UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(
For the Quarterly Period ended
For the transition period from __________________ to __________________
Commission File number
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices)
(
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check One):
| 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 12b-2 of the Exchange Act). Yes [ ]
As of May 15, 2024, shares of the Issuer's Common Stock were outstanding.
TABLE OF CONTENTS
| 1 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
| REAL BRANDS INC AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| MARCH 31, 2024 AND DECEMBER 31, 2023 | ||||||||
| Unaudited | Audited | |||||||
| 31-Mar-24 | 31-Dec-23 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivables | ||||||||
| Total current assets | ||||||||
| Deposits | ||||||||
| Property and equipment - net of depreciation | ||||||||
| Investment Boh Bah Inc. | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued expenses related party | ||||||||
| Loan payable | ||||||||
| Loan payable related party | ||||||||
| Convertible note payable related party | ||||||||
| Notes payable | ||||||||
| Mortgage payable short term | 25,040 | 25,040 | ||||||
| Contingent liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG TERM LIABILITIES | ||||||||
| Mortgage payable long term | ||||||||
| Total Long Term Liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Common stock, par value; shares authorized as of March 31, 2024 and December 31, 2023; shares issued and outstanding as of March 31, 2024 and December 31, 2023. | ||||||||
| Common stock subscribed, shares at March 31, 2024 and December 31, 2023. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
| See the accompanying notes to these unaudited consolidated financial statements. | ||||||||
| 2 |
| REAL BRANDS, INC. AND SUBSIDIARY | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2024 and 2023 | ||||||||
| AUDITED | ||||||||
| 2024 | 2023 | |||||||
| REVENUE: | ||||||||
| Revenues | $ | $ | ||||||
| Total revenue | ||||||||
| Cost of goods sold | ||||||||
| Gross profit (loss) | ||||||||
| OPERATING EXPENSES: | ||||||||
| General and administrative | ||||||||
| Professional fees | ||||||||
| Payroll and related | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSES): | ||||||||
| Depreciation expense | ( | ) | ( | ) | ||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other (expenses) income | ( | ) | ( | ) | ||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| PROVISION FOR INCOME TAXES | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS ** | $ | $ | ||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||
| ** Less than $0.01 per share | ||||||||
| See the accompanying notes to these unaudited consolidated financial statements. | ||||||||
| 3 |
| REAL BRANDS, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2024 | ||||||||||||||||||||||||
| Common Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||
| Shares | Amount | Subscribed | Capital | Deficit | TOTAL | |||||||||||||||||||
| Balance December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of stock options | — | |||||||||||||||||||||||
| Net loss for the three months ended March 31, 2023 | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Balance December 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of stock options | — | |||||||||||||||||||||||
| Net loss for the three months ended March 31, 2024 | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| See the accompanying notes to these unaudited consolidated financial statements. | ||||||||||||||||||||||||
| 4 |
| REAL BRANDS, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2024 and 2023 | ||||||||
| UNAUDITED | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Option expense | ||||||||
| Warrant expense | ||||||||
| Stock based compensation | ||||||||
| Depreciation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Loan payable related party | ||||||||
| Repayment of mortgage 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 | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| See the accompanying notes to these unaudited consolidated financial statements. | ||||||||
| 5 |
REAL BRANDS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION
Real Brands, Inc. (“Real Brands” or the “Company”), was incorporated under the laws of the state of Nevada on November 6, 1992. The Company was formed under the name Mercury Software. From 1997 to 2005 the Company changed its name several times. On October 10, 2005, the Company changed its name to Global Beverage Solutions, Inc. and began trading on the OTC Bulletin Board under the symbol GBVS.OB.
On October 22, 2013, the Company changed its name
to Real Brands, Inc. The Financial Industry Regulatory Authority (“FINRA”) approved Real Brands’ corporate actions regarding
its name change and its new stock symbol request and approved Real Brands’
On October 22, 2020, the majority of the shareholders of the Company, by written consent, agreed to a “reverse triangular” merger with CASH Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company formed for the purpose of the merger, and Canadian American Standard Hemp Inc., a Delaware corporation (“CASH”), whereby the Company acquired all of the outstanding shares of CASH and merged it with and into CASH Acquisition Corp. Real Brands’ name and trading symbol were maintained, with CASH shareholders acquiring majority control of Real Brands.
The merger was accounted for as a reverse merger, whereby CASH was considered the accounting acquirer and became our wholly-owned subsidiary. In accordance with the accounting treatment for a “reverse merger”, the Company’s historical financial statements prior to the reverse merger has been replaced with the historical financial statements of CASH prior to the reverse merger. The consolidated financial statements after completion of the reverse merger include the assets, liabilities, and results of operations of the combined company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity remaining in the consolidated financial statements.
Going concern
The ability of the Company to obtain necessary financing
to build its sales, brand, marketing and distribution and fund ongoing operating expenses is uncertain. The ability of the Company to
generate sales revenue to offset the expenses and obtain profitability is uncertain. The Company had a net loss of $
Liquidity
As of March 31, 2024, the Company had cash and
cash equivalents of a $
| 6 |
| • | The Company is seeking additional capital in the private and/or public equity markets to continue operations and build sales, marketing, brand and distribution. The Company is currently evaluating additional equity and debt financing opportunities and may execute them, if and when appropriate. However, there can be no assurances that the Company can consummate such a transaction or consummate a transaction at favorable pricing. | |
| • | The Company plans on increased sales of its products in the market. However, there can be no assurances that the sales will increase or that even if they do increase that it will increase sufficiently to generate the necessary cash. | |
| • | The Company plans on increasing sales by acquiring additional products, either through the acquisition of other companies and/or through the acquisition of licenses to additional products. However, there can be no assurances that such acquisitions can be made and even if made, that sales will increase or that even if they do increase that it will increase sufficiently to generate the necessary cash. |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) under the accrual basis of accounting. These financial statements are presented in U.S. dollars and are prepared on a historical cost basis, except for certain financial instruments which are carried at fair value. The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2023 in the Form 10-K filed on April 1, 2024. 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 interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the Form 10-K have been omitted.
Principles of Consolidation
The consolidated financial statements include Real Brands, and its wholly owned subsidiaries. DePetrillo Real Estate Holdings, LLC is a wholly owned subsidiary of CASH which is a wholly owned subsidiary of Real Brands and the owner of the Company’s building in Rhode Island. American Standard Hemp Inc. is a wholly owned subsidiary of CASH. All significant intercompany accounts and transactions have been eliminated.
Use of estimates and judgments
The preparation of financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of expenses during the reporting period. Key areas of estimation include the estimated useful lives of property, plant, equipment and intangibles assets and liabilities, income taxes, and the valuation of stock-based compensation. Due to the uncertainty inherent in such estimates, actual results may differ from the Company’s estimates.
| 7 |
Accounting standard updates
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.
Segment Reporting
The Company operates as one segment, in which management uses one measure of profitability, and all of the Company’s assets are located in the United States of America. The Company does not operate separate lines of business or separate business entities with respect to any of its product candidates. Accordingly, the Company does not have separately reportable segments.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be a cash equivalent.
Accounts Receivable and Allowance for Doubtful Accounts
The Company performs periodic credit evaluations of its customers’ financial conditions and generally does not require collateral. The Company reviews all outstanding accounts receivable for collectability on a quarterly basis. An allowance for doubtful accounts is recorded for any amounts deemed uncollectable. The Company does not accrue interest receivable on past due accounts receivable.
Concentrations of Credit Risk
The Company, from time to time during the years covered by these consolidated financial statements, may have bank balances in excess of its insured limits. Management has deemed this a normal business risk.
Inventory
Inventory is comprised of raw hemp and hemp oil in different phases of production to completion of final product. Products include tinctures, creams and lotions. Inventory is valued at cost. No packaging material of any kind is included in inventory. Packaging materials are expensed as incurred.
Property and Equipment
On February 15, 2020 the Company purchased
DePetrillo Real Estate Holdings, LLC, a Rhode Island Limited Liability Company having as its only asset the building at 12 Humbert Street
in North Providence Rhode Island. The building is the Company’s headquarters and a processing facility. The purchase price of the
building was shares of CASH common stock and the assumption of the mortgage which at the time was $
Building improvements are being depreciated over
Total depreciation expense for the three months
ended March 31, 2024 was $
| 8 |
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset over its fair value, determined based on discounted cash flows is less than the carrying value on the books of the Company.
Revenue Recognition
The Company follows ASC 606, Revenue from Contracts with Customers (“ASC 606”), which establishes a single and comprehensive framework and sets out how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now be recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, Revenue based revenue recognition is around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed in determining whether control has been transferred. The application of the core principle in ASC 606 is carried out in five steps: Step 1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled. Step 2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit) to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable in the contract. Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties. Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment approach, expected cost plus a margin approach, and the residual approach in limited circumstances. Discounts given should be allocated proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices after inception is not permitted. Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an alternative use to the entity and the entity has the right to be paid for performance to date.
The Company expenses stock-based compensation to employees and consultants based on the fair value at grant date, which generally is the agreement date the Company entered into with employees or consultants. To date the Company has issued restricted common stock shares and preferred stock.
Beneficial Conversion Features of Convertible Securities
Conversion options that are not bifurcated as a derivative pursuant to ASC 815 and not accounted for as a separate equity component under the cash conversion guidance are evaluated to determine whether they are beneficial to the investor at inception (a beneficial conversion feature) or may become beneficial in the future due to potential adjustments. The beneficial conversion feature guidance in ASC 470-20 applies to convertible stock as well as convertible debt which are outside the scope of ASC 815. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an
| 9 |
offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as a dividend over either the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the dividend must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.
Derivatives
The Company reviews the terms of convertible debt issued to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense.
Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Potential common stock equivalents are determined using the treasury stock method. For diluted net loss per share purposes, the Company excludes stock options and other stock-based awards, including shares issued as a result of option exercises that are subject to repurchase by the Company, whose effect would be anti-dilutive from the calculation. During the three months ended March 31, 2024 and 2023, common stock equivalents were excluded from the calculation of diluted net loss per common share, as their effect was anti-dilutive due to the net loss incurred. Therefore, basic and diluted net loss per share was the same in all periods presented.
The Company had and potentially dilutive options and convertible securities, respectively, that have been excluded from the computation of diluted weighted-average shares outstanding as of March 31, 2024, and and potentially dilutive options and convertible securities, respectively, that have been excluded from the computation of diluted weighted-average shares outstanding as of March 31, 2023, as they would be anti-dilutive.
Treasury Stock
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholder’s deficit.
Fair Value of Financial Instruments
The guidance for fair value measurements, ASC 820,
Fair Value Measurements and Disclosures, establishes the authoritative definition of fair value, sets out a framework for measuring fair
value, and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to sell
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy based upon
observable and non-observable inputs as follow:
| 10 |
| • | Level 1 – Quoted market prices in active markets for identical assets and liabilities; |
| • | Level 2 – Inputs, other than level 1 inputs, either directly or indirectly observable; and |
| • | Level 3 – Unobservable inputs developed using internal estimates and assumptions (there is little or no market date) which reflect those that market participants would use. |
The Company records its derivative activities at fair value. As of March 31, 2024, no derivative liabilities are recorded.
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Uncertain Tax Positions
The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the year ended December 31, 2023.
Income Taxes
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies
should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on
a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the
position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as
the largest amount of tax benefit that has a greater than
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.
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NOTE 3. ACCOUNTS RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
At March 31, 2024 the Company has
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of a building, land, building improvements and furniture and equipment.
The building and land were appraised at $
Building improvements are being depreciated over
Total depreciation expense for the three months
ended March 31, 2024 was $
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Building | $ | $ | ||||||
| Building Improvements | ||||||||
| Gross fixed assets | ||||||||
| Less: Accumulated Depreciation | ( |
) | ( |
) | ||||
| Less: Impairments | ||||||||
| Net Fixed Assets | $ | $ | ||||||
NOTE 5. INVESTMENT IN BOH BAH INC.
On July 17, 2023, the Company purchased
shares in BOH BAH Inc. for $
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses
include normal operating expenses, professional fees and costs remaining to be paid for the build out of the new facility. Included
in accrued expenses is a balance for ATS Indian Trace, LLC. ATS Indian Trace, LLC v. the Company was a civil action filed by ATS
Indian Trace, LLC in the Circuit Court of Broward County, Florida on July 22, 2015. On November 18, 2015, a (default) Final
Judgement was entered in favor of ATS Indian Trace, LLC and against the Company in the amount of $
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued interest | ||||||||
| Credit cards payable | ||||||||
| $ | $ | |||||||
| 12 |
NOTE 7. ACCRUED EXPENSES – RELATED PARTY
At March 31, 2024, accrued expenses related parties
was $
Such amount included, to its CEO, Thom Kidrin, $
NOTE 8. MORTGAGE PAYABLE
As of March 31, 2024, the following mortgage was outstanding:
| Loan payable | Accrued interest | ||||||
| Mortgage payable (6.31%) | |||||||
| Total | $ | $ | |||||
Interest expense related to the mortgage payable amounted to $
NOTE 9. LOAN PAYABLE – RELATED PARTY
A loan was provided by the CEO, Thom Kidrin, at an
interest rate of
NOTE 10. LOAN PAYABLE
A loan was provided by Providence Capital at an interest rate of
NOTE 11. CONVERTIBLE NOTES PAYABLE - RELATED PARTY
The Company has issued a convertible note payable
related party in the amount of $
As of March 31, 2024, the Company incurred
$
The Company has issued a second convertible note payable
related party in the amount of $
As of March 31, 2024, the Company incurred
$
| 13 |
NOTE 12. STOCKHOLDER’S EQUITY
Common Stock
The Company did not issue any equity during the three months ended March 31, 2024.
As of March 31, 2024, the Company had shares of its common stock outstanding.
NOTE 13. STOCK OPTIONS
In March 2024, each non-employee director was granted, as compensation for serving as a director, five-year non-qualified stock options to purchase shares of the Company’s common stock at an exercise price equal to the last reported trading price of our common stock on the day of grant (i.e. 3/6/24). The options granted for 2024 will vest on December 31, 2024, provided the director serves for at least nine months, following the date of grant. In addition to these option grants, one director shall receive an additional options to vest on August 31, 2024, as compensation for services to be rendered. Total options granted to Directors was at an exercise price of .
In March 2024 as consideration for deferring his compensation over the last two years, Chris Ryan, the CFO, was granted five-year non-qualified stock options to purchase shares of the Company’s common stock at an exercise price equal to the last reported trading price of our common stock on the date of grant (i.e. 3/6/23) and to vest on December 31, 2024. Exercise price is .
In March 2023, for each of the years 2021, 2022 and 2023, for which no compensation was given to the directors, each non-employee director was granted, as compensation for serving as a director, five-year non-qualified stock options to purchase shares of the Company’s common stock at an exercise price equal to the last reported trading price of our common stock on the day of grant (i.e. 3/22/23), with the options granted for 2021 and 2022 vesting immediately and the options granted for 2023 to vest on December 31, 2023, provided the director serves for at least nine months, following the date of grant. In addition to these option grants, each director shall receive an additional options to vest on December 31, 2023, provided the director serves for at least nine months, following the date of grant. Total options granted to Directors was at an exercise price of .
In March 2023 as consideration for deferring his compensation over the last two years, Thom Kidrin, the Chairman and CEO, was granted five-year non-qualified stock options to purchase shares of the Company’s common stock at an exercise price equal to the last reported trading price of our common stock on the date of grant (i.e. 3/22/23) and to vest immediately. Exercise price is .
During the three months ended March 31, 2023, the
Company expensed stock-based compensation in the amount of $
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The Company has outstanding the following stock options as of March 31, 2024.
| Remaining Life in Years | |||
| Outstanding | |||
| $ | $ |
||
| $ | $
|
||
| $ | $
|
||
| $ | $
|
||
| $ | $
|
||
| $ | |||
| $ | $
|
||
| Total | |||
| Exercisable | |||
| $ | $
|
|
|
| $ | $ |
||
| $ |
$ |
||
| $ | $
|
||
| $ | $
|
||
| $ | $
|
||
| Total | |||
During the three months ended March 31, 2024,
the Company recorded a stock option expense of $
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Company is committed to an employment agreement
with Thom Kidrin, its President and CEO. Mr. Kidrin entered into the employment agreement with CASH on November 26, 2018. The employment
agreement provides for a base salary of $
NOTE 15. SUBSEQUENT EVENTS
On April 26, 2024 the company entered into an asset purchase agreement to acquire substantially all of the assets of Vapor Sharkfrom Turning
Point Brands, Inc., a Delaware corporation and a shareholder of the Company, for a purchase price of
On May 1, 2024, Peter Christos resigned from the Company’s Board of Directors for personal reasons. His decision to resign was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
On May 3, 2024, Dr. Richard Goldberg was added to the Board of Directors.
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements in this report which express "belief," “plan” "anticipation" or "expectation," as well as other similar or other statements which are not historical facts, are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those that may be set forth below and elsewhere in this report. Examples of these uncertainties and risks include, but are not limited to:
| • | access to sufficient debt or equity capital to meet our operating and financial needs; |
| • | the extent of dilution of the holdings of our existing stockholders upon the issuance, conversion or exercise of securities issued as part of our capital raising efforts; |
| • | the effectiveness and ultimate market acceptance of our products and our ability to generate sufficient sales revenues to sustain our growth and strategy plans; |
| • | whether our products in development will prove safe, feasible and effective; |
| • | legislation and changing regulatory rules directed at our industry; |
| • | our ability to increase our product line through acquisitions of new product lines or licenses to new products; |
| • | whether and when we or any potential strategic partners will obtain required regulatory approvals in the markets in which we plan to operate; |
| • | our need to achieve manufacturing scale-up in a timely manner, and our need to provide for the efficient manufacturing of sufficient quantities of our products; |
| • | the lack of immediate alternate sources of supply for some critical components of our products; |
| • | our ability to establish and protect the proprietary information on which we base our products, including our patent and intellectual property position; |
| • | the need to fully develop the marketing, distribution, customer service and technical support and other functions critical to the success of our product lines; |
| • | the dependence on potential strategic partners or outside investors for funding, development assistance, clinical trials, distribution and marketing of some of our products; |
| • | other risks and uncertainties described from time to time in our publicly filed reports: and disruption in the economic and financial conditional primarily from the impact of past terrorist attacks in the United States, threat of future attacks, police and military activities overseas and other disruptive worldwide pandemic, political and economic events, inflation and environmental and weather conditions. |
The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report.
OVERVIEW
The Company has become a wholesale distributor of the popular drink called Popping Boba. The Company has also made an investment in Boh Bah Inc., a manufacturer of popping boba and is an authorized distributor of popping boba.
The Company still has the ability to produce hemp CBD oil and related products and has retained the brands we have developed in the space. We believe that CBD distillate and isolate business will become a significant part of our business once we are able to raise the cash required to implement our business plan.
The Company is also developing a business plan around the acquired Vapor Shark assets.
Current Operations
We are working at expanding our distribution of popping boba to new outlets. The Company is also looking at other opportunities for our state-of-the-art facility in New Providence, Rhode Island that is equipped with our proprietary Halo 5 processing technology system that produces CBD distillate and isolate.
The Company is also looking at funding and developing a business around the Vapor Shark assets.
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Marketing
While we are looking into expanding our distribution of popping boba directly to other distributors and wholesalers. We still believe the market for CBD products can be a larger opportunity for the Company. We believe that the market for consumer products produced with CBD derived from hemp will increase substantially over the next five years, and we believe we are well positioned to be a significant player in this space.
Sales
We are looking to expand the wholesale market of the popular drink called Popping Boba, a bubble tea. We are currently an authorized distributor and are marketing the product to other distributors and large chains.
We still intend to grow our CBD business by launching multiple web-based platforms to educate and sell direct to consumers the Company’s owned and licensed brands that focus on CBD derived from hemp products and to develop and expand our own proprietary branded retail line of products.
Ingredient and Material Supply chain
We are an authorized distributor of Boh Bah Inc’s popping boba. Boh Bah Inc. provides all the finished products. Boh Bah Inc. is an FDA approved advanced culinary, molecular gastronomy commercial food manufacturing company. On the CBD side, the Company is intending to extract and refine essential oils and compounds of interest from certified hemp cultivars. We intend to purchase other ingredients, required for production, both direct from processors and from third-party manufacturers and fillers as our formulations require. We intend to purchase additional packaging components that are manufactured to our design specifications using our unique brand image directly from packaging firms that specializes in consumer products packaging.
Government Regulation
We are subject to local and federal laws in our operating jurisdictions. A range of federal regulations govern our product development, manufacturing, distribution, sales and marketing, including the Dietary Supplement Health and Education Act of 1994.
CBD
Cannabinoids (CBD) are chemical compounds found in the cannabis plant. Hemp is a cannabis plant and where our CBD is derived from. CBD has been studied as to its therapeutic attributes. Taking CBD mimics and augments the effects of compounds in the body called endogenous cannabinoids. Endocannabinoids are part of the regulatory system called the endocannabinoid system. The endocannabinoid system plays important roles in the central nervous system and in regulating a broad range of physiological processes that affect our everyday experience – our mood, our energy level, our intestinal fortitude, immune activity, blood pressure, bone density, glucose metabolism, how we experience pain, stress, hunger, and more. Studies have shown that CBD is non-psychoactive unlike tetrahydrocannabinol (THC).
The Food and Drug Administration (FDA) on CBD and Hemp
The FDA’s statements regarding the 2018 Farm Bill noted the substantial public interest in CBD and the clear interest of Congress in fostering the development of appropriate hemp products. The FDA intends to hold a public meeting(s) in the near future for stakeholders to share their experiences and challenges with these products, including information and views related to the safety of such products.
The FDA appears committed to pursuing an efficient regulatory framework for allowing product developers that meet the requirements under their authorities to lawfully market these types of products. However, despite these steps by the FDA there are other factors which are beyond our control, which could jeopardize our ability to successfully market our planned products. Any such setback would have a material adverse effect on our business and prospects.
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Environmental Matters
Compliance with federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the Company.
RECENT DEVELOPMENTS
As stated above, as of April 26, 2024, the Company completed its acquisition of the assets of Vapor Shark from its largest shareholder, Turning Point Brands, Inc. The assets consist of various intellectual properties including trademarks, copyrights, trade secrets, know-how, urls and license rights.
On May 1, 2024, the Company received an email from Peter N. Christos stating that, strictly for personal reasons, he was resigning from the Company’s Board of Directors. Mr. Christos has confirmed that his decision to resign was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
Effective May 3, 2024, Dr. Richard J. Goldberg was appointed to the Company’s Board of Directors. Dr. Goldberg was not a party to any material transactions with the Company, nor does he have any family relationship (as defined in Item 401 to Regulation S-K) with any director or executive officer of the Company.
Critical Accounting Policies
Our material accounting policies, which we believe are the most critical to investors understanding of our financial results and condition, are discussed below. Because we are still early in our enterprise development, the number of these policies requiring explanation is limited. As we begin to generate increased revenue from different sources, we expect that the number of applicable policies and complexity of the judgments required will increase.
Revenue Recognition: ASC 606 establishes a single and comprehensive framework which sets out how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now be recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, Revenue based revenue recognition around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed in determining whether control has been transferred. The application of the core principle in ASC 606 is carried out in five steps: Step 1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled.
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Step 2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit) to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable in the contract. Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties. Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment approach, expected cost plus a margin approach, and, the residual approach in limited circumstances. Discounts given should be allocated proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices after inception is not permitted. Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an alternative use to the entity and the entity has the right to be paid for performance to date.
Valuation of Deferred Taxes: We account for income taxes in accordance with the liability method. Under the liability method, we recognize deferred assets and liabilities based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. We establish a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be utilized against future taxable income.
Valuation of Equity Instruments Granted to Employee, Service Providers and Investors: On the date of issuance, the instruments are recorded at their fair value as determined using the Binomial Option Pricing Model.
Allowance for Accounts Receivable: We estimate losses from the inability of our distributors to make required payments and periodically review the payment history of each of our distributors, as well as their financial condition, and revise our reserves as a result.
Inventory Valuation: All inventories are stated at lower of cost or net realizable value, with cost determined substantially on a “first-in, first-out” basis. Selling, general, and administrative expenses are not inventoried, but are charged to expense when purchased.
RESULTS OF OPERATIONS
Three months ended March 31, 2024 compared to three months ended March 31, 2023
Sales Revenue, Cost of Sales and Gross Loss:
Revenues from the sale of our products for the three months ended March 31, 2024 and 2023 were $0 and $22,247, respectively. Sales were lower due the Company’s inability to expand its network of wholesale customers in the three months ended March 31, 2024.
Costs of sales was $0 in the three months ended March 31, 2024 and $18,000 in the three months ended March 31, 2023. The Company expenses all packaging material as a cost of sale at the time of purchase. For the three months ended March 31, 2024, the Company had a gross profit of $0 compared to a gross profit of $4,247 for the three months ended March 31, 2023. Lower cost of sales and gross profit was due to lower revenues, as explained above.
General and Administrative Expense: General and administrative expenses for the three months ended March 31, 2024, decreased by $579,587, to $50,948 as compared to $630,534 for the three months ended March 31, 2023. Decrease is due to the number of options issued last year that vested immediately that carried an option expense of $595,445 in the three months ended March 31, 2023 compared with an option expense $14,654 in the three months ended March 31, 2024.
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Payroll and Related: Payroll and related decreased by $37,025 to $44,036 for the three months ended March 31, 2024 from $81,061 for the three months ended March 31, 2023. The decrease is due to the Company releasing all employees except for the CEO who has an employment agreement with the Company. The payroll for the CEO has been accrued but not paid.
Professional Fees: Professional fees increased to $19,400 for the three months ended March 31, 2024 compared to $13,000 for the three months ended March 31, 2023.
Depreciation expense: Depreciation expense was $20,618 for the three months ended March 31, 2024 and for the three months ended March 31, 2023.
Interest Expense: Interest expense for the three months ended March 31, 2024 was $17,065 compared to interest expense of $11,611 in the three months ended March 31, 2023.
Net Loss: As a result of the foregoing, we realized a net loss of $152,067 in the three months ended March 31, 2024 compared to a net loss of $752,577 for the three months ended March 31, 2023.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have raised capital through the public and private sale of debt and equity and funding from collaborative arrangements. At March 31, 2024, we had cash of $22,422 and a negative working capital of $2,548,889.
We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements. We cannot be certain that our existing and available capital resources will be sufficient to satisfy our funding requirements through 2024. We are evaluating various options to raise additional funds, including new equity and loans and no assurance can be given that we will be successful. Our operations have primarily been dependent upon our CEO and CFO both waiving their right to cash payments and accepting accruals of their salaries and fees and through personal loans extended by our CEO. Neither of these officers are obligated to continue such practices.
Our financial statements have been prepared and presented on a basis assuming we will continue as a going concern. The above factors raise substantial doubt about our ability to continue as a going concern, as more fully discussed in Note 1 to the consolidated financial statements contained herein.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements, no special purpose entities, and no activities that include non-exchange-traded contracts accounted for at fair value.
Item 4. Controls And Procedures
As of March 31, 2024, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2024.
Changes in Internal Control Over Financial Reporting
During the quarter covered by this report there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
We are not obligated to disclose our risk factors in this report, however, limited information regarding our risk factors appears in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward-Looking Statements” contained in this Quarterly Report on Form 10-Q and in “Item 1A. RISK FACTORS” of our 2023 Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in our 2023 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| 3.1 | Certificate of Incorporation (a) | |||
| 3.2 | By-Laws Restated as Amended (a) | |||
| 31.1 | Certification of Chief Executive Officer | |||
| 31.2 | Certification of Chief Financial Officer | |||
| 32.1 | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | |||
| 32.2 | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | |||
| 101. | INS*XBRL | Instance Document | ||
| 101. | SCH*XBRL | Taxonomy Extension Schema | ||
| 101. | CAL*XBRL | Taxonomy Extension Calculation Linkbase | ||
| 101. | DEF*XBRL | Taxonomy Extension Definition Linkbase | ||
| 101. | LAB*XBRL | Taxonomy Extension Label Linkbase | ||
| 101. | PRE*XBRL | Taxonomy Extension Presentation Linkbase |
| (a) | Filed previously with the Form 10 on June 25, 2021 and incorporated herein by reference. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereto duly authorized.
Date: May 15, 2024
| REAL BRANDS, INC. |
| By: /s/ Thom Kidrin | ||
| President and CEO | ||
| By: /s/ Christopher Ryan | ||
| Chief Financial Officer |
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