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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/14/22 Teo Foods Inc. 10-Q 9/30/22 56:2.5M Edgar Tech & Bus… Inc/FA |
Document/Exhibit Description Pages Size 1: 10-Q Quarterly Report HTML 485K 2: EX-31.1 Certification -- §302 - SOA'02 HTML 18K 3: EX-31.2 Certification -- §302 - SOA'02 HTML 18K 4: EX-32.1 Certification -- §906 - SOA'02 HTML 15K 5: EX-32.2 Certification -- §906 - SOA'02 HTML 15K 11: R1 Cover HTML 63K 12: R2 Consolidated Balance Sheets (Unaudited) HTML 107K 13: R3 Consolidated Balance Sheets (Unaudited) HTML 33K (Parenthetical) 14: R4 Consolidated Statements of Operations and HTML 101K Comprehensive Income (Loss) (Unaudited) 15: R5 Consolidated Statements of Cash Flows (Unaudited) HTML 79K 16: R6 Consolidated Statements of Stockholders' Deficit HTML 59K (Unaudited) 17: R7 Organization and Basis of Presentation HTML 20K 18: R8 Summary of Significant Accounting Policies HTML 41K 19: R9 Going Concern HTML 20K 20: R10 Disposal of Subsidiary Entity HTML 24K 21: R11 Tax Receivables HTML 18K 22: R12 Property and Equipment HTML 29K 23: R13 Royalty and License Agreements HTML 26K 24: R14 Notes Payable HTML 44K 25: R15 Equity HTML 19K 26: R16 Income Taxes HTML 34K 27: R17 Related Party Transactions HTML 21K 28: R18 Commitments and Contingencies HTML 22K 29: R19 Concentrations HTML 19K 30: R20 Subsequent Events HTML 19K 31: R21 Summary of Significant Accounting Policies HTML 70K (Policies) 32: R22 Disposal of Subsidiary Entity (Tables) HTML 21K 33: R23 Property and Equipment (Tables) HTML 26K 34: R24 Royalty and License Agreements (Tables) HTML 20K 35: R25 Income Taxes (Tables) HTML 29K 36: R26 Summary of Significant Accounting Policies HTML 34K (Details Narrative) 37: R27 Disposal of Subsidiary Entity (Details) HTML 34K 38: R28 Disposal of Subsidiary Entity (Details Narrative) HTML 22K 39: R29 Tax Receivables (Details Narrative) HTML 18K 40: R30 Property and Equipment (Details) HTML 30K 41: R31 Property and Equipment (Details Narrative) HTML 20K 42: R32 Royalty and License Agreements (Details) HTML 21K 43: R33 Royalty and License Agreements (Details Narrative) HTML 26K 44: R34 Notes Payable (Details Narrative) HTML 91K 45: R35 Equity (Details Narrative) HTML 18K 46: R36 Income Taxes (Details) HTML 23K 47: R37 Income Taxes (Details 1) HTML 22K 48: R38 Income Taxes (Details Narrative) HTML 27K 49: R39 Related Party Transactions (Details Narrative) HTML 21K 50: R40 Commitments and Contingencies (Details Narrative) HTML 20K 51: R41 Concentrations (Details Narrative) HTML 17K 54: XML IDEA XML File -- Filing Summary XML 94K 52: XML XBRL Instance -- teof_10q-093022_htm XML 549K 53: EXCEL IDEA Workbook of Financial Reports XLSX 79K 7: EX-101.CAL XBRL Calculations -- teof-20220930_cal XML 124K 8: EX-101.DEF XBRL Definitions -- teof-20220930_def XML 136K 9: EX-101.LAB XBRL Labels -- teof-20220930_lab XML 526K 10: EX-101.PRE XBRL Presentations -- teof-20220930_pre XML 381K 6: EX-101.SCH XBRL Schema -- teof-20220930 XSD 93K 55: JSON XBRL Instance as JSON Data -- MetaLinks 221± 306K 56: ZIP XBRL Zipped Folder -- 0001079973-22-001437-xbrl Zip 124K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
i ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i September 30, 2022
i ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number: i 333-226801
(Exact name of small business issuer as specified in its charter)
i Nevada | i 47-1209532 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
i Blvd. Insurgentes 19801 unit. 4B
(Address of principal executive offices)
(Registrants telephone number, including area code)
_____________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. ☒ i Yes ☐ No
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Ticker symbol(s) | Name of each exchange on which registered |
N/A | N/A | N/A |
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). ☒ i Yes ☐ No
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”, “non-accelerated filer”, “smaller reporting company” or “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ | large accelerated filer | ☐ | accelerated filer | ☐ | i Non-accelerated filer | i ☒ | smaller reporting company | i ☒ |
emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to extend the transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ i No
As of November 11, 2022, there were shares of the registrant’s common stock outstanding.
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Contents
Page | ||
Number | ||
PART I | FINANCIAL INFORMATION | 3 |
Item 1 | Interim Consolidated Financial Statements September 30, 2022 | 3 |
Consolidated Balance Sheets | 3 | |
Consolidated Statements of Operations and Comprehensive Income (Loss) | 4 | |
Consolidated Statements of Cash Flows | 5 | |
Consolidated Statements of Stockholders’ Deficit | 6 | |
Notes to the Interim Consolidated Financial Statements | 7-15 | |
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 16-19 |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 19 |
Item 4 | Controls and Procedures | 20 |
PART II | OTHER INFORMATION | 21 |
Item 1 | Legal Proceedings | 21 |
Item1A | Risk Factors | 21 |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 21 |
Item 3 | Defaults Upon Senior Securities | 21 |
Item 4 | Mine Safety Disclosures | 21 |
Item 5 | Other Information | 21 |
Item 6 | Exhibits | 21 |
SIGNATURES | 22 |
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PART I - FINANCIAL INFORMATION
Item 1 - Interim Consolidated Financial Statements September 30, 2022
TEO Foods, Inc.
CONSOLIDATED BALANCE SHEETS
September 30, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | i 2,677 | $ | i 7,555 | ||||
Accounts receivable, net | i 25,545 | i 5,976 | ||||||
License and royalty income receivable | — | i 6,097 | ||||||
Inventories, net | i 2,113 | i 2,072 | ||||||
Taxes receivable, net | i 37,923 | i 29,726 | ||||||
Prepaid and other assets | i 13,580 | i 13,483 | ||||||
Total current assets | i 81,838 | i 64,909 | ||||||
Property and equipment, net | i 32,926 | i 40,784 | ||||||
Royalty agreement | — | i 31,929 | ||||||
Total assets | $ | i 114,764 | $ | i 137,622 | ||||
Liabilities and stockholders' deficit | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | i 338,767 | $ | i 202,492 | ||||
Related party advances | i 111,221 | — | ||||||
License fee payable - related party | i 629,833 | i 631,533 | ||||||
Notes payable | i 100,000 | i 100,000 | ||||||
Convertible note payable | i 345,500 | i 339,500 | ||||||
Total current liabilities | i 1,525,321 | i 1,273,525 | ||||||
Total liabilities | i 1,525,321 | i 1,273,525 | ||||||
Commitments and contingencies (Note 12) | ||||||||
Stockholders' deficit | ||||||||
Preferred stock, $ i i 0.001 / par value, shares authorized, shares issued and outstanding | i 9,023 | i 9,023 | ||||||
Common stock, $ par value, shares authorized, and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | i 13,072 | i 12,972 | ||||||
Additional paid-in capital | i 1,176,635 | i 1,156,735 | ||||||
Accumulated deficit | ( i 2,608,313 | ) | ( i 2,314,436 | ) | ||||
Accumulated other comprehensive income (loss) | ( i 974 | ) | ( i 197 | ) | ||||
Total stockholders' deficit | ( i 1,410,557 | ) | ( i 1,135,903 | ) | ||||
Total liabilities and stockholders' deficit | $ | i 114,764 | $ | i 137,622 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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TEO Foods, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Sales | $ | i 49,516 | $ | i 21,516 | $ | i 60,035 | $ | i 67,047 | ||||||||
Cost of sales | — | ( i 249 | ) | — | ( i 3,300 | ) | ||||||||||
Gross profit | i 49,516 | i 21,267 | i 60,035 | i 63,747 | ||||||||||||
Operating expense | ||||||||||||||||
Payroll | i 1,148 | i 11,275 | i 17,964 | i 33,174 | ||||||||||||
General and administrative | i 10,665 | i 9,710 | i 22,862 | i 29,587 | ||||||||||||
Rent and lease | i 38,390 | i 35,946 | i 117,715 | i 118,326 | ||||||||||||
Professional fees | i 40,076 | i 33,545 | i 122,440 | i 146,227 | ||||||||||||
Depreciation | i 2,648 | i 2,648 | i 7,858 | i 7,601 | ||||||||||||
Total operating expenses | i 92,917 | i 93,124 | i 288,839 | i 334,915 | ||||||||||||
Operating loss | ( i 43,401 | ) | ( i 71,857 | ) | ( i 228,804 | ) | ( i 271,168 | ) | ||||||||
Other income (loss) | ||||||||||||||||
Licensing and royalty income | — | i 6,652 | i 6,787 | i 19,611 | ||||||||||||
Loss on Royalty Agreement | — | — | ( i 31,929 | ) | — | |||||||||||
Other income (expense) | ( i 13,465 | ) | i 179 | ( i 11,519 | ) | i 472 | ||||||||||
Interest expense | ( i 9,566 | ) | ( i 8,837 | ) | ( i 28,412 | ) | ( i 22,822 | ) | ||||||||
Total other (loss) income | ( i 23,031 | ) | ( i 2,006 | ) | ( i 65,073 | ) | ( i 2,739 | ) | ||||||||
Net (loss) income before income taxes | ( i 66,432 | ) | ( i 73,863 | ) | ( i 293,877 | ) | ( i 273,907 | ) | ||||||||
Income tax expense | i — | i — | i — | i — | ||||||||||||
Net (loss) income | ( i 66,432 | ) | ( i 73,863 | ) | ( i 293,877 | ) | ( i 273,907 | ) | ||||||||
Other comprehensive (loss) income | ||||||||||||||||
Foreign currency transaction adjustment | i 76 | ( i 214 | ) | ( i 777 | ) | i 5,864 | ||||||||||
Comprehensive income (loss) | $ | ( i 66,356 | ) | $ | ( i 74,077 | ) | $ | ( i 294,654 | ) | $ | ( i 268,043 | ) | ||||
Earnings (loss) per common share - | ||||||||||||||||
Basic and diluted | $ | ( i 0.01 | ) | $ | ( i 0.01 | ) | $ | ( i 0.02 | ) | $ | ( i 0.02 | ) | ||||
Weighted average common | ||||||||||||||||
shares outstanding – basic and diluted | i 13,071,957 | i 12,715,995 | i 13,046,957 | i 12,722,245 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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TEO Foods Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Net loss | $ | ( i 293,877 | ) | $ | ( i 273,907 | ) | ||
Adjustments to reconcile net loss to net cash used in operations: | ||||||||
Depreciation expense | i 7,858 | i 7,602 | ||||||
Loss on royalty agreement | i 31,929 | — | ||||||
Bad debt | i 6,037 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | ( i 25,606 | ) | ( i 27,737 | ) | ||||
Licensing and royalty income receivable | i 6,097 | i 1,245 | ||||||
Inventories | ( i 41 | ) | ( i 9,113 | ) | ||||
Tax receivable | ( i 8,197 | ) | — | |||||
Prepaid and other assets | ( i 97 | ) | i 991 | |||||
Accounts payable and accrued expenses | i 136,275 | i 145,066 | ||||||
Net cash (used) in operating activities | ( i 139,622 | ) | ( i 155,853 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | — | ( i 6,959 | ) | |||||
Net cash (used) in investing activities | — | ( i 6,959 | ) | |||||
Cash flows from financing activities | ||||||||
Proceeds from related party advances | i 111,221 | — | ||||||
Proceeds from issuance of promissory notes | i 6,000 | i 102,000 | ||||||
Proceeds from issuance of common stock | i 20,000 | i 50,000 | ||||||
Capital contribution as a result of Targa disposal, net of cash | — | ( i 3,149 | ) | |||||
Payment of deemed dividend to Teo Inc. for license | ( i 1,700 | ) | ( i 2,800 | ) | ||||
Net cash provided by financing activities | i 135,521 | i 146,051 | ||||||
Effect of foreign currency exchange translation | ( i 777 | ) | i 5,864 | |||||
Net change for period | ( i 4,878 | ) | ( i 10,897 | ) | ||||
Cash and Cash Equivalents at beginning of period | i 7,555 | i 27,539 | ||||||
Cash and Cash Equivalents at end of period | $ | i 2,677 | $ | i 16,642 | ||||
Supplement Information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | — | $ | — | ||||
Income taxes | $ | — | $ | — |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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TEO Foods, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (Unaudited)
Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income(loss) | Total | |||||||||||||||||||||||||
Three and Nine months ended September 30, 2021 | ||||||||||||||||||||||||||||||||
Balance - December 31, 2020 | i 9,022,900 | $ | i 9,023 | i 12,622,245 | $ | i 12,623 | $ | i 277,229 | $ | ( i 1,917,183 | ) | $ | ( i 428 | ) | $ | ( i 1,618,736 | ) | |||||||||||||||
Capital contribution for disposal of Targa | — | — | — | — | i 769,912 | — | i 428 | i 770,340 | ||||||||||||||||||||||||
Stock issued for cash | — | — | i 250,000 | i 250 | i 49,750 | — | — | i 50,000 | ||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | i 7,746 | i 7,746 | ||||||||||||||||||||||||
Net (loss) income | — | — | — | — | — | ( i 104,042 | ) | — | ( i 104,042 | ) | ||||||||||||||||||||||
Balance March 31, 2021 | i 9,022,900 | $ | i 9,023 | i 12,872,245 | $ | i 12,873 | $ | i 1,096,891 | $ | ( i 2,021,225 | ) | $ | i 7,746 | $ | ( i 894,692 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | ( i 1,668 | ) | ( i 1,668 | ) | ||||||||||||||||||||||
Net (loss) income | — | — | — | — | — | ( i 96,002 | ) | — | ( i 96,002 | ) | ||||||||||||||||||||||
Balance June 30, 2021 | i 9,022,900 | $ | i 9,023 | i 12,872,245 | $ | i 12,873 | $ | i 1,096,891 | $ | ( i 2,117,227 | ) | $ | i 6,078 | $ | ( i 992,362 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | ( i 214 | ) | ( i 214 | ) | ||||||||||||||||||||||
Stock cancelled | — | — | ( i 200,000 | ) | ( i 200 | ) | i 200 | — | — | — | ||||||||||||||||||||||
Net (loss) income | — | — | — | — | — | ( i 73,863 | ) | — | ( i 73,863 | ) | ||||||||||||||||||||||
Balance September 30, 2021 | i 9,022,900 | $ | i 9,023 | i 12,672,245 | $ | i 12,673 | $ | i 1,097,091 | $ | ( i 2,191,090 | ) | $ | i 5,864 | $ | ( i 1,066,439 | ) | ||||||||||||||||
Three and Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
Balance - December 31, 2021 | i 9,022,900 | $ | i 9,023 | i 12,971,957 | $ | i 12,972 | $ | i 1,156,735 | $ | ( i 2,314,436 | ) | $ | ( i 197 | ) | $ | ( i 1,135,903 | ) | |||||||||||||||
Stock issued for cash | — | — | i 100,000 | i 100 | i 19,900 | — | — | i 20,000 | ||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | i 2,191 | i 2,191 | ||||||||||||||||||||||||
Net (loss) income | — | — | — | — | — | ( i 91,838 | ) | — | ( i 91,838 | ) | ||||||||||||||||||||||
Balance March 31, 2022 | i 9,022,900 | $ | i 9,023 | i 13,071,957 | $ | i 13,072 | $ | i 1,176,635 | $ | ( i 2,406,274 | ) | $ | i 1,994 | $ | ( i 1,205,550 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | ( i 3,044 | ) | ( i 3,044 | ) | ||||||||||||||||||||||
Net (loss) income | — | — | — | — | — | ( i 135,607 | ) | — | ( i 135,607 | ) | ||||||||||||||||||||||
Balance June 30, 2022 | i 9,022,900 | $ | i 9,023 | i 13,071,957 | $ | i 13,072 | $ | i 1,176,635 | $ | ( i 2,541,881 | ) | $ | ( i 1,050 | ) | $ | ( i 1,344,201 | ) | |||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | i 76 | i 76 | ||||||||||||||||||||||||
Net (loss) income | — | — | — | — | — | ( i 66,432 | ) | — | ( i 66,432 | ) | ||||||||||||||||||||||
Balance September 30, 2022 | i 9,022,900 | $ | i 9,023 | i 13,071,957 | $ | i 13,072 | $ | i 1,176,635 | $ | ( i 2,608,313 | ) | $ | ( i 974 | ) | $ | ( i 1,410,557 | ) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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TEO Foods Inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
i
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
TEO Foods Inc. (“Company”) was incorporated in the state of Nevada on December 27, 2012.
The Company’s principal activity is to produce and sell food packaged products for retail sale in the frozen, refrigerated and shelf stable categories. The Company has a license to use the TEO name and logo on food products it sells and to apply the TEO pasteurization/sterilization processes to its products for improved shelf life and safety.
In January 2020, the Company created BCTEO Foods S.A. de C.V. (“BC TEO Foods”), a new 100% owned subsidiary in Mexico. BCTEO Foods is the operating entity in Mexico and holds all facility leases.
Effective January 1, 2021, the Company terminated its operation of Commercial Targa S.A. de C.V. (“Targa”) and disposed of it as a subsidiary. The Company determined that the Targa entity was of no functional or economic value and its remaining liabilities exceeded its assets. The Company does not anticipate any material impact to operations resulting from the disposal of the Targa entity. See Note 4.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i
Basis of Presentation and Consolidation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to form 10-Q and Article 8 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosure contained in the audited consolidated financial statements for the fiscal year ending December 31, 2021 have been omitted. The Company consolidates the financial statements of its wholly-owned subsidiary and all intercompany transactions and account balances have been eliminated in consolidation.
All amounts referred to in the notes to the unaudited interim consolidated financial statements are in United States Dollars ($) unless stated otherwise.
i
The Company considers all highly liquid debt instruments and other short-term investments with a maturity date of three months or less, when purchased, to be cash equivalents.
i
The Company subsidiary’s primary functional currency is the Mexican peso, but it’s reporting currency is the U.S. dollar. The balance sheet accounts are translated at exchange rates in effect at the end of the period and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are included as a separate component of stockholders’ deficit.
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i
Accounts receivable are reported at the customers’ outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The allowance for doubtful accounts at September 30, 2022 and December 31, 2021 was approximately $ i 0 and $ i 16,000, respectively.
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Inventories are stated at the lower of cost or realizable value, using the average cost method. When an impairment indicator suggests that the carrying amounts of inventories might not be recoverable, the Company reviews such carrying amounts and estimates the net realizable value based on the most reliable evidence available at that time. An impairment loss is recorded if the net realizable value is less than the carrying value. Impairment indicators considered for these purposes are, among others, obsolescence, decrease in market prices, damage and a firm commitment to sell.
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Property and equipment are stated at cost, net of depreciation. Depreciation is provided over the useful life of the related asset using the straight line method. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.
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Impairment of Long-Lived and Intangible Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company uses market quotes, if available, or an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. The Company did i i no / t recognize impairment on its long-lived assets during the periods ended September 30, 2022 or 2021. Identified intangible assets are reviewed for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company’s only intangible asset consists of the royalty agreement discussed in Note 7.
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Beneficial Conversion Feature of Convertible Notes Payable
The Company considers whether a beneficial conversion feature ("BCF") exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note. The BCF of a convertible note is a reduction of the carrying amount of the convertible note, as a debt discount, and is credited to additional paid-in-capital. Such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.
A contingent beneficial conversion feature in a convertible note payable with conversion terms that change upon the occurrence of a future event (ex: fair value of the underlying stock declines after the note issuance date) is recognized when the contingency is resolved. As of September 30, 2022, the Company has i not recognized any beneficial conversion features on its convertible debt.
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The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“Topic 606”). Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount:
i. | Identification of the promised goods in the contract; | |
ii. | Determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; |
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iii. | Measurement of the transaction price, including the constraint of variable consideration; | |
iv. | Allocation of the transaction price of the performance obligations; and | |
v. | Recognition of revenue when (or as) the Company satisfies each performance obligation. |
The Company only applies the five-step model to contracts when it is probable the entity will collect the consideration it is entitled to in exchange for the goods and services it transfers to the customer. Once a contract is determined to be within the scope of Topic 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligations when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time typically upon delivery. The Company primarily sells packaged food products to its customers. The Company’s performance obligation is satisfied when the goods have been delivered, which is at a point in time. The Company provides manufacturing services for packaged food and other products. The Company’s performance obligation is satisfied for services when the services are completed or the related products have been delivered, which is at a point in time. The Company receives revenue from a licensing and royalty agreement and the licensee incurs fees based on their sales to their customers, which occurs when the products are delivered. The Company’s performance obligation related to these agreements is satisfied at the point in time when the products are delivered.
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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
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Fair Value of Financial Instruments
Fair value is defined as the price that would be received in the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has categorized all investments recorded at fair value based upon the level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
● Level 1: Quoted prices in active markets for identical assets or liabilities that the organization has the ability to access at the reporting date.
● Level 2: Inputs other than quoted prices included in Level 1, which are either observable or that can be derived from or corroborated by observable data as of the reporting date.
● Level 3: Inputs include those that are significant to the fair value of the asset or liability and are generally less observable from objective resources and reflect the reporting entity's assumptions about the assumptions market participants would use in pricing the asset or liability.
The Company's financial instruments consist of advances from related party, notes payable, convertible notes payable and license fee payable. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of the respective instruments.
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Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. The calculation of diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Securities with anti-dilutive effects on net earnings (loss) per share are excluded. As of September 30, 2022, none of the convertible preferred shares or convertible debt were included in the calculation of diluted weighted average shares as they were anti-dilutive.
As of September 30, 2022 and 2021, preferred shares convertible to common shares were included in the diluted weighted average shares; however, notes convertible into a maximum of and common shares, respectively, were excluded from the calculation of loss per common share as the notes are anti-dilutive.
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These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has suffered recurring losses from operations and has insufficient working capital as of September 30, 2022 to develop its business plan and meet its obligation of the next 12 months. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders, the Company's ability to obtain necessary equity or debt financing to continue operations, and ultimately the Company's ability to generate profit from sales of packaged food products. These consolidated financial statements do not include any adjustments to classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company plans to obtain funds for operations through continued financial support from its stockholders, debt and private offerings of its equity.
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NOTE 4 – DISPOSAL OF SUBSIDIARY ENTITY
Effective January 1, 2021, the Company terminated its operation of Targa and disposed of it as a subsidiary as a transfer of the Company owned Targa stock to its CEO. As a result and in consideration, all intercompany balances have been forgiven, waived and released.
The disposal resulted in the removal of the following assets and liabilities from the consolidated balance sheet on the date of disposal:
i /
The net liabilities disposed was $ i 244,859 and the intercompany balances forgiven was $ i 525,481.
As this was a transaction between common controlled entities, the Company booked a capital contribution of $ i 770,340 to reflect the disposal of the Targa entity and the forgiveness of the intercompany balance.
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Tax receivables represent credits from the Mexican taxing authority. The Company’s Mexican subsidiaries have accumulated IVA tax payments that exceeded its IVA tax liabilities. The Company periodically applies for refunds of these accumulated overpayments. These overpayments are also available to the Company to offset future IVA liabilities. The tax receivable balance at September 30, 2022 and December 31, 2021 was $ i 37,923 and $ i 29,726, respectively.
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NOTE 6 – PROPERTY AND EQUIPMENT
At September 30, 2022 and December 31, 2021, property and equipment consisted of the following:
iSchedule of property and equipment | ||||||||
September 30, 2022 | December 31, 2021 | |||||||
Furniture and fixtures | $ | i 285 | $ | i 285 | ||||
Machinery and equipment | i 40,387 | i 40,387 | ||||||
Transportation equipment | i 10,362 | i 10,362 | ||||||
i 51,034 | i 51,034 | |||||||
Less accumulated depreciation | ( i 18,108 | ) | ( i 10,250 | ) | ||||
$ | i 32,926 | $ | i 40,784 |
Depreciation expense for the nine months ended September 30, 2022 and 2021 was $ i 7,858 and $ i 7,601, respectively. Depreciation expense for the three months ended September 30, 2022 and 2021 was $ i 2,648 and $ i 2,648, respectively. The estimated useful lives of fixed assets is i 5 years.
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NOTE 7 – ROYALTY AND LICENSE AGREEMENTS
On September 30, 2017, the Company entered into a Master Agreement with TEO Inc. ("TEO"). TEO is the founder and majority controlling shareholder of the Company. The Master Agreement provides the Company a license to use the TEO name and logo on food products it sells and to apply TEO's pasteurization/sterilization processes to its products for improved shelf life and safety. Additional provisions provide the Company production rights to TEO's pasteurizer/sterilizer and rights to lease its own system when certain sales/production increase. i Pursuant to the master agreement, the Company agreed to pay an initial $1 million fee in installments with $100,000 due on June 30, 2018, $300,000 due on December 31, 2018 and the remaining $600,000 due in 12 equal monthly payments with the first payment due on January 31, 2019. TEO Inc. has agreed to maintain the license through December 31, 2023 and accrue and accept payments due as funds are available. TEO Inc. has agreed to extend the start date to January 1, 2024 of the use/royalty and service fee of 5.5% of the Company's gross revenue for food sales processed using TEO's intellectual property. The ongoing licensing is maintained by meeting minimum annual use/royalty and service fees. The Company may pay for the difference between the actual use and the minimum to maintain the license. The annual minimum is listed as follows:
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Schedule of Royalty and License Agreements | |||||
Year | Minimum Service Fee | ||||
2024 | $ | i 500,000 | |||
2025 | i 750,000 | ||||
2026 | i 1,000,000 | ||||
Thereafter | i Increase 10% per year |
As a result of TEO being the majority shareholder of the Company and TEO's basis in the license being $0, the Company recorded a deemed dividend of $ i 1 million for the initial fee payable to TEO. As of September 30, 2022 and December 31, 2021, the outstanding balance of the license fee payable was $ i 629,833 and $ i 631,533, respectively. For the nine months ended September 30, 2022 and 2021, the Company made payments toward the license of $ i 1,700 and $ i 2,800, respectively.
Effective April 1, 2020, the Company entered into an agreement whereby it assigned half and licensed half of the Nerys Brand for cheese products in Mexico, along with certain production equipment and facilities that the Company did not intend to transfer to its new facility for production, to a third party. In exchange, the Company receives a portion of net revenue from all products sold, which includes bulk meats and other products, by the acquirer, a royalty on all NERYS cheese products sold in Mexico of $0.01 per pound and will also receive five percent of the proceeds of any sale of the related acquirer’s business.
The Company valued the royalty agreement at the book value of the assets transferred of $ i 31,929, which approximates the fair value and is recorded as an intangible asset on the consolidated balance sheets as of December 31, 2021.
On June 7, 2022, the facility used by the licensee was destroyed in a fire. The licensee has informed the Company that its insurance will not pay the loss and as a result is closing all of its business operations. Pursuant to the agreement all rights to the NERYS cheese products sold in Mexico revert back to the Company and it is evaluating the economic viability of resuming fulfillment of the retail placements in Mexico.
As a result, During the nine months ended September 30, 2022, the Company has written off the value of the royalty agreement totaling $ i 31,929, which is included within other income (loss) on the consolidated statements of operations and comprehensive income (loss).
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On July 31, 2018, the Company issued a note for $ i 100,000 in principal bearing interest at i 8% maturing on October 31, 2018. This note was subsequently amended to extend the maturity date to i December 31, 2022. As of September 30, 2022, and December 31, 2021, the outstanding principal balance of the note was $ i i 100,000 / .
Convertible Note Payable
On June 28, 2018, the Company issued a note for $ i 100,000. The note bears an i 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share. The maturity date of the note is i December 31, 2022.
On February 4, 2019, the Company issued a note for $ i 120,000. The note can be converted to common stock at $ per share or the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share and converts automatically upon certain conditions. The note bears no interest until September 30, 2019 and then bears i 8% interest, if not converted to common stock. The maturity date of the note is i December 31, 2022. In December of 2021 a total of $ i 27,500 of the principal was converted to common shares at $ resulting in the outstanding principal of the note being $ i 92,500.
On May 5, 2021, the Company issued a note for $ i 25,000. The note bears an i 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share. The maturity date of the note is i December 31, 2022.
On June 1, 2021, the Company issued a note for $ i 20,000. The note bears an i 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share. The maturity date of the note is i December 31, 2022. On December 20, 2021, the holder converted $ i 10,000 in principal of this note to common shares at $ per share resulting in the outstanding principal of the note being $ i 10,000.
On June 2, 2021, the Company issued a note for $ i 17,000. The note bears an i 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share. The maturity date of the note is i December 31, 2022.
On July 12, 2021, the Company issued a note for $ i 40,000. The note bears an i 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share. The maturity date of the note is i December 31, 2022.
On September 29, 2021, the Company issued a note for $ i 15,000. The note bears an i 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share. The maturity date of the note is i December 31, 2022.
On November 24, 2021, the Company issued a note for $ i 40,000. The note bears an i 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share. The maturity date of the note is i December 31, 2022.
On April 14, 2022, the Company issued a note for $ i 6,000. The note bears an i 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share. The maturity date of the note is i December 31, 2022.
As of September 30, 2022 and 2021, there is not a quoted bid price available as the Company’s shares are not listed on any exchanges. As the minimum conversion rate at the time of issuance is greater than or equal to the current stock value based on other similar transactions, these notes are not deemed to have an embedded derivative associated with them.
The principal balance of convertible debt at September 30, 2022 and December 31, 2021 amounted to $ i 345,500 and $ i 339,500, respectively.
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Preferred Stock
i Each share of Class A Preferred Stock may be converted by the holder upon request of the holder into 10 shares of common stock. Each holder is entitled to 100 votes for each share of Class A Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company (and written actions of stockholders in lieu of meetings) with respect to any and all matters presented to the stockholders of the Company for their action or consideration. The holders are entitled to dividends, if any, as declared by the Company and participate pari passu with the common stock of the Company at the conversion rate.
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Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The U.S. federal income tax rate is i 21%.
The provision for Federal income tax consists of the following September 30, 2022 and 2021:
iSchedule of provision for income tax | ||||||||
Federal income tax (expense) benefit attributable to: | September 30, 2022 | September 30, 2021 | ||||||
Current Operations | $ | i 61,877 | $ | i 57,520 | ||||
Less: valuation allowance | ( i 61,877 | ) | ( i 57,520 | ) | ||||
Net provision for Federal income taxes | $ | — | $ | — |
The cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows:
iSchedule of deferred tax asset | ||||||||
Deferred tax asset attributable to: | September 30, 2022 | December 31, 2021 | ||||||
Net operating loss carryover | $ | i 228,804 | $ | i 240,521 | ||||
Less: valuation allowance | ( i 228,804 | ) | ( i 240,521 | ) | ||||
Net deferred tax asset | $ | — | $ | — |
At September 30, 2022, the Company had net operating loss carry forwards of approximately $ i 1,376,000 that may be offset against future taxable income. i i No / tax benefit has been reported in the September 30, 2022 or December 31, 2021 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
ASC 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of September 30, 2022 and 2021, the Company had i i no / accrued interest or penalties related to uncertain tax positions.
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NOTE 11 - RELATED PARTY TRANSACTIONS
The Company has various related party payables derived from normal operating activities. These balances are non-interest bearing and are periodically settled as cash flow permits. These payables include accrued compensation to officers. Accrued fees for services owed to the CEO as of September 30, 2022 and December 31, 2021 was $ i 179,600 and $ i 85,100, respectively, and are included within accounts payable and accrued expenses on the consolidated balance sheets. Cash advances made by the CEO as of September 30, 2022 and December 31, 2021 was $ i 111,221 and $ i 0, respectively.
Master License Agreement
On September 30, 2017, the Company entered into a Master Agreement with TEO, the founder and majority controlling shareholder of the Company. See Note 7.
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NOTE 12 – COMMITMENTS AND CONTINGENCIES
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with Financial Accounting Standards Board Accounting Standards Codification “FASB ASC” 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of September 30, 2022 and December 31, 2021, the Company is not aware of any contingent liabilities that should be reflected in the consolidated financial statements.
At September 30, 2022, the Company had three leases on commercial units that are contiguous in the same building located in Tijuana Mexico and comprising approximately 38,000 square feet total. The leases are twelve-month leases with option to renew for additional twelve-month periods. The total rents are approximately $ i 14,500 per month gross with no additional common fees or other charges. The Company paid a total of $ i 117,715 and $ i 118,326 during the nine-month period ended September 30, 2022 and 2021, respectively, related to the leases of commercial units in Tijuana. The Company paid a total of $ i 38,390 and $ i 35,946 during the three-month period ended September 30, 2022 and 2021, respectively, related to the leases of commercial units in Tijuana.
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Cash Deposit
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At September 30, 2022 and December 31, 2021, i i no / cash balances exceeded the federally insured limit.
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The Company has evaluated subsequent events for recognition and disclosure through November 11, 2022 which is the date the consolidated financial statements were available to be issued. No other matters were identified affecting the accompanying consolidated financial statements and related disclosures.
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis should be read in conjunction with our consolidated financial statements and the related notes thereto. The Management's Discussion and Analysis may contain “forward-looking statements.” Any statements that are not statements of historical fact are forward-looking statements.
These statements are based on the current expectations, forecasts, and assumptions of our management and are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements are sometimes identified by language such as “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects,” “future” and similar expressions and may also include references to plans, strategies, objectives, and anticipated future performance as well as other statements that are not strictly historical in nature.
The risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied in this Quarterly Report on Form 10-Q include:
● | our ability to successfully develop and sell our products; | |
● | our ability to obtain additional financing at favorable rates to maintain and develop our operations; | |
● | competitive conditions in our industry; and | |
● | the ability to attract and retain key personnel. |
There may be other factors that may cause our actual results to differ materially from the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. Readers should carefully consider this information as well as the risks and other uncertainties described in our other filings made with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements. They reflect opinions, assumptions, and estimates only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements in this Quarterly Report on Form 10-Q, whether as a result of new information, future events or circumstances, or otherwise.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have identified the following accounting policies that we believe are key to an understanding of our consolidated financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.
Beneficial Conversion Feature of Convertible Notes Payable
The Company considers whether a beneficial conversion feature ("BCF") exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note. The BCF of a convertible note is a reduction of the carrying amount of the convertible note, as a debt discount, and is credited to additional paid-in-capital. Such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.
A contingent beneficial conversion feature in a convertible note payable with conversion terms that change upon the occurrence of a future event (ex: fair value of the underlying stock declines after the note issuance date) is recognized when the contingency is resolved. As of September 30, 2022, the Company has not recognized any beneficial conversion features on its convertible debt.
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Overview
TEO Foods Inc. (“Company”) was incorporated in the state of Nevada on December 27, 2012.
The Company’s principal activity is to produce and sell food packaged products for retail sale in the frozen, refrigerated and shelf stable categories. The Company has a license to use the TEO name and logo on food products it sells and to apply the TEO pasteurization/sterilization processes to its products for improved shelf life and safety.
The Company intends to sell packaged food products under our brands in the refrigerated meal and meal component categories. The initial markets are domestically and in Mexico. We are also utilizing our production capacities to co-pack for other brands sold domestically and in Mexico.
In January 2020, the Company created BCTEO Foods S.A. de C.V. (“BC TEO Foods”), a 100% owned subsidiary in Mexico. BCTEO Foods is the operating entity in Mexico and holds all facilities leases..
Effective January 1, 2021, the Company terminated its operation of Commercial Targa S.A. de C.V. (“Targa”) and disposed of it as a subsidiary. The Company determined that the Targa entity was of no functional or economic value and its remaining liabilities exceeded its assets. The Company does not anticipate any material impact to operations resulting from the disposal of the Targa entity.
In March 2022, we received initial licensing in Mexico to produce alcohol in our Tijuana facilities. We are currently able to produce and export alcoholic beverages produced in our facility. We are in the process of completing licensing that will allow us to distribute and sell throughout Mexico. We believe that the addition of alcoholic and non-alcoholic beverages to our capabilities will expand our opportunities in the USA and Mexico.
In May 2022, we licensed the Nerys Brand for products sold outside Mexico to an international distributor of a variety of meat, fish, cheese and other food products throughout the USA, south and central America. In exchange we will receive a royalty on the NERYS branded products sold outside of Mexico and will be the supplier of these branded products.
We will continue to develop our products and services. We will continue to pursue co-packing opportunities to support production planning, formulation, equipment acquisition, testing, validation, branding and sales of new products. This assumes that we are able to secure additional capital to purchase the necessary equipment, supplies (trays, film, carton/print materials, etc.), retain consultants/staff and provide for other costs of production.
We have received equity and debt investments both from insiders and from private investors. As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations. There can be no assurance that we will be able obtain additional financing, if at all, or upon terms that will be acceptable to us.
Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in our stage of development. Such risks include, but are not limited to, an evolving business model and the management of growth.
To address these risks we must, among other things, implement and successfully execute our business and marketing strategy and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
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Results of Operations
Results of Operations for the Three Months Ended September 30, 2022 and 2021
During the three-month periods ended September 30, 2022 and 2021, the Company had $49,516 and $21,516 in sales revenue, respectively. The increase was due to new revenue from warehousing and logistics services utilizing our cold and dry storage. During the three-month periods ended September 30, 2022 and 2021, the Company had $0 and $6,652 in licensing and royalty revenue, respectively. The licensing and royalty revenue for Mexico terminated during the second quarter due to a fire in the licensee’s facility, we were notified that they have discontinued operations. We are focusing on establishing distribution relationships and providing our own products through those channels. We are also seeking co-packing opportunities from established brands. We expect sales to develop from a new licensing and distribution agreement for Nerys branded food products outside Mexico. We believe there is opportunity with placements of alcoholic beverages including brewed and distilled products at locations where the Nerys branded products are distributed.
During the three-month periods ended September 30, 2022 and 2021, we had general and administrative expenses of $10,655 and $9,710, respectively. Payroll expenses were $1,148 and $11,275 during the three-month periods ended September 30, 2022 and 2021, respectively. Payroll expense was lower due to reduced staff in Mexico but is expected to increase as we replace staff in November 2022. Rent and lease expenses were $38,390 and $35,946 for the three-month periods ended September 30, 2022 and 2021, respectively. Rent and lease expenses remain relatively stable. Depreciation expenses were $2,648 and $2,648 for the three-month period ended September 30, 2022 and 2021, respectively. Professional fees were $40,076 and $33,545 for the three-month periods ended September 30, 2022 and 2021, respectively.
Interest expense was $9,566 and $8,837 for the three-month periods ended September 30, 2022 and 2021, respectively. This interest is primarily related to notes payable. Other expense of $13,465 and income of $179 was for the three-month periods ended September 30, 2022 and 2021, respectively. The increased expense was partially related to a $6,037 write off of bad debt.
The Company's comprehensive loss for the three-month periods ended September 30, 2022 and 2021 was $66,356 and $74,077, respectively.
Results of Operations for the Nine Months Ended September 30, 2022 and 2021
During the nine-month periods ended September 30, 2022 and 2021, the Company had $60,035 and $67,047 in sales revenue, respectively. During the nine-month periods ended September 30, 2022 and 2021, the Company had $6,787 and $19,611 in licensing and royalty revenue, respectively. The licensing and royalty revenue for Mexico terminated during the second quarter due to a fire in the licensee’s facility, we were notified that they have discontinued operations.
During the nine-month periods ended September 30, 2022 and 2021, we had general and administrative expenses of $22,862 and $29,587, respectively. Payroll expenses were $17,964 and $33,174 during the nine-month periods ended September 30, 2022 and 2021, respectively. Rent and lease expenses were $117,715 and $118,326 for the nine-month periods ended September 30, 2022 and 2021, respectively. Depreciation expenses were $7,858 and $7,601 for the nine-month period ended September 30, 2022 and 2021, respectively. Professional fees were $122,440 and $146,227 for the nine-month periods ended September 30, 2022 and 2021, respectively.
Interest expense was $28,412 and $22,822 for the nine-month periods ended September 30, 2022 and 2021, respectively. This interest is primarily related to notes payable.
The Company's comprehensive loss for the nine-month periods ended September 30, 2022 and 2021 was $294,654 and $268,043, respectively.
Expenses are expected to increase as our operations develop and we begin to provide services and introduce new products into the market.
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Liquidity and Capital Resources
As of September 30, 2022, we had total assets of $114,764 and total liabilities of $1,525,321. As of December 31, 2021, we had total assets of $137,622 and total liabilities of $1,273,525. During the nine-month periods ended September 30, 2022 and 2021, the Company paid $1,700 and $2,800, respectively, toward the current portion of the license fee payable. The loss of assets was primarily due to the $31,929 write off resulting from the termination of the royalty agreement. During the nine-month periods ended September 30, 2022 and 2021, net cash used in operating activities was $139,622 and $155,853, respectively.
Net cash used in investing activities for the nine-month periods ended September 30, 2022 and 2021 was $0 and $6,959, respectively. Net cash provided from financing activities for the nine-month periods ended September 30, 2022 and 2021 was $135,521 and $146,051, respectively. The cash provided for the nine-month period ended September 30, 2022 was primarily as loans from our CEO of $111,221. The cash provided for the nine-month period ended September 30, 2021 was primarily from the sale of common stock of $50,000 and debt of $102,000.
Over the next twelve months, we believe that we will require additional capital and anticipated funds from operations to further develop and sustain our operations. The Company will need to seek additional financing to expand operations and create revenue with the introduction of its products to the market. The TEO license requires future payments and royalty payments on related revenue.
We believe that we will need to raise an additional $1,000,000 over the next 12 months and intend to seek additional investment through a private or a public equity offering. We will use the proceeds to cover our product development, auditing and accounting costs, licensing, necessary equipment, supplies (trays, film, carton/print materials, etc.), retain consultants/staff, provide for other costs of production and other working capital needs.
There can be no assurance that we will be able obtain additional financing, if at all or upon terms that will be acceptable to us. There can be no assurance of when, if ever, our operations become profitable.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements or financing activities with special purpose entities.
Going Concern
The Company’s consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has suffered recurring losses from operations and has insufficient working capital as of September 30, 2022. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders, the Company's ability to obtain necessary equity or debt financing to continue operations, and ultimately the Company's ability to generate profit from sales of packaged food products. These consolidated financial statements do not include any adjustments to classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company plans to obtain fund for operations through continued financial support from its stockholders, debt and private offerings of its equity.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not required for Smaller Reporting Companies.
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Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Principal Executive Officer and Principal Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act reports is (1) recorded, processed, summarized and reported within the periods specified in the Commission’s rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.
Management will continue to review and make any changes it deems necessary to the overall design of the Company’s internal control over financial reporting, including implementing improvements in policies and procedures. We are committed to a proper internal control environment and will continue to implement measures to improve the Company’s internal control over financial reporting in response to our continued operational development.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
No disclosure required.
Item 1A - Risk Factors
Not required for Smaller Reporting Companies.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
No disclosure required.
Item 3 - Defaults Upon Senior Securities
No disclosure required.
Item 4 – Mine Safety Disclosures
No disclosure required.
Item 5 - Other Information
No disclosure required.
Item 6 - Exhibits
** Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TEO Foods Inc. | |||
Date: November 14, 2022 | By: | /s/ Jeffrey H. Mackay | |
Jeffrey H. Mackay, CEO and President | |||
Principal Executive Officer | |||
Date: November 14, 2022 | By: | /s/ John O’Keefe | |
John O’Keefe, Chief Financial Officer | |||
Principal Financial Officer |
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C:
This ‘10-Q’ Filing | Date | Other Filings | ||
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1/1/24 | ||||
12/31/23 | ||||
12/31/22 | ||||
Filed on: | 11/14/22 | |||
11/11/22 | ||||
For Period end: | 9/30/22 | |||
6/30/22 | 10-Q, NT 10-Q | |||
6/7/22 | ||||
4/14/22 | ||||
3/31/22 | 10-Q, NT 10-K, NT 10-Q | |||
12/31/21 | 10-K, NT 10-K | |||
12/20/21 | ||||
11/24/21 | ||||
9/30/21 | 10-Q, 10-Q/A, NT 10-Q | |||
9/29/21 | ||||
7/12/21 | ||||
6/30/21 | 10-Q, NT 10-Q | |||
6/2/21 | ||||
6/1/21 | ||||
5/5/21 | ||||
3/31/21 | 10-K, 10-Q, NT 10-Q | |||
1/1/21 | ||||
12/31/20 | 10-K | |||
4/1/20 | ||||
9/30/19 | 10-Q, NT 10-Q | |||
2/4/19 | ||||
1/31/19 | 8-K, 8-K/A | |||
12/31/18 | 10-K, NT 10-K | |||
10/31/18 | ||||
7/31/18 | ||||
6/30/18 | ||||
6/28/18 | ||||
9/30/17 | ||||
12/27/12 | ||||
List all Filings |