10-Q 1 teo10q_3312019.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 March 31, 2019

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 54^th 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.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
		Emerging growth company	x

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common Stock	None	None

As of May 20, 2019, there were 21,622,245 shares of the registrant’s common stock outstanding.

Contents

		Page
		Number

PART I	FINANCIAL INFORMATION	1

Item 1	Interim Consolidated Financial Statements March 31 2019	1

	Consolidated Balance Sheets	1

	Consolidated Statement of Operations and Comprehensive Income	2

	Consolidated Statement of Stockholders’ Equity	3

	Consolidated Statement of Cash Flows	4

	Notes to the Interim Consolidated Financial Statements	5-9

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3	Quantitative and Qualitative Disclosures About Market Risk	19

Item 4	Controls and Procedures	19

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	14

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 March 31, 2019

TEO Foods Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2019			December 31, 2018
		(Unaudited)
Assets
Current Assets
Cash and Cash Equivalents	$	61,311		$	2,139
Accounts Receivables, Net		328,468			-
Inventory, Net		635,896			-
Related Party Receivables		1,071,776			-
Notes Receivable, Related Party		543,687			-
Tax Receivables		804,662			-
Prepaid and Other Assets		22,272			-
Prepayment for Targa Purchase		-			380,000
Total Current Assets		3,468,072			382,139
Fixed Assets, Net		122,936			-
TOTAL ASSETS		3,591,008		$	382,139
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payables and Accrued Liabilities	$	871,714		$	17,184
Related Party Payables		493,880			274
License Fee Payable		827,000			875,000
Notes Payable		134,000			134,000
Convertible Notes Payable		842,000			220,000
Total Current Liabilities		3,168,594			1,246,458
Convertible Notes Payable		100,000			100,000
Deferred Tax Liability		26,230			-
TOTAL LIBILITIES		3,294,824			1,346,458
Commitments and Contingencies
Stockholders' Equity
Preferred Stock $0.001 par value, 10,000,000 shares authorized, 9,022,900 shares issued and outstanding		9,023			9,023
Common Stock, $0.001 par value, 490,000,000 shares authorized, 21,622,245 and 10,334,745 shares issued and outstanding, respectively		21,623			10,335
Additional Paid In Capital		1,168,229			47,017
Accumulated Deficit		(932,021	)		(1,030,694	)
Other Comprehensive Income		29,330			-
TOTAL EQUITY (DEFICIT)		296,184			(964,319	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,591,008		$	382,139

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

TEO Foods Inc.

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

For the three months ended March 31, 2019 And 2018

(Unaudited)

	March 31, 2019			March 31, 2018

Revenues	$	1,030,783		$	-
Cost of Sales		804,165			-
GROSS PROFIT		226,618			-
Operating Expenses
Payroll		148,593			-
General and Administrative		141,778			125,274
Rent and Lease		23,491			-
Professional Fees		28,160			-
Advertising and Marketing		26,496			-
Depreciation		3,555			-
Total Operating Expenses		372,073			125,274
NET OPERATING LOSS		(145,455	)		(125,274	)
Other Income (Expense):
Interest Expenses		(14,193	)		-
Other Income		62,334			-
Bargain Purchase Gain		222,217			-
Total Other Income (Expenses)		270,358			-
Net Loss Before Income Tax		124,903			(125,274	)
Income Tax Expense		(26,230	)		-
NET INCOME (LOSS)		98,673			(125,274	)
Other Comprehensive Income:
Foreign Currency Translation Adjustments		29,330			-
COMPREHENSIVE INCOME		128,003			(125,274	)


Earnings per common share – basic	$	0.0055			N/A
Earnings per common share – diluted	$	0.0009			N/A
Weighted average common - basic		17,865,995			-
Weighted average common - diluted		108,094,995			-

See accompanying notes to unaudited pro forma financial statements

TEO Foods Inc.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

	Preferred Stocks						Common Stock				Paid-in		Accum- ulated			Other Compre- hensive
	Shares			Amount			Shares		Amount		Capital		Deficit			Income		Total
Three Months Ended March 31, 2018
Balance December 31,2017		10,000,000		$	10,000			-	$	-	$	-	$	(1,010,000	)	$	-	$	(1,000,000	)
Conversion of Preferred Stock		(977,100	)		(977	)		9,771,000		977		-		-			-		-
Net Loss		-			-			-		-		-		(125,274	)		-		(125,274	)
Balance March 31,2018		9,022,900		$	9,023			9,771,000	$	977	$	-	$	(1,135,274	)	$	-	$	(1,125,274	)

Three Months Ended March 31, 2019
Balance December 31, 2018		9,022,900		$	9,023			10,334,745	$	10,335	$	47,017	$	(1,030,694	)	$	-	$	(964,319	)
Stock Issued for Acqusition of Targa		-			-			11,250,000		11,250		1,113,750		-			-		1,125,000
Stock Issued for Cash		-			-			37,500		38		7,462		-			-		7,500
Foreign Currency Translation Adjustments		-			-			-		-		-		-			29,330		29,330
Net Income		-			-			-		-		-		98,673			-		98,673
Balance March 31, 2019		9,022,900		$	9,023			21,622,245	$	21,623	$	1,168,229	$	(932,021	)	$	29,330	$	296,184

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

TEO Foods Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2019 And 2018

(Unaudited)


	March 31, 2019			March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	98,673		$	(4,330	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation		3,555			-
Bargain Purchase Gain		(222,217	)		-
Change in Operating Assets and Liabilities:
Accounts Receivables		92,355			-
Receivables from Related Parties		(16,478	)		4,330
Inventory		(142,339	)		-
Tax Receivable		(80,526	)		-
Prepaid and Other Assets		(439	)		-
Accounts Payable and Accrued Expenses		216,776			-
Related Party Payables		5,525			-
Deferred Taxes		26,230			-
Net cash used in operating activities		(18,885	)		-
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of Notes Receivable, Related Party		12,723			-
Net Cash Received from Acquisition of Targa		6,504			-
Net cash provided by investing activities		19,227			-
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Convertible Note Payable		120,000			30,000
Payments on Licensing Fee		(48,000	)		(30,000	)
Repayment of Convertible Note Payable		(50,000	)		-
Proceeds From Issuance of Common Stock		7,500			-
Net cash provided by financing activities		29,500			4,330

Effect of Foreign Exchange Translation		29,330			-

Net Increase for the Period	$	59,172		$	4,330
Cash and Cash Equivalents, Beginning of the Period		2,139			-
Cash and Cash Equivalents, End of the Period	$	61,311		$	4,330

SUPPLEMENTAL INFORMATION
Cash Paid For:
Income Taxes		-			-
Interest		-			-

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

(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. On December 29, 2017, the Company filed an amendment to its articles of incorporation increasing its authorized capital to a total of 500,000,000 shares consisting of 490,000,000 shares designated as Common Stock, par value $0.001 per share, and 10,000,000 shares designated as Preferred Stock, par value $0.001 per share.

The Company’s principal activity is to produce and sell food packaged products for retail sale in the frozen, refrigerated and shelf stable categories. The Company has a license to use the TEO name and logo on food products it sells and to apply the TEO pasteurization/sterilization processes to its products for improved shelf life and safety.

On January 31, 2019, the Company executed the Stock Purchase Agreement with NERYS USA Inc. The Company issued the closing payments as described in Note 4. Pursuant to the terms of the purchase agreement, Targa became a wholly owned subsidiary of the Company.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with GAAP for interim financial information and in accordance with the instructions to form 10-Q and Article 8 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Notes to the unaudited financial statements that would substantially duplicate the disclosure contained in the audited financial statements for the fiscal year ending December 31, 2018 have been omitted. These interim financial statements are condensed and should be read in conjunction with audited financial statements and the footnotes thereto for the fiscal year ended December 31, 2018 included in the Company’s 10-K as filed with the Securities and Exchange commission on April 16, 2019

All amounts referred to in the notes to the financial statements are in United States Dollars ($) unless stated otherwise.

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.

Foreign Currency Translation

The Company subsidiary’s primary functional currency is the Mexican peso, but it’s reporting currency is the U.S. dollar. The balance sheet accounts are translated at exchange rates in effect at the end of the period and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are included as a separate component of stockholders’ deficit.

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

Accounts Receivable

Accounts receivable are reported at the customers’ outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The allowance for doubtful accounts at March 31, 2019 and December 31, 2018 was approximately, $43,747 and $43,000, respectively.

Related Party Receivables

Related Party Receivables are reported at the outstanding balances less any allowance for doubtful accounts. The allowance for doubtful accounts at March 31, 2019 was $400,000.

Inventory and Cost of Sales

Inventories are stated at the lower of cost or realizable value, using the average cost method. When an impairment indicator suggests that the carrying amounts of inventories might not be recoverable, the Company reviews such carrying amounts and estimates the net realizable value based on the most reliable evidence available at that time. An impairment loss is recorded if the net realizable value is less than the carrying value. Impairment indicators considered for these purposes are, among others, obsolescence, decrease in market prices, damage and a firm commitment to sell.

Property and Equipment

Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.

Long-Lived Assets

The Company accounts for its long-lived assets in accordance with ASC Topic 360, Property, Plant and Equipment. ASC 360 requires that long-lived assets be reviewed for impairment at least annually, or whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. The Company determined that none of its long-term assets at March 31, 2019 and December 31, 2018 were impaired.

Beneficial Conversion Feature of Convertible Notes Payable

The company considers whether a beneficial conversion feature ("BCF") exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note. The BCF of a convertible note is a reduction of the carrying amount of the convertible note, as a debt discount, and is credited to additional paid-in-capital. Such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

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.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the company expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount:

Identification of the promised goods in the contract;

ii.

Determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract;

iii.

Measurement of the transaction price, including the constraint of variable consideration;

iv.

Allocation of the transaction price of the performance obligations; and

Recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company only applies the five-step model to contracts when it is probable the entity will collect the consideration it is entitled to in exchange for the goods and services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligations when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time typically upon delivery.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

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:

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

● Level 1: Quoted prices in active markets for identical assets or liabilities that the organization has the ability to access at the reporting date.

● Level 2: Inputs other than quoted prices included in Level 1, which are either observable or that can be derived from or corroborated by observable data as of the reporting date.

● Level 3: Inputs include those that are significant to the fair value of the asset or liability and are generally less observable from objective resources and reflect the reporting entity's assumptions about the assumptions market participants would use in pricing the asset or liability.

The Company's financial instruments consist of advances from related party, notes payable, convertible notes payable and license fee payable. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of the respective instruments.

Loss Per Share of Common Stock

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 March 31, 2019, preferred shares convertible to 90,229,000 common shares were included in the diluted weighted average shares; however, notes convertible into a maximum of 4,710,000 common shares were excluded from the calculation of loss per common share as the notes are anti-dilutive. As of December 31, 2018, preferred shares convertible to 90,229,000 common shares and notes convertible into a maximum of 1,600,000 common shares were excluded from the calculation of loss per common share as the notes are anti-dilutive.

Accounting Pronouncements Recently Adopted and Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 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 did not have a significant impact on the Company’s financial statements or disclosures.

NOTE 3 – GOING CONCERN

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 March 31, 2019 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.

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

NOTE 4 – 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").

On January 31, 2019, TEO Foods Inc. acquired 100% of the equity interest of Targa, a private entity, in exchange for $160,000 in cash, $220,000 and $552,000 secured convertible notes payable and 11,250,000 common shares. The acquisition was effective as of January 1, 2019. In addition, an earn-out provision was added which, if certain conditions are met, would require an additional secured convertible promissory note of $310,000 and the issuance of an additional 3,750,000 common shares. As of March 31, 2019, the Company does not expect to pay any additional purchase price for the earnout.

Due to the state of operations of Targa, along with the economic impact of U.S. tariffs, the Company acquired Targa for less than the estimated fair value of its net assets. In accordance with ASC 805, Business Combinations, the Company has initially measured Targa’s identifiable assets acquired at $3,405,052 and the identifiable liabilities at $1,125,835, resulting in a net value of $2,279,217. The expected purchase price is $2,057,000, which resulted in an initial estimated bargain purchase gain of $222,217. The Company has reviewed its procedures used to identify and measure the assets acquired, the liabilities assumed and the consideration transferred and concluded that the procedures followed and the resulting measurements, subject to the conditions below, were appropriate. The Company also performed a review and determined that the business combination did not include any transactions that should be accounted for separately from the business combination.

The following unaudited pro forma financial results reflects the historical operating results of the Company, including the unaudited pro forma results of Targa for the three months ended March 31, 2018, as if this business combination had occurred as of January 1, 2018. The pro forma financial information set forth below reflects adjustments to the historical data of the Company to give effect to the Targa acquisition and the related equity issuances as if each had occurred on January 1, 2018. The pro forma information presented below does not purport to represent what the actual results of operations would have been for the period indicated, nor does it purport to represent the Company’s future results of operations.

		2018
Net Revenue	$	2,043,998
Net Income	$	82,941
Net Income per Common Share - Basic	$	.0073
Net Income per Common Share - Diluted	$	.0007
Weighted Average Number of Shares of Common Stock Outstanding - Basic		11,358,567
Weighted Average Number of Shares of Common Stock Outstanding - Diluted		111,358,567

The calculations of pro forma net revenue and pro forma net loss give effect to the Targa business combination for the three months ended March 31, 2018 based on the historical net revenue and net income (loss), as applicable, of Targa. The operations for the three months ended March 31, 2019 are included in the accompanying statement of operations and comprehensive income. It does not give account to all purchase accounting adjustments as the purchase accounting has not been finalized. The Company has begun to assess the fair value of the various net assets acquired but has not yet completed this assessment. The Company is also in the process of identifying other intangible assets, such as customer relationships and know-how that may need to be recognized. Once identified, these other intangible assets, if any, will be recorded at their fair values. The Company is working to finalize the allocations as quickly as possible and anticipates that the allocation will not be final for approximately six months. Any adjustments necessary may be material to the consolidated balance sheet, but should not have a material impact to the March 31, 2019 reported operating results or cash flows.

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

NOTE 5 – 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. TEO Inc. has agreed to maintain the license through December 31, 2019 and accrue and accept payments due as funds are available. As of March 31, 2019, the Company has paid $173,000 toward the license. 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 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 March 31, 2019, and December 31, 2018, the outstanding balance of the license fee payable was $827,000 and $875,000, respectively

NOTE 6 – NOTES PAYABLES

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 subsequently amended to extend the maturity date to May 31, 2019. As of March 31, 2019 and December 31, 2018, the outstanding balance of the note was $100,000.

On December 10, 2018, the Company issued a note for $34,000 in principal bearing interest at 8% maturing on June 10, 2019. As of March 31, 2019 and December 31, 2018, the outstanding balance of the note was $34,000.

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

8% Convertible Note Payable

On June 28, 2018, the Company issued a note for $100,000. The note is for a two-year term and bears an 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share.

On November 20, 2018 the Company issued a note for $220,000. The note is for a two-year term and bears an 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share.

On January 31, 2019 the Company issued a note for $552,000. The note is for a two-year term and bears an 8% interest rate, due at maturity. The note is convertible into common shares at a 20% discount to the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share.

On February 4, 2019, the Company entered into a purchase agreement with one investor for the purchase of up to an aggregate of $350,000 in convertible notes payable in three payments commencing with the first in the amount of $120,000 on February 4, 2019, the second on April 1, 2019 in the amount of $110,000 and the third on June 1, 2019 in the amount of $120,000. The investor did not make the second purchase on April 1, 2019. The $120,000 note purchased in February can be converted to common stock at $0.20 per share or the 30-day average bid price of the Company's common shares, as may be quoted on the OTCQB, OTCQX or listing on a national stock exchange, but at no rate lower than $0.20 per share and converts automatically upon certain conditions. The note bears no interest until June 30, 2019 and then bears 8% interest, if not converted to common stock.

As of March 31, 2019, there is not a quoted bid price available as the Company’s shares are not listed on any exchanges. As the minimum conversion rate at the time of issuance is greater than or equal to the current stock value based on other similar transactions, these notes are not deemed to have an embedded derivative associated with them.

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.

Common Stock Sales

In January 2019, the Company sold a total of 37,500 common shares at $0.20 per share to three purchasers for a total of $7,500.

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

NOTE 8 - INCOME TAXES

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The U.S. federal income tax rate is 21%.

The provision for Federal income tax consists of the following March 31, 2019 and December 31, 2018:

Federal income tax benefit attributable to:	March 31, 2019			December 31, 2018
Current Operations	$	30,290		$	4,346
Less: valuation allowance		(30,290	)		(4,346	)
Net provision for Federal income taxes		-			-

The cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows:

Deferred tax asset attributable to:	March 31, 2019			December 31, 2018
Net operating loss carryover	$	35,544		$	5,254
Less: valuation allowance		(35,544	)		(5,254	)
Net deferred tax asset		-			-

As of March 31, 2019, the Company has recorded a estimated deferred tax liability of $26,230 related to the bargain purchase gain.

At March 31, 2019, the Company had net operating loss carry forwards of approximately $169,000 that may be offset against future taxable income. No tax benefit has been reported in the March 31, 2019 or December 31, 2018 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act establishes new tax laws that affects 2018 and future years, including a reduction in the U.S. federal corporate income tax rate to 21% effective January 1, 2018. For certain deferred tax assets and deferred tax liabilities.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.

ASC 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of March 31, 2019, the Company had no accrued interest or penalties related to uncertain tax positions.

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company has various related party receivables and payables derived from normal operating activities. These balances are non-interest bearing and are periodically settled as cash flow permits.

In addition, at March 31, 2019 and December 31, 2018, the Company had revolving loans receivable from related parties of $1,071,776 and $0, respectively.

As of March 31, 2019, and December 31, 2018, related parties had note receivable balances of $543,687 and $0, respectively.

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 the Company’s sole officer and director.

Master License Agreement

On September 30, 2017, the Company entered into a Master Agreement with TEO, the founder and majority controlling shareholder of the Company. See Note 5.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Neither the Company nor its assets are subject to any legal action other than those that arise in the normal course of business.

NOTE 11 – CONCENTRATIONS

Cash Deposit

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At March 31, 2019 no cash balances exceeded the federally insured limit.

TEO Foods Inc.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2019

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 major stores such as Wal-Mart, 7-Eleven, Soriana, OXXO and others.

Targa is currently the Company's only vendor contracted to produce its products. The Company acquired Targa in January of 2019. See Note 4.

NOTE 12 – TAX RECEIVABLES

Tax receivables are credits from the Mexican taxing authority. Targa has accumulated Mexican value added tax (“IVA”) (tax payments that exceeded its IVA tax liabilities over the past several years. The Company has begun to apply for refunds of these accumulated overpayments and expect to obtain these refunds during 2019.

NOTE 13 – INVENTORY

At March 31, 2019, inventory consisted of approximately $51 8,000 of raw materials and finished goods in a warehouse in Tijuana, Mexico and approximately $126,000 of finished goods on consignment. The Company has an allowance of approximately $8,000 for shrinkage as of March 31, 2019.

NOTE 14 – FIXED ASSETS

At March 31, 2019, fixed assets consisted of approximately $10,000 of furniture and equipment, $158,000 of machinery, $4,000 of computers and $14,000 of vehicles. Accumulated depreciation was approximately $64,000 as of March 31, 2019 and net fixed assets were approximately $123,000. Depreciation expense for the three months ended March 31, 2019 and 2018 was $3,555 and $0, respectively. The estimated useful lives range from 3 to 10 years.

NOTE 15 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events for recognition and disclosure through May 20, 2019 which is the date the financial statements were available to be issued. No other matters were identified affecting the accompanying financial statements and related disclosures.

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 our 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.

Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASM”) 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 did not 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 intends 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.

The Company will initially sell a line of TEO branded packaged food products in the refrigerated meal and meal component categories. The initial markets are domestically and in Mexico.

On January 31, 2019, we completed an acquisition of Commercial Targa S.A. De C.V. ("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.

We are currently working through our subsidiary, Targa, to develop our packaged products for initial retail placements in Mexico. We are working on the production planning for initial products with the licensed pasteurization/sterilization process applied.

We continue to evaluate the production capabilities and equipment at the facility in Mexico. Although Targa currently has tray and pouch thermoforming, modified atmosphere fill and sealing capability, we will need to add equipment for pre-formed tray modified atmosphere fill and sealing capability. We are also looking to improve the pasta/rice cooking capabilities which are the base of our initial meal recipes.

We expect the production planning, formulation, equipment and supply lead times, testing, validation, branding and sales could take until late-2019 for a limited regional new product offering. This assumes that we are able to secure additional capital to purchase the necessary equipment, supplies (trays, film, carton/print materials…), retain consultants/staff and provide for other costs of production.

Targa will continue its current operations selling the Nery’s Brand cheese and other products in Mexico.

We have received equity and debt investments both from insiders and from private investors. As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations. There can be no assurance that we will be able obtain additional financing, if at all or upon terms that will be acceptable to us.

Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in our stage of development. Such risks include, but are not limited to, an evolving business model and the management of growth.

To address these risks we must, among other things, implement and successfully execute our business and marketing strategy and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

Results of Operations

Results of Operations for the Three Months Ended March 31, 2019 and 2018

During the three-month periods ended March 31, 2019 and 2018, the Company had $1,030,783 and $0 in revenue, respectively. The change in revenue was a result of the completion of the acquisition of Targa. The revenue from the operations of Targa are primarily sales of food products which include packaged cheese under the retail brand Nery’s, frozen pizzas, frozen pasta meals and food service sales of cheese, pizza sauce, flour and pizza toppings.

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 March 31, 2019 and 2018, we had general and administrative expenses of $141,778 and $125,274, respectively. Payroll expenses were $148,593 and $0 during the three-month periods ended March 31, 2019 and 2018, respectively. These and other increases were due to the acquisition of Targa operations.

Interest expense was $14,193 and $0 for the three-month periods ended March 31, 2019 and 2018, respectively. This interest is related to notes payable entered into during 2018.

The Company's net income (loss) for the three-month period ended March 31, 2019 and 2018 was $98,673 and ($125,274), respectively. Although the three-month period ended March 31, 2019 had a net operating loss of $145,455 this was offset by the Bargain Purchase Gain of $222,217 related to the acquisition.

Targa has experienced a significant loss in sales primarily resulting from the retaliatory tariffs Mexico has placed on imports of cheese produced in the USA. In June of 2018, the USA placed a tariff on steel imported from Mexico to the USA. Mexico retaliated with tariffs on imports of cheese produced in the USA. The tariffs range from 20% to 25%. Targa has raised its prices on its retail and wholesale cheese products to compensate for the increased cost, but has lost customers as a result.

In September 2018, the United States, Mexico, and Canada reached an agreement to replace the North American Free Trade Agreement (“NAFTA”) with the United States–Mexico–Canada Agreement (“USMCA”). NAFTA will remain in force, pending the ratification of the USMCA which has not yet occurred.

Given the uncertainty as to when or if the USA Steel tariffs on Mexico will be lifted, which we believe to be a condition precedent to Mexico ending the retaliatory tariffs on USA produced cheese, Targa has sought to offset lost revenue by increasing revenue from converting services. News reports as of May 17, 2019 indicated the steel tariffs may be lifted with regard to Canada and Mexico. As of the date of this quarterly report, we are not certain as to if or when the retaliatory tariffs by Mexico on cheese will be lifted. The USA recently imposed new tariffs on tomatoes from Mexico, so the status of these tariffs between the USA and Mexico are uncertain.

Targa received the necessary approvals in late March 2019 to operate as a maquiladora enabling it to import cheese from the USA, process it and export it back to the USA without incurring the tariff in Mexico. Although this will not provide relief from tariffs on cheese sales in Mexico, it is expected to generate revenue for cutting, shredding and packaging of products to be exported back to the USA.

Targa has recently received orders for processing and is in discussions with other cheese producers and brokers to provide converting services.

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

Liquidity and Capital Resources

At March 31, 2019, we had total assets of $3,591,008 and total liabilities of $3,294,824. As of December 31, 2018, we had total assets of $382,139 and total liabilities of $1,346,458. The Company recorded a deemed dividend of $1 million for the initial license fee payable to TEO. During the three-month period ended March 31, 2019, the Company paid $48,000 toward the current portion of the license fee payable.

Net cash provided by investing activities for the three-month period ended March 31, 2019 amounted to $19,227.

Cash provided from financing activities for the three-month period ended March 31, 2019 amounted to $29,500 which consisted of $120,000 received through the issuance of a convertible note, $50,000 repayment of a convertible note, $7,500 in proceeds from the sale of common stock and deemed dividend payment for license of $48,000 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 TEO license has not yet been determined and the implementation plan for this segment is currently under revision due to the recent acquisition of Targa.

We believe that the acquisition of Targa with its production facilities and retail placements will help support the introduction of our products into the market. We believe the acquisition further enhances the prospects of increasing sales of the Nery's brands by 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.

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 March 31, 2019. 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 March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

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
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.

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: May 20, 2019	By:	/s/ Jeffrey H. Mackay
		Jeffrey H. Mackay, CEO and President
		Principal Executive Officer

Date: May 20, 2019	By:	/s/ John O’Keefe
		John O’Keefe, Chief Financial Officer
		Principal Financial Officer