|
|
Carrying
|
|
|
Fair Value Measurement at
|
|
|
|
Value
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, debt and equity instruments
|
|
|
13,553
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,553
|
|
|
|
Carrying
|
|
|
Fair Value Measurement at
|
|
|
|
Value
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, debt and equity instruments
|
|
|
157,712
|
|
|
|
—
|
|
|
|
—
|
|
|
|
157,712
|
|
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with accounting guidance that requires all stock-based awards granted to
employees and directors to be measured at fair value and recognized as expense. Stock-based compensation expense is recognized on a straight-line
basis over the requisite service period of the award, which is generally equivalent to the vesting period. The fair value of each stock
option granted is estimated using the Black-Scholes option pricing model. The measurement date for the non-forfeitable awards to nonemployees
that vest immediately is the date the award is issued.
Gain
on Liabilities Settlement
During
the year ended December 31, 2019 creditors forgave aggregate amount of $156,709, of which approximately $64,000 were associated accrued
expenses, $45,000 related to conversion of approximately $105,000 of accounts payable to a $60,000 convertible note, and $47,000 was
connected to forgiveness of accounts payable.
Other
amounts due to related parties
Amounts
due from related parties represent past amounts owed for compensation and operating expenses paid by the related party on behalf of the
Company. During the year ended December 31, 2019, the Company reclassified approximately $185,000 from due to related parties to accrued
expenses, as a result of the individual no longer being an officer of the Company during 2019, and paid net $63,370 to related parties.
Revenue
Recognition
Revenue
is recognized at the time each vending transaction occurs, the payment method is approved, and the product is disbursed from the machine.
Wholesale revenue, including revenue earned under contracts with major sports organizations, are recognized at the time the products
are delivered to the customer based on the agreement with the customer.
Income
Taxes
At
December 31, 2019, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately
$11.1 million and $12.1 million, respectively. Approximately $8.6 million of the federal net operating loss carryforward expires through
2037 and $2.5 million will carryforward indefinitely, if not utilized earlier. The state net operating loss carryforwards expire through
2039, if not utilized earlier. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in the
future and utilize the net operating loss carryforwards before they expire, the Company has recorded a valuation allowance to fully offset
the net operating loss carryforwards, as well as the total net deferred tax assets.
Reclassifications
Certain
prior period amounts in the accompanying consolidated financial statements have been reclassified to current period presentation. These
reclassifications had no effect on the results of operations or cash flows for the periods presented.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, “Leases”, which requires that lease arrangements longer than 12 months result
in an entity recognizing an asset and liability. ASU 2016-02 is effective for interim and annual periods beginning after December 15,
2018, and early adoption is permitted. The Company has adopted ASU 2016-02 and determined that its adoption had no impact on its financial
position, results of operations or cash flows.
In
July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and
Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the
Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests with a Scope Exception, (ASU 2017-11).” Part I of this update addresses the complexity of accounting for
certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded
features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance
creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty
of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content
in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements
about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests.
The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2018. The Company adopted ASU 2017-11 on its consolidated financial statements. Upon
adoption the Company derecognized 39,512,502 number of warrants based on review of contracts that determined the derivative treatment
was specific to a feature in the instrument that reduced the strike price if the Company issued additional shares for an amount less
than the strike price. As a result of this analysis the Company recorded a cumulative effect adjustment of $118,675 on January 1, 2019.
Note
3 – Going Concern
The
accompanying consolidated financial statements have been prepared on a going concern basis. The Company reported net loss of $1,896,150
for the year ended December 31, 2019 and has incurred accumulated losses totaling $14,198,142 through December 31, 2019. In addition,
the Company has incurred negative cash flows from operating activities since its inception. The Company has relied on the proceeds from
loans and private sales of its stock, in addition to its revenues, to finance its operations. These factors, among others, indicate that
the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
With
the onset of the Covid 19 pandemic, the reduction of foot traffic and closure of retail locations, management has been proactively looking
at new business models and opportunities to stabilize revenues and continue to grow the company. Until the Company can generate significant
cash from operations, its ability to continue as a going concern is dependent upon obtaining additional financing. The Company hopes
to raise additional financing, potentially through the sale of debt or equity instruments, or a combination, to fund its operations for
the next 12 months and allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis.
Should additional financing not be available, the Company will have to negotiate with its lenders to extend the repayment dates of its
indebtedness. There can be no assurance that the Company will be able to successfully restructure its debt obligations in the event it
fails to obtain additional financing. These conditions have raised substantial doubt as to the Company’s ability to continue as
a going concern for one year from the issuance of the financial statements, which has not been alleviated.
Note
4 – Property and Equipment
Property
and equipment consist of the following as of December 31, 2019 and 2018:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Freezers and other equipment
|
|
$
|
91,673
|
|
|
$
|
1,460,255
|
|
Delivery vans
|
|
|
-
|
|
|
|
32,727
|
|
Less: accumulated depreciation
|
|
|
-
|
|
|
|
(730,951
|
)
|
Total
|
|
$
|
91,673
|
|
|
$
|
762,031
|
|
Depreciation
expense amounted to $100,188 and $211,240, respectively for the years ended December 31, 2019 and 2018.
During
the year ended December 31, 2019, the Company recorded an asset impairment charges of $192,705 related to the certain freezers and other
equipment based the expected recoverability of the assets not currently in use.
Note
5 – Intangible Assets
Intangible
assets consist of the following as of December 31, 2019 and 2018:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Operating agreement
|
|
$
|
-
|
|
|
$
|
434,000
|
|
Less: accumulated amortization
|
|
|
-
|
|
|
|
(434,000
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
Amortization
expense amounted to $0 and $86,801, for the years ended December 31, 2019 and 2018.
Note
6 – Debt
Senior
Convertible Notes
During
the year ended December 31, 2018, a Senior Convertible Note in the aggregate principal amount of $310,000 and a maturity date of December
31, 2018 payable to Cobrador Multi-Strategy Partners, LP (“Cobrador 1”), a related party, was extended until December 31,
2019. The Company also extended the expiration dates of Series A Warrants issued in connection with Cobrador 1 by one year. The fair
value of the Series A Warrants did not materially change due to the extension. Cobrador, an entity controlled by the Company’s
former CEO, is a related party.
On
June 30, 2016, the Company issued an additional Senior Convertible Note in the face amount of $108,804 to Cobrador (“Cobrador 2”)
in settlement of previously accrued interest, additional interest, fees and penalties. The additional interest, fees and penalties was
$72,734 and this amount was charged to operations as debt discount amortization during the year ended December 31, 2016. The Senior Convertible
Note was extended during the year ended December 31, 2018 and is due on December 31, 2019. It is convertible into shares of common stock
at a conversion price $.05 per share and bears interest at 7% per annum. The Company determined that Cobrador 2 had a beneficial conversion
feature based on the difference between the conversion price and the market price on the date of issuance and allocated $87,043 as debt
discount representing the beneficial conversion feature which was fully amortized at December 31, 2017.
During
December 2017, the Company issued a Senior Convertible Note in the amount of $25,000 to Cobrador. The note bears interest at 7%, is due
in December 2019, and is convertible into common shares at a conversion price of $0.05 per share. In addition, in conjunction with this
note, the Company issued 500,000 warrants to purchase common shares at $0.05 with a contractual term of 5 years. The estimated value
of the warrants was determined to be $1,421 and was recorded as interest expense during 2017 and a warrant liability due to the down
round provision in the note agreement.
At
December 31, 2019 and 2018, the Cobrador notes had a carrying value of $443,804.
As
of the date of release of these financial statements, all senior convertible notes were in default.
Promissory
Notes Payable
During
2014, the Company issued an unsecured promissory note to a former employee of U-Vend Canada. The original amount of this note was $10,512
has a term of 3 years and accrues interest at 17% per annum. The total principal outstanding on this promissory note at December 31,
2019 and 2018 was $6,235.
Starting
of 2015, the Company entered into a series of promissory notes from the same lender. All of the notes bear interest at a rate of 19%
per annum and are payable together with interest over a period of six (6) months from the date of borrowing. As of December 31, 2015,
we had note balance of $11,083. In 2016, the Company borrowed $76,500 and repaid $63,497. The balance outstanding on these notes was
$24,116 at December 31, 2016. In 2017, the Company borrowed $36,400 and repaid $44,449. The balance outstanding on these notes was $16,067
at December 31, 2017. In 2018, the Company borrowed $143,908 and repaid $125,931. The balance outstanding on these notes was $34,044
at December 31, 2018. During the year ended December 31, 2019, the Company borrowed additional $38,325 and recorded additional original
discount in the amount of $3,325 associated with the new borrowing. During the year ended December 31, 2019, the Company repaid $46,584
in principal and fully amortized $3,325 of debt discount which left a carrying value of $25,784 as of December 31, 2019.
During
the year ended December 31, 2016, the Company issued two unsecured promissory notes and borrowed an aggregate amount of $80,000. The
promissory notes bear interest at 10% per annum, with a provision for an increase in the interest rate upon an event of default as defined
therein and were due at various due dates in May and September 2017. The due dates of both notes were extended to December 31, 2019.
As of December 31, 2019 and 2018, the balance outstanding on these notes was $80,000.
In
December 2017, the Company issued promissory notes in the aggregate principal balance of $28,000 to Cobrador, a related party. The notes
accrue interest at 7% and have a two-year term. As of December 31, 2019 and 2018, the balance outstanding on these notes was $28,000.
On
July 18, 2018, the Company issued a promissory note in the principal amount of $187,500 with net proceeds of $147,000. The Company agreed
to pay $1,143 per business day for 164 days. The Company recorded $40,500 to debt discount. During 2018, the Company repaid $128,050
in principal and amortized $40,500 of debt discount resulting in an unamortized debt discount of $0 and carrying value of $59,450 at
December 31, 2018. During the year ended December 31, 2019, this note was paid off.
On
April 13, 2018, the Company issued a promissory note in the principal amount of $115,000. This note bears interest at the rate of 7%
per annum, due on December 31, 2019. The Company borrowed an additional $25,000 and repaid $60,000 during the year ended December 31,
2019, and the balance outstanding on this note at December 31, 2019, was $80,000.
In
October 2014, January 2015 and October 2015, the Company entered into three (3) separate 24-month equipment financing agreements (the
“Agreements”) with Perkins Industries, LLC (“Perkins”) for equipment in the aggregate amount of $387,750 with
an annual interest rate of 15%. The assets financed consisted of self-service electronic kiosks placed in service in the Company’s
Southern California region. The Company is obligated to make monthly interest only payments in accordance with the Agreements. The Agreements
include a put/call option at the end of year one and the end of year two. Neither of these options were exercised. During 2017 $100,000
was paid down on the notes. Maturities of these notes were extended to December 31, 2019. During the year ended December 31, 2019, $39,266
was paid down on the notes. On April 1, 2019, total principal and accrued interest in the amount of $321,824 were restructured into two
converted notes below. The carrying value as of December 31, 2019 and 2018 was $0 and $287,750, respectively.
Pursuant
to the Agreements Perkins received a warrant to purchase an aggregate of 310,200 shares at an exercise price of $0.35 per share with
a contractual term of three (3) years. The warrant was recorded as a debt discount and a warrant liability in the aggregate amount of
$3,708 due to the down round provision, pursuant which the exercise price of the warrants was revised to $0.26 at December 31, 2016.
In
October 2016, the Company and Perkins agreed to extend the termination date of two of the Agreements to October 17, 2017 and January
5, 2018. In consideration of this extension, the Company issued an additional 200,000 warrants with an exercise price of $0.05 per share
and a five-year contractual term. The fair value of the warrants was not material and was charged to operations in the accompanying statement
of operations for the year ended December 31, 2016.
During
the year ended December 31, 2018 the Agreements were purchased by a third party and the due dates were extended to December 31, 2019.
On
November 19, 2018, the Company issued a promissory note in the principal amount of $124,000 with net proceeds of $112,840. This note
matures in 64 weeks. The Company recorded $11,160 to debt discount. During the years ended December 31, 2018, the Company repaid $9,784
in principal and amortized $872 of debt discount resulting in an unamortized debt discount of $10,288 and carrying value of $103,928
at December 31, 2018. During the year ended December 31, 2019, the Company repaid $48,154 in principal and amortized $9,744 of debt discount
resulting in an unamortized debt discount of $544 and carrying value of $65,518 at December 31, 2019.
On
December 12, 2018, the Company issued a promissory note in the principal amount of $112,425 with net proceeds of $64,500. The Company
agreed to pay $937 per business day for 120 days. The Company recorded $47,925 to debt discount. During the years ended December 31,
2018, the Company repaid $9,370 in principal and amortized $3,744 of debt discount resulting in an unamortized debt discount of $44,181
and carrying value of $58,874 at December 31, 2018. During the year ended December 31, 2019, the Company repaid $103,055 in principal
and fully amortized $44,181 of remaining debt discount resulting in carrying value of $0 at December 31, 2019.
On
March 5, 2019, the Company issued a non-equity linked promissory note for $100,000 to an investor with an annual 10% rate of interest
and a one (1) year maturity. This investor also received a warrant for 500,000 shares at a strike price of $.07 per share with a five
(5) year maturity. The fair value of warrant was not material. As of December 31, 2019, the outstanding balance was $100,000.
During
the year ended December 31, 2019, the Company issued two promissory notes in the aggregate principal amount of $135,000, bearing interest
of 7% and mature on August 8, 2019. As of December 31, 2019, the outstanding balance was $135,000.
As
of the date of release of these financial statements, all promissory notes were in default.
Convertible
Notes Payable
2014
Stock Purchase Agreement
In
2014 and 2015 the Company entered into the 2014 Securities Purchase Agreement (the “2014 SPA”) pursuant to which it issued
eight (8) convertible notes in the aggregate face amount of $146,000 due at various dates between August 2015 and March 2016. The principal
on these notes is due at the holder’s option in cash or common shares at a conversion rate of $0.30 per share. In connection with
these borrowings the Company granted a total of 360,002 warrants with an exercise price of $0.35 per share and a 5 year contractual term.
The warrants issued have a down round provision and as a result are classified as a liability in the accompanying consolidated balance
sheets. Pursuant to the down round provision, the exercise price of the warrants was reduced to $0.22 at December 31, 2016. During 2017
the Company repaid one of the notes in the amount of $50,000. On May 1, 2018, the Company granted 1,000,000 warrants with an exercise
price of $0.15 per share and a 5 year contractual term, valued at $2,841, which was recorded as debt discount. As of December 31, 2019
and 2018, outstanding balances of these notes were $121,000. As of the date of release of these financial statements, these notes are
in default.
The
Company and Cobrador held three of the convertible notes in the aggregate face amount of $45,000 and agreed to extend the repayment date
to November 17, 2020. The Company and Cobrador extended the due date to December 31, 2018 on notes totaling $25,000, and the Company
agreed to a revised conversion price of $.05 per share and a revised warrant exercise price of $0.07 per share. The change in the value
of warrants was not material and was charged to operations during the year ended December 31, 2017. As of December 31, 2019 and 2018,
outstanding balances of these notes were $45,000.
2015
Stock Purchase Agreement
During
the year ended December 31, 2015, the Company issued eleven subordinated convertible notes bearing interest at 9.5% per annum with an
aggregate principal balance of $441,000 pursuant to the 2015 Stock Purchase Agreement (the “2015 SPA”). The notes were due
in December 2017 and are payable at the noteholder’s option in cash or common shares at a conversion rate of $0.30 per share The
conversion rate was later revised to $0.05 due to down round provisions contained in the 2015 SPA, and the due date was extended to November
17, 2020. In connection with these borrowings, the Company issued a warrant to purchase 735,002 shares of the Company’s common
stock at an exercise price of $0.40 per share and a 5 year contractual term. The exercise price was later revised to $0.22 per share
pursuant to the down round provisions in the 2015 SPA. The Company allocated $8,113 of proceeds received to debt discount based on the
computed fair value of the convertible notes and warrants issued. During the year ended December 31, 2016, the noteholder converted one
note in the face amount of $35,000 into 700,000 shares of common stock. As of December 31, 2019, and December 31, 2018, the 2015 SPA
had a balance of $406,000. The debt discount was fully amortized as of December 31, 2016. As of the date of release of these financial
statements, these notes are in default.
2016
Stock Purchase Agreement
On
June 30, 2016, the Company entered into the 2016 Stock Purchase Agreement (the “2016 SPA”) pursuant to which it issued five
convertible notes in the aggregate principal amount of $761,597. The 2016 SPA notes are due in November 2020 and bear interest at 9.5%
per annum. The notes are convertible into shares of common stock at a conversion price of $0.17 per share. With this note, the Company
satisfied its obligations for: previously issued promissory notes of $549,000, accrued interest of $38,615, lease principal installments
of $47,466, previously accrued registration rights penalties of $22,156, due to a former officer of $81,250, and additional interest,
expenses, fine and penalties of $23,110. The Company charged additional interest, expenses, fines and penalties $23,110 to operations
as amortization of debt discount and deferred financing costs during the year ended December 31, 2016.
In
connection with the 2016 SPA, the Company granted a total of 2,239,900 warrants with an exercise price of $0.30 per share which was later
revised to $0.05 per share due to down round provisions, with a 5 year contractual life. The Company allocated $19,242 to debt discount
based on the computed fair value of the convertible notes and warrants issued and classified the debt discount is as a warrant liability
due to the down round provision in the warrants.
On
July 11, 2019, $85,000 in principal were converted into 1,700,000 shares of common stock.
As
of December 31, 2019 and 2018, the 2016 SPA had a carrying value of $676,597 and $756,786, respectively. As of the date of release of
these financial statements, these notes are in default.
Other
2016 Financings
During the year ended December 31, 2016, the Company
issued four convertible notes (the “Cobrador 2016 Notes”) in the aggregate principal amount of $115,000. The Cobrador 2016
Notes, related party, have a 2 year term, bear interest at 9.5% per annum, and are convertible into shares of common stock at a conversion
price of $0.17 per share. The conversion price was subsequently revised to $0.05 per the down round provisions and the maturity date was
extended to September 26, 2021. In connection with the Cobrador 2016 Notes, the Company granted a total of 338,235 warrants with an exercise
price of $0.30 per share which was subsequently revised to $0.05 per share due to down round provisions with a 5 year contractual term.
The Company allocated $1,994 to debt discount based on the computed fair value of the convertible notes and warrants issued and classified
the debt discount as a warrant liability due to the down round provision in the warrants. During the year ended December 31, 2019, $20,000
was converted into 400,000 shares. As of December 31, 2019 and 2018, the Cobrador 2016 Notes had a carrying value of $95,000 and $115,000,
respectively.
During
the fourth quarter of 2016, the Company issued three additional convertible notes in the aggregate principal amount of $250,000. The
notes have a 2 year term, bear interest at 9.5% per annum and are convertible into shares of common stock at a conversion price of $0.05
per share. In connection with these borrowings, the Company granted warrants to purchase 5,000,000 shares of common stock with an exercise
price of $0.07 per share. The Company allocated $27,585 to debt discount based on the computed fair value of the convertible notes and
warrants issued, and the debt discount is classified as a warrant liability due to the down round provision in the warrants. As of December
31, 2019 and 2018, the carrying value of the note was $250,000 and $250,000. As of the date of release of these financial statements,
these notes are in default.
2017
Financings
During
the year ended December 31, 2017, the Company entered into 19 separate convertible notes agreements (the “2017 Convertible Notes)”
in the aggregate principal amount of $923,882. The 2017 Convertible Notes each have a 2 year term, bear interest at 9.5%, and are convertible
into shares of common stock at a conversion price of $0.05 per share. In connection with the 2017 Convertible Notes, the Company issued
a total of 16,537,926 warrants with an exercise price of $0.07 per share with a 5 year term. The Company allocated $59,403 to a debt
discount based on the computed fair value of the convertible notes and warrants issued and classified the debt discount as a warrant
liability due to the down round provision in the warrants. During the year ended December 31, 2018, the Company amortized $31,940 of
debt discount resulting in unamortized debt discount of $13,278 and carrying value of $910,608 at December 31, 2018. During the year
ended December 31, 2019, the Company fully amortized remaining $13,278 of debt discount resulting in carrying value of $924,282 at December
31, 2019. As of the date of release of these financial statements, these notes are in default.
2018
Financings
During
the year ended December 31, 2018, the Company entered into seventeen separate convertible notes agreements (the “2018 Convertible
Notes)” in the aggregate principal amount of $537,500. The 2018 Convertible Notes each have a 2 year term, bear interest at 9.5%
if paid in cash, 15% if paid in common stock, and are convertible into shares of common stock at a conversion price of $0.05 per share.
In connection with the 2018 Convertible Notes, the Company issued a total of 10,750,000 warrants with an exercise price of $0.07 per
share with a 5 year term. The Company allocated $33,384 to a debt discount based on the computed fair value of the convertible notes
and warrants issued and classified the debt discount as a warrant liability due to the down round provision in the warrants. During the
year ended December 31, 2018, the Company amortized $12,803 of debt discount resulting in an unamortized debt discount of $20,581 and
carrying value of $516,919 at December 31, 2018. During the year ended December 31, 2019, the Company amortized $16,692 of debt discount
resulting in an unamortized debt discount of $3,889 and carrying value of $533,611 at December 31, 2019. As of the date of release of
these financial statements, convertible notes in aggregate amount of $340,000 were in default.
On
November 20, 2018, two officers converted $436,500 accrued compensation into two convertible note agreements in the principal amount
of $436,500 in exchange. The note has a 2 year term, bear interest at 9.5% if paid in cash, 15% if paid in common stock, and is convertible
into shares of common stock at a conversion price of $0.05 per share.
During the
year ended December 31, 2018, the Company entered into three convertible notes agreements in the aggregate principal amount of $240,500
with a net proceed of $214,000. These notes had a 1-year term, and bears interest at 8%-12%. The notes are convertible into common stock
at 60% to 61% multiplied by the lowest one to two trading price(s) during fifteen to twenty-five trading day period prior to the Conversion
Date. The embedded conversion features were valued at $59,027, which were recorded as debt discount. In addition, the Company also recorded
$26,500 as original debt discount. These notes were in default due to failure to comply with the reporting requirements of the Exchange
Act, as the result, the Company recorded additional $120,250 penalty in principal as of December 31, 2018. During the year ended December
31, 2018, the Company amortized $21,382 of debt discount resulting in unamortized debt discount of $64,145 and carrying value of $296,605
at December 31, 2018. During the year ended December 31, 2019, the Company repaid $64,300 in principal and amortized $21,381 of debt
discount, recorded $42,764 in accretion of debt discount, resulting in unamortized debt discount of $0 and carrying value of $298,450
at December 31, 2019.
Other
2018 Financings
On
January 26, 2018, the Company entered into a convertible note agreement in the amount of $78,750, with original discount of $3,750, bearing
an annual interest rate of 8%. The note is convertible into common stock at a conversion price of $0.07 per share. The Company repaid
$78,750 to repay the note in full in August 2018.
2019
Financings
On March 18, 2019, the Company issued a convertible
promissory note for $85,250 with net proceed of $75,000 to an investor with an 8.0% rate of interest and a one (1) year maturity. The
Company has the option to pre-pay the note (principal and accrued interest) in cash within the 1st 90 days from issuance at a 25% premium,
and 40% premium 91-180 days from the issuance date. Subsequent to 181 days, the Company shall have no right of prepayment and the holder
may convert at a 40% discount to the prevailing market price. The note matures on December 11, 2019. The note is convertible into shares
of common stock at the lesser of 1) lowest trading price of twenty-five days prior to March 18, 2019 or 2) 60% of lowest trading price
of twenty-five days prior to the Conversion Day. The embedded conversion features were valued at $0 due to default. In addition, the Company
also recorded $10,250 as original debt discount. These notes were in default due to failure to comply with the reporting requirements
of the Exchange Act, as the result, the Company recorded additional $42,625 penalty in principal as of December 31, 2019. During
the year ended December 31, 2019, the Company amortized $23,384 of debt discount resulting in unamortized debt discount of $0 and carrying
value of $127,875 at December 31, 2019.
On
March 14, 2019, the Company converted accounts payable of approximately $105,000 payables into a convertible note agreement in the principal
amount of $60,000, remaining balance of the amount owed was released and recorded as a settlement of liability. The note has a 2 year
term, bears interest at 9.5% if paid in cash, 15% if paid in common stock, and is convertible into shares of common stock at a conversion
price of $0.05 per share.
On
April 1, 2019, The Company converted an aggregate amount of principal and accrued interest of Perkins promissory note in the amount of
$321,824 and accounts payable of $10,000 into two convertible notes. Both Notes have a 2 year term, bear interest at 9.5% if paid in
cash, 15% if paid in common stock, and are convertible into shares of common stock at a conversion price of $0.05 per share. The outstanding
principal balance were of $331,824 at December 31, 2019.
On
April 15, 2019, The Company converted an accrued payable of $108,572, which was used to purchase vending machine, into a convertible
note. The Note has a 2 year term, bear interest at 9.5% if paid in cash, 15% if paid in common stock, and are convertible into shares
of common stock at a conversion price of $0.07 per share. The outstanding principal balance was of $108,572 at December 31, 2019.
On May 30, 2019,
the Company issued a series of convertible notes under a $250,000 revolving Senior Secured credit facility to an investor, for working
capital purposes. As of December 31, 2019, $426,303 was drawn under the agreement. The notes carry an interest rate of 9.5% and a two-year
term. The notes are convertible into common stock at $0.07 per share and are redeemable after one-year at the company’s option.
The notes also contain a 4.99% limitation of ownership on conversion. Subsequent to December 31, 2019, the agreement was modified formally
to increase the limit on the facility by 206,231. The investor had consented to higher draws on the facility during the third quarter
in excess of the limit per the initial agreement.
During
the year ended December 31, 2019, the Company entered into several convertible notes in the amount of $68,000. The Note has a 2 year
term, bear interest at 9.5% if paid in cash, 15% if paid in common stock, and are convertible into shares of common stock at a conversion
price of $0.07 per share. The outstanding principal balance was of $68,000 at December 31, 2019.
During
the year ended December 31, 2019, the Company entered into a convertible notes agreements in the amount of $50,000. The Note have a 2
year term, bear interest at 9.5% if paid in cash, 15% if paid in common stock, and are convertible into shares of common stock at a conversion
price of $0.05 per share. In connection with the Note, the Company issued 10,000,000 warrants with an exercise price of $0.02 per share
with a 5 year term. The outstanding balance was $50,000 at December 31, 2019.
Scheduled
maturities of debt remaining as of December 31, 2019 for each respective fiscal year end are as follows:
2019
|
|
$
|
3,667,089
|
|
2020
|
|
|
1,169,000
|
|
2021
|
|
|
1,089,699
|
|
|
|
|
5,925,788
|
|
Less: unamortized debt discount
|
|
|
(4,433
|
)
|
|
|
$
|
5,921,355
|
|
The
following table reconciles, for the period ended December 31, 2019, the beginning and ending balances for financial instruments related
to the embedded conversion features that are recognized at fair value in the consolidated financial statements:
Balance of embedded derivative as of December 31, 2018
|
|
$
|
28,357
|
|
Additions related to embedded conversion features of convertible debt issued
|
|
|
9,502
|
|
Derivative liabilities reduction due to notes default
|
|
|
(112,408
|
)
|
Change in fair value of conversion features
|
|
|
88,102
|
|
Balance of embedded derivatives at December 31, 2019
|
|
$
|
13,553
|
|
Note
8 – Capital Lease Obligations
The
Company acquired capital assets under capital lease obligations. Pursuant to the agreement with the lessor, the Company makes quarterly
lease payments and will make a guaranteed residual payment at the end of the lease as summarized below. At the end of the lease, the
Company will own the equipment.
In
August 2016, the Company and the lessor agreed to extend the term of the lease until December 31, 2019. As a consideration of the extension,
the Company issued warrants to acquire 150,000 shares of common stock. The warrants have an exercise price of $0.30 per share, a term
of three years, and were recorded as a debt discount and warrant liability due to the down round provision and as such are marked to
market each reporting period.
During
the year ended December 31, 2019 the Company entered into various capital lease agreements. The leases expire at various points through
the year ended December 31, 2023.
The
following schedule provides minimum future rental payments required as of December 31, 2019, under the current portion of capital leases.
2020
|
|
|
123,193
|
|
2021
|
|
|
49,831
|
|
2022
|
|
|
30,584
|
|
2023
|
|
|
10,252
|
|
Total minimum lease payments
|
|
|
213,860
|
|
Less: Amount represented interest
|
|
|
(33,010
|
)
|
Present value of minimum lease payments and guaranteed residual value
|
|
$
|
180,850
|
|
Note
9 – Capital Stock
The
Company has authorized 600,000,000 shares of common stock.
During
the year ended December 31, 2019, the Company issued 5,541,096 shares of its common stock, including 3,441,096 shares of common stock
with a fair value of $101,794 for services rendered, and 2,100,000 shares in conversion of $105,000 of convertible notes.
During
the year ended December 31, 2018, the Company issued 4,561,667 shares of its common stock, including 1,375,000 shares of common stock
with a fair value of $60,990 for services rendered, and 3,186,667 shares of common stock for $278,000 upon exercise of warrants.
Note
10 – Stock Options and Warrants
Warrants
At
December 31, 2019 the Company had the following warrant securities outstanding:
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Expiration
|
|
2015
Warrants - 2014 SPA convertible debt
|
|
|
116,668
|
|
|
$
|
0.22
|
|
|
|
January
- March 2020
|
|
2015
Warrants - 2015 SPA convertible debt
|
|
|
735,002
|
|
|
$
|
0.22
|
|
|
|
April
- November 2020
|
|
2015
Warrants for services
|
|
|
127,067
|
|
|
$
|
0.22
|
|
|
|
April
- November 2020
|
|
2015
Warrants issued in exchange for equipment
|
|
|
318,182
|
|
|
$
|
0.22
|
|
|
|
January
2020
|
|
2016
Warrants - 2016 SPA convertible debt
|
|
|
2,239,990
|
|
|
$
|
0.05
|
|
|
|
June
2021
|
|
2016
Warrants for services
|
|
|
850,000
|
|
|
$
|
0.05
|
|
|
|
June
2021
|
|
2016
Warrants - Convertible notes
|
|
|
338,236
|
|
|
$
|
0.05
|
|
|
|
August
- September 2021
|
|
2016
Warrants for services
|
|
|
200,000
|
|
|
$
|
0.07
|
|
|
|
October
2019
|
|
2016
Warrants issued with Convertible Notes
|
|
|
5,000,000
|
|
|
$
|
0.07
|
|
|
|
November
-December 2021
|
|
2017
Warrants – 2017 financing
|
|
|
15,109,354
|
|
|
$
|
0.07
|
|
|
|
December
2022
|
|
2018
Warrants – 2018 financing
|
|
|
9,991,905
|
|
|
$
|
0.07
|
|
|
|
January
- November 2023
|
|
2018
Warrants for services
|
|
|
2,250,000
|
|
|
$
|
0.07
|
|
|
|
October
- December 2023
|
|
2019
Warrants – 2019 financing
|
|
|
10,500,000
|
|
|
$
|
0.07
|
|
|
|
March
2024
|
|
2019
Warrants for services
|
|
|
3,500,000
|
|
|
$
|
0.07
|
|
|
|
March
2024
|
|
Total
|
|
|
51,276,404
|
|
|
|
|
|
|
|
|
|
*
|
Includes
1.2 million in warrants issued during 2018
|
A
summary of all warrants activity for the year ended December 31, 2019 is as follows:
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Balance
outstanding at December 31, 2018
|
|
|
62,566,102
|
|
|
$
|
0.06
|
|
|
|
2.53
|
|
Granted
|
|
|
14,000,000
|
|
|
$
|
0.02
|
|
|
|
1.21
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(25,289,698
|
)
|
|
$
|
0.06
|
|
|
|
-
|
|
Balance
outstanding at December 31, 2019
|
|
|
51,276,404
|
|
|
$
|
0.06
|
|
|
|
2.24
|
|
Exercisable
at December 31, 2019
|
|
|
51,276,404
|
|
|
$
|
0.06
|
|
|
|
2.24
|
|
The
following table provides a summary of changes in the warrant liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the years ended December 31, 2019 and 2018.
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Balance of embedded derivative at the beginning of the period
|
|
$
|
129,355
|
|
|
|
121,860
|
|
Fair value of warrants issued and recorded as liabilities
|
|
|
-
|
|
|
|
33,384
|
|
Reclassification of warrant lability to equity related to adoption of ASU 2017-11
|
|
|
(118,675
|
)
|
|
|
-
|
|
Loss (gain) on fair value adjustment
|
|
|
(10, 680
|
)
|
|
|
(25,889
|
)
|
Balance of embedded derivatives at the end of the period
|
|
$
|
-
|
|
|
|
129,355
|
|
The
fair value of warrants outstanding at December 31, 2019 and December 31, 2018 has been determined based on the consideration of the enterprise
value of the Company, the limited market of the shares issuable under the agreement and modeling of the Black Scholes method using multiple
volatility assumptions. Warrants issued in and prior to 2012 are significantly out of the money and diluted therefore, management has
deemed the fair value of these to be minimal.
Equity
Incentive Plan
On
July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”)
and on July 26, 2011, stockholders holding a majority of shares of the Company approved, by written consent, the Plan and the issuance
under the Plan of 5,000,000 shares. On November 16, 2017, the Board of Directors approved an increase of 10,000,000 shares to be made
available for issuance under the Plan. Accordingly, the total number of shares of common stock available for issuance under the Plan
is 15,000,000 shares. Awards may be granted to employees, officers, directors, consultants, agents, advisors and independent contractors
of the Company and its related companies. Such options may be designated at the time of grant as either incentive stock options or nonqualified
stock options. Stock-based compensation includes expense charges related to all stock-based awards. Such awards include options, warrants
and stock grants. Generally, the Company issues stock options that vest over three years and expire in 5 to 10 years.
A
summary of all stock option activity for the year ended December 31, 2019 is as follows:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Balance outstanding at December 31, 2018
|
|
|
3,155,100
|
|
|
$
|
0.25
|
|
|
|
2.5
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding at December 31, 2019
|
|
|
3,155,100
|
|
|
$
|
0.25
|
|
|
|
1.5
|
|
Exercisable at December 31, 2019
|
|
|
3,155,100
|
|
|
$
|
0.25
|
|
|
|
1.5
|
|
Stock-based
compensation related to vested options totaled $64 and $256, respectively, the years ended December 31, 2019 and 2018. At December 31,
2019, there was no unrecognized compensation cost related to unvested options.
Note
11 – Commitments and Contingencies
National
Hockey League Retail License and Sponsorship Agreement
On
February 27, 2015, the Company announced a multi-year, Corporate Marketing Letter Agreement (the “NHL Agreement”) with the
National Hockey League. The NHL Agreement includes the usage of NHL ® team branded marks on the Company’s
Frozen Pond Premium Ice Cream™ for the period commencing March 1, 2015 through June 30, 2020 in retail distributions including
mass merchants, specialty shops, convenience stores and in the Company’s specialty kiosks in North America.
The
Company entered into the NHL Agreement with NHL Enterprises, L.P, NHL Enterprises Canada, L.P. and NHL Interactive Cyber Enterprises,
LLC (collectively referred to as the “NHL” and the “Licensors”) and includes a retail license agreement, a corporate
sponsorship and a marketing agreement. In connection with the Agreement, the Company shall pay to the NHL a royalty payment of five percent
(5%) on net sales as well as fees attributable to national advertising, promotion and corporate marketing and branding events. The Agreement
also provides for customary representations, warranties, and indemnification from the parties.
The
Company has never shipped product to date and the agreement has been nullified.
During
the year ended December 31, 2019, the Company and NHL agreed to terminate the NHL Agreement forgiving the Company CAD $3,450,000 in outstanding
obligations under the Sponsorship Agreement, in return the Company agreed to pay the NHL an amount equal to one percent (1%) of the Company’s
net sales of certain products as defined under the agreement (the ‘Consideration’). The products include several types of
frozen goods that bear the logo or other markings of sports or entertainment brands. This Consideration is to be paid to the NHL quarterly
in arrears through the quarter ended June 30, 2026, or until the Company has paid USD$1,600,000 in the aggregate from the date of the
agreement to the extent that the Company has revenue related to sports or entertainment brands. The Company recorded USD$2,674,419
in gain on settlement of liabilities.
Major
League Baseball Properties, Inc. License Agreement
In
March 2016, the Company entered into a license agreement beginning April 1, 2016 through December 31, 2019 with Major League Baseball
Properties, Inc. (“MLB” “Licensor”) for the non-exclusive right to certain proprietary intangible property of
the Licensor to be used in connection with the manufacturing, distribution, promotion and advertisement of the Company’s products
sold within the U.S., the District of Columbia and U.S. territories. Under the license agreement, the Company is scheduled to pay the
following guaranteed payments; $150,000 during 2016, $275,000 during 2017, $100,000 during 2018, and $115,000 during 2019. The Company
is obligated to pay the licensor a royalty based on the product sold or advertising sold. The royalty paid will offset all or a portion
of the guaranteed payments. The agreement is subject to customary default and termination clauses. The Company paid $0 and $322,000 during
the years ended December 31, 2019 and 2018, respectively, and has accrued $115,000 at December 31, 2019, and $0 as of December 31, 2018,
and charged to operations $115,000 and $100,000 of guaranteed payments related to the years ended December 31, 2019 and 2018, respectively.
As
of December 31, 2019, the agreement with MLB has expired and the Company is evaluating the value of continuing the relationship.
Note
12 – Income Taxes
Loss
from operations before provision (benefit) for income taxes is summarized in the following table:
|
|
Years ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
(1,878,591
|
)
|
|
$
|
(301,688
|
|
Foreign
|
|
|
(17,559
|
)
|
|
|
(136,009
|
)
|
|
|
$
|
(1,896,150
|
)
|
|
$
|
(437,697
|
)
|
The
income tax provision (benefit) is summarized in the following table:
|
|
Years ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Current
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Total Current
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(253,561
|
)
|
|
|
157,165
|
|
State
|
|
|
(49,921
|
)
|
|
|
(65,543
|
)
|
Foreign
|
|
|
-
|
|
|
|
183,571
|
|
Total Deferred
|
|
|
(303,481
|
)
|
|
|
275,193
|
|
Less increase in allowance
|
|
|
303,481
|
|
|
|
(275,193
|
)
|
Net Deferred
|
|
|
-
|
|
|
|
-
|
|
Total income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
The
significant components of the deferred tax assets and liabilities are summarized below:
|
|
Years ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
2,862,056
|
|
|
$
|
2,418,201
|
|
Depreciable and amortizable assets
|
|
|
(28,808
|
)
|
|
|
(31,997
|
)
|
Stock based compensation
|
|
|
49,555
|
|
|
|
203,866
|
|
Beneficial conversion feature
|
|
|
30,223
|
|
|
|
-
|
|
Loss reserve
|
|
|
251
|
|
|
|
1,925
|
|
Accrued compensation
|
|
|
35,707
|
|
|
|
55,463
|
|
Other
|
|
|
30,386
|
|
|
|
28,433
|
|
Total
|
|
|
2,979,370
|
|
|
|
2,675,891
|
|
Less valuation allowance
|
|
|
(2,979,370
|
)
|
|
|
(2,675,891
|
)
|
Net deferred tax assets (liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2019, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately
$11.1 million and $12.1 million, respectively. Approximately $8.6 million of the federal net operating loss carryforward expires through
2037 and $2.5 million will carryforward indefinitely, if not utilized earlier. The state net operating loss carryforwards expire through
2039, if not utilized earlier. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in the
future and utilize the net operating loss carryforwards before they expire, the Company has recorded a valuation allowance to fully offset
the net operating loss carryforwards, as well as the total net deferred tax assets.
Internal
Revenue Code Section 382 (“Section 382”) imposes limitations on the availability of a company’s net operating losses
and other corporate tax attributes as certain significant ownership changes occur. As a result of the historical equity instrument issuances
by the Company, a Section 382 ownership change may have occurred and a study will be required to determine the date of the ownership
change, if any. The amount of the Company’s net operating losses and other tax attributes incurred prior to any ownership change
may be limited based on the Company’s value. A full valuation allowance has been established for the Company’s deferred tax
assets, including net operating losses and any other corporate tax attributes.
During
the years ended December 31, 2019 and 2018, the Company had no unrecognized uncertain tax positions. The Company’s policy is to
recognize interest accrued and penalties related to unrecognized uncertain tax positions in tax expense.
The
Company files income tax returns in the U.S. federal jurisdiction, as well as the states of California, Florida, Illinois and New York.
The tax years 2016-2019 generally remain open to examination by the U.S. federal and state taxing authorities. In addition, the 2015
tax year is still open to examination by the state of California.
A
reconciliation of the income tax provision using the statutory U.S. income tax rate compared with the actual income tax provision reported
on the consolidated statements of operations is summarized in the following table:
|
|
Years ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Statutory United States federal rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
United States federal tax on foreign branch operations
|
|
|
-
|
|
|
|
6.53
|
|
State income tax, net of federal benefit
|
|
|
2.08
|
|
|
|
10.95
|
|
Other foreign income tax, net of federal benefit
|
|
|
-
|
|
|
|
1.98
|
|
Change in valuation allowance
|
|
|
(16.03
|
)
|
|
|
62.87
|
|
Stock based compensation
|
|
|
(9.93
|
)
|
|
|
-
|
|
Permanent differences
|
|
|
2.88
|
|
|
|
4.71
|
|
Tax rate differential between jurisdictions
|
|
|
-
|
|
|
|
2.60
|
|
Other
|
|
|
-
|
|
|
|
0.88
|
|
Foreign net operating loss adjustment
|
|
|
-
|
|
|
|
(111.52
|
)
|
Effective tax rate benefit (provision)
|
|
|
-
|
%
|
|
|
-
|
%
|
Note
13 – Subsequent Events
Subsequent
to December 31, 2019, the Company issued convertible promissory notes in the principal amount of
$147,000 to an unaffiliated investor to support the Company’s working capital requirements. The note bears interest at the rate
of 9.5% per annum and is due and payable in two years. The note is convertible into shares of the Company’s common stock at $0.03
per share and is redeemable at the principal amount plus accrued unpaid interest after one year, at the Company’s option.
Subsequent
to December 31, 2019, the Company issued a convertible promissory note in the principal amount of $254,618 to unaffiliated investors.
The notes bear interest at the rate of 9.5% per annum and is due and payable in two years. The notes are convertible into shares of the
Company’s common stock at $0.05 per share and is redeemable at the principal amount plus accrued unpaid interest after one year,
at the Company’s option.
In
2019, the Board, through a shareholder vote, approved a resolution to increase the Corporate Share Count, Reverse stock split and to
Change the State of Incorporation to Nevada. While the resolution has been approved no actions have been taken to date.
Subsequent
to December 31, 2019, the Company issued a convertible note for deferred compensation in the principal amount of $94,600. The notes bear
interest at the rate of 9.5% per annum and is due and payable in two years. The notes are convertible into shares of the Company’s
common stock at $0.05 per share and is redeemable at the principal amount plus accrued unpaid interest after one year, at the Company’s
option.