REAL BRANDS, INC. Forward Looking Statements
When used in this form 10-K and in future filings by the Company with the Commission, The words or phrases such as "anticipate," "believe," "could," "would," "should," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "try" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, changes that may occur to general economic and business conditions; changes in current pricing levels that we can charge for our services or which we pay to our suppliers and business partners; changes in political, social and economic conditions in the jurisdictions in which we operate; changes to regulations that pertain to our operations; changes in technology that render our technology relatively inferior, obsolete or more expensive 25 Table of Contents
compared to others; foreign currency fluctuations; changes in the business prospects of our business partners and customers; increased competition, including from our business partners; delays in the delivery of broadband capacity to the homes and offices of persons who use our services; general disruptions to Internet service; and the loss of customer faith in the Internet as a means of commerce.
The following discussion should be read in conjunction with the financial statements and related notes which are included in this report under Item 8.
We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances.
Overview Critical Accounting Policies
Basis of Presentation and Principles of Consolidation
The Company's consolidated financial statements and the notes thereto have been
prepared in accordance with Generally Accepted Accounting Principles ("GAAP") in
the United States of America . The consolidated financial statements include Real
Brands , and its wholly owned subsidiaries. One subsidiary, Real Brands Venture
Group, LLC , has been inactive for the last two years and only maintains a debt
instrument on its financial records. DePetrillo Real Estate Holdings, LLC is a
wholly owned subsidiary of CASH Acquisition Corp. and the owner of the Company's
building in Rhode Island . American Standard Hemp Inc. is a wholly owned
subsidiary of CASH Acquisition Corp. and holds the hemp licenses in Rhode
Island . 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 theFinancial 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 inthe 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. 26 Table of Contents 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
OnFebruary 15, 2020 the Company purchasedDePetrillo Real Estate Holdings, LLC , aRhode Island Limited Liability Company having as it's only asset the building at12 Humbert Street inNorth Providence Rhode Island . The building is the Company's headquarters and a hemp processing facility. The purchase price of the building was 2 million shares of CASH common stock,$25,000 in cash and the assumption of the mortgage which at the time was$189,916 . The prior owner agreed to put the$25,000 payment into building improvements. The building and land were appraised at$475,000 . The building is being depreciated over 15 years on a straight-line basis startingOctober 1, 2021 . Depreciation expense on the building for the year endedDecember 31, 2021 was$7,917 . The Company made$121,411 in building improvements and purchases of$26,588 in furniture and equipment during the year endedDecember 31, 2021 . The Company made$644,412 in building improvements during the year endedDecember 31, 2020 .$135,000 of those improvements were in the form of CASH common stock valued at$0.50 per share. Building improvements is being depreciated over 15 years commencing from the completion of the work,October 1, 2021 . Depreciation expense on building improvements for the year endedDecember 31, 2021 was$13,097 . Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of five years. OnDecember 31, 2021 the Company wrote down the value of the equipment to$0 because the equipment had been sitting idle for over a year resulting in a loss on disposal of assets of$385,989 . The furniture and equipment and related accumulated depreciation were removed from the books as ofDecember 31, 2021 . Depreciation expense on the property and equipment for the year endedDecember 31, 2021 , before it was written off was$146,522 . Total depreciation expense for the year endedDecember 31, 2021 was$167,536 . Expenditures for repairs and maintenance are expensed as incurred. 27 Table of Contents
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 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.
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Beneficial Conversion Features of
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 year endedDecember 31, 2021 and 2020, 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 154,518,887 and 28,443,298 potentially dilutive options and convertible securities that have been excluded from the computation of diluted weighted-average shares outstanding as ofDecember 31, 2021 , and 223,237,026 and 26,694,516 potentially dilutive options and convertible securities that have been excluded from the computation of diluted weighted-average shares outstanding as ofDecember 31, 2020 , as they would be anti-dilutive. 29 Table of Contents 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:
• Level 1 - Quoted market prices in active markets for identical assets and
liabilities;
• Level 2 - Inputs, other than level 1 inputs, either directly or
indirectly observable; and
• Level 3 - Unobservable inputs developed using internal estimates and
assumptions (there is little or no market date) which reflect those that
market participants would use.
The Company records its derivative activities at fair value. As of
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 endedDecember 31, 2021 . 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. 30 Table of Contents
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.
The Company accounts for stock-based compensation for employees and directors in
accordance with Accounting Standards Codification 718, Compensation ("ASC 718")
as issued by the FASB. ASC 718 requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the statement of
operations based on their fair values. Under the provisions of ASC 718,
stock-based compensation costs are measured at the grant date, based on the fair
value of the award, and are recognized as an expense over the employee's
requisite service period (generally the vesting period of the equity grant). The
fair value of the Company's common stock options are estimated using the Black
Scholes option-pricing model with the following assumptions: expected
volatility, dividend rate, risk free interest rate and the expected life. The
Company expenses stock-based compensation by using the straight-line method. In
accordance with ASC 718 and, excess tax benefits realized from the exercise of
stock-based awards are classified as cash flows from operating activities. All
excess tax benefits and tax deficiencies (including tax benefits of dividends on
share-based payment awards) are recognized as income tax expense or benefit in
the condensed consolidated statements of operations. The Company accounts for
stock-based compensation awards issued to non-employees for services, as
prescribed by ASC 718-10, at either the fair value of the services rendered or
the instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in Accounting
Standards Update ("ASU") 2018-07.
In February 2016 , the FASB issued ASU 2016-02, "Leases" Topic 842, which amends
the guidance in former ASC Topic 840, Leases. The new standard increases
transparency and comparability most significantly by requiring the recognition
by lessees of right-of-use assets and lease liabilities on the balance sheet for
all leases longer than 12 months. Under the standard, disclosures are required
to meet the objective of enabling users of financial statements to assess the
amount, timing, and uncertainty of cash flows arising from leases. For lessees,
leases will be classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income statement.
The Company adopted the new lease guidance effective January 1, 2019 . The
Company is not a party to any leases and therefore is not showing any asset or
liability related to leases in the current period or prior periods.
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.
Subsequent Events
OnJanuary 20, 2022 the Company entered into a purchase agreement with the former CEO ofReal Brands Inc. Jerome Pearring . The Company sold certain intellectual property rights andReal Brands Venture Group a wholly owned subsidiary with the assumption of certain liabilities related to the IP. The purchase price is the assignment of 1,000,000 shares of series A preferred stock and waiver of any possible severance payments. 31 Table of Contents General The Company's primary business is hemp CBD oil/isolate extraction, wholesaling of CBD oils and isolate, and production and sales of hemp-derived CBD consumer brands. The Company's brand development strategy will be to leverage existing Company resources into creating online sales, licensing opportunities and a distribution network for proprietary legal hemp.
Components of Statements of Operations
Revenue Product revenue consists of sales of CBD oils, tinctures and creams under our own brand name and white labeled along with wholesale sale of isolate and distillate oils net of returns, discounts and allowances. Once a purchase order is received, the order is packaged and shipped to the customer. Depending on the customer, some orders are paid at the time of purchase and others have 30 day terms. We recognize the revenue when the order is delivered and received by
the customer. Cost of Goods Sold
Cost of goods sold represents costs of raw material, packaging, printing and labels, prepackaged goods for sale and the write down of any non-moving components of inventory.
We expect our cost of goods sold per unit to decrease as we scale our operations, improve product designs and work with our third-party suppliers to lower costs.
Operating Expenses General and Administrative. Our general and administrative expenses consist primarily of compensation, benefits, travel and other costs for employees. In addition, general and administrative expenses include third-party consulting, accounting services, repairs and maintenance, utilities for our building and information technology. We expect general and administrative expenses to increase as we grow our business and add additional employees. Professional Fees
Professional fees consist of legal fees and audit fees.
Interest Expense
Interest expense consists primarily of interest from notes due to debtholders and interest on the mortgage.
Liquidity and Capital Resources
We have had limited operations during 2021 due to renovations being conducted to our building and hemp processing facility at12 Humbert St. , inNorth Providence, RI . We were able to issue equity to finance the renovations and purchase additional equipment. We continue to pursue additional sources of capital though we have no current arrangements with respect to, or sources of, additional financing at this time and there can be no assurance that any such financing will become available. We will need to raise additional capital in order to execute on our business plan. We intend on raising additional capital in the short term by selling equity through private placements. 32 Table of Contents RESULTS OF OPERATIONS
Year ended
Revenue was$5,546 for the year endedDecember 31, 2021 and$24,582 for the year endedDecember 31, 2020 . The Company spent 2021 renovating the new facility in North Providence RI and did not concentrate on generating revenue during the year. We still need to raise a sufficient amount of capital to provide the resources required that would enable us to execute our business plan. Cost of goods sold increased by$240,080 from$22,540 for the year endedDecember 31, 2020 to$262,620 for the year endedDecember 31, 2021 . The increase is attributable the Company writing off the value of the inventory due to lack of movement of the inventory for over one year and due to the pandemic and renovations on the new facility. General and administrative (G & A) expenses increased by$211,983 from$259,511 to$471,494 for the year endedDecember 31, 2021 . The increase is due to an increase in activity around the renovation and build out of the new facility and the raising of funds in order to facilitate that process, which once completed will not be ongoing. Professional fees expenses decreased by$154,970 from$349,525 to$194,556 for the year endedDecember 31, 2021 . The decrease is due to additional professional fees related to the merger and the requirement for two audits in the prior year, one for each of the merged Companies. Payroll and related expenses decreased by$23,007 to$326,424 from$349,431 for the year endedDecember 31, 2021 . The decrease is due to a reduction in hours for the production related employees because of the renovations being done
to the building. For the year endedDecember 31, 2021 , the Company recorded an option expense of$1,065,390 , representing the amortization of the value of the options issued in 2020 that have not yet vested. For the year endedDecember 31, 2020 , the Company recorded an option expense of$3,825,479 , representing the amortization of the value of the options issued in 2020 and 2019 that have not yet vested.
For the year ended
For the year ended
For the year endedDecember 31, 2021 , the Company recorded a loss on disposal of a assets of$385,989 . The Company wrote down the value of the equipment due to there being no use of the equipment for an extended period of time related to the pandemic and renovations to the new facility.
For the year ended
As a result of the foregoing, we had a net loss of
33 Table of Contents
Liquidity and Capital Resources
As ofDecember 31, 2021 , the Company had cash and cash equivalents of a$197,255 as compared to$247,892 as ofDecember 31, 2020 , representing a decrease of$50,637 . As ofDecember 31, 2021 , the Company had a working capital deficit of$1,103,739 as compared to a working capital deficit of$636,179 as ofDecember 31, 2020 , representing an increase in the deficit of$467,560 . The Company is seeking additional capital in the private and/or public equity markets to continue operations and build sales, marketing, brand and distribution. The Company is currently evaluating additional equity and debt financing opportunities and may execute them when appropriate. However, there can be no assurances that the Company can consummate such a transaction or consummate a transaction at favorable prices.
Company plans on increased sales of its products in the market. However, there can be no assurances that the sales will increase or that even if they do increase that it will increase sufficiently to generate the necessary cash.
34 Table of Contents
ITEM 8. FINANCIAL STATEMENTS.
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM (Auditor Firm ID 454) 36
BALANCE SHEETS 38
STATEMENTS OF OPERATIONS 39
STATEMENT OF STOCKHOLDERS' EQUITY 40
STATEMENTS OF CASH FLOWS 41
NOTES TO FINANCIAL STATEMENTS 42
35
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[[Image Removed]]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Opinion on the Financial Statements
We have audited the accompanying balance sheets ofReal Brands, Inc. and its subsidiaries ("the Company") as ofDecember 31, 2021 andDecember 31, 2020 and the related statements of operations, stockholders' deficit, cash flows and the related notes to consolidated financial statements (collectively referred to as the consolidated financial statements) for the years endedDecember 31, 2021 andDecember 31, 2020 . In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company atDecember 31, 2021 andDecember 31, 2020 , and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted inthe United States of America .
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) andAmerican Institute of Certified Public Accountants (AICPA) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB and Generally Accepted Audit Standards (GAAS). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 36 Contents
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit, recurring losses, and expects continuing future losses, These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Long-lived asset valuation As discussed in Note 6 to the consolidated financial statements, the Company utilizes projections of future cash flows to determine if there are indications of impairment of long-lived assets, specifically, land, buildings and equipment which totaled over$2 million as ofDecember 31, 2021 . The Company tests for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Such indicators may include, among others: a significant decline in future cash flows and changes in expected useful life which relates to the Company's ability and intent to hold its asset groups for a period of time that recovers their carrying value. We identified the valuation of certain long-lived assets to be a critical audit matter. The valuation is based upon undiscounted future cash flows related to certain long-lived assets, specifically, land, buildings, and equipment. Whereas auditor judgments were required to evaluate subjective assumptions in the Company's analysis of undiscounted cash flows. These included estimated future revenue and operating expenses. Adverse changes in the assumptions could have a significant impact on whether an indicator of impairment has been identified and could have a material impact on the Company's consolidated financial statements.
The following are the primary procedures we performed to address this critical audit matter:
· We obtained an understanding for the Company's process for determining
indicators of impairment of long-lived assets and the Company's evaluation of
impairment when indicators arose.
· We visited the site of the long-lived assets located that were considered high
risk for potential impairment.
· We evaluated the reasonableness of the Company's forecasted revenues, operating
results and cash flows by performing an independent sensitivity analysis related to the key inputs to forecasted cash flows.
The firm has served this client since
/s/ L&L CPAS, PA L&L CPAS, PA Certified Public AccountantsPlantation, FL The United States of America April 6, 2022 37 Contents Real Brands, Inc. and Subsidiaries Consolidated Balance Sheets December 31, 2021 and 2020 Audited 2021 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents$ 197,255 $ 247,892 Accounts receivables 898 175 Inventory - 230,951 Total current assets 198,153 479,018 Deposits 530 530
Property and equipment - net of depreciation 1,239,809
1,645,336
TOTAL ASSETS$ 1,438,492
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES: Accounts payable and accrued expenses$ 513,065 $ 637,100 Accrued expenses related party 402,347
91,618
Loan payable related party 133,605
133,605
Convertible note payable related party 200,000
200,000
Notes payable 7,250 7,250
Contingent liabilities 45,625 45,625
TOTAL CURRENT LIABILITIES 1,301,892 1,115,197
LONG TERM LIABILITIES
PPP Loan - 143,485
Mortgage payable 148,551 170,526
Total Long Term Liabilities 148,551 314,011
TOTAL LIABILITIES 1,450,443 1,429,208
STOCKHOLDERS' EQUITY
Series A Preferred stock, $.001 par value;
2,000,000 shares authorized, 1,000,000
issued and outstanding as of December 31,
2021 and 2020, respectively. 1,000 1,000
Common stock,$.001 par value; 3,998,000,000 shares authorized as ofDecember 31, 2021 and 2020; 2,677,529,115 shares issued and outstanding as ofDecember 31, 2021 , and 2,358,780,396 shares issued and outstanding as ofDecember 31, 2020 . 2,677,529
2,358,780
Common stock subscribed, 3,694,900 and 194,263,483 shares atDecember 31, 2021 andDecember 31, 2020 , respectively. 96,403
414,679
Additional paid-in capital 8,881,728 6,794,057
Accumulated deficit (11,668,611 ) (8,872,840 )
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (11,951 )
695,676
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
See the accompanying notes to these audited consolidated financial statements.
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REAL BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2021 and 2020
AUDITED
2021 2020
REVENUE:
Revenues $ 5,546 $ 24,582
Total revenue 5,546 24,582
Cost of goods sold 262,620 22,540
Gross (loss) profit (257,074 ) 2,042
OPERATING EXPENSES:
General and administrative 471,494 259,511
Professional fees 194,556 349,525
Stock compensation - 1,339,530
Payroll and related 326,424 349,431
Stock option expense 1,065,390 3,825,479
Total operating expenses 2,057,864 6,123,476
Operating loss (2,314,938 ) (6,121,434 )
OTHER INCOME (EXPENSES):
Forgiveness of PPP debt 143,485 -
Depreciation expense (167,536 ) (120,293 )
Impairment of assets (385,989 ) -
Warrant expense (37,753 ) -
Interest expense (33,040 ) (31,183 )Total other (expenses) income (480,833
) (151,476 ) LOSS FROM OPERATIONS (2,795,771 ) (6,272,910 )
PROVISION FOR INCOME TAXES -
-
NET LOSS $ (2,795,771 ) $ (6,272,910 )
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ -** WEIGHTED AVERAGE SHARES OUTSTANDING 2,624,071,816
216,636,166
** less than $0.01 per share
See the accompanying notes to these audited consolidated financial statements.
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REALBRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED
Preferred Stock Common Additional
Series A Common Stock Stock Paid-in Accumulated
Shares Amount Shares Amount Subscribed Capital Deficit TOTAL
Balance December 31, 2019 - - 2,127,190,401 2,127,190 164,679 859,434 (2,599,930 ) 551,373 Recapitalization 1,000,000 1,000 164,671,867 164,672 623,728 (1,852,079 ) - (1,062,679 ) Recapitalization - debt settlement prior to reorganization 17,318,128 17,318 (251,113 ) 233,795 - - Recapitalization - conversion prior to reorganization - - 10,000,000 10,000 (62,615 ) 52,615 - - Contributions - - - - - 5,700,807 - 5,700,807 Issuance for cash - - 26,000,000 26,000 (60,000 ) 234,000 - 200,000 Issuance for subscriptions payable - - 13,600,000 13,600 - 781,200 - 794,800 Option granted - - - - - 784,286 - 784,286 Net loss for the period ended December 31, 2020 - - - - - - (6,272,910 ) (6,272,910 ) Balance December 31, 2020 1,000,000 1,000 2,358,780,396 2,358,780 414,679 6,794,057 (8,872,840 ) 695,676 Issuance for reverse merger - - 164,680,119 164,680 (164,680 ) - - - Issuance of common stock for cash - - 98,974,969 98,975 (153,595 ) 1,039,621 - 985,001 Cashless exercise of stock options - - 55,093,631 55,094 - (55,094 ) - - Stock options granted pursuant to the agreements - - - - - 1,065,390 - 1,065,390 Warrant expense 37,753 37,753 Net loss for the year ended December 31, 2021 (2,795,771 ) (2,795,771 ) Balance December 31, 2021 1,000,000 1,000
2,677,529,115 2,677,529 96,403 8,881,728 (11,668,611 ) (11,951 )
See the accompanying notes to these audited consolidated financial statements.
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Contents
REAL BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2021 and 2020
AUDITED
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,795,771 ) $ (6,272,910 )
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on forgiveness of PPP loan (143,485 )
-
Option expense 1,065,390 3,825,479
Warrant expense 37,753 -
Stock based compensation - 1,339,530
Depreciation expense 167,536 120,293
Changes in operating assets and liabilities:
Accounts receivable (721 ) (175 )
Inventory 230,951 -
Impairment of assets 385,989 -
Deposit - 4,000
Prepaid expenses - 38,000Accounts payable and accrued expenses 186,696
320,935
Contingency liabilities -
45,625
Net cash used in operating activities (865,664 )
(579,223 )
CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (147,999 ) (509,412 ) Net cash (used in) investing activities (147,999 )
(509,412 )
CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from promissory notes -
7,250
Proceeds from loans payable -
133,605
Repayment of mortgage payable (21,975 ) (19,390 ) Proceeds from PPP loan -
143,485
Proceeds from sale of common stock 985,001
980,000
Net cash provided by financing activities$ 963,026 $
1,244,950
NET CHANGE IN CASH AND CASH EQUIVALENTS$ (50,637 ) $
156,315
CASH AND CASH EQUIVALENTS, beginning of year
91,579
CASH AND CASH EQUIVALENTS, end of year$ 197,255 $
247,892
SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest$ 8,686 $ 9,588 Cash paid for income taxes $ - $ - NONCASH INVESTING AND FINANCING ACTIVITIES: Recapitalization $ -$ (1,062,679 ) Shares for subscription payable prior to recapitalization $ - $
794,800
Shares for settlement prior to recapitalization $ - $
186,663
See the accompanying notes to these audited consolidated financial statements.
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Contents
REAL BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 1. ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION
Real Brands, Inc. ("Real Brands" or the "Company"), was incorporated under the laws of the state ofNevada onNovember 6, 1992 . The Company was formed under the nameMercury Software . From 1997 to 2005 the Company changed its name several times. OnOctober 10, 2005 , the Company changed its name toGlobal Beverage Solutions, Inc. and began trading on the OTC Bulletin Board under
the symbol GBVS.OB.
OnOctober 22, 2013 , the Company changed its name toReal Brands, Inc. TheFinancial Industry Regulatory Authority ("FINRA") approvedReal Brands' corporate actions regarding its name change and its new stock symbol request and approvedReal Brands' 150:1 Reverse Stock Split. The new symbol was designated as GBVSD. OnNovember 19, 2013 , the ticker symbol changed to RLBD. OnOctober 22, 2020 , the majority of the shareholders of the Company, by written consent, agreed to a "reverse triangular" merger withCASH Acquisition Corp. , aDelaware corporation and wholly-owned subsidiary of the Company formed for the purpose of the merger, andCanadian American Standard Hemp Inc. , aDelaware corporation ("CASH"), whereby the Company acquired all of the outstanding shares of CASH and merged it with and intoCASH Acquisition Corp. Real Brands' name and trading symbol were maintained, with CASH shareholders acquiring majority control ofReal 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 as ofDecember 31, 2021 and 2020, of$2,795,771 and$6,272,910 , 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, 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. 42 Contents Liquidity As ofDecember 31, 2021 , the Company had cash and cash equivalents of a$197,255 as compared to$247,892 as ofDecember 31, 2020 , representing a decrease of$50,637 . As ofDecember 31, 2021 , the Company had a working capital deficit of$1,103,739 as compared to a working capital deficit of$636,179 as ofDecember 31, 2020 , representing an increase in the deficit of$467,560 .
Plans with respect to its liquidity management include the following:
• The Company is seeking additional capital in the private and/or public
equity markets to continue operations and build sales, marketing, brand
and distribution. The Company is currently evaluating additional equity
and debt financing opportunities and may execute them when appropriate.
However, there can be no assurances that the Company can consummate such a
transaction or consummate a transaction at favorable pricing.
• The Company plans on increased sales of its products in the market.However, there can be no assurances that the sales will increase or that
even if they do increase that it will increase sufficiently to generate
the necessary cash.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company's consolidated financial statements and the notes thereto have been
prepared in accordance with Generally Accepted Accounting Principles ("GAAP") in
the United States of America . The consolidated financial statements include Real
Brands , and its wholly owned subsidiaries. One subsidiary, Real Brands Venture
Group, LLC , has been inactive for the last two years and only maintains a debt
instrument on its financial records. DePetrillo Real Estate Holdings, LLC is a
wholly owned subsidiary of CASH Acquisition Corp. and the owner of the Company's
building in Rhode Island . American Standard Hemp Inc. is a wholly owned
subsidiary of CASH Acquisition Corp. and holds the hemp licenses in Rhode
Island . 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 theFinancial 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. 43 Contents 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 inthe 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
OnFebruary 15, 2020 the Company purchasedDePetrillo Real Estate Holdings, LLC , aRhode Island Limited Liability Company having as it's only asset the building at12 Humbert Street inNorth Providence Rhode Island . The building is the Company's headquarters and a hemp processing facility. The purchase price of the building was 2 million shares of CASH common stock,$25,000 in cash and the assumption of the mortgage which at the time was$189,916 . The prior owner agreed to put the$25,000 payment into building improvements. The building and land were appraised at$475,000 . The building is being depreciated over 15 years on a straight-line basis startingOctober 1, 2021 , the date building improvements were completed. Depreciation expense on the building for the year endedDecember 31, 2021 was$7,917 . The Company made$121,411 in building improvements and purchases of$26,588 in furniture and equipment during the year endedDecember 31, 2021 . The Company made$644,412 in building improvements during the year endedDecember 31, 2020 .$135,000 of those improvements were in the form of CASH common stock valued at$0.50 per share. Building improvements is being depreciated over 15 years commencing from the completion of the work,October 1, 2021 . Depreciation expense on building improvements for the year endedDecember 31, 2021 was$13,097 . 44 Contents
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of five years. OnDecember 31, 2021 the Company wrote down the value of the equipment to$0 because the equipment had been sitting idle for over a year resulting in a loss on disposal of assets of$385,989 . The furniture and equipment and related accumulated depreciation were removed from the books as ofDecember 31, 2021 . Depreciation expense on the property and equipment for the year endedDecember 31, 2021 , before it was written off was$146,522 . Total depreciation expense for the year endedDecember 31, 2021 was$167,536 . 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 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. 45 Contents 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
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 year endedDecember 31, 2021 and 2020, 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. 46 Contents
The Company had 154,518,887 and 28,443,298 potentially dilutive options and convertible securities, respectively, that have been excluded from the computation of diluted weighted-average shares outstanding as ofDecember 31, 2021 , and 223,237,026 and 26,694,516 potentially dilutive options and convertible securities, respectively, that have been excluded from the computation of diluted weighted-average shares outstanding as ofDecember 31, 2020 , 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:
• Level 1 - Quoted market prices in active markets for identical assets and
liabilities;
• Level 2 - Inputs, other than level 1 inputs, either directly or
indirectly observable; and
• Level 3 - Unobservable inputs developed using internal estimates and
assumptions (there is little or no market date) which reflect those that
market participants would use.
The Company records its derivative activities at fair value. As of
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 endedDecember 31, 2021 . 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. 47 Contents
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.
The Company accounts for stock-based compensation for employees and directors in
accordance with Accounting Standards Codification 718, Compensation ("ASC 718")
as issued by the FASB. ASC 718 requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the statement of
operations based on their fair values. Under the provisions of ASC 718,
stock-based compensation costs are measured at the grant date, based on the fair
value of the award, and are recognized as an expense over the employee's
requisite service period (generally the vesting period of the equity grant). The
fair value of the Company's common stock options are estimated using the Black
Scholes option-pricing model with the following assumptions: expected
volatility, dividend rate, risk free interest rate and the expected life. The
Company expenses stock-based compensation by using the straight-line method. In
accordance with ASC 718 and, excess tax benefits realized from the exercise of
stock-based awards are classified as cash flows from operating activities. All
excess tax benefits and tax deficiencies (including tax benefits of dividends on
share-based payment awards) are recognized as income tax expense or benefit in
the condensed consolidated statements of operations. The Company accounts for
stock-based compensation awards issued to non-employees for services, as
prescribed by ASC 718-10, at either the fair value of the services rendered or
the instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in Accounting
Standards Update ("ASU") 2018-07.
In February 2016 , the FASB issued ASU 2016-02, "Leases" Topic 842, which amends
the guidance in former ASC Topic 840, Leases. The new standard increases
transparency and comparability most significantly by requiring the recognition
by lessees of right-of-use assets and lease liabilities on the balance sheet for
all leases longer than 12 months. Under the standard, disclosures are required
to meet the objective of enabling users of financial statements to assess the
amount, timing, and uncertainty of cash flows arising from leases. For lessees,
leases will be classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income statement.
The Company adopted the new lease guidance effective January 1, 2019 . The
Company is not a party to any leases and therefore is not showing any asset or
liability related to leases in the current period or prior periods.
In November 2021 , the FASB issued ASU 2021-10, Government Assistance (Topic
832). The amendments within the update require certain disclosures about
transactions with a government that are accounted for by applying a grant or
contribution accounting model by analogy. The amendments will require disclosure
of information about the nature of the transactions and the related accounting
policy used to account for the transactions, information regarding the line
items within the consolidated financial statements that are affected by the
transactions, and significant terms and conditions of the transactions. The
amendments in the update will be effective for financial statements issued for
annual periods beginning after December 15, 2021 , with early adoption permitted.
The Company does not believe the adoption of this ASU will have a material
impact on the Company's consolidated financial statements or results of
options.
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.
Subsequent Events
OnJanuary 20, 2022 the Company entered into a purchase agreement with the former CEO ofReal Brands Inc. ,Jerome Pearring . The Company sold certain intellectual property rights andReal Brands Venture Group a wholly owned subsidiary with the assumption of certain liabilities related to the IP. The purchase price is the assignment of 1,000,000 shares of series A preferred stock and waiver of any possible severance payments. 48 Contents
NOTE 3. ACCOUNTS RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
At
NOTE 4. INVENTORY AtDecember 31, 2021 the inventory was written down to$0 . The inventory had not moved for over a year due to the pandemic and renovations to the facility. As a result, the inventory that was at the facility was written off. Inventory is comprised of hemp oil in different phases of production to completion of final product. Products include tinctures, creams and lotions. Inventory is valued at cost. No purchases of pre-packaged products or packaging material is included in inventory. Pre-packaged products and packaging materials are expensed as incurred. NOTE 5. DEPOSITS
The Company has a deposit in the amount of
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment is comprised of a building and land, building improvements and furniture and equipment.
The building and land were appraised at
The Company made$121,411 in building improvements and purchases of$26,588 in furniture and equipment during the year endedDecember 31, 2021 . The Company made$644,412 in building improvements during the year endedDecember 31, 2020 .$135,000 of those improvements were in the form of CASH common stock valued at$0.50 per share. Building improvements is being depreciated over 15 years commencing from the completion of the work,October 1, 2021 . Depreciation expense on building improvements for the year endedDecember 31, 2021 was$13,097 . Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of five years. OnDecember 31, 2021 the Company wrote down the value of the equipment to$0 because the equipment had been sitting idle for over a year resulting in a loss on disposal of assets of$385,989 . The furniture and equipment and related accumulated depreciation were removed from the books as ofDecember 31, 2021 . Depreciation expense on the property and equipment for the year endedDecember 31, 2021 , before it was written off was$146,522 . Total depreciation expense for the year endedDecember 31, 2021 was$167,536 . Expenditures for repairs and maintenance are expensed as incurred. December 31, December 31, 2021 2020 Building$ 475,000 $ 475,000 Building Improvements 785,823 664,412 Furniture and Equipment 752,553 739,459 Gross fixed assets 2,013,376 1,878,871 Less: Accumulated Depreciation 387,578 233,535 Less: Impairments 385,989 - Net Fixed Assets$ 1,239,809 $ 1,645,336 49 Contents
NOTE 7. 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 forATS Indian Trace, LLC .ATS Indian Trace, LLC v. the Company was a civil action filed byATS Indian Trace, LLC in theCircuit Court of Broward County, Florida onJuly 22, 2015 . OnNovember 18, 2015 , a (default) Final Judgement was entered in favor ofATS Indian Trace, LLC and against the Company in the amount of$71,069.37 . This judgement is currently outstanding and remains due and owing.ATS Indian Trace, LLC has not taken any enforcement action against the Company for several years. The balance is included in accrued expenses even though the Company does not expect to ever have to pay it. December 31, December 31, 2021 2020 Accounts payable$ 154,758 $ 364,922 Accrued expenses 344,410 240,946 Accrued interest 7,330 6,691 Credit cards payable 6,568 24,541 Total payable and expenses$ 513,065 $ 637,100
NOTE 8. ACCRUED EXPENSES - RELATED PARTY
At
Such amount included, to its CEO,Thom Kidrin ,$242,308 in accrued salary and$16,525 in accrued interest on a loan with principal balance of$133,605 (see Note 9) and an additional$31,500 in accrued interest on a convertible note from Worlds Inc., with a principal balance of$200,000 (see Note 10). In addition, the Company owed$100,000 to its CFO,Chris Ryan ,$7,000 toDr. Rammal and$5,014 to other employees.
NOTE 9. NOTES PAYABLE AND LOANS PAYABLE
On
As of
Schedule of Outstanding Loans Payable
Loan payable Accrued interest
Note to a consultant (12%) 7,250 7,330
Mortgage payable (5.24%) 148,551 -
Total $ 155,801 $ 7,330
Interest expense related to the note payable to consultant, Endeavour, amounted
to
NOTE 10. LOAN PAYABLE - RELATED PARTY
A loan was provided by the CEO,
50 Contents
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 onOctober 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$0.50 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. andMr. Kidrin is the CEO andMr. Ryan is the CFO of Worlds Inc. OnOctober 15, 2021 , the convertible note was extended toOctober 15, 2023 . All other terms remain the same. As consideration for extending the maturity date two years, the Company is issuing one million warrants to purchase the Company's stock at a purchase price$0.05 per share. The Company recorded a warrant expense of$37,753 for the warrants granted with the extension.
As of
NOTE 12. CONTINGENT LIABILITIES
TBG Holdings entered into an agreement with the Company on or aboutOctober 16, 2012 for performance of services in exchange for money and stock. OnDecember 5, 2013 TBG alleged that the Company had breached the contract and made a demand upon the Company for payment of money damages and stock. The Company disputed the claim and refused to comply with the demand. OnJanuary 4, 2014 , TBG's counsel renewed the demand and requested mediation. The Company refused mediation and denied any liability. TBG never pursued a claim against the Company. This claim in the amount of$45,625 is listed as a contingent liability on the books of the Company.
NOTE 13. STOCKHOLDER'S EQUITY
Common Stock In the first quarter of 2021, the Company sold 55,372,219 shares with net proceeds of$385,000 through private placements. In the second quarter of 2021, the Company sold 15,714,287 shares with net proceeds of$550,000 through private placements. In the fourth quarter 2021, the Company sold 2,000,000 shares with net proceeds of$50,000 through private placements. The Company issued 190,568,582 shares of common stock in 2021 that were subscribed for in 2020
but not issued in 2020.
In the year ended
As ofDecember 31, 2021 , the Company had 2,677,529,115shares of its common stock outstanding, with 1,000,000 shares of its Series A preferred stock issued and outstanding. Series A Preferred Stock AtDecember 31, 2021 , an ex-officer of the Company (pre-reverse merger) owns 100% of the outstanding series A preferred stock. The former officer owns 1,000,000 shares, which are all of the issued and outstanding. Series A Preferred Shares have voting rights that carry a 100 common stock share vote for every Series A Preferred Share. During the first quarter of 2022 the Company reacquired all of the Series A Preferred shares and retired them. 51 Contents NOTE 14. STOCK OPTIONS
The Company has outstanding the following stock options as of
Exercise Price per Share Shares Under Option/warrant Remaining Life in Years
Outstanding
$ 0.011 4,000,000 3.50
$ 0.0267 12,287,256 2.50
$ 0.0267 92,154,421 4.00
$ 0.0267 46,077,210 4.08
Total 154,518,887
Exercisable
$ 0.011 4,000,000 3.50
$ 0.0267 12,287,256 2.50
$ 0.0267 92,154,421 4.00
$ 0.0267 46,077,210 4.08
Total 154,518,887
Five option holders exercised their options through the cashless surrender clause in the option agreements. 55,093,631 shares of common stock were issued and 13,624,509 shares were surrendered back to the Company during the year
endedDecember 31, 2021 .
During the year ended
NOTE 15. COMMITMENTS AND CONTINGENCIES
The Company is committed to an employment agreement withThom Kidrin , its President and CEO.Mr. Kidrin entered into the employment agreement with CASH onNovember 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. CASH signed an Agreement and Plan of Merger withPurist Acquisition LLC ,Purist LLC andMichael S. Metcalfe ("MSM"). Upon consummation of the Merger, CASH will receive ownership rights of all intellectual property related to Purist's simulated moving bed chromatography technology and will be obligated to the following payments: (i) A cash payment of$90,000 , (ii) A certificate representing Seven Hundred Fifty Thousand (750,000) shares of the Company's Common Stock (or appropriate alternative arrangements if uncertificated shares of Seven Hundred Fifty Thousand (750,000) shares of Company Common Stock represented by book-entry shares will be issued), (iii) A fully vested option to acquire One Hundred Fifty Thousand (150,000) shares of the Company's Common Stock (the "Option"). The Option shall be exercisable for three years following the date the Company's Common Stock becomes publicly traded through a stock exchange or is listed for trading through an electronic quotation and trading service. The exercise price for the Option shall be the lower of (x)$0.50 per share or (y) the price per share equal to a 25% discount of the offering price of the Company's first public or private offering of its Common Stock following the Closing which raises at least Five Hundred Thousand Dollars ($500,000 ), and (iv) An additional cash payment ofFifty Thousand Dollars ($50,000 ) to be paid as follows: Within thirty (30) days of its fiscal year end, the Company will deliver an amount equal to one (1%) percent of its net income up to a maximum payment ofFifty Thousand Dollars ($50,000 ). In the event one (1%) percent
of the 52 Contents
Company's net income for the fiscal year endedDecember 31, 2019 , does not equal$50,000 , then the process shall be repeated at the close of each successive fiscal year until such time as an aggregate ofFifty Thousand Dollars ($50,000 ) has been delivered to MSM. In addition, on the Closing of the Merger, Company shall enter into a consulting agreement with MSM providing for a monthly fee of$3,500 for a period of twelve (12) months. In connection with his consultancy, MSM will enter into (1) an assignment of inventions agreement assigning ownership rights of all intellectual property related to Purist's simulated moving bed chromatography technology developed and/or created by MSM during the term of his consultancy and (2) a non-competition agreement pursuant to which MSM will agree to not compete with the Company during the term of his consultancy or within twelve (12) months after termination of his consultancy. NOTE 16 - INCOME TAXES
AtDecember 31, 2021 , the Company had federal and state net operating loss carry forwards of approximately$5,246,800 that expire in various years through the year 2041.
Due to net operating loss carry forwards and operating losses, there is no
provision for current federal or state income taxes for the years ended
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.
The Company's deferred tax asset atDecember 31, 2021 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately$1,364,168 less a valuation allowance in the amount of approximately$1,364,168 . Because of the Company's lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately$287,504 for the year endedDecember 31, 2021 and increased by approximately$253,355 for the year endedDecember 31, 2020 . The Company's total deferred tax asset as ofDecember 31, 2021 , and 2020 are as follows: Total Deferred Tax 2021 2020 Net operating loss carry forwards 5,246,800 4,141,015 Valuation allowance (5,246,800 ) (4,141,015 ) Net deferred tax asset - - The reconciliation of income taxes computed at the federal and state statutory income tax rate to total income taxes for the years endedDecember 31, 2021 and 2020 is as follows:
Reconciliation of Income Taxes
2021 2020
Income tax computed at the federal statutory rate 21 % 21 %
Income tax computed at the state statutory rate 5 % 5 %
Valuation allowance (26 )% (26 )%
Total deferred tax asset - -
53
Contents
On December 22, 2017 , the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted
into law and the new legislation contains several key tax provisions that
affected us, including a one-time mandatory transition tax on accumulated
foreign earnings and a reduction of the corporate income tax rate to 21%
effective January 1, 2018 , among others. We are required to recognize the effect
of the tax law changes in the period of enactment, such as determining the
transition tax, remeasuring our U.S. deferred tax assets and liabilities as well
as reassessing the net realizability of our deferred tax asset and liabilities.
In December 2017 , the SEC staff issued Staff Accounting Bulletin No. 118, Income
Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows
us to record provisional amounts during a measurement period not to extend
beyond one year of the enactment date.
NOTE 17. SUBSEQUENT EVENTS
OnJanuary 20, 2022 the Company entered into a purchase agreement with the former CEO ofReal Brands Inc. ,Jerome Pearring . The Company sold certain intellectual property rights andReal Brands Venture Group a wholly owned subsidiary with the assumption of certain liabilities related to the IP. The purchase price is the assignment of 1,000,000 shares of series A preferred stock and waiver of any possible severance payments. The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any additional recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed. 54 Contents
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