UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from __________ to __________
Commission File No.:
| (Exact name of registrant as specified in its charter) |
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Indicate by check mark whether the registrant
(1) has filed all reports to be filed by Section 13 and Section 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 files such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☐
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 and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 check mark 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 12-b2 of the Exchange Act). Yes ☐
No
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate the number of shares outstanding of each
of the issuer’s classes of common stock, as of the latest practicable date. As of August 25, 2023, there were
Company Letterhead
August 28, 2023
BF Borgers CPA PC
5400 W. Cedar Avenue
Lakewood, CO 80226
We are providing this letter in connection with your review of the Interim Financial Information of Bowmo, Inc. as of June 30, 2023, for the purpose of determining whether any material modifications should be made to the interim financial information for it to conform with accounting principles generally accepted in the United States of America. We confirm that we are responsible for the fair presentation of the interim financial information in conformity with generally accepted accounting principles. We are also responsible for establishing and maintaining effective internal control over financial reporting.
Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.
We confirm, to the best of our knowledge and belief, as of August 28, 2023, the following representations made to you during your review.
| 1) | The interim financial information referred to above has been prepared and presented in conformity with generally accepted accounting principles applicable to interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The interim financial information has been prepared on a basis consistent with prior interim periods and years and includes all disclosures necessary and required to be included by the laws and regulations to which the Company is subject. |
| 2) | We have designed our internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of interim financial information for external purposes in accordance with generally accepted accounting principles. |
| 3) | We have disclosed to you all deficiencies in the design or operation of internal control over financial reporting identified as part of our evaluation, including separately disclosing to you all such deficiencies that we believe to be significant deficiencies or material weaknesses in internal control over financial reporting. |
| 4) | Management’s certification regarding internal control over financial reporting as of June 30, 2023 discloses any changes in the Company’s internal control over financial reporting that occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. |
| 5) | We have made available to you all— |
| a) | Financial records and related data. |
| b) | Minutes of the meetings of stockholders, directors, and committees of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared. All significant board and committee actions are included in the summaries. |
| 6) | There have been no communications from the SEC or other regulatory agencies regarding noncompliance with, or deficiencies, in financial reporting practices. |
| 7) | There are no material transactions that have not been properly recorded in the accounting records underlying the interim financial information. |
| 8) | We are not aware of any uncorrected financial statement misstatements. |
| 9) | We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud. |
| 10) | We have no knowledge of any fraud or suspected fraud affecting the Company involving: |
| a) | Management; |
| b) | Employees who have significant roles in internal control over financial reporting; or |
| c) | Others where the fraud could have a material effect on the interim financial information. |
| 11) | We have no knowledge of any allegations of fraud or suspected fraud affecting the Company received in communications from employees, former employees, analysts, regulators, short sellers, or others. |
| 12) | The Company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities. |
| 13) | The following have been properly recorded or disclosed in the interim financial information: |
| a) | Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties. |
| b) | Guarantees, whether written or oral, under which the Company is contingently liable. |
| c) | Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties. |
| 14) | There are no: |
| a) | Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the interim financial information or as a basis for recording a loss contingency. |
| b) | Unasserted claims or assessments that are probable of assertion and must be disclosed in accordance with FASB ASC 450. |
| c) | Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB ASC 450. |
| 15) | The Company has appropriately reconciled its general ledger accounts to their related supporting information. All reconciling items considered to be material were identified and included on the reconciliations and were appropriately adjusted in the interim financial information. All intracompany (and intercompany) accounts have been eliminated or appropriately measured and considered for disclosure in the interim financial information. |
| 16) | The Company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets, nor has any asset been pledged as collateral. j |
| 17) | The company has complied with all aspects of contractual agreements that would have a material effect on the interim financial information in the event of noncompliance. |
| 18) | The company is not aware of any violation of the Foreign Corrupt Practices act. |
| 19) | Our plans with respect to alleviating the adverse financial conditions that caused you to express substantial doubt about the Company’s ability to continue as a going concern are as follows: |
| a) | Debt and/or equity placements and continued loans and advances from shareholders and those associated with the company. |
To the best of our knowledge and belief, no events have occurred subsequent to the balance sheet date and through the date of this letter that would require adjustment to or disclosure in the interim financial information referred to above.
Bowmo, Inc.
| /s/ Michael Lakshin | |
| Name: Michael Lakshin | |
| Title: President and Chairman of the Board |
Table of Contents
| PART I | ||
| Item 1. | Condensed Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 23 |
| Item 4. | Controls and Procedures | 24 |
| PART II | ||
| Item 1. | Legal Proceedings | 25 |
| Item 1A. | Risk Factors | 25 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
| Item 3. | Defaults Upon Senior Securities | 25 |
| Item 4. | Mining Safety Disclosures | 25 |
| Item 5. | Other Information | 25 |
| Item 6. | Exhibits | 25 |
| Signatures | 26 |
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
1
bowmo, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued interest | ||||||||
| Accrued officer compensation | ||||||||
| Loans payable, current portion | ||||||||
| Loans payable, related party | ||||||||
| Convertible notes, net of debt discount | ||||||||
| Put premium on stock settled debt | ||||||||
| Derivative liability | ||||||||
| Total Current Liabilities | ||||||||
| Loans payable, net of current portion | ||||||||
| Total Liabilities | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Series A Preferred stock, | ||||||||
| Series B Preferred stock, | ||||||||
| Series C Preferred stock, | ||||||||
| Series D Preferred stock, | ||||||||
| Series E Preferred stock to be issued | ||||||||
| Series G Preferred stock, | ||||||||
| Common stock | ||||||||
| Common stock to be issued, | ||||||||
| Treasury stock, at cost – | ( | ) | ( | ) | ||||
| 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 consolidated financial statements.
2
bowmo, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
(Unaudited)
| For the Six Months Ended | For the Three Months Ended | |||||||||||||||
| June 30 | June 30 | June 30 | June 30 | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUES | ||||||||||||||||
| Cost of Revenues | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Compensation expense | ||||||||||||||||
| Consulting fees | ||||||||||||||||
| Professional fees | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on new methodology for accounting for debt conversion features | ||||||||||||||||
| Initial recognition of derivative liability | ( | ) | ||||||||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Earnings per common share: | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
bowmo, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Deficit
For the Six Months Ended June 30, 2023 and 2022
(Unaudited)
| Series A | Series B | Series C | Series D | Series F | Series G | Series E Preferred | Common Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Stock to be issued | Common Stock | to be | Paid-In | Treasury | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Issued | Capital | Stock | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recapitalization at reverse merger - May 4, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for extinguishment of convertible debt | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Series D | Series F | Series G | Series E Preferred | Common Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Stock to be issued | Common Stock | to be | Paid-In | Treasury | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Issued | Capital | Stock | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2022 | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Relative fair value of warrants issued with convertible debt | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for extinguishment of convertible debt | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Relative fair value of warrants issued with convertible debt | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for extinguishment of convertible debt | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Bowmo, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| June 30, | June 30, | |||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Interest expense incurred on put premium on stock settled debt | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Stock-based compensation and shares issued for services | ||||||||
| Forgiveness of note payable – PPP Note | ( | ) | ||||||
| Grant income | ( | ) | ||||||
| Expenses incurred on extinguishment of convertible debt and accrued interest | ||||||||
| Initial derivative expense | ||||||||
| Changes in operating assets and liabilities (net of amounts acquired): | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| Accrued interest | ( | ) | ||||||
| Accrued compensation | ||||||||
| Deferred revenue | ||||||||
| Net Cash (Used In) Provided By Operating Activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Payments of loans payable | ( | ) | ||||||
| Net Cash (Used In) Financing Activities | ( | ) | ||||||
| Net Change in Cash and Cash Equivalents | ( | ) | ||||||
| Cash And Cash Equivalents - Beginning of Period | ||||||||
| Cash And Cash Equivalents - End of Period | $ | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
bowmo, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2023
NOTE 1 – SUMMARY OF BUSINESS AND BASIS OF PRESENTATION
Reverse Merger and Corporate Restructure
On May 4, 2022, Cruzani, Inc. (“Cruzani” or the “Predecessor”) entered into a merger agreement (the “Merger Agreement”) with Bowmo, Inc. (“Bowmo”or the “Company”) and Bowmo Merger Sub, Inc. to acquire Bowmo. (the “Acquisition”). The transactions contemplated by the Merger Agreement were consummated on May 4, 2022 and, pursuant to the terms of the Merger Agreement, all outstanding shares of Bowmo were exchanged for shares of Cruzani’s common stock and Bowmo became Cruzani’s wholly owned subsidiary.
The Merger was effected pursuant to the Merger Agreement. The Merger is being accounted for as a reverse merger whereby: Bowmo is considered the acquiring company for accounting purposes as upon completion of the Merger, Bowmo’s former stockholders held a majority of the voting interest of the combined company.
Pursuant to the Merger, the Company issued Series
G Preferred Stock holding the voting rights to
Upon completion of the acquisition, bowmo is treated as the surviving entity and accounting acquirer although Cruzani was the legal acquirer. Accordingly, the historical financial statements are those of Bowmo.
Organization and Business
Bowmo, Inc. (FKA Cruzani, Inc.) (the “Company”) is an AI-powered recruiting platform. The Company’s principal lines of business are direct placement of candidates with employers and Recruiting as a Service which allows the Company’s customers to outsource the management of their recruiting process to the Company.
The Company offers recruiting software and services through an online AI-driven platform to connect potential candidates to employers for all businesses looking to address hiring needs.
The Company was incorporated as a Delaware corporation in 2016.
Basis of Presentation
The accompanying unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the Securities and Exchange Commission for interim financial statements which omit certain disclosures. These unaudited consolidated condensed financial statements should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2022 included on the Company’s Form 10-K. The results of the three months and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.
In the opinion of management, all adjustments necessary to present fairly the financial position as of June 30, 2023 and the results of operations and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations for the full year.
Principles of Consolidation
The accompanying unaudited interim consolidated condensed financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated. All financial information has been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with 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. Actual results could differ from those estimates.
6
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Concentrations of Credit Risk
We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. We believe we are not exposed to any significant credit risk on cash.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1: | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2: | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3: | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at June 30, 2023 and December 31, 2022.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with various accounting standards.
ASC 480 “Distinguishing Liabilities From Equity” provides that instruments convertible predominantly at a fixed rate resulting in a fixed monetary amount due upon conversion with a variable quantity of shares (“stock settled debt”) be recorded as a liability at the fixed monetary amount.
ASC 815 “Derivatives and Hedging” generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
7
The Company accounts for convertible instruments (when it has determined that the instrument is not a stock settled debt and the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the share transaction and the effective conversion price embedded in the preferred shares.
ASC 815-40 provides that generally if an event is not within the entity’s control and could require net cash settlement, then the contract shall be classified as an asset or a liability.
Convertible Notes with Fixed Rate Conversion Options
The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible note liability as stock settled debt in accordance with ASC 480 - “Distinguishing Liabilities from Equity” and measures the convertible note at its fixed monetary amount, which is the result of the share price discount at the time of conversion, and records the put premium, as applicable, on the note date with a charge to interest expense.
Derivative Instruments
The Company’s derivative financial instruments consist of derivatives with the sale of convertible notes in 2022. The accounting treatment of derivative financial instruments requires that the Company records the derivatives at their fair values as of the inception date of the debt agreements and at fair value as of each subsequent balance sheet date. The carrying value assigned to the host instrument will be the difference between the previous carrying value of the host instrument and the fair value of the derivatives. There is an offsetting debt discount or premium as a result of the fair value assigned to the derivatives, as well as any debt issuance costs, which are amortized under the straight-line method over the term of the loan. Any change in fair value is recorded as non-operating, non-cash income or expense at each balance sheet date. If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.
Business Combinations
The Company accounts for its business combinations using the acquisition method of accounting. Under the acquisition method, assets acquired, liabilities assumed, and consideration transferred are recorded at the date of acquisition at their respective fair values. Definite-lived intangible assets are amortized over the expected life of the asset. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. The Company remeasures fair value as of each reporting date and changes resulting from events after the acquisition date, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value and accretion costs are recognized in earnings.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (1) identification of the contract, or contracts, with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when or as a performance obligation is satisfied.
The Company generates revenue from the following activities:
Recruiting as a Service (“RaaS”):
RaaS allows the Company’s customers to outsource the management of their recruiting process allowing the Company to use the Application to assist its customers hiring needs by strategically gearing the service to reach the customer’s objectives. Revenue from RaaS consists of monthly billing to the customer for services provided.
RaaS service contracts with customers are month-to-month for a fixed price. Revenues are recognized on a gross basis when each monthly subscription service is completed.
8
Direct Placement:
The Company generates direct placement revenue by earning one-time fees for each time an employer hires one of the candidates that the Company refers. The Company sources qualified candidate referrals for the employers’ available jobs through the use of the Company’s Application. Upon the employer hiring one or more of the Company’s candidate referrals, the Company earns the direct placement fee, which consists of an amount agreed upon between the Company and its customers. The fee is a percentage of the referred candidates’ first year’s base salary.
Direct placement revenues are recognized on a gross basis on the date of hire of the candidate placed with an employer, as it is more than probable that a significant revenue reversal will not occur. This fee is only charged to the employer. Any payments received prior to the hire date are recorded as deferred revenue on the consolidated balance sheets. Payments for recruitment services are typically due within 30 days of completion of services.
Direct placement revenue is subject to a
Revenue Disaggregation
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Direct placement | $ | $ | $ | $ | ||||||||||||
| Recruiting as a Service | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Cost of revenues
Cost of revenue consists of employee costs, third party staffing costs, hosting service fees, and other fees, outsourced recruiter fees and commissions.
Concentrations of credit risk
Financial instruments which potentially subject the Company to credit risks consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents are held in United States financial institutions. At times, such amounts may exceed federally insured limits.
As of June 30, 2023, the Company had a zero balance
in accounts receivable. As of December 31, 2022, one customer accounted for
During the three months ended June 30, 2023, no
customer accounted for more than
During the six months ended June 30, 2023, one
customer accounted for
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Stock-based compensation
We account for our stock-based compensation under ASC 718 “Compensation - Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the shorter of the service period or the vesting period of the stock-based compensation. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model. Determining the fair value of stock-based compensation at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based compensation represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.
Recently issued accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Change in accounting principle
Commencing in the second quarter of 2022, the
Company prospectively changed its accounting treatment for securities that contain predominantly fixed rate conversion features by recording
the derivative feature as a put premium on stock settled debt. See Note 7 for further discussion. The Company believes this change in
accounting principle is preferable as it applies a more consistent method of accounting for convertible notes that contain similar conversion
features. This accounting change resulted in a gain on new methodology for accounting for debt conversion features of $
NOTE 2 – GOING CONCERN
The accompanying unaudited condensed consolidated
financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of
the Company as a going-concern basis. The going concern basis assumes that assets are realized, and liabilities are extinguished in the
ordinary course of business at amounts disclosed in the consolidated financial statements. The Company has incurred recurring losses from
operations. The Company has an accumulated deficit of approximately $
NOTE 3 – BUSINESS COMBINATIONS
Interview Mastery
On December 16, 2022, the Company entered into
an Asset Purchase Agreement (the “APA”) with a related party, Interview Mastery Corporation (“Interview Mastery”),
a Delaware corporation, by and through Michael R. Neece (“Neece”), the Company’s Chief Product Officer, and Caseridus,
Inc. Under the terms of the APA, the Company will pay the purchase price through the issuance of
The acquisition was accounted for as a business combination in accordance with the acquisition method under the guidance in ASC 805-10 and 805-20. This business combination was accounted for as a related party acquisition, as Neece is the chief product officer of the Company. Accordingly, the total purchase consideration was allocated to net assets acquired based on their respective historical costs. The assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their historical costs as of the acquisition date.
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| Description | Fair Value | |||
| Cash | $ | |||
| Prepaid expenses | ||||
| Loss on acquisition – related party | ||||
| $ | ||||
As a result of the business combination, the Company
recognized a related party loss of $
The approximate revenue and net loss for the
acquired business as a standalone entity per ASC 805 from January 1, 2021 to December 31, 2021 was $
NOTE 4 – LOANS PAYABLE
| Rate | June 30, 2023 | December 31, 2022 | ||||||||||
| Loan 1 | % | $ | $ | |||||||||
| Loan 2 | % | |||||||||||
| Loan 3 | % | |||||||||||
| Loan 4 | % | |||||||||||
| Loan 5 | % | |||||||||||
| Total | $ | $ | ||||||||||
Loans 1 through 5 are past due as of the issuance of these financial statements and are accordingly classified as current liabilities.
Loan 1
On May 30, 2013 and August 12, 2013, Cruzani received
advances from a director for $
Loan 2
On February 27, 2014, and March 19, 2015, Cruzani
received advances from a director of $
Loan 3
On September 18, 2014, May 29, 2015,
July 3, 2015, December 2, 2015, and January 4, 2016, Cruzani entered into unsecured, non-guaranteed loan agreements pursuant to which
the Company received proceeds of $
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Loan 4
On December 4, 2014, January 29, 2015, August
12, 2015, August 21, 2015, September 1, 2015, September 15, 2015, November 13, 2015, and December 23, 2015, Cruzani issued unsecured notes
payable of $
Loan 5
Entities negatively impacted by the coronavirus
(“COVID-19”) pandemic were eligible to apply for loans sponsored by the United States Small Business Administration (“SBA”)
Economic Injury Disaster Loan (“EIDL Loan”) program. On July 15, 2020, the Company received cash proceeds of $
In February 2022, the Company agreed to the first
and second modifications of the EIDL Loan. The EIDL was modified to include additional borrowings of $
NOTE 5 – CONVERTIBLE NOTES
| Creditor | Date Issued | Interest Rate | Maturity Date | June 30, 2023 | December 31, 2022 | |||||||||||
| Travel Data Solutions, Inc. (1) | % | $ | $ | |||||||||||||
| Travel Data Solutions, Inc. (2) | % | |||||||||||||||
| Third Party (3) | % | |||||||||||||||
| Trillium Partners, LP (4) | % | |||||||||||||||
| Trillium Partners, LP (4) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Trillium Partners, LP (6) | % | |||||||||||||||
| King Wharf Opportunities Fund (7) | % | |||||||||||||||
| Trillium Partners, LP (4) | % | |||||||||||||||
| Trillium Partners, LP (4) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Trillium Partners, LP (4) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Frondeur Partners LLC (5) | % | |||||||||||||||
| Total | $ | $ | ||||||||||||||
| Less: debt discount | ( | ) | ( | ) | ||||||||||||
| Convertible notes payable, total | ||||||||||||||||
| 1) |
12
| 2) |
| 3) |
| 4) |
| 5) |
| 6) |
| 7) |
13
NOTE 6 – PUT PREMIUM ON STOCK SETTLED DEBT
When the Company enters into convertible notes, some of which contain, predominantly, fixed rate conversion features (See Note 5 for conversion terms), whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a put premium on the consolidated balance sheets, as applicable, on the note date with a charge to interest expense. The put premiums are expensed on issuance of the debt with the liability released to additional paid in capital on conversion of the principal.
All put premiums are recorded as a liability as put premium on stock settled debt on the consolidated balance sheets with a charge to interest expense.
| Date Issued | Maturity Date | Note balance as of June 30, 2023 | Discount Percentage | Put premium on stock settled debt | ||||||||||||
| Travel Data Solutions, Inc. | $ | % | $ | |||||||||||||
| Travel Data Solutions, Inc. | % | |||||||||||||||
| Third party | % | |||||||||||||||
| Trillium Partners, LP* | % | |||||||||||||||
| King Wharf Opportunities Fund* | % | |||||||||||||||
| Trillium Partners, LP | % | |||||||||||||||
| Trillium Partners, LP | % | |||||||||||||||
| Frondeur Partners LLC | % | |||||||||||||||
| Frondeur Partners LLC | % | |||||||||||||||
| Frondeur Partners LLC | % | |||||||||||||||
| Frondeur Partners LLC | % | |||||||||||||||
| Frondeur Partners LLC | % | |||||||||||||||
| Trillium Partners, LP | % | |||||||||||||||
| Frondeur Partners LLC | % | |||||||||||||||
| Frondeur Partners LLC | % | |||||||||||||||
| Frondeur Partners LLC | % | |||||||||||||||
| Total | ||||||||||||||||
| Less: debt discount | ( | ) | ||||||||||||||
| Convertible notes payable, total | $ | $ | ||||||||||||||
NOTE 7 – DERIVATIVE LIABILITIES
The embedded conversion options of certain of the Company’s convertible debentures summarized in Note 5 contain variable conversion features that qualify for embedded derivative classification under ASC 815-15 Embedded Derivatives (See Note 5 for conversion terms). The fair value of these liabilities is re-measured at the end of every reporting period and the change in fair value is reported in the statement of operations as a gain or loss on derivative financial instruments.
| Total | ||||
| Balance as of December 31, 2021 | $ | |||
| Change Due to Issuances | ||||
| Transfer to put premium | ( | ) | ||
| Change in fair value | ( | ) | ||
| Balance as of December 31, 2022 | $ | |||
| Change Due to Issuances | ||||
| Transfer to put premium | ( | ) | ||
| Change in fair value | ( | ) | ||
| Balance as of June 30, 2023 | $ | |||
The Company uses Level 3 inputs for its valuation methodology for its conversion option liabilities as their fair values were determined by using Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are share price, expected volatility and the expected option term (the time from the issuance date until the maturity date). The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. As, required, these are classified based on the lowest level of input that is significant to the fair value measurement.
14
| June 30, 2023 | December 31, 2022 | |||
| Stock price | $ | $ | ||
| Exercise price | $ | $ | ||
| Contractual term (in years) | ||||
| Volatility (annual) | ||||
| Risk-free rate |
NOTE 8 – COMMON STOCK
The Company has been authorized to issue
As of June 30, 2023 and December 31, 2022, the
Company had
| Creditor | Date | Shares Issued | Principal Retired | Accrued Interest | Fees | Total | ||||||||||||||||
| Frondeur Partners, LLC | ||||||||||||||||||||||
| Trillium Partners, LP | ||||||||||||||||||||||
| Trillium Partners, LP | ||||||||||||||||||||||
| Frondeur Partners, LLC | ||||||||||||||||||||||
Acquisition of Interview Mastery
As discussed in Note 4, on December 16, 2022,
the Company acquired Interview Mastery at a purchase price of
Michael Neece employment agreement
On December 16, 2022, the Company entered into
an employment agreement with Michael Neece, Chief Product Officer. Under the agreement,
15
NOTE 9 – WARRANTS
In 2022, in connection with the issuance of convertible notes with
Frondeur Partners, LLC (“Frondeur”), King Wharf Opportunities Fund, and Trillium Partners, LP, the Company also issued
These warrants have an exercise price per share
between $
| Shares available to purchase with warrants | Weighted Average Price | Weighted Average Remaining life | ||||||||||
| Outstanding, December 31, 2022 | $ | $ | ||||||||||
| Issued | $ | |||||||||||
| Exercised | $ | $ | ||||||||||
| Forfeited | $ | $ | ||||||||||
| Expired | $ | $ | ||||||||||
| Outstanding, June 30, 2023 | $ | $ | ||||||||||
| Exercisable, June 30, 2023 | $ | $ | ||||||||||
The Company uses Level 3 inputs for its valuation
methodology for its conversion option liabilities as their fair values were determined by using the Binomial option pricing model based
on various assumptions. The model incorporates the price of a share of the Company’s common stock (as quoted on the Over the Counter
Bulletin Board), volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation
would result in a significant change in the fair value measurement.
| Range of Exercise Prices | Number Outstanding June 30, | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | |||||||
| $ | $ | |||||||||
NOTE 10 – PREFERRED STOCK
16
During
the year ended December 31, 2022, as consideration for the reverse merger, the Company issued
NOTE 11 – RELATED PARTY TRANSACTIONS
For the years ended December 31, 2022 and 2021,
expenses of $
Through December 31, 2022, the Company owed Eddie
Aizman and Michael Lakshin compensation based on their employee agreements. The agreements provide for a salary of $
On July 8, 2019, the Company executed an employment
agreement with Conrad Huss. The agreement provides for a salary of $
The Company executed an employment agreement with
Damian Hischier. The agreement provides for a salary of $
The Company executed an employment agreement with
Keith Carlson. The agreement provides for a salary of $
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Contingency arising from indebtedness owed to Oasis Capital, LLC
A contingency arises when there is a situation for which the outcome is uncertain, and which should be resolved in the future, Generally Accepted Accounting Principles require recognition of only those losses that are probable and for which a loss amount can be reasonably estimated.
17
The following details the nature of the contingency
with Oasis Capital LLC (“Oasis”). In the normal course of its business, Oasis files notices to convert (“conversion
notices”) a portion of its outstanding ownership of the Company’s indebtedness into shares of common stock. As a customary
procedure for the annual audit for the period ended December 31, 2020 of Cruzani, Cruzani’s auditors confirmed its outstanding balance
of the indebtedness and related accrued interest. During the year ended December 31, 2021, Oasis submitted conversions which stated that
the outstanding indebtedness was far greater than that which was on the Company’s books. The total amount of the increased indebtedness
was approximately $
Since the Company believes that the loss is not probable and no litigation has been pursued at this time, there has been no recognition of this liability on the books and records of the Company.
COVID-19 pandemic contingencies
The spread of the COVID-19 outbreak in the United States has resulted in economic uncertainties which may negatively impact the Company’s business operations. While the disruption is expected to be temporary, there is uncertainty surrounding the duration and extent of the impact. The impact of the coronavirus outbreak on the consolidated financial statements cannot be reasonably estimated at this time.
Adverse events such as health-related concerns about working in our offices, the inability to travel and other matters affecting the general work environment could harm our business and our business strategy. While we do not anticipate any material impact to our business operations as a result of the coronavirus, in the event of a major disruption caused by the outbreak of pandemic diseases such as coronavirus, we may lose the services of our employees or experience system interruptions, which could lead to diminishment of our business operations. Any of the foregoing could harm our business and delay the implementation of our business strategy and we cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business.
Management is actively monitoring the global situation on its financial condition, liquidity, operations, industry, and workforce.
Legal
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. A contingency arises when there is a situation for which the outcome is uncertain, and which should be resolved in the future, Generally Accepted Accounting Principles require recognition of only those losses that are probable and for which a loss amount can be reasonably estimated.
On February 13, 2017, Baum Glass & Jayne PLLC
(“Plaintiff”) obtained a default judgment against the Company in the amount of $
NOTE 13 – SUBSEQUENT EVENTS
Through August 25, 2023 the Company issued two
convertible notes. The principal amount of these notes are $
From July 1, 2023 through August 25, 2023, the
Company issued
On July 12, 2023, the Company entered into a promissory
note with a principal amount of $
On July 26, 2023, the Company entered into a promissory
note with a principal amount of $
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “continue” and similar expressions or the negative of these similar terms. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information.
These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash, which are explained below under “Liquidity and Capital Resources”. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws. Unless stated otherwise, terms such as the “Company,” “bowmo,” “we,” “us,” “our,” and similar terms shall refer to bowmo, Inc., a Wyoming corporation, and its subsidiaries.
Acquisitions