Notes to Unaudited Consolidated Condensed Financial Statements
for the Six Months Ended June 30, 2018 and June 30 2017
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Nature’s Best Brands, Inc. (the “Company”) is a Florida corporation organized under the name Hip Cuisine, Inc. on March 19, 2014. The Company changed its corporate name to Nature’s Best Brand, Inc. on June 15, 2018. The Company has two subsidiaries, Hip Cuisine, Inc. (“Hip Cuisine”), a Panama corporation incorporated on February 24, 2014, and Rawkin Juice, Inc., a California corporation incorporated on November 7, 2016. The Company’s fiscal year end is December 31.
The Company, through its subsidiaries intends to market organic foods to health-conscious consumers. In pursuance of this goal, the Company operates four restaurants that offer healthy food, coffee and juice, two in Panama and two in California. The Company is engaged is evaluating acquisitions that both would expand its present lines of business and which are in unrelated businesses. However, the Company cannot give any assurance that it can or will complete any acquisitions.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated significant revenues since inception. As at June 30, 2018, the Company has an accumulated loss from operations of $2,642,944 and it sustained an operating loss of $722,347 for the six months ended June 30, 2018. These factors among others raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The continuing operations of the Company are dependent upon its ability to raise adequate financing and to commence profitable operations in the future and repay its liabilities arising from normal business operations as they become due. The ability of the Company to raise financing may be impaired by the terms of the Company’s outstanding convertible notes and warrants.
Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended December 31, 2017 have been omitted. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2017.
Basis of Consolidation
These consolidated condensed financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated.
Foreign Currency Translation and Re-measurement
The Company’s functional currency and reporting currency is the U.S. dollar. The functional currency of Hip Cuisine, which operates two restaurants in Panama, is the Panamanian Balboa. All transactions initiated in Panamanian Balboa are translated into U.S. dollars in accordance with ASC 830-30, “Translation of Financial Statements.” Since the Panamanian Balboa is pegged with the U.S. dollar at par, the Company recognized no gain or loss on foreign exchange translations during the six months ended June 30, 2018 and June 30, 2017.
Use of Estimates and Assumptions
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.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of June 30, 2018 and December 31, 2017, the Company had $93,723 and $87,102 in cash and cash equivalents, respectively.
Fair Value of Financial Instruments
The Company adopted ASC Topic 820,
Fair Value Measurements
(“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.
The three-level hierarchy for fair value measurements is defined as follows:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement
The Company’s financial instruments consist primarily of cash, prepaid expenses, accounts payable and accrued expenses, convertible notes and stockholder’s loan. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
Concentrations of Credit Risks
The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents. The Company places its cash and cash equivalents with financial institutions of high credit worthiness. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions (see Note 7).
Prepaid and Deposits
Prepaid and deposits balances relate to security deposits for restaurant leases, prepaid rent and prepaid insurance. The prepaid balances and deposits will be amortized as the related expense is incurred.
Property, plant and equipment
Property and equipment are stated at cost. Depreciation is computed on the straight-line method. The depreciation and amortization methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows:
Equipment
|
5 Years
|
Furniture and Fixtures
|
5 Years
|
Leasehold Improvement
|
3 Years
|
Construction in Progress
|
7 Years
|
Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.
The long-lived assets of the Company are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” (“ASC No. 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. 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. During the six months ended June 30, 2018 and June 30, 2017, no impairment losses have been identified.
Goodwill and Other Intangible Assets
We account for goodwill and intangible assets in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. In addition, ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.
No impairment loss was recognized for the six months ended June 30, 2018 and June 30, 2017.
The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.
Revenue Recognition
The Company recognizes revenue from the sale of products and services in accordance with ASC 606,”
Revenue Recognition
” following the five steps procedure:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to performance obligations
Step 5: Recognize revenue when the entity satisfies a performance obligation
The Company recognizes revenue when it satisfies its obligation by transferring control of the good or service to the customer. A performance obligation is satisfied over time if one of the following criteria are met:
|
a.
|
the customer simultaneously receives and consumes the benefits as the entity performs;
|
|
b.
|
the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
|
|
c.
|
the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date.
|
Since the Company’s revenues are generated when products are sold with no remaining obligations on the part of the Company, revenue is recognized at the time of sale.
Stock-Based Compensation
ASC 718,
“Compensation - Stock Compensation,”
prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “
Equity - Based Payments to Non-Employees.”
Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
During the six months ended June 30, 2018 and 2017, the Company incurred $184,670 and $251,360 from the issuance of 197,000 and 233,000 shares of common stock to the consultants for services.
Recently Issued Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on the Company’s financial statements.
Adoption of New Accounting Standards.
We have adopted the following recent accounting pronouncement in these financial statements with no significant impact on reported financial position, results of operations or cash flow:
ASU 2014-09, Revenue
- Revenue from Contracts with Customers. The new standard, as amended, requires that we recognize revenue in the amount to which we expect to be entitled for delivery of promised goods and services to our customers. The new standard also resulted in enhanced revenue-related disclosures, including any significant judgments and changes in judgments. Additionally, the new standard requires the deferral of incremental direct selling costs to the period in which the related revenue is recognized.
We adopted the standard as of January 1, 2018 using the modified retrospective approach applied to all contracts that were not completed at adoption based on the contract terms in existence at adoption. No adjustment was required to beginning retained earnings as a result of this adoption and none of the enhanced revenue-related disclosures were required.
NOTE 3 – PROPERTY, PLANT AND EQUIPMENT
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Equipment
|
|
$
|
233,423
|
|
|
$
|
233,423
|
|
Furniture
|
|
|
61,924
|
|
|
|
61,306
|
|
Leasehold improvement
|
|
|
559,310
|
|
|
|
543,636
|
|
Less accumulated depreciation
|
|
|
(304,640
|
)
|
|
|
(204,232
|
)
|
|
|
$
|
550,017
|
|
|
$
|
634,133
|
|
Property and equipment are stated at cost. Depreciation is computed on the straight-line method. The depreciation methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows:
Equipment
|
5 Years
|
Furniture and Fixtures
|
5 Years
|
Leasehold Improvement
|
3 Years
|
During the six months ended June 30, 2018 and 2017, the depreciation cost was $100,407 and $60,363, respectively.
During the six months ended June 30, 2018, the Company issued 15,834 shares of common stock, valued at $15,674 based on the market price of the common stock on the date of issuance, for leasehold improvements.
NOTE 4 – INTANGIBLE ASSET – TRADEMARKS
The Company acquired rights with respect to three trademarks during 2017 and 2018, as follows:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Living Goumet
1
|
|
$
|
5,775
|
|
|
$
|
5,985
|
|
Medidate Coffee
2
|
|
|
11,797
|
|
|
|
12,219
|
|
Heart service mark
3
|
|
|
2,621
|
|
|
|
-
|
|
|
|
$
|
20,193
|
|
|
$
|
18,204
|
|
_______________
1
The Company acquired the rights to the Living Gourmet trademark in February 2017 for which the Company issued 10,000 shares of common stock, valued at $0.63 per share, which was the market price of the common stock on the date of the acquisition, from an unaffiliated party, and the Company agreed to pay a royalty of 20% of the net profits, as defined, generated from the use of the trademark. As of June 30, 2018, no royalties were payable since the Company did not generate any profits from the trademark.
2
On June 15, 2017, the Company issued 8,000 shares of common stock valued at $12,640, based on market price of $1.58 per share, to the managing member of Medidate Coffee Ltd., pursuant to an agreement with Medidate Coffee pursuant to which the Company obtained the exclusive rights to distribute Medidate coffee in Panama, Colombia and Costa Rica and received a 10% membership interest in Medidate Coffee. The Company will pay 20% of net profit derived from the sales of Medidate Coffee sold in Company-owned outlets and 20% of the net profit derived from sales of Medidate Coffee products that were produced in the kitchens of the Company’s restaurants. The Company and Medidate Coffee have the exclusive right to use the Medidate Coffee brand name. As of June 30, 2018, no royalties were payable since the Company did not generate any profits from the sale of the coffee.
3
In May 2018, we were granted a service mark for the heart logo.
We amortize the cost of our trademarks over the 15-year estimated useful life of the trademarks on a straight line basis.
The following table sets forth the amortization for the trademarks at June 30, 2018 and December 31, 2017
|
|
June 30,
2018
|
|
|
December 31, 2017
|
|
Trademarks
|
|
$
|
21,605
|
|
|
$
|
18,940
|
|
Less accumulated amortization
|
|
|
(1,412
|
)
|
|
|
(736
|
)
|
|
|
$
|
20,193
|
|
|
$
|
18,204
|
|
NOTE 5 – GOODWILL
|
|
June 30,
2018
|
|
|
December 31, 2017
|
|
Goodwill
|
|
$
|
37,894
|
|
|
$
|
37,894
|
|
Goodwill is generated from the acquisition of net assets from Rawkin Bliss LLC by Rawkin Juice Inc. Based on the Company’s analysis of goodwill as of June 30, 2018, no indicators of impairment exist. No impairment loss on goodwill was recognized for the six months ended June 30, 2018 and June 30, 2017.
NOTE 6 – BANK LOAN
The Company had the following bank loan outstanding as of June 30, 2018 and December 31, 2017:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Bank loan, at $80,000 principal, repayable in monthly installments of $829 with an annual interest rate of 2%, maturing Nov 29, 2026
|
|
$
|
67,675
|
|
|
$
|
71,845
|
|
Less, current portion
|
|
|
(9,152
|
)
|
|
|
(9,156
|
)
|
Long-term portion
|
|
|
58,523
|
|
|
|
62,689
|
|
During the six months ended June 30, 2018 and 2017, the interest expense on bank loan was $807 and $667.
The following is a schedule by years of future bank loan payment as of June 30, 2018:
Future Bank Loan payment
|
|
|
|
Year 1
|
|
$
|
9,152
|
|
Year 2
|
|
|
8,327
|
|
Year 3
|
|
|
8,327
|
|
Year 4
|
|
|
8,327
|
|
Year 5
|
|
|
8,327
|
|
Thereafter
|
|
|
25,215
|
|
Total
|
|
$
|
67,675
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
Chief Executive Officer
The chief executive officer has periodically made interest-free advances to the Company for working capital, and the Company has made periodic repayments to the chief executive. Amounts due to the chief executive officer on account of these advances were $323,605 at June 30, 2018 and $258,139 at December 31, 2017. The advances are payable on demand.
During the six months ended June 30, 2018, the Company’s chief executive officer advanced $189,036 to the Company, and the Company repaid $123,570 to the chief executive officer.
During the six months ended June 30, 2017, the Company’s chief executive officer advanced $76,187 to the Company, and the Company repaid $96,497 to the chief executive officer.
Chief Financial Officer
During the six months ended June 30, 2018, the Company’s chief financial officer advanced $16,000 to the Company for working capital. As of December 31, 2017, the chief financial officer’s advances to the Company were $52,000, and the Company owed the chief financial officer accrued interest of $2,000. Advances from the chief financial officer bore interest at 3% per annum.
On March 20, 2018, the Company issued a convertible note to the chief financial officer in the principal amount of $80,250 with $5,250 original issuance discount to replace the principal and interest due to the chief financial officer in the amount of $75,000. The convertible note bears interest at a rate of 2% per annum, and is payable on September 20, 2018, which is six months from the March 20, 2018 funding date. The Company has determined that there is no convertible feature associated with the convertible note as of June 30, 2018, due to the variable feature not being in effect until 180 days after the issuance date of March 20, 2018. The note was issued in satisfaction of the Company’s obligations to the chief financial officer in the principal amount of $75,000. The issuance of the note on March 20, 2018 did not have substantially different terms than the original note, and is not considered to be a debt modification under U.S. GAAP guidance.
The note is convertible into common stock at a variable conversion rate commencing 180 days after issuance. In connection with the issuance of the convertible note to the chief financial officer, the Company issued to the chief financial officer two-year warrants to purchase 75,000 shares of common stock at an exercise price of $1.20 per share. The note is one of three convertible notes that were issued by the Company in the aggregate principal amount of $321,000 and which are described in Note 8. In connection with the issuance of the notes, the Company issued warrants to purchase an aggregate of 300,000 shares of common stock, as described in Note 9, to the purchasers of the notes.
NOTE 8 – CONVERTIBLE NOTES
The Company had no convertible notes on December 31, 2017 and had the following principal balances under its convertible notes outstanding as June 30, 2018:
|
|
June 30,
|
|
|
|
2018
|
|
Convertible Notes - March 2018
|
|
$
|
321,000
|
|
Less debt discount and debt issuance cost
|
|
|
(80,294
|
)
|
|
|
|
240,706
|
|
Less current portion of convertible notes payable
|
|
|
(240,706
|
)
|
Long-term convertible notes payable
|
|
$
|
-
|
|
On March 8 and March 20, 2018, the Company issued convertible notes in the aggregate principal amount of $321,000 pursuant to a purchase agreements dated March 8 and March 20, 2018. The notes were issued for a purchase price of $300,000, with an original issue discount of $21,000. The convertible notes are due six months from funding are, accordingly, are treated as current liabilities. In connection with the issuance of the convertible notes, the Company issued to the holders of the convertible notes two-year warrants to purchase 300,000 shares of common stock at an exercise price of $1.20 per share, subject to adjustment. The warrants were valued at $155,742, which is treated as a debt issuance discount.
The Company recognized amortization expense related to the debt discount and deferred financing fees of $110,948 for the six months ended June 30, 2018, which is included in interest expense in the statements of operations.
The notes are senior notes and the Company cannot create indebtedness senior to or pari passu with the notes without the consent of the holders. The notes bear interest at 2% per annum and were issued on March 8, 2018 as to $160,500 and March 16, 2018 as to $160,500. The notes are convertible into common stock, commencing 180 days after the issue date, at a conversion price equal to lowest of (i) $1.00 or (ii) 75% of the closing price of the common stock on the 180
th
day after the date of issuance, or (iii) at any time on or after the earlier of the (x) date of an event of default under the note occurs or (y) date which is 225 days after the issue date, 65% of the lowest closing price of the common stock during the 20 consecutive trading-day period immediately preceding the trading day that the Company receives a notice of conversion. Further, if the lowest traded price of the common stock is less than the conversion price on the date following the conversion date on which the holder receives the conversion shares which are immediately freely tradable by the holder, either pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, then the conversion price shall be deemed to have been retroactively adjusted, as of the conversion date, to a price equal to 65% of the lowest closing price of the common stock on such date of receipt.
As of June 30, 2018, no derivative liability associated with the convertible notes have been recorded, as June 30, 2018 is prior to the date on which the notes may be converted which is 180 days after the issuance of the notes.
The conversion price is also subject to adjustment in the event of issuances of common stock or convertible securities with an exercise price or conversion price which is less than the conversion price otherwise determined pursuant to the note, including certain acquisition transactions. If the Company (i) makes a public announcement that it intends to be acquired by, consolidate or merge with any other corporation or entity (other than a merger in which the Company is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Company or (ii) any person, group or entity (including the Company) publicly announces a tender offer to purchase 50% or more of the common stock (or any other takeover scheme) the conversion price shall, effective upon the date of the announcement and continuing until the transaction is either completed or abandoned, the conversion price shall be equal to the lower of (x) the conversion price otherwise determined pursuant to the note or a 25% discount to the acquisition price per share, as defined.
If the Company makes a dilutive issuance, other than for exempt issuances, the conversion price is reduced to the price at which the common stock was issued pursuant to the dilutive issuance. The adjustment of the conversion price as a result of a dilutive issuance does not apply to (a) shares of common stock or other securities issued to officers or directors pursuant to an equity incentive plan adopted by a majority of the non-employee members of the Company’s board of directors or a majority of the members of a committee of non-employee directors established for such purpose; (b) securities issued pursuant to a merger, consolidation, acquisition or similar business combination approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a person which is an operating company in a business synergistic with the business of the Company; (c) securities issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial institution approved by a majority of the disinterested directors of the Company.
The note cannot be converted to the extent that, upon conversion of the note, the holder and his affiliates would beneficially own more than 4.99% of the Company’s common stock, provided, that the holder of the notes may terminate the 4.99% requirement on 61days’ notice.
The Company may prepay the notes on three trading days’ notice as follows. During the first 60 days, at 108% of the principal amount, during the next 60 days at 113% of the principal amount, during the next 60 days at 120% of the principal amount and thereafter at 100% of the principal amount, in each case plus accrued interest and any default interest. The holders of the notes have certain rights to require prepayment from financing and other funding.
Events of default are defined in the note and include, in addition to events of default that are standard in promissory notes, (i) failure to comply with the reporting requirements of the Securities Exchange Act, including the filing for an extension under Rule 12b-25 of the Exchange Act, or failure to be subject to such reporting requirements; (ii) a reverse split not approved by the holders; (iii) any restriction placed by Depository Trust Company (DTC”) on one or more of DTC’s services, such as limiting a DTC participant’s ability to make a deposit or withdrawal of the security at DTC) the Company’s common stock, provided, however, that if such action by DTC did not result from any fault of the Company, then the Company shall have ten trading days to obtain the release, cancellation or termination of such restriction; (iv) the entry by the Company in any variable rate or similar transaction, which would include a transaction similar to the notes; (v) without consent of the holders of the notes, if the Company changes the nature of its business or sells, divests, or changes the structure of any material assets other than in the ordinary course of business. In the event of a default, the Company would be required to pay 150% of the principal amount and the note includes a confession of judgment which would make it easier for the holders to obtain a judgment against the Company.
For the six months ended June 30, 2018 and 2017, the interest expense on convertible notes was $1,881 and $0, respectively. As of June 30, 2018 and December 31, 2017, the accrued interest payable was $1,881 and $0, respectively.
NOTE 9 – CAPITAL STOCK
Common Stock
On February 7, 2017, the Company issued 10,000 shares of common stock valued at $6,300, based on market price of $0.63 per share, for the acquisition of a trademark from an unaffiliated party.
In March 2017, the Company sold 1,000,000 shares of common stock in a public offering at $0.75, from which the Company received net proceeds of $675,000 after expenses of $75,000.
On June 15, 2017, the Company issued 8,000 shares of common stock valued at $12,640, based on market price of $1.58 per share, to the managing member of Medidate Coffee Ltd., pursuant to an agreement whereby the Company obtained the exclusive rights to distribute Medidate coffee in Panama, Colombia and Costa Rica and received a 10% membership interest in Medidate Coffee. The Company will pay 20% of net profit derived from the sales of Medidate Coffee sold in Company-owned outlets and 20% of the net profit derived from sales of Medidate Coffee products that were produced in the kitchens of the Company’s restaurants.
On August 25, 2017, the Company sold 250,000 shares of common stock at $1.00 for cash proceeds of $250,000.
On October 17, 2017, the Company issued 115,000 shares of common stock valued at $1.00 per share, based on the market price of the stock, to employees of the Company as compensation.
During the year ended December 31, 2017, the Company issued 233,000 shares of common stock valued at $251,360, based on market price on the respective issuance dates, to consultants to assist in managing its locations, locating expansion of restaurants and promoting the new restaurant locations.
During the year ended December 31, 2017, the Company issued 306,250 shares of common stock valued at $398,750, based on the market price on the respective issuance dates, to repay certain notes payable of $132,500 assumed by the Company in connection with its acquisition of the net assets of Rawkin Bliss LLC. A loss on debt settlement of $266,250 was incurred related to the repayment of the notes payable.
On January 25, 2018, the Company issued 137,000 shares of common stock, valued at $124,670, based on market price of $0.91 per share, for services provided to the Company.
On January 25, 2018, the Company issued 25,000 shares of common stock, valued at $22,750, based on market price of $0.91 per share, to settle outstanding payables with a consultant of the Company.
On February 23, 2018, the Company issued 60,000 shares of common stock valued at $60,000, based on market price of $1.00 per share, to an investment banking firm for pursuant to a six-month investment banking agreement.
During the six months ended June 30, 2018, the Company issued 15,834 shares of common stock, valued at $15,674 based on the market price of the common stock on the date of issuance, for leasehold improvements.
W
arrants
The Company accounted for the issuance of Warrants in connection with the issuance of convertible notes as an equity instrument and recognized the warrants under the Black-Scholes valuation model based on the market price of the Company’s common stock on the grant date at the exercise price of $1.20 per share. The holders of the warrants have piggyback registration rights with respect to the shares of common stock issuable upon exercise of the warrants.
The exercise price of the warrants is subject to adjustment in the event of any issuance of common stock or convertible securities with respect to which the purchase price or the conversion or exercise price is less than the exercise price of the warrants. The adjusted exercise price would be the purchase price per share or exercise price per share in the dilutive issuance. Unlike the comparable provisions in the convertible notes, there are no excluded issuances, so any dilutive issuance, even an issuance which would not result in an adjustment of the conversion price of the convertible notes, would result in an adjustment in the exercise price of the warrants.
The below table summarizes warrant activity during the six months ended June 30, 2018:
|
|
Number of Shares
|
|
|
Weighted- Average Exercise Price
|
|
Balances as of December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
300,000
|
|
|
|
1.20
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balances as of June 30, 2018
|
|
|
300,000
|
|
|
$
|
1.20
|
|
The fair value of each warrant on the date of grant is estimated using the Black-Scholes option valuation model. The following weighted-average assumptions were used for options granted during the six months ended June 30, 2018 and 2017:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Exercise price
|
|
$
|
1.20
|
|
|
|
-
|
|
Expected term
|
|
|
2 years
|
|
|
|
-
|
|
Expected average volatility
|
|
|
87
|
%
|
|
|
-
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
|
2.25% - 2.34
|
%
|
|
|
-
|
|
The following table summarizes information relating to outstanding and exercisable warrants as of June 30, 2018:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Remaining Contractual
|
|
|
Weighted Average
|
|
|
Number
|
|
|
Weighted Average
|
|
of Shares
|
|
|
life (in years)
|
|
|
Exercise Price
|
|
|
of Shares
|
|
|
Exercise Price
|
|
300,000
|
|
|
|
1.95
|
|
|
$
|
1.20
|
|
|
|
300,000
|
|
|
$
|
1.20
|
|
The valuation of the warrants at issuance date were $155,742, based on the Black-Sholes model discussed above, as well as a debt discount of $189,242. During the six months ended June 30, 2018, amortization of debt discount related to the warrants was $110,948.
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the warrants at June 30, 2018, for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). As of June 30, 2018, the aggregate intrinsic value of warrants outstanding was $0 based on the closing market price of $1.12 on June 30, 2018.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
The Company currently leases 152.18 square meters of space at Balboa Boutiques located in Panama City, Panama. The current lease is renewed on month-by-month basis. The monthly lease payment is $4,000 per month. This location serves as the Company’s only facility for day to day operations. During the six months ended June 30, 2018 and 2017, the Company paid rent of approximately $24,000 and $26,000.
The Company currently leases 282.35 square meters of their second restaurant location in Costa del Este Panama. The current lease term began in January 2017 and expires in December 2021, but automatically reverts to a month to month rental after 5 years unless a new contract is entered into. The current monthly lease is approximately $12,000. During the six months ended June 30, 2018 and 2017, the Company paid rent of approximately $70,000 and $70,000.
The Company currently leases a location in Burbank, CA. The current lease term began on July 1, 2017 and expires on April 30, 2023. The current monthly lease is approximately $5,800, with a 3% annual escalation. During the three months ended June 30, 2018 and 2017, the Company paid rent of approximately $34,000 and $34,000.
On February 21, 2017, the Company entered into a 3 year lease agreement which started June 1, 2017, for a restaurant location in Santa Monica, California. The total square meters is 492 and the rent for the location is $4,300 per month, with a 3% annual escalation. The lease can be extended for a further three years after the end of the current lease term. During the six months ended June 30, 2018 and 2017, the Company paid rent of approximately $26,000 and $43,000.
Pursuant to the Company’s agreement with Medidate Coffee, commencing in the third year of the agreement, the Company is to purchase 15,000 kilograms per year from Medidate Coffee. This requirement increases by 10% each year, to a maximum of 30,000 kilograms.
The Company has no other commitments or contingencies as of June 30, 2018.
The following is a schedule by years of minimum future rentals on leases as of June 30, 2018:
Six Months Ending December 31:
|
|
|
|
2018
|
|
$
|
186,435
|
|
Year Ending December 31:
|
|
|
|
|
2019
|
|
|
314,543
|
|
2020
|
|
|
241,674
|
|
Thereafter
|
|
|
322,064
|
|
Total minimum future rentals
|
|
$
|
1,064,716
|
|
From time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that it is adequately insured for its operations and there are no current matters that would have a material effect on the Company’s financial position or results of operations.
NOTE 11 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date these condensed consolidated financial statements were available to be issued. Based on our evaluation no other material events have occurred that require disclosure.