NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description
of Business. Golden Developing Solutions, Inc. (the “Company” or “GDS”) was organized as a corporation
in Nevada in 1998 as American Associates Group. In 2007 the name was changed to Clean Hydrogen Producers, Ltd before being changed
in April of 2017 to Golden Developing Solutions, Inc. The Company has structured itself in 2017 as a cannabis holding company
and intends to make additional acquisitions in the industry in the near future.
Basis
of Presentation. The accompanying unaudited financial statements of Golden Developing Solutions, Inc. have been prepared in
accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q
and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In our opinion, the financial statements include all adjustments (consisting
of normal recurring accruals) necessary in order to make the condensed financial statements not misleading. Operating results
for the three and nine months ended September 30, 2019 are not necessarily indicative of the final results that may be expected
for the year ended December 31, 2019. For more complete financial information, these unaudited financial statements should be
read in conjunction with the consolidated financial statements for the year ended December 31, 2018. Notes to the consolidated
financial statements which would substantially duplicate the disclosures contained in the annual financial statements for the
most recent fiscal period have been omitted.
Certain
prior period amounts have been reclassified to conform to the current period financial statement presentation, including the discontinued
operations presentation resulting from the sale of the Company’s Infusionz operations in October 2019. See Note 3.
Use
of Estimates in Financial Statement Preparation. 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, 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. Actual results could differ from those estimates.
Principles
of Consolidation. The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying
consolidated financial statements include the accounts of the Company and its subsidiaries, all of which have a fiscal year end
of December 31. All intercompany accounts, balances and transactions have been eliminated in the consolidation. The Company also
consolidates any variable interest entities for which the Company is the primary beneficiary based on whether the Company has
the ability to direct the activities that most significantly impact the entities economic performance.
On
April 27, 2018, the Company incorporated Pura Vida Vitamins, LLC as a wholly owned subsidiary. Pura Vida Vitamins, LLC entered
into two consulting agreements with individuals that paid each consultant $6,000 per month in cash, additional bonuses depending
on certain sales-related milestones, and 20,500,000 shares each for the completion of certain sales-related milestones, of which
none were earned by either consultant. On July 1, 2018, the Company reorganized the entity to be a joint venture in which it owns
50%, in exchange for the cancelation of these consulting agreements. The Company continues to consolidate the operations of Pura
Vida Vitamins, LLC due to its ownership interest combined with a controlling vote of the board of directors which make the Company
the primary beneficiary of the joint venture with the ability to significant influence and control the activities of the business.
The assets of the joint venture consisted primarily of $91,931 of inventory and $9,252 of property and equipment, net, and the
liabilities consisted of $789 of accounts payable as of September 30, 2019. Selling, general and administrative expense includes
$996 of expense related to Pura Vida Vitamins, LLC.
On
September 26, 2018, the Company incorporated Tasos Media LLC as a wholly owned subsidiary.
On
March 9, 2019, the Company incorporated CBD Infusionz, LLC as a wholly owned subsidiary.
On
October 4, 2019, the Company entered into a termination agreement related to its CBD Infusionz business to dispose of the operations
of that business. See Note 3 for additional information.
Inventories.
Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out method. The Company reviews
its inventory for obsolescence and any inventory identified as obsolete is reserved or written off. The Company’s determination
of obsolescence is based on assumptions about the demand for its products, product expiration dates, estimated future sales, and
management’s future plans.
As
of September 30, 2019, and December 31, 2018, inventory consists of the following components:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Raw materials and supplies
|
|
$
|
36,624
|
|
|
$
|
36,624
|
|
|
Finished products
|
|
|
55,307
|
|
|
|
55,307
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
91,931
|
|
|
$
|
91,931
|
|
Goodwill,
Intangible Assets, and Long-Lived Assets. Goodwill is carried at cost and is not amortized. The Company tests goodwill for
impairment on an annual basis, relying on a number of factors including operating results, business plans, economic projections,
anticipated future cash flows and marketplace data. Company management uses its judgment in assessing whether goodwill has become
impaired between annual impairment tests according to specifications set forth in ASC 350.
The
fair value of the Company’s reporting unit is dependent upon the Company’s estimate of future cash flows and other
factors. The Company’s estimates of future cash flows include assumptions concerning future operating performance and economic
conditions and may differ from actual future cash flows. Estimated future cash flows are adjusted by an appropriate discount rate
derived from the Company’s market capitalization plus a suitable control premium at date of the evaluation.
The
financial and credit market volatility directly impacts the Company’s fair value measurement through the Company’s
weighted average cost of capital that the Company uses to determine its discount rate and through the Company’s stock price
that the Company uses to determine its market capitalization. Therefore, changes in the stock price may also affect the amount
of impairment recorded.
The
Company recognizes an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other
legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged,
either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their useful
lives. Impairment losses are recognized if the carrying amount of an intangible asset subject to amortization is not recoverable
from expected future cash flows and its carrying amount exceeds its fair value.
The
Company’s long-lived assets, including intangibles, are reviewed for impairment whenever events or changes in circumstances
indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability
of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the
carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An
impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. During the
nine months ended September 30, 2019, the Company recognized an impairment loss of $2,204,160 related to the disposal of
its CBD Infusionz business in October 2019. See Note 3.
Revenue
Recognition. The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, which was adopted on January 1, 2018.
The Company primarily earns revenue from subscription services for its online and mobile cannabis services hub, www.wheresweed.com.
This online and mobile service hub allows marijuana business to advertise their location and services offered and allows users
of the Company’s website to locate nearby cannabis businesses. With the acquisition of the Infusionz LLC assets in 2019,
the Company also recognizes revenue from the sales of cannabinoid-based products. The Company has also developed an online retail
business for CBD, hemp oil and health/wellness related products through the Pura Vida joint venture. The Company has not yet begun
to sell inventory products through this online retail business as of September 30, 2019.
Revenue
is recognized when control of the services is transferred to the customer in an amount that reflects the consideration the Company
expects to be entitled to in exchange for the services.
Revenue
is recognized based on the following five step model:
|
|
-
|
Identification
of the 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
|
|
|
-
|
Recognition
of revenue when, or as, the Company satisfies a performance obligation
|
Performance
Obligations
The
Company generates revenue from subscriptions to the Company’s online services and sales of cannabinoid products. Subscription
revenue is recognized on a ratable basis over the contract term beginning on the date that the service is made available to the
customer. For contracts with multiple performance obligations, the Company allocates the total transaction price to each performance
obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying
each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance
obligations or a cost plus margin approach when one is not available. Historically the Company’s contracts have not had
multiple performance obligations. For subscription revenue, the Company’s performance obligations are recognized over a
time period equal to the length of the subscription period, which is generally 30 days. Revenue related to the sales of products
are recognized at the point in time at which control transfers to the buyer.
Sales,
value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items
that are immaterial in the context of the contract are recognized as expense. Payment terms between invoicing and when payment
is due is less than one year. As of September 30, 2019, none of the Company’s contracts contained a significant financing
component.
The
Company elected the practical expedient to not adjust the amount of revenue to be recognized under a contract with an end user
for the effects of time value of money when the timing difference between receipt of payment and recognition of revenue is less
than one year.
Transaction
Price Allocated to the Remaining Performance Obligations
The
subscription revenue for its website services is collected up front for a 30 day period. At the end of each reporting period,
the Company performs a calculation to determine the portion of that period for which services have not yet been provided. From
time to time, the Company may receive payment for sales of its products from a customer before the goods have shipped. This amount
is considered a contract liability and is recorded as deferred revenue. At September 30, 2019 and December 31, 2018, the Company
had $168,248 and $43,207, respectively, in revenue expected to be recognized in the future related to performance obligations
that are unsatisfied (or partially unsatisfied) at the end of the reporting period. The Company expects to recognize all of its
unsatisfied (or partially unsatisfied) performance obligations as revenue in the next twelve months.
Contract
Costs
Costs
incurred to obtain a customer contract are not material to the Company. The Company elected to apply the practical expedient to
not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed and included within
cost of goods and services.
Critical
Accounting Estimates
Estimates
are used to determine the amount of variable consideration in contracts, the standalone selling price among separate performance
obligations and the measure of progress for contracts where revenue is recognized over time. The Company reviews and updates these
estimates regularly.
Cost
of Revenue. Cost of revenue includes costs of managed hosting providers and amortization of acquired software-related intangible
assets, and personnel related costs associated with hosting our subscription services, maintenance and testing of the platform
and providing technical support to customers. Additionally, cost of revenue includes all costs to purchase and assemble the cannabinoid-based
products sold by the Company.
Selling,
General and Administrative Expenses. Selling, general and administrative expenses include advertising and promotional costs
and research and development costs. Also included in Selling, general and administrative expenses are share-based compensation,
certain warehousing fees, non-manufacturing overhead, personnel and related expenses, rent on operating leases, and professional
fees.
Advertising
and promotional costs are expensed as incurred and totaled $11,615 and $47,834 in the three and nine months ended September 30,
2019, and $3,472 and $6,252 during the three and nine months ended September 30, 2018, respectively.
Basic
Earning (Loss) Per Share. The Company computes net income (loss) per share in accordance with ASC 260, “Earnings
per Share.” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income
statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average
number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In
computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased
from the exercise of stock options or warrants. Given the net losses of the Company during the nine months ended September 30,
2019 and 2018, the effects of outstanding stock options were anti-dilutive resulting in basic and diluted loss per weighted average
common shares outstanding equal. See Note 6.
Recently
Issued Accounting Standards.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required
to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements.
ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors
are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial
statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, The Company adopted
this standard on January 1, 2019 using the modified retrospective method. The new standard provides a number of optional practical
expedients in transition. The Company elected the ‘package of practical expedients’, which permitted the Company not
to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs;
and all of the new standard’s available transition practical expedients.
On
adoption, the Company recognized additional operating liabilities of $102,878, with corresponding Right of Use assets of the same
amount based on the present value of the remaining minimum rental payments under current leasing standards for its existing operating
leases. Company does not have any leases classified as a finance lease under ASC 842. See Note 7 for additional information on
leases.
The
new standard also provides practical expedients for a company’s ongoing accounting. The Company elected the short-term lease
recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize
ROU assets or lease liabilities. The Company also made an accounting policy election to combine lease and non-lease components
of operating leases for all asset classes.
In
June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based
Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under
ASU No. 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as
the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution
of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the
goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the
option-pricing model for nonemployee awards. The Company adopted the provisions of the guidance on January 1, 2019 with no
material impact on the Company’s consolidated financial statements and disclosures.
The
Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective,
if adopted, would have a material effect on the accompanying financial statements.
NOTE
2 - GOING CONCERN AND LIQUIDITY
As
of September 30, 2019, the Company had $157,711 cash and $1,395,860 of revenue to meets its ongoing operating expenses, and liabilities
of $7,804,922 of which $5,981,119 are due within 12 months.
The
financial statements for the nine months ended September 30, 2019 and 2018 have been prepared on a going concern basis which assumes
the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable
future. The Company anticipates future losses in the development of its business raising substantial doubt about the Company’s
ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable
operations in the future and, or, obtaining the necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they come due. Management intends to finance operating costs over the next twelve months
with loans or contributions from related parties and, or, the sale of common stock. There is no assurance that this series of
events will be satisfactorily completed.
Financial
statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that may
be necessary if the Company is unable to continue as a going concern.
NOTE
3 - ACQUISITIONS AND DIVESTITURES
Layer
Six Acquisition
On
September 18, 2018 the Company completed the purchase of all of the assets of Layer Six Media, Inc. (DBA Where’s Weed) (the
“Layer Six Acquisition”), an online and mobile cannabis services hub that focuses on fast, secure and efficient discovery
and purchasing of cannabis in both recreational and medical markets in the United States and Canada. The transaction was accounted
for as a business combination under ASC 805.
The
aggregate consideration of $9,113,636 at closing for the acquisition consisted of:
|
|
-
|
$170,000
cash
|
|
|
-
|
$80,000
note payable accruing interest at 2% per year and a default rate of 18%, due within ninety dates of the acquisition date.
The Company made payments of $19,500 during the nine months ended September 30, 2019 with $50,500 due as of September 30,
2019. The Company is in default of this agreement as of September 30, 2019.
|
|
|
-
|
$750,000
note payable accruing interest at 3% per year and a default rate of 15%, due in three equal monthly payments beginning October
1, 2018. The Company made payments of 266,500 during the nine months ended September 30, 2019, with a balance due of $432,989
as of September 30, 2019. The Company is in default of the agreement as of September 30, 2019.
|
|
|
-
|
$3,000,000
note payable accruing interest at 3% per year and a default rate of 15%, due in twelve equal monthly payments beginning January
1, 2019. No payments have been made to date and the Company is in default of the agreement as of September 30, 2019.
|
|
|
-
|
170,454,545
shares of common stock, fair value of $5,113,636 based on closing stock price on the date of acquisition
|
A
company controlled by a Director of the Company will receive total payments of $500,000 for his representation of the sellers
in the Layer Six Acquisition. The Company will pay a total of $100,000 of this amount directly, with $20,000 paid at closing,
an additional $10,000 paid through December 31, 2018 and an additional $19,500 paid during the nine months ended September 30,
2019 in connection with the note payable described above. The remaining $400,000 will be paid by the sellers of Layer Six Media,
Inc.
The
$500,000 fee is related to an agreement between the sellers of Layer Six and the Director for brokering the sale of their business.
The entire fee of $500,000 is included as part of the purchase price and not recorded as an expense. The Company did not incur
any portion of this broker fee and did not receive any benefit from the services provided by this individual to earn the fee.
We further noted that this Director became a director of GDS on September 21, 2018 after the Layer Six Acquisition, and management
decided to disclose the fee due to this relationship that occurred after the transaction and due to the size of the fee involved.
The $100,000 that the Company is paying related to this fee was recorded as part of the consideration paid for the acquisition.
The Company agreed to structure $100,000 of the total purchase consideration paid to be directly to the new Director instead of
to the sellers, with $20,000 of initial cash paid at closing and the $80,000 note payable described above. The remaining $400,000
is paid or to be paid by the sellers of Layer Six Media, Inc.
The
Company has evaluated what identifiable intangible assets were acquired and the fair value of each and finalized the fair value
of the acquired assets during the current period. The following information summarizes the allocation of the fair values assigned
to the assets at the purchase date:
|
|
|
Amount
|
|
|
Estimated
Useful Life
(years)
|
|
|
Equipment, computers and furniture
|
|
$
|
7,000
|
|
|
|
5
|
|
|
Tradenames and trademarks
|
|
|
270,000
|
|
|
|
10
|
|
|
Software enterprise platform
|
|
|
2,220,000
|
|
|
|
5
|
|
|
Customer list
|
|
|
1,630,000
|
|
|
|
4
|
|
|
Goodwill
|
|
|
4,986,636
|
|
|
|
n/a
|
|
|
Total purchase price
|
|
$
|
9,113,636
|
|
|
|
|
|
The
Company entered into employment agreements with three employees of Layer Six Media. Each agreement is for a term of two years,
with an annual salary of $150,000 per year. If the employee is terminated without cause, they will receive severance pay of five
months salary. One employee’s agreement entitles them to receive annual stock grants on January 1, in an amount equal to
$80,000 divided by the closing price of the Company’s stock price on December 31. The Company is due to issue 4,210,526
shares of stock for the award vesting on January 1, 2019. The Company recognized $20,000 and $60,000 of stock-based compensation
during the three and nine months ended September 30, 2019, respectively, for the award expected to vest on January 1, 2020. No
shares were issued through September 30, 2019 for these awards.
Infusionz
Acquisition
In
March 2019, the Company purchased the assets of CBD Infusionz, LLC, a Colorado based company. The transaction was accounted for
as a business combination.
The
preliminary aggregate consideration for the Infusionz Acquisition was as follows:
|
|
|
Preliminary
Amount
|
|
|
147,250,382 shares of common stock
|
|
$
|
2,635,782
|
|
|
Note payable
|
|
|
2,400,000
|
|
|
Total consideration transferred
|
|
$
|
5,035,782
|
|
During
the three months ended September 30, 2019, the Company recognized a measurement period adjustment related to the estimated fair
value of the common stock issued of $35,782, to reflect the closing price of the Company’s common stock as of the acquisition
date.
The
note payable is unsecured, bears interest at 3% per year and is due in 24 equal monthly installments beginning in June 2019. The
Company paid $100,000 on this note during the nine months ended September 30, 2019, and the Company was in default of this obligation
as of September 30, 2019. Interest accrues at 15% per year in the event of default.
In
conjunction with the Infusions Acquisition, the Company agreed to fund the new subsidiary with $300,000 of cash, with $150,000
provided during the nine months ended September 30, 2019. These transactions were recorded as intercompany transactions and eliminate
upon consolidation. The Company entered into an employment with two employees of CBD Infusionz. The employees will receive a combined
total salary of $270,000 per year over the two-year term of the agreement, with automatic one-year renewals thereafter. The Company
issued a total 112,994,350 stock options with exercise prices of $0.018 to two employees of Infusionz LLC, with half vested immediately
upon execution of the agreement, and the remainder vesting monthly over a two year term. The options have a 10 year exercise period,
and an exercise price based on the closing price of the Company’s stock at the execution of the agreement. See Note 6.
The
employment agreements also provide for combined earn out payments of up to $2,000,000 over a period of four years depending on
sales targets being met, with $500,000 in each of the four years. The Company determined that these payments qualified as compensation
for future services of the sellers.
As
part of the acquisition, a company controlled by a Director of the Company will be paid a fee of $150,000 by the sellers of Infusionz,
LLC for representation of the sellers of Infusionz, LLC. The $150,000 fee is related to an agreement between the sellers of Infusionz,
LLC and the director for brokering the sale of their business. The entire fee of $150,000 is included as part of the purchase
price and not recorded as an expense. The Company did not incur any portion of this broker fee and did not receive any benefit
from the services provided by this individual to earn the fee.
The
Company is evaluating what identifiable intangible assets were acquired and the fair value of each and expects to finalize the
fair value of the acquired assets within one year of the acquisition date. The following information summarizes the preliminary
allocation of the fair values assigned to the assets at the purchase date:
|
|
|
Preliminary Amount
|
|
|
Useful Life
(years)
|
|
|
Equipment, computers and furniture
|
|
$
|
29,429
|
|
|
|
3
|
|
|
Inventory
|
|
|
90,733
|
|
|
|
n/a
|
|
|
Right of use assets – operating leases
|
|
|
23,315
|
|
|
|
n/a
|
|
|
Goodwill
|
|
|
4,915,620
|
|
|
|
n/a
|
|
|
Right of use liabilities – operating leases
|
|
|
(23,315
|
)
|
|
|
n/a
|
|
|
Net assets acquired
|
|
$
|
5,035,782
|
|
|
|
|
|
As
of September 30, 2019, the Company was owed $143,791 by the sellers of the Infusionz business for operations activity funded by
them from the acquisition date through September 30, 2019. This amount is included in Assets held for sale – current
on the Company’s Consolidated balance sheet.
Infusionz
Divestiture
On
October 4, 2019 the Company entered into a Termination Agreement (the “Termination Agreement”) with Infusionz, LLC,
a Colorado limited liability company (“Infusionz”) on October 4, 2019 (the “Closing Date”), whereby the
Company and Infusionz elected to terminate the March 8, 2019 Asset Purchase Agreement (the “Asset Purchase Agreement”).
The Asset Purchase Agreement resulted in the Company’s acquisition of Infusionz’s assets. Infusionz and the Company
agreed to unwind the Company’s acquisition of Infusionz’s assets pursuant to the terms of the Asset Purchase Agreement.
The
Termination Agreement provides that the Company will return all of Infusionz’s assets to Infusionz and will transfer and
assign leases for three properties in Colorado (two in Denver and one in Lakewood) to Infusionz. The Termination Agreement also
provides for the termination of the Employment Agreements between the Company and each of Nathan Weinberg and Joe Reid.
The
Termination Agreement provides that Infusionz and all associated members will return the stock consideration granted to them pursuant
to the Asset Purchase Agreement. The fair value of the stock consideration to be returned to the Company is approximately $2,600,000.
The Termination Agreement provides that Infusionz will release the Company from the promissory note issued as payment for the
assets pursuant to the Asset Purchase Agreement (the “Original Note”) and any and all obligations therein. The Termination
Agreement provides that the Company will issue two unsecured promissory notes to Infusionz each in the principal amount of $25,000
with neither of these notes being convertible (the “Notes”). The Termination Agreement further provides that the Company
will assign, and Infusionz will assume, certain assets and contracts as defined therein.
The
Notes became effective as of the Closing Date, and both Notes are due and payable on December 31, 2019 (the “Maturity Dates”).
The Notes entitles Infusionz to 3% interest per annum. Upon an Event of Default (as defined in the Notes), the Notes entitle Infusionz
to interest at the rate of 15% per annum. The Company may prepay the principal outstanding together with accrued and unpaid interest
in whole or in part at anytime without penalty or premium pursuant to the terms of the Notes. In the event of a default, without
demand, presentment or notice, the Note shall become immediately due and payable.
As
a result of this Termination Agreement, the assets and liabilities of the Infusionz operations have been reflected as assets and
liabilities held for sale in the Company’s consolidated balance sheets as follows:
|
|
|
As
of
September 30, 2019
|
|
|
Accounts Receivable
|
|
$
|
67,485
|
|
|
Inventory
|
|
|
221,284
|
|
|
Due from Sellers of Infusionz, LLC
|
|
|
143,791
|
|
|
Property and Equipment, net
|
|
|
50,185
|
|
|
Goodwill
|
|
|
2,711,460
|
|
|
Assets held for sale
|
|
|
3,194,205
|
|
|
|
|
|
|
|
|
Accounts Payable and accrued expenses
|
|
|
73,983
|
|
|
Acquisition notes payable
|
|
|
2,300,000
|
|
|
Other Liabilities
|
|
|
15,000
|
|
|
Liabilities related to assets held for sale
|
|
$
|
2,388,983
|
|
The
Infusionz Termination Agreement qualifies as a discontinued operation in accordance with U.S. GAAP. As a result, operating results
and cash flows related to the Infusionz operations have been reflected as discontinued operations in the Company’s condensed
consolidated statements of operations, condensed consolidated statements of cash flows and condensed consolidated statements of
other comprehensive income/loss for the periods presented.
Components
of amounts reflected in the Company’s consolidated statements of operations related to discontinued operations are presented
in the following table for the three and nine months ended September 30, 2019.
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
(unaudited)
|
|
September 30, 2019
|
|
|
September 30, 2019
|
|
|
Revenue
|
|
$
|
1,321,406
|
|
|
$
|
3,083,027
|
|
|
Cost of Revenue
|
|
|
(605,225
|
)
|
|
|
(1,537,235
|
)
|
|
Gross Profit
|
|
|
716,181
|
|
|
|
1,545,792
|
|
|
Selling, general and administrative
|
|
|
775,484
|
|
|
|
2,404,861
|
|
|
Impairment loss
|
|
|
2,204,160
|
|
|
|
2,204,160
|
|
|
Operating loss
|
|
$
|
(2,263,463
|
)
|
|
$
|
(3,063,229
|
)
|
|
Interest expense
|
|
|
16,068
|
|
|
|
38,753
|
|
|
Net loss from discontinued operations
|
|
$
|
(2,279,531
|
)
|
|
$
|
(3,101,982
|
)
|
During
the three months ended September 30, 2019, the Company recorded an impairment loss on its goodwill balance related to the Infusionz
Acquisition of $2,204,160, based on an analysis of the consideration received in October 2019 related to the Termination agreement.
Unaudited
Pro Forma Information
The
following schedule contains unaudited pro-forma consolidated results of operations for the three and nine months ended September
30, 2019 and 2018 as if the Layer Six acquisition occurred on January 1, 2017. The unaudited pro forma results of operations are
presented for informational purposes only and are not indicative of the results of operations that would have been achieved if
the acquisitions had taken place on those dates, or of results that may occur in the future. The unaudited pro forma results reflect
adjustments related to the amortization of the acquired intangible assets, depreciation expense on acquired equipment, stock-based
compensation for awards to new employees, salaries for new employees and interest expense on the new debt arising from the acquisitions.
The pro forma weighted average shares outstanding for each period assume the shares issued for the Layer Six Acquisition on January
1, 2017. No proforma effect of the Infusionz Acquisition is reflected, to the divestiture of that business that occurred on October
4, 2019, and the presentation of all results of the Infusionz business as discontinued operations in the presented periods.
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
(unaudited)
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Revenue
|
|
$
|
629,857
|
|
|
$
|
286,236
|
|
|
$
|
1,395,860
|
|
|
$
|
620,744
|
|
|
Loss from continuing operations
|
|
$
|
(191,427
|
)
|
|
$
|
(587,100
|
)
|
|
$
|
(1,483,747
|
)
|
|
$
|
(1,351,496
|
)
|
|
Net loss attributable to Golden Developing Solutions, Inc.
|
|
$
|
(2,642,838
|
)
|
|
$
|
(314,456
|
)
|
|
$
|
(5,057,257
|
)
|
|
$
|
(1,434,036
|
)
|
|
Loss per common share basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
Pro forma weighted average shares outstanding
|
|
|
814,426,284
|
|
|
|
302,780,153
|
|
|
|
739,268,681
|
|
|
|
278,080,586
|
|
NOTE
4 - INTANGIBLE ASSETS
Intangible
assets consisted of the following as of September 30, 2019 and December 31, 2018:
|
|
|
As of September 30, 2019
|
|
|
|
|
Cost
|
|
|
Accumulated Amortization
|
|
|
Carrying Value
|
|
|
Customer list
|
|
$
|
1,630,000
|
|
|
$
|
424,479
|
|
|
$
|
1,205,521
|
|
|
Tradenames and trademarks
|
|
|
270,000
|
|
|
|
28,125
|
|
|
|
241,875
|
|
|
Software enterprise platform
|
|
|
2,220,000
|
|
|
|
462,500
|
|
|
|
1,757,500
|
|
|
|
|
$
|
4,120,000
|
|
|
$
|
915,104
|
|
|
$
|
3,204,896
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
Cost
|
|
|
Accumulated Amortization
|
|
|
Carrying Value
|
|
|
Customer list
|
|
$
|
1,630,000
|
|
|
$
|
118,854
|
|
|
$
|
1,511,146
|
|
|
Tradenames and trademarks
|
|
|
270,000
|
|
|
|
7,875
|
|
|
|
262,125
|
|
|
Software enterprise platform
|
|
|
2,220,000
|
|
|
|
129,500
|
|
|
|
2,090,500
|
|
|
|
|
$
|
4,120,000
|
|
|
$
|
256,229
|
|
|
$
|
3,863,771
|
|
Amortization
expense for the three and nine months ended September 30, 2019 was $219,625 and $658,875, respectively. $333,000 of amortization
expenses is included in cost of sales related to the software enterprise platform, with the remainder included in general and
administrative expenses. Expected amortization of intangible assets for the remaining year ended December 31, 2019 and for the
years through December 31, 2023 is $439,250, $878,500, $878,500, $759,646 and $341,500, respectively, with $127,125 remaining
thereafter.
NOTE
5 - DEBT
Notes
Payable
During
the year ended December 31, 2018, the Company entered into a future revenue financing arrangement. The Company received
$50,000 in cash proceeds and must repay $70,000. Payments are withdrawn from the Company’s bank account on a daily
basis in the amount of $292 per day and are secured by the future revenue of the Company. The Company recorded a debt
discount of $20,000 and paid deferred financing costs of $3,499 during the year ended December 31, 2018. The loan was paid in
full during the nine months ended September 30, 2019, and the Company amortized remaining debt discount of $19,167 and
deferred financing fees of $3,395 through the repayment date.
On
January 29, 2019, the Company entered into a future revenue financing arrangement. The Company received $50,000 in cash proceeds
and must repay $71,500. Payments are withdrawn from the Company’s bank account on a daily basis in the amount of $550 per
day and are secured by the future revenue of the Company. The Company recorded a debt discount of $21,500 and paid deferred financing
costs of $3,544. The loan was paid in full during the nine months ended September 30, 2019, and the Company amortized remaining
debt discount of $21,500 and deferred financing fees of $3,544 through the repayment date.
On
July 3, 2019, the Company entered into a future revenue financing arrangement. The Company received $100,000 in cash proceeds
and must repay $139,000. Payments are withdrawn from the Company’s bank account on a daily basis in the amount of $993 per
day and are secured by the future revenue of the Company. The Company recorded a debt discount of $39,000 and paid deferred financing
costs of $5,038. The Company made repayments of $57,594 during the nine months ended September 30, 2019 and has amortized $17,709
of debt discount and $2,388 of deferred financing costs. As of September 30, 2019., outstanding principal on this note was $81,406,
unamortized debt discount was $21,291 and unamortized deferred financing costs were $2,750.
Notes
Payable related party
In
May of 2018, the Company issued a $70,025 Note payable to a related party for cash proceeds received. The related party also
paid $2,000 of expense on behalf of the Company. The note was unsecured, with no stated interest rate and is due on
demand. During the nine months ended September 30, 2019, $40,396 was repaid resulting in a balance as of September 30, 2019
of $29,392.
Line
of Credit
In
September 2019, the Company entered into a line of credit with an available amount of $96,300. The line of credit matures in September
2019, and the Company may pay interest of up to $12,000. The Company has net borrowings of $34,021 outstanding as of September
30, 2019, leaving an available borrowing amount of $62,279.
Convertible
Debt
On
September 18, 2019, the Company entered into an unsecured convertible promissory note, with a principal amount of $125,000. The
Company received net cash proceeds of $109,500 after payment fees of $15,500. The convertible note bears interest at 10% and matures
on September 18, 2020, with interest accruing at a rate of 18% if the Company is in default. Beginning six months after the issuance
of the note, the holder may convert the note at any time through the maturity date into shares of common stock, to the extent
and provided that no holder of these notes was or will be permitted to convert such notes to the extent that the holder or any
of its affiliates would beneficially own in excess of 4.99% of the Company’s common stock after such conversion. The conversion
price is determined based on 65% of the three lowest trading price during the 20 trading days prior to the conversion date. Accrued
interest may be converted into shares of common stock using the same conversion price. Unamortized deferred financing costs were
$14,893 as of September 30, 2019 related to this convertible note.
NOTE
6 - STOCKHOLDERS EQUITY
During
the nine months ended September 30, 2018, the CEO paid or contributed $27,211 of expense for the Company’s benefit. The
contribution was recorded to Additional Paid in Capital.
In
March 2019, the Board of Directors of the Company amended the Company’s articles of incorporation to increase the authorized
common shares to 975,000,000. On July 17, 2019, the Board of Directors approved the below Corporate Actions and recommended to
the stockholders of the Company that they approve the Corporate Actions. On July 17, 2019, a majority of the Company’s stockholders,
approved the following actions:
●
The granting of discretionary authority to the Board, at any time or times for a period of 12 months after the date of the
Written Consent, to adopt an amendment to the Certificate, to effect a reverse stock split at a ratio of a minimum of 1 to 5
and a maximum of 1 to 500, such ratio to be determined by the Board, or to determine not to proceed with the reverse stock
split (the “Reverse Stock Split”); and
●
The approval of an amendment to the Certificate increasing the number of shares of Common Stock the Company is authorized to
issue from 975,000,000 to 4,000,000,000 as provided for herein (the “Increase in Authorized Shares”, and together
with the Reverse Stock Split, the “Corporate Actions”).
The
Reverse Stock Split has not been executed to date.
During
the year ended December 31, 2018 the Company sold 1 share of Series A Preferred Stock in exchange for $232,500. Each share of
Series A Preferred Stock has the voting rights of 350,000,000 shares. The Series A Preferred stock has no liquidation preference,
and is not entitled to any dividends paid to common stockholders.
During
the three months ended March 31, 2019, the Company issued 69,000,000, shares of common stock in exchange for cash proceeds of
$721,000. During the three months ended June 30, 2019, the Company issued 53,333,331 shares of common stock in exchange for cash
proceeds of $798,100. The Company also issued 147,250,382 shares of common stock to the sellers of the CBD Infusionz, with a fair
value of $2,635,782. As part of the Termination Agreement signed in October 2019, 147,250,382 of these shares were returned
to the Company and cancelled, leaving 667,175,902 shares outstanding as of December 17, 2019.
During
the year ended December 31, 2018, the Company awarded 20,000,000 shares of Common Stock in exchange for services. The shares were
valued at $500,000, with expense recognized during the year ended December 31, 2018. These shares were not yet issued as of September
30, 2019. During the nine months ended September 30, 2018 the Company sold 20,700,000 shares of Common Stock in exchange for $406,250.
The Company also issued 250,000,000 shares of common stock during the three months ended September 30, 2018 related to conversion
of a note payable held by a related party, Filakos Capital investments.
The
Company is also due to issue 4,210,526 shares to a seller of the Layer Six business, which have not yet been issued. The Company
recognized $80,000 of expense during the year ended December 31, 2018 related to these shares which vested on January 1, 2019.
The Company recognized an additional $60,000 of stock-based compensation expense during the nine months ended September 30, 2019
for shares to be issued to this employee that will vest on January 1, 2020.
Stock
Options
As
discussed in Note 3, the Company committed to awarding a total of 112,994,350 stock options to two employees of Infusionz LLC
as part of their employment agreements with the Company. The options have an exercise price based on the closing price at the
vesting date, a term of 10 years, with half awarded and vesting during the three months ending March 31, 2019 and the remainder
vesting in equal monthly installments over a two-year period from the acquisition date. The total fair value of the stock options
awarded during the three months ended March 31, 2019 was $776,808 and was estimated using the Black-Scholes option pricing model
and the following assumptions: volatility of 70.25% based on a comparable company peer group, expected term of 10 years, risk-free
rate of 2.6% and a dividend yield of 0%. During the nine months ended September 30, 2019, an additional 17,844,634 options vested,
with a fair value of $189,164 estimated using the Black-Scholes option pricing model and the following assumptions: volatility
of between 69.1% and 70.2% based on a comparable company peer group, expected term of 10 years, risk-free rate of between 1.5%
and 2.5%, and a dividend yield of 0%.
The
following summarizes stock option activity during the nine months ended September 30, 2019:
|
|
|
|
Stock Options
|
|
|
|
|
|
Shares
|
|
|
|
Weighted Average Exercise Price
|
|
|
|
Weighted Average Grant Date Fair Value
|
|
|
Outstanding at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
74,341,809
|
|
|
|
0.017
|
|
|
|
0.013
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding at September 30, 2019
|
|
|
74,341,809
|
|
|
$
|
0.017
|
|
|
$
|
0.013
|
|
|
Exercisable at September 30, 2019
|
|
|
74,341,809
|
|
|
$
|
0.017
|
|
|
$
|
0.013
|
|
The
stock options have a weighted average term of 9.5 years as of September 30, 2019. Outstanding and exercisable options had no intrinsic
value as of September 30, 2019, The Company recognized stock-based compensation related to the options described above of $93,899
and $965,972 during the three and nine months ended September 30, 2019, respectively., which is included in net loss from discontinued
operations.
As
part of the Termination Agreement discussed in Note 3, these options were cancelled entirely, and no further options can be earned
by the two former employees.
NOTE
7 - LEASES
The
Company has operating leases for its administrative offices. For purposes of calculating operating lease liabilities, lease terms
may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise those options.
Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as
insurance and tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability.
The Company’s lease agreements do not contain any material restrictive covenants.
At
adoption of ASC 842, the Company recognized right of use assets and liabilities for operating leases of $102,878 related to its
office space lease, which has a monthly payment of $4,134 and expires in March 2021. As part of the Infusionz Acquisition, the
Company assumed the business’ operating lease for warehouse space. The Company recognized preliminary estimates of the right
of use assets and liabilities related of this operating lease of $23,315. The lease has a monthly payment of $4,000 through August
31, 2019. The Infusionz business also has two rental agreements with total payments of $3,800 per month with month to month terms.
In April 2018, Pura Vida Vitamins LLC entered into a month to month rental agreement for office space for $1,000 per month.
During
the nine months ended September 30, 2019, the Company entered into a real estate lease for office and warehouse space in Colorado.
The lease has monthly payments ranging from approximately $19,500 to $23,700 over the lease term of 54 months. The Company has
an option to acquire the leased premises at the conclusion of the lease for a purchase price of $3,500,000. Under ASC 842, this
lease was determined to be an operating lease, and a right of use asset and lease liability of $928,372 was recognized at commencement
of the lease. The Company did not consider the purchase option to be reasonably certain of exercise in its analysis of the lease.
The Company paid a security deposit of $58,749 at commencement, along with first and last month’s rent, for a total of $102,000.
The
following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheet at September 30,
2019:
|
Lease Position
|
|
September 30, 2019
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
922,900
|
|
|
Right of use liability operating lease short term
|
|
$
|
241,433
|
|
|
Right of use liability operating lease long term
|
|
|
723,802
|
|
|
Total operating lease liabilities
|
|
$
|
965,235
|
|
The
Company recognized operating lease cost of $76,595 and $122,800 for the three and nine months ended September 30, 2019, respectively.
The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate
is readily determinable. The Company’s operating leases had a weighted average remaining lease term of 4.2 years and a weighted
average discount rate of 10% as of September 30, 2019.
The
following table provides the maturities of lease liabilities at September 30, 2019:
|
Maturity of Lease Liabilities at September 30, 2019
|
|
Operating Leases
|
|
|
2019
|
|
$
|
129,800
|
|
|
2020
|
|
|
291,618
|
|
|
2021
|
|
|
270,898
|
|
|
2022
|
|
|
266,716
|
|
|
2023
|
|
|
231,703
|
|
|
2024 and thereafter
|
|
|
-
|
|
|
Total future undiscounted lease payments
|
|
$
|
1,190,735
|
|
|
Less: Interest
|
|
|
(225,500
|
)
|
|
Present value of lease liabilities
|
|
$
|
965,235
|
|
At
September 30, 2019, the Company had no additional leases which had not yet commenced.
Future
minimum lease payments for operating leases accounted for under ASC 840, “Leases,” with remaining non-cancelable terms
in excess of one year at December 31, 2018 were as follows:
|
Minimum Lease Commitments at December 31, 2018
|
|
|
|
|
2019
|
|
$
|
44,592
|
|
|
2020
|
|
|
44,592
|
|
|
2021
|
|
|
11,148
|
|
|
2022
|
|
|
-
|
|
|
2023
|
|
|
-
|
|
|
Total
|
|
$
|
100,332
|
|
NOTE
8 - CONTINGENCIES
Certain
disputes have arisen including former affiliates of the Company. In summary: on or about September, 2018, the Company acquired
(the “Sale”) certain assets, promises and representations from Layer Six Media and its four individual owners, at
least two of whom, Messrs. Bartholomew and Lindauer became directors and employees of the Company (collectively, for this summary,
the “Sellers”). It is the Company belief that the individuals departed from their positions and efforts with the Company
some time past only realizing recently the legal effect of their activities and actions including not completing obligations as
Sellers and obtaining and utilizing assets of the Company in contravention of agreements, instruments and laws. The objectionable
activities included an attorney that had done work for the Company, but also for the others noted. The Company is taking a series
of civil legal actions and seeking non-civil assistance in relation to the authorities and this includes, among other actions
either underway or to be undertaken shortly, late October, early November, a case filed by the Company against certain of the
Sellers and the lawyer in Washington D.C. Superior Court, alleging, among other things, fraud, breach of contract, and conversion.
Layer Six Media and certain related parties, the “Sellers” noted above, filed a Colorado, Denver District Court, legal
action against the Company, early November, 2019, which the Company just recently became aware of, claiming breach of contract,
and other allegations, seeking monetary damages allegedly owed in relation to payments allegedly due as to the original Sale.
The Company has engaged and consulted lawyers and advisors and provides this disclosure though it does not believe, in the totality
of the Company growth plans, solid legal grounds it will prevail, and other aspects, that it will not experience any adverse legal
effect from such litigation and litigation related events.
NOTE
9 - SUBSEQUENT EVENTS
As
discussed in Note 3, on October 4, 2019, the Company entered into a Termination Agreement related to the Infusionz Business. Certain
disputes have arisen including former affiliates of the Company. See, Legal Proceedings herein. While the Company
addresses issues and pending cases involving disputes, it has started to experience an interruption in customer dealings,
access to its website, receipt of income, and other related events. The Company is still, with the advice of advisors and
lawyers pending, assessing these aspects that may have a material overall effect upon the Company.