10-Q 1 cnfn20200930_10q.htm FORM 10-Q cnfn20200930_10q.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended September 30, 2020

 

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

 

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 or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

600 E. 8TH STREET

WHITEFISH, MT 59937

 (Address of principal executive offices) (Zip code)

 

(833) 420-2636

 (Registrant’s Telephone Number, including Area Code)

 

 

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

 

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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) 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 large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

 

The number of shares outstanding of the registrant’s Common Stock, $0.001 par value per share, as of October 16, 2020, was 104,792,209.

 

When used in this quarterly report, the terms “CFN Enterprises,” “the Company,” “we,” “our,” and “us” refer to CFN Enterprises Inc., a Delaware corporation. 

 

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

 

This quarterly report on Form 10-Q contains certain forward-looking statements. Forward-looking statements may include our statements regarding our goals, beliefs, strategies, objectives, plans, including product and service developments, future financial conditions, results or projections or current expectations. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms, or other comparable terminology. For example, when we discuss our expectations for 2020, our expectations for revenue sources, costs of revenue and expenses going forward, and that we will continue to pursue strategic transactions and opportunities, we are using forward-looking statements. These statements are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements. These factors include, but are not limited to, our ability to implement our strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. The business and operations of CFN Enterprises Inc. are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under “Item 1A. Risk Factors” contained in our annual report on Form 10-K as filed with the Securities and Exchange Commission, or the SEC, on June 15, 2020. Readers are also urged to carefully review and consider the various disclosures we have made in this report and in our annual report on Form 10-K.

 

 

 

CFN ENTERPRISES INC.

 

INDEX

 

  

Page

 

 

PART I - FINANCIAL INFORMATION:

1

 

 

Item 1. Financial Statements (Unaudited)

1

 

 

Item 2. Management’s Discussion and Analysis of Financial Position and Results of Operations

16

  

  

Item 4. Controls and Procedures

21

 

 

PART II - OTHER INFORMATION:

22

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

22

   
Item 5. Other Information 22

 

 

Item 6. Exhibits

22

 

 

SIGNATURES

23

 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CFN ENTERPRISES INC. 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 
   

(Unaudited)

         

Assets

 
                 

Current assets

               

Cash

  $ 107,519     $ 107,727  

Restricted cash

    20,000       -  

Accounts receivable, net

    42,837       72,649  

Inventory

    38,427       -  

Prepaid expenses and other current assets

    4,665       4,136  

Total current assets

    213,448       184,512  
                 

Other assets

               

Property and equipment

    8,428       3,020  

Total other assets

    8,428       3,020  

Total assets

  $ 221,876     $ 187,532  
                 

Liabilities and Stockholders' Deficit

 
                 

Current liabilities

               

Accounts payable and accrued expenses

  $ 816,213     $ 261,539  

Deferred revenues

    49,124       15,734  

Current portion of long-term debt

    144,327       -  

Current liabilities of discontinued operations

    79,823       99,695  

Total current liabilities

    1,089,487       376,968  

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

    757,255       484,177  

Total liabilities

    1,846,742       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 September 30, 2020 and December 31, 2019

    1       1  

Series B Preferred stock, $0.001 par value, 3,000 shares authorized, 3,000 shares issued and outstanding as of September 30, 2020 and December 31, 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 September 30, 2020 and December 31, 2019, respectively

    104,792       99,679  

Additional paid-in capital

    34,281,838       34,031,326  

Accumulated deficit

    (36,011,500 )     (34,721,149 )

Accumulated other comprehensive income

    -       (83,473 )

Total stockholders' deficit

    (1,624,866 )     (673,613 )

Total liabilities and stockholders' deficit

  $ 221,876     $ 187,532  

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 
1

 

CFN ENTERPRISES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 
                                 

Net revenues

  $ 154,369     $ 568,992     $ 349,071     $ 631,712  

Cost of revenue

    128,885       381,277       414,154       414,726  

Gross profit (loss)

    25,484       187,715       (65,083 )     216,986  
                                 

Operating expenses:

                               

Selling, general and administrative

    307,069       600,663       906,739       1,495,492  

Total operating expenses

    307,069       600,663       906,739       1,495,492  
                                 

Loss from operations

    (281,585 )     (412,948 )     (971,822 )     (1,278,506 )
                                 

Other income (expense):

                               

Interest expense

    (13,560 )     (2,514 )     (38,055 )     (2,514 )

Loss on extinguishment of debt

    (30,069 )     -       (30,069 )     -  

Other income

    10,000       -       10,000       -  

Interest income

    2       19       17       131  

Total other income (expense)

    (33,627 )     (2,495 )     (58,107 )     (2,383 )
                                 

Net loss before provision for income taxes

    (315,212 )     (415,443 )     (1,029,929 )     (1,280,889 )

Provision for income taxes

    -       -       -       -  

Net loss from continuing operations

    (315,212 )     (415,443 )     (1,029,929 )     (1,280,889 )

Gain (loss) from discontinued operations, net of tax

    (80,422 )     1,113       (80,422 )     14,471,162  

Net income (loss)

  $ (395,634 )   $ (414,330 )   $ (1,110,351 )   $ 13,190,273  

Preferred stock interest

    60,000       60,000       180,000       66,575  

Net income (loss) available to common shareholders

  $ (455,634 )   $ (474,330 )   $ (1,290,351 )   $ 13,123,698  
                                 

Net loss from continuing operations per share, basic and diluted

  $ (0.00 )   $ (0.00 )   $ (0.01 )   $ (0.02 )
                                 

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

  $ 0.00     $ 0.00     $ 0.00     $ 0.18  

Weighted average number of common shares outstanding, basic and diluted

    102,808,921       99,679,709       100,814,828       78,696,193  

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 
2

 

CFN ENTERPRISES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 
                                 

Net income (loss)

  $ (395,634 )   $ (414,330 )   $ (1,110,351 )   $ 13,190,273  

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation adjustments

    -       (13,050 )     (456 )     (9,568 )

Total other comprehensive income (loss), net of tax

    -       (13,050 )     (456 )     (9,568 )

Comprehensive income (loss)

  $ (395,634 )   $ (427,380 )   $ (1,110,807 )   $ 13,180,705  

 

See accompanying notes to unaudited condensed consolidated financial statements

 

3

 

 

CFN ENTERPRISES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Three and Nine Month period ended September 30, 2020 and 2019

 

   

Three Months Ended September 30, 2020

 
                                                                                 
                                                                   

Accumulated

         
                                                   

Additional

           

Other

   

Total

 
   

Series A Preferred Stock

   

Series B Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

   

Comprehensive

   

Stockholders'

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Income

   

Equity (Deficit)

 

Balance, June 30, 2020

    500     $ 1       3,000     $ 3       99,929,709     $ 99,929     $ 34,035,933     $ (35,555,866 )   $ (83,929 )   $ (1,503,929 )
                                                                                 

Share-based compensation

                                    62,500       63       10,705                       10,768  

Shares issued as payment of accounts payable and accrued interest

                                    4,800,000       4,800       235,200                       240,000  

Preferred stock interest

                                                            (60,000 )             (60,000 )

Net loss

                                                            (395,634 )             (395,634 )

Foreign currency translation

                                                                    83,929       83,929  

Balance, September 30, 2020

    500     $ 1       3,000     $ 3       104,792,209     $ 104,792     $ 34,281,838     $ (36,011,500 )   $ -     $ (1,624,866 )

 

   

Nine Months Ended September 30, 2020

 
                                                                   

Accumulated

         
                                                   

Additional

           

Other

   

Total

 
   

Series A Preferred Stock

   

Series B Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

   

Comprehensive

   

Stockholders'

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Income

   

Equity (Deficit)

 

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

                                                            (180,000 )             (180,000 )

Net loss

                                                            (1,110,351 )             (1,110,351 )

Foreign currency translation

                                                                    83,473       83,473  

Balance, September 30, 2020

    500     $ 1       3,000     $ 3       104,792,209     $ 104,792     $ 34,281,838     $ (36,011,500 )   $ -     $ (1,624,866 )

 

 

   

Three Months Ended September 30, 2019

 
                                                                   

Accumulated

         
                                                   

Additional

           

Other

         
   

Series A Preferred Stock

   

Series B Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

   

Comprehensive

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Income

   

Total

 

Balance, June 30, 2019

    500     $ 1       3,000     $ 3       99,679,709     $ 99,679     $ 34,013,702     $ (29,362,096 )   $ (73,873 )   $ 4,677,416  
                                                                                 

Fair value of warrants issued with promissory notes

    -       -       -       -       -       -       17,624       -       -       17,624  

Preferred stock interest

    -       -       -       -       -       -       -       (60,000 )     -       (60,000 )

Net loss

    -       -       -       -       -       -       -       (414,330 )     -       (414,330 )

Foreign currency translation

    -       -       -       -       -       -       -       -       (13,050 )     (13,050 )

Balance, September 30, 2019

    500     $ 1       3,000     $ 3       99,679,709     $ 99,679     $ 34,031,326     $ (29,836,426 )   $ (86,923 )   $ 4,207,660  

 

   

Nine Months Ended September 30, 2019

 
                                                                   

Accumulated

         
                                                   

Additional

           

Other

         
   

Series A Preferred Stock

   

Series B Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

   

Comprehensive

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

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 acquisition 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

    -       -       -       -       -       -       -       (66,575 )     -       (66,575 )

Net income

    -       -       -       -       -       -       -       13,190,273       -       13,190,273  

Foreign currency translation

    -       -       -       -       -       -       -       -       (9,568 )     (9,568 )

Balance, September 30, 2019

    500     $ 1       3,000     $ 3       99,679,709     $ 99,679     $ 34,031,326     $ (29,836,426 )   $ (86,923 )   $ 4,207,660  

 

See accompanying notes to unaudited condensed consolidated financial statements

 

4

 

 

CFN ENTERPRISES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2020

   

2019

 
                 

Cash flows from operating activities

               

Net income (loss)

  $ (1,110,351 )   $ 13,190,273  

Gain (loss) from discontinued operations

    (80,422 )     14,471,162  

Net loss from continuing operations

    (1,029,929 )     (1,280,889 )
                 

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

               

Restricted stock awards

    -       60,000  

Depreciation and amortization

    1,225       565  

Loss on extinguishment of debt

    30,069       -  

Share-based compensation

    15,625       -  

Amortization of deferred financing cost

    4,405       322  

Provision for bad debt

    20,000       -  
                 

Changes in operating assets and liabilities:

               

Accounts receivable

    9,812       (231,503 )

Inventory

    (38,427 )     -  

Prepaid expenses and other current assets

    (529 )     (3,401 )

Accounts payable and accrued expenses

    644,606       186,572  

Deferred revenue

    33,390       45,041  
                 

Net cash used in operating activities of continuing operations

    (309,754 )     (1,223,293 )

Net cash used in operating activities of discontinued operations

    (16,365 )     (4,930,689 )

Net cash used in operating activities

    (326,119 )     (6,153,982 )
                 

Cash flows from investing activities

               

Purchase of property and equipment

    (6,633 )     (1,751 )

Payments for acquisition of subsidiary

    -       (420,000 )

Net cash used in investing activities of continuing operations

    (6,633 )     (421,751 )

Net cash provided by investing activities of discontinued operations

    -       20,892,667  

Net cash provided by (used in) investing activities

    (6,633 )     20,470,916  
                 

Cash flows from financing activities

               

Proceeds from notes payable

    413,000       500,000  

Payment of preferred stock interest

    (60,000 )     (35,000 )
                 

Net cash provided by financing activities of continuing operations

    353,000       465,000  

Net cash used in financing activities of discontinued operations

    -       (13,872,514 )

Net cash provided by (used in) financing activities

    353,000       (13,407,514 )
                 

Effect of exchange rate fluctuations on cash

    (456 )     (11,281 )
                 

Net change in cash and restricted cash

    19,792       898,139  

Cash and restricted cash, beginning of the period

    107,727       77,295  

Cash and restricted cash, end of the period

  $ 127,519     $ 975,434  
                 

Supplemental disclosure of cash flow information:

               

Interest paid

  $ -     $ 946,691  

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  

Accrued payables and short-term note directly paid off by credit facility

  $ -     $ 62,379  

Accrual of preferred stock interest

  $ 120,000     $ 31,575  

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

  $ 105,000     $ -  

 

See accompanying notes to unaudited condensed consolidated financial statements

 

5

 

CFN ENTERPRISES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 (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, 2019, 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 unaudited condensed 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.  

 

6

 

The Company had working capital deficit of $876,039 and an accumulated deficit of $36,011,500 as of September 30, 2020. The Company also had a net loss from continuing operations of $1,029,929 during the nine months ended September 30, 2020.

 

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 (see Note 5).  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

 

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 the Company operates. While to date the Company has 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 the Company and its customers. While it is unknown how long these conditions will last and what the complete financial effect will be to the Company, it is expected to have a significant adverse impact to the Company’s revenue and ability to obtain financing.

 

Basis of Presentation

 

The accompanying unaudited condensed 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 unaudited condensed 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 material intercompany accounts and transactions between the Company and its Subsidiary have been eliminated in consolidation.

 

These unaudited condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America, or GAAP. These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2019 and 2018, respectively, which are included in the Company’s December 31, 2019 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission on June 15, 2020.  The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation of these may be determined in that context. The results of operations for the period ended September 30, 2020 are not necessarily indicative of results for the entire year ending December 31, 2020.

 

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the 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 assumptions used in Black-Scholes valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.

 

7

 

Financial Statement Reclassification

 

Certain account balances from prior periods have been reclassified in these unaudited condensed consolidated financial statements to conform to current period classifications. The prior year amounts have also been reclassified in these financial statements to properly report amounts under current operations and discontinued operations (see Note 7).

 

Segment Reporting

 

The Company’s sponsored content and marketing business acquired from Emerging Growth in June 2019 has historically been its one reportable segment. The Company is currently in the process of launching an e-commerce network focused on the sale of general wellness CBD products. As of September 30, 2020, the Company has not commenced with 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 had restricted cash as a result of its corporate card program through its bank, which requires collateral placed in a money market account. During the nine months ended September 30, 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 unaudited condensed consolidated statement of cash flows. The Company had restricted cash balances at September 30, 2020 and December 31, 2019 of $20,000 and $0, respectively.

 

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 September 30, 2020 and December 31, 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 four customers which accounted for 42.0%, 21.0%. 18.7% and 11.7%, respectively, of its net accounts receivable at September 30, 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. 

 

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.

 

8

 

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.

 

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 amounted to $32,445 and $148,738 for the three months ended September 30, 2020 and 2019, respectively. Advertising expenses related to continuing operations amounted to $101,760 and $160,029 for the nine months ended September 30, 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 were 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 condensed consolidated statement of operations for the three and nine months ended September 30, 2020.

 

9

 

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. 

 

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 no impairment of long-lived assets identified during the three and nine months ended September 30, 2020 or 2019.

 

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 September 30, 2020, the Company had 3,160,000 outstanding stock options and 5,256,944 outstanding warrants which were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive. As of September 30, 2019, the Company had 6,595,000 outstanding stock options and 8,127,184 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.

 

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.

 

10

 

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

 

 

NOTE 3: PROPERTY AND EQUIPMENT

 

The Company’s property and equipment relating to continuing operations consisted of the following at September 30, 2020 and December 31, 2019.

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 
   

(Unaudited)

         
                 

Computer equipment and software

  $ 12,546     $ 8,139  

Furniture and equipment

    2,227       -  
      14,773       8,139  
                 

Less: accumulated depreciation

    (6,345 )     (5,119 )
                 
    $ 8,428     $ 3,020  

 

Depreciation expense from continuing operations for the three months ended September 30, 2020 and 2019 amounted to $526 and $368, respectively. Depreciation expense from continuing operations for the nine months ended September 30, 2020 and 2019 amounted to $1,225 and $565, respectively.

 

 

NOTE 4: ACQUISITONS

 

On May 15, 2019, the Company entered into the Emerging Growth Agreement with Emerging Growth, LLC (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. 

 

   

Purchase

Allocation

 

Property and equipment

  $ 2,183  

Other intangible assets

    579,000  

Goodwill

    3,225,817  
    $ 3,807,000  

 

The intangible assets and goodwill acquired in this transaction were fully impaired at the end of 2019.

 

11

 

The following are the unaudited pro forma results of operations for the nine months ended September 30, 2019 as if the assets purchased in the Emerging Growth Agreement had been acquired on January 1, 2019.  The amounts presented on the accompanying unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2020, as well as for the three months ended September 30, 2019, already reflect the impact of the acquisition for the full 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)

 
   

Nine Months Ended September 30, 2019

 
         

Revenue from continuing operations

  $ 1,687,555  
         

Net loss from continuing operations

  $ (1,160,045 )
         

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

  $ (0.01 )

 

 

NOTE 5: NOTES 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 $1,479 and $4,405 for the three and nine months ended September 30, 2020. As of September 30, 2020, the net book value of the promissory note amounted to $488,582 including the principal amount outstanding of $500,000 net of the remaining discount of $11,418.

 

The warrants issued with the promissory note were valued using the Black-Scholes pricing method using the following assumptions below. 

 

Expected life in years

    5  

Stock price volatility

    114.20%  

Risk free interest rate

    1.58%  

Expected dividends

   

None

 

Estimated forfeiture rate

   

None

 

 

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 September 30, 2020, the current portion of the Loan due within the next 12 months amounted to $144,327.

 

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.

 

12

 

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

 

   

Year Ended

 
   

December 31,

 
         

2020 (remainder of)

  $ 13,221  

2021

    175,028  

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 September 30, 2020 amounted to $144,327, which represents the contractual principal payments due in the next 12 months period.

 

 

NOTE 6: STOCKHOLDERS’ DEFICIT

  

Common Stock

 

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. During the three and nine months ended September 30, 2019, the Company recorded expenses of $0 and $60,000, respectively. There was no remaining expense related to this restricted stock recorded during 2020.

 

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 the three and nine months ended September 30, 2020, the Company recorded $4,632 and $10,768, respectively, 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 the three and nine months ended September 30, 2020.

 

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. The Series A Preferred Stock bears interest 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. The Series B Preferred Stock bears interest at 6% per annum and is convertible into the Company’s common stock at the election of Emerging Growth, LLC at a conversion price per share to be mutually agreed between the Company and Emerging Growth, LLC in the future, without voting rights or a liquidation preference, except with respect to accrued penalty interest.

 

For the three months ended September 30, 2020 and 2019, the Company incurred interest from the outstanding preferred stock of $60,000 and $60,000, respectively. For the nine months ended September 30, 2020 and 2019, the Company incurred interest from the outstanding preferred stock of $180,000 and $66,575, respectively.

 

13

 

Warrants

 

The following summarizes the Company’s warrant activity for the nine months ended September 30, 2020.

 

                   

Weighted-

 
                   

Average

 
           

Weighted-

   

Remaining

 
           

Average

   

Contractual

 
           

Exercise

   

Life

 
   

Warrants

   

Price

   

(Years)

 
                         

Outstanding at December 31, 2019

    7,543,944     $ 0.50       3.37  

Forfeited/cancelled

    (2,287,000 )     0.90          

Outstanding at September 30, 2020 (unaudited)

    5,256,944     $ 0.33       3.81  
                         

Vested and expected to vest at September 30, 2020 (unaudited)

    5,256,944     $ 0.33       3.81  
                         

Exercisable at September 30, 2020 (unaudited)

    5,256,944     $ 0.33       3.81  

 

During the nine months ended September 30, 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. 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.

 

The Company recorded expenses of $0 and $37,691 during the three months ended September 30, 2020 and 2019, respectively, related to warrants granted for compensation. The Company recorded expenses of $0 and $126,810 during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, all outstanding warrants were fully vested and there was no remaining unrecorded compensation expense.

 

Options

 

The following summarizes the Company’s stock option activity for the nine months ended September 30, 2020.

 

                   

Weighted-

 
                   

Average

 
           

Weighted-

   

Remaining

 
           

Average

   

Contractual

 
           

Exercise

   

Life

 
   

Options

   

Price

   

(Years)

 
                         

Outstanding at December 31, 2019

    6,320,000     $ 0.33       2.45  

Forfeited/cancelled

    (3,160,000 )     0.33          

Outstanding at September 30, 2020 (unaudited)

    3,160,000     $ 0.33       1.70  
                         

Vested and expected to vest at September 30, 2020 (unaudited)

    3,160,000     $ 0.33       1.70  
                         

Exercisable at September 30, 2020 (unaudited)

    3,160,000     $ 0.33       1.70  

 

The Company recorded expenses of $0 for the three months ended September 30, 2020 and 2019 related to stock options. The Company recorded expenses of $0 and $10,963 during the nine months ended September 30, 2020 and 2019, respectively, related to stock options. As of September 30, 2020, all outstanding options were fully vested and there was no remaining unrecorded compensation expense.

 

14

 

 

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 unaudited condensed consolidated balance sheets, and consist of the following as of September 30, 2020 and December 31, 2019.

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 
   

(Unaudited)

         

Current liabilities of discontinued operations

               

Accounts payable and accrued expenses

  $ 79,823     $ 99,695  

Total current liabilities of discontinued operations

  $ 79,823     $ 99,695  

 

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 unaudited condensed consolidated statements of operations. The results of the discontinued operations of the CAKE Business for the three and nine months ended September 30, 2020 have been reflected as discontinued operations in the consolidated statements of operations, and consist of the following:

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2020

   

2019

   

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 )     (1,113 )     (3,507 )     3,085,692  

Total operating expenses

    (3,507 )     (1,113 )     (3,507 )     6,366,137  
                                 

Loss from operations

    3,507       1,113       3,507       (1,228,301 )
                                 

Other income (expense):

                               

Gain on sale of discontinued operations

    -       -       -       19,473,080  
Loss on foreign currency translation     (83,929 )     -       (83,929 )     ,  

Interest income

    -       -       -       34  

Interest expense

    -       -       -       (3,773,651 )

Total other income (expense)

    (83,929 )     -       (83,929 )     15,699,463  
                                 

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

    (80,422 )     1,113       (80,422 )     14,471,162  

Provision for (benefit from) income taxes

    -       -       -       -  

Net income (loss) from discontinued operations

  $ (80,422 )   $ 1,113     $ (80,422 )   $ 14,471,162  

 

 

NOTE 8: 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 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.

 

15

 

Term Sheet

 

On April 3, 2020, the Company entered into a term sheet, or the Term Sheet, for a joint venture and marketing agreement with BlockCerts Blockchain Limited BVI for the development of proprietary websites, an ecommerce platform and market place dedicated to CBD products, services and lifestyle. On July 17, 2020, the Company terminated the Term Sheet.

 

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 9: SUBSEQUENT EVENTS

 

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 1.65 million shares of its common stock to the noteholder in lieu of $41,192 of accrued interest on the promissory note through December 31, 2020.

 

 

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2019. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements. See “Cautionary Statement Regarding Forward Looking Information’’ elsewhere in this report. Because this discussion involves risk and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements.

 

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. We are currently in the process of launching an e-commerce network focused on the sale of general wellness CBD products.

 

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, 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.

 

Our corporate website is: www.cfnenterprisesinc.com, the contents of which are not part of this quarterly report.

 

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

 

16

 

Results of Operations for the Three Months Ended September 30, 2020 and 2019

 

The following are the results of our operations for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019:

 

   

For the Three Months Ended

         
   

September 30,

   

September 30,

         
   

2020

   

2019

   

Change

 
                         
                         

Net revenues

  $ 154,369     $ 568,992     $ (414,623 )

Cost of revenue

    128,885       381,277       (252,392 )

Gross profit (loss)

    25,484       187,715       (162,231 )
                         

Operating expenses:

                       

Selling, general and administrative

    307,069       600,663       (293,594 )

Total operating expenses

    307,069       600,663       (293,594 )
                         

Loss from operations

    (281,585 )     (412,948 )     131,363  
                         

Other income (expense):

                       

Interest expense

    (13,560 )     (2,514 )     (11,046 )

Loss on extinguishment of debt

    (30,069 )     -       (30,069 )

Other income

    10,000       -       10,000  

Interest income

    2       19       (17 )

Total other income (expense)

    (33,627 )     (2,495 )     (31,132 )
                         

Net loss before provision for income taxes

    (315,212 )     (415,443 )     100,231  

Provision for income taxes

    -       -       -  

Net loss from continuing operations

    (315,212 )     (415,443 )     100,231  

Gain (loss) from discontinued operations, net of tax

    (80,422 )     1,113       (81,535 )

Net loss

  $ (395,634 )   $ (414,330 )   $ 18,696  

 

Net Revenues

 

Subsequent to the closing of the Asset Purchase Agreement with Constellation on June 18, 2019, which resulted in the sale of our CAKE Business and discontinuation of our operations previously recorded under this line of business, our net revenues from continuing operations consists of revenue generated from customer contracts acquired in the Emerging Growth Agreement which closed on June 20, 2019. Subsequent to this date, 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 three months ended September 30, 2020 and 2019 represents revenue related to this line of business.

 

Our revenue during the three months ended September 30, 2020 were lower than the same period in 2019 primarily due to the volume of new contracts entered into with customers has decreasing due in-part to COVID-19 and the impacts on our customers and the industry in which we operate. During the three months ended September 30, 2020, we had 10 contracts in progress whereas we had 31 contracts during the same period in 2019. We expect these trends to continue for the foreseeable future.

 

Costs of Revenue

 

Our cost of revenue represents costs incurred associated with performing services under our customer contracts acquired under the Emerging Growth Agreement. Our cost of revenue for the three months ended September 30, 2020 related to this line of business. Our cost of revenue decreased due primarily to the decrease in revenues during the three months ended September 30, 2020 as compared to the same period in 2019. We expect for our cost of revenue to change proportionately with changes in revenues recognized in future periods.

 

17

 

Operating Expenses

 

Our operating expenses for the three months ended September 30, 2020 decreased by $293,594 as compared to the prior year period due primarily to higher legal and professional fees in 2019 associated with the Asset Purchase Agreement and the Emerging Growth Agreement, as well as $90,000 of transition expenses paid pursuant to the Emerging Growth Agreement which did not re-occur in 2020. Continuing operating expenses presented during the three months ended September 30, 2020 and 2019 reflect administrative expenses associated with payroll, business insurance, legal and accounting fees that we expect will continue to incur.

 

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. During the three months ended September 30, 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.  During the three months ended September 30, 2019, we had a small gain from discontinued operations of $1,113 due to adjustments made to certain accrued liabilities associated with the UK Subsidiary.

 

Results of Operations for the Nine Months Ended September 30, 2020 and 2019

 

The following are the results of our operations for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019:

 

   

For the Nine Months Ended

         
   

September 30,

   

September 30,

         
   

2020

   

2019

   

Change

 
                         
                         

Net revenues

  $ 349,071     $ 631,712     $ (282,641 )

Cost of revenue

    414,154       414,726       (572 )

Gross profit (loss)

    (65,083 )     216,986       (282,069 )
                         

Operating expenses:

                       

Selling, general and administrative

    906,739       1,495,492       (588,753 )

Total operating expenses

    906,739       1,495,492       (588,753 )
                         

Loss from operations

    (971,822 )     (1,278,506 )     306,684  
                         

Other income (expense):

                       

Interest expense

    (38,055 )     (2,514 )     (35,541 )

Loss on extinguishment of debt

    (30,069 )     -       (30,069 )

Other income

    10,000       -       10,000  

Interest income

    17       131       (114 )

Total other income (expense)

    (58,107 )     (2,383 )     (55,724 )
                         

Net loss before provision for income taxes

    (1,029,929 )     (1,280,889 )     250,960  

Provision for income taxes

    -       -       -  

Net loss from continuing operations

    (1,029,929 )     (1,280,889 )     250,960  

Gain from discontinued operations, net of tax

    (80,422 )     14,471,162       (14,551,584 )

Net income (loss)

  $ (1,110,351 )   $ 13,190,273     $ (14,300,624 )

 

Net Revenues

 

Subsequent to the closing of the Asset Purchase Agreement with Constellation on June 18, 2019, which resulted in the sale of our CAKE Business and discontinuation of our operations previously recorded under this line of business, our net revenues from continuing operations consists of revenue generated from customer contracts acquired in the Emerging Growth Agreement which closed on June 20, 2019. Subsequent to this date, 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 nine months ended September 30, 2020 and 2019 represents revenue related to this line of business.

 

Our revenue during the nine months ended September 30, 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 nine months ended September 30, 2020, we had 22 contracts in progress, whereas we had 31 contracts during the same period in 2019. We expect these trends to continue for the foreseeable future.

 

18

 

Costs of Revenue

 

Our cost of revenue represents costs incurred associated with performing services under our customer contracts acquired under the Emerging Growth Agreement. Our cost of revenue for the nine months ended September 30, 2020 related to this line of business. Our cost of revenue decreased due primarily to the decrease in revenues during the nine months ended September 30, 2020 as compared to the same period in 2019. We expect for our cost of revenue to change proportionately with changes in revenues recognized in future periods.

 

Operating Expenses

 

Our operating expenses for the nine months ended September 30, 2020 decreased by $588,753 as compared to the prior year period due primarily to higher legal and professional fees in 2019 associated with the Asset Purchase Agreement and the Emerging Growth Agreement, as well as $120,000 of compensation expense during the nine months ended September 30, 2019 related to our board of directors which did not re-occur in 2020. We also had higher transition expenses paid pursuant to the Emerging Growth Agreement of $60,00 during 2019 as compared to 2020. Continuing operating expenses presented during the nine months ended September 30, 2020 and 2019 reflect administrative expenses associated with payroll, business insurance, legal and accounting fees that we expect will continue to incur.

 

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 nine months ended September 30, 2019 of $14,471,162, 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 nine months ended September 30, 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 PPP, 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 nine months ended September 30, 2020 and 2019.

 

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2020

   

2019

 

Cash flows provided by (used in) operating activities

  $ (326,119 )   $ (6,153,982 )

Cash flows provided by investing activities

  $ (6,633 )   $ 20,470,916  

Cash flows provided by (used in) financing activities

  $ 353,000     $ (13,407,514 )

 

As of September 30, 2020, we had unrestricted cash of $107,519.

 

Net cash used in operating activities was $326,119 during the nine months ended September 30, 2020, compared to cash used in operating activities of $6,153,982 during the same period in 2019. The cash used in operating activities in 2020 was primarily the result of the net loss during the period, offset by an increase in accounts payable and accrued expenses. During the nine months ended September 30, 2019, our net cash used in operations was primarily the result of the payment of a large number of accounts payable and other operating liabilities at the time of closing of the Asset Purchase Agreement on June 18, 2019.

 

Net cash provided by investing activities during the nine months ended 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. Our cash flows used in investing activities during the nine months ended September 30, 2020 was $6,633 from the acquisition of property and equipment.

 

19

 

Net cash provided by financing activities during the nine months ended September 30, 2020 of $353,000 was the result of proceeds from notes payable of $413,000, offset by the payment of preferred stock interest of $60,000.  Net 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 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 $1,479 and $4,405 for the three and nine months ended September 30, 2020. As of September 30, 2020, the net book value of the promissory note amounted to $488,582 including the principal amount outstanding of $500,000 net of the remaining discount of $11,418.

 

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 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 September 30, 2020, the current portion of the Loan due within the next 12 months amounted to $144,327.

 

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.

 

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

 

   

Year Ended

 
   

December 31,

 
         

2020 (remainder of)

  $ 13,221  

2021

    175,028  

2022

    574,751  

2023

    2,262  

2024

    3,285  

2025

    3,416  

  Thereafter

    141,037  

  Total

  $ 913,000  

 

20

 

Obligations Under Preferred Stock

 

On June 20, 2019, existing debtholders with outstanding principal balances totaling $500,000 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 September 30, 2020

 

Warrants

 

As of September 30, 2020, 5,256,944 shares of our common stock are issuable pursuant to the exercise of warrants.

  

Options

 

As of September 30, 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. While it is unknown how long these conditions will last and what the complete financial effect will be, it is expected to have a significant adverse impact to our revenue and ability to obtain financing.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer, who is our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2020, our disclosure controls and procedures were not effective.

 

Changes in Internal Control Over Financial Reporting

 

During 2019, 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 outside 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.  As a result, we have assessed our disclosure controls and controls over financial reporting as not effective.  

 

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PART II - OTHER INFORMATION

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Effective August 6, 2020, the Company and Emerging Growth reached an agreement whereby the Company issued 4.8 million shares of 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 the three and nine months ended September 30, 2020. 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.

 

Item 5. Other Information

 

Given the timing of events, the following information is included in this Form 10-Q pursuant to Item 3.02 “Unregistered Sales of Equity Securities” of Form 8-K in lieu of filing a Form 8-K.

 

Effective October 13, 2020, the Company and the holder of its $500,000 promissory note payable issued on September 10, 2019 reached an agreement whereby the Company agreed to issue 1.65 million shares of its common stock to the noteholder in lieu of $41,192 of accrued interest on the promissory note through December 31, 2020.  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.

 

Item 6.  Exhibits

 

10.1

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).

 

 

31.1

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14(a) and15d-14(a).*

  

  

32.1

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. 1350.**

 

 

101.

The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Comprehensive Loss, (iv) the Statements of Changes in Stockholders’ Deficit, (v) the Statements of Cash Flows, and (vi) related notes to these financial statements.*

 

*

Filed herewith.

** Furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  

CFN ENTERPRISES INC. 

  

  

  

  

  

Dated: October 16, 2020

 

 

By:

 

/s/ Brian Ross

  

  

  

Brian Ross

President and Chief Executive Officer

(Principal Executive Officer and Principal Financial Officer)

  

 

 

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