UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended:
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from:
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Issuer’s
telephone number:
Securities registered pursuant to Section 12(b) of the Act: None
Indicate
by checkmark whether the registrant has (1) 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 ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | 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 standard 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 Act). Yes ☐
As of April 25, 2022, the issuer had shares of its common stock, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
| 2 |
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORTIUM HOLDINGS CORP.
(FORMERLY BANNER ENERGY SERVICES CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2022 (UNAUDITED) AND DECEMBER 31, 2021
| MARCH 31, | DECEMBER 31, | |||||||
| 2022 | 2021 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Investment | - | |||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Intangible assets, net | - | - | ||||||
| Goodwill | - | - | ||||||
| Total non-current assets | - | - | ||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Total current liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Total Liabilities | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common
stock, par value, $, shares authorized, issued and outstanding, respectively |
|
|
|
|
|
|
|
|
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity before nin-controlling interest | ||||||||
| Non-controlling interest | ( | ) | - | |||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
FORTIUM HOLDINGS CORP.
(FORMERLY BANNER ENERGY SERVICES CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
| 2022 | 2021 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF REVENUE | - | |||||||
| GROSS PROFIT (LOSS) | ( | ) | - | |||||
| OPERATING EXPENSES | ||||||||
| Salaries and wages, including stock-based compensation | ||||||||
| Selling, general and administrative expenses | ||||||||
| Total Operating Expenses | ||||||||
| OPERATING LOSS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest expense, net of interest income | - | ( | ) | |||||
| Realized (loss) gain on investment | ||||||||
| Unrealized gain on investment | - | |||||||
| Total other income (expense) | ||||||||
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE BENEFIT (PROVISION) FOR INCOME TAXES | ( | ) | ||||||
| Provision for income taxes | - | - | ||||||
| NET (LOSS) INCOME | ( | ) | ||||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | |||||||
| NET (LOSS) INCOME TO CONTROLLING INTEREST | $ | ( | ) | $ | ||||
| NET (LOSS) INCOME PER SHARE - BASIC | $ | ( | ) | $ | ||||
| NET (LOSS) INCOME PER SHARE - DILUTED | $ | (0.02 | ) | $ | 0.04 | |||
| WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC | ||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED | ||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 4 |
FORTIUM HOLDINGS CORP.
(FORMERLY BANNER ENERGY SERVICES CORP.)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
| Additional | ||||||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Noncontrolling | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interest | Total | |||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net income for the period | - | - | - | - | ||||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 5 |
FORTIUM HOLDINGS CORP.
(FORMERLY BANNER ENERGY SERVICES CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
| 2022 | 2021 | |||||||
| CASH FLOW FROM OPERATING ACTIVIITES | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments
to reconcile net (loss) income to net cash (used in) operating activities |
|
|
|
|
|
|
|
|
| Change in non-controlling interest | ( | ) | - | |||||
| Depreciation | ||||||||
| Realized loss (gain) on investment | ( | ) | ( | ) | ||||
| Unrealized gain on investment | - | ( | ) | |||||
| Changes in assets and liabilities | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accrued expenses - related parties | - | ( | ) | |||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Total adjustments | ( | ) | ( | ) | ||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITES | ||||||||
| Proceeds from sale of investment | ||||||||
| Purchases of fixed assets | - | ( | ) | |||||
| Net cash provided by investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
| Repayments of note payable - related parties | - | ( | ) | |||||
| Net cash (used in) financing activities | - | ( | ) | |||||
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ( | ) | ||||
| CASH - BEGINNING OF PERIOD | ||||||||
| CASH - END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 6 |
Fortium Holdings Corp.
(Formerly Banner Energy Services Corp.)
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
| NOTE 1: | DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Description of Business
The terms “we,” “us,” “our,” “registrant,” “Fortium Holdings”, and the “Company” refer to Fortium Holdings Corp.
On
March 27, 2020, Banner Midstream Corp., the Company’s principal asset, was acquired by Ecoark Holdings, Inc., (“Ecoark”)
pursuant a Stock Purchase Agreement, dated March 27, 2020 (the “Banner Purchase Agreement”), between Ecoark and the Company
.. Pursuant to the Banner Purchase Agreement, Ecoark acquired
On
March 18, 2021, the Company formed Norr LLC (“Norr”), a Nevada limited liability company and wholly-owned subsidiary of the
Company, and commenced operations as a sports equipment and apparel manufacturer and retailer. Prior to organization of Norr, the Company’s
Chief Executive Officer had explored this business opportunity and commenced preparation of a business plan for the business. On March
23, 2021, the Company engaged the services of two consultants and entered into consulting agreements through Norr pursuant to which each
consultant provides services to Norr in exchange for $
On
September 9, 2021, the Company formed Elysian, a Colorado corporation and the Company’s wholly-owned subsidiary. On September 14,
2021, Elysian entered into a Stock Purchase Agreement (“SPA”) with Treehouse Company, Inc. (“Treehouse”), and
its sole shareholder Alex Gosselin (the “Seller”) pursuant to which Elysian shall purchase % of the capital stock of Treehouse
from the Seller for $
On December 2, 2021, Elysian, the Company, 7Seeds Inc. (“7Seeds”), and Firebreak Associates, Inc. (“Firebreak”) (collectively, the “Parties”) entered into a joint venture agreement (the “JVA”). Pursuant to the JVA, 7Seeds, Firebreak and Elysian agreed to cooperate in the opening and operation of cannabis distribution facilities as follows: (i) 7Seeds agreed to provide consulting services to Elysian including identifying locations to open new commercial cannabis businesses, including without limitation dispensaries, delivery stores, and other businesses engaging in cannabis related activities (the “Elysian Stores”), securing proper state and local licensure, planning commercial cannabis business operations at those locations in exchange for the compensation described below, and (ii) Firebreak, as the owner of certain trademarks and service marks (the “CannaBlue Marks”), agreed to license the CannaBlue Marks to Elysian for which Elysian obtained the option to open the Elysian Stores under the name “CannaBlue” and making use of the CannaBlue Marks. The Elysian Stores will be owned and operated entirely by Elysian or its affiliates.
Under
the JVA, 7Seeds agreed to provide services to Elysian for a 36-month period commencing on the effective date of the JVA, for which Elysian
agreed to compensate 7Seeds as follows: (a) $
| 7 |
Under
the JVA, Firebreak has granted Elysian a license to use the CannaBlue Marks in connection with the Elysian Stores in the license territory,
consisting of the United States. The license term is for a period of five years and is automatically renewable for successive one-year
terms, unless terminated in accordance with the JVA. In exchange for the license, Elysian agreed to pay Firebreak (a) an annual royalty
fee of $
In
December 2021, Norr entered into a term sheet for an Advisory Agreement with three individual contractors. The Advisory Agreements, were
effective upon the signing of the definitive documents on January 24, 2022 and are for a period of five years. If any of the advisors
voluntarily or involuntarily terminates his services, his agreement will automatically terminate. All advisors will be paid $
| (a) | Upon
the first $ | |
| (b) | Upon
the first $ | |
| (c) | Upon
the first $ | |
| (d) | Upon
the first $ | |
| (e) | Upon
the first $ | |
| (f) | Upon
the first $ | |
| (g) | Upon
the first $ | |
| (h) | Upon
the first $ |
The
maximum ownership the advisors may collectively receive in Norr shall be %. In addition, the advisors may receive shares of Fortium
common stock based on meeting enumerated net operating free cash flow thresholds ranging from $ to $, for a total potential
Fortium equity compensation to these advisors of up to $ of shares of Fortium common stock. As a result of Norr generating revenue
on January 22, 2022, the aforementioned contractors received a total of
Simultaneously
with the SPA, Elysian and the Seller entered into a Memorandum of Understanding with Treehouse pursuant to which the parties agreed that
Elysian will purchase the remaining
The Company is subject to a number of risks, including the need to develop the Elysian, Norr business and/or acquire and successfully operate a new business, and the risk of raising capital through equity and/or debt financings.
On January 7, 2021, shareholders of the Company representing approximately % of the outstanding common shares, acted by written consent in lieu of a meeting to approve an amendment to the Company’s Articles of Incorporation to change the name of the Company to Fortium Holdings Corp. (the “Amendment”). The Financial Industry Regulatory Authority approved the name change on May 18, 2021.
| 8 |
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges.
The condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Therefore, the interim condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year due to various factors.
Principles of Consolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts, balances and transactions have been eliminated in the consolidation.
The
Company has utilized the guidance under ASC 810-10-55-4B, Case A for a Change that has resulted in the recognition of non-controlling
interest. On January 22, 2022, Norr commenced generating revenues and this triggered the recognition of ownership interests being allocated
to three contractors per their agreements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. 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 consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, estimates of discount rates in lease, liabilities to accrue, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards. Actual results could differ from those estimates.
Acquisition Accounting
The Company’s acquisitions are accounted for under the acquisition method of accounting whereby purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on fair value. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired is recorded as goodwill. The excess of the fair value of the net assets acquired over the fair value of the consideration conveyed is recorded as a non-operating gain on acquisition. The statements of operations for the periods presented include the results of operations for each of the acquisitions from the date of acquisition.
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, of ten years for all property and equipment, except leasehold improvements which are depreciated over the term of the lease, which is shorter than the estimated useful life of the improvements. Computer equipment has an estimated useful life of three years. The licenses anticipated to be acquired in the Treehouse acquisition are indefinite, however management will have an estimated useful life of ten years from the date of acquisition.
| 9 |
ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
ASC 360-10 addresses criteria to be considered for long-lived assets expected to be disposed of by sale. Six criteria are listed in ASC 360-10-45-9 that must be met in order for assets to be classified as held for sale. Once the criteria are met, long-lived assets classified as held for sale are to be measured at the lower of carrying amount or fair value less costs to sell.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
Accrued Expenses
To prepare its financial statements, the Company estimates accrued expenses. The accrual process involves reviewing open contracts, communicating with personnel to identify services that have been performed on behalf of the Company and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The Company makes estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known to the Company at that time.
Although the Company does not expect the estimates to be materially different from amounts actually incurred, if the estimates of the status and timing of services performed differs from the actual status and timing of services performed, the Company may report amounts that are too high or too low in any particular period. Historically, the estimated accrued liabilities have approximated actual expenses incurred. Subsequent changes in estimates may result in a material change in the accruals.
| 10 |
Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying values of the Company’s financial instruments such as cash, investments, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
Investments
The Company measures their investments at fair value with changes in fair value recognized in net income (loss) pursuant to ASU 2016-01, “Financial Instruments-Overall”.
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
● Step 1: Identify the contract with the customer
● Step 2: Identify the performance obligations in the contract
● Step 3: Determine the transaction price
● Step 4: Allocate the transaction price to the performance obligations in the contract
● Step 5: Recognize revenue when the Company satisfies a performance obligation
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
● Variable consideration
● Constraining estimates of variable consideration
● The existence of a significant financing component in the contract
● Noncash consideration
● Consideration payable to a customer
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
| 11 |
The Company accounts for contract costs in accordance with ASC Topic 340-40, Contracts with Customers. The Company recognizes the cost of sales of a contract as expense when incurred or at the time a performance obligation is satisfied. The Company recognizes an asset from the costs to fulfil a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained.
The Company has accounted for stock-based compensation arrangements in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.
Segment Reporting
The Company, through the formation of Norr and anticipated acquisition of Treehouse, has created two distinct business segments. The Company has only nominal operations in Norr as they are in the start-up phase of this organization and upon the acquisition of Treehouse will have the commercial cannabis distribution licenses transferred to Elysian. Upon operations commencing, the Company will segment report these two segments. There are currently only nominal operations of Norr and Elysian (approximately 1% of total net loss). For 2021, there were no segments.
Leases
The Company followed ASC 840 Leases in accounting for leased properties until 2019 when it adopted ASC 842 for its accounting for finance and operating leases in 2019. Included in the Company’s discontinued operations are leases for office and production facilities for terms typically ranging from three to five years. Rent escalations over the term of a lease are considered at the inception of the lease such that the monthly average for all payments is recorded as straight-line rent expense with any differences recorded in accrued liabilities. In continuing operations, there is only an office lease that is on a month-to-month basis. With the anticipated acquisition of Treehouse, the leases to be acquired in that transaction will be accounted for under the guidance of ASC 842.
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only basic weighted average number of common shares are used in the computations.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
| 12 |
Going Concern
The Company concluded that its negative cash flows from operations raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the unaudited condensed consolidated financial statements are issued.
Management intends to oversee the development and growth of the Company’s anticipated commercial cannabis distribution business and sporting goods and apparel business and continue to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction. Our management team has experience in the cannabis space and sporting goods and apparel industry and in consulting both private and public companies in operational processes, although no assurances can be given that he can successfully grow our operations through our subsidiary or identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies. Even though management believes this plan will allow the Company to continue as a going concern, there are no guarantees to the successful execution of this plan.
These condensed consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
On
March 27, 2020, Banner Midstream was acquired by Ecoark for shares of common stock (after giving effect to Ecoark’s subsequent
Impact of COVID-19
Since the sale of Banner Midstream, the COVID-19 pandemic has not had a material impact on the Company, particularly due to our lack of operations until recently. The pandemic may, however, have an impact on our ability to develop the Norr business and anticipated Elysian business with the acquisition of Treehouse.
| NOTE 2: | REVENUE |
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which the Company adopted effective January 1, 2019. No cumulative adjustment to members equity was required, and the adoption did not have a material impact on our financial statements, as no material arrangements prior to the adoption were impacted by the new pronouncement.
The following represents the disaggregation of revenue by major source for the three months ended March 31, 2022 and 2021:
| 2022 | 2021 | |||||||
| Revenue: | ||||||||
| Product sales - Norr | $ | $ | ||||||
| Other revenue | - | - | ||||||
| $ | $ | |||||||
There
were no significant contract asset or contract liability balances for all periods presented. The Company does not disclose the value
of unsatisfied performance obligations for (i)
| 13 |
| NOTE 3: | FIXED ASSETS |
Fixed assets as of March 31, 2022 and December 31, 2021 were as follows:
| March 31, 2022 (unaudited) | December 31, 2021 | |||||||
| Computer equipment | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net fixed assets | $ | $ | ||||||
Depreciation
expense for the three months ended March 31, 2022 and 2021 were $
| NOTE 4: | DEPOSIT |
On
March 8, 2022, the Company entered into a stock purchase agreement whereby the Company paid a non-refundable $
| NOTE 5: | NOTES PAYABLE - RELATED PARTIES |
The
Company borrowed funds from Atikin Investments LLC (“Atikin”), an entity managed by the former Chief Executive Officer of
the Company, to pay for operating expenses. The Company formalized the arrangement on August 1, 2020 when it issued to Atikin a Junior
Secured Revolving Promissory Note for a principal amount up to $
Through
December 31, 2020, the Company borrowed a total $
| NOTE 6: | STOCKHOLDERS’ EQUITY (DEFICIT) |
Common Stock
The
Company has authority to issue up to shares, par value $
On
September 14, 2021, the Company issued shares of common stock in the exercise of warrants for $
Stock Options
The Company’s Board of Directors approved the adoption of the Mount Tam 2016 Stock-Based Compensation Plan (the “2016 Plan”) on May 12, 2016.
On May 2, 2016, the Company granted options to purchase up to shares of Common Stock under the Plan in the aggregate, with an exercise price of $ per share. On December 28, 2018, the Company granted options to purchase up to shares of Common Stock under the Plan in the aggregate, with an exercise price of $ per share. All of the stock options are fully vested. There have been no stock options granted since 2018.
| 14 |
On October 2, 2016, the Company granted options to purchase up to shares of Common Stock under the Plan in the aggregate, with an exercise price of $ per share. On December 28, 2018, the Company granted options to purchase up to shares of Common Stock under the Plan in the aggregate, an exercise price of $ per share. All of the stock options are fully vested. There have been no stock options granted since 2018.
| Date of Grant | ||||
| Expected term (years) | ||||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Dividend yield | % | |||
| Number of Options | Weighted
Average Exercise Price | Weighted Average Remaining Contractual Term | ||||||||||
| Balance outstanding at December 31, 2020 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited | - | |||||||||||
| Expired | - | |||||||||||
| Cancelled | - | |||||||||||
| Balance outstanding at December 31, 2021 | $ | |||||||||||
| Exercisable at December 31, 2021 | $ | |||||||||||
| Number of Options | Weighted
Average Exercise Price | Weighted Average Remaining Contractual Term | ||||||||||
| Balance outstanding at December 31, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited | - | |||||||||||
| Expired | - | |||||||||||
| Cancelled | - | |||||||||||
| Balance outstanding at March 31, 2022 | $ | |||||||||||
| Exercisable at March 31, 2022 | $ | |||||||||||
Warrants
On
August 10, 2017, the Company entered into a Securities Purchase Agreement with two investors to purchase from the Company
| 15 |
On
July 21, 2021, the Company entered into a consulting agreement with Atikin for a period of one year, expiring July 20, 2022. Pursuant
to the consulting agreement, as amended in September 2021, in exchange for Atikin’s provision of consulting services with respect
to mergers and acquisitions and general business and operational assistance, the Company granted Atikin warrants that have
a term of and an exercise price of $
| Warrants | Shares | Weighted
Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||
| Outstanding at December 31, 2020 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | ( | ) | ( | ) | ( | ) | - | |||||||||
| Forfeited or expired | - | - | ||||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Exercisable at December 31, 2021 | $ | $ | ||||||||||||||
| Warrants | Shares | Weighted
Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited or expired | - | - | ||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | ||||||||||||||
The following assumptions were used for the three months ended March 31, 2022 and year ended December 31, 2021:
Three Months Ended March 31, 2022 | Year Ended December 31, 2021 | |||||||
| Expected term | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | % | % | ||||||
| NOTE 7: | LEASES |
The Company has adopted ASU No. 2016-02, Leases (Topic 842), as of January 2019.
The Company elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach. Adoption of the standard did not result in an adjustment to retained earnings for the Company.
All of the right of use assets and lease liabilities related to Banner Midstream and were sold/assumed to Ecoark in the merger with Ecoark on March 27, 2020.
| 16 |
The Company currently leases space on a month-to-month basis and that lease is not subject to the provisions of ASC 842.
| NOTE 8: | RELATED PARTY TRANSACTIONS |
During
the period ended June 30, 2020, the Company borrowed from Atikin, an entity managed by a former officer of the Company, to pay for operating
expenses. The Company formalized the arrangement on August 1, 2020 when it issued to Atikin a Junior Secured Revolving Promissory Note
for a principal amount up to $
On
July 21, 2021, the Company entered into a consulting agreement with Atikin for a period of one year, expiring July 20, 2022. Pursuant
to the consulting agreement, as amended in September 2021, in exchange for Atikin’s provision of consulting services with respect
to mergers and acquisitions and general business and operational assistance, the Company granted Atikin warrants that have
a term of
During
the year ended December 31, 2021, the Chief Executive Officer advanced the Company $
The May Family Foundation controls % of the common shares outstanding of the Company as of March 31, 2022. Richard Horgan, the Chief Executive Officer, is a director of the Foundation.
| NOTE 9: | FAIR VALUE MEASUREMENTS |
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, investments, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the three months ended March 31, 2022 and the year ended December 31, 2021. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
| 17 |
The following table presents assets and liabilities that are measured and recognized at fair value on a recurring basis as of:
| March 31, 2022 | Level 1 | Level 2 | Level 3 | Total
Gains and (Losses) | ||||||||||||
| Investment | $ | $ | $ | $ | ( | ) | ||||||||||
| December 31, 2021 | ||||||||||||||||
| Investment | $ | $ | $ | $ | ( | ) | ||||||||||
| NOTE 10: | COMMITMENTS |
On December 2, 2021, Elysian, the Company, 7Seeds Inc. (“7Seeds”), and Firebreak Associates, Inc. (“Firebreak”) (collectively, the “Parties”) entered into a joint venture agreement (the “JVA”). Pursuant to the JVA, 7Seeds, Firebreak and Elysian agreed to cooperate in the opening and operation of cannabis distribution facilities as follows: (i) 7Seeds agreed to provide consulting services to Elysian including identifying locations to open new commercial cannabis businesses, including without limitation dispensaries, delivery stores, and other businesses engaging in cannabis related activities (the “Elysian Stores”), securing proper state and local licensure, planning commercial cannabis business operations at those locations in exchange for the compensation described below, and (ii) Firebreak, as the owner of certain trademarks and service marks (the “CannaBlue Marks”), agreed to license the CannaBlue Marks to Elysian for which Elysian obtained the option to open the Elysian Stores under the name “CannaBlue” and making use of the CannaBlue Marks. The Elysian Stores will be owned and operated entirely by Elysian or its affiliates.
Under
the JVA, 7Seeds agreed to provide services to Elysian for a 36-month period commencing on the effective date of the JVA, for which Elysian
agreed compensate 7Seeds as follows: (a) $
Under
the JVA, Firebreak has granted Elysian a license to use the CannaBlue Marks in connection with the Elysian Stores in the license territory,
consisting of the United States. The license term is for a period of five years and is automatically renewable for successive one-year
terms, unless terminated in accordance with the JVA. In exchange for the license, Elysian agreed to pay Firebreak (a) an annual royalty
fee of $
| 18 |
In
December 2021, Norr entered into a term sheet for an Advisory Agreement with three individual contractors. The Advisory Agreements, were
effective upon the signing of the definitive documents on January 24, 2022 and are for a period of five years. If any advisor voluntarily
or involuntarily terminates his services, his agreement will automatically terminate. All advisors will be paid $
| (a) | Upon
the first $ | |
| (b) | Upon
the first $ | |
| (c) | Upon
the first $ | |
| (d) | Upon
the first $ | |
| (e) | Upon
the first $ | |
| (f) | Upon
the first $ | |
| (g) | Upon
the first $ | |
| (h) | Upon
the first $ |
The maximum ownership the advisors may collectively receive in Norr shall be %. In addition, the advisors may receive shares of Fortium common stock based on meeting enumerated net operating free cash flow thresholds ranging from $ to $, for a total potential Fortium equity compensation to these advisors of up to $ of shares of Fortium common stock.
| NOTE 11: | SEGMENT REPORTING |
The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.
For 2021, the Company was just starting operations in Norr and did not segment their operations. Commencing January 1, 2022, the Company’s chief operating decision maker determined that they met the qualifications to segment their business into two distinct divisions: Norr and Elysian.
| Period Ended March 31, 2022 | Norr | Elysian | Total | |||||||||
| Segmented operating revenues | $ | $ | $ | |||||||||
| Cost of revenues | ||||||||||||
| Gross loss | ( | ) | ( | ) | ||||||||
| Total operating expenses net of depreciation | ||||||||||||
| Depreciation | ||||||||||||
| Other (income) expense | ( | ) | ( | ) | ( | ) | ||||||
| (Loss) from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Segmented assets as of March 31, 2022 | ||||||||||||
| Property and equipment, net | $ | $ | $ | |||||||||
| 19 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Cautionary Note Regarding Forward Looking Statements
This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our entrance into the cannabis industry through the operation of cannabis distribution licenses, the anticipated acquisition of Treehouse Company, Inc. and our ability to pay the full purchase price and obtain regulatory approval for the transfer of licenses, our planned operations under our Joint Venture Agreement with 7Seeds Inc., and Firebreak Associates, Inc. and our ability to use the license thereunder to establish and operate cannabis retail stores at one or more locations, our ability to develop and grow our sporting goods and apparel business or generate material revenue therefrom, our working capital needs, potential financings through the sale of our common stock or other securities, the subsequent use and sufficiency of the proceeds from any capital raising methods we may undertake to fund our operations, our further development and implementation of our business plan and our ability to locate sources of capital necessary to meet our business needs and objectives. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 under Item 1A. – Risk Factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
Company Overview
In March 2021 the Company formed Norr LLC (“Norr”) as its wholly owned subsidiary through which the Company commenced its operations as an early-stage manufacturer and retailer of sporting goods and apparel. In September 2021, the Company formed Elysian Premium Corp., a Colorado corporation (“Elysian”) in order to enter into the cannabis industry.
Our principal business objective for the next 12 months is to grow our operations and generate revenue following our entry into the cannabis industry through the anticipated acquisition of Treehouse Company, Inc. (“Treehouse”) through which we intend to acquire two cannabis licenses in California, subject to regulatory approval and other closing conditions and to establish our brand as a cannabis retail company through a Joint Venture Agreement (the “JVA”) with 7Seeds Inc. (“7Seeds”), and Firebreak Associates, Inc. (“Firebreak”), as more fully described below and in the footnotes to the financial statements contained in this Report. We also intend to continue our efforts to monetize Norr and may seek a reverse merger target to acquire which if management determines to pursue such a transaction would be focused on businesses located within the United States and/or Canada.
Plan of Operations
The Company commenced operations in the online sporting goods and apparel industry in March 2021, and has not generated material revenue from continuing operations as of the date of this Report. On September 14, 2021, we entered into a Securities Purchase Agreement (the “SPA”) to acquire Treehouse, a commercial cannabis distribution company that owns two cannabis distribution licenses in the State of California. This transaction has not closed yet as we have not deposited the $200,000 purchase price into escrow. We are in process of working with the seller to obtain the requisite regulatory approval to transfer ownership of the Treehouse licenses to Elysian. Should we fail to obtain approval for the transfer of these licenses, the transaction will be reversed.
All results related to Banner Midstream are reflected in discontinued operations. We are in the process of further developing a business plan, including with respect to our planned operations in the cannabis industry through the anticipated Treehouse acquisition and the JVA with 7Seeds and Firebreak, and other transactions we may undertake if management deems appropriate. We also intend to expand our Norr operations, and entered into Advisory Agreements with three independent contractors for that purpose. We may also resume our search for potential business acquisitions or other opportunities, and use the proceeds from our sales of Ecoark common stock or from one or more financings we may conduct in the future to continue to establish, develop and grow our business, depending on the results of our current and planned operations in the cannabis and sporting apparel industries, as well as available capital.
Norr
In March 2021 we procured the services of two consultants who assist with our sporting goods and apparel operations through Norr. Specifically, under the respective consulting agreements one of our consultants provides creative design, photography and sporting goods and apparel industry, in overseeing the development, manufacture, advertising and sale of our products. In January 2022, we terminated the prior consulting agreements and entered into new consulting agreements replacing the compensatory terms with these contractors, and procured the services of a third contractor to assist in marketing and sales efforts, including for Norr’s online and social media presence and brand strategy.
| 20 |
Management believes that having an online focus, at least in the short term, will allow us to leverage existing online platforms and current market conditions, including an increased demand for contactless transactions as a result of the coronavirus pandemic. Management intends to monitor the evolving market conditions, including the highly competitive nature of the industries in which we operate and the anticipated reopening of retail stores at greater capacities, and may make adjustments to our current business model as an online-only seller as it deems appropriate.
Elysian
On December 2, 2021, Elysian, the Company, 7Seeds, and Firebreak entered into the JVA pursuant to which the parties agreed to cooperate in the opening and operation of cannabis distribution facilities as follows: (i) 7Seeds agreed to provide consulting services to Elysian for an initial term of 36 months, including identifying locations to open new commercial cannabis businesses, including without limitation dispensaries, delivery stores, and other businesses engaging in cannabis related activities (the “Elysian Stores”), securing proper state and local licensure, planning commercial cannabis business operations at those locations, and (ii) Firebreak, as the owner of certain trademarks and service marks (the “CannaBlue Marks”), licensed the CannaBlue Marks to Elysian for an initial term of five years, pursuant to which Elysian obtained the option to open the Elysian Stores under the name “CannaBlue” and making use of the CannaBlue Marks, subject to certain exceptions and limitations. In exchange for the foregoing, Elysian agreed to pay Firebreak cash fees (including royalty payments on a percentage of gross sales) and to pay 7Seeds in cash and shares of Fortium common stock, subject in some cases to certain conditions being met. The compensation payable to each party is described under Note 1 to the financial statements contained in this Report.
Subject to completing the acquisition of Treehouse, our planned cannabis operations will initially be focused on physical stores located in California. While we may use the Cannablue Marks, our license to do so is limited to retail locations for Elysian Stores. Under the JVA, we will be highly reliant on the services and expertise of 7Seeds to establish an initial presence for our cannabis business, and on the Cannablue brand name. If we are successful and generate sufficient revenue and/or raise the required capital in a financing transaction, we may attempt to expand into other areas to the extent permitted under the JVA.
On March 8, 2022, the Company entered into a stock purchase agreement whereby the Company paid a non-refundable $50,000 to Firebreak Associates, Inc. in exchange for a total of 5% equity in any of the 16 corporations that Firebreak controls if they are selected through the State of California’s retail cannabis license lottery process in Encinitas, California under which a total of four licenses will be granted to selected applicants. The city has received over 200 applications for the lottery which has delayed the application review and selection process. As of March 31, 2022, the lottery has not taken place.
General
Our Chief Executive Officer has experience in consulting both private and public companies in operational processes, although no assurances can be given that he can identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively develop and implement our business plan may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the COVID-19 pandemic, geopolitical turmoil, inflation or other adverse developments on the U.S. and global economies. See “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 concerning risks involved in our current and planned operations and business plan.
During the next 12-month period we anticipate incurring costs in continuing our operations and developing our business through Norr and Elysian upon the completion of the acquisition of Treehouse and the JVA, as well as filing SEC reports, evaluating and adopting our business plan and search for additional business opportunities. We anticipate requiring additional capital, which we may raise from one or more future financings, to compensate our independent contractors and strategic transactions, to search for, procure and compensate additional executive officers or other personnel, and to meet our financial obligations including under the SPA and JVA.
| 21 |
Our management anticipates that we may not be able to affect the Treehouse acquisition or may be unable to enter into other business combinations or strategic transactions we may identify, unless we can raise sufficient additional capital through one or more financing transactions due to our limited capital. This lack of capital and business diversification will likely pose a substantial risk in investing in the Company for the indefinite future, because it will not permit us to implement and adjust our business plan quickly in the short-term, or offset potential losses from one venture or operating territory against gains from another. The risks we face will likely be heightened to the extent we are unable to obtain funding on favorable terms and/or our operations are limited to a small number of industries or geographical regions due to lack of sufficient capital, contractual or regulatory restrictions or other reasons.
We expect that the anticipated acquisition of Treehouse and establishment of cannabis stores through the JVA, and our resulting operations in the cannabis industry will be a complex and risk-prone process, including due to the complex and comprehensive regulatory environment we will face as well as our reliance on third parties in that and other respects. For example, to operate the Treehouse licenses as intended, we will need regulatory approval from the California Department of Cannabis Control and similar local authorities on which we will be highly dependent on the action or inaction of Treehouse. The completion of the acquisition and regulatory transfer of the commercial cannabis licenses are in process, and there is a risk that the acquisition will not be completed and the regulatory transfer of the licenses will not be approved. If the acquisition is completed and the transfer is not approved, we will reverse this transaction, and we will be forced to begin anew in our search for a new business to acquire, which would have a material adverse effect on our business and results of operations. Similarly, with respect to the JVA, we will be reliant on 7Seeds’ services and expertise and Firebreak’s intellectual property rights and branding with respect to the Elysian Stores and Cannablue Marks, as well as maintaining relationships with these parties.
Further, cannabis remains illegal at the federal level although to date the federal government has elected not to enforce these regulations and instead to allow state governments to regulate the cannabis industry. See the Risk Factors under “Risks Related to our Planned Operations in the Cannabis Industry” beginning on page 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for more information on the regulatory environment we will face if the Treehouse acquisition closes.
Results of Operations For the Three Months Ended March 31, 2022 compared with the Three Months Ended March 31, 2021
With our Norr operations commencing in March 2021 and our Elysian business still in the development stage as of the date of this Report, we expect that our operating revenues, cost of revenues, and operating expenses will increase in the remainder of 2022 and beyond from what they have been in the past two years, particularly if we are able to raise the required capital, close the acquisition of cannabis licenses and open one or more cannabis retail stores in California as planned. The comparison in our results of operations were for the Company in the very preliminary stages of operations of these respective businesses.
Revenue, Cost of Revenue and Gross Profit
The Company did not generate any material revenues or gross profits for the three months ended March 31, 2022 and 2021. Cost of revenue was $6,705 in the three months ended March 31, 2022, which was incurred in connection with the development and implementation of our business plan.
Operating Expenses
We incurred operating expenses of $162,585 and $134,461 during the three months ended March 31, 2022 and 2021, respectively. The increase in operating expenses was mainly due to increased selling, general and administrative expenses which totaled $128,378 in the quarter ended March 31, 2022 compared to $100,234 in the quarter ended March 31, 2021. Operating expenses during each period also included salaries and wages, including stock-based compensation, and the Company’s Exchange Act filings and general operating expenditures of running the Company. Management expects operating expenses to increase in future periods as we continue to establish and grow our operations.
| 22 |
Other Income (Expense)
Other income (expense) included in continuing operations were $4,648 and $434,563 during the three months ended March 31, 2022 and 2021, respectively. The difference relates to $126,359 of realized gain on investment plus $308,249 in unrealized gains, related to the investment in the Ecoark common stock received in the sale of Banner Midstream to Ecoark in 2021, with no corresponding amounts recorded during the 2022 period.
Net Income (Loss)
During the three months ended March 31, 2022 and 2021, we recorded a net income (loss) of ($164,113) and $300,102, respectively. The difference was the realized and unrealized gains on investment related to the Ecoark common stock we held, all of which has been sold as of February 24, 2022.
Liquidity and Capital Resources
The Company had $140,241 in available cash as of March 31, 2022. Historically, our principal sources of cash have been proceeds from private placements of common stock and incurrence of debt. As of March 31, 2022, the Company had an accumulated deficit of $4,126,539. As of February 24, 2022, the Company has sold all of the shares of Ecoark it held and received $1,079,730 in gross proceeds therefrom.
We anticipate that among the most critical challenges we will need to overcome in order to establish our planned operations for our new focus in the cannabis industry will be to raise sufficient capital to establish our initial Elysian Stores. While for the past 12 months we have used the proceeds from sales of Ecoark common stock we held to fund our operations, which were more limited than those currently planned, we have sold the remaining shares of Ecoark common stock we held, and any additional capital will therefore need to be raised from the sale and issuance of our common stock or other securities, which may include the incurrence of indebtedness by us.
In the future, we will need to consummate one or more capital raising transactions, including potential debt or equity issuances, and/or generate material revenue from Norr, Elysian or another operating business or businesses we may form or acquire to continue to fund our operations. We may also issue shares of common stock, stock options or other derivative securities to compensate our employees or independent contractors, including pursuant to the consulting agreements for our Norr and Elysian operations. We will need additional capital to fund our anticipated acquisition of Treehouse, including both for the second Treehouse SPA which has not been executed, working capital, and to meet our operational obligations in our planned cannabis business such as compensatory arrangements and royalty fee payments.
We expect to utilize any capital raising to run our operations for Norr and Elysian. We expect our cash outlays to be much greater than the past two years, and to invest heavily in these businesses.
Net Cash used by Operating Activities:
We reported negative cash flow from operations related to our continuing operations for the three months ended March 31, 2022 and 2021 in the amount of $(207,608) and $(155,962), respectively. It is anticipated that we will continue to report negative operating cash flow in future periods, as to date we have formed two new subsidiaries during the fiscal year ending December 31, 2021 and have incurred and will continue to incur start-up costs to develop these entities and their respective businesses.
Cash Flows from Investing Activities:
We had net cash provided in investing activities from continuing operations related to the proceeds received from the sale of the shares of Ecoark common stock we held in the amount of $38,111 for the three months ended Mach 31, 2022 and $166,653 in the three months ended March 31, 2021. We sold all the remaining shares of Ecoark stock we held during the quarter ended March 31, 2022.
| 23 |
Cash Flows from Financing Activities:
We had no cash flows provided by or used in financing activities during the three months ended March 31, 2022. For the three months ended March 31, 2021, the only cash flows from financing activities related to payments of the Junior Secured Promissory Note in connection with our continuing operations, and cash provided by financing activities from proceeds received from our Chief Executive Officer for working capital purposes. We expect that should the proceeds from the sale of shares in Ecoark be insufficient to provide the necessary capital to the Company, we will incur additional debt or issue common stock or securities convertible or exercisable into common stock to fund continuing operations.
Based upon our current operations, we will need additional working capital to fund our operations over the next 12 months, which we may seek to obtain from one or more financings. Further, if we are able to close the Treehouse acquisition, it is likely we will need additional capital to commercialize the resulting licenses. Because of the inherent uncertainties of the Company at this stage, we cannot be certain as to how much capital we need, if and how we can raise capital or the type or quantity of securities we will be required to issue to do so. In connection with a business combination, we may issue a significant number our shares of our common stock or securities convertible or exercisable into our common stock to the target’s shareholders which will be dilutive to our shareholders.
We anticipate that we will incur operating losses during the next 12 months. Our ability to develop and implement our business plan will be subject to a number of risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model; recognition of revenue sources; and the management of growth.
COVID-19 Update
The COVID-19 pandemic has not had a material impact on the Company, particularly due to our lack of operations until the formation of Norr LLC in March 2021. The pandemic may, however, have an impact on our ability to develop the Norr and Elysian businesses. While vaccinations beginning in 2021 allowed for the gradual reopening of the economy, any future variants of the virus, as well as reduced efficacy of vaccines over time and the possibility that a large number of people decline to get vaccinated or receive booster shots, creates inherent uncertainty as to the future of our business, the industries in which we operate and plan to operate and the economy in general in light of the pandemic.
Off Balance Sheet Arrangements
As of the date of this Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Going Concern
The independent registered public accounting firm auditors’ report accompanying our December 31, 2021 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
We are required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on his evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, Mr. Richard Horgan, who is presently serving as our Chief Executive Officer and Chief Financial Officer has concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.
| 24 |
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
From time-to-time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this Report, we are not aware of any other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 1A – RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - OTHER INFORMATION
None.
| 25 |
ITEM 6 – EXHIBITS
| Incorporated by Reference | Filed or Furnished | |||||||||
| Exhibit # | Exhibit Description | Form | Date | Number | Herewith | |||||
| 3.1 | Articles of Incorporation | S-1 | 11/1/2013 | 3.1 | ||||||
| 3.1(a) | Certificate of Amendment to Articles of Incorporation | 8-K | 6/1/2018 | 3.1 | ||||||
| 3.1(b) | Certificate of Amendment – reverse stock split | 8-K | 11/19/2019 | 3.2 | ||||||
| 3.1(c) | Certificate of Amendment to Articles of Incorporation – name change | 8-K | 2/18/2020 | 3.1 | ||||||
| 3.1(d) | Certificate of Amendment to Articles of Incorporation | 8-K | 5/19/2021 | 3.1 | ||||||
| 3.2 | Bylaws | S-1 | 11/1/2013 | 3.2 | ||||||
| 3.2(a) | Amendment to Bylaws | 8-K | 8/19/2015 | 3.3 | ||||||
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer (302) | Filed | ||||||||
| 32.1 | Certification of Principal Executive and Principal Financial Officer (906) | Furnished** | ||||||||
| 101.INS | Inline XBRL Instance Document. | Filed | ||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | Filed | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | Filed | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | Filed | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | Filed | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | Filed | ||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | Filed | ||||||||
* Management contract or compensatory plan or arrangement.
**This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
+ Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request.
| 26 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FORTIUM HOLDINGS CORP. | ||
| Dated: April 29, 2022 | By: | /s/ Richard Horgan |
| Richard Horgan | ||
Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
| 27 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard Horgan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fortium Holdings Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 29, 2022
| /s/ Richard Horgan | |
Richard Horgan Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Fortium Holdings Corp. (the “Company”) on Form 10-Q for the quarter ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof, I, Richard Horgan, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and | |
| 2. | The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Richard Horgan | |
| Richard Horgan | |
| Chief Executive Officer (Principal Executive Officer and | |
| Principal Financial Officer) | |
| Dated: April 29, 2022 |
Condensed Consolidated Balance Sheets - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| CURRENT ASSETS: | ||
| Cash | $ 140,241 | $ 309,738 |
| Prepaid expenses and other current assets | 71,756 | 20,042 |
| Investment | 33,463 | |
| Total current assets | 211,997 | 363,243 |
| Fixed assets, net | 1,466 | 1,675 |
| NON-CURRENT ASSETS: | ||
| Intangible assets, net | ||
| Goodwill | ||
| Total non-current assets | ||
| TOTAL ASSETS | 213,463 | 364,918 |
| CURRENT LIABILITIES | ||
| Accounts payable and accrued expenses | 23,500 | 10,842 |
| Total current liabilities | 23,500 | 10,842 |
| Commitments and contingencies | ||
| Total Liabilities | 23,500 | 10,842 |
| STOCKHOLDERS’ EQUITY | ||
| Common stock, par value, $0.00001, 200,000,000 shares authorized, 8,400,000 issued and outstanding, respectively | 840 | 840 |
| Additional paid in capital | 4,316,779 | 4,316,779 |
| Accumulated deficit | (4,126,539) | (3,963,543) |
| Total stockholders’ equity before nin-controlling interest | 191,080 | 354,076 |
| Non-controlling interest | (1,117) | |
| Total Stockholders’ Equity | 189,963 | 354,076 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ 213,463 | $ 364,918 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value | $ 0.00001 | $ 0.00001 |
| Common stock, shares authorized | 200,000,000 | 200,000,000 |
| Common stock, shares issued | 8,400,000 | 8,400,000 |
| Common stock, shares outstanding | 8,400,000 | 8,400,000 |
Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|
| Balance at Dec. 31, 2020 | $ 700 | $ 3,397,148 | $ (1,683,535) | $ 1,714,313 | |
| Balance, Shares at Dec. 31, 2020 | 7,000,000 | ||||
| Net income (loss) | 300,102 | 300,102 | |||
| Balance at Mar. 31, 2021 | $ 700 | 3,397,148 | (1,383,433) | 2,014,415 | |
| Balance, Shares at Mar. 31, 2021 | 7,000,000 | ||||
| Balance at Dec. 31, 2021 | $ 840 | 4,316,779 | (3,963,543) | 354,076 | |
| Balance, Shares at Dec. 31, 2021 | 8,400,000 | ||||
| Net income (loss) | (162,996) | (1,117) | (164,113) | ||
| Balance at Mar. 31, 2022 | $ 840 | $ 4,316,779 | $ (4,126,539) | $ (1,117) | $ 189,963 |
| Balance, Shares at Mar. 31, 2022 | 8,400,000 |
DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||
| DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Description of Business
The terms “we,” “us,” “our,” “registrant,” “Fortium Holdings”, and the “Company” refer to Fortium Holdings Corp.
On March 27, 2020, Banner Midstream Corp., the Company’s principal asset, was acquired by Ecoark Holdings, Inc., (“Ecoark”) pursuant a Stock Purchase Agreement, dated March 27, 2020 (the “Banner Purchase Agreement”), between Ecoark and the Company .. Pursuant to the Banner Purchase Agreement, Ecoark acquired 100% of the outstanding capital stock of Banner Midstream in consideration for shares of common stock of Ecoark valued at $ per share and assumed approximately $11,774,000 in short-term and long-term debt of Banner Midstream and its subsidiaries.
On March 18, 2021, the Company formed Norr LLC (“Norr”), a Nevada limited liability company and wholly-owned subsidiary of the Company, and commenced operations as a sports equipment and apparel manufacturer and retailer. Prior to organization of Norr, the Company’s Chief Executive Officer had explored this business opportunity and commenced preparation of a business plan for the business. On March 23, 2021, the Company engaged the services of two consultants and entered into consulting agreements through Norr pursuant to which each consultant provides services to Norr in exchange for $1,000 per month, payable in cash or, at Norr’s election for a given month or months, options to purchase shares of the Company’s common stock.
On September 9, 2021, the Company formed Elysian, a Colorado corporation and the Company’s wholly-owned subsidiary. On September 14, 2021, Elysian entered into a Stock Purchase Agreement (“SPA”) with Treehouse Company, Inc. (“Treehouse”), and its sole shareholder Alex Gosselin (the “Seller”) pursuant to which Elysian shall purchase % of the capital stock of Treehouse from the Seller for $200,000. Treehouse’s key assets consist of two licenses for commercial cannabis distribution in the State of California. The acquisition of Treehouse will be consummated upon the completion of the terms of the agreement which pertain to the delivery of the $200,000 purchase price to the escrow agent to be held until release upon receipt of the requisite regulatory approval for the transaction. As of March 31, 2022, the acquisition has not closed.
On December 2, 2021, Elysian, the Company, 7Seeds Inc. (“7Seeds”), and Firebreak Associates, Inc. (“Firebreak”) (collectively, the “Parties”) entered into a joint venture agreement (the “JVA”). Pursuant to the JVA, 7Seeds, Firebreak and Elysian agreed to cooperate in the opening and operation of cannabis distribution facilities as follows: (i) 7Seeds agreed to provide consulting services to Elysian including identifying locations to open new commercial cannabis businesses, including without limitation dispensaries, delivery stores, and other businesses engaging in cannabis related activities (the “Elysian Stores”), securing proper state and local licensure, planning commercial cannabis business operations at those locations in exchange for the compensation described below, and (ii) Firebreak, as the owner of certain trademarks and service marks (the “CannaBlue Marks”), agreed to license the CannaBlue Marks to Elysian for which Elysian obtained the option to open the Elysian Stores under the name “CannaBlue” and making use of the CannaBlue Marks. The Elysian Stores will be owned and operated entirely by Elysian or its affiliates.
Under the JVA, 7Seeds agreed to provide services to Elysian for a 36-month period commencing on the effective date of the JVA, for which Elysian agreed to compensate 7Seeds as follows: (a) $5,000 per month for the first three months following the Effective Date; (b) $10,000 per month beginning in month four and through month twelve; (c) $12,500 per month beginning in month thirteen and through month twenty-four; and (d) $15,000 per month beginning in month twenty-five and through month thirty-six. Additionally, for each Elysian Store for which 7Seeds directly assists in obtaining a cannabis license, 7Seeds will be entitled to receive the following additional compensation: (a) cash payment equal to 6% of that Elysian Store’s gross sales revenues, and (b) $50,000 in shares of the Company’s common stock. As part of the JVA, Elysian granted 7Seeds a limited, non-exclusive, royalty-free, non-transferable, and non-sublicensable, worldwide license during the term of the JVA to all of Elysian’ s intellectual property rights, including all copyrights, patents, trademarks, patent disclosures, and inventions.
Under the JVA, Firebreak has granted Elysian a license to use the CannaBlue Marks in connection with the Elysian Stores in the license territory, consisting of the United States. The license term is for a period of five years and is automatically renewable for successive one-year terms, unless terminated in accordance with the JVA. In exchange for the license, Elysian agreed to pay Firebreak (a) an annual royalty fee of $5,000 per year; and (b) a fee equal to 6% of that Elysian Store’s gross sales revenues.
In December 2021, Norr entered into a term sheet for an Advisory Agreement with three individual contractors. The Advisory Agreements, were effective upon the signing of the definitive documents on January 24, 2022 and are for a period of five years. If any of the advisors voluntarily or involuntarily terminates his services, his agreement will automatically terminate. All advisors will be paid $1,000 per month for the first eighteen months immediately following execution of the Advisory Agreement. In addition to the cash compensation, the Company shall compensate the advisors who have not terminated their relationship with Norr based on the following events (amounts have been aggregated among the advisors):
The maximum ownership the advisors may collectively receive in Norr shall be %. In addition, the advisors may receive shares of Fortium common stock based on meeting enumerated net operating free cash flow thresholds ranging from $ to $, for a total potential Fortium equity compensation to these advisors of up to $ of shares of Fortium common stock. As a result of Norr generating revenue on January 22, 2022, the aforementioned contractors received a total of 5% of the ownership interests of Norr. Therefore, the Company has recognized a noncontrolling interest of this 5%.
Simultaneously with the SPA, Elysian and the Seller entered into a Memorandum of Understanding with Treehouse pursuant to which the parties agreed that Elysian will purchase the remaining 20% of the capital stock of Treehouse for an additional $200,000 and enter into a second SPA on substantially similar terms to the SPA in connection therewith, subject to state and local regulatory clearance of the transfer of ownership of the two cannabis licenses owned by Treehouse. The SPA provides that if required state and local regulatory clearance is not obtained, the SPA will terminate, Elysian will return the Treehouse capital stock to the Seller and the Seller will return the $200,000 purchase price to Elysian.
The Company is subject to a number of risks, including the need to develop the Elysian, Norr business and/or acquire and successfully operate a new business, and the risk of raising capital through equity and/or debt financings.
On January 7, 2021, shareholders of the Company representing approximately % of the outstanding common shares, acted by written consent in lieu of a meeting to approve an amendment to the Company’s Articles of Incorporation to change the name of the Company to Fortium Holdings Corp. (the “Amendment”). The Financial Industry Regulatory Authority approved the name change on May 18, 2021.
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges.
The condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Therefore, the interim condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year due to various factors.
Principles of Consolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts, balances and transactions have been eliminated in the consolidation.
The Company has utilized the guidance under ASC 810-10-55-4B, Case A for a Change that has resulted in the recognition of non-controlling interest. On January 22, 2022, Norr commenced generating revenues and this triggered the recognition of ownership interests being allocated to three contractors per their agreements. As a result 5% interest has been allocated to them and the Company now owns 95% of Norr.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. 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 consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, estimates of discount rates in lease, liabilities to accrue, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards. Actual results could differ from those estimates.
Acquisition Accounting
The Company’s acquisitions are accounted for under the acquisition method of accounting whereby purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on fair value. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired is recorded as goodwill. The excess of the fair value of the net assets acquired over the fair value of the consideration conveyed is recorded as a non-operating gain on acquisition. The statements of operations for the periods presented include the results of operations for each of the acquisitions from the date of acquisition.
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, of ten years for all property and equipment, except leasehold improvements which are depreciated over the term of the lease, which is shorter than the estimated useful life of the improvements. Computer equipment has an estimated useful life of three years. The licenses anticipated to be acquired in the Treehouse acquisition are indefinite, however management will have an estimated useful life of ten years from the date of acquisition.
ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
ASC 360-10 addresses criteria to be considered for long-lived assets expected to be disposed of by sale. Six criteria are listed in ASC 360-10-45-9 that must be met in order for assets to be classified as held for sale. Once the criteria are met, long-lived assets classified as held for sale are to be measured at the lower of carrying amount or fair value less costs to sell.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
Accrued Expenses
To prepare its financial statements, the Company estimates accrued expenses. The accrual process involves reviewing open contracts, communicating with personnel to identify services that have been performed on behalf of the Company and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The Company makes estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known to the Company at that time.
Although the Company does not expect the estimates to be materially different from amounts actually incurred, if the estimates of the status and timing of services performed differs from the actual status and timing of services performed, the Company may report amounts that are too high or too low in any particular period. Historically, the estimated accrued liabilities have approximated actual expenses incurred. Subsequent changes in estimates may result in a material change in the accruals.
Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying values of the Company’s financial instruments such as cash, investments, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
Investments
The Company measures their investments at fair value with changes in fair value recognized in net income (loss) pursuant to ASU 2016-01, “Financial Instruments-Overall”.
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the Company satisfies a performance obligation
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
● Variable consideration ● Constraining estimates of variable consideration ● The existence of a significant financing component in the contract ● Noncash consideration ● Consideration payable to a customer
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
The Company accounts for contract costs in accordance with ASC Topic 340-40, Contracts with Customers. The Company recognizes the cost of sales of a contract as expense when incurred or at the time a performance obligation is satisfied. The Company recognizes an asset from the costs to fulfil a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained.
The Company has accounted for stock-based compensation arrangements in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.
Segment Reporting
The Company, through the formation of Norr and anticipated acquisition of Treehouse, has created two distinct business segments. The Company has only nominal operations in Norr as they are in the start-up phase of this organization and upon the acquisition of Treehouse will have the commercial cannabis distribution licenses transferred to Elysian. Upon operations commencing, the Company will segment report these two segments. There are currently only nominal operations of Norr and Elysian (approximately 1% of total net loss). For 2021, there were no segments.
Leases
The Company followed ASC 840 Leases in accounting for leased properties until 2019 when it adopted ASC 842 for its accounting for finance and operating leases in 2019. Included in the Company’s discontinued operations are leases for office and production facilities for terms typically ranging from three to five years. Rent escalations over the term of a lease are considered at the inception of the lease such that the monthly average for all payments is recorded as straight-line rent expense with any differences recorded in accrued liabilities. In continuing operations, there is only an office lease that is on a month-to-month basis. With the anticipated acquisition of Treehouse, the leases to be acquired in that transaction will be accounted for under the guidance of ASC 842.
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only basic weighted average number of common shares are used in the computations.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Going Concern
The Company concluded that its negative cash flows from operations raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the unaudited condensed consolidated financial statements are issued.
Management intends to oversee the development and growth of the Company’s anticipated commercial cannabis distribution business and sporting goods and apparel business and continue to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction. Our management team has experience in the cannabis space and sporting goods and apparel industry and in consulting both private and public companies in operational processes, although no assurances can be given that he can successfully grow our operations through our subsidiary or identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies. Even though management believes this plan will allow the Company to continue as a going concern, there are no guarantees to the successful execution of this plan.
These condensed consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
On March 27, 2020, Banner Midstream was acquired by Ecoark for shares of common stock (after giving effect to Ecoark’s subsequent one-for-five reverse stock split which was effected on December 10, 2020), and Ecoark assumed all of the debt of the Company. As of February 28, 2022, the Company has sold all 200,000 shares of Ecoark common stock the Company retained from the March 2020 acquisition, after distributing the other shares to the former owners of Banner Midstream.
Impact of COVID-19
Since the sale of Banner Midstream, the COVID-19 pandemic has not had a material impact on the Company, particularly due to our lack of operations until recently. The pandemic may, however, have an impact on our ability to develop the Norr business and anticipated Elysian business with the acquisition of Treehouse.
|
REVENUE |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
| REVENUE |
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which the Company adopted effective January 1, 2019. No cumulative adjustment to members equity was required, and the adoption did not have a material impact on our financial statements, as no material arrangements prior to the adoption were impacted by the new pronouncement.
The following represents the disaggregation of revenue by major source for the three months ended March 31, 2022 and 2021:
There were no significant contract asset or contract liability balances for all periods presented. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Collections of the amounts billed are typically paid by the customers within 30 to 60 days.
|
|||||||||||||||||||||||||||||||||||||||||||||||
FIXED ASSETS |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||
| FIXED ASSETS |
Fixed assets as of March 31, 2022 and December 31, 2021 were as follows:
Depreciation expense for the three months ended March 31, 2022 and 2021 were $209 and $209, respectively. |
||||||||||||||||||||||||||||||||||||||
DEPOSIT |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2022 | |||
| Deposit | |||
| DEPOSIT |
On March 8, 2022, the Company entered into a stock purchase agreement whereby the Company paid a non-refundable $50,000 to Firebreak Associates, Inc. in exchange for a total of 5% equity in any of the corporations that Firebreak Associates, Inc. controls if they are selected through the State of California’s retail cannabis license lottery process in Encinitas, California. As of March 31, 2022, the lottery has not taken place. |
NOTES PAYABLE - RELATED PARTIES |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2022 | |||
| Notes Payable - Related Parties | |||
| NOTES PAYABLE - RELATED PARTIES |
The Company borrowed funds from Atikin Investments LLC (“Atikin”), an entity managed by the former Chief Executive Officer of the Company, to pay for operating expenses. The Company formalized the arrangement on August 1, 2020 when it issued to Atikin a Junior Secured Revolving Promissory Note for a principal amount up to $200,000.
Through December 31, 2020, the Company borrowed a total $57,500 and repaid $35,000 leaving a balance of $22,500. This note had a maturity date of December 15, 2020, which was extended to January 15, 2021. The remaining $22,500 and accrued interest of $1,524 was repaid on January 11, 2021. Interest expense for the three months ended March 31, 2021 was $45. |
STOCKHOLDERS’ EQUITY (DEFICIT) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) |
Common Stock
The Company has authority to issue up to shares, par value $0.0001 per share. Our shareholders approved an increase in the authorized number of shares from to in May 2018. As of March 31, 2022 and December 31, 2021, there were shares of the Company’s common stock issued and outstanding, respectively.
On September 14, 2021, the Company issued shares of common stock in the exercise of warrants for $14,000.
Stock Options
The Company’s Board of Directors approved the adoption of the Mount Tam 2016 Stock-Based Compensation Plan (the “2016 Plan”) on May 12, 2016.
On May 2, 2016, the Company granted options to purchase up to shares of Common Stock under the Plan in the aggregate, with an exercise price of $ per share. On December 28, 2018, the Company granted options to purchase up to shares of Common Stock under the Plan in the aggregate, with an exercise price of $ per share. All of the stock options are fully vested. There have been no stock options granted since 2018.
On October 2, 2016, the Company granted options to purchase up to shares of Common Stock under the Plan in the aggregate, with an exercise price of $ per share. On December 28, 2018, the Company granted options to purchase up to shares of Common Stock under the Plan in the aggregate, an exercise price of $ per share. All of the stock options are fully vested. There have been no stock options granted since 2018.
Warrants
On August 10, 2017, the Company entered into a Securities Purchase Agreement with two investors to purchase from the Company 42,510 shares of the Company’s common stock for an aggregate purchase price of $525,000. The investors received a warrant to purchase an additional 5,314 shares at an exercise price of $14.25 per share, and a warrant to purchase an additional 5,314 shares at an exercise price of $19.00 per share. Both warrants have a call provision when the Company’s common stock trades for five consecutive days at a price equal or greater than 500% of the exercise price of each warrant agreement. Both of these warrant agreements expire August 10, 2022.
On July 21, 2021, the Company entered into a consulting agreement with Atikin for a period of one year, expiring July 20, 2022. Pursuant to the consulting agreement, as amended in September 2021, in exchange for Atikin’s provision of consulting services with respect to mergers and acquisitions and general business and operational assistance, the Company granted Atikin warrants that have a term of and an exercise price of $0.01, which were issued to Atikin effective upon the execution of a definitive written agreement with a cannabis company, which occurred on September 14, 2021, the effective date of the Treehouse SPA. The Company recognized a charge to the Consolidated Statement of Operations of $905,771 for the fair value of these warrants. On September 14, 2021, of these warrants were assigned to a third party and all warrants were exercised for $14,000 immediately thereafter.
The following assumptions were used for the three months ended March 31, 2022 and year ended December 31, 2021:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2022 | |||
| Leases | |||
| LEASES |
The Company has adopted ASU No. 2016-02, Leases (Topic 842), as of January 2019.
The Company elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach. Adoption of the standard did not result in an adjustment to retained earnings for the Company.
All of the right of use assets and lease liabilities related to Banner Midstream and were sold/assumed to Ecoark in the merger with Ecoark on March 27, 2020.
The Company currently leases space on a month-to-month basis and that lease is not subject to the provisions of ASC 842. |
RELATED PARTY TRANSACTIONS |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2022 | |||
| Related Party Transactions [Abstract] | |||
| RELATED PARTY TRANSACTIONS |
During the period ended June 30, 2020, the Company borrowed from Atikin, an entity managed by a former officer of the Company, to pay for operating expenses. The Company formalized the arrangement on August 1, 2020 when it issued to Atikin a Junior Secured Revolving Promissory Note for a principal amount up to $200,000. Through December 31, 2020, the Company had borrowed a total $57,500 and repaid $35,000 leaving a balance of $22,500 as of December 31, 2020. This note had a maturity date of December 15, 2020, which was extended through January 15, 2021, and has been repaid as of January 11, 2021. Interest expense for the period August 1, 2020 through December 31, 2020 was $1,479, and this was repaid as of January 11, 2021.
On July 21, 2021, the Company entered into a consulting agreement with Atikin for a period of one year, expiring July 20, 2022. Pursuant to the consulting agreement, as amended in September 2021, in exchange for Atikin’s provision of consulting services with respect to mergers and acquisitions and general business and operational assistance, the Company granted Atikin warrants that have a term of five years and an exercise price of $0.01, which were issued to Atikin effective upon the execution of a definitive written agreement with a cannabis company, which occurred on September 14, 2021, the effective date of the Treehouse SPA. The Company recognized a charge to the Consolidated Statement of Operations of $905,771 for the fair value of these warrants. On September 14, 2021, 700,000 of these warrants were assigned to a third party and all warrants were exercised for $14,000 immediately thereafter. The Company also pays Atikin a $5,000 consulting fee monthly.
During the year ended December 31, 2021, the Chief Executive Officer advanced the Company $10,000 on a short-term basis and the amount was promptly repaid.
The May Family Foundation controls % of the common shares outstanding of the Company as of March 31, 2022. Richard Horgan, the Chief Executive Officer, is a director of the Foundation. |
FAIR VALUE MEASUREMENTS |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS |
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, investments, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the three months ended March 31, 2022 and the year ended December 31, 2021. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The following table presents assets and liabilities that are measured and recognized at fair value on a recurring basis as of:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS |
3 Months Ended | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||
| COMMITMENTS |
On December 2, 2021, Elysian, the Company, 7Seeds Inc. (“7Seeds”), and Firebreak Associates, Inc. (“Firebreak”) (collectively, the “Parties”) entered into a joint venture agreement (the “JVA”). Pursuant to the JVA, 7Seeds, Firebreak and Elysian agreed to cooperate in the opening and operation of cannabis distribution facilities as follows: (i) 7Seeds agreed to provide consulting services to Elysian including identifying locations to open new commercial cannabis businesses, including without limitation dispensaries, delivery stores, and other businesses engaging in cannabis related activities (the “Elysian Stores”), securing proper state and local licensure, planning commercial cannabis business operations at those locations in exchange for the compensation described below, and (ii) Firebreak, as the owner of certain trademarks and service marks (the “CannaBlue Marks”), agreed to license the CannaBlue Marks to Elysian for which Elysian obtained the option to open the Elysian Stores under the name “CannaBlue” and making use of the CannaBlue Marks. The Elysian Stores will be owned and operated entirely by Elysian or its affiliates.
Under the JVA, 7Seeds agreed to provide services to Elysian for a 36-month period commencing on the effective date of the JVA, for which Elysian agreed compensate 7Seeds as follows: (a) $5,000 per month for the first three months following the Effective Date; (b) $10,000 per month beginning in month four and through month twelve; (c) $12,500 per month beginning in month thirteen and through month twenty-four; and (d) $15,000 per month beginning in month twenty-five and through month thirty-six. Additionally, for each Elysian Store for which 7Seeds directly assists in obtaining a cannabis license, 7Seeds will be entitled to receive additional compensation in one of the following forms at 7Seed’s election (a) cash payment equal to 6% of that Elysian Store’s gross sales revenues, or (b) $50,000 in shares of the Company’s common stock. As part of the JVA, Elysian granted 7Seeds a limited, non-exclusive, royalty-free, non-transferable, and non-sublicensable, worldwide license during the term of the JVA to all of Elysian’ s intellectual property rights, including all copyrights, patents, trademarks, patent disclosures, and inventions.
Under the JVA, Firebreak has granted Elysian a license to use the CannaBlue Marks in connection with the Elysian Stores in the license territory, consisting of the United States. The license term is for a period of five years and is automatically renewable for successive one-year terms, unless terminated in accordance with the JVA. In exchange for the license, Elysian agreed to pay Firebreak (a) an annual royalty fee of $5,000 per year; and (b) a fee equal to 6% of that Elysian Store’s gross sales revenues.
In December 2021, Norr entered into a term sheet for an Advisory Agreement with three individual contractors. The Advisory Agreements, were effective upon the signing of the definitive documents on January 24, 2022 and are for a period of five years. If any advisor voluntarily or involuntarily terminates his services, his agreement will automatically terminate. All advisors will be paid $1,000 per month for the first eighteen months immediately following execution of the Advisory Agreement. In addition to the cash compensation, the Company shall compensate the advisors who have not terminated their relationship with Norr based on the following events (amounts have been aggregated among the advisors):
The maximum ownership the advisors may collectively receive in Norr shall be %. In addition, the advisors may receive shares of Fortium common stock based on meeting enumerated net operating free cash flow thresholds ranging from $ to $, for a total potential Fortium equity compensation to these advisors of up to $ of shares of Fortium common stock. |
SEGMENT REPORTING |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT REPORTING |
The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.
For 2021, the Company was just starting operations in Norr and did not segment their operations. Commencing January 1, 2022, the Company’s chief operating decision maker determined that they met the qualifications to segment their business into two distinct divisions: Norr and Elysian.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||
| Description of Business | Description of Business
The terms “we,” “us,” “our,” “registrant,” “Fortium Holdings”, and the “Company” refer to Fortium Holdings Corp.
On March 27, 2020, Banner Midstream Corp., the Company’s principal asset, was acquired by Ecoark Holdings, Inc., (“Ecoark”) pursuant a Stock Purchase Agreement, dated March 27, 2020 (the “Banner Purchase Agreement”), between Ecoark and the Company .. Pursuant to the Banner Purchase Agreement, Ecoark acquired 100% of the outstanding capital stock of Banner Midstream in consideration for shares of common stock of Ecoark valued at $ per share and assumed approximately $11,774,000 in short-term and long-term debt of Banner Midstream and its subsidiaries.
On March 18, 2021, the Company formed Norr LLC (“Norr”), a Nevada limited liability company and wholly-owned subsidiary of the Company, and commenced operations as a sports equipment and apparel manufacturer and retailer. Prior to organization of Norr, the Company’s Chief Executive Officer had explored this business opportunity and commenced preparation of a business plan for the business. On March 23, 2021, the Company engaged the services of two consultants and entered into consulting agreements through Norr pursuant to which each consultant provides services to Norr in exchange for $1,000 per month, payable in cash or, at Norr’s election for a given month or months, options to purchase shares of the Company’s common stock.
On September 9, 2021, the Company formed Elysian, a Colorado corporation and the Company’s wholly-owned subsidiary. On September 14, 2021, Elysian entered into a Stock Purchase Agreement (“SPA”) with Treehouse Company, Inc. (“Treehouse”), and its sole shareholder Alex Gosselin (the “Seller”) pursuant to which Elysian shall purchase % of the capital stock of Treehouse from the Seller for $200,000. Treehouse’s key assets consist of two licenses for commercial cannabis distribution in the State of California. The acquisition of Treehouse will be consummated upon the completion of the terms of the agreement which pertain to the delivery of the $200,000 purchase price to the escrow agent to be held until release upon receipt of the requisite regulatory approval for the transaction. As of March 31, 2022, the acquisition has not closed.
On December 2, 2021, Elysian, the Company, 7Seeds Inc. (“7Seeds”), and Firebreak Associates, Inc. (“Firebreak”) (collectively, the “Parties”) entered into a joint venture agreement (the “JVA”). Pursuant to the JVA, 7Seeds, Firebreak and Elysian agreed to cooperate in the opening and operation of cannabis distribution facilities as follows: (i) 7Seeds agreed to provide consulting services to Elysian including identifying locations to open new commercial cannabis businesses, including without limitation dispensaries, delivery stores, and other businesses engaging in cannabis related activities (the “Elysian Stores”), securing proper state and local licensure, planning commercial cannabis business operations at those locations in exchange for the compensation described below, and (ii) Firebreak, as the owner of certain trademarks and service marks (the “CannaBlue Marks”), agreed to license the CannaBlue Marks to Elysian for which Elysian obtained the option to open the Elysian Stores under the name “CannaBlue” and making use of the CannaBlue Marks. The Elysian Stores will be owned and operated entirely by Elysian or its affiliates.
Under the JVA, 7Seeds agreed to provide services to Elysian for a 36-month period commencing on the effective date of the JVA, for which Elysian agreed to compensate 7Seeds as follows: (a) $5,000 per month for the first three months following the Effective Date; (b) $10,000 per month beginning in month four and through month twelve; (c) $12,500 per month beginning in month thirteen and through month twenty-four; and (d) $15,000 per month beginning in month twenty-five and through month thirty-six. Additionally, for each Elysian Store for which 7Seeds directly assists in obtaining a cannabis license, 7Seeds will be entitled to receive the following additional compensation: (a) cash payment equal to 6% of that Elysian Store’s gross sales revenues, and (b) $50,000 in shares of the Company’s common stock. As part of the JVA, Elysian granted 7Seeds a limited, non-exclusive, royalty-free, non-transferable, and non-sublicensable, worldwide license during the term of the JVA to all of Elysian’ s intellectual property rights, including all copyrights, patents, trademarks, patent disclosures, and inventions.
Under the JVA, Firebreak has granted Elysian a license to use the CannaBlue Marks in connection with the Elysian Stores in the license territory, consisting of the United States. The license term is for a period of five years and is automatically renewable for successive one-year terms, unless terminated in accordance with the JVA. In exchange for the license, Elysian agreed to pay Firebreak (a) an annual royalty fee of $5,000 per year; and (b) a fee equal to 6% of that Elysian Store’s gross sales revenues.
In December 2021, Norr entered into a term sheet for an Advisory Agreement with three individual contractors. The Advisory Agreements, were effective upon the signing of the definitive documents on January 24, 2022 and are for a period of five years. If any of the advisors voluntarily or involuntarily terminates his services, his agreement will automatically terminate. All advisors will be paid $1,000 per month for the first eighteen months immediately following execution of the Advisory Agreement. In addition to the cash compensation, the Company shall compensate the advisors who have not terminated their relationship with Norr based on the following events (amounts have been aggregated among the advisors):
The maximum ownership the advisors may collectively receive in Norr shall be %. In addition, the advisors may receive shares of Fortium common stock based on meeting enumerated net operating free cash flow thresholds ranging from $ to $, for a total potential Fortium equity compensation to these advisors of up to $ of shares of Fortium common stock. As a result of Norr generating revenue on January 22, 2022, the aforementioned contractors received a total of 5% of the ownership interests of Norr. Therefore, the Company has recognized a noncontrolling interest of this 5%.
Simultaneously with the SPA, Elysian and the Seller entered into a Memorandum of Understanding with Treehouse pursuant to which the parties agreed that Elysian will purchase the remaining 20% of the capital stock of Treehouse for an additional $200,000 and enter into a second SPA on substantially similar terms to the SPA in connection therewith, subject to state and local regulatory clearance of the transfer of ownership of the two cannabis licenses owned by Treehouse. The SPA provides that if required state and local regulatory clearance is not obtained, the SPA will terminate, Elysian will return the Treehouse capital stock to the Seller and the Seller will return the $200,000 purchase price to Elysian.
The Company is subject to a number of risks, including the need to develop the Elysian, Norr business and/or acquire and successfully operate a new business, and the risk of raising capital through equity and/or debt financings.
On January 7, 2021, shareholders of the Company representing approximately % of the outstanding common shares, acted by written consent in lieu of a meeting to approve an amendment to the Company’s Articles of Incorporation to change the name of the Company to Fortium Holdings Corp. (the “Amendment”). The Financial Industry Regulatory Authority approved the name change on May 18, 2021.
|
||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges.
The condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Therefore, the interim condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year due to various factors.
|
||||||||||||||||||||||||
| Principles of Consolidation | Principles of Consolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts, balances and transactions have been eliminated in the consolidation.
The Company has utilized the guidance under ASC 810-10-55-4B, Case A for a Change that has resulted in the recognition of non-controlling interest. On January 22, 2022, Norr commenced generating revenues and this triggered the recognition of ownership interests being allocated to three contractors per their agreements. As a result 5% interest has been allocated to them and the Company now owns 95% of Norr.
|
||||||||||||||||||||||||
| Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. 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 consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, estimates of discount rates in lease, liabilities to accrue, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards. Actual results could differ from those estimates.
|
||||||||||||||||||||||||
| Acquisition Accounting | Acquisition Accounting
The Company’s acquisitions are accounted for under the acquisition method of accounting whereby purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on fair value. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired is recorded as goodwill. The excess of the fair value of the net assets acquired over the fair value of the consideration conveyed is recorded as a non-operating gain on acquisition. The statements of operations for the periods presented include the results of operations for each of the acquisitions from the date of acquisition.
|
||||||||||||||||||||||||
| Property and Equipment and Long-Lived Assets | Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, of ten years for all property and equipment, except leasehold improvements which are depreciated over the term of the lease, which is shorter than the estimated useful life of the improvements. Computer equipment has an estimated useful life of three years. The licenses anticipated to be acquired in the Treehouse acquisition are indefinite, however management will have an estimated useful life of ten years from the date of acquisition.
ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
ASC 360-10 addresses criteria to be considered for long-lived assets expected to be disposed of by sale. Six criteria are listed in ASC 360-10-45-9 that must be met in order for assets to be classified as held for sale. Once the criteria are met, long-lived assets classified as held for sale are to be measured at the lower of carrying amount or fair value less costs to sell.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
|
||||||||||||||||||||||||
| Accrued Expenses | Accrued Expenses
To prepare its financial statements, the Company estimates accrued expenses. The accrual process involves reviewing open contracts, communicating with personnel to identify services that have been performed on behalf of the Company and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The Company makes estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known to the Company at that time.
Although the Company does not expect the estimates to be materially different from amounts actually incurred, if the estimates of the status and timing of services performed differs from the actual status and timing of services performed, the Company may report amounts that are too high or too low in any particular period. Historically, the estimated accrued liabilities have approximated actual expenses incurred. Subsequent changes in estimates may result in a material change in the accruals.
|
||||||||||||||||||||||||
| Fair Value Measurements | Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying values of the Company’s financial instruments such as cash, investments, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
|
||||||||||||||||||||||||
| Investments | Investments
The Company measures their investments at fair value with changes in fair value recognized in net income (loss) pursuant to ASU 2016-01, “Financial Instruments-Overall”.
|
||||||||||||||||||||||||
| Revenue Recognition | Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the Company satisfies a performance obligation
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
● Variable consideration ● Constraining estimates of variable consideration ● The existence of a significant financing component in the contract ● Noncash consideration ● Consideration payable to a customer
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
The Company accounts for contract costs in accordance with ASC Topic 340-40, Contracts with Customers. The Company recognizes the cost of sales of a contract as expense when incurred or at the time a performance obligation is satisfied. The Company recognizes an asset from the costs to fulfil a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained.
|
||||||||||||||||||||||||
| Share-Based Payment Arrangements |
The Company has accounted for stock-based compensation arrangements in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.
|
||||||||||||||||||||||||
| Segment Reporting | Segment Reporting
The Company, through the formation of Norr and anticipated acquisition of Treehouse, has created two distinct business segments. The Company has only nominal operations in Norr as they are in the start-up phase of this organization and upon the acquisition of Treehouse will have the commercial cannabis distribution licenses transferred to Elysian. Upon operations commencing, the Company will segment report these two segments. There are currently only nominal operations of Norr and Elysian (approximately 1% of total net loss). For 2021, there were no segments.
|
||||||||||||||||||||||||
| Leases | Leases
The Company followed ASC 840 Leases in accounting for leased properties until 2019 when it adopted ASC 842 for its accounting for finance and operating leases in 2019. Included in the Company’s discontinued operations are leases for office and production facilities for terms typically ranging from three to five years. Rent escalations over the term of a lease are considered at the inception of the lease such that the monthly average for all payments is recorded as straight-line rent expense with any differences recorded in accrued liabilities. In continuing operations, there is only an office lease that is on a month-to-month basis. With the anticipated acquisition of Treehouse, the leases to be acquired in that transaction will be accounted for under the guidance of ASC 842.
|
||||||||||||||||||||||||
| Earnings (Loss) Per Share of Common Stock |
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only basic weighted average number of common shares are used in the computations.
|
||||||||||||||||||||||||
| Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
|
||||||||||||||||||||||||
| Going Concern | Going Concern
The Company concluded that its negative cash flows from operations raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the unaudited condensed consolidated financial statements are issued.
Management intends to oversee the development and growth of the Company’s anticipated commercial cannabis distribution business and sporting goods and apparel business and continue to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction. Our management team has experience in the cannabis space and sporting goods and apparel industry and in consulting both private and public companies in operational processes, although no assurances can be given that he can successfully grow our operations through our subsidiary or identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies. Even though management believes this plan will allow the Company to continue as a going concern, there are no guarantees to the successful execution of this plan.
These condensed consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
On March 27, 2020, Banner Midstream was acquired by Ecoark for shares of common stock (after giving effect to Ecoark’s subsequent one-for-five reverse stock split which was effected on December 10, 2020), and Ecoark assumed all of the debt of the Company. As of February 28, 2022, the Company has sold all 200,000 shares of Ecoark common stock the Company retained from the March 2020 acquisition, after distributing the other shares to the former owners of Banner Midstream.
|
||||||||||||||||||||||||
| Impact of COVID-19 | Impact of COVID-19
Since the sale of Banner Midstream, the COVID-19 pandemic has not had a material impact on the Company, particularly due to our lack of operations until recently. The pandemic may, however, have an impact on our ability to develop the Norr business and anticipated Elysian business with the acquisition of Treehouse. |
REVENUE (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF DISAGGREGATION OF REVENUE BY MAJOR SOURCE | The following represents the disaggregation of revenue by major source for the three months ended March 31, 2022 and 2021:
|
|||||||||||||||||||||||||||||||||||||||||||||
FIXED ASSETS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FIXED ASSETS | Fixed assets as of March 31, 2022 and December 31, 2021 were as follows:
|
||||||||||||||||||||||||||||||||||||
STOCKHOLDERS’ EQUITY (DEFICIT) (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK OPTIONS WEIGHTED AVERAGE ASSUMPTIONS |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK OPTION ACTIVITY |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF WARRANTS ACTIVITY |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FAIR VALUE ASSUMPTION OF WARRANTS | The following assumptions were used for the three months ended March 31, 2022 and year ended December 31, 2021:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ASSETS AND LIABILITIES MEASURED ON RECOGNIZED FAIR VALUE ON RECURRING BASIS | The following table presents assets and liabilities that are measured and recognized at fair value on a recurring basis as of:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT REPORTING (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF SEGMENT REPORTING |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF DISAGGREGATION OF REVENUE BY MAJOR SOURCE (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Disaggregation of Revenue [Line Items] | ||
| Total revenue | $ 529 | |
| Product sales NORR [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total revenue | 529 | |
| Other revenue [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total revenue | ||
REVENUE (Details Narrative) |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Revenue from Contract with Customer [Abstract] | |
| Performance obligation, description of good or service | contracts with an original expected length of one year or less |
| Performance obligation, description of timing | contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed |
| Performance obligation, description of payment terms | Collections of the amounts billed are typically paid by the customers within 30 to 60 days. |
SCHEDULE OF FIXED ASSETS (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Abstract] | ||
| Computer equipment | $ 2,513 | $ 2,513 |
| Accumulated depreciation | (1,047) | (838) |
| Net fixed assets | $ 1,466 | $ 1,675 |
FIXED ASSETS (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 209 | $ 209 |
DEPOSIT (Details Narrative) - Purchase Agreement [Member] - Firebreak Associates Inc [Member] |
Mar. 08, 2022
USD ($)
|
|---|---|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |
| Payment of non refundable | $ 50,000 |
| Equity method investment, ownership percentage | 5.00% |
SCHEDULE OF STOCK OPTIONS WEIGHTED AVERAGE ASSUMPTIONS (Details) |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Equity [Abstract] | |
| Expected term (years) | 10 years |
| Expected volatility | 283.00% |
| Risk-free interest rate | 2.55% |
| Dividend yield | 0.00% |
SCHEDULE OF FAIR VALUE ASSUMPTION OF WARRANTS (Details) - Warrant [Member] - Integer / shares |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Measurement Input, Expected Term [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Expected term | 5 years | |
| Measurement Input, Option Volatility [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Warrant risk free interest rate | 323.133 | |
| Measurement Input, Expected Dividend Rate [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Warrant risk free interest rate | ||
| Measurement Input, Risk Free Interest Rate [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Warrant risk free interest rate | 0.10 |
SCHEDULE OF ASSETS AND LIABILITIES MEASURED ON RECOGNIZED FAIR VALUE ON RECURRING BASIS (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
| Investment | $ (4,648) | $ (918,497) |
| Fair Value, Inputs, Level 1 [Member] | ||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
| Investment | 33,463 | |
| Fair Value, Inputs, Level 2 [Member] | ||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
| Investment | ||
| Fair Value, Inputs, Level 3 [Member] | ||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
| Investment |