NOTE 1 – BUSINESS SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND LIQUIDITY
Nature of Business
First Foods Group, Inc. (the “Company” or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate product line and participating in merchant cash advances (“MCA”) through its 1st Foods Funding Division. First Foods continues to pursue new foodservice brands and menu concepts.
On August 31, 2017, the Company formed Holy Cacao, Inc., a Nevada corporation (“Holy Cacao”). Holy Cacao has 100 shares of no par value common stock authorized, issued and outstanding with 85 shares owned by the Company and 15 shares owned by non-controlling interests. Holy Cacao is dedicated to producing, packaging, distributing and selling specialty chocolate products, including specialty chocolate products infused with a hemp-based ingredient in accordance with the Company’s understanding of the Agricultural Act of 2014 (the “2014 Farm Bill”) and/or the Agriculture Improvement Act of 2018 (the “2018 Farm Bill,” and together with the 2014 Farm Bill, collectively, the “Farm Bill”), which renders the production of hemp in compliance with the provisions of the Farm Bill federally lawful. The Company has not been, is not, and has no current plans to be involved in producing, packaging, distributing or selling any product that is infused with a marijuana-based ingredient, although it intends to revisit the matter as regulations change in jurisdictions in which it operates. The Company is also dedicated to licensing its intellectual property (“IP”), including its name, brand, and packaging, to third parties. The Company may license its IP to third parties that may produce, package, and distribute hemp-based products pursuant with the Company’s understanding of the Farm Bill. The Company may license its IP to third parties that may produce, package, and distribute marijuana-based products, but only as such licensing is legal. On February 27, 2019, the United States Patent and Trademark Office (the “USPTO”) approved Holy Cacao’s trademark brand, “The Edibles’ Cult.” On November 26, 2019, the USPTO approved Holy Cacao’s trademark brand, “Purely Irresistible.” The Company has submitted multiple applications to the USPTO for additional brand names, including “Mystere” and “Southeast Edibles” among others. On February 5, 2019, the Company signed a Consulting Agreement with a consultant to assist in the manufacturing, packaging and distribution of the Company’s chocolate product line. On March 26, 2019, the Company signed a Facility Access and Wholesale Production Purchase and Sale Agreement that allows it to use a fully staffed and fully equipped state of the art manufacturing facility to produce its specialty chocolate product line and sell it to manufacturing and wholesaling companies. On October 10, 2019, the Company signed a master distribution agreement with CBD Unlimited, Inc, which is a public company and a master distributor, to distribute the Company’s hemp-based chocolate products. On March 1, 2020, the Company’s Board of Directors made a strategic decision to broaden the appeal of its hemp-based chocolate products to a wider base of customers, who are particularly discerning about the cleanliness of the Company’s manufacturing facility and quality of its hemp-based chocolate products, by successfully obtaining worldwide Kosher certification from the Union of Orthodox Jewish Congregations of America, Kashruth Division (the “OU”), which is the largest and most recognized certification of its kind in the world. On March 9, 2020, the Company retained Tartikov Beth Din (“BD”) to allow BD to supervise the hemp-based chocolate products produced by the Company in accordance with OU certification standards.
On October 25, 2017, the Company entered into a contract with TIER Merchant Advances LLC (“TIER”) to participate in the purchase of future receivables from qualified TIER merchants for the purpose of generating near-term and long-term revenue for the Company. On November 8, 2018 the Company also began providing cash advances directly to merchants.
Liquidity and Going Concern
The Company’s unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles in the United States of America (“GAAP”) applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. As of March 31, 2020, the Company had approximately $106,000 in third-party short term debt that is due within the next twelve months. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing. However, neither any members of management nor any significant shareholders are currently committed to invest funds with us and; therefore, we cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The Company does not have sufficient cash flow for the next twelve months from the date of this report. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
In December 2019, a novel strain of coronavirus surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. The Company’s financial position, operations and cash flows as of March 31, 2020 have been adversely affected, and may be further affected in the future, by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was declared a pandemic by the World Health Organization. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be materially affected include, but are not limited to, disruption to the Company’s labor workforce, unavailability of products and supplies used in operations, and the decline in value of assets held by the Company. As of March 31, 2020 and through the filing date of the financial statements, the Company has continued to collect receivables from its cash advances but has experienced an increase in payment delinquencies and has had two customers renegotiate the terms of their cash advance due to COVID-19.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 25, 2020.
In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2020 may not be indicative of results for the full year.
The noncontrolling interest represents the proportionate share of the proceeds received and also the income and loss pickup from the fifteen-percent sale of equity interest in our wholly owned subsidiary; Holy Cacao.
Principles of Consolidation
The unaudited condensed consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiary in conformity with GAAP. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of twelve months or less to be cash equivalents. At March 31, 2020 and December 31, 2019, the Company had no cash equivalents.
The Company’s cash is held with financial institutions, and the account balances may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit at times. Accounts are insured by the FDIC up to $250,000 per financial institution. The Company has not experienced any losses in such accounts with these financial institutions.
Merchant Cash Advances
The Company participates in the merchant cash advance industry by directly advancing sums to a merchant or a merchant advance provider, TIER, who in turn advances sums to merchants or other merchant cash advance providers. Each reporting period, the Company reviews the carrying value of these advances and determines whether an impairment reserve is necessary. At March 31, 2020, the Company reserved an amount equal to 63% of the outstanding merchant cash advance balance at period end based on the potential impact of Covid 19. In addition, during the three months ended March 31, 2020 the Company wrote off eleven (11) merchant advances for a total of $12,328. These expenses are included in provision for merchant cash advances expense on the accompanying unaudited condensed consolidated statements of operations.
Revenue Recognition
We completed, related to our merchant cash advance business line, our assessment of the impact of ASC 606 and determined that we recognize revenue in accordance with ASC 860, Transfers and Servicing, which is explicitly excluded from the scope of ASC 606. We participate in the servicing of merchant cash advances that have been provided to third parties, which in accordance with ASC 860, causes us to recognize merchant cash advance (“MCA”) income. We also have product sales from our Holy Cacao division that follow ASC 606.
Product sales are measured based on consideration specified in a contract with a customer that we expect to receive in exchange for goods, net of any variable considerations (e.g. rights to return product, sales incentives, etc.). The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customer’s carrier. The Company applied the practical expedient available under ASC 606 to disregard determining significant financing components, if the good is transferred and payment is received within one year.
When a merchant cash advance is purchased, the Company records a merchant cash advance participation receivable for the purchase price. The purchase price consists of the merchant cash advance principal plus an up-front commission that is amortized over the term of the merchant cash advance. The amount of the commission is negotiated between the Company and TIER for each contract. The standard commission is 15% of the merchant cash advance principal but can be reduced depending upon the credit worthiness of the merchant. The average commission paid by the Company since inception has been approximately 7%. If a merchant cash advance contract is signed in one period, but not paid until a subsequent period, a corresponding liability is established in the current period.
At the time the Company participates in a merchant cash advance, the Company records a deferred revenue liability, which is the total future receivable due to the Company less the principal amount of the merchant cash advance. Revenue is recognized and the deferred liability is reduced over the term of the merchant cash advance.
TIER maintains a bank account on behalf of the Company. Each day, TIER receives payment, reflected in the bank account, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of platform fees. Platform fees are a daily charge associated with the ACH service and the financial and reporting management software platform provided by TIER. The platform fees are also negotiated between the Company and TIER for each contract but are typically 4% of the daily merchant cash advance principal amount.
For each merchant cash advance entered into by the Company, TIER receives a daily payment as payments are made on the advance, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of a 2% commission to TIER.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and sets up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off when all attempts to collect have been exhausted. The Company considers an invoice past due once the term of the invoice has passed and payment has not been received. No interest is charged on past due invoices. Recoveries of accounts receivable previously written off are recorded as income when received. As of March 31, 2020, the Company had no allowance for doubtful accounts.
Inventory
Inventory, consisting of raw materials, work in process and products available for sale, are accounted for using the first-in, first-out method, and are valued at the lower of cost or net realizable value. This valuation requires management to make judgements based on currently available information, about the likely method of disposition, such as through sales to individual customers and returns. The Company has no allowance for inventory reserves.
Inventory consisted of the following as of March 31, 2020 and December 31, 2019:
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March 31,
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|
|
December 31,
|
|
|
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2020
|
|
|
2019
|
|
Raw Materials
|
|
$
|
11,228
|
|
|
$
|
2,854
|
|
Work in Process
|
|
|
1,273
|
|
|
|
5,410
|
|
Finished Goods
|
|
|
8,593
|
|
|
|
2,292
|
|
Total
|
|
$
|
21,094
|
|
|
$
|
10,556
|
|
Equipment
Equipment are stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense when incurred, while renewals and betterments that materially extend the life of an asset are capitalized. When assets are sold, retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheets and any resulting gain or loss is reflected in the unaudited condensed consolidated statements of operations and members’ deficit in the period realized.
Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are as follows:
Impairment of Long-Lived Assets
Long-lived assets are comprised of equipment. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. There were no impairments to long-lived assets for the three months ended March 31, 2020 and 2019.
Research and Development
The Company’s policy is to engage market and branding consultants to research and develop specialty chocolate products, including chocolate products infused with a hemp-based ingredient, and packaging targeted to particular states within the US. The research and development costs for the three months ended March 31, 2020 and 2019, were approximately $4,500 and $70,000, respectively. These expenses are included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.
Deferred Financing Costs
The Company records origination and other expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized over the life of the related debt instrument. In accordance with Accounting Standards Update (“ASU”) No. 2015-03, deferred finance costs, net of accumulated amortization have been included as a contra to the corresponding loans in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.
Stock Based Compensation
The Company measures and recognizes compensation expense for all stock-based payments at fair value over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and warrants. For restricted stock grants, fair value is determined as the closing price of our common stock on the date of grant. Equity-based compensation expense is recorded in administrative expenses based on the classification of the employee or vendor. The determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price, as well as by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
Income Taxes
The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of March 31, 2020 and December 31, 2019, the Company had a full valuation allowance against deferred tax assets. With the historical change in ownership, the Company is subject to certain NOL limitations under Section 382 of the Internal Revenue Code.
Per Share Data
In accordance with “ASC-260 - Earnings per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive shares outstanding as of March 31, 2020 and 2019 because their effect would be antidilutive.
The Company had 1,499,750 and 403,750 warrants to purchase common stock outstanding at March 31, 2020 and 2019, respectively. The Company had 4,470,000 and 3,370,000 warrants to purchase Series B preferred stock outstanding at March 31, 2020 and 2019, respectively. The Company has outstanding one (1) Series A preferred share that is convertible into five (5) shares of the Company’s common stock. Additionally, the Company has 473,332 Series B preferred shares, and 660,000 Series C preferred shares outstanding that are convertible into 2,366,660 and 660,000 shares of common stock at March 31, 2020 and 2019, respectively. The warrants and preferred stock were not included in the Company’s weighted average number of common shares outstanding because they would be anti-dilutive.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value. The carrying value of cash, merchant cash advances, prepaid expenses, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant market or credit risks arising from these financial instruments.
Advertising and Promotion
Advertising and promotion costs are expensed as incurred. Advertising and promotion costs recognized in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019, were approximately $15,300 and $10,700, respectively.
Non-Controlling Interests in Condensed Consolidated Financial Statements
In June 2011, the FASB issued ASC 810-10-65-1, to clarify that a non-controlling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity in the condensed consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the unaudited condensed consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. During the year ended December 31, 2017, the Company entered into a subscription agreement for the sale of a ten-percent equity interest in its wholly owned subsidiary, Holy Cacao, for $200,000 in cash proceeds, in the aggregate. During the year ended December 31, 2019, 5% equity was issued to a service provider due to the completion of Holy Cacao’s first sale of its product, as per the agreement with the service provider. The Company’s periodic reporting now includes the results of operations of Holy Cacao, with the fifteen-percent ownership reported as noncontrolling interests. The cost of goods sold and operating expense for Holy Cacao for the three months ended March 31, 2020 was $748 and $93,482, respectively. There was $3,605 of revenue for Holy Cacao for the three months ended March 31, 2020.
The Company conducts business as two operating segments, First Foods and Holy Cacao. The Company does not distinguish between the two segments and has only one reportable segment based on quantitative thresholds. The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, ”Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, ”Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company’s unaudited condensed consolidated financial statements.
NOTE 2 – RELATED PARTY TRANSACTIONS
Employment Agreement
On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive $20,833 per month. Additionally, Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. On March 18, 2020, the Company issued its CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary (see Note 6). As of March 31, 2020 and December 31, 2019, the Company has accrued $141,667 and $329,167, respectively, in relation to the employment agreements and $17,860 and $16,953, respectively, in relation to the payroll tax liability.
Consulting Agreements
On February 27, 2017, Harold Kestenbaum assumed the role of Chairman of the Board of Directors (“Chairman”) and Interim Chief Executive Officer (“Interim CEO”). His consulting agreement expired on February 26, 2020 and his January 1, 2020 Board of Director agreement was amended on May 6, 2020 to provide for his continued role as Chairman and Interim CEO. Mr. Kestenbaum earns $40,000 per year for his role as Chairman of the Board. As of March 31, 2020, the Company has accrued a total of $40,000 in relation to compensation earned under the consulting agreement.
On January 30, 2019, the Company entered into a consulting agreement with R and W Financial, an entity owned by a Company director, to assist with the growth of the Company. R and W Financial will receive $5,000 per month for an indefinite period of time, subject to cancellation by the Company or R and W Financial with 30 days written notice to the other. On November 21, 2019, the Company entered into an additional consulting agreement with R and W Financial to assist with the growth of the Company. R and W Financial will receive $7,000 per month for an indefinite period of time, subject to cancellation by the Company or R and W Financial with 10 days written notice to the other. On January 28, 2020, the Company amended the November 21, 2019 agreement with R and W Financial. In accordance with the amendment agreement, effective January 1, 2020, R and W Financial will receive $4,250 every two weeks for an indefinite period of time, subject to cancellation by the Company or R and W Financial with 10 days written notice to the other. The outstanding balance as of March 31, 2020 was $37,713.
Related Party Loans
On October 17, 2017, Obvia LLC, of which the Company’s Chief Financial Officer, who is also a director and a shareholder of the Company, is a 50% owner, provided a loan to the Company’s Funding Division in the amount of $100,000 bearing an interest rate of the US Prime Federal Funds Rate +1%, which was amended to 12% per annum. The note is not secured and matures on April 30, 2020. During the three months ended March 31, 2020 and 2019, the Company recorded interest expense of $2,992 and $1,724, respectively. As of March 31, 2020 and December 31, 2019, the principal balance of this loan was $100,000 and the accrued interest was $17,026 and $14,034, respectively.
On April 26, 2018, R and W Financial, an entity owned by a Company director, provided an unsecured, non-interest bearing loan in the amount of $179,813 which matures on April 25, 2020. This loan has been extended until April 25, 2021. As of March 31, 2020 and December 31, 2019, the principal balance of this loan was $179,813.
On June 14, 2018, the Company issued a promissory note of $100,000 to Mayer Weiss, an immediate family member of a Company director. The note carries a 12% interest rate per annum, and non-compounding interest is to be paid every six months. Additionally, 100,000 shares of common stock were issued with the note and are being amortized over the life of the loan which was initially due December 13, 2019. An additional 25,000 shares were issued with an amendment extending the maturity date to March 13, 2020 and are being amortized over the life of the loan. On March 13, 2020, the Company extended the due date to June 13, 2020 and issued 25,000 shares of the Company’s common stock at a fair value of $0.20 per share. The Company recorded a total debt discount of $5,000 for the fair market value of the shares issued. During the three months ended March 31, 2020 and 2019, the Company recorded $5,508 and $1,810 of interest expense related to the amortization of debt discount, respectively, and $2,992 and $2,959 of regular interest, respectively. As of March 31, 2020 and December 31, 2019, the principal balance of this loan was $100,000 and the accrued interest was $9,041 and $6,049, respectively.
On October 11, 2018, the Company issued a promissory note of $250,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 250,000 shares of common stock were issued with the note valued at $0.10 per share, which is the market value on the date of the agreement and will be amortized over the life of the loan which is due April 10, 2020 with a balloon payment. The Company recorded a debt discount of $25,000 for the fair market value of the shares issued. During the three months ended March 31, 2020 and 2019, the Company recorded $4,159 and $4,113 of interest expense related to the amortization of debt discount, respectively, and $7,479 and $7,397 of regular interest, respectively. As of March 31, 2020 and December 31, 2019, the principal balance of the note was $250,000 and the accrued interest was $1,637 and $1,658, respectively.
All of the above transactions were approved by disinterested directors.
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March 31, 2020
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December 31, 2019
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Obvia LLC
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$
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100,000
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|
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$
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100,000
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R & W Financial
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|
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179,813
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|
|
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179,813
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Mayer Weiss
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100,000
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|
|
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100,000
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Shareholder (became a related party in 2019)
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|
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250,000
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|
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250,000
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Unamortized debt discount
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(4,523
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)
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|
|
(9,190
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)
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Total
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$
|
625,290
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|
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$
|
620,623
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Director Agreements
On May 10, 2018, the directors of the Company were awarded share-based compensation for the service period of May 10, 2018 through December 31, 2020, as a one-time award of the ability to purchase a particular amount of warrants, ranging from 80,000 to 400,000 (collectively the “Warrants”) with the following terms:
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Number and Type – Each Director is entitled to a one-time award of Warrants for the number of shares of Series B Preferred Stock of the Company. Each share of Series B Preferred Stock shall have voting rights equal to five (5) votes per share. Each share of Series B Preferred Stock is convertible into five (5) shares of the Company’s Common Stock (the “Common Stock”), including liquidation preference over Common Stock.
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•
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Duration – The Warrants entitle each Director to purchase the Series B Preferred Stock from the Company, after January 1, 2019 and before December 31, 2027.
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•
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Purchase Price - The purchase price is $0.60 per share of Series B Preferred Stock.
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•
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Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
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•
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Vesting - The Warrants are subject to a 32-month period whereby the Warrants vest in equal monthly increments from May 10, 2018 through December 31, 2020. Any unvested warrants are forfeited, if the Director ceases to be a Director.
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The Company issued warrants with respect to 1,280,000 Series B Preferred Stock, in the aggregate. The Company will expense the fair value of these warrants in the amount of $768,000 ratably during the years ended December 31, 2018, 2019 and 2020 For the three months ended March 31, 2020 and 2019, the Company recorded $72,348 and $71,553 as compensation expense related to the warrants, respectively.
On February 26, 2019, the Company entered into director agreements with each of the Directors of the Company. Pursuant to the agreements, each Director may be compensated with share-based and/or cash-based compensation. The Directors’ compensation for the period January 1, 2019 through December 31, 2019 was $10,000 per quarter per Director to be paid on a date determined by the Board of Directors. In addition, the Directors were able to receive a one-time award of the ability to purchase a particular amount of warrants, as determined by the Board of Directors.
On January 1, 2020, the director agreements were renewed with the same terms. As of March 31, 2020 and December 31, 2019 the Company has accrued $200,000 and $160,000, respectively, in relation to the director agreements.
On December 31, 2019, three of the Directors of the Company were awarded share-based compensation for services performed during the service period of January 1, 2019 through December 31, 2019, as a one-time award to each purchase 200,000 warrants (collectively the “Warrants”) with the following terms:
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Number and Type – Each Director is entitled to a one-time award of Warrants for the number of shares of Series B Preferred Stock of the Company. Each share of Series B Preferred Stock shall have voting rights equal to five (5) votes per share. Each share of Series B Preferred Stock is convertible into five (5) shares of the Company’s common stock, including liquidation preference over common stock.
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Duration – The Warrants entitle each Director to purchase the Series B Preferred Stock from the Company after December 31, 2019 and before December 30, 2029.
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•
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Purchase Price - The purchase price is $1.20 per share of Series B Preferred Stock. These warrants have a price protection clause which was triggered resulting in the warrants being reset to an exercise price of $0.75. The effect was immaterial.
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•
|
Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
|
|
|
|
|
•
|
Vesting - The Warrants are fully vested at issuance.
|
The Company issued warrants with respect to 600,000 Series B Preferred Stock, in the aggregate. The Company expensed the fair value of these warrants in the amount of $720,000 for the year ended December 31, 2019.
NOTE 3 – EQUIPMENT
Equipment, net consists of the following:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Equipment
|
|
$
|
156,605
|
|
|
$
|
-
|
|
Less: Accumulated depreciation
|
|
|
(4,899
|
)
|
|
|
-
|
|
Total
|
|
$
|
151,706
|
|
|
$
|
-
|
|
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Accounts payable
|
|
$
|
392,935
|
|
|
$
|
305,679
|
|
Interest
|
|
|
34,373
|
|
|
|
24,136
|
|
Salaries
|
|
|
199,527
|
|
|
|
386,121
|
|
Other
|
|
|
61,609
|
|
|
|
35,739
|
|
Total
|
|
$
|
688,444
|
|
|
$
|
751,675
|
|
NOTE 5 – LOANS AND LONG-TERM LOANS
On July 23, 2018, the Company issued a promissory note of $100,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every six months. Additionally, 100,000 shares of common stock were issued with the note and will be amortized over the life of the loan which is due on January 22, 2020 with a balloon payment. The Company recorded a debt discount of $5,500 for the fair market value of the shares issued. On January 21, 2020, the note was amended. The Company paid back $50,000 of the note and extended the remaining $50,000 for an additional six months. In accordance with the amendment agreement, the Company issued 50,000 shares of the Company’s common stock at a fair value of $0.24 per share which is the market value on the date of the amendment. The Company recorded a debt discount of $12,000 for the fair market value of the shares issued and will be amortized over the remaining life of the note. During the three months ended March 31, 2020 and 2019, the Company recorded $4,800 and $903 of interest expense related to the amortization of debt discount and $1,841 and $2,959 of regular interest, respectively. As of March 31, 2020 and December 31, 2019, the principal balance of the note was $50,000 and $100,000, the unamortized debt discount was $7,410 and $211 and accrued interest was $134 and $293, respectively.
On July 23, 2018, the Company issued a promissory note of $18,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every six months. Additionally, 18,000 shares of common stock were issued with the note and will be amortized over the life of the loan which is due on January 22, 2020 with a balloon payment. The Company recorded a debt discount of $990 for the fair market value of the shares issued. On January 23, 2020, the Company amended the note and the term of the note was extended for an additional twelve months. In accordance with the amendment agreement, the Company issued 18,000 shares of the Company’s common stock at a fair value of $0.24 per share, which is the market value on the date of the amendment and will be amortized over the remaining life of the note. The Company recorded a debt discount of $4,320 for the fair market value of the shares issued. During the three months ended March 31, 2020 and 2019, the Company recorded $845 and $163 of interest expense related to the amortization of debt discount and $538 and $533 of regular interest, respectively. As of March 31, 2020 and December 31, 2019, the principal balance of the note was $18,000, the unamortized debt discount was $3,515 and $40 and accrued interest was $231 and $233, respectively.
On January 9, 2019, the Company issued a promissory note of $50,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 50,000 shares of common stock were issued with the note valued at $0.1425 per share, which is the market value on the date of the agreement and will be amortized over the life of the note which is due July 8, 2020 with a balloon payment. The Company recorded a debt discount of $7,125 for the fair market value of the shares issued. During the three months ended March 31, 2020 and 2019, the Company recorded $1,188 and $1,057 of interest expense related to the amortization of debt discount and $1,496 and $1,332 of regular interest, respectively. As of March 31, 2020 and December 31, 2019, the principal balance of the note was $50,000, the unamortized debt discount was $1,292 and $2,479 and the accrued interest was $348 and 352, respectively.
On June 12, 2019, the Company issued a promissory note of $25,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 12,500 shares of common stock were issued with the note valued at $0.295 per share, which is the market value on the date of the agreement and will be amortized over the life of the note which is due June 11, 2021 with a balloon payment. The Company recorded a debt discount of $3,688 for the fair market value of the shares issued. During the three months ended March 31, 2020, the Company recorded $460 of interest expense related to the amortization of debt discount and $748 of regular interest. As of March 31, 2020 and December 31, 2019, the principal balance of the note was $25,000, the unamortized debt discount was $2,207 and $2,667 and the accrued interest was $158 and $160, respectively.
On July 22, 2019, the Company issued a promissory note of $250,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. Additionally, 250,000 shares of common stock were issued with a fair value of $100,000, recorded as a debt discount, and will be amortized over the life of the note, which is due in monthly payments between eighteen (18) months and twenty-three (23) months from July 22, 2019 based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from July 22, 2019. In addition, the Company issued a warrant to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.25 per share. The warrant was valued at $99,925 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested as of the issue date with an exercise term of three (3) years. During the three months ended March 31, 2020, the Company recorded $24,922 of interest expense related to the amortization of debt discount and $7,479 of regular interest. As of March 31, 2020 and December 31, 2019, the principal balance of the note was $250,000, the unamortized debt discount was $130,636 and $155,558 and the accrued interest was $795 and $815, respectively.
On October 2, 2019, the Company issued a promissory note for $410,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $389,500 and the lender retained $20,500 as an original issue discount. Additionally, 410,000 shares of the Company’s common stock were issued with a fair value of $106,600, recorded as a debt discount, and will be amortized over the life of the notes, which are due in monthly payments between eighteen (18) months and twenty-three (23) months from the date of the note based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the date of the note. In addition, the Company issued warrants to purchase 205,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrants are valued at $52,501 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the date on the note with an exercise term of three (3) years. During the three months ended March 31, 2020, the Company recorded $22,389 of interest expense related to the amortization of debt discount and $12,266 of regular interest. As of March 31, 2020 and December 31, 2019, the principal balance of the note was $410,000, the unamortized debt discount was $135,013 and $157,402 and the accrued interest was $1,098 and $530, respectively.
On October 16, 2019, the Company issued a promissory note for $140,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $133,000 and the lender retained $7,000 as an original issue discount. Additionally, 140,000 shares of the Company’s common stock were issued with a fair value of $34,300, recorded as a debt discount, and will be amortized over the life of the notes, which are due in monthly payments between eighteen (18) months and twenty-three (23) months from the issue date based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the issue date. In addition, the Company issued warrants to purchase 205,000 and 140,000 shares of the Company’s common stock with an exercise price of $0.30 and $0.50 per share, respectively. The warrants are valued at $83,060 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years. During the three months ended March 31, 2020, the Company recorded $15,502 of interest expense related to the amortization of debt discount and $4,188 of regular interest. As of March 31, 2020 and December 31, 2019, the principal balance of the note was $140,000, the unamortized debt discount was $95,911 and $111,413 and the accrued interest was $3,470 and $0, respectively.
On October 31, 2019, the Company issued a promissory note of $200,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $190,000 and the lender retained $10,000 as an original debt discount. Additionally, 200,000 shares of the Company’s common stock were issued with a fair value of $58,000, recorded as a debt discount, and will be amortized over the life of the note, which is due in monthly payments between eighteen (18) months and twenty-three (23) months from the issue date based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the issue date. In addition, the Company issued warrants to purchase 200,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrants are valued at $57,180 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue dates with an exercise term of three (3) years. During the three months ended March 31, 2020, the Company recorded $15,605 of interest expense related to the amortization of debt discount and $5,984 of regular interest. As of March 31, 2020 and December 31, 2019, the principal balance of the note was $200,000, the unamortized debt discount was $99,115 and $114,720 and the accrued interest was $0.
On January 10, 2020, the Company issued a promissory note of $60,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 60,000 shares of common stock were issued with the note valued at $0.28 per share, which is the market value on the date of the agreement and will be amortized over the life of the note which is due July 10, 2021 with a balloon payment. The Company recorded a debt discount of $16,692 for the fair market value of the shares issued. During the three months ended March 31, 2020, the Company recorded $2,476 of interest expense related to the amortization of debt discount and $1,598 of regular interest. As of March 31, 2020, the principal balance of the note was $60,000, the unamortized debt discount was $14,216 and the accrued interest was $398.
On January 29, 2020, the Company issued a promissory note of $96,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $91,200 and the lender retained $4,800 as an original debt discount. Additionally, 96,000 shares of the Company’s common stock were issued with a fair value of $21,120, recorded as a debt discount, and will be amortized over the life of the note, which is due in monthly payments between eighteen (18) months and twenty-three (23) months from the issue date based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the issue date. In addition, the Company issued warrants to purchase 96,000 shares of the Company’s common stock with an exercise price of $0.22 per share. The warrants are valued at $20,717 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue dates with an exercise term of three (3) years. During the three months ended March 31, 2020, the Company recorded $3,961 of interest expense related to the amortization of debt discount and $1,957 of regular interest. As of March 31, 2020, the principal balance of the note was $96,000, the unamortized debt discount was $42,676 and the accrued interest was $37.
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Loan issued July 23, 2018
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
Loan issued July 23, 2018
|
|
|
50,000
|
|
|
|
100,000
|
|
Loan issued January 9, 2019
|
|
|
50,000
|
|
|
|
50,000
|
|
Loan issued June 12, 2019
|
|
|
25,000
|
|
|
|
25,000
|
|
Loan issued July 22, 2019
|
|
|
250,000
|
|
|
|
250,000
|
|
Loan issued October 2, 2019
|
|
|
410,000
|
|
|
|
410,000
|
|
Loan issued October 16, 2019
|
|
|
140,000
|
|
|
|
140,000
|
|
Loan issued October 31, 2019
|
|
|
200,000
|
|
|
|
200,000
|
|
Loan issued January 10, 2020
|
|
|
60,000
|
|
|
|
-
|
|
Loan issued January 29, 2020
|
|
|
96,000
|
|
|
|
-
|
|
Unamortized debt discount
|
|
|
(531,991
|
)
|
|
|
(544,490
|
)
|
Total
|
|
|
767,009
|
|
|
|
648,510
|
|
Less: short term loans, net
|
|
|
106,076
|
|
|
|
165,270
|
|
Total long-term loans, net
|
|
$
|
660,933
|
|
|
$
|
483,240
|
|
NOTE 6 – STOCKHOLDERS’ DEFICIT
On January 9, 2019, the Company issued 50,000 shares of common stock in connection with a $50,000 promissory note (See Note 5).
On March 26, 2019, the Company signed a Facility Access and Wholesale Production Purchase and Sale Agreement for a term of twelve (12) months, which has been extended through June 30, 2020, with an unrelated party to use the party’s leased commercial chocolate product manufacturing facility in exchange for paying the following:
|
(a)
|
the full amount of the party’s lease obligations of $6,433 per month plus taxes and common area maintenance fees through May 31, 2019 and $6,626 per month plus taxes and common area maintenance fees for 12 months through March 31, 2020; The contract auto renewed for the subsequent year.
|
|
|
|
|
(b)
|
66.6% of the party’s expenses related to payroll for employees that make the Company’s product; and
|
|
|
|
|
(c)
|
66.6% of the party’s operating expenses specifically related to the Company’s product including utilities, equipment, maintenance and insurance expenses.
|
The Company also issued 100,000 shares of the Company’s common stock at the closing market price of $0.30 on February 5, 2019 as a charitable contribution to a non-profit entity in support of the entity’s environmental regeneration efforts.
On January 10, 2020, the Company issued 60,000 shares of common stock in connection with a $60,000 promissory note (see Note 5).
On January 21, 2020, the Company amended the $100,000 promissory note that it had issued on July 23, 2018. In accordance with the amendment agreement, the Company issued 50,000 shares of the Company’s common stock at a fair value of $0.24 per share (see Note 5).
On January 23, 2020, the Company amended the $18,000 promissory note that it had issued on July 23, 2018. In accordance with the amendment agreement, the Company issued 18,000 shares of the Company’s common stock at a fair value of $0.24 per share (see Note 5).
On January 29, 2020, the Company issued 96,000 shares of common stock in connection with a $96,000 promissory note (see Note 5).
On March 6, 2020, the Company entered into a six-month agreement with a strategic investment consultant (the “Investment Consultant”). The Investment Consultant was awarded 400,000 shares of the Company’s common stock at a fair market value of $0.24 per share, for $96,000.
On March 13, 2020, the Company amended the promissory note to Mayer Weiss to extend the due date to June 13, 2020. In accordance with the amendment agreement, the Company issued 25,000 shares of the Company’s common stock at a fair value of $0.20 per share.
Warrant Activity
Common Stock Warrants
On February 5, 2019, the Company signed a Consulting Agreement for a six (6) month term with a consultant to run the day-to-day manufacturing, packaging and distribution of the Company’s chocolate product line. The Consulting Agreement has a $7,000 monthly fee. In addition, the Company issued a warrant to the Consultant to purchase 60,000 shares of the Company’s common stock at the closing market price of $0.30 on February 5, 2019 with a term of three (3) years. The Company valued these warrants using the Black-Scholes option pricing model with the following inputs: exercise price of $0.30; fair market value of underlying stock of $0.30; expected term of 3 years; risk free rate of 2.50%; volatility of 388.56%; and dividend yield of 0%. The total fair value of these warrants is $17,988 and was expensed at issuance. The six-month Consulting Agreement ended on August 5, 2019 and was extended on a monthly basis through December 5, 2019, after which time the consultant was retained by R and W Financial. The consultant continues to provide services to the Company through the November 21, 2019 agreement between the Company and R and W Financial. On January 28, 2020, the Company amended the November 21, 2019 agreement with R and W Financial. In accordance with the amendment agreement, effective January 1, 2020, R and W Financial will receive $4,250 every two weeks for an indefinite period of time, subject to cancellation by the Company or R and W Financial with 10 days written notice to the other.
On July 22, 2019, the Company issued a promissory note of $250,000 (see Note 5). In connection with this note the Company issued a warrant to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.25 per share. The warrant was valued at $99,925 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested and was fully expensed as of the issue date with an exercise term of three (3) years.
On October 2, 2019, the Company issued a promissory note for $410,000 (see Note 5). In connection with this note the Company issued warrants to purchase 205,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrant was valued at $52,501 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested and was fully expensed as of the issue date with an exercise term of three (3) years.
On October 16, 2019, the Company issued a promissory note for $140,000 (see Note 5). In connection with this note the Company issued warrants to purchase 205,000 and 140,000 shares of the Company’s common stock with an exercise price of $0.30 and $0.50 per share, respectively. The warrants were valued at $83,060 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years.
On October 31, 2019, the Company issued a promissory note of $200,000 (see Note 5). In connection with this note the Company issued warrants to purchase 200,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrants are valued at $57,180 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years.
On January 29, 2020, the Company issued a promissory note of $96,000 (see Note 5). In connection with this note the Company issued warrants to purchase 96,000 shares of the Company’s common stock with an exercise price of $0.22 per share. The warrants are valued at $20,717 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue dates with an exercise term of three (3) years.
A summary of the Company’s warrants to purchase common stock activity is as follows:
|
|
Number of
Warrants
(in common
shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, December 31, 2018
|
|
|
343,750
|
|
|
$
|
0.08
|
|
Granted
|
|
|
1,060,000
|
|
|
|
0.31
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2019
|
|
|
1,403,750
|
|
|
$
|
0.26
|
|
Granted
|
|
|
96,000
|
|
|
|
0.22
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, March 31, 2020
|
|
|
1,499,750
|
|
|
$
|
0.25
|
|
As of March 31, 2020, 1,499,750 warrants for common stock were exercisable and the intrinsic value of these warrants was $31,625, there is no remaining expense and the weighted average remaining contractual life was 2.21 years for warrants outstanding.
Preferred Stock Warrants
On March 18, 2020, the Company issued its CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary. The warrants have an exercise price of $0.75 per share, are fully vested at issuance, and are exercisable from March 18, 2020 through March 17, 2030. The fair value of these warrants was $375,000 and the additional $125,000 over the deferred salary amount was recorded as compensation expense during the three months ended March 31, 2020. As a result of this issuance, the price protection clause on the director’s warrants issued on December 31, 2019 was triggered resulting in the warrants being reset to an exercise price of $0.75, and the effect was immaterial.
A summary of the Company’s warrants to purchase Series B Preferred Stock activity is as follows:
|
|
Number of Warrants
(in Series B Preferred
Stock)
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding, December 31, 2018
|
|
|
3,370,000
|
|
|
$
|
0.57
|
|
Granted
|
|
|
600,000
|
|
|
|
1.20
|
|
Outstanding, December 31, 2019
|
|
|
3,970,000
|
|
|
$
|
0.67
|
|
Granted
|
|
|
500,000
|
|
|
|
0.75
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, March 31, 2020
|
|
|
4,470,000
|
|
|
$
|
0.68
|
|
As of March 31, 2020, 4,110,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $894,600, the weighted average remaining contractual life was 8.15 years for warrants outstanding and the remaining expense is $218,634 over the remaining amortization period which is 9 months.
NOTE 7 - COMMITMENTS
On August 14, 2019, the Company entered into an agreement with a CFN Media. In consideration for the services and deliverables provided by CFN Media, the Company will make three (3) cash payments to CFN Media totaling $30,000. Payments will be made in accordance with the following staged schedule:
“Stage 1” - $10,000 due upon the signing of the agreement for the Stage 1 services and deliverables: the interview, lead generation system and two (2) articles, including syndication, distribution and placement. This payment has been made.
“Stage 2” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 1 and the Company’s confirmation they are ready to continue with Stage 2, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.
“Stage 3” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 2 and the Company’s confirmation they are ready to continue with Stage 3, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.
NOTE 8 – CONCENTRATION RISKS
The Company recognizes the concentration of its merchant cash advances, which could inherently create a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of the outstanding merchant cash advances. The Company actively mitigates its portfolio concentration risk by monitoring its merchant cash advance provider’s ability to participate in merchant cash advances from alternative providers and spreading merchant cash advance participation across various merchants.
As of March 31, 2020, the Company’s receivables from merchant cash advances included $200,700 from two merchants ($78,327 and $122,373), representing 71% of the Company’s merchant cash advances. The Company earned $75,219 of MCA income from the same two merchants ($52,065 and $23,154), representing 81% of the Company’s MCA income for the three months ended March 31, 2020.
As of December 31, 2019, the Company’s receivables from merchant cash advances included $713,124 from two merchants ($179,853 and $533,271), representing 91% of the Company’s merchant cash advances. The Company earned $62,623 of MCA income from four merchants ($20,987, $17,239, $12,322 and $12,075), representing 55% of the Company’s MCA income for the three months ended March 31, 2019.
As of March 31, 2020 and December 31, 2019, the Company’s accounts receivable had a concentration of 97% from one customer. The concentration of the Company’s accounts receivable creates a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of outstanding accounts receivable balances.
As of March 31, 2020, there was no accounts payable concentration other than amounts owed to related parties which makes up 60% of the balance. As of December 31, 2019, there was no accounts payable concentration other than amounts owed to related parties which makes up 61% of the balance.
For the three months ended March 31, 2020, the Company had purchase concentrations of 71% and 28% from two vendors. There was no purchase concentration for the three months ended March 31, 2019.
NOTE 9 – SUBSEQUENT EVENTS
On April 22, 2020, the Company extended the $100,000 and $179,813 promissory notes from related parties that it had issued on October 17, 2017 and April 26, 2018, respectively, and amended the interest rate on the $100,000 note (see Note 2).
On May 6, 2020, the Company extended the $250,000 promissory note from a related party that it had issued on October 11, 2018, in exchange for 250,000 restricted shares of the Company’s common stock at the market price of $0.24 per share.