NOTE 1 – BUSINESS SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND LIQUIDITY
Nature of Business
First Foods Group, Inc. (the “Company” or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate product line through its Holy Cacao subsidiary, participating in merchant cash advances (“MCAs”) through its 1st Foods Funding Division, and introducing new health-related brands, concepts and products through its FFGI Wholesaling Division.
Holy Cacao is a majority owned subsidiary that is dedicated to producing, packaging, distributing and selling specialty chocolate products, including specialty chocolate products infused with a hemp-based ingredient in accordance with the Company’s understanding of the Agricultural Act of 2014 (the “2014 Farm Bill”) and/or the Agriculture Improvement Act of 2018 (the “2018 Farm Bill,” and together with the 2014 Farm Bill, collectively, the “Farm Bill”), which renders the production of hemp in compliance with the provisions of the Farm Bill federally lawful. The Company has not been, is not, and has no current plans to be involved in producing, packaging, distributing or selling any product that is infused with a marijuana-based ingredient, although it intends to revisit the matter as regulations change in jurisdictions in which it operates.
The Company is also dedicated to licensing its intellectual property (“IP”), including its name, brand, and packaging, to third parties. The Company may license its IP to third parties that may produce, package, and distribute hemp-based products pursuant with the Company’s understanding of the Farm Bill. The Company may license its IP to third parties that may produce, package, and distribute marijuana-based products, but only as such licensing is legal. Holy Cacao holds four trademarks for the brands, “The Edibles’ Cult”, “Purely Irresistible”, “Mystere” and “Southeast Edibles”.
The Company also has a contract with TIER Merchant Advances LLC (“TIER”) to participate in the purchase of future receivables from qualified TIER merchants for the purpose of generating near-term and long-term revenue for the Company. The Company also provides cash advances directly to merchants.
Reclassification
Certain reclassifications have been made to the Company’s consolidated financial statements for the period ended December 31, 2020 to conform to the current period’s unaudited condensed consolidated financial statement presentation. Approximately $465,500 worth of related party payables were reclassed to its own line item to confirm with current period presentation. There was no effect on total assets, equity and net loss.
Liquidity and Going Concern
The Company’s unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles in the United States of America (“GAAP”) 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 September 30, 2021, the Company had approximately $1,520,000 in third-party short-term debt and approximately $60,000 in associated debt discount and approximately $430,000 in related-party short-term debt and approximately $1,000 in associated debt discount that is due within the next twelve months. Management’s plan is to continue to increase revenue, 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 unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
In December 2019, a novel strain of coronavirus surfaced (COVID-19). The spread of COVID-19 around the world in 2020 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. The Company’s financial position, operations and cash flows as of September 30, 2021 have been adversely affected, and may be further affected in the future, by the ongoing outbreak of COVID-19 which in 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 materially affected include, but are not limited to, disruption to the Company’s labor workforce, unavailability of products and supplies used in operations, and the decline in value of assets held by the Company. As of September 30, 2021 and through the filing date of the unaudited condensed consolidated financial statements, the Company has continued to collect receivables from its cash advances but has experienced payment delinquencies. The Company has taken a reserve allowance on its MCA’s. As of September 30, 2021, the Company’s Holy Cacao operations have experienced no disruption in customers and revenue, labor workforce, availability of products and supplies used in operations, and the value of assets held by the Company, including inventories.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP 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 unaudited condensed 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 accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 3, 2021.
In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2021 may not be indicative of results for the full year.
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 85% owned subsidiary; Holy Cacao.
Principles of Consolidation
The unaudited condensed 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 September 30, 2021 and December 31, 2020, 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.
Restricted Cash
As of September 30, 2021 restricted cash included $29,421, which was restricted pursuant to the requirements in the sales consultant agreement entered into November 2020 (see note 8).
Merchant Cash Advances
The Company participates in the merchant cash advance industry by directly advancing sums to a merchant or a merchant advance provider, TIER, who in turn advances sums to merchants or other merchant cash advance providers. Each reporting period, the Company reviews the carrying value of these advances and determines whether an impairment reserve is necessary. At September 30, 2021, the Company reserved an amount equal to 76% of the outstanding merchant cash advance balance at period end based on the potential impact of COVID 19.
During the nine months ended September 30, 2021, the Company wrote off 4 merchant advances for a total of $5,132. During the nine months ended September 30, 2021, the Company recovered 7 merchant advances for a total of $7,690. During the nine months ended September 30, 2020, the Company recovered 25 merchant advances for a total of $28,507. During the three months ended September 30, 2021, the Company wrote off 1 merchant advances for a total of $1,100. During the three months ended September 30, 2020, the Company recovered 3 merchant advances for a total of $4,010.
Revenue Recognition
We completed, related to our merchant cash advance business line, our assessment of the impact of Accounting Standards Codification (“ASC”) 606 and determined that we recognize revenue in accordance with ASC 860, Transfers and Servicing, which is explicitly excluded from the scope of ASC 606. We participate in the servicing of merchant cash advances that have been provided to third parties, which in accordance with ASC 860, causes us to recognize merchant cash advance (“MCA”) income. We also have product sales from our Holy Cacao division that follow ASC 606.
Product sales are measured based on consideration specified in a contract with a customer that we expect to receive in exchange for goods, net of any variable considerations (e.g. rights to return product, sales incentives, etc.). The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customer’s carrier. The Company applied the practical expedient available under ASC 606 to disregard determining significant financing components, if the good is transferred and payment is received within one year.
When a merchant cash advance is purchased, the Company records a merchant cash advance participation receivable for the purchase price. The purchase price consists of the merchant cash advance principal plus an up-front commission that is amortized over the term of the merchant cash advance. The amount of the commission is negotiated between the Company and TIER for each contract. The standard commission is 15% of the merchant cash advance principal but can be reduced depending upon the credit worthiness of the merchant. The average commission paid by the Company since inception has been approximately 7%. If a merchant cash advance contract is signed in one period, but not paid until a subsequent period, a corresponding liability is established in the current period.
At the time the Company participates in a merchant cash advance, the Company records a deferred revenue liability, which is the total future receivable due to the Company less the principal amount of the merchant cash advance. Revenue is recognized and the deferred liability is reduced over the term of the merchant cash advance.
TIER maintains a bank account on behalf of the Company. Each day, TIER receives payment, reflected in the bank account, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of platform fees. Platform fees are a daily charge associated with the ACH service and the financial and reporting management software platform provided by TIER. The platform fees are also negotiated between the Company and TIER for each contract but are typically 4% of the daily merchant cash advance principal amount.
For each merchant cash advance entered into by the Company, TIER receives a daily payment as payments are made on the advance, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of a 2% commission to TIER.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and sets up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off when all attempts to collect have been exhausted. The Company considers an invoice past due once the term of the invoice has passed and payment has not been received. No interest is charged on past due invoices. Recoveries of accounts receivable previously written off are recorded as income when received. As of September 30, 2021, the Company had no allowance for doubtful accounts.
Inventory
Inventory, consisting of raw materials, work in process and products available for sale, are accounted for using the first-in, first-out method, and are valued at the lower of cost or net realizable value. This valuation requires management to make judgements based on currently available information, about the likely method of disposition, such as through sales to individual customers and returns. The Company has no allowance for inventory reserves.
Inventory consisted of the following as of September 30, 2021 and December 31, 2020:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Raw Materials
|
|
$
|
41,285
|
|
|
$
|
37,259
|
|
|
Work in Process
|
|
|
10,184
|
|
|
|
2,790
|
|
|
Finished Goods
|
|
|
6,039
|
|
|
|
6,191
|
|
|
Total
|
|
$
|
57,508
|
|
|
$
|
46,240
|
|
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense when incurred, while renewals and betterments that materially extend the life of an asset are capitalized. When assets are sold, retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheets and any resulting gain or loss is reflected in the unaudited condensed consolidated statements of operations and members’ deficit in the period realized.
Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, which are as follows:
|
Property – Leasehold improvements
|
|
4 years
|
|
|
Equipment
|
|
5 years
|
|
Impairment of Long-Lived Assets
Long-lived assets are comprised of property and equipment. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. There were no impairments to long-lived assets for the nine months ended September 30, 2021 and 2020.
Leases
The Company determines if an arrangement is a lease at the inception of a contract. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets on the unaudited condensed consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the operating lease liabilities and operating lease liabilities – long term, respectively on the unaudited condensed consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded in the balance sheet.
The company does not include the non-lease components that are associated with the lease and accounts for them outside of the lease in accordance with ASC Topic 842 Leases. The percentage of cost associated with the lease component was 100%.
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 nine months ended September 30, 2021 and 2020, were approximately $58,000 and $49,000, respectively. The research and development costs for the three months ended September 30, 2021 and 2020, were approximately $25,000 and $16,000, respectively. These expenses are included in general and administrative expenses on the accompanying unaudited condensed 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 unaudited condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, 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 September 30, 2021 and December 31, 2020, 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 September 30, 2021 and 2020 because their effect would be antidilutive.
The Company had 5,848,525 and 4,899,750 warrants to purchase common stock outstanding at September 30, 2021 and 2020, respectively. The Company had 4,470,000 warrants to purchase Series B preferred stock outstanding at September 30, 2021 and 2020, 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 354,999 Series B preferred shares, and 660,000 Series C preferred shares outstanding that are convertible into 1,774,995 and 660,000 shares of common stock at September 30, 2021 and 2020, 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, accounts receivable, vendor deposits, 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 unaudited condensed consolidated statements of operations for the nine months ended September 30, 2021 and 2020, were approximately $95,600 and $27,600, respectively and for three months ended September 30, 2021 and 2020, were approximately $43,400 and $6,600, respectively. These expenses are included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.
Non-Controlling Interests in Condensed Consolidated Financial Statements
In June 2011, the Financial Accounting Standards Board (“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 condensed 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 unaudited condensed 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 a subscription agreement for the sale of a ten-percent equity interest in its then wholly owned subsidiary, Holy Cacao, for $200,000 in cash proceeds, in the aggregate. During the year ended December 31, 2019, 5% equity was issued to a service provider due to the completion of Holy Cacao’s first sale of its product, as per the agreement with the service provider. The Company’s periodic reporting now includes the results of operations of Holy Cacao, with the fifteen-percent ownership reported as non-controlling interests.
The following table summarizes the results of operations for Holy Cacao for the period:
|
|
|
For The Three Months Ended
|
|
|
For The Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
$
|
55,678
|
|
|
$
|
12,000
|
|
|
$
|
312,142
|
|
|
$
|
24,500
|
|
|
Cost of Goods Sold
|
|
|
(35,448
|
)
|
|
|
(7,800
|
)
|
|
|
(201,531
|
)
|
|
|
(13,300
|
)
|
|
Operating Expense
|
|
|
(197,357
|
)
|
|
|
(168,500
|
)
|
|
|
(589,973
|
)
|
|
|
(383,500
|
)
|
|
Loss from Operations
|
|
$
|
(177,127
|
)
|
|
$
|
(164,300
|
)
|
|
$
|
(479,362
|
)
|
|
$
|
(372,300
|
)
|
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 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 adopting ASU 2016-13 will have on the Company’s unaudited condensed consolidated financial statements.
NOTE 2 – RELATED PARTY TRANSACTIONS
Employment Agreement
On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive $20,833 per month. Additionally, Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. As of September 30, 2021 and December 31, 2020, the Company has accrued $516,667 and $329,167, respectively, in relation to the employment agreements and $23,297 and $20,578, respectively, in relation to the payroll tax liability.
Consulting Agreements
On February 27, 2017, Harold Kestenbaum assumed the role of Chairman of the Board of Directors and Interim Chief Executive Officer (“Interim CEO”). Mr. Kestenbaum earns $40,000 per year for his role as Chairman of the Board. As of September 30, 2021, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under a previous agreement.
As of September 30, 2021, the Company has a consulting agreement with R and W Financial (a company owned by a director) for $5,000 a month. The agreement is for an indefinite period of time and is subject to cancellation by either party with written notice of 30 days. The outstanding balance as of September 30, 2021 and December 31, 2020 was $130,410 and $82,988, respectively.
Related Party Loans
|
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
1.
|
Note payable at 12%, matures 10/17/2021.
|
|
{a} *
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
2.
|
Non-interest bearing note payable, matures on 4/24/2022.
|
|
{b} *
|
|
|
179,813
|
|
|
|
179,813
|
|
|
3.
|
Note payable at 12%, matures 1/13/2022. The Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{c} *
|
|
|
100,000
|
|
|
|
100,000
|
|
|
4.
|
Note payable at 12%, matured and converted into common stock on 5/10/2021.
|
|
{d} *
|
|
|
-
|
|
|
|
250,000
|
|
|
5.
|
Non-interest bearing note payable, matured & repaid on 1/05/2021. In connection with the issuance, the Company had recorded debt discount and amortized it over the applicable life of the debt.
|
|
*
|
|
|
-
|
|
|
|
74,411
|
|
|
6.
|
Non-interest bearing note payable, matures on 1/08/2022.
|
|
*
|
|
|
750
|
|
|
|
-
|
|
|
7.
|
Non-interest bearing note payable, matures 12/30/2021. The Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{e} *
|
|
|
50,000
|
|
|
|
-
|
|
|
|
Unamortized debt discount
|
|
|
|
|
(1,641
|
)
|
|
|
(18,945
|
)
|
|
|
Total
|
|
|
|
$
|
428,922
|
|
|
$
|
685,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_________
|
{a} - On October 17, 2021, the Company extended the note to April 17, 2022 based on the same terms and conditions.
|
|
{b} - On April 24, 2021, the Company extended the note to April 24, 2022 based on the same terms and conditions.
|
|
{c} - On October 11, 2021, the Company extended the note to January 13, 2022 based on the same terms and conditions. In association with this and prior extensions the company issued 80,000 shares of common stock with a fair value of $16,000, and 200,000 warrants with a fair value of $31,550 which will be recorded as a debt discount and amortized over the life of the loan. The warrants are valued based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years.
|
|
{d} - On May 10, 2021, the loan was converted into 2,000,000 shares of common stock. Additionally, the company granted warrants for the right to purchase 375,000 shares of common stock at an exercise price of $0.23 a share. The warrants are valued at $83,513 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. In association with the conversion of the note to common stock and warrants, the company recognized a loss of $293,513.
|
|
{e} - On April 29, 2021, the Company issued a non-interest bearing promissory note of $50,000. In connection with this note the company issued 50,000 shares of common stock with a fair value of $10,500, which was recorded as a debt discount and amortized over the life of the loan. The loans original maturity date was May 31, 2021 but has been extended to December 30, 2021. In association with this and prior extensions the company granted warrants for the right to purchase 200,000 shares of common stock with a fair value of $36,410 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.
|
|
* ‐ unsecured note
|
During the nine months ended September 30, 2021 and 2020, the Company recorded $92,004 and $70,522 of interest expense related to the amortization of debt discount and $28,307 and $40,537 of regular interest, respectively.
During the three months ended September 30, 2021 and 2020, the Company recorded $34,534 and $39,053 of interest expense related to the amortization of debt discount and $6,049 and $13,611 of regular interest, respectively. As of September 30, 2021 and December 31, 2020, accrued interest was $62,100 and $45,889, respectively.
During the nine months ended September 30, 2021, the Company converted $250,000 of loan payable in exchange for 2,000,000 shares of common stock and warrants for the right to purchase 375,000 shares of common stock. The aggregate fair value of the common stock shares issued and for the granted warrants was $543,513. The Company recorded a loss on conversion of debt of $293,513.
Related Party Payables
As of September 30, 2021, the Company owes a Director $127,804 for expenses incurred on behalf of the company.
All of the above transactions were approved by disinterested directors.
Director Agreements
On May 10, 2018, the directors of the Company were awarded share-based compensation for the service period of May 10, 2018 through December 31, 2020, as a one-time award of the ability to purchase a particular amount of warrants, ranging from 80,000 to 400,000 (collectively the “Warrants”) with the following terms:
|
|
•
|
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 expensed the fair value of these warrants in the amount of $768,000 ratably during the years ended December 31, 2018, 2019 and 2020. There was no expense related to these warrants for the three and nine months ended September 30, 2021. For the three and nine months ended September 30, 2020, the Company recorded $73,143 and $217,839 as compensation expense related to the warrants, respectively.
On January 1, 2020, 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, 2020 through December 31, 2020 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, 2021, the director agreements were renewed with the same terms. During the nine months ended September 30, 2021, a director agreed to waive 118,333 of preferred B shares of stock and $110,000 of accrued director compensation. The company recorded the forgiveness of accrued director compensation as other income. As of September 30, 2021 and December 31, 2020 the Company has accrued $330,000 and $320,000, respectively, in relation to the director agreements.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors.
Mr. Kaplan’s compensation as a director for the initial twelve months will consist of one million (1,000,000) warrants which will vest at the rate of 83,333 warrants per month for the initial eleven months and the balance in the twelfth month, provided he is a director on each vesting date, with the initial tranche vesting on the day he takes office and then on each monthly anniversary of such date thereafter. Each Warrant will be exercisable for 36 months after it vests and will be exercisable at a price of $0.18 per share. The warrants are valued at $177,200 based on the Black Scholes Model. If he remains in office beyond twelve months, commencing with month thirteen, his compensation will be similar to the majority of the directors then in office. The company is currently in negotiation with Mr. Kaplan regarding his compensation. For the nine months ended September 30, 2021 and 2020, the Company recorded $91,270 and $0 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2021 and 2020, the Company recorded $3,398 and $0 as compensation expense related to the warrants, respectively.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 we entered into (i) a Subscription Agreement with Mr. Kaplan to sell to him one million (1,000,000) shares of common stock at a purchase price of $0.20 per share for a total purchase price of $200,000, which shares shall be purchased in twelve (12) equal monthly installments of 83,333 shares (the last installment to cover 83,337 shares) with the initial purchase occurring on the date thereof and subsequent installments on each monthly anniversary thereafter (ii) a Consulting Agreement with Mr. Kaplan to award him, as full compensation for two (2) years of service, warrants to purchase two million (2,000,000) shares of common stock at an exercise price of $0.18 per share, which was the closing price of our common stock on such date. The warrants are valued at $354,400 based on the Black Scholes Model; and (iii) an arrangement with Mr. Kaplan that in the event he raises outside investment in the Company in the amount of $500,000 - $2,000,000, he will receive a warrant with one underlying share for each dollar he so raises. For the nine months ended September 30, 2021 and 2020, the Company recorded $125,909 and $0 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2021 and 2020, the Company recorded $42,431 and $0 as compensation expense related to the warrants, respectively.
The warrants shall vest upon the occurrence to the Company of certain milestone events through the efforts of the consultant. (See Note 6).
If terminated with cause by the Company, the consultant shall not thereafter be entitled to any form of compensation, the unvested warrants shall terminate, and he shall be paid a buyout fee in the amount of 250,000 fully vested warrants. If terminated without cause by the Company, all unvested warrants shall be accelerated and vest in one-half the time it was previously scheduled to vest.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Leasehold improvements
|
|
$
|
40,000
|
|
|
$
|
40,000
|
|
|
Equipment
|
|
|
240,392
|
|
|
|
239,515
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(80,282
|
)
|
|
|
(37,077
|
)
|
|
Total
|
|
$
|
200,110
|
|
|
$
|
242,438
|
|
NOTE 4 – ACCOUNTS PAYABLE, RELATED PARTY PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Accounts payable
|
|
$
|
205,726
|
|
|
$
|
146,910
|
|
|
Interest
|
|
|
165,466
|
|
|
|
109,747
|
|
|
Salaries
|
|
|
412,161
|
|
|
|
349,745
|
|
|
Other
|
|
|
177,494
|
|
|
|
38,690
|
|
|
Related party payables and officer and director fees
|
|
|
629,204
|
|
|
|
465,506
|
|
|
Total
|
|
$
|
1,590,052
|
|
|
$
|
1,110,598
|
|
NOTE 5 – LOANS AND LONG-TERM LOANS
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
|
1.
|
Note payable at 12%, matures 1/23/2022. In connection with the original issuance, as well as subsequent extension, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{a} *
|
|
$
|
50,000
|
|
$
|
50,000
|
|
|
2.
|
Note payable at 12%, matures 10/22/2021. In connection with the original issuance, as well as subsequent extension, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{b} *
|
|
|
18,000
|
|
|
18,000
|
|
|
3.
|
Note payable at 12%, matures 1/8/2022. In connection with the original issuance, as well as subsequent extension, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
*
|
|
|
50,000
|
|
|
50,000
|
|
|
4.
|
Note payable at 12%, matured and converted into common stock on 6/11/2021.
|
|
{c} *
|
|
|
-
|
|
|
25,000
|
|
|
5.
|
Note payable at 12%, matures 1/31/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{d} *
|
|
|
250,000
|
|
|
250,000
|
|
|
6.
|
Note payable at 12%, matures 4/16/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{e} *
|
|
|
410,000
|
|
|
410,000
|
|
|
7.
|
Note payable at 12%, matures 4/2/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{f} *
|
|
|
140,000
|
|
|
140,000
|
|
|
8.
|
Note payable at 12%, matures 4/31/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{g} *
|
|
|
200,000
|
|
|
200,000
|
|
|
9.
|
Note payable at 12%, matures 1/23/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{h} *
|
|
|
60,000
|
|
|
60,000
|
|
|
10.
|
Note payable at 12%, matures 7/29/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{i} *
|
|
|
96,000
|
|
|
96,000
|
|
|
11.
|
Note payable at 3.75%, matures 6/25/2050 - Economic injury disaster loan.
|
|
**
|
|
|
150,000
|
|
|
150,000
|
|
|
12.
|
Non-interest bearing note payable, matured and repaid on 9/30/2021.
|
|
*
|
|
|
-
|
|
|
53,479
|
|
|
13.
|
Note payable at 12%, matures 3/9/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{j} *
|
|
|
50,000
|
|
|
50,000
|
|
|
14.
|
Note payable at 12.5%, matures 12/17/2022.
|
|
|
|
|
3,600
|
|
|
-
|
|
|
15.
|
Non-interest bearing note payable, matures 11/30/2021.
|
|
*
|
|
|
100,001
|
|
|
-
|
|
|
16.
|
Non-interest bearing note payable, matures 9/19/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
|
|
{k} *
|
|
|
16,500
|
|
|
-
|
|
|
17.
|
Non-interest bearing note payable, matures 11/17/2021.
|
|
*
|
|
|
50,000
|
|
|
-
|
|
|
18.
|
Non-interest bearing note payable, matures 11/23/2021.
|
|
{l} ***
|
|
|
30,000
|
|
|
-
|
|
|
|
Unamortized debt discount
|
|
|
|
|
(60,337)
|
|
|
(286,300)
|
|
|
|
Total
|
|
|
|
|
1,613,764
|
|
|
1,266,179
|
|
|
|
Less: short term loans, net
|
|
|
|
|
1,460,164
|
|
|
966,155
|
|
|
|
Total long-term loans, net
|
|
|
|
$
|
153,600
|
|
$
|
300,024
|
|
|
{a}
|
- On August 4, 2021, the Company extended the note to January 23, 2022 based on the same terms and conditions. In association with the extension the company granted warrants with the right to purchase 50,000 shares of common stock with a fair value on $7,675, which will be recorded as a debt discount and amortized over the new life of the loan. The warrants are valued based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years.
|
|
{b}
|
- On August 4, 2021, the Company extended the note to October 22, 2021 based on the same terms and conditions. In association with the extension the company issued 18,000 shares of common stock with a fair value on $2,880, which will be recorded as a debt discount and amortized over the new life of the loan. On October 14, 2021, the Company extended the note to April 22, 2022 based on the same terms and conditions. In association with the extension the company issued 18,000 shares of common stock with a fair value on $2,999, which will be recorded as a debt discount and amortized over the new life of the loan.
|
|
{c}
|
- On June 19, 2021, the Company converted the entire value of the note to 191,424 shares of common stock with a fair value of $31,260. In association with the conversion of the note to common stock, the company recognized a loss of $6,260.
|
|
{d}
|
- On August 6, 2021, the Company extended the note to January 31, 2022. The current interest rate will continue at 12% per annum, however the amount of interest above a rate of 6% per annum will be deemed paid by being added to capital due from the Company to the creditor. This additional capital amount will not bear interest in the period to January 31, 2022. In association with the extension the company granted warrants with the right to purchase 250,000 shares of common stock with a fair value on $37,125, which will be recorded as a debt discount and amortized over the new life of the loan. The warrants are valued based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years.
|
|
{e}
|
- On October 28, 2021, the Company extended the note to April 2, 2022 based on the same terms and conditions. In association with the extension the company modified previously granted warrants by lowering the exercise price to $0.17 and extending the expiration date of the warrants by three (3) years. The value of the modification of the warrants is $12,936, which will be recorded a debt discount and amortized over the extension of the loan.
|
|
{f}
|
- On October 28, 2021, the Company extended the note to April 16, 2022 based on the same terms and conditions. In association with the extension the company modified previously granted warrants by lowering the exercise price to $0.17 and extending the expiration date of the warrants by three (3) years. The value of the modification of the warrants is $23,173, which will be recorded a debt discount and amortized over the extension of the loan.
|
|
{g}
|
- On October 28, 2021, the Company extended the note to April 31, 2022 based on the same terms and conditions. In association with the extension the company modified previously granted warrants by lowering the exercise price to $0.17 and extending the expiration date of the warrants by three (3) years. The value of the modification of the warrants is $11,780, which will be recorded a debt discount and amortized over the extension of the loan.
|
|
{h}
|
- On August 4, 2021, the Company extended the note to January 23, 2022 based on the same terms and conditions. In association with the extension the company issued 60,000 shares of common stock with a fair value on $9,600, which will be recorded as a debt discount and amortized over the new life of the loan.
|
|
{i}
|
- On October 28, 2021, the Company extended the note to July 29, 2022 based on the same terms and conditions. In association with the extension the company modified previously granted warrants by lowering the exercise price to $0.17 and extending the expiration date of the warrants by three (3) years. The value of the modification of the warrants is $3,878, which will be recorded a debt discount and amortized over the extension of the loan.
|
|
{j}
|
- On October 8, 2021, the Company converted the entire value of the note to 333,556 shares of common stock with a fair value of $55,570.
|
|
{k}
|
- On September 20, 2021, the Company issued a non-interest bearing note of $16,500. In connection with this note the company granted warrants for the right to purchase 16,500 shares of common stock at an exercise price of $0.18 a share. The warrants are valued at $2,802 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.
|
|
{l}
|
- On August 23, 2021, the Company issued a non-interest bearing promissory note of $30,000.
|
|
|
|
|
*
|
- unsecured note
|
|
**
|
- secured note and collateralized by all tangible and intangible personal property
|
|
***
|
- unsecured note and guaranteed by a Director of the Company
|
During the three months ended September 30, 2021 and 2020, the Company recorded $94,641 and $97,181 of interest expense related to the amortization of debt discount and $39,852 and $41,037 of regular interest, respectively. During the nine months ended September 30, 2021 and 2020, the Company recorded $290,721 and $285,033 of interest expense related to the amortization of debt discount and $122,841 and $117,996 of regular interest, respectively. As of September 30, 2021 and December 31, 2020, accrued interest was $96,385 and $61,099, respectively.
As of September 30, 2021 and December 31, 2020, accrued interest associated with the economic injury disaster loan was $7,043 and $2,759, respectively.
NOTE 6 – STOCKHOLDERS’ DEFICIT
The following table shows the changes in shares of common stock for the nine months ending September 30, 2021 and 2020:
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding, December 31, 2020
|
|
|
22,367,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash to a related party
|
|
|
499,998
|
|
|
$
|
100,000
|
|
|
Common stock issued to consultants for services
|
|
|
218,847
|
|
|
|
9,432
|
|
|
Common stock issued for related party loan
|
|
|
190,000
|
|
|
|
39,160
|
|
|
Common stock issued with loans payable
|
|
|
96,000
|
|
|
|
17,160
|
|
|
Common stock issued for conversion of loans payable
|
|
|
191,424
|
|
|
|
31,259
|
|
|
Common stock issued for conversion of related party loans payable
|
|
|
2,000,000
|
|
|
|
460,000
|
|
|
Common stock outstanding, September 30, 2021
|
|
|
25,563,448
|
|
|
$
|
657,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding, December 31, 2019
|
|
|
20,313,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash to a related party
|
|
|
249,999
|
|
|
$
|
50,000
|
|
|
Common stock issued to consultants for services
|
|
|
550,000
|
|
|
|
121,350
|
|
|
Common stock issued with loans payable
|
|
|
374,000
|
|
|
|
99,632
|
|
|
Common stock issued for related party loans
|
|
|
505,000
|
|
|
|
108,544
|
|
|
Common stock outstanding, September 30, 2020
|
|
|
21,992,770
|
|
|
$
|
379,526
|
|
Warrant Activity
Common Stock Warrants
On January 29, 2020, the Company issued a promissory note of $96,000 (see Note 5). In connection with this note the Company issued warrants to purchase 96,000 shares of the Company’s common stock with an exercise price of $0.22 per share. The warrants are valued at $20,717 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue dates with an exercise term of three (3) years.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors. Mr. Kaplan’s compensation as a director for the initial twelve months will consist of one million (1,000,000) warrants which will vest at the rate of 83,333 warrants per month for the initial eleven months and the balance in the twelfth month, provided he is a director on each vesting date, with the initial tranche vesting on the day he takes office and then on each monthly anniversary of such date thereafter. Each Warrant will be exercisable for 36 months after it vests and will be exercisable at a price of $0.18 per share. The warrants are valued at $177,200 based on the Black Scholes Model. For the nine months ended September 30, 2021 and 2020, the Company recorded $91,270 and $0 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2021 and 2020, the Company recorded $3,398 and $0 as compensation expense related to the warrants, respectively.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 the Company entered into a Consulting Agreement with Mr. Kaplan to award him, as full compensation for two (2) years of service, warrants to purchase two million (2,000,000) shares of common stock at an exercise price of $0.18 per share, which was the closing price of our common stock on such date. The warrants are valued at $354,400 based on the Black Scholes Model. Due to the fact that management has assessed the probability of certain milestones being met as probable, the warrants are being straight-lined over the term of services, and accelerated whenever a milestone is met. The probability of the remaining milestones being met is reviewed by management every quarter. For the nine months ended September 30, 2021 and 2020, the Company recorded $125,909 and $0 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2021 and 2020, the Company recorded $42,431 and $0 as compensation expense related to the warrants, respectively. The warrants shall vest upon the occurrence to the Company of the following milestone events through the efforts of the consultant:
|
No. of Warrants
|
|
Milestone
|
|
100,000
|
|
Acceptance by the Company of a full go-to market strategy for the Company’s products. This milestone has been achieved as of September 30, 2021.
|
|
100,000
|
|
Acceptance by the Company of a social marketing platform and PR strategy and onboarding of such.
|
|
300,000/500,000
|
|
300,000 for each multi outlet (“MULO”) retailer that is onboarded - regardless of store count carrying the product; and 500,000, if the onboarded MULO is a national chain.
|
|
300,000
|
|
Deliverance of full due diligence package for each potential acquisition for which the Company requests the consultant perform due diligence
|
|
500,000
|
|
Upon the closing of any acquisition which the consultant brought to the Company and provided due diligence.
|
|
500,000
|
|
Additional compensation in board seat agreement.
|
On August 4, 2020, the Company signed an Employment Agreement for a term of three years with an annual base salary of eighty four thousand dollars ($84,000). As part of the agreement the Company issued a warrant to the employee to purchase 300,000 shares of the Company’s common stock with a term of three (3) years. The warrants are valued at $97,470 based on the Black Scholes Model. In addition, the employee will receive a warrant to purchase 300,000 of the Company’s common stock for each of the two remaining years under the Employment Agreement with an exercise price equal to the closing market price of the Company’s common stock on the first day of each of such two annual employment periods. The warrants will be subject to a 12-month period whereby the warrants will vest in equal monthly increments for each year of the employment period. Each of the warrants will be exercisable within a three-year period from the date of issue. Once per quarter, the employee may waive the right to receive 25,000 warrants and receive in exchange for $5,000 worth of shares of the Company’s common stock. In the event the employee’s employment is terminated by the Company without cause, the employee shall be entitled to receive severance in an amount equal to the lesser of three month’s salary or the amount of salary otherwise payable until the termination date. The employee additionally shall be entitled to retain all warrants scheduled to vest within the following six months. For the nine months ended September 30, 2021 and 2020, the Company recorded $57,681 and $0 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2021 and 2020, the Company recorded $9,346 and $0 as compensation expense related to the warrants, respectively. On August 4, 2021, the Company granted the Employee warrants to purchase up to 300,000 shares of common stock. The warrants are valued at $46,050 based on the Black Scholes Model.
On November 9, 2020, the Company entered into a grant agreement with a sales consultant (see Note 8). On September 30, 2021 and June 29, 2021, the company granted the sales consultant warrants for the right to purchase 17,801 and 39,474 shares of common stock at an exercise price of $0.17 and $0.21 a share, respectively. The warrants are valued at a total of $10,814 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. As a result of this issuance, the price protection clause on the director’s warrants issued on December 31, 2019 and on the consultant’s warrant issued on July 31, 2020 and August 4, 2020, were triggered resulting in the warrants being reset to an exercise price of $1.05 and $0.21, respectively. As a result of the modification of the exercise price of these warrants, the Company recognized an incremental value of $198,240 and $337,930, for the three and nine months ended September 30, 2021, respectively, which was recorded as a deemed dividend on the condensed consolidated statement of operations.
On May 10, 2021, the Company converted a related party loan (see Note 2). In association with the conversion the company issued 2,000,000 shares of common stock and granted warrants for the right to purchase 375,000 shares of common stock at an exercise price of $0.23 a share. The warrants are valued at $83,513 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years.
On June 30, 2021, the Company extended the maturity date on one of its promissory notes (see Note 2). In association with this extension the company granted warrants for the right to purchase 100,000 shares of common stock at an exercise price of $0.21 a share. The warrants are valued at $20,200 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.
On August 4, 2021, the Company extended the maturity date on one of its promissory notes (see Note 2). In association with this extension the company granted warrants for the right to purchase 100,000 shares of common stock at an exercise price of $0.16 a share. The warrants are valued at $15,340 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.
On August 4, 2021, the Company extended the maturity date on one of its promissory notes (see Note 5). In association with this extension the company granted warrants for the right to purchase 50,000 shares of common stock at an exercise price of $0.16 a share. The warrants are valued at $7,675 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.
On August 6, 2021, the Company extended the maturity date on one of its promissory notes (see Note 5). In association with this extension the company granted warrants for the right to purchase 250,000 shares of common stock at an exercise price of $0.16 a share. The warrants are valued at $37,125 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.
On September 20, 2021, the Company issued a promissory note of $16,500 (see Note 5). In connection with this note the Company issued warrants to purchase 16,500 shares of the Company’s common stock with an exercise price of $0.18 per share. The warrants are valued at $2,802 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.
A summary of the Company’s warrants to purchase common stock activity is as follows:
|
|
|
Number of
Warrants
(in common
shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding, December 31, 2019
|
|
|
1,403,750
|
|
|
$
|
0.26
|
|
|
Granted
|
|
|
3,496,000
|
|
|
|
0.20
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, December 31, 2020
|
|
|
4,899,750
|
|
|
$
|
0.21
|
|
|
Granted
|
|
|
948,775
|
|
|
|
0.19
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, September 30, 2021
|
|
|
5,848,525
|
|
|
$
|
0.21
|
|
As of September 30, 2021, 3,948,525 warrants for common stock were exercisable and the intrinsic value of these warrants was $34,346, the weighted average remaining contractual life for warrants outstanding was 2.17 years and the remaining expense is $129,138 over the remaining amortization period which is 1.89 years.
As of September 30, 2020, 1,978,917 warrants for common stock were exercisable and the intrinsic value of these warrants was $93,198, the weighted average remaining contractual life for warrants outstanding was 3.12 years and the remaining expense is $515,660 over the remaining amortization period which is 1.75 years.
Preferred Stock Warrants
On March 18, 2020, the Company issued its CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary. The warrants have an exercise price of $0.75 per share, are fully vested at issuance, and are exercisable from March 18, 2020 through March 17, 2030. The fair value of these warrants was $375,000 and the additional $125,000 over the deferred salary amount was recorded as compensation expense during the nine months ended September 30, 2020. As a result of this issuance, the price protection clause on the director’s warrants issued on December 31, 2019 was triggered resulting in the warrants being reset to an exercise price of $0.75, and the effect was immaterial.
A summary of the Company’s warrants to purchase Series B Preferred Stock activity is as follows:
|
|
|
Number of Warrants
(in Series B Preferred
Stock)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding, December 31, 2019
|
|
|
3,970,000
|
|
|
$
|
0.67
|
|
|
Granted
|
|
|
500,000
|
|
|
|
0.75
|
|
|
Outstanding, December 31, 2020
|
|
|
4,470,000
|
|
|
$
|
0.68
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, September 30, 2021
|
|
|
4,470,000
|
|
|
$
|
0.68
|
|
As of September 30, 2021, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $918,810, the weighted average remaining contractual life for warrants outstanding was 6.62 years.
As of September 30, 2020, 4,350,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $2,658,600, the weighted average remaining contractual life for warrants outstanding was 7.63 years and the remaining expense is $364,124 over the remaining amortization period which is 1.25 years.
NOTE 7 – LEASES
On June 23, 2020, the Company entered into an operating lease agreement with a term of 4 years, and an option to extend for three years, comprising of office and warehouse space. This option is included in the lease term when it is reasonably certain that the option will be exercised and failure to exercise such option will result in economic penalty and as such the option to extend for the three-year term is not included in the below calculation.
For the nine months ended September 30, 2021 and 2020, the Company incurred lease expense for its operating leases of $65,732 and $21,910, respectively, which was included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.
For the three months ended September 30, 2021 and 2020, the Company incurred lease expense for its operating leases of $21,910 and $21,910, respectively, which was included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.
The Company’s weighted-average remaining lease term relating to its operating leases is 2.58 years, with a weighted-average discount rate of 12.00%.
The Company had cash payments for operating leases of $64,566 and $21,806 for the nine months ended September 30, 2021 and 2020, respectively and $21,294 and $21,806 for the three months ended September 30, 2021 and 2020, respectively.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of September 30, 2021.
|
Maturity of Lease Liability
|
|
|
|
|
2021- remainder of the year
|
|
|
21,294
|
|
|
2022
|
|
|
86,881
|
|
|
2023
|
|
|
89,487
|
|
|
2024
|
|
|
30,121
|
|
|
Total undiscounted operating lease payments
|
|
$
|
227,784
|
|
|
Less: Imputed interest
|
|
|
33,121
|
|
|
Present value of operating lease liabilities
|
|
$
|
194,662
|
|
NOTE 8 – COMMITMENTS
On July 16, 2018, the Company entered into a consulting agreement with a service provider that contains the following terms:
|
|
·
|
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.
|
|
|
|
|
|
|
·
|
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.
|
On August 14, 2019, the Company entered into an agreement with a CFN Media. In consideration for the services and deliverables provided by CFN Media, the Company will make three (3) cash payments to CFN Media totaling $30,000. Payments will be made in accordance with the following staged schedule:
“Stage 1” - $10,000 due upon the signing of the agreement for the Stage 1 services and deliverables: the interview, lead generation system and two (2) articles, including syndication, distribution and placement. This payment has been made.
“Stage 2” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 1 and the Company’s confirmation they are ready to continue with Stage 2, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.
“Stage 3” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 2 and the Company’s confirmation they are ready to continue with Stage 3, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.
On October 10, 2019, the Company signed a master distribution agreement with CBD Unlimited, Inc., which is a public company and a master distributor, to distribute the Company’s hemp-based chocolate products. The term of this agreement is four years. The agreement includes the issuance of 250,000 shares of the Company’s common stock at the closing market price of $0.26 per share as of the date of the agreement. Additionally, the Company shall pay the distributor a commission for its services hereunder amounting to applicable percentage of the sales price of any sales or sales contract with a customer.
On January 14, 2020, the Company entered into an agreement with a sales consultant to further the business purpose of the Company. In consideration for the services provided by the consultant, the Consultant shall be paid a fee of ten percent (10%) of each of the consultant’s sales of the Company’s product.
On October 15, 2020, the Company entered into a chocolate sales agreement with a sales consultant. The consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers. The consultant shall receive a sales commission of the gross sales (net of returns) directly generated by the consultant to such distributor and such distributor shall receive a commission of such gross sales (net of returns). Commissions shall be paid within 30 days of the end of the quarter in which they are deemed earned. No commissions are due as of September 30, 2021. In addition, once the consultant has made $75,000 of gross sales (net of returns) he shall receive 75,000 shares of the Company’s common stock. This agreement shall continue for sixty months from the date of the agreement and will automatically extend for additional successive sixty-month terms unless written notice is delivered at least thirty days prior to the end of the current term.
On November 9, 2020, the Company entered into an agreement with a consultant. The consultant shall provide the following services: develop a marketing plan and act as a sales agent with respect to the wholesale of various products by the Company. As compensation for the services, the consultant shall receive a cash payment in an amount in excess of 9% of the profit margin. However, in the event the average closing price of the Company’s common stock on the common stock’s primary market over the final ten (10) trading days of any month is greater than or equal to $0.50, then the cash compensation for such month shall only be the amount of profit margin generated by the sales of the products in excess of 14% of gross sales and the amount of profit margin between 9% and 14% of gross sales shall completely belong to the Company. Prior to the payment date of each month, the consultant can elect to receive all or part of the cash compensation due for such month in the form of common stock by providing written notice of such election to the Company. The number of shares to be issued shall be calculated based upon a per share value equal to 80% of the valuation price. This agreement shall commence on the effective date and shall continue for a term of two (2) years. Prior to six months after the effective date this agreement may not be cancelled without cause. After six months this agreement may be sooner terminated by either party upon sixty days written notice. Commencing 120 days after the effective date, absent an effective registration statement by the Company covering the shares, the sales consultant may “Put” to the Company any vested shares at a price per share equal to the grant price at any time during the term. The Company shall maintain a separate account with funds to pay for the Put for as long as the Put is exercisable and the Put right shall be subject to the terms governing such account. As of September 30, 2021, the Company has recorded a Put liability of $29,421.
On November 9, 2020, the Company entered into a grant agreement with a sales consultant. As compensation for the services, the Company will issue up to three million (3,000,000) shares to the sales consultant in monthly installments over the twenty (24) month term of the agreement. The number of shares to be issued by the Company to the sales consultant on a monthly basis will be determined by the amount of net sales of various wholesale products generated by the sales consultant at the end of each month multiplied by a fixed percentage of nine percent (9%) divided by the last closing market price of the shares as of the effective date. In addition to the shares to be issued, the sales consultant shall be issued three million (3,000,000) warrants to purchase shares. One warrant shall be fully vested for every share issued. The exercise price of each warrant shall be equal to the grant price and each warrant shall be exercisable for thirty-six (36) months following the date of vesting. Until such time as the shares underlying the warrants are registered, the warrants may be exercised via a cashless exercise. During the nine months ended September 30, 2021 the company issued 147,991 shares of common stock and warrants with the right to purchase up to 57,275 shares of common stock as compensation for services. As of September 30, 2021, there were 2,852,009 shares of common stock and 2,942,743 warrants remaining.
On January 14, 2021, the Company entered into an agreement with a sales consultant to further the business purpose of the Company. In consideration for the services provided by the consultant, the consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers. This agreement shall continue for sixty months from the date of the agreement and will automatically extend for additional successive sixty month terms unless written notice is delivered at least thirty days prior to the end of the current term.
On July 13, 2021, the Company entered into an agreement with a marketing 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 $9,000, half of which is to be paid in cash and half to be paid in common shares at a 20% discount. The company issued the consultant 34,091 shares of common stock at a fair market value of $4,500, using the stock price of $0.13 per share, which represents a 20% discount to the closing price on the day of issuance.
On July 13, 2021, the Company entered into an agreement with a sales consultant to further the business purpose of the Company. In consideration for the services provided by the consultant, the Company will desire to compensate the consultant with up to 240,000 shares of restricted common stock of the Company based upon the consultant’s performance over a six-month term. The shares will be issued each month if certain milestones are met.
NOTE 9 – CONCENTRATION RISKS
The Company recognizes the concentration of its merchant cash advances, which could inherently create a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of the outstanding merchant cash advances. The Company actively mitigates its portfolio concentration risk by monitoring its merchant cash advance provider’s ability to participate in merchant cash advances from alternative providers and spreading merchant cash advance participation across various merchants.
As of September 30, 2021, the Company’s receivables from merchant cash advances included $29,971 from one merchant, representing 70% of the Company’s merchant cash advances. The Company earned $2,493 of MCA income from the same merchant, representing 57% of the Company’s MCA income for the three months ended September 30, 2021. The Company earned $14,949 and $6,463 of MCA income from two merchants, representing 41% and 18%, respectively, of the Company’s MCA income for the nine months ended September 30, 2021.
As of December 31, 2020, the Company’s receivables from merchant cash advances included $59,719 from two merchants ($25,929 and $33,790), representing 49% of the Company’s merchant cash advances. The Company earned $9,919 of MCA income from one merchant, representing 51% of the Company’s MCA income for the three months ended September 30, 2020. The Company earned $92,723 of MCA income from two merchants ($67,100 and $25,623), representing 72% of the Company’s MCA income for the nine months ended September 30, 2020.
As of September 30, 2021, there was no accounts payable concentration other than amounts owed to related parties. As of December 31, 2020, there was no accounts payable concentration other than amounts owed to related parties.
For the three months ended September 30, 2021, the Company had purchase concentrations of 81% and 12% from two vendors. For the nine months ended September 30, 2021, the Company had purchase concentrations of 60% and 21% from two vendors. For the three months ended September 30, 2020, the Company had purchase concentrations of 36%, 27%, and 25% from three vendors. For the nine months ended September 30, 2020, the Company had purchase concentrations of 64% and 12% from two vendors.
NOTE 10 – SUBSEQUENT EVENTS
On November 1, 2021, the Company issued a non-interest bearing note of $13,000, which matures on December 30, 2021.
On November 9, 2021, the Company issued a non-interest bearing note of $86,127 to a Director of the Company, which matures on November 8, 2022.