FRQN 10-Q/A
Frequency Holdings, Inc (FRQN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from __________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive
Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |
||
If an emerging growth company, indicate by check mark if the registrant has elected
not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of as of May 15, 2024, there were shares of common stock outstanding.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
Explanatory Note:
This Quarterly Report on Form 10-Q for the period ended 1/31/24 has not been reviewed by an independent registered public accounting firm in accordance with the rules and regulations of the Securities and Exchange Commission. As a result, this report is considered deficient and may not fully comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
The Company plans to actively work with its independent registered public accounting firm to remedy the deficiency by completing the necessary review as soon as practicable. Once the review is completed, the Company will file an amendment to this Form 10-Q to include the reviewed financial statements and any additional disclosures as necessary.
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ITEM 1. FINANCIAL STATEMENTS
YUENGLING’S ICE CREAM CORPORATION
1
YUENGLING’S ICE CREAM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and Not Reviewed)
| January 31, 2024 | October 31, 2023 | |||||||
| (Unaudited and Not Reviewed) | (Unaudited and Not Reviewed) | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Due from officer | ||||||||
| Other receivable – affiliate | ||||||||
| Total Current Assets | ||||||||
| Other Assets: | ||||||||
| Other non-current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| Goodwill | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Due to affiliates | ||||||||
| Due to officers | ||||||||
| Due to financial institutions | ||||||||
| Notes payable | ||||||||
| Seller notes payable | ||||||||
| Vehicle and equipment loans | ||||||||
| SBA loans payable | ||||||||
| Convertible note payable, net of $ | ||||||||
| Derivative liability | ||||||||
| Life insurance payable – sellers, current portion | ||||||||
| Lease liabilities, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Non-current liabilities | ||||||||
| Seller notes payable, non-current portion | ||||||||
| Dividend payable, preferred stock Series C & D | ||||||||
| Life insurance payable, non-current | ||||||||
| Lease liabilities, non-current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Temporary Equity: | ||||||||
| Preferred Series A stock to be issued | ||||||||
| Total temporary equity | ||||||||
| Stockholders’ Deficit: | ||||||||
| Common stock to be issued | ||||||||
| Preferred stock, Series A; par value $; shares authorized, and, shares issued and outstanding at January 31, 2024 and 2023, respectively | ||||||||
| Preferred stock, Series C and D, par value $, shares authorized, and shares issued and outstanding at January 31, 2024 and 2023, respectively | ||||||||
| Common stock: $ par value; shares authorized; and shares (par $0.0001) issued and outstanding at January 31, 2024 and 2023, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
YUENGLING’S ICE CREAM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and Not Reviewed)
| For the Three Months Ended January 31, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited and Not Reviewed) | (Unaudited and Not Reviewed) | |||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Derivative: expense, gains and losses from issuances and conversion and changes in fair values | ( | |||||||
| Gain on extinguishment of debt | ||||||||
| Total other expense | ( | ) | ( | ) | ||||
| Loss before provision for income tax | ( | ) | ( | ) | ||||
| Provision for income tax | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic loss per share | $ | ( | ) | $ | ( | ) | ||
| Diluted loss per share | $ | ( | ) | $ | ( | ) | ||
| Basic weighted average shares | ||||||||
| Diluted weighted average shares | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
YUENGLING’S ICE CREAM CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED JANUARY 31, 2024 AND 2023
(Unaudited and Not Reviewed)
| Series A | Series C & D | To Be Issued Common | Additional | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Stock | Paid in | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Amount | Capital | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance at November 1, 2023 | 1,000,000 | 100 | 0 | 0 | 24,907,279 | 2,491 | 496,214 | 1,783,733 | (3,118,460 | ) | (835,922 | ) | ||||||||||||||||||||||||||||
| Recapitalization due to merger | 475,000 | 48 | 10,000,000 | 1,000 | 332,488,710 | 332,489 | - | 8,697,173 | (4,456,155 | ) | 2,907,941 | |||||||||||||||||||||||||||||
| Net loss for the three months ended January 31, 2024 | - | - | - | - | - | - | - | - | (33,863,147 | ) | (33,863,147 | ) | ||||||||||||||||||||||||||||
| Balance at January 31, 2024 | 1,475,000 | 148 | 10,000,000 | 1,000 | 357,395,989 | 334,980 | 496,214 | 10,480,906 | (41,437,762 | ) | (31,793,719 | ) | ||||||||||||||||||||||||||||
| Balance at November 1, 2022 | 1,000,000 | 100 | - | - | 12,377,835 | 1,239 | 660,000 | 1,030,947 | (1,726,560 | ) | (34,274 | ) | ||||||||||||||||||||||||||||
| Net loss for the three months ended January 31, 2023 | - | - | - | - | - | - | - | - | (1,341,800 | ) | (1,341,800 | ) | ||||||||||||||||||||||||||||
| Balance at January 31, 2023 | 1,000,000 | 100 | - | - | 12,377,835 | 1,239 | 660,000 | 1,030,947 | (3,068,360 | ) | (1,376,074 | ) | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
YUENGLING’S ICE CREAM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and Not Reviewed)
| For the Three Months Ended January 31, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited and Not Reviewed) | (Unaudited and Not Reviewed) | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Debt discount amortization | ||||||||
| Gain on extinguishment of debt | ( | ) | ( | ) | ||||
| Notes issued for service fees | ||||||||
| Convertible note put premiums charged to interest | ||||||||
| Derivative expense and changes in fair value | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Prepaid expenses | ( | |||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Other current liabilities | ( | ) | ||||||
| Officer loan | (140,000 | ) | - | |||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| - | - | |||||||
| Net cash used in investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Payment on seller notes | ( | ) | ||||||
| Proceeds from convertible notes payable | ||||||||
| Payments on lines of credit and other financial institution arrangements | ( | ) | ||||||
| Proceeds – related party loans | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ||||||||
| Cash, beginning of the period | ||||||||
| Cash, end of the period | $ | $ | ||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Activity: | ||||||||
| Debt discounts and deferred financing costs recognized | $ | $ | ||||||
| Issuance of common stock for conversion of temporary equity | $ | $ | ||||||
| Reclassification of deferred offering charges to additional paid in capital | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
YUENGLING’S ICE CREAM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2024
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS
Yuengling’s Ice Cream Corporation, (f/k/a Aureus, Inc.) (“Yuengling’s,” “YCRM,” or the “Company”) was incorporated in Nevada on April 19, 2013, under the name “Aureus Incorporated.” The Company was initially organized to develop and explore mineral properties in the state of Nevada. Effective December 15, 2017, the name was changed to “Hohme, Inc.,” and, effective February 7, 2019, the Company changed its name to “Aureus, Inc. and on September 14, 2021, the Company changed their name to Yuengling’s Ice Cream Corporation”. The Company is currently active in the state of Nevada.
In November, 2023, YCRM completed its acquisition of ReachOut Technology Corp. (“ReachOut”). ReachOut is a Managed Service Provider (MSP) that provides cybersecurity and IT services to Small to Medium Sized Businesses (SMBs). Management is highly experiences with business operation as well as acquisition and integration. After the closing of the ReachOut transaction, the Company agreed to assign the ice cream assets to Mid Penn Bank in return for the cancellation of the bank debt. The Company also ceased its Aureus Micro Markets operations at the time the ReachOut agreement was signed.
Reverse Merger/Acquisition of ReachOut Technology Corp.
On November 9, 2023, the Yuengling’s Ice Cream Corporation closed the Share Exchange and Control Block Transfer Agreements
with ReachOut Technology Corp. (“ReachOut”) whereby
The Share Exchange is intended to constitute a reorganization with the meaning of Section 368 of the Internal Revenue Code of 1986 (as amended).
As a result of the transaction, ReachOut became a subsidiary of the Company.
The Company evaluated the substance of the merger transaction and found it met the criteria for the accounting and reporting treatment of a reverse acquisition under ASC 805 (Business Combinations)-40-45 (Reverse Acquisition and Other Presentation Matters) and accordingly will consolidate the operations of ReachOut and the Company and the financial condition from the closing date of the transaction. The historic results of operations will reflect those of ReachOut. As such, ReachOut is treated as the acquirer while the Company is treated as the acquired entity for accounting and financial reporting purposes.
Under reverse merger accounting, the comparative historical financial statements of the Company, as the legal acquirer, are those of the accounting acquirer, ReachOut, the Company’s financial statements prior to the closing of the reverse acquisition; reflect only the business of ReachOut and its subsidiaries.
Under the terms of the Control Block Transfer Agreement, Everett Dickson (former CEO)
is to sell all his remaining Series A Preferred Stock to Richard Jordan (new CEO)
for $
Following the closing of the agreements, Robert Bohorad and Everett Dickson resigned their positions as CEO and Chairman of the Board of Directors, respectively and Richard Jordan was appointed to those positions.
The Company has authorized Series C Preferred Shares of Stock, effective
December 13, 2023. The shares have a stated value of $ per share, earns a
6
The Company is obligated under the terms of the Share Exchange Agreement to issue shares of Series C Preferred Stock to the owners of ReachOut. in exchange for 100% of the shares of ReachOut upon closing the aforementioned acquisition.
ReachOut Technology Corp.
Reachout Technology, Corp. (“ReachOut”) is a corporation formed on February 13, 2020 under the laws of the State of Delaware. ReachOut provides cybersecurity and IT management solutions to businesses to protect their complete operating landscape and data secrets. ReachOut is headquartered in Chicago, Illinois.
From formation until the acquisition of Innovative Design Networks, LLC (“IND”) on September 2, 2022, ReachOut had no principal operations or revenue. ReachOut’s activities during this period primarily consisted of formation activities, acquisition research and preparations to raise capital.
ReachOut Corp. Acquisition - Innovative Network Designs LLC
IND is a New Jersey limited liability company and ReachOut acquired
Innovative Network Designs LLC - New Jersey
IND Corporation (“IND”) provides information technology services. IND offers cybersecurity, risk assessment, network security, cloud performance, remote management, migration support, and monitoring solutions for businesses, as well as provides consulting and maintenance services. IND serves clients in the States of New York, New Jersey, and Pennsylvania. IND can either manage and support a client’s entire technology infrastructure, or compliment to the existing internal IT personnel. IND’s unique service model is designed to reduce client costs, increase client profits and mitigate client’s business risks.
ReachOut Corp. Acquisition - Red Gear LLC
ReachOut entered into a Membership Interest Purchase Agreement on September 29, 2023 with RedGear, LLC, a Texas limited liability company and acquired
RedGear LLC - Texas
RedGear LLC (“RedGear”) provides professional technology services, structured cabling, equipment, and consulting in the Southwest US region. RedGear’s entire culture is built around supporting business infrastructures, while building relationships and delivering an exceptional customer service experience and always keeping customers’ best interest a top priority. RedGear has built its success by reputation, quality of work, professionalism, and always being there for clients every step of the way whenever needed. RedGear’s services, certifications, experience, and expertise cover the entire spectrum of Information Technology that no other regional technology service provider can match.
These are pre-acquisition descriptions. Post-acquisition, ReachOut Technology Corp. will re-brand its subsidiaries to ReachOut, add any unique revenue streams to ReachOut’s portfolio and standardize program offerings.
7
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, inventory, revenue recognition and the valuations of common and preferred stock, valuations of derivative liabilities and intangible assets. The Company bases its estimates on historical experience, known trends, analysis and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, YIC Acquisitions Corp., ReachOut (and its subsidiaries). All material intercompany transactions and balances have been eliminated on consolidation. ReachOut’s wholly-owned subsidiaries, ReachOut IND and RedGear were acquired on September 2, 2022 (purchase of
Under reverse merger accounting, the comparative historical financial statements of the Company, as the legal acquirer, are those of the accounting acquirer, ReachOut, the Company’s financial statements prior to the closing of the reverse acquisition; reflect only the business of ReachOut and its subsidiaries.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents. The Company generally maintains
balances in various operating accounts at financial institutions that management believes
to be of high credit quality, in amounts that may exceed federally insured limits.
The Company has not experienced any losses related to its cash and cash equivalents
and does not believe that it is subject to unusual credit risk beyond the normal credit
risk associated with commercial banking relationships. At January 31, 2024 and 2023, all of the Company’s cash and cash equivalents were held at accredited financial institutions. As of
January 31, 2024, the Company held
The Company’s subsidiary, Innovative Design Networks, has one client with outstanding unpaid account representing a total of
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. There were
Reclassifications
Certain reclassifications have been made to the prior period financial information to conform to the presentation used in the financial statements for the three months ended January 31, 2024.
8
Deferred Financing Costs
All unamortized deferred financing costs related to the Company borrowings are presented in the consolidated balance sheets as a direct deduction from the related debt. Unamortized deferred financing fees related to the issuance of preferred stock of $ are included in prepaid expenses and other current assets. Amortization of these costs is reported as interest and financing costs included in the consolidated statement of operations.
Inventory
Inventory is stated at the lower of cost and net realizable value on a first-in, first-out
basis. Cost is principally determined using the last-in, first-out (LIFO) method.
The Company periodically assesses if any of the inventory has expired or if the value
has fallen below cost. When this occurs, the Company recognizes an expense for inventory
write down. Total inventories at January 31, 2024 and 2023 were $
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized over the lesser of the remaining term of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are expensed as incurred.
Basic loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. The total potentially dilutive shares calculated is at January 31, 2024. As of January 31, 2024: there are obligations to issue Series A Preferred Stock which are convertible into shares of common stock; the Series A Preferred shares outstanding convertible into XXX of common shares; the Series C Preferred shares outstanding may convert into common shares; the Series D Preferred shares outstanding may convert into common shares; the warrants outstanding my convert into common shares; and there are potentially dilutive shares arising from the conversion value of the convertible notes payable. It should be noted that contractually the limitations on obligation to convertible note holders and issue Series A Preferred Stock that limit the number of shares converted to either 4.99% or 9.99% of the then outstanding shares. The Company’s Chairman of the Board of Directors holds a control block of Series A Preferred Stock which confers upon him a majority vote in all Company matters including authorization of additional common shares or to reverse split the stock. As of January 31, 2024, and 2023, potentially dilutive securities consisted of the following:
| January 31, 2024 | January 31, 2023 | |||||||
| Series A Preferred Stock Payable | ||||||||
| Series A Preferred Stock outstanding | ||||||||
| Series C Preferred Stock outstanding | ||||||||
| Series D Preferred Stock outstanding | ||||||||
| Warrants | ||||||||
| Third party convertible debt | ||||||||
| Total | ||||||||
9
Stock-based Compensation
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 allows companies to account for nonemployee awards in the same manner as employee awards. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. We adopted this ASU on January 1, 2019. The adoption of ASU 2018-07 did not have a material impact on our consolidated financial statements.
Convertible Notes with Fixed Rate Conversion Options
The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
Derivative Financial Instruments
The Company evaluates its convertible notes to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted-average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Fair Value Measurements
The Company follows the FASB Fair Value Measurements standard, as they apply to its financial instruments. This standard defines fair value, outlines a framework for measuring fair value, and details the required disclosures about fair value measurements.
Fair value is defined 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. The standard establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Level 1 inputs include quoted market prices for identical assets or liabilities in an active market that the Company has the ability to access at the measurement date. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. The standard requires the utilization of the lowest possible level of input to determine fair value and carrying amounts of current liabilities approximate fair value due to their short-term nature.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
The Company’s non-financial assets, such as property and equipment, are adjusted to fair value only when an impairment is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Level 1: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly.
10
Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable inputs other than quoted prices such as interest rates.
Level 3: Level 3 inputs are unobservable inputs.
The following required disclosure of the estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The methods and assumptions used to estimate the fair values of each class of financial instruments are as follows: Cash and Cash Equivalents, Accounts Receivable, and Accounts Payable. The items are generally short-term in nature, and accordingly, the carrying amounts reported on the consolidated balance sheets are reasonable approximations of their fair values.
The carrying amounts of Notes Payable approximate the fair value as the notes bear interest rates that are consistent with current market rates.
The table below classify the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of January 31, 2024 and October 31, 2023.
| At January 31, 2024 | At October 31, 2023 | |||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Derivative Liability | $ | $ | ||||||||||||||||||||||
A roll-forward of the level 3 valuation financial instruments is as follows
| Derivative Liabilities | ||||
| Balance at October 31, 2023 | $ | |||
| Charged to derivative expense upon issuance of related note | ||||
| Classified as initial debt discount upon issuance of related note | ||||
| Fair Value adjustments - convertible note | ||||
| Balance at January 31, 2024 | $ | |||
A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized within Level 3 of the fair value hierarchy for the three months ended January 31, 2024 is as follows:
| Inputs | January 31, 2024 | |||
| Stock price | $ | |||
| Conversion price | $ | |||
| Volatility (annual) | % | |||
| Risk-free rate | % | |||
| Dividend rate | ||||
| Years to maturity | ||||
11
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. 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. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.
Tax benefits are recognized only for tax positions that are more likely than not to
be sustained upon examination by tax authorities. The amount recognized is measured
as the largest amount of benefit that is greater than 50 percent likely to be realized
upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax
benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of
January 31, 2024, and 2022,
Revenue recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January 1, 2018. The Company determines revenue recognition through the following steps:
Identification of a contract with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when or as the performance obligations are satisfied.
Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers in an amount that reflects the consideration expected to be received in exchange for transferring goods or services to customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance.
It is management’s practice to only invoice for services and goods to be provided within the coming month. While services may not be fully transferred the client is in fact obligated to pay the invoiced amount unless the contract is terminated with prior notice.
Advertising Costs
Advertising costs are expensed as incurred and are included in General and Administrative expenses.
12
Deferred Offering Costs
The Company complies with the requirements of Accounting Standards Codification (“ASC”)
340, Other Assets and Deferred Costs, with regards to offering costs. Prior to the
completion of an offering, offering costs are capitalized. The deferred offering costs
are charged to additional paid-in capital or as a discount to debt, as applicable,
upon the completion of an offering or to expense if the offering is not completed.
As of January 31, 2024 and 2023 the Company had recorded $
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation — Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services. In accordance with ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting share-based payment transactions for acquiring goods and services from nonemployees are included. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.
Business Combinations
In accordance with ASC 805-10, “Business Combinations”, we account for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that we hold in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in our results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.
Related Party Transactions
The Company follows FASB ASC subtopic 850-10, “Related Party Transactions”, for the identification of related parties and disclosure of related party transactions.
Pursuant to ASC 850-10-20, related parties include: a) our affiliates; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d) our principal owners; e) our management; f) other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
13
Material related party transactions are required to be disclosed in the consolidated financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance (ASC Topic 840). Under the new guidance, codified as ASC Topic 842, the lease liability must be measured initially based on the present value of future lease payments, subject to certain conditions. The right-of-use asset must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense generally is flat (straight-line) throughout the life of the lease. For finance leases, periodic expense declines over the life of the lease. The new standard, as amended, provides an option for entities to use the cumulative-effect transition method. As permitted, the Company adopted ASC Topic 842 effective June 1, 2020. The adoption of ASC Topic 842 did not have a material impact on the Company’s consolidated financial statements.
The Company’s subsidiaries have recognized the Right of Use assets and related liabilities for leases and sublease for the office facilities in New Jersey, Texas and Arizona during the years ended December 31, 2023 and 2022, and following the acquisitions are accounted for under ASC 842. The corporate office is an informal arrangement which provides for office space in a shared office environment with a company controlled by the CEO and is exempt from ASC 842 treatment. During the year ended December 31, 2023 and 2022 the Company recognized lease liabilities of $767,068 (2024) and $174,098 (2023) and the related right-of-use asset for the same amounts, and will amortize both over the life of the lease.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 eliminates the separate accounting model for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees. The accounting remains different for attribution, which represents how the equity-based payment cost is recognized over the vesting period, and a contractual term election for valuing nonemployee equity share options. ASU 2018-07 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU 2018-07 on February 13, 2020 and the adoption did not have a material impact on its financial statements.
In May 2014, the FASB issued ASC 606, providing new revenue recognition guidance that superseded existing revenue recognition guidance. The update, as amended, requires the recognition of revenue related to the transfer of goods or services to customers reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, as well as additional qualitative and quantitative disclosures about revenues. The Company adopted the new revenue recognition guidance as of February 13, 2020. The adoption of this standard had no material impact on its financial statements.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be
14
accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470- 20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. The Company adopted ASU 2017-11 on February 13, 2020 and the adoption did not have a material impact on its financial statements.
In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity, and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company adopted ASU 2020-06 on February 13, 2020 and the adoption did not have any impact on its financial statements.
Management does not believe that any other recently issued accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
NOTE 3 – GOING CONCERN
The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt and the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has not generated profits since inception,
has sustained net losses of $
15
NOTE 4 – PROPERTY & EQUIPMENT
Property and Equipment are first recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets as follows between three and five years.
Long lived assets, including property and equipment, to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Impairment losses are recognized if expected future cash flows of the related assets are less than their carrying values. Measurement of an impairment loss is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Maintenance and repair expenses, as incurred, are charged to expense. Betterments and renewals are capitalized in plant and equipment accounts. Cost and accumulated depreciation applicable to items replaced or retired are eliminated from the related accounts with any gain or loss on the disposition included as income.
Property and equipment stated at cost, less accumulated depreciation consisted of the following:
| January 31, 2024 | October 31, 2023 | |||||||
| Property and equipment | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Property and equipment consisted of vehicles, leasehold improvements and computers and other network technology equipment, primarily located in the RedGear office facilities.
NOTE 5 – LOAN RECEIVABLE
NOTE 6 – GOODWILL
The Company acquired the operations, assets and liabilities of Innovative Network
Designs, LLC during the year ended December 31, 2022. The Company recognized goodwill of $
Membership Interest Purchase Agreement
Innovative Network Designs, LLC
The Company entered into a Membership Interest Purchase Agreement on August 1, 2022 with Innovative Network Designs, LLC, a New Jersey limited liability company
and acquired
16
Assets Acquired and Liabilities Assumed
| Assets Acquired | Fair Value | |||
| Cash | $ | |||
| Accounts Receivable | ||||
| Prepaid Expenses | ||||
| Right of Use Asset | ||||
| Total Assets | $ | |||
| Liabilities Assumed | ||||
| Accounts Payable | $ | |||
| Accrued Expenses | ||||
| Sales Tax Payable | ||||
| Lease Liabilities | ||||
| Total Liabilities | $ | |||
| Consideration Value | ||||
| Cash | $ | |||
| Convertible Note | ||||
| Universal Life Insurance Commitment | ||||
| Promissory Note | ||||
| Common Stock | ||||
| Total Purchase Price | ||||
| Less, net asset value | ||||
| Value of intangible assets | $ | |||
Acquisition - Red Gear LLC
The Company entered into a Membership Interest Purchase Agreement on September 29, 2023 with RedGear, LLC, a Texas limited liability company and acquired
17
Assets Acquired and Liabilities Assumed
| Assets Acquired | Fair Value | |||
| Cash | $ | |||
| Accounts Receivable | ||||
| Receivable, Related Party | ||||
| Inventory | ||||
| Fixed Assets, | ||||
| Right of Use Asset | ||||
| Total Assets | $ | |||
| Liabilities Assumed | ||||
| Accounts payable | $ | |||
| Accrued Expenses | ||||
| Bank line of credit | ||||
| Vehicle and equipment loans payable | ||||
| SBA Loan | ||||
| Lease Liabilities | ||||
| Total Liabilities | $ | |||
| Consideration Value | ||||
| Cash | $ | |||
| Promissory Note | ||||
| Total Purchase Price | ||||
| Tangible Net Assets | ||||
| Value of intangible assets | $ | |||
18
NOTE 7 – THIRD PARTY NOTES PAYABLE
| January 31, 2024 | October 31, 2023 | |||||||
| Note principal | $ | $ | ||||||
During the three months ended January 31, 2024, $
On
On
On
On
On
On
On
On
The Company was also indebted to a third party
for a total of $
19
NOTE 8 – SELLERS’ TERM AND SECURED NOTES PAYABLE
On October 1, 2022 the Company’s subsidiary ReachOut issued a term promissory note to the sellers of the membership interest in Innovative
Network Designs LLC. Under the option selected by the holder of the note, a ballon
payment of principal is due on October 1, 2024. The note principal is $
On October 1, 2022 the Company issued a secured promissory note to the sellers of the membership
interest in Innovative Network Designs LLC. The note principal is $
On September 29, 2023, the Company issued a promissory note to the former members of RedGear, LCC
as partial payment for the RedGear acquisition. The note principal is $
| Period | Principal | Interest | Total | |||||||||
| January 15, through October 15, 2024 | ||||||||||||
| January 15, through March 2, 2025 | ||||||||||||
| Totals | $ | $ | $ | |||||||||
NOTE 9 – OFFICER LIFE INSURANCE PREMIUMS PAYABLE
On October 1, 2022, the Company committed to paying life insurance with the sellers of the membership
interest in Innovative Network Designs LLC. The total amount of the liability was
$
| Year Ended December 31: | Insurance Premiums Due | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 - 2029 | ||||
| Total | $ | |||
NOTE 10 – LOANS PAYABLE
The Company has an SBA loan with monthly payments that matures on
The Company has a line of credit requiring monthly payments. On December 24, 2021, $
20
NOTE 11 – CONVERTIBLE NOTES PAYABLE
Post Reverse Merger Issuances
On November 10, 2023, YCRM issued a convertible note payable, warrants to purchase to the Company’s common stock and Series D Preferred Shares to Trillium Partners, L.P. The convertible
note has principal of $
On December 1, 2023, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible
note has principal of $
On January 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible
note has principal of $
On January 11, 2024, YCRM issued a convertible note payable and warrants to purchase to the Company’s common stock to Trillium Partners, L.P. The convertible note has principal of $
Legacy Convertible Notes
On March 2, 2022, the Company issued a convertible promissory note to Quick Capital, LLC in
the amount of $
On September 7, 2022, the Company issued a convertible promissory note to 1800 Diagonal Lending
LLC in the amount of $
21
On December 8, 2022, the Company issued a Convertible Promissory Note to 1800 Diagonal Lending LLC in the amount of $
On September 1, 2023,
On February 3, 2023, the Company issued a convertible promissory note to Quick Capital, LLC in
the amount of $
On September 1, 2023,
The following table summarizes the legacy convertible notes outstanding as of October 31, 2023:
| Note Holder | Date | Maturity Date | Interest | Balance October 31, 2022 | Additions | Conversions/ Repayments | Balance October 31, 2023 | ||||||||||||||||||
| Quick Capital, LLC | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
| 1800 Diagonal Lending LLC | ( | ) | |||||||||||||||||||||||
| 1800 Diagonal Lending LLC | ( | ) | |||||||||||||||||||||||
| Quick Capital, LLC | ( | ) | |||||||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
| Less Debt Discount | ( | ) | - | ||||||||||||||||||||||
| $ | $ | - | $ | ||||||||||||||||||||||
A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized within Level 3 of the fair value hierarchy for the year ended is as follows:
| Inputs | October 31, 2023 | Initial Valuation | ||||||
| Stock price | $ | $ | ||||||
| Conversion price | $ | $ | ||||||
| Volatility (annual) | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Dividend rate | ||||||||
| Years to maturity | ||||||||
22
NOTE 12 – RELATED PARTY TRANSACTIONS
In February 2020, the Company recorded stock compensation expense of $ for the accrual of
the founder’s stock issuances with a corresponding entry to loan payable, related party. The loan
payable, related party balance was reduced to $
During the years ended December 31, 2022 and 2021, the Company’s CEO advanced the Company funds for operating expenses. At December 31, 2023 and 2022, the outstanding balances owed were $
During the years ended December 31, 2023 and 2022, an entity controlled by the CEO advanced (net of repayments) the
Company $
YCRM advanced $
During the year ended December 31, 2022, the Company issued notes to former owners of the membership interest in Innovative
Network Designs, LLC (now ReachOut IND) and committed to purchase universal life insurance
for officers of ReachOut IND. The notes issued were a convertible promissory note
for $
During the year ended December 31, 2023, the Company issued shares of the Company’s common stock to the CEO as founder shares.
During the year ended December 31, 2023, the Company issued notes totaling $
The Company’s subsidiary RedGear LLC has $
Compensation due to a current officer of RedGear amounts to $
RedGear is obligated under office leases to a company controlled by the former owners
of the RedGear membership interests. The office space is in two locations in the city
of El Paso, Texas and covers approximately 10,000 square feet in total. The liability
as calculated for the right to use asset (under ASC 842) is $
The
In June 2022, Everett Dickson advanced the Company $
23
During the year ended October 31, 2022, a $
On August 17, 2023, Everett Dickson paid $
On September 1, 2023, Everett Dickson directly paid $
On September 1, 2023, Everett Dickson deposited $
On January 14, 2023, the Company granted million restricted common shares to Robert C. Bohorad. The Company signed a letter
of intent with Mr. Charles Green and Mr. Bohorad on October 26, 2022, where Mr. Bohorad will become Chief Operating Officer and Chief Financial Officer. The purpose
of the issuance is to retain and incentivize the individuals in their efforts to manage
the Company and foster its success. The shares were valued at , the closing stock price on the date of grant, for total non-cash compensation of
$
During the year ended October 31, 2023 and 2022, the Company paid Robert C. Bohorad, President and CEO, $7,000 and
$22,000 for compensation, respectively. During the year ended October 31, 2023, Mr. Bohorad forgave $
On October 30, 2023, the Company awarded Mr. Bohorad 3,000,000 shares of restricted common stock to facilitate the preparation of financial statements and in the transition of the Company to new ownership. (see note 15)
NOTE 13 – TEMPORARY EQUITY
Commitment to Purchase Series A Convertible Preferred Stock
On January 18, 2019, The Company entered into a Series A Preferred Stock Purchase Agreement with
Device Corp. (“the Agreement”), of up to $
As of January 31, 2024, the Company has preferred stock to be issued in the amount of $
On January 26, 2024, Everett Dickson (former CEO and Chairman of the Board of Directors) acquired the preferred series A shares formerly held by Device Corp.
24
Series B Preferred Stock
On August 25, 2023, the Company Amended its Articles of Incorporation, to designate of the Authorized preferred stock, par value $, as Series B Preferred Stock (“Series B”). The Series B is convertible into shares of common stock at the average price of the previous five trading days. The Series B shares are not entitled to dividends and have no voting rights.
Following the amendment above the Series B preferred stock is convertible into shares of common stock at the option of the holder at a 50% discount to the average price for the five trading days prior to conversion. As of the balance sheet date and the date of this report, these shares have not been issued to the Purchaser. S99-3A(2) ASR 268 requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (1) at a fixed or determinable price on a fixed or determinable date, (2) at the option of the holder, or (3) upon the occurrence of an event that is not solely within the control of the issuer. Given that there is an unknown number of preferred shares to be issued and the preferred shares are convertible at the option of the holder, the Company determined that the shares to be issued shall be treated as temporary equity.
On August 25, 2023, the Company and Device Corp amended the January 18, 2019, and the May 1, 2023 Series A Preferred Stock Purchase Agreements, so that any purchased Series A preferred stock is now Series B preferred stock.
NOTE 14 – STOCKHOLDERS’ DEFICIT
Preferred Stock
Series A Preferred Stock
The Company has designated Ten Million () shares of Preferred Stock the Series A Convertible Preferred Stock with a par and stated value of $ per share. The holders of the Series A Convertible Preferred Stock are not entitled to receive any dividends.
Except as otherwise required by law or by the Articles of Incorporation and except as set forth below, the outstanding shares of Series A Convertible Preferred Stock shall vote together with the shares of Common Stock and other voting securities of the Corporation as a single class and, regardless of the number of shares of Series A Convertible Preferred Stock outstanding and as long as at least one of such shares of Series A Convertible Preferred Stock is outstanding shall represent Sixty Six and Two Thirds Percent (66 2/3%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders. Each outstanding share of the Series A Convertible Preferred Stock shall represent its proportionate share of the 66 2/3% which is allocated to the outstanding shares of Series A Convertible Preferred Stock. The Certificate of Designation was amended on September 12, 2023, among other changes the Series A Convertible Preferred Stock must be held for one year following issuance or reissuance prior to conversion.
The entirety of the shares of Series A Convertible Preferred Stock outstanding as such time shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into two thirds of the after conversion outstanding fully paid and non-assessable shares of Common Stock. Each individual share of Series A Convertible Preferred Stock shall be convertible into Common Stock at a ratio determined by dividing the number of shares of Series A Convertible Stock to be converted by the number of shares of outstanding pre-conversion Series A Convertible Preferred Stock. Such initial Conversion Ratio, and the rate at which shares of Series A Convertible Preferred Stock may be converted into shares of Common Stock. On August 25, 2023, Everett Dickson, Chairman of the Board, agreed to return 4,525,000 shares of Series A preferred Stock to the Company. The shares will be retired by the Company. His remaining shares were sold to Mr. Richard Jordan for $, during the three months ended January 31, 2024.
25
Series C Preferred Stock
The Company has authorized Series C Preferred Shares of Stock, effective December 13, 2023. The shares have a stated value of $3.00 per share, earns a 2% dividend on the stated value, which is cumulative and payable solely upon redemption. The stock has voting rights equal to the number of common shares into which the preferred shares may be converted. At any time following 180 days from the date of issuance the preferred stock in aggregate can be converted into 87.5% of the outstanding common stock for a period of twenty-four months from the date of issuance of the Series C Preferred Stock.
Under the terms of the Share Exchange Agreement the Company issued 8,750,000 shares of Series C Preferred Stock to the owners of ReachOut common stock in exchange for 100% of the shares of ReachOut.
Using a Black-Scholes model the preferred Series C stock was valued at $3,329,851 and was charged to stock compensation for employees and service providers. The accrued dividend of 2% of the stated value ($3.00 per share) was calculated to be $117,945.
Series D Preferred Stock
The Company has authorized Series D Preferred Shares of Stock, effective December 13, 2023. The shares have a stated value of $ per share, earns a 2% dividend on the stated value, which is cumulative and payable solely upon redemption. The stock has voting rights equal to the number of common shares into which the preferred shares may be converted. At any time following 180 days from the date of issuance the preferred stock in aggregate can be converted into 12.5% of the outstanding common stock for a period of twenty-four months from the date of issuance of the Series D Preferred Stock.
Under the terms of the
Using a Black-Scholes model the preferred Series D stock was valued at $
Common Stock
On January 31, 2024 and October 31, 2023, the Company had and 30,000,000 shares of common stock authorized respectively. There were and common shares of stock outstanding on January 31, 2024 and October 31, 2023, respectively.
During the three months ended January 31, 2024, there were no issuances of common stock.
During the year ended October 31, 2023, Quick Capital LLC converted $
During the year ended October 31 2023, 1800 Diagonal Lending LLC, converted $
On January 14, 2023, the Company granted million restricted common shares each to Charles Green and Robert C. Bohorad. The Company signed a letter of intent with Mr. Green and Mr. Bohorad on October 26, 2022, where Mr. Green will join the company as President and CEO. The purpose of the issuance is to
retain and incentivize the individuals in their efforts to manage the Company and
foster its success. The shares were valued at $6, the closing stock price on the date of grant, for total non-cash compensation of
$
26
During the year ended October 31, 2023, Device Corp converted $
On October 30, 2023, the Company issued shares of restricted common stock for services. (see note 9)
On August 5, 2022, the Company effectuated a reverse stock split at a ratio of
On March 1, 2022, the Company increased its authorized common stock from (2 billion) to (2.5 billion) shares.
On January 21, 2022, the Company increased its authorized common stock from (1.75 billion) to (2 billion) shares.
During the year ended October 31, 2022, the Company sold shares of common stock, for total cash proceeds of $
During the year ended October 31, 2022, Device Corp converted $
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Lease Obligations
Effective October 2020, the ReachOut’s subsidiary (RedGear, LLC) renewed the lease for the principal offices at 123 West Mills Avenue, El Paso, Texas. The lease extends through September 30, 2025, for $
Effective October 29, 2021, the ReachOut’s subsidiary (RedGear, LLC) entered into a lease for office facilities at 3636 North
Central Avenue, Phoenix, Arizona. The lease extends through October 31, 2025, for $
Effective September 29, 2023, the ReachOut’s subsidiary (RedGear, LLC) entered into a lease for office facilities at 10033 Carnegie
Avenue, El Paso, Texas. The lease extends through September 28, 2028, for $
Effective September 29, 2023, the ReachOut’s subsidiary (RedGear, LLC) entered into a lease for office facilities at 6713 Viscount
Blvd. El Paso, Texas. The lease extends through September 28, 2028, for $
On May 1, 2021 the ReachOut’s subsidiary IND entered into a sublease for its office in Whippany, NJ for a term commencing
on June 1, 2021 extending through February 28, 2025 at an initial monthly rent of approximately $
The Company recognized a right-of-use assets of and a related lease liabilities of
$767,068, which represents the fair value of the lease payments calculated as present
value of the minimum lease payments using a discount rate of
27
The offices for ReachOut are shared with a related party ReachOut IL (an S corporation), under an arrangement that is not formalized.
Right of use asset (ROU) is summarized below:
| January 31, 2024 | October 31, 2023 | |||||||
| Operating lease at inception | $ | $ | ||||||
| Less accumulated reduction | ( | ) | ( | ) | ||||
| Balance ROU asset | $ | $ | ||||||
Operating lease liability related to the ROU asset is summarized below:
| Operating lease liabilities at inception | $ | $ | ||||||
| Reduction of lease liabilities | ( | ) | ( | ) | ||||
| Total lease liabilities | $ | $ | ||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Lease liabilities, non-current | $ | $ |
Non-cancellable operating lease total future payments are summarized below:
| Total minimum operating lease payments | $ | $ | ||||||
| Less discount to fair value | ( | ) | ( | ) | ||||
| Total lease liability | $ | $ |
Future minimum lease payments under non-cancellable operating leases at January 31, 2024 are as follows:
| Years ending December 31, | Amount | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total minimum non-cancelable operating lease payments | $ | |||
For the three months ended January 31, 2024 rent expense was for RedGear, LLC was $
Other Commitments
On January 20, 2022, the Company entered into a Service Agreement with Desmond Partners, LLC for
consulting services to be provided. The agreement is effective on February 1, 2022 for a term of three months. Per the terms of the agreement the consultant will
receive a fee of $
On January 23, 2024, Desmond Partners, LLC and the Company entered into a Settlement Agreement
and Mutual Release relating to the Professional Services Agreement (‘initial agreement”) entered into by the parties on January 20, 2022. Under the terms of the settlement the Company will issue
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An individual has asserted that the Company owes approximately $500,000 for a promissory note issued by a company that was never owned by the public company nor its subsidiary. Legal counsel has reviewed the claim and found no relationship to this debt nor any assumptions of the debt by the Company. While there is risk that there may be litigation over this claim, the Company believes that it is unlikely that the claim will prevail.
On December 1, 2023, the Company entered into a service agreement with Frondeur Partners LLC (“Frondeur”). Frondeur will provide accounting, reporting and consulting services on monthly basis. On December 1, 2023, the Company executed a corporate services agreement with Frondeur Partners LLC a Nevada limited liability company. Under the terms of the agreement the Company will receive accounting and reporting services. As compensation Frondeur will receive monthly payments of $10,000 in cash and a convertible promissory note for $15,000 The notes are convertible into the Company’s common stock at a 50% discount to the market price (defined in the notes). As of the date of issuance of this report the Company has issued three such notes (December 1, 2023, January 1, and February 1, 2024), which are to be accounted for as stock settled debt under ASC 480.
NOTE 16 – SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial statements were available to be issued and has determined that it does not have any material subsequent events to disclose in these financial statements other than the following.
Legal Matter
On April 26, 2024, ReachOut Technology Corp. (“ReachOut”), a wholly-owned subsidiary of the Company filed a lawsuit (Case No. 1:24-cv-03408) in the United States District Court for the Northern District of Illinois, against the former members of RedGear, related to certain representations and warranties made by the Defendants in the Membership Interest Purchase Agreement, dated September 29, 2023, under which ReachOut acquired 100% of Red Gear. The lawsuit was served on the defendants on April 30, 2024, and no answer has yet been filed.
Securities Issued
On February 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible
note has principal of $
On March 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible
note has principal of $
On April 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible
note has principal of $
On April 3, 2024, YCRM issued a convertible note payable and warrants to purchase to the Company’s common stock to Trillium Partners, L.P. The convertible note has principal of $
On May 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible
note has principal of $
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Asset Purchase
On April 8, 2024, the Company acquired the assets of Singer Networks LLC (Singer), an Illinois
limited liability. Singer is a service provider that manages the technology needs
for its clients. Under the terms of the agreement the Company has acquired all the
tangible and intangible assets of Singer with the exception of cash and bank accounts,
accounts receivable (as of closing date) and the Singer benefit plan. The purchase
price is comprised of $
Change to Employment Agreement
On May 3, 2024, the employment agreement with the former principle of ReachOut IND has been amended in accordance with the terms of the employment agreement. The amendment takes effect on May 16, 2023, and reduces annual compensation to $125,000, and alters the responsibilities of his management role.
Debt Cancellation
On January 9, 2024, Mid Penn Bank and the Company executed an Assignment of Assets and Cancellation of Debt
agreement. The assets assigned include all rights to trademarks and other property
related to the Yuengling ice cream business. The debt cancelled consists of an SBA
loan have principal of $
The Company is analyzing the potential tax impact of the debt cancellation. Since the debt was assumed in acquisition the basis of the liability to the Company may negate the potential tax on debt forgiveness.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS.
Forward-looking Statements
There are “forward-looking statements” contained in this quarterly report. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this quarterly report to conform forward-looking statements to actual results. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:
| ● | Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; | |
| ● | Our failure to earn revenues or profits; | |
| ● | Inadequate capital to continue business; | |
| ● | Volatility or decline of our stock price; | |
| ● | Potential fluctuation in quarterly results; | |
| ● | Rapid and significant changes in markets; | |
| ● | Litigation with or legal claims and allegations by outside parties; and | |
| ● | Insufficient revenues to cover operating costs. |
The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this quarterly report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ substantially from those anticipated in any forward-looking statements included in this discussion as a result of various factors.
Overview
Yuengling’s Ice Cream Corporation, (f/k/a Aureus, Inc.) (“Yuengling’s,” “YCRM,” or the “Company”) was incorporated in Nevada on April 19, 2013, under the name “Aureus Incorporated.” The Company was initially organized to develop and explore mineral properties in the state of Nevada. Effective December 15, 2017, the name was changed to “Hohme, Inc.,” and, effective February 7, 2019, the Company changed its name to “Aureus, Inc. and on September 14, 2021, the Company changed their name to Yuengling’s Ice Cream Corporation”. The Company is currently active in the state of Nevada.
In November, 2023, YCRM completed its acquisition of ReachOut Technology Corp. (“ReachOut”). ReachOut is a Managed Service Provider (MSP) that provides cybersecurity and IT services to Small to Medium Sized Businesses (SMBs). Management is highly experiences with business operation as well as acquisition and integration. After the closing of the ReachOut transaction, the Company agreed to assign the ice cream assets to Mid Penn Bank in return for the cancellation of the bank debt. The Company also ceased its Aureus Micro Markets operations at the time the ReachOut agreement was signed.
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Results of Operations
The three months ended January 31, 2024 compared to the three months ended January 31, 2023
Revenue
For the three months ended January 31, 2024 and 2023, we had revenue of 1,854,099 and 1,024,073 respectively. The increase in revenue is primarily due to the acquisition of RedGear, LLC on September 29, 2023
Cost of Goods
For the three months ended January 31, 2024 and 2023, cost of revenue was $1,484,526 and $445,025 respectively. The increase in Cost of Goods also is attributable to the acquisition of RedGear, LLC
General and administrative expenses
We had $4,452,953 of general and administrative expenses (“G&A”) for the three months ended January 31, 2024, compared to $596,766 for the three months ended January 31, 2023, an increase of $3,856,187. The increase is largely due to the RedGear, LLC acquisition.
Other income (expense)
For the three months ended January 31, 2024, we had total other expenses of $29,780,038, compared to total other expenses of $11,062 for the three months ended January 31, 2023. In the current period we incurred $165,494 of interest expense and $68,414 of interest expense for the three months ended January 31, 2023. The company had a gain of $1,170,399 in the current period for the extinguishment of debt. And, we had derivative loss of $30,784,943 for the three months ended January 31, 2024 compared to a derivative gain of 57,352 for the three months ended January 31, 2023.
Net loss
We incurred a net loss of $33,863,147 for the three months ended January 31 2024, compared to a net loss of $28,780 for the three months ended January 31, 2023. Our increase in net loss is primarily due to the acquisition of RedGear, LLC and the large derivative loss associated with issuances and conversions.
Liquidity and Capital Resources
Cash flow from operations
Cash used in operating activities for the three months ended January 31, 2024, was $1,052,748 compared to $662,000 of cash used in operating activities for the three months ended January 31, 2023.
Cash Flows from Financing
For the three months ended January 31, 2024, we netted $1,222,384 from financing activities. We had $113,177 in payment on seller notes, received $936,000 in proceeds for convertible notes payable, paid $80,941 on financial institution arrangements, and received $399,561 in proceeds in related party loans. For the three months ended January 31, 2023, we netted $663,192 in financing activities, through proceeds of related party loans.
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Going Concern
As of January 31 2024, there is substantial doubt regarding our ability to continue as a going concern as we have not generated sufficient cash flow to fund our operations.
We have suffered recurring losses from operations and have not yet generated any revenue. As a result of these and other factors, our independent auditor has expressed substantial doubt about our ability to continue as a going concern. Our future success and viability, therefore, are dependent upon our ability to generate capital financing. The failure to generate sufficient revenues or raise additional capital may have a material and adverse effect upon us and our shareholders.
Management’s plans with regard to these matters encompass the following actions: (i) obtaining funding from new investors to alleviate our working capital deficiency, and (ii) implementing our plan of operation to generate sales. Our continued existence is dependent upon our ability to resolve our liquidity problems and increase profitability in our business operations. However, the outcome of management’s plans cannot be ascertained with any degree of certainty. Our financial statements do not include any adjustments that might result from the outcome of these risks and uncertainties.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies
Refer to Note 2 of our financial statements contained elsewhere in this Form 10-Q for a summary of our critical accounting policies and to Note 2 our financial statements contained in our Form 10-K for a more complete summary of our critical accounting policies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and, as such, are not required to provide the information under this Item.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Each of our principal executive and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures, using the Internal Control – Integrated Framework (2013) developed by the Committee of Sponsoring Organizations of the Treadway Commission, as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report. Based on their evaluation, each such person concluded that our disclosure controls and procedures were not effective as of January 31, 2024.
The following aspects of the Company were noted as potential material weaknesses:
| ● | Due to our size and limited resources, we currently do not employ the appropriate accounting personnel to ensure (a) we maintain proper segregation of duties, (b) that all transactions are entered timely and accurately, and (c) we properly account for complex or unusual transactions; | |
| ● | Due to our size and scope of operations, we currently do not have an independent audit committee in place; | |
| ● | Due to our size and limited resources, we have not properly documented a complete assessment of the effectiveness of the design and operation of our internal control over financial reporting. |
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.
Changes in Internal Control over Financial Reporting.
Our management has evaluated whether any change in our internal control over financial reporting occurred during the last fiscal quarter. Based on that evaluation, management concluded that there has been no change in our internal control over financial reporting during the relevant period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
An individual has asserted that the Company owes approximately $500,000 for a promissory note issued by a company that was never owned by the public company nor its subsidiary. Legal counsel has reviewed the claim and found no relationship to this debt nor any assumptions of the debt by the Company. While there is risk that there may be litigation over this claim, the Company believes that it is unlikely that the claim will prevail.
On April 26, 2024, ReachOut Technology Corp. (“ReachOut”), a wholly-owned subsidiary of the Company filed a lawsuit (Case No. 1:24-cv-03408) in the United States District Court for the Northern District of Illinois, against the former members of Red Gear, LLC (“Red Gear”) related to certain representations and warranties made by the Defendants in the Membership Interest Purchase Agreement, dated September 29, 2023, under which ReachOut acquired 100% of Red Gear. The lawsuit was served on the defendants on April 30, 2024, and no answer has yet been filed.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and, as such, are not required to provide the information under this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On November 9, 2023, the Yuengling’s Ice Cream Corporation closed the Share Exchange and Control Block Transfer Agreements with ReachOut Technology Corp. (“ReachOut”) whereby 100% of the membership interests of ReachOut were exchanged for Series C Preferred Stock which is convertible into 87.5% of the total issued and outstanding shares of common stock of the Company (fully diluted basis) as determined at the consummation of the acquisition.
Under the terms of the Control Block Transfer Agreement, Everett Dickson (former CEO) is to sell all his remaining Series A Preferred Stock to Richard Jordan (new CEO) for $140,000.
The Company has authorized 8,750,000 Series C Preferred Shares of Stock, effective December 13, 2023. The shares have a stated value of $3.00 per share, earns a 2% dividend on the stated value, which is cumulative and payable solely upon redemption. The stock has voting rights equal to the number of common shares into which the preferred shares may be converted. At any time following 180 days from the date of issuance the preferred stock in aggregate can be converted into 87.5% of the outstanding common stock for a period of twenty-four months from the date of issuance of the Series C Preferred Stock.
Under the terms of the Share Exchange Agreement the Company issued 8,750,000 shares of Series C Preferred Stock to the owners of ReachOut common stock in exchange for 100% of the shares of ReachOut.
The Company has authorized 1,250,000 Series D Preferred Shares of Stock, effective December 13, 2023. The shares have a stated value of $1.00 per share, earns a 2% dividend on the stated value, which is cumulative and payable solely upon redemption. The stock has voting rights equal to the number of common shares into which the preferred shares may be converted. At any time following 180 days from the date of issuance the preferred stock in aggregate can be converted into 12.5% of the outstanding common stock for a period of twenty-four months from the date of issuance of the Series D Preferred Stock.
Under the terms of the Security Purchase Agreement to issue Trillium Partners 1,000,000 shares of Series D Preferred Stock for a financing commitment and 250,000 shares to Everett Dickson as consideration for surrendering 4,525,000, shares of Series A Preferred Stock.
On November 10, 2023, YCRM issued a convertible note payable, warrants to purchase to the Company’s common stock and Series D Preferred Shares to Trillium Partners, L.P. The convertible note has principal of $470,000, bears interest at 12%, matures on May 31, 2025 and may be converted to common shares at the lower of $0.0003 or 50% of the lowest traded price during the thirty days prior to conversion. $436,000 was received as cash and $34,000 was charged to OID to be amortized over the term of the note. Due to the variable conversion price the note includes a bifurcated derivative valued on issuance and for each reporting date. The initial derivative liability was $1,842,315, $1,406,315 was charged to loss on issuance (derivative expense) and $436,000 was charged to debt discount to be amortized over the term of the note.
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On December 1, 2023, the Company entered into a service agreement with Frondeur Partners LLC (“Frondeur”). Frondeur will provide accounting, reporting and consulting services on monthly basis. On December 1, 2023, the Company executed a corporate services agreement with Frondeur Partners LLC a Nevada limited liability company. Under the terms of the agreement the Company will receive accounting and reporting services. As compensation Frondeur will receive monthly payments of $10,000 in cash and a convertible promissory note for $15,000 The notes are convertible into the Company’s common stock at a 50% discount to the market price (defined in the notes). As of the date of issuance of this report the Company has issued three such notes (December 1, 2023, January 1, and February 1, 2024), which are to be accounted for as stock settled debt under ASC 480.
On December 1, 2023, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible note has principal of $15,000, bears interest at 12%, matures on August 31, 2024 and may be converted to common shares at or 50% of the lowest traded price during the thirty days prior to conversion. The principal amount was charged to professional services. Due to the note’s fixed conversion price, it is treated as stock settled debt under ASC 480, a put premium of $15,000 was charged to interest expense on issuance.
On January 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible note has principal of $15,000, bears interest at 12%, matures on September 30, 2024 and may be converted to common shares at or 50% of the lowest traded price during the thirty days prior to conversion. The principal amount was charged to professional services. Due to the note’s fixed conversion price, it is treated as stock settled debt under ASC 480, a put premium of $15,000 was charged to interest expense on issuance.
On January 11, 2024, YCRM issued a convertible note payable and warrants to purchase to the Company’s common stock to Trillium Partners, L.P. The convertible note has principal of $539,000, bears interest at 12%, matures on May 31, 2025 and may be converted to common shares at the lower of $0.0003 or 50% of the lowest traded price during the thirty days prior to conversion. $500,000 was received as cash and $39,000 was charged to OID to be amortized over the term of the note. Due to the variable conversion price the note includes a bifurcated derivative valued on issuance and for each reporting date. The initial derivative liability was $16,608,715, $16,108,715 was charged to loss on issuance (derivative expense) and $500,000 was charged to debt discount to be amortized over the term of the note.
On February 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible note has principal of $10,000, bears interest at 12%, matures on October 31, 2024 and may be converted to common shares at or 50% of the lowest traded price during the thirty days prior to conversion. The principal amount was charged to professional services. Due to the notes fixed conversion price, it is treated as stock settled debt under ASC 480, a put premium of $10,000 was charged to interest expense on issuance.
On March 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible note has principal of $10,000, bears interest at 12%, matures on November 30, 2024 and may be converted to common shares at or 50% of the lowest traded price during the thirty days prior to conversion. The principal amount was charged to professional services. Due to the notes fixed conversion price, it is treated as stock settled debt under ASC 480, a put premium of $10,000 was charged to interest expense on issuance.
On April 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible note has principal of $10,000, bears interest at 12%, matures on December 31, 2024 and may be converted to common shares at or 50% of the lowest traded price during the thirty days prior to conversion. The principal amount was charged to professional services. Due to the notes fixed conversion price, it is treated as stock settled debt under ASC 480, a put premium of $10,000 was charged to interest expense on issuance.
On April 3, 2024, YCRM issued a convertible note payable and warrants to purchase to the Company’s common stock to Trillium Partners, L.P. The convertible note has principal of $135,000, bears interest at 12%, matures on June 15, 2025 and may be converted to common shares at the lower of $0.0003 or 50% of the lowest traded price during the thirty days prior to conversion. The warrants allow the holder to purchase 18,939,394 shares of common stock for $0.0003 (subject to certain specified adjustments) for a period of seven years from the date of issuance.
On May 1, 2024, YCRM issued a convertible note payable to Frondeur Partners LLC. The convertible note has principal of $10,000, bears interest at 12%, matures on January 31, 2025 and may be converted to common shares at or 50% of the lowest traded price during the thirty days prior to conversion. The principal amount was charged to professional services. Due to the notes fixed conversion price, it is treated as stock settled debt under ASC 480, a put premium of $10,000 was charged to interest expense on issuance
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
(a) Documents furnished as exhibits hereto:
| Exhibit No. | Description | |
| 31.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| YUENGLING’S ICE CREAM CORPORATION | ||
| Date: May 16, 2024 | By: | /s/ Richard Jordan |
| Richard Jordan | ||
| President and Chief Executive Officer | ||
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