UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 2016
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| (Mark One) | |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended March 31, 2017 | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to __________________to______
Commission File Number 333-193220Number:000-54163
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(Exact name of registrant |
Nevada | 46-3876675 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. | |
1031 CalleRecodo, Suite B, San Clemente, CA | 92673 | |
| (Address of principal executive office) | (Zip Code) |
1031 Calle Recodo, Suite B,
San Clemente, CA 92673 (949) 973-0684
(Address of principal executive offices,Registrant’s telephone number, including ziparea code)
Registrant's phone number, including area code (949) 973-0684Not Applicable
(Former Name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantissuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x ☒No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section (§232.405 of this chapter) during the preceding twelve12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ ☒No x☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer” and "smaller“smaller reporting company"company” in Rule 12b-2 of the Exchange Act. (Check one):Act:
Large accelerated filer | ☐ | Accelerated |
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| Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ ☐Nox☒
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock as of the latest practicable date.
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PART I - FINANCIAL INFORMATION
SMOOFI, INC.
June 30, September 30, 2016 2015 (Unaudited) ASSETS CURRENT ASSETS: Cash Deposit Note receivable Prepaid expenses Accrued note receivable interest Total current assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses Due to related parties Notes payable to related party and accrued interest payable Notes payable and accrued interest payable TOTAL LIABILITIES STOCKHOLDERS' DEFICIT: Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding Common stock, $0.001 par value; 200,000,000 shares authorized; 31,085,800 and 30,385,800 shares issued and outstanding as of June 30, 2016 and September 30, 2015, respectively Additional paid in capital Accumulated deficit Common stock to be issued TOTAL STOCKHOLDERS' DEFICIT TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ - $ 2,160 25,000 - 31,400 - - 3,165 1,437 - 57,837 5,325 $ 57,837 $ 5,325 $ 210,069 $ 182,144 143,700 9,500 77,661 - 90,449 85,193 521,879 276,837 - - 31,086 30,386 392,739 132,439 (887,867 ) (652,239 ) - 217,902 (464,042 ) (271,512 ) $ 57,837 $ 5,325
Share amounts have been retroactively adjusted to reflect the increased number of shares resulting from a stock split.
The accompanying notes are an integral part of these unaudited financial statements.
SMOOFI, INC.
(Unaudited)
Three Months Three Months Nine Months Nine Months Revenue Cost of sales Gross Profit Operating expense General and administrative expense Total operating expense Loss from operations Other expense Interest expense, net Total other expense Loss before provision for income tax Provision for income taxes Net loss Basic and diluted loss per share Weighted average common shares outstanding – basic and diluted
Ended
June 30,
2016
Ended
June 30,
2015
Ended
June 30,
2016
Ended
June 30,
2015$ - $ - $ - $ - - - - - - - - - (51,228 ) (150,911 ) (228,637 ) (203,299 ) (51,228 ) (150,911 ) (228,637 ) (203,299 ) (51,228 ) (150,911 ) (228,637 ) (203,299 ) (2,699 ) (763 ) (6,991 ) (3,750 ) (2,699 ) (763 ) (6,991 ) (3,750 ) (53,927 ) (151,674 ) (235,628 ) (207,049 ) - - - - $ (53,927 ) $ (151,674 ) $ (235,628 ) $ (207,049 ) $ (0.00 ) $ (0.00 ) $ (0.01 ) $ (0.01 ) 31,085,800 30,979,207 30,634,561 30,583,602
Share and per share amounts have been retroactively adjusted to reflect the increased number of shares resulting from a stock split.
The accompanying notes are an integral part of these unaudited financial statements.
SMOOFI, INC.
(Unaudited)
Nine Months Ended June 30, 2016 June 30, 2015 CASH FLOW FROM OPERATING ACTIVITIES: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense Change in operating assets and liabilities: Prepaid expenses Accrued interest receivable Accounts payable and accrued expenses Due to related parties Accrued interest payable Net Cash Used in Operating Activities CASH FLOW FROM INVESTING ACTIVITIES: Deposit on investment Loan to sellers of farm property Net Cash Used in Investing Activities CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from issuance of note payable Repayment of note payable Loan from related party Net Cash Provided by Financing Activities CHANGE IN CASH CASH AT BEGINNING OF PERIOD CASH AT END OF PERIOD SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for: Interest Income taxes $ (235,628 ) $ (207,049 ) 43,098 100,000 3,165 (6,965 ) (1,437 ) - 27,925 69,113 134,200 - 8,417 3,750 (20,260 ) (41,151 ) (25,000 ) (50,000 ) (31,400 ) - (56,400 ) (50,000 ) - - - - 74,500 - 74,500 25,025 (2,160 ) (66,126 ) 2,160 74,787 $ - $ 8,661 $ - $ - $ - $ -
The accompanying notes are an integral part of these financial statements.
SMOOFI, INC.
(Unaudited)
NOTE 1 – ORGANIZATION
Smoofi, Inc. (the "Company") was incorporated under the laws of the State of Nevada on October 15, 2013. The Company issued 21,750,000 shares of its common stock to its founder as consideration for the purchase of an intangible asset consisting of a business plan along with a website. In the fiscal year ended September 30, 2015, the Company recorded an impairment loss of $74,495, the carrying value of this intangible asset.
Online marketplace and community
The Company's initially-defined business strategy is to acquire and/or develop and market software and services that will significantly enhance the performance and functionality of the Internet services used by individuals and by small to medium sized businesses. The Company's products and services, essentially an online marketplace and community, will use proprietary technology that will enable users, both service requestors and service providers, to work collaboratively to obtain substantial improvements in performance, reliability and usability. Service requestors (people or companies requesting a service) name their own price, date and time for any service. A service requestor can also select qualifying criteria such as number of reviews or review rankings of a service provider. The first service provider who can provide that service, on that date, at that time and meets the service ranking requirements will get the project.
The Company's online marketplace and online community will match up daily job or service requests and fill market demand for service requests throughout a particular local community, county or city and will connect local resources with local needs. A goal is to create jobs and provide market value for basic services by aggregating these low cost services within each local market. This will maximize value for either the person or company requesting the service and for the person or company providing the service. In other words, service providers will get the best possible price for their service and the party requesting the service will pay the lowest possible price.
Operations, Consulting and Advisory Services in the Cannabis Industry
As an expansion of our overall business strategy, we have appointed a new Director to expand our platform and services to enter the cannabis industry. We intend to enter into this area by purchasing and leasing farm land.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a September 30 fiscal year-end.
The unaudited interim financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes for the year ended September 30, 2015 included in our Annual Report on Form 10-K. The results of the three and nine month periods ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year ending September 30, 2016.
Cash Equivalents
For purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Stock-based Compensation
The Company follows ASC 718-10, Stock Compensation, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. The Company has not adopted a stock option plan and has not granted any stock options. Nonemployee share-based payments are measured at fair value, based on either the fair value of the equity instrument issued or on the fair value of the services received. We determine the fair value of common stock grants based on the price of the common stock on the measurement date (which is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, if there are sufficient disincentives to ensure performance, or the date at which the counterparty's performance is complete).
Use of Estimates and Assumptions
Preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. The Company has adopted the provisions of ASC 260.
Loss per Share
The basic loss per share is calculated by dividing the Company's net loss available to common shareholders by the weighted average number of common shares during the year. The diluted loss per share is calculated by dividing the Company's net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. Diluted earnings (loss) per share are the same as basic earnings (loss) per share due to the lack of dilutive items in the Company.
Fair Value Measurements and Disclosures
ASC Topic 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The carrying amounts of accounts receivable, notes payable, accounts payable, accrued liabilities approximate fair value given their short term nature or effective interest rates.
Income Taxes
Income taxes are provided in accordance with ASC 740, Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
No provision was made for Federal or State income taxes.
Advertising
Advertising will be expensed in the period in which it is incurred. There have been no advertising expenses for the reporting periods presented.
Intangible Assets
Intangible assets with finite lives are amortized over their estimated useful life. The Company monitors conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization period. The Company tests its intangible assets with finite lives for potential impairment whenever management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable. The original estimate of an asset's useful life and the impact of an event or circumstance on either an asset's useful life or carrying value involve significant judgment.
Recently Issued Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements — Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern". Continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. Currently, there is no guidance under U.S. GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management's plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). For the period ended June 30, 2016, management evaluated the Company's ability to continue as a going concern and concluded that substantial doubt has not been alleviated about the Company's ability to continue as a going concern. While the Company continues to explore further significant sources of financing, management's assessment was based on the uncertainty related to the amount and nature of such financing over the next twelve months.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
The Company reviewed all recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC and they did not or are not believed by management to have a material impact on the Company's present or future financial statements.
NOTE 3 – GOING CONCERN
The accompanying unaudited financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying financial statements, the Company had negative working capital of $464,042 and, having incurred net losses since inception, an accumulated deficit of $887,867 at June 30, 2016.
While the Company believes that, with adequate financial resources, it will be able to generate revenues from services, including cannabis industry consulting services, and further developing and launching its marketplace platform, the Company's cash position is not sufficient to support theses growth plans and daily operations. Management believes that the actions presently being taken to further broaden and implement its business plan and generate additional services, products and revenue provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to realize revenues and in its ability to raise additional funds, there can be no assurances that will ever occur. The Company's ability to continue as a going concern is dependent upon its ability to obtain adequate financing beyond the limited funding it has received in this fiscal year from a related party (See Note 6), and achieve profitable operations.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4 – NOTE RECEIVABLE
On January 15, 2016, the Company entered into a secured promissory note in the amount of $46,400 to advance funds to the sellers of certain farm property in Colorado the Company is seeking to purchase. Closing will be subject to financing and other contingencies per a non-binding Letter of Intent. This note has an interest rate of 8% per annum, with principal and unpaid and accrued interest originally due on June 30, 2016, unless the contemplated transaction closes prior thereto, in which case the note will be cancelled. Accrued interest receivable was $1,437 as of June 30, 2016. On March 31, 2016, the Company entered into Amendment #1 to this note to (i) extend the due date to June 30, 2016, unless the contemplated transaction closes prior thereto, in which case the note will be cancelled, (ii) reduce the principal to $31,400 to characterize $15,000 of the funds transferred to sellers as a non-refundable earnest money payment and (iii) stipulate that interest is to accrue on the lower $31,400 principal since inception. The non-refundable earnest money payment of $15,000 is classified as a deposit in current assets at June 30, 2016. On June 30, 2016, the Company entered into Amendment #2 to this note to (i) extend the due date to September 30, 2016, unless the contemplated transaction closes prior thereto, in which case the note will be cancelled.
NOTE 5 – DEPOSIT
On February 11, 2016, the Company made an installment payment in the amount $10,000 for the purchase of three greenhouses owned by the aforementioned sellers of the farm property for a total cost of $40,000. There are no specified terms for further payments and dates. The aforementioned deposit of $10,000 is classified as a deposit in current assets at June 30, 2016.
NOTE 6 – NOTES PAYABLE
As of June 30, 2016, the Company had two notes payable issued and outstanding to third party lenders with a total principle of $75,025 and accrued interest of $15,424. The first note, with a remaining balance of $25,000, was due on June 30, 2015, has an interest rate of 12%. This note remains unpaid. The second note, with a balance of $50,025, was issued on June 29, 2015 and was due on July 3, 2015, has an interest rate of 8%, and remains unpaid. Both notes are in default as of June 30, 2016.
As of June 30, 2016, the Company had three notes payable issued and outstanding with a related party with a total principle of $74,500 and accrued interest of $3,161. The three notes, in the amount of $47,000, $15,000 and $12,500, were issued on January 14, 2016. February 10, 2016 and February 29, 2016, respectively. The three notes are due on the earlier of one week after the closing of a certain contemplated farm property acquisition or July 31, 2016, and have an interest rate of 10%. The related party for all three notes is EastWest Secured Developments, LLC; an Arizona Limited Liability Company of which Mr. Brian Loiselle, a director of and consultant to the Company, is a managing member. On June 30, 2016, the Company entered into Amendment #1 to these three notes to extend the due date to the earlier of one week after the closing of a certain contemplated farm property acquisition or October 31, 2016.
NOTE 7 – COMPENSATION – RELATED PARTIES
Effective January 1, 2016, in recognition of the absence of employment and consulting agreements and the time commitment to the Company on the part Mr. Sean Clarke and Brian Loiselle, Company's chief executive officer, president and chief financial officer and consultant, respectively, the Board of Directors approved monthly compensation in the amount of $10,000 to be deferred and accrued and only paid at such time as the Company has the necessary financial resources. Effective April 1, 2016, such monthly compensation was revised from $10,000 to $5,000. At June 30, 2016, $90,000 has been accrued and is included in Due to Related Parties.
NOTE 8 – SHARE CAPITAL
The Company is authorized to issue 200,000,000 shares of common stock and 5,000,000 shares of preferred stock. The Company issued 1,500,000 shares of its common stock to its president and chief executive officer as founder shares. The Company issued 21,750,000 shares of our common stock to Derek Cahill as consideration for the purchase of a business plan along with a website. The acquisition of the business plan and website was valued at $72,500.
On October 29, 2013, the Company completed a private placement where it issued 5,400,000 shares of its common stock to accredited investors for $18,000.
On April 16, 2014, the Company completed a public offering whereby 1,735,800 shares of common stock were sold at $0.042 per share for total gross proceeds of $72,325.
On April 1, 2015, the Company entered into a twelve-month consulting agreement with an investor relations firm. Per the agreement, the Company granted 200,000 shares of restricted common stock to the investor relations firm which fully vested on October 1, 2015. On the date of the consulting agreement was entered into, April 1, 2015, the shares were valued at $1.00 per share which was the unadjusted share price prior to three-for-one forward stock split. The subject shares of common stock were issued on March 29, 2016. During the year ended September 30, 2015, the Company recorded share based compensation expense in the amount of $200,000 associated with the vesting of the common stock granted. On March 31, 2016, the Company and the investor relations firm entered into Amendment #1 to the consulting agreement to suspend the monthly fee indefinitely until such time as the Company requests that the services resume.
On April 21, 2015, the Board of Directors of the Company approved a three-for-one forward stock split of the Company's common stock. Accordingly, shareholders owning shares of the Company's common stock will receive two additional shares of the Company for each share they own. The Company had 10,128,600 shares issued and outstanding prior to the forward stock split. At June 30, 2016 and September 30, 2015 the Company has 31,085,800 shares and 30,385,800 shares, respectively, of common stock, issued and outstanding. The Company received notification from the Financial Industry Regulatory Authority (FINRA) on May 7, 2015, that it could proceed with the three-for-one forward stock split. Additional funds were reallocated from Additional Paid in Capital to the Common Stock account in an amount equal to the additional par value represented by the additional shares issued under the stock split. All share information presented in these financial statements and accompanying footnotes has been retroactively adjusted to reflect the increased number of shares resulting from this transaction.
On August 7, 2015, the Company granted 100,000 shares of restricted common stock to its chief operating officer. On the date of grant, the shares were valued at $.61 per share which was the unadjusted closing share price on that date for a fair value of $61,000. The shares vested over a six-month period; accordingly, during the six months ended March 31, 2016, the Company recorded stock based compensation expense in the amount of $61,000 associated with vesting of the common stock granted. The subject shares of common stock were issued on March 29, 2016. During the three and nine months ended June 30, 2016, the Company recorded stock based compensation expense in the amount of $ nil and $43,098, respectively, associated with vesting of common stock granted.
NOTE 9 – RELATED PARTY TRANSACTIONS
Mr. Brian Loiselle, a director of and consultant to the Company, has, through an affiliated company, approximately $800,000 invested in the "Tamarack Project" which is the subject of a certain Letter of Intent to which the Company is a party, as well as $830,000 (original amount) invested in a certain farm and property in Colorado that the Company unsuccessfully attempted to acquire. This farm was eventually acquired by and is now owned by a competitor; the aforementioned $830,000 is evidenced by a promissory note between the present owner and the affiliated company controlled by Mr. Loiselle. See Note 6 for a description of notes issued by the Company to Mr. Loiselle for loans.
On April 22, 2015, the Company and Newport Board Group entered into an Advisory Services Agreement whereby Mr. John Donahue would serve as the Company's Chief Operating Officer. The term of the initial agreement was for 60 days. A second agreement was executed on June 9, 2015, with no set termination date; however, either party may terminate the agreement at any time with 30 days' written notice. The monthly fee under both agreements is $4,000. There were no payments of such fee in the three months ended June 30, 2016. Unpaid monthly fees in the amount of $45,500 are included in Due to Related Parties at June 30, 2016. The Company has continued to defer and accrue all additional fees through the date of filing of this Report. As described in Note 7, on August 7, 2015, the Company granted 100,000 shares of restricted common stock to Mr. Donahue.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSExplanatory Note
The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended September 30, 2015 and presumes that readers have access to, and will have read, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.
Except for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the Company's control. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report. We strongly encourage investors to carefully read the factors described elsewhere in this report in the section entitled "Risk Factors" for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.
Company Overview
The Company has not generated revenue since its inception on October 15, 2013 from the two business segments described below.
Online Marketplace and Community
The Company's initially-defined business strategy is to acquire and/or develop and market software and services that will significantly enhance the performance and functionalitypurpose of the Internet services used by individuals and by small to medium sized businesses. The Company's products and services, essentially an online marketplace and community, will use proprietary technology that will enable users, both service requestors and service providers, to work collaboratively to obtain substantial improvements in performance, reliability and usability. Service requestors (people or companies requesting a service) name their own price, date and time for any service. A service requestor can also select qualifying criteria such as number of reviews or review rankings of a service provider. The first service provider who can provide that service, on that date, at that time and meets the service ranking requirements will get the project.
The Company's online marketplace and online community will match up daily job or service requests and fill market demand for service requests throughout a particular local community, county or city and will connect local resources with local needs. A goal is to create jobs and provide market value for basic services by aggregating these low cost services within each local market. This will maximize value for either the person or company requesting the service and for the person or company providing the service. In other words, service providers will get the best possible price for their service and the party requesting the service will pay the lowest possible price.
Operations, Consulting and Advisory Services in the Cannabis Industry
As an expansion of our overall business strategy, we have appointed a new Director to expand our platform and services to enter the cannabis industry. We intend to enter into this area by acquiring or leasing farm land.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most importantAmendment No. 1 to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions. We have identified in Note 2 - "Summary of Accounting Policies" to the Financial Statements contained in this Quarterly Report certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the financial statements.
Going Concern
Our auditor has issued a "going concern" qualification as part of its opinion in the Audit Report for the fiscal year ended September 30, 2015, and our financial statements as of and for the year then ended include a "going concern" footnote (See Footnote 3 – Going Concern) disclosing that our ability to continue as a going concern is contingent on us to be able to raise working capital to generate revenue by completing and launching our online marketplace and community portal and implementing the new business strategy of providing consulting and advisory services to the cannabis industry.
Results of Operation
Three months ended June 30, 2016 and 2015
Revenue
Revenue was $0 for the three months ended June 30, 2016 and 2015.
Cost of Sales
Cost of sales was $0 for the three months ended June 30, 2016 and 2015.
General and Administrative Expenses
General and administrative expenses were $51,228 and $150,911 for the three months ended June 30, 2016 and 2015, respectively. Expenses for the three months ended June 30, 2016 consisted primarily of $12,000 for accrued compensation expense under an officer's consulting agreement, and $30,000 for accrued compensation expense for an officer and a consultant who are also directors. Expenses for the three months ended June 30, 2015 consisted primarily of $148,938 for professional fees including $100,000 of stock compensation for services and $25,500 for investor relations.
Interest Expense and Other
Interest expense, net, was $2,699 and $763 for the three months ended June 30, 2016 and 2015, respectively, which related to interest accrued on borrowings, which were greater in the 2016 period.
Nine months ended June 30, 2016 and 2015
Revenue
Revenue was $0 for the nine months ended June 30, 2016 and 2015.
Cost of Sales
Cost of sales was $0 for the nine months ended June 30, 2016 and 2015.
General and Administrative Expenses
General and administrative expenses were $228,637 and $203,299 for the nine months ended June 30, 2016 and 2015, respectively. Expenses for the nine months ended June 30, 2016 consisted primarily of $216,068 for professional fees, which included $43,098 of non-cash stock-based compensation expense, $36,000 for accrued compensation expense under an officer's consulting agreement and $25,500 for investor relations expense, as well as $90,000 for accrued compensation expense for an officer and a consultant who are also directors. Expenses for the nine months ended June 30, 2015 consisted primarily of $30,819 for website and software development and $166,813 for professional fees which included $100,000 of stock compensation for services.
Interest Expense and Other
Interest expense, net, was $6,991 and $3,750 for the nine months ended June 30, 2016 and 2015, respectively, which related to interest accrued on borrowings, which were greater in the 2016 period.
Liquidity and Capital Resources
The following is a summary of the Company's cash flows provided by (used in) operating, investing, and financing activities for the nine months ended June 30, 2016 and 2015:
Nine Months Nine Months Operating Activities Investing Activities Financing Activities Net Effect on Cash
Ended
June 30,
2016
Ended
June 30,
2015$ (20,260 ) $ (41,151 ) (56,400 ) (50,000 ) 74,500 25,025 $ (2,160 ) $ (66,126 )
Since acquiring the business plan and website, most of our resources and work have been devoted to our online marketplace and community portal, that is, planning our business, web site development, mobile application development, and implementing systems and controls. When those procedures are completed, which we believe will occur over several month period following the receipt of adequate financing, we will primarily work on our intended service offerings as well further internal development of software for which we have developed our initial framework of and completed some coding. We believe that the work needed to initiate and complete the software development for our online marketplace and community portal, attract developers, and initiate our marketing plans, including the development of a saleable product suite, may be in excess of $100,000 if outside contractors and experts are used. If we are able to secure funding to outsource these procedures, of which there are no assurances, we will then commence the launch of our intended services and software products to the public. If we are able to use internal resources only (primarily consisting of the services of our chief executive officer, president and chief financial officer), the process will take much longer and our initial launch may be limited to a much smaller target market. If we are unable to raise any funds from third party sources, the development costs would have to be funded by (i) Mr. Brian Loiselle, our director, to whom we issued three notes for funds totaling $74,500, or (ii) our chief executive officer, president and chief financial officer to the extent that he is capable and willing to provide such funds. While we have previously engaged the services of an established software development firm which we used on an as "needed basis", their involvement is limited by our ability to raise financing. Our goal would be to have software products available, services available, multiple sales channels and a comprehensive corporate website up and running within one year after receipt of adequate financing, but there is no way of estimating what the likelihood of achieving that goal would be.
In October 2013, following the Company's incorporation on October 15, 2013, the Company issued 21,750,000 shares of our common stock to its founder, Derek Cahill, as consideration for the purchase of a business plan along with a website. The acquisition of the business plan and website was valued at $72,500. To date, we have sold 5,400,000 shares of our common stock at $0.003 per share for $18,000 through a private placement and we sold 1,735,800 shares of our common stock at $0.042 per share for total gross proceeds of $72,325 through a public placement.
If a market for our shares ever develops, of which there can be no assurances, we may continue to use restricted shares of our common stock or stock options to compensate employees/consultants and independent contractors wherever possible. We cannot predict the likelihood or source of raising capital or funds that may be needed to complete the development of our business plan and its stages as outlined above.
As a public company, we will incur ongoing expenses associated with professional fees for accounting, legal and a host of other expenses including annual reports and proxy statements, if required. We estimate that these costs will range up to $50,000 per year over the next few years and may be significantly higher if our business volume and transactional activity increases, and we would not be subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for an opinion on our system on internal controls by our independent audit firm unless and until we exceed $75 million in market capitalization. These obligations may reduce our ability and resources to expand our business plan and activities. We hope to be able to use our status as a public company to increase our ability to use noncash means of settling outstanding obligations (i.e. issuance of restricted shares of our common stock) and compensate independent contractors who provide professional services to us, although there can be no assurances that we will be successful in any of these efforts. We will also reduce compensation levels paid to management (if we attract or retain outside personnel to perform this function) if there is insufficient cash generated from operations to satisfy these costs.
We are presently seeking equity and debt financing for both segments of our business. However, these actions, if successful, could result in dilution of the ownership interests of existing shareholders and further dilute common stock book value, and such dilution may be material. The Company may offer shares of its common stock to settle a portion of the professional fees incurred in connection with its registration statement. No negotiations have taken place with any professional and no assurances can be made as to the likelihood that any professional will accept shares in settlement of obligations due them.
As of June 30, 2016, we owed $353,769 in accounts payable, accrued expenses and to related parties, a substantial portion of which are past due. The only formal agreements, written or oral, with any vendors or other providers for payment of services or expenses are with respect to (i) contracted investor relation services, (ii) contracted services of the Company's chief operating officer and (iii) compensation to the Company's chief executive officer, president and chief financial officer and a consultant, both of whom are directors. There are no other significant liabilities at June 30, 2016.
As of June 30, 2016, the Company had two notes payable issued and outstanding with a total principle of $75,025 and accrued interest of $15,424. The first note, with a remaining balance of $25,000, was due on June 30, 2015, and has an interest rate of 12%. The second note for $50,025, which was issued on June 29, 2015 and was due on July 3, 2015, and has an interest rate of 8%. Both notes remain unpaid and are in default as of June 30, 2016.
As of June 30, 2016, the Company had three notes payable issued and outstanding with a related party with a total principle of $74,500 and accrued interest of $3,161. The three notes are due on the earlier of one week after the closing of a certain contemplated farm property acquisition or July 31, 2016, and have an interest rate of 10%. The related party for all three notes is EastWest Secured Developments, LLC; an Arizona Limited Liability Company of which Mr. Brian Loiselle, a director of and consultant to the Company, is a managing member. On June 30, 2016, the Company entered into Amendment #1 to these three notes to extend the due date to the earlier of one week after the closing of the contemplated farm property acquisition or October 31, 2016.
Letters of Intent
On April 24, 2015, the Company signed a non-binding Letter of Intent ("LOI") with a licensed cultivator to provide turnkey operations and services to a 150,000 square foot licensed cultivation facility located in Pueblo, Colorado (the "Tamarack Project"). In connection therewith, the first phase of construction was expected to begin in June 2015, with cultivation expected begin in early July 2015; however, none of these events have occurred as of the filing of thisregistrant’s Quarterly Report on Form 10-Q. Further progress with respect to this LOI is dependent on, among other matters, the Company obtaining the necessary financing to proceed.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
Contractual Obligations
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures: We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term "disclosure controls and procedures", as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of June 30, 2016, that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives. However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Management's Report on Internal Control Over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The internal controls10-Q for the Company are provided by executive management's review and approval of all transactions. Our internal control over financial reporting also includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of June 30, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls.
Based on this assessment, management has concluded that as of June 30, 2016, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permiton May 22, 2017 (the “Form 10-Q”), is to furnish Exhibit 101 to the CompanyForm 10-Q. No other changes have been made to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting: There were no changes in our internal control over financial reporting during the quarter ending June 30, 2016, that have materially affected, or are reasonably likelyForm 10-Q. This Amendment No. 1 to materially affect, our internal control over financial reporting.
On September 17, 2015, Bristol Capital, LLC, filed a shareholders' derivative lawsuit (Superior Court of California, County of Orange, Central Justice Center, Case No. 30-2015-00810402-CU-PP-CJC) against, among others, Brian Loiselle, a member of our Board of Directors, and CorGreen Technologies Holding Corporation ("CorGreen"), a public company where Mr. Loiselle formerly held an officer and director position. The lawsuit did not involve the Company and so we believe it presented no actual or expected impact on our operating results or financial condition. Mr. Loiselle has informed us that he believes the allegations in the complaint are false and that he intends to ensure he is vigorously defended. While the lawsuit is currently pending and therefore not settled, we are informed by Mr. Loiselle that all parties entered into a Settlement and Release Agreement on April 26, 2016. The Settlement and Release Agreement is expressly conditioned principally upon: (i) final approval, by the Orange County Superior CourtForm 10-Q speaks as of the termsoriginal filing date of the SettlementForm 10-Q, does not reflect events that may have occurred subsequent to the original filing date and this Agreement and the expiration of the time to appeal such approvals (or,does not modify or update in the event of an appeal, following the determination of the appeal and any subsequent proceedings) (ii) the dismissal, with prejudice, of all claims against Mr. Loiselle and others named in the lawsuit; and (iii) CorGreen's release of those certain claimsway disclosures made in the lawsuit.original Form 10-Q.
An investment in the Company is highly speculative in nature and involves an extremely high degree of risk.
Risks Related to the Business
Smoofi has virtually no financial resources. Our independent registered auditors' report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.
Smoofi is an early stage company and has virtually no financial resources. We had a negative cash balance of $32 as of June 30, 2016. We have working capital deficit of $464,042 and an accumulated deficit of $887,867 as of June 30, 2016. Our independent registered auditors included an explanatory paragraph in their opinion on our financial statements as of and for the period ended September 30, 2015 that states that Company's losses from operations raise substantial doubt about its ability to continue as a going concern. We are seeking additional financing. The financing sought may be in the form of equity or debt financing from various sources as yet unidentified. No assurances can be given that we will generate sufficient revenue or obtain the necessary financing to continue as a going concern.
The Company (i) is engaged in the development of an initial design and framework of its proposed online marketplace and community portal platform through Mr. Clarke's efforts, as well as through the efforts of a software development firm which the Company had been working with on an as "needed basis" and (ii) recently entered into the cannabis industry. We have historically incurred between $5,000 and $10,000 per month in expenses, and this expense level will need to substantially increase in response to the expanded business plan. We have not generated any revenues from our business, and our expenses will be accrued and deferred until sufficient financing is obtained. No assurances can be given that we will be able to receive funds to continue our operations beyond a month-to-month basis. Similarly, there are no assurances that we will be able to raise the funds needed to successfully enter the business of providing consulting and advisory services to the cannabis industry.
Smoofi is and will continue to be completely dependent on the services of our chief executive officer, president and chief financial officer, Sean Clarke, our chief operating officer, John Donahue, and Brian Loiselle, a director also serving as a consultant, the loss of whose services may cause our business operations to cease, and we will need to engage and retain additional qualified employees and consultants to further implement our strategy.
Smoofi's operations and business strategy are substantially dependent upon the knowledge and business connections of Messrs. Clarke, Donahue and Loiselle, who are under no contractual obligation to remain employed by us. If one or more should choose to leave us for any reason or becomes ill and is unable to work for an extended period of time before we have hired appropriate replacement personnel, our operations could fail. Even if we are able to find additional personnel, it is uncertain whether we could find someone who could develop our business along the lines described in this prospectus.
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Messrs. Clarke's, Donahue's and Loiselle's current employment situations with our Company do not limit or restrict them from being involved with other companies.
Because marijuana is illegal under federal law, we could be subject to criminal and civil sanctions for engaging in activities that violate those laws.
Although our current plans to provide services to the cannabis industry primarily involve hemp and derivative products, which are generally subject to substantially less onerous legal regulations than marijuana, to the extent we are involved, even indirectly, with marijuana, we will be subject directly or indirectly with restrictive federal laws.
The U.S. Government classifies marijuana as a Schedule-I controlled substance. As a result, marijuana is an illegal substance under federal law. Even in those jurisdictions in which the use of medical marijuana has been legalized at the state level, its prescription is a violation of federal law. The United States Supreme Court has ruled in United States v. Oakland Cannabis Buyers' Coop. and Gonzales v. Raich that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes. Therefore, federal law criminalizing the use of marijuana pre-empts state laws that legalizes its use for medicinal purposes.
As of June 30, 2016, 24 states and the District of Columbia allow its citizens to use medical marijuana, while four states and the District of Columbia have legalized cannabis for recreational use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of federal laws. Additionally, any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government's enforcement of current federal laws could cause significant financial damage to us and our shareholders.
Laws and regulations affecting the regulated marijuana industry are constantly changing, which could detrimentally affect our proposed operations, and we cannot predict the impact that future regulations may have on us.
Local, state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our proposed cannabis business and result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to the cannabis related portion of our business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our proposed cannabis business.
FDA regulation of marijuana and the possible registration of facilities where medical marijuana is grown could negatively affect the cannabis industry which would directly affect our financial condition.
Should the federal government legalize marijuana for medical use, it is possible that the U.S. Food and Drug Administration (FDA) would seek to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations including CGMPs (certified good manufacturing practices) related to the growth, cultivation, harvesting and processing of medical marijuana. Clinical trials may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities where medical marijuana is grown be registered with the FDA and comply with certain federally prescribed regulations. In the event that some or all of these regulations are imposed, we do not know what the impact would be on the medical marijuana industry, what costs, requirements and possible prohibitions may be enforced. If we are unable to comply with the regulations and or registration as prescribed by the FDA, we may be unable to continue to operate our business in its current form or at all.
Our future clients that may be involved with marijuana as well as the Company may have difficulty accessing the service of banks, which may make it difficult to contract for real estate needs.
Although our current plans to provide services to the cannabis industry primarily involve hemp and derivative products, which are generally subject to substantially less onerous legal regulations than marijuana, to the extent we are involved, even indirectly, with marijuana, we may have difficulty accessing the service of banks.
On February 14, 2014, the U.S. government issued rules allowing banks to legally provide financial services to state-licensed marijuana businesses. A memorandum issued by the Justice Department to federal prosecutors re-iterated guidance previously given, this time to the financial industry that banks can do business with legal marijuana businesses and "may not" be prosecuted. The Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued guidelines to banks that "it is possible to provide financial services"" to state-licensed marijuana businesses and still be in compliance with federal anti-money laundering laws. The guidance falls short of the explicit legal authorization that banking industry officials had pushed the government to provide and to date it is not clear what if any banks have relied on the guidance and taken on legal marijuana companies as clients. The aforementioned policy may be administration-dependent and a change in presidential administrations may cause a policy reversal and retraction of current policies, wherein legal marijuana businesses may not have access to the banking industry. We could be subject to sanctions if we are found to be a financial institution and not in harmony with FinCEN guidelines. Also, the inability of potential clients in our target market to open accounts and otherwise use the service of banks may make it difficult for them to contract with us.
Because we have only recently commenced business operations, we face a high risk of business failure.
We were formed in October 2013. All of our efforts to date have related to developing our business plan and beginning business activities. Through June 30, 2016, we had no operating revenues. We face a high risk of business failure. The likelihood of our success must be considered in light of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of new businesses and the competitive environment in which we will operate. There can be no assurance that future revenues from sales of our products and services will occur or be significant enough or that we will be able to sell our proposed products and proposed services at a profit, if at all. Future revenues and/or profits, if any, will depend on many various factors, including, but not limited to both initial and continued market acceptance of the Company's products and services and the successful implementation of its planned growth strategy.
We have acquired and commenced internally developing our website related business. We may not be able to acquire or internally develop additional services in the future because of a lack of available funds or financing to do so. In order for us to develop or acquire additional products or services, we will need to secure the necessary financing. Until we raise additional funds, we will continue to keep costs to a minimum. The cost to develop our business plan pertaining to the online marketplace portal as currently outlined will likely be in excess of $100,000. We will need additional funds to fully launch the portal and expand into the marketplace. If we are unable to obtain adequate funding or financing, we face the ultimate likelihood of business failure. There are no assurances that we will be able to raise any funds or establish any financing program for our growth. Furthermore, our announced expansion in business strategy to provide consulting and advisory services to the cannabis industry will require substantial funding which we will also have to procure. We will not be able to fully develop any of these businesses without additional funding the absence of which will likely lead to our failure.
We may not have or ever have the resources or ability to implement and manage growth strategy.
Although we expect to experience growth based on being able to implement our business plan, actual operations may never occur because our business plan may never be implemented due to lack of funds. If our business plan and growth strategy are implemented, of which no assurances can be given, a significant strain on our management, operating systems and/or financial resources will be imposed. Failure by our management to manage this growth, if it occurs, or unexpected difficulties encountered during growth, could have a material adverse impact on our results of operations or financial condition.
Our ability to operate profitable product lines or service offerings (if we are able to establish any product, product lines or service offerings at all) will depend upon a number of factors, including (i) identifying distribution channels, (ii) generating sufficient funds from our then existing operations or obtaining third-party financing or additional capital to develop new product lines, (iii) our management team and our financial and accounting controls and (iv) staffing, training and retaining of skilled personnel, if any at all. Certain of these factors will be beyond our control and may be adversely affected by the economy or actions taken by competing companies. Moreover, potential products and/or services that may meet our product/service focus and other criteria for developing new products or services, if we are able to develop or acquire at all, are believed to be limited. There can be no assurance that we will be able to execute and manage a growth strategy effectively or at all.
We may not be successful in hiring technical personnel because of the competitive market for qualified technical people.
Our future success depends largely on our ability to attract, hire, train and retain highly qualified technical personnel to provide our proposed services. Competition for such personnel is intense. There can be no assurance that we will be successful in attracting and retaining the technical personnel it requires to conduct and expand its operations successfully and to differentiate itself from its competition. Our results of operations and growth prospects could be materially adversely affected if we were unable to attract, hire, train and retain such qualified technical personnel.
We will face competition from companies with significantly greater resources and name recognition.
The markets in which we will operate are characterized by intense competition from several types of solution and technical service providers. We expect to face further competition from new market entrants and possible alliances among competitors in the future as the convergence of information processing and telecommunications continues. Many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than us. As a result, they may be better able to respond or adapt to new or emerging technologies and changes in client requirements or to devote greater resources to the development, marketing and sales of their services than us. There can be no assurance that we will be able to compete successfully. We expect to encounter intense competition in the Internet/software industry. We will also compete for revenues with other Internet software providers. In addition, we will be faced with numerous competitors, both strategic and financial, in attempting to obtain competitive products and services. Many actual and potential competitors we believe are part of much larger companies with substantially greater financial, marketing and other resources than us, and there can be no assurance that we will be able to compete effectively against any of our future competitors.
There are significant potential conflicts of interest.
Our personnel, presently Messrs. Clarke, Donahue and Loiselle, commit substantial time to our affairs and, accordingly, these individuals may have conflicts of interest in allocating management time among various business activities. In the course of other business activities, these key personnel may become aware of business opportunities which may be appropriate for presentation to us, as well as other entities with which they are affiliated. As such, there may be conflicts of interest in determining to which entity a particular business opportunity should be presented.
Mr. Brian Loiselle, a director of the Company, is a managing member of EastWest Secured Developments LLC ("EWSD"), which has approximately $800,000 invested in the Tamarack Project which is the subject of a certain Letter of Intent described above in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, Letter of Intent. ESWD also has $830,000 (original amount) invested in a certain farm in Colorado that we attempted to acquire. This farm was eventually acquired by and is now owned by a competitor; the aforementioned $830,000 is evidenced by a promissory note between the present owner and ESWD. Further, we made a non-refundable deposit of $50,000 in connection with the now-terminated Letter of Intent to acquire this farm which was written off.
We cannot provide assurances that our efforts to eliminate the potential impact of conflicts of interest will be effective.
We are subject to the periodic reporting requirements of Section 15(d) of the Exchange Act that will require us to incur audit, legal and filing fees in connection with the preparation of such reports. These additional costs could adversely impact our ability to earn a profit.
We will be required to file periodic reports with the SEC pursuant to the Exchange Act and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm will have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit. We may be exposed to potential risks resulting from any new requirements under Section 404 of the Sarbanes-Oxley Act of 2002. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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Our internal controls may become inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
The costs of being a public company could result in us being unable to continue as a going concern.
As a public company, we will have to comply with numerous financial reporting and legal requirements, including those pertaining to audits, quarterly reporting and internal controls. The costs of this compliance could be significant. If our revenues are insufficient, and/or we cannot satisfy many of these costs through the issuance of our shares, we may be unable to satisfy these costs through the normal course of business which would result in our being unable to perform as a going concern.
Having only two directors limits our ability to establish effective independent corporate governance procedures and increases the control of our chief executive officer, president and chief financial officer and another director.
We have only two directors, one of which who also serves as our chief executive officer, president and chief financial officer, the other that also serves as a consultant. Accordingly, we cannot establish board committees comprised of independent members to oversee functions like compensation or audit issues.
Until we have a larger board of directors that would include some independent members and at least one financial expert, if ever, there will be limited oversight of decisions and a activities of our chief executive officer, president and chief financial officer, our chief operating officer, and our other director, as well as little ability for minority shareholders to challenge or reverse those activities and decisions, even if they are not in the best interests of minority shareholders.
Risks Related to Our Common Stock
Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through issuance of additional shares of our common stock.
We have no committed source of financing. Wherever possible, our board of directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock. Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized (200,000,000) shares but unissued (168,914,200) shares. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, further dilute book value per share of common stock, and that dilution may be material.
The interests of shareholders may be hurt because we can issue shares of our common stock to individuals or entities that support existing management with such issuances serving to enhance existing management's ability to maintain control of our company.
Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued common shares. Such issuances may be issued to parties or entities committed to supporting existing management and the interests of existing management which may not be the same as the interests of other shareholders. The board of directors' ability to issue shares without shareholder approval serves to enhance existing management's ability to maintain control of our company.
Our articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability that may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.
Article X of our Articles of Incorporation provides for indemnification as follows: "No director or officer of the Corporation shall be personally liable to the Corporation or any of its stockholders for damages for breach of fiduciary duty as a director or officer; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director or officer: (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of law; or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of an Article by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation of the personal liability of a director or officer of the Corporation for acts or omissions prior to such repeal or modification."
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with our activities, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares, if such a market ever develops.
If we were designated a shell our ability to resell your shares would be limited.
Some of the presently outstanding shares of our common stock are "restricted securities" as defined under Rule 144 promulgated under the Securities Act and may only be sold pursuant to an effective registration statement or an exemption from registration, if available. Pursuant to Rule 144, if we were designated a "shell company" as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act, one year would be required to elapse from the time, we ceased to be a "shell company" and filed a Form 8-K addressing Item 5.06 with such information as may be required in a Form 10 Registration Statement with the SEC, before our restricted shareholders could resell their holdings in reliance on Rule 144. The Form 10 information or disclosure is equivalent to the information that a company would be required to file if it were registering a class of securities on Form 10 under the Exchange Act. Under amended Rule 144, restricted or unrestricted securities that were initially issued by a reporting or non-reporting shell company, or a company that was at any time previously a reporting or non-reporting shell company, can only be resold in reliance on Rule 144 if the following conditions are met:
At the present time, we are not classified as a "shell company" under Rule 405 of the Securities Act Rule 12b-2 of the Exchange Act. However, in the event we were to be so designated, you would be unable to sell your shares under Rule 144.
Any market that develops in shares of our common stock will be subject to the penny stock regulations and restrictions pertaining to low priced stocks that will create a lack of liquidity and make trading difficult or impossible.
The trading of our securities, if any, will be in the over-the-counter market which is commonly referred to as the OTCQB. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the price of our securities.
Rule 3a51-1 of the Exchange Act establishes the definition of a "penny stock," for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. It is likely that our shares will be considered to be penny stocks for the immediately foreseeable future. This classification severely and adversely affects any market liquidity for our common stock.
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person's account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:
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Disclosure also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Additionally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if and when our securities become publicly traded. In addition, the liquidity for our securities may decrease, with a corresponding decrease in the price of our securities. Our shares, in all probability, will be subject to such penny stock rules for the foreseeable future and our shareholders will, in all likelihood, find it difficult to sell their securities.
The market for penny stocks has experienced numerous frauds and abuses that could adversely impact investors in our stock.
Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
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Our board of directors (consisting of two individuals, our chief executive officer, president and chief financial officer and one other serving as a consultant) has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and with the ability to affect adversely stockholder voting power and perpetuate their control over us.
Our articles of incorporation allow us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval, including large blocks of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
The concentrated beneficial ownership of our common stock and the ability it affords to control our business may limit or eliminate minority shareholders' ability to influence corporate affairs.
Because of this concentrated stock ownership, the Company's largest stockholder, who is one of our two directors, will be in a position to elect our board of directors, decide all matters requiring stockholder approval and determine our policies. The interests of this stockholder may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of officers and directors and other business decisions. The minority shareholders would have no way of overriding decisions made by our principal stockholder. This level of control may also have an adverse impact on the market value of our shares because our principal stockholder may institute or undertake transactions, policies or programs that may result in losses, may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers of shares to significantly decrease our price per share.
We do not expect to pay cash dividends in the foreseeable future.
We have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.
Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protection against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
Since none of our directors (currently two people) are independent directors or financial experts, we do not currently have independent audit or compensation committees. As a result, these directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it costlier or deter qualified individuals from accepting these roles.
You may have limited access to information regarding our business because our obligations to file periodic reports with the SEC could be automatically suspended under certain circumstances.
We are subject to certain informational requirements of the Exchange Act, as amended and we will be required to file periodic reports (i.e., annual, quarterly and material events) with the SEC which will be immediately available to the public for inspection and copying. These reporting obligations may be automatically suspended under Section 15(d) of the Exchange Act if we have less than 300 shareholders and do not file a registration statement on Form 8-A (of which we have no current plans to file). If this occurs after the year in which our registration statement became effective (i.e., 2014), we will no longer be obligated to file such periodic reports with the SEC and access to our business information would then be even more restricted. We may be required to deliver periodic reports to security holders as proscribed by the Exchange Act, as amended. However, we will not be required to furnish proxy statements to security holders and our directors, officers and principal beneficial owners will not be required to report their beneficial ownership of securities to the SEC pursuant to Section 16 of the Exchange Act until we have both 500 or more security holders and greater than $10 million in assets. This means that access to information regarding our business and operations will be limited.
We are an emerging growth company within the meaning of the Securities Act, and as a consequence of taking advantage of certain exemptions from reporting requirements that are available to emerging growth companies, our financial statements may not be comparable to companies that comply with public company effective dates.
We are an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the "Securities Act"). Pursuant to Section 107 of the Jumpstart Our Business Startups Act, we may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, meaning that we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen to take advantage of the extended transition period for complying with new or revised accounting standards applicable to public companies to delay adoption of such standards until such standards are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
For all of the foregoing reasons and others set forth herein, an investment in our securities in any market that may develop in the future involves a high degree of risk.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| NuLife Sciences, Inc. | ||
| Date: June 17, 2017 | By: | /s/ Fred Luke | |
| Fred Luke | |||
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| President |
| (Duly Authorized Officer and Principal Executive Officer) | ||
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