SDCO 10-Q/A
SDR Drone, Inc. (SDCO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Amendment No. 1
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 with Zip Code)
Registrant’s
telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
Title of Class
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
As of September 30, 2023, there were shares of the issuer’s common stock outstanding.
EXPLANATORY NOTE
On the cover page of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, we learned that we had incorrectly reported the Company’s status as a shell company by marketing the wrong box. The correct answer is Yes, the Company is a shell company as defined by Rule 12b-2 of the Exchange Act. We have made necessary conforming changes on the cover page resulting in the correction of this error.
TABLE OF CONTENTS
| Page No. | ||
| PART I. - FINANCIAL INFORMATION | 3 | |
| Item 1. | Financial Statements. | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Plan of Operations. | 14 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 17 |
| Item 4 | Controls and Procedures. | 18 |
| PART II - OTHER INFORMATION | 18 | |
| Item 1. | Legal Proceedings. | 18 |
| Item 1A. | Risk Factors. | 18 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 18 |
| Item 3. | Defaults Upon Senior Securities. | 18 |
| Item 4. | Mine Safety Disclosures | 18 |
| Item 5. | Other Information. | 18 |
| Item 6. | Exhibits. | 18 |
| Signatures | 19 | |
| 2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HALLMARK VENTURE GROUP, INC.
| 3 |
HALLMARK
VENTURE GROUP, INC.
BALANCE SHEETS
| September
30, 2023 | December
31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Due to related parties | ||||||||
| Convertible
note payable – related party, net of debt discount of $ | ||||||||
| Accrued interest - related party | ||||||||
| Accrued interest | ||||||||
| Derivative liability | ||||||||
| Stock payable | ||||||||
| Settlement liability | ||||||||
| Settlement liability - related party | ||||||||
| Total Current Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Series A Preferred stock, shares authorized, $ par value; and issued and outstanding, respectively | ||||||||
| Common stock, shares authorized, $ par value; and issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 4 |
HALLMARK VENTURE GROUP INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| For
the Three Months Ended September 30, | For
the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| EXPENSES: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Imputed interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative | ( | ) | ( | ) | ||||||||||||
| Loss on issuance of convertible note | ( | ) | ( | ) | ||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding – basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 5 |
HALLMARK VENTURE GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Common stock issued for payment on settlement liability | — | |||||||||||||||||||||||||||
| Common stock issued for payment on settlement liability - related party | ||||||||||||||||||||||||||||
| Shares cancelled | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Imputed interest on amounts due to related party | — | — | ||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued for payment on settlement liability | — | ( | ) | |||||||||||||||||||||||||
| Imputed interest on amounts due to related party | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued for payment on settlement liability | — | ( | ) | |||||||||||||||||||||||||
| Imputed interest on amounts due to related party | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Common stock issued for payment on settlement liability - related party | ||||||||||||||||||||||||||||
| Imputed interest on amounts due to related party | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2022 | $ | ( | ) | ( | ) | |||||||||||||||||||||||
| Imputed interest on amounts due to related party | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued for payment on settlement liability - related party | — | |||||||||||||||||||||||||||
| Imputed interest on amounts due to related party | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 6 |
HALLMARK
VENTURE GROUP, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| For
the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Imputed interest on amounts due to related party | ||||||||
| Amortization of debt discount | ||||||||
| Change in fair value of derivative | ||||||||
| Loss on issuance of convertible debt | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued interest – related party | ||||||||
| Accrued interest | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from convertible note payable - related party | ||||||||
| Net cash provided by financing activities | ||||||||
| Net Change in Cash | ||||||||
| Cash beginning of period | ||||||||
| Cash end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| NON-CASH TRANSACTIONS: | ||||||||
| Common stock issued for payment on settlement liability - related party | $ | $ | ||||||
| Common stock issued for payment of debt | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 7 |
HALLMARK VENTURE GROUP, INC.
Notes to Unaudited Financial Statements
September 30, 2023
NOTE 1 — ORGANIZATION AND OPERATIONS
Hallmark Venture Group, Inc., was originally incorporated in the state of Colorado on July 14, 1995, with the name CPC Office Systems, Inc. On July 12, 1999, the Company changed its name to Homesmart USA, Inc. On March 6, 2008, the Company changed its name to Speech Phone, Inc. On March 3, 2006, the Company moved its domicile to Nevada. On March 8, 2006, the Company changed its name to Smart Truck Systems, Inc. On July 16, 2008, the Company changed its name to Hallmark Venture Group, Inc.
On May 4, 2020, Living Waters, LLC (“LWLLC”) obtained management control of the Company from its previous CEO and Director, Robert Cashman (“Cashman”), pursuant to a contingent Share Purchase Agreement (the “SPA”), dated as of May 4, 2020, by and among LWLLC and Cashman, whereby certain preferred shares (the “Preferred Shares”) that represent the voting control interest in the Company were to be issued to LWLLC (the “Transaction”).
On May 27, 2020, in connection with the Transaction and in accordance with provisions of the SPA, LWLLC assigned the SPA to Medical Southern, LLC (“MSLLC”). On August 13, 2020, all issued and outstanding Preferred Shares were issued to a designee of MSLLC, Top Knot, Inc. USA (“TKIU”).
On August 17, 2020, in connection with the Transaction and in accordance with provisions of the SPA, MSLLC assigned the SPA to Stonecrest Acquisition, LLC (“SALLC”). As a consequence of the Transaction, a change of control of the Company occurred. As a result of the Transaction TKIU obtained voting control of the Company. Subsequently, on October 19, 2020, TKIU assigned % of the Preferred Shares it held to Endicott Holdings Group, LLC (“Endicott”).
On June 20, 2022, Endicott transferred % of the preferred shares, and of the shares of common stock it held, to Beartooth Asset Holdings, LLC, an entity controlled by the Company’s Secretary, Paul Strickland, resulting in a change of control of the Company.
On July 7, 2022, Beartooth Asset Holdings, LLC (an entity controlled by Paul Strickland, the Company’s secretary and a member of its board of directors) transferred Series A Preferred Shares to JMJ Associates, LLC, an entity controlled by John D. Murphy, Jr., President CEO of the Company and a Member of the Board of Directors, resulting in a change of control of the Company.
On July 12, 2022, Paul Strickland, the Company’s Principal Financial Officer, became a director of the Company.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown and are not necessarily indicative of the results to be expected for the full year ending December 31, 2023. These unaudited financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
| 8 |
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 of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America under U.S. GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1: | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2: | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3: | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable approximate the fair value of such instruments as the notes bear interest rates that are consistent with current market rates.
The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of:
September 30, 2023:
| Description | Level 1 | Level 2 | Level 3 | Total Loss | ||||||||||||
| Derivative | $ | $ | $ | $ | ( | ) | ||||||||||
| Total | $ | $ | $ | $ | ( | ) | ||||||||||
December 31, 2022:
| Description | Level 1 | Level 2 | Level 3 | Total Gain | ||||||||||||
| Derivative | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Company computes income (loss) per share in accordance with FASB ASC 260. Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and the dilutive effect of contingent shares outstanding during the period. As of September 30, 2023, the Company has approximately potentially dilutive shares from convertible notes payable and potentially dilutive shares from Series A preferred stock. As of December 31, 2022, the Company has potentially dilutive shares from a convertible note payable and potentially dilutive shares from Series A preferred stock. Diluted amounts are not presented when the effect of the computations are anti-dilutive due to the losses incurred.
| 9 |
Recently Issued Accounting Pronouncements
The Company has implemented all new applicable accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - GOING CONCERN
The Company’s financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
of September 30, 2023, the Company had an accumulated deficit of approximately $
These factors and uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might incur in the event the Company cannot continue in existence. Management intends to seek additional capital from new equity securities offerings, debt financing and debt restructuring to provide funds needed to increase liquidity, fund internal growth and fully implement its business plan. However, management can give no assurance that these funds will be available in adequate amounts, or if available, on terms that would be satisfactory to the Company.
The timing and amount of the Company’s capital requirements will depend on a number of factors, including maintaining its status as a public company and supporting shareholder and investor relations.
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of September 30, 2023 and December 31, 2022, accounts payable and accrued liabilities consist of the following:
| Description | September 30, 2023 | December 31, 2022 | ||||||
| Legal fees | $ | $ | ||||||
| Total | $ | $ | ||||||
NOTE 5 – CONVERTIBLE NOTE PAYABLE – RELATED PARTY
On
October 5, 2022, the Company issued a $
On
April 6, 2023, the Company issued a $
As
of September 30, 2023, the above Notes are disclosed as $
As
of December 31, 2022, the Note is disclosed as $
As
of September 30, 2023, there is $
| 10 |
A summary of the activity of the derivative liability for the notes above is as follows:
| Balance at December 31, 2021 | $ | |||
| Increase to derivative due to new issuances | ||||
| Decrease to derivative due to repayments | ||||
| Derivative gain due to mark to market adjustment | ( | ) | ||
| Balance at December 31, 2022 | ||||
| Increase to derivative due to new issuances | ||||
| Increase to derivative due to repayments | ||||
| Derivative gain due to mark to market adjustment | ||||
| Balance at September 30, 2023 | $ |
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 is as follows:
| Inputs | September 30, 2023 | Initial Valuation | ||||||
| Stock price | $ | $ | - | |||||
| Conversion price | $ | $ | ||||||
| Volatility (annual) | ||||||||
| Risk-free rate | ||||||||
| Dividend rate | ||||||||
| Years to maturity | ||||||||
NOTE 6 – SETTLEMENT LIABILITY
On
September 15, 2022, the Company was informed through its counsel in regard to a past due note payable, with an unrelated third party,
from 2017 in the amount of $ along with calculated past due interest of $ resulting in a total amount due of $. On
September 24, 2022, the Company entered into a 90-day Standstill Agreement relating to the claim against the Company. The Company has
acknowledged the liability and has booked $ (includes additional interest of $
On
March 7, 2023, the Company, Phase I Operations, Inc, and The Robert Papiri Defined Benefit Plan entered into an Assignment of Debt Agreement
(the “Agreement”), whereby, the note payable for $
On
March 15, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
On
April 20, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
On
June 12, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
On
July 12, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
| 11 |
On
September 15, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
On
September 18, 2023, the Company issued shares of its common stock to DACE Marketing Consulting, LLC for conversion of $
On
September 18, 2023, the Company issued shares of its common stock to John Milardovic for conversion of $
On
September 18, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
NOTE 7 – SETTLEMENT LIABILITY – RELATED PARTY
On
September 17, 2020, the Company entered into a settlement agreement with Green Horseshoe, LLC., Inc. on its past due notes payable with
a principal balance of $
The
agreement calls for the Company’s transfer agent to issue free-trading common shares to Green Horseshoe, LLC. at a conversion rate
of
For
the nine months ended September 30, 2023, and the year ended December 31, 2022, the Company issued and shares of
its common stock, respectively, in payment of $
NOTE 8 – STOCK PAYABLE
The
Company’s related party settlement liability (Note 7) included the requirement to issue shares of the Company’s
common stock in order to cover litigation and legal expenses associated with the settlement agreement. The value of the shares at the
settlement date was $ resulting in a total value of $
NOTE 9 – COMMON STOCK
Effective January 29, 2021, the Company decreased its authorized shares of $ par value common stock from shares to shares.
On
February 18, 2023, the Company issued shares of its common stock to Green Horseshoe, LLC for the repayment of the settlement
liability in the amount of $
On
March 15, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
On March 23, 2023, the Company retired shares issued in the name of the Company.
On
April 20, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
On
June 12, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
| 12 |
On
July 12, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
On
September 15, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
On
September 18, 2023, the Company issued shares of its common stock to DACE Marketing Consulting, LLC for conversion of $
On
September 18, 2023, the Company issued shares of its common stock to John Milardovic for conversion of $
On
September 18, 2023, the Company issued shares of its common stock to Phase I Operations, Inc. for conversion of $
NOTE 10 – PREFERRED STOCK
The
Company is authorized to issue shares of $ par value Series A preferred stock. The Company increased the number of authorized
shares of the Series A preferred stock from to on January 19, 2021. Each share of the Series A Preferred Stock is convertible
at the option of the holder into shares of common stock. The holder has
The Company has shares of Series A Preferred Stock issued and outstanding as of September 30, 2023 and December 31, 2022, respectively. Beartooth Asset Holdings, LLC, an entity controlled by Paul Strickland, the Company’s Secretary and a member of the board of directors, acquired the Series A Preferred Stock on June 20, 2022 from Endicott Holding Group, LLC.
On July 7, 2022, Beartooth Asset Holdings, LLC, transferred Series A Preferred Shares to JMJ Associates, LLC (an entity controlled by John D. Murphy, Jr., the Company’s Chief Executive Officer and President and a member of the board of directors) resulting in a change of control of the Company.
NOTE 11 – OTHER RELATED PARTY TRANSACTIONS
| Name of Related Party | Related Relationship | |
| John D. Murphy Jr. | Principal Executive Officer of the Company, member of the Board of Directors, and Managing Member of JMJ Associates, LLC | |
| Paul Strickland | Secretary of the Company, member of the Board of Directors, and Managing Member of Beartooth Asset Holdings, LLC. | |
| Selkirk Global Holdings, LLC | Entity owned by Paul Strickland, the Company’s Secretary, and a member of its Board of Directors. | |
| Green Horseshoe, LLC | Significant debt holder and shareholder | |
| OC Sparkle Inc. | Significant shareholder |
Common stock transactions
On
February 18, 2023, the Company issued shares of its common stock to Green Horseshoe, LLC for the repayment of the settlement
liability in the amount of $
Manager Promissory Note
On
February 1, 2022, the Company and its Board of Directors approved an
Loans and Cash Advances
John
D. Murphy, Jr., has at times directly paid for various company expenses. The amount is unsecured, non-interest bearing, and due on demand.
As of September 30, 2023 and December 31, 2022, the outstanding balance due to Mr. Murphy was $
Paul
Strickland has at times paid for various company expenses. The amount is unsecured, non-interest bearing, and due on demand. As of September
30, 2023 and December 31, 2022, the outstanding balance due to Mr. Strickland was $
Imputed
interest is assessed as an expense to the business operations and an addition to paid in capital. The imputed interest rate is
NOTE 12 — COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be a defendant in pending or threatened legal proceedings arising in the normal course of its business. Management is not aware of any pending, threatened or asserted claims.
See “Note 6 – Settlement Liability”.
See “Note 7 - Settlement Liability – Related Party”.
NOTE 13 — 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 issued and has determined that it does not have any material subsequent events to disclose in these financial statements.
| 13 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS.
Forward-looking Statements
Unless the context indicates otherwise, as used in this Quarterly Report, the terms “HLLK,” “we,” “us,” “our,” “our company” and “our business” refer, to HALLMARK VENTURE GROUP, INC., including its subsidiaries named herein. Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
General Background of the Company
Hallmark Venture Group, Inc. (“we”, “us”, “our” or the “Company”) was originally incorporated in the State of Colorado on July 14, 1995, with the name CPC Office Systems, Inc. On July 12, 1999, the Company changed its name to Homesmart USA, Inc. On March 3, 2006, the Company moved its domicile to Nevada. On March 8, 2006, the Company changed its name to Smart Truck Systems, Inc. On March 6, 2008, the Company changed its name to Speech Phone, Inc. On July 16, 2008, the Company changed its name to Hallmark Venture Group, Inc. On March 22, 2022, the Company redomiciled and became a Florida corporation.
On November 2, 2020, the Company entered into a Plan of Merger and Acquisition Agreement (the “Stonecrest Merger Agreement”), pursuant to which the Company purchased Stonecrest Owner, LLC in exchange for the issuance of 10,000,000 shares of common stock and 100,000 shares of Series A preferred stock to the members of Stonecrest Owner, LLC. On July 12, 2021, the parties agreed to cancel and unwind the transactions contemplated by the Stonecrest Merger Agreement. As a result, all of the shares of common stock and preferred stock that were issued as part of that transaction were canceled.
The Company can currently be defined as a “shell” company, whose sole purpose at this time is to locate and consummate a merger or acquisition with a private entity. The Company has no particular acquisitions in mind and has not currently entered into any negotiations regarding such an acquisition, provided, that the Company intends to pursue the direct or indirect acquisition and development of real estate assets (including portfolios of real estate assets) and/or businesses related thereto. The Company’s officers and directors have not engaged in any preliminary contact or discussions with any representative of any other company regarding the possibility of an acquisition or merger between the Company and such other company as of the date hereof.
Business Objectives of the Company
Since August 2020, management has determined to direct its efforts and limited resources to pursue potential new business and/or acquisition opportunities. The Company does not intend to limit itself to a particular industry and has not established any particular criteria upon which it shall consider a business opportunity, provided, that management presently intends to prioritize the direct or indirect acquisition and development of real estate assets (including portfolios of real estate assets) and/or businesses related thereto.
The Company’s purpose is to seek, investigate and, if such investigation warrants, acquire an interest in business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of an issuer who has complied with the Exchange Act. The Company will not restrict its search to any specific business, industry, or geographical location and the Company may participate in a business venture of virtually any kind or nature and we have not established any particular criteria upon which we consider a business opportunity, provided that we will prioritize real estate transactions. This discussion of the proposed business herein is purposefully general and is not meant to be restrictive of the Company’s broad discretion to search for and enter into potential business opportunities. Management anticipates that it may be able to participate in only one potential business venture because the Company has nominal assets and limited financial resources.
Management would have substantial flexibility in identifying and selecting a prospective new business opportunity. The Company is dependent on the judgment of its management in connection with this process. There are many criteria that management may deem relevant. In connection with an evaluation of a prospective or potential business opportunity, management may be expected to conduct a due diligence review. A business combination may involve an entity that may be financially unstable or in its early stages of development or growth. In evaluating a prospective business opportunity, management would consider, among other factors, the following:
| ● | costs associated with pursuing a new business opportunity; | |
| ● | the growth potential of the new business opportunity; |
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| ● | necessary capital requirements; | |
| ● | the competitive position of the new business opportunity; | |
| ● | stage of business development; | |
| ● | the market acceptance of the potential products and services; | |
| ● | proprietary features and degree of intellectual property; and | |
| ● | the regulatory environment that may be applicable to any prospective business opportunity |
The foregoing criteria are not intended to be exhaustive and there may be other criteria that management may deem relevant. In connection with an evaluation of a prospective or potential business opportunity, management may be expected to conduct a due diligence review.
The time and costs required to pursue new business opportunities, which includes negotiating and documenting relevant agreements and preparing requisite documents for filing pursuant to applicable securities laws, cannot be ascertained with any degree of certainty.
Management intends to devote such time as it deems necessary to carry out our affairs. The exact length of time required for the pursuit of any new potential business opportunities is uncertain. No assurance can be made that we will be successful in our efforts. We cannot project the amount of time that management will devote to the Company’s plan of operation.
Prospective investors in the Company’s common stock will not have an opportunity to evaluate the specific merits or risks of any of the one or more business combinations that we may undertake. A business combination may involve the acquisition of, or merger with, a company that needs to raise substantial additional capital by means of being a publicly-traded company, while avoiding what it may deem to be adverse consequences of undertaking a public offering itself. These include time delays, significant expense, voting control issues and compliance with various federal and state securities laws.
The Company intends to conduct its activities to avoid being classified as an “Investment Company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”), and therefore avoid application of the costly and restrictive registration and other provisions of the Investment Company Act and the regulations promulgated thereunder.
Management believes that being a reporting company under the Exchange Act will enhance the Company’s efforts to acquire or merge with an operating business.
The Company is obligated to file interim and periodic reports including an annual report with audited financial statements. This obligation will substantially increase the expenses incurred by the Company.
Any entity that is merged into or acquired by us will become subject to the same reporting requirements to which we are subject. Thus, if we successfully complete an acquisition or merger, the acquired entity must have audited financial statements for at least the two most recent fiscal years, or if the acquired entity has been in business for less than two years, audited financial statements must be available from its inception. This requirement limits our possible acquisitions or merger opportunities because many private companies either do not have audited financial statements or are unable to produce audited financial statements without long delay and substantial expense.
The Company’s common stock is subject to quotation on the OTC Markets Group Inc. Pink Market (“OTC Pink”) under the symbol HLLK. There is currently only a limited trading market in the Company’s common stock. There can be no assurance that there will be an active trading market for our common stock. If an active trading market commences, there can be no assurance as to the market price of our common stock, whether the trading market will provide liquidity to investors, or whether any trading market will be sustained.
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Corporate Information
Our Company’s headquarters is located at 5112 West Taft Road, Suite M, Liverpool, NY 13088. Our telephone number is 877-646-4833.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined under the Securities Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
| ● | not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (or the Sarbanes-Oxley Act); | |
| ● | reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and | |
| ● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
In addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period. We will remain an emerging growth company until the earliest to occur of: (i) our reporting $1.07 billion or more in annual gross revenues; (ii) the end of fiscal year 2024; (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million on the last business day of our second fiscal quarter.
Results of Operations
The three months ended September 30, 2023 compared to the three months ended September 30, 2022
Revenues: The Company had no revenue during the three months ended September 30, 2023 or 2022.
General and Administrative expenses: The Company incurred $6,500 of general and administrative expenses during the three months ended September 30, 2023, compared to $5,104 during the same period in 2022. The increase in general and administrative expenses was primarily due to an increase in audit and legal fees.
Other Income (Expense). The Company incurred total other expense of $177,348 for the three months ended September 30, 2023, compared to total other expense of $2,980 during the three months ended September 30, 2022. In the current period we had expense for the amortization of debt discount of $14,352, a loss on issuance of convertible debt of $10,058 and a loss of $147,246 for the change in fair value of derivative. We also incurred total interest expense of $5,692. In the prior period we only had interest expense of $2,980.
Net Loss. The Company incurred a net loss of $183,848 for the three months ended September 30, 2023, compared to a net loss of $8,084 during the same period in 2022. The increase in net loss is primarily due to our other expenses related to our convertible debt.
The nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Revenues: The Company had no revenue during the nine months ended September 30, 2023 or 2022.
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General and Administrative expenses: The Company incurred $36,996 of general and administrative expenses during the nine months ended September 30, 2023, compared to $40,254 during the same period in 2022. The decrease in general and administrative expenses was primarily due to a decrease in audit and legal fees over the nine month period.
Other Income (Expense). The Company incurred total other expense of $233,035 for the nine months ended September 30, 2023, compared to total other expense of $144,049 during the nine months ended September 30, 2022. In the current period we had expense for the amortization of debt discount of $34,347, a loss on issuance of convertible debt of $21,427 and a loss of $159,797 for the change in fair value of derivative. We also incurred total interest expense of $16,464. In the prior period we had interest expense of $144,049.
Net Loss. The Company incurred a net loss of $270,031 for the nine months ended September 30, 2023, compared to $184,303 during the same period in 2022. The increase in net loss is primarily due to our other expenses related to our convertible debt.
Cash Flows
Net cash used in operating activities was $31,305 and $135,916 during the nine months ended September 30, 2023 and 2022, respectively.
Net cash provided by financing activities was $31,305and $135,916 during the nine months ended September 30, 2023 and 2022, respectively.
Liquidity and Capital Resources
As of September 30, 2023, we had no assets and current liabilities totaling $994,857. Current liabilities consisted of accounts payable and accrued liabilities totaling $269,920, related party payable of $223,148, related party interest payable of $4,257 and a related party convertible note payable of $46,919 net of debt discount of $18,964.
Going Concern
We have only limited capital. Additional financing is necessary for us to continue as a going concern. The report of the independent registered public accounting firm accompanying our financial statements for the years ended December 31, 2022 and 2021 contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern”, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
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 to the Financial Statements for the nine months ended September 30, 2023, for a condensed discussion of our critical accounting policies and our Form 10-K for the year ended December 31, 2022, for a full discussion of our critical accounting policies and procedures.
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, 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 September 30, 2023 due to a lack of segregation of duties.
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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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
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 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of 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
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HALLMARK VENTURE GROUP, INC. | ||
| Date: March 26, 2024 | By: | /s/ JOHN D. MURPHY, JR. |
| Chief Executive Officer | ||
| By: | /s/ PAUL STRICKLAND | |
| Chief Financial Officer | ||
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