Stockholders of First Foods Group, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of First Foods Group, Inc. and Subsidiary (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, changes in deficit, and cash flows for each of the years in the two year period ended December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has recurring losses from operations which raises substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTE 1 – BUSINESS SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND LIQUIDITY
Nature of Business
First Foods Group, Inc. (the “Company” or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate product line and participating in merchant cash advances through its 1st Foods Funding Division. First Foods continues to pursue new foodservice brands and menu concepts.
On August 31, 2017, the Company formed Holy Cacao, Inc., a Nevada corporation (“Holy Cacao”). Holy Cacao has 100 shares of no par value common stock authorized, issued and outstanding with 85 shares owned by the Company and 15 shares owned by non-controlling interests. Holy Cacao is dedicated to producing, packaging, distributing and selling specialty chocolate products, including specialty chocolate products infused with a hemp-based ingredient in accordance with the Company’s understanding of the Agricultural Act of 2014 (the “2014 Farm Bill”) and/or the Agriculture Improvement Act of 2018 (the “2018 Farm Bill,” and together with the 2014 Farm Bill, collectively, the “Farm Bill”), which renders the production of hemp in compliance with the provisions of the Farm Bill federally lawful. The Company has not been, is not, and has no current plans to be involved in producing, packaging, distributing or selling any product that is infused with a marijuana-based ingredient, although it intends to revisit the matter as regulations change in jurisdictions in which it operates. The Company is also dedicated to licensing its intellectual property (“IP”), including its name, brand, and packaging, to third parties. The Company may license its IP to third parties that may produce, package, and distribute hemp-based products pursuant with the Company’s understanding of the Farm Bill. The Company may license its IP to third parties that may produce, package, and distribute marijuana-based products, but only as such licensing is legal. On February 27, 2019, the United States Patent and Trademark Office (the “USPTO”) approved Holy Cacao’s trademark brand, “The Edibles’ Cult.” On November 26, 2019, the USPTO approved Holy Cacao’s trademark brand, “Purely Irresistible.” The Company has submitted multiple applications to the USPTO for additional brand names, including “Mystere” and “Southeast Edibles” among others. On February 5, 2019, the Company signed a Consulting Agreement with a consultant to assist in the manufacturing, packaging and distribution of the Company’s chocolate product line. On March 26, 2019, the Company signed a Facility Access and Wholesale Production Purchase and Sale Agreement that allows it to use a fully staffed and fully equipped state of the art manufacturing facility to produce its specialty chocolate product line and sell it to manufacturing and wholesaling companies. On October 10, 2019, the Company signed a master distribution agreement with CBD Unlimited, Inc, which is a public company and a master distributor, to distribute the Company’s hemp-based chocolate products. On March 1, 2020, the Company’s Board of Directors made a strategic decision to broaden the appeal of its hemp-based chocolate products to a wider base of customers, who are particularly discerning about the cleanliness of the Company’s manufacturing facility and quality of its hemp-based chocolate products, by successfully obtaining worldwide Kosher certification from the Union of Orthodox Jewish Congregations of America, Kashruth Division (the “OU”), which is the largest and most recognized certification of its kind in the world. On May 9, 2020, the Company retained Tartikov Beth Din (“BD”) to allow BD to supervise the hemp-based chocolate products produced by the Company in accordance with OU certification standards.
On October 25, 2017, the Company entered into a contract with TIER Merchant Advances LLC (“TIER”) to participate in the purchase of future receivables from qualified TIER merchants for the purpose of generating near-term and long-term revenue for the Company. The Company may also provide cash advances directly to merchants.
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, 2019, the Company had approximately $165,000 in third-party short term debt that is due within the next twelve months. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing. However, neither any members of management nor any significant shareholders are currently committed to invest funds with us and; therefore, we cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The Company does not have sufficient cash flow for the next twelve months from the date of this report. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying 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, 2019 and 2018, 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
Starting in October 2017, the Company entered into a contract with TIER to participate in TIER’s purchase of merchant cash advances, which are short-term cash advances made to businesses in return for an agreed-upon amount of future sales, paid by the business in small, regular daily payments.
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, 2019, the Company reserved an amount equal to 10% 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 thirty (30) merchant advances for a total of $72,013 for the year ended December 31, 2019. These expenses are included in provision for merchant cash advances expenses on the accompanying consolidated statements of operations.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which creates ASC 606, “Revenue from Contracts with Customers,” and supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, “Revenue Recognition” and most industry-specific guidance throughout the ASC. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. We completed our assessment of the impact of the 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. Commencing in Q2 2019, we also have product sales from our Holy Cacao division that follow ASC 606.
The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company completed its assessment of the guidance and determined its merchant cash advances are excluded from the scope of ASU 2014-09. As a result of this scope exception, the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
During the year ended December 31, 2019, the Company recognized its product sales as follows:
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 customers 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.
During the year ended December 31, 2019, the Company recognized its merchant cash advance income as follows:
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 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 prior to January 1, 2019, the Company recorded a reserve liability equal to 2% of the merchant cash advance amount released, which is a residual commission owed to TIER. This reserve is recognized over the term of the merchant cash advance and eliminated when the merchant cash advance is completely satisfied and payment is remitted by the Company to TIER. For each merchant cash advance entered into by the Company on January 1, 2019 or later, 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 TIER’s 2% residual commission.
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, 2019, the Company had no allowance for doubtful accounts.
Inventory
Inventory, consisting of raw materials, work in process and products available for sale, are primarily accounted for using the first-in, first-out method (“FIFO”), 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. As of December 31, 2019, the Company had inventory of $10,556, which consisted of $2,854 of raw materials, $5,410 of work in process and $2,292 of finished goods. The Company has no allowance for inventory reserves.
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, 2019 and 2018, were approximately $85,000 and $117,000, 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, 2019 and 2018, 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, 2019 and 2018, the Company had a full valuation allowance against deferred tax assets. With the historical change in ownership, the Company is subject to certain NOL limitations under Section 382 of the Internal Revenue Code.
Per Share Data
In accordance with “ASC-260 - Earnings per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive shares outstanding as of December 31, 2019 and 2018 because their effect would be antidilutive.
The Company had 1,403,750 and 343,750 warrants to purchase common stock outstanding at December 31, 2019 and 2018, respectively. The Company had 3,970,000 and 3,370,000 warrants to purchase Series B preferred stock outstanding at December 31, 2019 and 2018, respectively. The Company has outstanding one (1) Series A preferred share that is convertible into five (5) shares of the Company’s common stock. Additionally, the Company has 473,332 Series B preferred shares, and 660,000 Series C preferred shares outstanding that are convertible into 2,366,660 and 660,000 shares of common stock at December 31, 2019 and 2018, 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 for the years ended December 31, 2019 and 2018, were $115,150 and $27,933, 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 year ended December 31, 2019 was $21,003 and $522,967, respectively. There was $32,183 of revenue for Holy Cacao for the year ended December 31, 2019.
The Company conducts business as two operating segments, First Foods and Holy Cacao. The Company does not distinguish between the two segments and has only one reportable segment based on quantitative thresholds. The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which affects any entity that enters into a lease (as that term is defined in ASU 2016-02), with some specified scope exceptions. The main difference between the guidance in ASU 2016-02 and current GAAP is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP. Under ASU 2016-02, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients. The Company adopted this provision on January 1, 2019 which did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in ASC 605-Revenue Recognition and most industry-specific guidance throughout the ASC. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). The Company adopted this provision on January 1, 2018 which did not have a material impact on the Company’s consolidated financial statements.
In May 2017, the FASB, issued ASU 2017-09, Compensation—Stock Compensation (Topic 718). The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards that would be required to apply modification accounting under ASC 718. The new guidance becomes effective for the Company for the year ending December 31, 2018, including interim periods. The Company adopted this provision on January 1, 2018 which did not have a material impact on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will be effective in the first quarter of 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company elected early adoption of this pronouncement on January 1, 2018, which did not have a material impact on the Company’s consolidated financial statements.
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 (i) 750,000 shares of common stock of the Company, and (ii) $20,833 per month, which shall be deferred but accrued until the Company raises at least $1,500,000 in financing. The 750,000 shares of common stock are fully vested and valued at $1,687,500, representing a fair market value of $2.25 per share based on the closing price on the day of entry into the agreement. On December 26, 2017, the CFO amended his employment agreement and agreed to reduce the annual salary from $250,000 to $150,000 for the period from February 1, 2017 through January 31, 2019, and then revert back to the original amount of $250,000 annually starting February 1, 2019 through the remainder of his employment. The CFO’s salary was deferred until the Company raised at least $1,000,000 in financing. This raise has been achieved and the CFO’s salary is now being accrued. This agreement has since been amended, where Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. The CFO and Director was awarded 85,000 and 33,333 shares of Series B Preferred Stock on October 25, 2018 and December 17, 2018, respectively, for a total of 118,333 shares in lieu of $40,000 Director compensation accrued for the period January 1, 2018 through December 31, 2018 (see Note 5). As of December 31, 2019 and 2018, the Company has accrued $329,167 and $87,500, respectively, in relation to the employment agreements and $16,953 and $13,449, 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. The Chairman of the Board and Interim CEO was awarded 85,000 and 33,333 shares of Series B Preferred Stock on October 24, 2018 and December 17, 2018, respectively, for a total of 118,333 shares in lieu of $40,000 compensation accrued for the period January 1, 2018 through December 31, 2018 (see Note 5). As of December 31, 2019, the Company has accrued a total of $40,000 in relation to 2017 compensation earned under the consulting agreement.
On May 10, 2018, Mr. Shimon Weiss, who is related to a Company Director, was retained as a consultant to provide investment advice to the Company for a 90-day period. The consultant was awarded 75,000 shares of common stock at a fair market value of $0.12 per share for $9,000.
On January 30, 2019, the Company entered into a consulting agreement with R and W Financial, an entity owned by a Company director, to assist with the growth of the Company. R and W Financial will receive $5,000 per month for an indefinite period of time, subject to cancellation by the Company or R and W Financial with 30 days written notice to the other. On November 21, 2019, the Company entered into an additional consulting agreement with R and W Financial to assist with the growth of the Company. R and W Financial will receive $7,000 per month for an indefinite period of time, subject to cancellation by the Company or R and W Financial with 10 days written notice to the other. The outstanding balance as of December 31, 2019, was $25,300.
Related Party Loans
On October 17, 2017, Obvia LLC, of which the Company’s Chief Financial Officer, who is also a director and a shareholder of the Company, is a 50% owner, provided a loan to the Company’s Funding Division in the amount of $100,000 bearing an interest rate of the US Prime Federal Funds Rate +1% or 5.75% at December 31, 2019, to be compounded monthly. The note is not secured and matures on October 31, 2019. This loan has been amended and matures on April 30, 2020. During the years ended December 31, 2019 and 2018, the Company recorded $7,024 and $6,001, respectively, as interest expense related to this loan. As of December 31, 2019 and 2018, the principal balance of this loan was $100,000 and the accrued interest was $14,034 and $7,011, respectively.
On November 2, 2017, Kennedy Business Center LLC, an entity owned by an immediate family member of a Company director, provided a loan in the amount of $90,000 bearing an interest rate of 10% which matured on November 30, 2018, but was paid back early on October 25, 2018. As part of the agreement, the Company issued 50,000 shares of common stock on November 3, 2017. The Company recorded a debt discount of $17,500 for the fair market value of the shares issued. During the year ended December 31, 2018, the Company recorded $11,667 of interest expense related to the amortization of debt discount related to this loan and $7,366 of regular interest. As of December 31, 2019 and 2018, the principal balance of this loan was $0 and the accrued interest was $0 and $4,366, respectively.
On April 26, 2018, R and W Financial, an entity owned by a Company director, provided an unsecured, non-interest bearing loan in the amount of $179,813 which matures on April 25, 2020 and which was used to pay the balance of the non-interest bearing short-term loans due to the Company Secretary, who is also a Director and shareholder of the Company. As of December 31, 2019 and 2018, the principal balance of this loan was $179,813.
On June 14, 2018, the Company issued a promissory note of $100,000 to Mayer Weiss, an immediate family member of a Company director. The note carries a 12% interest rate per annum, and non-compounding interest is to be paid every six months. Additionally, 100,000 shares of common stock were issued with the note and are being amortized over the life of the loan which is due December 13, 2019. This loan has been amended and is due on March 13, 2020. An additional 25,000 shares were issued with the amendment of the note and are being amortized over the life of the loan. The Company recorded a total debt discount of $16,250 for the fair market value of the shares issued. During the year ended December 31, 2019 and 2018, the Company recorded $7,654 and $4,022 of interest expense related to the amortization of debt discount related to this loan, respectively and $12,000 and $6,575 of regular interest, respectively. As of December 31, 2019 and 2018, the principal balance of this loan was $100,000 and the accrued interest was $6,049 and $6,575, respectively.
On October 11, 2018, the Company issued a promissory note of $250,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. $150,000 was deployed to the Company’s participation in merchant cash advances and $100,000 was advanced directly to a merchant. Additionally, 250,000 shares of common stock were issued with the note valued at $0.10 per share, which is the market value on the date of the agreement and will be amortized over the life of the loan which is due April 10, 2020 with a balloon payment. The Company recorded a debt discount of $25,000 for the fair market value of the shares issued. During the year ended December 31, 2019 and 2018, the Company recorded $16,682 and $3,702 of interest expense related to the amortization of debt discount related to the note, respectively. During the year ended December 31, 2019 and 2018, the Company recorded $30,000 and $6,658 of regular interest expense, respectively. As of December 31, 2019 and 2018, the principal balance of the note was $250,000 and the accrued interest was $1,658 and $6,658, respectively.
All of the above transactions were approved by disinterested directors.
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December 31,
2019
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December 31,
2018
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Obvia LLC
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$
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100,000
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$
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100,000
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R & W Financial
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179,813
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179,813
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Mayer Weiss
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100,000
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100,000
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Shareholder (became a related party in 2019)
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250,000
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|
|
-
|
|
Unamortized debt discount
|
|
|
(9,190
|
)
|
|
|
(6,978
|
)
|
Total
|
|
$
|
620,623
|
|
|
$
|
372,835
|
|
Director Agreements
On December 26, 2017, the Company entered into binding term sheets 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. Each Director’s cash-based compensation for the period January 1, 2018 through December 31, 2018, will be $10,000 per quarter paid on a date determined by the majority vote of the Board of Directors. The Directors’ share-based compensation for the period January 1, 2018 through December 31, 2018 will be a one-time award of the ability to purchase a particular amount of warrants, ranging from 40,000 to 200,000 (collectively the “Warrants”) with the following terms:
|
•
|
Number and Type – Each Director is entitled to a one-time award of Warrants for the number of shares of Series B Preferred Stock (the “Preferred Stock B”) of the Corporation, which shall have voting rights equal to five (5) votes per share. Each share of Preferred stock B is convertible into five (5) shares of the Corporation’s common stock, including liquidation preference over common stock.
|
|
|
|
|
•
|
Duration – The Warrants entitle each Director to purchase the Preferred Stock B from the Corporation, after January 1, 2018 and before December 31, 2024.
|
|
|
|
|
•
|
Purchase Price - The purchase price is $0.51 per share of Preferred Stock B.
|
|
|
|
|
•
|
Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
|
|
|
|
|
•
|
Vesting – 125,000 Warrants awarded to the CFO were fully vested at the time of issuance. The remaining 565,000 Warrants are subject to a 12-month period whereby the Warrants vest in equal monthly increments from January 1, 2018 through December 31, 2018.
|
The Company issued warrants with respect to 565,000 Series B Preferred Stock, in the aggregate, in relation to the binding term sheets. The Company expensed the fair value of these warrants in the amount of $288,037 ratably during the year ended December 31, 2018.
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:
|
•
|
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.
|
|
|
|
|
•
|
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.
|
|
|
|
|
•
|
Purchase Price - The purchase price is $0.60 per share of Series B Preferred Stock.
|
|
|
|
|
•
|
Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
|
|
|
|
|
•
|
Vesting - The Warrants are 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.
|
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 year ended December 31, 2019 and 2018, the Company recorded $290,186 and $186,832 as compensation expense related to the warrants, respectively.
Each director was awarded 85,000 and 33,333 shares of Series B Preferred Stock on October 24, 2018 and December 17, 2018, respectively, for a total of 473,332 shares in lieu of $160,000 compensation accrued for the period January 1, 2018 through December 31, 2018.
On December 26, 2018, the Company issued the CFO and Director of the Company warrants to purchase 400,000 shares of Series B Preferred Stock in lieu of $200,000 of deferred salary with the following terms:
|
•
|
Duration – The Warrants entitle the CFO and Director to purchase the Series B Preferred Stock from the Company after December 26, 2018 and before December 25, 2028.
|
|
|
|
|
•
|
Purchase Price - The purchase price is $0.525 per share of Series B Preferred Stock.
|
|
|
|
|
•
|
Cashless Exercise - If on the date the CFO and 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 CFO and Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
|
|
|
|
|
•
|
Vesting - The Warrants are fully vested at issuance.
|
The Company issued warrants with respect to 400,000 Series B Preferred Stock. The fair value of these warrants was $210,000 and the additional $10,000 over the deferred salary amount was recorded as compensation expense during the year ended December 31, 2018.
On December 30, 2018, three of the Directors of the Company were awarded share-based compensation for additional services performed during the service period of January 1, 2018 through December 31, 2018, as a one-time award to purchase a particular amount of warrants, ranging from 200,000 to 400,000 (collectively the “Warrants”) with the following terms:
|
•
|
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.
|
|
•
|
Duration – The Warrants entitle each Director to purchase the Series B Preferred Stock from the Company after December 30, 2018 and before December 29, 2028.
|
|
|
|
|
•
|
Purchase Price - The purchase price is $0.60 per share of Series B Preferred Stock.
|
|
|
|
|
•
|
Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
|
|
|
|
|
•
|
Vesting - The Warrants are fully vested at issuance.
|
The Company issued warrants with respect to 1,000,000 Series B Preferred Stock, in the aggregate. The Company expensed the fair value of these warrants in the amount of $600,000 for the year ended December 31, 2018.
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, 2019 the Company has accrued $160,000 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:
|
•
|
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.
|
|
•
|
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.
|
|
|
|
|
•
|
Purchase Price - The purchase price is $1.20 per share of Series B Preferred Stock.
|
|
|
|
|
•
|
Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
|
|
|
|
|
•
|
Vesting - The Warrants are fully vested at issuance.
|
The Company issued warrants with respect to 600,000 Series B Preferred Stock, in the aggregate. The Company expensed the fair value of these warrants in the amount of $720,000 for the year ended December 31, 2019.
NOTE 3 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following as of December 31, 2019 and 2018:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Accounts payable
|
|
$
|
305,679
|
|
|
$
|
128,405
|
|
Interest
|
|
|
24,136
|
|
|
|
43,371
|
|
Salaries
|
|
|
386,121
|
|
|
|
140,950
|
|
Other
|
|
|
35,739
|
|
|
|
4,630
|
|
Total
|
|
$
|
751,675
|
|
|
$
|
317,356
|
|
NOTE 4 – LOANS AND LONG-TERM LOANS
On July 23, 2018, the Company issued promissory notes of $100,000 and $18,000, respectively. The notes carry a 12% interest rate per annum, and non-compounding interest is to be paid every six months. Additionally, 100,000 and 18,000 shares of common stock were issued with the respective notes and will be amortized over the life of the loans which are due January 22, 2020 with a balloon payment. The Company recorded a debt discount of $5,500 and $990 for the fair market value of the shares issued, respectively. During the year ended December 31, 2019, the Company recorded $3,673 and $659 of interest expense related to the amortization of debt discount related to these notes and $12,000 and $2,160 of regular interest, respectively. During the year ended December 31, 2018, the Company recorded $1,616 and $290 of interest expense related to the amortization of debt discount related to these notes and $5,293 and $953 of regular interest, respectively. As of December 31, 2019, the principal balance of these notes was $100,000 and $18,000, the unamortized debt discount was $211 and $40 and accrued interest was $293 and $233, respectively. See note 8 for subsequent amendment.
On January 9, 2019, the Company issued a promissory note of $50,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 50,000 shares of common stock were issued with the note valued at $0.1425 per share, which is the market value on the date of the agreement and will be amortized over the life of the note which is due July 8, 2020 with a balloon payment. The Company recorded a debt discount of $7,125 for the fair market value of the shares issued. During the year ended December 31, 2019, the Company recorded $4,646 of interest expense related to the amortization of debt discount related to the note and $5,852 of regular interest. As of December 31, 2019, the principal balance of the note was $50,000, the unamortized debt discount was $2,479 and the accrued interest was $352.
On June 12, 2019, the Company issued a promissory note of $25,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 12,500 shares of common stock were issued with the note valued at $0.295 per share, which is the market value on the date of the agreement and will be amortized over the life of the note which is due June 11, 2021 with a balloon payment. The Company recorded a debt discount of $3,688 for the fair market value of the shares issued. During the year ended December 31, 2019, the Company recorded $1,020 of interest expense related to the amortization of debt discount related to the note and $1,660 of regular interest. As of December 31, 2019, the principal balance of the note was $25,000, the unamortized debt discount was $2,667 and the accrued interest was $160.
On July 22, 2019, the Company issued a promissory note of $250,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. $100,000 of the note will be used by the Company exclusively for the purpose of investing in merchant cash advances. The remaining $150,000 of the note will be used by the Company for its operational activities. Additionally, 250,000 shares of common stock were issued with a fair value of $100,000, recorded as a debt discount, and will be amortized over the life of the note, which is due in monthly payments between eighteen (18) months and twenty-three (23) months from July 22, 2019 based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from July 22, 2019. In addition, the Company issued a warrant to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.25 per share. The warrant was valued at $99,925 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested as of the issue date with an exercise term of three (3) years. At the sole discretion of the lender, an additional $250,000 note may be issued to the Company anytime within nine months after the issue date. The additional note will be subject to the same terms and conditions as the initial note, with 250,000 shares of common stock issued at a 30% discount from the last market closing price per share as of the issue date of the additional note. If an additional $250,000 note is issued, the Company will issue a warrant to purchase an additional 250,000 shares of the Company’s common stock that will be fully vested as of the issue date of the additional note and have an exercise price that is the lesser of $0.25 per share or the market closing price per share on the issue date of the additional note. The exercise term will be three (3) years. During the year ended December 31, 2019, the Company recorded $44,367 of interest expense related to the amortization of debt discount related to the note and $13,315 of regular interest. As of December 31, 2019, the principal balance of the note was $250,000, the unamortized debt discount was $155,558 and the accrued interest was $815.
On October 2, 2019, the Company issued a promissory note for $410,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $389,500 and the lender retained $20,500 as an original issue discount. $155,800 of the note will be used by the Company exclusively for the purpose of investing in merchant cash advances. The remaining $233,700 of the note will be used by the Company for its operational activities. Additionally, 410,000 shares of the Company’s common stock were issued with a fair value of $106,600, recorded as a debt discount, and will be amortized over the life of the notes, which are due in monthly payments between eighteen (18) months and twenty-three (23) months from the date of the note based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the date of the note. In addition, the Company issued warrants to purchase 205,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrants are valued at $52,501 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the date on the note with an exercise term of three (3) years. During the year ended December 31, 2019, the Company recorded $22,199 of interest expense related to the amortization of debt discount related to the note and $12,132 of regular interest. As of December 31, 2019, the principal balance of the note was $410,000, the unamortized debt discount was $157,402 and the accrued interest was $530.
On October 16, 2019, the Company issued a promissory note for $140,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $133,000 and the lender retained $7,000 as an original issue discount. $53,200 of the note will be used by the Company exclusively for the purpose of investing in merchant cash advances. The remaining $79,800 of the note will be used by the Company for its operational activities. Additionally, 140,000 shares of the Company’s common stock were issued with a fair value of $34,300, recorded as a debt discount, and will be amortized over the life of the notes, which are due in monthly payments between eighteen (18) months and twenty-three (23) months from the issue date based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the issue date. In addition, the Company issued warrants to purchase 205,000 and 140,000 shares of the Company’s common stock with an exercise price of $0.30 and $0.50 per share, respectively. The warrants are valued at $83,060 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years. During the year ended December 31, 2019, the Company recorded $12,947 of interest expense related to the amortization of debt discount related to the note and $3,498 of regular interest. As of December 31, 2019, the principal balance of the note was $140,000, the unamortized debt discount was $111,413 and the accrued interest was $0.
On October 31, 2019, the Company issued a promissory note of $200,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $190,000 and the lender retained $10,000 as an original debt discount. $76,000 of the note will be used by the Company exclusively for the purpose of investing in merchant cash advances. The remaining $114,000 of the note will be used by the Company for its operational activities. Additionally, 200,000 shares of the Company’s common stock were issued with a fair value of $58,000, recorded as a debt discount, and will be amortized over the life of the note, which is due in monthly payments between eighteen (18) months and twenty-three (23) months from the issue date based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the issue date. In addition, the Company issued warrants to purchase 200,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrants are valued at $57,180 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue dates with an exercise term of three (3) years. During the year ended December 31, 2019, the Company recorded $10,460 of interest expense related to the amortization of debt discount related to the note and $4,000 of regular interest. As of December 31, 2019, the principal balance of the note was $200,000, the unamortized debt discount was $114,720 and the accrued interest was $0.
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Loan issued July 23, 2018
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
Loan issued July 23, 2018
|
|
|
100,000
|
|
|
|
100,000
|
|
Loan issued October 11, 2018
|
|
|
-
|
|
|
|
250,000
|
|
Loan issued January 09, 2019
|
|
|
50,000
|
|
|
|
-
|
|
Loan issued June 12, 2019
|
|
|
25,000
|
|
|
|
-
|
|
Loan issued July 22, 2019
|
|
|
250,000
|
|
|
|
-
|
|
Loan issued October 2, 2019
|
|
|
410,000
|
|
|
|
-
|
|
Loan issued October 16, 2019
|
|
|
140,000
|
|
|
|
-
|
|
Loan issued October 31, 2019
|
|
|
200,000
|
|
|
|
-
|
|
Unamortized debt discount
|
|
|
(544,490
|
)
|
|
|
(25,881
|
)
|
Total
|
|
|
648,510
|
|
|
|
342,119
|
|
Less: short term loans, net
|
|
|
165,270
|
|
|
|
-
|
|
Total long-term loans, net
|
|
$
|
483,240
|
|
|
$
|
342,119
|
|
NOTE 5 – STOCKHOLDERS’ DEFICIT
On January 11, 2018, the Company entered into a consulting agreement for matters involving business development, public relations, marketing services and media placement. The agreement may be terminated upon 30 days prior written notice by either party. The Company paid the consultant $25,000 for the first 30 days of services, and $2,500 for any services requested by the Company on a bi-weekly basis thereafter. The fee will cover all cash cost for production, editing and airing up to three Fox Business production shots. If the Company pursued an interview with Fox News, which the Company is currently not contemplating, it would have to issue 200,000 shares of its common stock to the consultant.
On February 2, 2018, the Company entered into a subscription agreement for the sale of 660,000 shares of the Company’s Series C Preferred Stock for $0.25 per share or $165,000. The terms of the agreement require a monthly dividend payment equal to 1% of the amount invested for 18 months from the date of issuance. The Company stopped accruing the dividend payments during the quarter ending September 30, 2019 per the terms of the agreement. For the year ended December 31, 2019 and 2018, the Company recorded $11,550 and $18,150 of dividend expense related to the subscription agreement, respectively.
On May 10, 2018, an individual who is related to a Company Director was retained as a consultant to provide investment advice to the Company for a 90-day period. The consultant was awarded 75,000 shares of common stock at a fair market value of $0.12 per share for $9,000.
On June 14, 2018, the Company issued 100,000 shares of common stock to a related party in connection with a $100,000 promissory note (See Note 2).
On July 23, 2018, the Company issued 118,000 shares of common stock in connection with two promissory notes for a total $118,000 (See Note 4).
On October 11, 2018 the Company issued 250,000 shares of common stock in connection with a $250,000 promissory note (See Note 4).
On October 22, 2018, the Company amended the July 16, 2018 consulting agreement with a service provider to expand the service provider’s services in exchange for $12,500 and 125,000 shares of common stock valued at $0.10 per share, which was the market value on the date of the agreement.
On October 24, 2018, the four directors of the Company were each awarded 85,000 Series B Preferred Shares for a total of 340,000 shares in lieu of an aggregate of $120,000 director fees accrued for the period January 1, 2018 through September 30, 2018.
On October 25, 2017, and as amended on November 2, 2018, the Company amended its Articles of Incorporation to provide for 100,000,000 authorized common shares and 20,000,000 authorized preferred shares. The preferred shares were authorized into three series. Series A Convertible Preferred Shares was designated with one share. Series B Convertible Preferred Shares was designated with 4,999,999 shares. Series C Convertible Preferred Shares was designated with 3,000,000 shares.
On January 9, 2019, the Company issued 50,000 shares of common stock in connection with a $50,000 promissory note (See Note 4).
On February 11, 2019, the Company entered into an agreement with a strategic marketing consultant (the “Marketing Consultant”). On May 31, 2019, in accordance with the agreement, the Marketing Consultant was awarded 26,415 shares of the Company’s common stock at a fair market value of $0.265 per share. On June 5, 2019, the Company entered into a new agreement with the Marketing Consultant. On September 4, 2019, in accordance with the agreement, the Marketing Consultant was awarded 17,500 shares of the Company’s common stock at a fair market value of $0.40 per share. On September 11, 2019, the Company entered into a new agreement with the Marketing Consultant. On December 23, 2019, in accordance with the agreement, the Marketing Consultant was awarded 23,333 shares of the Company’s common stock at a fair market value of $0.30 per share.
On March 26, 2019, the Company signed a Facility Access and Wholesale Production Purchase and Sale Agreement for a term of twelve (12) months with an unrelated party to use the party’s leased commercial chocolate product manufacturing facility in exchange for paying the following:
|
(a)
|
the full amount of the party’s lease obligations of $6,433 per month plus taxes and common area maintenance fees through May 31, 2019 and $6,626 per month plus taxes and common area maintenance fees for 12 months through March 31, 2020;
|
|
|
|
|
(b)
|
66.6% of the party’s expenses related to payroll for employees that make the Company’s product; and
|
|
|
|
|
(c)
|
66.6% of the party’s operating expenses specifically related to the Company’s product including utilities, equipment, maintenance and insurance expenses.
|
The Company also issued 100,000 shares of the Company’s common stock at the closing market price of $0.30 on February 5, 2019 as a charitable contribution to a non-profit entity in support of the entity’s environmental regeneration efforts.
On May 8, 2019, the Company entered into an agreement with a strategic investment consultant (the “Investment Consultant”). The Investment Consultant was awarded 100,000 shares of the Company’s common stock at a fair market value of $0.20 per share, for $20,000. Also, in accordance with the agreement, the Company shall at its sole discretion grant a bonus to the Investment Consultant of up to 1,000,000 shares. On October 2, 2019, the Company entered into a new agreement with the Investment Consultant. In accordance with the agreement, the Investment Consultant was awarded a 500,000 shares of the Company’s common stock at a fair market value of $0.26 per share on October 2, 2019. Also, in accordance with the agreement, the Company shall at its sole discretion grant a bonus to the Investment Consultant of up to 500,000 shares. On October 31, 2019, the Investment Consultant was awarded bonus of 250,000 shares of the Company’s common stock at a fair market value of $0.29 per share.
On May 31, 2019, the Company entered into an agreement with a strategic small-cap exposure consultant (the “Exposure Consultant”). The Exposure Consultant was awarded 50,000 shares of the Company’s common stock at a fair market value of $0.265 per share, for $13,250. In addition, the company may extend this agreement for an additional twelve months at the sole discretion of management. Fees for the additional twelve months shall be 200,000 shares of common stock issued in increments of 50,000 shares per quarter.
On June 12, 2019, the Company issued 12,500 shares of common stock in connection with a $25,000 promissory note (See Note 4).
On July 22, 2019, the Company issued 250,000 shares of common stock in connection with a $250,000 promissory note (See Note 4).
On September 9, 2019, the Company entered into an agreement with a production operations consultant (the “Operations Consultant”). On September 17, 2019, in accordance with the agreement, the Operations Consultant was awarded 26,667 shares of the Company’s common stock at a fair market value of $0.24 per share. The contract term is for ninety days. As full compensation for the Services, the Consultant shall be paid a weekly fee of $1,500 payable by the Company to the Operations Consultant at the end of each full week of service. In addition, the Operations Consultant shall receive $6,400 worth of restricted shares of the Company’s common stock (the “Shares”) issued by the Company to the Operations Consultant on the first day of each month of service, starting on the Effective Date, at a 20% discount from the last closing market price of the Shares. On October 9, 2019, in accordance with the agreement, the Operations Consultant was awarded 30,769 shares of the Company’s common stock at a fair market value of $0.21 per share. On November 9, 2019, in accordance with the agreement, the Operations Consultant was awarded 26,677 shares of the Company’s common stock at a fair market value of $0.24 per share. On December 9, 2019, in accordance with the agreement, the Operations Consultant was awarded 33,333 shares of the Company’s common stock at a fair market value of $0.19 per share.
On September 19, 2019, the Company entered into an agreement with a related party strategic advisory consultant (the “Advisory Consultant”). On September 26, 2019, in accordance with the agreement, the Advisory Consultant was awarded 75,000 shares of the Company’s common stock at a fair market value of $0.25 per share.
On October 2, 2019, the Company issued 410,000 shares of common stock in connection with a $410,000 promissory note (See Note 4).
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. In the event that this agreement is terminated by FIFG within twelve months of signing of this agreement, a claw back provision can be invoked by FIFG whereby the Shares shall be returned to FIFG. 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 October 16, 2019, the Company issued 140,000 shares of common stock in connection with a $140,000 promissory note (see note 4).
On October 31, 2019, the Company issued 200,000 shares of common stock in connection with a $200,000 promissory note (see note 4).
On December 13, 2019, the Company amended the promissory note that it had issued on June 14, 2018. In accordance with the amendment agreement, the Company issued 25,000 shares of the Company’s common stock at a fair value of $0.21 per share.
Warrant Activity
Common Stock Warrants
On July 16, 2018, the Company entered into a consulting agreement with a service provider that contains the following terms:
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375,000 warrants were awarded as of the date of the agreement and will vest ratably over the next 12 months from the date of the agreement. The Company valued these warrants using the Black-Scholes option pricing model with the following inputs: exercise price of $0.078; fair market value of underlying stock of $0.08; expected term of 3 years; risk free rate of 2.67%; volatility of 417.39%; and dividend yield of 0%. The total fair value of these warrants is $30,000 and will be expensed ratably over a period of 12 months. For the years ended December 31, 2019 and 2018, the Company recorded an expense of $16,192 and $13,808, respectively, in relation to these warrants. As of December 31, 2019, a total of 343,750 warrants had vested and 31,250 were exercised. As of December 31, 2018, a total of 171,875 warrants had vested and 31,250 were exercised.
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5% equity ownership in the Company’s Holy Cacao subsidiary was to 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. This occurred in 2019 and they now hold a 5% equity interest in Holy Cacao.
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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 20, 2018, the Company issued 31,250 shares for the exercise of warrants issued to a service provider.
On February 5, 2019, the Company signed a Consulting Agreement for a six (6) month term with a consultant to run the day-to-day manufacturing, packaging and distribution of the Company’s chocolate product line. The Consulting Agreement has a $7,000 monthly fee. In addition, the Company issued a warrant to the Consultant to purchase 60,000 shares of the Company’s common stock at the closing market price of $0.30 on February 5, 2019 with a term of three (3) years. The Company valued these warrants using the Black-Scholes option pricing model with the following inputs: exercise price of $0.30; fair market value of underlying stock of $0.30; expected term of 3 years; risk free rate of 2.50%; volatility of 388.56%; and dividend yield of 0%. The total fair value of these warrants is $17,988 and was expensed at issuance. The six-month Consulting Agreement ended on August 5, 2019 and was extended on a monthly basis through December 5, 2019, after which time the consultant was retained by R and W Financial. The consultant continues to provide services to the Company through the November 21, 2019 agreement between the Company and R and W Financial.
On February 5, 2019, the Company signed an Employment Agreement for a term of three years beginning when the prospective employee, who was retained as a consultant to perform services described in the preceding paragraph, obtains his permanent United States visa. The Employment Agreement has a $7,000 monthly salary. In addition, the Company would issue a warrant to the prospective employee to purchase 300,000 shares of the Company’s common stock with a term of three (3) years. In addition, the employee would 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 would be exercisable within a three-year period from the date of issue. If the employee fails to obtain his visa and become an employee of the Company, all granted warrants must be given back to the Company. 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. As of December 31, 2019, no warrants have been expensed because the employment period has not commenced.
On July 22, 2019, the Company issued a promissory note of $250,000 (see Note 4). In connection with this note the Company issued a warrant to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.25 per share. The warrant was valued at $99,925 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested and was fully expensed as of the issue date with an exercise term of three (3) years.
On October 2, 2019, the Company issued a promissory note for $410,000 (see Note 4). In connection with this note the Company issued warrants to purchase 205,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrant was valued at $52,501 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested and was fully expensed as of the issue date with an exercise term of three (3) years.
On October 16, 2019, the Company issued a promissory note for $140,000 (see Note 4). In connection with this note the Company issued warrants to purchase 205,000 and 140,000 shares of the Company’s common stock with an exercise price of $0.30 and $0.50 per share, respectively. The warrants were valued at $83,060 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years.
On October 31, 2019, the Company issued a promissory note of $200,000 (see Note 4). 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 $57,180 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years.
A summary of the Company’s warrants to purchase common stock activity is as follows:
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Number of
Warrants
(in common
shares)
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Weighted
Average
Exercise
Price
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Outstanding, December 31, 2017
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100,000
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$
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1.45
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Granted
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375,000
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0.08
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Exercised
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(31,250
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)
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0.08
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Forfeited or cancelled
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(100,000
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)
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-
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Outstanding, December 31, 2018
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343,750
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0.08
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Granted
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1,060,000
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0.31
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Exercised
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-
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-
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Forfeited or cancelled
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-
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-
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Outstanding, December 31, 2019
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1,403,750
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$
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0.26
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As of December 31, 2019, 1,403,750 warrants for common stock were exercisable and the intrinsic value of these warrants was $55,688. As of December 31, 2019, there is no remaining expense and the weighted average remaining contractual life was 2.41 years for warrants outstanding.
As of December 31, 2018, 171,875 warrants for common stock were exercisable and the intrinsic value of these warrants was $7,219. As of December 31, 2018, the weighted average remaining contractual life was 2.54 years for warrants outstanding and the remaining expense is approximately $16,192 over the remaining amortization period which is 6.5 months.
Preferred Stock Warrants
On December 26, 2017, the Company amended its employment agreement with its CFO and Director (see Note 2) and issued warrants to purchase 125,000 shares of Series B Preferred Stock as compensation expense for each of the years ended December 31, 2017 and 2018. The warrants have an exercise price of $0.51 per share. The warrants associated with compensation in 2017 were fully vested as of December 31, 2017. The warrants associated with compensation in 2018 vested monthly from January 1, 2018 through December 31, 2018. The warrants are exercisable from January 1, 2018 through December 31, 2024. The Company expensed the fair value of these warrants in the amount of $63,725 during the year ended December 31, 2017 and $63,725 during the year ended December 31, 2018.
On December 26, 2017, the Company issued warrants to purchase 565,000 shares of Series B Preferred Stock, in the aggregate, to its Board of Directors as compensation expense for the year ended December 31, 2018. The warrants have an exercise price of $0.51 per share, vests monthly from January 1, 2018 through December 31, 2018, and are exercisable from January 1, 2018 through December 31, 2024. The Company expensed the fair value of these warrants in the amount of $288,037 during the year ended December 31, 2018.
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, 2019 and 2018, the Company recorded $290,186 and $186,832, respectively, as compensation expense related to the warrants.
On December 26, 2018, the Company issued its CFO and Director warrants to purchase 400,000 shares of Series B Preferred Stock in lieu of $200,000 of deferred salary (see Note 2). The warrants have an exercise price of $0.525 per share, are fully vested at issuance, and are exercisable from December 26, 2018 through December 25, 2028. The fair value of these warrants was $210,000 and the additional $10,000 over the deferred salary amount was recorded as compensation expense during the year ended December 31, 2018.
On December 30, 2018, the Company issued warrants to purchase 1,000,000 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, 2018. The warrants have an exercise price of $0.60 per share, are fully vested at issuance, and are exercisable from December 30, 2018 through December 29, 2028. The Company expensed the fair value of these warrants in the amount of $600,000 during the year ended December 31, 2018.
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 $720,000 during the year ended December 31, 2019.
A summary of the Company’s warrants to purchase Series B Preferred Stock activity is as follows:
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Number of Warrants
(in Series B Preferred
Stock)
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Weighted
Average
Exercise Price
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Outstanding, December 31, 2017
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690,000
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$
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0.51
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Granted
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2,680,000
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0.58
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Outstanding, December 31, 2018
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3,370,000
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0.57
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Granted
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600,000
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1.20
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Exercised
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-
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-
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Forfeited or cancelled
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-
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-
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Outstanding, December 31, 2019
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3,970,000
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$
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0.67
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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.
As of December 31, 2018, 2,410,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $92,100. As of December 31, 2018, the weighted average remaining contractual life was 8.80 years for warrants outstanding and the remaining expense is $581,168 over the remaining amortization period which is 2 years.
NOTE 6 - COMMITMENTS
On August 14, 2019, the Company entered into an agreement with a CFN Media. In consideration for the services and deliverables provided by CFN Media, the Company will make three (3) cash payments to CFN Media totaling $30,000. Payments will be made in accordance with the following staged schedule:
“Stage 1” - $10,000 due upon the signing of the agreement for the Stage 1 services and deliverables: the interview, lead generation system and two (2) articles, including syndication, distribution and placement. This payment has been made.
“Stage 2” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 1 and the Company’s confirmation they are ready to continue with Stage 2, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.
“Stage 3” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 2 and the Company’s confirmation they are ready to continue with Stage 3, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.
NOTE 7 – 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, 2019, the Company’s receivables from merchant cash advances included $713,124 from two merchants ($179,853 and $533,271), representing 90.94% 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, 2018, the Company’s receivables from merchant cash advances included $232,484 from two merchants ($141,539 and $90,945), representing 41% of the Company’s merchant cash advances.
The Company did not earn revenues from any one merchant that were greater than or equal to 10% of the total revenues for the years ended December 31, 2019 and 2018.
As of December 31, 2019, the Company’s accounts receivable had a concentration of 97% from one customer. The concentration of the Company’s accounts receivable creates a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of outstanding accounts receivable balances.
For the year ended December 31, 2019, there was no accounts payable concentration other than amounts owed to related parties which makes up 61% of the balance as of December 31, 2019. For the year ended December 31, 2018, the Company’s accounts payable had a concentration of 32%, 15%, 10% and 10% from four vendors.
For the year ended December 31, 2019, the Company had purchase concentrations of 34%, 26%, 15% and 12% from four vendors. There was no purchase concentration for the year ended December 31, 2018.
NOTE 8 – SUBSEQUENT EVENTS
On January 10, 2020, the Company issued a promissory note of $60,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 60,000 shares of common stock were issued with the note valued at $0.2782 per share, which is the market value on the date of the agreement and will be amortized over the life of the note which is due July 10, 2021 with a balloon payment.
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 shall be paid a fee of ten percent (10%) of each of the Consultant’s sales of the Company’s product.
On January 21, 2020, the Company amended the $100,000 promissory note that it had issued on July 23, 2018. The Company paid back $50,000 of the note and extended the remaining $50,000 for an additional six months. In accordance with the amendment agreement, the Company issued 50,000 shares of the Company’s common stock at a fair value of $0.24 per share which is the market value on the date of the amendment and will be amortized over the remaining life of the note.
On January 23, 2020, the Company amended the $18,000 promissory note that it had issued on July 23, 2018. The term of the note was extended for an additional twelve months. In accordance with the amendment agreement, the Company issued 18,000 shares of the Company’s common stock at a fair value of $0.24 per share, which is the market value on the date of the amendment and will be amortized over the remaining life of the note.
On January 28, 2020, the Company amended the November 21, 2019 agreement with R and W Financial, an entity owned by a Company director. In accordance with the amendment agreement, effective January 1, 2020, R and W Financial will receive $8,500 per month for an indefinite period of time, subject to cancellation by the Company or R and W Financial with 10 days written notice to the other.
On January 29, 2020, the Company issued a promissory note of $96,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $91,200 and the lender retained $4,800 as an original debt discount. $36,480 of the note will be used by the Company exclusively for the purpose of investing in merchant cash advances. The remaining $54,720 of the note will be used by the Company for its operational activities. Additionally, 96,000 shares of the Company’s common stock were issued with a fair value of $21,120, recorded as a debt discount, and will be amortized over the life of the note, which is due in monthly payments between eighteen (18) months and twenty-three (23) months from the issue date based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the issue date. In addition, the Company issued warrants to purchase 96,000 shares of the Company’s common stock with an exercise price of $0.22 per share. The warrants are valued at $20,717 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue dates with an exercise term of three (3) years.
On March 1, 2020, the Company received worldwide Kosher certification from the Union of Orthodox Jewish Congregations of America, Kashruth Division (the “OU”) and entered into a one-year agreement to maintain the certification for $4,500 payable in four equal quarterly installments. On March 9, 2020 the Company entered into one-year agreement with Tartikov Beth Din (“BD”) to allow BD to supervise the products produced by the Company in accordance with OU certification standards for $4,800 payable in equal monthly installments.
On March 6, 2020, the Company entered into a six-month agreement with a strategic investment consultant (the “Investment Consultant”). The Investment Consultant was awarded 400,000 shares of the Company’s common stock at a fair market value of $0.24 per share, for $96,000.
On March 13, 2020, the Company amended the promissory note to Mayer Weiss to extend the due date to June 13, 2020. In accordance with the amendment agreement, the Company issued 25,000 shares of the Company’s common stock at a fair value of $0.20 per share.
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. 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, which will result in a deemed dividend in the first quarter of 2020. The amount of the deemed dividend is zero dollars.
In December 2019, a novel strain of coronavirus (Item 5-19) surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations. The Company’s operations may be affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was declared a pandemic by the World Health Organization. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s customers and revenue, labor workforce, unavailability of products and supplies used in operations, and the decline in value of assets held by the Company, including, inventories and merchant cash advance receivables.