CNFN 10-K
CFN Enterprises Inc. (CNFN)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For the fiscal year ended
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For the transition period from ___________ to _________.
Commission file number
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(Address of Principal Executive Offices and Zip Code)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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 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, smaller reporting company, or an emerging growth company. See definition 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 |
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The aggregate market value of the common equity voting shares of the registrant held by non-affiliates on June 30, 2024 was $
The number of the registrant’s shares of Common Stock outstanding as of April 15, 2025:
Documents Incorporated by Reference: None
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE,” “EXPECT,” “ANTICIPATE,” “INTEND,” “PLAN,” “ESTIMATE,” “MAY,” “PREDICT,” “WILL,” “POTENTIAL,” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN OUR FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, GENERAL MARKET CONDITIONS, INCLUDING WEAKNESS IN THE ECONOMY, REGULATORY DEVELOPMENTS AND OTHER CONDITIONS WHICH ARE NOT WITHIN OUR CONTROL.
OTHER RISKS MAY ADVERSELY IMPACT US, AS DESCRIBED MORE FULLY IN THIS ANNUAL REPORT UNDER “ITEM 1A. RISK FACTORS.”
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD-LOOKING STATEMENTS.
EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS “CFN”, “CFN ENTERPRISES”, THE “COMPANY”, “WE”, “OUR”, “REGISTRANT”, AND “US” MEANS CFN ENTERPRISES INC. AND ITS CONSOLIDATED SUBSIDIARIES.
CFN ENTERPRISES INC.
2023 ANNUAL REPORT ON FORM 10-K
Table of Contents
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PART I |
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ITEM 1. | 3 | |
ITEM 1A. | 5 | |
ITEM 1B. | 14 | |
ITEM 1C. | 14 | |
ITEM 2. | 14 | |
ITEM 3. | 15 | |
ITEM 4. | 15 | |
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PART II |
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ITEM 5. | 16 | |
ITEM 6. | 16 | |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 16 |
ITEM 7A. | 24 | |
ITEM 8. | 24 | |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES | 24 |
ITEM 9A. | 24 | |
ITEM 9B. | 25 | |
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 25 |
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PART III |
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ITEM 10. | 26 | |
ITEM 11. | 27 | |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 29 |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 30 |
ITEM 14. | 30 | |
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PART IV |
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ITEM 15. | 31 | |
ITEM 16. | 34 | |
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PART I
Item 1. Business
Overview
We own and operate CFN Media (the CFN Business), a digital marketing agency specializing in compliant, turnkey ad campaigns for the global cannabis, hemp and wellness industries, and the Ranco Business, a white label manufacturing and co-packing business for the global cannabis, hemp and wellness industries. Our ongoing operations currently consist primarily of the CFN Business and the Ranco Business and we will continue to pursue strategic transactions and opportunities. We are currently in the process of launching an e-commerce network focused on the sale of general wellness CBD products. We also own CNP Operating which is a cannabidiol manufacturer. In the fourth quarter of 2022 and the first quarter of 2023, the Company took steps to wind down the operations of CNP Operating and focus on the CFN and Ranco Businesses (beginning in July 2023).
On July 1, 2023, the Company, through its wholly owned subsidiary, RANCO, LLC, a Delaware limited liability company, or Ranco, acquired assets from RAN CoPacking Solutions LLC, a California limited liability company, or the Acquisition, which consists of assets for co-packing and white label manufacturing services, including comprehensive solutions for third party logistics (3PL) related areas such as storage, order fulfillment, solutions for custom packaging and hardware needs for many different industries, and media and design services, along with strategic marketing support, to help clients establish and enhance their brand presence in the market. Also on July 1, 2023, Ranco entered into the Packwoods Private Label Services and Intellectual Property Licensing Agreement, or the Licensing Agreement, with PW Industries LLC, a Wyoming limited liability company, or PW, RS Distributions LLC, a Delaware limited liability company, or RS, and Packaging Innovations LLC, a Wyoming limited liability company, or PI, and together with PW and RS, the Licensors, for the exclusive manufacturing, packaging and distribution of, and wholesale and retail sales of a variety hemp-based inhalable (pre-roll and vaporizer), edible products, and disposable nicotine-based inhalable vaporizer products, and the purchase of packaging materials to be used with Packwoods-branded cannabis products (containing more than 0.3% delta-9 THC by weight) and the distribution of those packaging materials to licensed cannabis manufacturers designated by PW, using the Licensor’s licensed property for a 5 year exclusive term, subject to certain exclusions.
The CFN Business generates revenue by setting up and managing compliant, turnkey ad campaigns on behalf of its clients. The CFN Business also generates revenue through sponsored content, including articles, press releases, videos, podcasts, advertisements and other media, email advertisements and other marketing campaigns run on behalf of public and private companies in the cannabis, hemp and wellness industries, helping them reach accredited, retail and institutional investors. Most revenue is generated through contracts involving a monthly cash payment.
The CFN Business’ primary expenses come from advertising on platforms like X (f/k/a Twitter) and Facebook and from employee salaries and contractor fees. The CFN Business’ content is primarily produced by a team of freelance writers. Video content is produced through various vendors. The CFN Business also incurs hosting and development costs associated with maintaining and improving its website, web applications, and mobile applications. The CFN Business operates several media platforms, including CannabisFN.com, CFNMediaNews.com, and other venues. These properties are designed to educate and inform investors interested in the cannabis industry, as well as provide a platform for the clients of the CFN Business to reach investors. The CFN Business distributes content across numerous online platforms, including the CannabisFN.com website, press releases, financial news syndicates, search engines, YouTube, iTunes, Instagram, X (f/k/a Twitter), Facebook, LinkedIn, and others.
The CFN Business targets the legal cannabis, hemp and wellness industries. According to Grand View Research, the global cannabis industry alone is expected to reach $134.4 billion by 2030, driven by the legalization of medical and adult-use cannabis across a growing number of jurisdictions. The CFN Business’ services are designed to help companies in these highly regulated industries increase sales with compliant, turnkey online ad campaigns.
Our principal offices are located at 600 E. 8th Street, Whitefish, Montana 59937. Our telephone number there is: (833) 420-2636. Our corporate website is: www.cfnenterprisesinc.com, the contents of which are not part of this annual report.
Our Common Stock is quoted on the OTCQB Marketplace under the symbol "CNFN."
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How we market our services
Ranco’s products and services are sold through our direct sales force and by attending industry related trade shows.
CFN Enterprises markets its services through its proprietary network of websites, including www.cfnmedianews.com and www.cannabisfn.com, social media channels and through its internal sales team.
Competition
CFN Enterprises competes with other public relations firms for clients, as well as online publishers for investors. Public relations competition includes investor awareness firms like Stockhouse Publishing, Catalyst Xchange, Stonebridge Partners and Midan Ventures. Online publisher competition includes firms like New Cannabis Ventures, Leafly and High Times.
Ranco competes with other product manufacturers and sellers in the hemp and wellness industries. The market for these products is fragmented and intensely competitive. Our competitors of these products include a combination of public and private companies who operate as combination of ecommerce and wholesale brands as well as brick and mortar retail operations.
Government Regulation
CFN Business
The CFN Business is regulated by rules established by the SEC, FINRA, and certain federal and state cannabis regulations.
Ranco Business
On December 20, 2018, the President of the United States signed the United States of the Agricultural Improvement Act of 2018, commonly known as the “Farm Bill,” into law. Among other things, this new law changed certain federal authorities relating to the production and marketing of hemp, defined as cannabis (Cannabis sativa L.), and hemp products containing less than 0.3 percent delta-9-tetrahydrocannabinol (THC, including removing hemp and derivatives of hemp from the Controlled Substance Act. January 15, 2021 the USDA issued its final rule regarding the Establishment of a Domestic Hemp Production Program which authorized hemp to be grown and processed legally in the United States and made it legal to transport in interstate commerce.
The Farm Bill recognizes hemp as distinct from its genetic cousin, marijuana, and specifically industrial hemp has been excluded from U.S. drug laws. The Farm Bill allows for each individual state to regulate industrial hemp and industrial hemp-based products or accept the USDA rules. Although no longer a controlled substance under federal law, cannabinoids derived from industrial hemp (other than THC) are still subject to a patchwork of state regulations. We are actively monitoring the regulations and proposed regulations in each state to ensure our operations are compliant.
We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public information and the handling of customer complaints and regulations prohibiting unfair and deceptive trade practices. The growth and demand for online commerce has and may continue to result in more stringent consumer protection laws that impose additional compliance burdens on online companies. These laws may cover issues such as user privacy, spyware and the tracking of consumer activities, marketing e-mails and communications, other advertising and promotional practices, money transfers, pricing, product safety, content and quality of products and services, taxation, electronic contracts and other communications and information security.
There is also great uncertainty over whether or how existing laws governing issues such as sales and other taxes, auctions, libel, and personal privacy apply to the internet and commercial online services. These issues may take years to resolve. For example, tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax
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regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the internet and commercial online services could result in significant additional taxes or regulatory restrictions on our business. These taxes or restrictions could have an adverse effect on our cash flows, results of operations and overall financial condition. Furthermore, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements.
Employees
As of December 31, 2024, we had 22 full-time employees, including all of our executive officers. However, this figure does not include independent contractors that are utilized. None of our employees are covered by collective bargaining agreements, and we believe our relationships with our employees to be good.
Item 1A. Risk Factors
Our business faces risks. If any of the events or circumstances described in the following risks actually occur, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline. Our investors and prospective investors should consider the following risks and the information contained under the heading “Cautionary Statement Concerning Forward Looking Statements” before deciding to invest in our common stock.
Our resources are limited and it may impact how we implement our growth strategy which may impact our operations.
Our resources are limited. Our working capital deficit at December 31, 2024 and 2023 amounted to $19.2 million and $14.4 million, respectively. As we implement our growth strategy, poor strategic design or execution could impact negatively our operations and our cash flows. We expect that our expenses will continue to increase as we continue to develop and implement our products and services. Our capital requirements may vary materially from those currently planned if, for example, we incur unforeseen capital expenditures, incur unforeseen operating expenses, or make investments to maintain our competitive position. If this is the case, we may have to delay or abandon some or all of our development plans or otherwise forego market opportunities. We will need to generate significant revenues to be profitable in the future, and we may not generate sufficient revenues to be profitable on either a quarterly or annual basis in the future.
We have a history of losses.
We have a history of losses and negative cash flows from operations. We had a net loss from continuing operations of approximately $4.3 million in 2024 and a net loss of approximately $15.2 million in 2023. Our operations have been financed primarily through proceeds from the issuance of equity, borrowing money through the issuance of promissory notes and use of a credit facility. We may continue to incur losses in the future.
We have substantial indebtedness and obligations to pay interest.
We currently have, and will likely continue to have, a substantial amount of indebtedness and obligations to pay interest from our preferred stock. Our indebtedness and interest obligations could, among other things, make it more difficult for us to satisfy our debt obligations, require us to use a large portion of our cash flow from operations to repay and service our debt and preferred stock or otherwise create liquidity problems, limit our flexibility to adjust to market conditions, place us at a competitive disadvantage and expose us to interest rate fluctuations. As of December 31, 2024 we had total debt outstanding of $7,630,295, of which $7,510,624 was short term. As of December 31, 2024, we had 500 shares of Series A Preferred, Stock, each with a stated value of $1,000 per share which bears interest at 12% per annum, and 3,000 shares of Series B Preferred Stock, each with a stated value of $1,000 per share which bears interest at 6% per annum.
We expect to obtain the money to pay our expenses and pay the principal and interest on our indebtedness, interest on our preferred stock, and tax liabilities from cash flow from our operations and potentially from securities offerings. Accordingly, our ability to meet our obligations depends on our future performance and capital raising activities,
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which will be affected by financial, business, economic and other factors, many of which are beyond our control. If our cash flow and capital resources prove inadequate to allow us to pay the principal and interest on our debt, interest on our preferred stock and meet our other obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations, restructure or refinance our debt, which we may be unable to do on acceptable terms, and forego attractive business opportunities. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.
Our independent registered public accounting firm has expressed in its report to our 2024 audited consolidated financial statements a substantial doubt about our ability to continue as a going concern.
We have not generated sufficient revenues from our operations to fund our activities and are therefore dependent upon external sources for financing our operations. There is a risk that we will be unable to obtain the necessary financing to continue our operations on terms acceptable to us or at all. As a result, our independent registered public accounting firm has expressed in its auditors’ report on the consolidated financial statements for December 31, 2024, a substantial doubt regarding our ability to continue as a going concern. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Future reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. If we cannot continue as a going concern, our stockholders may lose their entire investment in the common stock.
Our quarterly financial results will fluctuate, making it difficult to forecast our results of operation.
Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are beyond our control, including:
● | Variability in demand and usage for our products and services; |
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● | Market acceptance of new and existing services offered by us, our competitors and potential competitors; and |
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● | Governmental regulations affecting the use of the Internet, including regulations concerning intellectual property rights and security features. |
Our current and future levels of expenditures are based primarily on our growth plans and estimates of expected future revenues. If our operating results fall below the expectation of investors, our stock price will likely decline significantly.
Adverse macroeconomic and geopolitical conditions, including trade policies and tariffs, may have a material adverse effect on the Company’s business, results of operations and financial condition.
Challenging macroeconomic conditions, including as a result of geopolitical events, changes to international trade policies, public health crises, disruptions in global supply chains, and changes in inflation and interest rates, may negatively impact our costs from our suppliers and consumer demand for our products, as well as sales cycles, and in turn may materially affect the Company’s business, results of operations and financial condition. Such economic factors and uncertainties are beyond the Company’s control and the Company has no comparative advantage in forecasting their effects.
The U.S. has established free trade laws and regulations that set certain duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where our supplies may be sourced could have a material adverse effect on our business and financial results. In recent years, the U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported products. Further, the U.S. administration recently has begun to enact additional or enhanced tariffs in various jurisdictions relevant to our business. Implementation of tariffs or other restrictive trade measures by the United States and potentially reciprocally by other countries subject to such to tariffs remains highly uncertain. If the actual and potential tariffs and reciprocal tariffs are implemented as currently proposed, our results of operations could be materially negatively impacted, both directly and indirectly through negative effects to our supply chain, as a result of increased costs, decreased demand and other adverse economic impacts, and we may not be able to successfully
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mitigate or offset such impacts. Depending upon their implementation and duration, as well as our ability to mitigate their impact, these tariffs and any other future regulatory actions implemented on a broader range of products or raw materials could materially affect our business, including in the form of increased cost of goods sold, decreased margins, increased pricing for customers, reduced sales and disruption in our supply chain. Furthermore, additional trade restrictions could be adopted with little to no advance notice, and we may not be able to effectively mitigate the adverse impacts from such measures, which could further increase the cost of our products, disrupt our supply chain and impair our ability to effectively operate and compete in the countries where we do business. The Company is closely monitoring this evolving situation but there can be no assurance that the Company will be able to mitigate the impacts of any trade measures, which could be material to the Company’s business operations or harm the Company’s competitive position.
The CFN Business provides services to persons engaged in the cannabis industry. Cannabis remains illegal under Federal law.
Despite the development of a regulated cannabis industry under the laws of certain states, these state laws regulating medical and adult cannabis use are in conflict with the Federal Controlled Substances Act, which classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that the Federal government has the right to regulate and criminalize cannabis, even for medical purposes, and thus Federal law criminalizing the use of cannabis preempts state laws that regulate its use. If the U.S. Department of Justice (“DOJ”) did take action against the cannabis industry, those of our clients operating in the legal cannabis industry would be lost to us.
To analyze this risk, we are relying heavily upon the various U.S. federal governmental memos issued in the past (including the memorandum issued by the DOJ on October 19, 2009, known as the “Ogden Memorandum”, the memorandum issued by the DOJ on August 29, 2013, known as the “Cole Memorandum” and other guidance), to remain acceptable to those state and federal entities that regulate, enforce, or choose to defer enforcement of certain current regulations regarding cannabis and that the U.S. federal government will not change its attitude to those practitioners in the cannabis industry as long as they comply with their state and local jurisdictional rules and authorities.
The legal cannabis industry is not yet well-developed, and many aspects of this industry’s development and evolution cannot be accurately predicted, and therefore losing any clients may have a material adverse effect on our business. While we have attempted to identify our business risks in the legal cannabis industry, you should carefully consider that there are other risks that cannot be foreseen or are not described in this annual report, which could materially and adversely affect our business and financial performance.
As the possession and use of cannabis is illegal under the Federal Controlled Substances Act, we may be deemed to be aiding and abetting illegal activities through the services and data that we provide to cannabis dispensaries, cultivators and consumers. As a result, we may be subject to enforcement actions by law enforcement authorities, which would materially and adversely affect our business.
Under Federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of cannabis is illegal. The CFN Business provides services to customers that are engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another’s criminal activities. The Federal aiding and abetting statute provides that anyone who “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.” As a result of such an action, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.
Costs associated with compliance with numerous laws and regulations could impact our financial results. In addition, we could become subject to increased litigation risks associated with the CBD industry.
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The manufacture, labeling and distribution by us of the hemp-based cannabinoid products is regulated by various federal, state and local agencies. These governmental authorities may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or the ability to sell products in the future. We are subject to regulation by the federal government and other state and local agencies as a result of our hemp-based cannabinoid products. The shifting compliance environment and the need to build and maintain robust systems to comply with different compliance in multiple jurisdictions increases the possibility that we may violate one or more of the requirements. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to our company, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, any of which could adversely affect the ability to operate our business and our financial results. Failure to comply with the various federal, state and local requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. We are seeing increasing state-level labeling requirements that may increase our costs with respect to monitoring and adhering to unique label requirements in addition to potential product and packaging obsolescence costs. Our advertising is subject to regulation by the U.S. Federal Trade Commission, or FTC, under the Federal Trade Commission Act, and is subject to various state regulations enforced by state agencies and state attorneys general. Additionally, some states also permit advertising and labeling laws to be enforced by private attorneys general who may seek relief for consumers, seek class-action certifications, seek class-wide damages and product recalls of products sold by us. Any actions against our company by governmental authorities or private litigants could be time consuming, costly to defend and could have a material adverse effect on our business, financial condition, and results of operations.
Uncertainty caused by potential changes to legal regulations could impact the use of CBD products.
There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the scope of operation of Farm Bill-compliant hemp programs relative to the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the U.S. Drug Enforcement Administration and/or the FDA and the extent to which manufacturers of products containing Farm Bill-compliant cultivators and processors may engage in interstate commerce. The uncertainties cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules. If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets.
We face intense competition from other marketing service providers.
We compete with many marketing service providers for consumers’ attention and spending. Our competitors may have substantially greater capital, longer operating histories, greater brand recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. Our competitors may also engage in more extensive development of their technologies and may adopt more comprehensive marketing and advertising campaigns than we can. Our competitors may develop products and service offerings that we do not offer or that are more sophisticated or more cost effective than our own. For these and other reasons, our competitors’ products and services may achieve greater acceptance in the marketplace than our own, limiting our ability to gain market share and customer loyalty and to generate sufficient revenues to achieve a profitable level of operations. Our failure to adequately address any of the above factors could harm our business and operating results.
In addition, as the barriers to entry in our market segment are not substantial, an unlimited number of new competitors could emerge, thereby making our goal of establishing a market presence even more difficult. Because our management expects competition in our market segment to continue to intensify, there can be no assurances we will ever establish a competitive position in our market segment.
The market for CBD products is highly competitive. If we are unable to compete effectively in the market, our business and operating results could be materially and adversely affected.
CBD products are a competitive and rapidly evolving market. There are numerous competitors in the industry, some of whom are more well-established with longer operating histories and greater financial resources than we have. We expect competition in the CBD industry to continue to intensify. We believe we will be able to compete effectively because of the quality of our products and customer service. However, there can be no assurance that we will
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effectively compete with existing or future competitors. Increased competition may also drive the prices of our products down, which may have a material adverse effect on our results of operations in future periods.
Given the rapid changes affecting the global, national and regional economies generally, and the CBD industry specifically, we may experience difficulties in establishing and maintaining a competitive advantage in the marketplace. Our success will depend on our ability to keep pace with any changes in such markets, especially legal and regulatory changes. Our success will depend on our ability to respond to, among other things, changes in the economy, market conditions and competitive pressures. Any failure to anticipate or respond adequately to such changes could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to attract new customers or sell additional services and functionality to our existing customers, our revenue growth will be adversely affected.
To increase our revenues, we must add new customers, encourage existing customers to renew their agreements on terms favorable to us, increase their usage of our solutions, and sell additional functionality to existing customers. As our industry matures, as interactive channels develop further, or as competitors introduce lower cost and/or differentiated products or services that are perceived to compete with ours, our ability to sell and renew based on pricing, technology and functionality could be impaired. As a result, we may be unable to renew our agreements with existing customers or attract new customers or new business from existing customers on terms that would be favorable or comparable to prior periods, which could have an adverse effect on our revenue and growth, as well as our profitability and financial condition.
We may not be successful in increasing our brand awareness.
We believe that developing and maintaining awareness of the CFN brand is critical to achieving widespread acceptance of our existing and future services and is an important element in attracting new customers. In order to build brand awareness, we must succeed in our marketing efforts and provide high quality services. Our efforts to build our brand will involve significant expense. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.
We depend on receipt of timely feeds from our content providers.
We depend on Web browsers, ISPs and online service providers to provide access over the Internet to our product and service offerings. Many of these providers have experienced significant outages or interruptions in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. These types of interruptions could continue or increase in the future.
We rely on third-party computer hardware and software that may be difficult to replace or which could cause errors or failures of our service.
We rely on computer hardware purchased or leased and software licensed from third parties in order to offer our services. This hardware and software may not continue to be available to us at reasonable prices, or on commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could significantly increase our expenses and otherwise result in delays in the provisioning of our service until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated, which could harm our business. Any errors or defects in third-party hardware or software could result in errors or a failure of our service which could harm our business.
If our security measures are breached and unauthorized access is obtained to a customer’s data or our data or our information technology systems, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.
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Our service involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, and to litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, by employee error, malfeasance or otherwise, during the transfer of data to additional data centers or at any time, and may result in someone obtaining unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers may authorize third party technology providers, via our various Application Programming Interfaces, to access their customer data. Because we do not control the transmissions between our customers and third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the complete integrity or security of such transmissions or processing. Any security breach could result in a loss of confidence in the security of our service, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.
Our future performance and success depends on our ability to retain our key personnel.
Our future performance and success is heavily dependent upon the continued active participation of our current senior management team, including our President and Chief Executive Officer, Brian Ross. The loss of any of their services could have a material adverse effect on our business development and our ability to execute our growth strategy, resulting in loss of sales and a slower rate of growth. We do not maintain any “key person” life insurance for any of our employees.
We may be subject to infringement claims on proprietary rights of third parties for software and other content that we distribute or make available to our customers.
We may be liable or alleged to be liable to third parties for software and other content that we distribute or make available to our customers:
● | If the content or the performance of our services violates third party copyright, trademark, or other intellectual property rights; or |
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● | If our customers violate the intellectual property rights of others by providing content through our services. |
Any alleged liability could harm our business by damaging our reputation. Any alleged liability could also require us to incur legal expenses in defense and could expose us to awards of damages and costs including, but not limited to, treble damages for willful infringement, and would likely divert management’s attention which could have an adverse effect on our business, results of operations and financial condition.
We cannot assure you that third parties will not claim infringement by us with respect to past, current, or future technologies. Participants in our markets may be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. In addition, these risks are difficult to quantify in light of the continuously evolving nature of laws and regulations governing the Internet. Any claim relating to proprietary rights, whether meritorious or not, could be time-consuming, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements, and we cannot assure you that we will have adequate insurance coverage or that royalty or licensing agreements will be available on terms acceptable to us or at all. Further, we plan to offer our services and applications to customers worldwide, including to customers in foreign countries that may offer less protection for our intellectual property than the United States. Our failure to protect against misappropriation of our intellectual property and claims against us that we are infringing the intellectual property of third parties could have a negative effect on our business, revenues, financial condition and results of operations.
10
Evolving government regulation could adversely affect our business prospects.
We do not know with certainty how existing laws governing issues such as property ownership copyright and other intellectual property issues, taxation, illegal or obscene content, regulated industries, retransmission of media, personal privacy and data protection will apply to the Internet or to the distribution of multimedia and other proprietary content over the Internet. Most of these laws were adopted before the advent of the Internet and related technologies and therefore do not address the unique issues associated with the Internet and related technologies. Depending on how these laws developed and are interpreted by the judicial system, they could have the effect of:
● | Limiting the growth of the Internet; |
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● | Creating uncertainty in the marketplace that could reduce demand for our products and services; |
● | Increasing our cost of doing business; |
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● | Exposing us to significant liabilities associated with content distributed or accessed through our products or services; or |
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● | Leading to increased product and applications development costs, or otherwise harm our business. |
Because of this rapidly evolving and uncertain regulatory environment, both domestically and internationally, we cannot predict how existing or proposed laws and regulations might affect our business.
In addition, as Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. In addition, taxation of services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may also be imposed. Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business.
Dilutive securities may adversely impact our stock price.
As of December 31, 2024, 11,988,500 shares of Common Stock were issuable pursuant to the exercise of warrants.
These securities represent, as of December 31, 2024, approximately 14.6% of our Common Stock on a fully diluted, as exercised basis. In addition, our preferred stock is convertible into shares of our common stock at a conversion price to be mutually determined between us and the holders in the future, and could result in the issuance of a significant number of shares of common stock. The exercise of any of these options or warrants, both of which have fixed prices, or conversion of our preferred stock, may materially adversely affect the market price of our Common Stock and will have a dilutive effect on our existing stockholders.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm the value of our stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports, effectively prevent fraud and operate as a public company. We have discovered areas of our internal control over financial reporting that need improvement. If we are unable to adequately maintain or improve our internal control over financial reporting, we may report that our internal controls are ineffective. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be negatively impacted. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information which could have a negative effect on the market price of our Common Stock and which could result in regulatory proceedings against us by, among others, the SEC.
11
We have not voluntarily implemented various corporate governance measures, in the absence of which stockholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.
Federal legislation, including the Sarbanes-Oxley Act of 2002 and The Dodd Frank Wall Street Reform and Consumer Protection Act, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the New York Stock Exchange or the Nasdaq Stock Market. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address the board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. We have not yet adopted some of these corporate governance measures and, since our securities are not listed on a national securities exchange, we are not required to do so. We have not adopted corporate governance measures such as an audit committee or other independent committees of our Board of Directors. In the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
The limited market for our Common Stock will make our stock price more volatile. Therefore, you may have difficulty selling your shares.
The market for our Common Stock is limited and we cannot assure you that a larger market will ever be developed or maintained. Currently, our Common Stock is quoted on the OTCQB Marketplace. Securities quoted on the OTCQB Marketplace typically have low trading volumes. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, this may make it difficult or impossible for our shareholders to sell our Common Stock.
There are generally no restrictions on the resale of our outstanding Common Stock. Sales by existing shareholders may depress the share price of our Common Stock and may impair our ability to raise additional capital through the sale of equity securities when needed.
The possibility that substantial amounts of outstanding Common Stock may be sold in the public market may adversely affect prevailing market prices for our Common Stock. This could negatively affect the market price of our Common Stock and could impair our ability to raise additional capital through the sale of equity securities.
Sales of shares of our Common Stock to the public may adversely impact our stock price.
Sales of shares of our Common Stock in the public market, or the perception that these sales might occur, could depress the market price of our Common Stock and may make it more difficult for our stockholders to sell their common stock at desirable prices. We are unable to predict the effect that sales may have on the prevailing market price of our Common Stock.
Some of the shares issued and options granted under our stock plan may have been issued in transactions that were not exempt from registration under certain state securities laws, the result of which is that the holders of these shares and/or options may have rescission rights that could require us to reacquire the shares and/or options.
Some of the shares issued and options granted under our equity compensation plan may not have been exempt from registration or qualification under the securities laws of certain states. We previously became aware that we may not have had a valid exemption for the issuance of these options and shares exercised upon exercise of these options under certain state laws. Because of the lack of registration and, potentially, the lack of a valid exemption from registration, the options we granted and the shares issued upon exercise of these options may have been issued in violation of certain state securities laws and may be subject to rescission.
12
If such shares and options are subject to rescission, we could be required to make payments to the holders of these shares and options in an amount not yet determinable by us. If any or all of the offerees reject the rescission offer, we may continue to be liable under state securities laws for payments to the offerees. If it is determined that we offered securities without properly registering them under state law, or securing an exemption from registration, regulators could impose monetary fines or other sanctions as provided under these laws.
Our Common Stock is subject to the “penny stock” rules of the SEC, and the trading market in our Common Stock is limited. This makes transactions in our Common Stock cumbersome and may reduce the value of your shares.
The SEC has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:
● | that a broker or dealer approve a person’s account for transactions in penny stocks; and |
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● | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
● | Obtain financial information and investment experience objectives of the person; and |
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● | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
● | sets forth the basis on which the broker or dealer made the suitability determination; and |
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● | that the broker or dealer received a signed, written statement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in its market value.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
We could become subject to litigation that could be costly, result in the diversion of management’s attention and require us to pay damages.
From time to time, we may become involved in legal proceedings. Though we are not currently subject to any legal proceedings that we expect to result in a material adverse impact on our business, adverse outcomes in such proceedings may result in significant monetary damages or injunctive relief that could adversely affect our ability to conduct our business and could divert management’s attention.
13
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity
Risk Management and Strategy
We recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data. We have established policies and processes for assessing, identifying, and managing material risk from cybersecurity threats. We assess risks from cybersecurity threats against our information systems that may result in adverse effects on our information systems or any information residing therein. We conduct periodic and ad-hoc assessments to identify cybersecurity threats.
Following these risk assessments, we evaluate whether and how to re-design, implement, and maintain reasonable safeguards to mitigate identified risks and reasonably address any identified gaps in existing safeguards. IT leadership reports to our CEO and CFO to manage the risk assessment and mitigation process. We monitor and test our safeguards and train our employees on these safeguards, in collaboration with human resources, IT, and management. We promote a company-wide culture of cybersecurity risk management. This ensures that the senior management are kept abreast of the cybersecurity posture and potential risks faced by the Company. We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing during the financial year ended December 31, 2024.
Governance
Our board of directors is responsible for monitoring and assessing strategic risk exposure. Our board of directors administers its cybersecurity risk oversight function directly as a whole. Our executive management will update the board of directors on cybersecurity risks on a periodic basis, with a minimum frequency of once per year.
Item 2. Properties.
On June 20, 2019, we entered into a Lease Agreement with Emerging Growth, LLC for the lease of office space in Whitefish, Montana, for a period of one year at a rate of $1,500 per month. On August 5, 2020, the Company entered into a lease agreement with Emerging Growth, LLC for additional office space in Whitefish, Montana, replacing its previous lease from June 20, 2019. The term of the lease commenced on September 1, 2020 for a period of one year at a rate of $4,500 per month. The lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase. On March 30, 2021, we entered into a new lease agreement for these premises commencing April 11, 2021 for a period of three years at a rate of $4,500 per month, which lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase. On April 1, 2023, we entered into a modification of the existing lease agreement for these premises commencing April 1, 2023 for a period of five years at a rate of $3,750 per month, which lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase.
On July 1, 2019, CNP Operating entered into a Lease Agreement with Blair Investments, LLC for the lease of commercial office and manufacturing space in Centennial, Colorado. The lease commenced on July 1, 2019 for a period of four years at a rate of $16,025. The lease increases $0.50 per square foot per year for the duration of the lease. The lease was terminated at the end of its term.
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On August 12, 2022, CFN Real Estate LLC, entered into a First Amendment to Lease Agreement, or the Amendment, to the Lease, with H2S2 LLC, for the property in Eaton, Colorado. The Amendment amends the Lease to (i) provide for payment of the final non-refundable deposit in the amount of $34,000 on or before the earlier of November 30, 2022 or exercise of the option to purchase, (ii) provide for payment of the July 2022 monthly base rent in the amount of $14,000 on or before November 30, 2022, (iii) amend the payment date for monthly base rent from the 1st to the 15th of each month, (iv) to delete the seller financing provisions of the lease, and (v) to provide for an amendment fee of $20,000, on or before November 30, 2022, or upon exercise of the option to purchase, on or before the earlier of December 31, 2022 or closing on the purchase of the premises. The lease was terminated and the right to purchase was forfeited. CFN Real Estate, LLC was dissolved on December 5, 2023.
On April 15, 2022, CFN Real Estate II LLC, a Delaware limited liability company, and wholly-owned subsidiary of the Company, entered into a Purchase and Sale Agreement (the “Agreement”) with Kind Roots Botanicals, LLC, a Colorado limited liability company, for the purchase of property in Wray, Colorado, consisting of a 26,330 square foot retail and commercial building located on a 2.85-acre site (the “Property”), and all fixtures and personal property used in or related to the ownership or development of the Property for the purpose of extraction and the manufacturing of cannabidiol (CBD) crude oil, distillate and isolate, including a certification of compliance with respect to the “Good Manufacturing Practice” regulations promulgated by the U.S. Food and Drug administration, in exchange for an aggregate of one million restricted shares of Company common stock. The Company will use the Property in connection with its CNP Operating cannabidiol (CBD) manufacturing business and expects that this acquisition should increase the overall production of the Company’s CNP Operating business by over 50%. The closing occurred on April 29, 2022. On April 12, 2023, the Company sold its property, including the machinery and equipment, at Wray, Colorado. Subsequently, the Company dissolved CFN Real Estate II on December 5, 2023.
In connection with the Ranco acquisition, the Company agreed to assume the Seller’s lease for property related to the Purchased Assets in Los Angeles, California, consisting of approximately 46,000 square feet of space. The Ranco operating lease agreement commenced on July 1, 2022 and expires on July 31, 2027. The lease requires monthly base rent payments of $49,782 and required a security deposit of $297,269. Initially, the Company was only paying the $49,782 monthly base rent until the landlord vacated the other half of the space on May 1, 2024, at which point the Company took over the entire premises and the lease rental increased to $96,634 per month.
We believe that our current leases are adequate and sufficient for our needs in the immediate future.
Item 3. Legal Proceedings.
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any legal proceedings that it currently believes, if determined adversely to the Company, would individually or taken together have a material adverse effect on the Company’s business, operating results, financial condition or cash flows.
In September 2024, the Company and the other parties to the action entitled CAKE Software, Inc. v. Accelerize Inc. n/k/a CFN Enterprises Inc., Index No. 653838/2022, in the Supreme Court of the State of New York, County of New York, reached a settlement. On October 1, 2024, the parties filed a stipulation requesting that the action, including all cross-claims and counterclaims, be discontinued by the court in its entirety with prejudice. On October 28, 2024, the court ordered that the action be discontinued with prejudice.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our Common Stock is quoted on the OTCQB Marketplace under the symbol “CNFN.” Quotations on the OTCQB Marketplace reflect prices between dealers, do not include retail mark-ups, markdowns, and commissions and may not necessarily represent actual transactions.
Stockholders
As of December 31, 2024, there were 171 stockholders of record of our Common Stock.
Dividend Policy
We have not declared or paid any cash dividends on our Common Stock since inception and we do not intend to pay any cash dividends on our Common Stock in the foreseeable future. We intend to retain any future earnings for use in the operation and expansion of our business. Any future decision to pay dividends on Common Stock will be at the discretion of our Board of Directors and will be dependent upon our fiscal condition, results of operations, capital requirements and other factors our Board of Directors may deem relevant.
Recent Sales of Unregistered Securities
On January 17, 2023, the Company issued 2,400,000 shares of common stock at a purchase price of $0.25 per share for $600,000 in gross proceeds. The shares were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended.
On May 19, 2023, the Company and Emerging Growth reached an agreement whereby the Company issued 1,620,000 shares of its common stock as payment for $405,000 in outstanding accrued interest on the Series B Preferred Stock through June 30, 2023. The shares were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended.
On July 1, 2023, the Company issued 40,000,000 shares of common stock at a price of $0.20 per share, or total fair value of $8,000,000, pursuant to the Ranco business combination. The shares were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended.
On August 10, 2023, the Company and Emerging Growth reached an agreement whereby the Company issued 500,000 shares of its common stock as payment for $45,000 in outstanding accrued interest on the Series B Preferred Stock through September 30, 2023. The shares were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended.
Item 6. [Reserved].
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following information should be read in conjunction with our financial statements and accompanying notes included in this Annual Report on Form 10-K.
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Overview
We own and operate a cannabis industry focused sponsored content and marketing business, or the CFN Business, and a white label manufacturing and co-packing business, or the Ranco Business. Our ongoing operations currently consist primarily of the CFN Business and the Ranco Business and we will continue to pursue strategic transactions and opportunities. We are currently in the process of launching an e-commerce network focused on the sale of general wellness CBD products. We also own CNP Operating which is a cannabidiol manufacturer. In the fourth quarter of 2022 and the first quarter of 2023, the Company took steps to wind down the operations of CNP Operating and focus on the CFN Business and the Ranco Business.
On July 1, 2023, the Company, through its wholly owned subsidiary, RANCO, LLC, a Delaware limited liability company, or Ranco, acquired assets from RAN CoPacking Solutions LLC, a California limited liability company, or the Acquisition which consists of assets for co-packing and white label manufacturing services, including comprehensive solutions for third party logistics (3PL) related areas such as storage, order fulfillment, solutions for custom packaging and hardware needs for many different industries, and media and design services, along with strategic marketing support, to help clients establish and enhance their brand presence in the market. Also on July 1, 2023, Ranco entered into the Packwoods Private Label Services and Intellectual Property Licensing Agreement, or the Licensing Agreement, with PW Industries LLC, a Wyoming limited liability company, or PW, RS Distributions LLC, a Delaware limited liability company, or RS, and Packaging Innovations LLC, a Wyoming limited liability company, or PI, and together with PW and RS, the Licensors, for the exclusive manufacturing, packaging and distribution of, and wholesale and retail sales of a variety hemp-based inhalable (pre-roll and vaporizer), edible products, and disposable nicotine-based inhalable vaporizer products, and the purchase of packaging materials to be used with Packwoods-branded cannabis products (containing more than 0.3% delta-9 THC by weight) and the distribution of those packaging materials to licensed cannabis manufacturers designated by PW, using the Licensor’s licensed property for a 5 year exclusive term, subject to certain exclusions.
The CFN Business generates revenue through sponsored content, including articles, press releases, videos, podcasts, advertisements and other media, email advertisements and other marketing campaigns run on behalf of public and private companies in the cannabis industry, helping them reach accredited, retail and institutional investors. Most revenue is generated through contracts involving a monthly cash payment.
Ranco performs services including white label manufacturing and co-packing for customers. Customers will drop off their product and the Company will perform the services via their employees and contractors. Ranco will also order products that are manufactured overseas, such as custom boxes, packaging and hardware. These products are generally shipped from overseas to the customer. Lastly, Ranco provides certain shipping and third-party logistics services for customers.
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Results of Operations
The following are the results of our operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023:
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| December 31, |
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| 2024 |
| 2023 |
| Change |
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Net revenues |
| $20,216,634 |
| $3,537,632 |
| $16,679,002 | ||||||
Cost of revenue |
| 14,929,724 |
| 3,022,942 |
| 11,906,782 | ||||||
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| Gross profit |
| 5,286,910 |
| 514,690 |
| 4,772,220 | ||||
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Operating expenses: |
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| Impairment expense |
| - |
| 8,676,430 |
| (8,676,430) | |||||
| Selling, general and administrative |
| 7,756,082 |
| 5,630,794 |
| 2,125,288 | |||||
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| Total operating expenses |
| 7,756,082 |
| 14,307,224 |
| (6,551,142) | ||||
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Loss from operations |
| (2,469,172) |
| (13,792,534) |
| 11,323,362 | ||||||
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Other income (expense): |
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| Interest expense |
| (2,159,443) |
| (1,631,564) |
| (527,879) | |||||
| Gain on property and equipment |
| - |
| 9,253 |
| (9,253) | |||||
| Gain on extinguishment of debt |
| 89,051 |
| 48,112 |
| 40,939 | |||||
| Other income |
| 250,000 |
| 179,650 |
| 70,350 | |||||
| Interest income |
| 202 |
| 321 |
| (119) | |||||
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| Total other expense |
| (1,820,190) |
| (1,394,228) |
| (425,962) | ||||
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Provision for income taxes |
| - |
| - |
| - | ||||||
Net loss |
| $(4,289,362) |
| $(15,186,762) |
| $10,897,400 | ||||||
Net Revenues
The Company’s revenues from the CFN Business are generated from the sale of promotional service packages to customers ranging from 3 to 6 months. The Company offers different packages tailored to the type and stage of the potential customer, such as public companies looking to increase their shareholder base, as well as private companies potentially looking to go public and attract capital and publicity. Ranco performs services including white label manufacturing and co-packing for customers. Customers will drop off their product and the Company will perform the services via their employees and contractors. When the services are complete, the Company has satisfied its performance obligations. Revenue is recognized at this point in time. Ranco will order products that are manufactured overseas, such as custom boxes, packaging and hardware. These products are generally shipped from overseas to the customer. When these products are shipped out from the manufacturer, the Company has satisfied its performance obligations. Revenue is recognized at this point in time. Lastly, Ranco provides certain shipping and third party logistics services for customers. When the services are complete, the Company has satisfied its performance obligations. Revenue is recognized at this point in time.
During the year ended December 31, 2024, the CFN Business realized $273,167 of campaign revenue compared to $398,811 for the same period in the prior year. Our revenue for 2024 and 2023 also included $48,185 and $48,996, respectively, relating to sales of product from our e-commerce network focused on the sale of general wellness CBD products for the years ended December 31, 2024 and 2023.
In 2024, CNP Operating was no longer operating nor generating revenue.
During the year ended December 31, 2024, the Company’s Ranco subsidiary generated revenue of $19.9 million, compared to revenue of $3.1 million in the year ended December 31, 2023 after its acquisition in July 2023.
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Costs of Revenue
The costs of revenue for the CFN Business consist primarily of labor, fees paid for production of content for clients and the costs of placement of the content on various platforms. Cost of revenue also includes products sold, shipping costs and direct labor in the Ranco Business.
The Company’s cost of revenue for the year ended December 31, 2024 were higher than those in the corresponding year in 2023 due to Ranco’s inventory purchasing activities for a full year 2024 as compared to its results after the July 2023 acquisition.
Operating Expenses
The Company’s selling, general and administrative expenses were $7.7 million in 2024 as compared to $5.6 million. The increase was primarily attributable to full year operations of Ranco, including personnel, rent, legal and professional fees, insurance and other expenses incurred to run the business. In 2023, the Company wrote off $8.7 million in goodwill.
Other Income (Expense)
Other expense was $1.8 million in 2024 compared to $1.3 million in 2023. In 2024, other expense was primarily driven by $2.1 million in interest due to the Company’s notes and amortization of debt discount, partially offset by $250,000 in other income from settlement of our litigation with Constellation and gain on extinguishment of debt of $89,051. In 2023, other expense was primarily driven by $1.6 million in interest due to the Company’s notes and amortization of debt discount, partially offset by $179,650 in other income from payroll tax credits.
Liquidity and Capital Resources
As of December 31, 2024, we had $373,834 in unrestricted cash and $7,630,295 in notes payable.
The Company had a working capital deficit of $19,240,445 and an accumulated deficit of $78,952,223 as of December 31, 2024. The Company also had a net loss of $4,289,362 for the year ended December 31, 2024.
Management’s plan to continue as a going concern includes raising capital in the form of debt or equity, growing its existing business acquired under the Ranco Agreement, managing and reducing operating and overhead costs and continuing to pursue strategic transactions and opportunities including launching an e-commerce network focused on the sale of general wellness CBD, products.
These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
The following is a summary of our cash flows from operating, investing and financing activities for the years ended December 31, 2024 and 2023:
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| 2024 |
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Net cash provided by (used) in operating activities |
| $442,786 |
| $(4,978,948) | ||||||
Net cash (used in) provided by investing activities |
| $(57,039) |
| $580,160 | ||||||
Net cash (used in) provided by financing activities |
| $(111,105) |
| $4,465,378 | ||||||
Net cash provided by operating activities was $442,786 during the year ended December 31, 2024, compared to net cash used in operating activities of $4,978,948 during the same period in 2023. The increase in cash provided by operating activities was primarily driven by a lower net loss in 2024 and cash provided by operating assets and liabilities, primarily the increase of accounts payable and accrued liabilities in 2024 related to the Ranco acquisition.
19
Net cash used in investing activities was $57,039 during the year ended December 31, 2024, compared with cash provided by investing activities of $580,160 during the same period in 2023. In 2024, net cash used in investing activities was due to purchase of property and equipment. In 2023, cash provided in investing activities was due to Ranco cash acquired and sale of assets held for sale.
Net cash used in financing activities was $111,105 for the year ended December 31, 2024 including the repayment of notes of $241,272, offset by capital contributions of $130,167. In 2023, net cash provided by financing activities was $4,465,376 for the year ended December 31, 2023, included proceeds from the sale of common stock for $350,000, contributed capital of $150,144, promissory notes of $5,000,000 and payment of notes payable of $1,032,647.
Description of Indebtedness
On September 10, 2019, the Company entered into a promissory note payable whereby the Company borrowed $500,000 bearing interest at 8% per annum. Interest on the note is payable quarterly on the first business day of December, March, June and September commencing December 1, 2019. In May 2021, the Company and the holder of the promissory note reached an agreement to extend the maturity date of the note from September 30, 2022 to September 30, 2024. In connection with the extension, the Company issued 160,000 shares of its common stock to the noteholder in lieu of $40,000 of interest accrued and accruing on the promissory note through December 31, 2022. In 2022, the maturity date was extended to 2024. In April 2025, the Company and the holder of the promissory note reached an agreement to extend the maturity date of the note until December 31, 2027. In connection with the extension, the Company issued 600,000 shares of its common stock to the noteholder in consideration of the extension and in lieu of $60,000 of interest accrued on the promissory note through March 31, 2025.
In connection with the promissory note on September 10, 2019, the Company issued warrants to purchase 33,333 shares of the Company’s common stock at an exercise price of $1.50 per share. The warrants were exercised on June 30, 2021 and the Company received $50,000. The note was discounted by $17,624 allocated from the valuation of the warrants issued. The discount recorded on the note is being amortized as interest expense through the maturity date. As of December 31, 2024, the net book value of the promissory note amounted to $500,000, including the principal amount of $50,000 which was fully amortized.
On October 28, 2019, the Company’s subsidiary CNP Operating entered into a promissory note payable with Complete Business Solutions Group, Inc (“CBSG”) whereby the Company borrowed $3,050,000. The outstanding balance of the note was $2,218,000 at December 31, 2022. At December 31, 2022, the Company reversed $1,312,080 previously recorded to additional paid-in capital in 2022 to reflect the outstanding principal of $2,218,000. The note is currently in default and personally guaranteed by Anthony Zingarelli.
On September 30, 2019, the Company’s subsidiary CNP Operating entered into a promissory note payable with Eagle Six Consultants, Inc. (“Eagle”) whereby the Company borrowed $550,000 bearing interest at 16% per annum. The outstanding balance of the note was $302,489 at December 31, 2024. The note is currently in default.
On June 24, 2020, the Company entered into a Loan Authorization and Agreement with the SBA under which the Company borrowed $150,000 and issued to the SBA a note and security agreement for the amount borrowed. Outstanding borrowings accrue interest at a rate of 3.75% per annum, and installment payments, including principal and interest, of $731 are due monthly and begin 12 months from the date of the loan agreement. The balance of any remaining principal and interest is due 30 years from the date of the loan agreement. As collateral for the borrowing, the Company granted the SBA a security interest in substantially all assets of the Company.
On May 12, 2021, the Company’s subsidiary CNP Operating restructured the CSBG note payable of $2,957,000, the Eagle #1 note payable of $550,000 and the Eagle #2 note payable of $300,000 by entering into a payment and indemnification agreement with the receivers/trustee of CBSG and Eagle. The receiver has agreed that the balance of the outstanding amounts will be paid over the course of 24 months in equal payments of $158,625. Further, the Company shall pay $20,000 per month toward the balance and Anthony Zingarelli (“Zingarelli”) and Colorado Sky Industrial Supply LLC (“CSIS”), agree to personally pay the sum of $138,625 per month. Zingarelli is the only member of CNP Operating that signed a personal guarantee on the loans and Zingarelli is the sole member of CSIS. Zingarelli and CSIS has agreed to indemnify and hold the Company harmless from any and all losses, liabilities and
20
claims. If a loss is incurred by the Company with respect to any claims, Zingarelli shall reimburse the Company for the amount of any such loss. The Company has recorded the Zingarelli payments during the period as contributions to additional paid in capital through December 31, 2021. This note is currently in default.
On November 19, 2020, the Company’s subsidiary CNP Operating purchased equipment for $58,095 which was financed at zero interest rate. The monthly payments of $968 will be made for the next 60 months and mature on November 19, 2025. Imputed interest was not material. The outstanding balance of the note was $34,892 at December 31, 2022. In 2022, CNP purchased equipment for $55,016 which was financed at zero interest rate with the same lender with similar terms. The outstanding balance of the note was $48,513 at December 31, 2024.
On October 19, 2021, the Company borrowed $250,000 from a lender and issued a promissory note for the repayment of the amount borrowed. The promissory note is unsecured, has a maturity date of December 31, 2024 and all principal is due upon maturity. The amount borrowed accrues interest at 12% per annum and accrued interest is payable monthly commencing on December 1, 2021. The promissory note contains customary events of default permitting acceleration of repayment for nonpayment of amounts due, a bankruptcy related proceeding, breach of representations or covenants, sale of substantially all assets, and change of control. The outstanding balance of the note was $250,000 at December 31, 2024. The note is in default.
On May 11, 2022, the Company’s subsidiary, CFN Real Estate II, LLC, entered into a promissory note with a lender for the repayment of $500,000 in connection with the $500,000 refinancing of the Company’s property located in Wray, Colorado. The company received the proceeds from the refinancing on May 16, 2022. Accrued interest at the rate of 12% is payable monthly commencing on June 15, 2022, and the principal of the promissory note is payable upon maturity on June 15, 2024. The lender received a security interest in the property and equipment contained therein as collateral for the promissory note. The promissory note contains customary events of default and other conditions. Upon the Company’s sale of the property in April 2023, the note was fully repaid.
On May 8, 2023, the Company entered into a promissory note with two lenders for aggregate proceeds of $1,150,000. The notes are unsecured and have a maturity date 15 months following their issuance. Beginning on the fourth month after issuance, the Company will make monthly repayments totaling $143,750, including principal and interest. Total principal and interest to be repaid is $1,725,000, and any remaining outstanding balance is due at maturity. In connection with the notes, the Company granted an aggregate of 1,150,000 warrants to the lenders with an exercise price of $0.25 per share. The fair value of the warrants was $185,788, which was recognized as a debt discount and will be amortized to interest expense over the life of the notes. During the year ended December 31, 2024, amortization of debt discount was $95,123. As of December 31, 2023, note payable, net of unamortized discount of $0, was $716,250 for these two notes.
On July 1, 2023, the Company entered into a promissory note with two lenders for aggregate proceeds of $3,850,000. The notes are unsecured and have a maturity date 15 months following their issuance. In connection with the notes, the Company granted an aggregate of 3,850,000 warrants to the lenders with an exercise price of $0.25 per share. The fair value of the warrants was $626,073, which was recognized as a debt discount and will be amortized to interest expense over the life of the notes. During the year ended December 31, 2024, amortization of debt discount was $375,644. As of December 31, 2024, note payable, net of unamortized discount of $0, was $3,400,833 for these two notes.
On July 1, 2023, the May and July notes were rolled over to Ranco, LLC for an aggregate of $5,000,000 (the “Ranco Notes”). The Ranco Notes have a 15 month term and are subject to mandatory equal repayments commencing on the fourth month following issuance, for an aggregate repayment of $7,500,000. The Ranco Notes are secured by the assets of Ranco and guaranteed by the Company. As of the issuance date of these financial statements, the Company is currently in negotiations with the lenders for an extension of the Ranco Notes.
21
Future scheduled maturities of long-term debt are as follows:
|
|
|
|
| December 31, 2024 |
2025 |
|
|
|
| 7,510,624 |
2026 |
|
|
|
| 8,772 |
2027 |
|
|
|
| 8,772 |
2028 |
|
|
|
| 8,772 |
Thereafter |
|
|
|
| 93,355 |
|
|
|
|
| 7,630,295 |
The aggregate current portion of long-term debt as of December 31, 2024 amounted is $7,510,624, which represents the contractual principal payments due in the next 12 month period as well as any notes in default.
Obligations Under Preferred Stock
On June 20, 2019, existing debtholders were issued an aggregate of 500 shares of Series A Preferred Stock, each with a stated value per share of $1,000, as conversion of $500,000 worth of outstanding promissory notes. The Series A Preferred Stock bears interest at 12% per annum, and is convertible into our common stock at the election of the holder at a conversion price per share to be mutually agreed between us and the holder in the future, and be redeemable at our option following the third year after issuance, without voting rights or a liquidation preference.
On June 20, 2019, we issued 3,000 shares of Series B Preferred Stock, each with a stated value of $1,000 per share, to Emerging Growth, LLC as part of the Emerging Growth Agreement. The aggregate fair value of $687,000 was recorded as part of the acquisition price of the net assets acquired from Emerging Growth, LLC. The Series B Preferred Stock bears interest at 6% per annum and is convertible into our common stock at the election of Emerging Growth, LLC at a conversion price per share to be mutually agreed between us and Emerging Growth, LLC in the future, without voting rights or a liquidation preference, except with respect to accrued penalty interest.
Other outstanding obligations at December 31, 2024
Warrants
As of December 31, 2024, 11,988,500 shares of our common stock are issuable pursuant to the exercise of warrants.
Options
As of December 31, 2024, no shares of our common stock are issuable pursuant to the exercise of options.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
Critical Accounting Policies
Accounts Receivable
The Company’s account receivables are due from sales billed to customers. The Company also maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make payments. The Company periodically reviews these estimated allowances, including an analysis of the customers’ payment history and creditworthiness, the age of the trade receivable balances and current economic conditions that may affect
22
a customer’s ability to make payments as well as historical collection trends for its customers as a whole. Based on this review, the Company specifically reserves for those accounts deemed uncollectible or likely to become uncollectible. When receivables are determined to be uncollectible, principal amounts of such receivables outstanding are deducted from the allowance.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
Income Taxes
Income taxes are accounted for in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives of five years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized.
Goodwill
The Company’s goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from business acquisitions. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level.
Long-Lived Assets
In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.
Basic and Diluted Earnings Per Share
Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options, warrants and preferred stock (calculated using the modified-treasury stock method.
23
Share-Based Payment
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.
The Company has elected to use the Black-Scholes option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Common stock awards
The Company has granted common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been made in cash.
Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is included in Item 15 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer and Principal Financial Officer), we conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on this evaluation, our Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) concluded that our disclosure controls and procedures were not effective as of December 31, 2024 (the end of the period covered by this report).
24
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and the related rule of the SEC, management assessed the effectiveness of our internal control over financial reporting using the Internal Control-Integrated Framework (2013) developed by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2024.
Auditor Attestation
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2024, in order to remediate the segregation of duties and other deficiencies, we hired accounting consultants to perform our account reconciliations and other day-to-day accounting requirements. The internal control structure was also documented and assessed in the areas of financial reporting and disclosure controls as it relates to our continuing operations. In addition, we revised and improved the use of our systems for getting appropriate approvals for purchases and other activities that require authorization. However, our ability to file timely reports is heavily dependent on having the necessary financial resources to pay consultants and other service providers involved with performing key elements of our disclosure and financial reporting controls. As a result, we have assessed our disclosure controls and controls over financial reporting as ineffective.
Item 9B. Other Information
Given the timing of the events, the following information is included in this Form 10-K pursuant to Item 3.02 “Unregistered Sales of Equity Securities” in lieu of filing a Form 8-K.
On April 10, 2025, the Company and the holder of the $500,000 promissory note dated September 10, 2019 reached an agreement to extend the maturity date of the note until December 31, 2027. In connection with the extension, the Company issued 600,000 shares of its common stock to the noteholder in consideration of the extension and in lieu of $60,000 of interest accrued on the promissory note through March 31, 2025. The shares were issued under the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as not involving a public offering.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
Not applicable.
25
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the names, ages and principal position of our executive officers and directors as of December 31, 2024:
Name |
| Age |
| Position |
Brian Ross |
| 50 |
| Chairman of the Board, President, Chief Executive Officer |
Mario Marsillo, Jr. |
| 56 |
| Director, Chief Investment Officer |
Allen Park |
| 38 |
| Chief Operating Officer and Controller |
Anness Ziadeh |
| 34 |
| Chief Sales and Marketing Officer |
Rami Abi |
| 37 |
| Chief Strategy Officer |
Brian Ross. Mr. Ross has served as our President, Chief Executive Officer and director since November 2005, and as our Chairman of the Board since March 2013. He previously served as Senior Vice President of Business Development for iMall, Inc. from 1994 and became Director of Investor Relations in June 1997. iMall, Inc. was acquired by Excite@Home in October 1999. Mr. Ross then served as a Business Development Manager in Excite@Home’s E-Business Services Group until December 1999. After the sale of iMall, Mr. Ross was a founding investor of GreatDomains Inc. which was sold in October 2000 to Verisign. Between 2000 and 2003, he was Director of Business Development for Prime Ventures Inc., a leading Venture Partner firm focusing on early stage companies in Southern California. In July 2004, Mr. Ross became a founding investor in E-force Media, a diversified online marketing company where he acted as interim Director of Business Development. Mr. Ross attended UC Santa Barbara.
We believe that Mr. Ross is qualified to serve as a director for the following reasons: Mr. Ross, who is one of our founders, is an Internet industry veteran with over two decades of experience. He has been our Chief Executive Officer for more than ten years and he has a proven track record with the aforementioned companies, which were all operating in online marketing solutions and e-commerce. Additionally, Mr. Ross has played an important role in the development and growth of various Internet companies, taking them from start-up companies through the various stages of their growth cycle.
Mario Marsillo Jr. Mr. Marsillo has been a director since April 2014, our Director of Corp Development since August 1, 2019 until August 2021, and our Chief Investment Officer since August 2021. Mr. Marsillo was until June 30, 2019 the Managing Director of Private Equity for Network 1 Financial Securities Inc., or Network 1, a New Jersey based FINRA member firm offering a wide array of investment banking services and has been with Network 1 since 2010. Prior to his association with Network 1, Mr. Marsillo acquired Skyebanc, Inc., a registered broker dealer, with a specialty towards private equity, and served as its Vice President of Private Equity and Business Development. Mr. Marsillo held the Series 7, 63 79, and 24 FINRA qualifying examinations. Mr. Marsillo attended the City University of New York.
We believe Mr. Marsillo is qualified to serve as a director because Mr. Marsillo is a sophisticated businessman with investment banking and private equity experience, was an early investor in us and has previously assisted us in raising capital.
Allen Park. Allen Park has served as our Chief Operating Officer since July 1, 2023 and Controller since October 1, 2023. Mr. Park is a seasoned executive with diverse industry experience. Prior to the acquisition of the assets of RAN CoPacking Solutions LLC by the Company, Mr. Park served as CEO of RAN CoPacking Solutions since June 2021 and previously held leadership roles at APACK Agency from 2019 till the middle of 2021. Mr. Park has also led vape brands and a manufacturing company as CEO. With a global perspective from his China-based business specializing in manufacturing, sourcing, and procurement, Mr. Park possesses expertise in accounting, management, sales, supply chain management, manufacturing, human resources, business strategy, finance, and operations. Notably, Mr. Park has successfully completed multiple government manufacturing and sourcing contracts, showcasing his project management prowess and track record of delivering results.
Anness Ziadeh. Anness “Ness” Ziadeh has served as our Chief Sales and Marketing Officer since July 1, 2023. Mr. Ziadeh, prior to cofounding RAN CoPacking Solutions in 2021, was the COO at CBDfx, a leading CBD
26
products company, driving operational excellence and strategic initiatives from 2018 to 2021. Under Mr. Ziadeh’s leadership, CBDfx achieved significant growth and solidified its market leader position. Mr. Ziadeh previously founded and sold a successful vape website, showcasing his entrepreneurship and business acumen. With expertise in scaling businesses, he navigates complex challenges and drives sustainable growth. His diverse experience spans operations management, digital marketing, and strategic planning. Prior to CBD and vape industries, Mr. Ziadeh accumulated over a decade of experience in financial management, decision-making, and business operations. Leveraging his experience, Mr. Ziadeh fosters innovation and operational efficiency in the evolving business landscape.
Rami Abi. Rami Abi has served as our Chief Strategy Officer since July 1, 2023. Mr. Abi is a seasoned professional with a track record of success in building brands and marketing. With a keen eye for spotting new opportunities, Mr. Abi has a wealth of experience in business development and is one of the cofounders of RAN CoPacking Solutions in 2021. Mr. Abi is known for his expertise in hosting festivals and events, creating memorable experiences for attendees. With his diverse skill set and strategic mindset, Mr. Abi has consistently demonstrated his ability to drive growth and capitalize on emerging trends.
Code of Ethics
We have adopted a Code of Business Conduct Ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We will provide a copy of our Code of Ethics, free of charge, upon request.
Committees of the Board of Directors
Our Board of Directors has not yet established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee. The typical functions of such committees are currently being undertaken by our Board of Directors.
Audit Committee Financial Expert
Currently no member of our Board of Directors is an audit committee financial expert.
Item 11. Executive Compensation.
The following table sets forth, for the last two completed fiscal years, all compensation paid, distributed or accrued for services rendered to us by (i) all individuals serving as our principal executive officer or acting in a similar capacity during the last completed fiscal year, regardless of compensation level; and (ii) our two most highly compensated executive officers, other than the principal executive officer, who were serving as executive officers at the end of the last completed fiscal year and whose total compensation exceeded $100,000:
27
Summary Compensation Table
Name and Principal |
| Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All Other Compensation | Totals | |||||||||
Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($)1 | ($) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian Ross, (1) |
| 2024 |
| $260,000 |
| - |
| - | - |
| - |
| - |
| - | - |
| $260,000 |
Chief Executive Officer |
| 2023 |
| $139,700 |
| - |
| - | - |
| - |
| - |
| - | - |
| $139,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mario Marsillo, (1) |
| 2024 |
| $252,000 |
| - |
| - | - |
| - |
| - |
| - | - |
| $252,000 |
Chief Investment Officer |
| 2023 |
| $136,783 |
| - |
| - | - |
| - |
| - |
| - | - |
| $136,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen Park, (1) |
| 2024 |
| $- |
| - |
| - | - |
| - |
| - |
| - | - |
| $- |
Chief Operating Officer |
| 2023 |
| $- |
| - |
| - | - |
| - |
| - |
| - | - |
| $- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anness Ziadeh (1) |
| 2024 |
| $- |
| - |
| - | - |
| - |
| - |
| - | - |
| $- |
Chief Sales and Marketing Officer | 2023 |
| $- |
| - |
| - | - |
| - |
| - |
| - | - |
| $- | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rami Abi (1) |
| 2024 |
| $- |
| - |
| - | - |
| - |
| - |
| - | - |
| $- |
Chief Strategy Officer |
| 2023 |
| $- |
| - |
| - | - |
| - |
| - |
| - | - |
| $- |
(1)For the years ended December 31, 2024 and 2023, Mr. Ross and Mr. Marsillo deferred a portion of their salaries. For the year ended December 31, 2024, Mr. Park, Mr. Ziadeh and Mr. Abi deferred their entire salary.
If we elect to terminate the employment of any of the officers listed above without cause during the term of his respective employment agreement as described below, each shall be entitled to a severance payment of the greater of the remaining payments due on the term of the agreement or an annual base salary of one year, and all unvested options, bonuses and other compensation shall vest on the date of termination.
Employment Agreements
We have written employment agreements with management. The main terms of the executive employment agreements are summarized below.
On August 25, 2021, the Company entered into new employment agreements with Brian Ross and Mario Marsillo Jr. each effective until December 31, 2026. On July 1, 2023, the Company entered into amendments of the employment agreements of Brian Ross and Mario Marsillo Jr., to extend the term of each agreement from December 31, 2026 to December 31, 2029, and increasing Mr. Marsillo’s annual base salary from $265,000 to $300,000. Brian Ross and Mario Marsillo will each be paid an annual base salary of $300,000. On July 1 2023, the Company entered into employment agreements with Allen Park, appointing him as Chief Operating Officer, Anness Ziadeh, appointing him as Chief Sales and Marketing Officer, and Rami Abi, appointing him as Chief Strategy Officer (the “Employment Agreements”), each effective until December 31, 2026. The annual base salaries for Mr. Park, Mr. Ziadeh and Mr. Abi are $300,000 for each officer.
Each officer is entitled to an annual raise of three percent and additional annual raises and bonuses at the discretion of the Company’s Board of Directors, such bonuses not to exceed 100%, in the case of Mr. Ross and Mr. Marsillo, or 200% otherwise, of each officer’s annual base salary. Each officer is also entitled to other benefits including reimbursement for reasonable business expenses and payment towards health insurance premiums. Each employment agreement contains customary confidentiality and assignment of work product provisions and may be terminated by the Company without cause upon 30-days prior written notice. If the Company elects to terminate an employment agreement without cause during the term, such officer shall be entitled to a severance payment of the greater of the remaining payments under the employment agreement or an annual base salary of one year. If terminated by the officer or for cause, the officer is entitled to amounts accrued through the date of termination.
28
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive stock options at the discretion of our Board in the future.
Outstanding Equity Awards at Fiscal Year-End
None.
Director Compensation
There was no separate director’s compensation paid during the year ended December 31, 2024. Mr. Ross and Mr. Marsillo, Jr. are compensated as our officers.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
As of December 31, 2024, we had 82,210,664 shares of our Common Stock issued and outstanding. The following, table sets forth information regarding the beneficial ownership of our Common Stock as of April 15, 2025 (82,210,664 shares outstanding as of April 15, 2025) by:
● | each person known by us to be the beneficial owner of more than 5% of our Common Stock; |
● | our directors; |
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|
● | each of our executive officers named in the compensation tables in Item 11; and |
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● | all of our executive officers and directors as a group. |
Except as set forth below, the address of each beneficial owner is c/o CFN Enterprises, Inc., 600 E. 8th Street, Whitefish, Montana, 59937.
|
| Common Stock | ||
|
| No. of Shares |
| % of Class |
Brian Ross (1) |
| 658,144 |
| 0.8% |
Mario Marsillo Jr. |
| 91,982 |
| 0.1% |
Isaac Shehebar (2) |
| 10,401,847 |
| 12.7% |
Emerging Growth LLC (3) |
| 4,556,667 |
| 5.5% |
Anthony Zingarelli (4) |
| 6,047,600 |
| 7.3% |
Allen Park |
| 17,129,412 |
| 20.8% |
Rami Abi |
| 10,170,568 |
| 12.4% |
Aness Ziadeh |
| 5,700,000 |
| 6.9% |
All current officers and directors as a group (5 persons) |
| 33,570,106 |
| 40.8% |
| (1) | Includes 1,000 warrants vested held by Mr. Ross’ spouse. Mr. Ross disclaims beneficial ownership of the 1,000 warrants vested except to the extent of his pecuniary interest therein. |
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| (2) | Includes 3,338,000 warrants to purchase common stock. The address of Mr. Shehebar is 1407 Broadway, Suite 503, New York, NY 10018. |
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| (3) | Based on a Schedule 13D filed with the Securities and Exchange Commission on April 9, 2021. Darren Dayton is the managing member of Emerging Growth LLC with sole voting and dispositive power. The address of Emerging Growth LLC is 143 Calle Mayor, Redondo Beach, CA 90277. |
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| (4) | Based on a Schedule 13D filed with the Securities and Exchange Commission on August 15, 2022. The address of Mr. Zingarelli is 12742 E Caley Avenue, Centennial, CO 80111. |
29
Securities authorized for issuance under equity compensation plans.
None.
Item 13. Certain Relationships and Related Party Transactions, and Director Independence.
Related Person Transactions
None.
Director Independence
As our Common Stock is currently quoted on the OTCQB Marketplace, we are not subject to the rules of any national securities exchange which require that a majority of a listed company’s directors and specified committees of the Board of Directors meet independence standards prescribed by such rules. We believe that none of our directors would qualify as “independent” if we were subject to the rules of the Nasdaq Stock Market.
Item 14. Principal Accountant Fees and Services
The following table summarizes the fees of RBSM LLP, our independent registered public accounting firm billed for each of the last two fiscal years for audit services and other services:
|
| December 31, |
| December 31, |
Fee Category |
| 2024 |
| 2023 |
Audit Fees (1) |
| $181,000 |
| $188,500 |
Tax Services |
| 14,000 |
| 14,000 |
|
| $195,000 |
| $202,500 |
(1) Consists of fees billed for professional services rendered in connection with the audit of our annual financial statements, review of our Form 10-K, review of our interim financial statements included in our Form 10-Q and services that are normally provided by our independent registered public accounting firm in connection with year-end statutory and regulatory filings or engagements.
(2) Consists of fees billed for professional services for our tax compliance, tax advice and tax planning.
We do not have an Audit Committee. Our Board of Directors pre-approves all auditing services and permissible non-audit services provided to us by our independent registered public accounting firm. All fees listed above were pre-approved in accordance with this policy.
30
PART IV
Item 15. Exhibits and Financial Statement Schedules
a. | Index to Financial Statements and Financial Statement Schedules |
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.
31
b. | Exhibits |
EXHIBIT NO. |
| DESCRIPTION |
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2.1 |
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2.2 |
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10.1* |
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10.3* |
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10.4* |
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10.6* |
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10.7* |
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10.8 |
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10.9 |
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10.10 |
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10.11 |
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10.12 |
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10.13 |
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10.14 |
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10.15 |
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33
10.19 |
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10.20 |
| Lease Agreement dated April 12, 2023 for Emerging Growth, LLC and CFN Enterprises, Inc. (incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 17, 2023). |
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10.21 |
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10.22 |
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10.23 |
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23.1** |
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31.1** |
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32.1*** |
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101.1** |
| The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2024, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Changes in Stockholders’ Deficit, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements. |
* Management contract or compensatory plan or arrangement.
** Filed herewith.
*** Furnished herewith.
Item 16. Form 10-K Summary.
None.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CFN ENTERPRISES INC. |
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By: | /s/ Brian Ross |
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Brian Ross |
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President and Chief Executive Officer |
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Date: April 15, 2025
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE |
| TITLE |
| DATE |
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By: /s/ Brian Ross |
| Chairman of the Board, President and |
| April 15, 2025 |
Brian Ross |
| Chief Executive Officer (Principal executive officer, principal financial officer and principal accounting officer) |
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By: /s/ Mario Marsillo Jr. |
| Director and Chief Investment Officer |
| April 15, 2025 |
Mario Marsillo Jr. |
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35
CFN ENTERPRISES INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2024 and 2023
Index to Financial Statements and Financial Statement Schedules
The following consolidated financial statements and financial statement schedules are included on the pages indicated:
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of CFN Enterprises, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of CFN Enterprises, Inc. and Subsidiary (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of income, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and will require additional capital to continue as a going concern. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-2
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
/s/ |
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We have served as the Company’s auditor since 2012. |
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Dated: April 15, 2025 PCAOB ID: |
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F-3
CFN ENTERPSISES INC.
CONSOLIDATED BALANCE SHEETS
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| December 31, | ||
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| 2024 |
| 2023 | |
ASSETS |
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Current assets: |
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| Cash |
| $ |
| $ | ||||
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| Restricted cash |
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| Accounts receivable, net |
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| Inventory |
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| Total current assets |
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Property and equipment, net |
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Right of use asset |
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Deposits |
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Other assets |
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| Total assets |
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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Current liabilities: |
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| $ |
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| Accrued liabilities |
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| Deferred revenue |
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| Contingent consideration |
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| Current portion of right of use liability |
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Right of use liability |
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Long-term note payable, net of current portion and discounts |
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Commitments and contingencies |
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Stockholders' deficit: |
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| Series A preferred stock, $ |
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| Additional paid-in capital |
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| Accumulated deficit |
| ( |
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| Total stockholders' deficit |
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| Total liabilities and stockholders' deficit |
| $ |
| $ | ||
See accompanying notes to the consolidated financial statements.
F-4
CFN ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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| December 31, | ||
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| 2024 |
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Net revenues | $ |
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Cost of revenue |
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Operating expenses: |
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Loss from operations | ( |
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Other income (expense): |
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Provision for income taxes |
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Net loss | $( |
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Preferred stock interest |
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Net loss available to common shareholders | $( |
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Net loss per common share - basic and diluted | $( |
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Weighted average common shares outstanding - basic and diluted |
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See accompanying notes to the consolidated financial statements.
F-5
CFN ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
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| Common Stock |
| Paid-in |
| Accumulated |
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| Amount |
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| Amount |
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| Capital |
| Deficit |
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Balance at December 31,2022 |
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Issuance of common stock for cash |
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Contributed capital |
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Preferred stock interest |
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Net loss |
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Balance at December 31,2023 |
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Contributed capital |
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Net loss |
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Balance at December 31,2024 |
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See accompanying notes to the consolidated financial statements.
F-6
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| Year Ended | ||
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| December 31, | ||
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| 2023 | |
Cash flows from operating activities: |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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| ( |
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| Changes in operating assets and liabilities: |
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| ( |
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| Inventory |
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Cash flows from investing activities: |
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Cash acquired pursuant to business combination |
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Sale of assets held for sale |
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Purchase of property and equipment, net |
| ( |
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| ( |
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Cash flows from financing activities: |
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Net advances from related parties |
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Proceeds from promissory notes |
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Repayments of notes |
| ( |
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Contributed capital |
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Proceeds from sale of common stock |
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| Net cash (used in) provided by financing activities |
| ( |
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Net change in cash and cash equivalents |
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Cash and restricted cash at beginning of year |
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Cash and restricted cash at end of year |
| $ |
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Reconciliation of cash and restricted cash: |
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| Cash at beginning of period |
| $ |
| $ | |||||
| Restricted cash at beginning of year |
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| Cash and restricted cash at beginning of year |
| $ |
| $ | |||||
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| Cash at end of period |
| $ |
| $ | |||||
| Restricted cash at end of year |
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| Cash and restricted cash at end of year |
| $ |
| $ | |||||
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Supplemental disclosure of cash flow information: |
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Cash paid for income taxes |
| $ |
| $ | ||||||
Cash paid for interest |
| $ |
| $ | ||||||
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Supplemental disclosure of non-cash investing and financing activities: |
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Issuance of common stock pursuant to business combination |
| $ |
| $ | ||||||
Due to seller and contingent consideration pursuant to business combination |
| $ |
| $ | ||||||
Conversion of accrued preferred stock interest into shares |
| $ |
| $ | ||||||
Right of use asset and liability |
| $ |
| $ | ||||||
Warrants issued with promissory notes |
| $ |
| $ | ||||||
Accrual of preferred stock interest |
| $ |
| $ | ||||||
See accompanying notes to the consolidated financial statements.
F-7
CFN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024 and 2023
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Organization
CFN Enterprises Inc., formerly known as Accelerize Inc., or “the Company”, is a Delaware corporation incorporated on November 22, 2005. Effective October 22, 2019, the Company filed a certificate of amendment to its certificate of incorporation with the Secretary of State of the State of Delaware to change its corporate name to CFN Enterprises Inc.
On May 15, 2019, the Company entered into an asset purchase agreement or the Emerging Growth Agreement with Emerging Growth, LLC, or the Seller or Emerging Growth, pursuant to which the Company acquired certain assets from the Seller related to its sponsored content and marketing business for a purchase price consideration consisting of $
On August 23, 2021, the Company entered into securities purchase agreements with CNP Operating, LLC, a Colorado limited liability company, or CNP Operating, and the owners of all of the equity interests of CNP Operating, or the Owners, whereby the Company acquired 100% of CNP Operating from the Owners in exchange for an aggregate of 354 million shares of the Company’s common stock. The securities were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended. On August 25, 2021, the transaction was closed and CNP Operating became a wholly owned subsidiary of the Company. CNP Operating is a cannabidiol manufacturer. In the fourth quarter of 2022 and the first quarter of 2023, the Company took steps to wind down the operations of CNP Operating and focus on the CFN Business.
On December 6, 2021, we effected a reverse split of our outstanding common stock in the ratio of 1-for-15, or the Reverse Stock Split. All share amounts retrospectively reflect the effect of the Reverse Stock Split.
On July 1, 2023, the Company and its wholly owned subsidiary, Ranco LLC, a Delaware limited liability company, or Ranco, entered into an asset purchase agreement, or the Asset Purchase Agreement (“Ranco Agreement” with RAN CoPacking Solutions LLC, a California limited liability company, or the Seller and the members of the Seller (collectively, the Founders). The assets of the Seller acquired by Ranco consist of assets for co-packing and white label manufacturing services, including comprehensive solutions for third party logistics (3PL) related areas such as storage, order fulfillment, solutions for custom packaging and hardware needs for many different industries, and media and design services, along with strategic marketing support, to help clients establish and enhance their brand presence in the market, or the Purchased Assets.
Also on July 1, 2023, Ranco entered into the Packwoods Private Label Services and Intellectual Property Licensing Agreement, or the Licensing Agreement, with PW Industries LLC, a Wyoming limited liability company, or PW, RS Distributions LLC, a Delaware limited liability company, or RS, and Packaging Innovations LLC, a Wyoming limited liability company, or PI, and together with PW and RS, the Licensors, for the exclusive manufacturing, packaging and distribution of, and wholesale and retail sales of a variety hemp-based inhalable (pre-roll and vaporizer), edible products, and disposable nicotine-based inhalable vaporizer products, and the purchase of packaging materials to be used with Packwoods-branded cannabis products (containing more than 0.3% delta-9 THC by weight) and the distribution of those packaging materials to licensed cannabis manufacturers designated by PW, using the Licensor’s licensed property for a 5 year exclusive term, subject to certain exclusions.
The Company’s current operations consist of the sponsored content and marketing business, or the CFN Business, from the assets acquired pursuant to the Emerging Growth Agreement, and the business of Ranco, or the Ranco Business.
F-8
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis which implies the Company will continue to meet its obligations for the next 12 months as of the date these financial statements are issued.
The Company had a working capital deficit of $
Management’s plan to continue as a going concern includes raising capital in the form of debt or equity, managing and reducing operating and overhead costs and continuing to pursue strategic transactions and opportunities including launching an e-commerce network focused on the sale of general wellness CBD, products.
These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include the results of operations of the Company and its subsidiaries CNP Operating, CNP of Wyoming, LLC and Ranco, LLC. All intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, or 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 financial statements and the reporting amounts of revenues and expenses during the reported period. Actual results will differ from those estimates. Included in these estimates are assumptions about collection of accounts receivable, useful life of fixed assets and intangible assets, impairment of long-lived assets, borrowing rate considered for operating lease right-of-use asset and related operating lease liability, and assumptions used in Black-Scholes valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
Segment Reporting
The Company operates under one reporting segment.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased, to be cash equivalents. The Company has restricted cash as a result of its corporate card program through its bank, which requires collateral placed in a money market account. As of December 31, 2024 and 2023, the Company had restricted cash balances of $0 and $20,448, respectively, included as a component of total cash and restricted cash as presented on the accompanying consolidated statement of cash flows.
Accounts Receivable
The Company’s account receivables are due from sales billed to customers. Collateral is currently not required. The Company also maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make payments. The Company periodically reviews these estimated allowances, including an analysis of the customers’ payment history and creditworthiness, the age of the trade receivable balances and current economic conditions that may affect a customer’s ability to make payments as well as historical collection trends for its customers as a whole. Based on this review, the Company specifically reserves for those accounts deemed uncollectible or likely to become uncollectible. When receivables are determined to be uncollectible, principal amounts of such receivables outstanding are deducted from the allowance. The allowance for doubtful accounts as of December 31, 2024 and 2023 amounted to $
F-9
Inventory
The Company’s inventory consists of finished goods acquired for its Ranco business. As of December 31, 2024 and 2023, all inventory consisted of disposable nicotine-based inhalable vaporizer products purchased from overseas. The inventory is valued at the lower of cost (specific identification) or estimated net realizable value. As of December 31, 2024, the Company valued the inventory at $
Concentration of Credit Risks
The Company is subject to concentrations of credit risk primarily from cash and cash equivalents and accounts receivable.
The Company’s cash and cash equivalents accounts are held at a financial institution and are insured by the Federal Deposit Insurance Corporation, or the FDIC, up to $
Concentrations
The Company had
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
The Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered.
CFN Business
Subsequent to the closing of the Emerging Growth Agreement on June 20, 2019, the Company’s revenue is generated from the sale of promotional service packages to its customers ranging from 3 to 6 months. The Company offers different packages tailored to the type and stage of the potential customer, such as public companies looking to increase their shareholder base, as well as private companies potentially looking to go public and attract capital and publicity. The services provided by the Company include advertising, publishing of interviews and articles across its network and featuring of client content on its newsletters and social media. The packages all have fixed prices that are billed monthly over the terms of the agreement in even amounts. The Company recognizes revenue for its performance obligation associated with its contracts with customers over time as work is performed, which is deemed to occur evenly throughout the duration of the contract. This also reflects the pattern in which costs are incurred on performing the contracts. To the extent revenue recognized on contracts at each period end exceeds collections, the amounts are reflected as accounts receivable. To the extent collections on contracts at each period end exceeds revenue recognized, the amounts are reflected as deferred revenue.
F-10
Ranco Business
The Company performs services including white label manufacturing and co-packing for customers. Customers will drop off their product and the Company will perform the services via their employees and contractors. When the services are complete, the Company has satisfied its performance obligations. Revenue is recognized at this point in time.
The Company will order products that are manufactured overseas, such as custom boxes, packaging and hardware. These products are generally shipped from overseas to the customer. When these products are shipped out from the manufacturer, the Company has satisfied its performance obligations. Revenue is recognized at this point in time.
Lastly, the Company provides certain shipping and third-party logistics services for customers. Once the products have arrived from overseas to the Company’s warehouse, the Company has satisfied its performance obligations which was the underlying shipping and logistics services. Revenue is recognized at this point in time.
Disaggregation of Revenue
The following is a disaggregation of revenue for the year ended December 31, 2024 and 2023 respectively:
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| December 31, | ||
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| 2023 | |
Services (CFN and Ranco services) |
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Products |
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Shipping and logistics |
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Contract Liabilities
In some instances, customers provide payment before the Company has satisfied its performance obligations. These amounts are recorded to deferred revenue. As of December 31, 2024 and 2023, the Company recorded $115,000 and $484,212, respectively in deferred revenue.
Cost of Revenue
Cost of revenue includes direct labor and product costs. Cost of revenues also includes inbound and outbound shipping, freight and delivery costs.
Shipping and Handling Fees and Costs
Amounts billed to customers for shipping and handling fees are presented in revenue. Costs incurred for shipping and handling are included in cost of revenue.
Fair Value of Financial Instruments
The Company accounts for assets and liabilities measured at fair value on a recurring basis in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
F-11
Level 1: | Observable inputs such as quoted market prices in active markets for identical assets or liabilities. |
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Level 2: | Observable market-based inputs or unobservable inputs that are corroborated by market data. |
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Level 3: | Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. |
Additional Disclosures Regarding Fair Value Measurements
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and lines of credit approximate their fair value due to the short-term maturity of these items. The Company’s notes payable approximate their fair value due to the market rate of interest on the notes.
The Company’s contingent consideration recorded in connection with the Ranco acquisition (see Note 3) is a Level 3 liability. The liability is valued using a probability weighted analysis of the respective earn out provisions.
Business Combinations
The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.
Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.
Impairment
Long-Lived Assets
In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.
Goodwill
Goodwill and identifiable intangible assets that have indefinite useful lives are not amortized, but instead are tested annually for impairment and upon the occurrence of certain events or substantive changes in circumstances. The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required.
The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. It is the Company’s practice, at a minimum, to perform a qualitative or quantitative goodwill impairment test in the fourth quarter every year.
F-12
The Company’s goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from business acquisitions. Goodwill is not amortized but is reviewed for potential impairment on an annual basis at the reporting unit level.
As of December 31, 2024, there was no impairment. As of December 31, 2023, the Company examined the projected undiscounted cash flows of its Ranco reporting unit and determined to record an impairment loss of $8,676,430.
Contingent Consideration
The Company records a contingent consideration liability relating to earn the Company’s shares included in its acquisition agreements. The estimated fair value of the contingent consideration is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.
The Company estimates and records the acquisition date fair value of contingent consideration as part of purchase price consideration for acquisitions. Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration and recognizes any change in fair in the consolidated statement of operations. The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of future operating results, discount rates and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and, therefore, materially affect the Company’s future financial results. The contingent consideration liability is to be settled with the issuance of shares of common stock once contingent provisions set forth in respective acquisition agreements have been achieved. Upon achievement of contingent provisions, respective liabilities are relieved and offset by increases to common stock and additional paid-in capital in the stockholders’ equity section of the Company’s consolidated balance sheets.
Ranco Earnout
The Ranco Agreement contains an earn out provision providing for the issuance of (i) 8 million shares of Company common stock to be issued upon Ranco achieving $19 million in gross revenue attributable to the Purchased Assets and a net profit of $3.9 million within the twelve month period beginning three months from the closing of the Acquisition, or the First Earnout Period, and (ii) 8 million shares of Company common stock to be issued upon Ranco achieving $29 million in gross revenue attributable to the Purchased Assets and a net profit of $5.9 million within the twelve month period beginning on the day immediately following the end of the First Earnout Period.
The Company utilized a probability weighted scenario based on the earnout provisions above and determined the fair value of the contingent consideration was $208,000, which is a Level 3 financial instrument There was no change to the fair value for the contingent consideration for the year ended December 31, 2024.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses relating to continuing operations for the year ended December 31, 2024 and 2023 amounted to $
Income Taxes
Income taxes are accounted for in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly.
F-13
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives of five years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized.
Long-Lived Assets
In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.
Comprehensive Loss
The Company follows FASB ASC 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Since the Company has no items of other comprehensive income, comprehensive loss is equal to net loss.
Basic and Diluted Earnings Per Share
Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options and warrants (calculated using the modified-treasury stock method). As of December 31, 2024 and 2023, the Company had
Share-Based Payment
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.
The Company has elected to use the Black-Scholes option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Common Stock Awards
The Company has granted common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been made in cash.
F-14
Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period. Warrants granted in connection with ongoing arrangements are more fully described in Note 6, Stockholders’ Deficit.
Leases
The Company adopted Accounting Standards Update No. 2016-02, Leases (“Topic 842”) using the modified retrospective method. This accounting standard requires a lessee to recognize an asset and liability for most leases on its balance sheet.
The Company elected the practical expedient method permitted under the transition guidance, which allows a carryforward of historical lease classification, the assessment on whether a contract was or contains a lease, and the initial direct costs for any leases that existed prior to July 1, 2019. The Company also elected to recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term.
Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement and leases with an initial term of 12 months or less are not included in lease liabilities or ROU asset. As most leases do not provide an implicit rate, a rate which approximates the Company’s incremental borrowing rate is used, based on the information available at commencement date, in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred. Lease agreements generally do not contain residual value guarantees or restrictive covenants. Over the lease term, the Company uses the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized in a manner that results in straight-line expense recognition.
NOTE 3: BUSINESS COMBINATIONS
RAN CoPacking Solutions LLC
Ranco acquired the Purchased Assets and assumed certain liabilities of the Seller or the Acquisition, in exchange for an aggregate of 40 million shares of Company common stock, or the Acquisition Shares, and $1 million in cash consideration, payable in quarterly installments in an amount equal to the lesser of (i) Ranco’s gross revenues attributable to the Purchased Assets from and after the closing, net of all accrued debts, liabilities, and obligations of the Ranco and all amounts necessary or advisable to reserve, designate, or set aside for actual or anticipated costs, payments, liabilities, obligations, and claims with respect to the Purchased Assets, all as determined in good faith by Ranco, and (ii) $250,000, until paid in full, or the Cash Consideration. The Acquisition Shares were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended. The Asset Purchase Agreement also contains an earn out provision providing for the issuance of (i) 8 million shares of Company common stock to be issued upon Ranco achieving $19 million in gross revenue attributable to the Purchased Assets and a net profit of $3.9 million within the twelve month period beginning three months from the closing of the Acquisition, or the First Earnout Period, and (ii) 8 million shares of Company common stock to be issued upon Ranco achieving $29 million in gross revenue attributable to the Purchased Assets and a net profit of $5.9 million within the twelve month period beginning on the day immediately following the end of the First Earnout Period.
F-15
The Company evaluated the Asset Purchase Agreement pursuant to ASC 805 and ASU 2017-01, Topic 805, Business Combinations. The Company first determined that the Seller met the definition of a business as it includes inputs and a substantive process that together significantly contribute to the ability to create outputs. The Seller’s results of operations are included in the Company’s consolidated financial statements from the date of acquisition. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their estimated respective fair values as of the closing date of the acquisition. Goodwill recognized in connection with this transaction represents primarily the potential economic benefits that the Company believes may arise from the acquisition The purchase price allocation is preliminary and could be significantly revised as a result of additional information obtained regarding assets acquired and liabilities assumed and revisions of estimates of fair values of tangible assets and related deferred tax assets and liabilities. The Company will finalize its valuation and the allocation of the purchase price, along with required retrospective adjustments, if any, within a year following the acquisition date.
Total fair value of the purchase price consideration as of July 1, 2023 was determined as follows:
Cash (due to seller) | $ |
Common stock | |
Contingent consideration | |
Purchase price consideration | $ |
On July 1, 2023, the Company issued
Pursuant to the Asset Purchase Agreement, the Company owes the Seller $1,000,000 in cash consideration. The amount was recorded as a due to seller liability on the consolidated balance sheet. As of December 31, 2024, no payments were made.
In accordance with the Earn Out provisions per the Asset Purchase Agreement, the Company determined an initial fair value of $208,000 based on the fair value of the shares at the acquisition date and probabilities of the respective Earn Out terms. There was no change in fair value of the contingent consideration at December 31, 2024.
Purchase Price Allocation
The Company has made a preliminary allocation of the purchase price in regard to the acquisition related to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the preliminary purchase price allocation:
Cash | $ |
Accounts receivable | |
Deposits | |
Goodwill | |
Right of use asset | |
Accounts payable | ( |
Current portion of right of use liability | ( |
Right of use of liability | ( |
Purchase price consideration | $ |
Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition and other intangible assets that do not qualify for separate recognition. The goodwill is not deductible for tax purposes. As of December 31, 2023, the Company examined the projected undiscounted cash flows of its Ranco reporting unit and determined to record a full impairment of the goodwill of $8,676,430. As of December 31, 2024, there was no impairment.
F-16
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the Company’s financial results as if the RAN CoPacking Solutions LLC acquisition had occurred as of January 1, 2023. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisitions been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the Company’s future financial results. The unaudited pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition:
| Year Ended |
Net revenues | $5,731,373 |
Net loss | $(15,462,141) |
Net loss per common share | $(0.25) |
NOTE 4: PROPERTY AND EQUIPMENT
The Company’s property and equipment relating to continuing operations consist of the following:
| December 31, | ||
2024 |
| 2023 | |
Machinery & equipment | $ |
| $ |
Furniture and equipment and leasehold improvements |
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Tradeshow booth |
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Less: Accumulated depreciation | ( |
| ( |
$ |
| $ | |
Depreciation expense for the years ended December 31, 2024 and 2023 amounted to $
NOTE 5: NOTE PAYABLE
On September 10, 2019, the Company entered into a promissory note payable whereby the Company borrowed $
In connection with the promissory note on September 10, 2019, the Company issued warrants to purchase
On October 28, 2019, the Company’s subsidiary CNP Operating entered into a promissory note payable with Complete Business Solutions Group, Inc (“CBSG”) whereby the Company borrowed $
F-17
On September 30, 2019, the Company’s subsidiary CNP Operating entered into a promissory note payable with Eagle Six Consultants, Inc. (“Eagle”) whereby the Company borrowed $
On June 24, 2020, the Company entered into a Loan Authorization and Agreement with the SBA under which the Company borrowed $
On May 12, 2021, the Company’s subsidiary CNP Operating restructured the CSBG note payable of $
On November 19, 2020, the Company’s subsidiary CNP Operating purchased equipment for $
On October 19, 2021, the Company borrowed $
On May 11, 2022, the Company’s subsidiary, CFN Real Estate II, LLC, entered into a promissory note with a lender for the repayment of $
On May 8, 2023, the Company entered into a promissory note with two lenders for aggregate proceeds of $
F-18
On July 1, 2023, the Company entered into a promissory note with two lenders for aggregate proceeds of $
On July 1, 2023, the May and July notes were rolled over to Ranco, LLC for an aggregate of $
Future scheduled maturities of long-term debt are as follows:
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2025 |
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2026 |
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2027 |
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Thereafter |
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The aggregate current portion of long-term debt as of December 31, 2024 amounted is $
NOTE 6: STOCKHOLDERS’ DEFICIT
Common Stock
In January 2023, the Company issued
In May 2023, the Company and Emerging Growth reached an agreement whereby the Company issued
In July 2023, the Company issued
In August 2023, the Company and Emerging Growth reached an agreement whereby the Company issued
As of December 31, 2024 and 2023, there were no payments made in advance of the securities date.
Preferred Stock
The Company is authorized to issue
In May, 2023, the Company and Emerging Growth reached an agreement whereby the Company issued
In August, 2023, the Company and Emerging Growth reached an agreement whereby the Company issued
F-19
For the year ended December 31, 2024 and 2023, the Company incurred $
Warrants
The following summarizes the Company’s warrant activity for the years ended December 31, 2024 and 2023:
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Outstanding at December 31, 2023 |
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Granted |
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Forfeited |
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Outstanding at December 31, 2024 |
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Vested and expected to vest at December 31, 2024 |
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Exercisable at December 31, 2024 |
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On May 19, 2023, the Company entered into an advisory agreement with the Isaac Shehebar 2008 AIJJ Grantor Retained Annuity Trust and Ezra A. Chehebar (the “Advisors”), existing shareholders of the Company, for consulting services and to advise the Company’s executive team on strategic, branding, marketing, distribution, networking and other general business matters. As consideration under the advisory agreement, on May 22, 2023, the Company issued an aggregate of 6,000,000 five-year warrants to purchase common stock at a price of $0.25 per share to the Advisors. The warrants are immediately exercisable. During the year ended December 31, 2023, the Company recorded stock-based compensation expense of $
In connection with the May 2023 notes (see Note 5), the Company issued 1,150,000 warrants to purchase common stock. The warrants have an exercise price of $0.25 per share, are immediately exercisable and have a term of 5 years. The fair value of the warrants was $185,788, which was recognized as a debt discount and will be amortized to interest expense over the life of the notes. During the year ended December 31, 2024, amortization of debt discount was $95,123.
In connection with the July 2023 notes (see Note 5), the Company issued 3,850,000 warrants to purchase common stock. The warrants have an exercise price of $0.25 per share, are immediately exercisable and have a term of 5 years. The fair value of the warrants was $626,073, which was recognized as a debt discount and will be amortized to interest expense over the life of the notes. During the year ended December 31, 2024, amortization of debt discount was $375,644.
As of December 31, 2024, all outstanding warrants were fully vested and there was no remaining unrecorded compensation expense.
F-20
NOTE 7: DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Discontinued Operations
During May 2019, the Company decided to discontinue most of its operating activities pursuant to the Asset Purchase Agreement entered into with CAKE Software, Inc. (see Note 1).
In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of December 31, 2024 and 2023, and consist of the following:
|
| December 31, | ||
| 2024 |
| 2023 | |
Current liabilities of discontinued operations |
|
|
|
|
Accounts payable and accrued expenses |
| $ |
| $ |
Total current liabilities of discontinued operations |
| $ |
| $ |
In accordance with the provisions of ASC 205-20, the Company has excluded the results of discontinued operations from its results of continuing operations in the accompanying consolidated statements of operations. There were no results of operations pertaining to discontinued operations for the years ended December 31, 2024 and 2023.
NOTE 8: INCOME TAXES
A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:
|
| Years Ended |
| ||
|
| December 31, |
| ||
|
| 2024 |
| 2023 |
|
Statutory federal rate |
| |
| |
|
State income taxes net of federal income tax benefit |
|
|
| ||
Change in valuation allowance |
| ( |
| ( |
|
Effective income tax rate |
| |
| |
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the deferred tax assets and liabilities are as follows:
| December 31, | ||
2024 |
| 2023 | |
Deferred tax assets: |
|
|
|
Net operating loss carryforwards | $ |
| $ |
Allowance for bad debts |
| ||
Depreciation and amortization |
| ||
Deferred salaries |
| ||
Total deferred tax assets |
| ||
Change in valuation allowance | ( |
| ( |
Effective income tax rate | $ |
| $ |
At December 31, 2024, the Company had available net operating loss carryforwards of approximately $
F-21
The Company files income tax returns in the U.S. federal jurisdiction and various states and is subject to income tax examinations by federal and state tax authorities for tax years ended 2021 and later. The Company currently is not under examination by any tax authority. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of December 31, 2024, the Company has no accrued interest or penalties related to uncertain tax positions.
NOTE 9: LEASES
On June 20, 2019, the Company entered into a Lease Agreement with Emerging Growth for the lease of office space in Whitefish, Montana, for a period of one year at a rate of $
On April 1, 2023, Emerging Growth LLC entered into a modification of the existing lease agreement for its premises in Whitefish, Montana commencing April 11, 2023, for a period of five years at a rate of $3,750 per month, which lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase. In connection with this lease, the Company recorded a ROU asset and liability of $
On June 4, 2019, the Company’s subsidiary CNP Operating entered into a Lease Agreement with Blair Investments, LLC for the lease of office space in Centennial Colorado, for a period of 3 year at a rate of $
On October 26, 2020 the Company’s subsidiary CNP Operating entered into an amendment to the previous agreement to extend the lease to June 30, 2024, adjust the monthly rent schedule, the landlord agreed to install additional HVAC equipment and the Company agreed to reimburse the landlord $40,000 over a 4-year period with a monthly payment amount of $
On August 12, 2022, CFN Real Estate LLC, entered into a First Amendment to Lease Agreement, or the Amendment, to the Lease, with H2S2 LLC, for property in Eaton, Colorado. The Amendment amends the Lease to (i) provide for payment of the final non-refundable deposit in the amount of $34,000 on or before the earlier of November 30, 2022 or exercise of the option to purchase, (ii) provide for payment of the July 2022 monthly base rent in the amount of $
In connection with the Ranco acquisition, the Company agreed to assume the Seller’s lease for property related to the Purchased Assets in Los Angeles, California, consisting of approximately 46,000 square feet of space. The Ranco operating lease agreement commenced on July 1, 2022 and expires on July 31, 2027. The lease requires monthly base rent payments of $49,782 and required a security deposit of $297,269. Upon the Ranco acquisition, the Company recognized a right of use asset of $2,270,059 and right of use liability of $1,760,485. Furthermore, the Company acquired the existing security deposit of $297,269. In 2023, the Company recognized a right of use asset of $1,993,847 and right of use liability of $ 2,031,541. Initially, the Company was only paying the $49,782 monthly base rent until the landlord vacated the other half of the space on May 1, 2024, at which point the Company took over the entire premises and the lease rental increased to $96,634 per month.
F-22
The following is a summary of future minimum lease payments and related liabilities for all non-cancelable operating leases maturing as of December:
| Operating |
Period Ended December 31, | Leases |
2025 | $ |
2026 | |
2027 | |
2028 | |
Total lease payments | |
Less imputed interest | ( |
Total lease obligations | |
Less current lease obligations | ( |
Long-term lease obligations | $ |
| December 31, | ||
2024 |
| 2023 | |
Operating leases |
|
|
|
Assets |
|
|
|
Right of use asset | $ |
| $ |
|
|
|
|
Liabilities |
|
|
|
Current portion of right of use liability | $ |
| $ |
Right of use liability |
| ||
Total operating lease liabilities | $ |
| $ |
|
|
|
|
Weighted average remaining lease term (years) | 2.18 |
| 3.06 |
Weighted average discount rate |
| ||
NOTE 10: RELATED PARTY TRANSACTIONS
As of December 31, 2024 and 2023, there was $
During the year ended December 31, 2024, the executives of Ranco paid payroll to certain employees totaling $
NOTE 11: COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any legal proceedings that it currently believes, if determined adversely to the Company, would individually or taken together have a material adverse effect on the Company’s business, operating results, financial condition or cash flows.
F-23
NOTE 12: SEGMENT REPORTING
During the years ended December 31, 2024 and 2023, the Company had two operating segments including:
·CFN, which is comprised of CNP and CFN
·Ranco, which consists of the Company’s Ranco subsidiary.
Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria.
Financial statement information by operating segment for the years ended December 31, 2024 is presented below:
Assets |
| Ranco |
| CFN |
| Consolidated |
Total assets |
| $ |
| $ |
| $ |
| Ranco |
| CFN |
| Consolidated | ||||||
Net revenues |
| $ |
| $ |
| $ | |||||
Cost of revenue |
|
|
| ||||||||
|
| Gross income |
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| |||||||
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|
|
|
|
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|
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Operating expenses: |
|
|
|
|
|
| |||||
| Impairment |
|
|
| |||||||
| Selling, general and administrative |
|
| ||||||||
|
| Total operating expenses |
|
| |||||||
|
|
|
|
|
|
|
|
|
|
| - |
Loss from operations |
| ( |
| ( |
| ( | |||||
|
|
|
|
|
|
|
|
|
|
| - |
Other income (expense): |
|
|
|
|
|
| |||||
| Interest expense |
| ( |
| ( |
| ( | ||||
| Gain on property and equipment |
|
| ||||||||
| Gain on extinguishment of debt |
|
| ||||||||
| Other income |
|
| ||||||||
| Interest income |
|
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| |||||||
|
| Total other income (expense), net | ( |
|
| ( | |||||
|
|
|
|
|
|
|
|
|
|
| - |
Provision for income taxes |
|
| |||||||||
Net loss | $( |
| $( |
| $( | ||||||
Preferred stock interest |
|
| |||||||||
Net loss available to common shareholders | $( |
| $( |
| $( | ||||||
F-24
Financial statement information by operating segment for the years ended December 31, 2023 is presented below:
Assets |
| Ranco |
| CFN/CNP |
| Consolidated |
Total Assets |
| $ |
| $ |
| $ |
| Ranco |
| CFN/CNP |
| Consolidated | ||||||
Net revenues | $ |
| $ |
| $ | ||||||
Cost of revenue |
|
|
| ||||||||
|
| Gross profit |
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
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Operating expenses: |
|
|
|
|
|
| |||||
| Impairment |
|
| ||||||||
| Selling, general and administrative |
|
| ||||||||
|
| Total operating expenses |
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
| ( |
| ( |
| ( | |||||
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
| |||||
| Interest expense |
| ( |
| ( |
| ( | ||||
| Gain on property and equipment |
|
| ||||||||
| Gain on extinguishment of debt |
|
| ||||||||
| Other income |
|
| ||||||||
| Interest income |
|
|
| |||||||
|
| Total other expense, net | ( |
| ( |
| ( | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| |||||||||
Net loss |
| $( |
| $( |
| $( | |||||
Preferred stock interest |
|
| |||||||||
Net loss available to common shareholders | $( |
| $( |
| $( | ||||||
NOTE 13: SUBSEQUENT EVENTS
On April 10, 2025, the Company and the holder of the $500,000 promissory note dated September 10, 2019 reached an agreement to extend the maturity date of the note until December 31, 2027. In connection with the extension, the Company issued 600,000 shares of its common stock to the noteholder in consideration of the extension and in lieu of $60,000 of interest accrued on the promissory note through March 31, 2025. The shares were issued under the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as not involving a public offering.
F-25