UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,March 31, 20222023
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to _______
Commission File Number 000-56047
ADM ENDEAVORS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 45-0459323 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
5941 Posey Lane
Haltom City, Texas 76117
(Address of principal executive offices)
(817) 840-6271
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
Non-Accelerated Filer | ☒ | Smaller Reporting Company | ☒ |
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 15, 2022,May 12, 2023, there were shares of the registrant’s $0.001 par value common stock issued, issuable, and outstanding.
ADM ENDEAVORS, INC.
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PART I – FINANCIAL INFORMATION
TABLE OF CONTENTS
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ITEM 1. FINANCIAL STATEMENTS
ADM Endeavors, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(Unaudited)
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 462,831 | $ | 418,413 | ||||
Accounts receivable, net | 449,630 | 711,178 | ||||||
Other receivable, related party | 47,487 | 38,516 | ||||||
Inventory | 300,851 | 139,111 | ||||||
Prepaid expenses and other current assets | 19,250 | 38,854 | ||||||
Total current assets | 1,280,049 | 1,346,072 | ||||||
Property and equipment, net | 1,605,422 | 1,376,356 | ||||||
Goodwill | 688,778 | 688,778 | ||||||
Total assets | $ | 3,574,249 | $ | 3,411,206 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 258,569 | $ | 20,872 | ||||
Accrued expenses | 338,771 | 350,645 | ||||||
Income tax payable | 135,777 | 114,929 | ||||||
Current portion of notes payable -secured | 149,736 | 225,837 | ||||||
Convertible notes payable, net of discounts | 106,092 | 106,092 | ||||||
Derivative liabilities | 210,149 | 218,017 | ||||||
Total current liabilities | 1,199,094 | 1,036,392 | ||||||
Noncurrent liabilities | ||||||||
Notes payable - secured, net of current portion | - | 85,956 | ||||||
Total noncurrent liabilities | - | 85,956 | ||||||
Total liabilities | 1,199,094 | 1,122,348 | ||||||
Commitments and contingencies | - | |||||||
Stockholders’ equity | ||||||||
Preferred stock, $ | par value, shares authorized, shares outstanding as of June 30, 2022 and December 31, 20212,000 | 2,000 | ||||||
Common stock, $ | par value, shares authorized, shares issued and outstanding at June 30, 2022 and December 31, 2021153,652 | 153,652 | ||||||
Additional paid-in capital | 1,317,747 | 1,317,747 | ||||||
Retained earnings | 901,756 | 815,459 | ||||||
Total stockholders’ equity | 2,375,155 | 2,288,858 | ||||||
Total liabilities and stockholders’ equity | $ | 3,574,249 | $ | 3,411,206 |
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 319,887 | $ | 234,235 | ||||
Accounts receivable, net | 164,626 | 358,376 | ||||||
Other receivable, related party | 26,783 | 28,446 | ||||||
Inventory | 410,535 | 168,082 | ||||||
Prepaid expenses and other current assets | 35,754 | 41,366 | ||||||
Total current assets | 957,585 | 830,505 | ||||||
Noncurrent assets | ||||||||
Property and equipment, net | 2,949,974 | 2,830,308 | ||||||
Right of use asset - operating lease | 42,416 | 50,664 | ||||||
Goodwill | 688,778 | 688,778 | ||||||
Total assets | $ | 4,638,753 | $ | 4,400,255 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 341,601 | $ | 72,291 | ||||
Accrued expenses | 403,546 | 316,349 | ||||||
Income tax payable | 5,859 | 5,859 | ||||||
Current portion of right of use liability - operating lease | 34,147 | 33,682 | ||||||
Convertible notes payable | 106,092 | 106,092 | ||||||
Derivative liabilities | 255,360 | 307,973 | ||||||
Total current liabilities | 1,146,605 | 842,246 | ||||||
Noncurrent liabilities | ||||||||
Right of use liability - operating lease, net current portion | 8,834 | 16,982 | ||||||
Deferred tax liability | 26,460 | 26,460 | ||||||
Notes payable - secured, net of discount | 1,128,841 | 1,075,957 | ||||||
Total noncurrent liabilities | 1,164,135 | 1,119,399 | ||||||
Total liabilities | 2,310,740 | 1,961,645 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders’ equity | ||||||||
Preferred stock, $ | par value, shares authorized, shares outstanding as of March 31, 2023 and December 31, 20222,000 | 2,000 | ||||||
Common stock, $ | par value, shares authorized, shares issued and outstanding at March 31, 2023 and December 31, 2022153,652 | 153,652 | ||||||
Additional paid-in capital | 1,317,747 | 1,317,747 | ||||||
Retained earnings | 854,614 | 965,211 | ||||||
Total stockholders’ equity | 2,328,013 | 2,438,610 | ||||||
Total liabilities and stockholders’ equity | $ | 4,638,753 | $ | 4,400,255 |
See accompanying notes to unaudited consolidated financial statements.
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ADM Endeavors, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three And Six Months Ended June 30,March 31, 2023 and 2022 and 2021
(Unaudited)
2022 | 2021 | 2022 | 2021 | |||||||||||||
For the three months ended | For the six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue | ||||||||||||||||
School uniform sales | $ | 94,629 | $ | 74,949 | $ | 199,772 | $ | 166,179 | ||||||||
Promotional sales | 1,079,350 | 1,233,188 | 2,156,284 | 2,289,410 | ||||||||||||
Total revenue | 1,173,979 | 1,308,137 | 2,356,056 | 2,455,589 | ||||||||||||
Operating expenses | ||||||||||||||||
Direct costs of revenue | 733,614 | 884,630 | 1,482,996 | 1,539,548 | ||||||||||||
General and administrative | 353,915 | 354,590 | 748,244 | 762,357 | ||||||||||||
Marketing and selling | 14,667 | 58,403 | 32,981 | 122,963 | ||||||||||||
Total operating expenses | 1,102,196 | 1,297,623 | 2,264,221 | 2,424,868 | ||||||||||||
Operating income | 71,783 | 10,514 | 91,835 | 30,721 | ||||||||||||
Other income (expense) | ||||||||||||||||
Gain (loss) on change in fair value of derivative liabilities | 9,886 | (33,858 | ) | 7,868 | (19,455 | ) | ||||||||||
Other income | 6,780 | - | 13,540 | - | ||||||||||||
Interest expense | (2,655 | ) | (523 | ) | (6,098 | ) | (10,217 | ) | ||||||||
Total other income (expense) | 14,011 | (34,381 | ) | 15,310 | (29,672 | ) | ||||||||||
Income (loss) before tax provision | 85,794 | (23,867 | ) | 107,145 | 1,049 | |||||||||||
Provision for income taxes | 15,927 | 5,595 | 20,848 | 11,253 | ||||||||||||
Net income (loss) | $ | 69,867 | $ | (29,462 | ) | $ | 86,297 | $ | (10,204 | ) | ||||||
Net income (loss) per share - basic | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
Net income (loss) per share - diluted | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
Weighted average number of shares outstanding | ||||||||||||||||
basic | 153,652,143 | 163,652,143 | 153,652,143 | 163,652,143 | ||||||||||||
diluted | 180,818,100 | 163,652,143 | 180,818,100 | 163,652,143 |
2023 | 2022 | |||||||
Revenue | ||||||||
School uniform sales | $ | 84,117 | $ | 105,143 | ||||
Promotional sales | 556,327 | 1,076,934 | ||||||
Total revenue | 640,444 | 1,182,077 | ||||||
Operating expenses | ||||||||
Direct costs of revenue | 507,200 | 749,382 | ||||||
General and administrative | 275,103 | 394,329 | ||||||
Marketing and selling | 12,454 | 18,314 | ||||||
Total operating expenses | 794,757 | 1,162,025 | ||||||
Operating income (loss) | (154,313 | ) | 20,052 | |||||
Other income (expense) | ||||||||
Gain (loss) on change in fair value of derivative liabilities | 52,613 | (2,018 | ) | |||||
Other income | 2,000 | 6,760 | ||||||
Interest expense | (10,897 | ) | (3,443 | ) | ||||
Total other income (expense) | 43,716 | 1,299 | ||||||
Income (loss) before tax provision | (110,597 | ) | 21,351 | |||||
Provision for income taxes | - | 4,921 | ||||||
Net income (loss) | $ | (110,597 | ) | $ | 16,430 | |||
Net income (loss) per share - basic | $ | (0.00 | ) | $ | 0.00 | |||
Net income (loss) per share - diluted | $ | (0.00 | ) | $ | 0.00 | |||
Weighted average number of shares outstanding | ||||||||
basic | 153,652,143 | 153,652,143 | ||||||
diluted | 180,384,154 | 178,361,413 |
See accompanying notes to unaudited consolidated financial statements.
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ADM Endeavors, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
For the SixThree Months Ended June 30,March 31, 2023 and 2022 and 2021
(Unaudited)
(Unaudited)
Shares | Amount | Shares | Amount | Capital | Earnings | Total | Shares | Amount | Shares | Amount | Capital | Earnings | Total | |||||||||||||||||||||||||||||||||||||||||||
Additional | Additional | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid In | Retained | Preferred Stock | Common Stock | Paid In | Retained | |||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Total | Shares | Amount | Shares | Amount | Capital | Earnings | Total | |||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 2,000,000 | $ | 2,000 | 153,652,143 | $ | 153,652 | $ | 1,317,747 | $ | 965,211 | $ | 2,438,610 | ||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (110,597 | ) | (110,597 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 2,000,000 | $ | 2,000 | 153,652,143 | $ | 153,652 | $ | 1,317,747 | $ | 854,614 | $ | 2,328,013 | ||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 2,000,000 | $ | 2,000 | 153,652,143 | $ | 153,652 | $ | 1,317,747 | $ | 815,459 | $ | 2,288,858 | 2,000,000 | $ | 2,000 | 153,652,143 | $ | 153,652 | $ | 1,317,747 | $ | 815,459 | $ | 2,288,858 | ||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | 16,430 | 16,430 | - | - | - | - | - | 16,430 | 16,430 | ||||||||||||||||||||||||||||||||||||||||||
Net income(loss) | - | - | - | - | - | 16,430 | 16,430 | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 2,000,000 | 2,000 | 153,652,143 | 153,652 | 1,317,747 | 831,889 | 2,305,288 | 2,000,000 | $ | 2,000 | 153,652,143 | $ | 153,652 | $ | 1,317,747 | $ | 831,889 | $ | 2,305,288 | |||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | 69,867 | 69,867 | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 2,000,000 | $ | 2,000 | 153,652,143 | $ | 153,652 | $ | 1,317,747 | $ | 901,756 | $ | 2,375,155 | ||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 2,000,000 | $ | 2,000 | 163,652,143 | $ | 163,652 | $ | 1,307,747 | $ | 78,111 | $ | 1,551,510 | ||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | 19,258 | 19,258 | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 2,000,000 | 2,000 | 163,652,143 | 163,652 | 1,307,747 | 97,369 | 1,570,768 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (29,462 | ) | (29,462 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Net Income (loss) | - | - | - | - | - | (29,462 | ) | (29,462 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | 2,000,000 | $ | 2,000 | 163,652,143 | $ | 163,652 | $ | 1,307,747 | $ | 67,907 | $ | 1,541,306 |
See accompanying notes to unaudited consolidated financial statements.
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ADM Endeavors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the SixThree Months Ended June 30,March 31, 2023 and 2022 and 2021
(Unaudited)
(Unaudited)
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income (loss) | $ | 86,297 | $ | (10,204 | ) | $ | (110,597 | ) | $ | 16,430 | ||||||
Adjustments to reconcile net income (loss) to net cash provided by continuing operations: | ||||||||||||||||
Depreciation and amortization | 17,534 | 32,862 | 14,066 | 8,767 | ||||||||||||
Stock-based compensation | - | 65,625 | ||||||||||||||
Bad debt expense | 1,340 | 481 | 2,601 | - | ||||||||||||
Amortization of right of use asset - operating lease | 8,248 | - | ||||||||||||||
Change in derivative liability | (7,868 | ) | 19,455 | (52,613 | ) | 2,018 | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 260,208 | (135,867 | ) | 191,149 | 478,178 | |||||||||||
Accounts receivable, related party | - | 110,050 | ||||||||||||||
Other receivable, related party | (8,971 | ) | - | 1,663 | (5,431 | ) | ||||||||||
Inventory | (161,740 | ) | (20,755 | ) | (242,453 | ) | (91,006 | ) | ||||||||
Prepaid expenses and other assets | 19,604 | (46,265 | ) | 5,612 | 18,727 | |||||||||||
Accounts payable | 237,697 | 131,486 | 269,310 | 131,068 | ||||||||||||
Accrued expenses | (11,874 | ) | 128,488 | 87,197 | (117,189 | ) | ||||||||||
Income tax payable | 20,848 | - | - | 4,921 | ||||||||||||
Right of use operating lease liability | (7,683 | ) | - | |||||||||||||
Net cash provided by operating activities | 453,075 | 275,356 | 166,500 | 446,483 | ||||||||||||
Cash flows used in investing activities | ||||||||||||||||
Purchase of property and equipment | (246,600 | ) | - | (131,414 | ) | (201,590 | ) | |||||||||
Net cash used in investing activities | (246,600 | ) | - | (131,414 | ) | (201,590 | ) | |||||||||
Cash flows used in financing activities: | ||||||||||||||||
Repayments on notes payable | (162,057 | ) | (69,860 | ) | ||||||||||||
Net cash used in financing activities | (162,057 | ) | (69,860 | ) | ||||||||||||
Repayments on note payable | (3,126 | ) | (80,557 | ) | ||||||||||||
Proceeds from note payable | 53,692 | - | ||||||||||||||
Net cash provided by (used in) financing activities | 50,566 | (80,557 | ) | |||||||||||||
Net change in cash | 44,418 | 205,496 | 85,652 | 164,336 | ||||||||||||
Cash at beginning of period | 418,413 | 277,364 | 234,235 | 418,413 | ||||||||||||
Cash at end of period | $ | 462,831 | $ | 482,860 | $ | 319,887 | $ | 582,749 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid for interest | $ | 5,943 | $ | 8,140 | $ | 12,865 | $ | 16,590 | ||||||||
Cash paid for taxes | $ | - | $ | - | $ | - | $ | - | ||||||||
Non-cash investing and financing activities: | ||||||||||||||||
Capitalized loan costs | $ | 2,318 | $ | - |
See accompanying notes to unaudited consolidated financial statements.
7 |
ADM ENDEAVORS, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
June 30, 2022March 31, 2023
(unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
On January 4, 2001, we were incorporated in North Dakota as ADM Enterprises, Inc. On May 9, 2006, the Company changed both its name to ADM Endeavors, Inc. (“ADM Endeavors,” or the “Company,” “we,” “us,” or “our”) and its domicile to the state of Nevada. On July 1, 2008, the Company acquired all of the assets of ADM Enterprises, LLC (“ADM Enterprises”), a sole proprietorship owned by Ardell and Tammera Mees, in exchange for newly issued shares of our common stock. As a result, ADM Enterprises became a wholly owned subsidiary of the Company. ADM then provided installation services to grocery décor and design companies primarily in North Dakota.
On April 19, 2018, the Company acquired Just Right Products, Inc. (“JRP”), a Texas corporation. JRP was incorporated on January 17, 2010. The acquisition of 100% of JRP from its sole shareholder, Marc Johnson, was through a stock exchange whereby the Company issued shares of restricted Series A preferred stock (the “Acquisition Shares”) to Mr. Johnson in consideration of the acquisition of 100% of JRP from Mr. Johnson. Each share of the Series A preferred stock is convertible into ten shares of common stock, and each share has 100 votes on a fully diluted basisbasis.. The Acquisition Shares represented 61% of the voting shares of the Company, and thus there was a change of voting control in connection with the transaction, and the transaction was accounted for as a reverse acquisition.
JRP is focused on being an added value reseller with concentration in embroidery, screen printing, importing and uniforms for businesses, schools and individuals in the State of Texas.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company follows the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and has a year-end of December 31.
Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
The unaudited consolidated financial statements of the Company for the three and six month periods ended June 30,March 31, 2023 and 2022 and 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 20212022 was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 20212022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2022.29, 2023. These financial statements should be read in conjunction with that report.
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Principles of Consolidation
The accompanying unaudited consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiary, JRP, at June 30, 2022.March 31, 2023. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with U.S. GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to allowance for doubtful accounts, goodwill, derivative liability, stock-based compensation and deferred tax valuations.
Stock-based compensation expense is recorded in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of nine months or less when purchased to be cash equivalents. At June 30, 2022March 31, 2023 and December 31, 2021,2022, the Company had 0no cash equivalents. Periodically, the Company may carry cash balances at financial institutions in excess of the federally insured limit of $250,000. The amount in excess of the FDIC insurance at June 30, 2022March 31, 2023 was $217,65535,457. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.
Allowance for Doubtful Accounts
The Company establishes an allowance for doubtful accounts to ensure trade and notes receivable are not overstated due to non-collectability. The Company’s allowance is based on a variety of factors, including age of the receivable, significant one-time events, historical experience, and other risk considerations. The Company had 0no allowance at June 30, 2022March 31, 2023 and December 31, 2021.2022. The Company had bad debt expense of $1,3402,601 and $4810 for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively.
Inventory
Inventory is valued at the lower of cost or net realizable value. Cost is determined using a weighted-average cost method. The Company decreases the value of inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value, based upon an aging analysis of the inventory on hand, specifically known inventory-related risks, and assumptions about future demand and market conditions. The Company has inventory of $300,851410,535 and $139,111168,082 as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Three vendors accounted for approximately 6887% of inventory purchases during the sixthree months ended June 30, 2022. FourMarch 31, 2023. Three vendors accounted for approximately 9891% of inventory purchases during the sixthree months ended June 30, 2021.March 31, 2022.
9 |
Derivative Instruments
Derivatives are measured at their fair value on the balance sheet. In determining the appropriate fair value, the Company uses the Black-Scholes-Merton option pricing model. Changes in fair value are recorded in Other Income (Expense) of the consolidated statements of operations.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with U.S. GAAP. For certain of our financial instruments, including cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate fair value due to their short maturities.
We follow accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
Level 2: | Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. | |
Level 3: | Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. |
The Company adopted the provisions of FASB ASC 820 (the Fair Value Topic) which defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements.
The Company had 0no assets or liabilities other than derivative liabilities measured at fair value on a recurring basis at June 30, 2022March 31, 2023 and December 31, 2021.2022.
Fixed Assets
Fixed assets are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the assets estimated useful life. Upon the sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in consolidated statements of operations.
SCHEDULE OF ESTIMATED USEFUL LIVE
Classification | Estimated Useful Lives | |
Equipment | 5 to 7 years | |
Leasehold improvements | Shorter of useful life or lease term | |
Furniture and fixtures | 4 to 7 years | |
Websites | 3 years |
Goodwill
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets of businesses acquired. Goodwill is not amortized, but instead assessed for impairment. We perform our annual impairment review of goodwill in our fiscal fourth quarter or when a triggering event occurs between annual impairment tests. No impairment was recorded in fiscal 20222023 or 20212022 as a result of our qualitative assessments over our single reporting segment.
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The Company performs a qualitative assessment for each of its reporting units to determine if the two-step process for impairment testing is required. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would then evaluate the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the fair value for the reporting unit is compared to its book value including goodwill. In the case that the fair value of the reporting unit is less than book value, a second step is performed which compares the implied fair value of the reporting unit’s goodwill to the book value of the goodwill. The fair value for the goodwill is determined based on the difference between the fair values of the reporting unit and the net fair values of the identifiable assets and liabilities of such reporting unit. If the implied fair value of the goodwill is less than the book value, the difference is recognized as impairment.
Impairment of Long-lived Assets
The Company follows paragraph 360-10-05-4 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, such as intellectual property, are required to be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company determined that there were 0no impairments of long-lived assets at June 30, 2022March 31, 2023 and December 31, 2021.2022.
Revenue Recognition
We recognize revenue for merchandise sales, net of expected returns and sales tax, at the time of in-store purchase or delivery of the product to our customer. When merchandise is shipped to our guests, we estimate receipt based on historical experience. Revenue is deferred and a liability is established for sales returns based on historical return rates and sales for the return period. We recognize an asset and corresponding adjustment to cost of sales for our right to recover returned merchandise. At each financial reporting date, we assess our estimates of expected returns, refund liabilities and return assets. For merchandise sold in our stores and online, tender is accepted at the point of sale. When we receive payment before the guest has taken possession of the merchandise, the amount received is recorded as deferred revenue until the transaction is complete. Our performance obligations for unfulfilled merchandise orders are typically satisfied within one week. Shipping and handling fees charged to guests relate to fulfilment activities and are included in net sales with the corresponding costs recorded in cost of sales.
Cost of Sales
Cost of sales includes the actual cost of merchandise sold and services performed; the cost of transportation of merchandise from vendors to our distribution network, stores, or customers; shipping and handling costs from our stores or distribution network to customers; and the operating cost and depreciation of our sourcing and distribution network and online fulfilment centers.
The Company computes basic and diluted income per share amounts pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders, by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted income (loss) per share is computed by dividing net income (loss) available to common shareholders by the diluted weighted average number of shares of common stock during the period. The diluted weighted average number of common shares outstanding is the basic weighted number of shares adjusted as of the first day of the year for any potentially diluted debt or equity.
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The dilutive effect of outstanding convertible securities and preferred stock is reflected in diluted earnings per share by application of the if-converted method.
SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED
Numerator: | 2023 | 2022 | ||||||
For the Three Months Ended | ||||||||
Basic earnings (loss) per common share | March 31, | |||||||
Numerator: | 2023 | 2022 | ||||||
Net income (loss) available to common shareholders | $ | (110,597 | ) | $ | 16,430 | |||
Denominator: | ||||||||
Weighted average common shares outstanding | 153,652,143 | 153,652,143 | ||||||
Basic earnings per common share | $ | 0.00 | $ | 0.00 | ||||
Diluted earnings (loss) per common share | ||||||||
Numerator: | ||||||||
Net income (loss) available to common shareholders | $ | (110,597 | ) | $ | 16,430 | |||
Add convertible debt interest | 83,274 | - | ||||||
Net income available to common shareholders | $ | (27,323 | ) | $ | 583,290 | |||
Denominator: | ||||||||
Weighted average common shares outstanding | 153,652,143 | 153,652,143 | ||||||
Preferred shares | 20,000,000 | 20,000,000 | ||||||
Convertible debt | 6,732,011 | 4,709,270 | ||||||
Adjusted weighted average common shares outstanding | 180,384,154 | 178,361,413 | ||||||
Diluted earnings per common share | $ | 0.00 | $ | 0.00 |
For the Six Months Ended | ||||||||
Basic earnings (loss) per common share | June 30, | |||||||
Numerator: | 2022 | 2021 | ||||||
Net income (loss) available to common shareholders | $ | 86,297 | $ | (10,204 | ) | |||
Denominator: | ||||||||
Weighted average common shares outstanding | 153,652,143 | 163,652,143 | ||||||
Basic earnings (loss) per common share | $ | 0.00 | $ | (0.00 | ) | |||
Diluted earnings (loss) per common share | ||||||||
Numerator: | ||||||||
Net income (loss) available to common shareholders | $ | 86,297 | $ | (10,204 | ) | |||
Add convertible debt interest | - | - | ||||||
Net income (loss) available to common shareholders | $ | 86,297 | $ | (10,204 | ) | |||
Denominator: | ||||||||
Weighted average common shares outstanding | 153,652,143 | 163,652,143 | ||||||
Preferred shares | 20,000,000 | - | ||||||
Convertible debt | 7,165,957 | - | ||||||
Adjusted weighted average common shares outstanding | 180,818,100 | 163,652,143 | ||||||
Diluted earnings (loss) per common share | $ | 0.00 | $ | (0.00 | ) |
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (loss) in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Tax benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return. The Company has no liability for uncertain tax positions as of June 30, 2022March 31, 2023 and December 31, 2021.2022. Interest and penalties, if any, related to unrecognized tax benefits would be recognized as interest expense. The Company does 0tnot have any accrued interest or penalties associated with unrecognized tax benefits, nor was any significant interest expense recognized during the periods ended June 30, 2022March 31, 2023 and 2021.2022.
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Segment Information
In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,” the Company is required to report financial and descriptive information about its reportable operating segments. The Company has 1one operating segment as of June 30, 2022March 31, 2023 and December 31, 2021.2022.
Effect of Recent Accounting Pronouncements
Recently Issued Accounting Standards Not Yet Adopted
The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that no other pronouncements will have a significant effect on its financial statements.
NOTE 3 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of August 15, 2022,May 12, 2023, there were no pending or threatened lawsuits.
Franchise Agreement
The Company has a franchise agreement effective February 19, 2014, expiring in February 2024, with a right to renew for an additional five years to operate stores and websites in the Company’s exclusive territory. The Company is obligated to pay 5% of gross revenue for use of systems and manuals.manuals.
During the sixthree months ended June 30,March 31, 2023 and 2022, and 2021 the Company paid $10,2753,242 and $8,4885,953, respectively, for the franchise agreement.
Building Commitment
On March 9, 2022, the Company signed a $985,000 purchase order for a steel building which will be their new corporate headquarters. On the same day, the Company paid a $195,000 deposit to begin construction.
NOTE 4 – FIXED ASSETS
Fixed assets and finance lease right of use assets, stated at cost, less accumulated depreciation at June 30, 2022March 31, 2023 and December 31, 20212022, consisted of the following:
SCHEDULE OF FIXED ASSETS AND FINANCE LEASE RIGHT OF USE ASSETS
June 30, 2022 | December 31, 2021 | |||||||
Land | $ | 970,455 | $ | 970,455 | ||||
Equipment | 368,868 | 368,868 | ||||||
Autos and trucks | 72,898 | 72,898 | ||||||
Construction in process | 305,298 | 58,698 | ||||||
Land and building – rental property | 256,388 | 256,388 | ||||||
Less: accumulated depreciation | (368,485 | ) | (350,951 | ) | ||||
Property and equipment, net | $ | 1,605,422 | $ | 1,376,356 |
March 31, 2023 | December 31, 2022 | |||||||
Land | $ | 970,455 | $ | 970,455 | ||||
Equipment | 485,858 | 485,958 | ||||||
Autos and trucks | 95,246 | 95,246 | ||||||
Construction in process | 1,547,363 | 1,413,531 | ||||||
Land and building – rental property | 256,388 | 256,388 | ||||||
Less: accumulated depreciation | (405,336 | ) | (391,270 | ) | ||||
Property and equipment, net | $ | 2,949,974 | $ | 2,830,308 |
Depreciation expense for the sixthree months ended June 30,March 31, 2023 and 2022 and 2021 was $17,53414,066 and $32,8628,767, respectively.
NOTE 5 – CONVERTIBLE NOTE PAYABLE AND NOTES PAYABLE
Convertible Notes Payable
On April 1, 2018, the Company assumed a convertible promissory note in connection with the reverse acquisition. The Company received total funding of $106,092 as of December 31, 2018. The note had fees of $53,046 which were recorded as a discount to the convertible promissory note and are being amortized over the life of the loan using the effective interest method. The maturity of the note is March 5, 20222023. During the six months ended June 30, 2022,On March 5, 2023, the note was extended to MarchSeptember 5, 2023.2023.
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The note is convertible into common stock at a price of 35% of the lowest three trading prices during the 10ten days prior to conversion. As of June 30, 2022,March 31, 2023, the convertible debt would convert to common shares.
The note balance was $106,092 as of June 30, 2022March 31, 2023 and December 31, 2021.2022.
Derivative liabilities
The conversion features embedded in the convertible notes were evaluated to determine if such conversion feature should be bifurcated from its host instrument and accounted for as a freestanding derivative. In the convertible notes with variable conversion terms, the conversion feature was accounted for as a derivative liability. The derivatives associated with the term convertible notes were recognized as a discount to the debt instrument and the discount is amortized over the expected life of the notes with any excess of the derivative value over the note payable value recognized as additional interest expense at the issuance date.
The following table presents information about the Company’s liabilities measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of June 30, 2022March 31, 2023 and December 31, 2021:2022:
SCHEDULE OF FAIR VALUE LIABILITIES MEASURED ON RECURRING BASIS
Fair value at | Fair value at | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | June 30, 2022 | Level 1 | Level 2 | Level 3 | March 31, 2023 | |||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Derivative liabilities | $ | - | $ | - | $ | 210,149 | $ | 210,149 | $ | - | $ | - | $ | 255,360 | $ | 255,360 |
Fair value at | Fair value at | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | December 31, 2021 | Level 1 | Level 2 | Level 3 | December 31, 2022 | |||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Derivative liabilities | $ | - | $ | - | $ | 218,017 | $ | 218,017 | $ | - | $ | - | $ | 307,973 | $ | 307,973 |
As of June 30, 2022March 31, 2023 and December 31, 2021,2022, the derivative liability was calculated using the Black-Scholes method over the expected terms of the convertible debt and the following assumptions: volatility of 100%, exercise price of $ and $ , and risk-free rate of 2.084.94% and 0.194.76% and,, respectively. Included in derivative income (loss)Derivative Income (Loss) in the accompanying consolidated statements of operations is income (expense)expense arising from the gain on change in fair value of the derivatives gain of $7,86852,613 and derivativea derivatives loss of $19,4552,018 during the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively.
SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE
Fair value at December 31, 2021 | $ | 218,017 | ||
Gain on change in fair value of derivative liabilities | (7,868 | ) | ||
Fair value at June 30, 2022 | $ | 210,149 |
Fair value at December 31, 2022 | $ | 307,973 | ||
Gain on change in fair value of derivative liabilities | (52,613 | ) | ||
Fair value at March 31, 2023 | $ | 255,360 |
Notes Payable
On October 16, 2020,25, 2022, the Company entered into a secured promissory note in the amount up of $372,0004,618,960. The note is secured by the deed of trust on the property and bears interest at 55.5% and is due on October 16, 202125, 2032. InOn October 2021,25, 2027, the note was extendedrate shall be adjusted to the daily rate reported in the Credit Markets section (or similar section) of The Wall Street Journal as the U.S. “Prime Rate” (“Index”), as announced from time to time, without notice to Maker, plus one percent (April 16, 20221.00. In May%) (the sum being the “Adjusted Rate”); provided that in no event shall the Rate or Adjusted Rate exceed the lesser of eighteen percent (18%) per annum or the maximum rate permitted under applicable law. Monthly payments of accrued and unpaid interest shall commence on November 25, 2022 and continue on the Company extended the maturitysame date of the note to October 16, 2022. As of June 30, 2022each succeeding calendar month through and December 31, 2021, the secured loan balance was $139,246including April 25, 2024. Thereafter, monthly principal and $212,706, respectively.
On August 3, 2021, the Company entered into a secured promissory noteinterest (“Payments”) in the amount of $172,00026,458.87., which is an amount necessary to amortize the stated principal balance. The note is secured byCompany recorded $94,072 of loan cost as a debt discount and will be amortized over the deedlife of trust on the propertynote. During the three months ended March 31, 2023, the Company capitalized $2,318 of loan costs and bears$12,865 of interest at 4.5% and is due on August 3, 2026. The monthly payments under the agreement are due in fifty nine installments of $1,094, with the remaining balance due at maturity.related to this note. As of June 30, 2022 and DecemberMarch 31, 2021,2023, the secured loan balance was $10,490 and $99,0871,128,841, respectively.net of $90,029 of debt discount.
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As of June 30, 2022,March 31, 2023, the secured notes payable balance was $149,7361,128,841, consisting of long term notes payable of $01,128,841 and current portion of notes payable of $149,7360. As of December 31, 2021,2022, the secured notes payable balance was $311,7931,075,957, consisting of long term notes payable of $85,9561,075,957 and current portion of notes payable of $225,8370.
Future maturities of debt as of June 30, 2022 are as follows:
SCHEDULE OF MATURITIES OF DEBT
2022 | $ | 149,736 | ||
2023 | - | |||
2024 | - | |||
2025 | - | |||
2026 | - | |||
Total | $ | 149,736 |
NOTE 6 – ACCRUED EXPENSES
The Company had total accrued expenses of $338,771403,546 and $350,645316,349 as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. See breakdown below of accrued expenses:
SCHEDULE OF ACCRUED EXPENSES
June 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Credit cards payable | $ | 195,398 | $ | 197,234 | $ | 229,493 | $ | 150,107 | ||||||||
Accrued interest | 53,046 | 53,046 | 82,771 | 80,949 | ||||||||||||
Other accrued expenses | 90,327 | 100,365 | 91,282 | 85,293 | ||||||||||||
Total accrued expenses | $ | 338,771 | $ | 350,645 | $ | 403,546 | $ | 316,349 |
NOTE 7 – RELATED PARTY TRANSACTIONS
The majority shareholder, director and officer, is the owner of M & M Real Estate, Inc. (“M & M”). M & M leases the Haltom City, Texas facility to the Company. The monthly lease payment, under a month-to-month lease, is currently $6,500. The Company incurred lease expense, including equipment rental expense of $44,36021,750 and $43,50026,360 to M & M for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively.
NOTE 8 – STOCKHOLDERS’ EQUITY
Our Articles of Incorporation authorize the issuance of June 30, 2022March 31, 2023 and December 31, 2021.2022. There were outstanding shares of preferred stock as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Each share of preferred stock has 100 votes per share and is convertible into 10 shares of common stock. The preferred stock pays dividends equal with common stock and has preferential liquidation rights to common stockholders. shares of common stock and shares of preferred stock, $ par value per share. There were outstanding shares of common stock at
NOTE 9 – CONCENTRATION OF CUSTOMERS
Concentration of Revenue
For the sixthree months ended June 30, 2022, oneMach 31, 2023, no customer made up 3710% of revenues, and for the sixthree months ended June 30, 2021,March 31, 2022, one customer made up 3235% of revenues, respectively.
Concentration of accounts receivable
Two customersOne customer accounted for 5913% of accounts receivable as of June 30, 2022.March 31, 2023. Two customers accounted for 6446% of accounts receivable as of December 31, 2021.2022.
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NOTE 10 – LEASE LIABILITY
Operating Leases
The Company leases office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Leases with initial terms in excess of 12 months are recorded as operating or financing leases in our consolidated balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease. For leases beginning in 2018 and later, the Company accounts for lease components separately from the non-lease components. Most leases include one or more options to renew. The exercise of the lease renewal options is at the sole discretion of the Company. The depreciable life of the assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
The Company leases approximately 18,000 square feet of space in Haltom City, Texas, pursuant to a month-to-month lease. This facility serves as our corporate headquarters, manufacturing facility and showroom. The lease is with M & M Real Estate, Inc. (“M & M”), a company owned solely by our majority shareholder and director of the Company.
TheOn October 28, 2022, the Company has approximately 6,000 square feet of space in Arlington, Texas, which serves asentered into an academic showroom, pursuant to aoperating lease that expired onexpires June 1, 202030, 2024. The operating lease result in the recognition of ROU asset and lease liability on the balance sheet. ROU asset and operating lease liability are recognized based on the present value of lease payments over the lease terms of the commencement date. Because the leases do not provide an explicit or implicit rate of return, the Company determines incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. The incremental borrowing rate for a lease is leasing this spacethe rate of interest the Company would have to pay on a month-to-monthcollateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 5.50%. The Company’s lease does not contain any material restrictive covenants. The lease has a remaining term of 1.25 years.
The following table provides the maturities of lease liabilities at March 31, 2023:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
Operating | ||||
Lease | ||||
Maturity of Lease Liability at March 31, 2023 | ||||
2023 (nine months remaining) | $ | 26,721 | ||
2024 | 17,814 | |||
Total future undiscounted lease payments | $ | 44,535 | ||
Less: Amounts representing interest | (1,554 | ) | ||
Present value of lease liabilities | $ | 42,981 |
NOTE 11 – SUBSEQUENT EVENTS
On April 27, 2023, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Innovative Impressions, Inc., a Texas corporation (the “Seller”), pursuant to which the Company acquired (the “Acquisition”) embroidery equipment, inventory, and related assets (the “Assets”), from the Seller for a $200,000 purchase price, to be paid by the issuance by the Company of a $200,000 secured promissory note to the Seller or its nominee (the “Note”).
On April 27, 2023, the Acquisition closed, and the Company issued the Note to the Seller’s principal, Robert Breese. The Company entered into a Pledge and Security Agreement with Mr. Breese (the “Security Agreement”), and the parties agreed that the Acquisition would be considered effective as of May 1, 2023. The Note does not bear interest except upon default, and it is payable in 24 equal consecutive monthly installments of $8,333beginning JuneMay 1, 2020.2023, with the final payment due on April 1, 2025. Pursuant to the Security Agreement, the Company’s payment obligations under the Note are secured by a security interest in the Assets granted to Mr. Breese.
On April 27, 2023, the Company also entered into an Independent Consulting Agreement with Mr. Breese, pursuant to which (i) Mr. Breese will provide embroidery industry consulting and sales services to the company for an initial term of two years, and (ii) Mr. Breese will be paid 20% sales commissions and $100,000 of Company stock, valued as of May 1, 2023 (with such valuation date orally agreed to by the parties).
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.
Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 and in our subsequent filings with the Securities and Exchange Commission. The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.
Company Overview
On January 4, 2001, we were incorporated in North Dakota as ADM Enterprises, Inc. On May 9, 2006, the Company changed both its name to ADM Endeavors, Inc. (“ADM Endeavors,” or the “Company,” “we,” “us,” or “our”) was incorporated in North Dakota as “ADM Enterprises, Inc.” On May 9, 2006, the Company changed its name to “ADM Endeavors, Inc.” and its domicile to the stateState of Nevada. On July 1, 2008, the Company acquired all of the assets of ADM Enterprises, LLC (“ADM Enterprises”), a sole proprietorship owned by Ardell and Tammera Mees, in exchange for 10,000,000 newly issued shares of ourCompany common stock. As a result, ADM Enterprises became a wholly owned subsidiary of the Company. ADM then provided installation services to grocery décor and design companies primarily in North Dakota.
On April 19, 2018, the Company acquired Just Right Products, Inc. (“JRP”Just Right Products”), a Texas corporation. JRP was incorporated on January 17, 2010. The acquisition of 100% of JRPcorporation, from its sole shareholder, Marc Johnson, was through a stockshare exchange transaction whereby the Company acquired 100% of Just Right Products and issued 2,000,000 shares of restricted Series A preferredConvertible Preferred stock (the “Acquisition Shares”(“Series A Preferred Stock”) to Mr. Johnson in considerationthe shareholder of the acquisition of 100% of JRP from Mr. Johnson.Just Rights Products. Each share of the Series A preferred stockPreferred Stock is convertible into ten10 shares of Company common stock and each share has 100 votes on a fully diluted basis. The Acquisition Sharespreferred shares represented 61% of the Company’s voting shares of the Company, and thus there wasconstituted a change of voting control in connectionof the Company, with the transaction and the transaction was accounted for as a reverse acquisition.
JRP is focused on being an added value reseller with concentration in embroidery, screen printing, importing and uniforms for businesses, schools and individuals in As a result of the Statetransaction, Just Right Products became a wholly owned subsidiary of Texas.the Company.
On January 1, 2020, the Company determined that it would discontinue its business operations in North Dakota, specifically, ADM Enterprises LLC (the “Disposed Company”). The Company divested itselftransferred the Disposed Company to Ardell Mees in exchange for Mr. Mees’ assumption of the liabilities of the Disposed Company. As part of the transaction, Mr. Mees resigned from all positions with the Company and, sincein a private transaction, sold a significant portion of his ownership in the Company to Marc Johnson. The Company and Mr. Mees entered into an indemnification agreement pursuant to which Mr. Mees indemnified the Company for the liabilities of the Disposed Company.
Since that time, the Company has been focusing exclusively focused on theits Just Right Productions operations, which includes a diverse vertical integrated business consisting of its operational subsidiary, JRP.a retail sales division, screen print promotions, embroidery production, digital production, import wholesale sourcing, and uniforms.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.
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Additionally, Russia’s prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system, expansive ban on imports and exports of products to and from Russia and ban on exportation of U.S denominated banknotes to Russia or persons located there. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain funding. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this filing.
For the Three Months Ended June 30,March 31, 2023 and 2022 and 2021
Revenues
Our revenue was $1,173,979$640,444 for the three months ended June 30, 2022,March 31, 2023, compared to $1,308,137$1,182,077 for the three months ended June 30, 2021,March 31, 2022, resulting in a decrease of $134,158,$541,633, or 10.3%45.8%. The decrease in revenue is primarily due to a reduction in spendingspending on government contracts, due to inflation.school uniforms and influencers merchandise sales.
Operating Expenses
Direct costs of revenues were $733,614$507,200 and $884,630$749,382 for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively, resulting in a decrease of $151,016,$242,182, or 17.1%.32.63. This decrease was a direct result of managing employee hours and negotiating lower imported goods prices.decreased sales. The gross margin increaseddecreased from 32.4%36.6% as of June 30, 2021March 31, 2022 to 37.5%20.8% as of June 30, 2022.March 31, 2023. The increasegeneral decrease in margin is primarily due to a reduction in direct labor hours duenew government contracts with lower margins as compared to labor shortage.non-government customers.
General and administrative expenses were $353,915$275,103 for the three months ended June 30, 2022,March 31, 2023, compared to $354,590$394,329 for the same period in 2021.2022. The decrease in 2023 general and administrative expenses of approximately 30.2% was primarily due to reduced marketing costs and wages.
Marketing and selling expenses were $14,667$12,454 for the three months ended June 30, 2022,March 31, 2023, compared to $58,403$18,314 for the same period in 2021.2022. The decrease in 2022 in2023 marketing and selling expenses of approximately 74.9%32% was primarily due to utilizing new lower-cost marketing techniques.
As a result, net incomeNet loss was $69,867$110,597 for the three months ended June 30, 2022,March 31, 2023, compared to net lossincome of $29,462$16,430 for the three months ended June 30, 2021.
For the Six Months Ended June 30,March 31, 2022, and 2021
Revenues
Our revenue was $2,356,056 for the six months ended June 30, 2022, compared to $2,455,589 for the six months ended June 30, 2021, resulting in a decrease of $99,533, or 4.1%. The decrease in revenue is primarily due to a reduction in spending on government contracts due to inflation.
Operating Expenses
Direct costs of revenues were $1,482,996 and $1,539,548 for the six months ended June 30, 2022 and 2021, respectively, resulting in a decrease of $56,552, or 3.7%. This decrease was a direct result of managing employee hours and negotiating imported goods. The gross margin decreased from 37.3% as of June 30, 2021 to 37.1% as of June 30, 2022.
General and administrative expenses were $748,244 for the six months ended June 30, 2022 compared to $762,357 for the same period in 2021.
Marketing and selling expenses were $32,981 for the six months ended June 30, 2022 compared to $122,963 for the same period in 2021. The decrease in 2022 in marketing and selling expenses was approximately 73.2% primarily due to new marketing technique.
As a result, net income was $86,297 for the six months ended June 30, 2022, compared to net loss of $10,204 for the six months ended June 30, 2021.reasons stated above.
Liquidity and Capital Resources
Liquidity and Capital Resources during the sixthree months ended June 30, 2022March 31, 2023, compared to the sixthree months ended June 30, 2021March 31, 2022
We had cash provided by operations of $453,075$166,500 for the sixthree months ended June 30, 2022,March 31, 2023, compared to cash provided by operations of $275,356$446,483 for the sixthree months ended June 30, 2021.March 31, 2022. The increasedecrease in positive cash flow from operating activities for the sixthree months ended June 30, 2022,March 31, 2023, was primarily attributable to a decrease in accounts receivable. Cash used in operations for the six months ended June 30, 2021, is primarily attributable to accounts receivables, related party.
We had cash used in investing activities of $246,600$131,414 for the sixthree months ended June 30, 2022,March 31, 2023, and $0$201,590 for the sixthree months ended June 30, 2021.March 31, 2022. The change in cash flow from investing activities for the sixthree months ended June 30, 2022,March 31, 2023, was attributable to a decrease in the purchase of property and equipment in 2022.2023.
We had cash provided by financing activities of $50,566 for the three months ended March 31, 2023, compared to cash used in financing activities of $162,057 for the six months ended June 30, 2022, compared to cash provided by financing activities of $69,860$80,557 for the same period in 2021.2022. Cash used inprovided by financing activities consisted primarily of repaymentproceeds from note payable offset with repayments on notes payablepayable..
We will likely have to raise funds to pay for growth and acquisitions. We may have to borrow money from shareholders or issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
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Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1, “Summary of Significant Accounting Policies” in our audited financial statements for the year ended December 31, 2021,2022, included in our Annual Report on Form 10-K as filed on March 15, 2022,29, 2023, for a discussion of our critical accounting policies and estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term “disclosureCompany does not currently maintain controls and procedures” to mean a company’s controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 isare recorded, processed, summarized, and reported within the time periods specified inby the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures would include, without limitation, controls and procedures designed to ensureprovide reasonable assurance that information required to be disclosed by an issuerthe Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executivethe Chief Executive Officer and chief financial officers, or persons performing similar functions,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.
As of the end of the period covered by this report, we carried out an evaluation, underUnder the supervision and with the participation of ourmanagement, including the Company’s Chief Executive Officer, and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2023, have been evaluated, and, based upon this evaluation, the Company’s Chief Executive Officer has concluded that these controls and procedures are not effective asin providing reasonable assurance of such date. The Chief Executive Officer and Chief Financial Officer determined that the Company continues to have the following deficiencies which represent a material weakness:compliance.
Changes in Internal Control over Financial Reporting
To remediate our internal control weaknesses, management intendsManagement will continue to implementmonitor and evaluate the following measures:
The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debtinternal controls and procedures and the results of its operations. Management expectsCompany’s internal controls over financial reporting on an ongoing basis and are committed to securetaking further action and implementing additional enhancements or improvements, as necessary and as funds in the coming fiscal year but providesallow. There were no assurances that it will be able to do so.
Changeschanges in Internal Control Over Financial Reporting during the quarter ended March 31, 2023.
There are no changes in our internal controls over financial reporting other than as described elsewhere herein.
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings in which we are a party or in which any of our directors, officers or affiliates, any owner of record or beneficiary of more than 5% of any class of our voting securities is a party adverse to us or has a material interest adverse to us. Our property is not the subject of any pending legal proceedings.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
(1) Filed herewith.
(2) XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ADM ENDEAVORS, INC. | ||
Dated: | /s/ Marc Johnson | |
By: | Marc Johnson | |
Its: | Chief Executive Officer and Interim Chief Financial Officer |