0001079974-18-000633.txt : 20181128 0001079974-18-000633.hdr.sgml : 20181128 20181128172810 ACCESSION NUMBER: 0001079974-18-000633 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 35 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181128 DATE AS OF CHANGE: 20181128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEO FOODS INC CENTRAL INDEX KEY: 0001612188 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 471209532 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-226801 FILM NUMBER: 181206498 BUSINESS ADDRESS: STREET 1: 455 54TH STREET STREET 2: SUITE 102 CITY: SAN DIEGO STATE: CA ZIP: 92114 BUSINESS PHONE: 619-269-5850 MAIL ADDRESS: STREET 1: 455 54TH STREET STREET 2: SUITE 102 CITY: SAN DIEGO STATE: CA ZIP: 92114 10-Q 1 teo10q_9302018.htm

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 For the quarterly period ended September 30, 2018

 

o           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ____________ to ____________

 

Commission file number:  333-226801

 

TEO Foods Inc.

(Exact name of small business issuer as specified in its charter)

 

Nevada 47-1209532
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

455 54th Street, Suite 102

San Diego, CA 92114

(Address of principal executive offices)

 

(619) 758-1973

(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.     x Yes   o 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).  x Yes   o 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.

 

o large accelerated filer    o accelerated filer   o non-accelerated filer   x smaller reporting company
                  x 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. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes   x No

 

The number of shares outstanding of each of the issuer's classes of common equity as of November 20, 2018: 10,334,745 shares of common stock.

 

 

 

   
 

 

 

 

Contents

 

    Page
    Number
     
PART I FINANCIAL INFORMATION 1
     
Item 1 Interim Financial Statements September 30, 2018 1
     
  Balance Sheets 1
     
  Statement of Operations 2
     
  Statement of Cash Flows 3
     
  Notes to the Interim Financial Statements 4-9
     
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 10
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 13
     
Item 4 Controls and Procedures 13
     
PART II OTHER INFORMATION 14
     
Item 1 Legal Proceedings 14
     
Item1A Risk Factors 14
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 140
     
Item 3 Defaults Upon Senior Securities 14
     
Item 4 Mine Safety Disclosures 14
     
Item 5 Other Information 14
     
Item 6 Exhibits 14
     
SIGNATURES 15

 

 

 

 

   
 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1 - Interim Financial Statements September 30, 2018

 

 

 

TEO Foods Inc.

BALANCE SHEETS

SEPTEMBER 30, 2018 AND DECEMBER 31, 2017

(UNAUDITED)

 

 

   September 30, 2018  December 31, 2017
Assets          
Current assets          
Cash and cash equivalents  $2,412   $- 
Total current assets   2,412    - 
Prepayment for purchase of Targa   160,000    - 
Total assets  $162,412   $- 
           
Liabilities and stockholders' deficit          
Current liabilities          
Accounts payable and accrued expenses  $5,785   $- 
Advances from related party   274    - 
License fee payable - current portion   909,000    370,000 
Notes payable   100,000    30,000 
Convertible note payable   100,000    - 
Total current liabilities   1,115,059    400,000 
License fee payable - long-term portion   -    600,000 
Total liabilities   1,115,059    1,000,000 
           
Commitments and contingencies          
           
Stockholders' deficit          
Preferred shares, $0.001 par value, 10,000,000 shares authorized, 9,022,900 and 10,000,000 shares issued and outstanding, respectively   9,023    10,000 
Common stock, $0.001 par value, 490,000,000 shares authorized, 10,334,745 and 0 shares issued and outstanding, respectively   10,335    - 
Additional paid-in capital   47,017    - 
Accumulated deficit   (1,019,022)   (1,010,000)
Total stockholder's deficit   (952,647)   (1,000,000)
Total liabilities and stockholders' deficit  $162,412   $- 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 1 
 

 

 

 

TEO Foods Inc.

STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(UNAUDITED)

 

 

   Three Months Ended September 30,  Nine Months ended September 30,
   2018  2017  2018  2017
Revenues  $-  $-  $-  $-
             
Operating expenses                    
General and administrative expenses   1,452    -    4,226    - 
Operating loss   (1,452)   -    (4,226)   - 
                     
Interest expense   3,626    -    4,796    - 
         -         - 
Net loss  $(5,078)  $-   $(9,022)  $- 
                     
Loss per common share – basic and diluted  $(0.00)   N/A   $(0.00)   N/A 
Weighted average common shares outstanding - basic and diluted   10,150,915    -    6,713,612    - 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 2 
 

 

 

 

TEO Foods Inc.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(UNAUDITED)

 

   2018  2017
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(9,022)  $- 
Adjustments to reconcile net loss to net cash used in operations:          
Change in operating assets and liabilities:          
Accounts payable and accrued expenses   7,160    - 
Net cash used in operating activities   (1,862)   - 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Prepayment for purchase of Targa   (160,000)   - 
Net cash used in investing activities   (160,000)   - 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Advance from related party   274    - 
Proceeds from notes payable   125,000    - 
Proceeds from convertible note payable   100,000    - 
Payment of deemed dividend to Teo Inc. for license   (61,000)   - 
Net cash provided by financing activities   164,274    - 
           
Net increase for the period   2,412    - 
Cash at beginning of the period   -    - 
Cash at end of the period  $2,412   $- 
           
SUPPLEMENTAL INFORMATION          
Cash paid for:          
Income taxes  $-   $- 
Interest  $-   $- 
Non-cash investing and financing transactions:          
Conversion of preferred stock to common stock  $977   $- 
Conversion of notes and accrued interest to common stocks  $56,375   $- 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

 3 
 

 

 

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

 

Teo Foods Inc.  ("TEO Foods" or the "Company") was incorporated in the state of Nevada on December 27, 2012. The Company's principal activity is to produce and sell packaged food products for retail 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.

 

These 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, 2018 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 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.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting

 

The accompanying interim financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. The December 31, 2017 balance sheet included herein was derived from audited financial statements as of that date.  Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim financial statements are read in conjunction with the audited financial statements and notes for the year ended December 31, 2017.  In the opinion of management, the unaudited interim financial statements reflect all the adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company's financial position as of September 30, 2018 and the results of operations for the nine months ended September 30, 2018 and 2017.

 

Cash and Cash Equivalents

 

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.

 

Beneficial Conversion Feature of Convertible Notes Payable

 

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. 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.

 

 

 

 4 
 

TEO Foods, Inc.

Notes to Financial Statements

September 30, 2018

(Unaudited)

 

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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.

 

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 a related party, notes payable, convertible note 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.

 

Loss Per Common Share

 

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, 2018, preferred shares convertible to 90,229,000 common shares and convertible note convertible into a maximum of 500,000 common shares were excluded from the calculation of loss per common share because its inclusion would have been anti-dilutive. As of December 31, 2017, preferred shares convertible to 100,000,000 common shares were excluded from the calculation of loss per common share because its inclusion would have been anti-dilutive. There was no common shares outstanding at September 30, 2017.

 

 

 

 

 5 
 

 

 

TEO Foods, Inc.

Notes to Financial Statements

September 30, 2018

(Unaudited)

 

 

 

Accounting Pronouncements Recently Adopted and Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.  The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.  In March 2016, the FASB issued the final guidance to clarify the principal versus agent guidance (i.e., whether an entity should report revenue gross or net).  In April 2016, the FASB issued final guidance to clarify identifying performance obligation and the licensing implementation guidance.  In May 2016, FASB updated the guidance in ASU No. 2014-09, which updated implementation of certain narrow topics within ASU 2014-09.  Finally, in December 2016, the FASB issued several technical corrections and improvements, which clarify the previously issued standards and corrected unintended application of previous guidance.  These standards (collectively "ASC 606") are effective for annual periods beginning after December 15, 2017. We adopted this ASU on January 1, 2018 and the adoption did not have any impact to the Company's financial statements.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (ASU 2016-2), which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and is not expected to have a significant impact on our financial statements or disclosures.

 

NOTE 3 – STOCK PURCHASE AGREEMENT

 

On July 30, 2018, the Company entered into a Stock Purchase Agreement with NERYS USA Inc. to purchase all of the issued and outstanding equity of Commercial Targa S.A. De C.V. ("Targa"). The purchase price included $500,000 in cash, a $740,000 Secured Convertible Promissory note and 15,000,000 common shares of the Company. The closing of the transaction is to be held on the later of October 1, 2018 or the satisfaction or waiver of the conditions specified in the Stock Purchase Agreement. Management expects the transaction will be closed in early 2019.

 

On November 9, 2018, the agreement was amended changing the cash term to $160,000 adding a promissory note of $220,000 and increasing the Secured Convertible Promissory note to $860,000. The Company paid the $160,000 in cash on August 2, 2018 and issued a $220,000 promissory note on November 20, 2018. There can be no assurance as to when or if the acquisition of Targa will ever occur.

 

 

 

 

 6 
 

 

 

TEO Foods, Inc.

Notes to Financial Statements

September 30, 2018

(Unaudited)

 

 

NOTE 4 – ROYALTY AND LICENSE AGREEMENT

 

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. 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. During the nine months ended September 30, 2018, the Company paid $61,000 toward its initial payment due June 30, 2018. Commencing January 1, 2020, a use/royalty and service fee of 5.5% of the Company's gross revenue for food sales processed using TEO's intellectual property is payable quarterly.  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:

 

 Year   Minimum use/royalty and service fee  
2020   $  500,000  
2021   750,000  
2022   1,000,000  
Thereafter   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 $1 million for the initial fee payable to TEO. As of September 30, 2018, the outstanding balance of the license fee payable was $909,000.

 

NOTE 5 - NOTES PAYABLE

 

4% Notes Payable

 

Between October 2017 and March 2018, the Company issued notes for an aggregate principal of $55,000. These notes provided annual interest at 4% and matured on April 6, 2018. On July 31, 2018, the Company issued 563,745 common shares to the three note holders to settle the principal and interest due on eight notes totaling $55,000 and interest totaling $1,375. As of September 30, 2018, and December 31, 2017, the outstanding balance of these 4% notes was $0 and $30,000, respectively.

 

8% Note Payable

 

On July 31, 2018, the Company issued a note for $100,000 in principal bearing interest at 8% maturing on October 31, 2018. This note was amended on November 11, 2018 extending the maturity date to January 3, 2019. As of September 30, 2018, the outstanding balance of 8% note was $100,000.

 

 

 

 7 
 

 

 

TEO Foods, Inc.

Notes to Financial Statements

September 30, 2018

(Unaudited)

 

 

 

NOTE 6 - CONVERTIBLE NOTES PAYABLE

 

On June 28, 2018, the Company commenced an offering of up to $600,000 in debt through the sale of promissory notes. The notes are for a two-year term and bear an 8% interest rate due at maturity. The notes are convertible into the Company's 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 and at no rate lower than $0.20 per share. As of September 30, 2018, the Company has sold $100,000 to one investor. The Company will evaluate the beneficial conversion feature of the note upon the conversion date.

 

NOTE 7 – EQUITY

 

Preferred Stock

 

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.

 

Preferred Share Conversion

 

On March 31, 2018, the Company issued, 9,771,000 common shares to TEO Inc. for the conversion of 977,100 Class A Preferred Stock. See Note 8.

 

NOTE 8 - RELATED PARTY TRANSACTIONS

 

Preferred Share Issuance and Conversion

 

On March 31, 2018, the Company issued 9,771,000 common shares to TEO Inc. for the conversion of 977,100 Class A Preferred Stock. TEO Inc. directed that the common shares resulting from the conversion be issued to the shareholders of TEO Inc. The common shares were issued to 31 shareholders with 78% of the shares controlled by our sole officer and director.

 

NOTE 9 – CONCENTRATIONS

 

Co-Pack Agreement

 

On April 20, 2018, the Company entered into a co-packing agreement with Targa. Targa is located in Tijuana, Mexico and produces and sells its own brands of products in Mexico which includes the NERYS line of imported California cheese products, frozen pizzas, various pasta meals and other products sold in the major stores such as Walmart, 7 eleven, Soriana, OXXO and others.

 

Targa is currently the Company's only vendor contracted to produce its products. The Company expects to maintain this relationship with Targa. Targa has informally agreed to support placement of the Company's non-competing products where its products are distributed.

 

 

 

 8 
 

 

 

TEO Foods, Inc.

Notes to Financial Statements

September 30, 2018

(Unaudited)

 

 

NOTE 10 - SUBSEQUENT EVENTS

 

Stock Purchase Agreement

 

On November 9, 2018, the Company and NERYS USA Inc. amended the Stock Purchase Agreement dated July 30, 2018. See Note 3.

 

Convertible Promissory Note

 

On November 20, 2018, the Company issued a note for $220,000 in principal bearing interest at 8% maturing on December 31, 2019 to NERYS USA Inc. The note is convertible into the Company’s common stock at a 20% discount to the 30-day average bid price of the Common stock as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange and in no case below a price of $0.2 per share. See Note 3.

 

 

 

 9 
 

  

 

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 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; and
    competitive conditions in our industry.
    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 financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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 ours financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.

 

Beneficial Conversion Feature of Convertible Notes Payable

 

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. 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.

 

 

 

 10 
 

 

 

 

Accounting Pronouncements Recently Adopted

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.  The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.  In March 2016, the FASB issued the final guidance to clarify the principal versus agent guidance (i.e., whether an entity should report revenue gross or net).  In April 2016, the FASB issued final guidance to clarify identifying performance obligation and the licensing implementation guidance.  In May 2016, FASB updated the guidance in ASU No. 2014-09, which updated implementation of certain narrow topics within ASU 2014-09.  Finally, in December 2016, the FASB issued several technical corrections and improvements, which clarify the previously issued standards and corrected unintended application of previous guidance.  These standards (collectively "ASC 606") are effective for annual periods beginning after December 15, 2017, and interim periods therein.  We adopted this ASU on January 1, 2018 and the adoption did not have any impact to the Company's financial statements.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (ASU 2016-2), which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and is not expected to have a significant impact on our financial statements or disclosures.

 

Overview

 

The Company was incorporated in the state of Nevada on December 27, 2012 but did not commence operations until September of 2017. The Company's principal activity is to produce and sell packaged food products for retail 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.

 

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 lack of operating history makes predictions of future operating results difficult to ascertain. 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.

 

Results of Operations

 

Results of Operations for the Three Months Ended September 30, 2018 and 2017

 

During the three-month periods ended September 30, 2018 and 2017, the Company had a no revenue. The Company began operations with the entry into a Master Agreement with TEO Inc. ("TEO") in September 2017. 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.

 

During the three-month periods ended September 30, 2018 and 2017, we had general and administrative expenses of $1,452 and $0, respectively. The expenses in 2018 consist primarily of registration costs.

 

 

 11 
 

 

 

 

Interest expense was $3,582 and $0 for the three-month periods ended September 30, 2018 and 2017, respectively. This interest is related to notes payable entered into during 2018 and late 2017.

 

The Company's net loss for the three-month period ended September 30, 2018 and 2017 was $5,034 and $0, respectively. 

 

Results of Operations for the Nine Months Ended September 30, 2018 and 2017

 

During the nine-month periods ended September 30, 2018 and 2017, the Company had a no revenue. The Company began operations with the entry into a Master Agreement with TEO in September 2017.

 

During the nine-month periods ended September 30, 2018 and 2017, we had general and administrative expenses of $4,226 and $0, respectively. The expenses in 2018 consist primarily of accounting services and registration costs.

 

Interest expense was $4,796 and $0 for the nine-month periods ended September 30, 2018 and 2017, respectively. This interest is related to notes payable entered into during 2018 and late 2017.

 

The Company's net loss for the nine-month periods ended September 30, 2018 and 2017 was $9,022 and $0, respectively.

Expenses are expected to increase as our operations develop and we begin to introduce our products into the market.

 

Liquidity and Capital Resources

 

At September 30, 2018, we had total assets of $162,412 and total liabilities of $1,115,059. As of December 31, 2017, we had total assets of $0 and total liabilities of $1,000,000. The Company recorded a deemed dividend of $1 million for the initial license fee payable to TEO. During the nine-month period ended September 30, 2018, the Company paid $61,000 toward the current portion of the license fee payable.

 

Cash used in investing activities for the nine-month period ended September 30, 2018 amounted to $160,000.

 

Cash provided from financing activities for the nine-month period ended September 30, 2018 amounted to $164,274 which consisted of $225,000 received through the issuance of promissory notes and a convertible note, $274 advances from a related party and deemed dividend payment for license of $61,000 to TEO pursuant to a license agreement.

 

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. The capital requirements for development of our business based on the recently acquired TEO license has not yet been determined and the implementation plan for this segment is currently under revision due to the pending acquisition of Targa. The cooperation of Targa in the introduction of our products into the market was a component of the prior implementation plan and is further enhanced by the prospects of increasing sales of the Nery's brands and developing domestic sales of those product in addition to the introduction of new TEO products.

 

We believe that we will need to raise an additional $1,000,000 over the next 12 months and intent 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…), 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, moreover, be no assurance of when, if ever, we will complete the acquisition of Targa or our operations become profitable.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements or financing activities with special purpose entities. 

 

 

 12 
 

 

 

 

Going Concern

 

The Company 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, 2018. 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 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.

 

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, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 13 
 

 

 

 

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

Index to Exhibits

 

Exhibit

No.

 

 

Description

10.1*   Amendment 1 to Purchase Agreement between NERYS USA Inc. and TEO Foods, Inc.
10.2*   Amendment to Promissory Note issued July 31st, 2018
10.3   Form of Secure Convertible Note, incorporated by reference to Exhibit 10.5 of Form S-1/A filed Oct. 11, 2018. Issued to Nerys USA Inc. on Nov 20, 2018 for $220,000.   
31.1*   Certification of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2*   Certification of Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1*   Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*   Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**   XBRL Instance Document.
101.SCH**   XBRL Taxonomy Extension Schema Document.
101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document.

 

*Filed herewith
**Furnished herewith

+ Each of these Exhibits constitutes a management contract, compensatory plan, or arrangement.

 

 

 

 14 
 

 

 

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 28, 2018 By: /s/ Jeffrey H. Mackay  
    Jeffrey H. Mackay, CEO and President  
    Principal Executive Officer  
       

 

 

Date:  November 28, 2018 By: /s/ John O’Keefe  
    John O’Keefe, Chief Financial Officer  
    Principal Financial Officer  

 

 

 

 15 
 

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Entity Filer Category Entity Common Stock, Shares Outstanding Document Fiscal Period Focus Document Fiscal Year Focus Unaudited Balance Sheets ASSETS Current assets: Cash and cash equivalents Total current assets Prepayment for purchase of Targa Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses Advances from related party License fee payable - current portion Notes payable Convertible note payable Total current liabilities License fee payable - long-term portion Total Liabilities Commitments and contingencies Stockholders' deficit Preferred shares, $0.001 par value, 10,000,000 shares authorized, 9,022,900 and 10,000,000 shares issued and outstanding, respectively Common stock, $0.001 par value, 490,000,000 shares authorized, 10,334,745 and 0 shares issued and outstanding, respectively Additional paid-in capital Accumulated deficit Total stockholders' deficit Total liabilities and stockholders' deficit Statement of Financial Position [Abstract] Stockholders' equity (deficit): Preferred stock, par value Preferred stock shares, authorized Preferred stock shares, issued Preferred stock shares, outstanding Common stock, par value Common stock shares, authorized Common stock shares, issued Unaudited Statements Of Operations Revenues Operating expenses General and administrative expenses Operating loss Interest expense Net Loss Basic and diluted loss per share Weighted average common shares outstanding - basic and diluted Statement of Cash Flows [Abstract] CASH FLOWS FROM OPERATING ACTIVITIES Net loss Adjustments to reconcile net loss to net cash used in operations: Change in operating assets and liabilities: Accounts payable and accrued expenses Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Prepayment for purchase of Targa Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Advance from related party Proceeds from notes payable Proceeds from convertible note payable Payment of deemed dividend to Teo Inc. for license Net cash provided by financing activities Net increase for the period Cash at beginning of the period Cash at end of the period SUPPLEMENTAL INFORMATION Cash paid for income taxes Cash paid for Interest Non-cash investing and financing transactions: Conversion of preferred stock to common stock Conversion of notes and accrued interest to common stocks Accounting Policies [Abstract] ORGANIZATION AND BASIS OF PRESENTATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to Financial Statements STOCK PURCHASE AGREEMENT Research and Development [Abstract] ROYALTY AND LICENSE AGREEMENT Debt Disclosure [Abstract] NOTES PAYABLE CONVERTIBLE NOTES PAYABLE Equity Method Investments and Joint Ventures [Abstract] EQUITY Related Party Transactions [Abstract] RELATED PARTY TRANSACTIONS Risks and Uncertainties [Abstract] CONCENTRATIONS Subsequent Events [Abstract] SUBSEQUENT EVENTS Basis of Accounting Cash and Cash Equivalents Beneficial Conversion Feature of Convertible Notes Payable Use of Estimates Fair Value of Financial Instruments Loss Per Common Share Accounting Pronouncements Recently Adopted and Recent Accounting Pronouncements The annual minimum use/royalty and service fee Assets, Current Assets Liabilities, Current Liabilities Stockholders' Equity Attributable to Parent Liabilities and Equity Increase (Decrease) in Accounts Payable and Accrued Liabilities Proceeds from Maturities, Prepayments and Calls of Other Investments Net Cash Provided by (Used in) Investing Activities Net Cash Provided by (Used in) Financing Activities Cash EX-101.PRE 7 teio-20180930_pre.xml XBRL PRESENTATION FILE EX-31 8 ex31_1.htm

 

 

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO

RULE 13a-14(a) OR RULE 15d-14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

 

I, Jeffrey H. Mackay, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of TEO Foods Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within that entity, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

Dated November 28, 2018

 

 

/s/ Jeffrey H. Mackay

Jeffrey H. Mackay

Chief Executive Officer and President

Principal Executive Officer


 

   
 

EX-31 9 ex31_2.htm

 

 

 

 

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO

RULE 13a-14(a) OR RULE 15d-14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

I, John O’Keefe, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of TEO Foods Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others

 

b): within that entity, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the

effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most

recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably

likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: November 28, 2018

 

 

/s/ John O’Keefe

John O’Keefe

Chief Financial Officer and Principal Financial Officer

 

 

 

   
 

 

 

 

 

EX-32 10 ex32_1.htm

 

 

 

Exhibit 32.1

 

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

 

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of TEO Foods Inc., (the “Company”) hereby certifies with respect to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2018 as filed with the Securities and Exchange Commission (the “Report”) that to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

Dated November 28, 2018

 

 

/s/ Jeffrey H. Mackay

Jeffrey H. Mackay

Chief Executive Officer and President

Principal Executive Officer

 

 

   
 

EX-32 11 ex32_2.htm

 

 

 

 

Exhibit 32.2

 

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

 

 

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of TEO Foods Inc., (the “Company”) hereby certifies with respect to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2018 as filed with the Securities and Exchange Commission (the “Report”) that to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

Date: November 28, 2018

 

 

/s/ John O’Keefe

John O’Keefe

Chief Financial Officer and Principal Financial Officer

 

 

 

 

 

   
 

EX-10.1 12 ex10_1.htm

 

Exhibit 10.1

 

 

 

 

STOCK PURCHASE AGREEMENT

Amendment 1

 

Amendment 1 to the STOCK PURCHASE AGREEMENT effective as of November 9, 2018 by and among TEO FOODS, INC., a Nevada corporation (“Buyer”), NERYS USA INC., a Nevada corporation, each of the Persons set forth on Schedule A thereto (“Sellers”), and COMERCIAL TARGA, S.A. de C.V., a Mexican corporation (the “Company”).

RECITALS

 

WHEREAS, Sellers, Buyer and Company desire to amend certain terms of that certain Stock Purchase Agreement between the parties that was effective on July 30, 2018.; and

                NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree to amend only Section 2.2 (a) and (b) of the Agreement as follows:

 

(a)           Three Hundred Eighty Thousand U.S. Dollars (U.S.$380,000) which shall be paid as One Hundred Sixty Thousand (U.S.$160,000) in cash by wire transfer to such account or accounts designated by Sellers to Buyer in writing and a promissory note from the Buyer in the form identified in Exhibit “A” attached hereto in the amount of Two Hundred Twenty Thousand (U.S.$220,000) to be received by the Closing Date; and

(b)       Eight Hundred Sixty Thousand U.S. Dollars (U.S.$860,000) which shall be paid by a promissory note from the Buyer in the form identified in Exhibit “A” attached hereto in the amount of Eight Hundred Sixty Thousand U.S. Dollars (U.S.$860,000) which shall be executed and delivered at Closing.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

  BUYER:
  TEO FOODS, INC., a Nevada corporation
     
  By: /s/Jeffrey H. Mackay
    Jeffrey H. Mackay
    President
     
  SELLERS:
  NERYS USA Inc., a Nevada Corporation
     
  By: /s/ John Cathcart
    John Cathcart
    President
     
  Sandro Piancone, an individual
     
  By: /s/ Sandro Piancone
    Sandro Piancone
     
  THE COMPANY:
  xCOMERCIAL TARGA, S.A. de C.V., a Mexican corporation
     
  By: /s/ Sandro Piancone
    Sandro Piancone
    Authorized Signatory

 

 

   
 

 

EX-10.2 13 ex10_2.htm

 

Exhibit 10.2

 

 

 

 

Amendment to Promissory Note

 

 

TEO Foods, Inc.; a Nevada Corporation (the "Obligor") and Sandro Piancone, an individual (the "Holder"), agree to amend that certain Promissory Note for the principal amount of one hundred thousand dollars ($100,000) with an issue date of July 31, 2018.

 

The Obligor and the Holder agree that the terms “Interest” and "Maturity Date" shall be amended as follows:

 

Subject to Section 3 hereof, all outstanding Principal shall be due on demand of the Holder in one (1) installment on or after January 3, 2019 (the "Maturity Date")

 

IN WITNESS WHEREOF, the Obligor and the Holder Agrees and Accepts the terms of this Amendment to the Promissory Note effective as of the 31st day of October 2018.

 

 

OBLIGOR:

TEO Foods, Inc.

 

 

By: /s/Jeffrey H. Mackay

Jeffrey H. Mackay

President

 

 

HOLDER:

Sandro Piancone

 

By: /s/Sandro Piancone

Name:

 

Address:

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Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Nov. 20, 2018
Document And Entity Information    
Entity Registrant Name TEO Foods Inc.  
Entity Central Index Key 0001612188  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity an Emerging Growth Company? true  
Is Entity a Small Business? true  
Entity Ex Transition Period false  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   16,914,693
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2018  
XML 15 R2.htm IDEA: XBRL DOCUMENT v3.10.0.1
Unaudited Balance Sheets - USD ($)
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 2,412 $ 0
Total current assets 2,412 0
Prepayment for purchase of Targa 160,000 0
Total Assets 162,412 0
Current liabilities:    
Accounts payable and accrued expenses 5,785 0
Advances from related party 274 0
License fee payable - current portion 909,000 370,000
Notes payable 100,000 30,000
Convertible note payable 100,000
Total current liabilities 1,115,059 400,000
License fee payable - long-term portion 0 600,000
Total Liabilities 1,115,059 1,000,000
Stockholders' deficit    
Preferred shares, $0.001 par value, 10,000,000 shares authorized, 9,022,900 and 10,000,000 shares issued and outstanding, respectively 9,023 10,000
Common stock, $0.001 par value, 490,000,000 shares authorized, 10,334,745 and 0 shares issued and outstanding, respectively 10,335 0
Additional paid-in capital 47,017 0
Accumulated deficit (1,019,022) (1,010,000)
Total stockholders' deficit (952,647) (1,000,000)
Total liabilities and stockholders' deficit $ 162,412 $ 0
XML 16 R3.htm IDEA: XBRL DOCUMENT v3.10.0.1
Unaudited Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2018
Dec. 31, 2017
Stockholders' equity (deficit):    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock shares, authorized 10,000,000 10,000,000
Preferred stock shares, issued 9,022,900 9,022,900
Preferred stock shares, outstanding 9,022,900 9,022,900
Common stock, par value $ 0.001 $ 0.001
Common stock shares, authorized 490,000,000 490,000,000
Common stock shares, issued 10,334,745 0
XML 17 R4.htm IDEA: XBRL DOCUMENT v3.10.0.1
Unaudited Statements of Operations - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Unaudited Statements Of Operations        
Revenues $ 0 $ 0 $ 0 $ 0
Operating expenses        
General and administrative expenses 1,452 4,226
Operating loss (1,452) (4,226)
Interest expense 3,626 4,796
Net Loss $ (5,078) $ (9,022)
Basic and diluted loss per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
Weighted average common shares outstanding - basic and diluted 10,150,915 6,713,612
XML 18 R5.htm IDEA: XBRL DOCUMENT v3.10.0.1
Unaudited Statements of Cash Flows - USD ($)
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss $ (9,022)
Change in operating assets and liabilities:    
Accounts payable and accrued expenses 7,160
Net cash used in operating activities (1,862)
Prepayment for purchase of Targa (160,000)
Net cash used in investing activities (160,000)
CASH FLOWS FROM FINANCING ACTIVITIES    
Advance from related party 274
Proceeds from notes payable 125,000
Proceeds from convertible note payable 100,000
Payment of deemed dividend to Teo Inc. for license (61,000)
Net cash provided by financing activities 164,274
Net increase for the period 2,412
Cash at beginning of the period
Cash at end of the period 2,412
SUPPLEMENTAL INFORMATION    
Cash paid for income taxes
Cash paid for Interest
Non-cash investing and financing transactions:    
Conversion of preferred stock to common stock 977  
Conversion of notes and accrued interest to common stocks 56,375
CASH FLOWS FROM INVESTING ACTIVITIES $ (1,862)
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ORGANIZATION AND BASIS OF PRESENTATION
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
ORGANIZATION AND BASIS OF PRESENTATION

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

 

Teo Foods Inc.  ("TEO Foods" or the "Company") was incorporated in the state of Nevada on December 27, 2012. The Company's principal activity is to produce and sell packaged food products for retail 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.

 

These 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, 2018 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 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.

XML 20 R7.htm IDEA: XBRL DOCUMENT v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting

 

The accompanying interim financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. The December 31, 2017 balance sheet included herein was derived from audited financial statements as of that date.  Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim financial statements are read in conjunction with the audited financial statements and notes for the year ended December 31, 2017.  In the opinion of management, the unaudited interim financial statements reflect all the adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company's financial position as of September 30, 2018 and the results of operations for the nine months ended September 30, 2018 and 2017.

 

Cash and Cash Equivalents

 

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.

 

Beneficial Conversion Feature of Convertible Notes Payable

 

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. 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.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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.

 

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 a related party, notes payable, convertible note 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.

 

Loss Per Common Share

 

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, 2018, preferred shares convertible to 90,229,000 common shares and convertible note convertible into a maximum of 500,000 common shares were excluded from the calculation of loss per common share because its inclusion would have been anti-dilutive. As of December 31, 2017, preferred shares convertible to 100,000,000 common shares were excluded from the calculation of loss per common share because its inclusion would have been anti-dilutive. There was no common shares outstanding at September 30, 2017.

 

Accounting Pronouncements Recently Adopted and Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.  The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.  In March 2016, the FASB issued the final guidance to clarify the principal versus agent guidance (i.e., whether an entity should report revenue gross or net).  In April 2016, the FASB issued final guidance to clarify identifying performance obligation and the licensing implementation guidance.  In May 2016, FASB updated the guidance in ASU No. 2014-09, which updated implementation of certain narrow topics within ASU 2014-09.  Finally, in December 2016, the FASB issued several technical corrections and improvements, which clarify the previously issued standards and corrected unintended application of previous guidance.  These standards (collectively "ASC 606") are effective for annual periods beginning after December 15, 2017. We adopted this ASU on January 1, 2018 and the adoption did not have any impact to the Company's financial statements.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (ASU 2016-2), which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and is not expected to have a significant impact on our financial statements or disclosures.

XML 21 R8.htm IDEA: XBRL DOCUMENT v3.10.0.1
STOCK PURCHASE AGREEMENT
9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
STOCK PURCHASE AGREEMENT

NOTE 3 – STOCK PURCHASE AGREEMENT

 

On July 30, 2018, the Company entered into a Stock Purchase Agreement with NERYS USA Inc. to purchase all of the issued and outstanding equity of Commercial Targa S.A. De C.V. ("Targa"). The purchase price included $500,000 in cash, a $740,000 Secured Convertible Promissory note and 15,000,000 common shares of the Company. The closing of the transaction is to be held on the later of October 1, 2018 or the satisfaction or waiver of the conditions specified in the Stock Purchase Agreement. Management expects the transaction will be closed in early 2019.

 

On November 9, 2018, the agreement was amended changing the cash term to $160,000 adding a promissory note of $220,000 and increasing the Secured Convertible Promissory note to $860,000. The Company paid the $160,000 in cash on August 2, 2018 and issued a $220,000 promissory note on November 20, 2018. There can be no assurance as to when or if the acquisition of Targa will ever occur.

XML 22 R9.htm IDEA: XBRL DOCUMENT v3.10.0.1
ROYALTY AND LICENSE AGREEMENT
9 Months Ended
Sep. 30, 2018
Research and Development [Abstract]  
ROYALTY AND LICENSE AGREEMENT

NOTE 4 – ROYALTY AND LICENSE AGREEMENT

 

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. 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. During the nine months ended September 30, 2018, the Company paid $61,000 toward its initial payment due June 30, 2018. Commencing January 1, 2020, a use/royalty and service fee of 5.5% of the Company's gross revenue for food sales processed using TEO's intellectual property is payable quarterly.  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:

 

 Year   Minimum use/royalty and service fee  
2020   $  500,000  
2021   750,000  
2022   1,000,000  
Thereafter   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 $1 million for the initial fee payable to TEO. As of September 30, 2018, the outstanding balance of the license fee payable was $909,000.

XML 23 R10.htm IDEA: XBRL DOCUMENT v3.10.0.1
NOTES PAYABLE
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
NOTES PAYABLE

NOTE 5 - NOTES PAYABLE

 

4% Notes Payable

 

Between October 2017 and March 2018, the Company issued notes for an aggregate principal of $55,000. These notes provided annual interest at 4% and matured on April 6, 2018. On July 31, 2018, the Company issued 563,745 common shares to the three note holders to settle the principal and interest due on eight notes totaling $55,000 and interest totaling $1,375. As of September 30, 2018, and December 31, 2017, the outstanding balance of these 4% notes was $0 and $30,000, respectively.

 

8% Note Payable

 

On July 31, 2018, the Company issued a note for $100,000 in principal bearing interest at 8% maturing on October 31, 2018. This note was amended on November 11, 2018 extending the maturity date to January 3, 2019. As of September 30, 2018, the outstanding balance of 8% note was $100,000.

XML 24 R11.htm IDEA: XBRL DOCUMENT v3.10.0.1
CONVERTIBLE NOTES PAYABLE
9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
CONVERTIBLE NOTES PAYABLE

NOTE 6 - CONVERTIBLE NOTES PAYABLE

 

On June 28, 2018, the Company commenced an offering of up to $600,000 in debt through the sale of promissory notes. The notes are for a two-year term and bear an 8% interest rate due at maturity. The notes are convertible into the Company's 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 and at no rate lower than $0.20 per share. As of September 30, 2018, the Company has sold $100,000 to one investor. The Company will evaluate the beneficial conversion feature of the note upon the conversion date.

XML 25 R12.htm IDEA: XBRL DOCUMENT v3.10.0.1
EQUITY
9 Months Ended
Sep. 30, 2018
Equity Method Investments and Joint Ventures [Abstract]  
EQUITY

NOTE 7 – EQUITY

 

Preferred Stock

 

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.

 

Preferred Share Conversion

 

On March 31, 2018, the Company issued, 9,771,000 common shares to TEO Inc. for the conversion of 977,100 Class A Preferred Stock. See Note 8.

XML 26 R13.htm IDEA: XBRL DOCUMENT v3.10.0.1
RELATED PARTY TRANSACTIONS
9 Months Ended
Sep. 30, 2018
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS

NOTE 8 - RELATED PARTY TRANSACTIONS

 

Preferred Share Issuance and Conversion

 

On March 31, 2018, the Company issued 9,771,000 common shares to TEO Inc. for the conversion of 977,100 Class A Preferred Stock. TEO Inc. directed that the common shares resulting from the conversion be issued to the shareholders of TEO Inc. The common shares were issued to 31 shareholders with 78% of the shares controlled by our sole officer and director.

XML 27 R14.htm IDEA: XBRL DOCUMENT v3.10.0.1
CONCENTRATIONS
9 Months Ended
Sep. 30, 2018
Risks and Uncertainties [Abstract]  
CONCENTRATIONS

NOTE 9 – CONCENTRATIONS

 

Co-Pack Agreement

 

On April 20, 2018, the Company entered into a co-packing agreement with Targa. Targa is located in Tijuana, Mexico and produces and sells its own brands of products in Mexico which includes the NERYS line of imported California cheese products, frozen pizzas, various pasta meals and other products sold in the major stores such as Walmart, 7 eleven, Soriana, OXXO and others.

 

Targa is currently the Company's only vendor contracted to produce its products. The Company expects to maintain this relationship with Targa. Targa has informally agreed to support placement of the Company's non-competing products where its products are distributed.

 

XML 28 R15.htm IDEA: XBRL DOCUMENT v3.10.0.1
SUBSEQUENT EVENTS
9 Months Ended
Sep. 30, 2018
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 10 - SUBSEQUENT EVENTS

 

Stock Purchase Agreement

 

On November 9, 2018, the Company and NERYS USA Inc. amended the Stock Purchase Agreement dated July 30, 2018. See Note 3.

 

Convertible Promissory Note

 

On November 20, 2018, the Company issued a note for $220,000 in principal bearing interest at 8% maturing on December 31, 2019 to NERYS USA Inc. The note is convertible into the Company’s common stock at a 20% discount to the 30-day average bid price of the Common stock as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange and in no case below a price of $0.2 per share. See Note 3.

XML 29 R16.htm IDEA: XBRL DOCUMENT v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Basis of Accounting

Basis of Accounting

 

The accompanying interim financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. The December 31, 2017 balance sheet included herein was derived from audited financial statements as of that date.  Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim financial statements are read in conjunction with the audited financial statements and notes for the year ended December 31, 2017.  In the opinion of management, the unaudited interim financial statements reflect all the adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company's financial position as of September 30, 2018 and the results of operations for the nine months ended September 30, 2018 and 2017.

Cash and Cash Equivalents

Cash and Cash Equivalents

 

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.

Beneficial Conversion Feature of Convertible Notes Payable

Beneficial Conversion Feature of Convertible Notes Payable

 

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. 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.

Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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.

Fair Value of Financial Instruments

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 a related party, notes payable, convertible note 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.

Loss Per Common Share

Loss Per Common Share

 

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, 2018, preferred shares convertible to 90,229,000 common shares and convertible note convertible into a maximum of 500,000 common shares were excluded from the calculation of loss per common share because its inclusion would have been anti-dilutive. As of December 31, 2017, preferred shares convertible to 100,000,000 common shares were excluded from the calculation of loss per common share because its inclusion would have been anti-dilutive. There was no common shares outstanding at September 30, 2017.

Accounting Pronouncements Recently Adopted and Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted and Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.  The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.  In March 2016, the FASB issued the final guidance to clarify the principal versus agent guidance (i.e., whether an entity should report revenue gross or net).  In April 2016, the FASB issued final guidance to clarify identifying performance obligation and the licensing implementation guidance.  In May 2016, FASB updated the guidance in ASU No. 2014-09, which updated implementation of certain narrow topics within ASU 2014-09.  Finally, in December 2016, the FASB issued several technical corrections and improvements, which clarify the previously issued standards and corrected unintended application of previous guidance.  These standards (collectively "ASC 606") are effective for annual periods beginning after December 15, 2017. We adopted this ASU on January 1, 2018 and the adoption did not have any impact to the Company's financial statements.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (ASU 2016-2), which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and is not expected to have a significant impact on our financial statements or disclosures.

XML 30 R17.htm IDEA: XBRL DOCUMENT v3.10.0.1
ROYALTY AND LICENSE AGREEMENT (Tables)
9 Months Ended
Sep. 30, 2018
Research and Development [Abstract]  
The annual minimum use/royalty and service fee
 Year   Minimum use/royalty and service fee  
2020   $  500,000  
2021   750,000  
2022   1,000,000  
Thereafter   Increase 10% per year  
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