NOTES
TO THE (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
Global
Diversified Marketing Group Inc. (the “Company”), formerly known as Dense Forest Acquisition Corporation, was incorporated
in Delaware on December 1, 2017, and changed its name on June 13, 2018, as part of a change in control. As part of the change in control,
its then officers and directors resigned and contributed back to the Company 19,500,000 shares of the 20,000,000 outstanding shares of
its common stock, and appointed new officers and directors.
On
November 26, 2018, the Company effected the acquisition of Global Diversified Holdings, Inc. (“GDHI”), a private New York
company owned by the Company’s president, with the issuance of 200 shares of the Company’s common stock in exchange for all
of the outstanding shares of GDHI. GDHI became a wholly-owned subsidiary of the Company, and its activity for the periods presented are
reflected in these unaudited consolidated financial statements along with the expenses of the Company.
Before
the acquisition of GDHI, the Company had no business and no operations. Pursuant to the acquisition, the Company acquired the operations
and business plan of GDHI, which imports and sells snack food products. For accounting purposes, GDHI is considered to be the acquirer,
and the equity is presented as if the business combination had occurred on January 1, 2017.
COVID-19
On
March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition
to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions
and volatility in the global financial markets. Most US states and many countries have issued policies intended to stop or slow the further
spread of the disease.
COVID-19
and the U.S’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance
as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject
to change. Although our business has grown significantly over historic levels since March 31, 2020, we cannot determine if our business
would have grown above current levels without the lingering impact of Covid-19. We continue to monitor the ongoing impact of Covid-19
on our business which is currently indeterminable.
Basis
of Presentation
The
unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles
in the United States of America and are presented in US dollars. The Company has adopted a December 31 year-end.
Management’s
Representation of Interim Financial Statements
The
accompanying unaudited condensed consolidated financial statements have been prepared by the Company without audit pursuant to the rules
and regulations of the SEC. The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management
believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements
include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results
of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for
a full year.
Principles
of Consolidation
The
accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany
accounts and transactions have been eliminated in consolidation.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash, accounts receivable from customers, accounts payable, and loans payable. The carrying
amounts of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing
market rates unless otherwise disclosed in these financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet.
Actual results could differ from those estimates.
Stock-Based
Compensation
Under
the modified prospective method, the Company uses, stock compensation expense includes compensation expense for all stock-based compensation
awards granted, based on the grant-date estimated fair value.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with the original maturities of nine months or less to be cash equivalents. On September
30, 2021, and December 31, 2020, the Company had $393,254 and $62,555 in cash, respectively.
Accounts
Receivable
Accounts
receivables are generated from sales of snack food products to retail outlets throughout the United States. The Company performs ongoing
credit evaluations of its customers and adjusts credit limits based on customer payment and current creditworthiness, as determined by
a review of their current credit information. The Company continuously monitors credit limits for its customers and maintains a provision
for estimated credit losses based on its historical experience and any specific customer issues that have been identified. An allowance
for doubtful; accounts is provided against accounts receivable for amounts management believes may be uncollectible. The Company historically
has not had issues collecting on its accounts receivable from its customers. The Company factors certain of its receivables to improve
its cash flow.
Bad
debt expense for the nine months ended September 30, 2021, and 2020 were $-0- and $-0-, respectively. The allowance for doubtful accounts
on September 30, 2021, and December 31, 2020, was $-0-.
Inventory
Inventory
consists of snack food products and packaging supplies, stated at the lower of cost or market.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the
estimated useful life of the assets. Maintenance, repairs, and renewals that do not materially add to the value of the equipment nor
appreciably prolong its useful life are charged to expense as incurred.
Revenue
Recognition
Beginning
January 1, 2018, the Company implemented ASC 606, Revenue from Contracts with Customers. Although the new revenue standard is expected
to have an immaterial impact, if any, on our ongoing net income, we did implement changes to our processes related to revenue recognition
and the control activities within them. These included the development of new policies based on the five-step model provided in the new
revenue standard, ongoing contract review requirements, and gathering of information provided for disclosures.
The
Company recognizes revenue from product sales or services rendered when control of the promised goods are transferred to our clients
in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this
core principle we apply the following five steps: identify the contract with the client, identify the performance obligations in the
contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues
when or as the Company satisfies a performance obligation.
Advertising
and Marketing Costs
The
Company’s policy regarding advertising and marketing is to record the expense when incurred. The Company incurred advertising and
marketing expenses of $160,893 and $7,376 during the nine months ended September 30, 2021, and 2020, respectively.
Income
Taxes
Income
taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using
the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available
evidence, are not expected to be realized.
The
Company’s wholly-owned subsidiary, with the consent of its stockholder, had elected to be taxed as an S Corporation under the provisions
of the Internal Revenue Code. Instead of paying federal corporate income taxes, the stockholder(s) of an S Corporation are taxed individually
on their proportionate share of the Company’s taxable income. Therefore, prior to the business combination discussed above, the
Company had made no provision for income taxes. Effective with the business combination, the wholly-owned subsidiary became a C-corporation,
and the loss incurred in 2018 for the period as a C-corporation approximated $270,000. See Note 7. The Company’s income tax returns
are open for examination for up to the past six years under the statute of limitations. There are no tax returns currently under examination.
Comprehensive
Income
The
Company has established standards for reporting and display of comprehensive income, its components, and accumulated balances. When applicable,
the Company would disclose this information on its Statement of Stockholders’ Equity. Comprehensive income comprises equity except
those resulting from investments by owners and distributions to owners.
Income
(Loss) Per Share
Basic
income (loss) per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.
Recent
Accounting Pronouncements
Adoption
of ASC 842 - On January 1, 2019, we adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases, or ASC 842,
which requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet. As
permitted by ASC 842, we elected the adoption date of January 1, 2019, which is the date of initial application. As a result, the consolidated
balance sheet prior to January 1, 2019, was not restated, continues to be reported under ASC Topic 840, Leases, or ASC 840, which
did not require the recognition of operating lease liabilities on the balance sheet, and is not comparative. Under ASC 842, all leases
are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification
affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance
lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component
is recorded in interest expense. The expense recognition for operating leases and finance leases under ASC 842 is substantially consistent
with ASC 840. As a result, there is no significant difference in our results of operations presented in our consolidated income statement
for each period presented.
We
adopted ASC 842 using a modified retrospective approach for all leases existing on January 1, 2019. The adoption of ASC 842 had a substantial
impact on our balance sheet. The most significant impact was the recognition of the operating lease right-of-use asset and the liability
for operating leases. Accordingly, upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating
leases under ASC 842, and we recorded an adjustment of $44,602 to operating lease right-of-use assets and the related lease liability.
The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using
our secured incremental borrowing rate at the effective date of January 1, 2019, using the original lease term as the tenor. As permitted
under ASC 842, we elected several practical expedients that permit us to not reassess (1) whether a contract is or contains a lease,
(2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs.
The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability.
NOTE
2 – GOING CONCERN
As
of September 30, 2021, the Company had cash and cash equivalents of $393,254 and an accumulated deficit of $(27,139,889). These conditions
raise substantial doubt about the Company’s ability to continue as a going concern.
The
consolidated financials have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include
any adjustments that might result from the outcome of this uncertainty. If the Company is in fact unable to continue as a going concern,
the shareholders may lose some or all of their investment in the Company.
NOTE
3 – EQUITY
Common
stock
The
Company has 100,000,000 shares of $0.0001 par value common stock authorized. The Company had 14,067,006 and 13,132,518 shares of common
stock issued and outstanding as of September 30, 2021, and December 31, 2020, respectively. During the nine months ended September 30,
2021, the Company issued a total of 914,488 shares as follows:
Services
393,860
shares were issued to consultants and one employee providing professional services to the Company. These shares were valued at $534,009.
125,000
shares were awarded to four independent directors and were valued at $250,250.
All
of these charges amounting to $784,259 were recorded as “professional fees” on the Company’s Consolidated Statements
of Operations during the nine months ended September 30, 2021.
Sale
of Common Stock to Accredited Investors
During
the nine months ended September 30, 2021, the Company raised $300,000 from the sale of 415,628 shares to five accredited investors.
Preferred
Stock
The
Company has 20,000,000 shares of $.0001 par value preferred stock authorized. On February 24, 2020, the Company filed a Certificate of
Designation for a class of preferred stock designated Class A Super Voting Preferred Stock (“A Stock”). There are 1,000,000
shares of A Stock designated. Each share of such stock shall vote with the common stock and have 100,000 votes. A Stock has no conversion,
dividend, or liquidation rights. Accordingly, the holders of A Stock will, by reason of their voting power, be able to control the affairs
of the Company. The Company has issued 1,000 shares of A Stock to Paul Adler, the company’s Chief Executive Officer, and majority
shareholder giving him effective voting control over the Registrant’s affairs for the foreseeable future.
As
a result of the issuance of super-voting rights enabling him to vote 100,000,000 shares, Mr. Adler has effective voting control of approximately
99% of the Company. In conjunction with the issuance of these 1,000 preferred shares, the Company recorded stock compensation expense,
related party of $26,020,400 during 2020.
NOTE
4 – RELATED PARTY TRANSACTIONS
During
the nine months ended September 30, 2021 and 2020 the Company incurred wages of $221,250 and $150,000 respectively, related to
services provided to it by its executive officer. Additionally, during 2020, the Company’s CEO was awarded super-voting A Stock-see
Note 3. Capital Stock.
NOTE
5 – COMMITMENTS AND CONTINGENCIES
The
Company entered into a 60-month lease agreement on October 1, 2016, to rent office space. The lease requires monthly payments of $1,600
for the first 24 months and after that increases by 3% each year, and contains one five year renewal option. Rental expenses under this
lease for the three months ended September 30, 2021, and 2020 were $4,356 and $4,302 respectively. The lease also required an advance
payment of $1,600 for the last month of rent as well as a $1,600 security deposit. Future minimum lease payments due under this operating
lease, including renewal periods, are as follows:
SCHEDULE
OF FUTURE MINIMUM LEASE PAYMENTS OF OPERATING LEASE LIABILITY
|
|
|
|
|
|
|
Year ended December 31, 2021
|
|
|
15,732
|
|
|
Total minimum lease payments
|
|
$
|
15,372
|
|
NOTE
6 – LOANS PAYABLE
The
Company had loans outstanding on September 30, 2021 and December 31, 2020, as follows:
SCHEDULE
OF LOANS OUTSTANDING
Short
Term
|
|
|
September 30,2021
|
|
|
Dec. 31, 2020
|
|
|
Loan Builder (a)
|
|
$
|
-
|
|
|
$
|
14,072
|
|
|
Sterling Line of Credit (a)
|
|
|
46,549
|
|
|
|
-
|
|
|
Credit Line - Blue Vine (a)
|
|
|
-
|
|
|
|
6,468
|
|
|
Total loans payable
|
|
$
|
46,549
|
|
|
$
|
20,540
|
|
|
|
(a)
|
Represents
notes payable from factoring with varying rates of interest and fees, and no set minimum monthly payments
|
Long
Term
As
of September 30, 2021, the Company had $529,065 in long term loans outstanding compared to $149,900 as of December 31, 2020. On May 21,
2020, the Company received a loan from the Small Business Administration of $150,000 (the “SBA Loan”). The SBA Loan bears
interest at 3.75% per annum and is payable over 30 years with all payments of principal and interest deferred for the first 12 months.
During the three months ended March 31, 2021 the Company received an additional forgivable PPP loan amounting to $29,165.
NOTE
7 – INCOME TAXES
For
the period ended September 30, 2021, the Company has incurred net losses and, therefore, has no tax liability. The net deferred tax asset
generated by the loss carry-forward has been fully reserved.
NOTE
8 – CONCENTRATIONS
The
Company does substantially all of its total business with five customers. The concentration of customer revenue for the nine months ended
September 30, 2021 and 2020 as percentage of total sales of $2,112,580 and $1,260,539 respectively is as follows:
SCHEDULE
OF CONCENTRATION OF RISK
|
|
|
2021
|
|
|
2020
|
|
|
Customer A
|
|
|
25
|
%
|
|
|
28
|
%
|
|
Customer B
|
|
|
25
|
%
|
|
|
23
|
%
|
|
Customer C
|
|
|
18
|
%
|
|
|
21
|
%
|
|
Customer D
|
|
|
18
|
%
|
|
|
13
|
%
|
|
Customer E
|
|
|
13
|
%
|
|
|
-
|
|
NOTE
9 – SUBSEQUENT EVENTS
In
accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to September 30 ,2021,
to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events
to disclose in these consolidated financial statements except as follows:
In October 2021, the Company issued 336,250 shares
to three service providers.
Effective
as of November 2, 2021, the “Company”, entered into an Equity Purchase Agreement (the “Purchase Agreement”) with
Williamsburg Venture Holdings, LLC, a Nevada limited liability company (the “Investor”), pursuant to which the Company has
the right to sell to the Investor up to $5,000,000 in shares of its common stock, $0.0001 par value per share (“Common Stock”),
subject to certain limitations.
Under
the terms and subject to the conditions of the Purchase Agreement, the Investor is obligated to purchase up to $5,000,000 in shares of
Common Stock (subject to certain limitations) from time-to-time over the 12-month period commencing on the date that a registration statement,
which the Company agreed to file with the Securities and Exchange Commission (the “SEC”), is declared effective by the SEC.
The price per share of Common Stock shall be ninety percent (90%) of the average of the volume weighted average price of the Company’s
Common Stock for five trading days following the clearing date associated with the put notice delivered by the Company to the Investor. If the shares are DWAC eligible, the valuation period begins on the date such notice is delivered. The maximum amount of each put shall
be the lower of 200% of the average daily trading volume and $500,000.
The
Purchase Agreement provides for the payment of $25,000 liquidated damages to the Investor if Paul Adler, the sole officer of the Company,
resigns or is removed as chief executive officer or chief financial officer of the Company.
The
Company’s sales of shares of Common Stock to the Investor under the Purchase Agreement are limited to no more than the number of
shares that would result in the beneficial ownership by the Investor and its affiliates, at any single point in time, of more than 4.99%
of the then outstanding shares of the Common Stock.
The
Company agreed with the Investor that it will not enter into any other credit equity line agreements without the prior consent of the
Investor.
As
consideration for its commitment to purchase shares of Common Stock pursuant to the Purchase Agreement, the Company agreed to issue to
the Investor 50,000 shares of Common Stock (the “Commitment Shares”) upon execution of the Purchase Agreement.
In
connection with Purchase Agreement, the Company also entered into a registration rights agreement (the “Registration Rights Agreement”)
with the Investor, dated November 2, 2021. Pursuant to the terms of the Registration Rights Agreement, the Company shall file a registration
statement with the SEC with respect to the shares of Common Stock issuable to the Investor pursuant to the Purchase Agreement and the
Commitment Shares no later than December 31, 2021.
The
Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of Common Stock
to the Investor under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including
(among others) market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources
of funding for the Company and its operations.
The
Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties and agreements of the Company
and the Investor and customary conditions to completing future sale transactions, indemnification rights and obligations of the parties.
The
foregoing descriptions of the Purchase Agreement and the Registration Rights Agreement are qualified in their entirety by reference to
the full text of the Purchase Agreement and the Registration Rights Agreement, copies of which are attached hereto as Exhibit 10.1 and
10.2, respectively, and each of which is incorporated herein in its entirety by reference.