CFN ENTERPRISES INC. The following information should be read in conjunction with our financial statements and accompanying notes included in this Annual Report on Form 10-K.
Overview
We owned and operated CAKE and getcake.com, a marketing technology company that
provided a proprietary solution for advanced analytics, attribution and campaign
optimization for digital marketers, and we sold this business on
The CFN Business generates revenue through sponsored content, including articles, press releases, videos, podcasts, advertisements and other media, email advertisements and other marketing campaigns run on behalf of public and private companies in the cannabis industry, helping them reach accredited, retail and institutional investors. Most revenue is generated through contracts involving a monthly cash payment.
The CFN Business' primary expenses come from advertising on platforms like Twitter and Facebook and from employee salaries and contractor fees. The CFN Business' content is primarily produced by a team of freelance writers and video content is produced through various vendors. The CFN Business also incurs hosting and development costs associated with maintaining and improving its website, web applications, and mobile applications. The CFN Business operates several media platforms, including CannabisFN.com, the CannabisFN iOS app, the CFN Media YouTube channel, the CFN Media podcast, and other venues. These properties are designed to educate and inform investors interested in the cannabis industry, as well as provide a platform for the clients of the CFN Business to reach investors. The CFN Business distributes content across numerous online platforms, including the CannabisFN.com website, press releases, financial news syndicates, search engines, YouTube, iTunes, Twitter, Instagram, Facebook, LinkedIn, and others.
The CFN Business targets the legal cannabis industry. According to
The CFN Business competes with other public relations firms for clients, as well
as online publishers for investors. Public relations competition includes
investor awareness firms like
Late in 2020, we launched an e-commerce network focused on the sale of general
wellness CBD products. Revenue generated from this new line of business has
been minimal as of
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Results of Operations
The following are the results of our operations for the year ended
For the Year Ended
December 31, December 31,
2020 2019 Change
Net revenues $ 506,490 $ 864,915 $ (358,425)
Cost of revenue 536,738 864,831 (328,093)
Gross profit (loss) (30,248) 84 (30,332)
Operating expenses:
Impairment charge - 3,767,541 (3,767,541)
Selling, general and administrative 1,199,410 2,244,304 (1,044,894)
Total operating expenses 1,199,410 6,011,845 (4,812,435)
Loss from operations (1,229,658) (6,011,761) 4,782,103
Other income (expense):
Loss on extinguishment of debt (71,377) - (71,377)
Other income 10,000 - 10,000
Interest expense (51,615) (13,993) (37,622)
Interest income 19 131 (112)
Total other income (expense) (112,973) (13,862) (99,111)
Net loss before provision for
income taxes (1,342,631) (6,025,623) 4,682,992
Provision for income taxes - - -
Net loss from continuing operations (1,342,631) (6,025,623) 4,682,992
Gain (loss) from discontinued
operations, net of tax (80,422) 14,391,173 (14,471,595)
Net income (loss) $ (1,423,053) $ 8,365,550 $ (9,788,603)
Net Revenues
Our revenues are generated from the sale of promotional service packages to
customers ranging from 3 to 6 months. We offer different packages tailored to
the type and stage of the potential customer, such as public companies looking
to increase their shareholder base, as well as private companies potentially
looking to go public and attract capital and publicity. Our revenue for the year
ended
Our revenue during the year ended
Our revenue for 2020 also included
Costs of Revenue
Our cost of revenue primarily represents costs incurred associated with performing services under our customer contracts acquired under the CFN Business. We expect for our cost of revenue to increase proportionately with increases in revenues recognized in future periods. During 2020, the cost of revenue did not increase proportionately with revenue as our main customer market suffered a decline while certain online fixed costs remained the same.
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Operating Expenses
Our operating expenses for the year ended
Discontinued Operations
Effective
Liquidity and Capital Resources
On
These matters, among others, raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
The following is a summary of our cash flows from operating, investing and
financing activities for the year ended
Year Ended
December 31 , December 31,
2020 2019
Cash flows used in operating activities
$ (206,634) $ 20,470,915 Cash flows provided by (used in) financing activities $ 763,000$ (13,469,181)
As of
Net cash used in operating activities was approximately
In addition, we used a higher amount of cash in 2019 for the payment of a large
number of accounts payable and accrued expenses at the time of closing of the
Asset Purchase Agreement on
Net cash used in investing activities amounted to approximately
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used in investing activities consisted primarily of
Net cash provided by financing activities was
Description of Indebtedness
As of
On
In connection with the promissory note payable on
On
The interest rate on the Loan is 1.0% per annum. The Note matures on
On
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Future scheduled maturities of long-term debt are as follows.
Year Ended
December 31,
2021 $ 188,249
2022 574,751
2023 2,262
2024 3,285
2025 3,416
Thereafter 141,037
Total $ 913,000 Obligations Under Preferred Stock
On
On
Other outstanding obligations at
Warrants
As of
Options
As of
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
COVID-19
In
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Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
Critical Accounting Policies Accounts Receivable
The Company's account receivables are due from customers relating to contracts
to provide investor relation services. Collateral is currently not required. The
Company also maintains allowances for doubtful accounts for estimated losses
resulting from the inability of the Company's customers to make payments. The
Company periodically reviews these estimated allowances, including an analysis
of the customers' payment history and creditworthiness, the age of the trade
receivable balances and current economic conditions that may affect a customer's
ability to make payments as well as historical collection trends for its
customers as a whole. Based on this review, the Company specifically reserves
for those accounts deemed uncollectible or likely to become uncollectible. When
receivables are determined to be uncollectible, principal amounts of such
receivables outstanding are deducted from the allowance. The allowance for
doubtful accounts as of
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
Subsequent to the closing of the Emerging Growth Agreement on
Income Taxes
Income taxes are accounted for in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives of five years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized.
Goodwill
The Company's goodwill represents the excess of purchase price over tangible and
intangible assets acquired, less liabilities assumed arising from business
acquisitions.
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Investment
On
Long-Lived Assets
In accordance with ASC 360-10, the Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that their net
book value may not be recoverable. When such factors and circumstances exist,
the Company compares the projected undiscounted future cash flows associated
with the related asset or group of assets over their estimated useful lives
against their respective carrying amount. Impairment, if any, is based on the
excess of the carrying amount over the fair value, based on market value when
available, or discounted expected cash flows, of those assets and is recorded in
the period in which the determination is made. There was an impairment charge of
Basic and Diluted Earnings Per Share
Basic earnings per share are calculated by dividing income available to
stockholders by the weighted-average number of common shares outstanding during
each period. Diluted earnings per share are computed using the weighted average
number of common and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents consist of shares issuable upon the
exercise of stock options, warrants and preferred stock (calculated using the
modified-treasury stock method). As of
Share-Based Payment
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.
The Company has elected to use the Black-Scholes option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Common stock awards
The Company has granted common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been made in cash.
Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period.
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