Notes
to Consolidated Condensed Financial Statements
March
31, 2018
(unaudited)
NOTE
1 – NATURE OF BUSINESS AND PRESENTATION
Organization
DOCASA,
Inc. (the “Company,” “we,” “us,” “our,” or “DOCASA”) was incorporated
in the State of Nevada on July 22, 2014, under the name of FWF Holdings, Inc. The Company changed its name on August 4, 2016.
The Company was originally engaged in the business of commercial production and distribution of hot sauce (see Note 3). On August
4, 2016, the Company changed its year end from July 31 to August 31.
On
July 8, 2016, the Company experienced a change in control. Atlantik LP (“Atlantik”), a related party, acquired a majority
of the issued and outstanding common stock of the Company in accordance with a stock purchase agreement by and between Atlantik
and Nami Shams (the “Seller”). On the closing date, July 8, 2016, pursuant to the terms of the stock purchase agreement,
Atlantik purchased from the Seller 115,000,000 shares of the Company’s outstanding restricted common stock for $200,000,
representing 75.8% of the Company’s outstanding common stock at that time.
On
September 1, 2016, the Company acquired 99.8% of the voting stock of the Department of Coffee and Social Affairs Limited, a United
Kingdom corporation (the “DEPT-UK”), and the Company agreed to issue DEPT-UK’s majority shareholder 170,000,000
shares of the Company’s common stock—110,000,000 shares initially and 60,000,000 shares at a time determined by the
Company’s Board of Directors but no later than August 31, 2017, which deadline was subsequently extended to August 31, 2018.
Also, on September 1, 2016, the Company acquired 115,000,000 shares of the Company’s common stock from Atlantik in exchange
for issuing Atlantik a promissory note for $320,000, which shares were then cancelled and which note has since been paid in full.
As a result of the acquisition and the issuance of the initial 110,000,000 shares of common stock, and the cancellation of the
115,000,000 Atlantik shares, DEPT-UK is now the majority-owned subsidiary of the Company, and the Company experienced a change
of control.
DEPT-UK
formed a wholly-owned subsidiary, Department of Coffee and Internal Affairs Limited (“DCIA”), on September 11, 2014,
as filed with the Registrar of Companies for England and Wales. As of March 31, 2018, DCIA has had no operations or activity.
On
April 5, 2017, the Company formed Department of Coffee and Social Affairs IL, Inc. (“DEPT-IL”), an Illinois corporation.
On
May 18, 2017, the Company formed Department of Coffee and Social Affairs White Space Limited (“DEPT-UKWS”), as filed
with the Registrar of Companies for England and Wales. DEPT-UKWS is a subsidiary of DEPT-UK.
For
financial reporting purposes, the acquisition of DEPT-UK and the change of control in connection with acquisition represented
a “reverse merger” rather than a business combination, and DEPT-UK is deemed to be the accounting acquirer in the
transaction. For the periods subsequent to August 31, 2016, the acquisition is being accounted for as a reverse-merger and recapitalization.
DEPT-UK is the acquirer for financial reporting purposes, and the Company (DOCASA, Inc., f/k/a FWF Holdings, Inc.) is the acquired
company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements
prior to the acquisition are those of DEPT-UK and have been recorded at the historical cost basis of DEPT-UK, and the financial
statements after completion of the acquisition include the assets and liabilities of both the Company and DEPT-UK, and the historical
operations of DEPT-UK prior to closing and operations of both companies from the closing of the acquisition.
On
January 2, 2018, with an effective date of November 1, 2017, DEPT-UK acquired Tapped and Packed Ltd (“Tapped”), an
UK company, for a combination of cash and shares of common stock of the Company. See Note 2. Tapped became a subsidiary of DEPT-UK
as a result of the transaction. Tapped has four shop locations in the UK which serve coffee and food.
On
February 23, 2018, the Board of Directors determined to change the Company’s fiscal year end to December 31 from August
31. The Company believes this change will benefit the Company by aligning its reporting periods to be more consistent with peer
coffee companies.
Nature
of Operations
We are currently devoting our efforts to the
specialty coffee industry, specifically with company-operated stores. The Company will generate revenue through sales at nineteen
existing company-operated coffee shop locations in the UK, with seven more locations under construction. The Company has expanded
its operations to the United States and opened its first coffee shop in Chicago, Illinois in October 2017, with three more locations
under construction. Our objective is to continue to be recognized as one of the upper tier specialty coffee retail operations.
Similar to other leading operators, we sell our proprietary coffee and related products, and complementary food and snacks. The
Company, as of August 31, 2017, has discontinued its hot sauce products which had no activity in the year ended August 31, 2017
or subsequently. Accounting for discontinued operations not required due to immateriality.
Principles
of Consolidation
The
consolidated financial statements include the accounts of DOCASA and its subsidiaries, DEPT-UK, DCIA, DEPT-IL and DEPT-UK’s
subsidiaries, Tapped and DEPT-UKWS. All significant inter-company balances and transactions have been eliminated in consolidation.
Basis
of Presentation
The
accompanying unaudited consolidated condensed financial statements of DOCASA have been prepared in accordance with U.S. generally
accepted accounting principles for interim financial information and the instructions to Form 10-Q and done under §240.13(a)
of the Securities Act. The results of operations for the interim period ended March 31, 2018 shown in this report are not necessarily
indicative of results to be expected for the full fiscal year ending December 31, 2018. In the opinion of the Company’s
management, the information contained herein reflects all adjustments (consisting of normal recurring adjustments, unless otherwise
indicated) necessary for a fair presentation of the Company’s results of operations, financial position and cash flows.
The unaudited interim financial statements should be read in conjunction with the audited financial statements in the Company’s
Form 10-K for the year ended August 31, 2017, filed on December 18, 2017 and Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying financial
statements include the amortization period for intangible assets, valuation and impairment valuation of intangible assets, allowance
for accounts receivable, estimated lives of intangible and fixed assets, and valuation of share-based payments.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Accounts
Receivable
Accounts
receivable consisted of amounts due from customers primarily for management fees. The Company considered accounts more than 30
days old to be past due. The Company used the allowance method for recognizing bad debts. When an account was deemed uncollectible,
it was written off against the allowance. The Company generally does not require collateral for its accounts receivable. Management
has not recorded an allowance for doubtful accounts as of March 31, 2018 or December 31, 2017.
Inventory
Inventory
is recorded at the lower of cost or market and the cost of sales are recorded utilizing the first in first out (“FIFO”)
method.
Fixed
Assets
Property
and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives
of the related assets of three years for computer equipment, five years for office furniture and fixtures, and the lesser of the
lease term or the useful life of the leased equipment. Leasehold improvements are amortized over the lesser of the lease term
or the useful life of the improvements. Expenditures for maintenance and repairs along with fixed assets below our capitalization
threshold are expensed as incurred.
Impairment
of Long-Lived Assets
The
Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted net cash flows expected to be generated by the asset. 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. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to
sell.
Fair
Value of Financial Instruments
The
Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain
of our financial instruments, including cash, accounts payable and accrued expenses, the carrying amounts approximate fair value
due to their short maturities.
We
follow accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides
guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements,
but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not
apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach
(comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to
replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those
three levels:
Level
1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level
2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not
active.
Level
3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed
by us, which reflect those that a market participant would use.
Revenue
Recognition
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition model that requires
a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration
it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts. We have adopted this update. We do not
believe this guidance will impact the recognition of our primary source of revenue from company-owned coffee shops. The
adoption of this guidance did not have a material impact on our consolidated financial statements.
Stock-Based
Compensation
The
Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies
to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued
to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite
service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance
with the measurement and recognition provisions ASC Topic 505-50. The Company estimates the fair value of stock options at the
grant date by using the Black-Scholes option-pricing model.
Advertising
Advertising
is expensed as incurred and is included in other general and administrative expenses on the accompanying condensed consolidated
statement of operations. For the three months ended March 31, 2018 and February 28, 2017 advertising expense was $164 and $20,409,
respectively.
Income
Taxes
The
Company adopted the provisions of ASC 740, “Income Taxes.” When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the
merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance
of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the position will be sustained upon examination, including
the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that
is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for
unrecognized tax benefits in the accompanying condensed consolidated balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain
of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of March
31, 2018, tax years 2014 - 2017 remain open for IRS audit and tax years 2015–2017 remain open for HM Revenue & Customs
(“HMRC”) audit. The Company has received no notice of audit from the IRS or HMRC for any of the open tax years.
Net
Earnings (Loss) Per Share
In
accordance with ASC 260-10, “Earnings Per Share,” basic net earnings (loss) per common share is computed by dividing
the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share are computed using the weighted average number of common stock shares outstanding during the period.
The Company does not currently have any potential dilutive securities outstanding as of March 31, 2018 and February 28, 2017.
Foreign
Currency Translation and Transactions
The
British Pound (“£”) is the functional currency of DEPT-UK and Tapped whereas the financial statements are reported
in United States Dollar (“USD,” “$”). Assets and liabilities are translated based on the exchange rates
at the condensed consolidated balance sheet date, while revenue and expense accounts are translated at the average exchange rates
prevailing during the period. Equity accounts are translated at historical exchange rates. The resulting translation gain and
loss adjustments are accumulated as a component of stockholders’ equity and other comprehensive income.
Comprehensive
Loss
The
Company reports comprehensive loss and its components in its consolidated financial statements. Comprehensive loss consists of
net loss on foreign currency translation adjustments affecting stockholders’ equity that, under U.S. GAAP, are excluded
from net loss. As of March 31, 2018, the exchange rate between U.S. Dollars and British Pounds was US$1.40 = £1.00, and
the weighted average exchange rate for the three months ended March 31, 2018 was US$1.38 = £1.00. As of December 31, 2017,
the exchange rate between U.S. Dollars and British Pounds was US$1.35 = £1.00.
Going
Concern
The Company had net income for the
three months ended March 31, 2018 of $9,657 and a working capital deficit as of March 31, 2018 of $1,222,717, and has cash provided
by operations of $148,786 for the three months ended March 31, 2018. In addition, as of March 31, 2018, the Company had
a stockholders’ deficit and accumulated deficit of $2,218,332 and $2,473,251, respectively. Without further funding, these
conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The
accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company
as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability
of the Company to continue its operations is dependent on the execution of management’s plans, which include the raising
of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working
capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize its assets
at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of
the financial statements.
There
can be no assurances that the Company will be successful in generating additional cash from the equity/debt markets or other sources
to be used for operations. The financial statements do not include any adjustments relating to the recoverability of assets and
classification of assets and liabilities that might be necessary. Based on the Company’s current resources, the Company
will not be able to continue to operate without additional immediate funding. Should the Company not be successful in obtaining
the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or
contemplate the sale of its assets, if necessary.
Effect
of Recent Accounting Pronouncements
The
Company reviews new accounting standards and updates as issued. No new standards or updates had any material effect on these financial
statements. The accounting pronouncements and updates issued subsequent to the date of these financial statements that were considered
significant by management were evaluated for the potential effect on these financial statements. Management does believe that
some of the subsequent pronouncements will have a material effect on these financial statements as presented and does not anticipate
the need for any future restatement of these financial statements because of the retro-active application of any accounting pronouncements
issued subsequent to March 31, 2018 through the date these financial statements were issued.
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued an ASU on lease accounting. The ASU requires
the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets
and liabilities on the balance sheet. The ASU is effective for reporting periods beginning after December 15, 2018 with early
adoption permitted. While the Company is still evaluating the ASU, the Company expects the adoption of the ASU to have a material
effect on the Company’s financial condition due to the recognition of the lease rights and obligations as assets and liabilities.
The Company expects the ASU to have a material effect on the Company’s results of operations and financial position, and
the ASU will have no effect on cash flows.
ASU 2014-09, Revenue – Revenue from
Contracts with Customers. In May 2014, the FASB issued a new accounting standard that requires recognition of revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be
entitled in exchange for those goods or services. The FASB has also issued several updates to ASU 2014-09. The new standard supersedes
U.S. GAAP guidance on revenue recognition and requires the use of more estimates and judgments than the present standards. It
also requires additional disclosures. We adopted the new revenue guidance effective January 1, 2017, by recognizing the cumulative
effect of initially applying the new standard as an increase to the opening balance of retained earnings. The effect of the adoption
was immaterial, with an immaterial impact to our net income on an ongoing basis. Adoption of the new standard will also result
in changes in classification between Revenues and Direct costs of revenue.
NOTE
2 – ENTRY INTO A DEFINITIVE AGREEMENT
Acquisition
of Tapped and Packed Ltd
On November 1, 2017, DEPT-UK entered into
an acquisition agreement (the “Tapped Acquisition Agreement”) with Tapped, a United Kingdom corporation. Richard Lilley,
an individual (“Lilley”), was the owner of record of 100 capital shares of Tapped. Pursuant to the Tapped Acquisition
Agreement, Tapped stock was transferred to DEPT-UK on November 1, 2017, in consideration of £175,000 and 1,546,875 shares
of common stock of the Company. The £175,000 was paid in October 2017 as a prepayment to the completion date of November
1, 2017. Stefan Allesch-Taylor (“Allesch-Taylor”), Chairman of the Company, utilized his personally owned shares of
common stock of the Company, and assigned the 1,546,875 shares (the “Allesch-Taylor Shares”) from his ownership to
Lilley. In exchange for the use of the Allesch-Taylor Shares, which were provisionally valued at $1,918,125 (“Provisional
Share Compensation Value”), the Board of Directors issued Allesch-Taylor 1,325,000 Preference Shares of DEPT-UK. The Provisional
Share Compensation Value was determined by the previous day’s closing price of $1.24 per share. The Company’s common
stock is thinly-traded and an insignificant amount of stock traded has historically caused significant fluctuations in the price
per share of the Company’s common stock. The Company will utilize an independent third-party business valuation to determine
the value of Tapped, as well as get an independent valuation of the Company’s common stock as of the date of the transaction.
Management believes that the separate valuations will determine a fair and reasonable valuation thereby reducing the provisional
goodwill recorded, as of March 31, 2018, of $2,185,012. The Allesch-Taylor Shares of common stock were assigned
to Lilley on or about October 19, 2017 and were released in accordance to the agreement. See Note 1, 7 and 8. Also in connection
with the Tapped Acquisition Agreement, Gill and Lopez were appointed to serve on Tapped’s Board of Directors.
The
following table summarizes the consideration given for DEPT-UK and the provisional fair values of the assets and liabilities assumed
at the acquisition date.
Consideration given:
|
|
|
|
|
|
|
|
|
|
Cash given
|
|
$
|
237,877
|
|
Common stock shares given
|
|
|
1,918,125
|
|
|
|
|
|
|
Total consideration given
|
|
$
|
2,156,002
|
|
|
|
|
|
|
Fair value of identifiable assets acquired, and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
200,582
|
|
Prepaid expense
|
|
|
92,052
|
|
Inventory
|
|
|
51,411
|
|
Fixed assets, net
|
|
|
73,337
|
|
Deposits
|
|
|
119,999
|
|
Accrued expenses
|
|
|
(195,621
|
)
|
Short-term note payable
|
|
|
(200,804
|
)
|
Director note
|
|
|
(168,782
|
)
|
Deferred taxes
|
|
|
(1,184
|
)
|
Total identifiable net liabilities
|
|
|
(29,010
|
)
|
Goodwill
|
|
|
2,185,012
|
|
Total consideration
|
|
$
|
2,156,002
|
|
The
revenue and earnings for Tapped, as reflected in the unaudited condensed consolidated statement of operations, for the three months
ended March 31, 2018, to reflect the current period, was $573,876 and $381,418, respectively.
Pro-Forma
Financial Information
The following unaudited pro-forma data summarizes
the result of the operations for the three months ended February 28, 2017 as if the acquisition of Tapped had been completed
on September 1, 2016 which was the beginning of the Company’s previous fiscal year prior to the change to a calendar
year end in March 2018. The pro-forma financial information is presented for informational purposes only and is not indicative
of the results of operations that would have been achieved if the acquisitions had taken place on September 1, 2016.
|
|
For the Three Months Ended February 28, 2017
|
|
|
|
|
|
|
|
|
|
Pro-forma
|
|
|
|
|
|
|
DOCASA
|
|
|
Tapped
|
|
|
Adjustments
|
|
|
Combined
|
|
Revenue, net
|
|
$
|
920,847
|
|
|
$
|
475,674
|
|
|
$
|
-
|
|
|
$
|
1,396,521
|
|
Operating expenses
|
|
|
1,130,111
|
|
|
|
286,323
|
|
|
|
-
|
|
|
|
1,416,434
|
|
Income (loss) from operations
|
|
|
(209,264
|
)
|
|
|
189,351
|
|
|
|
-
|
|
|
|
(19,913
|
)
|
Other income (expense)
|
|
|
(4,617
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,617
|
)
|
Income before income taxes
|
|
|
(213,881
|
)
|
|
|
189,351
|
|
|
|
-
|
|
|
|
(24,530
|
)
|
Loss attributable to non-controlling interest
|
|
|
(401
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(401
|
)
|
Foreign currency translation gain
|
|
|
(15,853
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,853
|
)
|
Net income (loss)
|
|
$
|
(230,135
|
)
|
|
$
|
189,351
|
|
|
$
|
-
|
|
|
$
|
(40,784
|
)
|
Net income (loss) per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.00
|
)
|
Weighted average number of common shares outstanding during the period - basic and diluted
|
|
|
146,800,000
|
|
|
|
|
|
|
|
|
|
|
|
146,800,000
|
|
NOTE
3 – INVENTORY
The
Company has inventory of various items used for the sale of coffee and complementary products. As of March 31, 2018, and December
31, 2017, the Company had inventory of $119,881 and $100,386, respectively. The Company accounts for its inventory using the lower
of cost or market and the cost of sales are recorded utilizing the first in first out (“FIFO”) method.
The
inventory is as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Consumable products
|
|
$
|
35,773
|
|
|
$
|
37,750
|
|
Food and drinks
|
|
|
35,871
|
|
|
|
36,792
|
|
Retail products
|
|
|
33,950
|
|
|
|
18,725
|
|
Coffee
|
|
|
14,287
|
|
|
|
7,119
|
|
Total inventory
|
|
$
|
119,881
|
|
|
$
|
100,386
|
|
NOTE
4 – FIXED ASSETS
The Company has fixed assets including computer
equipment, office equipment, site equipment and machinery, site fit out costs, site furniture, fixtures and fittings.
The depreciation expense for the three months
ended March 31, 2018 and February 28, 2017, was $80,491 and $41,778, respectively. The variance between the expense and
the increase in accumulated depreciation is due to timing of the currency translation calculation.
NOTE
5 – INTANGIBLE ASSETS
The
Company has intangible assets related to website development. The amortization of the intangible assets is over a three-year period.
The amortization expense for the three months
ended March 31, 2018 and February 28, 2017, was $1,194 and $1,006, respectively. The variance between the expense and the
increase in accumulated amortization is due to timing of the currency translation calculation.
NOTE
6 – NOTES PAYABLE
The
Company has notes payable as of March 31, 2018 and December 31, 2017, are as follows:
Notes payable - current
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
Arch Investments
|
|
$
|
2,194
|
|
|
$
|
-
|
|
|
$
|
2,194
|
|
|
$
|
2,194
|
|
|
$
|
-
|
|
|
$
|
2,194
|
|
Arch Investments
|
|
|
5,067
|
|
|
|
-
|
|
|
|
5,067
|
|
|
|
5,067
|
|
|
|
-
|
|
|
|
5,067
|
|
Arch Investments
|
|
|
5,065
|
|
|
|
-
|
|
|
|
5,065
|
|
|
|
5,065
|
|
|
|
-
|
|
|
|
5,065
|
|
Arch Investments
|
|
|
15,873
|
|
|
|
-
|
|
|
|
15,873
|
|
|
|
15,873
|
|
|
|
-
|
|
|
|
15,873
|
|
Arch Investments
|
|
|
4,349
|
|
|
|
-
|
|
|
|
4,349
|
|
|
|
4,349
|
|
|
|
-
|
|
|
|
4,349
|
|
HSBC
|
|
|
116,118
|
|
|
|
-
|
|
|
|
116,118
|
|
|
|
111,970
|
|
|
|
-
|
|
|
|
111,970
|
|
HSBC
|
|
|
60,953
|
|
|
|
-
|
|
|
|
60,953
|
|
|
|
26,642
|
|
|
|
-
|
|
|
|
26,642
|
|
Total
|
|
$
|
209,619
|
|
|
$
|
-
|
|
|
$
|
209,619
|
|
|
$
|
171,160
|
|
|
$
|
-
|
|
|
$
|
171,160
|
|
Notes payable - non-current
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
Deij Capital Limited (1)
|
|
$
|
11,845
|
|
|
$
|
-
|
|
|
$
|
11,845
|
|
|
$
|
11,414
|
|
|
$
|
-
|
|
|
$
|
11,414
|
|
HSBC
|
|
|
261,571
|
|
|
|
-
|
|
|
|
261,571
|
|
|
|
280,011
|
|
|
|
-
|
|
|
|
280,011
|
|
HSBC
|
|
|
28,890
|
|
|
|
-
|
|
|
|
28,890
|
|
|
|
65,670
|
|
|
|
-
|
|
|
|
65,670
|
|
Total
|
|
$
|
302,306
|
|
|
$
|
-
|
|
|
$
|
302,306
|
|
|
$
|
357,095
|
|
|
$
|
-
|
|
|
$
|
357,095
|
|
(1) Related party
On July 1, 2014, DEPT-UK entered into a business
loan with Deij Capital Limited (“Deij Capital”), a related party in which Gill is the director and owner. The loan
is for 3 years, with an interest rate of 0%. The note was extended to July 1, 2018. The imputed interest is deemed immaterial
as of March 31, 2018. The facility loan was for $171,437 (£100,000) to be drawn down as and when required. On June 30, 2016,
Deij Capital converted the balance due of $179,534 (£135,464) into 135,464 shares of Preference Shares. On May 31, 2017,
Deij Capital converted of the balance due $63,990 (£51,500) into 51,500 shares of Preference Shares. The outstanding principal
as of March 31, 2018 and December 31, 2017 was $11,845 (£8,454) and $11,414 (£8,454), respectively. The accrued
interest as of March 31, 2018 and December 31, 2017, was $0 (£0) and $0 (£0), respectively.
On July 31, 2014, DOCASA executed a promissory
note for $2,194 with Nami Shams, a former officer and director of the Company. The note has no set term of repayment and is non-interest
bearing. The imputed interest is deemed immaterial as of March 31, 2018. As of March 31, 2018, and December 31, 2017, the principal
was $2,194. This note was acquired by Arch Investments, LLC.
On
April 30, 2015, DOCASA executed a promissory note for $5,067 with Nami Shams, a former officer and director of the Company. The
note has no set term of repayment and is non-interest bearing. On July 20, 2016, Arch Investments, LLC acquired this promissory
note due to Nami Shams. The imputed interest is deemed immaterial as of March 31, 2018. As of March 31, 2018, and December 31,
2017, the principal was $5,067.
On
July 31, 2015, DOCASA executed a promissory note for $5,065 with Nami Shams, a former officer and director of the Company. The
note has no set term of repayment and is non-interest bearing. The imputed interest is deemed immaterial as of March 31, 2018.
As of March 31, 2018, and December 31, 2017, the principal was $5,065. This note was acquired by Arch Investments, LLC.
On
October 31, 2015, DOCASA executed a promissory note for $15,873 with Nami Shams, a former officer and director of the Company.
The note has no set term of repayment and is non-interest bearing. The imputed interest is deemed immaterial as of March 31, 2018.
As of March 31, 2018, and December 31, 2017, the principal was $15,873. This note was acquired by Arch Investments, LLC.
On
January 31, 2016, DOCASA executed a promissory note for $4,349 with Nami Shams, a former officer and director of the Company.
The note has no set term of repayment and is non-interest bearing. The imputed interest is deemed immaterial as of March 31, 2018.
As of March 31, 2018, and December 31, 2017, the principal was $4,349. This note was acquired by Arch Investments, LLC.
On July 28, 2016, DEPT-UK entered into a business
loan with HSBC. The loan is a development loan drawn down against development invoices. The loan is for four years, with
an interest rate of 4.5% over the Bank of England base rate. The loan repayment is monthly, interest-only payments for the first
six months followed by monthly repayments of principal and interest over the remaining forty-two months. The loan was for $437,992
(£352,500) with an initial $115,767 (£93,178) drawn. The outstanding principal and accrued interest as of March 31,
2018, and December 31, 2017, was $377,689 (£269,559) and $391,981 (£290,294), respectively. As of March
31, 2018, the current portion was $116,118 and the non-current portion was $261,571.
On September 8, 2016, Tapped, prior to
being acquired by DEPT-UK, entered into a business loan with HSBC. The loan is for five years, with an interest rate of 5.51%.
The loan was for £90,000. The outstanding principal as of March 31, 2018, and December 31, 2017, was $89,843 and $92,312,
respectively. As of March 31, 2018, the current portion was $60,953 and the non-current portion was $28,890.
NOTE
7 – RELATED PARTIES TRANSACTIONS
On February 28, 2017, 51,500 Preference Shares
were issued to Deij Capital in exchange for a debt of $63,990 (£51,500). See Note 8.
For
the three months ended March 31, 2018 and February 28, 2017, the Company purchased £34,959 and £63,842, respectively,
of cakes from Dee Light, a company which Gill, the vice chairman of the Company, was a 50% shareholder (until November 2016).
As of March 31, 2018, and December 31, 2017, the Company owed Dee Light £53,379 and £63,833, respectively.
For
the three months ended March 31, 2018 and February 28, 2017, the Company made sales or advances of £108,619 and £97,307,
respectively, to The Roastery Department Ltd. (“The Roastery Department”) and made purchases from it of £77,670
and £50,186 for the three months ended March 31, 2018 and February 28, 2017, respectively. As of March 31, 2018,
and December 31, 2017, the Company both has receivables and payables from The Roastery Department, which netted as receivables
of $480,287 (£343,062) and $421,353 (£312,113), respectively. Gill, the Company’s vice chairman, and Ashley
Lopez (“Lopez”), the Company’s chief executive officer, were both unpaid directors of The Roastery Department
until they resigned on December 1, 2016. The Company, when purchasing products from The Roastery Department, was provided a discount
due to the strategic relationship between the two parties which provided the Company its purchases at cost. The relationship between
The Roastery Department and the Company, as stated, is classified as a barter transaction.
On
October 6, 2017, the Company issued 8,976,875 shares of common stock to Allesch-Taylor as part of the common stock owed to Allesch-Taylor
in regards to the acquisition of DEPT-UK.
On
October 30, 2017, the Company issued 1,000,000 shares of common stock to Allesch-Taylor as part of the common stock owed to Allesch-Taylor
in regards to the acquisition of DEPT-UK.
As
of March 31, 2018, and December 31, 2017, the Company owed Allesch-Taylor, the Company’s chairman, payables of $41,136 (£29,383)
and $36,729 (£29,383), respectively.
As
of March 31, 2018, and December 31, 2017, the Company owed Lopez, the Company’s chief executive officer, payables of $26,212
(£18,723) and $14,613 (£11,690), respectively.
As of March 31, 2018, and December 31, 2017,
the Company owed Deij Capital, a company in which Gill, the deputy chairman of the Company, is the director and owner, notes payable
of $11,845 (£8,454) and $11,414 (£8,454), respectively.
The
Company has an employment agreement with Lopez, our CEO, and did have a consulting agreement with Clearbrook Capital Partners
LLP (“Clearbrook”), an entity where Kazi Shahid, our former CFO, was a partner and also served as CFO. Allesch-Taylor
is a director of Clearbrook. The agreement with Clearbrook was terminated on March 15, 2017.
The
above related party transactions are not considered as arm’s length transactions for all circumstances.
NOTE
8 – STOCKHOLDERS’ EQUITY
Common
Stock
The
Company is authorized to issue up to 250,000,000 shares of common stock. Each outstanding share of common stock entitles the holder
to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable and non-cumulative,
with no pre-emptive rights.
On
October 6, 2017, the Company issued 8,976,875 shares of common stock to Allesch-Taylor as part of the common stock owed to Allesch-Taylor
in regards to the acquisition of DEPT-UK.
On
October 30, 2017, the Company issued 1,000,000 shares of common stock to Allesch-Taylor as part of the common stock owed to Allesch-Taylor
in regards to the acquisition of DEPT-UK. After the issuances on October 6, 2017 and October 30, 2017, of the second tranche of
60,000,000 shares issuable to Allesch-Taylor pursuant to the acquisition terms, 47,087,125 remain issuable to him as of March
31, 2018 and December 31, 2017 and must be issued by no later than August 31, 2018.
As
of March 31, 2018, the Company has not granted any stock options and has not recorded any stock-based compensation.
Preference
Shares and Non-Controlling Interest
The
Articles of Association of DEPT-UK, pursuant to the Companies Act 2006, authorized DEPT-UK to issue up to 25,000,000 preference
shares, par value £1.00 per share (such subsidiary preference shares referred to herein as “Preference Shares”).
Such Preference Shares have no votes and limited distribution rights. Subject to the provisions of the Companies Act 2006, DEPT-UK
shall have the right pursuant to Section 687-688 of the Companies Act 2006 to redeem at par the whole or any part of the Preference
Shares at any time or times after the date of issue of the said Preference Shares upon giving to DEPT-UK not less than three months’
previous notice in writing. The Preference Shares, at the discretion of the Board of Director of DEPT-UK, can be purchased at
the value they were issued or can be converted into contributed capital. The Preference Shares are accounted for as non-controlling
interest. As of March 31, 2018, and December 31, 2017, 3,637,359 and 3,557,796 shares were outstanding, respectively. Of the outstanding
shares, 1,684,709 and 1,666,709 were issued to related parties, as of March 31, 2018, and December 31, 2017, respectively.
DEPT-UK
has a non-controlling interest of 0.2%. For the three months ended March 31, 2018, the Company had a non-controlling interest
of $170. For the three months ended February 28, 2017, the Company had a non-controlling interest of $401.
On February 28, 2017, 51,500 Preference
Shares were issued to Deij Capital in exchange for a debt of $63,990 (£51,500). See Note 7.
On
December 5, 2017, Borough Capital contributed $25,000 (£18,583) to DEPT-UK, in exchange for 18,583 Preference Shares.
On
December 14, 2017, Borough Capital contributed $45,000 (£33,488) to the DEPT-UK, in exchange for 33,488 Preference Shares.
On January 17, 2018, Borough Capital, in regards
to an October 2017 contribution of $111,061 to DEPT-UK, converted the liability into 79,563 Preference Shares.
Acquisition
of Tapped and Packed Ltd
On
November 1, 2017, DEPT-UK entered into the Tapped Acquisition Agreement with Tapped, a United Kingdom corporation. See Note 2.
The
dollar amount of Preference Shares, as recorded, were recorded to non-controlling interest as part of consolidation.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Legal
Matters
From
time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.
As of May 15, 2018, there were no pending or threatened lawsuits.
Lease
Commitment
We
lease office space in Schaumburg, Illinois, pursuant to a lease that is monthly. This facility serves as our corporate office.
Future
minimum lease payments under leases with DEPT-UK, Tapped, and DEPT-IL, are as follows:
2018
|
|
|
$
|
581,351
|
|
2019
|
|
|
|
775,490
|
|
2020
|
|
|
|
778,760
|
|
2021
|
|
|
|
746,502
|
|
2022
|
|
|
|
532,555
|
|
Future
|
|
|
|
1,241,852
|
|
Total
|
|
|
$
|
4,656,510
|
|
Note:
The above table will change in each future filing due to currency translation as applicable.
DEPT-UK has 18 leases, of which one is for
the UK administrative office, and 17 operational leases. The Company has two leases in the United States for DEPT-IL. Various leases
have break out dates prior to expiration.
The
Company entered into no new leases during the three months ended March 31, 2018.
The
Company is a primary leaseholder on one lease which it has subleased to the Roastery and is responsible for the monthly payments
which approximate £221.
Rent
expense for the three months ended March 31, 2018 and February 28, 2017, was $207,201 and $99,120, respectively.
NOTE
10 – CONCENTRATIONS
Concentration
of Credit Risk
Financial
instruments, which potentially subject the Company to a concentration of credit risk, consist principally of temporary cash investments.
The
Company places its temporary cash investments with financial institutions insured by the Federal Deposit Insurance Corporation
(“FDIC”) for the United States and the Financial Services Compensation Scheme (“FSCS”) for the United
Kingdom. No amounts exceeded federally insured limits as of March 31, 2018. There have been no losses in these accounts through
March 31, 2018.
Concentration
of Customer
The
Company has one customer, which, for the three months ended March 31, 2018 and February 28, 2017, had sales of $257,289 (£187,076,
21% of total revenue) and $199,948 (£157,200, 10.9% of total revenue), respectively. The Company has a contract with the
customer that expires in February 2020.
NOTE
11 – REVENUE CLASSES
Selected
financial information for the Company’s operating revenue classes are as follows:
Revenues:
|
|
For the three months ended
|
|
|
For the three months ended
|
|
|
|
March 31, 2018
|
|
|
February 28, 2017
|
|
Coffee and complementary food products
|
|
$
|
1,639,035
|
|
|
£
|
1,214,100
|
|
|
$
|
817,100
|
|
|
£
|
653,211
|
|
Coffee school
|
|
|
3,231
|
|
|
|
2,393
|
|
|
|
5,476
|
|
|
|
4,378
|
|
Management fees
|
|
|
181,443
|
|
|
|
134,402
|
|
|
|
98,271
|
|
|
|
78,560
|
|
Total
|
|
$
|
1,823,709
|
|
|
£
|
1,350,895
|
|
|
$
|
920,847
|
|
|
£
|
736,149
|
|
Direct costs of revenue:
|
|
For the three months ended
|
|
|
For the three months ended
|
|
|
|
March 31, 2018
|
|
|
February 28, 2017
|
|
Coffee and complementary food products
|
|
$
|
1,088,288
|
|
|
£
|
806,139
|
|
|
$
|
680,777
|
|
|
£
|
544,230
|
|
Coffee school
|
|
|
2,911
|
|
|
|
2,156
|
|
|
|
4,933
|
|
|
|
3,944
|
|
Management fees
|
|
|
55,521
|
|
|
|
41,127
|
|
|
|
30,071
|
|
|
|
24,040
|
|
Total
|
|
$
|
1,146,720
|
|
|
£
|
849,422
|
|
|
$
|
715,781
|
|
|
£
|
572,214
|
|
The
acquisition of Tapped, effective November 1, 2017, is reflective in the three months ended March 31, 2018 with revenue from Tapped
for three months compared to the three months ended February 28, 2017 without Tapped.
NOTE
12 – CAPITAL LEASE OBLIGATIONS
The
Company leases various assets under capital lease. As of March 31, 2018, and December 31, 2017, capital lease obligations consisted
of the following:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Computer equipment
|
|
$
|
66,429
|
|
|
$
|
66,429
|
|
Office equipment
|
|
|
45,276
|
|
|
|
23,609
|
|
Site equipment and machinery
|
|
|
457,134
|
|
|
|
457,134
|
|
Site fit out costs
|
|
|
1,799,750
|
|
|
|
1,799,750
|
|
Site furniture, fixtures and fittings
|
|
|
468,037
|
|
|
|
268,796
|
|
Total fixed assets
|
|
|
2,836,626
|
|
|
|
2,615,718
|
|
Less: Accumulated depreciation
|
|
|
1,131,686
|
|
|
|
858,322
|
|
Fixed assets, net
|
|
$
|
1,704,940
|
|
|
$
|
1,757,396
|
|
Aggregate
future minimum rentals under capital leases are as follows:
2018
|
|
$
|
149,823
|
|
2019
|
|
|
171,211
|
|
2020
|
|
|
136,217
|
|
2021
|
|
|
83,964
|
|
2022
|
|
|
7,708
|
|
Total
|
|
|
548,923
|
|
Less: Interest
|
|
|
59,569
|
|
Present value of minimum lease payments
|
|
|
489,354
|
|
Less: Current portion of capital lease obligations
|
|
|
217,300
|
|
Capital lease obligations, net of current portion
|
|
$
|
392,254
|
|
Note:
The above schedule reflects only items that have payments associated with them.
NOTE
13 – SUBSEQUENT EVENTS
Management
has reviewed and evaluated subsequent events through the date on which the current financial statements were available to be issued
and did not have any material recognizable subsequent events after March 31, 2018.