ITEM
8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
to Consolidated Financial Statements
BOXSCORE
BRANDS, INC.
December
31, 2020 and 2019
Report of Independent Registered
Public Accounting Firm
To the Stockholders and the Board of Directors of
BoxScore Brands, Inc. (Formerly U-Vend, Inc. and Subsidiaries)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance
sheets of BoxScore Brands, Inc. (the Company) (Formerly U-Vend Inc, Inc. and Subsidiaries) as of December 31, 2019 and 2018, the related
consolidated statements of operations, changes in stockholders' deficit and cash flows for the years then ended, and the related notes
to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability
to Continue as a Going Concern
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company’s
has suffered recurring losses from operations since inception and, as of December 31, 2019, has negative working capital and a stockholders’
deficit. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these
matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. 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 audits 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.
/s/ Freed Maxick CPAs, P.C.
We have served as the Company's auditor since 2009.
Buffalo, New York
May 12, 2021
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
BoxScore Brands, Inc.
Las Vegas, NV
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of BoxScore Brands, Inc. (the Company) as of December 31, 2020, and the related consolidated statements of operations, changes
in stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2020, 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.
Going Concern Considerations
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses since inception and has
not achieved profitable operations, which raise substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are described in Note 3. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) 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. 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 audit, 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 audit 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 audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter
communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to
be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Going Concern – Disclosure
The financial statements
of the Company are prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future
and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations. As noted in “Going
Concern Considerations” above, the Company has a history of recurring net losses, a significant accumulated deficit and currently
has net working capital deficit. At December 31, 2020, the Company had an accumulated deficit of $18,130,455. The Company has contractual
obligations, such as commitments for repayments of accounts payable, accrued liabilities, notes payable, convertible notes payable, and
amounts due under capital lease (collectively “obligations”). Currently, management’s forecasts and related assumptions
illustrate their ability to meet the obligations through management of expenditures, implementation of a new operational direction, obtaining
additional debt financing, and issuance of capital stock for additional funding to meet its operating needs. Should there be constraints
on the ability to implement its new business operations or access financing through stock issuances, the Company will continue to manage
cash outflows and meet the obligations through debt financing.
We identified management’s
assessment of the Company’s ability to continue as a going concern as a critical audit matter. Management made judgments to conclude
that it is probable that the Company’s plans will be effectively implemented and will provide the necessary cash flows to fund the
Company’s obligations as they become due. Specifically, the judgments with the highest degree of impact and subjectivity in determining
it is probable that the Company’s plans will be effectively implemented include its ability to manage expenditures, its ability
to access funding from the capital market, its ability to obtain debt financing, and the successful implementation of its new operational
direction. Auditing the judgments made by management required a high degree of auditor judgment and an increased extent of audit effort.
Addressing the matter
involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.
These procedures included the following, among others: (i) evaluating the probability that the Company will be able to access funding
from the capital market; (ii) evaluating the probability that the Company will be able to manage expenditures (iii) evaluating the probability
that the Company will be able to obtain debt financing, and (iv) evaluating the planned implementation of its new business operational
direction.
/s/ Pinnacle Accountancy Group of Utah
We have served as the Company’s auditor since 2021.
Pinnacle Accountancy Group of Utah
(a dba of Heaton & Company, PLLC)
Farmington, Utah
September 27, 2021
BOXSCORE
BRANDS, INC.
Consolidated
Balance Sheets
|
|
December 31,
|
|
|
December 31,
|
|
Assets
|
|
2020
|
|
|
2019
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
$
|
23,586
|
|
|
|
-
|
|
Accounts receivable
|
|
|
-
|
|
|
|
1,530
|
|
Prepaid expenses and other assets
|
|
|
9,789
|
|
|
|
7,789
|
|
Total current assets
|
|
|
33,375
|
|
|
|
9,319
|
|
Noncurrent assets
|
|
|
|
|
|
|
|
|
Property and equipment (net)
|
|
|
61,600
|
|
|
|
91,673
|
|
Total assets
|
|
$
|
94,975
|
|
|
$
|
100,992
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
314,533
|
|
|
$
|
278,188
|
|
Accrued expenses
|
|
|
390,398
|
|
|
|
399,551
|
|
Accrued interest
|
|
|
1,720,766
|
|
|
|
1,205,325
|
|
Other amounts due to related parties
|
|
|
-
|
|
|
|
67,022
|
|
Senior convertible notes, net of discount
|
|
|
402,704
|
|
|
|
443,804
|
|
Promissory notes payable
|
|
|
406,081
|
|
|
|
520,537
|
|
Convertible notes payable, net of discount
|
|
|
4,769,400
|
|
|
|
3,867,316
|
|
Current capital lease obligation
|
|
|
146,734
|
|
|
|
104,379
|
|
Total current liabilities
|
|
|
8,150,616
|
|
|
|
6,886,122
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Promissory notes payable
|
|
|
118,250
|
|
|
|
-
|
|
Convertible notes payable, net of discount
|
|
|
481,350
|
|
|
|
1,089,699
|
|
Capital lease obligation
|
|
|
34,890
|
|
|
|
76,471
|
|
Derivative liabilities
|
|
|
3,083,255
|
|
|
|
13,553
|
|
Total noncurrent liabilities
|
|
|
3,717,745
|
|
|
|
1,179,723
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
11,868,361
|
|
|
|
8,065,845
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 600,000,000 shares authorized, 75,828,064 and 37,717,755 shares issued and outstanding, respectively
|
|
|
75,828
|
|
|
|
37,716
|
|
Additional paid in capital
|
|
|
6,281,241
|
|
|
|
6,195,573
|
|
Accumulated deficit
|
|
|
(18,130,455
|
)
|
|
|
(14,198,142
|
)
|
Total stockholders’ deficit
|
|
|
(11,773,386
|
)
|
|
|
(7,964,853
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
94,975
|
|
|
$
|
100,992
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
BOXSCORE
BRANDS, INC.
Consolidated Statements of Operations
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
80,233
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
88,965
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
-
|
|
|
|
(8,732
|
)
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Selling
|
|
|
-
|
|
|
|
143,323
|
|
General and administrative
|
|
|
245,811
|
|
|
|
821,122
|
|
Asset impairment
|
|
|
-
|
|
|
|
192,705
|
|
Depreciation
|
|
|
-
|
|
|
|
100,188
|
|
Total operating expenses
|
|
|
245,811
|
|
|
|
1,257,338
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(245,811
|
)
|
|
|
(1,266,070
|
)
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income)
|
|
|
|
|
|
|
|
|
(Gain) loss on change in fair value of derivative liabilities
|
|
|
3,069,702
|
|
|
|
(34,986
|
)
|
Gain on settlement of liabilities
|
|
|
(11,000
|
)
|
|
|
(156,709
|
)
|
Loss on sale of assets
|
|
|
12,074
|
|
|
|
27,465
|
|
Amortization and accretion of debt discount and deferred financing costs
|
|
|
4,432
|
|
|
|
171,513
|
|
Interest expense
|
|
|
611,294
|
|
|
|
622,797
|
|
Total other expenses (income)
|
|
|
3,686,502
|
|
|
|
630,080
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
|
(3,932,313
|
)
|
|
|
(1,896,150
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(3,932,313
|
)
|
|
$
|
(1,896,150
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares – basic and diluted
|
|
|
41,943,712
|
|
|
|
36,369,365
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
BOXSCORE
BRANDS, INC.
Consolidated Statements of Changes in Stockholders’ Deficit
|
|
Common stock
|
|
|
Additional Paid in
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance as of December 31, 2018
|
|
|
32,176,659
|
|
|
$
|
32,177
|
|
|
$
|
5,692,058
|
|
|
$
|
(12,301,992
|
)
|
|
$
|
(6,577,757
|
)
|
Shares issued for services
|
|
|
3,441,096
|
|
|
|
3,439
|
|
|
|
281,940
|
|
|
|
-
|
|
|
|
285,379
|
|
Shares issued for note conversion
|
|
|
2,100,000
|
|
|
|
2,100
|
|
|
|
102,900
|
|
|
|
-
|
|
|
|
105,000
|
|
Reclassification of warrant liability to equity related to adoption of ASU 2017-11
|
|
|
-
|
|
|
|
-
|
|
|
|
118,675
|
|
|
|
-
|
|
|
|
118,675
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,896,150
|
)
|
|
|
(1,896,150
|
)
|
Balance as of December 31, 2019
|
|
|
37,717,755
|
|
|
$
|
37,716
|
|
|
$
|
6,195,573
|
|
|
$
|
(14,198,142
|
)
|
|
$
|
(7,964,853
|
)
|
Shares issued for note conversion
|
|
|
38,110,309
|
|
|
|
38,112
|
|
|
|
79,896
|
|
|
|
-
|
|
|
|
118,008
|
|
Fair value of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
5,772
|
|
|
|
-
|
|
|
|
5,772
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,932,313
|
)
|
|
|
(3,932,313
|
)
|
Balance as of December 31, 2020
|
|
|
75,828,064
|
|
|
$
|
75,828
|
|
|
$
|
6,281,241
|
|
|
$
|
(18,130,455
|
)
|
|
$
|
(11,773,386
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
BOXSCORE
BRANDS, INC.
Consolidated Statements of Cash Flows
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,932,313
|
)
|
|
$
|
(1,896,150
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
5,772
|
|
|
|
285,379
|
|
Depreciation
|
|
|
-
|
|
|
|
100,188
|
|
Amortization and accretion of debt discount and deferred financing costs
|
|
|
4,432
|
|
|
|
171,513
|
|
Gain on settlement of liabilities
|
|
|
(11,000
|
)
|
|
|
(156,709
|
)
|
Loss on default of convertible notes
|
|
|
-
|
|
|
|
42,625
|
|
(Gain) loss on change in fair value of derivative liabilities
|
|
|
3,069,702
|
|
|
|
(34,986
|
)
|
Loss on sale of asset
|
|
|
12,074
|
|
|
|
27,465
|
|
Loss on asset impairment
|
|
|
-
|
|
|
|
192,705
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,530
|
|
|
|
24,122
|
|
Inventory
|
|
|
-
|
|
|
|
59,135
|
|
Prepaid expenses and other assets
|
|
|
(2,000
|
)
|
|
|
23,221
|
|
Accounts payable and accrued expenses
|
|
|
283,432
|
|
|
|
(144,897
|
)
|
Accrued interest
|
|
|
594,999
|
|
|
|
455,600
|
|
NHL and MLB sponsorship liability
|
|
|
-
|
|
|
|
115,000
|
|
Amount due to officers
|
|
|
(67,022
|
)
|
|
|
(15,848
|
)
|
Net cash used in operating activities
|
|
|
(40,394
|
)
|
|
|
(751,637
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
18,000
|
|
|
|
350,000
|
|
Net cash provided by investing activities
|
|
|
18,000
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from promissory notes
|
|
|
-
|
|
|
|
270,000
|
|
Proceeds from convertible notes
|
|
|
76,500
|
|
|
|
619,303
|
|
Repayments of capital lease obligations
|
|
|
(15,520
|
)
|
|
|
(189,936
|
)
|
Repayment of convertible note
|
|
|
-
|
|
|
|
(64,300
|
)
|
Repayments of promissory notes
|
|
|
(15,000
|
)
|
|
|
(296,508
|
)
|
Net cash provided by financing activities
|
|
|
45,980
|
|
|
|
338,559
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
23,586
|
|
|
|
(63,078
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
-
|
|
|
|
63,078
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
23,586
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Supplemental disclosures of non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued payable exchanged for convertible note
|
|
$
|
228,947
|
|
|
$
|
178,572
|
|
Note payable converted to equity
|
|
$
|
118,008
|
|
|
$
|
105,000
|
|
Promissory note converted into convertible notes
|
|
$
|
-
|
|
|
$
|
248,485
|
|
Accrued interest exchanged into convertible notes
|
|
$
|
-
|
|
|
$
|
73,339
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
BOXSCORE
BRANDS, INC.
Notes
to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
Note
1 – Nature of the Business
BoxScore
Brands, Inc. (formerly U-Vend Inc.) (the “Company”) formerly developed, marketed and distributed various self-serve electronic
kiosks and mall/airport co-branded islands throughout North America. Due to the nationwide shutdown related to the COVID-19 pandemic,
the Company spent a portion of 2020 restructuring and retiring certain corporate debt and obligations. The Company focused on implementing
a new operational direction. After a thorough evaluation process, the Company found that there is a substantial long-term demand for
specific commodities relating to battery and new energy technologies. This presents a timely and unique opportunity based on rising demand
characteristics. By capitalizing on market trends and current sustainable energy government mandates and environmental, social, and corporate
governance (ESG) initiatives, we will focus on bringing a vertically-integrated solution to market.
Asset
Sale
On
March 18, 2019, the Company approved an asset sale of the assets related to the legacy MiniMelts brand for $350,000 in cash, which was
approved by a majority of its stockholders. These MiniMelts assets generated 100% of the revenue reported during the year ended December
31, 2019. During the year ended December 31, 2018, MiniMelts sales accounted for approximately $1,100,000, or 85%, of the revenue reported
during that period. Part of the proceeds from the sale was used to retire certain lease obligations as well as for general operating
purposes.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).
The Company’s fiscal year ends is December 31.
The
accompanying consolidated financial statements include the accounts of BoxScore Brands, Inc. and the operations of its wholly-owned subsidiaries
U-Vend America, Inc., U-Vend Canada, Inc. and U-Vend USA LLC. All intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and be based on
events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating, therefore, requires
the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired, or as additional information
is obtained.
Property
and Equipment
Property
and equipment are stated at cost less depreciation. Depreciation is provided using the straight-line method over the estimated useful
life of the assets. Equipment has estimated useful lives between three and seven years. Expenditures for repairs and maintenance are
charged to expense as incurred.
Impairment
of Long-lived Assets
Long-lived
assets, such as property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and
used is measured by comparing the carrying amount to the estimated future undiscounted cash flows expected to be generated by the asset
group. If it is determined that an asset group is not recoverable, an impairment charge is recognized for the amount by which the carrying
amount of the asset group exceeds its fair value.
Earnings
(Loss) Per Share
The
Company presents basic and diluted earnings per share in accordance with ASC 260, “Earnings Per Share.” Basic earnings per
share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed
including the number of additional shares that would have been outstanding if dilutive potential shares had been issued. In a loss period,
the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.
As
of December 31, 2020 and 2019, respectively, there were approximately 166 million and 160 million shares, respectively, potentially issuable
under convertible debt agreements, options, and warrants that could dilute basic earnings per share in the future that were excluded
from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses
during the periods presented.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. Certain warrants issued by the Company contain terms that result in the warrants being classified as derivative liabilities
for accounting purposes. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair market value and then is revalued at each reporting date, with changes in fair value reported in the consolidated
statement of operations. The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency
risks.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash, accounts receivable, accounts payable, accrued liabilities and
short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements
and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial
Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that
enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
|
●
|
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and
volume to provide pricing information on an ongoing basis
|
|
●
|
Level
2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially
the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable
market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments,
can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.
|
|
●
|
Level
3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less
observable from objective sources (i.e. supported by little or no market activity). Level 3 instruments include derivative warrant
instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level
1 or Level 2.
|
Certain
of the Company’s debt and equity instruments include embedded derivatives that require bifurcation from the host contract under
the provisions of ASC 815-40, “Derivatives and Hedging.” Certain warrants were issued between June 2013 and December 2014
were derivative liabilities outside the exception of applying ASU 2017-11, “Accounting for Certain Financial Instruments with Down
Round Features.” When determining whether certain financial instruments should be classified as liabilities or equity instruments,
a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s
own stock. On January 1, 2019, the Company adopted ASU 2017-11 on its consolidated financial statements and reclassified $118,675 as
equity from derivative liabilities. The estimated fair value of the derivative warrant instruments was calculated using a Black Scholes
valuation model.
The
following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair
value on a recurring basis as December 31, 2020 and 2019:
|
|
Carrying
|
|
|
Fair Value Measurement at
|
|
|
|
Value
|
|
|
December 31, 2020
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, debt and equity instruments
|
|
$
|
3,083,255
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3,083,255
|
|
|
|
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
|
|
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation,” that
requires all stock-based awards granted to employees, directors, and non-employees to be measured at grant date fair value of the equity
instrument issued, 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 Settlement of Liabilities
During
the year ended December 31, 2020 creditors forgave aggregate amount of $11,000 associated with accrued expenses. 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,
resulting in a balance of $67,022 owed at December 31, 2019. During the year ended December 31, 2020, this amount was reclassed to accrued
expenses.
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. We recognize revenue under ASC 606, Revenue from Contracts with
Customers (“ASC 606”), the core principle of which is that an entity should recognize revenue to depict the transfer of control
for promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. In applying the revenue recognition principles, an entity is required to identify the contract(s)
with a customer, identify the performance obligations, determine the transaction price, allocate the transaction price to the performance
obligations and recognize revenue as the performance obligations are satisfied (i.e., either over time or at a point in time). ASC 606
further requires that companies disclose sufficient information to enable readers of financial statements to understand the nature, amount,
timing and uncertainty of revenue and cash flows arising from contracts with customers.
Income
Taxes
Income
taxes are accounted for under the liability method in accordance with ASC 740, “Income Taxes.” Under the liability method,
future tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts
reported in the financial statements and their respective tax bases. Future tax assets and liabilities are measured using enacted or
substantially enacted income tax rates expected to apply when the asset is realized, or the liability settled.
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax law and rates on the date of enactment.
Recent
Accounting Pronouncements
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, 2019. 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.
The
Company has examined all other recent accounting pronouncements and determined that they will not have a material impact on its financial
position, results of operations, or cash flows.
Note
3 – Going Concern
The
accompanying consolidated financial statements have been prepared on a going concern basis. The Company reported net loss of $3,932,313
for the year ended December 31, 2020 and has incurred accumulated losses totaling $18,130,455 through December 31, 2020. 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, 2020 and 2019:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Freezers
and other equipment
|
|
$
|
61,600
|
|
|
$
|
91,673
|
|
Delivery
vans
|
|
|
-
|
|
|
|
-
|
|
Less:
accumulated depreciation
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
61,600
|
|
|
$
|
91,673
|
|
Depreciation
expense amounted to $0 and $100,188 for the years ended December 31, 2020 and 2019, respectively. We impaired our fixed assets by $0
and $192,705 during the years ended December 31, 2020 and 2019, respectively, related to the certain freezers and other equipment based
the expected recoverability of the assets not currently in use.
During
the years ended December 31, 2020 and 2019, the Company recorded losses on sale of assets of $12,074 and $27,465, respectively, related
to sale of the certain freezers and other equipment.
Note
5 – 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”), was extended until December 31, 2019. During the
year ended December 31, 2020, principal and accrued interest in the amount of $55,788 were converted into 14,760,086 shares of common
stock. The carrying value as of December 31, 2020 and 2019 was $268,900 and $310,000, respectively.
On
June 30, 2016, the Company issued a 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 was due on December 31, 2019. It is convertible into shares of common stock
at a conversion price $0.05 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. The carrying value as of December
31, 2020 and 2019 was $108,804.
During
December 2017, the Company issued a Senior Convertible Note in the amount of $25,000 to Cobrador. The note bears interest at 7%, was
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. The carrying value as of December 31, 2020 and 2019 was $25,000.
As
of the date of release of these financial statements, all senior convertible notes were in default with an interest rate increased to
15%.
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 as of December 31,
2020 and 2019 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. As of December 31, 2020 and 2019, the balance outstanding on these notes was
$25,784.
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 by 2%
over original interest rate 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, 2020 and 2019, 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. The notes accrue interest
at 7% and have a two-year term. As of December 31, 2020 and 2019, 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. In 2018, the Company borrowed an additional $25,000 and repaid $60,000. The balance outstanding
on this note as of December 31, 2020 and 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. The carrying value as of December 31, 2018 was $287,750. 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, 2020 and 2019
was $0.
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 to 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.
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
matured 64 weeks later. The Company recorded $11,160 to debt discount. During the year 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. During the year ended December
31, 2020, the Company repaid $15,000 in principal and fully amortized $544 of debt discount. As of December 31, 2020 and 2019, the balance
outstanding on this note was $51,062 and $65,518, respectively.
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 year 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.
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 maturing on August 8, 2019. As of December 31, 2020 and 2019, the balance outstanding on these notes was $135,000.
As
of the date of release of these financial statements, promissory notes were in default with an interest rate increased by 2% over the
original interest rate.
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 $0.07 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. On December
23, 2020, total principal and accrued interest in the amount of $118,250 were converted into a new promissory note in the principal amount
of $118,250 with an annual 10% rate of interest and mature on January 15, 2022. As of December 31, 2020, the outstanding balance was
$118,250.
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, 2020
and 2019, outstanding balance of these notes was $121,000. As of the date of release of these financial statements, these notes were
in default with an interest rate increased to 15%.
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 agreed to a revised conversion price of $0.05 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, 2020 and 2019, outstanding balance of these notes was $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, 2020 and 2019, the 2015 SPA had a balance
of $406,000. The debt discount was fully amortized as of December 31, 2016.
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 were 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 these notes, 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 was converted into 1,700,000 shares of common stock.
As
of December 31, 2020 and 2019, the 2016 SPA had a carrying value of $676,597. As of the date of release of these financial statements,
these notes were in default with an interest rate increased to 18%.
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 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, 2020 and 2019, the Cobrador 2016 Notes had
a carrying value of $95,000.
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, 2020 and 2019, the carrying value of the notes was $250,000. As of the date of release of these financial statements, these notes
were in default with an interest rate increased to 18%.
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. As of December 31, 2020 and 2019, the carrying
value of the notes was $924,282. As of the date of release of these financial statements, these notes were in default with an interest
rate increased to 18%.
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.
These notes are accruing interest at the cash rate of 9.5%. 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
as of December 31, 2019. During the year ended December 31, 2020, the Company fully amortized $3,889 of debt discount resulting in carrying
value of $537,500 as of December 31, 2020. As of the date of release of these financial statements, convertible notes were in default
with an interest rate increased to 18%.
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 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 note is accruing interest at the 9.5% cash rate. As of December
31, 2020 and 2019, the carrying value of the notes was $436,500. As of the date of release of these financial statements, convertible
notes were in default with an interest rate increased to 18%.
During the
year ended December 31, 2018, the Company entered into three convertible note agreements in the aggregate principal amount of $240,500
with a net proceed of $214,000. These notes had a 1-year term, and bear 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 $296,450
at December 31, 2019. During the year ended December 31, 2020, total principal and accrued interest in the amount of $37,712 were converted
into 9,924,132 shares of common stock, resulting in carrying value of $281,250 as of December 31, 2020.
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 had 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 matured
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. 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 fully amortized $23,384 of debt discount. During the year ended December 31, 2020, accrued interest
in the amount of $24,508 was converted into 13,426,091 shares of common stock. As of December 31, 2020 and 2019, the carrying value of
the note was $127,875. As of the date of release of these financial statements, convertible note was in default with an interest rate
increased to 24%.
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. The note is accruing interest at the cash rate of 9.5%. The outstanding principal balance was $60,000 as of
December 31, 2020 and 2019.
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 was $331,824 as of December 31, 2020 and 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 $108,572 as of December 31, 2020 and
2019. The note is accruing interest at the 9.5% cash rate.
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. 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. The investor had consented to higher draws on the facility in excess of the limit per the initial agreement. On April
15, 2020, the Company issued a convertible note in the amount of $206,231. The note has a 2 year term, bears interest of 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 December
24, 2020, the Company issued a convertible promissory note in the amount of $147,000. The note has a 2 year term, bears interest of 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 $0.03 per share
and is redeemable at the principal amount plus accrued unpaid interest after one year, at the Company’s option. The note is accruing
interest at the 9.5% cash rate. During the year ended December 31, , 2020, $176,928 was drawn under the agreement, including $75,500
in cash proceeds and $1000,428 in repayment of accrued liabilities. As of December 31, 2020 and 2019, $603,231 and $426,303 was drawn
under these agreements, respectively.
During
the year ended December 31, 2019, the Company entered into several convertible note agreements in the amount of $68,000. The 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 $0.07 per share. The outstanding principal balance was of $68,000 as of December 31, 2020 and 2019. The Notes are
accruing interest at the 9.5% cash rate.
During
the year ended December 31, 2019, the Company entered into a convertible notes agreement in the amount of $50,000. The Note has a 6 month
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 $0.01 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 of $50,000 as of December 31, 2020 and 2019.
2020
Financings
On
January 1, 2020, the Company issued a convertible note in the amount of $8,500 for conversion of accrued liabilities. The Note has a
2 year term, bears interest of 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. The outstanding principal balance was $8,500 as of December 31, 2020.
On
March 1, 2020, the Company issued a convertible note in the amount of $17,899 for conversion of accrued liabilities. The Note has a 2
year term, bears interest of 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. The outstanding principal balance was $17,899 as of December 31, 2020.
On
November 1, 2020, the Company issued a convertible note in the amount of $46,719 for conversion of accrued liabilities. The Note has
a 2 year term, bears interest of 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. The outstanding principal balance was $46,719 as of December 31, 2020.
The
2020 Financings are accruing interest at their cash repayment rate of 9.5%.
Scheduled
maturities of debt remaining as of December 31, 2020 for each respective fiscal year end are as follows:
2020
|
|
$
|
4,664,789
|
|
2021
|
|
|
913,396
|
|
2022
|
|
|
599, 600
|
|
|
|
|
6,177,785
|
|
Less: unamortized debt discount
|
|
|
-
|
|
|
|
$
|
6,177,785
|
|
The
following table reconciles, for the years ended December 31, 2020 and 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:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Balance of embedded derivative at the beginning of the year
|
|
$
|
13,553
|
|
|
$
|
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
|
|
|
3,069,702
|
|
|
|
88,102
|
|
Balance of embedded derivatives at the end of the year
|
|
$
|
3,083,255
|
|
|
|
13,553
|
|
Note
6 – 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, 2020. 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. On January 1, 2019, the Company adopted ASU 2017-11 on its consolidated financial statements and reclassified
$118,675 as equity from derivative liabilities.
During
the year ended December 31, 2018 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, 2020, under the current portion of capital leases.
2021
|
|
$
|
157,503
|
|
2022
|
|
|
30,584
|
|
2023
|
|
|
10,252
|
|
Total minimum lease payments
|
|
|
198,339
|
|
Less: Amount represented interest
|
|
|
(16,715
|
)
|
Present value of minimum lease payments and guaranteed residual value
|
|
$
|
181,624
|
|
Note
7 – Capital Stock
Preferred
Stock
The
Company has authorization for “blank check” preferred stock, which could be issued with voting, liquidation, dividend and
other rights superior to common stock. As of December 31, 2020 and 2019, there are 10,000,000 shares of preferred stock authorized, par
value $0.001, and no shares issued or outstanding.
Common
Stock
The
Company has authorized 600,000,000 shares of common stock with a par value of $.001.
During
the year ended December 31, 2020, the Company issued 38,110,309 shares of its common stock, in conversion of $118,008 of convertible
notes.
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 $285,379 for services rendered, and 2,100,000 shares in conversion of $105,000 of convertible notes.
Note
8 – Stock Options and Warrants
Warrants
At
December 31, 2020 the Company had the following warrant securities outstanding:
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Expiration
|
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 2020
|
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 – 2019 financing
|
|
|
9,991,905
|
|
|
$
|
0.07
|
|
|
January - November 2023
|
2018 Warrants for services
|
|
|
2,250,000
|
|
|
$
|
0.07
|
|
|
October - December 2023
|
2019 Warrants – 2020 financing
|
|
|
10,500,000
|
|
|
$
|
0.07
|
|
|
March 2024
|
2019 Warrants for services
|
|
|
3,500,000
|
|
|
$
|
0.07
|
|
|
March 2024
|
2020 Warrants for services
|
|
|
3,000,000
|
|
|
$
|
0.05
|
|
|
February 2025
|
Total
|
|
|
52,979,485
|
|
|
|
|
|
|
|
During
the year ended December 31, 2020, the Company issued warrants exercisable into 3,000,000 shares of common stock to its officer. The fair
value of warrants was determined to be $5,772, and was estimated using the Black-Scholes-Merton option-pricing model with the following
assumptions: expected volatility of 339%, risk-free interest rate 1.35%, expected dividend yield of 0%.
A
summary of all warrants activity for the years ended December 31, 2020 and 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
|
|
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
Balance outstanding at December 31, 2019
|
|
|
51,276,404
|
|
|
$
|
0.06
|
|
|
|
2.24
|
|
Granted
|
|
|
3,000,000
|
|
|
$
|
0.05
|
|
|
|
4.84
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(1,296,919
|
)
|
|
$
|
0.12
|
|
|
|
-
|
|
Balance outstanding at December 31, 2020
|
|
|
52,979,485
|
|
|
$
|
0.06
|
|
|
|
2.34
|
|
Exercisable at December 31, 2019
|
|
|
52,979,485
|
|
|
$
|
0.06
|
|
|
|
2.34
|
|
The
following table provides a summary of changes in the down-round warrant liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the years ended December 31, 2020 and 2019.
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Balance of embedded down-round derivative at the beginning of the year
|
|
$
|
-
|
|
|
$
|
129,355
|
|
Fair value of warrants issued and recorded as liabilities
|
|
|
-
|
|
|
|
-
|
|
Reclassification of warrant lability to equity related to adoption of ASU 2017-11
|
|
|
-
|
|
|
|
(118,675
|
)
|
Gain on fair value adjustment
|
|
|
-
|
|
|
|
(10,
680)
|
|
Balance of embedded down-round derivatives at the end of the year
|
|
$
|
-
|
|
|
$
|
-
|
|
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 years ended December 31, 2020 and 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
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Balance outstanding at December 31, 2019
|
|
|
3,155,100
|
|
|
$
|
0.25
|
|
|
|
1.5
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled or expired
|
|
|
(3,152,600
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding at December 31, 2020
|
|
|
2,500
|
|
|
$
|
60
|
|
|
|
0.5
|
|
Exercisable at December 31, 2020
|
|
|
2,500
|
|
|
$
|
60
|
|
|
|
0.5
|
|
Note
9 – Commitments and Contingencies
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 was 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
was obligated to pay the licensor a royalty based on the product sold or advertising sold. The royalty paid was to offset all or a portion
of the guaranteed payments. The agreement was subject to customary default and termination clauses. The Company paid $0 during the years
ended December 31, 2019 and 2020, and has accrued $115,000 at December 31, 2020 and 2019.
As
of December 31, 2020, the agreement with MLB has expired. The Company will not be continuing the relationship.
Note
10 - Income Taxes
Loss
from operations before provision (benefit) for income taxes is summarized in the following table:
|
|
Years
ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(3,954,316
|
)
|
|
$
|
(1,878,591
|
)
|
Foreign
|
|
|
(-
|
)
|
|
|
(17,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,954,316
|
)
|
|
$
|
(1,896,150
|
)
|
|
|
Years
ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Current
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Total Current
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(770,342
|
)
|
|
|
(253,561
|
)
|
State
|
|
|
(207,471
|
)
|
|
|
(49,921
|
)
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Total Deferred
|
|
|
(977,813
|
)
|
|
|
(303,481
|
)
|
Less increase in allowance
|
|
|
977,813
|
|
|
|
303,481
|
|
Net Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
The
significant components of the deferred tax assets and liabilities are summarized below:
|
|
Years ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
3,023,143
|
|
|
$
|
2,862,056
|
|
Depreciable and amortizable assets
|
|
|
(20,520
|
)
|
|
|
(28,808
|
)
|
Stock based compensation
|
|
|
50,297
|
|
|
|
49,555
|
|
Beneficial conversion feature
|
|
|
838,752
|
|
|
|
30,223
|
|
Loss reserve
|
|
|
457
|
|
|
|
251
|
|
Accrued compensation
|
|
|
35,146
|
|
|
|
35,707
|
|
Other
|
|
|
29,908
|
|
|
|
30,386
|
|
Total
|
|
|
3,957,183
|
|
|
|
2,979,370
|
|
Less valuation allowance
|
|
|
(3,957,183
|
)
|
|
|
(2,979,370
|
)
|
Net deferred tax assets (liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2020, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately
$11.9 million and $12.3 million, respectively. Of the federal net operating loss carryforward, $8.6 million, if not utilized earlier,
expires through 2037 and $3.3 million will carryforward indefinitely. The state net operating loss carryforwards expire through 2040,
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, 2020 and 2019, 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 2017-2020 generally remain open to examination by the U.S. federal and state taxing authorities. In addition, the 2016
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,
|
|
|
|
2020
|
|
|
2019
|
|
Statutory United States federal rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
State income tax, net of federal benefit
|
|
|
4.14
|
|
|
|
2.08
|
|
Change in valuation allowance
|
|
|
(24.72
|
)
|
|
|
(16.03
|
)
|
Stock based compensation
|
|
|
-
|
|
|
|
(9.93
|
)
|
Permanent differences
|
|
|
(0.42
|
)
|
|
|
2.88
|
|
Tax rate differential between jurisdictions
|
|
|
-
|
|
|
|
|
|
Other
|
|
|
-
|
|
|
|
|
|
Foreign net operating loss adjustment
|
|
|
-
|
|
|
|
-
|
|
Effective tax rate benefit (provision)
|
|
|
-
|
%
|
|
|
-
|
%
|
Note
11 – Subsequent Events
The
Company has evaluated events occurring subsequent to December 31, 2020 through the date these financial statements were issued and determined
the following significant events require disclosure:
Subsequent
to December 31, 2020, the Company issued multiple convertible promissory notes in the aggregate principal amount of $515,000 to unaffiliated
investors. The notes bear interest at the rate of 9.5% per annum and are due and payable in two years. The notes are convertible into
shares of the Company’s common stock at $0.05 per share and are redeemable at the principal amount plus accrued unpaid interest
after one year, at the Company’s option.
Subsequent
to December 31, 2020, 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 note is 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.
Subsequent
to December 31, 2020, the Company issued 150,775,975 of its common stock in conversion of $568,589 of convertible notes.
Subsequent
to December 31, 2020, the Company hired Patrick Avery as the Company’s Chief Operating Officer with a salary of $84,000.