UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-K
ANNUAL REPORT
ANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933
For the fiscal year ended December 31, 2021
Sagoon Inc.
(Exact name of registrant as specified in its charter)
Commission File No. 24R-00084
| Delaware | 20-5886599 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 13885 Hedgewood Drive #341 Woodbridge, VA |
22193 | |
| (Address of principal executive offices) | (Zip Code) |
| 703-762-6560 | ||
| Registrant’s telephone number, including area code |
| Class C Common Stock |
| (Title of each class of securities issued pursuant to Regulation A) |
TABLE OF CONTENTS
In this Annual Report, the term “Sagoon,” “we,” “us,” “our,” or “the company” refers to Sagoon Inc.
THIS ANNUAL REPORT MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE ANNUAL REPORT, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
i
A MESSAGE FROM THE FOUNDER
Dear Sagoon community,
We know when it is time to pivot! We’re currently relaunching the newest version of our app to better serve you and create a more personalized experience related to gifting. Our team is glued to their chairs with the goal to refine old features that’ll help you to Connect, Share, Earn more efficiently.
While we all count the days to get our Sagoon back, please accept our apologies for the absence.
Stay tuned! We will be back soon.
Govinda Giri, Founder
Overview
Sagoon Inc. (“Sagoon”) is a social commerce platform. The name “Sagoon” is derived from Sanskrit and means “auspicious” or “ushering good results.”
Sagoon was formed on December 29, 2006, as a Delaware Corporation. Operations started in January 2015. On December 31, 2021, the company shut down its initial Sagoon app, so that it could update and pivot the app to create a better experience for its users (“Sagoon App 2.0”). The company believes that it will launch Sagoon App 2.0 by the end of Q2 2022. A description of the features of the updated Sagoon app are described below. See “Business – Sagoon App 2.0”.
Sagoon Inc. also owns Sagoon India Private Limited, a 100% subsidiary company located in New Delhi, India and Sagoon Nepal Private Limited, a 100% subsidiary company located in Kathmandu, Nepal.
We currently have approximately 16 full-time and part-time employees based in the United States, India and Nepal. The company’s operations and finance are managed in the United States, technical development is done in India and marketing is carried out from Nepal.
While Sagoon has not yet generated any revenues and there can be no assurance that we will generate revenues in the future.
Company Mission
Sagoon’s mission is to change the way people use and interact on social media today. Sagoon plans to be a pioneer in monetizing social media, enabling users to earn financial rewards while connecting with others and sharing personal experiences. These driving themes of the company’s goal to monetize social media are described below:
| · | Connect |
| o | Sagoon wants people to go beyond simply connecting and instead build meaningful and productive relationships. |
| · | Share |
| o | Sagoon’s aim is to enrich the quality of interactions with friends and loved ones. Users can share knowledge and experience in the form of images, videos and texts. |
| · | Earn |
| o | Sagoon wants to share its earnings with its users. Users spending time with Sagoon should learn, enjoy, and eventually earn rewards for shopping and gifting to others. |
Sagoon App 1.0: January 2018 – December 31, 2021
From January 2018 to December 31, 2021, the Sagoon app was accessible on the platforms listed below (a web version was available starting in 2015).
| · | Sagoon (full version): Android only platform. Access to all features: Story sharing, Mood Talk, Social shopping and gifting. |
| · | Sagoon Lite: iOS and Android. |
| o | The Sagoon Lite app is small. It saves data on your phone, loads swiftly and runs efficiently on all connections including 2G and 3G networks. |
| o | Our intention was for users to share their interests, experiences, knowledge and moments, quickly and in real-time i.e., as the moments happened. |
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During this time frame the company offered the following features on the Sagoon app:
| · | Story sharing |
| o | a messaging service with a 220-character limit. Users can post messages as ”Open Secrets,” allowing all contacts to view, like or dislike. |
| · | Mood Talk |
| o | an online “chat” tool that helps you to communicate using “moods” (happy, sad, sick, awesome, etc.), letting your moods do the talking while you chat. Chats also vanish automatically after 24 hours. |
| · | Social Shopping/Gifting |
| o | The Social Smart Card is a digital card for all the shopping and gifting needs of users. It allowed Sagoon users to earn rewards while shopping, redeeming coupons and gifting their loved ones. |
The Sagoon app was used by people of all ages. We believe the primary product allowed for the building of social connections and the sharing of stories, both publicly and privately, providing for the organization of daily tasks and schedules and the ability to “chat” seamlessly through MoodTalk.
The company determined that it was in the best interest of the company to temporarily shut down the Sagoon app and pivot functionality because it discovered that there were issues with the platform. Those issues included the following:
| · | Outdated Technology which leads to scalability issues: The technology (the architecture) we built in 2018. As we added social features, we found that the architecture could not handle the growing number of users. |
| · | Based on feedback we discovered that the user's experience with the interface was complicated. We believe that this complication hindered users' growth. |
To better serve our users and to fix this issue permanently, we decided to build the platform from scratch and shut down the existing features.
Sagoon App 2.0
The company intends to launch the Sagoon App 2.0 by the end of Q2 2022 to users in India and Nepal. Sagoon App 2.0 will eventually be available to users in other countries when the company determines that it is in the best interest of the company.
Sagoon App 2.0 will launch the following capabilities:
| · | Occasion (Gift Me) |
| o | The intention is for users to gift each other (via digital coupons) on birthday, holidays |
| · | Shop (Daily Deals) |
| o | The intention is for users to buy the deal of the day. Ideally this would be a heavily discounted gift or product such as beauty products, household items, and gift cards. As of the date of this report, the company has not entered into any agreements with third parties to procure products. |
| o |
When the company determines that the Sagoon App 2.0 is ready, likely during 2023, it will re-release the following features:
| · | Private Story |
| o | An encrypted peer-to-peer story feed allows people to share only selected people. |
| · | MoodTalk |
| o | An expression tool that helps users to connect emotionally |
| · | Social Smart Card – Wallet |
| o | Allows users to manage earning, gifting, and shopping activities in one place. |
| · | Public Story feed |
| o | Allows people to connect to a bigger community, group, or fan base to share similar interests. |
| · | MyDay |
| o | Utility tool that simplifies life at home and office. |
The company notes that some of these features were previously available but have been updated to better serve its users.
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Access
Users will initially be invited via “invite only” access. We intend to send invitations to our previous Sagoon app users. We estimate that the invite to Sagoon App 2.0 will be sent to 7,100,000 users.
The Market
Sagoon has been used by more than 7,100,000 people across the globe. The largest number of our users is in India, followed by Nepal and the United States. We believe we will continue to gain more users internationally.
Further, there is a 5.1 billion internet population. These users use at least one social network globally. This segment is growing by 13% annually.
Specifically, South Asia has over 1 billion internet users and adds 100 million annually. India alone reached 448 million social media users in 2021, growing 200% year over year.
Social Network Advertising
In 2019, social network advertising revenue in the United States amounted to 36.14 billion U.S. dollars. This figure is projected to further grow and surpass 50 billion U.S. dollars by the end of 2021.
In 2020, social network advertising revenue in India amounted to $2.65 billion. This figure is projected to further grow 18% annually.
Gift Card/Digital Coupon
Sagoon, believes in the strength of the gift card/digital coupon market. Global e-commerce and gifting sales reached $9.9 trillion in 2019, with 14% annual growth. India alone expected $84 billion by 2024. South Asia receives remittances as gifts of $445 billion annually.
Further, despite the United States market not reaching its initially projected value, 2020 was a strong year for gift cards. Gift card sales saw a massive increase during the pandemic. Most people turned to online shopping while stuck at home, and many of them used digital gift cards as a payment method. On balance, 2021 numbers show that the previous year’s pandemic-fueled industry growth may have been slightly unrealistic. The gift cards market will continue growing, but at a considerably slower pace — 5.9% a year by 2027, eventually reaching $440.7 billion. Below are gift card/digital coupon statistics for the year ended December 31, 2020.
| · | The global gift certificate market was worth $295.2 billion in 2020. |
| · | The US gift cards market size is projected to reach $170.78 billion by the end of 2021. |
| · | Sales of open-loop gift cards rose by 31.5% amid the COVID-19 pandemic. |
| · | In-store gift card loads saw a 7% year-over-year decrease in 2020. |
| · | Restaurant gift card sales dropped by 31.8% in 2020. |
| · | 46% of United States consumers bought a gift card on social media in 2020. |
| · | Millennials make up 37% of gift card buyers. |
| · | 48.28% of all digital gift cards in 2020 were sold in December. |
| · | 17% of Americans would want to receive a gift card for the holidays. |
| · | 51% of US adults forget to redeem their gift cards. |
Technology
Sagoon’s technology eliminates many barriers that exist in traditional methods of computing and therefore makes its process faster and less expensive. Sagoon was developed based on the latest technology and plans to use semantic technology and Natural Language Process, Machine Learning, Artificial Intelligent and Blockchain methods in future. We believe utilizing this technology will result in significant savings in energy costs and data security.
Key People
Govinda Giri, founder of Sagoon, has more than 15 years of experience in Information Technology Enterprise Solutions, working with both the U.S. government and with private companies. Giri runs the company and as “chief architect” at Sagoon builds products and core technology.
Swati Dayal, co-founder, has more than eight years of experience working in the web and mobile space, and carries out the day-to-day work of Sagoon India, a private limited company wholly owned by Sagoon Inc.
In addition, Sagoon currently employs a key management team and approximately 16 full time employees, in India, US and Nepal. The management team continues to hire software developers and engineers and management to scale the business as needed.
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Marketing and Advertising
At this time, our marketing efforts are minimal due to budgetary constraints. Currently, we reach out to potential users through social media campaigns, published news articles and content marketing. Sagoon intends to accept advertising by the end of 2023. We believe that this creates a spin cycle of positive outcomes: advertising attracts more users; an increased number of users attracts more advertising; and more advertising produces more revenue that is then shared by users.
Competitors
Our direct and indirect competitors are social media networks who offer photo-sharing features like Snapchat, Instagram and Facebook and e-commerce businesses who offer digital gift cards and coupons like Wrapp and Giftly. However, no other online social network easily combines, in one place, the ability for users to share revenue, shop, gift, schedule events, and socialize.
Litigation
The company has no litigation pending and the management team is not aware of any pending or threatened legal action relating to the company business, intellectual property, conduct or other business issues.
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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and related notes appearing at the end of this Annual Report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in this Annual Report.
Sagoon Inc. was formed December 29, 2006, as a Delaware Corporation, for the general purpose of owning and operating the Sagoon website, however, its operation started in January 2015. To date, Sagoon has not generated significant revenues.
Years Ended December 31, 2021, and 2020
Results of Operations
The company has never realized net profits and has been operating at a net loss since inception.
Revenue: For the year ended December 31, 2021, we generated a limited amount of revenues related to selling gifts through our platform. During the year ended December 31, 2020, we generated no revenue. We anticipate that we will eventually generate revenue through advertising and commissions from selling gift cards and coupons.
Operating Expenses: Operating expenses for the years ended December 31, 2021, and 2020 were $1,611,322 and $962,043 respectively, a 67.5% increase year-over-year. We attribute this increase primarily to increased spending on general and administrative and research and development. Research and development costs increase from $247,418 to $458,883, and general and administrative expenses increased from $401,870 to $885,429.
General and administrative: General and administrative expenses for the years ended December 31, 2021, and 2020 were $885,429 and $401,870 respectively, a 120.3% increase year-over-year. In addition, due to the increase in available capital, the company was able to slightly increase expenditures related to salaries and wages and professional services.
Sales and marketing: Sales and marketing expenses for the years ended December 31, 2021, and 2020 were $267,010 and $312,755, respectively, a 14.6% decrease year-over-year. The decrease was primarily due to the increased focus on the continued development of the company’s products.
Research and development: Research and development expenses for the years ended December 31, 2021, and 2020 were $458,883 and $247,418, respectively, a 85.5% increase year-over-year. The increase was primarily due to the availability of capital in 2021 contributed to the company’s increase in spending.
Other Income and Expense: Other income (expense) for the years ended December 31, 2021, and 2020 was $71,159 and $(112,701), respectively, a 163.1% increase year-over-year. The overall increase was due to forgiveness of the PPP loan, less interest expense due to a decrease in notes payable.
As of December 31, 2021, the company had 16 full-time and part-time employees representing approximately $90,000 in monthly operating expenses.
Net Loss: As a result of the foregoing, net loss for the years ended December 31, 2021, and 2020 was ($1,537,060) and ($1,074,744), respectively.
Liquidity and Capital Resources
We had net cash of $2,576,749 and $364,871 at December 31, 2021 and 2020, respectively.
During the years ended December 31, 2021, and 2020, we used cash flows in operations in the amounts of $1,617,282 and $964,888, respectively. Cash used in investing activities during the years ended December 31, 2021, and 2020, was $18,648 and $0, respectively. To date investing activities have been minimal and have consisted with the purchase of property and equipment used in our operations.
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Cash provided by financing activities during the years ended December 31, 2021, and 2020 was $3,816,272 and $1,207,102, respectively. Since inception, the company has been dependent upon the sale of common stock, proceeds from notes payable and short-term advances from related parties. During the year ended December 31, 2021, the company sold 168,402 shares of Class C common stock at prices ranging from $23 - $30 per share for gross proceeds of $3,984,302. The company may continue to pursue additional funding through the sale of its securities utilizing Rule 506(c) of Regulation D or other private offerings in order to meet its liquidity obligations.
Since inception, the company's Chief Executive Officer and various shareholders have funded operations through loans and personal loans received and the proceeds being remitted to the company. As of December 31, 2021, and 2020, principal amounts due to the Chief Executive Officer and shareholders under these loans were $225,297 and $258,297. The company’s total liabilities at December 31, 2021 were $919,545.
Further, due to the impact of COVID-19 on the company, the company applied for and received $125,000 in payroll protection program loans (“PPP”) which was forgiven in 2021. In June 2020, the company received a $160,000 economic injury disaster loan (“EIDL”). The loan accrues interest at a rate of 3.75% annually and is collateralized by all personal property and intangible assets of the company. The loan has a 12-month moratorium on payments, after which monthly principal and interest payments of $731 will be made through the maturity date of June 2050.
Trend Information
Sagoon’s target market encompasses the world’s 1.1 billion social media users in the United States and South Asia. Sagoon has a strong media reputation in South Asia.
The company currently has no sales and limited marketing and/or distribution capabilities. The company has limited experience in developing, training or managing a sales force and will incur substantial additional expenses if it decides to market any of its current and future products. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, the company will compete with many companies that currently have extensive and well-funded marketing and sales operations. Sagoon’s marketing and sales efforts may be unable to compete successfully against these companies. In addition, the company has limited capital to devote sales and marketing.
The company's industry is characterized by rapid changes in technology and customer demands. As a result, the company's products may quickly become obsolete and unmarketable. The company's future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and enhance its current products on a timely and cost-effective basis.
Going Concern
The company’s independent auditor, Artesian CPA, LLC audited the company’s consolidated financial statements as of December 31, 2021, assuming that the company will continue as a going concern. The company has not generated profits since inception, has sustained total comprehensive losses of $1,505,524 and $1,062,580 for the years ended December 31, 2021, and 2020, respectively, and has an accumulated deficit of $11,879,043 as of December 31, 2021. These factors, among others, raise substantial doubt about the company’s ability to continue as a going concern.
Impact of COVID-19 on Our Operations
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. While the disruption is currently expected to be temporary, there is uncertainty around the duration.
As disclosed in our offering circular filed as part of our Form 1-A on February 14, 2020, and supplemented on February 26, 2020, the company is dependent on fundraising activities through Rule 506(c) of Regulation D, and Regulation A to support operations until the company is able to generate revenues through advertising and commissions from the sale of gift cards and coupons. As a result of the economic disruption caused by COVID-19, the company has experienced a decline in investment interest, which may impact the company’s ability to continue operations.
Daily operation, product development and product release has slowed greatly due to the stay-at-home orders issued in Virginia and India. The company expects that this may result in delays regarding product development and product release dates.
The company is exploring all available avenues to reduce operating costs other than laying off employees. Areas the company intends to reduce expenses for the foreseeable future include office space leases and marketing.
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Circumstances related to COVID-19 affecting the company:
| · | Ongoing Fundraising |
| o | As disclosed in our offering circular filed as part of our Form 1-A on February 14, 2020, and supplemented on February 26, 2020, the company is dependent on fundraising activities through Rule 506(c) of Regulation D, and Regulation A to support operations until the company is able to generate revenues through advertising and commissions from the sale of gift cards and coupons. As a result of the economic disruption caused by COVID-19, the company has experienced a decline in investment interest, which may impact the company’s ability to continue operations. |
| · | Product Release Delay |
| o | Daily operation, product development and product release has slowed greatly due to the stay-at-home orders issued in Virginia and India. The company expects that this may result in delays regarding product development and product release dates. |
| · | Anticipated Operational Changes |
| o | The company is exploring all available avenues to reduce operating costs other than laying off employees. Areas the company intends to reduce expenses for the foreseeable future include office space leases and marketing. |
| · | Government Loans |
| o | The company received $125,000 in payroll protection program loans (“PPP”) which was forgiven in 2021. | |
| o | In June 2020, the company received a $160,000 economic injury disaster loan (“EIDL”). The loan accrues interest at a rate of 3.75% annually and is collateralized by all personal property and intangible assets of the company. The loan has a 12-month moratorium on payments, after which monthly principal and interest payments of $731 will be made through the maturity date of June 2050. |
Recent Offerings of Securities and Outstanding Debt
During the past few years, the company has engaged in the following offerings of securities:
| · | Commencing on September 1, 2015 and through March 27, 2017, the company sold $296,500 in notes payable, with an interest rate of 8% and payment due on demand, pursuant to Rule 506(b) of Regulation D. The company used the proceeds from that offering for general operations. | |
| · | From August thru October, 2016 the company sold $110,000 in convertible notes to 5 holders. The convertible notes have an interest rate of 15% and maturity dates three years from the date of issuance (dates ranging from August to October 2019). The convertible notes were sold pursuant to Rule 506(b) of Regulation D. The company used the proceeds from that offering for general operations. | |
| · | In October 2016, the company sold $300,000 in notes payable, with an interest rate of 12% and maturity date of October 1, 2018, pursuant to Rule 506(b) of Regulation D. The company used the proceeds from that offering for general operations. | |
| · | From August to December 2016 the company sold $90,000 in notes payable to various shareholders. The notes payable has interest rates ranging from 8%-12% and maturity dates one year from the date of issuance (dates ranging from August to December 2017). The notes payable were sold pursuant to Rule 506(b) of Regulation D. The company used the proceeds from that offering for general operations. | |
| · | In August 2016, the company sold 8,501 shares of Class C common stock, pursuant to Rule 506(c) of Regulation D. The company used the proceeds from that offering for general operations. | |
| · | During September 2016, the company sold 96,057 shares of Class C common stock, pursuant to Rule 506(b) of Regulation D. The company used the proceeds from that offering for general operations | |
| · | The company sold a total of $4,587,133 in Class C Common Stock under a Regulation A offering which closed in July 26, 2018.The company sold a total of $202,469 in Class C Common Stock under a Regulation CF offering which closed in January 2019. | |
| · | On November 28, 2018, the company entered into an investment agreement with HT Singapore. The agreement is valued at up to $5,000,000. As consideration to entering into the investment agreement and related documents Sagoon has provided HT Singapore with a warrant to acquire a certain number of Class C Common Stock of the company. 152,174 shares of Class C Common Stock have been reserved in the event the warrant is exercised. | |
| · | On April 22, 2019, the company entered into a Loan Agreement with Chetnath Bhandari. The loan is for $25,000. Bhandari has the option to convert his loan into company stock or convertible note at the valuation of a later funding round. The annual interest rate is 8%. The company used the proceeds from that offering for general operations. | |
| · | On September 9, 2019, the company entered into a Loan Agreement with Gunaraj Luitel. The loan is for $25,000. Luitel has the option to convert his loan into company stock or convertible note at the valuation of a later funding round. The annual interest rate is 6%. The company used the proceeds from that offering for general operations. This loan has since been repaid. | |
| · | From May 2019 until December 31, 2019, the company sold 13,045 shares of Class C Common Stock, pursuant to Rule 506(b) of Regulation D. The company used the proceeds from that offering for general operations. | |
| · | On February 24, 2020, the company commenced a Regulation A offering. As of December 31, 2020, the company sold 11,980 shares of Class C Common Stock, pursuant to Regulation A. The company used the proceeds from that offering for general operations. | |
| · | During the year ended December 31, 2020, the company borrowed a total of $94,000, for which proceeds of $75,000 were received from a third party. The note incur interest at 7.5% per annum to 8% per annum and matures in March 2021. The company used the proceeds from that offering for general operations. | |
| · | During the year ended December 31, 2020, the company sold 59,267 shares of Class C Common Stock, pursuant to Rule 506(b) of Regulation D and a offering under Regulation A for gross proceeds of $971,479. The company used the proceeds from that offering for general operations. |
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Item 3.
Directors, Executive Officers and Significant Employees
The directors, executive officers and significant employees of the company as of December 31, 2021 are as follows:
| Name | Position | Age | Term of Office | Full or part time | ||||||
| Executive Officers: | ||||||||||
| Govinda Giri | Chief Executive Officer | 55 | 9/2014 to present | Full | ||||||
| Swati Dayal | Chief Operations Officer | 34 | 9/2015 to present | Full | ||||||
| Kabindra Sitoula | Chief Marketing Officer | 53 | 7/2015 to present | Full | ||||||
| Directors: | ||||||||||
| Govinda Giri | Director | 55 | 9/2013 to present | Full | ||||||
GOVINDA GIRI, FOUNDER AND CEO
Govinda Giri - the founder and CEO of Sagoon has studied Economic and Computer Science from Nepal and United States. He has more than 20 years of working experience in management and IT solutions. Prior to launching Sagoon, he had worked for L3 Communication at Pentagon for 11 plus years as an IT support engineer in the Department of Army, Pentagon. In September 2013, he quit his job and started researching and experimenting with the idea of social ecommerce, which became Sagoon.
At Sagoon, Mr. Giri is responsible for deciding the overall direction of the company and product strategy. Additionally, he manages the service and development of Sagoon’s core technology and infrastructure.
Mr. Giri is a Cisco-certified network professional and a Microsoft-certified system engineer, who holds a provisional patent for Random Vector Model Information Relation Method, a core technology developed to resolve computing problems. He has received many awards and accolades due to his contributions to the IT sector.
Born and raised in Nepal, Giri has been based in Washington, DC for over 26 years.
SWATI DAYAL, CO-FOUNDER
Swati Dayal- Co-founder of Sagoon, has over 11 years of experience in web and mobile product design and development. Prior to joining Sagoon in 2015, she worked at Sparx Technologies (located in Noida, India) as a Senior UI/UX designer for Mobile and Web for more than 5 years. Ms. Dayal is Product and Operations Head at Sagoon and is responsible for developing innovative products; managing operational systems; strategic planning, process and policy; and the successful delivery of the company’s goals and objectives.
KABIN SITOULA, CO-FOUNDER
Kabin Sitoula- Co-founder of Sagoon brings over 23 years of experience in finance and marketing in the private sector to his role as Sagoon’s community outreach specialist. Prior to joining Sagoon in 2015, Mr. Sitoula worked at Premier Financial Alliance as the qualified field director for more than 4 years. At Sagoon, he is responsible for building market strategies, and raising funds and awareness among the members of the local community. He currently works part-time with the company and is also a self-employed realtor and insurance agent.
SARA HANKS, LEGAL ADVISOR
Ms. Hanks is the co-chair of SEC Advisory Committee on small & emerging companies. Formerly an SEC attorney and general counsel to the US Congressional Oversight Panel on TARP. Currently, Sara is the CEO of CrowdCheck, Inc. she has held this position since 2011.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
For the year ended December 31, 2021, Sagoon Inc. paid the following annualized salaries to its executive officers:
| Name | Capacity In Which Compensation Was Received |
Cash Compensation ($) |
Other Compensation ($) |
Total Compensation ($) |
||||||||||
| Govinda Giri | Chief Executive Officer | $ | 60,000 | $ | 0 | $ | 60,000 | |||||||
| Swati Dayal | Chief Operations Officer | $ | 33,000 | $ | 0 | $ | 33,000 | |||||||
| Kabindra Sitoula | Chief Marketing Officer | $ | 36,000 | $ | 0 | $ | 36,000 | |||||||
As of December 31, 2021, Kabrindra Sitoula has not received payment of his salary. As of December 31, 2021, he had received $0 for the year ended December 31, 2021. $72,000 is due and payable to him for the year ended December 31, 2021.
Currently, the directors of Sagoon, are not compensated by the company for their roles as directors. Govinda Giri is currently the sole director of the company. He is reimbursed for is expenses related to his participation on the board of directors. The company may choose to compensate the present director in the future, as well as compensate future directors.
Employment Agreements
As of December 31, 2021, Sagoon has 16 full-time representing approximately $90,000 in monthly operating expenses including web server hosting. All employees that are located in India have entered into an employment agreement with Sagoon.
As of January 1, 2018, Sagoon, Inc. entered into an employment agreement with its Chief Executive Officer, Govinda Giri.
As of June 1, 2018, Sagoon, Inc. entered into an employment agreement with its Whole Time Director (head of India operations), Swati Dayal.
As of December 31, 2021, we have not entered into any additional employment agreements with our executive officers. We may enter into employment agreements with them in the future. A stock incentive program for our directors, executive officers, employees and key consultants may be established in the future.
Employee Stock Incentive Plan
In the future, we may establish a management stock incentive plan pursuant to which stock options and awards may be authorized and granted to our directors, executive officers, employees and key employees or consultants. Details of such a plan have not been determined. Stock options or a significant equity ownership position in Sagoon may be utilized in the future to attract one or more new key senior executives to manage and facilitate our growth.
Board of Directors
Our board of directors currently consists of a single director – Govinda Giri. We may appoint additional independent directors to our board of directors in the future, particularly to serve on committees should they be established.
Committees of the Board of Directors
Currently, we have established a Board of Directors. We may establish an audit committee, compensation committee, a nominating, governance committee, and other committees in the future. Until such committees are established, the Board of Directors will act upon matters that would otherwise be addressed by such committees.
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Item 4.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table reflects Sagoon’s voting securities: The following table sets forth information regarding beneficial ownership of the company’s management, directors, and holders of 10% or more of any class of our voting securities as of December 31, 2021.
| Title of class | Name and address of beneficial owner |
Amount and nature of beneficial ownership |
Amount and nature of beneficial ownership acquirable |
Percent of class |
Percent of total voting |
|||||||||
| Class A Common Stock |
Govinda Giri 13885 Hedgewood Drive #341 |
2,361,000 Direct Ownership |
N/A | 100 | % | 99.97 | % | |||||||
Class B Common Stock is non-voting; Class C Common Stock has limited voting rights equal to one tenth (1/10) of one vote per share. Govinda Giri is the only officer holding Class A Common Stock. As of December 31, 2021, there are no holders of Class C Common Stock that hold a 10% share or greater of that class.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock and options, warrants and convertible securities that are currently exercisable or convertible within 60 days of the date of this PPM into Shares are deemed to be outstanding and to be beneficially owned by the person holding the options, warrants or convertible securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
Item 5.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Since inception the company's Chief Executive Officer and various shareholders have funded operations through loans and personal loans received and the proceeds being remitted to the company. For loans provided to the company prior to December 31, 2015, most of these loans do not incur interest and are due upon demand.
Loans issued in 2016 and subsequent have interest rates varying from 8-12% per annum and matured at various times in 2017 or are due on demand. Various notes are in default based on their maturity dates. As of December 31, 2021, and December 31, 2020, principal amounts due to the Chief Executive Officer and shareholders under these loans was $225,297 and $258,297, respectively. For the non-interest-bearing loans, the company imputed interest expense at 8.0%, the borrowing rate most likely available to them. During the years ended December 31, 2021, and 2020, the company recorded imputed interest expense related to these loans of $13,524 and $14,814, respectively. Interest expense for the years ended December 31, 2021, and 2020 was $4,870 and $5,320, respectively.
During 2021 and 2020, the company paid $12,000 and $12,000, respectively, to its Chief Executive Officer for rent for space utilized as he company’s United States headquarters.
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Item 7.
CONSOLIDATED FINANCIAL STATEMENTS
SAGOON, INC. AND SUBSIDIARIES
| TABLE OF CONTENTS | ||
| Consolidated Financial Statements as of December 31, 2021 and 2020, and for the years then ended | ||
| Page | ||
| Independent Auditors’ Report | - 12 - | |
| Consolidated Balance Sheets | - 14 - | |
| Consolidated Statements of Operations and Comprehensive Income (Loss) | - 15 - | |
| Consolidated Statements of Changes in Stockholders' Equity (Deficit) | - 16 - | |
| Consolidated Statements of Cash Flows | - 17 - | |
| Notes to the Consolidated Financial Statements | - 18 - | |
- 11 -
To the Stockholders of
Sagoon, Inc. and Subsidiaries
Woodbridge, Virginia
Opinion
We have audited the accompanying consolidated financial statements of Sagoon, Inc. and subsidiaries (the “Company”) which comprise the consolidated balance sheets as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in stockholder’s equity/(deficit), and cash flows for the years then ended, and the related notes to the consolidated financial statements.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the consolidated financial statements, the Company has not generated profits or significant revenues since inception, has sustained net losses of $1,537,060 and $1,074,744 for the years ended December 31, 2021 and 2020, respectively, has an accumulated deficit of $11,879,043 as of December 31, 2021, and is in default on certain notes payable. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are available to be issued.
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Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| · | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. |
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Artesian CPA, LLC
Denver, Colorado
May 2, 2022
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CONSOLIDATED BALANCE SHEETS
| December 31, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 2,576,749 | $ | 364,871 | ||||
| Total current assets | 2,576,749 | 364,871 | ||||||
| Property and equipment, net | 16,756 | 2,854 | ||||||
| Other assets | 5,020 | 4,520 | ||||||
| Total assets | $ | 2,598,525 | $ | 372,245 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 143,986 | $ | 221,220 | ||||
| Accrued liabilities | 299,683 | 332,092 | ||||||
| Notes payable, net discount of $0 and $6,400, respectively | 90,579 | 205,709 | ||||||
| Related party notes payable | 225,297 | 258,297 | ||||||
| Total current liabilities | 759,545 | 1,017,318 | ||||||
| Notes payable | 160,000 | 285,000 | ||||||
| Convertible debt | - | 210,000 | ||||||
| Total liabilities | 919,545 | 1,512,318 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' Equity: | ||||||||
| Common Stock: | ||||||||
| Class A Common Stock; par value $0.0001; 2,361,000 shares authorized, issued and outstanding at December 31, 2021 and 2020 | 236 | 236 | ||||||
| Class B Common stock; par value $0.0001; 1,639,000 shares authorized, 989,800 issued and outstanding at December 31, 2021 and 2020 | 100 | 100 | ||||||
| Class C Common Stock; par value $0.0001; 1,000,000 shares authorized, 706,643 and 416,723 issued and outstanding at December 31, 2021 and 2020, respectively | 70 | 41 | ||||||
| Additional paid-in capital | 13,578,326 | 9,258,035 | ||||||
| Subscriptions receivable | (8,830 | ) | (13,087 | ) | ||||
| Accumulated deficit | (11,879,043 | ) | (10,341,983 | ) | ||||
| Accumulated other comprehensive loss | (11,879 | ) | (43,415 | ) | ||||
| Total stockholders' equity | 1,678,980 | (1,140,073 | ) | |||||
| Total liabilities and stockholders' equity | $ | 2,598,525 | $ | 372,245 | ||||
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| For the Year Ended December 31, 2021 | For the Year Ended December 31, 2020 | |||||||
| Revenues | $ | 4,986 | $ | - | ||||
| Operating expenses: | ||||||||
| General and administrative | 885,429 | 401,870 | ||||||
| Sales and marketing | 267,010 | 312,755 | ||||||
| Research and development | 458,883 | 247,418 | ||||||
| Total operating expenses | 1,611,322 | 962,043 | ||||||
| Operating loss | (1,606,336 | ) | (962,043 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (55,091 | ) | (112,701 | ) | ||||
| Gain on forgiveness of note payable | 126,250 | - | ||||||
| Total other income (expense) | 71,159 | (112,701 | ) | |||||
| Loss before provision for income taxes | (1,535,177 | ) | (1,074,744 | ) | ||||
| Provision for income taxes | 1,883 | - | ||||||
| Net loss | (1,537,060 | ) | (1,074,744 | ) | ||||
| Foreign currency translation gain | 31,536 | 12,164 | ||||||
| Total comprehensive loss | $ | (1,505,524 | ) | $ | (1,062,580 | ) | ||
| Basic and diluted net loss per common share | $ | (0.39 | ) | $ | (0.29 | ) | ||
| Weighted average shares outstanding - basic and diluted | 3,979,526 | 3,727,785 | ||||||
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
| Class A Common Stock | Class B Common Stock | Class C Common Stock | Additional
| Subscriptions
| Accumulated
| Accumulated
Other Comprehensive | Total
Stockholders' Equity | |||||||||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | Number of Shares | Amount | Paid-in Capital | Receivable | Deficit | Loss | (Deficit) | ||||||||||||||||||||||||||||||||||
| December 31, 2019 | 2,361,000 | $ | 236 | 989,800 | $ | 100 | 357,456 | $ | 35 | $ | 8,305,685 | $ | - | $ | (9,267,239 | ) | $ | (55,579 | ) | $ | (1,016,762 | ) | ||||||||||||||||||||||
| Class C common stock issued for cash | - | - | - | - | 59,267 | 6 | 984,560 | (13,087 | ) | - | - | 971,479 | ||||||||||||||||||||||||||||||||
| Offering costs | - | - | - | - | - | - | (47,024 | ) | - | - | - | (47,024 | ) | |||||||||||||||||||||||||||||||
| Imputed interest on related party notes | - | - | - | - | - | - | 14,814 | - | - | - | 14,814 | |||||||||||||||||||||||||||||||||
| Total comprehensive loss | - | - | - | - | - | - | - | - | (1,074,744 | ) | 12,164 | (1,062,580 | ) | |||||||||||||||||||||||||||||||
| December 31, 2020 | 2,361,000 | $ | 236 | 989,800 | $ | 100 | 416,723 | $ | 41 | $ | 9,258,035 | $ | (13,087 | ) | $ | (10,341,983 | ) | $ | (43,415 | ) | $ | (1,140,073 | ) | |||||||||||||||||||||
| Class C common stock issued for cash | - | - | - | - | 168,402 | 17 | 3,993,115 | (8,830 | ) | - | - | 3,984,302 | ||||||||||||||||||||||||||||||||
| Collection of subscription receivable | - | - | - | - | - | - | - | 13,087 | - | - | 13,087 | |||||||||||||||||||||||||||||||||
| Offering costs | - | - | - | - | - | - | (26,587 | ) | - | - | - | (26,587 | ) | |||||||||||||||||||||||||||||||
| Class C common stock issued for conversion of convertible notes and accrued interest | - | - | - | - | 121,518 | 12 | 340,239 | - | - | - | 340,251 | |||||||||||||||||||||||||||||||||
| Imputed interest on related party notes | - | - | - | - | - | - | 13,524 | - | - | - | 13,524 | |||||||||||||||||||||||||||||||||
| Total comprehensive loss | - | - | - | - | - | - | - | - | (1,537,060 | ) | 31,536 | (1,505,524 | ) | |||||||||||||||||||||||||||||||
| December 31, 2021 | 2,361,000 | $ | 236 | 989,800 | $ | 100 | 706,643 | $ | 70 | $ | 13,578,326 | $ | (8,830 | ) | $ | (11,879,043 | ) | $ | (11,879 | ) | $ | 1,678,980 | ||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended December 31, 2021 | For the Year Ended December 31, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,537,060 | ) | $ | (1,074,744 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 4,246 | 4,027 | ||||||
| Imputed interest on notes payable | 13,524 | 14,814 | ||||||
| Amortization of debt discount | 6,400 | 12,600 | ||||||
| Gain on forgiveness of note payable and accrued interest | (126,250 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable | (77,234 | ) | (53,414 | ) | ||||
| Accrued liabilities | 99,092 | 131,829 | ||||||
| Net cash used in operating activities | (1,617,282 | ) | (964,888 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (18,148 | ) | - | |||||
| Deposits and other | (500 | ) | - | |||||
| Net cash used in investing activities | (18,648 | ) | - | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common stock | 3,997,389 | 971,479 | ||||||
| Offering costs paid | (26,587 | ) | (47,024 | ) | ||||
| Proceeds from notes payable | - | 360,000 | ||||||
| Repayment of notes payable | (121,530 | ) | (78,853 | ) | ||||
| Proceeds from related party notes payable | - | 8,000 | ||||||
| Repayment of related party notes payable | (33,000 | ) | (6,500 | ) | ||||
| Net cash provided by financing activities | 3,816,272 | 1,207,102 | ||||||
| Cash effects of foreign currency | 31,536 | 12,164 | ||||||
| Increase in cash and cash equivalents | 2,211,878 | 254,378 | ||||||
| Cash and cash equivalents, beginning of year | 364,871 | 110,493 | ||||||
| Cash and cash equivalents, end of year | $ | 2,576,749 | $ | 364,871 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 22,635 | $ | 2,200 | ||||
| Cash paid for income taxes | $ | 1,883 | $ | - | ||||
| Non cash investing and financing activities: | ||||||||
| Class C common stock issued for conversion of convertible notes and accrued interest | $ | 340,251 | $ | - | ||||
| Gain on forgiveness of note payable and accrued interest | $ | 126,250 | $ | - | ||||
See accompanying notes to the consolidated financial statements.
- 17 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND OPERATIONS
Sagoon, Inc. (the “Company”) was incorporated in the State of Delaware on December 29, 2006 (“Inception”). The Company’s first website was released for public use on November 2015.
The Company is a social media platform, and enables users to make connections, while also, thanks to a revenue sharing model with users, earning money for all the time spent on social media.
In December 2019, a novel strain of coronavirus surfaced. The spread of COVID-19 around the world in 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. As of the issuance date of these consolidated financial statements, the impact on the Company’s operations has not been significant. However, but may be affected in the future, by the recent and ongoing outbreak. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s labor workforce, unavailability of products and supplies used in operations, and the decline in value of assets held by the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting policies of the Company are in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) and are presented in United States Dollars (“USD”) using the accrual basis of accounting. Outlined below are those policies considered particularly significant.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in the consolidation.
Going Concern
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of the Company as a going concern. The Company, however, as of December 31, 2021 has incurred cumulative net losses of approximately $11.9 million since inception and a current year loss of approximately $1.5 million. The Company currently has generated a limited amount of revenues from operations and is in default on certain notes payable. These factors cause substantial doubt about the Company's ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Management anticipates that the Company will be dependent, for the foreseeable future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Risks and Uncertainties
The Company has a limited operating history and has not generated significant revenues from our planned principal operations.
The Company's business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond the Company's control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including recession, downturn or otherwise, could have a material adverse effect on the Company's consolidated financial condition and the results of its consolidated operations.
- 18 -
The Company currently generates limited revenues from its operations and has limited marketing and/or distribution capabilities. The Company has limited experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to market any of our current and future products. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, the Company will compete with many companies that currently have extensive and well-funded marketing and sales operations. The Company’s marketing and sales efforts may be unable to compete successfully against these companies. In addition, the Company has limited capital to devote to sales and marketing.
The Company's industry is characterized by rapid changes in technology and customer demands. As a result, the Company's products may quickly become obsolete and unmarketable. The Company's future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, the Company's products must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, the Company may not be able to adapt new or enhanced products to emerging industry standards, and the Company's new products may not be favorably received. Nor may we have the capital resources to further the development of existing and/or new ones.
Use of Estimates
The preparation of consolidated 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 at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Measurements
The carrying amounts reported in the accompanying consolidated financial statements for current assets and current liabilities approximate the fair value because of the immediate or short-term maturities of the financial instruments.
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1 - Observable inputs such as quoted prices in active markets;
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
As of December 31, 2021 and 2020, the Company's cash was considered a level 1 instrument. The Company does not have any level 2 and 3 instruments.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits. To date, there have been no losses for amount exceeding the limits. As of December 31, 2021, approximately $1,589,000 was in excess of federally insured limits.
Advertising Costs
The Company expenses advertising costs when incurred.
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Research and Development
The Company expenses research and development costs when incurred.
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Subscriptions Receivable
The Company records stock issuances at the effective date. If the subscription is not funded upon issuance, the Company records a stock subscription receivable as a contra account to stockholders’ equity (deficit) on the balance sheets.
Stock-based Compensation
As of December 31, 2021, the Company has not issued any share-based payments to its employees or third-party consultants. The Company will account for stock options issued to employees and consultants under ASC 718 Compensation-Stock Compensation. Under ASC 718, share-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee's requisite vesting period.
The Company will measure compensation expense for its non-employee stock-based compensation under ASC 505 Equity. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company's common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty's performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.
Income Taxes
The Company follows ASC 740, Income Taxes for recording the provision for income taxes. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Tax law and rate changes are reflected in income in the period such changes are enacted. The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company includes interest and penalties related to income taxes, including unrecognized tax benefits, within the income tax provision.
The Company's income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.
The Company recognizes windfall tax benefits associated with share-based awards directly to stockholders' equity only when realized. A windfall tax benefit occurs when the actual tax benefit realized by the Company upon an employee's disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that the Company had recorded. When assessing whether a tax benefit relating to share-based compensation has been realized, the Company follows the tax law ordering method, under which current year share-based compensation deductions are assumed to be utilized before net operating loss carryforwards and other tax attributes.
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Basic (Loss) per Common Share
Basic (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. The Company's common stock equivalents as of December 31, 2020 related to convertible notes payable, for which the effects would be anti-dilutive. There are no dilutive securities outstanding as of December 31, 2021.
Foreign Currency
The consolidated financial statements are presented in United States Dollars, (“USD”), the reporting currency and the functional currency of our U.S. operations. The functional currency for the Company's subsidiaries is their local currency in accordance with ASC 830 Foreign Currency Matters, foreign denominated monetary assets and liabilities are translated to their USD equivalents using foreign exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Revenue and expenses were translated at the prevailing rate of exchange at the date of the transaction. Related translation adjustments are reported as a separate component of stockholders’ equity (deficit), whereas gains or losses resulting from foreign currency transactions are included in results of operations. The effect of foreign currency translation gain (loss) has been reflected during the years ended December 31, 2021 and 2020.
Recently Issued Accounting Guidance
The Financial Accounting Standards Board issues Accounting Standard Updates (“ASUs” or “ASU”) to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 840), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this standard are effective for fiscal years beginning January 1, 2022, including interim periods within those fiscal years, for a public entity. Early adoption of the amendments in this standard is permitted for all entities and the Company must recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently in the process of evaluating the effect this guidance will have on its consolidated financial statements and related disclosures, however, the Company does not expect the impact to be material.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2021 and 2020 consisted of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| Computers and software | $ | 46,310 | $ | 35,677 | ||||
| Furniture | 13,077 | 5,000 | ||||||
| Less: Accumulated depreciation | (42,631 | ) | (37,823 | ) | ||||
| Property and equipment, net | $ | 16,756 | $ | 2,854 | ||||
Depreciation expense for the years ended December 31, 2021 and 2020 was $4,246 and $4,027, respectively.
NOTE 4 - NOTES PAYABLE
Notes Payable
From December 2014 to September 2015, a third party paid $66,949 in payroll related expenditures on behalf of the Company. Under the terms of the verbal agreement, the amounts payable to the third party incur interest at a rate of 24% per annum. As of December 31, 2021 and 2020, the Company owed principal of $51,949 and $61,949 and accrued interest of $109,872 and $96,204, respectively. The Company has agreed to various repayment scenarios, however, none have been complied with. Thus, the amounts are considered due on demand. During the years ended December 31, 2021 and 2020, the Company paid $10,000 and $5,000, respectively, for which was applied toward the principal. Interest expense was $13,668 and $15,768 for the years ended December 31, 2021 and 2020, respectively.
During 2019, the Company issued notes to various third parties resulting in proceeds of $137,275. The notes incur interest at rates ranging from 8% to 10% per annum and have due dates of less than one year. As of December 31, 2021 and 2020, principal and interest due on these notes was $25,000 and $90,000 and accrued interest of $6,200 and $9,560, respectively. Interest expense was $2,000 and $8,480 for the years ended December 31, 2021 and 2020, respectively. During the years ended December 31, 2021 and 2020, the Company paid $65,000 and $40,013, respectively, towards the principal balance. As of December 31, 2021 and 2020, the notes were past maturity and in default.
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During the year ended December 31, 2020, the Company borrowed a total of $94,000, for which proceeds of $75,000 were received from a third party. The notes incur interest at rates ranging from 7.5% to 8% per annum and matured in March 2021. As of December 31, 2021 and 2020, principal due on these notes was $13,630 and $60,160 and accrued interest of $7,024 and $4,336, respectively. Repayments of $46,530 were made during the year ended December 31, 2021. The Company is amortizing the discount over the term of the note for which $6,400 and $12,600 was amortized to interest expense during the years ended December 31, 2021 and 2020, respectively. Interest expense for the years ended December 31, 2021 and 2020 was $2,688 and $4,336, respectively.
The Company received $125,000 in payroll protection program loans (“PPP”). These loans provided for certain funding based on previous employment which in part may be forgivable under certain conditions. The remaining portion needed to be repaid over eighteen months years with a 10-month moratorium on payments and carried a 1% annual interest rate. These loans required no collateral nor personal guarantees. The PPP and accrued interest was forgiven in 2021 and is recorded as a gain on forgiveness of debt.
In June 2020, the Company received a $160,000 economic injury disaster loan (“EIDL”). The loan accrues interest at a rate of 3.75% annually and is collateralized by all personal property and intangible assets of the Company. The loan has a 12-month moratorium on payments, after which monthly principal and interest payments of $731 will be made through the maturity date of June 2050.
Convertible Notes Payable
To date, the Company received total proceeds of $210,000 related to issuances of convertible notes payable to six holders. The proceeds were used for operations. The convertible notes payable incurred interest at 15.0% per annum, were due three years from the date of the initial issuance (dates ranging from August to October 2019) and were convertible at $2.80 per share of Class C common stock. On the date of issuance, the Company was actively selling shares of its Class C common stock at $3.75 per share. Thus, the Company determined there was a beneficial conversion feature on the date of the issuance. The Company recorded a discount of $71,250 related to the beneficial conversion feature. In addition, the Company paid $5,000 in transaction costs in connection with the convertible notes payable. The discount was amortizing using the straight-line method over the term of the convertible notes payable. As of December 31, 2020, no discount remained, and the notes were past their maturity and in default. In January 2021, the holders of the convertible notes payable converted the principal and accrued interest totaling $340,251 into 121,518 shares of Class C common stock.
Related Party Notes Payable
Since inception the Company's Chief Executive Officer and various shareholders have funded operations through loans and personal loans received and the proceeds being remitted to the Company. For loans provided to the Company prior to December 31, 2015, most of these loans do not incur interest and are due upon demand. Loans issued in 2016 and subsequent have interest rates varying from 8-12% per annum and matured at various times in 2017 or are due on demand. Various notes are in default based on their maturity dates. As of December 31, 2021 and 2020, principal amounts due to the Chief Executive Officer and shareholders under these loans was $225,297 and $258,297, respectively. For the non-interest bearing loans, the Company imputed interest expense at 8.0%, the borrowing rate most likely available to them. During the years ended December 31, 2021 and 2020, the Company recorded imputed interest expense related to these loans of $13,524 and $14,814, respectively. Interest expense for the years ended December 31, 2021 and 2020 was $4,870 and $5,320, respectively, with $29,840 and $24,970 in accrued interest due as of December 31, 2021 and 2020, respectively.
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT)
The Company has authorized shares of 5,000,000 for which three classes of common stock were designated. Class A common stock for which 2,361,000 shares are designated. The Class A common stock have voting rights on a one for one basis. Class B common stock for which 1,639,000 shares are designated. The Class B common stock have no voting rights. Class C common stock for which 1,000,000 shares are designated. The Class C common stock have voting rights equal to one tenth (1/10) of one vote per share.
During the years ended December 31, 2021 and 2020, the Company issued 15,874 and 11,980, respectively, shares of its Class C common stock under a Regulation A offering at a price per share of $30, providing gross proceeds of $476,220 and $359,335, respectively. The Company incurred offering costs of $26,587 and $47,024 in connection with this offering during the years ended December 31, 2021 and 2020, respectively.
During the years ended December 31, 2021 and 2020, the Company issued 152,528 and 47,274, respectively, shares of its Class C common stock under a private stock offerings at prices per share of $11.50 and $23.00, where investors investing over $15,000 were provided bonus shares doubling the number of shares received. These offerings provided gross proceeds of $3,508,082 and $625,231 during the years ended December 31, 2021 and 2020, respectively.
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Warrants
In November 2018, the Company entered into an agreement with advertising conglomerate located within Singapore. Under the terms of the agreement, the Company has committed to purchasing a minimum amount of advertising over a period of five years. The annual minimum commitment is $500,000 for which any remaining amount per a particular year is rolled over to the subsequent year. In addition, the Company granted warrants to purchase up to $3.5 million worth of the Company's Class C common stock for a period of five years. The exercise price of the warrants is currently $23 for which equates to 152,174 warrants. Upon exercise of the warrants by the investor, the Company is required to remit the proceeds back to the investor as a payment on the minimum advertising amounts. Thus, the transaction is in tandem to issuing warrants (shares of Class C common stock) for advertising. In addition, the Company had yet to engage or benefit from the advertising services. The Company expects to record the value of the warrants over the period to which the benefit will be received. Thus, the warrants will be valued at the point in which they are exercised and expensed over the expected advertising period.
In addition, the Company has an option to repurchase the Class C common stock at the higher of: (a) the pro rata value of the investors Class C common stock based upon the value of the Company in the most recent round of funding; (b) the aggregate amount of the investment plus a 15% return; and (c) the fair market value of the Company performed by an independent valuation.
Additionally, the Company will use its best efforts within the next five years to file an initial public offering. If unsuccessful, the investor has the right to demand repayment of the total amount of the investment.
During the year ended December 31, 2019, the investor exercised warrants to purchase 15,217 shares of Class C common stock at a price of $23 per share for which proceeds of $350,000 were received by the Company. The Company then remitted the proceeds back to the investor as a payment toward advertising services. As of December 31, 2021 and 2020, the related asset and liability of $350,000 have been netted for financial statement presentation purposes on the accompanying consolidated balance sheet and statement of cash flows. The Company considers the total warrants disclosed above to be outstanding as of December 31, 2021 and 2020.
NOTE 6 - INCOME TAXES
The provision for income taxes consisted of the following for the years ended December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Income tax benefit attributable to: | ||||||||
| Net loss | $ | (395,747 | ) | $ | (272,186 | ) | ||
| Permanent differences | 3,652 | 4,000 | ||||||
| Valuation allowance | 392,095 | 268,186 | ||||||
| Net provision for income tax | $ | - | $ | - | ||||
Net deferred tax assets consisted of the following components as of December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Deferred tax asset attributable to: | ||||||||
| Net operating loss carryover | $ | 2,400,932 | $ | 2,008,837 | ||||
| Valuation allowance | (2,400,932 | ) | (2,008,837 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
During the years ended December 31, 2021 and 2020, the valuation allowance increased by $392,095 and $268,186, respectively. At December 31, 2021, the Company had approximately $4.2 million of federal and state gross net operating losses and approximately $4.5 million in foreign net operating losses available. The net operating loss carry forward, if not utilized, will begin to expire in 2034 for federal and state purposes and in 2024 for foreign purposes.
Based on the available objective evidence, including the Company’s limited operating history and current liabilities in excess of assets, management believes it is more likely than not that the net deferred tax assets at December 31, 2021 and 2020, will not be fully realizable. Due to the uncertainty surrounding realization of the deferred tax asset, the Company has provided a full valuation allowance against its net deferred tax assets at December 31, 2021 and 2020.
The Company files income tax returns in the U.S., Indian and Nepal jurisdictions. Income tax returns for fiscal years 2017 through 2021 remain open to examination by tax authorities in the U.S. and foreign jurisdictions. The Company believes that it has made adequate provisions for all income tax uncertainties pertaining to these open tax years. There are no open tax examinations.
At December 31, 2021 and 2020, the applicable federal, state and foreign rates used in calculating the deferred tax provision was 21%, 6% and 24%, respectively.
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NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company leases other office space for its operations under leases in which have terms of one year or less. Rent expense for the years ended December 31, 2021 and 2020 was $30,737 and $15,304, respectively.
During the years ended December 31, 2021 and 2020, the Company paid $12,000 and $12,000, respectively, to its CEO for space utilized as the Company’s United States Headquarters.
Warrant
See Note 5 for discussion of the granting of a warrant and related commitment.
NOTE 8 - RELATED PARTY TRANSACTIONS
See Notes 4, 5 and 7 for discussion of transactions with related parties.
NOTE 9 - SUBSEQUENT EVENTS
The Company has evaluated events subsequent to the date of these financial statements through the date of the independent auditors’ report and has determined that no events, other than those disclosed above, if any, have occurred that would materially affect the consolidated financial statements above.
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Item 8.
INDEX TO EXHIBITS
The documents listed in the Exhibit Index of this report are incorporated by reference or are filed with this report, in each case as indicated below.
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SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Woodbridge, State of Virginia, on May 2, 2022.
| Sagoon Inc. | ||
| By: | /s/ Govinda Giri | |
| Chief Executive Officer | ||
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons in the capacities and on the dates indicated.
| By: | /s/ Govinda Giri | |
| Govinda Giri | ||
| Chief Executive Officer and Sole Director | ||
May 2, 2022 |
||
| By: | /s/ Govinda Giri | |
| Govinda Giri | ||
| Interim Chief Financial Officer and Chief Accounting Officer | ||
| May 2, 2022 | ||
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