During the year ended December 31, 2021 and 2020, the Company recorded $106,741 and $116,648 of interest expense related to the amortization of debt discount and $34,356 and $54,148 of regular interest, respectively.
As of December 31, 2021 and 2020, accrued interest was $68,149 and $45,889, respectively.
During the year ended December 31, 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 extinguishment of loans payable of $293,513.
As of December 31, 2021, the Company owes a Director $150,822 for expenses incurred on behalf of the company.
All of the above and below transactions were approved by disinterested directors.
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”) before December 31, 2027.
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 year ended December 31, 2021. For the year ended December 31, 2020, the Company recorded $290,981 as compensation expense related to the warrants.
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 and 2022, the director agreements were renewed with the same terms. During the year ended December 31, 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 December 31, 2021 and 2020 the Company has accrued approximately $381,000 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, but he remains as an active unpaid director. For the years ended December 31, 2021 and 2020, the Company recorded $91,270 and $85,930 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 (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 years ended December 31, 2021 and 2020, the Company recorded $168,340 and $99,353 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 5 – LOANS AND LONG-TERM LOANS
| | | | | | | December 31, 2021 | | | December 31, 2020 | |
| 1. | | | Note payable at 12%, matures 4/16/2022. 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 4/22/2022. 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. | | {b} * | | | 18,000 | | | | 18,000 | |
| 3. | | | Note payable at 12%, matured and converted into common stock on 12/2/21. | | {c} * | | | - | | | | 50,000 | |
| 4. | | | Note payable at 12%, matured and converted into common stock on 6/19/2021. | | {d} * | | | - | | | | 25,000 | |
| 5. | | | Note payable at 12%, matures 6/30/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt. | | {e} * | | | 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. | | {f} * | | | 410,000 | | | | 410,000 | |
| 7. | | | 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. | | {g} * | | | 140,000 | | | | 140,000 | |
| 8. | | | Note payable at 12%, matures 4/30/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt. | | {h} * | | | 200,000 | | | | 200,000 | |
| 9. | | | Note payable at 12%, matures 7/31/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt. | | {i} * | | | 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. | | {j} * | | | 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%, matured and converted into common stock on 10/25/21. | | {k} * | | | - | | | | 50,000 | |
| 14. | | | Note payable at 12.5%, matures 12/17/2022. | | * | | | 3,600 | | | | - | |
| 15. | | | 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. | | {l} * | | | 16,500 | | | | - | |
| 16. | | | Non-interest bearing note payable, matures 4/16/2022. | | {m} * | | | 50,000 | | | | - | |
| 17. | | | Non-interest bearing note payable, matures 3/31/2022. | | {n} *** | | | 30,000 | | | | - | |
| 18. | | | Non-interest bearing note payable, matures 4/16/2022. | | {o} * | | | 13,000 | | | | - | |
| | | | Unamortized debt discount | | | | | (48,514 | ) | | | (286,300 | ) |
| | | | Total | | | | | 1,438,586 | | | | 1,266,179 | |
| | | | Less: short term loans, net | | | | | 1,288,586 | | | | 966,155 | |
| | | | Total long-term loans, net | | | | $ | 150,000 | | | $ | 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. On March 7, 2021, the Company extended the note to April 16, 2022 based on the same terms and conditions. |
| | | | {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 of $2,700, which will be recorded as a debt discount and amortized over the new life of the loan. |
| | | | {c} - On December 2, 2021, the Company converted the entire value of the note to 416,667 shares of common stock with a fair value of $100,167. In association with the conversion of the note to common stock, the company recognized a loss of $50,167. |
| | | | {d} - 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. |
| | | | {e} - 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. On March 21, 2022, the Company extended the note to June 30, 2022. In association with the extension the company granted warrants with the right to purchase 125,000 shares of common stock with a fair value on $28,150, 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. |
| | | | {f} - 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. |
| | | | {g} - 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. |
| | | | {h} - 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. |
| | | | {i} - 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. On March 16, 2022, the Company extended the note to July 31, 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 $12,600, which will be recorded as a debt discount and amortized over the new life of the loan. |
| | | | {j} - 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. |
| | | | {k} - 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. |
| | | | {l} - 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. |
| | | | {m} - On February 23, 2022, the Company extended the note to March 16, 2022 based on the same terms and conditions. On March 10, 2022, the Company extended the note to April 16, 2022 based on the same terms and conditions. |
| | | | {n} - On February 16, 2022, the Company extended the note to March 31, 2022 based on the same terms and conditions. On March 25, 2022, the Company extended the note to April 16, 2022 based on the same terms and conditions. |
| | | | {o} - On February 16, 2022, the Company extended the note to March 31, 2022 based on the same terms and conditions. On March 25, 2022, the Company extended the note to April 16, 2022 based on the same terms and conditions. |
| | | | * - 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 years ended December 31, 2021 and 2020, the Company recorded $357,010 and $383,338 of interest expense related to the amortization of debt discount and $168,397 and $160,216 of regular interest, respectively. As of December 31, 2021 and 2020, accrued interest was $132,778 and $61,099, respectively.
As of December 31, 2021 and 2020, accrued interest associated with the economic injury disaster loan was $8,385 and $2,759, respectively.
NOTE 6 – STOCKHOLDERS’ DEFICIT
The following table shows the respective common stock issuances and fair values for the years ending December 31, 2021 and 2020:
December 31, 2021
| | | Shares | | | | Amount | |
| | | | | | |
Common stock issued for cash to a related party | | | 499,998 | | | $ | 100,000 | |
Stock compensation consultant – Put liability | | | 147,991 | | | $ | - | |
Common stock issued to consultants for services | | | 70,856 | | | $ | 9,432 | |
Common stock issued for related party loan | | | 190,000 | | | $ | 39,160 | |
Common stock issued with loans payable | | | 114,000 | | | $ | 19,860 | |
Common stock issued for conversion of loans payable | | | 1,608,314 | | | $ | 343,997 | |
Common stock issued for conversion of related party loans payable | | | 2,000,000 | | | $ | 460,000 | |
| | | | | | | | |
December 31, 2020 |
| | | Shares | | | | Amount | |
| | | | | | | | |
Common stock issued for cash to a related party | | | 499,998 | | | $ | 100,000 | |
Common stock issued to consultants for services | | | 600,000 | | | $ | 131,350 | |
Common stock issued with loans payable | | | 374,000 | | | $ | 99,632 | |
Common stock issued for related party loans | | | 579,410 | | | $ | 126,402 | |
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 years ended December 31, 2021 and 2020, the Company recorded $91,270 and $85,930 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 years ended December 31, 2021 and 2020, the Company recorded $168,340 and $99,353 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 December 31, 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 years ended December 31, 2021 and 2020, the Company recorded $57,681 and $39,789 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 $10,815 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 $337,930, for the year ended December 31, 2021, 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.
On October 25, 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 $0.17 a share. The warrants are valued at $16,210 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 October 28, 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 $0.17 a share. The warrants are valued at $16,190 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 November 9, 2020, the Company entered into a grant agreement with a sales consultant (see Note 8). As compensation for the services, 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 year ended December 31, 2021 the company issued warrants with the right to purchase up to 57,275 shares of common stock as compensation for services. As of December 31, 2021, there were 2,942,725 warrants remaining to be issued if certain performance thresholds are met.
The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective years:
| | | 2021 | | | | 2020 | |
Risk-free interest rate | | | 0.03-0.08 | % | | | 0.10-1.39 | % |
Expected term of options, in years | | | 3 | | | | 3 | |
Expected annual volatility | | | 228.0-247.7 | % | | | 269.9-279.5 | % |
Expected dividend yield | | | — | % | | | — | % |
Determined grant date fair value per option | | $ | 0.14 - 0.22 | | | | $ 0.17 – 0.32 | |
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 | | | 1,148,775 | | | | 0.19 | |
Exercised | | | - | | | | - | |
Forfeited or cancelled | | | (343,750 | ) | | | 0.08 | |
Outstanding, December 31, 2021 | | | 5,704,775 | | | $ | 0.22 | |
As of December 31, 2021, 3,804,775 warrants for common stock were exercisable and the intrinsic value of these warrants was $64,834, the weighted average remaining contractual life for warrants outstanding was 2.09 years and the remaining expense is $86,707 over the remaining amortization period which is 7 months.
Summary information regarding the options outstanding and exercisable at December 31, 2021 is as follows:
| | Outstanding | | | Exercisable | |
| | | | | Weighted | | | | | | | | | | |
| | | | | Average | | | Weighted | | | | | | Weighted | |
| | | | | Remaining | | | Average | | | | | | Average | |
Range of | | Number | | | Contractual | | | Exercise | | | | | | Exercise | |
Exercise Prices | | | Outstanding | | | | Life | | | Price | | | Exercisable | | | Price | |
| | (in shares) | | | (in years) | | | | | | (in shares) | | | | |
$0.16 – $0.50 | | | 5,704,775 | | | | 2.09 | | | $ | 0.22 | | | | 3,804,775 | | | $ | 0.24 | |
As of December 31, 2020, 2,303,917 warrants for common stock were exercisable and the intrinsic value of these warrants was $71,056, the weighted average remaining contractual life for warrants outstanding was 2.87 years and the remaining expense is $403,998 over the remaining amortization period which is 1.50 years
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.
The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the year ending 2020. There were no issuances in the year ending 2021.
| | 2020 | |
Risk-free interest rate | | | 1.12 | % |
Expected term of options, in years | | | 10 | |
Expected annual volatility | | | 348.2 | % |
Expected dividend yield | | | — | % |
Determined grant date fair value per option | | $ | 0.75 | |
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, December 31, 2021 | | | 4,470,000 | | | $ | 0.68 | |
As of December 31, 2021, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,758,600, the weighted average remaining contractual life for warrants outstanding was 6.37 years.
Summary information regarding the options outstanding and exercisable at December 31, 2021 is as follows:
| | Outstanding | | | Exercisable | |
| | | | | Weighted | | | | | | | | | | |
| | | | | Average | | | Weighted | | | | | | Weighted | |
| | | | | Remaining | | | Average | | | | | | Average | |
Range of | | Number | | | Contractual | | | Exercise | | | Number | | | Exercise | |
Exercise Prices | | Outstanding | | | Life | | | Price | | | Exercisable | | | Price | |
| | (in shares) | | | (in years) | | | | | | (in shares) | | | | |
$0.51 – $1.20 | | | 4,470,000 | | | | 6.37 | | | $ | 0.68 | | | | 4,470,000 | | | $ | 0.68 | |
As of December 31, 2020, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,932,750, the weighted average remaining contractual life for warrants outstanding was 7.37 years and the warrants have been fully expensed.
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 years ended December 31, 2021 and 2020, the Company incurred lease expense for its operating leases of $87,642 and $43,821, respectively, which was included in general and administrative expenses on the accompanying consolidated statements of operations.
The Company’s weighted-average remaining lease term relating to its operating leases is 2.33 years, with a weighted-average discount rate of 12.00%.
The Company had cash payments for operating leases of $85,860 and $43,612 for the years ended December 31, 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 December 31, 2021.
Maturity of Lease Liability | | | |
2022 | | | 86,881 | |
2023 | | | 89,487 | |
2024 | | | 30,121 | |
Total undiscounted operating lease payments | | $ | 206,489 | |
Less: Imputed interest | | | 27,436 | |
Present value of operating lease liabilities | | $ | 179,053 | |
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. As of December 31, 2021, these targets have not been achieved and the Company has determined it is not probable of being met at this time, as such no compensation was taken on them. |
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 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 December 31, 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 December 31, 2021, the Company has recorded a Put liability of $29,421. The Consultant has agreed to lower the restricted cash amount for the Put to $5,900.
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 year ended December 31, 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 December 31, 2021, there were 2,852,009 shares of common stock and 2,942,725 warrants remaining to be issued if certain performance thresholds are met.
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 issue 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.
Commission costs for the year ended December 31, 2021 and 2020, were $43,863 and $491, respectively. These expenses are included in general and administrative expenses on the accompanying consolidated statements of operations. As of December 31, 2021 and 2020, there were no accrued commissions outstanding.
NOTE 9 – CONCENTRATION RISKS
The Company recognizes the concentration of its merchant cash advances, which could inherently create a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of the outstanding merchant cash advances. The Company actively mitigates its portfolio concentration risk by monitoring its merchant cash advance provider’s ability to participate in merchant cash advances from alternative providers and spreading merchant cash advance participation across various merchants.
As of December 31, 2021, the Company’s receivables from merchant cash advances included $29,290 from one merchant, representing 78% of the Company’s merchant cash advances. The Company earned $22,368 of MCA income from one merchant, representing 56% of the Company’s MCA income for the year ended December 31, 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 $84,525 and $27,175 of MCA income from two merchants, representing 53.5% and 17%, respectively of the Company’s MCA income for the twelve months ended December 31, 2020.
For the year ended December 31, 2021, the Company had sales concentrations of 17%, 15% and 15% from three customers. There was no sales concentration for the year ended December 31, 2020.
For the year ended December 31, 2021, the Company had purchase concentrations of 79% from one vendor.
For the year ended December 31, 2020, the Company had purchase concentrations of 49% and 14% from two vendors.
NOTE 10 – INCOME TAXES
There was no income tax expense reflected in the results of operations for the years ended December 31, 2021 and 2020 because the Company incurred a net loss in both years.
As of December 31, 2021, the Company had federal and state net operating loss carry forwards of $7,287,000 and $5,155,000, respectively, which may be used to offset future taxable income. Approximately $1,222,000 will begin to expire in 2036 while $6,065,000 will not expire but will be limited to 80% of taxable income. The State NOL’s may be used indefinitely without limitation.
The tax effects of temporary differences which give rise to deferred tax assets (liabilities) are summarized as follows:
| | For the Years Ended December 31, | |
| | 2021 | | | 2020 | |
Net operating loss carry forwards | | $ | 1,754,000 | | | $ | 1,338,000 | |
Stock based compensation | | | 1,845,000 | | | | 1,785,000 | |
Fixed assets and intangibles | | | (47,000 | ) | | | (60,000 | ) |
Allowance for Doubtful accounts | | | 114,000 | | | | 71,000 | |
Accrued Expenses | | | 78,000 | | | | 10,000 | |
Other carryforwards | | | 8,000 | | | | 7,000 | |
Total deferred tax assets | | $ | 3,752,000 | | | $ | 3,151,000 | |
| | | | | | | | |
Valuation allowance | | | (3,752,000 | ) | | | (3,151,000 | ) |
| | | | | | | | |
| | $ | - | | | $ | - | |
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Deferred tax assets consist primarily of the tax effect of NOL carry-forwards and stock based compensation. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability.
Reconciliation of the statutory federal income tax to the Company's effective tax:
| | For the year ended | |
| | December 31, | |
| | 2021 | | | 2020 | |
| | % | | | % | |
Statutory federal tax rate | | | 21.00 | % | | | 21.00 | % |
State rate net of federal benefit | | | 3.80 | % | | | 3.97 | % |
Permanent differences | | | (3.92 | )% | | | (0.74 | )% |
Rate change | | | 3.40 | % | | - | % |
Valuation allowance | | | (24.28 | )% | | | (24.23 | )% |
| | | | | | | | |
Provision for income taxes | | | - | % | | | - | % |
The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the consolidated statements of operations. As of December 31, 2021 and 2020 the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2021 and 2020. The Company did not recognize any interest or penalties during the years ended December 31, 2021 and 2020 related to unrecognized tax benefits.
Tax years 2018-2021 remain open to examination for federal income tax purposes and by other major taxing jurisdictions to which the Company is subject.
NOTE 11 – SUBSEQUENT EVENTS
On January 4, 2022, the Company entered into a grant agreement with a sales consultant. As compensation for the services, the Company will issue up to 2,380,952 shares of restricted common stock 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 products generated by the sales consultant at the end of each month multiplied by a fixed percentage of 5% divided by the last closing market price of the shares as of the effective date. Additionally, if the sales consultant makes sales using salespeople who are not under contract with the Company, the Company will pay the consultant a cash commission at the end of each month equal to 5% of net sales over the term.
On February 4, 2022, the Company issued a secured and guaranteed by a Director, non-interest bearing promissory note of $30,000, which matures on March 4, 2022. The loan has been extended to May 30, 2022 with the same terms and conditions.
On March 2, 2022, the Company entered into two agreements with two consultants to further the business purpose of the Company. In consideration for the services provided by the consultants, the consultants will receive a 10% commission of the gross sales (net of returns) that were directly generated by the consultants 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 March 23, 2022, the Company entered into a grant agreement with a sales consultant. As compensation for the services, the Company will issue up to 2,083,333 shares of restricted common stock 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 products generated by the sales consultant at the end of each month multiplied by a fixed percentage of 5% divided by the last closing market price of the shares as of the effective date.
On April 11, 2022, the Company entered into a binding memo of understanding with a marketing consultant, who is National Football League (NFL) celebrity. As compensation for the services, the Company agrees to split the net profit on a 50 / 50 basis derived from the sales of the Company’s products that will be branded under the consultant’s name and result from the marketing consultant’s efforts. The marketing consultant will be paid on a quarterly basis over the two (2) year term.