clients’ needs as they change; and attract and maintain talent. Failure
to manage our growth effectively could have a material adverse effect on our business, results of operations or financial condition.
The market in which we participate is competitive, and we
may not be able to compete successfully with our current or future competitors.
We operate in the competitive,
highly fragmented advertising and creative content production markets. We compete with many firms with no single company maintaining
a significant share of the market. Some of our competitors have greater resources than those available to us and such resources may enable
them to aggressively compete with us. We must compete with these firms to maintain existing client relationships and to obtain new clients
and assignments. If existing or new companies acquire one of our existing competitors or form an exclusive relationship with one
or several advertising agencies or brands, our ability to compete effectively could be significantly compromised and our results of operations
could be harmed. Any of the factors described above could make it more difficult for us to acquire new projects and could result in increased
pricing pressure, increased sales and marketing expenses or the loss of market share, and could have a material adverse effect on our
business, results of operations or financial condition.
Our quarterly results of operations may fluctuate in the
future. As a result, we may fail to meet or exceed the expectations of securities analysts or investors, which could cause our stock
price to decline.
Our quarterly results of operations
have in the past, and may in the future, fluctuate as a result of a variety of factors, many of which are outside of our control, including
limited visibility of the timing and certainty of future projects. In future periods, our revenue or profitability could decline or grow
more slowly than we expect. If our quarterly revenues or results of operations do not meet or exceed the expectations of securities analysts
or investors, the price of our common stock could decline substantially. In addition to the other risk factors set forth in this “Risk
Factors” section, factors that may cause fluctuations in our quarterly revenues or results of operations include:
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our ability to increase sales to existing clients and attract new clients;
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our failure to accurately estimate or control costs;
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the potential loss of significant clients;
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maintaining appropriate staffing levels and capabilities relative to projected growth;
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Promulgation of federal and state regulations from time to time increasing our compliance burden; and
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general economic, industry and market conditions and those conditions specific to agricultural companies such as weather and infestations.
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We believe that our quarterly revenues and results of
operations on a year-over-year and sequential quarter-over-quarter basis may vary significantly in the future and that period-to-period comparisons of
our results of operations may not be meaningful. You should not rely on the results of prior quarters as an indication of future performance.
We are a holding company and depend upon our subsidiaries
for our cash flows.
We are a holding company. All of our operations are conducted, and almost
all of our assets are owned, by our subsidiaries. Consequently, our cash flows and our ability to meet our obligations depend upon the
cash flows of our subsidiaries and the payment of funds by our subsidiaries to us in the form of dividends, distributions or otherwise.
The ability of our subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms
of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our subsidiaries when needed could
have a material adverse effect on our business, results of operations or financial condition.
Our acquisition strategy involves significant risks.
One of our business strategies is to pursue acquisitions. However, acquisitions
involve numerous risks and uncertainties, including intense competition for suitable acquisition targets, the potential unavailability
of financial resources necessary to consummate acquisitions, difficulties in identifying suitable acquisition targets or in completing
any transactions identified on sufficiently favorable terms; and the need to obtain regulatory or other governmental approvals that may
be necessary to complete acquisitions. In addition, as further described below, any future acquisitions may entail significant transaction
costs, tax consequences and risks associated with entry into new markets and lines of business, any of which could have a material adverse
effect on our business, results of operations or financial condition.
Future acquisitions or strategic investments could disrupt
our business and harm our business, results of operations or financial condition.
We may in the future explore
potential acquisitions of companies or strategic investments to strengthen our business. However, we have limited experience in acquiring
and integrating businesses. Even if we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms
or financing of the acquisition, and our due diligence may fail to identify all of the problems, liabilities or other shortcomings or
challenges of an acquired business.
Acquisitions involve numerous
risks, any of which could harm our business, including:
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anticipated benefits may not materialize as rapidly as we expect, or at all;
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diversion of management time and focus from operating our business to address acquisition integration challenges;
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retention of employees from the acquired company;
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cultural challenges associated with integrating employees from the acquired company into our organization;
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integration of the acquired company’s accounting, management information, human resources and other administrative systems;
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the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; and
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litigation or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or other third parties.
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Failure to appropriately
mitigate these risks or other issues related to such strategic investments and acquisitions could result in reducing or completely eliminating
any anticipated benefits of transactions, and harm our business generally. Future acquisitions could also result in dilutive issuances
of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of
which could have a material adverse effect on business, results of operations or financial condition.
Our operations may become
unprofitable and we may require working capital financing.
Our ability to achieve net
income and cash flow is subject to, among other things, the number of our customers and our sales of our products, the magnitude of our
margins and the overall profitability of our projects. If we are not able to operate our business at a profit or to retain cash, we may
be required to obtain external working capital financing. In the event that we were unable to obtain a line of credit, we could be required
to seek external working capital financing from other sources, which may not be available on satisfactory terms, or at all. If we are
unable to access a sufficient amount of working capital at the times we need to, this could have a material adverse effect on our business,
results of operations or financial condition.
If we are unable to protect our intellectual property rights,
competitors may be able to use our technology or trademarks, which could weaken our competitive position.
We rely on a combination of copyright, trademark
and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also intend to enter into confidentiality
or license agreements with our employees, consultants and customers, and control access to and distribution of our products, and other
proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use our products.
Our future success depends on the continuing efforts of our
key employees and our ability to attract, hire, retain and motivate highly skilled and creative employees in the future.
Our future success
depends on the continuing efforts of our executive officers and other key employees. We rely on the leadership, knowledge and experience
that our executive officers and key employees provide. They foster our corporate culture, which we believe has been instrumental to our
ability to attract and retain new talent. Any failure to attract new or retain key creative talent could have a material adverse effect
on our business, financial condition and results of operations.
The market for talent
in our key areas of operations is intensely competitive, which could increase our costs to attract and retain talented employees. As a
result, we may incur significant costs to attract and retain employees, including significant expenditures related to salaries and benefits
and compensation expenses related to equity awards, and we may lose new employees to our competitors or other companies before we realize
the benefit of our investment in recruiting and training them.
Employee turnover, including changes in our management
team, could disrupt our business. The loss of one or more of our executive officers or other key employees, or our inability to attract
and retain highly skilled and creative employees, could have a material adverse effect on our business, results of operations or financial
condition.
Management team will have to focus on issues involving managing
a public company.
Upon the effectiveness
of this registration, we will become subject to significant reporting and other obligations as a public company. These new obligations
will require significant attention from our management and could divert their attention away from the day-to-day management
of our business. In the event that our management team does not successfully or efficiently manage our transition to being a public company,
this could have a material adverse effect on our business, results of operations or financial condition.
We are subject to legal or reputational risks that could
restrict our activities or negatively impact us.
Our business is subject
to specific rules, prohibitions, restrictions, labeling disclosures and warning requirements applicable to sales and advertising for certain
products. The FDA, advertisers and consumer groups may challenge advertising based on false or exaggerated claims through legislation,
regulation, judicial actions or otherwise. Existing and proposed laws and regulations concerning user privacy, use of personal information
and on-line tracking technologies also could affect the efficacy and profitability of internet-based and digital marketing.
We could suffer reputational risk as a result of legal action or from sales of certain products that may be challenged by consumer groups
or considered controversial, which may have a material adverse effect on our business, results of operations or financial condition.
Others may assert intellectual property infringement claims
against us.
We are subject to
the possibility of claims that brands’ products, services or techniques misappropriate or infringe the intellectual property rights
of third parties. Infringement or misappropriation claims (or claims for indemnification resulting from such claims) may be asserted or
prosecuted against us. Irrespective of the validity or the successful assertion of such claims, we would incur significant costs and diversion
of resources with respect to the defense thereof, which could have a material adverse effect on our business, results of operations or
financial condition.
We may be subject to claims that we have wrongfully hired
an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade
secrets of their former employers.
As is commonplace
in our industry, we employ individuals who were previously employed at other companies with whom we compete. Although no claims against
us are currently pending, we may be subject in the future to claims that our employees or prospective employees are subject to a continuing
obligation to their former employers (such as non-competition or non-solicitation obligations) or claims that our
employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.
Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could
result in substantial costs and be a distraction to management.
We rely heavily on information technology systems
and could face cybersecurity risks.
We rely heavily on information technologies and infrastructure
to manage and conduct our business. This includes the production and digital storage of content and client information and the development
of new business opportunities and creative content. The incidence of malicious technology-related events, such as cyberattacks, ransomware,
computer hacking, computer viruses, worms or other destructive or disruptive software and other malicious activities could have a negative
impact on our business and productivity. In addition, the prevalent use of mobile devices that access confidential information increases
the risk of data security breaches, which could lead to the loss of confidential information or other intellectual property. We have
taken preventative steps and seek to follow industry best practices, including the use of firewalls, deployment of antivirus software
and regular patch maintenance updates; however no system is completely immune from these types of attacks. If we become subject to cyber
breach, this could have a material adverse effect on our business, results of operations or financial condition.
Power outages, equipment
failure, natural disasters (including extreme weather) or terrorist activities can impact an entire system. In the event of such a disruption,
our ability to operate nonetheless may be adversely affected. Human error may also affect our systems and result in disruption of our
services or loss or improper disclosure of client and personal data, business information, including intellectual property, or other
confidential information. We also utilize third parties to store, transfer or process data, and system failures or network disruptions
or breaches in the systems of such third parties could adversely affect our reputation or business. Any such breaches or breakdowns could
expose us to legal liability, be expensive to remedy, result in a loss of our or our clients’ or vendors’ proprietary information
and damage our reputation. In addition, such a breach may require notification to governmental agencies, the media or other individuals
pursuant to various federal and state privacy and security laws, if applicable. Efforts to develop, implement and maintain security measures
are costly, may not be successful in preventing these events from occurring and require ongoing monitoring and updating as technologies
change and efforts to overcome security measures become more sophisticated. We take precautions to limit access to sensitive information
to only those individuals requiring it. Any significant distribution in our equipment or loss or improper disclosure of data could have
a material adverse effect on our business, results of operations or financial condition.
Our networks and systems may require significant expansion
to accommodate new processing and storage requirements.
We may experience
limitations relating to the capacity of our networks, systems and processes. In the future, we may need to expand our network and systems
at a more rapid pace than we have in the past if our networks and systems cannot accommodate new processing and storage requirements due
to potential growth in our business. Our network or systems may not be capable of meeting the demand for increased capacity, or we may
incur additional unanticipated expenses to accommodate these capacity demands. In addition, we may lose valuable data, be unable to obtain
or provide content on a timely basis or our network may temporarily shut down if we fail to adequately expand or maintain our network
capabilities to meet future requirements. Any lapse in our ability to store or transmit data or any disruption in our network processing
may damage our reputation and result in the loss of clients, and could have a material adverse effect on our business, results of operations
or financial condition.
Our tax liabilities may be greater than anticipated.
The U.S. tax laws applicable to our business activities are subject to
interpretation. We are subject to audit by the Internal Revenue Service and by taxing authorities of the state and local jurisdictions
in which we operate. Our tax obligations are based in part on our corporate operating structure, including the manner in which we develop,
value, and use our intellectual property, the jurisdictions in which we operate, how tax authorities assess revenue-based taxes such as
sales and use taxes, the scope of our international operations, if any, and the value we ascribe to our intercompany transactions. Taxing
authorities may challenge our tax positions and methodologies for valuing developed technology or intercompany arrangements, as well as
our positions regarding the collection of sales and use taxes and the jurisdictions in which we are subject to taxes, which could expose
us to additional taxes. Any adverse outcomes of such challenges to our tax positions could result in additional taxes for prior periods,
interest and penalties, as well as higher future taxes. In addition, our future tax expense could increase as a result of changes in tax
laws, regulations or accounting principles, or as a result of earning income in jurisdictions that have higher tax rates. An increase
in our tax expense could have a negative effect on our business, results of operations or financial condition. Moreover, the determination
of our provision for income taxes and other tax liabilities requires significant estimates and judgment by management, and the tax treatment
of certain transactions is uncertain. Although we believe we will make reasonable estimates and judgments, the ultimate outcome of any
particular issue may differ from the amounts previously recorded in our financial statements and any such occurrence could materially
affect our financial position and results of operations.
Recent and future U.S. tax legislation may materially adversely
affect our financial condition, results of operations and cash flows.
U.S.
tax legislation enacted during the previous administration significantly
changed the U.S. federal income taxation of U.S. corporations, including by reducing the U.S. corporate income tax rate, limiting interest
deductions, permitting immediate expensing of certain capital expenditures, adopting elements of a territorial tax system, imposing a one-time transition
tax (or “repatriation tax”) on all undistributed earnings and profits of certain U.S.-owned foreign corporations, revising
the rules governing net operating losses and the rules governing foreign tax credits, and introducing new anti-base erosion provisions.
Many of these changes were effective immediately, without any transition periods or grandfathering for existing transactions. The legislation
is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing
regulations by the U.S. Treasury and Internal Revenue Service, any of which could lessen or increase certain adverse impacts of the legislation.
In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable
income as a starting point for computing state and local tax liabilities. Moreover, it is reasonable to assume that the current administration
will enact additional changes to the tax laws, some of which may reverse or change some of these changes. We continue to work with our
tax advisors to determine the full impact that the recent tax legislation as a whole will have on us and we will do so as any further
changes are made. We urge our investors to consult with their legal and tax advisors with respect to such legislation and the potential
tax consequences of investing in our common stock.
Risks Related to Ownership
of Our Common Stock
The market price of our common stock may be volatile or may
decline regardless of our operating performance.
The market price of
our common stock can experience high levels of volatility. Following the effectiveness of this registration, the market price of our common
stock may fluctuate significantly in response to numerous factors, some of which are beyond our control and may not be related to our
operating performance, including:
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announcements of new advertising campaigns, client relationships, acquisitions or other events by us or our competitors;
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price and volume fluctuations in the overall stock market from time to time;
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volatility in the market price and trading volume of hemp/cannabis companies in general;
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fluctuations in the trading volume of our shares or the size of our public float;
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actual or anticipated changes or fluctuations in our results of operations;
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whether our results of operations meet the expectations of securities analysts or investors;
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actual or anticipated changes in the expectations of investors or securities analysts;
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litigation involving us, our industry, or both;
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regulatory
developments in the industry in general and in the specific regions in which we operate;
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general economic conditions and trends, whether from acts of terror or otherwise;
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major catastrophic events, including specifically weather related as it impacts agricultural products and health related resulting from the consequences of a pandemic ;
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lock-up releases or sales of large blocks of our common stock;
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departures of key employees; or
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an adverse impact on the company from any of the other risks cited herein.
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If an active, liquid trading market for our common stock
does not develop, you may not be able to sell your shares.
An active and liquid
trading market for our common stock may not develop or be sustained following this filing and it may take some time for an active market
to develop. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that
you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also
impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies
by using our shares as consideration.
In addition, if the stock
market for hemp/cannabis companies, or the stock market generally, experiences a loss of investor confidence, the trading price of our
common stock could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our
common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly
affect us. Historically, stockholders have filed securities class action litigation against companies following periods of market volatility.
If we were to become involved in securities litigation, it could subject us to substantial costs, and divert resources and the attention
of management from our business, which could have a material adverse effect on our business, results of operations or financial condition.
Anti-takeover provisions in our charter documents
and under Nevada law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts
by our stockholders to replace or remove our current management and limit the market price of our common stock.
Provisions in our certificate of incorporation and bylaws (which can be amended
without shareholder approval), currently have, or may be amended in the future to contain, provisions which may have the effect of delaying
or preventing a change of control or changes in our management. Some of these provisions are and may be to:
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authorize our board of directors to issue, without further action by the stockholders, up to 1,000,000 shares of undesignated preferred stock and up to 1,378,006,207 shares of authorized common stock;
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require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
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specify that special meetings of our stockholders can be called only by the chair of our board of directors or by the secretary upon the direction of our board of directors;
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establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;
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•
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provide that vacancies on our board of directors may, except as otherwise
required by law, be filled only by a majority of directors then in office, even if
less than a quorum; and
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•
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require the approval of the holders of at least a majority of the voting
power of all outstanding shares of voting stock in order for our stockholders to amend or repeal
our bylaws.
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The provisions of Nevada law may have the effect of
delaying, deferring or preventing another party from acquiring control of the company. These provisions may discourage and prevent coercive
takeover practices and inadequate takeover bids.
Specifically, Nevada law contains a provision governing
“acquisition of controlling interest.” This law provides generally that any person or entity that acquires 20% or more of
the outstanding voting shares of a publicly-held Nevada corporation in the secondary public or private market may be denied voting rights
with respect to the acquired shares, unless a majority of the disinterested stockholders of the corporation elects to restore such voting
rights in whole or in part. The control share acquisition act provides that a person or entity acquires “control shares” whenever
it acquires shares that, but for the operation of the control share acquisition act, would bring its voting power within any of the following
three ranges: 20 to 33-1/3%; 33-1/3 to 50%; or more than 50%. The stockholders or Board of Directors of a corporation may elect to exempt
the stock of the corporation from the provisions of the control share acquisition act through adoption of a provision to that effect in
the articles of incorporation or bylaws of the corporation. Our articles of incorporation and bylaws do not exempt our common stock from
the control share acquisition act. While at this time, we do not believe that the provisions of the control share acquisition act apply
to us, at such time as they may apply, the provisions of the control share acquisition act may discourage companies or persons interested
in acquiring a significant interest in or control of us, regardless of whether such acquisition may be in the interest of our stockholders.
The Nevada “Combination with Interested Stockholders
Statute” may also have an effect of delaying or making it more difficult to effect a change in control of us. This statute prevents
an “interested stockholder” and a resident domestic Nevada corporation from entering into a “combination,” unless
certain conditions are met. The statute defines “combination” to include any merger or consolidation with an “interested
stockholder,” or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions
with an “interested stockholder” having (i) an aggregate market value equal to 5% or more of the aggregate market value of
the assets of the corporation, (ii) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares
of the corporation, or (iii) representing 10% or more of the earning power or net income of the corporation.
An “interested stockholder” means the
beneficial owner of 10% or more of the voting shares of a resident domestic corporation, or an affiliate or associate thereof. A corporation
affected by the statute may not engage in a “combination” within three years after the interested stockholder acquires its
shares unless the combination or purchase is approved by the Board of Directors before the interested stockholder acquired such shares.
If approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated with the
approval of the Board of Directors or a majority of the voting power held by disinterested stockholders, or if the consideration to be
paid by the interested stockholder is at least equal to the highest of (i) the highest price per share paid by the interested stockholder
within the three years immediately preceding the date of the announcement of the combination or in the transaction in which he became
an interested stockholder, whichever is higher, (ii) the market value per common share on the date of announcement of the combination
or the date the interested stockholder acquired the shares, whichever is higher, or (iii) if higher for the holders of preferred stock,
the highest liquidation value of the preferred stock.
These anti-takeover
provisions could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate
actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest
involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders
to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control
transaction or changes in our board of directors could cause the market price of our common stock to decline.
We have never paid cash dividends on our capital stock, and
we do not anticipate paying cash dividends in the foreseeable future.
We have never declared
or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We currently intend
to retain any future earnings to fund the growth of our business. Any determination to pay dividends in the future will be at the discretion
of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions
and other factors that our board of directors may deem relevant. As a result, capital appreciation, if any, of our common stock will be
the sole source of gain for the foreseeable future.
Our inability to raise additional capital on acceptable terms
in the future may limit our ability to expand our operations.
If our available cash balances and anticipated cash
flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our products as a
result of other risks described in this “Risk Factors” section, we may seek to raise additional capital through equity offerings,
debt financings, collaborations or licensing arrangements. We may also consider raising additional capital in the future to expand our
business, pursue strategic investments, take advantage of financing opportunities, or other reasons. Additional funding may not be available
to us on acceptable terms, or at all. If we raise funds by issuing equity securities, dilution to our stockholders could result. Any
equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock. The terms
of debt securities issued or borrowings could impose significant restrictions on our operations. The incurrence of indebtedness or the
issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants,
such as limitations on our ability to incur additional debt or issue additional equity and other operating restrictions that could adversely
affect our ability to conduct our business and pursue acquisitions. In addition, the issuance of additional equity securities by us,
or the possibility of such issuance, may cause the market price of our common stock to decline. If we do not have, or are not able to
obtain, sufficient funds, we may have to delay strategic opportunities, investments or projects. If we are unable to raise adequate funds,
we may have to liquidate some or all of our assets, or delay, reduce the scope of, or eliminate some or all of our creative work. Any
of these actions could have a material adverse effect on our business, results of operations or financial condition.
Insiders have substantial control over our company which
could limit your ability to influence the outcome of key decisions, including a change of control.
Our
common stock has one vote per share. Insiders, including our executive officers, employees, and directors and their affiliates, together
hold approximately 41% of the voting power of our outstanding capital stock. As a result, our insiders will control a majority of the
combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval so
long as their ownership of our common stock is at least 50%. This concentrated control will limit or preclude your ability to influence
corporate matters for the foreseeable future. These stockholders will be able to influence or control matters requiring approval by our
stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. Their
interests may differ from yours and they may vote in a manner that is adverse to your interests. This ownership concentration may deter,
delay or prevent a change of control of our company, deprive our stockholders of an opportunity to receive a premium for their common
stock as part of a sale of our company and may ultimately affect the market price of our common stock.
The requirements of being a public company may strain our
resources, divert our management’s attention and affect our ability to attract and retain qualified board members.
As a public company, we will be subject to the reporting
requirements of the Exchange Act (the “Exchange Act”), and will be required to comply with the applicable requirements of
the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of whichever market
our securities primarily trade, and other applicable securities rules and regulations. Compliance with these rules and regulations will
increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand
on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect
to our business and results of operations and maintain effective disclosure controls and procedures and internal control over financial
reporting. Significant resources and management oversight will be required to maintain and, if required, improve our disclosure controls
and procedures and internal control over financial reporting to meet this standard. As a result, management’s attention may be
diverted from other business concerns, which could harm our business, results of operations or financial condition. We expect to but
have not yet hired additional employees to comply with these requirements and we may need to hire even more employees in the future than
we currently anticipate, which will increase our costs and expenses. In addition, after we no longer qualify as a “smaller reporting
company,” we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable
to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act.
We also expect to obtain director and officer liability insurance as a result of being
a public company and these new rules and regulations. We may be required to accept reduced coverage or incur substantially higher costs
to obtain coverage than that for a private company. These factors could also make it more difficult for us to attract and retain qualified
members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
If we fail to maintain or implement effective internal control,
we may not be able to report financial results accurately or on a timely basis, or to detect fraud, which could have a material adverse
effect on the per share price of our common stock.
The Sarbanes-Oxley
Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting.
We expect to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to
be disclosed by us in the reports that we will file with the US Securities and Exchange Commission (“SEC”) is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms. We also expect to improve our internal control over
financial reporting. We anticipate that we will expend significant resources in order to maintain and improve the effectiveness of our
disclosure controls and procedures and internal control over financial reporting.
Our current controls
and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our
disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain
effective controls, or any difficulties encountered in their implementation or improvement, could harm our results of operations or cause
us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure
to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports
and independent registered public accounting firm audits of our internal control over financial reporting that we will eventually be required
to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures, and internal control
over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely
have a negative effect on the market price of our common stock. In addition, if we are unable to continue to meet these requirements,
we may not be able to become listed, or remain listed, on an exchange.
We are not currently required to comply with the
SEC rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the
effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required
to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second
annual report on Form 10-K. Our independent registered public accounting firm is not required to audit the effectiveness
of our internal control over financial reporting until after we are no longer a “smaller reporting company” as defined in
SEC rules. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not
satisfied with the level at which our internal control over financial reporting is documented, designed or operating.
We are a “smaller reporting company” and we cannot
be certain if the reduced disclosure requirements applicable to those companies will make our common stock less attractive to investors.
For so long as we
remain a “smaller reporting company” as defined in the JOBS Act, we may take advantage of exemptions from various requirements
that are applicable to public companies that are “smaller reporting companies” including not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements. Investors may find our common stock less attractive because we rely on these
exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock, and our stock price may be more volatile and may decline.
If securities or industry analysts do not publish research
or reports about our business, or publish inaccurate or unfavorable research reports about our business, our share price and trading
volume could decline.
The trading market
for our common stock will partially depend on the research and reports that securities or industry analysts publish about us or our business.
We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our shares or change their
opinion of our business prospects, our share price would likely decline. If one or more of these analysts ceases coverage of our company
or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading
volume to decline.
We will likely be subject to “penny stock” regulations
which may adversely impact the liquidity and price of our common stock.
Following this offering, our common stock will
likely be deemed a “penny stock.” Penny stocks generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information on
penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current
bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over
the market, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition,
broker-dealers who sell such securities to persons other than established customers and accredited investors (generally, those persons
with assets in excess of $1,000,000 (excluding the value of their primary residence) or annual income exceeding $200,000 or $300,000 together
with their spouse), the broker-dealer must make a special written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the transaction.
Item 2. Financial Information.
Forward Looking Statements
When used in this Form 10 the words or phrases such
as "anticipate," "believe," "could," "would," “should,” "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" or similar expressions
are intended to identify “forward-looking statements” and readers are cautioned not to place undue reliance on any such forward
looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical earnings and those presently anticipated or projected.
These forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are
not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that we can charge
for our services or which we pay to our suppliers and business partners; changes in political, social and economic conditions in the jurisdictions
in which we operate; changes to regulations that pertain to our operations; changes in technology that render our technology relatively
inferior, obsolete or more expensive compared to others; foreign currency fluctuations; changes in the business prospects of our business
partners and customers; increased competition, including from our business partners; delays in the delivery of broadband capacity to the
homes and offices of persons who use our services; general disruptions to Internet service; and the loss of customer faith in the Internet
as a means of commerce.
The following discussion should be read in conjunction
with the financial statements and related notes which are included in this registration statement under Item 13.
We do not undertake to update our forward-looking
statements or risk factors to reflect future events or circumstances.
Overview
General
Real Brands, Inc. (“Real Brands” or the
“Company”), was incorporated under the laws of the state of Nevada on November 6, 1992. The Company was formed under the
name Mercury Software. From 1997 to 2005 the Company changed its name several times. On October 10, 2005, the Company changed its name
to Global Beverage Solutions, Inc. and began trading on the OTC Bulletin Board under the symbol GBVS.OB.
On October 22, 2013, the Company changed its
name to Real Brands, Inc. The Financial Industry Regulatory Authority ("FINRA") approved Real Brands' corporate actions
regarding its name change and its new stock symbol request and approved Real Brands' 150:1 Reverse Stock Split. The new symbol was
designated as GBVSD. On November 19, 2013, the ticker symbol changed to RLBD.
On October 22, 2020, the majority of the shareholders of the Company
by written consent agreed to a merger with CASH Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company,
and Canadian American Standard Hemp Inc., a Delaware corporation (“CASH”), whereby the Company acquired all of the outstanding
shares of CASH and merge it with and into CASH Acquisition Corp. Real Brands’ name and trading symbol were maintained, with CASH
shareholders acquiring majority control of Real Brands.
We raised a small amount of capital in 2020 and 2021. We
expect to continue to pursue additional sources of capital though we have no current arrangements with respect to, or sources of, additional
financing at this time and there can be no assurance that any such financing will become available. We do not believe we have sufficient
funds to operate for at least another 12 months. If we cannot raise additional capital, form an alliance of some nature with another entity,
or start to generate sufficient revenues, we may need to scale back operations.
RESULTS OF OPERATIONS
Year ended December 31, 2020 compared to
year ended December 31, 2019
Sales Revenue, Cost of Sales and Gross Loss:
Revenues from the sale of our products for the year ended December 31, 2020 and 2019 were $24,582 and $646,609, respectively.
Revenues in 2020 were generated from the sale of our tinctures that were produced in the prior year. During 2020 we were building out
our new facility and not able to produce any new products for sale. Sales revenue in 2019 included sales made to a related party in the
amount of $591,850. Cost of sales was $$22,540 in the year ended December 31, 2020 and $902,167 in 2019. The Company expenses all packaging
material as a cost of sale at the time of purchase.
General and Administrative Expense: General
and administrative expenses for the year ended December 31, 2020, decreased by $354,778, to $259,511 as compared to $614,289 for the year
ended December 31, 2019. The decrease is due to production and operations stopping while our new building was updated and built out so
that it can be utilized as our production facility.
Payroll and Related: Payroll
and related decreased by $263,749 to $349,431 for the year ended December 31, 2020 from $613,180 for the year ended December 31, 2019.
The decrease is due to the closure of the processing facility during the build out of the new processing facility.
Professional Fees: Professional
fees increased by $34,589 to $349,525 for the year ended December 31, 2020 from $314,936 for the year ended December 31, 2019.
Stock compensation to officers, directors
and consultants: Stock compensation for the year ended December 31, 2020, increased by $1,289,530 to $1,339,530, compared to $50,000
for the year ended December 31, 2019. The increase is due to completing our board with several new members and several consultants receiving
stock as compensation.
Stock Option expense: Stock
options expense for the year ended December 31, 2020 was $3,825,479, compared to $0 for the year ended December 31, 2019.
Interest Expense: Interest expense
for the year ended December 31, 2020 was $31,183 an increase of $28,150 from the interest expense of $3,033 in 2019. Interest expense
increased during the year because of the debt being outstanding for the whole year in 2020 compared to only a partial year for 2019.
Net Loss: Net loss attributable
to common stockholders increased to approximately $6,272,910, or $0.03 per share, in the year ended December 31, 2020, from $2,041,376,
or $0.05 per share, in 2019. The increase in the net loss of $4,231,534, or 207% was for reasons outlined above.
There was no income tax benefit recorded for
the year ended December 31, 2020 or 2019, due to recurring net operating losses.
Three months ended March 31, 2021 compared
to three months ended March 31, 2020
Sales Revenue, Cost of Sales and Gross
Loss: Revenues from the sale of our products for the three months ended March 31, 2021 and 2020 were $461 and $7,616,
respectively. Revenues in 2021 were generated from the sale of our tinctures. During the three months ended March 31, 2021 and 2020
we were building out our new facility and not able to produce any new products for sale. Cost of sales was $$26,310 in the three
months ended March 31, 2021 and $14,024 in the three months ended March 31, 2020. The Company expenses all packaging material as a
cost of sale at the time of purchase. For the three months ended March 31, 2021, the Company had a gross loss of $25,849 compared to
gross loss of $6,408 for the three months ended March 31, 2020.
General and Administrative Expense: General
and administrative expenses for the three months ended March 31, 2021, increased by $25,369, to $124,068 as compared to $98,699 for the
three months ended March 31, 2020. The increase is due to a general increase in activity as our production facility has been completely
built out and we are nearing the point where production and operations will start up again.
Payroll and Related: Payroll
and related decreased by $56,777 to $59,486 for the three months ended March 31, 2021 from $116,263 for the three months ended March 31,
2020. The decrease is primarily due to the resignation in 2020 of our Chief Technical Officer.
Professional Fees: Professional
fees increased to $90,265 from $0 for the three months ended March 31, 2021. The increase is due to costs associated with making the Company
compliant in its reporting responsibilities.
Gain on forgiveness of PPP Loan:
The Company applied for and received forgiveness on one of the SBA PPP loans in the amount of $106,660 for the three months ended
March 31, 2021 compared to $0 for the three months ended March 31, 2020.
Depreciation expense: Depreciation
expense was $36,298 for the three months ended March 31, 2021 compared to a depreciation expense of $30,073 for the three months ended
March 31, 2020.
Interest Expense: Interest expense
for the three months ended March 31, 2021 was $6,034 an increase of $1,879 from the interest expense of $4,155 in the three months ended
March 31, 2020.
Net Loss: As a result of the
foregoing, we realized a net loss of $235,341 in the three months ended March 31, 2021compared to a net loss of $255,598 for the three
months ended March 31, 2020.
Liquidity and Capital Resources
Since our inception, we have raised capital
through the public and private sale of debt and equity and funding from collaborative arrangements. At December 31, 2020, we had cash
of $247,892 and a negative working capital of approximately $554,962.
We will be required to raise additional funds
through public or private financing, additional collaborative relationships or other arrangements. We cannot be certain that our existing
and available capital resources will be sufficient to satisfy our funding requirements through 2021. We are evaluating various options
to raise additional funds, including new equity and loans.
Our financial statements have been prepared
and presented on a basis assuming we will continue as a going concern. The above factors raise substantial doubt about our ability to
continue as a going concern, as more fully discussed in Note 1 to the consolidated financial statements contained herein.
At March 31, 2021, we had cash of $195,047
and a negative working capital of approximately $859,089.
The funds raised in our last financing will
be used to develop new products and services, pay salaries to management and pay professional fees to our attorneys and auditors to prepare
and file reports with the SEC and other legal expenses arising from our day-to-day operations and acquisitions, if any. We hope to raise
additional funds to be used for advertising our existing products and services and to fund the development of additional products and
services. No assurances can be given that we will be able to raise any additional funds. As described above, we are currently negotiating
with various entities for different types of transactions. While no assurance can be given that any of these deals will be concluded,
if successful they would likely generate additional cash flows.
Recent Accounting Pronouncements
See NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in the Real
Brands, Inc. and subsidiaries financial statements located in Item 13. Financial Statements and Supplementary Data.
Item 3. Properties.
As a result of the Merger, we acquired property located
at 12 Humbert Street, North Providence, Rhode Island, which property had been purchased on February 15, 2020 by the predecessor to CASH
Inc. The property consists of approximately10,000 square feet and is used to manufacture our CBD products. The property was renovated
as necessary in order to be fully licensed by the State of Rhode Island to produce CBD products and the Company believes that it is adequate
for our current needs and our reasonably expected future needs over the next twelve months.
Presently, our executive offices are located in our
president's residence at 11 Royal Road, Brookline, Massachusetts 02445, where we occupy approximately 800 square feet. This
space is adequate for our present and our planned future operations. We currently pay no rent to our president for use of this space,
although when funds are available we may do so in the future. In addition we have no written agreement or formal arrangement with our
president pertaining to the use of this space. Another entity also operates from this office. We have no current plans to occupy other
or additional office space until such time as our growth requires more formal office space.
Item 4. Security Ownership of Certain Beneficial
Owners and Management.
The following table sets forth as of May 31, 2021,
certain information with respect to the beneficial ownership of Common Stock by (i) each of our directors and executive officers; (ii)
each person who owns beneficially more than 5% of the common stock; and (iii) all directors and executive officers as a group. The percentage
of shares beneficially owned is based on there having been 2,611,685,243 shares of common stock outstanding as of May 31, 2021.
OFFICERS, DIRECTORS AND BENEFICIAL OWNERS, AS OF MAY
31, 2021
|
Name & Address of Beneficial Owner(1)
|
Amount & Nature of Beneficial Owner
|
% of Class(2)
|
|
Turning Point Brands, Inc.
|
611,255,410(3)
|
23.3%
|
|
Thomas Kidrin
|
510,937,611
|
19.5%
|
|
Tom DePetrillo
|
219,332,824
|
8.4%
|
|
Chris Ryan
|
165,471,440
|
6.3%
|
|
Leonard Toboroff
|
70,864,789(4)
|
2.7%
|
|
Peter Christos
|
100,864,789(5)
|
3.8%
|
|
Jeffrey Engel
|
82,033,411(6)
|
3.1%
|
|
James Dobbins
|
46,077,210(7)
|
1.8%
|
|
Fredrick Granoff
|
107,202,751(6)
|
4.1%
|
|
All directors and executive officers as a group (seven persons)
|
1,083,452,001(8)
|
41.4%
|
(1) Unless stated otherwise, the business address
for each person named is c/o Real Brands, Inc., 11 Royal Road, Brookline, MA 02445.
(2) Calculated pursuant to Rule 13d-3(d) (1) of the
Securities Exchange Act of 1934. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion
privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by a person,
but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. We believe that each individual
or entity named has sole investment and voting power with respect to the shares of common stock indicated as beneficially owned by them
(subject to community property laws where applicable) and except where otherwise noted. Based upon 2,619,993,793 shares outstanding on
May 31, 2021.
(3) Address is 5201 Interchange Way, Louisville, KY
40229.
(4) Includes 6,143,628 currently exercisable vested
stock options.
(5) Includes 21,143,628 currently exercisable vested
stock options.
(6) Includes 46,077,210 currently exercisable vested
stock options.
(7) Consists of currently exercisable vested stock
options.
(8) Includes 165,518,887 currently exercisable vested
stock options.
Item 5. Directors and Executive Officers.
The following table sets forth information regarding
our executive officers and directors:
|
Name
|
|
Age
|
|
|
Position(s)
|
|
Executive Officers
|
|
|
|
|
|
|
|
Thom Kidrin
|
|
68
|
|
|
|
President, Chief Executive Officer and Director
|
|
Christopher J. Ryan
|
|
60
|
|
|
|
Chief Financial Officer, Treasurer and Secretary
|
|
|
|
|
|
Non-Employee Directors
|
|
|
|
|
|
|
|
Peter N. Christos
|
|
63
|
|
|
|
Director
|
|
Leonard Toboroff
|
|
88
|
|
|
|
Director
|
|
James W. Dobbins
|
|
61
|
|
|
|
Director
|
|
Jeffrey B. Engel
|
|
59
|
|
|
|
Director
|
|
Frederick Granoff
|
|
63
|
|
|
|
Director
|
(1) Member
of the compensation committee.
(2) Member
of the audit committee.
(3) Member
of the nominating and corporate governance committee.
Executive Officers
Thomas Kidrin became our president and
chief executive officer and a director on October 26, 2020. Mr. Kidrin has been a director of Worlds Inc., an internet technology
company, since October 1997 and has been its president, secretary and treasurer from December 1997 through July 2007 then added the
title chief executive officer since August 2007. Mr. Kidrin was also president and a director of Worlds Acquisition Corp. from April
1997 to December 1997. From December 1991 to June 1996, Mr. Kidrin was a founder, director, and President of UC Television Network
Corp., a company engaged in the design and manufacture of interactive entertainment/advertising networks in the college market under
the brand name College Television Network, the largest private network on college campuses in the United States sold to MTV in 1996
now operating under MTVU. Mr. Kidrin was a director of MariMed Inc. and was its CEO from its inception in 2011 until July 20, 2017.
Mr. Kidrin has attended Drake University and the New School of Social Research.
Christopher J. Ryan became our secretary, treasurer
and chief financial officer on October 26, 2020. Mr. Ryan has been the Vice President-Finance of Worlds Inc. since May 2000 and its principal
accounting and finance officer since August 2000. From August 1991 through April 2000, Mr. Ryan held a variety of financial management
positions at Reuters America, an information services company. From 2001 through 2003, Mr. Ryan was the founder and President of CJR Advisory
Services, a personal corporation through which he provided financial consulting services to various entities. From 2004 to 2010, Mr. Ryan
was the CFO of Peminic, Inc. From 2008 to 2012 Mr. Ryan served as the CFO of Conversive Inc. Mr. Ryan was the CFO of MariMed Inc. from
its inception in 2011 until July 20, 2017. Mr. Ryan is an inactive certified public accountant. He is a graduate of Montclair State University
in New Jersey and received an M.B.A. degree from Fordham University.
Directors
Peter N. Christos became a a director of the Company on June 18, 2015 and was its chairman from
June 18, 2015 until October 26, 2020. Mr. Christos’ professional Wall Street experience spans more than 30 years. In 2005, he founded
and remains Executive Chairman of Abacos Ventures, LLC. In 2011 he was a co-founding Managing Member of HCB Ventures, LLC, a land owner
and water rights aggregator. As founder from 1997 to 2005, he was Chairman and Chief Executive Officer of Adelphia Holdings, LLC, owner
of Adelphia Partners, LLC (managed direct investments), and Adelphia Capital, LLC a former investment banking (NASD/SIPC) member firm
located in New York City. From 1993 to 1995, he was an Executive Vice President, Partner and co-head of the NYC office of the investment-banking
firm Bannon & Co. From 1988 to 1993 he was a Managing Director of the Corporate Finance Department and the Managing Director of the
New Venture Group of D. H. Blair Investment Banking Corp. and its predecessor NYSE member firm. From 1985 to 1988 he was a Managing Director
in the Corporate Finance Department of Muller & Company, Inc., a NYSE member firm. He was also a co-founder of AND Interactive Communications
Corp., a private software company acquired in 1994 by TCI Technology Ventures, Inc., a wholly-owned subsidiary of TCI, now Comcast Corp;
a co-founder of AquaCare Systems, Inc., from start-up to IPO on NASDAQ; a co-founder of TransAmerican Waste Industries, Inc., from start-up
to IPO on NASDAQ and then acquired via merger in 1998 by USA Waste Industries, Inc. now Waste Management, Inc.; a co-founder of Sparta
Pharmaceuticals, Inc., from start-up to IPO on NASDAQ and then acquired in 1999 by SuperGen, Inc.; and a co-founder of CTN Media Group,
Inc., aka College Television Network, from start-up to IPO on NASDAQ and then acquired in 2002 by MTV Networks, a division of Viacom,
Inc. Since August 2018, he has been a Director of Worlds Inc., a public company.
Leonard Toboroff became a director on October 26, 2020. Mr. Toboroff was a founder and director
of Steel Partners Acquisition Corp. from June 2007 to June 2009. Mr. Toboroff served as Executive Vice President from May 1989 until February
2002 of Allis-Chalmers Energy Inc., a provider of products and services to the oil and gas industry; Director and Vice Chairman of Varsity
Brands, Inc. (formally Riddell Sports Inc.), a provider of goods and services to the school spirit industry, from April 1998 until it
was sold in September 2003; Executive Director of Corinthian Capital Group, LLC, a private equity fund, from October 2005 to June 2008;
Director of ENGEX Corp, a closed-end mutual fund, Director of NOVT Corporation, a developer of advanced medical treatments for coronary
and vascular disease since April 2006; Director of Asset Alliance Corp., an alternative investment company since April 2011; and Chairman
or Vice Chairman of American Bakeries Co., Ameriscribe Corporation and Saratoga Spring Water Co. Mr. Toboroff is a graduate of Syracuse
University and the University of Michigan Law School and is a member of the U.S. Supreme Court Historical Society.
James W. Dobbins became a director on October
26, 2020. Mr. Dobbins has over thirty years’ experience working with regulated products, such as cigarettes, other tobacco products,
vapor, and CBD’s. He retired in November 2020 as Senior Vice President, General Counsel, and Secretary of Turning Point Brands,
Inc. (“TPB”), after a twenty-one year career there, and currently acts as consultant to TPB. Prior to joining TPB, Mr. Dobbins
was in private practice in North Carolina and held various positions in the legal department of Liggett Group, Inc., a major cigarette
manufacturer, including, at the time he left that company, Vice President, General Counsel, and Secretary. Mr. Dobbins has also practiced
as an outside litigation attorney with Webster & Sheffield, a New York law firm, representing a variety of clients including Liggett
Group, Inc. Prior to joining Webster & Sheffield, he served as a law clerk to the Honorable J. Daniel Mahoney, U.S. Circuit Judge
for the Second Circuit Court of Appeals. Mr. Dobbins holds a Bachelor of Arts in mathematics and political science from Drew University
and a J.D. from Fordham University School of Law.
Jeffrey B. Engel became a director on October
26, 2020. Mr. Engel is currently a partner in Pangea Blockchain Fund (business development) and a director (capital markets) of Ceros
Financial Services (FINRA member Firm). Jeffrey is a longstanding Wall Street professional with 33 years’ experience as both as
a distressed debt portfolio manager (Banco Santander and Standard Bank) and, since 2003, as a senior executive in Credit Sales and Trading
(RBC, Stifel and GMP). Mr. Engel has significant experience as a principal, and as an adviser, in investing across the capital structure
in a wide variety of industries. Mr. Engel began his career in 1988 at Drexel Burnham Lambert as an Associate in their M&A Department
in New York. Mr. Engel has a J.D, University of Miami School of Law (’87), and a B.A., Sarah Lawrence College, (’84). He was
a Trustee of Sarah Lawrence 2003-06 and has been a board member of the Genetic Disease Foundation at Mt. Sinai Hospital, NY since 2006.
Frederick Granoff became a director on October 26, 2020. Mr. Granoff is the former owner
& CEO of Eastern Display Group, Rick has over 35 years of experience in the Design & Manufacturing of Pop Displays and Store Fixtures,
a private company with over 250 employees. Mr. Granoff’s entrepreneurial drive led him to be nominated for Entrepreneur of the Year
in R.I. After selling his business, Mr. Granoff entered the Cannabis business where he created a vertically integrated Company selling
products and services in the Cannabis Industry. Mr. Granoff has been involved with Smokin Interiors, a millwork fabricating company, which
expanded to include Grow lights, Security Programs, Wholesale grow sales and a host of other products. Mr. Granoff leads his Sales and
Marketing team in addition to buying and selling retail dispensaries and grow sites.
Board Composition
Our bylaws provide that our board of directors shall
consist of between three and seven members, with the exact number of directors to be determined by vote of our board and currently set
at six members.
Our board of directors has determined that five of
our directors are independent directors. In making this determination, our board applied the standards set forth in Nasdaq listing standards
and in Rule 10A-3 under the Exchange Act. In evaluating their independence of, our board considered their current and historical employment,
any compensation we have given to them, any transactions we have with them, their beneficial ownership of our capital stock, their ability
to exert control over us, all other material relationships they have had with us and the same facts with respect to their immediate family.
Our board also considered all other relevant facts and circumstances known to it in making this independence determination.
Although there is no specific policy regarding diversity
in identifying director nominees, both the nominating and corporate governance committee and our board seek the talents and backgrounds
that would be most helpful to the Company in selecting director nominees. In particular, the nominating and corporate governance committee,
when recommending director candidates to the full board for nomination, may consider whether a director candidate, if elected, assists
in achieving a mix of board members that represents a diversity of background and experience.
Board Leadership Structure
Our board of directors recognizes that one of its
key responsibilities is to evaluate and determine its optimal leadership structure so as to provide effective oversight of management.
Our bylaws and corporate governance guidelines provide our board of directors with flexibility to combine or separate the positions of
chairman of the board of directors and chief executive officer. Our board of directors currently believes that our existing leadership
structure, under which Thom Kidrin serves as chairman of our board of directors and James Dobbins serves as our lead independent director,
is effective, provides the appropriate balance of authority between independent and non-independent directors, and achieves the optimal
governance model for us and for our stockholders.
Board Oversight of Risk
Although management is responsible for the day-to-day
management of the risks our company faces, our board of directors and its committees take an active role in overseeing management of our
risks and have the ultimate responsibility for the oversight of risk management. Our board regularly reviews information regarding our
operational, financial, legal and strategic risks. Specifically, senior management attends quarterly meetings of our board of directors,
provides presentations on operations including significant risks, and is available to address any questions or concerns raised by our
board.
In addition, we expect that our three board committees will assist the board of
directors in fulfilling its oversight responsibilities in certain areas of risk. The audit committee will coordinate our board of directors’
oversight of the Company’s internal control over financial reporting, disclosure controls and procedures, related party transactions
and code of conduct and management will regularly report to the audit committee in these areas. The compensation committee will assist
our board of directors in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation
policies and programs as well as succession planning as it relates to our Chief Executive Officer. The nominating and corporate governance
committee will assist our board of directors in fulfilling its oversight responsibilities with respect to the management of risks associated
with board organization, membership and structure, succession planning for our directors and corporate governance. When any of the committees
receives a report related to material risk oversight, the chairman of the relevant committee will report on the discussion to the full
board of directors.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics
which applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The code
of business conduct and ethics is available on our website at Realbrands.com. We intend to disclose any amendments to the code, or any
waivers of its requirements, on our website to the extent required by the applicable rules and exchange requirements. The inclusion of
our website address in this Form 10 does not incorporate by reference the information on or accessible through our website into this Form
10.
Board Committees
Our board of directors has established the following
committees: an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and responsibilities
of each committee are described below. Members will serve on these committees until their resignation or until otherwise determined by
our board of directors.
Audit Committee
Our audit committee oversees our corporate accounting
and financial reporting process. Among other matters, the audit committee:
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appoints
our independent registered public accounting firm;
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evaluates the independent registered
public accounting firm’s qualifications, independence and performance;
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determines
the engagement of the independent registered public accounting firm;
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reviews
and approves the scope of the annual audit and the audit fee;
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discusses with management and the independent
registered public accounting firm the results of the annual audit and the review of our quarterly financial statements;
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approves the retention of the independent
registered public accounting firm to perform any proposed permissible non-audit services;
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is responsible for reviewing our financial
statements and our management’s discussion and analysis of financial condition and results of operations to be included
in our annual and quarterly reports to be filed with the SEC;
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reviews
our critical accounting policies and estimates; and
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reviews
the audit committee charter and the committee’s performance at least annually.
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The members of our audit committee are James
Dobbins (chairperson), Jeffrey Engel and Leonard Toberoff. All members of our audit committee meet the requirements for financial
literacy under the applicable rules and regulations of the SEC and Nasdaq. Our board of directors has determined that James Dobbins
is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite financial
sophistication as defined under the applicable rules and regulations of Nasdaq. Under the rules of the SEC, members of the audit
committee must also meet heightened independence standards. Our board of directors has determined that each of Mr. Dobbins and Mr.
Toberoff are independent under the heightened audit committee independence standards of the SEC and Nasdaq. The audit committee
operates under a written charter that satisfies the applicable standards of the SEC and Nasdaq.
Compensation Committee
Our compensation committee’s responsibilities
include:
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reviewing and approving, or recommending
that our board of directors approve, the compensation of our chief executive officer and other executive officers;
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reviewing
and recommending to our board of directors the compensation of our directors;
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selecting independent compensation
consultants and advisors and assessing whether there are any conflicts of interest with any of the committee’s compensation
advisors; and
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reviewing and approving, or recommending
that our board of directors approve, incentive compensation and equity plans.
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Our compensation committee consists of Mr.
Toberoff, Mr. Dobbins and Mr. Granoff, with Mr. Toberoff serving as chair. Each of the members of our compensation committee is
independent under the applicable rules and regulations of Nasdaq and is a “non-employee director” as defined in Rule
16b-3promulgated under the Exchange Act. The compensation committee operates under a written charter that satisfies the applicable
standards of the SEC and Nasdaq.
Nominating and Corporate Governance
Committee
The nominating and corporate governance committee
is responsible for making recommendations to our board of directors regarding candidates for directorships and the composition of our
board of directors. In addition, the nominating and corporate governance committee is responsible for overseeing our corporate governance
policies and reporting and making recommendations to our board of directors concerning governance matters. The members of our nominating
and corporate governance committee are Mr. Dobbins (chairperson), Mr. Christos and Mr. Toberoff. Each of the members of our nominating
and corporate governance committee is an independent director under the applicable rules and regulations of Nasdaq relating to nominating
and corporate governance committee independence. The nominating and corporate governance committee operates under a written charter that
satisfies the applicable standards of the SEC and Nasdaq.
Limitation on Liability and Indemnification Matters
Our certificate of incorporation and bylaws contain
provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Nevada law. Consequently,
our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors,
except liability for:
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any
breach of the director’s duty of loyalty to us or our stockholders;
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any act or omission not in good faith
or that involves intentional misconduct or a knowing violation of law;
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unlawful
payments of dividends or unlawful stock repurchases or redemptions; or
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any
transaction from which the director derived an improper personal benefit.
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Our certificate of incorporation and bylaws provide
that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Nevada law. Our bylaws also
provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action
or proceeding, provided that, to the extent required by law, such advancement of expenses prior of the final disposition of the proceeding
may be made only upon receipt of an undertaking by the person to repay all amounts advanced if it is ultimately determined that the person
is not entitled to be indemnified under our bylaws or otherwise. Our bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would
otherwise be permitted to indemnify him or her under Nevada law. We have entered and expect to continue to enter into agreements to indemnify
our directors, executive officers and other employees as determined by our board of directors. With specified exceptions, these agreements
provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement
amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements
are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’
liability insurance.
The limitation of liability and indemnification provisions
in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors and officers
for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even
though an action, if successful, might benefit us and our stockholders. Further, a stockholder’s investment may be adversely affected
to the extent that we pay the costs of settlement and damage.
Family Relationships
None.
Legal Proceedings
During the past ten years no director, executive officer,
promoter or control person of the Company has been involved in the following:
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A petition under the Federal bankruptcy laws or
any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for
the business or property of such person, or any partnership in which he was a general partner at or within two years before the time
of such filing, or any corporation or business association of which he was an executive officer at or within two years before the
time of such filing;
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Such person was convicted in a criminal proceeding
or is a named subject of a pending criminal Proceeding (excluding traffic violations and other minor offenses);
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Such person was the subject of any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining him from, or otherwise limiting, the following activities:
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Acting as a futures commission merchant, introducing
broker, commodity trading advisor, Commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter,
broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association
or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
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Engaging in any type of business practice; or
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Engaging in any activity in connection with the
purchase or sale of any security or Commodity or in connection with any violation of Federal or State securities laws or Federal
commodities laws;
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Such person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or
otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this
section, or to be associated with persons engaged in any such activity;
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Such person was found by a court of competent
jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such
civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
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Such person was found by a court of competent
jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the
judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended
or vacated;
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Such person was the subject of, or a party to,
any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated,
relating to an alleged violation of:
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Any Federal or State securities or commodities law or regulation; or
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ii.
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Any law or regulation respecting financial institutions
or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil
money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
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iii.
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Any law or regulation prohibiting mail or wire
fraud or fraud in connection with any business entity; or
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Such person was the subject of, or a party to,
any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26)
of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C.
1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons
associated with a member.
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Item 6. Executive Compensation.
Executive Officer Employment Agreement
Our CEO, Thom Kidrin, is employed pursuant to an employment
agreement dated as of November 26, 2018. The employment agreement runs for three years and provides for an annual salary of $175,000 plus
bonuses as determined by the Board of Directors. The employment agreement also provides that if his employment is terminated without “cause”
or due to his resignation for “good reason” (each, as defined in the employment agreement) he shall be entitled to receive
an amount equal to the full value of any base salary still remaining until the end of the term plus an amount equal to 1.5 times the base
salary at the time of termination. Notwithstanding the foregoing, if the employment is terminated by the Company after a Change of Control
(as defined in the employment agreement) has occurred, he shall be entitled to receive, upon satisfaction of the certain conditions an
amount equal to twice the then base salary. The employment agreements contain customary confidentiality, non-compete and non-solicitation
provisions and a “best pay” provision under Section 280G of the Internal Revenue Code, pursuant to which any “parachute
payments” that become payable will either be paid in full or reduced so that such payments are not subject to the excise tax under
Section 4999 of the Internal Revenue Code.
Compensation of Directors
Directors receive 46,077,210 shares or options upon
initial appointment to the Board of Directors plus an annual grant of 6,143,628 shares or options.
Stock Option Plan
We
have reserved 600,000,000 shares of our common stock to be issued under our 2021 Equity Incentive Plan. The number of shares that
will be reserved for issuance under our 2021 Equity Incentive Plan will increase automatically on January 1 of each of 2022 through
2032 by the number of shares equal to 5% of the total outstanding shares of our common stock as of the immediately preceding December 31.
However, our board of directors may reduce the amount of the increase in any particular year. In addition, the following shares will again
be available for grant and issuance under our 2021 Equity Incentive Plan:
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shares subject to options or stock appreciation rights granted under our 2021 Equity Incentive Plan that cease to be subject to the option or stock appreciation right for any reason other than exercise of the option or stock appreciation right;
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shares subject to awards granted under our 2021 Equity Incentive Plan that are subsequently forfeited or repurchased by us at the original issue price;
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shares subject to awards granted under our 2021 Equity Incentive Plan that otherwise terminate without shares being issued;
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shares surrendered, cancelled, or exchanged for cash or a different award (or combination thereof);
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shares subject to awards granted under our 2021 Plan prior to the date of this Form 10 that cease to be subject to such awards by forfeiture or otherwise after the date of this Form 10;
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shares issued under our 2021 Plan that are forfeited or repurchased by us at the original issue price after the date of this Form 10; and
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shares subject to awards under our 2019 Plan or 2021 Equity Incentive Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award.
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Our 2021 Equity Incentive
Plan will authorize the award of stock options, restricted stock awards, or RSAs, stock appreciation rights, or SARs, restricted stock
units, or RSUs, performance awards and stock bonuses.
Our 2021 Equity Incentive Plan will be administered by our compensation committee,
all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of directors acting in
place of our compensation committee. The compensation committee will have the authority to construe and interpret our 2021 Equity Incentive
Plan, grant awards, determine the terms of awards, and make all other determinations necessary or advisable for the administration of
the plan.
Our
2021 Equity Incentive Plan will provide for the grant of awards other than incentive stock options to our employees, directors, consultants,
independent contractors, and advisors, provided the consultants, independent contractors, directors, and advisors render services not
in connection with the offer and sale of securities in a capital-raising transaction. Incentive stock options may be granted only to our
employees.
A
stock option is the right, but not the obligation, to purchase a share of our common stock at a certain price and upon certain conditions.
The exercise price of stock options must be at least equal to the fair market value of our common stock on the date of grant. The exercise
price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value on the date of grant
(and have a term that does not exceed five years). Options may vest based on time or achievement of performance conditions. Our compensation
committee may provide for options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise
being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under our 2021 Equity Incentive
Plan is 10 years.
A
restricted stock award is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement
of performance conditions. The price (if any) of an RSA will be determined by the compensation committee. Unless otherwise determined
by the compensation committee at the time of award, vesting will cease on the date the participant no longer provides services to us and
unvested shares will be forfeited to or repurchased by us.
Stock
appreciation rights provide for a payment, or payments, in cash or shares of our common stock, to the holder based on the difference between
the fair market value of our common stock on the date of exercise and the stated exercise price up to a maximum amount of cash or number
of shares. The exercise price of SARs must be at least equal to the fair market value of our common stock on the date of grant. SARs rights
may vest based on time or achievement of performance conditions.
Restricted
stock units represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that
right because of termination of employment or failure to achieve certain performance conditions. If a RSU has not been forfeited, then
on the date specified in the RSU agreement, we will deliver to the holder of the RSU whole shares of our common stock (which may be subject
to additional restrictions), cash, or a combination of our common stock and cash. The maximum term of restricted stock units granted under
our 2021 Equity Incentive Plan is 10 years.
Performance awards are
awards that may be settled upon achievement of pre-established performance conditions in cash or by issuance of the underlying
shares (which may be subject to additional restrictions). These awards are subject to forfeiture prior to settlement because of termination
of employment or failure to achieve the performance conditions.
Stock
bonuses may be granted as additional compensation for service or performance, in the form of cash, common stock, or a combination thereof,
and may be subject to restrictions, which may vest based on time or achievement of performance conditions.
In
the event there is a specified type of change in our capital structure without receipt of consideration, such as a stock split, appropriate
adjustments will be made to the number and class of shares reserved under our 2021 Equity Incentive Plan, the maximum number and class
of shares that can be granted in a calendar year and the number and class of shares and exercise price, if applicable, of all outstanding
awards under our 2021 Equity Incentive Plan.
The
2021 Equity Incentive Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation
that is not subject to the $1,000,000 limitation on income tax deductibility imposed by Section 162(m) of the Code. Our compensation committee
may structure awards so that the stock or cash will be issued or paid only following the achievement of certain pre-established performance
goals during a designated performance period.
Awards
granted under our 2021 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution
or as determined by our compensation committee. Unless otherwise permitted by our compensation committee, stock options may be exercised
during the lifetime of the optionee only by the optionee or the optionee’s guardian or legal representative. Options granted under
our 2021 Equity Incentive Plan generally may be exercised for a period of three months after the termination of the optionee’s service
to us for any reason other than for cause or due to death or disability, for a period of 18 months in the case of death, for a period
of 12 months in the case of disability, or such other period as our compensation committee may provide, subject to the limitations
set forth in our 2021 Equity Incentive Plan. Options generally terminate immediately upon termination of employment for cause.
In
the event of a corporate transaction (as defined in our 2021 Equity Incentive Plan), any or all outstanding awards may be assumed or replaced
by the successor corporation. In the alternative, the successor corporation may substitute equivalent awards or provide substantially
similar consideration to participants as was provided to stockholders. The successor corporation may also issue, in place of outstanding
shares held by the participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to
the participant. If the outstanding awards are not assumed, converted, replaced or substituted by the successor corporation, the awards
shall have their vesting accelerate as to all shares subject to such award (and any applicable right of repurchase fully lapse) immediately
prior to the corporate transaction. Awards need not be treated similarly in a corporate transaction.
Our
2021 Equity Incentive Plan will terminate 10 years from the date our board of directors approves the plan, unless it is terminated earlier
by our board of directors. Our board of directors may amend or terminate our 2021 Equity Incentive Plan at any time. If our board of directors
amends our 2021 Equity Incentive Plan, it does not need to ask for stockholder approval of the amendment unless required by applicable
law.
Compensation Committee Interlocks and Insider Participation
None.
Item 7. Certain Relationships and Related Transactions, and Director
Independence.
We are not currently subject to the requirements of
any stock exchange or inter-dealer quotation system with respect to having a majority of “independent directors” although
we believe that we meet that standard inasmuch as Messrs. Toberoff, Christos, Dobbins, Engel and Granoff are “independent”
and only Mr. Kidrin, by virtue of being our president and CEO, is not independent. Although we are not currently subject to such rule,
the independence of our directors meets the definition of such term as contained in NASDAQ Rule 5605(a)(2).
The Company is committed to a convertible note payable
related party in the amount of $200,000. The convertible note has a 7% annual interest rate and matures on October 15, 2021. Interest
and principal are payable at maturity. The note can be converted at any time and either all or part of the amount due into equity at a
price of $0.008139 per share. If converted into common stock, the related party would own 1% of Company based upon current number of shares
outstanding. The related party holding the convertible note is Worlds Inc. Messrs. Kidrin, Toboroff and Christos are Directors of Worlds
Inc. and Mr. Kidrin is the CEO and Mr. Ryan is the CFO of Worlds Inc.
The Company has incurred $17,267 in interest expense
on the note through December 31, 2020.
A loan was provided by the CEO Thom Kidrin
at an interest rate of 7%. The loan balance at December 31, 2020 was $133,605 with accrued interest of $7,043.
For the year ended December 31, 2019, the Company
had revenue from sales to a related party of $591,850 or 92% of total sales. The prices paid by the related party were comparable to
market prices at the time of sales. The related party is an investor in the Company.
Item 8. Legal Proceedings.
ATS Indian Trace, LLC v. the Company was a
civil action filed by ATS Indian Trace, LLC in the Circuit Court of Broward County, Florida on July 22, 2015. On November 18, 2015, a
(default) Final Judgement was entered in favor of ATS Indian Trace, LLC and against the Company in the amount of $71,069.37. This judgement
is currently outstanding and remains due and owing. ATS Indian Trace, LLC has not taken any enforcement action against the Company for
several years. The balance plus interest is included in accrued expenses even though the Company does not expect to ever have to pay it.
TBG Holdings entered into an agreement with
the Company on or about October 16, 2012 for performance of services in exchange for money and stock. On December 5, 2013 TBG alleged
that the Company had breached the contract and made a demand upon the Company for payment of money damages and stock. The Company disputed
the claim and refused to comply with the demand. On January 4, 2014, TBG’s counsel renewed the demand and requested mediation. The
Company refused mediation and denied any liability. TBG never pursued a claim against the Company. This claim in the amount of $45,625
is listed as a contingent liability on the books of the Company.
We know of no other material, existing or pending
legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are
no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has
a material interest adverse to our interest.
Item 9. Market Price of and Dividends on the Registrant’s
Common Equity and related Stockholder Matters.
Our common shares currently trade on the OTC Pink
Sheets under the symbol RLBD. On May 31, 2021 we had 2,619,993,793 shares of our common stock outstanding. In addition, we have granted
an aggregate of 150,518,887 options exercisable at a price of $0.0267 per share, an aggregate of 39,000,000 options exercisable at a
price of $0.011 per share and there are 24,574,512 shares underlying a convertible note. We expect to have our shares quoted for trading
on the OTC Bulletin Board. No assurance can be given that our shares will be accepted for such quotation.
The following table sets forth, for the periods indicated, the range
of high and low sales prices for our common stock on this exchange. OTC market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual transactions.
|
|
|
Price Range of
|
|
|
|
Common Stock
|
|
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
2021
|
|
|
|
|
|
First quarter
|
|
$
|
0.205
|
|
|
$
|
0.049
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
0.028
|
|
|
$
|
0.012
|
|
|
Second quarter
|
|
|
0.03
|
|
|
|
0.011
|
|
|
Third quarter
|
|
|
0.041
|
|
|
|
0.016
|
|
|
Fourth quarter
|
|
|
0.045
|
|
|
|
0.022
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
0.161
|
|
|
|
0.085
|
|
|
Second quarter
|
|
|
0.097
|
|
|
|
0.063
|
|
|
Third quarter
|
|
|
0.099
|
|
|
|
0.042
|
|
|
Fourth quarter
|
|
|
0.065
|
|
|
|
0.018
|
|
Holders
As of March 31, 2021 we had approximately 645 shareholders
of record of our common stock. This does not include an additional indeterminate number of persons who hold our common stock in brokerage
accounts and otherwise in “street name.”
Dividends
We have never declared or paid cash dividends on our
capital stock. We currently intend to retain any future earnings for use in the operation of our business and do not intend to declare
or pay any cash dividends in the foreseeable future. Any determination to pay dividends on our capital stock will be at the discretion
of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements,
general business conditions, and other factors that our board of directors considers relevant. In addition, the terms of our credit facility
contain restrictions on our ability to pay dividends.
Company Equity Compensation Plans
The following table sets forth information as of May
31, 2021 with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company
are authorized for issuance.
|
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
Number
of securities remaining available for future issuance under equity compensation plans
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by stockholders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by stockholders
|
|
|
214,093,399
|
|
|
$
|
0.02171
|
|
|
|
385,906,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
214,093,399
|
|
|
$
|
0.02171
|
|
|
|
385,906,601
|
|
Item 10. Recent Sales of Unregistered Securities.
The Company raised $385,000 in March 2021 by selling
55,372,548 shares of common stock at an average price of $0.007 per share.
All of such issuances were exempt pursuant to Rule
506 inasmuch as the shares were only sold to “accredited investors” in private placements without advertising or the payment
of any commissions. Accordingly, the stock certificates representing these shares carry legends indicating that the shares have not
been registered and may not be traded until registered or otherwise exempt.
Item 11. Description of Registrant’s Securities
to Be Registered.
Common Stock
Our authorized capital stock consists of 3,998,000,000
shares of common stock, par value $ 0.001 per share, and 2,000,000 shares of blank check preferred stock, par value $0.001 per share.
The holders of our common stock:
|
•
|
|
Have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by our Board of Directors;
|
|
•
|
|
Are entitled to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs;
|
|
•
|
|
Do not have pre-emptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and
|
|
•
|
|
Are entitled to one non-cumulative vote per share on all matters on which stockholders may vote.
|
The shares of common stock are not subject to any
future call or assessment and all have equal voting rights. There are no special rights or restrictions of any nature attached to any
of the common shares and they all rank at equal rate or pari passu, each with the other, as to all benefits, which might accrue
to the holders of the common shares. All registered stockholders are entitled to receive a notice of any general annual meeting to be
convened by our Board of Directors.
At any general meeting, subject to the restrictions
on joint registered owners of common shares, on a showing of hands every stockholder who is present in person and entitled to vote has
one vote, and on a poll every stockholder has one vote for each share of common stock of which he is the registered owner and may exercise
such vote either in person or by proxy. To the knowledge of our management, at the date hereof, Thom Kidrin, our CEO, and Turning Point
Brands, Inc. are the only stockholders to exercise control, directly or indirectly, over more than 10% of our outstanding common shares.
See “Security Ownership of Certain Beneficial Owners and Management.”
We refer you to our Articles of Incorporation
and Bylaws, copies of which were filed herewith or incorporated hereinto, and to the applicable statutes of the State of Nevada for a more complete
description of the rights and liabilities of holders of our securities.
Options, Warrants and Rights
As of May 31, 2021 there are 150,518,887 options outstanding
exercisable at a price per share of $0.0267 and 39,000,000 options outstanding exercisable at a price per share of $0.011. There are
an additional 24,574,512 shares underlying a convertible note.
Preferred Stock
We are authorized to issue 2,000,000 shares of preferred
stock, par value of $0.001, with such terms, conditions and preferences as shall be determined from time-to-time by our board of directors.
As of May 31, 2021, there were 1,000,000 preferred shares issued and outstanding.
Item 12. Indemnification of Directors and Officers.
Our directors and officers are indemnified as provided
by the Nevada corporate law and our Bylaws. We have agreed to indemnify each of our directors and certain officers against certain liabilities,
including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that
in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director,
officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Section 78.7502 of the Nevada Revised Statutes contains
provisions authorizing indemnification by the Company of directors, officers, employees or agents against certain liabilities and expenses
that they may incur as directors, officers, employees or agents of the Company or of certain other entities. Section 78.7502(3) provides
for mandatory indemnification, including attorney’s fees, if the director, officer, employee or agent has been successful on the
merits or otherwise in defense of any action, suit or proceeding or in defense of any claim, issue or matter therein.
Section 78.751 provides that such indemnification
may include payment by the Company of expenses incurred in defending a civil or criminal action or proceeding in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by the person indemnified to repay such payment if he shall be
ultimately found not to be entitled to indemnification under the Section. Indemnification may be provided even though the person to be
indemnified is no longer a director, officer, employee or agent of the Company or such other entities.
Section 78.752 authorizes the Company to obtain insurance
on behalf of any such director, officer employee or agent against liabilities, whether or not the Company would have the power to indemnify
such person against such liabilities under the provisions of the Section 78.7502. The indemnification and advancement of expenses provided
pursuant to Sections 78.7502 and 78.751 are not exclusive, and subject to certain conditions, the Company may make other or further indemnification
or advancement of expenses of any of its directors, officers, employees or agents. Because neither the Articles of Incorporation, as amended,
or By-laws of the Company otherwise provide, notwithstanding the failure of the Company to provide indemnification and despite a contrary
determination by the board of directors or its shareholders in a specific case, a director, officer, employee or agent of the Company
who is or was a party to a proceeding may apply to a court of competent jurisdiction for indemnification or advancement of expenses or
both, and the court may order indemnification and advancement of expenses, including expenses incurred in seeking court- ordered indemnification
or advancement of expenses if it determines that the petitioner is entitled to mandatory indemnification pursuant to Section 78.7502(3)
because he has been successful on the merits, or because the Company has the power to indemnify on a discretionary basis pursuant to Section
78.7502 or because the court determines that the petitioner is fairly and reasonably entitled to indemnification or advancement of expenses
or both in view of all the relevant circumstances. We may also purchase and maintain insurance for the benefit of any director or officer
which may cover claims for which we could not indemnify such person.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and controlling persons pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore
unenforceable.
Item 13. Financial Statements and Supplementary Data.
REAL BRANDS, INC. AND SUBSIDIARIES
For the Years Ended December 31, 2020 and 2019
INDEX
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Real Brands, Inc. and Its Subsidiaries:
Opinion
on the Financial Statements
We have audited
the accompanying balance sheets of Real Brands, Inc. and its subsidiaries (“the Company”) as of December 31, 2020 and December
31, 2019 and the related statements of operations, stockholders’ deficit, cash flows and the related notes to consolidated financial
statements (collectively referred to as the consolidated financial statements) for the years ended December 31, 2020 and December 31,
2019. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
at December 31, 2020 and December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and American Institute of Certified Public Accountants (AICPA) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB and Generally Accepted Audit Standards (GAAS). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company has an accumulated deficit, recurring losses, and expects continuing future losses, and has stated that substantial doubt
exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and
management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The firm has served this client since
December 2018.
/s/ L&L CPAS, PA
L&L CPAS, PA
Certified Public Accountants
Plantation, FL
The United States of America
May 12, 2021
|
Real
Brands, Inc. and Subsidiaries
|
|
Consolidated
Balance Sheets
|
December
31, 2020 and 2019
Audited
|
|
|
|
|
|
|
|
ASSETS
|
|
|
2020
|
|
|
|
2019
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
247,892
|
|
|
$
|
91,578
|
|
|
Accounts receivables
|
|
|
175
|
|
|
|
—
|
|
|
Inventory
|
|
|
230,951
|
|
|
|
230,951
|
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
38,000
|
|
|
Total current assets
|
|
|
479,018
|
|
|
|
360,529
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
530
|
|
|
|
4,530
|
|
|
Property and equipment - net of depreciation
|
|
|
1,645,336
|
|
|
|
646,217
|
|
|
TOTAL ASSETS
|
|
$
|
2,124,884
|
|
|
$
|
1,011,276
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
637,100
|
|
|
$
|
156,870
|
|
|
Accrued expenses related party
|
|
|
91,618
|
|
|
|
103,033
|
|
|
Loan payable related party
|
|
|
133,605
|
|
|
|
—
|
|
|
Convertible note payable related party
|
|
|
200,000
|
|
|
|
200,000
|
|
|
Notes payable
|
|
|
7,250
|
|
|
|
—
|
|
|
Contingent liabilities
|
|
|
45,625
|
|
|
|
—
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
1,115,197
|
|
|
|
459,903
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
|
PPP Loan
|
|
|
143,485
|
|
|
|
—
|
|
|
Mortgage payable
|
|
|
170,526
|
|
|
|
—
|
|
|
Total Long Term Liabilities
|
|
|
314,011
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
|
Series A Preferred stock, $.001 par value; 2,000,000 shares authorized, 1,000,000 issued and outstanding, as of December 31, 2020 and 2019, respectively.
|
|
|
1,000
|
|
|
|
—
|
|
|
Common stock, $.001 par value; 3,998,000,000 and 498,000,000 shares authorized as of December 31, 2020 and 2019, respectively; 2,358,780,396 shares issued and outstanding as of December 31, 2020, and 2,127,190,401 shares issued and outstanding as of December 31, 2019.
|
|
|
2,358,780
|
|
|
|
2,127,190
|
|
|
Common stock subscribed, 194,263,483 and -0- shares at December 31, 2020 and December 31, 2019, respectively.
|
|
|
414,679
|
|
|
|
164,679
|
|
|
Additional paid-in capital
|
|
|
6,794,057
|
|
|
|
859,434
|
|
|
Accumulated deficit
|
|
|
(8,872,840
|
)
|
|
|
(2,599,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
695,676
|
|
|
|
551,373
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
2,124,884
|
|
|
$
|
1,011,276
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to these audited consolidated financial statements.
|
|
REAL BRANDS, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
|
|
AUDITED
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
REVENUE:
|
|
|
|
|
|
Revenues
|
|
$
|
24,582
|
|
|
$
|
54,759
|
|
|
Revenues from related party
|
|
|
—
|
|
|
|
591,850
|
|
|
Total revenue
|
|
|
24,582
|
|
|
|
646,609
|
|
|
Cost of goods sold
|
|
|
22,540
|
|
|
|
902,167
|
|
|
Gross profit (loss)
|
|
|
2,042
|
|
|
|
(255,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
259,511
|
|
|
|
614,289
|
|
|
Professional fees
|
|
|
349,525
|
|
|
|
314,936
|
|
|
Stock compensation
|
|
|
1,339,530
|
|
|
|
50,000
|
|
|
Payroll and related
|
|
|
349,431
|
|
|
|
613,180
|
|
|
Rent
|
|
|
—
|
|
|
|
36,450
|
|
|
Stock option expense
|
|
|
3,825,479
|
|
|
|
—
|
|
|
Total operating expenses
|
|
|
6,123,476
|
|
|
|
1,628,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(6,121,434
|
)
|
|
|
(1,884,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
(120,293
|
)
|
|
|
(93,916
|
)
|
|
Loss on disposition of assets
|
|
|
—
|
|
|
|
(35,014
|
)
|
|
Loss on legal settlement
|
|
|
—
|
|
|
|
(25,000
|
)
|
|
Interest expense
|
|
|
(31,183
|
)
|
|
|
(3,033
|
)
|
|
Total other (expenses) income
|
|
|
(151,476
|
)
|
|
|
(156,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(6,272,910
|
)
|
|
|
(2,041,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(6,272,910
|
)
|
|
$
|
(2,041,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE
|
|
|
|
|
|
|
|
|
|
TO COMMON STOCKHOLDERS
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
|
216,636,166
|
|
|
|
39,315,088
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to these audited consolidated financial statements.
|
|
REAL BRANDS, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
FOR THE YEAR ENDED DECEMBER 31, 2019 AND THE YEAR ENDED DECEMBER 31, 2020
(AUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Series A
|
|
Common Stock
|
|
Stock
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Subscribed
|
|
Capital
|
|
Deficit
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018,
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,734,245
|
|
|
|
(558,554
|
)
|
|
|
2,175,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of reverse merger
|
|
|
—
|
|
|
|
—
|
|
|
|
2,127,190,401
|
|
|
|
2,127,190
|
|
|
|
164,679
|
|
|
|
(1,874,811
|
)
|
|
|
—
|
|
|
|
417,058
|
|
|
Net loss for the period ended December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,041,376
|
)
|
|
|
(2,041,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
2,127,190,401
|
|
|
|
2,127,190
|
|
|
|
164,679
|
|
|
|
859,434
|
|
|
|
(2,599,930
|
)
|
|
|
551,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
164,671,867
|
|
|
|
164,672
|
|
|
|
623,728
|
|
|
|
(1,852,079
|
)
|
|
|
—
|
|
|
|
(1,062,679
|
)
|
|
Recapitalization - debt settlement prior to reorganization
|
|
|
|
|
|
|
|
|
|
|
17,318,128
|
|
|
|
17,318
|
|
|
|
(251,113
|
)
|
|
|
233,795
|
|
|
|
—
|
|
|
|
—
|
|
|
Recapitalization - conversion prior to reorganization
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000,000
|
|
|
|
10,000
|
|
|
|
(62,615
|
)
|
|
|
52,615
|
|
|
|
—
|
|
|
|
—
|
|
|
Contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,700,807
|
|
|
|
—
|
|
|
|
5,700,807
|
|
|
Issuance for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
26,000,000
|
|
|
|
26,000
|
|
|
|
(60,000
|
)
|
|
|
234,000
|
|
|
|
—
|
|
|
|
200,000
|
|
|
Issuance for subscriptions payable
|
|
|
—
|
|
|
|
—
|
|
|
|
13,600,000
|
|
|
|
13,600
|
|
|
|
—
|
|
|
|
781,200
|
|
|
|
—
|
|
|
|
794,800
|
|
|
Option granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
784,286
|
|
|
|
—
|
|
|
|
784,286
|
|
|
Net loss for the period ended December 31, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,272,910
|
)
|
|
|
(6,272,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2020
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
2,358,780,396
|
|
|
|
2,358,780
|
|
|
|
414,679
|
|
|
|
6,794,057
|
|
|
|
(8,872,840
|
)
|
|
|
695,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to these audited consolidated financial statements.
|
|
REAL BRANDS, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
|
|
AUDITED
|
|
|
|
|
|
2020
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
|
|
$
|
(6,272,910
|
)
|
|
$
|
(2,041,376
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Option expense
|
|
|
3,825,479
|
|
|
|
—
|
|
|
Stock based compensation
|
|
|
1,339,530
|
|
|
|
50,000
|
|
|
Depreciation expense
|
|
|
120,293
|
|
|
|
93,916
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(175
|
)
|
|
|
—
|
|
|
Inventory
|
|
|
—
|
|
|
|
(128,951
|
)
|
|
Deposit
|
|
|
4,000
|
|
|
|
(530
|
)
|
|
Prepaid expenses
|
|
|
38,000
|
|
|
|
(38,000
|
)
|
|
Accounts payable and accrued expenses
|
|
|
225,718
|
|
|
|
169,517
|
|
|
Contingency liabilities
|
|
|
45,625
|
|
|
|
—
|
|
|
Net cash used in operating activities
|
|
|
(667,440
|
)
|
|
|
(1,895,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
509,412
|
|
|
|
(636,912
|
)
|
|
Disposition of assets
|
|
|
—
|
|
|
|
35,014
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
509,412
|
|
|
|
(601,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory notes
|
|
|
7,250
|
|
|
|
—
|
|
|
Proceeds from loans payable
|
|
|
133,605
|
|
|
|
362,000
|
|
|
Proceeds from convertible debt
|
|
|
—
|
|
|
|
200,000
|
|
|
Repayment of mortgage payable
|
|
|
(19,390
|
)
|
|
|
—
|
|
|
Subscription receivable forgiven
|
|
|
—
|
|
|
|
5,058
|
|
|
Proceeds from PPP loan
|
|
|
143,485
|
|
|
|
—
|
|
|
Proceeds from sale of common stock
|
|
|
980,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
$
|
1,244,950
|
|
|
$
|
567,058
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
$
|
1,079,921
|
|
|
$
|
(1,930,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of year
|
|
$
|
91,579
|
|
|
$
|
2,021,843
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year
|
|
$
|
247,892
|
|
|
$
|
91,579
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
9,588
|
|
|
$
|
—
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
|
$
|
(1,062,679
|
)
|
|
$
|
—
|
|
|
Shares for subscription payable prior to recapitalization
|
|
$
|
794,800
|
|
|
$
|
—
|
|
|
Shares for settlement prior to recapitalization
|
|
$
|
186,663
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to these audited consolidated financial statements.
|
REAL BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
DECEMBER 31, 2020 AND 2019
NOTE 1. ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION
Real Brands, Inc. (“Real Brands”
or the “Company”), was incorporated under the laws of the state of Nevada on November 6, 1992. The Company was formed under
the name Mercury Software. From 1997 to 2005 the Company changed its name several times. On October 10, 2005, the Company changed its
name to Global Beverage Solutions, Inc. and began trading on the OTC Bulletin Board under the symbol GBVS.OB.
On October 22, 2013, the Company changed the
name to Real Brands, Inc. The Financial Industry Regulatory Authority ("FINRA") approved Real Brands' corporate actions regarding
its name change and its new stock symbol request and approved Real Brands' 150:1 Reverse Stock Split. The new symbol was designated as
GBVSD. On November 19, 2013, the ticker symbol changed to RLBD.
On October 22, 2020, the majority of the shareholders of the Company
by written consent agreed to a merger with CASH Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company,
and Canadian American Standard Hemp Inc., a Delaware corporation (“CASH”), whereby the Company acquired all of the outstanding
shares of CASH and merge it with and into CASH Acquisition Corp. Real Brands’ name and trading symbol were maintained, with CASH
shareholders acquiring majority control of Real Brands.
The
merger was accounted for as a reverse merger, whereby CASH was considered the accounting acquirer and became our wholly-owned subsidiary.
In accordance with the accounting treatment for a “reverse merger”, the Company’s historical financial statements prior
to the reverse merger has been replaced with the historical financial statements of CASH prior to the reverse merger. The consolidated
financial statements after completion of the reverse merger include the assets, liabilities, and results of operations of the combined
company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity
remaining in the consolidated financial statements.
Going concern
The ability of the Company to obtain necessary
financing to build its sales, brand, marketing and distribution and fund ongoing operating expenses is uncertain. The ability of the
Company to generate sales revenue to offset the expenses and obtain profitability is uncertain. The Company had a net loss as of December
31, 2020 and 2019, of $6,272,910 and $2,041,376, respectively. These material uncertainties cast doubt on the Company’s ability
to continue as a going concern. In the event the Company’s revenues do not significantly increase, the Company will require additional
financing from time to time, which it intends to obtain through the issue of common shares, debt, bonds, grants and other financial instruments.
While the Company has been successful in raising funds through the issuances of common shares and obtaining debt in the past, there is
no assurance that it will be able to obtain adequate financing in the future or that such financing will be available on acceptable terms
and while the Company believes that its revenues will increase it does not currently expect them to generate sufficient cash.
Liquidity
As of December 31, 2020, the Company had cash
and cash equivalents of a $247,892 as compared to $91,578 as of December 31, 2019, representing an increase of $156,314. As of December
31, 2020, the Company had a working capital deficit of $554,962 as compared to a working capital deficit $99,374 as of December 31, 2019,
representing an increase in the deficit of $455,588. Plans with respect to its liquidity management include the following:
|
|
•
|
The Company is seeking additional capital in the
private and/or public equity markets to continue operations and build sales, marketing, brand and distribution. The Company is currently
evaluating additional equity and debt financing opportunities and may execute them when appropriate. However, there can be no assurances
that the Company can consummate such a transaction or consummate a transaction at favorable pricing.
|
|
|
|
|
|
|
•
|
The Company plans on increased sales of its products
in the market. However there can be no assurances that the sales will increase or that even if they do increase that it will increase
sufficiently to generate the necessary cash.
|
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and
Principles of Consolidation
The Company’s
consolidated financial statements and the notes thereto have been prepared in accordance with Generally Accepted Accounting Principles
(“GAAP”) in the United States of America. The consolidated financial statements include Real Brands, and its wholly owned
subsidiaries. One subsidiary, Real Brands Venture Group, LLC, has been inactive for the last two years and only maintains a debt instrument
on its financial records. DePetrillo Real Estate Holdings, LLC is a wholly owned subsidiary of CASH and the owner of the Company’s
building in Rhode Island. All significant intercompany accounts and transactions have been eliminated.
Use of estimates and judgments
The preparation
of financial statements in conformity with GAAP 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 consolidated financial statements and
the reported amounts of expenses during the reporting period. Key areas of estimation include the estimated useful lives of property,
plant, equipment and intangibles assets and liabilities, income taxes, and the valuation of stock-based compensation. Due to the uncertainty
inherent in such estimates, actual results may differ from the Company’s estimates.
Accounting standard updates
Implemented
In February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842)” that requires lessees to recognize on the balance sheet the assets and liabilities associated with the
rights and obligations created by those leases. Under the new guidance, a lessee will be required to recognize assets and liabilities
for leases with lease terms of more than 12 months. Consistent with current U.S. GAAP, the recognition, measurement, and presentation
of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as finance or operating lease.
The update is effective for reporting periods beginning after December 15, 2018. The Company adopted this guidance on December 15, 2018.
The adoption of this guidance did not have a significant impact on the operating results for the periods ended December 31, 2020 and
2019.
Except as noted above, the guidance issued
by the FASB during the current year is not expected to have a material effect on the Company’s consolidated financial statements.
A variety of proposed or otherwise potential
accounting standards are currently under consideration by standard-setting organizations and certain regulatory agencies. Because of
the tentative and preliminary nature of such proposed standards, management has not yet determined the effect, if any, that the implementation
of such proposed standards would have on the Company’s consolidated financial statements.
Segment Reporting
The Company operates as one segment, in which
management uses one measure of profitability, and all of the Company’s assets are located in the United States of America. The
Company does not operate separate lines of business or separate business entities with respect to any of its product candidates. Accordingly,
the Company does not have separately reportable segments.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be a cash equivalent.
Accounts Receivable
The Company performs periodic credit evaluations
of its customers’ financial conditions and generally does not require collateral. The Company reviews all outstanding accounts
receivable for collectability on a quarterly basis. An allowance for doubtful accounts is recorded for any amounts deemed uncollectable.
The Company does not accrue interest receivable on past due accounts receivable.
Concentrations of Credit Risk
The Company, from time to time during the
years covered by these consolidated financial statements, may have bank balances in excess of its insured limits. Management has deemed
this a normal business risk.
Inventory
Inventory is comprised of raw hemp and hemp
oil in different phases of production to completion of final product. Products include tinctures, creams and lotions. Inventory is valued
at cost. No packaging material of any kind is included in inventory. Packaging materials are expensed as incurred.
Property and Equipment
On February 15, 2020 the Company purchased
DePetrillo Real Estate Holdings, LLC, a Rhode Island Limited Liability Company having as its only asset the building at 12 Humbert
Street in North Providence Rhode Island. The building is the Company’s headquarters and a hemp processing facility. The purchase
price of the building was 2 million shares of CASH common stock, $25,000 in cash and the assumption of the mortgage which at the time
was $189,916. The prior owner agreed to put the $25,000 payment into building improvements. The building and land was appraised at $475,000.
The building will be depreciated over 30 years on a straight line basis once it is put into use.
The Company has made $644,412 in building
improvements during the year ended December 31, 2020. $135,000 of those improvements were in the form of CASH common stock valued at
$0.50 per share. The Company made $20,000 in building improvements during the year ended December 31, 2019. Building improvements will
be depreciated over 15 years. Depreciation will commence once the work is completed.
Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over estimated useful lives of five years. Leasehold improvements are amortized
at the shorter of the useful life of the asset or the remaining lease term. CASH’s lease was terminated on December 31, 2019 and
resulted in a loss on disposition of assets of $35,014 representing the balance in leasehold improvements on that date. The $35,014 is
included in the accumulated depreciation number below for 2020 and 2019. Expenditures for repairs and maintenance are expensed as incurred.
Property and equipment are summarized as follows at December 31, 2020 and December 31, 2019:
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
Furniture and equipment
|
|
$
|
739,459
|
|
|
$
|
739,459
|
|
|
Leasehold Improvements
|
|
|
46,859
|
|
|
|
46,859
|
|
|
Gross fixed assets
|
|
|
786,318
|
|
|
|
786,318
|
|
|
Accumulated depreciation
|
|
|
280,394
|
|
|
|
160,101
|
|
|
Net furniture and equipment
|
|
$
|
505,924
|
|
|
$
|
626,217
|
|
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including
property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant
underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes
or planned changes in the use of the assets. If an impairment review is performed to evaluate long-lived asset for recoverability, the
Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset
to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the
use of an asset over its fair value, determined based on discounted cash flows is less than the carrying value on the books of the Company.
To date, the Company has not recorded any impairment losses on long-lived assets.
Revenue Recognition
The Company follows, ASC 606 Revenue from
Contracts with Customers which establishes a single and comprehensive framework and sets out how much revenue is to be recognized, and
when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue
will now be recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, Revenue based
revenue recognition is around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed
in determining whether control has been transferred. The application of the core principle in ASC 606 is carried out in five steps: Step
1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more
parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract
needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled. Step
2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit)
to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable
in the contract. Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can
be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of
third parties. Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has
more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange
for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment
approach, expected cost plus a margin approach, and the residual approach in limited circumstances. Discounts given should be allocated
proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices
after inception is not permitted. Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity
should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue
over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives
and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an
alternative use to the entity and the entity has the right to be paid for performance to date.
Stock-based Compensation
The Company expenses stock-based compensation
to employees and consultants based on the fair value at grant date, which generally is the agreement date the Company entered into with
employees or consultants. To date the Company has issued restricted common stock shares and preferred stock.
Income Taxes
The Company accounts for income taxes under
the liability method whereby deferred tax assets and liabilities are provided for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Deferred tax assets are recorded when management
believes it is more likely than not that the tax benefits will be realized. Realization of the deferred tax assets is dependent upon
generating sufficient taxable income in the future. The amount of deferred tax asset considered realizable could change in the near term
if estimates of future income are modified.
The Company assesses its tax positions in
accordance with “Accounting for Uncertainties in Income Taxes” as prescribed by the Accounting Standards Codification, which
provides guidance for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax
return for open tax years (generally a period of three years from the later of each return’s due date or the date filed) that remain
subject to examination by the Company’s major tax jurisdictions. Generally, the Company is no longer subject to income tax examinations
by major taxing authorities for years before 2009.
The Company assesses its tax positions and
determines whether it has any material unrecognized liabilities for uncertain tax positions. The Company records these liabilities to
the extent it deems them more likely than not to be incurred. Interest and penalties related to uncertain tax positions, if any, would
be classified as a component of income tax expense.
The Company believes that it does not have
any significant uncertain tax positions requiring recognition or measurement in the accompanying financial statements.
On December
22, 2017, the U.S. enacted the Tax Cuts and Jobs Act, which changed the Corporate tax rates in the U.S. from 34% to 21%.
Beneficial Conversion Features of Convertible Securities
Conversion options that are not bifurcated as a derivative
pursuant to ASC 815 and not accounted for as a separate equity component under the cash conversion guidance are evaluated to determine
whether they are beneficial to the investor at inception (a beneficial conversion feature) or may become beneficial in the future due
to potential adjustments. The beneficial conversion feature guidance in ASC 470-20 applies to convertible stock as well as convertible
debt which are outside the scope of ASC 815. A beneficial conversion feature is defined as a nondetachable conversion feature that is
in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s
in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument.
The resulting discount is amortized as a dividend over either the life of the instrument, if a stated maturity date exists, or to the
earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the dividend
must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion
price may trigger the recognition of an additional beneficial conversion feature on occurrence.
Derivatives
The Company reviews the terms of convertible debt
issued to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be
bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more
than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative
instruments are accounted for as a single, compound derivative instrument
Bifurcated embedded derivatives are initially recorded
at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense.
When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as
liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining
proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount
from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument,
is amortized over the life of the instrument through periodic charges to interest expense.
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The guidance for fair value measurements,
ASC 820, Fair Value Measurements and Disclosures, establishes the authoritative definition of fair value, sets out a framework for measuring
fair value, and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy based
upon observable and non-observable inputs as follow:
|
|
☐
|
Level 1 – Quoted market prices in active markets for identical assets and liabilities;
|
|
|
☐
|
Level 2 – Inputs, other than level 1 inputs, either directly or indirectly observable; and
|
|
|
☐
|
Level 3 – Unobservable inputs developed using internal estimates and assumptions (there is little or no market date) which reflect those that market participants would use.
|
The Company records its derivative activities
at fair value.
Loss Per Share Information
The Company presents basic and diluted earnings (loss)
per share (“EPS”). Basic EPS is calculated by dividing the net loss attributable to common shareholders of the Company by
the weighted average number of common shares outstanding during the reporting period. Diluted EPS is calculated by dividing the net loss
attributable to ordinary shareholders of the Company by the weighted average number of common shares outstanding, adjusted for the effects
of all dilutive potential common shares.
Treasury Stock
The Company accounts for treasury stock under
the cost method and includes treasury stock as a component of stockholder’s deficit.
NOTE 4. ACCRUED EXPENSES – RELATED PARTY
At December 31, 2020, the Company owed the
CEO Thom Kidrin $67,308 in accrued salary and $7,043 in accrued interest on a loan with principal balance of $133,605 and an additional
$17,267 in accrued interest on a note from Worlds Inc., with a principal balance of $200,000.
NOTE 5. NOTES PAYABLE
The Company entered
into several loan agreements in 2020. Two of the loan agreements are US Government PPP loans. One was entered into by CASH, the other
by Real Brands. On March 1, 2021, the Company was notified that the $101,660 PPP loan was forgiven. An application is expected to be filed
in 2021 for forgiveness on the $36,825 PPP loan. As of December 31, 2020, the following notes were outstanding:
|
|
|
Loan payable
|
|
Accrued interest
|
US Government (SBA-PPP Loan)
|
|
|
101,660
|
|
|
|
—
|
|
US Government (SBA-PPP Loan)
|
|
|
36,825
|
|
|
|
—
|
|
|
Note to a consultant (12%)
|
|
|
7,250
|
|
|
|
5,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage payable
|
|
|
170,526
|
|
|
|
—
|
|
|
Total
|
|
$
|
316,261
|
|
|
$
|
5,248
|
|
Interest expense related to the notes payable
amounted to $0 and $0 for year ended December 31, 2020 and 2019, respectively.
NOTE 6. LOAN PAYABLE – RELATED PARTY
A loan was provided by the CEO Thom Kidrin
at an interest rate of 7%. The loan balance at December 31, 2020 was $133,605 with accrued interest of $7,043.
NOTE 7. CONVERTIBLE NOTES PAYABLE -RELATED PARTY
The Company has issued a convertible note
payable related party in the amount of $200,000. The convertible note has a 7% annual interest rate and matures on October 15,
2021. Interest and principal are payable at maturity. The note can be converted at any time and either all or part of the amount due
into equity at a price of $0.008139 per share. If converted into common stock, the related party would own 1% of Company based upon current
number of shares outstanding. The related party holding the convertible note is Worlds Inc. Messrs. Kidrin, Toboroff and Christos are
Directors of Worlds Inc. and Mr. Kidrin is the CEO and Mr. Ryan is the CFO of Worlds Inc.
As of December 31, 2020, the Company incurred
$17,267 in interest expense on the note.
NOTE 8. STOCKHOLDER’S EQUITY
On August 26, 2020, the Company increased
the common stock share authorized to 3,998,000,000.
On March 8, 2019, the Company increased the
common stock share authorized by 300,000,000 from 198,000,000 to 498,000,000.
Common Stock
On October 22, 2020, pursuant to the Merger
Agreement with CASH, and in exchange for all 34,420,300 issued and outstanding shares of CASH, the company agreed to issue a total of
2,291,869,800 shares of its common stock to the shareholders of CASH. During the year ended December 31, 2020, the Company issued 2,127,190,401
shares of its common stock in connection with reverse merger and 164,679,399 shares are to be issued in 2021.
In October 2020 and prior to the reverse merger,
the Company sold 100,000 shares with a net proceed of $50,000 through a private placement. As the subscription was prior to the reverse
merger, it was classified in recapitalization on the statement of stockholders’ equity. As of December 31, 2020, the shares were
not yet issued, and the Company anticipates the issuance in 2021.
In December 2020, the Company sold 29,484,084
shares with a net proceed of $200,000 through private placements. As of December 31, 2020, the shares were not yet issued, and the Company
anticipates the issuance in 2021.
As of December 31, 2020, the Company had 2,358,780,396
shares of its common stock issued and outstanding, with 1,000,000 shares of its Series A preferred stock issued and outstanding.
In addition, on September 9, 2020, the following
outstanding balances for accrued retention bonuses and consulting payables, were exchanged for common stock shares with a fair market
value of $0.029:
|
|
|
Common Stock
Shares
|
|
Fair Market Value of Exchange
($)
|
|
Scott Furey
|
|
|
1,500,000
|
|
|
|
43,500
|
|
|
David Failla
|
|
|
4,000,000
|
|
|
|
116,000
|
|
|
Christopher J. Watson
|
|
|
100,000
|
|
|
|
2,900
|
|
|
Barcelona Capital Partners
|
|
|
3,500,000
|
|
|
|
101,500
|
|
|
Dickinson Wright, PLLC
|
|
|
2,000,000
|
|
|
|
58,000
|
|
|
Total
|
|
|
11,100,000
|
|
|
$
|
321,900
|
|
Series A Preferred Stock
At December 31, 2020, an ex-officer of the
Company owns 100% of the outstanding series A preferred stock. The former officer owns 1,000,000 shares, which are issued and outstanding.
Series A Preferred Shares have voting rights that carry a 100 common stock share vote for every Series A Preferred Share.
NOTE 9. STOCK OPTIONS
As a result of the Reverse Merger, the Company
has outstanding the following stock options as of the period ended December 31, 2020.
|
|
Shares
|
Weighted Average Exercise Price
|
Weighted Average Remaining Term
|
Aggregate Intrinsic Value
|
|
Granted
|
223,237,026
|
0.0231
|
7.21
|
5,155,778
|
|
Exercisable, December 31, 2020
|
136,872,560
|
0.0231
|
7.21
|
3,161,756
|
Part of the stock options
vest over 3 years, and the Company valued the stock options at the grant date and amortize it over 3 years. As of December 31, 2020,
the stock option expense was $3,825,479.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company is committed to an employment
agreement with Thom Kidrin, its President and CEO. Mr. Kidrin entered into the employment agreement with CASH on November 26, 2018. The
employment agreement provides for a base salary of $175,000 per year. Mr Kidrin shall be entitled to participate in any stock, stock
option or other equity participation plan and any profit-sharing, pension, retirement, insurance, or other employee benefit plan generally
available to the executive officers of the Company.
CASH signed an Agreement and Plan of Merger
with Purist Acquisition LLC, Purist LLC and Michael S. Metcalfe (MSM). CASH will receive ownership rights of all intellectual property
related to Purist’s simulated moving bed chromatography technology. CASH upon consummation of the Merger Agreement will be obligated
to the following payments. A cash payment of $90,000. A certificate representing Seven Hundred Fifty Thousand (750,000) shares of the
Company’s Common Stock (or appropriate alternative arrangements if uncertificated shares of Seven Hundred Fifty Thousand (750,000)
shares of Company Common Stock represented by book-entry shares will be issued). A fully vested option to acquire One Hundred Fifty Thousand
(150,000) shares of the Company’s Common Stock (the “Option”). The Option shall be exercisable for three years
following the date the Company’s Common Stock becomes publicly traded through a stock exchange or is listed for trading through
an electronic quotation and trading service. The exercise price for the Option shall be the lower of (x) $0.50 per share or (y) the price
per share equal to a 25% discount of the offering price of the Company’s first public or private offering of its Common Stock following
the Closing which raises at least Five Hundred Thousand Dollars ($500,000). An additional cash payment of Fifty Thousand Dollars ($50,000)
to be paid as follows: Within thirty (30) days of its fiscal year end, the Company will deliver an amount equal to one (1%) percent of
its net income up to a maximum payment of Fifty Thousand Dollars ($50,000). In the event one (1%) percent of the Company’s net
income for the fiscal year ended December 31, 2019, does not equal $50,000, then the process shall be repeated at the close of each successive
fiscal year until such time as an aggregate of Fifty Thousand Dollars ($50,000) has been delivered to MSM. In addition, on the Closing
Date, Company shall enter into a consulting agreement with MSM providing for a monthly fee of $3,500 for a period of twelve (12) months.
In connection with his consultancy, MSM will enter into (1) an assignment of inventions agreement assigning ownership rights of all intellectual
property related to Purist’s simulated moving bed chromatography technology developed and/or created by MSM during the term of
his consultancy and (2) a non-competition agreement pursuant to which MSM will agree to not compete with the Company during the term
of his consultancy or within twelve (12) months after termination of his consultancy.
On March 29, 2019, Mr. Pearring, the former
CEO agreed to cancel all unpaid compensation due to him from the Company.
NOTE 11. LITIGATION
First Capital IR Partners, LLC v. the
Company was a civil action filed in the Circuit Court of Broward County, FL on June 13, 2016. On January 9, 2017 a (default) final
judgement was entered in favor of First Capital IR Partners, LLC and against the Company in the amount of $38,761.86. The Company
filed a Motion to Vacate the Default on November 20, 2018, and the Court entered an Order denying the Motion and upholding the
Default judgement. On February 15, 2019 the parties entered into a Confidential Settlement Agreement pursuant to which the Company
agree to pay First Capital IR Partners, LLC the full amount of the judgement in installment payments, commencing on that date.
Pursuant to the Settlement Agreement, the parties executed reciprocal and mutual releases of liability in exchange for performance
under the agreement. On or about July 17, 2020, the Company settled and satisfied the Final Judgement by payment of $7,000 to First
Capital IR Partners, LLC. On August 18, 2020, First Capital IR Partners, LLC filed a Satisfaction of Judgement with the court noting
that the judgement was canceled and discharged of record.
ATS Indian Trace, LLC v. the Company was a
civil action filed by ATS Indian Trace, LLC in the Circuit Court of Broward County, Florida on July 22, 2015. On November 18, 2015, a
(default) Final Judgement was entered in favor of ATS Indian Trace, LLC and against the Company in the amount of $71,069.37. This judgement
is currently outstanding and remains due and owing. ATS Indian Trace, LLC has not taken any enforcement action against the Company for
several years. The balance plus interest is included in accrued expenses even though the Company does not expect to ever have to pay
it.
TBG Holdings entered into an agreement with
the Company on or about October 16, 2012 for performance of services in exchange for money and stock. On December 5, 2013 TBG alleged
that the Company had breached the contract and made a demand upon the Company for payment of money damages and stock. The Company disputed
the claim and refused to comply with the demand. On January 4, 2014, TBG’s counsel renewed the demand and requested mediation.
The Company refused mediation and denied any liability. TBG never pursued a claim against the Company. This claim in the amount of $45,625
is listed as a contingent liability on the books of the Company.
NOTE 12. INCOME TAXES
The Company has incurred net operating losses
since inception. The Company has not reflected any benefit of such net operating loss carryforwards (“NOL”) in the accompanying
consolidated financial statements and has established a full valuation allowance against its deferred tax assets. Deferred income taxes
reflect the net effect of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
As of December 31, 2020, the Company had not
determined its NOL carryforwards.
The following is a summary of the items that caused recorded income
taxes to differ from taxes computed using the statutory federal income tax rate for the years ended December 31:
|
|
|
2020
|
|
2019
|
|
Statutory federal tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
State taxes, net of federal benefit
|
|
|
6
|
|
|
|
6
|
|
|
Nondeductible expenses
|
|
|
—
|
|
|
|
—
|
|
|
Valuation allowance
|
|
|
(27
|
)
|
|
|
(27
|
)
|
|
|
|
|
0
|
%
|
|
|
0
|
%
|
On December 22, 2017, the U.S. government
enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). Under ASC 740, the effects of
changes in tax rates and laws are recognized in the period which the new legislation is enacted. Among other things, the TCJA (1) reduces
the U.S. statutory corporate income tax rate from 34% to 21% effective January 1, 2018 (2) eliminates the corporate alternative minimum
tax (3) eliminates the Section 199 deduction, and (4) changes rules related to uses and limitations of NOLs beginning after December
31, 2019.
The Company applies the applicable authoritative
guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in
its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. As of December
31, 2020, the Company has no uncertain tax positions. There are no uncertain tax positions for which it is reasonably possible that the
total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months from December 31, 2020.
The Company files federal income tax returns
and income tax returns in various state tax jurisdictions with varying statutes of limitations.
NOTE 13. INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share attributable to
common stockholders’ amounts are computed by dividing the net income (loss) plus preferred stock dividends and deemed dividends
on preferred stock by the weighted average number of shares outstanding during the year.
Diluted net income (loss) per share attributable
to common stockholders amounts are computed by dividing the net income (loss) plus preferred stock dividends, deemed dividends on preferred
stock, after-tax interest on convertible debt and convertible dividends by the weighted average number of shares outstanding during the
year, plus convertible preferred stock, convertible debt, convertible preferred dividends and warrants convertible into common stock shares.
Diluted net loss per common share is the same as basic
net loss per common share since the Company was operating in a loss position for 2020 and 2019.
NOTE 14. SUBSEQUENT EVENTS
The Company raised $385,000 in March by selling 55,372,548
shares of common stock at an average price of $0.007 per share.
Two option holders exercised their options through
the cashless surrender clause in the option agreements. 24,233,417 shares of common stock will be issued and 9,484,723 shares will be
surrendered back to the Company.
Critical Accounting Policies
Our material accounting policies, which we believe
are the most critical to investors understanding of our financial results and condition, are discussed below. Because we are still early
in our enterprise development, the number of these policies requiring explanation is limited. As we begin to generate increased revenue
from different sources, we expect that the number of applicable policies and complexity of the judgments required will increase.
Revenue Recognition: ASC 606 Revenue from
Contracts with Customers establishes a single and comprehensive framework which sets out how much revenue is to be recognized, and when.
The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now be
recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, Revenue based revenue recognition
around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed in determining whether
control has been transferred. The application of the core principle in ASC 606 is carried out in five steps: Step 1 – Identify the
contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties, that creates
enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract needs to have commercial
substance and it is probable that the entity will collect the consideration to which it will be entitled. Step 2 – Identify the
performance obligations in the contract: a performance obligation in a contract is a promise (including implicit) to transfer a good or
service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable in the contract.
Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in
exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties. Step
4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance
obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each
performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment approach, expected
cost plus a margin approach, and, the residual approach in limited circumstances. Discounts given should be allocated proportionately
to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices after inception
is not permitted. Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity should recognize
revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time: the entity’s
performance creates or enhances an asset controlled by the customer, the customer simultaneously receives and consumes the benefit of
the entity’s performance as the entity performs, and the entity does not create an asset that has an alternative use to the entity
and the entity has the right to be paid for performance to date.
Valuation of Deferred Taxes: We account for
income taxes in accordance with the liability method. Under the liability method, we recognize deferred assets and liabilities based upon
anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities
and their respective tax bases. We establish a valuation allowance to the extent that it is more likely than not that deferred tax assets
will not be utilized against future taxable income.
Valuation of Equity Instruments Granted to Employee,
Service Providers and Investors: On the date of issuance, the instruments are recorded at their fair value as determined using the
Binomial Option Pricing Model.
Allowance for Accounts Receivable: We estimate
losses from the inability of our distributors to make required payments and periodically review the payment history of each of our distributors,
as well as their financial condition, and revise our reserves as a result.
Inventory Valuation: All inventories are stated at lower of cost
or net realizable value, with cost determined substantially on a “first-in, first-out” basis. Selling, general, and administrative
expenses are not inventoried, but are charged to expense when purchased.
REAL BRANDS, INC. AND SUBSIDIARIES
For the Three Months Ended March 31, 2021 and 2020
INDEX
|
REAL BRANDS, INC. AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
|
|
MARCH 31, 2021 AND DECEMBER 31, 2020
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
ASSETS
|
|
31-Mar-21
|
|
31-Dec-20
|
|
CURRENT ASSETS:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
195,047
|
|
|
$
|
247,892
|
|
|
Account receivables
|
|
|
—
|
|
|
|
175
|
|
|
Inventory
|
|
|
209,951
|
|
|
|
230,951
|
|
|
Total current assets
|
|
|
404,999
|
|
|
|
479,018
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
530
|
|
|
|
530
|
|
|
Property and equipment - net of depreciation
|
|
|
1,905,838
|
|
|
|
1,645,336
|
|
|
TOTAL ASSETS
|
|
$
|
2,311,367
|
|
|
$
|
2,124,884
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
704,363
|
|
|
$
|
637,100
|
|
|
Accrued expense related party
|
|
|
173,245
|
|
|
|
91,618
|
|
|
Loan payable related party
|
|
|
133,605
|
|
|
|
133,605
|
|
|
Convertible note payable related party
|
|
|
200,000
|
|
|
|
200,000
|
|
|
Notes payable
|
|
|
7,250
|
|
|
|
7,250
|
|
|
Contingent liabilities
|
|
|
45,625
|
|
|
|
45,625
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
1,264,087
|
|
|
|
1,115,197
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
|
PPP Loan
|
|
|
36,825
|
|
|
|
143,485
|
|
|
Mortgage payable
|
|
|
165,119
|
|
|
|
170,526
|
|
|
Total long term Liabilities
|
|
|
201,944
|
|
|
|
314,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
|
Series A Preferred stock, $.001 par value; 2,000,000 shares authorized, 1,000,000 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.
|
|
|
1,000
|
|
|
|
1,000
|
|
|
Common stock, $.001 par value; 3,998,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 2,488,222,718 shares issued and outstanding as of March 31, 2021and 2,358,780,396 shares issued and outstanding as of December 31, 2020.
|
|
|
2,488,222
|
|
|
|
2,358,780
|
|
|
Common stock subscribed, 134,548,777 as of March 31, 2021 and 194,263,483 shares at December 31, 2020.
|
|
|
649,679
|
|
|
|
414,679
|
|
|
Additional paid-in capital
|
|
|
6,814,616
|
|
|
|
6,875,274
|
|
|
Accumulated deficit
|
|
|
(9,108,181
|
)
|
|
|
(8,872,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
|
845,336
|
|
|
|
695,676
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
2,311,367
|
|
|
$
|
2,124,884
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to these condensed consolidated financial statements.
|
|
REAL BRANDS, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2021 and 2020
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
REVENUE:
|
|
|
|
|
|
Revenues
|
|
$
|
461
|
|
|
$
|
7,616
|
|
|
Revenues from related party
|
|
|
—
|
|
|
|
—
|
|
|
Total revenue
|
|
|
461
|
|
|
|
7,616
|
|
|
Cost of goods sold
|
|
|
26,310
|
|
|
|
14,024
|
|
|
Gross profit (loss)
|
|
|
(25,849
|
)
|
|
|
(6,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
124,068
|
|
|
|
98,699
|
|
|
Professional fees
|
|
|
90,265
|
|
|
|
—
|
|
|
Payroll and related
|
|
|
59,486
|
|
|
|
116,263
|
|
|
Total operating expenses
|
|
|
273,819
|
|
|
|
214,962
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(299,668
|
)
|
|
|
(221,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
Gain on forgiveness PPP loan
|
|
|
106,660
|
|
|
|
—
|
|
|
Depreciation expense
|
|
|
(36,298
|
)
|
|
|
(30,073
|
)
|
|
Interest expense
|
|
|
(6,034
|
)
|
|
|
(4,155
|
)
|
|
Total other (expenses) income
|
|
|
64,327
|
|
|
|
(34,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(235,341
|
)
|
|
|
(255,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(235,341
|
)
|
|
$
|
(255,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE
|
|
|
|
|
|
|
|
|
|
TO COMMON STOCKHOLDERS
|
|
|
**
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
|
2,371,964,336
|
|
|
|
40,020,000
|
|
|
|
|
|
|
|
|
|
|
|
|
** less than $0.01 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to these consolidated financial statements.
|
|
REAL BRANDS, INC. AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND MARCH 31, 2021
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
Common
|
|
Additional
|
|
|
|
capital
|
|
|
|
|
|
|
|
Series A
|
|
Common Stock
|
|
Stock
|
|
Paid-in
|
|
Treasury
|
|
Treasury
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Subscribed
|
|
Capital
|
|
Stock
|
|
stock
|
|
Deficit
|
|
TOTAL
|
|
Balance December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
40,020,000
|
|
|
$
|
40,020
|
|
|
$
|
—
|
|
|
$
|
2,752,183
|
|
|
$
|
(2,176
|
)
|
|
$
|
361,276
|
|
|
$
|
(2,599,929
|
)
|
|
$
|
551,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares issued for building
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
259,084
|
|
|
|
—
|
|
|
|
260,084
|
|
|
Net loss for the period ended March 31, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(255,598
|
)
|
|
|
(255,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
40,020,000
|
|
|
$
|
40,020
|
|
|
$
|
—
|
|
|
$
|
2,752,183
|
|
|
$
|
(1,176
|
)
|
|
$
|
620,360
|
|
|
$
|
(2,855,527
|
)
|
|
$
|
555,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2020
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
|
2,358,780,396
|
|
|
$
|
2,358,780
|
|
|
$
|
414,679
|
|
|
$
|
6,794,057
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
(8,872,840
|
)
|
|
$
|
695,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance for reverse merger
|
|
|
—
|
|
|
|
—
|
|
|
|
107,149,478
|
|
|
|
107,149
|
|
|
|
(107,149
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Issuance for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
22,292,844
|
|
|
|
22,293
|
|
|
|
235,000
|
|
|
|
127,707
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
385,000
|
|
|
Net loss for the three months ended March 31, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(235,341
|
)
|
|
|
(235,341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2021
|
|
$
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
2,488,222,718
|
|
|
$
|
2,488,222
|
|
|
$
|
649,679
|
|
|
$
|
6,814,616
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
(9,108,181
|
)
|
|
$
|
845,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to these condensed consolidated financial statements.
|
|
REAL BRANDS, INC. AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
FOR
THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
|
|
(UNAUDITED)
|
|
|
|
|
|
2021
|
|
2020
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
|
|
|
(235,341
|
)
|
|
|
(255,598
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Gain on forgiveness of PPP loan
|
|
|
(106,660
|
)
|
|
|
—
|
|
|
Depreciation expense
|
|
|
36,298
|
|
|
|
30,073
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
175
|
|
|
|
(6,175
|
)
|
|
Inventory
|
|
|
21,000
|
|
|
|
—
|
|
|
Accounts payable and accrued expenses
|
|
|
155,891
|
|
|
|
81,839
|
|
|
Contingency liabilities
|
|
|
(7,000
|
)
|
|
|
—
|
|
|
Net cash used in operating activities
|
|
|
(135,637
|
)
|
|
|
(149,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(296,801
|
)
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(296,801
|
)
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from loan payable related party
|
|
|
—
|
|
|
|
100,000
|
|
|
Repayment of mortgage payable
|
|
|
(5,407
|
)
|
|
|
—
|
|
|
Proceeds from sale of common stock
|
|
|
385,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
379,593
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(52,845
|
)
|
|
|
(79,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of year
|
|
|
247,892
|
|
|
|
91,579
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year
|
|
|
195,047
|
|
|
|
11,718
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of building for common stock
|
|
$
|
—
|
|
|
$
|
(450,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to these condensed consolidated financial statements.
|
REAL BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2021 AND 2020
NOTE 1. ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION
Real Brands, Inc. (“Real Brands”
or the “Company”), was incorporated under the laws of the state of Nevada on November 6, 1992. The Company was formed under
the name Mercury Software. From 1997 to 2005 the Company changed its name several times. On October 10, 2005, the Company changed its
name to Global Beverage Solutions, Inc. and began trading on the OTC Bulletin Board under the symbol GBVS.OB.
On October 22, 2013, the Company changed the
name to Real Brands, Inc. The Financial Industry Regulatory Authority ("FINRA") approved Real Brands' corporate actions regarding
its name change and its new stock symbol request and approved Real Brands' 150:1 Reverse Stock Split. The new symbol was designated as
GBVSD. On November 19, 2013, the ticker symbol changed to RLBD.
On October 22, 2020, the majority of the shareholders of the Company
by written consent agreed to a merger with CASH Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company,
and Canadian American Standard Hemp Inc., a Delaware corporation (“CASH”), whereby the Company acquired all of the outstanding
shares of CASH and merged it with and into CASH Acquisition Corp. Real Brands’ name and trading symbol were maintained, with CASH
shareholders acquiring majority control of Real Brands.
The
merger was accounted for as a reverse merger, whereby CASH was considered the accounting acquirer and became our wholly-owned subsidiary.
In accordance with the accounting treatment for a “reverse merger”, the Company’s historical financial statements prior
to the reverse merger has been replaced with the historical financial statements of CASH prior to the reverse merger. The consolidated
financial statements after completion of the reverse merger include the assets, liabilities, and results of operations of the combined
company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity
remaining in the consolidated financial statements.
Going concern
The ability of the Company to obtain necessary
financing to build its sales, brand, marketing and distribution and fund ongoing operating expenses is uncertain. The ability of the
Company to generate sales revenue to offset the expenses and obtain profitability is uncertain. The Company had a net loss as of March
31, 2021 and 2020, of $235,341 and $255,598, respectively. These material uncertainties cast doubt on the Company’s ability to
continue as a going concern. In the event the Company’s revenues do not significantly increase, the Company will require additional
financing from time to time, which it intends to obtain through the issue of common shares, debt, bonds, grants and other financial instruments.
While the Company has been successful in raising funds through the issuances of common shares and obtaining debt in the past, there is
no assurance that it will be able to obtain adequate financing in the future or that such financing will be available on acceptable terms
and while the Company believes that its revenues will increase it does not currently expect them to generate sufficient cash.
Liquidity
As of March 31, 2021, the Company had cash
and cash equivalents of a $195,047 as compared to $247,892 as of March 31, 2020, representing an increase of $52,845. As of March 31,
2021, the Company had a working capital deficit of $859,089 as compared to a working capital deficit $554,962 as of March 31, 2020, representing
an increase in the deficit of $304,127. Plans with respect to its liquidity management include the following:
|
|
·
|
The Company is seeking additional capital in
the private and/or public equity markets to continue operations and build sales, marketing, brand and distribution. The Company is currently
evaluating additional equity and debt financing opportunities and may execute them when appropriate. However, there can be no assurances
that the Company can consummate such a transaction or consummate a transaction at favorable pricing.
|
|
|
|
|
|
|
•
|
The Company plans on increased sales of its products
in the market. However there can be no assurances that the sales will increase or that even if they do increase that it will increase
sufficiently to generate the necessary cash.
|
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and
Principles of Consolidation
The Company’s
consolidated financial statements and the notes thereto have been prepared in accordance with Generally Accepted Accounting Principles
(“GAAP”) in the United States of America. The consolidated financial statements include Real Brands, and its wholly owned
subsidiaries. One subsidiary Real Brands Venture Group, LLC has been inactive for the last two years and only maintains a debt instrument
on its financial records. DePetrillo Real Estate Holdings, LLC is a wholly owned subsidiary of CASH and the owner of the Company’s
building in Rhode Island. All significant intercompany accounts and transactions have been eliminated.
Use of estimates and judgments
The preparation
of financial statements in conformity with GAAP 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 consolidated financial statements and
the reported amounts of expenses during the reporting period. Key areas of estimation include the estimated useful lives of property,
plant, equipment and intangibles assets and liabilities, income taxes, and the valuation of stock-based compensation. Due to the uncertainty
inherent in such estimates, actual results may differ from the Company’s estimates.
Accounting standard updates
From time to time, new accounting pronouncements are
issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise
discussed, the Company believes that the effect of recently issued standards that are not yet effective and will not have a material effect
on its consolidated financial position or results of operations upon adoption.
Segment Reporting
The Company operates as one segment, in which
management uses one measure of profitability, and all of the Company’s assets are located in the United States of America. The
Company does not operate separate lines of business or separate business entities with respect to any of its product candidates. Accordingly,
the Company does not have separately reportable segments.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be a cash equivalent.
Accounts Receivable and Allowance for Doubtful
Accounts
The Company performs periodic credit evaluations
of its customers’ financial conditions and generally does not require collateral. The Company reviews all outstanding accounts receivable
for collectability on a quarterly basis. An allowance for doubtful accounts is recorded for any amounts deemed uncollectable. The Company
does not accrue interest receivable on past due accounts receivable.
Concentrations of Credit Risk
The Company, from time to time during the
years covered by these consolidated financial statements, may have bank balances in excess of its insured limits. Management has deemed
this a normal business risk.
Inventory
Inventory is comprised of raw hemp and hemp
oil in different phases of production to completion of final product. Products include tinctures, creams and lotions. Inventory is valued
at cost. No packaging material of any kind is included in inventory. Packaging materials are expensed as incurred.
Property and Equipment
On February 15, 2020 the Company purchased
DePetrillo Real Estate Holdings, LLC, a Rhode Island Limited Liability Company having as its only asset the building at 12 Humbert
Street in North Providence Rhode Island. The building is the Company’s headquarters and a hemp processing facility. The purchase
price of the building was 2 million shares of CASH common stock, $25,000 in cash and the assumption of the mortgage which at the time
was $189,916. The prior owner agreed to put the $25,000 payment into building improvements. The building and land was appraised at $475,000.
The building will be depreciated over 30 years on a straight line basis once it is put into use.
The Company has made $296,800 in building
improvements during the three months ended March 31, 2021. The Company made $30,000 in building improvements during the three months
ended March 31, 2020. Building improvements will be depreciated over 15 years. Depreciation will commence once the work is completed.
Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over estimated useful lives of five years. Leasehold improvements are amortized
at the shorter of the useful life of the asset or the remaining lease term. CASH’s lease was terminated on December 31, 2019 and
resulted in a loss on disposition of assets of $35,014 representing the balance in leasehold improvements on that date. The $35,014 is
included in the accumulated depreciation number below for 2021 and 2020. Expenditures for repairs and maintenance are expensed as incurred.
Property and equipment are summarized as follows at March 31, 2021 and March 31, 2020:
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2021
|
|
2020
|
|
Furniture and equipment
|
|
$
|
739,459
|
|
|
$
|
739,459
|
|
|
Leasehold Improvements
|
|
|
46,859
|
|
|
|
46,859
|
|
|
Gross fixed assets
|
|
|
786,318
|
|
|
|
786,318
|
|
|
Accumulated depreciation
|
|
|
316,692
|
|
|
|
190,174
|
|
|
Net furniture and equipment
|
|
$
|
469,626
|
|
|
$
|
596,144
|
|
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including
property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant
underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes
or planned changes in the use of the assets. If an impairment review is performed to evaluate long-lived asset for recoverability, the
Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset
to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the
use of an asset over its fair value, determined based on discounted cash flows is less than the carrying value on the books of the Company.
To date, the Company has not recorded any impairment losses on long-lived assets.
Revenue Recognition
The Company follows, ASC 606 Revenue from Contracts
with Customers which establishes a single and comprehensive framework and sets out how much revenue is to be recognized, and when. The
core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now
be recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, Revenue based revenue
recognition is around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed
in determining whether control has been transferred. The application of the core principle in ASC 606 is carried out in five steps: Step
1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more
parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract
needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled. Step
2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit)
to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable
in the contract. Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can
be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of
third parties. Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has
more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange
for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment
approach, expected cost plus a margin approach, and the residual approach in limited circumstances. Discounts given should be allocated
proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices
after inception is not permitted. Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity
should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue
over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives
and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an
alternative use to the entity and the entity has the right to be paid for performance to date.
Stock-based Compensation
The Company expenses stock-based compensation
to employees and consultants based on the fair value at grant date, which generally is the agreement date the Company entered into with
employees or consultants. To date the Company has issued restricted common stock shares and preferred stock.
Income Taxes
The Company accounts for income taxes under
the liability method whereby deferred tax assets and liabilities are provided for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Deferred tax assets are recorded when management
believes it is more likely than not that the tax benefits will be realized. Realization of the deferred tax assets is dependent upon
generating sufficient taxable income in the future. The amount of deferred tax asset considered realizable could change in the near term
if estimates of future income are modified.
The Company assesses its tax positions in
accordance with “Accounting for Uncertainties in Income Taxes” as prescribed by the Accounting Standards Codification, which
provides guidance for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax
return for open tax years (generally a period of three years from the later of each return’s due date or the date filed) that remain
subject to examination by the Company’s major tax jurisdictions. Generally, the Company is no longer subject to income tax examinations
by major taxing authorities for years before 2009.
The Company assesses its tax positions and
determines whether it has any material unrecognized liabilities for uncertain tax positions. The Company records these liabilities to
the extent it deems them more likely than not to be incurred. Interest and penalties related to uncertain tax positions, if any, would
be classified as a component of income tax expense.
The Company believes that it does not have
any significant uncertain tax positions requiring recognition or measurement in the accompanying financial statements.
On December
22, 2017, the U.S. enacted the Tax Cuts and Jobs Act, which changed the Corporate tax rates in the U.S. from 34% to 21%.
Beneficial Conversion Features of Convertible Securities
Conversion options that are not bifurcated as a derivative
pursuant to ASC 815 and not accounted for as a separate equity component under the cash conversion guidance are evaluated to determine
whether they are beneficial to the investor at inception (a beneficial conversion feature) or may become beneficial in the future due
to potential adjustments. The beneficial conversion feature guidance in ASC 470-20 applies to convertible stock as well as convertible
debt which are outside the scope of ASC 815. A beneficial conversion feature is defined as a nondetachable conversion feature that is
in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s
in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument.
The resulting discount is amortized as a dividend over either the life of the instrument, if a stated maturity date exists, or to the
earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the dividend
must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion
price may trigger the recognition of an additional beneficial conversion feature on occurrence.
Derivatives
The Company reviews the terms of convertible debt
issued to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be
bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more
than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative
instruments are accounted for as a single, compound derivative instrument
Bifurcated embedded derivatives are initially recorded
at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense.
When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as
liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining
proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount
from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument,
is amortized over the life of the instrument through periodic charges to interest expense.
Net Loss Per Common Share
Basic net loss per common share is computed
by dividing net loss by the weighted-average number of common shares outstanding during the period. Potential common stock equivalents
are determined using the treasury stock method. For diluted net loss per share purposes, the Company excludes stock options and other
stock-based awards, including shares issued as a result of option exercises that are subject to repurchase by the Company, whose effect
would be anti-dilutive from the calculation. During the three months ended March 31, 2021 and 2020, common stock equivalents were excluded
from the calculation of diluted net loss per common share, as their effect was anti-dilutive due to the net loss incurred. Therefore,
basic and diluted net loss per share was the same in all periods presented.
The Company had 247,811,540 and 400,000 potentially
dilutive options and convertible securities that have been excluded from the computation of diluted weighted-average shares outstanding
as of March 31, 2021 and 2020, respectively, as they would be anti-dilutive. Additionally, 57,530,641 shares of common stock issued for
the reverse merger during the year ended December 31, 2020, 55,372,219 shares related to the sale of common stock during the first quarter
have not yet been issued, are excluded from the calculation of weighted-average shares outstanding.
Treasury Stock
The Company accounts for treasury stock under
the cost method and includes treasury stock as a component of stockholder’s deficit.
Fair Value of Financial Instruments
The guidance for fair value measurements,
ASC 820, Fair Value Measurements and Disclosures, establishes the authoritative definition of fair value, sets out a framework for measuring
fair value, and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy based
upon observable and non-observable inputs as follow:
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|
☐
|
Level 1 – Quoted market prices in active markets for identical assets and liabilities;
|
|
|
☐
|
Level 2 – Inputs, other than level 1 inputs, either directly or indirectly observable; and
|
|
|
☐
|
Level 3 – Unobservable inputs developed using internal estimates and assumptions (there is little or no market date) which reflect those that market participants would use.
|
The Company records its derivative activities
at fair value.
NOTE 3. ACCRUED EXPENSES – RELATED PARTY
At March 31, 2021, the Company owed the CEO
Thom Kidrin $111,058 in accrued salary and $9,381 in accrued interest on a loan with principal balance of $133,605 and an additional
$20,805 in accrued interest on a note from Worlds Inc., with a principal balance of $200,000.
NOTE 4. NOTES PAYABLE AND LOANS PAYABLE
On March 1, 2021,
the Company was notified that the $101,660 PPP loan was forgiven. An application is expected to be filed in 2021 for forgiveness on the
$36,825 PPP loan. As of March 31, 2021, the following notes were outstanding:
|
|
|
Loan payable
|
|
Accrued interest
|
US Government (SBA-PPP Loan)
|
|
|
36,825
|
|
|
|
—
|
|
|
Note to a consultant (12%)
|
|
|
7,250
|
|
|
|
5,586
|
|
|
Mortgage payable
|
|
|
170,526
|
|
|
|
—
|
|
|
Total
|
|
$
|
214,601
|
|
|
$
|
5,586
|
|
Interest expense related to the notes payable
amounted to $157 and $0 for the three months ended March 31, 2021 and 2020, respectively.
NOTE 5. LOAN PAYABLE – RELATED PARTY
A loan was provided by the CEO Thom Kidrin
at an interest rate of 7%. The loan balance at March 31, 2021 was $133,605 with accrued interest of $9,381.
NOTE 6. CONVERTIBLE NOTES PAYABLE -RELATED PARTY
The Company has issued a convertible note
payable related party in the amount of $200,000. The convertible note has a 7% annual interest rate and matures on October 15,
2021. Interest and principal are payable at maturity. The note can be converted at any time and either all or part of the amount due
into equity at a price of $0.008139 per share. If converted into common stock, the related party would own 1% of Company based upon current
number of shares outstanding. The related party holding the convertible note is Worlds Inc. Messrs. Kidrin, Toboroff and Christos are
Directors of Worlds Inc. and Mr. Kidrin is the CEO and Mr. Ryan is the CFO of Worlds Inc.
As of March 31, 2021, the Company incurred
$20,805 in interest expense on the convertible note.
NOTE 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include
normal operating expenses, professional fees and costs remaining to be paid for the build out of the new facility. Included in accrued
expenses is a balance for ATS Indian Trace, LLC.
ATS Indian Trace, LLC v. the Company was a
civil action filed by ATS Indian Trace, LLC in the Circuit Court of Broward County, Florida on July 22, 2015. On November 18, 2015, a
(default) Final Judgement was entered in favor of ATS Indian Trace, LLC and against the Company in the amount of $71,069.37. This judgement
is currently outstanding and remains due and owing. ATS Indian Trace, LLC has not taken any enforcement action against the Company for
several years. The balance plus interest is included in accrued expenses even though the Company does not expect to ever have to pay
it.
Accrued expenses related party includes an
accrual for salary owed to our CEO under an employment agreement and interest on the convertible note from Worlds Inc. and the interest
on the loan from Mr. Kidrin the CEO.
NOTE 8. STOCKHOLDER’S EQUITY
Common Stock
In March 2021, the Company
sold 55,372,219 shares with a net proceed of $385,000 through private placements. As of March 31, 2021, the shares were not yet issued.
The shares were issued in May of 2021.
In the three months ended March 31, 2021,
the Company issued 107,149,478 shares of common stock related to the reverse merger and 22,292,844 shares that were subscribed in 2020
but not yet issued at December 31, 2020.
As of March 31, 2021, the Company had 2,488,222,718
shares of its common stock outstanding, with 1,000,000 shares of its Series A preferred stock issued and outstanding.
Series A Preferred Stock
At March 31, 2021, an ex-officer of the Company
owns 100% of the outstanding series A preferred stock. The former officer owns 1,000,000 shares, which are issued and outstanding. Series
A Preferred Shares have voting rights that carry a 100 common stock share vote for every Series A Preferred Share.
NOTE 9. STOCK OPTIONS
As a result of the Reverse Merger, the Company
has outstanding the following stock options as of the period ended March 31, 2021.
|
Exercise Price per Share
|
|
Shares Under Option/warrant
|
|
Remaining Life in Years
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
$
|
0.011
|
|
|
|
42,000,000
|
|
|
4.00
|
|
|
|
|
|
$
|
0.0267
|
|
|
|
12,287,256
|
|
|
3.00
|
|
|
|
|
|
$
|
0.0267
|
|
|
|
92,154,421
|
|
|
4.50
|
|
|
|
|
|
$
|
0.0267
|
|
|
|
46,077,210
|
|
|
4.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
192,518,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.011
|
|
|
|
42,000,000
|
|
|
4.00
|
|
|
|
|
|
$
|
0.0267
|
|
|
|
12,287,256
|
|
|
3.00
|
|
|
|
|
|
$
|
0.0267
|
|
|
|
92,154,421
|
|
|
4.50
|
|
|
|
|
|
$
|
0.0267
|
|
|
|
46,077,210
|
|
|
4.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
192,518,887
|
|
|
|
One option holder exercised his options through
the cashless surrender clause in the option agreements. 21,645,917 shares of common stock will be issued and 9,072,223 shares will be
surrendered back to the Company. The shares have not been issued as of May 17, 2021.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company is committed to an employment agreement
with Thom Kidrin, its President and CEO. Mr. Kidrin entered into the employment agreement with CASH on November 26, 2018. The employment
agreement provides for a base salary of $175,000 per year. Mr. Kidrin shall be entitled to participate in any stock, stock option or other
equity participation plan and any profit-sharing, pension, retirement, insurance, or other employee benefit plan generally available to
the executive officers of the Company.
CASH signed an Agreement and Plan of Merger
with Purist Acquisition LLC, Purist LLC and Michael S. Metcalfe (MSM). CASH will receive ownership rights of all intellectual property
related to Purist’s simulated moving bed chromatography technology. CASH upon consummation of the Merger Agreement will be obligated
to the following payments. A cash payment of $90,000. A certificate representing Seven Hundred Fifty Thousand (750,000) shares of the
Company’s Common Stock (or appropriate alternative arrangements if uncertificated shares of Seven Hundred Fifty Thousand (750,000)
shares of Company Common Stock represented by book-entry shares will be issued). A fully vested option to acquire One Hundred Fifty Thousand
(150,000) shares of the Company’s Common Stock (the “Option”). The Option shall be exercisable for three years
following the date the Company’s Common Stock becomes publicly traded through a stock exchange or is listed for trading through
an electronic quotation and trading service. The exercise price for the Option shall be the lower of (x) $0.50 per share or (y) the price
per share equal to a 25% discount of the offering price of the Company’s first public or private offering of its Common Stock following
the Closing which raises at least Five Hundred Thousand Dollars ($500,000). An additional cash payment of Fifty Thousand Dollars ($50,000)
to be paid as follows: Within thirty (30) days of its fiscal year end, the Company will deliver an amount equal to one (1%) percent of
its net income up to a maximum payment of Fifty Thousand Dollars ($50,000). In the event one (1%) percent of the Company’s net income
for the fiscal year ended December 31, 2019, does not equal $50,000, then the process shall be repeated at the close of each successive
fiscal year until such time as an aggregate of Fifty Thousand Dollars ($50,000) has been delivered to MSM. In addition, on the Closing
Date, Company shall enter into a consulting agreement with MSM providing for a monthly fee of $3,500 for a period of twelve (12) months.
In connection with his consultancy, MSM will enter into (1) an assignment of inventions agreement assigning ownership rights of all intellectual
property related to Purist’s simulated moving bed chromatography technology developed and/or created by MSM during the term of his
consultancy and (2) a non-competition agreement pursuant to which MSM will agree to not compete with the Company during the term of his
consultancy or within twelve (12) months after termination of his consultancy.
NOTE 11. CONTINGENT LIBAILITIES
TBG Holdings entered into an agreement with
the Company on or about October 16, 2012 for performance of services in exchange for money and stock. On December 5, 2013 TBG alleged
that the Company had breached the contract and made a demand upon the Company for payment of money damages and stock. The Company disputed
the claim and refused to comply with the demand. On January 4, 2014, TBG’s counsel renewed the demand and requested mediation.
The Company refused mediation and denied any liability. TBG never pursued a claim against the Company. This claim in the amount of $45,625
is listed as a contingent liability on the books of the Company.
NOTE 12. SUBSEQUENT EVENTS
The Company raised $50,000 in May by selling
1,428,572 shares of common stock at an average price of $0.035 per share.
One option holder exercised his options through the
cashless surrender clause in the option agreements. 2,587,500 shares of common stock will be issued and 412,500 shares will be surrendered
back to the Company.
Item 14. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) The following financial statements
(and accompanying footnotes) are included above under Item 13:
Consolidated Balance Sheets as of December
31, 2020 and 2019.
Consolidated Statement of Operations for
the periods ended December 31, 2020 and December 31, 2019.
Consolidated Statement of Cash Flows for
the periods ended December 31, 2020 and December 31, 2019.
Consolidated Statement of Stockholders
Deficit for the periods ended December 31, 2020 and December 31, 2019.
Notes to the Consolidated Financial Statements.
Condensed Consolidated Balance Sheets as
of March 31, 2021 and 2020
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2021 and 2020
Condensed Consolidated Statements of Stockholders’
Deficit for the Three Months Ended March 31, 2021 and 2020
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31, 2021 and 2020
Notes to Condensed Consolidated Financial
Statements
(b) Auditors consent
SIGNATURES
Pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
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REAL BRANDS, INC.
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By: /s/Thom Kidrin
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Thom Kidrin, President & CEO
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Date: June 25, 2021
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