Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
Note
1 – Nature of the Business
BoxScore
Brands, Inc. (formerly U-Vend Inc.) (the “Company”) develops, markets and distributes various self-serve electronic
kiosks and mall/airport co-branded islands throughout North America. The Company seeks to place its kiosks in high-traffic host
locations such as big box stores, restaurants, malls, airports, casinos, universities, and colleges. Currently, the Company leases,
owns and operates its kiosks and intends to also provide the kiosks, through a distributor relationship, to entrepreneurs wanting
to own their own business.
On
February 26, 2018, the Company filed a Certificate of Amendment of the Certificate of Incorporation. The Certificate of Amendment
changed the Company’s name to BoxScore Brands, Inc. from U-Vend Inc. to better reflect the nature of the Company’s
current business operations, which has expanded to include relationships with major sports organizations dispensing ice cream
products through vending machines.
The
Company’s vending kiosks incorporate advanced wireless technology, creative concepts, and ease of management. They have
been designed to be tech-savvy and can be managed online 24 hours day/7 days a week, accepting traditional cash input as well
as credit and debit cards. Host locations and suppliers have been drawn to this distribution concept of product vending based
on the advantages of reduced labor and lower product theft as compared to non-kiosk merchandising platforms. The Company takes
a solutions development approach for the marketing of products through a variety of kiosk offerings. The Company’s approach
to the market can include the addition of a digital LCD monitor to most makes and models in a kiosk program. This would allow
the Company to offer digital advertising on a national and/or local - loop basis and a corresponding additional revenue stream
for the Company.
Asset
Sale
On
March 18, 2019, the Company approved of an asset sale of the assets related to the legacy MiniMelts brand for $350,000 in cash,
which was approved by a majority of stockholders. These MiniMelts assets generated 100% of the revenue reported during the six
months ended June 30, 2019. During the year ended December 31, 2018, MiniMelts sales accounted for approximately $1,100,000, or
85%, of the revenue reported during that period. Part of the proceeds from the sale was used to retire certain lease obligations
as well as for general operating purposes.
The
Company will continue to pursue sales of MLB ice cream under the Major League Baseball license and additionally, leverage its
vending assets to pursue new revenue streams and test concepts for new offerings at retail.
The
Board of Directors has agreed to begin to explore the development of certain products in the cannabis industry with a focus on
non-THC Cannabinoids in frozen desserts as well as other complimentary CBD product offerings though vending as well as online
sales and direct to retail, under a new brand.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do
not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management,
all adjustments consisting of normal recurring accruals considered necessary for a fair and nonmisleading presentation of the
financial statements have been included. Operating results for the six months ended June 30, 2019 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2019. The balance sheet as of December 31, 2018 has been
derived from the audited consolidated financial statements at that date but does not include all the information and footnotes
required by GAAP for complete financial statements. These interim consolidated financial statements should be read in conjunction
with the December 31, 2018 audited consolidated financial statements and the notes thereto contained in our Annual Report on Form
10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on July 11, 2019.
The
accompanying consolidated financial statements include the accounts of BoxScore Brands, Inc. and the operations of U-Vend America,
Inc., U-Vend Canada, Inc. and its wholly owned subsidiary, U-Vend USA LLC. All intercompany balances and transactions have been
eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates
and be based on events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating,
therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired,
or as additional information is obtained.
Inventory
Inventory
is stated at the lower of cost or net realizable value and cost is determined by the average cost method. Inventory is made up
of finished goods ice cream. The Company records an inventory reserves for spoilage and product losses. The reserve for spoilage
and product losses was $5,500 as of December 31, 2018. All inventory was liquidated during the six months ended June 30, 2019
prior to the sale of the MiniMelts assets (see Note1).
Property
and Equipment
Property
and equipment are stated at cost less depreciation. Depreciation is provided using the straight-line method over the estimated
useful life of the assets. Equipment has estimated useful live between three and seven years. Expenditures for repairs and maintenance
are charged to expense as incurred.
Impairment
of Long-lived Assets
Long-lived
assets, such as property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets
to be held and used is measured by comparing the carrying amount to the estimated future undiscounted cash flows expected to be
generated by the asset group. If it is determined that an asset group is not recoverable, an impairment charge is recognized for
the amount by which the carrying amount of the asset group exceeds its fair value. There was no impairment of long-lived assets
for any periods presented.
Common
Shares Issued and Earnings Per Share
Common
shares issued are recorded based on the value of the shares issued or consideration received, including cash, services rendered
or other non-monetary assets, whichever is more readily determinable. The Company presents basic and diluted earnings per share.
Basic earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings
per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares
had been issued. In a loss period, the calculation for basic and diluted earnings per share is considered to be the same, as the
impact of potential common shares is anti-dilutive.
As
of June 30, 2019 and December 31, 2018, respectively, there were approximately 169.4 million and 153.7 million shares potentially
issuable under convertible debt agreements, options, and warrants that could dilute basic earnings per share in the future that
were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the
Company’s losses during the periods presented.
Preferred
Stock Authorized
The
Company has authorization for “blank check” preferred stock, which could be issued with voting, liquidation, dividend
and other rights superior to common stock. As of June 30, 2019, and December 31, 2018, there are 10,000,000 shares of preferred
stock authorized, and no shares issued or outstanding.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. Certain warrants issued by the Company contain terms that result in the warrants being classified as
derivative liabilities for accounting purposes. For derivative financial instruments that are accounted for as liabilities, the
derivative instrument is initially recorded at its fair market value and then is revalued at each reporting date, with changes
in fair value reported in the consolidated statement of operations. The Company does not use derivative instruments to hedge exposures
to cash flow, market or foreign currency risks.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts
payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments
held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels
of valuation hierarchy are defined as follows:
|
|
●
|
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient
frequency and volume to provide pricing information on an ongoing basis
|
|
|
●
|
Level
2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially
the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable
market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments,
can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.
|
|
|
●
|
Level
3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and
less observable from objective sources (i.e. supported by little or no market activity). Level 3 instruments include derivative
warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities
as Level 1 or Level 2.
|
Certain
of the Company’s debt and equity instruments include embedded derivatives that require bifurcation from the host contract
under the provisions of ASC 815-40, Derivatives and Hedging. Certain warrant were issued between June 2013 and December 2014 were
derivative liabilities outside the exception of ASU 2017-11. The estimated fair value of the derivative warrant instruments was
calculated using a Black Scholes valuation model.
The
following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for
at fair value on a recurring basis as of June 30, 2019 and December 31, 2018:
|
|
|
Carrying
|
|
|
Fair Value Measurement at
|
|
|
|
|
Value
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets, debt and equity instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative liabilities, debt and equity instruments
|
|
|
28,765
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,765
|
|
|
|
|
Carrying
|
|
|
Fair Value Measurement at
|
|
|
|
|
Value
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets, debt and equity instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative liabilities, debt and equity instruments
|
|
|
157,712
|
|
|
|
—
|
|
|
|
—
|
|
|
|
157,712
|
|
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with accounting guidance that requires all stock-based awards granted
to employees and directors to be measured at fair value and recognized as expense. Stock-based compensation expense is recognized
on a straight-line basis over the requisite service period of the award, which is generally equivalent to the vesting period.
The fair value of each stock option granted is estimated using the Black-Scholes option pricing model. The measurement date for
the non-forfeitable awards to nonemployees that vest immediately is the date the award is issued.
Gain
on Liabilities Settlement
During
the six months ended June 30, 2019 creditors forgave aggregate amount of $156,709, of which approximately $64,000 were associated
accrued expenses, $45,000 related to conversion of approximately $105,000 of accounts payable to a $60,000 convertible note, and
$47,000 was connected to forgiveness of accounts payable.
Other
amounts due to related parties
Amounts
due from related parties represent past amounts owed for compensation and operating expenses paid by the related party on behalf
of the Company. During the six months ended June 30, 2019, the Company reclassified approximately $185,000 from due to related
parties to accrued expenses, as a result of the individual no longer being an officer of the Company during 2019, and paid net
$63,370 to related parties.
Revenue
Recognition
Revenue
is recognized at the time each vending transaction occurs, the payment method is approved, and the product is disbursed from the
machine. Wholesale revenue, including revenue earned under contracts with major sports organizations, are recognized at the time
the products are delivered to the customer based on the agreement with the customer.
Vendor
Concentration
The
Company procured all its MiniMelts inventory of finished goods ice cream which were dispensed through the vending kiosks from
one vendor during the six months ended June 30, 2019 and 2018. The Company ended the relationship with the vendor as of March
31, 2019 with the sale of the MiniMelts assets (see Note 1).
Reclassifications
Certain
prior period amounts in the accompanying consolidated financial statements have been reclassified to current period presentation.
These reclassifications had no effect on the results of operations or cash flows for the periods presented.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, “Leases”, which requires that lease arrangements longer than 12 months
result in an entity recognizing an asset and liability. ASU 2016-02 is effective for interim and annual periods beginning after
December 15, 2018, and early adoption is permitted. The Company has adopted ASU 2016-02 and determined that its adoption had no
impact on its financial position, results of operations or cash flows.
In
July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480)
and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception, (ASU 2017-11).” Part I of this update addresses the complexity
of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked
instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity
offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants
and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion
option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because
of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result
of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic
entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an
accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15,
2018. The Company adopted ASU 2017-11 on its consolidated financial statements. Upon adoption the Company derecognized 39,512,502
number of warrants based on review of contracts that determined the derivative treatment was specific to a feature in the instrument
that reduced the strike price if the Company issued additional shares for an amount less than the strike price. As a result of
this analysis the Company recorded a cumulative effect adjustments of $118,675 on January 1, 2019.
In
August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain
disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded
the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an
analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate
statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which
a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018 and the expanded
disclosures for the stockholders’ equity section is included in the Form 10-Q for the six months ended June 30, 2019.
Note
3 – Going Concern
The accompanying consolidated financial statements
have been prepared on a going concern basis. The Company reported a net loss of $1,063,526 for the six months ended June 30, 2019
and has incurred accumulated losses totaling $13,365,518 through June 30, 2019. The Company had working capital deficit of $5,870,453
as of June 30, 2019. In addition, the Company has incurred negative cash flows from operating activities since its inception. The
Company has relied on the proceeds from loans and private sales of its stock, in addition to revenues, to finance its operations.
These factors, among others, indicate that the Company may be unable to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of these uncertainties.
Until the Company can generate significant
cash from operations, its ability to continue as a going concern is dependent upon obtaining additional financing. The Company
hopes to raise additional financing, potentially through the sale of debt or equity instruments, or a combination, to fund its
operations for the next 12 months and allow the Company to continue the development of its business plans and satisfy its obligations
on a timely basis. Should additional financing not be available, the Company will have to negotiate with its lenders to extend
the repayment dates of its indebtedness. There can be no assurance that the Company will be able to successfully restructure its
debt obligations in the event it fails to obtain additional financing. These conditions have raised substantial doubt as to the
Company’s ability to continue as a going concern for one year from the issuance of the financial statements, which has not
been alleviated.
Note
4 – Property and Equipment
Property
and equipment consist of the following as of June 30, 2019 and December 31, 2018:
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Freezers and other equipment
|
|
$
|
373,578
|
|
|
$
|
1,460,255
|
|
|
Delivery vans
|
|
|
-
|
|
|
|
32,727
|
|
|
Less: accumulated depreciation
|
|
|
(70,368
|
)
|
|
|
(730,951
|
)
|
|
Total
|
|
$
|
303,210
|
|
|
$
|
762,031
|
|
On
March 18, 2019, the Company approved of an asset sale of certain assets of the legacy MiniMelts business and operation for $350,000
in cash, which was approved by a majority of stockholders. Of the proceeds, $148,245 was used to pay off capital leases related
to the assets sold. Net carrying value of the assets sold was $377,465. As a result, the company recorded loss on asset sale of
$27,465.
Certain
freezers and other equipment in aggregate cost of $258,967 and accumulated depreciation of $45,558 were related to capital leases.
Depreciation
expense amounted to $81,356 and $96,541, respectively for the six months ended June 30, 2019 and 2018.
Note
5 – Debt
Senior
Convertible Notes
During
the year ended December 31, 2017, a Senior Convertible Note in the aggregate principal amount of $310,000 and a maturity date
of December 31, 2017 payable to Cobrador Multi-Strategy Partners, LP (“Cobrador 1”), a related party, was extended
until December 31, 2019. The Company also extended the expiration dates of Series A Warrants issued in connection with Cobrador
1 by one year. The fair value of the Series A Warrants did not materially change due to the extension. Cobrador, an entity controlled
by the Company’s former CEO, is a related party.
On
June 30, 2016, the Company issued an additional Senior Convertible Note in the face amount of $108,804 to Cobrador (“Cobrador
2”) in settlement of previously accrued interest, additional interest, fees and penalties. The additional interest, fees
and penalties was $72,734 and this amount was charged to operations as debt discount amortization during the year ended December
31, 2016. The Senior Convertible Note was extended during the year ended December 31, 2018 and is due on December 31, 2019. It
is convertible into shares of common stock at a conversion price $.05 per share and bears interest at 7% per annum. The Company
determined that Cobrador 2 had a beneficial conversion feature based on the difference between the conversion price and the market
price on the date of issuance and allocated $87,043 as debt discount representing the beneficial conversion feature which was
fully amortized at December 31, 2017.
During
December 2017, the Company issued a Senior Convertible Note in the amount of $25,000 to Cobrador. The note bears interest at 7%,
is due in December 2019, and is convertible into common shares at a conversion price of $0.05 per share. In addition, in conjunction
with this note, the Company issued 500,000 warrants to purchase common shares at $0.05 with a contractual term of 5 years. The
estimated value of the warrants was determined to be $1,421 and was recorded as interest expense during 2017 and a warrant liability
due to the down round provision in the note agreement.
At
June 30, 2019 and December 31, 2018, the Cobrador notes had a carrying value of $443,804.
Promissory
Notes Payable
During
2014, the Company issued an unsecured promissory note to a former employee of U-Vend Canada. The original amount of this note
was $10,512 has a term of 3 years and accrues interest at 17% per annum. The total principal outstanding on this promissory note
at June 30, 2019 and December 31, 2018 was $6,235.
Starting
of 2015, the Company entered into a series of promissory notes from the same lender. All of the notes bear interest at a rate
of 19% per annum and are payable together with interest over a period of six (6) months from the date of borrowing. As of December
31, 2015, we had note balance of $11,083. In 2016, the Company borrowed $76,500 and repaid $63,497. The balance outstanding on
these notes was $24,116 at December 31, 2016. In 2017, the Company borrowed $36,400 and repaid $44,449. The balance outstanding
on these notes was $16,067 at December 31, 2017. In 2018, the Company borrowed $143,908 and repaid $125,931. The balance outstanding
on these notes was $34,044 at December 31, 2018. During the six months ended June 30, 2019, the Company borrowed additional $38,325
and recorded additional original discount in the amount of $3,325 associated with the new borrowing. During the six months ended
June 30, 2019, the Company repaid $46,584 in principal and fully amortized $3,325 of debt discount which left a carrying value
of $25,784 as of June 30, 2019
During
the year ended December 31, 2016, the Company issued two unsecured promissory notes and borrowed an aggregate amount of $80,000.
The promissory notes bear interest at 10% per annum, with a provision for an increase in the interest rate upon an event of default
as defined therein and were due at various due dates in May and September 2017. The due dates of both notes were extended to December
31, 2019. As of June 30, 2019, and December 31, 2018, the balance outstanding on these notes was $80,000.
In
December 2017, the Company issued promissory notes in the aggregate principal balance of $28,000 to Cobrador, a related party.
The notes accrue interest at 7% and have a two-year term. As of June 30, 2019, and December 31, 2018, the balance outstanding
on these notes was $28,000.
On
July 18, 2018, the Company issued a promissory note in the principal amount of $187,500 with net proceeds of $147,000. The Company
agreed to pay $1,143 per business day for 164 days. The Company recorded $40,500 to debt discount. During 2018, the Company repaid
$128,050 in principal and amortized $40,500 of debt discount resulting in an unamortized debt discount of $0 and carrying value
of $59,450 at December 31, 2018. During the six months ended June 30, 2019, this note was paid off.
On
April 13, 2018, the Company issued a promissory note in the principal amount of $115,000. This note bears interest at the rate
of 7% per annum, due on December 31, 2019. The Company borrowed an additional $25,000 and repaid $60,000 during 2018, and the
balance outstanding on this note at June 30, 2019 and December 31, 2018, was $80,000.
In
October 2014, January 2015 and October 2015, the Company entered into three (3) separate 24-month equipment financing agreements
(the “Agreements”) with Perkins Industries, LLC (“Perkins”) for equipment in the aggregate amount of $387,750
with an annual interest rate of 15%. The assets financed consisted of self-service electronic kiosks placed in service in the
Company’s Southern California region. The Company is obligated to make monthly interest only payments in accordance with
the Agreements. The Agreements include a put/call option at the end of year one and the end of year two. Neither of these options
were exercised. During 2017 $100,000 was paid down on the notes. Maturities of these notes were extended to December 31, 2019.
During the six months ended June 30, 2019, $39,266 was paid down on the notes. On April 1, 2019, total principal and accrued interest
in the amount of $321,824 were restructured into two converted notes below. The carrying value as of June 30, 2019 and December
31, 2018 was $0 and $287,750, respectively.
Pursuant
to the Agreements Perkins received a warrant to purchase an aggregate of 310,200 shares at an exercise price of $0.35 per share
with a contractual term of three (3) years. The warrant was recorded as a debt discount and a warrant liability in the aggregate
amount of $3,708 due to the down round provision, pursuant which the exercise price of the warrants was revised to $0.26 at December
31, 2016.
In
October 2016, the Company and Perkins agreed to extend the termination date of two of the Agreements to October 17, 2017 and January
5, 2018. In consideration of this extension, the Company issued an additional 200,000 warrants with an exercise price of $0.05
per share and a five-year contractual term. The fair value of the warrants was not material and was charged to operations in the
accompanying statement of operations for the year ended December 31, 2016.
During
the year ended December 31, 2018 the Agreements were purchased by a third party and the due dates were extended to December 31,
2019.
On
November 19, 2018, the Company issued a promissory note in the principal amount of $124,000 with net proceeds of $112,840. This
note matures in 64 weeks. The Company recorded $11,160 to debt discount. During the years ended December 31, 2018, the Company
repaid $9,784 in principal and amortized $872 of debt discount resulting in an unamortized debt discount of $10,288 and carrying
value of $103,928 at December 31, 2018. During the six months ended June 30, 2019, the Company repaid $45,134 in principal and
amortized $7,166 of debt discount resulting in an unamortized debt discount of $3,123 and carrying value of $65,959 at June 30,
2019.
On
December 12, 2018, the Company issued a promissory note in the principal amount of $112,425 with net proceeds of $64,500. The
Company agreed to pay $937 per business day for 120 days. The Company recorded $47,925 to debt discount. During the years ended
December 31, 2018, the Company repaid $9,370 in principal and amortized $3,744 of debt discount resulting in an unamortized debt
discount of $44,181 and carrying value of $58,874 at December 31, 2018. During the six months ended June 30, 2019, the Company
repaid $103,055 in principal and fully amortized $44,181 of remaining debt discount resulting in carrying value of $0 at June
30, 2019.
On
March 5, 2019, the company issued a non-equity linked promissory note for $100,000 to an investor with an annual 10% rate of interest
and a one (1) year maturity. This investor also received a warrant for 500,000 shares at a strike price of $.07 per share with
a five (5) year maturity. The fair value of warrant was not material. As of June 30, 2019, the outstanding balance was $100,000.
During
the six months ended June 30, 2019, the Company issued two promissory notes in the aggregate principal amount of $135,000, bearing
interest of 7% and mature on August 8, 2019. As of June 30, 2019, the outstanding balance was $135,000.
Convertible
Notes Payable
2014
Stock Purchase Agreement
In
2014 and 2015 the Company entered into the 2014 Securities Purchase Agreement (the “2014 SPA”) pursuant to which it
issued eight (8) convertible notes in the aggregate face amount of $146,000 due at various dates between August 2015 and March
2016. The principal on these notes is due at the holder’s option in cash or common shares at a conversion rate of $0.30
per share. In connection with these borrowings the Company granted a total of 360,002 warrants with an exercise price of $0.35
per share and a 5 year contractual term. The warrants issued have a down round provision and as a result are classified as a liability
in the accompanying consolidated balance sheets. Pursuant to the down round provision, the exercise price of the warrants was
reduced to $0.22 at December 31, 2016. During 2017 the Company repaid one of the notes in the amount of $50,000. On May 1, 2018,
the Company granted 1,000,000 warrants with an exercise price of $0.15 per share and a 5 year contractual term, valued at $2,841,
which was recorded as debt discount. As of June 30, 2019, and December 31, 2018, outstanding balances of these notes were $121,000.
The
Company and Cobrador held three of the convertible notes in the aggregate face amount of $45,000 and agreed to extend the repayment
date to November 17, 2020. The Company and Cobrador extended the due date to December 31, 2018 on notes totaling $25,000, and
the Company agreed to a revised conversion price of $.05 per share and a revised warrant exercise price of $0.07 per share. The
change in the value of warrants was not material and was charged to operations during the year ended December 31, 2017. As of
June 30, 2019, and December 31, 2018, outstanding balances of these notes were $45,000.
2015
Stock Purchase Agreement
During
the year ended December 31, 2015, the Company issued eleven subordinated convertible notes bearing interest at 9.5% per annum
with an aggregate principal balance of $441,000 pursuant to the 2015 Stock Purchase Agreement (the “2015 SPA”). The
notes were due in December 2017 and are payable at the noteholder’s option in cash or common shares at a conversion rate
of $0.30 per share The conversion rate was later revised to $0.05 due to down round provisions contained in the 2015 SPA, and
the due date was extended to November 17, 2020. In connection with these borrowings, the Company issued a warrant to purchase
735,002 shares of the Company’s common stock at an exercise price of $0.40 per share and a 5 year contractual term. The
exercise price was later revised to $0.22 per share pursuant to the down round provisions in the 2015 SPA. The Company allocated
$8,113 of proceeds received to debt discount based on the computed fair value of the convertible notes and warrants issued. During
the year ended December 31, 2016, the noteholder converted one note in the face amount of $35,000 into 700,000 shares of common
stock. As of June 30, 2019, and December 31, 2018, the 2015 SPA had a balance of $406,000. The debt discount was fully amortized
as of December 31, 2016.
2016
Stock Purchase Agreement
On
June 30, 2016, the Company entered into the 2016 Stock Purchase Agreement (the “2016 SPA”) pursuant to which it issued
five convertible notes in the aggregate principal amount of $761,597. The 2016 SPA notes are due in November 2020 and bear interest
at 9.5% per annum. The notes are convertible into shares of common stock at a conversion price of $0.17 per share. With this note,
the Company satisfied its obligations for: previously issued promissory notes of $549,000, accrued interest of $38,615, lease
principal installments of $47,466, previously accrued registration rights penalties of $22,156, due to a former officer of $81,250,
and additional interest, expenses, fine and penalties of $23,110. The Company charged additional interest, expenses, fines and
penalties $23,110 to operations as amortization of debt discount and deferred financing costs during the year ended December 31,
2016.
In
connection with the 2016 SPA, the Company granted a total of 2,239,900 warrants with an exercise price of $0.30 per share which
was later revised to $0.05 per share due to down round provisions, with a 5 year contractual life. The Company allocated $19,242
to debt discount based on the computed fair value of the convertible notes and warrants issued and classified the debt discount
is as a warrant liability due to the down round provision in the warrants.
As
of June 30, 2019 and December 31, 2018, the 2016 SPA had a carrying value of $761,597 and $761,597, respectively.
Other
2016 Financings
During
the year ended December 31, 2016, the Company issued four convertible notes (the “Cobrador 2016 Notes”) in the aggregate
principal amount of $115,000. The Cobrador 2016 Notes, related party, have a 2 year term, bear interest at 9.5% per annum, and
are convertible into shares of common stock at a conversion price of $0.17 per share. The conversion price was subsequently revised
to $0.05 per the down round provisions and the maturity date was extended to September 26, 2021. In connection with the Cobrador
2016 Notes, the Company granted a total of 338,235 warrants with an exercise price of $0.30 per share which was subsequently revised
to $0.05 per share due to down round provisions with a 5 year contractual term. The Company allocated $1,994 to debt discount
based on the computed fair value of the convertible notes and warrants issued and classified the debt discount as a warrant liability
due to the down round provision in the warrants. During the six months ended June 30, 2019, $20,000 was converted into 400,000
shares. As of June 30, 2019, and December 31, 2018, the Cobrador 2016 Notes had a carrying value of $95,000 and $115,000, respectively.
During
the fourth quarter of 2016, the Company issued three additional convertible notes in the aggregate principal amount of $250,000.
The notes have a 2 year term, bear interest at 9.5% per annum and are convertible into shares of common stock at a conversion
price of $0.05 per share. In connection with these borrowings, the Company granted warrants to purchase 5,000,000 shares of common
stock with an exercise price of $0.07 per share. The Company allocated $27,585 to debt discount based on the computed fair value
of the convertible notes and warrants issued, and the debt discount is classified as a warrant liability due to the down round
provision in the warrants. As of June 30, 2019, and December 31, 2018, the carrying value of the note was $250,000 and $250,000.
2017
Financings
During
the year ended December 31, 2017, the Company entered into 19 separate convertible notes agreements (the “2017 Convertible
Notes)” in the aggregate principal amount of $923,882. The 2017 Convertible Notes each have a 2 year term, bear interest
at 9.5%, and are convertible into shares of common stock at a conversion price of $0.05 per share. In connection with the 2017
Convertible Notes, the Company issued a total of 16,537,926 warrants with an exercise price of $0.07 per share with a 5 year term.
The Company allocated $59,403 to a debt discount based on the computed fair value of the convertible notes and warrants issued
and classified the debt discount as a warrant liability due to the down round provision in the warrants. During the year ended
December 31, 2018, the Company amortized $31,940 of debt discount resulting in unamortized debt discount of $13,278 and carrying
value of $910,608 at December 31, 2018. During the six months ended June 30, 2019, the Company amortized $9,748 of debt discount
resulting in unamortized debt discount of $3,927 and carrying value of $920,355 at June 30, 2019.
2018
Financings
During
the year ended December 31, 2018, the Company entered into seventeen separate convertible notes agreements (the “2018 Convertible
Notes)” in the aggregate principal amount of $537,500. The 2018 Convertible Notes each have a 2 year term, bear interest
at 9.5% if paid in cash, 15% if paid in common stock, and are convertible into shares of common stock at a conversion price of
$0.05 per share. In connection with the 2018 Convertible Notes, the Company issued a total of 10,750,000 warrants with an exercise
price of $0.07 per share with a 5 year term. The Company allocated $33,384 to a debt discount based on the computed fair value
of the convertible notes and warrants issued and classified the debt discount as a warrant liability due to the down round provision
in the warrants. During the year ended December 31, 2018, the Company amortized $12,803 of debt discount resulting in an unamortized
debt discount of $20,581 and carrying value of $516,919 at December 31, 2018. During the six months ended June 30, 2019, the Company
amortized $8,346 of debt discount resulting in an unamortized debt discount of $12,235 and carrying value of $525,265 at June
30, 2019.
On
November 20, 2018, two officers converted $436,500 accrued compensation into two convertible note agreements in the principal
amount of $436,500 in exchange. The note has a 2 year term, bear interest at 9.5% if paid in cash, 15% if paid in common stock,
and is convertible into shares of common stock at a conversion price of $0.05 per share.
During the
year ended December 31, 2018, the Company entered into three convertible notes agreements in the aggregate principal amount of
$240,500 with a net proceed of $214,000. These notes had a 1 year term, and bears interest at 8%-12%. The notes are convertible
into common stock at 60% to 61% multiplied by the lowest one to two trading price(s) during fifteen to twenty-five trading day
period prior to the Conversion Date. The embedded conversion features were valued at $59,027, which were recorded as debt discount.
In addition, the Company also recorded $26,500 as original debt discount. These notes were in default due to failure to comply
with the reporting requirements of the Exchange Act, as the result, the Company recorded additional $120,250 penalty in principal
as of December 31, 2018. During the year ended December 31, 2018, the Company amortized $21,382 of debt discount resulting in
unamortized debt discount of $64,145 and carrying value of $296,605 at December 31, 2018. During the six months ended June 30,
2019, the Company repaid $13,200 in principal and amortized $21,381 of debt discount, recorded $42,764 in accretion of debt discount,
resulting in unamortized debt discount of $0 and carrying value of $347,550 at June 30, 2019.
Other
2018 Financings
On
January 26, 2018, the Company entered into a convertible note agreement in the amount of $78,750, with original discount of $3,750,
bearing an annual interest rate of 8%. The note is convertible into common stock at a conversion price of $0.07 per share. The
Company repaid $78,750 to repay the note in full in August 2018.
2019
Financings
On
March 18, 2019, the Company issued a convertible promissory note for $85,250 with net proceed of $75,000 to an investor with an
8.0% rate of interest and a one (1) year maturity. The Company has the option to pre-pay the note (principal and accrued interest)
in cash within the 1st 90 days from issuance at a 25% premium, and 40% premium 91-180 days from the issuance date. Subsequent
to 181 days, the Company shall have no right of prepayment and the holder may convert at a 40% discount to the prevailing market
price. The note matures on December 11, 2019. The note is convertible into shares of common stock at the lesser of 1) lowest trading
price of twenty-five days prior to March 18, 2019 or 2) 60% of lowest trading price of twenty-five days prior to the Conversion
Day. The embedded conversion features were valued at $0 due to default. In addition, the Company also recorded $10,250 as original
debt discount. These notes were in default due to failure to comply with the reporting requirements of the Exchange Act, as the
result, the Company recorded additional $42,625 penalty in principal as of June 30, 2019. During the six months ended June
30, 2019, the Company amortized $23,384 of debt discount resulting in unamortized debt discount of $0 and carrying value of $127,875
at June 30, 2019.
On
March 14, 2019, the Company converted accounts payable of approximately $105,000 payables into a convertible note agreement in
the principal amount of $60,000, remaining balance of the amount owed was released and recorded as a settlement of liability.
The note has a 2 year term, bears interest at 9.5% if paid in cash, 15% if paid in common stock, and is convertible into shares
of common stock at a conversion price of $0.05 per share.
On
April 1, 2019, The Company converted an aggregate amount of principal and accrued interest of Perkins promissory note in the amount
of $321,824 and accounts payable of $10,000 into two convertible notes. Both Notes have a 2 year term, bear interest at 9.5% if
paid in cash, 15% if paid in common stock, and are convertible into shares of common stock at a conversion price of $0.05 per
share. The outstanding principal balance were of $331,824 at June 30, 2019.
On
April 15, 2019, The Company converted an accrued payable of $108,572, which was used to purchase vending machine, into a convertible
note. The Note has a 2 year term, bear interest at 9.5% if paid in cash, 15% if paid in common stock, and are convertible into
shares of common stock at a conversion price of $0.07 per share. The outstanding principal balance was of $108,572 at June 30,
2019.
On
May 30, 2019, the Company issued a series of convertible notes under a $250,000 revolving Senior Secured credit facility to an
investor, for working capital purposes. As of June 30, 2019, $212,705 was drawn under the agreement. The notes carry an interest
rate of 9.5% and a two-year term. The notes are convertible into common stock at $0.07 per share and are redeemable after one-year
at the company’s option. The notes also contain a 4.99% limitation of ownership on conversion.
On
June 4, 2019, the Company entered into a convertible note in the amount of $60,000. The Note has a 2 year term, bear interest
at 9.5% if paid in cash, 15% if paid in common stock, and are convertible into shares of common stock at a conversion price of
$0.07 per share. The outstanding principal balance was of $60,000 at June 30, 2019.
Scheduled
maturities of debt remaining as of June 30, 2019 for each respective fiscal year end are as follows:
|
2019
|
|
$
|
3,806,209
|
|
|
2020
|
|
|
1,119,000
|
|
|
2021
|
|
|
868,101
|
|
|
|
|
|
5,793,310
|
|
|
Less: unamortized debt discount
|
|
|
(19,283
|
)
|
|
|
|
$
|
5,774,027
|
|
The
following table reconciles, for the period ended June 30, 2019, the beginning and ending balances for financial instruments related
to the embedded conversion features that are recognized at fair value in the consolidated financial statements:
|
Balance of embedded derivative as of December 31, 2018
|
|
$
|
28,357
|
|
|
Additions related to embedded conversion features of convertible debt issued
|
|
|
9,502
|
|
|
Derivative liabilities reduction due to notes default
|
|
|
(112,408
|
)
|
|
Change in fair value of conversion features
|
|
|
89,611
|
|
|
Balance of embedded derivatives at June 30, 2019
|
|
$
|
15,062
|
|
Note
6 – Capital Lease Obligations
The
Company acquired capital assets under capital lease obligations. Pursuant to the agreement with the lessor, the Company makes
quarterly lease payments and will make a guaranteed residual payment at the end of the lease as summarized below. At the end of
the lease, the Company will own the equipment.
During
the year ended December 31, 2018 the Company entered into various capital lease agreements. The leases expire at various points
through the year ended December 31, 2023.
The
following schedule provides minimum future rental payments required as of June 30, 2019, under the current portion of capital
leases.
|
2019
|
|
$
|
46,733
|
|
|
2020
|
|
|
93,467
|
|
|
2021
|
|
|
49,788
|
|
|
2022
|
|
|
30,584
|
|
|
2023
|
|
|
10,252
|
|
|
Total minimum lease payments
|
|
|
230,824
|
|
|
Guaranteed residual value
|
|
|
-
|
|
|
|
|
|
230,824
|
|
|
Less: Amount represented interest
|
|
|
(44,281
|
)
|
|
Present value of minimum lease payments and guaranteed residual value
|
|
$
|
186,543
|
|
Note
7 – Capital Stock
The
Company has authorized 600,000,000 shares of common stock.
During
the six months ended June 30, 2019, the Company issued 3,841,096 shares of its common stock, including 3,441,096 shares of common
stock with a fair value of $101,794 for services rendered, and 400,000 shares in conversion of $20,000 of convertible notes.
During
the six months ended June 30, 2018, the Company issued 4,011,667 shares of its common stock, including 825,000 shares for services
valued at $18,778, and 3,186,667 shares of common stock for $278,000 upon exercise
of warrants.
Note
8 – Stock Options and Warrants
Warrants
At
June 30, 2019 the Company had the following warrant securities outstanding:
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Expiration
|
|
2013 Series A warrants-Senior Convertible Notes
|
|
|
3,000,000
|
|
|
$
|
0.05
|
|
|
December 2019
|
|
2013 Series B warrants-Senior Convertible Notes
|
|
|
7,200,000
|
|
|
$
|
0.06
|
|
|
December 2019
|
|
2014 Series A warrants -Senior Convertible Notes
|
|
|
6,000,000
|
|
|
$
|
0.05
|
|
|
December 2019
|
|
2014 Series B warrants -Senior Convertible Notes
|
|
|
4,680,000
|
|
|
$
|
0.06
|
|
|
April - December 2019
|
|
2014 Warrants for services
|
|
|
656,364
|
|
|
$
|
0.22
|
|
|
August - December 2019
|
|
2014 Warrants for services
|
|
|
96,000
|
|
|
$
|
0.06
|
|
|
April-November 2019
|
|
2014 Warrants- 2014 SPA convertible debt
|
|
|
208,334
|
|
|
$
|
0.22
|
|
|
August 1, 2019
|
|
2014 Warrants - 2014 SPA convertible debt
|
|
|
35,000
|
|
|
$
|
0.05
|
|
|
October - November 2019
|
|
2015 Warrants - 2014 SPA convertible debt
|
|
|
116,668
|
|
|
$
|
0.22
|
|
|
January - March 2020
|
|
2015 Warrants - 2015 SPA convertible debt
|
|
|
735,002
|
|
|
$
|
0.22
|
|
|
April - November 2020
|
|
2015 Warrants for services
|
|
|
127,067
|
|
|
$
|
0.22
|
|
|
April - November 2020
|
|
2015 Warrants issued in exchange for equipment
|
|
|
318,182
|
|
|
$
|
0.22
|
|
|
January 2020
|
|
2016 Warrants - 2016 SPA convertible debt
|
|
|
2,239,990
|
|
|
$
|
0.05
|
|
|
June 2021
|
|
2016 Warrants for services
|
|
|
850,000
|
|
|
$
|
0.05
|
|
|
June 2021
|
|
2016 Warrants - lease extension
|
|
|
350,000
|
|
|
$
|
0.05
|
|
|
August 2019
|
|
2016 Warrants - Convertible notes
|
|
|
338,236
|
|
|
$
|
0.05
|
|
|
August - September 2021
|
|
2016 Warrants for services
|
|
|
200,000
|
|
|
$
|
0.07
|
|
|
October 2019
|
|
2016 Warrants issued with Convertible Notes
|
|
|
5,000,000
|
|
|
$
|
0.07
|
|
|
November -December 2021
|
|
2017 Warrants – 2017 financing
|
|
|
15,109,354
|
|
|
$
|
0.07
|
|
|
December 2022
|
|
2018 Warrants – 2018 financing
|
|
|
9,991,905
|
|
|
$
|
0.07
|
|
|
January - November 2023
|
|
2018 Warrants for services
|
|
|
2,250,000
|
|
|
$
|
0.07
|
|
|
October - December 2023
|
|
2019 Warrants – 2019 financing
|
|
|
500,000
|
|
|
$
|
0.07
|
|
|
March 2024
|
|
2019 Warrants for services
|
|
|
3,500,000
|
|
|
$
|
0.07
|
|
|
March 2024
|
|
Total
|
|
|
63,502,102
|
|
|
|
|
|
|
|
A
summary of all warrants activity for the six months ended June 30, 2019 is as follows:
|
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
Balance outstanding at December 31, 2018
|
|
|
62,566,102
|
|
|
$
|
0.06
|
|
|
|
2.52
|
|
|
Granted
|
|
|
4,000,000
|
|
|
|
0.07
|
|
|
|
4.74
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
(3,064,000
|
)
|
|
|
0.05
|
|
|
|
-
|
|
|
Balance outstanding at June 30, 2019
|
|
|
63,502,102
|
|
|
$
|
0.07
|
|
|
|
2.30
|
|
|
Exercisable at June 30, 2019
|
|
|
63,502,102
|
|
|
$
|
0.07
|
|
|
|
2.30
|
|
Stock-based compensation related to vested
warrants totaled $162,959 and $0 for the six months ended June 30, 2019 and 2018, respectively. At June 30, 2019, there was no
unrecognized compensation cost related to unvested warrants.
The
following table provides a summary of changes in the warrant liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the six months ended June 30, 2019 and the year ended December 31, 2018.
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Balance of embedded derivative at the beginning of the period
|
|
$
|
129,355
|
|
|
$
|
121,860
|
|
|
Fair value of warrants issued and recorded as liabilities
|
|
|
-
|
|
|
|
33,384
|
|
|
Reclassification of warrant lability to equity related to adoption of ASU 2017-11
|
|
|
(118,675
|
)
|
|
|
-
|
|
|
Loss (gain) on fair value adjustment
|
|
|
3,023
|
|
|
|
(25,889
|
)
|
|
Balance of embedded derivatives at the end of the period
|
|
$
|
13,703
|
|
|
$
|
129,355
|
|
The
fair value of warrants outstanding at June 30, 2019 and December 31, 2018 has been determined based on the consideration of the
enterprise value of the Company, the limited market of the shares issuable under the agreement and modeling of the Black Scholes
method using multiple volatility assumptions. Warrants issued in and prior to 2012 are significantly out of the money and diluted
therefore, management has deemed the fair value of these to be minimal.
Equity
Incentive Plan
On
July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”)
and on July 26, 2011, stockholders holding a majority of shares of the Company approved, by written consent, the Plan. and the
issuance under the Plan of 5,000,000 shares. On November 16, 2017, the Board of Directors approved an increase of 10,000,000 shares
to be made available for issuance under the Plan. Accordingly, the total number of shares of common stock available for issuance
under the Plan is 15,000,000 shares. Awards may be granted to employees, officers, directors, consultants, agents, advisors and
independent contractors of the Company and its related companies. Such options may be designated at the time of grant as either
incentive stock options or nonqualified stock options. Stock-based compensation includes expense charges related to all stock-based
awards. Such awards include options, warrants and stock grants. Generally, the Company issues stock options that vest over three
years and expire in 5 to 10 years.
A
summary of all stock option activity for the six months ended June 30, 2019 is as follows:
|
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
Balance outstanding at December 31, 2018
|
|
|
3,155,100
|
|
|
$
|
0.25
|
|
|
|
1.5
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled or expired
|
|
|
(2,652,600
|
)
|
|
|
0.20
|
|
|
|
-
|
|
|
Balance outstanding at June 30, 2019
|
|
|
502,500
|
|
|
$
|
0.50
|
|
|
|
1.0
|
|
|
Exercisable at June 30, 2019
|
|
|
502,500
|
|
|
$
|
0.50
|
|
|
|
1.0
|
|
Stock-based
compensation related to vested options totaled $128 for the six months ended June 30, 2019 and 2018. At June 30, 2019, there was
no unrecognized compensation cost related to unvested options.
Note
9 – Commitments and Contingencies
National
Hockey League Retail License and Sponsorship Agreement
On
February 27, 2015, the Company announced a multi-year, Corporate Marketing Letter Agreement (the “NHL Agreement”)
with the National Hockey League. The NHL Agreement includes the usage of NHL ® team branded marks on
the Company’s Frozen Pond Premium Ice Cream™ for the period commencing March 1, 2015 through June 30, 2020 in retail
distributions including mass merchants, specialty shops, convenience stores and in the Company’s specialty kiosks in North
America.
The
Company entered into the NHL Agreement with NHL Enterprises, L.P, NHL Enterprises Canada, L.P. and NHL Interactive Cyber Enterprises,
LLC (collectively referred to as the “NHL” and the “Licensors”) and includes a retail license agreement,
a corporate sponsorship and a marketing agreement. In connection with the Agreement, the Company shall pay to the NHL a royalty
payment of five percent (5%) on net sales as well as fees attributable to national advertising, promotion and corporate marketing
and branding events. The Agreement also provides for customary representations, warranties, and indemnification from the parties.
The
Company has not shipped product to date under the license.
During
the year ended December 31, 2018, the Company and NHL agreed to terminate the NHL Agreement forgiving the Company CAD $3,450,000
in outstanding obligations under the Sponsorship Agreement, in return the Company agreed to pay the NHL an amount equal to one
percent (1%) of the Company’s net sales of certain products as defined under the agreement (the ‘Consideration’).
The products include several types of frozen goods that bear the logo or other markings of sports or entertainment brands. This
Consideration is to be paid to the NHL quarterly in arrears through the quarter ended June 30, 2026, or until the Company has
paid USD $1,600,000 in the aggregate from the date of the agreement to the extent that the Company has revenue related to sports
or entertainment brands. The Company recorded USD $2,674,419 in gain on settlement of liabilities.
Major
League Baseball Properties, Inc. License Agreement
In
March 2016, the Company entered into a license agreement beginning April 1, 2016 through December 31, 2019 with Major League Baseball
Properties, Inc. (“MLB” “Licensor”) for the non-exclusive right to certain proprietary intangible property
of the Licensor to be used in connection with the manufacturing, distribution, promotion and advertisement of the Company’s
products sold within the U.S., the District of Columbia and U.S. territories. Under the license agreement, the Company is scheduled
to pay the following guaranteed payments; $150,000 during 2016, $275,000 during 2017, $100,000 during 2018, and $115,000 during
2019. The Company is obligated to pay the licensor a royalty based on the product sold or advertising sold. The royalty paid will
offset all or a portion of the guaranteed payments. The agreement is subject to customary default and termination clauses. The
Company paid $0 and $222,000 during the six months ended June 30, 2019 and 2018, respectively, and has accrued $76,667 at June
30, 2019, and $0 as of December 31, 2018, and charged to operations $76,667 and $50,000 of guaranteed payments related to the
six months ended June 30, 2019 and 2018, respectively.