NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2020
Note
1 - Organization and Operations
Bridgeway National Corp., which we refer to
as “the Company,” “our Company,” “we,” “us” or “our,” was originally
incorporated under the laws of the State of Nevada as Snap Online Marketing Inc. on June 4, 2012 and subsequently changed its name
to LifeLogger Technologies Corp., which we were referred to as “LifeLogger.” On April 10, 2019, we reincorporated as
a Delaware corporation and changed our name to Capital Park Holdings Corp. On December 19, 2019, we changed our name to Bridgeway
National Corp. Our principal business address is 1015 15th Street NW Suite 1030, Washington, DC 20005, 202-846-7869.
We registered as a reporting company under the Securities Exchange Act of 1934, as amended on April 26, 2013. We are currently
listed for trading on the OTC Pink under the trading symbol “BDGY.”
Corporate
Structure
The
Company is structured as a Delaware corporation that we expect to be treated as a corporation for U.S. federal income tax purposes.
Your rights as a holder of shares, and the fiduciary duties of the Company’s Board of Directors and executive officers,
and any limitations relating thereto are set forth in the documents governing the Company and may differ from those applying to
a Delaware corporation. However, the documents governing the Company specify that the duties of its directors and officers will
be generally consistent with the duties of a director of a Delaware corporation. The Company’s Board of Directors will oversee
the management of the Company and our businesses. Initially, the Company’s Board of Directors will be comprised of five
(5) directors, with three (3) of those directors appointed by holders of the Company’s Class A common stock and two (2)
of those directors appointed by holders of the Company’s Class B common stock, and at least three (3) of whom will be the
Company’s independent directors.
Prior
to the transactions that took place on January 9, 2019, we were a lifelogging software company that developed and hosted a proprietary
cloud-based software solution accessible on iOS and Android devices that offers an enhanced media experience for consumers
by augmenting videos, livestreams and photos with additional context information and providing a platform that makes it easy
to find and use that data when viewing or sharing media. Subsequent to transactions that took place on January 9, 2019, in
addition to its lifelogging software business, the Company has been structured as a holding company with a business strategy
focused on owning subsidiaries engaged in a number of diverse business activities.
Note
2 - Summary of Significant Accounting Policies
Reclassification
Certain amounts in the prior period financial
statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications
had no effect on the previously reported net loss.
Liquidity
and Basis of Presentation
The
accompanying unaudited consolidated financial statements are expressed in United States dollars (“USD”) and related
Notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange
Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by U.S. GAAP for complete financial statements. The unaudited consolidated financial statements furnished
reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to present
a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of
the results for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the
consolidated financial statements of the Company for the year ended December 31, 2019 and notes thereto contained in the information
as part of the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on September
21, 2020.
The
unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations,
realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the unaudited consolidated
financial statements, the Company had an accumulated deficit of $8,727,153 at June 30, 2020, and a net loss of $1,821,386
for the six-month ended June 30, 2020. These factors raise substantial doubt about the Company’s ability to continue
as a going concern.
Although
the Company has recently broadened its business and operating model in an effort to generate more sufficient and stable sources
of revenues and cash flows, its cash position is not sufficient to support its daily operations. While the Company believes that
its new business and operating model presents a viable strategy to generate sufficient revenue and believes in its ability to
raise additional funds by way of a public or private offering, there can be no assurances to that effect.
The
unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue
as a going concern.
Leases
On
January 1, 2019, the Company adopted Accounting Standards Codification Topic 842, “Leases” (“ASC 842”)
to replace existing lease accounting guidance. This pronouncement is intended to provide enhanced transparency and comparability
by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases. Expenses
associated with leases will continue to be recognized in a manner similar to previous accounting guidance. The Company adopted
ASC 842 utilizing the transition practical expedient added by the Financial Accounting Standards Board (“FASB”), which
eliminates the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption.
The Company is the lessee in a lease contract
when the Company obtains the right to use the asset. Operating leases are included in the line items right-of-use asset right
of use liabilities – operating leases, current, and right of use liabilities – operating leases, long-term in the
balance sheet.
Right-of-use
(“ROU”) asset represents the Company’s right to use an underlying asset for the lease term and lease obligations
represent the Company’s obligations to make lease payments arising from the lease, both of which are recognized based on
the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term
of 12 months or less at inception are not recorded on the balance sheet and are expensed on a straight-line basis over the lease
term in our consolidated statements of operations. The Company determines the lease term by agreement with lessor. As our lease
do not provide an implicit interest rate, the Company uses the Company’s incremental borrowing rate based on the information
available at commencement date in determining the present value of future payments. Refer to Note 10 for further discussion.
Convertible
Notes Payable and Derivative Instruments
The
Company has adopted the provisions of ASU 2017-11 to account for the down round features of warrants issued with private placements
effective as of April 1, 2017. In doing so, warrants with a down round feature previously treated as derivative liabilities in
the balance sheet and measured at fair value are henceforth treated as equity, with no adjustment for changes in fair value at
each reporting period. Previously, the Company accounted for conversion options embedded in convertible notes in accordance with
ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments
and to account for them as free-standing derivative financial instruments. ASC 815 provides for an exception to this rule when
convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40. The Company accounts for convertible
notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under
ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting for convertible securities with
beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such
conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of
the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized
over the term of the related debt.
If
the conversion feature and other features embed within convertible note meets the requirements to be treated as a derivative,
we estimate the fair value of the convertible debt derivative using the valuation technique upon the date of issuance. If the
fair value of the convertible debt derivative is higher than the face value of the convertible note, the excess is immediately
recognized as interest expense. Otherwise, the fair value of the convertible note derivative is recorded as a liability with an
offsetting amount which offsets the carrying amount of the note. The convertible debt derivative is revalued at the end of each
reporting period on a recurring basis and any change in fair value is recorded as a gain or loss in the consolidated statements
of operations. The note discount is amortized through interest expense over the life of the note.
Note
2 - Summary of Significant Accounting Policies (continued)
Recently
issued accounting pronouncements
In
July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections. This ASU amends various SEC paragraphs pursuant
to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442,
Investment Company Reporting Modernization. One of the changes in the ASU requires a presentation of changes in stockholders’
equity in the form of a reconciliation, either as a separate financial statement or in the notes to the financial statements,
for the current and comparative year-to-date interim periods. The Company presented changes in stockholders’ equity as separate
financial statements for the current and comparative year-to-date interim periods beginning on January 1, 2020. The additional
elements of the ASU did not have a material impact on the Company’s consolidated financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which
simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain
aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning
after December 15, 2021. Most amendments within the standard are required to be applied on a prospective basis, while certain
amendments must be applied on a retrospective or modified retrospective basis. The Company is currently evaluating the impacts
of the provisions of ASU 2019-12 on its financial condition, results of operations, and cash flows.
In
March 2020, the FASB issued ASU No. 2030-20 Codification Improvements to Financial Instruments, An Amendment of the FASB Accounting
Standards Codification: a)in ASU No. 2016-01, b) in Subtopic 820-10, c) for depository and lending institutions clarification
in disclosure requirements, d) in Subtopic 470-50, e) in Subtopic 820-10, f) Interaction of Topic 842 and Topic 326, g) Interaction
of the guidance in Topic 326 and Subtopic 860-20.The amendments in this Update represent changes to clarify or improve the Codification.
The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications.
For public business entities updates under the following paragraphs: a), b), d) and e) are effective upon issuance of this final
update. The effective date for c) is for fiscal years beginning after December 15, 2019, including interim periods within those
fiscal years. The Company does not expect that the new guidance will significantly impact its consolidated financial statements.
The
Company continues to evaluate the impact of the new accounting pronouncement, including enhanced disclosure requirements, on our
business processes, controls and systems.
Note
3 – Property and Equipment
Property
and equipment as at June 30, 2020 consisted of the following:
|
|
June 30, 2020
$
|
|
|
December 31, 2019
$
|
|
Computer and equipment
|
|
|
23,214
|
|
|
|
4,686
|
|
Office equipment
|
|
|
66,378
|
|
|
|
-
|
|
|
|
|
89,592
|
|
|
|
4,686
|
|
Accumulated depreciation
|
|
|
(5,292
|
)
|
|
|
(703
|
)
|
Total
|
|
|
84,300
|
|
|
|
3,983
|
|
Note
4 – Convertible Notes Payable
On
March 2, 2020 (the “Issue Date”), the Company entered into a promissory note purchase agreement (the “Purchase
Agreement”) with SBI Investments LLC, 2014-1, a statutory series of Delaware limited liability company (the “Purchaser”
or “SBI”), on behalf of itself and the other note purchasers (collectively, the “Purchasers”), pursuant
to which the Purchasers purchased from the Company (i) 12% unsecured convertible promissory notes of the Company in an aggregate
principal amount of $845,000 of which $75,000 were related to original issuance discount and $20,000 were related to deferred
finance costs (with the understanding that the initial six months of such interest shall be guaranteed) (together with any note(s)
issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof,
the “Notes”, and each, a “Note”), convertible into shares (the “Conversion Shares”) of common
stock of the Company (the “Common Stock”) and (ii) warrants (each a “Warrant” and together, the “Warrants”)
to acquire up to 4,447,368 shares of Common Stock (the “Warrant Shares”). The maturity date of the notes is December
2, 2020 (the “Maturity Date”).
Under
the terms of the Notes, the Purchasers shall have the right at any time on or after the Issue Date, to convert (a “Conversion”)
all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the Notes, and any other amounts
owed under the Notes, into shares of Common Stock at the Conversion Price (as defined below). However, in no event shall any Purchaser
be entitled to convert any portion of any of the Notes in excess of the amount that upon conversion would result in the number
of shares of Common Stock beneficially owned by the Purchaser and its affiliates to exceed 4.99% of the outstanding shares of
Common Stock (the “Maximum Share Amount”). The “Conversion Price” per share is the lower of (i) $0.095
or (ii) the Variable Conversion Price (as defined below). The “Variable Conversion Price” shall mean 70% multiplied
by the Market Price (as defined below). “Market Price” means the lowest trading price for the Common Stock during
the fifteen (15) day period ending on the last complete trading day prior to the Conversion Date.
Under
the terms of the Warrants, the exercise price per share of the Common Stock under each Warrant shall be equal to $0.095 per share,
subject to adjustment (the “Exercise Price”) and each Warrant contains a cashless exercise option. Each Warrant has
a term of five (5) years from the Issue Date.
The Notes and Warrants included embedded derivative
features that were accounted for as derivative liabilities due to the variable conversion prices upon default and forced conversion;
full reset provisions; and redemption features based on FASB guidance in ASC 815 and EITF 07–05. The Warrants were treated
as derivative liabilities due to the tainted equity environment based on the notes that are convertible into an indeterminate
number of shares. On March 2, 2020, the Company recorded an initial recognition loss of derivative liabilities of $1,739,698,
$750,000 discount on the notes payable of which $50,700 is 6-months guaranteed interest and $95,000 original issuance discount
amortized over the term of the convertible notes. The amount of amortization recognized on the discount for the three-and
six-month period ended was $99,330 and 280,383, respectively.
As
at June 30, 2020 the Company owed $845,000 in principal and the accrued interest was $50,700, which consisted of the guaranteed
interest accrued of $50,700 and was recorded in accrued expenses on convertible notes.
Note
5 – Derivative Liability
In
connection with the sale of debt or equity instruments, the Company may sell warrants to purchase the Company’s common stock.
In certain circumstances, these warrants may be classified as derivative liabilities, rather than as equity. Additionally, the
debt or equity instruments may contain embedded derivative instruments, such as embedded derivative features which in certain
circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative
instrument liability.
The
Company’s derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair
value of the derivative liability recorded as charges or credits to income in the period in which the changes occur. For warrants
and bifurcated embedded derivative features that are accounted for as derivative instrument liabilities, the Company estimates
fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques.
The valuation techniques require assumptions related to the remaining term of the instruments and risk-free rates of return, the
Company’s current common stock price and expected dividend yield, and the expected volatility of the Company’s common
stock price over the life of the instrument.
The
following table summarizes the warrant derivative liabilities and convertible notes activity for the six months ended June 30,
2020:
|
|
Derivative Liabilities
|
|
Derivative liabilities as at December 31, 2019
|
|
|
-
|
|
Initial recognition of loss of derivative liabilities
|
|
$
|
1,739,698
|
|
Convertible notes discount
|
|
|
699,300
|
|
Change in fair value of warrants and notes
|
|
|
(37,994
|
)
|
Derivative liabilities as at March 31, 2020
|
|
$
|
2,401,004
|
|
Change in fair value of warrants and notes
|
|
|
(695,022
|
)
|
Derivative liabilities as at June 30, 2020
|
|
$
|
1,705,982
|
|
The
Monte Carlo methodology was used to value the derivative components, using the following assumptions:
|
|
Warrants
|
|
|
Notes
|
|
Dividend yield
|
|
|
-
|
|
|
|
12%
|
|
Risk-free rate for term
|
|
|
1.05% to 0.38%
|
|
|
|
0.97%
- 0.18%
|
|
Volatility
|
|
|
288.6% to 309.6%
|
|
|
|
286.5% to 348.1%
|
|
Remaining term (Years)
|
|
|
4.67
|
|
|
|
0.42
|
|
Stock Price
|
|
|
$0.040
to $0.110
|
|
|
|
$0.040
to $0.110
|
|
Note
6 – Fair Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued expenses, derivative
liabilities and convertible debt. The estimated fair value of the financial instruments approximate their carrying amounts due
to the short-term nature of these instruments.
The Company utilizes various types of financing
to fund its business needs, including convertible debt with warrants attached. The Company reviews its warrants and conversion
features of securities issued as to whether they are freestanding or contain an embedded derivative and, if so, whether they are
classified as a liability at each reporting period until the amount is settled and reclassified into equity with changes in fair
value recognized in current earnings. The fair value of the warrants and the embedded conversion feature of the convertible debt
is classified as a liability. Some of these units have embedded conversion features that are treated as a discount on the convertible
notes. Such financial instruments are initially recorded at fair value and amortized to interest expense over the life of
the debt using the effective interest method.
Inputs
used in the valuation to derive fair value are classified based on a fair value hierarchy which distinguishes between assumptions
based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of
three levels:
Level
one - Quoted market prices in active markets for identical assets or liabilities;
Level
two - Inputs other than level one inputs that are either directly or indirectly observable; and
Level
three - Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect
those assumptions that a market participant would use.
Determining which category an asset or liability
falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company’s
derivative liability is measured at fair value on a recurring basis. The Company classifies the fair value of these convertible
notes and warrants derivative liability under level three. The Company’s settlement payable is measured at fair value
on a recurring basis based on the most recent settlement offer. The Company classifies the fair value of the settlement payable
under level three. The Company’s rescission liability is measured at fair value on a recurring basis based on the most recent
stock price. The Company classifies the fair value of the rescission liability under level one.
Based
on ASC Topic 815 and related guidance, the Company concluded the common stock purchase warrants are required to be accounted for
as derivatives as of the issue date due to a reset feature on the exercise price. At the date of issuance warrant derivative liabilities
were measured at fair value using either quoted market prices of financial instruments with similar characteristics or other valuation
techniques. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values
of these derivatives reflected in the consolidated statements of operations as “Change in fair value of derivative liabilities”
These derivative instruments are not designated as hedging instruments under ASC 815-10 and are disclosed on the balance sheet
under Derivative Liabilities.
The
following table presents liabilities that are measured and recognized at fair value on a recurring and non-recurring basis:
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Gains
|
|
Derivatives
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Fair
Value at December 31, 2019
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,705,982
|
|
|
$
|
733,016
|
|
Fair
Value at June 30, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,705,982
|
|
|
$
|
733,016
|
|
Note
7 – Warrants:
As
at June 30, 2020, the Company had the following warrant securities outstanding:
|
|
Common Stock
Warrants
|
|
January 1, 2020
|
|
|
-
|
|
Less: Exercised
|
|
|
-
|
|
Less: Expired/Cancelled
|
|
|
-
|
|
Add: Issued
|
|
|
4,447,368
|
|
June 30, 2020
|
|
|
4,447,368
|
|
The
fair value of the warrants at issuance was $577,868, with an expiration of March 3, 2025 and exercise price of $0.095. The fair
value of the warrants as at June 30, 2020 was $408,638.
Note
8 – Related Party Transactions
Related
Parties
Related
parties with whom the Company had transactions are:
Related
Parties
|
|
Relationship
|
|
|
|
Stew
Garner
|
|
Chairman,
CEO, CFO and director (resigned effective January 9, 2019)
|
Eric
Blue
|
|
Chairman,
CEO, CFO and director (effective January 9, 2019)
|
Consulting
services from Officer
Consulting
services provided by the officer for the six months ended June 30, 2020 and 2019:
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
|
|
|
|
|
|
|
|
President,
Chief Executive Officer and Chief Financial Officer
|
|
$
|
nil
|
|
|
$
|
nil
|
|
A balance of
$163,626 were deemed distribution to CEO during the six-month ended June 30, 2020. An amount of $113,070 (December 31, 2019 -
$113,070) were payments made on behalf of a related company by virtue of same management during
the year ended December 31, 2019. Included in the amount were $28,073 in dividends paid
by the related party on behalf of the Company during
the year ended December 31, 2019 and $78,629 of advances to the CEO
during the six months ended June 30, 2020.
Included in
accounts payable was a balance of $34,248 owing to the current CEO of the Company as
of June 30, 2020. The payable balance arose primarily due to financing received from
the CEO to settle outstanding accounts payable during the six months ended June 30, 2020.
Note
9- Stockholders’ Deficiency
Shares
Authorized
The
Company’s authorized capital stock consists of 168,750,000 shares of Class A common stock, par value $0.001 per share, 18,750,000
Class B common stock, par value $0.001per share and 62,500,000 shares of preferred stock, par value $0.001 per share of which
1,000 shares are designated “Series A Preferred Stock” and of which one hundred twenty-five thousand and one hundred
eighty-one (125,181) shares are designated “Series B Preferred Stock”.
Common
Stock
Common
Shares Issued for Cash
No
common shares were issued for cash during the six months ended June 30, 2020.
Common
Shares Issued for Non- Cash
No
common shares were issued for non-cash during the six months ended June 30, 2020.
Preferred
Stock
During the six month period ended June
30, 2020, the Company declared $19,973 in dividends on the Series B Preferred Stock, of which $19,973 was accrued as Dividend
Payable.
On
October 24, 2019, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with SBI and Oasis
Capital, LLC, a Puerto Rico limited liability company (“Oasis” and together with SBI, the “Investors”,
and each, an “Investor”), pursuant to which the Investors agreed to, in the aggregate between the Investors, purchase
from the Company up to Ten Million Dollars ($10,000,000.00)(the “Maximum Commitment Amount”) of the Common Stock.
Under
the terms of the Purchase Agreement, the Company shall have the right, but not the obligation, to direct an Investor, by its delivery
to the Investor of a put notice (the “Put Notice”) from time to time beginning on the execution date of the Purchase
Agreement and ending on the earlier to occur of: (i) the date on which the Investors shall have purchased Put Shares equal to
the Maximum Commitment Amount, (ii) October 24, 2021, or (iii) written notice of termination by the Company to the Investors (together,
the “Commitment Period”), to purchase Put Shares.
Notwithstanding
any other terms of the Purchase Agreement, in each instance, (i) the amount that is the subject of a Put Notice (the “Investment
Amount”) is not more than the Maximum Put Amount (as defined below), (ii) the aggregate Investment Amount of all Put Notices
shall not exceed the Maximum Commitment Amount and (iii) the Company cannot deliver consecutive Put Notices and/or consummate
closings to the same Investor, meaning for the avoidance of doubt, that Put Notices delivered by the Company must alternate between
Oasis and SBI. “Maximum Put Amount” means the lesser of (i) such amount that equals two hundred fifty percent (250%)
of the average daily trading volume of the Common Stock and (ii) One Million Dollars ($1,000,000.00). The price paid for each
share of Common Stock (the “Purchase Price”) subject to a Put Notice (each, a “Put Share”) shall be 85%
of the Market Price (as defined below) on the date upon which the Purchase Price is calculated in accordance with the terms and
conditions of the Purchase Agreement. “Market Price” means the one (1) lowest traded price of the Common Stock on
the principal market for any trading day during the Valuation Period (as defined below), as reported by Bloomberg Finance L.P.
or other reputable source. “Valuation Period” means the period of five (5) consecutive trading days immediately following
the Clearing Date (as defined below) associated with the applicable Put Notice during which the Purchase Price of the Common Stock
is valued, provided, however, that the Valuation Period shall instead begin on the Clearing Date if the respective Put Shares
are received as DWAC Shares in the applicable Investor’s brokerage account prior to 11:00 a.m. EST on the respective Clearing
Date. “Clearing Date” means the date on which an Investor receives the Put Shares as DWAC Shares in its brokerage
account.
Note
9- Stockholders’ Deficiency (continued)
Concurrently
with the execution of the Purchase Agreement, the Company, SBI and Oasis entered into a Registration Rights Agreement, dated as
of October 24, 2019 (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company
shall by December 8, 2019, file with the SEC an initial registration statement on Form S-1 covering the maximum number of Registrable
Securities (as defined below) as shall be permitted to be included in accordance with applicable SEC rules, regulations and interpretations
so as to permit the resale of such Registrable Securities by the Investors, including but not limited to under Rule 415 under
the Securities Act at then prevailing market prices (and not fixed prices), as mutually determined by both the Company and the
Investors in consultation with their respective legal counsel. “Registrable Securities” means all of the Put Shares
which have been, or which may, from time to time be issued, including without limitation all of the shares of Common Stock which
have been issued or will be issued to an Investor under the Purchase Agreement (without regard to any limitation or restriction
on purchases), and any and all shares of capital stock issued or issuable with respect to Put Shares (as such terms are defined
in the Purchase Agreement) issued or issuable to an Investor, and shares of Common Stock issued to an Investor with respect to
the Put Shares and the Purchase Agreement as a result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, without regard to any limitation on purchases under the Purchase Agreement.
As
compensation for the commitments made under the Purchase Agreement, the Company paid to the Investors a commitment fee equal to
four percent (4%) of the Maximum Commitment Amount (the “Commitment Fee”). The Commitment Fee was paid by the Company
by issuing to the Investors 28,572 shares of the Company’s Series B Preferred Stock, authorized on February 25, 2020
and issued as on February 25, 2020 with the amount of $400,000 recorded to deferred financing costs. The fair value was determined
based on the issuance price mutually agreed upon between the parties as at the date of issuance.
Note
10- Lease
The
Company entered into an operating lease agreement with a scheduled commencement date on January 15, 2020 for a sixty-seven-month
term, with an option to renew for a five-year term.
The
Company adopted ASC 842 – Leases using the modified retrospective cumulative catch-up approach beginning on January 1, 2019.
Under this approach, the Company did not restate its comparative amounts and recognized a right-of-use asset equal to the present
value of the future lease payments. The Company elected to apply the practical expedient to only transition contracts which were
previously identified as leases and elected to not recognize right-of-use assets and lease obligations for leases of low value
assets.
When measuring the right of use liabilities,
the Company discounted lease payments using its incremental borrowing rate at January 15, 2020. The weighted-average-rate
applied is 12%.
|
|
$
|
|
Operating lease right-of-use asset – initial recognition
|
|
|
879,635
|
|
Amortization
|
|
|
(78,773
|
)
|
Balance at June 30, 2020
|
|
|
800,862
|
|
|
|
|
|
|
Right of use liabilities – operating leases – initial recognition
|
|
|
879,635
|
|
Principal repayment
|
|
|
(51,732
|
)
|
Balance at June 30, 2020
|
|
|
827,903
|
|
|
|
|
|
|
Current portion of right of use liabilities – operating leases
|
|
|
115,798
|
|
Noncurrent portion of right of use liabilities – operating leases
|
|
|
712,105
|
|
The operating lease expense was $130,024 for
the six months ended June 30, 2020 and included in the general and administrative expenses.
The following table represents the contractual
undiscounted cash flows for right of use liabilities – operating leases due within twelve months of June 30,
|
|
$
|
|
2020
|
|
|
208,540
|
|
2021
|
|
|
213,753
|
|
2022
|
|
|
219,097
|
|
2023
|
|
|
224,574
|
|
2024
|
|
|
230,189
|
|
thereafter
|
|
|
19,419
|
|
Total minimum lease payments
|
|
|
1,115,572
|
|
Less: effect of discounting
|
|
|
(287,669
|
)
|
Present value of future minimum lease payments
|
|
|
827,903
|
|
Less: current portion of right of use liabilities
– operating leases
|
|
|
115,798
|
|
Noncurrent portion of right of use liabilities –
operating leases
|
|
|
712,105
|
|
Note
11- Acquisition and discontinued operations
The
Company entered into an agreement (the “Transaction Agreement”) on May 3, 2019 with C-PAK, P&G, and Capital Park
Holdings Corp., solely in its capacity as guarantor, for an acquisition of certain assets pertaining to the “Joy”
and “Cream Suds” trademarks for $30,000,000.
As
at October 1, 2019, the Transaction Agreement was terminated between the parties. The terms of the termination are undergoing
further negotiations. Results of operations, financial position and cash flows for these businesses are separately reported as
discontinued operations.
Financial information for discontinued
operations, for the three and six months ended June 30, 2020:
|
|
Three
months ended
June 30, 2020
|
|
|
Six months
ended
June 30, 2020
|
|
Expenses
|
|
|
-
|
|
|
|
-
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Other income
|
|
|
-
|
|
|
|
-
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax provision
|
|
|
-
|
|
|
|
-
|
|
Benefit (provision) for income taxes
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
There
were no assets or liabilities of discontinued operations held as at June 30, 2020 and December 31, 2019.