Real Brands, Inc. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period ended September 30, 2023

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

For the transition period from __________________ to __________________

Commission File number 000-24115

REAL BRANDS INC.

(Exact Name of Registrant as Specified in Its Charter)

 12 Humbert Street

North Providence, RI 02911
(Address of Principal Executive Offices)

(617) 803-0004
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

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

(Check One):

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

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

As of November 15, 2023, 2,690,640,226 shares of the Issuer's Common Stock were outstanding.  

TABLE OF CONTENTS 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

REAL BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION

Real Brands, Inc. (“Real Brands” or the “Company”), was incorporated under the laws of the state of Nevada on November 6, 1992. The Company was formed under the name Mercury Software. From 1997 to 2005 the Company changed its name several times. On October 10, 2005, the Company changed its name to Global Beverage Solutions, Inc. and began trading on the OTC Bulletin Board under the symbol GBVS.OB.

On October 22, 2013, the Company changed its name to Real Brands, Inc. The Financial Industry Regulatory Authority (“FINRA”) approved Real Brands’ corporate actions regarding its name change and its new stock symbol request and approved Real Brands’ 150:1 Reverse Stock Split. The new symbol was designated as GBVSD. On November 19, 2013, the ticker symbol changed to RLBD.

On October 22, 2020, the majority of the shareholders of the Company, by written consent, agreed to a “reverse triangular” merger with CASH Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company formed for the purpose of the merger, and Canadian American Standard Hemp Inc., a Delaware corporation (“CASH”), whereby the Company acquired all of the outstanding shares of CASH and merged it with and into CASH Acquisition Corp. Real Brands’ name and trading symbol were maintained, with CASH shareholders acquiring majority control of Real Brands.

The merger was accounted for as a reverse merger, whereby CASH was considered the accounting acquirer and became our wholly-owned subsidiary. In accordance with the accounting treatment for a “reverse merger”, the Company’s historical financial statements prior to the reverse merger has been replaced with the historical financial statements of CASH prior to the reverse merger. The consolidated financial statements after completion of the reverse merger include the assets, liabilities, and results of operations of the combined company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity remaining in the consolidated financial statements.

Going concern

The ability of the Company to obtain necessary financing to build its sales, brand, marketing and distribution and fund ongoing operating expenses is uncertain. The ability of the Company to generate sales revenue to offset the expenses and obtain profitability is uncertain. The Company had a net loss of $1,170,385, and $767,424 for the nine months ended September 30, 2023 and 2022, respectively. These material uncertainties cast doubt on the Company’s ability to continue as a going concern. In the event the Company’s revenues do not significantly increase, the Company will require additional financing from time to time, which it intends to obtain through the issuance of common shares, debt, bonds, grants and other financial instruments. While the Company has been successful in raising funds through the issuance of common shares and obtaining debt in the past, it is becoming more difficult to do so given the large of number of shares outstanding and there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be available on acceptable terms and while the Company believes that its revenues will increase it does not currently expect them to generate sufficient cash in the immediate future.

Liquidity

As of September 30, 2023, the Company had cash and cash equivalents of a $987 as compared to $2,845 as of December 31, 2022. As of September 30, 2023, the Company had a working capital deficit of $2,345,044 as compared to a working capital deficit of $1,808,830 as of December 31, 2022, representing an increase in the deficit of $536,214. Plans with respect to its liquidity management include the following: 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) under the accrual basis of accounting. These financial statements are presented in U.S. dollars and are prepared on a historical cost basis, except for certain financial instruments which are carried at fair value. The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2022 in the Form 10-K filed on April 28, 2023. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the Form 10-K have been omitted.

Principles of Consolidation

The consolidated financial statements include Real Brands, and its wholly owned subsidiaries. DePetrillo Real Estate Holdings, LLC is a wholly owned subsidiary of CASH which is a wholly owned subsidiary of Real Brands and the owner of the Company’s building in Rhode Island. American Standard Hemp Inc. is a wholly owned subsidiary of CASH. All significant intercompany accounts and transactions have been eliminated.

Use of estimates and judgments

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Key areas of estimation include the estimated useful lives of property, plant, equipment and intangibles assets and liabilities, income taxes, and the valuation of stock-based compensation. Due to the uncertainty inherent in such estimates, actual results may differ from the Company’s estimates.

Accounting standard updates

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“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 effect of recently issued standards that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption. 

Segment Reporting

The Company operates as one segment, in which management uses one measure of profitability, and all of the Company’s assets are located in the United States of America. The Company does not operate separate lines of business or separate business entities with respect to any of its product candidates. Accordingly, the Company does not have separately reportable segments.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be a cash equivalent.

Accounts Receivable and Allowance for Doubtful Accounts

The Company performs periodic credit evaluations of its customers’ financial conditions and generally does not require collateral. The Company reviews all outstanding accounts receivable for collectability on a quarterly basis. An allowance for doubtful accounts is recorded for any amounts deemed uncollectable. The Company does not accrue interest receivable on past due accounts receivable.

Concentrations of Credit Risk

The Company, from time to time during the years covered by these consolidated financial statements, may have bank balances in excess of its insured limits. Management has deemed this a normal business risk.

Inventory

Inventory is comprised of raw hemp and hemp oil in different phases of production to completion of final product. Products include tinctures, creams and lotions. Inventory is valued at cost. No packaging material of any kind is included in inventory. Packaging materials are expensed as incurred.

Property and Equipment

On February 15, 2020 the Company purchased DePetrillo Real Estate Holdings, LLC, a Rhode Island Limited Liability Company having as its only asset the building at 12 Humbert Street in North Providence Rhode Island. The building is the Company’s headquarters and a processing facility. The purchase price of the building was 2 million shares of CASH common stock and the assumption of the mortgage which at the time was $189,916. The building and land were appraised at $475,000. The building is being depreciated over 15 years on a straight-line basis starting October 1, 2021, the date building improvements were completed. Depreciation expense on the building for the nine months ended September 30, 2023 was $22,563.

Building improvements are being depreciated over 15 years commencing from the completion of the work, October 1, 2021. Depreciation expense on building improvements for the nine months ended September 30, 2023 was $39,291.

Total depreciation expense for the nine months ended September 30, 2023 was $61,854. Expenditures for repairs and maintenance are expensed as incurred.   

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset over its fair value, determined based on discounted cash flows is less than the carrying value on the books of the Company. 

Revenue Recognition

The Company follows ASC 606, Revenue from Contracts with Customers (“ASC 606”), which establishes a single and comprehensive framework and sets out how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now be recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, Revenue based revenue recognition is around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed in determining whether control has been transferred. The application of the core principle in ASC 606 is carried out in five steps: Step 1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled. Step 2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit) to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable in the contract. Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties. Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment approach, expected cost plus a margin approach, and the residual approach in limited circumstances. Discounts given should be allocated proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices after inception is not permitted. Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an alternative use to the entity and the entity has the right to be paid for performance to date.

Stock-based Compensation

The Company expenses stock-based compensation to employees and consultants based on the fair value at grant date, which generally is the agreement date the Company entered into with employees or consultants. To date the Company has issued restricted common stock shares and preferred stock.

Beneficial Conversion Features of Convertible Securities

Conversion options that are not bifurcated as a derivative pursuant to ASC 815 and not accounted for as a separate equity component under the cash conversion guidance are evaluated to determine whether they are beneficial to the investor at inception (a beneficial conversion feature) or may become beneficial in the future due to potential adjustments. The beneficial conversion feature guidance in ASC 470-20 applies to convertible stock as well as convertible debt which are outside the scope of ASC 815. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an

offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as a dividend over either the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the dividend must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence. 

Derivatives

The Company reviews the terms of convertible debt issued to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense.

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Potential common stock equivalents are determined using the treasury stock method. For diluted net loss per share purposes, the Company excludes stock options and other stock-based awards, including shares issued as a result of option exercises that are subject to repurchase by the Company, whose effect would be anti-dilutive from the calculation. During the nine months ended September 30, 2023 and 2022, common stock equivalents were excluded from the calculation of diluted net loss per common share, as their effect was anti-dilutive due to the net loss incurred. Therefore, basic and diluted net loss per share was the same in all periods presented. 

The Company had 300,173,307 and 31,496,498 potentially dilutive options and convertible securities, respectively, that have been excluded from the computation of diluted weighted-average shares outstanding as of September 30, 2023, and 154,518,887 and 29,752,495 potentially dilutive options and convertible securities, respectively, that have been excluded from the computation of diluted weighted-average shares outstanding as of September 30, 2022, as they would be anti-dilutive. 

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholder’s deficit.

Fair Value of Financial Instruments

The guidance for fair value measurements, ASC 820, Fair Value Measurements and Disclosures, establishes the authoritative definition of fair value, sets out a framework for measuring fair value, and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy based upon observable and non-observable inputs as follow: 

The Company records its derivative activities at fair value. As of September 30, 2023, no derivative liabilities are recorded.

Off Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the year ended December 31, 2022. 

Income Taxes

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date. 

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.

NOTE 3. ACCOUNTS RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

At September 30, 2023 the Company has no accounts receivables. The Company did not have an allowance for doubtful accounts at September 30, 2023. The Company does not accrue interest receivable on past due accounts receivable.

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment are comprised of a building, land, building improvements and furniture and equipment.

The building and land were appraised at $475,000. The building is being depreciated over 15 years on a straight-line basis starting October 1, 2021, the date the building improvements were completed on the building. Depreciation expense on the building for the nine months ended September 30, 2023 was $22,563.  

Building improvements are being depreciated over 15 years commencing from the completion of the work, October 1, 2021. Depreciation expense on building improvements for the nine months ended September 30, 2023 was $39,291.

Total depreciation expense for the nine months ended September 30, 2023 was $61,854. Expenditures for repairs and maintenance are expensed as incurred.   

NOTE 5. INVESTMENT IN BOH BAH INC.

On July 17, 2023, the Company purchased 2,206 shares in BOH BAH Inc. for $125,000. The investment represents approximately 2% of BOH BAH Inc. As part of the investment, Real Brands was granted a pass through distribution of 3% of the top line contribution for a period of 3 years. The Company also received warrants to purchase an additional 6,618 shares with 2,206 of the warrants expiring every 20 days from July 11, 2023. None of the tranches of warrants were exercised.

NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses include normal operating expenses, professional fees and costs remaining to be paid for the build out of the new facility. Included in accrued expenses is a balance for ATS Indian Trace, LLC. ATS Indian Trace, LLC v. the Company was a civil action filed by ATS Indian Trace, LLC in the Circuit Court of Broward County, Florida on July 22, 2015. On November 18, 2015, a (default) Final Judgement was entered in favor of ATS Indian Trace, LLC and against the Company in the amount of $71,069. This judgement is currently outstanding and remains due and owing. ATS Indian Trace, LLC has not taken any enforcement action against the Company for several years. The balance is included in accrued expenses. 

NOTE 7. ACCRUED EXPENSES – RELATED PARTY 

At September 30, 2023, accrued expenses related parties was $865,687.

At September 30, 2023, the Company owed its CEO, Thom Kidrin, $548,558 in accrued salary and $48,779 in accrued interest on a loan with principal balance of $384,605. An additional $56,350 in accrued interest is owed on a note from Worlds Inc., with a principal balance of $200,000. In addition, the Company owed $205,000 to its CFO, Chris Ryan, and $7,000 to Dr. Rammal.

NOTE 8. MORTGAGE PAYABLE

As of September 30, 2023, the following mortgage was outstanding:

Interest expense related to the mortgage payable amounted to $5,088 for the nine months ended September 30, 2023. 

NOTE 9. LOAN PAYABLE – RELATED PARTY

A loan was provided by the CEO, Thom Kidrin, at an interest rate of 7%. During the nine months ended September 30, 2023, the CEO loaned $111,000 to the Company to cover operating costs. The loan balance at September 30, 2023 was $384,605 with accrued interest of $48,779.    

NOTE 10. LOAN PAYABLE

A loan was provided by Providence Capital at an interest rate of 7%. During the nine months ended September 30, 2023, Providence Capital loaned an additional $140,672 to the Company. The loan balance at September 30, 2023 was $215,672 with accrued interest of $9,439.

NOTE 11. CONVERTIBLE NOTES PAYABLE - RELATED PARTY

The Company has issued a convertible note payable related party in the amount of $200,000.  The convertible note has a 7% annual interest rate and matured on October 15, 2021. Interest and principal are payable at maturity. The note can be converted at any time and either all or part of the amount due into equity at a price of $0.008139 per share. If converted into common stock, the related party would own 1% of Company based upon the current number of shares outstanding. The related party holding the convertible note is Worlds Inc. Messrs. Kidrin, Toboroff and Christos are Directors of Worlds Inc. and Mr. Kidrin is the CEO and Mr. Ryan is the CFO of Worlds Inc. On October 15, 2021, the convertible note was extended to October 15, 2023.  All other terms remain the same.  As consideration for extending the maturity date for two years, the Company issued one million warrants to purchase the Company’s stock at a purchase price $0.05 per share. The Company is planning on extending the maturity date of the note for an additional two years and issuing additional warrants as consideration of the extension.

As of September 30, 2023, the Company incurred $56,350 in interest expense on the convertible note.

NOTE 12. STOCKHOLDER’S EQUITY

Common Stock

The Company did not issue any equity during the nine months ended September 30, 2023.

As of September 30, 2023, the Company had 2,690,640,226 shares of its common stock outstanding.

NOTE 13. STOCK OPTIONS 

In March 2023, for each of the years 2021, 2022 and 2023, for which no compensation was given to the directors, each non-employee director was granted, as compensation for serving as a director, five-year non-qualified stock options to purchase 6,143,628 shares of the Company’s common stock at an exercise price equal to the last reported trading price of our common stock on the day of grant (i.e. 3/22/23), with the options granted for 2021 and 2022 vesting immediately and the options granted for 2023 to vest on December 31, 2023, provided the director serves for at least nine months, following the date of grant. In addition to these option grants, each director shall receive an additional 500,000 options to vest on December 31, 2023, provided the director serves for at least nine months, following the date of grant. Total options granted to Directors was 94,654,420 at an exercise price of $0.007.

In March 2023 as consideration for deferring his compensation over the last two years, Thom Kidrin, the Chairman and CEO, was granted five-year non-qualified stock options to purchase 50,000,000 shares of the Company’s common stock at an exercise price equal to the last reported trading price of our common stock on the date of grant (i.e. 3/22/23) and to vest immediately. Exercise price is $0.007.

During the nine months ended September 30, 2023, the Company expensed stock based compensation in the amount of $716,854 (2022 - $0) related to stock options that vested during the period as general and administrative fees on the consolidated statement of operations. At September 30, 2023 there was $61,036 of unrecognized compensation costs related to non-vested stock-based compensation agreements granted under the plan.  

The Company has outstanding the following stock options as of September 30, 2023. 

During the nine months ended September 30, 2023, the Company recorded a stock option expense of $716,854 representing the options issued during the period that have fully vested.   

NOTE 14. COMMITMENTS AND CONTINGENCIES

The Company is committed to an employment agreement with Thom Kidrin, its President and CEO. Mr. Kidrin entered into the employment agreement with CASH on November 26, 2018. The employment agreement provides for a base salary of $175,000 per year. Mr. Kidrin is entitled to participate in any stock, stock option or other equity participation plan and any profit-sharing, pension, retirement, insurance, or other employee benefit plan generally available to the executive officers of the Company. The Company anticipates that it will extend the agreement on or before its current expiration date.

NOTE 15.  SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the financial statements.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements in this report which express "belief," “plan” "anticipation" or "expectation," as well as other similar or other statements which are not historical facts, are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those that may be set forth below and elsewhere in this report. Examples of these uncertainties and risks include, but are not limited to:

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report. 

OVERVIEW

The Company has become a wholesale distributor of the popular drink called Popping Boba. The Company has also made an investment in Boh Bah Inc., a manufacturer of popping boba and is an authorized distributor of popping boba.

The Company still has the ability to produce hemp CBD oil and related products and has retained the brands we have developed in the space. We believe that CBD distillate and isolate business will become a significant part of our business once we are able to raise the cash required to implement our business plan.

Current Operations 

We are working at expanding our distribution of popping boba to new outlets. The Company is also looking at other opportunities for our state-of-the-art facility in New Providence, Rhode Island that is equipped with our proprietary Halo 5 processing technology system that produces CBD distillate and isolate.

Marketing 

While we are looking into expanding our distribution of popping boba directly to other distributors and wholesalers. We still believe the market for CBD products can be a larger opportunity for the Company. We believe that the market for consumer products produced with CBD derived from hemp will increase substantially over the next five years, and we believe we are well positioned to be a significant player in this space.

Sales 

We are looking to expand the wholesale market of the popular drink called Popping Boba, a bubble tea. We are currently an authorized distributor and are marketing the product to other distributors and large chains.

We still intend to grow our CBD business by launching multiple web-based platforms to educate and sell direct to consumers the Company’s owned and licensed brands that focus on CBD derived from hemp products and to develop and expand our own proprietary branded retail line of products.

Ingredient and Material Supply chain

We are an authorized distributor of Boh Bah Inc’s popping boba. Boh Bah Inc. provides all the finished products. Boh Bah Inc. is an FDA approved advanced culinary, molecular gastronomy commercial food manufacturing company. On the CBD side, the Company is intending to extract and refine essential oils and compounds of interest from certified hemp cultivars. We intend to purchase other ingredients, required for production, both direct from processors and from third-party manufacturers and fillers as our formulations require. We intend to purchase additional packaging components that are manufactured to our design specifications using our unique brand image directly from packaging firms that specializes in consumer products packaging. 

Government Regulation

We are subject to local and federal laws in our operating jurisdictions. A range of federal regulations govern our product development, manufacturing, distribution, sales and marketing, including the Dietary Supplement Health and Education Act of 1994 (the “DSHEA”).   

CBD

Cannabinoids (CBD) are chemical compounds found in the cannabis plant. Hemp is a cannabis plant and where our CBD is derived from. CBD has been studied as to its therapeutic attributes. Taking CBD mimics and augments the effects of compounds in the body called endogenous cannabinoids. Endocannabinoids are part of the regulatory system called the endocannabinoid system. The endocannabinoid system plays important roles in the central nervous system and in regulating a broad range of physiological processes that affect our everyday experience – our mood, our energy level, our intestinal fortitude, immune activity, blood pressure, bone density, glucose metabolism, how we experience pain, stress, hunger, and more. Studies have shown that CBD is non-psychoactive unlike tetrahydrocannabinol (THC).

Farm Bill

On December 20, 2018, the 2018 Farm Bill was signed into law. The law went into effect on January 1, 2019.

As a consequence of the 2018 Farm Bill, hemp has now been permanently removed from the Controlled Substances Act (CSA). It is now deemed an agricultural commodity, no longer able to be classified as a controlled substance, like marijuana. Furthermore, by redefining hemp to include its “extracts, cannabinoids and derivatives,” Congress explicitly removed popular hemp products – such as hemp-derived CBD — from the purview of the CSA.

Accordingly, the Drug Enforcement Administration (DEA) no longer has any claim to interfere with the interstate commerce of hemp products, so as long as the THC level is at or below 0.3%. State and Tribal governments may impose separate restrictions or requirements on hemp growth and the sale of hemp products. However, they cannot interfere with the interstate transport of hemp or hemp products.

We believe that the 2018 Farm Bill should give comfort to federally regulated institutions, pharmacies, banks, merchant services, credit card companies, e-commerce sites and advertising platforms, to conduct commerce with the hemp and hemp CBD industry

The Food and Drug Administration (FDA) on CBD and Hemp

The FDA’s statements regarding the 2018 Farm Bill noted the substantial public interest in CBD and the clear interest of Congress in fostering the development of appropriate hemp products. The FDA intends to hold a public meeting(s) in the near future for stakeholders to share their experiences and challenges with these products, including information and views related to the safety of such products.

The FDA appears committed to pursuing an efficient regulatory framework for allowing product developers that meet the requirements under their authorities to lawfully market these types of products. However, despite these steps by the FDA there are other factors which are beyond our control, which could jeopardize our ability to successfully market our planned products. Any such setback would have a material adverse effect on our business and prospects.

Environmental Matters

Compliance with federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the Company.

RECENT DEVELOPMENTS

The Company has submitted Company Related Action Notification Forms notifying FINRA of its intention to implement a reverse stock split of its common stock in the ratio of 1:20. FINRA has responded with comments and it is unclear at this time when the Company will be able to implement said reverse split. 

Critical Accounting Policies  

Our material accounting policies, which we believe are the most critical to investors understanding of our financial results and condition, are discussed below. Because we are still early in our enterprise development, the number of these policies requiring explanation is limited. As we begin to generate increased revenue from different sources, we expect that the number of applicable policies and complexity of the judgments required will increase.

Revenue Recognition: ASC 606 establishes a single and comprehensive framework which sets out how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now be recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, Revenue based revenue recognition around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed in determining whether control has been transferred. The application of the core principle in ASC 606 is carried out in five steps: Step 1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled. Step 2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit) to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable in the contract. Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties. Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment approach, expected cost plus a margin approach, and, the residual approach in limited circumstances. Discounts given should be allocated proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices after inception is not permitted. Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an alternative use to the entity and the entity has the right to be paid for performance to date.

Valuation of Deferred Taxes: We account for income taxes in accordance with the liability method. Under the liability method, we recognize deferred assets and liabilities based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. We establish a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be utilized against future taxable income.

Valuation of Equity Instruments Granted to Employee, Service Providers and Investors: On the date of issuance, the instruments are recorded at their fair value as determined using the Binomial Option Pricing Model. 

Allowance for Accounts Receivable: We estimate losses from the inability of our distributors to make required payments and periodically review the payment history of each of our distributors, as well as their financial condition, and revise our reserves as a result.

Inventory Valuation: All inventories are stated at lower of cost or net realizable value, with cost determined substantially on a “first-in, first-out” basis. Selling, general, and administrative expenses are not inventoried, but are charged to expense when purchased. 

RESULTS OF OPERATIONS

Three months ended September 30, 2023 compared to three months ended September 30, 2022

Sales Revenue, Cost of Sales and Gross Loss:

Revenues from the sale of our products for the three months ended September 30, 2023 and 2022 were $0 and $824, respectively.

Costs of sales was $47,360 in the three months ended September 30, 2023 and $0 in the three months ended September 30, 2022. The Company expenses all packaging material as a cost of sale at the time of purchase. For the three months ended September 30, 2023, the Company had a gross loss of $43,113 compared to a gross profit of $824 for the three months ended September 30, 2022. The loss is due to the Company purchasing Popping Boba for sale. The Company is waiting on the customer to remit payment for the Popping Boba which at that time the Company will record the revenue.

General and Administrative Expense: General and administrative expenses for the three months ended September 30, 2023, increased by $29,752, to $84,261 as compared to $54,509 for the three months ended September 30, 2022. Increase is due to the issuance of options with an option expense of $61,036 in the three months ended September 30, 2023 compared to no options being issued in the three months ended September 30, 2022.

Payroll and Related: Payroll and related decreased by $62,824 to $43,750 for the three months ended September 30, 2023 from $106,574 for the three months ended September 30, 2022. The decrease is due to the Company releasing all employees except for the CEO who has an employment agreement with the Company. The payroll for the CEO has been accrued but not paid.

Professional Fees: Professional fees decreased to $19,000 for the three months ended September 30, 2023 compared to $65,500 for the three months ended September 30, 2022. In the prior year legal costs were higher due to activity involving potential acquisitions and costs associated with issues surrounding the proposed reverse split.

Depreciation expense: Depreciation expense was $20,618 for the three months ended September 30, 2023 and for the three months ended September 30, 2022. 

Interest Expense: Interest expense for the three months ended September 30, 2023 was $14,376 compared to interest expense of $8,271 in the three months ended September 30, 2022.

Net Loss: As a result of the foregoing, we realized a net loss of $229,365 in the three months ended September 30, 2023 compared to a net loss of $254,649 for the three months ended September 30, 2022.

There was no income tax benefit recorded for the year ended December 31, 2023 or 2022, due to recurring net operating losses. 

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

Sales Revenue, Cost of Sales and Gross Loss:

Revenues from the sale of our products for the nine months ended September 30, 2023 and 2022 were $42,497 and $8,434, respectively. Revenues in 2023 were generated from the distribution of Boh Bah Inc’s popping boba. Revenues in 2022 were generated from the sale of our CBD tinctures. While additional sales of popping boba were made in the three months ended September 30, 2023, we cannot record these sales until payment is received, which we expect to occur during the fourth quarter.

Costs of sales was $85,610 in the nine months ended September 30, 2023 and $7,507 in the nine months ended September 30, 2022. The Company expenses all packaging material as a cost of sale at the time of purchase. The Company also expenses the purchase of Popping Boba .For the nine months ended September 30, 2023, the Company had a gross loss of $43,113 compared to a gross profit of $927 for the nine months ended September 30, 2022.

General and Administrative Expense: General and administrative expenses for the nine months ended September 30, 2023, increased by $517,194, to $798,056 as compared to $280,862 for the nine months ended September 30, 2022. Increase is due to the issuance of options with an option expense of $716,854 in the nine months ended September 30, 2023 compared to no options being issued in the nine months ended September 30, 2022.

Payroll and Related: Payroll and related decreased by $147,125 to $168,561 for the nine months ended September 30, 2023 from $315,686 for the nine months ended September 30, 2022. Due to a lack of funds, all employees except the CEO were released. The CEO has an employment agreement and his payroll has been accrued during the period but not paid.

Professional Fees: Professional fees decreased to $60,000 from $89,400 for the nine months ended September 30, 2023. The decrease is due to a reduction in legal costs. In the prior year legal costs were higher due to work around potential acquisitions and costs associated with issues surrounding the proposed reverse split.

Depreciation expense: Depreciation expense was $61,854 for the nine months ended September 30, 2023 compared to a depreciation expense of $61,458 for the nine months ended September 30, 2022.

Interest Expense: Interest expense for the nine months ended September 30, 2023 was $38,801 an increase of $17,856 from the interest expense of $20,945 in the nine months ended September 30, 2022. The increase is due to additional loans the Company had to take out in order to pay operating expenses and make an investment in Boh Bah Inc.

Net Loss: As a result of the foregoing, we realized a net loss of $1,170,385 in the nine months ended September 30, 2023 compared to a net loss of $767,424 for the nine months ended September 30, 2022. 

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have raised capital through the public and private sale of debt and equity and funding from collaborative arrangements. At September 30, 2023, we had cash of $987 and a negative working capital of $2,345,044.

We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements. We cannot be certain that our existing and available capital resources will be sufficient to satisfy our funding requirements through 2023. We are evaluating various options to raise additional funds, including new equity and loans and no assurance can be given that we will be successful. 

Our financial statements have been prepared and presented on a basis assuming we will continue as a going concern. The above factors raise substantial doubt about our ability to continue as a going concern, as more fully discussed in Note 1 to the consolidated financial statements contained herein.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements, no special purpose entities, and no activities that include non-exchange-traded contracts accounted for at fair value. 

Item 4. Controls And Procedures

As of September 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting

During the quarter covered by this report there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

PART II OTHER INFORMATION

Item 1. Legal Proceedings

None. 

Item 1A. Risk Factors

We are not obligated to disclose our risk factors in this report, however, limited information regarding our risk factors appears in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward-Looking Statements” contained in this Quarterly Report on Form 10-Q and in “Item 1A. RISK FACTORS” of our 2022 Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in our 2022 Annual Report on Form 10-K. 

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

None 

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable. 

Item 5. Other Information 

See “RECENT DEVELOPMENTS” in Part I, Item 2.

Item 6. Exhibits

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereto duly authorized.

Date: November 17, 2023