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 through its Holy Cacao subsidiary and participating in merchant cash advances (“MCAs”) through its 1st Foods Funding Division. First Foods continues to pursue new brands and concepts, including the wholesaling of various health-related products.
Holy Cacao is a majority owned subsidiary that 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. Holy Cacao holds two trademarks for the brands, “The Edibles’ Cult.” and “Purely Irresistible” and the Company has submitted multiple trademark applications to the United States Patent and Trademark Office (the “USPTO”) for additional brand names, including “Mystere” and “Southeast Edibles” among others.
During the year ended December 31, 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. The Company also retained Moises Davidovits as its full-time Master Chocolatier. Mr. Davidovits is a third-generation chocolatier who is responsible for the manufacturing, packaging and distribution of the Company’s chocolate product line, as well as the formulation of all of the Company’s proprietary chocolate recipes. On October 19, 2020, the Company entered into a chocolate sales agreement with B&A Brokerage for the greater metropolitan New York area. The Company also signed a lease agreement for a fully staffed and fully equipped state of the art manufacturing facility to produce its specialty chocolate product line for sale to retailers, manufacturing and wholesaling companies, and on-line customers.
Michael Kaplan was appointed to the Board of Directors and, as of August 1, 2020, accepted the role of Chief Marketing Officer with authority to oversee the Company’s retail and wholesale sales and marketing operations, and responsibility for developing oversight processes and procedures.
The Company currently has 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. The Company also provides cash advances directly to merchants through its First Foods Funding Division.
Liquidity and Going Concern
The Company’s audited consolidated financial statements are prepared using generally accepted accounting principles in the United States of America 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 December 31, 2020, the Company had approximately $966,000 in third-party short-term debt that is due within the next twelve months. Management’s plan is to use anticipated increased revenues to repay such debt as it becomes due and to the extent any shortfall exists, to obtain such additional 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, we are not assured of any significant increases in revenues nor are any members of management nor any significant shareholders 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 audited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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 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 Company’s consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
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 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 December 31, 2020 and 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 December 31, 2020, the Company reserved an amount equal to 70.6% of the outstanding merchant cash advance balance at period end based on management’s assessment of actual historic performance. In addition, throughout the year the Company wrote off twenty three (23) merchant advances for a total of $28,061 for the year ended December 31, 2020. These expenses are included in provision for merchant cash advances expenses on the accompanying 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 December 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 December 31, 2020 and 2019:
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December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw Materials
|
|
$
|
37,259
|
|
|
$
|
2,854
|
|
Work in Process
|
|
|
2,790
|
|
|
|
5,410
|
|
Finished Goods
|
|
|
6,191
|
|
|
|
2,292
|
|
Total
|
|
$
|
46,240
|
|
|
$
|
10,556
|
|
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. 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 consolidated statements of operations and members’ deficit in the period realized.
Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, which are as follows:
Property – Leasehold improvements
|
4 years
|
Equipment
|
5 years
|
Impairment of Long-Lived Assets
Long-lived assets are comprised of property and 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. Management conducted an impairment analysis and concluded that there were no impairments to long-lived assets for the year ended December 31, 2020.
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 years ended December 31, 2020 and 2019, were approximately $87,000 and $85,000, respectively. These expenses are included in general and administrative expenses on the accompanying 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 consolidated balance sheets as of December 31, 2020 and 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 December 31, 2020 and 2019, the Company had a full valuation allowance against deferred tax assets. With the historical change in ownership, the Company is subject to certain net operating loss (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 December 31, 2020 and 2019 because their effect would be antidilutive.
The Company had 4,899,750 and 1,403,750 warrants to purchase common stock outstanding at December 31, 2020 and 2019, respectively. The Company had 4,470,000 and 3,970,000 warrants to purchase Series B preferred stock outstanding at December 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, respectively, at December 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 consolidated statements of operations in general and administrative expenses for the years ended December 31, 2020 and 2019, were $35,000 and $115,000, respectively.
Non-Controlling Interests in 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 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 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 two subscription agreements for the sale of 800,000 shares of its common stock and a ten-percent equity interest in its wholly owned subsidiary, Holy Cacao, for $200,000 in cash proceeds, in the aggregate. The Company recorded ten-percent of the cash proceeds or $20,000 as noncontrolling interests for the year ended December 31, 2017. On July 16, 2018, the Company entered into a consulting agreement with a service provider that contained the following terms: 5% equity ownership in the Company’s Holy Cacao subsidiary will be awarded immediately upon the successful launch of the Holy Cacao product line and the sale of the first production run of Holy Cacao product. During the year ended December 31, 2019, this part of the agreement was completed, and 5% equity was issued. 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 years ended December 31, 2020 and 2019 was $35,077 and $511,963, respectively and $21,003 and $522,967, respectively. For the years ended December 31, 2020 and 2019, revenue for Holy Cacao was $48,983 and $32,183, respectively.
During 2020 the Company primarily conducted 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 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 December 31, 2020 and 2019, the Company has accrued $329,167, respectively, in relation to the employment agreements and $20,578 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 and Interim Chief Executive Officer (“Interim CEO”). Mr. Kestenbaum earns $40,000 per year for his role as Chairman of the Board. As of December 31, 2020, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under a previous agreement.
As of December 31, 2020, the Company has a consulting agreement with R and W Financial (a company owned by a director) for $5,000 a month. The agreement is for an indefinite period of time and is subject to cancellation by either party with written notice of 30 days. The outstanding balance owed to R and W Financial in connection with the agreement mentioned above as of December 31, 2020 was $82,988.
Related Party Loans
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December 31,
2020
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December 31,
2019
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1.
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Note payable at 12%, matures 4/17/2021
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{a} *
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$
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100,000
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|
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$
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100,000
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|
2.
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Non-interest bearing note payable, matures on 4/25/2021
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*
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179,813
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|
|
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179,813
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3.
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Note payable at 12%, matures 3/13/2021. The Company has recorded debt discount and amortized it over the applicable life of the debt.
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{b} *
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100,000
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|
|
|
100,000
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|
4.
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Note payable at 12%, matures 4/9/2021. The Company has recorded debt discount and amortized it over the applicable life of the debt.
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{c} *
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250,000
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|
|
|
250,000
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|
5.
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Non-interest bearing note payable, matures on 1/05/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
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|
{d} *
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74,411
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|
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|
-
|
|
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Unamortized debt discount
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|
|
|
(18,945
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)
|
|
|
(9,190
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)
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Total
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|
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$
|
685,279
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|
|
$
|
620,623
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|
{a}
|
- On October 16, 2020, the Company extended the note to April 17, 2021 based on the same terms and conditions.
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|
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{b}
|
‐ On December 29, 2020, the Company extended the note to March 13, 2021 based on the same terms and conditions. In association with this and prior extensions the company issued 95,000 shares of common stock with a fair value of $18,944, which will be recorded a debt discount and amortized over the life of the loan.
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|
|
|
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{c}
|
‐ On April 10, 2020, the Company extended the note to April 9, 2021 based on the same terms and conditions. In association with the extension the company issued 250,000 shares of common stock with a fair value of $60,000, which will be recorded a debt discount and amortized over the life of the loan.
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{d}
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‐ On December 2, 2020, the Company issued a non-interest bearing promissory note of $74,411. In connection with this note the company issued 74,410 shares of common stock with a fair value of $17,858, which was recorded as a debt discount and amortized over the life of the loan. On January 5, 2021, the Company fully repaid the loan.
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|
|
|
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*
|
‐ unsecured note
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During the year ended December 31, 2020 and 2019, the Company recorded $116,648 and $24,336 of interest expense related to the amortization of debt discount and $54,148 and $49,024 of regular interest, respectively. As of December 31, 2020 and 2019, accrued interest was $45,889 and $21,753, respectively.
All of the above transactions were approved by disinterested directors.
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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·
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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 years ended December 31, 2020 and 2019, the Company recorded $290,981 and $290,186 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 December 31, 2020 and 2019 the Company has accrued $320,000 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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·
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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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·
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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 fully vested at issuance.
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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 during the year ended December 31, 2019.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors.
Mr. Kaplan’s compensation as a director for the initial twelve months will consist of one million (1,000,000) warrants which will vest at the rate of 83,333 warrants per month for the initial eleven months and the balance in the twelfth month, provided he is a director on each vesting date, with the initial tranche vesting on the day he takes office and then on each monthly anniversary of such date thereafter. Each Warrant will be exercisable for 36 months after it vests and will be exercisable at a price of $0.18 per share. The warrants are valued at $177,200 based on the Black Scholes Model. If he remains in office beyond twelve months, commencing with month thirteen, his compensation will be similar to the majority of the directors then in office. For the year ended December 31, 2020, the Company recorded $85,930 as compensation expense related to the warrants.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 we entered into (i) a Subscription Agreement with Mr. Kaplan to sell to him one million (1,000,000) shares of common stock at a purchase price of $0.20 per share for a total purchase price of $200,000, which shares shall be purchased in twelve (12) equal monthly installments of 83,333 shares (the last installment to cover 83,337 shares) with the initial purchase occurring on the date thereof and subsequent installments on each monthly anniversary thereafter (ii) a Consulting Agreement with Mr. Kaplan to award him, as full compensation for two (2) years of service, warrants to purchase two million (2,000,000) shares of common stock at an exercise price of $0.18 per share, which was the closing price of our common stock on such date. The warrants are valued at $354,400 based on the Black Scholes Model; and (iii) an arrangement with Mr. Kaplan that in the event he raises outside investment in the Company in the amount of $500,000 - $2,000,000, he will receive a warrant with one underlying share for each dollar he so raises. For the year ended December 31, 2020, the Company recorded $99,353 as compensation expense related to the warrants.
The warrants shall vest upon the occurrence to the Company of certain milestone events through the efforts of the consultant. (See Note 6).
If terminated with cause by the Company, the consultant shall not thereafter be entitled to any form of compensation, the unvested warrants shall terminate, and he shall be paid a buyout fee in the amount of 250,000 fully vested warrants. If terminated without cause by the Company, all unvested warrants shall be accelerated and vest in one-half the time it was previously scheduled to vest.
Effective August 1, 2020, Mr. Kaplan will also have the title Chief Marketing Officer with authority to oversee the Company’s sales and marketing operations, and responsibility for developing oversight processes and procedures.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Leasehold improvements
|
|
$
|
40,000
|
|
|
$
|
-
|
|
Equipment
|
|
|
239,515
|
|
|
|
-
|
|
Less: Accumulated depreciation and amortization
|
|
|
(37,077
|
)
|
|
|
-
|
|
Total
|
|
$
|
242,438
|
|
|
$
|
-
|
|
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Accounts payable
|
|
$
|
572,496
|
|
|
$
|
305,679
|
|
Interest
|
|
|
109,747
|
|
|
|
24,136
|
|
Salaries
|
|
|
389,745
|
|
|
|
386,121
|
|
Other
|
|
|
38,610
|
|
|
|
35,739
|
|
Total
|
|
$
|
1,110,598
|
|
|
$
|
751,675
|
|
NOTE 5 – LOANS AND LONG-TERM LOANS
|
|
|
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
1.
|
|
|
Note payable at 12%, matures 7/24/2021. In connection with the original issuance, as well as subsequent extension, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{a} *
|
|
$
|
50,000
|
|
|
$
|
100,000
|
|
|
2.
|
|
|
Note payable at 12%, matures 1/22/2021. In connection with the original issuance, as well as subsequent extension, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{b} *
|
|
|
18,000
|
|
|
|
18,000
|
|
|
3.
|
|
|
Note payable at 12%, matures 1/8/2022. In connection with the original issuance, as well as subsequent extension, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{c} *
|
|
|
50,000
|
|
|
|
50,000
|
|
|
4.
|
|
|
Note payable at 12%, matures 6/11/2021. In connection with the original issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
*
|
|
|
25,000
|
|
|
|
25,000
|
|
|
5.
|
|
|
Note payable at 12%, matures 7/21/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
*
|
|
|
250,000
|
|
|
|
250,000
|
|
|
6.
|
|
|
Note payable at 12%, matures 10/1/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
*
|
|
|
410,000
|
|
|
|
410,000
|
|
|
7.
|
|
|
Note payable at 12%, matures 10/15/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
*
|
|
|
140,000
|
|
|
|
140,000
|
|
|
8.
|
|
|
Note payable at 12%, matures 10/30/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
*
|
|
|
200,000
|
|
|
|
200,000
|
|
|
9.
|
|
|
Note payable at 12%, matures 7/9/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
*
|
|
|
60,000
|
|
|
|
-
|
|
|
10.
|
|
|
Note payable at 12%, matures 1/28/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
*
|
|
|
96,000
|
|
|
|
-
|
|
|
11.
|
|
|
Note payable at 3.75%, matures 6/25/2050 - EIDL.
|
|
**
|
|
|
150,000
|
|
|
|
-
|
|
|
12.
|
|
|
Non-interest bearing note payable, matures on 9/30/2021.
|
|
{d} *
|
|
|
53,479
|
|
|
|
-
|
|
|
13.
|
|
|
Note payable at 12%, matures 3/9/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{e} *
|
|
|
50,000
|
|
|
|
-
|
|
|
|
|
|
Unamortized debt discount
|
|
|
|
|
(286,300
|
)
|
|
|
(544,490
|
)
|
|
|
|
|
Total
|
|
|
|
|
1,266,179
|
|
|
|
648,510
|
|
|
|
|
|
Less: short term loans, net
|
|
|
|
|
966,155
|
|
|
|
165,270
|
|
|
|
|
|
Total long-term loans, net
|
|
|
|
$
|
300,024
|
|
|
$
|
483,240
|
|
|
{a}
|
- On July 24, 2020, the Company extended the note to July 24, 2021 based on the same terms and conditions. In association with the extension the company issued 50,000 shares of common stock with a fair value on $17,500, which will be recorded a debt discount and amortized over the new life of the loan.
|
|
{b}
|
- On March 1, 2021, the Company extended the note to July 22, 2021 based on the same terms and conditions. In association with the extension the company issued 18,000 shares of common stock with a fair value on $5,400, which will be recorded a debt discount and amortized over the new life of the loan.
|
|
{c}
|
- On July 8, 2020, the Company extended the note to January 8, 2022 based on the same terms and conditions. In association with the extension the company issued 50,000 shares of common stock with a fair value on $16,000, which will be recorded a debt discount and amortized over the new life of the loan.
|
|
{d}
|
- On June 23, 2020, the Company issued a non-interest bearing promissory note for $140,188. In exchange for this note the Company received $80,187 of equipment and leasehold improvement, $29,814 of inventory, $18,224 of prepaid expenses and $11,963 of settlement of accrued expenses. During the period the Company made $86,709 of payments.
|
|
{e}
|
- On September 10, 2020, the Company issued a promissory note for $50,000. In connection with this note the company issued 50,000 shares of common stock with a fair value of $12,000, which was recorded as a debt discount and amortized over the life of the loan.
|
|
*
|
‐ unsecured note
|
|
**
|
‐ secured note and collateralized by all tangible and intangible personal property
|
During the years ended December 31, 2020 and 2019, the Company recorded $383,338 and $99,972 of interest expense related to the amortization of debt discount and $160,216 and $54,617 of regular interest, respectively. As of December 31, 2020 and 2019, accrued interest was $61,099 and $2,383, respectively.
NOTE 6 – STOCKHOLDERS’ DEFICIT
The following table shows the changes in shares of common stock for 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding, beginning balances
|
|
|
20,313,771
|
|
|
|
|
|
|
17,709,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash to a related party
|
|
|
499,998
|
|
|
$
|
100,000
|
|
|
|
-
|
|
|
$
|
-
|
|
Common stock issued to consultants for services
|
|
|
600,000
|
|
|
|
131,350
|
|
|
|
1,342,184
|
|
|
|
348,850
|
|
Common stock issued to consultants for services - related party
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
|
|
18,750
|
|
Common stock issued with loans payable
|
|
|
374,000
|
|
|
|
99,632
|
|
|
|
1,062,500
|
|
|
|
309,713
|
|
Common stock issued for related party loan
|
|
|
579,410
|
|
|
|
126,402
|
|
|
|
25,000
|
|
|
|
5,250
|
|
Common stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
30,000
|
|
Common stock outstanding, ending balances
|
|
|
22,367,179
|
|
|
$
|
457,384
|
|
|
|
20,313,771
|
|
|
$
|
712,563
|
|
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. On August 4, 2020, the Company entered into an employee agreement with the consultant.
On July 22, 2019, the Company issued a promissory note of $250,000. 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. 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. 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. 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.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors. Mr. Kaplan’s compensation as a director for the initial twelve months will consist of one million (1,000,000) warrants which will vest at the rate of 83,333 warrants per month for the initial eleven months and the balance in the twelfth month, provided he is a director on each vesting date, with the initial tranche vesting on the day he takes office and then on each monthly anniversary of such date thereafter. Each Warrant will be exercisable for 36 months after it vests and will be exercisable at a price of $0.18 per share. The warrants are valued at $177,200 based on the Black Scholes Model.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 the Company entered into a Consulting Agreement with Mr. Kaplan to award him, as full compensation for two (2) years of service, warrants to purchase two million (2,000,000) shares of common stock at an exercise price of $0.18 per share, which was the closing price of our common stock on such date. The warrants are valued at $354,400 based on the Black Scholes Model. Due to the fact that management has assessed the probability of certain milestones being met as probable, the warrants are being straight-lined over the term of services, and accelerated whenever a milestone is met. The probability of the remaining milestone being met is reviewed by management every quarter. For the year ended December 31, 2020, the Company recorded $99,353 as compensation expense related to the warrants.
The warrants shall vest upon the occurrence to the Company of the following milestone events through the efforts of the consultant:
No. of Warrants
|
|
Milestone
|
100,000
|
|
Acceptance by the Company of a full go-to market strategy for the Company's products. This milestone has been achieved as of December 31, 2020.
|
100,000
|
|
Acceptance by the Company of a social marketing platform and PR strategy and onboarding of such.
|
300,000/500,000
|
|
300,000 for each MULO retailer that is onboarded - regardless of store count carrying the product; and 500,000, if the onboarded MULO is a national chain.
|
300,000
|
|
Deliverance of full due diligence package for each potential acquisition for which the Company requests the consultant perform due diligence
|
500,000
|
|
Upon the closing of any acquisition which the consultant brought to the Company and provided due diligence.
|
500,000
|
|
Additional compensation in board seat agreement.
|
On July 31, 2020, the Company issued a warrant to purchase 100,000 shares of the Company’s common stock to a consultant for services. The warrants are valued at $31,500 based on the Black Scholes Model and were fully vested at issuance.
On August 4, 2020, the Company signed an Employment Agreement for a term of three years with an annual base salary of eighty-four thousand dollars ($84,000). As part of the agreement the Company issued a warrant to the employee to purchase 300,000 shares of the Company’s common stock with a term of three (3) years. The warrants are valued at $97,470 based on the Black Scholes Model. In addition, the employee will receive a warrant to purchase 300,000 of the Company’s common stock for each of the two remaining years under the Employment Agreement with an exercise price equal to the closing market price of the Company’s common stock on the first day of each of such two annual employment periods. The warrants will be subject to a 12-month period whereby the warrants will vest in equal monthly increments for each year of the employment period. Each of the warrants will be exercisable within a three-year period from the date of issue. Once per quarter, the employee may waive the right to receive 25,000 warrants and receive in exchange for $5,000 worth of shares of the Company’s common stock. In the event the employee’s employment is terminated by the Company without cause, the employee shall be entitled to receive severance in an amount equal to the lesser of three month’s salary or the amount of salary otherwise payable until the termination date. The employee additionally shall be entitled to retain all warrants scheduled to vest within the following six months.
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
|
|
|
3,496,000
|
|
|
|
0.20
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2020
|
|
|
4,899,750
|
|
|
$
|
0.21
|
|
As of December 31, 2020, 2,303,917 warrants for common stock were exercisable and the intrinsic value of these warrants was $71,056, the weighted average remaining contractual life for warrants outstanding was 2.87 years and the remaining expense is $403,998 over the remaining amortization period which is 1.50 years.
As of December 31, 2019, 1,403,750 warrants for common stock were exercisable and the intrinsic value of these warrants was $55,688 and the weighted average remaining contractual life for warrants outstanding was 2.41 years.
Preferred Stock Warrants
On May 10, 2018, the Company issued warrants to purchase 1,280,000 shares of Series B Preferred Stock, in the aggregate, to its Board of Directors as compensation expense for services to be performed for the period May 10, 2018 through December 31, 2020. The warrants have an exercise price of $0.60, vest over a 32-month period starting May 10, 2018 through December 31, 2020, and are exercisable from January 1, 2019 through December 31, 2027. As of December 31, 2019, there were 800,000 Series B Preferred Stock warrants exercisable. 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 year ended December 31, 2020 and 2019, the Company recorded $290,981 and $290,186, respectively, as compensation expense related to the warrants.
On December 30, 2019, the Company issued warrants to purchase 600,000 shares of Series B Preferred Stock, in the aggregate, to three members of its Board of Directors as compensation expense for additional services performed during the year ended December 31, 2019. The warrants have an exercise price of $1.20 per share, are fully vested at issuance, and are exercisable from December 31, 2019 through December 30, 2029. The Company expensed the fair value of these warrants in the amount of $720,000 during the year ended December 31, 2019.
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 year ended December 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, December 31, 2020
|
|
|
4,470,000
|
|
|
$
|
0.68
|
|
As of December 31, 2020, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,932,750, the weighted average remaining contractual life for warrants outstanding was 7.37 years and the warrants have been fully expensed.
As of December 31, 2019, 3,490,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,826,100. As of December 31, 2019, the weighted average remaining contractual life was 8.14 years for warrants outstanding and the remaining expense is $290,981 over the remaining amortization period which is 1 year.
NOTE 7 – LEASES
On June 23, 2020, the Company entered into an operating lease agreement with terms of 4 years, and an option to extend for three years, comprising of office and warehouse space. This option is included in the lease term when it is reasonably certain that the option will be exercised and failure to exercise such option will result in economic penalty and as such the option to extend for the three year term is not included in the below calculation.
The assets and liabilities from operating leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the consolidated balance sheet.
The Company’s operating lease does not provide an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on our incremental borrowing rate, which is determined using the average interest rate of our long-term debt as of June 23, 2020.
The Company’s weighted-average remaining lease term relating to its operating leases is 3.33 years, with a weighted-average discount rate of 12.00%.
For the year ended December 31, 2020, the Company incurred lease expense for its operating leases of $43,821 which was included in general and administrative expenses on the accompanying consolidated statements of operations.
The Company had operating cash flows used in operating leases of $43,612 for the year ended December 31, 2020.
The Company does not include the non-lease components that are associated with the lease and accounts for them outside of the lease in accordance with ASC Topic 842 Leases. The percentage of cost associated with the lease component was 100%.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of December 31, 2020.
Maturity of Lease Liability
|
|
|
|
2021
|
|
$
|
85,860
|
|
2022
|
|
|
86,881
|
|
2023
|
|
|
89,487
|
|
2024
|
|
|
30,122
|
|
Total undiscounted operating lease payments
|
|
$
|
292,350
|
|
Less: Imputed interest
|
|
|
52,894
|
|
Present value of operating lease liabilities
|
|
$
|
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NOTE 8 - COMMITMENTS
On July 16, 2018, the Company entered into a consulting agreement with a service provider that contains the following terms:
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A $6,000 per month advance of Holy Cacao equity distribution will be awarded every month Holy Cacao earns a net profit over a period of twenty-four (24) consecutive months following the initial product launch and production sale.
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300,000 warrants for shares of the Company’s common stock will be awarded after each of two consecutive twelve (12) month periods in which Holy Cacao earns a net profit from gross annual product sales of at least $1M. Each of the two 300,000 warrant awards will vest equally over a twelve (12) month period.
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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.
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. The term of this agreement is four years. The agreement includes the issuance of 250,000 shares of the Company’s common stock at the closing market price of $0.26 per share as of the date of the agreement. Additionally, FIFG shall pay the distributor a commission for its services hereunder amounting to applicable percentage of the sales price of any sales or sales contract with a customer.
On January 14, 2020, the Company entered into an agreement with a Sales Consultant to further the business purpose of the Company. In consideration for the services provided by the Consultant, the Consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers.
On October 15, 2020, the Company entered into a chocolate sales agreement with a sales consultant. The Consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers. The Consultant shall receive a sales commission of the gross sales (net of returns) directly generated by the Consultant to such distributor and such distributor shall receive a commission of such gross sales (net of returns). Commissions shall be paid within 30 days of the end of the quarter in which they are deemed earned. No commissions are due as of December 31, 2020. In addition, once Salesman has made $75,000 of gross sales (net of returns) he shall receive 75,000 shares of the Company’s common stock. This agreement shall continue for sixty months from the date of the agreement and will automatically extend for additional successive sixty-month terms unless written notice is delivered at least thirty days prior to the end of the current term.
On October 19, 2020, the Company entered into a chocolate sales agreement with B&A Brokerage for the greater metropolitan New York area. The term of the agreement is for one year and will automatically renew itself in one-year increments unless either party gives written notice of termination at least sixty days prior to the end of the term. During the initial term, the broker will receive a minimum monthly commission or a percentage of paid invoices for all sales in the territory, whichever is greater. After the initial term, the broker will receive a monthly commission of paid invoices for all sales in the territory. No commissions are due as of December 31, 2020.
On November 9, 2020, the Company entered into an agreement with a consultant. The consultant shall provide the following services: develop a marketing plan and act as a sales agent with respect to the wholesale of various products by the Company. As compensation for the services, the consultant shall receive a cash payment in an amount in excess of 9% of the profit margin. However, in the event the average closing price of the Company’s common stock on the common stock’s primary market over the final ten (10) trading days of any month is greater than or equal to $0.50, then the cash compensation for such month shall only be the amount of profit margin generated by the sales of the products in excess of 14% of gross sales and the amount of profit margin between 9% and 14% of gross sales shall completely belong to the Company. Prior to the payment date of each month, the consultant can elect to receive all or part of the cash compensation due for such month in the form of common stock by providing written notice of such election to the Company. The number of shares to be issued shall be calculated based upon a per share value equal to 80% of the valuation price. This agreement shall commence on the effective date and shall continue for a term of two (2) years. Prior to six months after the effective date this agreement may not be cancelled without cause. After six months this agreement may be sooner terminated by either party upon sixty days written notice.
On November 9, 2020, the Company entered into a grant agreement with a sales consultant. As compensation for the services, the Company will issue up to three million (3,000,000) shares to the sales consultant in monthly installments over the twenty (24) month term of the agreement. The number of shares to be issued by the Company to the sales consultant on a monthly basis will be determined by the amount of net sales of various wholesale products generated by the sales consultant at the end of each month multiplied by a fixed percentage of nine percent (9%) divided by the last closing market price of the shares as of the effective date. In addition to the shares to be issued, the sales consultant shall be issued three million (3,000,000) warrants to purchase shares. One warrant shall be fully vested for every share issued. The exercise price of each warrant shall be equal to the grant price and each warrant shall be exercisable for thirty-six (36) months following the date of vesting. Until such time as the shares underlying the warrants are registered, the warrants may be exercised via a cashless exercise.
NOTE 9 – 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 December 31, 2020, the Company’s receivables from merchant cash advances included $59,719 from two merchants ($25,929 and $33,790), representing 49.3% of the Company’s merchant cash advances. The Company earned $84,525 and $27,175 of MCA income from two merchants, representing 53.5% and 17.2%, respectively of the Company’s MCA income for the twelve months ended December 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 81.3% of the Company’s merchant cash advances. The Company earned $130,243 of MCA income from one merchant, representing 44.2% of the Company’s MCA income for the twelve months ended December 31, 2019.
As of December 31, 2020 and 2019, there was no accounts payable concentration other than amounts owed to related parties which makes up 74% and 61% of the balance, respectively.
For the year ended December 31, 2020, the Company had purchase concentrations of 49% and 14% from two vendors.
For the year ended December 31, 2019, the Company had purchase concentrations of 34%, 26%, 15% and 12% from four vendors.
NOTE 10 – SUBSEQUENT EVENTS
On January 1, 2021, the Company issued 40,000 shares of the Company’s common stock based on the fair market value on the date of issuance, in connection with the extension of the maturity date of related party note 3. (See Note 2).
On January 14, 2021, the Company entered into an agreement with a Sales Consultant to further the business purpose of the Company. In consideration for the services provided by the Consultant, the Consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers. This agreement shall continue for sixty months from the date of the agreement and will automatically extend for additional successive sixty month terms unless written notice is delivered at least thirty days prior to the end of the current term.
On January 19, 2021, the Company sold 83,333 shares of common stock at a purchase price of $0.20 per share for a total purchase price of $16,667.
On February 1, 2021, the Company issued 36,765 shares of common stock to a consultant at $0.14 per share, which was a 20% discount to the fair market closing price, for a total of $5,000.
On February 9, 2021, the Company sold 83,333 shares of common stock at a purchase price of $0.20 per share for a total purchase price of $16,667.
On March 1, 2021, the Company extended the third party note payable note 2 to July 22, 2021 based on the same terms and conditions. (See Note 5).