UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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GLOBAL DIVERSIFIED MARKETING GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 2022
TABLE OF CONTENTS
| PAGE | ||
| PART I - FINANCIAL INFORMATION | 3 | |
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 7 |
| Item 4. | Controls and Procedures | 7 |
| PART II - OTHER INFORMATION | 8 | |
| Item 1. | Legal Proceedings | 8 |
| Item 1A. | Risk Factors | 8 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 8 |
| Item 3. | Defaults Upon Senior Securities | 8 |
| Item 4. | Mine Safety Disclosure | 8 |
| Item 5. | Other Information | 8 |
| Item 6. | Exhibits | 9 |
| SIGNATURES | 10 | |
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited interim financial statements of Global Diversified Marketing Group Inc. (referred to herein as the “Company,” “we,” “us” or “our”) are included in this Quarterly Report on Form 10-Q (the “Quarterly Report”).
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the SEC, and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 which we filed with the Securities and Exchange Commission (“SEC”) on March 14, 2022 (the “Annual Report”), as updated in subsequent filings we have made with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
| 3 |
Global Diversified Marketing Group Inc.
Financial Statements for the Sixth Months Ended June 30, 2022
Index to the Consolidated Financial Statements
| F-1 |
Global Diversified Marketing Group Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Inventory | ||||||||
| Other assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right of use assets | ||||||||
| Other assets-security deposit | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expense | $ | $ | ||||||
| Current portion of operating lease payable | ||||||||
| Government loans payable | ||||||||
| Loans payable | ||||||||
| Total current liabilities | ||||||||
| Lease liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity(Deficit): | ||||||||
| Preferred stock, Series A $ par value, shares authorized, issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized; and issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity(deficit) | ( | ) | ||||||
| Total liabilities and equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
| F-2 |
Global Diversified Marketing Group Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months | Three Months | Six Months | Six Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2022 | |||||||||||||
| Sales, net | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Payroll and taxes | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| Rent | ||||||||||||||||
| Selling, general and administrative and expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes (benefit) | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted earnings (loss) per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||
| Net income(loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Unrealized gain on foreign exchange | ( | ) | ||||||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to unaudited condensed consolidated financial statements
| F-3 |
Global Diversified Marketing Group, Inc and Subsidiary
Condensed Consolidated Statement of Stockholders’ Deficit
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Capital | Deficit | Income(Loss) | Equity | |||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||
| Change in foreign currency translation | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Common stock issued in private placements | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||
| Change in foreign currency translation | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Capital | Deficit | Income(Loss) | Equity | |||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, June 30. 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| F-4 |
Global Diversified Marketing Group Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months | Six Months | |||||||
| Ended | Ended | |||||||
| June 30, | June 30, | |||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ||||||||
| Right of use assets | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Other assets | ||||||||
| Operating lease payable | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Increase (decrease) in loans payable, net | ||||||||
| Proceeds from private placements | ||||||||
| Government loans | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rates on cash and cash and cash equivalents | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
| F-5 |
GLOBAL DIVERSIFIED MARKETING GROUP INC.
NOTES TO THE (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
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
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 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 six months ended June 30, 2022 and 2021 is reflected in these financial statements along with the expenses of the Company.
Prior to 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.
Basis of Presentation
The 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. Certain prior year amounts have been reclassified to conform to the presentation in the current year. 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 Securities and Exchange Commission (“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 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.
| F-6 |
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
The Company accounts for stock-based compensation using the fair value method following the guidance outlined in Section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This Section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. During the six months ended June 30, 2022 and June 30, 2021 stock-based compensation was $ and $ respectively.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. On June
30, 2022, and December 31, 2021, the Company had $
Factoring
The
Company accounts for the transfer of our accounts receivable to a third party under a factoring agreement in accordance with ASC 860-10-40-5
“Transfers and Servicing”. ASC 860-10 requires that several conditions be met in order to present the transfer of
accounts receivable as a sale. Even though we have isolated the transferred (sold) assets and we have the legal right to transfer our
assets (accounts receivable) we do not meet the third test of effective control since our accounts receivable sales agreement with the
factor requires us to be liable in the event of default by one of our customers. Because we do not meet all three conditions, we do not
qualify for sale treatment and our debt incurred with respect to the sale of our accounts receivable is presented as a loan payable in
on our consolidated balance sheet. As of June 30, 2022 and December 31, 2021, the amounts due to factors in both periods was $-
Accounts Receivable
Accounts receivable 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 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 are 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 three months ended June 30, 2022, and 2021 was $-
Inventory
Inventory consists of snack food products and packaging supplies, and are stated at the lower of cost or market.
| F-7 |
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 $
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
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 income tax returns are open for examination for up to the past three 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. During the six months ended June 30, 2022, Company had a balance
of $
| F-8 |
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
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position, or cash flow.
NOTE 2 GOING CONCERN
As
of June 30, 2022, the Company had cash and cash equivalents of $
NOTE 3 – CAPITAL STOCK
The Company has shares of $ par value common stock (the “Common Stock”) authorized. The Company had and shares of Common Stock issued and outstanding as of June 30, 2022, and December 31, 2021, respectively.
2022 Common Stock Issuances
During
the three months ended March 31, 2022 the Company issued shares of its common stock for services which were valued at $
During
the three months ended June 30, 2022 the Company issued shares to the Company’s valued at $ per share,
2021 Common Stock Issuances
During the year ended December 31, 2021, the Company issued a total of shares of Common Stock as follows:
shares were issued for services to consultants and one employee. These shares were valued at $
shares were awarded to four independent directors and were valued at $
These charges amounting to $ were recorded as $ in “professional fees” and $ in payroll on the Company’s Consolidated Statements of Operations during the year ended December 31, 2021.
| F-9 |
Preferred Stock
The
Company has shares of $ 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
shares of A Stock designated.
NOTE 4 – RELATED PARTY TRANSACTIONS
During
the six months ended June 30, 2022, and June 30, 2021, the Company incurred salary expense of $
NOTE 5 – COMMITMENTS AND CONTINGENCIES
The
Company renewed a
| December 31, 2022 | $ | |||
| December 31, 2023 | ||||
| December 31, 2024 | ||||
| December 31, 2025 | ||||
| December 31, 2026 | ||||
| Total | $ |
Under
the guidelines of ASC 842, renewal of the lease at the end of its term was not considered probable. The Company record right of use assets
and lease liabilities of $
NOTE 6 – LOANS PAYABLE
As of June 30, 2022 and December 31, 2021 the Company had the following loans payable
| June 30, 2022 | December 31,2021 | |||||||
| Credit Line – Sterling (a) | $ | $ | ||||||
| Credit Line-Loan Builder (b) | ||||||||
| Total loans payable | $ | $ | ||||||
| (a) |
| (b) |
NOTE 7 – CONCENTRATIONS
The Company does substantially all of its business with 4 to 5 customers. These customers accounted for 91 % and 99% of revenues for the six months ended June 30, 2022, and 2021, respectively.
| June 30, 2022 | June 30, 2021 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
| Customer C | % | % | ||||||
| Customer D | % | % | ||||||
| Customer E | % | |||||||
| Total | % | % | ||||||
NOTE 8 – SUBSEQUENT EVENTS
On April 4, 2022, the Company issued shares of Common Stock to its director of operations as a bonus on his one year anniversary of employment. These shares were valued at $. On April 25, 2022, the Company granted an aggregate of shares of Common Stock to four directors of the Company. These shares were valued at $.
| F-10 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MDA”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) increase in our revenue and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, liquidity, ability to complete financing, to enter into future agreements with companies, and plans to successfully expend our business operations and the sale of our products. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. All forward-looking statements speak only as of the date of this Quarterly Report. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, or other information contained herein, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance.
Overview
The Company was incorporated on December 1, 2017 as a Delaware corporation under the name “Dense Forest Acquisition Corporation.” On November 26, 2018, the Company effected the acquisition of Global Diversified Holdings, Inc., a private New York snack and gourmet food company (GDHI), pursuant to which Company acquired the operations and business plan of GDHI, and GDHI became our wholly owned subsidiary.
The Company is an early-stage global multi-line consumer packaged goods (“CPG”) company with branded product lines and is a food and snack manufacturer, marketer and distributor in the United States, Canada, and Europe. The Company is focused on developing and marketing products that appeal to consumers’ growing preference for healthy snack food and operates through snacks segments offering Italian Wafers, French Madeleines, Italian Croissants, Macaron Cookies, Wafer Pralines, and other wholesome snacks.
The Company intends to develop additional gourmet foods and snack products under its trademarked brands and to expand the Company’s offering portfolio by identifying, producing and marketing new products. Management believes that the strategy of acquiring small brands regional brands and adding these to the Company’s national distribution can prove beneficial for the Company.
| 4 |
Impact of COVID-19
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. The COVID-19 pandemic has caused significant disruptions to the global financial markets. The full impact of the COVID-19 outbreak continues to evolve, is highly uncertain and subject to change. The Company is not able to estimate the effects of the COVID-19 outbreak on its operations or financial condition in the next 12 months. However, while significant uncertainty remains, the Company believes that the COVID-19 outbreak may have a negative impact the ability to raise financing and access capital.
Results of Operations
The information set forth below should be read in conjunction with the financial statements and accompanying notes elsewhere in this Quarterly Report.
Comparison of Results of Operations for the Three Months Ended June 30, 2022 and 2021
Revenue and Cost of Sales
During the three months ended June 30, 2022, our revenues were $560,724 compared to $556,579 during the period ended June 30, 2021, an increase of $4,145 of less than 1%.
Cost of sales was $411,065 for the three months ended June 30, 2022 compared to $316,856 for the three months ended June 30, 2021, or an increase of $94,209. Gross profit margin percentage for the three months ended June 30, 2022 was 26.7% compared to 43.1 % during the same three month period in 2021. The significant decrease in gross profit margin percentage in 2022 is attributable to increased shipping and inventory costs.
Operating expenses
During the three months ended June 30, 2022 our operating expenses were $432,589 compared to $608,109 during the three months ended June 30, 2021. Excluding stock based compensation in both periods operating expenses were $311,969 and $333,588, respectively for the periods ended June 30, 2022 and 2021, respectively. The primary reasons for the increase in operating expenses excluding stock based compensation in both periods is due to an increase in payroll and rent expenses, more than offset by a reduction in SGA expenses.
Other Income (Expense)
Other expense was comprised solely of interest expense which amounted to $5,531 during the period ended June 30, 2022 compared to $3,746 during the same three month period ended June 30, 2021. The decrease in interest expenses is due to lower levels of factoring required due to the Company’s improved profitability.
Net loss
As a result of the foregoing the net loss for the three months ended June 30, 2021 was $288,461 compared to a net loss of $372,132 for the three months ended June 30, 2021.
Comparison of Results of Operations for the Six Months Ended June 30, 2022 and 2021
| 5 |
Revenue and Cost of Sales
During the six months ended June 30, 2022, our revenues were $893,608 compared to $1,379,979 during the period ended June 30, 2021, a decrease of $486,371. The decrease is attributable to a one time order from a major club store chain in the first quarter of 2021, and due to logistics and shipping issues in the first quarter of 2022 as well as transitioning from a public warehouse to our own warehousing facility. We believe those transition issues have been addressed going forward.
Cost of sales was $635,617 for the six months ended June 30, 2022 compared to $805,709 for the six months ended June 30, 2021. The decrease in cost of sales is due to significantly decreased sales levels. Gross profit margin for the six months ended June 30, 2022 was 28.9% compared to 41.6% during the same six month period in 2021. The significant decrease gross profit margin percentage in 2022 is attributable to increased shipping and inventory costs.
For the six months ended June 30, 2022, we had four customers that represented 91% of our business, compared to five customers that represented 99% of our business during the six months ended June 30, 2021. The loss of any these customers could have a material adverse impact on our business.
Operating expenses
During the six months ended June 30, 2022 our operating expenses were $743,636 compared to $1,350,525 during the six months ended June 30, 2021. Excluding stock based compensation in both periods operating expenses were $618,501 and $590,466, respectively for the six month periods ended June 30, 2022 and June 30, 2021, respectively. The primary reasons for the increase in operating expenses excluding stock based compensation in both periods is due to an increase in payroll and rent expenses, partially offset by a reduction in SGA expenses.
Net loss
Liquidity and Capital Resources
As of June 30, 2022 we had $62,956 in cash compared to $312,574 in cash as of December 31, 2021.
Net cash used in operating activities decreased to $221,381 in the six months ended June 30, 2022 compared to $279,461 during the same period in 2021. The decrease in cash used in operating is primarily due to a significantly increased operating loss during the six months ended June 30, 2022 compared to the same period in 2021, is due to a reduction of approximately $349,000 offset by other changes in the balance sheet.
Net cash provided by financing activities was $96,898 during the six months ended June 30, 2022 compared to $374,274 the same six month period end June 30, 2021. The decrease in net cash provided in 2022 is primarily due proceeds of $300,000 from private placements in 2021 compared to zero during the same period in 2022
The Company has recently financed its operations through SBA COVID-19 loans, capital investment, notes payable, and factoring. The Company believes it qualifies for additional SBA loans however there can be no assurance that these loans will be received, on the timing and at what level or terms, the financing will occur.
In the event continuing decreased sales and profits contain, our ability to obtain additional financing or factoring for our receivables could be negatively impacted which could have a material adverse impact on our liquidity or our ability to remain as a going concern.
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Going Concern
The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these financial statements. On a consolidated basis, we have incurred significant operating losses since inception. The Company’s independent auditor has indicated substantial doubt about the Company continuing as a going concern based on the Company’s accumulated deficit and accrued liabilities. Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations. If we cannot obtain needed funds, we may be forced to reduce or cease our activities with consequent loss to investors. In addition, should we incur significant presently unforeseen expenses or delays, we may not be able to accomplish our goals. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Estimates
Our financial statements and accompanying notes have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position. Our critical accounting estimates are more fully discussed in Note 2 to our unaudited financial statements contained herein.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable because we are an emerging growth company.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our president and principal financial officer, who is directly involved in the day-to-day operations of the Company, as of June 30, 2022, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures were effective as of June 30, 2022 to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission’s rules and forms and that our disclosure controls are effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon 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. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls 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 our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.
As of June 30, 2022 our disclosure controls and procedures were determined to be effective
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Changes in Internal Control over Financial Reporting
During the period covered by this Quarterly Report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
During the period covered by this Quarterly Report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no active or pending legal proceedings against us, nor are we involved as a plaintiff in any proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest adverse to us.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Except as set forth below, there were no sales of equity securities sold during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
| Exhibit No. | Description | |
| 31.1/31.2* | CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 | |
| 32.1/32.2* | CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
*Filed herewith
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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.
| GLOBAL DIVERSIFIED MARKETING GROUP INC. | ||
| Date: August 4, 2022 | By: | /s/ Paul Adler |
| Name: | Paul Adler | |
| Title: | Chief Financial Officer, President, Secretary and Treasurer (Principal Executive Officer and Principal Financial and Accounting Officer) | |
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