Docoh
Loading...

CNFN CFN Enterprises

Filed: 31 Mar 21, 5:03pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2020

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to _________.

 

Commission file number 000-52635

 

CFN ENTERPRISES INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

20-3858769

 

 

(State of Incorporation)

(IRS Employer

Identification No.)

 

 

600 E. 8th STREET

WHITEFISH, MT 59937

(Address of Principal Executive Offices and Zip Code)

 

(833) 420-2636

(Registrant’s Telephone Number, including Area Code)

 

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  

Yes    No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  

Yes   No

 

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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

 

Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

 

 



 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. :

 

Large accelerated filer

Accelerated filer

Non-accelerated filer  

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

 

The aggregate market value of the common equity voting shares of the registrant held by non-affiliates on June 30, 2020, the registrant's most recently completed fiscal year end, was $3,300,000. For purposes of this calculation, an aggregate of 38,902,801 shares of Common Stock were held by the directors and officers of the registrant on June 30, 2020 and have been included in the number of shares of Common Stock held by affiliates.

 

The number of the registrant’s shares of Common Stock outstanding as of March 31, 2021: 118,692,209

 

In this Annual Report on Form 10-K, the terms the “Company,” “CFN Enterprises,” “we,” “us” or “our” refer to CFN Enterprises Inc., unless the context indicates otherwise.

 

Documents Incorporated by Reference: None

 

 



 

 

CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS

 

THIS ANNUAL REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE,” “EXPECT,” “ANTICIPATE,” “INTEND,” “PLAN,” “ESTIMATE,” “MAY,” “PREDICT,” “WILL,” “POTENTIAL,” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR.  ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.

 

IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN OUR FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, GENERAL MARKET CONDITIONS, INCLUDING WEAKNESS IN THE ECONOMY, REGULATORY DEVELOPMENTS AND OTHER CONDITIONS WHICH ARE NOT WITHIN OUR CONTROL.

 

OTHER RISKS MAY ADVERSELY IMPACT US, AS DESCRIBED MORE FULLY IN THIS ANNUAL REPORT UNDER “ITEM 1A. RISK FACTORS.”

 

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD-LOOKING STATEMENTS.

 

EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

 

 


1


 

 

 

CFN ENTERPRISES INC.

2020 ANNUAL REPORT ON FORM 10-K

 

Table of Contents

 

 

  

Page

PART I

 

 

ITEM 1.

BUSINESS

3

ITEM 1A.

RISK FACTORS

4

ITEM 1B.

UNRESOLVED STAFF COMMENTS

11

ITEM 2.

PROPERTIES

11

ITEM 3.

LEGAL PROCEEDINGS

11

ITEM 4.

MINE SAFETY DISCLOSURES

11

PART II

 

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

11

ITEM 6.

SELECTED FINANCIAL DATA

11

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

12

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

18

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

19

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

19

ITEM 9A.

CONTROLS AND PROCEDURES

19

ITEM 9B.

OTHER INFORMATION

20

PART III

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

20

ITEM 11.

EXECUTIVE COMPENSATION

21

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

22

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

23

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

23

PART IV

 

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

24

ITEM 16.

FORM 10-K SUMMARY

26

SIGNATURES

27

 

 


2


 

 

 

PART I

 

 

Item 1.  Business

 

Overview

 

We owned and operated CAKE and getcake.com, a marketing technology company that provided a proprietary solution for advanced analytics, attribution and campaign optimization for digital marketers, and we sold this business on June 18, 2019. We contemporaneously acquired assets from Emerging Growth LLC related to its cannabis industry focused sponsored content and marketing business, or the CFN Business. Our initial ongoing operations will consist primarily of the CFN Business and we will continue to pursue strategic transactions and opportunities.

 

The CFN Business generates revenue through sponsored content, including articles, press releases, videos, podcasts, advertisements and other media, email advertisements and other marketing campaigns run on behalf of public and private companies in the cannabis industry, helping them reach accredited, retail and institutional investors. Most revenue is generated through contracts involving a monthly cash payment.

 

The CFN Business’ primary expenses come from advertising on platforms like Twitter and Facebook and from employee salaries and contractor fees. The CFN Business’ content is primarily produced by a team of freelance writers and video content is produced through various vendors. The CFN Business also incurs hosting and development costs associated with maintaining and improving its website, web applications, and mobile applications. The CFN Business operates several media platforms, including CannabisFN.com, the CannabisFN iOS app, the CFN Media YouTube channel, the CFN Media podcast, and other venues. These properties are designed to educate and inform investors interested in the cannabis industry, as well as provide a platform for the clients of the CFN Business to reach investors. The CFN Business distributes content across numerous online platforms, including the CannabisFN.com website, press releases, financial news syndicates, search engines, YouTube, iTunes, Twitter, Instagram, Facebook, LinkedIn, and others.

 

The CFN Business targets the legal cannabis industry. According to Grand View Research, the global cannabis industry is expected to reach $146.4 billion by 2025, driven by the legalization of medical and adult-use cannabis across a growing number of jurisdictions. According to the Marijuana Index, there are approximately 400 public companies involved in the cannabis industry, which represents the primary target market of the CFN Business. The CFN Business’ services are designed to help private companies prepare to go public and public companies grow their shareholder base through sponsored content and marketing outreach. The success of the CFN Business depends on the legal status of cannabis, investor demand for cannabis investments, investor demand for Psychedelics, investor and consumer demand for CBD and numerous other external factors.

 

The CFN Business competes with other public relations firms for clients, as well as online publishers for investors. Public relations competition includes investor awareness firms like Stockhouse Publishing, Catalyst Xchange, Stonebridge Partners and Midan Ventures. Online publisher competition includes firms like New Cannabis Ventures, Leafly and High Times. The CFN Business is regulated by rules established by the SEC, FINRA, and certain federal and state cannabis regulations.

 

Late in 2020, we launched an e-commerce network focused on the sale of general wellness CBD products.  Revenue generated from this new line of business has been minimal as of December 31, 2020.  However, we expect to grow and continue marketing this line of business in future periods.  

 

Our principal offices are located at 600 E. 8th Street, Whitefish, Montana 59937. Our telephone number there is: (833) 420-2636. Our corporate website is: www.cfnenterprisesinc.com, , the contents of which are not part of this annual report.

 

Our Common Stock is quoted on the OTCQB Marketplace under the symbol "CNFN." 

 


3


 

 

Industry and Market Opportunity

 

 

The global cannabidiol (CBD) market has an estimated value of $9.3 billion for 2020 and is projected to grow at a 22.2% compound annual growth rate to reach $23.6 billion by 2025, according to Grand View Research. The business-to-consumer (B2C) segment is the largest segment of this market and is expected to exhibit the fastest growth rate over the forecast period.

 

The global legal cannabis market is projected to grow at an 18.1% compound annual growth rate to reach $73.6 billion by 2027, according to Grand View Research. North America held the largest revenue share at 88.4%, but the recent legalization of cannabis for medical purposes in countries like Australia, Germany and Poland is expected to create lucrative opportunities.

 

The psychedelics market is expected to grow from $2.08 billion to $6.86 billion between 2020 and 2027, representing a 16.3% compound annual growth rate, driven by the growing acceptance of psychedelic drugs for treating depression and other mental disorders.

 

Our Solutions

 

CFN Enterprises’ services are designed to help private companies prepare to go public and public companies grow their shareholder base through sponsored content and marketing outreach. The business targets the legal CBD, cannabis and psychedelics industries.

 

How we market our services

 

CFN Enterprises markets its services through its proprietary network of websites, including www.cannabisfn.com, social media channels and through its internal sales team.

    

Competition

 

CFN Enterprises competes with other public relations firms for clients, as well as online publishers for investors. Public relations competition includes investor awareness firms like Stockhouse Publishing, Catalyst Xchange, Stonebridge Partners and Midan Ventures. Online publisher competition includes firms like New Cannabis Ventures, Leafly and High Times.

 

Government Regulation

 

The CFN Business is regulated by rules established by the SEC, FINRA, and certain federal and state cannabis regulations.  

 

Employees

 

As of December 31, 2020, we had 5 full-time employees, including all of our executive officers. None of our employees are covered by collective bargaining agreements, and we believe our relationships with our employees to be good.

  

Item 1A. Risk Factors

 

Our business faces risks.  If any of the events or circumstances described in the following risks actually occur, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline. Our investors and prospective investors should consider the following risks and the information contained under the heading "Cautionary Statement Concerning Forward Looking Statements" before deciding to invest in our common stock.

 

Our resources are limited and it may impact how we implement our growth strategy which may impact our operations.

 

Our resources are limited. Our working capital deficiency at December 31, 2020 amounts to $998,101. As we implement our growth strategy, poor strategic design or execution could impact negatively our operations and our cash flows. We expect that our expenses will continue to increase as we continue to develop and implement our products and services. Our capital requirements may vary materially from those currently planned if, for example, we incur unforeseen capital expenditures, incur unforeseen operating expenses, or make investments to maintain our competitive position. If this is the case, we may have to delay or abandon some or all of our development plans or otherwise forego market opportunities. We will need to generate significant revenues to be profitable in the future, and we may not generate sufficient revenues to be profitable on either a quarterly or annual basis in the future.

 


4


 

We have a history of losses.

 

We have a history of losses and negative cash flows from operations. We had a net loss from continuing operations of approximately $1.3 million in 2020 and a net loss of approximately $6.0 million in 2019. Our operations have been financed primarily through proceeds from the issuance of equity, borrowing money through the issuance of promissory notes and use of a credit facility. We may continue to incur losses in the future.

 

We have substantial indebtedness and obligations to pay interest.

 

We currently have, and will likely continue to have, a substantial amount of indebtedness and obligations to pay interest from our preferred stock. Our indebtedness and interest obligations could, among other things, make it more difficult for us to satisfy our debt obligations, require us to use a large portion of our cash flow from operations to repay and service our debt and preferred stock or otherwise create liquidity problems, limit our flexibility to adjust to market conditions, place us at a competitive disadvantage and expose us to interest rate fluctuations. As of December 31, 2020, we had total debt outstanding of approximately $903,061, of which $188,249 was short term. As of December 31, 2020, we had 500 shares of Series A Preferred, Stock, each with a stated value of $1,000 per share which bears interest at 12% per annum, and 3,000 shares of Series B Preferred Stock, each with a stated value of $1,000 per share which bears interest at 6% per annum.

 

We expect to obtain the money to pay our expenses and pay the principal and interest on our indebtedness, interest on our preferred stock, and tax liabilities from cash flow from our operations and potentially from securities offerings. Accordingly, our ability to meet our obligations depends on our future performance and capital raising activities, which will be affected by financial, business, economic and other factors, many of which are beyond our control. If our cash flow and capital resources prove inadequate to allow us to pay the principal and interest on our debt, interest on our preferred stock and meet our other obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations, restructure or refinance our debt, which we may be unable to do on acceptable terms, and forego attractive business opportunities. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.

 

Our independent registered public accounting firm has expressed in its report to our 2020 audited consolidated financial statements a substantial doubt about our ability to continue as a going concern.

 

We have not generated sufficient revenues from our operations to fund our activities and are therefore dependent upon external sources for financing our operations. There is a risk that we will be unable to obtain the necessary financing to continue our operations on terms acceptable to us or at all. As a result, our independent registered public accounting firm has expressed in its auditors’ report on the consolidated financial statements for December 31, 2020, a substantial doubt regarding our ability to continue as a going concern. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Future reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. If we cannot continue as a going concern, our stockholders may lose their entire investment in the common stock.

   

 

Our quarterly financial results will fluctuate, making it difficult to forecast our results of operation.

 

Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are beyond our control, including:

 

Variability in demand and usage for our products and services;

 

 

Market acceptance of new and existing services offered by us, our competitors and potential competitors; and

 

 

Governmental regulations affecting the use of the Internet, including regulations concerning intellectual property rights and security features.

 

Our current and future levels of expenditures are based primarily on our growth plans and estimates of expected future revenues. If our operating results fall below the expectation of investors, our stock price will likely decline significantly.

  

Our financial and operating performance may be adversely affected by the coronavirus pandemic.

 

The outbreak of a strain of coronavirus (COVID-19) in the U.S. has had an unfavorable impact on our business operations.  Our main customer market suffered its worst decline, decreasing our revenue.  Mandatory closures of businesses imposed by the federal, state and local governments to control the spread of the virus is disrupting the operations of our management, business and finance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. economy and


5


financial markets, which may result in a long-term economic downturn that could negatively affect future performance.  We took steps to diversify our revenue model by creating our CBD ecommerce business which has higher margins during the second half of 2020 and reduce our costs.  The extent to which COVID-19 will impact our business and our consolidated financial results further will depend on future developments which are highly uncertain and cannot be predicted at this time, but may result in a material adverse impact on our business, results of operations and financial condition.

 

We face risks related to the macro economy.

 

Continued uncertainty in global economic conditions continues to pose a risk to the overall economy and has adversely affected the online advertising market, which is now highly competitive. These economic conditions have impacted consumer confidence and customer demand for our products, as well as our ability to borrow money to finance our operations, to maintain our key employees, and to manage normal commercial relationships with our customers, suppliers and creditors. For example, customers have spent less on online advertising and other services. Although the economic outlook has improved since the credit crisis, if a worsening of current conditions or another economic crisis were to occur, our business and results of operations will continue to be negatively impacted.

 

The CFN Business provides services to persons engaged in the cannabis industry. Cannabis remains illegal under Federal law.

 

Despite the development of a regulated cannabis industry under the laws of certain states, these state laws regulating medical and adult cannabis use are in conflict with the Federal Controlled Substances Act, which classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that the Federal government has the right to regulate and criminalize cannabis, even for medical purposes, and thus Federal law criminalizing the use of cannabis preempts state laws that regulate its use. Although the prior administration determined that it was not an efficient use of resources to direct Federal law enforcement agencies to prosecute those lawfully abiding by state laws allowing the use and distribution of medical and recreational cannabis, on January 4, 2018, the current administration issued the Sessions Memo announcing a return to the rule of law and the rescission of previous guidance documents. The Sessions Memo rescinds the Cole Memo which was adopted by the Obama administration as a policy of non-interference with marijuana-friendly state laws. The Sessions Memo shifts federal policy from a hands-off approach adopted by the Obama administration to permitting federal prosecutors across the country to decide how to prioritize resources to regulate marijuana possession, distribution and cultivation in states where marijuana use is regulated. There can be no assurance that federal prosecutors will not prosecute and dedicate resources to regulate marijuana possession, distribution and cultivation in states where marijuana use is regulated which may cause states to reconsider their regulation of marijuana which would have a detrimental effect on the marijuana industry. Any such change in state laws based upon the Sessions Memo and the Federal government’s enforcement of Federal laws could cause significant financial damage to us and our stockholders.

 

 

As the possession and use of cannabis is illegal under the Federal Controlled Substances Act, we may be deemed to be aiding and abetting illegal activities through the services and data that we provide to cannabis dispensaries, cultivators and consumers. As a result, we may be subject to enforcement actions by law enforcement authorities, which would materially and adversely affect our business.

 

Under Federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of cannabis is illegal. The CFN Business provides services to customers that are engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another’s criminal activities. The Federal aiding and abetting statute provides that anyone who “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.” As a result of such an action, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.

 

We face intense competition from other marketing service providers. 

 

We compete with many marketing service providers for consumers' attention and spending. Our competitors may have substantially greater capital, longer operating histories, greater brand recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. Our competitors may also engage in more extensive development of their technologies and may adopt more comprehensive marketing and advertising campaigns than we can. Our competitors may develop products and service offerings that we do not offer or that are more sophisticated or more cost effective than our own. For these and other reasons, our competitors' products and services may achieve greater acceptance in the marketplace than our own, limiting our ability to gain market share and customer loyalty and to generate sufficient revenues to achieve a profitable level of operations. Our failure to adequately address any of the above factors could harm our business and operating results.

 


6


In addition, as the barriers to entry in our market segment are not substantial, an unlimited number of new competitors could emerge, thereby making our goal of establishing a market presence even more difficult. Because our management expects competition in our market segment to continue to intensify, there can be no assurances we will ever establish a competitive position in our market segment.

 

If we are unable to attract new customers or sell additional services and functionality to our existing customers, our revenue growth will be adversely affected.

 

To increase our revenues, we must add new customers, encourage existing customers to renew their agreements on terms favorable to us, increase their usage of our solutions, and sell additional functionality to existing customers. As our industry matures, as interactive channels develop further, or as competitors introduce lower cost and/or differentiated products or services that are perceived to compete with ours, our ability to sell and renew based on pricing, technology and functionality could be impaired. As a result, we may be unable to renew our agreements with existing customers or attract new customers or new business from existing customers on terms that would be favorable or comparable to prior periods, which could have an adverse effect on our revenue and growth, as well as our profitability and financial condition.

 

We may not be successful in increasing our brand awareness.

 

We believe that developing and maintaining awareness of the CFN brand is critical to achieving widespread acceptance of our existing and future services and is an important element in attracting new customers. In order to build brand awareness, we must succeed in our marketing efforts and provide high quality services. Our efforts to build our brand will involve significant expense. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.

 

We depend on receipt of timely feeds from our content providers. 

 

We depend on Web browsers, ISPs and online service providers to provide access over the Internet to our product and service offerings. Many of these providers have experienced significant outages or interruptions in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. These types of interruptions could continue or increase in the future.

  

We rely on third-party computer hardware and software that may be difficult to replace or which could cause errors or failures of our service.

 

We rely on computer hardware purchased or leased and software licensed from third parties in order to offer our services. This hardware and software may not continue to be available to us at reasonable prices, or on commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could significantly increase our expenses and otherwise result in delays in the provisioning of our service until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated, which could harm our business. Any errors or defects in third-party hardware or software could result in errors or a failure of our service which could harm our business. 

 

If our security measures are breached and unauthorized access is obtained to a customer’s data or our data or our information technology systems, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.

 

Our service involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, and to litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, by employee error, malfeasance or otherwise, during the transfer of data to additional data centers or at any time, and may result in someone obtaining unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers may authorize third party technology providers, via our various Application Programming Interfaces, to access their customer data. Because we do not control the transmissions between our customers and third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the


7


complete integrity or security of such transmissions or processing. Any security breach could result in a loss of confidence in the security of our service, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.

 

Our future performance and success depends on our ability to retain our key personnel.

 

Our future performance and success is heavily dependent upon the continued active participation of our current senior management team, including our President and Chief Executive Officer, Brian Ross. The loss of any of their services could have a material adverse effect on our business development and our ability to execute our growth strategy, resulting in loss of sales and a slower rate of growth. We do not maintain any "key person" life insurance for any of our employees.

 

We may be subject to infringement claims on proprietary rights of third parties for software and other content that we distribute or make available to our customers.

 

We may be liable or alleged to be liable to third parties for software and other content that we distribute or make available to our customers:

 

If the content or the performance of our services violates third party copyright, trademark, or other intellectual property rights; or

 

 

If our customers violate the intellectual property rights of others by providing content through our services.

   

Any alleged liability could harm our business by damaging our reputation.  Any alleged liability could also require us to incur legal expenses in defense and could expose us to awards of damages and costs including, but not limited to, treble damages for willful infringement, and would likely divert management's attention which could have an adverse effect on our business, results of operations and financial condition.

  

We cannot assure you that third parties will not claim infringement by us with respect to past, current, or future technologies. Participants in our markets may be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. In addition, these risks are difficult to quantify in light of the continuously evolving nature of laws and regulations governing the Internet. Any claim relating to proprietary rights, whether meritorious or not, could be time-consuming, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements, and we cannot assure you that we will have adequate insurance coverage or that royalty or licensing agreements will be available on terms acceptable to us or at all. Further, we plan to offer our services and applications to customers worldwide, including to customers in foreign countries that may offer less protection for our intellectual property than the United States. Our failure to protect against misappropriation of our intellectual property and claims against us that we are infringing the intellectual property of third parties could have a negative effect on our business, revenues, financial condition and results of operations.

 

Evolving government regulation could adversely affect our business prospects.

 

We do not know with certainty how existing laws governing issues such as property ownership copyright and other intellectual property issues, taxation, illegal or obscene content, regulated industries, retransmission of media, personal privacy and data protection will apply to the Internet or to the distribution of multimedia and other proprietary content over the Internet. Most of these laws were adopted before the advent of the Internet and related technologies and therefore do not address the unique issues associated with the Internet and related technologies. Depending on how these laws developed and are interpreted by the judicial system, they could have the effect of:

 

Limiting the growth of the Internet;

 

 

Creating uncertainty in the marketplace that could reduce demand for our products and services;

 

 

Increasing our cost of doing business;

 

 

Exposing us to significant liabilities associated with content distributed or accessed through our products or services; or

 

 

Leading to increased product and applications development costs, or otherwise harm our business.

 

Because of this rapidly evolving and uncertain regulatory environment, both domestically and internationally, we cannot predict how existing or proposed laws and regulations might affect our business.

 

In addition, as Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. In addition, taxation of services provided over the Internet or other charges imposed by government


8


agencies or by private organizations for accessing the Internet may also be imposed. Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business.

 

Dilutive securities may adversely impact our stock price.

 

As of December 31, 2020, the following securities exercisable into shares of our Common Stock were outstanding: 

 

5,256,944 shares of Common Stock issuable pursuant to the exercise of warrants

 

 

3,160,000 shares of Common Stock issuable pursuant to the exercise of options

    

These securities represent, as of December 31, 2020, approximately 7.4%% of our Common Stock on a fully diluted, as exercised basis. 3,160,000 of the shares of Common Stock issuable pursuant to the exercise of options are beneficially owned by our management. In addition, our preferred stock is convertible into shares of our common stock at a conversion price to be mutually determined between us and the holders in the future, and could result in the issuance of a significant number of shares of common stock. The exercise of any of these options or warrants, both of which have fixed prices, or conversion of our preferred stock, may materially adversely affect the market price of our Common Stock and will have a dilutive effect on our existing stockholders.

 

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm the value of our stock.

 

Effective internal control over financial reporting is necessary for us to provide reliable financial reports, effectively prevent fraud and operate as a public company. We have discovered areas of our internal control over financial reporting that need improvement. If we are unable to adequately maintain or improve our internal control over financial reporting, we may report that our internal controls are ineffective. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be negatively impacted. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information which could have a negative effect on the market price of our Common Stock and which could result in regulatory proceedings against us by, among others, the SEC.

 

We have not voluntarily implemented various corporate governance measures, in the absence of which stockholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

 

Federal legislation, including the Sarbanes-Oxley Act of 2002 and The Dodd Frank Wall Street Reform and Consumer Protection Act, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the New York Stock Exchange or the Nasdaq Stock Market. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address the board of directors' independence, audit committee oversight, and the adoption of a code of ethics. We have not yet adopted some of these corporate governance measures and, since our securities are not listed on a national securities exchange, we are not required to do so. We have not adopted corporate governance measures such as an audit committee or other independent committees of our Board of Directors.  In the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

 

The limited market for our Common Stock will make our stock price more volatile.  Therefore, you may have difficulty selling your shares.

 

The market for our Common Stock is limited and we cannot assure you that a larger market will ever be developed or maintained. Currently, our Common Stock is quoted on the OTCQB Marketplace. Securities quoted on the OTCQB Marketplace typically have low trading volumes.  Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, this may make it difficult or impossible for our shareholders to sell our Common Stock.

 


9


 

There are generally no restrictions on the resale of our outstanding Common Stock.  Sales by existing shareholders may depress the share price of our Common Stock and may impair our ability to raise additional capital through the sale of equity securities when needed.

 

The possibility that substantial amounts of outstanding Common Stock may be sold in the public market may adversely affect prevailing market prices for our Common Stock.  This could negatively affect the market price of our Common Stock and could impair our ability to raise additional capital through the sale of equity securities.

 

Sales of shares of our Common Stock to the public may adversely impact our stock price.

 

Sales of shares of our Common Stock in the public market, or the perception that these sales might occur, could depress the market price of our Common Stock and may make it more difficult for our stockholders to sell their common stock at desirable prices. We are unable to predict the effect that sales may have on the prevailing market price of our Common Stock.

 

Some of the shares issued and options granted under our stock plan may have been issued in transactions that were not exempt from registration under certain state securities laws, the result of which is that the holders of these shares and/or options may have rescission rights that could require us to reacquire the shares and/or options.

 

Some of the shares issued and options granted under our equity compensation plan may not have been exempt from registration or qualification under the securities laws of certain states. We previously became aware that we may not have had a valid exemption for the issuance of these options and shares exercised upon exercise of these options under certain state laws. Because of the lack of registration and, potentially, the lack of a valid exemption from registration, the options we granted and the shares issued upon exercise of these options may have been issued in violation of certain state securities laws and may be subject to rescission.

 

If such shares and options are subject to rescission, we could be required to make payments to the holders of these shares and options in an amount not yet determinable by us. If any or all of the offerees reject the rescission offer, we may continue to be liable under state securities laws for payments to the offerees. If it is determined that we offered securities without properly registering them under state law, or securing an exemption from registration, regulators could impose monetary fines or other sanctions as provided under these laws. 

 

Our Common Stock is subject to the “penny stock” rules of the SEC, and the trading market in our Common Stock is limited.  This makes transactions in our Common Stock cumbersome and may reduce the value of your shares.

 

The SEC has adopted Rule 3a51-1 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

 

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 objectives of the person; and

make a reasonable determination that the transactions in penny stocks are suitable for that person and the 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 prescribed by the SEC relating to the penny stock market, which, in highlight form:

 

sets forth the basis on which the broker or dealer made the suitability determination; and

that the broker or dealer received a signed, written statement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in its market value.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the 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. Finally, 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.


10


 

We could become subject to litigation that could be costly, result in the diversion of management’s attention and require us to pay damages.

 

From time to time, we may become involved in legal proceedings. Though we are not currently subject to any such proceedings, adverse outcomes in such proceedings may result in significant monetary damages or injunctive relief that could adversely affect our ability to conduct our business and could divert management’s attention.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Properties. 

 

On June 20, 2019, we entered into a Lease Agreement with Emerging Growth, LLC for the lease of office space in Whitefish, Montana, for a period of one year at a rate of $1,500 per month. On August 5, 2020, the Company entered into a lease agreement with Emerging Growth, LLC for additional office space in Whitefish, Montana, replacing its previous lease from June 20, 2019. The term of the lease commenced on September 1, 2020 for a period of one year at a rate of $4,500 per month.  The lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase. On March 30, 2021, we entered into a new lease agreement for these premises commencing April 1, 2021 for a period of three years at a rate of $4,500 per month, which lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase.

 

We leased office space in Santa Monica, California under a short-term lease for $1,000 per month. The lease was terminated in March 2020 and the Company has no further obligations under this lease.

  

We believe that our current leases are adequate and sufficient for our needs in the immediate future.

   

Item 3. Legal Proceedings.

 

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that we currently believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.   

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

PART II

 

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our Common Stock is quoted on the OTCQB Marketplace under the symbol “CNFN.” Quotations on the OTCQB Marketplace reflect prices between dealers, do not include retail mark-ups, markdowns, and commissions and may not necessarily represent actual transactions.

 

Stockholders

 

As of December 31, 2020, there were 124 stockholders of record of our Common Stock.

 

Dividend Policy

 

We have not declared or paid any cash dividends on our Common Stock since inception and we do not intend to pay any cash dividends on our Common Stock in the foreseeable future. We intend to retain any future earnings for use in the operation and expansion of our business. Any future decision to pay dividends on Common Stock will be at the discretion of our Board of Directors and will be dependent upon our fiscal condition, results of operations, capital requirements and other factors our Board of Directors may deem relevant.

   

Item 6. Selected Financial Data.

 

Not applicable.

 


11


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following information should be read in conjunction with our financial statements and accompanying notes included in this Annual Report on Form 10-K.

 

Overview

 

We owned and operated CAKE and getcake.com, a marketing technology company that provided a proprietary solution for advanced analytics, attribution and campaign optimization for digital marketers, and we sold this business on June 18, 2019. We contemporaneously acquired assets from Emerging Growth LLC related to its cannabis industry focused sponsored content and marketing business, or the CFN Business. Our initial ongoing operations will consist primarily of the CFN Business and we will continue to pursue strategic transactions and opportunities.

 

The CFN Business generates revenue through sponsored content, including articles, press releases, videos, podcasts, advertisements and other media, email advertisements and other marketing campaigns run on behalf of public and private companies in the cannabis industry, helping them reach accredited, retail and institutional investors. Most revenue is generated through contracts involving a monthly cash payment.

 

The CFN Business’ primary expenses come from advertising on platforms like Twitter and Facebook and from employee salaries and contractor fees. The CFN Business’ content is primarily produced by a team of freelance writers and video content is produced through various vendors. The CFN Business also incurs hosting and development costs associated with maintaining and improving its website, web applications, and mobile applications. The CFN Business operates several media platforms, including CannabisFN.com, the CannabisFN iOS app, the CFN Media YouTube channel, the CFN Media podcast, and other venues. These properties are designed to educate and inform investors interested in the cannabis industry, as well as provide a platform for the clients of the CFN Business to reach investors. The CFN Business distributes content across numerous online platforms, including the CannabisFN.com website, press releases, financial news syndicates, search engines, YouTube, iTunes, Twitter, Instagram, Facebook, LinkedIn, and others.

 

The CFN Business targets the legal cannabis industry. According to Grand View Research, the global cannabis industry is expected to reach $146.4 billion by 2025, driven by the legalization of medical and adult-use cannabis across a growing number of jurisdictions. According to the Marijuana Index, there are approximately 400 public companies involved in the cannabis industry, which represents the primary target market of the CFN Business. The CFN Business’ services are designed to help private companies prepare to go public and public companies grow their shareholder base through sponsored content and marketing outreach. The success of the CFN Business depends on the legal status of cannabis, investor demand for cannabis investments, investor demand for Psychedelics, investor and consumer demand for CBD and numerous other external factors.

 

The CFN Business competes with other public relations firms for clients, as well as online publishers for investors. Public relations competition includes investor awareness firms like Stockhouse Publishing, Catalyst Xchange, Stonebridge Partners and Midan Ventures. Online publisher competition includes firms like New Cannabis Ventures, Leafly and High Times. The CFN Business is regulated by rules established by the SEC, FINRA, and certain federal and state cannabis regulations.

 

Late in 2020, we launched an e-commerce network focused on the sale of general wellness CBD products.  Revenue generated from this new line of business has been minimal as of December 31, 2020.  However, we expect to grow and continue marketing this line of business in future periods.   

 


12


 

Results of Operations

 

The following are the results of our operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019:

 

 

 

 

For the Year Ended

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

         506,490

 

$

        864,915

 

$

             (358,425)

Cost of revenue

 

 

         536,738

 

 

        864,831

 

 

             (328,093)

Gross profit (loss)

 

 

        (30,248)

 

 

                 84

 

 

               (30,332)

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Impairment charge

 

 

                    -   

 

 

     3,767,541

 

 

          (3,767,541)

Selling, general and administrative

 

 

     1,199,410

 

 

     2,244,304

 

 

          (1,044,894)

 Total operating expenses

 

 

     1,199,410

 

 

     6,011,845

 

 

          (4,812,435)

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

   (1,229,658)

 

 

   (6,011,761)

 

 

            4,782,103

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

        (71,377)

 

 

                    -   

 

 

               (71,377)

Other income   

 

 

           10,000

 

 

                    -   

 

 

                 10,000

Interest expense

 

 

        (51,615)

 

 

        (13,993)

 

 

               (37,622)

Interest income

 

 

                 19

 

 

               131

 

 

                    (112)

  Total other income (expense)

 

 

      (112,973)

 

 

        (13,862)

 

 

               (99,111)

 

 

 

 

 

 

 

 

 

 

Net loss before provision for income taxes

 

 

   (1,342,631)

 

 

   (6,025,623)

 

 

            4,682,992

Provision for income taxes

 

 

                    -   

 

 

                    -   

 

 

                        -   

Net loss from continuing operations

 

 

   (1,342,631)

 

 

   (6,025,623)

 

 

            4,682,992

Gain (loss) from discontinued operations, net of tax

 

 

        (80,422)

 

 

   14,391,173

 

 

        (14,471,595)

Net income (loss)

 

$

   (1,423,053)

 

$

     8,365,550

 

$

          (9,788,603)

 

Net Revenues

 

Our revenues are generated from the sale of promotional service packages to customers ranging from 3 to 6 months. We offer different packages tailored to the type and stage of the potential customer, such as public companies looking to increase their shareholder base, as well as private companies potentially looking to go public and attract capital and publicity. Our revenue for the year ended December 31, 2019 represents revenue recognized for the period from June 21, 2019 through December 31, 2019 subsequent to the purchase of the CFN Business. We expect this be our primary source of revenue going forward.

 

Our revenue during the year ended December 31, 2020 was lower than the same period in 2019, as the volume of new contracts entered into with customers has decreased in 2020 due in-part to COVID-19 and the impacts on our customers and the industry in which we operate. During the year ended December 31, 2020, we had 26 contracts in progress, whereas we had 31 contracts in 2019. We expect these trends to continue for the foreseeable future.

 

Our revenue for 2020 also included $8,948 relating to sales of product from our e-commerce network focused on the sale of general wellness CBD products.  This network was launched during the fourth quarter of 2020.  We expect our revenue related to this e-commerce business to increase in future periods as we continue to grow and market this business line.     

 

Costs of Revenue

 

Our cost of revenue primarily represents costs incurred associated with performing services under our customer contracts acquired under the CFN Business. We expect for our cost of revenue to increase proportionately with increases in revenues recognized in future periods. During 2020, the cost of revenue did not increase proportionately with revenue as our main customer market suffered a decline while certain online fixed costs remained the same.

 


13


 

Operating Expenses

 

Our operating expenses for the year ended December 31, 2020 decreased by $4,812,435 as compared to the prior year period. This decrease is primarily due to impairment charges of $3,767,541 for 2019, including $541,724 related to the impairment of marketing-related intangibles and $3,225,817 related to the impairment of goodwill generated from the acquisition of the CFN Business in connection with the Emerging Growth Agreement. We had no impairment charges in 2020.  Selling, general and administrative expenses decreased in 2020 by $1,044,894 as compared to 2019 primarily due to additional legal and professional fees associated with the closing of the asset purchase agreement, or the Asset Purchase Agreement, with CAKE Software Inc. for the sale of the CAKE Business and the asset purchase agreement, or the Emerging Growth Agreement, with Emerging Growth, LLC for the purchase of the CFN Business and the reporting regulatory requirements associated with these transactions in 2019.  We had no such transactions in 2020.  

 

Discontinued Operations

 

Effective June 18, 2019, we sold substantially all of our assets associated with the CAKE Business for total proceeds of $20,892,667. Accordingly, we had a gain from discontinued operations during the year ended December 31, 2019 of $14,391,173, which includes the gain on sale of the CAKE Business of $19,473,080 offset by losses from the CAKE business through June 18, 2019. During the year ended December 31, 2020, we had a loss on discontinued operations resulting primarily from the loss on foreign currency translation associated with dissolving our subsidiary in the UK.  

 

Liquidity and Capital Resources

 

On May 15, 2019, we entered into the Asset Purchase Agreement to sell substantially all of our assets related to the CAKE Business. Concurrent with this agreement, we also entered into the Emerging Growth Agreement where we acquired certain assets from Emerging Growth, LLC related to its sponsored content and marketing business for purchase price consideration consisting in part of $420,000 in cash. In September 2019, we received proceeds of $500,000 from a note payable. On May 6, 2020, we received $263,000 in the form of a loan from the Paycheck Protection Program, or the PPP, which is a program of the U.S. Small Business Administration, or the SBA, established under the Coronavirus Aid Relief, and Economic Security Act, or the CARES Act,, as well $150,000 in proceeds from a loan with the SBA on June 24, 2020. Our plan to continue as a going concern includes raising additional capital in the form of debt or equity, growing the business acquired under the Emerging Growth Agreement and managing and reducing operating and overhead costs. We cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for us to raise additional capital on an immediate basis.

 

These matters, among others, raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

 

The following is a summary of our cash flows from operating, investing and financing activities for the year ended December 31, 2020 and 2019.

 

 

 

 

Year Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

Cash flows used in operating activities

 

$

         (483,522)

 

$

        (6,965,636)

Cash flows provided by (used in) investing activities

 

$

         (206,634)

 

$

        20,470,915

Cash flows provided by (used in) financing activities

 

$

           763,000

 

$

      (13,469,181)

 

As of December 31, 2020, we had unrestricted cash of $160,115. 

 

Net cash used in operating activities was approximately $500,000 during the year ended December 31, 2020, compared with approximately $7.0 million during the same period in 2019. The decrease in cash used in operating activities during 2020 was primarily due to a higher net loss from continuing operations in 2019 of approximately $6.0 million as compared to approximately $1.3 million in 2020.  In addition, we used a higher amount of cash in 2019 for the payment of a large number of accounts payable and accrued expenses at the time of closing of the Asset Purchase Agreement on June 18, 2019.

 

Net cash used in investing activities amounted to approximately $206,000 during the year ended December 31, 2020, compared with cash provided by investing activities of approximately $20.5 million during the same period in 2019. Cash provided by investing activities in 2019 consisted primarily of proceeds from the sale of the CAKE Business of approximately $20.9 million, offset by cash used of $420,000 for the acquisition of assets pursuant to the Emerging Growth Agreement. During 2020, our cash


14


used in investing activities consisted primarily of $200,000 for a 9.8% investment made in an outside company in the cannabis-related business.

 

Net cash provided by financing activities was $763,000 for the year ended December 31, 2020, compared to net cash used in financing activities of approximately $13.5 million for the same period in 2019. Cash provided by financing activities in 2020 resulted from proceeds from notes payable of $413,000 and proceeds from the sale of common stock of $410,000, which stock was issued in January, 2021, offset by payments of preferred stock dividend of $60,000.  Cash used in financing activities in 2019 consisted of payments of approximately $11.8 million to repay the principal amounts outstanding under our credit facilities, repayment of promissory notes of $2.7 million and repayment of related party notes of $300,000. These repayments occurred at the time of closing of the Asset Purchase Agreement on June 18, 2019 for the sale of the CAKE Business. The cash used in financing activities in 2019 was offset by proceeds from credit facility borrowings of $900,000, as well as proceeds of $500,000 from a note payable in September 2019.

 

Description of Indebtedness

 

As of June 18, 2019, upon the closing of the Asset Purchase Agreement for the sale of the CAKE Business, all existing debt at the time was either paid off or settled through the exchange of outstanding principal into Series A Preferred Stock.

 

On September 10, 2019, we entered into a promissory note payable whereby we borrowed $500,000 bearing interest at 8% per annum. Interest on the note is payable quarterly on the first business day of December, March, June and September commencing December 1, 2019. Outstanding principal on the note is due in full on September 30, 2022.

 

In connection with the promissory note payable on September 10, 2019, we issued warrants to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.10 per share. The warrants expire on September 10, 2024 and are fully vested upon issuance. The note was discounted by $17,624 allocated from the valuation of the warrants issued. The discount recorded on the note is being amortized as interest expense through the maturity date, which amounted to $5,884 and $1,801 for the year ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the net book value of the promissory note amounted to $490,061 including the principal amount outstanding of $500,000 net of the remaining discount of $9,939.

 

On May 6, 2020, the Company entered into a promissory note, or the Note, with Pacific Western Bank, evidencing an unsecured loan, or the Loan, in the amount of $263,000 made to the Company under the PPP. The PPP is a program of the SBA established under the CARES Act. Under the PPP, the proceeds of the Loan may be used to pay payroll and make certain covered interest payments, lease payments and utility payments, or the Qualifying Expenses. The Company intends to use the entire Loan amount for Qualifying Expenses under the PPP. Under the terms of the CARES Act, PPP loan recipients can be granted forgiveness for all or a portion of the loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of Qualifying Expenses and the Company maintaining its payroll levels over certain required thresholds under the PPP. The terms of any forgiveness also may be subject to further requirements in any regulations and guidelines the SBA may adopt. No assurance can be provided that the Company will obtain forgiveness of the Note in whole or in part.

 

The interest rate on the Loan is 1.0% per annum. The Note matures on May 6, 2022. On December 1, 2020 and on the first day of each month thereafter until May 1, 2022, the Company must make monthly payments of $14,727 under the Loan that is not forgiven in accordance with the terms of the PPP and related accrued interest thereon. The Note contains events of default and other conditions customary for a Note of this type. As of December 31, 2020, the current portion of the Loan due within the next 12 months amounted to $188,249.  The Company has applied for full forgiveness of the amounts due under this Note.  

 

On June 24, 2020, the Company entered into a Loan Authorization and Agreement with the SBA under which the Company borrowed $150,000, and issued to the SBA a note and security agreement for the amount borrowed. Outstanding borrowings accrue interest at a rate of 3.75% per annum, and installment payments, including principal and interest, of $731 are due monthly and begin 12 months from the date of the loan agreement. The balance of any remaining principal and interest is due 30 years from the date of the loan agreement. As collateral for the borrowing, the Company granted the SBA a security interest in substantially all assets of the Company.

 


15


 

Future scheduled maturities of long-term debt are as follows.

 

 

 

Year Ended

 

 

December 31,

 

 

 

2021

$

         188,249

2022

 

         574,751

2023

 

             2,262

2024

 

             3,285

2025

 

             3,416

Thereafter

 

         141,037

Total

$

         913,000

 

Obligations Under Preferred Stock

 

On June 20, 2019, existing debtholders were issued an aggregate of 500 shares of Series A Preferred Stock, each with a stated value per share of $1,000, as conversion of $500,000 worth of outstanding promissory notes. The Series A Preferred Stock bears interest at 12% per annum, and is convertible into our common stock at the election of the holder at a conversion price per share to be mutually agreed between us and the holder in the future, and be redeemable at our option following the third year after issuance, without voting rights or a liquidation preference.

 

On June 20, 2019, we issued 3,000 shares of Series B Preferred Stock, each with a stated value of $1,000 per share, to Emerging Growth, LLC as part of the Emerging Growth Agreement. The aggregate fair value of $687,000 was recorded as part of the acquisition price of the net assets acquired from Emerging Growth, LLC. The Series B Preferred Stock bears interest at 6% per annum and is convertible into our common stock at the election of Emerging Growth, LLC at a conversion price per share to be mutually agreed between us and Emerging Growth, LLC in the future, without voting rights or a liquidation preference, except with respect to accrued penalty interest.

 

Other outstanding obligations at December 31, 2020

 

Warrants

 

As of December 31, 2020, 5,256,944 shares of our common stock are issuable pursuant to the exercise of warrants.

  

Options

 

As of December 31, 2020, 3,160,000 shares of our common stock are issuable pursuant to the exercise of options.

 

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

COVID-19

 

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including each of the areas in which we operate. While to date we have not been required to stop operating, COVID-19 has had and is expected to continue to have an adverse effect on the financial condition of us and our customers. The outbreak of COVID-19 in the U.S. has had an unfavorable impact on our business operations.  Our main customer market suffered its worst decline, decreasing our revenue.  Mandatory closures of businesses imposed by the federal, state and local governments to control the spread of the virus is disrupting the operations of our management, business and finance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. economy and financial markets, which may result in a long-term economic downturn that could negatively affect future performance.  We took steps to diversify our revenue model by creating our CBD ecommerce business which has higher margins during the second half of 2020 and reduce our costs.  The extent to which COVID-19 will impact our business and our consolidated financial results further will depend on future developments which are highly uncertain and cannot be predicted at this time, but may result in a material adverse impact on our business, results of operations and financial condition.


16


 

Climate Change

 

Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations. 

 

Critical Accounting Policies 

 

Accounts Receivable

 

The Company’s account receivables are due from customers relating to contracts to provide investor relation services. Collateral is currently not required. The Company also maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make payments. The Company periodically reviews these estimated allowances, including an analysis of the customers’ payment history and creditworthiness, the age of the trade receivable balances and current economic conditions that may affect a customer’s ability to make payments as well as historical collection trends for its customers as a whole. Based on this review, the Company specifically reserves for those accounts deemed uncollectible or likely to become uncollectible. When receivables are determined to be uncollectible, principal amounts of such receivables outstanding are deducted from the allowance. The allowance for doubtful accounts as of December 31, 2020 and 2019 amounted to $183,750 and $163,750, respectively.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation. 

 

Subsequent to the closing of the Emerging Growth Agreement on June 20, 2019, the Company’s revenue is generated from the sale of promotional service packages to its customers ranging from 3 to 6 months. The Company offers different packages tailored to the type and stage of the potential customer, such as public companies looking to increase their shareholder base, as well as private companies potentially looking to go public and attract capital and publicity. The services provided by the Company include advertising, publishing of interviews and articles across its network and featuring of client content on its newsletters and social media. The packages all have fixed prices that are billed monthly over the terms of the agreement in even amounts. The Company recognizes revenue for its performance obligation associated with its contracts with customers over time as work is performed, which is deemed to occur evenly throughout the duration of the contract. This also reflects the pattern in which costs are incurred on performing the contracts. To the extent revenue recognized on contracts at each period end exceeds collections, the amounts are reflected as accounts receivable. To the extent collections on contracts at each period end exceeds revenue recognized, the amounts are reflected as deferred revenue.

 

Income Taxes

 

Income taxes are accounted for in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly.

 

Property and Equipment

 

Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives of five years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. 

 

Goodwill

 

The Company’s goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from business acquisitions. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level. There was an impairment charge of $3,225,817 during the year ended December 31, 2019 related to the impairment of goodwill acquired from the Emerging Growth Agreement.


17


Investment

 

On December 24, 2020, the Company acquired a 9.8% interest in the outstanding stock of a privately held company.  As the stock has no readily determinable fair value, the Company accounts for this stock received using the cost method, less adjustments for impairment.  At each reporting period, management reviews the status of the investment to determine if any indicators of impairment have occurred.  There were no impairment charges recorded related to investments during the year ended December 31, 2020 or 2019.

 

Long-Lived Assets

 

In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. There was an impairment charge of $541,724 during the year ended December 31, 2019 related to the impairment of marketing-related intangible assets acquired from the Emerging Growth Agreement.

 

Basic and Diluted Earnings Per Share

 

Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options, warrants and preferred stock (calculated using the modified-treasury stock method). As of December 31, 2020, the Company had 3,160,000 outstanding stock options and 5,256,944 outstanding warrants and 3,500 preferred stock which were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive.  As of December 31, 2019, the Company had 6,320,000 outstanding stock options, 7,543,944 outstanding warrants and 3,500 preferred stock which were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive. As a result, the basic and diluted earnings per share are the same for each of the periods presented.

 

Share-Based Payment

 

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.

 

The Company has elected to use the Black-Scholes option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

Common stock awards

 

The Company has granted common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been made in cash.

 

Warrants

 

In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period.

 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.


18


 

Item 8.   Financial Statements and Supplementary Data.

 

The information required by this item is included in Item 15 of this Annual Report on Form 10-K.

  

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures 

 

Under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer and Principal Financial Officer), we conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on this evaluation, our Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) concluded that our disclosure controls and procedures were not effective as of December 31, 2020 (the end of the period covered by this report).

 

Management’s Annual Report on Internal Control over Financial Reporting 

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

 

As required by Section 404 of the Sarbanes-Oxley Act of 2002 and the related rule of the SEC, management assessed the effectiveness of our internal control over financial reporting using the Internal Control-Integrated Framework (2013) developed by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2020. 

 

Auditor Attestation

 

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report. 

  

Changes in Internal Control over Financial Reporting 

 

During the year ended December 31, 2020, in order to remediate the segregation of duties and other deficiencies initially created by the departure of our accounting department in June 2019, we hired accounting consultants to perform our account reconciliations and other day-to-day accounting requirements. The internal control structure was also documented and assessed in the areas of financial reporting and disclosure controls as it relates to our continuing operations. In addition, we revised and improved the use of our systems for getting appropriate approvals for purchases and other activities that require authorization. However, our ability to file timely reports is heavily dependent on having the necessary financial resources to pay consultants and other service providers involved with performing key elements of our disclosure and financial reporting controls.  Our current financial condition, brought on in-part by COVID-19, has temporarily hindered our ability to file timely reports for this reason which has now been remedied.  As a result, we have assessed our disclosure controls and controls over financial reporting as ineffective.  

 


19


 

Item 9B.  Other Information 

 

Given the timing of events, the following information is included in this Form 10-K pursuant to Item 1.01 “Entry into a Material Definitive Agreement: and Item 3.02 “Unregistered Sales of Equity Securities” of Form 8-K in lieu of filing a Form 8-K.

Effective March 29, 2021, the Company and Emerging Growth reached an agreement whereby the Company issued 1.75 million shares of its common stock with a value of $105,000 to Emerging Growth as payment for $105,000 in outstanding accrued interest on the Series B Preferred Stock through March 31, 2021.  The shares were issued under the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as not involving a public offering.

 

On March 30, 2021, we entered into a new lease agreement with Emerging Growth for our premises in Whitefish, Montana, commencing April 1, 2021 for a period of three years at a rate of $4,500 per month, which lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase.

 

PART III

 

Item 10.  Directors, Executive Officers and Corporate Governance.

 

The following table sets forth the names, ages and principal position of our executive officers and directors as of December 31, 2020:

 

Name

Age

Position

Brian Ross

46

Chairman of the Board, President, Chief Executive Officer

Frank Lane

54

President of CFN Media

Mario Marsillo

52

Director, Director Corp Development

 

Brian Ross. Mr. Ross has served as our President, Chief Executive Officer and director since November 2005, and as our Chairman of the Board since March 2013. He previously served as Senior Vice President of Business Development for iMall, Inc. from 1994 and became Director of Investor Relations in June 1997. iMall, Inc. was acquired by Excite@Home in October 1999. Mr. Ross then served as a Business Development Manager in Excite@Home’s E-Business Services Group until December 1999. After the sale of iMall, Mr. Ross was a founding investor of GreatDomains Inc. which was sold in October 2000 to Verisign. Between 2000 and 2003, he was Director of Business Development for Prime Ventures Inc., a leading Venture Partner firm focusing on early stage companies in Southern California. In July 2004, Mr. Ross became a founding investor in E-force Media, a diversified online marketing company where he acted as interim Director of Business Development. Mr. Ross attended UC Santa Barbara.

 

We believe that Mr. Ross is qualified to serve as a director for the following reasons: Mr. Ross, who is one of our founders, is an Internet industry veteran with over two decades of experience.  He has been our Chief Executive Officer for more than ten years and he has a proven track record with the aforementioned companies, which were all operating in online marketing solutions and e-commerce. Additionally, Mr. Ross has played an important role in the development and growth of various Internet companies, taking them from start-up companies through the various stages of their growth cycle.

 

Frank Lane. Mr. Lane was appointed as the President of CFN Media in June 2019 following our acquisition of the CFM Media assets from Emerging Growth, LLC, where he had been employed since 2012. Mr. Lane founded CFN Media in 2013. Mr. Lane has 15 years of experience working with capital markets specialists in both the U.S. and Canada, including national exchanges, investment bankers, institutional funders, brokers and agencies to deliver digital communications services to leading public and private companies across North America. Mr. Lane graduated with a BSEE and a minor in physics from Seattle University in 1989.

 

Mario Marsillo Jr. Mr. Marsillo has been a director since April 2014 and our Director of Corp Development since August 1, 2019. Mr. Marsillo was until June 30, 2019 the Managing Director of Private Equity for Network 1 Financial Securities Inc., or Network 1, a New Jersey based FINRA member firm offering a wide array of investment banking services and has been with Network 1 since 2010. Prior to his association with Network 1, Mr. Marsillo acquired Skyebanc, Inc., a registered broker dealer, with a specialty towards private equity, and served as its Vice President of Private Equity and Business Development. Mr. Marsillo currently holds the Series 7, 63 79, and 24 FINRA qualifying examinations. Mr. Marsillo attended the City University of New York.

 

We believe Mr. Marsillo is qualified to serve as a director because Mr. Marsillo is a sophisticated businessman with investment banking and private equity experience, was an early investor in us and has previously assisted us in raising capital.


20


 

Code of Ethics

 

We have adopted a Code of Business Conduct Ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We will provide a copy of our Code of Ethics, free of charge, upon request.

 

Committees of the Board of Directors

 

Our Board of Directors has not yet established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee. The typical functions of such committees are currently being undertaken by our Board of Directors.

 

Audit Committee Financial Expert

 

Currently no member of our Board of Directors is an audit committee financial expert.

 

Item 11. Executive Compensation.

 

The following table sets forth, for the last two completed fiscal years, all compensation paid, distributed or accrued for services rendered to us by (i) all individuals serving as our principal executive officer or acting in a similar capacity during the last completed fiscal year, regardless of compensation level; and (ii) our two most highly compensated executive officers, other than the principal executive officer, who were serving as executive officers at the end of the last completed fiscal year and whose total compensation exceeded $100,000:

 

Summary Compensation Table

 

Name and Principal Position

Year

Salary ($)

 

Bonus ($)

Stock Awards

Option Awards ($)

Non-Equity Incentive Plan Compensation ($)

Non-Qualified Deferred Compensation Earnings

All Other Compensation ($) (1)

Total ($)

Brian Ross,

2020

338,215

 

        -   

           -   

        -   

                  -   

                    -   

         20,525

  358,740

Chief Executive Officer

2019

335,006

(2)

        -   

           -   

        -   

                  -   

                    -   

         20,525

  355,529

Damon Stein (3),

2020

           -   

 

        -   

           -   

        -   

                  -   

                    -   

                   -   

            -   

General Counsel and Secretary

2019

335,006

(2)

        -   

           -   

        -   

                  -   

                    -   

          20,525

  355,529

Frank Lane,

2020

230,000

 

        -   

           -   

        -   

                  -   

                    -   

         14,826

  244,826

President of CFN Media

2019

160,583

 

        -   

           -   

        -   

                  -   

                    -   

                   -   

  160,583

 

 

(1)

Includes health-related insurance paid by us on behalf of the officer.

 

(2)

Excludes $95,089 in deferred compensation paid in 2019.

 

(3)

Damon Stein resigned from the Company on January 2, 2020

  

We have no plans or arrangements with respect of remuneration received or that may be received by our executive officers named in the table above to compensate such officers in the event of termination of employment (as a result of resignation, retirement or change of control) or a change of responsibilities following a change of control, except if we elect to terminate Mr. Ross’ employment without cause during the term of his respective employment agreement as described below, each shall be entitled to a severance payment of the greater of the remaining payments due on the term of the agreement or an annual base salary of one year, and all unvested options, bonuses and other compensation shall vest on the date of termination. 

 

Employment Agreements

 

We have written employment agreements with all of our employees. The main terms of the executive employment agreements of Brian Ross, our Chairman of the Board, President and Chief Executive Officer, and Frank Lane, our President of CFN Media, are summarized below.

 

Mr. Ross’ employment agreement, as amended, was effective as of November 9, 2012, and continues until the earlier of June 30, 2021 or its earlier termination or expiration. Under the agreement Mr. Ross is entitled to an annual base salary of $275,000. Mr. Ross is entitled to an annual raise of three percent and additional annual raises and bonuses at the discretion of our Board of Directors. Any bonuses awarded will not exceed thirty percent of Mr. Ross’s base salary. If we do not make monthly salary payments during the term of his employment, such salary will accrue without interest. Mr. Ross is entitled to other


21


benefits, including, reimbursement for reasonable business expenses and health insurance premiums. In addition, in 2007 and 2012, Mr. Ross was granted non-qualified stock options to purchase up to an aggregate of 5,100,000 of our shares, of which 3,100,000 are exercisable at December 31, 2017. The employment agreement may be terminated by us without cause upon 30-days prior written notice. If we elect to terminate Mr. Ross’s employment without cause during the term of his employment, he shall be entitled to a severance payment of the greater of the remaining payments due on the term of the agreement or an annual base salary of one year and all unvested options, bonuses and other compensation shall vest on the date of termination. We may also terminate the agreement and Mr. Ross’s employment upon his illness or disability for a continuous period of more than 45 days, his death or for cause. The agreement contains customary confidentiality and assignment of work product provisions.

 

Mr. Lane’s employment agreement was effective as of June 21, 2019. Mr. Lane’s employment with us is at will. Mr. Lane is entitled to an annual base salary of $230,000. Mr. Lane is also entitled to other customary benefits including reimbursement for reasonable business expenses and payment of health insurance premiums. The agreement contains customary confidentiality and assignment of work product provisions.

 

Pension, Retirement or Similar Benefit Plans

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive stock options at the discretion of our Board in the future.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table presents the outstanding equity awards held as of December 31, 2020 by our Executive Officers.

 

Name

Number of Securiries Underlying Unexercised Options (#) Exercisable

Number of Securiries Underlying Unexercised Options (#) Unexercisable

Option Exercise Price ($)

Option Expiration Date

Brian Ross

  3,100,000

                    -   

        0.31

5/24/22

 

Director Compensation 

 

There was no director’s compensation paid during the year ended December 31, 2020.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.

 

As of December 31, 2020, we had 104,792,209 shares of our Common Stock issued and outstanding. The following, table sets forth information regarding the beneficial ownership of our Common Stock as of March 31, 2021 by:

 

each person known by us to be the beneficial owner of more than 5% of our Common Stock;

 

our directors;

 

 

each of our executive officers named in the compensation tables in Item 11; and

 

 

all of our executive officers and directors as a group.

 

 

 

Common Stock

Name

 

# of Shares

% of Class

Brian Ross (1)

 

         10,860,000

9.3%

Mario Marsillo Jr. (2)

 

           1,379,724

1.2%

Damon Stein (3)

 

           2,204,711

1.9%

Emerging Growth LLC (4)

 

34,800,000

29.8%

All current officers and directors as a group (3 persons) (5)

         49,244,435

42.2%

 

 

(1)

Includes 3,100,000 options held by Mr. Ross and 150,000 warrants vested held by Mr. Ross’ spouse and that will vest within the next 60 days. Mr. Ross disclaims beneficial ownership of the 150,000 warrants vested except to the extent of his pecuniary interest therein.

 

(2)

Includes 60,000 options vested and that will vest within the next 60 days.


22


 

(3)

Mr. Stein resigned from the Company on January 2, 2020.

 

(4)

Affiliate with a greater than 10% ownership.

 

(5)

Includes 3,160,000 options and 150,000 warrants vested and that will vest within the next 60 days.

 

Securities authorized for issuance under equity compensation plans. 

 

The table below provides information regarding all compensation plans as of the end of the most recently completed fiscal year (including individual compensation arrangements) under which equity securities of the registrant are authorized for issuance.  Our stock option plan, or the Plan, was adopted effective as of December 15, 2006 and options may be granted under the Plan through December 14, 2016; the Plan is now expired.  The Plan was amended effective as of May 17, 2006, May 5, 2011, and May 27, 2012 to increase the number of shares available under the Plan for non-qualified stock options from 4,300,000 to 22,500,000. The Plan was amended effective May 24, 2012 to increase the number of options that may be granted in any year to any optionee from 2,000,000 to 4,000,000 shares. The Plan permitted the grant of both incentive stock options (if our shareholders approve the plan) and non-qualified stock options. In addition, in 2014, we issued warrants to purchase up to an aggregate of 5,050,000 shares of our Common Stock to certain of our executive officers as individual compensation arrangements.

 

Equity Compensation Plan Information

Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)

Weighted-average price of outstanding options, warrants and rights (b)

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)

Equity compensation plans approved by security holders

n/a

n/a

n/a

Equity compensation plans not approved by security holders

      8,416,944

$           0.33

                        -   

Total

      8,416,944

$           0.33

                        -   

 

Item 13. Certain Relationships and Related Party Transactions, and Director Independence.

 

Related Person Transactions

 

None.

  

Director Independence

 

As our Common Stock is currently quoted on the OTCQB Marketplace, we are not subject to the rules of any national securities exchange which require that a majority of a listed company’s directors and specified committees of the Board of Directors meet independence standards prescribed by such rules. We believe that none of our directors would qualify as "independent" if we were subject to the rules of the Nasdaq Stock Market.

 

Item 14. Principal Accountant Fees and Services

 

The following table summarizes the fees of RBSM LLP, our independent registered public accounting firm billed for each of the last two fiscal years for audit services and other services:

 

Fee Category

 

 

2020

 

 

2019

 

 

 

 

 

 

 

Audit Fees (1)

 

$

     81,000

 

$

   174,000

Tax Fees (2)

 

 

     10,000

 

 

     12,500

 

 

 

 

 

 

 

Total Fees

 

$

     91,000

 

$

   186,500

 

(1) Consists of fees billed for professional services rendered in connection with the audit of our annual financial statements, review of our Form 10-K, review of our interim financial statements included in our Form 10-Q and services that are normally provided by our independent registered public accounting firm in connection with year-end statutory and regulatory filings or engagements.


23


(2) Consists of fees billed for professional services for our tax compliance, tax advice and tax planning.

 

We do not have an Audit Committee. Our Board of Directors pre-approves all auditing services and permissible non-audit services provided to us by our independent registered public accounting firm. All fees listed above were pre-approved in accordance with this policy. 

 

 

PART IV

 

 Item 15.  Exhibits and Financial Statement Schedules

 

a.

Index to Financial Statements and Financial Statement Schedules

 

 

Page

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019

F-4

Consolidated Statements of Operations for the years ended December 31, 2020 and 2019

F-5

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020 and 2019

F-6

Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2020 and 2019

F-7

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

F-8

Notes to Consolidated Financial Statements

F-9 - F-22

 

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.

 

b.

Exhibits

 

EXHIBIT

NO.

DESCRIPTION

  

  

2.1

Asset Purchase Agreement, dated May 15, 2019, by and between Accelerize Inc. and CAKE Software Inc. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 20, 2019).

 

 

3.1

Composite Copy of Certificate of Incorporation, as amended as of October 10, 2014, February 4, 2019, and October 22, 2019 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 6, 2019)..

  

  

3.2

Certificate of Designation of 10% Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).

 

 

3.3

Certificate of Designation of 8% Series B Convertible Preferred Stock (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB filed on August 13, 2007).

  

  

3.4

By-laws of the Company (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).

  

  

3.5

Certificate of Amendment to the Certificate of Designation of 8% Series B Convertible Preferred Stock (incorporated by reference to the Company's Annual Report on Form 10-K filed on March 29, 2012).

 

 

3.6

Certificate of Designation of Series A Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K filed on June 21, 2019).

 

 

3.7

Certificate of Designation of Series B Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K filed on June 21, 2019).

  

  

4.1

Form of Common Stock Certificate (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).

  

  

4.2

Form of Warrant to Purchase Stock issued on June 30, 2016 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2016).

  

  


24


4.3

Form of Warrant to Purchase Stock issued November 29, 2016 (incorporated by reference to the Company’s Current Report on Form 8-K filed on November 30, 2016).

 

4.4

Form of Warrant to Purchase Stock issued on August 14, 2017 (incorporated by reference to the Company’s Current Report on Form 8-K filed on August 16, 2017).

 

 

4.5

Form of Warrant to Purchase Stock issued on September 12, 2019 (incorporated by reference to the Company’s Current Report on Form 8-K filed on September 18, 2019).

 

 

10.1*

Employment Agreement, dated November 9, 2012, between Accelerize New Media, Inc. and Brian Ross (incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on November 14, 2012). 

  

  

10.2*

Amendment No. 1 to Employment Agreement, dated as of June 9, 2016, between Brian Ross and Accelerize Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed on June 13, 2016).

 

 

10.3*

Employment Agreement, dated as of June 21, 2019, between Accelerize Inc. and Frank Lane (incorporated by reference to the Company’s Current Report on Form 8-K filed on September 19, 2019).

  

  

10.4*

Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).

 

 

10.5*

Form of Stock Option Agreement (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).

 

 

10.6*

Amendment No. 1 to Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on May 10, 2011).

  

 

10.7*

Amendment No. 2 to Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on May 10, 2011).

 

  

10.8*

Amendment No. 3 to Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company's Annual Report on Form 10-K filed on March 29, 2012).

 

 

10.9*

Amendment No. 4 to Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company's Current Report on Form 8-K filed on May 29, 2012). 

 

 

10.10*

Form of Stock Option Agreement (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2015).

 

 

10.11*

Form of Stock Option Agreement (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2015).

   

10.12*

Form of Restricted Stock Agreement entered into on July 1, 2016 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2016).

 

  

10.13*

Form of Restricted Stock Agreement entered into on July 1, 2017 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2017).

 

 

10.14*

Form of Restricted Stock Agreement entered into on July 1, 2018 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2018).

 

 

10.15

Form of Promissory Note issued on September 12, 2019 (incorporated by reference to the Company’s current report on Form 8-K filed on September 18, 2019).

 

 

10.16

Form of Promissory Note issued on May 6, 2020 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on June 15, 2020).

 

 

10.17

Loan Authorization and Agreement between the U.S. Small Business Administration and CFN Enterprises Inc., dated June 24, 2020, and forms of related Promissory Note and Security Agreement issued by CFN Enterprises Inc. on June 24, 2020 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on June 30, 2020).


25


 

 

10.18

Form of Commercial Lease Agreement dated August 5, 2020 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 10, 2020).

 

 

10.19**

Form of Securities Purchase Agreement dated January 6, 2021.

 

 

10.20**

Common Stock and Common Unit Investment Agreement among CFN Enterprises Inc., Innovation Labs Ltd. And Innovation Shares LLC.

 

 

10.21**

Form of Promissory Note issued on February 8, 2021.

 

 

10.22**

Lease Agreement dated March 30, 2021.

 

 

23.1**

Consent of RBSM LLP.

 

 

31.1**

Rule 13a-14(a) Certification.

 

 

32.1***

Certification pursuant to 18 U.S.C. Section 1350.

 

 

101.1**

The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Changes in Stockholders’ Deficit, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements.

 

*     Management contract or compensatory plan or arrangement.

**   Filed herewith.

*** Furnished herewith.

 

Item 16. Form 10-K Summary.

 

None. 

 

 


26


 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

CFN ENTERPRISES INC.

 

By:    /s/ Brian Ross

Brian Ross

President and Chief Executive Officer

 

Date: March 31, 2021

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

SIGNATURE

  

TITLE

DATE

  

  

  

  

By: /s/ Brian Ross

  

Chairman of the Board, President and Chief Executive Officer

March 31, 2021

Brian Ross

  

(Principal executive officer, principal financial officer and

principal accounting officer)

  

  

  

  

  

By: /s/ Mario Marsillo Jr.

  

Director

March 31, 2021

Mario Marsillo Jr.

  

  

  

  

  

  

  

 

 

 

 

 


27


 

CFN ENTERPRISES INC. 

 

FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2020 and 2019

 

Index to Financial Statements and Financial Statement Schedules

 

The following consolidated financial statements and financial statement schedules are included on the pages indicated:

 

 

Page

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019

F-4

Consolidated Statements of Operations for the years ended December 31, 2020 and 2019

F-5

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020 and 2019

F-6

Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2020 and 2019

F-7

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

F-8

Notes to Consolidated Financial Statements

F-9 - F-22

 

 


F-1


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and
Stockholders of CFN Enterprises, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of CFN Enterprises, Inc. and Subsidiary (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

The Company's Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and will require additional capital to continue as a going concern.  This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

 

 


F-2


 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.

 

/s/ RBSM LLP

 

 

We have served as the Company’s auditor since 2012.

 

 

New York, NY

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


F-3


 

CFN ENTERPSISES INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

          160,115

 

$

         107,727

Restricted cash

 

 

            20,000

 

 

                   -   

Accounts receivable, net

 

 

              9,000

 

 

           72,649

Inventory

 

 

            39,017

 

 

                   -   

Prepaid expenses and other current assets

 

 

            14,500

 

 

             4,136

Total current assets

 

 

          242,632

 

 

         184,512

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

Investment

 

 

          200,000

 

 

                   -   

  Property and equipment

 

 

              7,845

 

 

             3,020

Total other assets

 

 

          207,845

 

 

             3,020

Total assets

 

$

          450,477

 

$

         187,532

 

 

 

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

          946,846

 

$

         261,539

Deferred revenues

 

 

            25,815

 

 

           15,734

Current portion of notes payable

 

 

          188,249

 

 

                   -   

Current liabilities of discontinued operations

 

 

            79,823

 

 

           99,695

Total current liabilities

 

 

       1,240,733

 

 

         376,968

Long-term note payable, net of current portion and discounts

 

 

          714,812

 

 

         484,177

Total liabilities

 

 

       1,955,545

 

 

         861,145

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit

 

 

 

 

 

 

Series A Preferred stock, $0.001 par value, 500 shares authorized, 500 shares issued and outstanding as of December 31, 2020 and 2019

 

 

                     1

 

 

                    1

Series B Preferred stock, $0.001 par value, 3,000 shares authorized, 3,000 shares issued and outstanding as of December 31, 2020 and 2019

 

 

                     3

 

 

                    3

Common stock, $0.001 par value, 500,000,000 shares authorized, 104,792,209 and 99,679,709 shares issued and outstanding as of December 31, 2020 and 2019, respectively

 

 

          104,792

 

 

           99,679

Common stock issuable

 

 

          492,500

 

 

 

Additional paid-in capital

 

 

     34,281,838

 

 

    34,031,326

Accumulated deficit

 

 

    (36,384,202)

 

 

   (34,721,149)

Accumulated other comprehensive income

 

 

                    -   

 

 

          (83,473)

Total stockholders' deficit

 

 

      (1,505,068)

 

 

        (673,613)

Total liabilities and stockholders' deficit

 

$

          450,477

 

$

         187,532

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements


F-4


 

 

 

CFN ENTERPRISES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

For the Year Ended

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

 

 

$

          506,490

 

$

          864,915

Cost of revenue

 

 

 

 

          536,738

 

 

          864,831

Gross profit (loss)

 

 

 

 

           (30,248)

 

 

                   84

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Impairment charge

 

 

 

 

                    -   

 

 

       3,767,541

Selling, general and administrative

 

 

 

 

       1,199,410

 

 

       2,244,304

 Total operating expenses

 

 

 

 

       1,199,410

 

 

       6,011,845

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

 

 

      (1,229,658)

 

 

      (6,011,761)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

           (71,377)

 

 

                    -   

Other income   

 

 

 

 

            10,000

 

 

                    -   

Interest expense

 

 

 

 

           (51,615)

 

 

           (13,993)

Interest income

 

 

 

 

                   19

 

 

                 131

  Total other income (expense)

 

 

 

 

         (112,973)

 

 

           (13,862)

 

 

 

 

 

 

 

 

 

Net loss before provision for income taxes

 

 

 

 

      (1,342,631)

 

 

      (6,025,623)

Provision for income taxes

 

 

 

 

                    -   

 

 

                    -   

Net loss from continuing operations

 

 

 

 

      (1,342,631)

 

 

      (6,025,623)

Gain (loss) from discontinued operations, net of tax

 

 

 

 

           (80,422)

 

 

     14,391,173

Net income (loss)

 

 

 

$

      (1,423,053)

 

$

       8,365,550

Preferred stock interest

 

 

 

 

          240,000

 

 

          126,575

Net income (loss) available to common shareholders

 

 

 

$

      (1,663,053)

 

$

       8,238,975

 

 

 

 

 

 

 

 

 

Net loss from continuing operations per share, basic and diluted

 

 

 

$

               (0.01)

 

               (0.07)

 

 

 

 

 

 

 

 

 

Net income (loss) from discontinued operations per share, basic and diluted

 

 

 

$

               (0.00)

 

$

                0.17

 

 

 

 

 

 

 

 

 

Net income (loss) per share, basic and diluted

 

 

 

$

               (0.02)

 

$

                0.10

 

 

 

 

 

 

 

 

 

Weighted average number of common

 

 

 

 

 

 

 

 

shares outstanding, basic and diluted

 

 

 

 

   101,760,413

 

 

     83,985,188

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements

 


F-5


 

 

 

CFN ENTERPRISES INC. 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 

 

 

 

 

 

 

 

For the Year Ended

 

 

 

 

 

December 31,  

 

 

December 31,  

 

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

$

          (1,423,053)

 

$

             8,365,550

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

    Foreign currency translation adjustments

 

 

 

 

                    (456)

 

 

                   (6,118)

Total other comprehensive income (loss), net of tax

 

 

 

                    (456)

 

 

                   (6,118)

Comprehensive income (loss)

 

 

 

$

          (1,423,509)

 

$

             8,359,432

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements

 

 


F-6


 

 

 

CFN ENTERPRISES INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

From January 1, 2019 to December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

 

Series A Preferred Stock

 

Series B Preferred Stock

 

Common Stock

 

 

Common Stock

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

Shares

 

 

Amount

 

Shares

 

Amount

 

 

Issuable

Capital

 

 

Deficit

 

 

Income

 

 

Total

Balance, December 31, 2018

 

 

           -

 

$

            -

 

            -

 

$

               -

 

    66,179,709

 

$

   66,179

 

$

  29,498,125

 

$

         (42,960,124)

 

$

          (77,355)

 

$

       (13,473,175)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of options and restricted stock awards

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

         70,963

 

 

                           -

 

 

                     -

 

 

               70,963

Fair value of warrants

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

       126,810

 

 

                           -

 

 

                     -

 

 

             126,810

Fair value of warrants issued with promissory notes

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

         62,294

 

 

                           -

 

 

                     -

 

 

               62,294

Fair value of repricing adjustment

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

       104,638

 

 

                           -

 

 

                     -

 

 

             104,638

Conversion of debt into Series A Preferred Stock

 

 

      500

 

 

            1

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

       499,999

 

 

                           -

 

 

                     -

 

 

             500,000

Issuance of Series B Preferred Stock for acquisition of CFN

 

 

           -

 

 

            -

 

    3,000

 

 

               3

 

                     -

 

 

             -

 

 

       686,997

 

 

                           -

 

 

                     -

 

 

             687,000

Issuance of common stock for acquistion of CFN

 

 

           -

 

 

            -

 

            -

 

 

               -

 

    30,000,000

 

 

   30,000

 

 

    2,670,000

 

 

                           -

 

 

                     -

 

 

          2,700,000

Issuance of common stock as payment of interest

 

 

           -

 

 

            -

 

            -

 

 

               -

 

      3,500,000

 

 

     3,500

 

 

       311,500

 

 

                           -

 

 

                     -

 

 

             315,000

Preferred stock interest

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

                   -

 

 

              (126,575)

 

 

                     -

 

 

            (126,575)

Net income

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

                   -

 

 

             8,365,550

 

 

                     -

 

 

          8,365,550

Foreign currency translation

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

                   -

                   -

 

 

                           -

 

 

            (6,118)

 

 

                (6,118)

Balance, December 31, 2019

 

 

      500

 

 

            1

 

    3,000

 

 

               3

 

    99,679,709

 

 

   99,679

 

 

                        -

  34,031,326

 

 

         (34,721,149)

 

 

          (83,473)

 

 

         (673,613)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

           -

 

 

            -

 

            -

 

 

               -

 

         312,500

 

 

        313

 

 

         15,312

 

 

                           -

 

 

                     -

 

 

               15,625

Shares issued as payment of accounts payable

and accrued interest

 

 

           -

 

 

            -

 

            -

 

 

               -

 

      4,800,000

 

 

     4,800

 

 

-

       235,200

 

 

                           -

 

 

                     -

 

 

             240,000

Preferred stock interest

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

 -

                   -

 

 

              (240,000)

 

 

                     -

 

 

            (240,000)

Common stock issuable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

               492,500

 

 

 

 

 

 

 

 

 

             492,500

Net loss

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

 -

                   -

 

 

           (1,423,053)

 

 

                     -

 

 

         (1,423,053)

Foreign currency translation

 

 

           -

 

 

            -

 

            -

 

 

               -

 

                     -

 

 

             -

 

 

-

                   -

 

 

                           -

 

 

            83,473

 

 

               83,473

Balance, December 31, 2020

 

 

      500

 

$

            1

 

    3,000

 

$

               3

 

  104,792,209

 

$

 104,792

 

$

            492,500

  34,281,838

 

$

         (36,384,202)

 

$

                     -

 

$

      (1,505,068)

                                                                                                       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements

 

 


F-7


CFN ENTERPRISES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

For the Year Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

      (1,423,053)

 

$

       8,365,550

Gain (loss) from discontinued operations

 

 

           (80,422)

 

 

     14,391,173

Net loss from continuing operations

 

 

      (1,342,631)

 

 

      (6,025,623)

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

              1,809

 

 

            38,191

Impairment charge

 

 

                      -

 

 

       3,767,541

Loss on extinguishment of debt

 

 

            71,377

 

 

                      -

Amortization of deferred financing cost

 

 

              5,884

 

 

              1,801

Provision for bad debt

 

 

            20,000

 

 

          163,750

Share-based compensation

 

 

            15,625

 

 

            60,000

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

            43,649

 

 

         (236,399)

Inventory

 

 

           (39,017)

 

 

                      -

Prepaid expenses and other current assets

 

 

           (10,364)

 

 

             (4,136)

Accounts payable and accrued expenses

 

 

          756,430

 

 

          385,121

Deferred revenue

 

 

            10,081

 

 

            15,734

 

 

 

 

 

 

 

Net cash used in operating activities of continuing operations

 

 

         (467,157)

 

 

      (1,834,020)

Net cash used in operating activities of discontinued operations

 

 

           (16,365)

 

 

      (5,131,616)

Net cash used in operating activities

 

 

         (483,522)

 

 

      (6,965,636)

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

             (6,634)

 

 

             (1,752)

Payments for investment

 

 

         (200,000)

 

 

                      -

Payments for acquisition of subsidiary

 

 

                      -

 

 

         (420,000)

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities of continuing operations

 

 

         (206,634)

 

 

         (421,752)

Net cash provided by investing activities of discontinued operations

 

 

                      -

 

 

     20,892,667

Net cash provided by (used in) investing activities

 

 

         (206,634)

 

 

     20,470,915

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Payment of preferred stock interest

 

 

           (60,000)

 

 

           (96,667)

Proceeds from sale of common stock

 

 

          410,000

 

 

                      -

Proceeds from promissory notes

 

 

          413,000

 

 

          500,000

 

 

 

 

 

 

 

Net cash provided by financing activities of continuing operations

 

 

          763,000

 

 

          403,333

Net cash used in financing activities of discontinued operations

 

 

                      -

 

 

    (13,872,514)

Net cash (used in) provided by financing activities

 

 

          763,000

 

 

    (13,469,181)

 

 

 

 

 

 

 

Effect of exchange rate fluctuations on cash

 

 

                (456)

 

 

             (5,666)

 

 

 

 

 

 

 

Net change in cash and restricted cash

 

 

            72,388

 

 

            30,432

Cash and restricted cash, beginning of the period

 

 

          107,727

 

 

            77,295

Cash and restricted cash, end of the period

 

$

          180,115

 

$

          107,727

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Interest paid

 

$

                      -

 

$

          955,691

Income taxes paid

 

$

                      -

 

$

                      -

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing information:

 

 

 

 

 

 

Fair value of warrants issued in connection with line of credit and promissory notes

 

$

                      -

 

$

            62,294

Accrual of preferred stock interest

 

$

          240,000

 

$

            31,575

Accrued interest reclassed to credit facility

 

$

                      -

 

$

            62,379

Warrant repricing adjustment

 

$

                      -

 

$

          104,638

Conversion of notes payable to Series A Preferred Stock

 

$

                      -

 

$

          500,000

Issuance of Series B Preferred Stock for acquisition of subsidiary

 

$

                      -

 

$

          687,000

Issuance of common stock for acquisition of subsidiary

 

$

                      -

 

$

       2,700,000

Issuance of common stock for payment of accrued preferred stock interest

 

$

          104,931

 

$

                      -

Issuance of common stock as payment of accounts payable and accrued expenses

 

$

          146,192

 

$

                      -

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements


F-8


 

 

CFN ENTERPRISES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 31, 2020 and 2019

  

 

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

 

Organization

 

CFN Enterprises Inc., formerly known as Accelerize Inc., or the Company, is a Delaware corporation incorporated on November 22, 2005 which owned and operated CAKE, a Software-as-a-Service platform providing online tracking and analytics solutions for advertisers and online marketers. The Company provided software solutions for businesses interested in expanding their online advertising spend. Effective October 22, 2019, the Company filed a certificate of amendment to its certificate of incorporation with the Secretary of State of the State of Delaware to change its corporate name to CFN Enterprises Inc.

 

On May 15, 2019, the Company entered into an asset purchase agreement, or the Asset Purchase Agreement, with CAKE Software, Inc., a Delaware corporation and a subsidiary of Constellation Software Inc., an Ontario, Canada corporation (TSX: CSU), or Constellation, pursuant to which the Company agreed to sell substantially all of the assets associated with its CAKE and Journey by CAKE business, or the CAKE Business, to Constellation for a base purchase price of $19,400,000 plus or minus an estimated closing date adjustment based on the net tangible assets of the CAKE Business at the closing, a holdback of $500,000 adjusted pursuant to the terms of the Asset Purchase Agreement and payable on the first anniversary of the closing date, and a three year earnout equal to 30% of the amount that the annual net revenue of the CAKE Business exceeds $13,750,000 and payable within 120 days on each of the first, second and third end of month anniversaries of the closing date. The sale of the assets of the CAKE Business pursuant to the Asset Purchase Agreement closed on June 18, 2019, and the Company received proceeds of $20,892,667, net of the estimated closing date adjustment.

 

As of the closing date, Constellation acquired all of the assets used by the Company in the CAKE Business and assumed the Company’s post-closing obligations under certain vendor, customer and other commercial contracts related to the CAKE Business, including the Company’s lease for its headquarters in Newport Beach, California. The Company’s cash and cash equivalents, and the assets associated with its Accelerize trademark, are excluded from the sale of the CAKE Business. Constellation offered employment to certain of the Company’s employees following the closing date.

 

On May 15, 2019, the Company entered into the Emerging Growth Agreement with Emerging Growth, LLC, or the Seller or Emerging Growth, pursuant to which the Company acquired certain assets from the Seller related to its sponsored content and marketing business for a purchase price consideration consisting of $420,000 in cash, 30,000,000 shares of the Company’s common stock, and 3,000 shares of Series B preferred stock with a total stated value of $3,000,000 which bears interest at 6% per annum and is convertible into the Company’s common stock at a conversion price to be mutually agreed in the future, without voting rights or a liquidation preference except with respect to default interest.  The securities were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended. The closing of the purchase of the assets pursuant to the Emerging Growth Agreement occurred on June 20, 2019.

 

Subsequent to the closing of the Asset Purchase Agreement on June 18, 2018, the Company’s continuing operations consist of the sponsored content and marketing business from the assets acquired pursuant to the Emerging Growth Agreement.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis which implies the Company will continue to meet its obligations for the next 12 months as of the date these financial statements are issued.  

 

The Company had a working capital deficit of $998,101 and an accumulated deficit of $36,384,202 as of December 31, 2020.  The Company also had a net loss from continuing operations of $1,342,631 during the year ended December 31, 2020.

 

As discussed above, on May 15, 2019, the Company entered into the Asset Purchase Agreement with Constellation under which all the net assets associated with the CAKE Business were sold. The proceeds from the Asset Purchase Agreement were used to pay off the Company’s existing debt, as well as to acquire certain assets in the Emerging Growth Agreement from the Seller related to its sponsored content and marketing business. Management’s plan to continue as a going concern includes raising capital in the form of debt or equity, growing its existing business acquired under the Emerging Growth Agreement, managing and reducing operating and overhead costs and continuing to pursue strategic transactions and opportunities including launching an e-commerce network focused on the sale of general wellness cannabidiol, or CBD, products.  On May 6, 2020, the Company received $263,000 in the form of a loan from the PPP, as well as $150,000 in proceeds from a loan with the SBA on June 24, 2020


F-9


(see Note 5).  The Company also raised an additional $410,000 from the sale of common stock in December 2020.  However, the Company cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for the Company to raise additional capital on an immediate basis.

 

These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.  

 

COVID-19

 

The outbreak of a strain of coronavirus (COVID-19) in the U.S. has had an unfavorable impact on the Company’s business operations.  The Company’s main customer market suffered its worst decline, decreasing our revenue.  Mandatory closures of businesses imposed by the federal, state and local governments to control the spread of the virus is disrupting the operations of our management, business and finance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. economy and financial markets, which may result in a long-term economic downturn that could negatively affect future performance.  The Company took steps to diversify our revenue model by creating its CBD ecommerce business which has higher margins during the second half of 2020 and reduce its costs.  The extent to which COVID-19 will impact the Company’s business and its consolidated financial results further will depend on future developments which are highly uncertain and cannot be predicted at this time, but may result in a material adverse impact on the Company’s business, results of operations and financial condition.

 

Basis of Presentation

 

The accompanying consolidated financial statements include the results of operations of the Company and Cake Marketing UK Ltd., or the Subsidiary. The Company discontinued its operations associated with its CAKE Business and the operations of its Subsidiary in May 2019. The Subsidiary was officially dissolved in August 2020.  These accounts have been presented as discontinued operations in the accompanying consolidated financial statements. Continuing operations presented in periods prior reflect administrative expenses associated with business insurance, legal and accounting fees that the Company will continue to incur. All intercompany accounts and transactions between the Company and its Subsidiary have been eliminated in consolidation.

 

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reported period. Actual results will differ from those estimates. Included in these estimates are assumptions about collection of accounts receivable, useful life of fixed assets and intangible assets, borrowing rate considered for operating lease right-of-use asset and related operating lease liability, and assumptions used in Black-Scholes valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.

 

Financial Statement Reclassification

 

Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications.

 

Segment Reporting

 

The Company’s sponsored content and marketing business acquired from Emerging Growth in June 2019 has historically been its one reportable segment.  In late 2020, the Company launched an e-commerce network focused on the sale of general wellness CBD products.  As of December 31, 2020, sales of these products and the operating activities associated with the e-commerce business have not been significant.  However, management expects this e-commerce business to eventually become a reportable segment under GAAP as the business grows and the activity becomes more significant.    

  

Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased, to be cash equivalents. The Company has restricted cash as a result of its corporate card program through its bank, which requires collateral placed in a money market account. During the year ended December 31, 2020 and 2019, the Company had restricted cash balances of $20,000 and $0, respectively, included as a component of total cash and restricted cash as presented on the accompanying consolidated statement of cash flows.


F-10


 

Accounts Receivable

 

The Company’s account receivables are due from customers relating to contracts to provide investor relation services. Collateral is currently not required. The Company also maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make payments. The Company periodically reviews these estimated allowances, including an analysis of the customers’ payment history and creditworthiness, the age of the trade receivable balances and current economic conditions that may affect a customer’s ability to make payments as well as historical collection trends for its customers as a whole. Based on this review, the Company specifically reserves for those accounts deemed uncollectible or likely to become uncollectible. When receivables are determined to be uncollectible, principal amounts of such receivables outstanding are deducted from the allowance. The allowance for doubtful accounts as of December 31, 2020 and 2019 amounted to $183,750 and $163,750, respectively.

 

Inventory

 

The Company’s inventory consists of finished goods acquired for its e-commerce network business it is currently in the process of launching.  The inventory is valued at the lower of cost (first-in, first-out) or estimated net realizable value.  

 

Concentration of Credit Risks

 

The Company is subject to concentrations of credit risk primarily from cash and cash equivalents and accounts receivable.

 

The Company’s cash and cash equivalents accounts are held at a financial institution and are insured by the Federal Deposit Insurance Corporation, or the FDIC, up to $250,000. From time-to-time, the Company’s bank balances exceed the FDIC insurance limit. To reduce its risk associated with the failure of such financial institutions, the Company periodically evaluates the credit quality of the financial institution in which it holds deposits.

 

The Company's accounts receivable are due from customers located in the United States and Canada. The Company had one customer at December 31, 2020.  The Company had five customers who each accounted for 32.3%, 13.8%, 13.8%, 13.8% and 10.3%, respectively, of its net accounts receivable at December 31, 2019. 

 

The Company had two customers who each individually accounted for 10.5% of net revenues for the year ended December 31, 2020.  The Company had no individual customers with net revenues greater than 10% of total revenues in 2019.  

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.

 

The Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered.

 

Prior to the Company discontinuing the operations of its CAKE Business in May 2019, the Company’s SaaS revenues were generated from implementation and training fees and a monthly license fee, supplemented by per transaction fees paid by customers for monthly platform usage. The initial term of the customer contract were generally one year with one of two general cancellation policies. Each party could cancel the contract within the initial period or after the initial period, with 30-days’ prior notice. The Company did not provide any general right of return for its delivered items. Services associated with the implementation and training fees had standalone value to the Company’s customers, as there are third-party vendors who offer similar services to the Company’s services. Accordingly, they qualified as separate units of accounting. The Company allocated a fair value to each element deliverable at the recognition date and recognized such value when the services are provided. The Company bases the fair value of the implementation and training fees on third-party evidence and the monthly license fee on vendor-specific objective evidence. Fees charged by third-party vendors for implementation and training services do not vary significantly from the fees charged by the Company. Services associated with implementation and training fees were generally rendered within a month from the initial contract date. The value attributed to the monthly license fees as well as the fees associated with monthly transaction-based platform usage were recognized in the corresponding period.

 


F-11


Subsequent to the closing of the Emerging Growth Agreement on June 20, 2019, the Company’s revenue is generated from the sale of promotional service packages to its customers ranging from 3 to 6 months. The Company offers different packages tailored to the type and stage of the potential customer, such as public companies looking to increase their shareholder base, as well as private companies potentially looking to go public and attract capital and publicity. The services provided by the Company include advertising, publishing of interviews and articles across its network and featuring of client content on its newsletters and social media. The packages all have fixed prices that are billed monthly over the terms of the agreement in even amounts. The Company recognizes revenue for its performance obligation associated with its contracts with customers over time as work is performed, which is deemed to occur evenly throughout the duration of the contract. This also reflects the pattern in which costs are incurred on performing the contracts. To the extent revenue recognized on contracts at each period end exceeds collections, the amounts are reflected as accounts receivable. To the extent collections on contracts at each period end exceeds revenue recognized, the amounts are reflected as deferred revenue.

 

Fair Value of Financial Instruments

 

The Company accounts for assets and liabilities measured at fair value on a recurring basis in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements.

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

Level 1:

Observable inputs such as quoted market prices in active markets for identical assets or liabilities.

 

 

Level 2:

Observable market-based inputs or unobservable inputs that are corroborated by market data.

 

 

Level 3:

Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

Additional Disclosures Regarding Fair Value Measurements

 

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and lines of credit approximate their fair value due to the short-term maturity of these items.

 

Advertising

 

The Company expenses advertising costs as incurred. Advertising expenses relating to continuing operations for the year ended December 31, 2020 and 2019 amounted to $128,981 and $368,226, respectively. Advertising expenses reported as a component of discontinued operations amounted $0 and $159,665 for the year ended December 31, 2020 and 2019, respectively.

 

Income Taxes

 

Income taxes are accounted for in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly.

 

Foreign Currency Translation

 

The Company’s reporting currency is U.S. Dollars. The functional currency of the Company’s Subsidiary in the United Kingdom was British Pounds. The translation from British Pounds to U.S. dollars is performed for asset and liability accounts using exchange rates in effect at the balance sheet date, equity accounts using historical exchange rates or rates in effect at the balance sheet date, and for revenue and expense accounts using the average exchange rate in effect during the period. The resulting translation adjustments are recorded as a component of Accumulated Other Comprehensive Income (Loss). Upon dissolving the Subsidiary in August 2020, the Company has reclassified the Accumulated Other Comprehensive Loss balance of $83,929 into earnings, which is reflected as a component of the loss from discontinued operations in the accompanying consolidated statement of operations for the year ended December 31, 2020.

 


F-12


Property and Equipment

 

Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives of five years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. 

 

Goodwill

 

The Company’s goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from business acquisitions. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level. There was an impairment charge of $3,225,817 during the year ended December 31, 2019 related to the impairment of goodwill acquired from the Emerging Growth Agreement.

 

Investment

 

On December 24, 2020, the Company acquired a 9.8% interest in the outstanding stock of a privately held company. As the stock has no readily determinable fair value, the Company accounts for this stock received using the cost method, less adjustments for impairment. At each reporting period, management reviews the status of the investment to determine if any indicators of impairment have occurred. There were no impairment charges recorded related to investments during the year ended December 31, 2020 or 2019.

 

Long-Lived Assets

 

In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. There was an impairment charge of $541,724 during the year ended December 31, 2019 related to the impairment of marketing-related intangible assets acquired from the Emerging Growth Agreement.

 

Basic and Diluted Earnings Per Share

 

Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options and warrants (calculated using the modified-treasury stock method). As of December 31, 2020, the Company had 3,160,000 outstanding stock options, 5,256,944 outstanding warrants and 3,500 shares of preferred stock which were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive.  As of December 31, 2019, the Company had 6,320,000 outstanding stock options and 7,543,944 outstanding warrants which were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive. As a result, the basic and diluted earnings per share are the same for each of the periods presented.

 

Share-Based Payment

 

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.

 

The Company has elected to use the Black-Scholes option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

Common stock awards

 

The Company has granted common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been made in cash. 


F-13


 

Warrants

 

In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period. Warrants granted in connection with ongoing arrangements are more fully described in Note 6, Stockholders’ Deficit.  

  

Recent Accounting Pronouncements

 

 

In December 2019, the FASB issued Accounting Standards Update, or ASU, 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes, or ASC 740. This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021.  The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted.  The Company is currently evaluating the effect of this ASU on the Company’s financial statements and related disclosures.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842).  This guidance will be effective for public entities for fiscal years beginning after December 15, 2018 including the interim periods within those fiscal years. Early application is permitted. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less.  All other leases will fall into one of two categories: (i) Financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) Operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. The Company has adopted this standard on January 1, 2019 and recognized assets and liabilities arising from any leases that meet the requirements under this standard on the adoption date and included qualitative and quantitative disclosures in the Company’s notes to the consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the goodwill impairment test. The effective date for ASU 2017-04 is for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This Company has adopted this guidance for its annual goodwill impairment test performed during the year ended December 31, 2019.

 

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. Under ASU 2018-07, equity-classified nonemployee share-based payment awards are measured at the grant date fair value on the grant date. The probability of satisfying performance conditions must be considered for equity-classified nonemployee share-based payment awards with such conditions. This Company has adopted this standard on January 1, 2019 and it has had no impact in the Company’s consolidated financial statements.

 

Other accounting pronouncements have been issued but deemed by management to be outside the scope of relevance to the Company. 

 

 


F-14


 

NOTE 3: PROPERTY AND EQUIPMENT

 

The Company’s property and equipment relating to continuing operations consisted of the following at December 31, 2020 and 2019.

 

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Computer equipment and software

 

$

                 12,546

 

$

                8,139

Furniture and equipment

 

 

                   2,227

 

 

                       -

 

 

 

                 14,773

 

 

                8,139

 

 

 

 

 

 

 

Less: accumulated depreciation

 

 

                 (6,928)

 

 

              (5,119)

 

 

 

 

 

 

 

 

 

$

                   7,845

 

$

                3,020

 

Depreciation expense from continuing operations for the year ended December 31, 2020 and 2019 amounted to $1,809 and $915, respectively.

 

 

NOTE 4: ACQUISITONS

 

On May 15, 2019, the Company entered into the Emerging Growth Agreement (see Note 1), which closed on June 20, 2019. Pursuant to the terms of the Emerging Growth Agreement, the Company acquired certain assets from the Seller related to its sponsored content and marketing business for a purchase price consideration consisting of $420,000 in cash, 30,000,000 shares of the Company’s common stock valued at $2,700,000, and 3,000 shares of Series B preferred stock valued at $687,000. As a result, the total purchase price amounted to $3,807,000.

 

A summary of the purchase price allocation at fair value is below.  The business combination accounting is not yet complete and the amounts assigned to the net assets acquired are provisional.  Therefore, this may result in future adjustments to the provisional amounts as new information is obtained about facts and circumstances that existed at the acquisition date.

 

 

 

Purchase

Allocation

 

Property and equipment

 

$

2,183

 

Other intangible assets

 

 

579,000

 

Goodwill

 

 

3,225,817

 

 

 

$

3,807,000

 

 

Intangible assets acquired represent amounts allocated to customers contracts of $7,000 and marketing-related intangible assets of $572,000, for an aggregate total of $579,000. The intangible assets related to customer contracts are being amortized over a period of approximately 5 months and the marketing-related intangible assets are being amortized over 10 years. Amortization expense for intangible assets for the year ended December 31, 2019 amounted to $37,276. As of December 31, 2019, the Company determined the intangible assets acquired were impaired and recorded an impairment charge of $541,724. In addition, the Company determined the goodwill was impaired and recorded an impairment charge of $3,225,817 as of December 31, 2019. As a result, as of December 31, 2019, the book value of the intangible assets and goodwill amounted to $0.

 


F-15


 

The following are the unaudited pro forma results of operations for the year ended December 31, 2019 as if the assets purchased in the Emerging Growth Agreement had been acquired on January 1, 2019.  The amounts presented on the accompanying consolidated statement of operations for 2020 already reflect the impact of the acquisition for the entire period.  The pro forma results include estimates and assumptions which management believes are reasonable.  However, pro forma results do include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.

 

 

 

Pro Forma Combined Financials (Unaudited)

 

 

Year Ended December 31, 2019

 

 

 

Revenue from continuing operations

 

$

                     1,920,758

 

 

 

 

Net loss from continuing operations

 

$

                   (5,877,768)

 

 

 

 

Net loss from continuing operations per common share - basic and diluted

$

                            (0.07)

 

 

NOTE 5: NOTE PAYABLE

 

On September 10, 2019, the Company entered into a promissory note payable whereby the Company borrowed $500,000 bearing interest at 8% per annum. Interest on the note is payable quarterly on the first business day of December, March, June and September commencing December 1, 2019. Outstanding principal on the note is due in full on September 30, 2022.

 

In connection with the promissory note on September 10, 2019, the Company issued warrants to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.10 per share. The warrants expire on September 10, 2024 and are fully vested upon issuance. The note was discounted by $17,624 allocated from the valuation of the warrants issued. The discount recorded on the note is being amortized as interest expense through the maturity date, which amounted to $5,884 and $1,801 for the year ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the net book value of the promissory note amounted to $490,061 including the principal amount outstanding of $500,000 net of the remaining discount of $9,939.

 

On May 6, 2020, the Company entered into a promissory note, or the Note, with Pacific Western Bank, evidencing an unsecured loan, or the Loan, in the amount of $263,000 made to the Company under the Paycheck Protection Program, or the PPP. The PPP is a program of the U.S. Small Business Administration, or SBA, established under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act. Under the PPP, the proceeds of the Loan may be used to pay payroll and make certain covered interest payments, lease payments and utility payments, or the Qualifying Expenses. The Company intends to use the entire Loan amount for Qualifying Expenses under the PPP. Under the terms of the CARES Act, PPP loan recipients can be granted forgiveness for all or a portion of the loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of Qualifying Expenses and the Company maintaining its payroll levels over certain required thresholds under the PPP. The terms of any forgiveness also may be subject to further requirements in any regulations and guidelines the SBA may adopt. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part.

 

The interest rate on the Loan is 1.0% per annum. The Note matures on May 6, 2022. On December 1, 2020 and on the first day of each month thereafter until May 1, 2022, the Company must make monthly payments of $14,727 under the Loan that is not forgiven in accordance with the terms of the PPP and related accrued interest thereon. The Note contains events of default and other conditions customary for a Note of this type. As of December 31, 2020, the current portion of the Loan due within the next 12 months amounted to $188,249.  The Company has applied for full forgiveness of the amounts due under the Note.  

 

On June 24, 2020, the Company entered into a Loan Authorization and Agreement with the SBA under which the Company borrowed $150,000, and issued to the SBA a note and security agreement for the amount borrowed. Outstanding borrowings accrue interest at a rate of 3.75% per annum, and installment payments, including principal and interest, of $731 are due monthly and begin 12 months from the date of the loan agreement. The balance of any remaining principal and interest is due 30 years from the date of the loan agreement. As collateral for the borrowing, the Company granted the SBA a security interest in substantially all assets of the Company.


F-16


 

Future scheduled maturities of long-term debt are as follows.

 

 

 

Year Ended

 

 

December 31,

 

 

 

2021

$

         188,249

2022

 

         574,751

2023

 

             2,262

2024

 

             3,285

2025

 

             3,416

Thereafter

 

         141,037

Total

$

         913,000

 

The aggregate current portion of long-term debt as of December 31, 2020 amounted to $188,249, which represents the contractual principal payments due in the next 12 months period.

 

 

NOTE 6: STOCKHOLDERS’ DEFICIT

 

Common Stock

  

On June 20, 2019, the Company issued an aggregate of 3,500,000 restricted shares of common stock to certain promissory note holders as consideration for early payment of the promissory notes. The value of the shares issued amounted to $315,000 and was recorded as interest expense during the year ended December 31, 2019.

 

On June 20, 2019, the Company issued 30,000,000 restricted shares of common stock to Emerging Growth as part of the acquisition under the Emerging Growth Agreement (see Note 4). The value of the stock amounted to $2,700,000 and was recorded as part of the acquisition price of the net assets acquired under the Emerging Growth Agreement.

 

Effective April 3, 2020, the Company granted 500,000 of restricted shares of its common stock to a consultant for services as an advisory board member, with 250,000 shares vesting immediately and the remainder vesting in four equal quarterly installments commencing on July 1, 2020. During 2020, the Company recorded $15,625 of share-based compensation expense. The arrangement was terminated on July 17, 2020, and the unvested portion of the restricted stock grant of 187,500 shares were forfeited.

 

Effective August 6, 2020, the Company and Emerging Growth reached an agreement whereby the Company issued 4.8 million shares of the its common stock with a value of $240,000 to Emerging Growth as payment for outstanding liabilities due to Emerging Growth totaling $209,931.  The outstanding liabilities due to Emerging Growth included $104,931 in outstanding accrued interest on the Series B Preferred Stock through August 31, 2020, as well as $105,000 of outstanding payables.  The additional $30,069 was recorded as loss on extinguishment of debt during 2020.   

 

Effective October 13, 2020, the Company and the holder of its $500,000 promissory note payable issued on September 10, 2019 (see Note 5) reached an agreement whereby the Company agreed to issue 1,650,000 shares of its common stock with a value of $82,500 to the noteholder as payment of $41,192 of accrued interest on the promissory note.  This resulted in a loss on extinguishment of debt of $41,308 in 2020.  The common shares were issued on January 2, 2021 and are reflected as common shares issuable as of December 31 2020.

 

In December 2020, the Company received $410,000 in cash in respect of a sale of an aggregate total of 10,500,000 shares of its common stock for proceeds of $420,000.  The Company received the remaining $10,000 for the sale in January 2021 and the common shares were issued in January 2021.  The Company has reflected the $410,000 received in common shares issuable in the statement of shareholders equity.    

 

Restricted Stock Issued as Compensation

 

During 2018, the Company issued an aggregate total of 240,000 restricted shares of its common stock to its non-employee directors as partial director compensation, at a value of $0.50 per share, vesting in 4 equal quarterly increments commencing on July 1, 2018 and ending June 30, 2019. The Company recorded expenses of $0 and $60,000 during the year ended December 31, 2020 and 2019, respectively. There was no remaining unrecorded compensation expense related to restricted stock as of December 31, 2020.

 


F-17


 

Preferred Stock

 

The Company is authorized to issue 2,000,000 shares of preferred stock with a par value of $0.001 per share, of which 500 have been authorized as Series A Preferred Stock and 3,000 have been authorized as Series B Preferred Stock.

 

On June 20, 2019, the Company issued to certain of its promissory noteholders an aggregate of 500 shares of Series A Preferred Stock, each with a stated value per share of $1,000, as conversion of $500,000 worth of outstanding promissory notes. The Series A Preferred Stock accumulate dividends at 12% per annum, and is convertible into the Company’s common stock at the election of the holder at a conversion price per share to be mutually agreed between the Company and the holder in the future, and be redeemable at the Company’s option following the third year after issuance, without voting rights or a liquidation preference.

 

On June 20, 2019, the Company issued 3,000 shares of Series B Preferred Stock to Emerging Growth each with a stated value of $1,000 per share, as part of the Emerging Growth Agreement. The aggregate fair value of $687,000 was recorded as part of the acquisition price of the net assets acquired from Emerging Growth (see Note 4). The Series B Preferred Stock accumulates dividends at 6% per annum and is convertible into the Company’s common stock at the election of Emerging Growth at a conversion price per share to be mutually agreed between the Company and Emerging Growth in the future, without voting rights or a liquidation preference, except with respect to accrued penalty interest.

 

For the year ended December 31, 2020 and 2019, the Company incurred $240,000 and $126,575, respectively, of interest from the outstanding preferred stock.

 

Warrants

 

The following summarizes the Company’s warrant activity for the year ended December 31, 2020 and 2019.

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Average

 

 

 

 

 

Weighted-

 

Remaining

 

 

 

 

 

Average

 

Contractual

 

 

 

 

 

Exercise

 

Life

 

 

Warrants

 

 

Price

 

(Years)

 

 

 

 

 

 

 

 

Outstanding at January 1, 2018

 

             25,045,517

 

$

         0.53

 

                4.16

Granted

 

               1,000,000

 

 

��        0.13

 

 

Forfeited/cancelled

 

         (18,501,573)

 

 

         0.52

 

 

Outstanding at December 31, 2019

               7,543,944

 

$

         0.50

 

                3.37

Forfeited/cancelled

 

           (2,287,000)

 

 

         0.90

 

 

Outstanding at December 31, 2020

               5,256,944

 

$

         0.33

 

                3.56

 

 

 

 

 

 

 

 

Vested and expected to vest

 

 

 

 

 

 

 

 at December 31, 2020

 

               5,256,944

 

$

         0.33

 

                3.56

 

 

 

 

 

 

 

 

Exercisable at December 31, 2020

 

               5,256,944

 

$

         0.33

 

                3.56

 

During March 2019, the Company issued 500,000 warrants exercisable at a price of $0.15 per share which expire on January 25, 2024. The fair value of these warrants amounted to $44,670, and was recognized as deferred financing costs using the effective interest method during 2019. Additionally, per the down round feature of 7,935,000 warrants issued in connection with a prior credit agreement, pursuant to ASU 2017-11 which allows instruments with a down round feature to qualify for equity classification, the Company recognized the value of the feature when it was activated and there was an actual reduction of the strike price or conversion feature. The reduction in income of such 7,935,000 warrants amounted to $104,638 and was capitalized as deferred financing costs during 2019. In connection with the closing of the Asset Purchase Agreement for the sale of the CAKE Business on June 18, 2019, the above warrants were cancelled.

 

On September 10, 2019, the Company issued 500,000 warrants in connection with a promissory note payable (see Note 5).

 

The Company recorded expenses of $0 and $126,810 during the year ended December 31, 2020 and 2019, respectively, related to warrants granted for compensation.  These expenses for 2019 are reflected as a component of discontinued operations. As of December 31, 2020, all outstanding warrants were fully vested and there was no remaining unrecorded compensation expense.


F-18


 

The warrants granted during 2020 and 2019 were valued using the Black-Scholes pricing method using the following assumptions below. 

 

 

 

2020

2019

Expected life in years

 

NA

5 years

Stock price volatility

 

NA

105.3% - 114.2%

Risk free interest rate

 

NA

1.58% - 2.67%

Expected dividends

 

NA

None

Estimated forfeiture rate

 

NA

None

 

Options

 

The Company had a Stock Option Plan, or the Plan, under which the total number of shares of capital stock of the Company that may be subject to options under the Plan is currently 22,500,000 shares of Common Stock from either authorized but unissued shares or treasury shares. The Plan expired on December 14, 2016.

 

The following summarizes the Company’s stock option activity for the year ended December 31, 2020 and 2019.

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Average

 

 

 

 

 

Weighted-

 

Remaining

 

 

 

 

 

Average

 

Contractual

 

 

 

 

 

Exercise

 

Life

 

 

Options

 

 

Price

 

(Years)

 

 

 

 

 

 

 

 

Outstanding at January 1, 2019

 

             7,232,500

 

$

         0.40

 

                3.45

Forfeited/cancelled

 

               (912,500)

 

 

         0.86

 

 

Outstanding at December 31, 2019

 

             6,320,000

 

$

         0.33

 

                2.45

Forfeited/cancelled

 

            (3,160,000)

 

 

         0.33

 

 

Outstanding at December 31, 2020

 

             3,160,000

 

$

         0.33

 

                1.44

 

 

 

 

 

 

 

 

Vested and expected to vest

 

 

 

 

 

 

 

 at December 31, 2020

 

             3,160,000

 

$

         0.33

 

                1.44

 

 

 

 

 

 

 

 

Exercisable at December 31, 2020

 

             3,160,000

 

$

         0.33

 

                1.44

 

The Company recorded expenses of $0 and $10,963 during the year ended December 31, 2020 and 2019, respectively, related to stock options.  The expenses from 2019 are reflected as a component of discontinued operations for each period. As of December 31, 2020, all outstanding options were fully vested and there was no remaining unrecorded compensation expense. 

 

NOTE 7: DISCONTINUED OPERATIONS

 

During May 2019, the Company decided to discontinue most of its operating activities pursuant to the Asset Purchase Agreement entered into with CAKE Software, Inc. (see Note 1).

 

In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of December 31, 2020 and 2019, and consist of the following:

 

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

Current liabilities of discontinued operations

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

                79,823

 

$

          99,695

Total current liabilities of discontinued operations

 

$

                79,823

 

$

          99,695


F-19


 

In accordance with the provisions of ASC 205-20, the Company has excluded the results of discontinued operations from its results of continuing operations in the accompanying consolidated statements of operations. The results of the discontinued operations of the CAKE Marketing UK Business for the year ended December 31, 2020 and 2019 have been reflected as discontinued operations in the consolidated statements of operations, and consist of the following:

 

 

 

 

 

For the Year Ended

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

 

$

                    -   

 

$

       9,001,307

Cost of revenue

 

 

 

                    -   

 

 

       3,863,471

Gross profit

 

 

 

                    -   

 

 

       5,137,836

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

 

                    -   

 

 

       1,263,808

Sales and marketing

 

 

 

                    -   

 

 

       2,016,637

General and administrative

 

 

 

            (3,507)

 

 

       3,085,858

 Total operating expenses

 

 

 

            (3,507)

 

 

       6,366,303

 

 

 

 

 

 

 

 

Loss from operations

 

 

 

              3,507

 

 

      (1,228,467)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Gain on sale of discontinued operations

 

 

 

                    -   

 

 

     19,473,080

Loss on foreign currency translation

 

 

 

          (83,929)

 

 

                    -   

Interest income

 

 

 

                    -   

 

 

                   34

Interest expense

 

 

 

                    -   

 

 

      (3,773,651)

  Total other income (expense)

 

 

 

          (83,929)

 

 

     15,699,463

 

 

 

 

 

 

 

 

Net income (loss) from discontinued operations before provision for income taxes

 

 

 

          (80,422)

 

 

     14,470,996

Provision for (benefit from) income taxes

 

 

 

                    -   

 

 

            79,823

Net income (loss) from discontinued operations

 

 

$

          (80,422)

 

$

     14,391,173

 

The following is a summary of the gain on sale of discontinued operations of the CAKE Business reflected above during the year ended December 31, 2019.

 

Gross proceeds received

 

$

20,892,667

 

 

 

 

 

 

Less: value of net assets sold

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,979,342

 

Prepaid and other current assets

 

 

51,363

 

Property and equipment

 

 

20,986

 

ROU lease asset

 

 

1,458,922

 

Other assets

 

 

39,702

 

Accounts payable and accrued expenses

 

 

(344,787

)

Deferred revenue

 

 

(138,112

)

ROU lease liability

 

 

(1,612,412

)

Other liabilities

 

 

(35,417

)

Total net assets sold

 

 

1,419,587

 

Gain on sale of CAKE Business

 

$

19,473,080

 

 

During the year ended December 31, 2020, the Company incurred certain ancillary general and administrative expenses of approximately $3,507 and $83,929 related to cumulative realized foreign currency, resulting in a loss from discontinued operations of $80,422.

 


F-20


 

NOTE 8: INCOME TAXES  

 

The components of the provision for income taxes for the years ended December 31, 2020 and 2019 consisted of the following.  The provision for income taxes in 2019 is a result of the gain on the sale of the CAKE Business, and therefore has been classified as a component of discontinued operations.

 

 

 

Years Ended

 

 

December 31,

 

 

2020

2019

Current

 

 

 

Federal

 

                      -   

                     -   

State

 

                      -   

             79,823

Total current

 

$                    -   

$           79,823

Deferred

 

 

 

Federal

 

                      -   

                     -   

State

 

                      -   

                     -   

Total deferred

 

$                    -   

$                   -   

Total

 

$                    -   

$           79,823

 

A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows: 

 

 

 

Years Ended

 

 

December 31,

 

 

2020

2019

Statutory federal rate

 

21.0%

21.0%

State income taxes net of federal income tax benefit

-0.7%

0.8%

Permanent differences for tax purposes

 

0.0%

0.0%

Change in valuation allowance

 

-20.3%

-20.5%

Effective income tax rate

 

0.0%

1.3%

 

The income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of 21%, primarily due to the change in the valuation allowance and state income tax benefit, offset by nondeductible expenses.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the deferred tax assets and liabilities are as follows:  

 

 

 

 

Years Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

        3,518,643

 

$

        2,643,196

Impairment of intangible assets

 

 

        1,054,294

 

 

        1,054,294

Stock-based compensation

 

 

             21,163

 

 

                     -   

Other temporary differences

 

 

         (321,112)

 

 

             11,891

Total deferred tax assets

 

 

        4,272,988

 

 

        3,709,381

Change in valuation allowance

 

 

      (4,272,988)

 

 

      (3,709,381)

Effective income tax rate

 

$

                      -   

 

$

                     -   

 

At December 31, 2020, the Company had available net operating loss carryovers of approximately $13.1 million that may be applied against future taxable income and expires at various dates between 2027 and 2039, subject to certain limitations. The Company has a deferred tax asset arising substantially from the benefits of such net operating loss deduction and has recorded a valuation allowance for the full amount of this deferred tax asset since it is more likely than not that some or all of the deferred tax asset may not be realized. 

 

The Company files income tax returns in the U.S. federal jurisdiction and California and is subject to income tax examinations by federal tax authorities for tax years ended 2017 and later and by California authorities for tax years ended 2014 and later. The Company currently is not under examination by any tax authority. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of December 31, 2020, the Company has no accrued interest or penalties related to uncertain tax positions.


F-21


NOTE 9: COMMITMENTS AND CONTINGENCIES

 

Leases

 

On June 20, 2019, the Company entered into a Lease Agreement with Emerging Growth for the lease of office space in Whitefish, Montana, for a period of one year at a rate of $1,500 per month. On August 5, 2020, the Company entered into a lease agreement with Emerging Growth for additional office space in Whitefish, Montana, replacing its previous lease from June 20, 2019. The term of the lease commenced on September 1, 2020 for a period of one year at a rate of $4,500 per month.  The lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase.  Management has elected a policy to exclude leases with an initial term of 12 months or less from the balance sheet presentation required under ASC 842. As a result, the office lease has been excluded from balance sheet presentation as it has an original term of 12 months or less.

 

The lease with Emerging Growth, was extended on March 30, 2021 for a period of 3 years, commencing effective April 1, 2021.

 

The Company leased office space in Santa Monica, California under a short-term lease at $1,000 per month. The lease was terminated in March 2020 and the Company has no further obligations under this lease.

 

Legal Proceedings

 

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any legal proceedings that it currently believes, if determined adversely to the Company, would individually or taken together have a material adverse effect on the Company’s business, operating results, financial condition or cash flows.

 

 

NOTE 10: SUBSEQUENT EVENTS

 

On January 6, 2021, 10,500,000 shares of restricted common stock were issued to a series of investors in exchange for $420,000, of which $410,000 was received prior to December 31, 2021.  The amounts received of $410,000 prior to December 31, 2020 has been reflected as common shares issuable in the Company’s financial statements as of December 31, 2020.

 

On March 29, 2021, the Company entered into an agreement with Emerging Growth LLC to issue 1,750,000 Shares of common stock in exchange for the full settlement of its $105,000 obligations for accrued dividends on the Series B Preferred of $105,000 through March 31, 2021.  

 

 


F-22