UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark one)
|
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
|
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from _________ to ___________
|
|
|
(Exact Name of Registrant as Specified in Its Charter) |
|
|
|
|
||
|
(State of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
|
|
|
|
|
(Address of principal executive offices) (Zip code) |
(Issuer’s telephone number) |
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Not applicable. |
Not applicable. |
Not applicable. |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|
|
☒ |
Smaller reporting company |
|
|
|
|
Emerging growth company |
|
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of January 12, 2024, there were
|
|
ACCREDITED SOLUTIONS, INC.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
|
Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022 |
|
3 |
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
Notes to Condensed Consolidated Financial Statements (Unaudited) |
|
7 |
|
| 2 |
|
|
| Table of Contents |
ACCREDITED SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
|
ASSETS |
|
|
|
|
|
|
||
|
Current assets |
|
|
|
|
|
|
||
|
Cash |
|
$ |
|
|
|
$ |
|
|
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
|
|
|
|
Current assets held for sale |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
Intellectual property |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
|
Advances from related parties |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
|
|
|
|
|
|
|
Interest payable |
|
|
|
|
|
|
|
|
|
Interest payable to related parties |
|
|
|
|
|
|
|
|
|
Notes payable |
|
|
|
|
|
|
|
|
|
Convertible notes, net of discounts |
|
|
|
|
|
|
|
|
|
Convertible notes to related parties, net of discounts |
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
|
|
|
|
|
|
|
Current liabilities held for sale |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit |
|
|
|
|
|
|
|
|
|
Preferred stock - Class A -
|
|
|
|
|
|
|
|
|
|
Common stock -
|
|
|
|
|
|
|
|
|
|
Additional paid in capital |
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
(
|
) |
|
|
(
|
) |
|
Total stockholders' deficit |
|
|
(
|
) |
|
|
(
|
) |
|
Total liabilities and stockholders' deficit |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 3 |
|
|
| Table of Contents |
ACCREDITED SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in derivative liabilities |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Interest expense |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Loan fees |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Gain on investment in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Net income (loss) from continuing operations |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Net loss from discontinued operations |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Net income (loss) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations - basic |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Net loss per share from discontinued operations - basic |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Net income (loss) per share - basic |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Net income (loss) per share - diluted |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
|
|
| Table of Contents |
ACCREDITED SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|||||||||||||||
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|||||||
|
Balance, December 31, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Issuance of common stock for conversion of note payable |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Issuance of common stock for services |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance, March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of common stock for conversion of note payable |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Issuance of common stock for services |
|
|
- |
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
Issuance of common stock for sponsorship agreement |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance, June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of common stock for conversion of note payable |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance, September 30, 2023 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|||||||
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
||||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|||||||
|
Balance, December 31, 2021 |
|
|
- |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Net loss for the period |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance, March 31, 2022 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
Issuance of common stock for cash |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of common stock |
|
|
- |
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse merger acquisition |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of common stock for conversion of note payable |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of common stock for conversion of note payable |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2022 |
|
|
- |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
|
|
| Table of Contents |
ACCREDITED SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited )
|
|
|
For the Nine Months Ended |
|
|||||
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
||
|
Net income (loss) |
|
$ |
(
|
) |
|
$ |
|
|
|
Net income (loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
Stock issued for debt payment |
|
|
|
|
|
|
|
|
|
Stock issued for sponsorship agreement |
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
Gain on investment of subsidiary |
|
|
(
|
) |
|
|
|
|
|
Gain on derivative liabilities |
|
|
|
|
|
|
(
|
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(
|
) |
|
|
(
|
) |
|
Prepaid expenses |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
(
|
) |
|
|
(
|
) |
|
Interest payable |
|
|
|
|
|
|
|
|
|
Interest payable to related parties |
|
|
|
|
|
|
|
|
|
Operating cash flows from discontinued operations |
|
|
(
|
) |
|
|
(
|
) |
|
Net cash used in operating activities |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Investing activities of discontinued operations |
|
|
(
|
) |
|
|
|
|
|
Net cash used in investing activities |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable, net of discounts |
|
|
|
|
|
|
|
|
|
Proceeds from advances from related parties |
|
|
|
|
|
|
|
|
|
Financing activities of discontinued operations |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of discontinued operations |
|
|
|
|
|
|
(
|
) |
|
Cash and cash equivalents of continuing operations |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
|
|
|
$ |
|
|
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash information |
|
|
|
|
|
|
|
|
|
Intangible assets sold for reduction of convertible note - related parties |
|
$ |
|
|
|
$ |
|
|
|
Conversion of notes payable into common stock |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
|
|
| Table of Contents |
ACCREDITED SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS
Accredited Solutions, Inc. (the “Company” or “Accredited”), formerly known as Keyser Resources, Inc., Lone Star Gold, Inc. and Good Hemp, Inc., was incorporated in the State of Nevada on November 26, 2007.
On April 1, 2021, the Company entered into an agreement to purchase Diamond Creek Group, LLC, a North Carolina limited liability company which sells the Diamond Creek brand of high alkaline water products, for a total purchase price of $
Effective May 11, 2022, the Company completed a Plan and Agreement of Merger (the “PXS Merger Agreement”) with Petro X Solutions, Inc.,
Effective June 1, 2023, the PXS Merger was rescinded, such that all securities issued by the Company in connection with the PXS Merger were cancelled and the ownership of PXS returned to its prior owners.
PXS is being treated as discontinued operations in the consolidated financial statements.
The Company’s operations are centered on those of Diamond Creek Group and its bottled water products.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company follows the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America and has a year-end of December 31 st .
Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Accredited Solutions, Inc., its wholly-owned subsidiary, Diamond Creek Group, LLC, and its former subsidiary Petro X Solutions, Inc. (collectively, the “Company”). All intercompany accounts have been eliminated upon consolidation.
Condensed Financial Statements
The unaudited condensed financial statements of the Company for the nine month periods ended September 30, 2023 and 2022, have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2022, was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. These unaudited condensed financial statements should be read in conjunction with that report.
| 7 |
|
|
| Table of Contents |
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the recoverability of long-lived assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. Our impairment testing of goodwill is performed separately from our impairment testing of indefinite-lived intangibles. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants. We evaluate a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. When certain events or changes in operating conditions occur, an impairment assessment is performed and indefinite-lived brands may be adjusted to a determinable life. The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships, brands and other non-contractual intangible assets with determinable lives are amortized over periods generally ranging from 5 to 30 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.
Fair Value of Financial Instruments
The FASB issued ASC 820-10, Fair Value Measurements and Disclosures , for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:
| 8 |
|
|
| Table of Contents |
- Level 1: Quoted prices in active markets for identical assets or liabilities
- Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
- Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include demand deposits, money market funds, and all highly liquid debt instructions with original maturities of three months or less.
The Company places its cash and cash equivalents with financial institutions of high credit worthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
Inventory
Inventory consisting of raw materials and finished product is stated at the lower of cost (first in, first out method) or net realizable value.
Concentration and Credit Risk
The Company does not have any financial asset and therefore is not exposed to any credit risks.
Cash - The Company places its cash and cash equivalents with financial institutions of high credit worthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable consists of product sales to customers. Trade accounts receivable are generally due 30 days after issuance of the invoice. Receivables past due more than 120 days are considered delinquent. Delinquent receivables are written off based on specific circumstances of the customer. At September 30, 2023, an allowance was not deemed necessary.
Derivative Financial Instruments
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
| 9 |
|
|
| Table of Contents |
Commitment and Contingencies
The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
The Company follows ASC 440-10, Commitments, to report accounting for certain commitments.
Net Loss Per Common Share
The Company computes net income or loss per share in accordance with ASC 260 Earnings per Share. Under the provisions of the Earnings per Share Topic ASC, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive.
Income Taxes
The Company accounts for its income taxes in accordance with ASC 740 Income Taxes, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. 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 operations in the period that includes the enactment date. A valuation allowance is provided for the amount of deferred tax assets that would otherwise be recorded for income tax benefits primarily relating to operating loss carryforwards as realization cannot be determined to be more likely than not.
The statement establishes a more-likely-than-not threshold for recognizing the benefits of tax return positions in the financial statements. Also, the statement implements a process for measuring those tax positions which meet the recognition threshold of being ultimately sustained upon examination by the taxing authorities. There are no uncertain tax positions taken by the Company on its tax returns and the adoption of the statement had no material impact to the Company’s financial statements. The Company files tax returns in the US and states in which it has operations and is subject to taxation. Tax years subsequent to 2019 remain open to examination by U.S. federal and state tax jurisdictions.
Revenue Recognition
Revenue is recognized in accordance with ASC 606. The Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company evaluates the goods or services promised within each contract related performance obligation and assesses whether each promised good or service is distinct. The Company recognizes as revenue, the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company recognizes revenue upon completion of our performance obligations or expiration of the contractual time to use services such as professional service hours purchased in bulk for a given time period.
| 10 |
|
|
| Table of Contents |
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
NOTE 3 – GOING CONCERN
The Company’s unaudited condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has recurring operating losses, an accumulated deficit and a working capital deficiency. Management’s plans include raising capital in the debt and equity markets. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until its operations become established enough to be considered reliably profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As reflected in the financial statements, the Company had a working capital deficit of $
The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company is unable to continue as a going concern.
NOTE 4 – ACQUISITION OF PETRO X SOLTUIONS, INC.
Effective May 11, 2022, the Company consummated a plan and agreement of merger (the “Merger Agreement”) with Petro X Solutions, Inc., a Wyoming corporation (“PXS”), pursuant to which PXS became a wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, the Company issued
Due to the effects of the “reverse merger” acquisition of PXS occurring effective May 11, 2022, in accordance with ASC 805 Business Combinations, the presentation of the financial statements represents the continuation of PXS, the accounting acquirer, except for the legal capital structure. Historical shareholders’ equity of the Company, the accounting acquiree, has been adjusted to reflect the recapitalization. Retained earnings (deficit) of PXS, the accounting acquirer have been carried forward after the acquisition and operations prior to the merger are those of PXS, the accounting acquirer. Earnings per share for periods prior to the merger have been adjusted to reflect the recapitalization.
Accordingly, (1) the Company’s Consolidated Balance Sheet as of September 30, 2023, and December 31, 2022, report the Company and PXS on a consolidated basis, (2) the Company’s Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for September 30, 2022, reflects an adjustment for the reverse merger (recapitalization) between the Company and PXS, while for September 30, 2023, reflects the adjustment for the rescission of the PXS merger and (3) the Company’s Consolidated Statement of Operations and Consolidated Statement of Cash Flows for the nine months ended September 30, 2023 and 2022, reports the Company and PXS on a consolidated basis.
| 11 |
|
|
| Table of Contents |
NOTE 5 – RESCISSION OF ACQUISITION OF PETRO X SOLUTIONS, INC.
Effective May 11, 2022, the Company completed a Plan and Agreement of Merger (the Merger Agreement) with PXS, with PXS becoming the Company’s wholly-owned subsidiary as a result of the PXS Merger. Pursuant to the Merger Agreement, an aggregate of
Effective June 1, 2023, the PXS Merger was rescinded, such that all securities issued by the Company in connection with the PXS Merger were cancelled and the ownership of PXS returned to its prior owners. PXS is being treated as discontinued operations in the consolidated financial statements.
NOTE 6 – INTANGIBLE ASSETS
On February 6, 2019, the Company, entered into an
Intellectual Property Purchase Agreement
with S. Mark Spoone, a Colorado corporation (the “
Seller
”), to acquire all of Mr. Spoone’s intellectual property associated with Mr. Spoone’s “Good Hemp” hemp-derived CBD-infused line of consumer beverages, for a purchase price consisting of
On April 30, 2019, the Company acquired from S. Mark Spoone the CANNA HEMP and CANNA trademarks including all rights and trade secrets and related inventory for consideration totaling $
Effective February 28, 2020,
On February 10, 2021, the Company and Spire Holdings entered into an Amendment to Branding Agreement amending the sponsorship dates to be during the 2021-2022 NASCAR Cup Series racing seasons instead of the 2020-2021 racing season.
During the year ended December 31, 2021, the Company determined that it had utilized all of the remaining services to be provided under the branding agreement and recognized $
On April 1, 2021, the Company entered into an agreement to purchase Diamond Creek Group, LLC, a North Carolina limited liability company which sells the Diamond Creek brand of high alkaline water products, for a total purchase price of $
|
Purchase Price Allocation |
|
Amount |
|
|
|
Acquisition cost |
|
$ |
|
|
|
Assets acquired |
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
Property and equipment |
|
|
|
|
|
Trademark |
|
|
|
|
|
Total assets acquired |
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
Note payable |
|
|
|
|
|
Total liabilities assumed |
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
|
|
|
|
Goodwill |
|
$ |
|
|
| 12 |
|
|
| Table of Contents |
NOTE 7 – NOTES PAYABLE
On March 26, 2021, the Company entered into a securities purchase agreement with Leonite Capital LLC (“Leonite”) pursuant to which the Company agreed to issue to the Investor an
On May 4, 2021, the Company entered into a securities purchase agreement with Metrospaces, Inc., a Florida corporation, pursuant to which the Company agreed to issue to the investor a
| 13 |
|
|
| Table of Contents |
On October 5, 2021, the Company entered into a securities purchase agreement (the “Jefferson SPA”) with Jefferson Street Capital, LLC, a New Jersey limited liability company, pursuant to which the Company agreed to issue to the investor a
On July 27, 2022, the Company entered into a securities purchase agreement (the “SPA”) with 1800 Diagonal Lending LLC, a Virginia limited partnership (“1800 Diagonal”), pursuant to which the Company agreed to issue to 1800 Diagonal a
NOTE 8 – RELATED PARTY TRANSACTIONS
All related party transactions are recorded at the exchange amount which is the value established and agreed to by the related party.
A payable to a related party of $
Mr. William Alessi is the Company’s former CEO and director of the Company. The JanBella Group is an entity controlled by Mr. Alessi. Chris Chumas is a former director of the Company.
On July 18, 2019, the Company issued promissory notes to Mr. Alessi, JanBella Group and Mr. Chumas to evidence the amounts they advanced to the Company. The notes are due on demand, bear interest at
On January 29, 2020, the Company issued
On October 15, 2021, the Company paid $
| 14 |
|
|
| Table of Contents |
In February 2023, the Company sold all of its Good Hemp-related to JanBella Group, LLC, a company controlled by the Company’s current controlling shareholder, William Alessi (then, a third-party). In consideration of such assets, Mr. Alessi forgave $
At September 30, 2023, the Company owed Mr. Alessi $
At September 30, 2023, the Company owed JanBella Group $
At September 30, 2023, the Company owed Mr. Chumas $
In February 2023 through June 2023, a former officer and director of the Company, Eric Newlan (then an officer and director of the Company) made advances on behalf of the Company in the total amount of $
From July 2023 through September 2023, a former officer and director of the Company, Bill Allessi made advances on behalf of the Company in the total amount of $
NOTE 9 – DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2023. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model.
For the nine months ended September 30, 2023, the assumptions utilized in estimating fair values of the liabilities measured on a recurring basis are as follows:
|
|
|
Nine months ended |
|
|
|
|
|
September 30, 2023 |
|
|
|
Expected term |
|
|
|
|
|
Expected average volatility |
|
|
|
% |
|
Expected dividend yield |
|
|
- |
|
|
Risk-free interest rate |
|
|
|
% |
The fair value measurements of the derivative liabilities at September 30, 2023, are summarized:
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The fair value measurements of the derivative liabilities at December 31, 2022, is summarized:
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
| 15 |
|
|
| Table of Contents |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows. As of January 9, 2024, the Company did not have any legal actions pending against it.
Commitments
None
NOTE 11 – CAPITAL STOCK
During the nine months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued
On January 31, 2023, the Company issued
On April 25, 2023, the Company issued
NOTE 12 – DISCONTINUED OPERATIONS
In May 2023, the Company decided to discontinue operations of its subsidiary, Petro X Solutions (PXS). Effective June 1, 2023, the PXS acquisition was rescinded and it ceased being a subsidiary of the Company.
In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations (held for sale) in the consolidated balance sheets and consist of the following:
|
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
|
CURRENT ASSETS OF DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS OF DISCONTINUED OPERATIONS |
|
$ | - |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES OF DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
|
|
|
TOTAL CURRENT LIABILITIES OF DISCONTINUED OPERATIONS |
|
$ |
|
|
|
$ |
|
|
| 16 |
|
|
| Table of Contents |
In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the Consolidated Statements of Operations. The results of operations for this entity for the three and nine months ended September 30, 2023 and 2022, have been reflected as discontinued operations in the Consolidated Statements of Operations, and consist of the following:
|
|
|
Three Months Ended |
|
|||||
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES OF DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) OF DISCONTINUED OPERATIONS |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES OF DISCONTINUED OPERATIONS |
|
|
|
|
|
|
(
|
) |
|
Provision for income taxes of discontinued operations |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) OF DISCONTINUED OPERATIONS |
|
$ |
|
|
|
$ |
(
|
) |
|
|
|
Nine Months Ended |
|
|||||
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES OF DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) OF DISCONTINUED OPERATIONS |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES OF DISCONTINUED OPERATIONS |
|
|
(
|
) |
|
|
(
|
) |
|
Provision for income taxes of discontinued operations |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) OF DISCONTINUED OPERATIONS |
|
$ |
(
|
) |
|
$ |
(
|
) |
| 17 |
|
|
| Table of Contents |
In accordance with the provisions of ASC 205-20, the Company has separately reported the cash flow activity of the discontinued operations in the Consolidated Statements of Cash Flows. The cash flow activity from discontinued operations for the nine months ended September 30, 2023 and 2022, have been reflected as discontinued operations in the Consolidated Statements of Cash Flows and consist of the following:
|
|
|
Nine Months Ended |
|
|||||
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
|
DISCONTINUED OPERATING ACTIVITIES |
|
|
|
|
|
|
||
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
(
|
) |
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
(
|
) |
|
|
|
|
|
Net cash provided by operating activities of discontinued operations |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
Net cash held in discontinued operations |
|
|
(
|
) |
|
|
- |
|
|
Net cash used in investing activities of discontinued operations |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
Proceeds from related party advances |
|
$ |
|
|
|
$ |
|
|
|
Exercise of warrants for common stock |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities of discontinued operations |
|
$ |
|
|
|
$ |
|
|
NOTE 13 – SUBSEQUENT EVENTS
Management has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through the date which the financial statements were available to be issued and there are no material subsequent events, except as noted below.
Effective October 25, 2023, the Company entered into a securities purchase agreement (the “SPA”) with 1800 Diagonal Lending LLC, a Virginia limited partnership (“1800 Diagonal”), pursuant to which the Company agreed to issue to 1800 Diagonal a
| 18 |
|
|
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.
Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and in our subsequent filings with the Securities and Exchange Commission. The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.
Overview
On February 6, 2019, the Company acquired trademarks and intellectual property, which included all rights and trade secrets to the hemp-derived CBD-infused line of consumer beverages sold under the “Good Hemp” brand. On April 30, 2019, the Company acquired the “CANNA HEMP” and “CANNA” trademarks including all rights and trade secrets and related inventory.
On August 24, 2020, with an effective date of July 1, 2020, the Company entered into a joint venture agreement with Paul Hervey (“Hervey”), an individual, for the purpose of cultivating hemp on approximately 9 acres of farmland and in approximately 3,700 square feet of greenhouse space in North Carolina (referred to as “Olin Farms”). In October 2021, Olin Farms ceased operations, and the limited liability company joint venture entity was dissolved.
On February 9, 2021, the Company formed Good Hemp Wellness, LLC, a limited liability company formed under the laws of the State of North Carolina, to sell CBD products to customers through chiropractic offices. In October 2021, this company was dissolved in North Carolina, and it is being treated as discontinued operations in the consolidated financial statements. In February 2023, the Company sold all of its Good Hemp-related to JanBella Group, LLC, a company controlled by the Company’s current controlling shareholder, William Alessi (then, a third-party). In consideration of such assets, Mr. Alessi forgave $5,000 of indebtedness of the Company.
On April 1, 2021, the Company entered into an agreement to purchase Diamond Creek Group, LLC, a North Carolina limited liability company which sells the Diamond Creek brand of high alkaline water products, for a total purchase price of $643,000. On April 2, 2021, the Company closed the acquisition and paid the initial $500,000 portion of the purchase price, and on April 23, 2021, paid the $143,000 purchase price balance.
Effective May 11, 2022, the Company acquired, by merger, Petro X Solutions, Inc., a Wyoming corporation (“PXS”). In the transaction, the Company issued a total of 120,000,000 shares of its common stock. PXS markets competitively-priced, environmentally-friendly products that are designed to work as well as or better than their toxic competitors. Its primary product, EnviroXstreamTM, is a plant-based, non-toxic, safe, yet powerful, cleaner/degreaser technology that expedites the natural bio-degradation process of hydrocarbons and other compounds. EnviroXstreamTM is currently a California South Coast AQMD-Certified Clean Air Solvent, and in the past has been, an EPA-designated Safer Choice product. EnviroXstreamTM distinguishes itself by its efficacy, which is buttressed by its “green” credentials.
| 19 |
|
|
Effective June 1, 2023, the PXS acquisition was rescinded, such that all securities issued by the Company in connection with the PXS acquisition were cancelled and the ownership of PXS returned to its prior owners.
PXS is being treated as discontinued operations in the consolidated financial statements.
Current Plan of Business
Since the June 1, 2023, rescission of the PXS acquisition, the Company has re-focused its operating plans on expanding its Diamond Creek Water business. However, without additional capital, it is unlikely that such business will expand rapidly, if at all.
Diamond Creek High Alkaline Water is a 9.5pH high alkaline natural spring water, sourced from the highest quality, award winning springs. Diamond Creek is available in one gallon, one liter and half liter bottles and aids in balancing the body’s pH while providing superior hydration resulting from a proprietary ionization process. As of September 30, 2023, Diamond Creek water was available in over 1,500 stores in the United States.
Our Growth Strategy
Diamond Creek High Alkaline Water is a 9.5pH high alkaline natural spring water, sourced from the highest quality, award winning springs. Diamond Creek is available in one gallon, one liter and half liter bottles and aids in balancing the body’s pH while providing superior hydration resulting from a proprietary ionization process.
We are focused on expanding our US distribution reach to service more national chain stores; increase awareness of our brands in the United States; securing additional chain, convenience and key account distributors and store listings for our brands nationwide and internationally; increasing our warehouse direct-to-retail channel.
We are looking for strategic acquisitions and partnerships in the beverage sector.
Results of Continuing Operations
For the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022
Revenues
We had $543,116 and $319,590 of revenue for the nine months ended September 30, 2023 and 2022, respectively. Revenue was higher in the nine months of 2023 as a result of the full nine months in the fiscal period of 2023, versus only six months in the fiscal period of 2022 from the acquisitions of Diamond Creek on April 1.
Cost of Sales
We had $414,646 and $248,554 of cost of sales and a gross profit of $128,470 and $71,036 for the nine months ended September 30, 2023 and 2022, respectively.
Operating Expenses
Operating expenses for the nine months ended September 30, 2023 and 2022, were $210,719 and $217,094, respectively. The decrease in expenses for the nine months of 2023 compared to the nine months of 2022 is minimal and due primarily to decreased payroll expenses.
Other Income (Expenses)
Other income (expenses) for the nine months ended September 30, 2023 and 2022, were ($1,693,169) and $2,487,290, respectively. The decrease in other income (expenses) for the nine months of 2023 compared to the nine months of 2022 was due to the change in derivative liabilities of ($5,513,711), decrease in interest expense of $178,318, decrease in loss on extinguishment of debt of $1,007,958 and the gain on investment in subsidiaries of $133,170.
| 20 |
|
|
Net Income (Loss)
Net operating income (loss) from continuing operations for the nine months ended September 30, 2023 and 2022, was ($1,775,418) and $2,341,232, respectively. Net loss from discontinued operations for the nine months ended September 30, 2023 and 2022, was $197,251 and $5,565, respectively. Net income (loss) for the nine months ended September 30, 2023 and 2022, was ($1,972,669) and $2,335,667, respectively.
For the three months ended September 30, 2023, compared to the three months ended September 30, 2022
Revenues
We had $164,515 and $206,520 of revenue for the three months ended September 30, 2023 and 2022, respectively. Revenue was higher in the three months of 2022 as a result of an increase in sales as a result of the economy starting to pick back up from the high inflation experienced in early 2022.
Cost of Sales
We had $121,616 and $166,466 of cost of sales and a gross profit of $42,899 and $40,054 for the three months ended September 30, 2023 and 2022, respectively.
Operating Expenses
Operating expenses for the three months ended September 30, 2023 and 2022, were $77,195 and $135,183, respectively. The decrease in expenses for the three months of 2023 compared to the three months of 2022 is due primarily to a decrease in payroll expenses and decrease in professional fees and expenses related to keeping the public filings current since the Company was not current with its filings.
Other Income (Expenses)
Other income (expenses) for the three months ended September 30, 2023 and 2022, were ($216,675) and $581,208, respectively. The increase in expenses for the three months of 2023 compared to the three months of 2022 was due to the change in derivative liabilities of ($1,271,176), decrease in interest expense of $101,938 and decrease in loss on extinguishment of debt of $367,359.
Net Income (Loss)
Net income (loss) from continuing operations for the three months ended September 30, 2023 and 2022, was ($250,971) and $486,079, respectively. Net income (loss) from discontinued operations for the three months ended September 30, 2023 and 2022, was $0 and ($2,665), respectively. Net income (loss) for the three months ended September 30, 2023 and 2022, was ($250,971) and $483,414, respectively.
Liquidity and Capital Resources
We had cash used in operations of $9,497 the nine months ended September 30, 2023, compared to $146,674 for the nine months ended September 30, 2022.
We had cash used in investing activities of $541 and $0 for the nine months ended September 30, 2023 and 2022, respectively.
We had cash provided by financing activities of $29,950 for the nine months ended September 30, 2023, compared to cash provided by financing activities of $245,000 for the nine months ended September 30, 2022.
| 21 |
|
|
As of September 30, 2023, the Company had cash and cash equivalents of $55,880. We do not have sufficient resources to effectuate our business. We expect to incur a minimum of $100,000 in expenses during the next twelve months of operations. We estimate that these expenses will be comprised primarily of general expenses including overhead, inventory purchases, legal and accounting fees.
As of September 30, 2023, the Company has primarily been funded by the issuance of convertible notes to both related and unrelated third parties. As of September 30, 2023, related party convertible notes totaled $374,102, net of discounts, and third-party convertible notes totaled $438,649, net of discounts, respectively.
The Company does not know of any trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, our liquidity increasing or decreasing in any material way.
The Company does not know of any significant changes in expected sources and uses of cash.
The Company does not have any commitments or arrangements from any person to provide it with any equity capital.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As reflected in the financial statements, the Company had a working capital deficit of $6,088,955 at September 30, 2023, a net loss of $1,972,669 for the nine months ended September 30, 2023, and $9,497 of cash used in operating activities for the nine months ended September 30, 2023, which raises substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources .
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.
| 22 |
|
|
Item 4. Control and Procedures.
Evaluation of Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not effective as of such date. The Chief Executive Officer and Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:
|
|
· |
The Company does not have a majority of independent directors; |
|
|
· |
Lack of in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions; |
|
|
· |
Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting; and |
|
|
· |
Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes. |
|
|
· |
To remediate our internal control weaknesses, management intends to implement the following measures: as funding permits, the Company will add sufficient accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements; the Company will hire staff technically proficient at applying U.S. GAAP to financial transactions and reporting; and upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures. |
The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt and the results of its operations. Management hopes to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
Changes in Internal Control over Financial Reporting
During the fiscal quarter covered by this Quarterly Report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
| 23 |
|
|
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other than disclosed herein, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.
Item 1A. Risk Factors
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None that have not otherwise been disclosed.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
| 24 |
|
|
Item 6. Exhibits
The following exhibits are filed with this Form 10-Q:
|
Exhibit |
|
Description |
|
|
||
|
|
||
|
|
||
|
|
||
|
101 INS ** |
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
|
101 SCH ** |
|
Inline XBRL Taxonomy Extension Schema Document |
|
101 CAL ** |
|
Inline XBRL Taxonomy Calculation Linkbase Document |
|
101 DEF ** |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
101 LAB ** |
|
Inline XBRL Taxonomy Labels Linkbase Document |
|
101 PRE ** |
|
Inline XBRL Taxonomy Presentation Linkbase Document |
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
*Filed herewith.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
| 25 |
|
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
ACCREDITED SOLUTIONS, INC. |
|
||
|
|
|
|
|
|
Date: January 12, 2024 |
|
/s/ Rodney Sperry |
|
|
|
Rodney Sperry |
|
|
|
|
|
Chief Financial Officer |
|
| 26 |