U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ACT OF 1934
For the quarterly period ended
ACT OF 1934
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
|
|
||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including
area code:
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days).
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).
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," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| x | Smaller Reporting Company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(1) of the Exchange Act. ¨
Indicate by checkmark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ¨
As of May 9, 2023, the Company had shares of its common stock, par value $.0001 per share, issued and outstanding.
TABLE OF CONTENTS
| PART I | ||
| Item 1. | Condensed Unaudited Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
| Item 4. | Controls and Procedures | 15 |
| PART II | ||
| Item 1. | Legal Proceedings | 16 |
| Item 1A. | Risk Factors | 16 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| Item 3. | Defaults Upon Senior Securities | 17 |
| Item 4. | Mining Safety Disclosures | 17 |
| Item 5. | Other Information | 17 |
| Item 6. | Exhibits | 17 |
| Signatures | 18 |
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ELECTRONIC SERVITOR PUBLICATION NETWORK INC.
INDEX TO FINANCIAL STATEMENTS
| Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022 | 4 |
| Statements of Operations for the three months ended March 31, 2023 and 2022 (unaudited) | 5 |
| Statements of Changes in Stockholders’ Equity (Deficit) for the three months ended March 31, 2023 and 2022 (unaudited) | 6 |
| Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited) | 7 |
| Notes to Financial Statements (unaudited) | 8 |
| 3 |
ELECTRONIC SERVITOR PUBLICATION NETWORK, INC.
BALANCE SHEETS
| March 31, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accruals | $ | $ | ||||||
| Loans payable | ||||||||
| Due to a related party | ||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ par value shares authorized; shares issued and outstanding | ||||||||
| Series A Preferred stock, $ par value shares authorized; shares issued and outstanding | ||||||||
| Common Stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 4 |
ELECTRONIC SERVITOR PUBLICATION NETWORK, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating expenses: | ||||||||
| General and administrative | $ | $ | ||||||
| Professional fees | ||||||||
| Stock based compensation | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expense: | ||||||||
| Interest expense | ( | ) | ||||||
| Total other expense | ( | ) | ||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding, basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 5 |
ELECTRONIC SERVITOR PUBLICATION NETWORK, INC.
STATEMENTS OF CHANGES OF STOCKHOLDERS’ DEFICIT
For the Three Months Ended March 31, 2023 and 2022
(Unaudited)
| Additional | Total | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock option expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Additional | Total | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Warrant expense | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 6 |
ELECTRONIC SERVITOR PUBLICATION NETWORK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Prepaid | ( | ) | ||||||
| Accounts payable and accruals | ||||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash flows from Investing activities: | ||||||||
| Cash flows from Financing activities: | ||||||||
| Proceeds from loans - related party | ||||||||
| Proceeds from loans payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Cash Paid For: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash activity: | ||||||||
| Conversion of debt | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 7 |
ELECTRONIC SERVITOR PUBLICATION NETWORK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2023
NOTE 1 - DESCRIPTION OF BUSINESS AND HISTORY
Description of business
The Company was originally incorporated on May 17, 2017, under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. On May 23, 2018, the Certificate of Incorporation of the Company was amended to effect a change in the Company’s name from “Iris Grove Acquisition Corporation” to “CannAssist International Corporation”. On September 28, 2021, the Certificate of Incorporation of the Company was amended a second time to effect a change in the Company’s name from “CannAssist International Corporation” to the name “Electronic Servitor Publication Network, Inc.” The Company’s common stock trades on the OTCQB Venture Market under the stock ticker symbol “XESP,” previously from “CNSC,” effective January 26, 2022. The Company's corporate office is located at 400 1ST Ave N., Ste. 100, Minneapolis, MN 55401. The URL of the Company’s website is https://www.xespn.com. The Company’s telephone number is (833) 991-0800.
The Company’s business focuses on driving growth for Brands through effective digital interactions within current and new communities. The Company’s proprietary technology, the Digital Engagement Engine, utilizes a combination of automation, unique data management, and a modern workflow built on a microservices architecture to achieve greater reach and lift for content providers.
On July 1, 2021, and effective on October 9, 2021,
Mark Palumbo, a former officer and director of the Company, and Forty 7 Select Holdings LLC, an entity controlled by Greg Shockey (who
was an existing shareholder of the Company), entered into an agreement pursuant to which Mark Palumbo transferred all of his shares
of Series A Preferred Stock (representing 100% of the Company’s issued and outstanding Series A Preferred Stock), of the Company
to Forty 7 Select Holdings LLC in a private transaction. The Series A
On July 23, 2021, the Company entered into a Technology
License Agreement with Phitech Management, LLC, an entity controlled by Peter Hager (“Licensor”), to use, market, promote
and distribute certain technology relating to content provisioning including the related patent applications, trade-secrets and associated
knowhow, including methods, techniques, specifications, procedures, information, systems, knowledge and business processes required to
practice and carry on business in the field of data collection, security and management (the “Technology”). The initial term
of the License is 10-years (the “Initial Term”) and shall automatically be renewed for successive 1-year terms (each, a “Renewal
Term”) unless the Company elects to terminate the License by giving 30 days’ written notice prior to commencement of a Renewal
Term. In exchange for the License of the Technology, the Company issues to the Licensor restricted shares of its common stock
(which is an amount equal to $
On July 23, 2021, the Company and Mark Palumbo entered into an agreement (the “Spin-Off Agreement”) whereby, at the Closing, the Company shall transfer 100% of the issued and outstanding membership units of Xceptor LLC, an entity that was a wholly-owned subsidiary of the Company, to Mark Palumbo (along with the assets and liabilities associated with the prior business) for nominal consideration as a condition of the Change-in-Control (the “Spin-Off”). Furthermore, at the Closing, that certain Technology License Agreement entered into by and between the Company and Mark Palumbo dated April 29, 2019 (the “Palumbo License Agreement”) shall be terminated and the Company shall assign all rights to the underlying Intellectual Property (as defined in the Palumbo License Agreement) to Mark Palumbo. On October 9, 2021, at the Closing of the Spin-Off Agreement, the Company transferred 100% of the issued and outstanding membership units of Xceptor LLC to Mark Palumbo (along with the assets and liabilities associated with the prior business) in exchange for nominal consideration, and the Palumbo License Agreement was terminated.
As a result of the transactions described above, the Company is strategically aligning its business to support its mission in becoming the premier content management and distribution platform for content providers in the global markets through the Company’s continued development and acquisitions of publication and monetization products, services, and technologies.
| 8 |
Effective October 9, 2021, as a result of the transactions described above, the business of the Company changed to focus on Electronic Sports Gaming technology and the development of related infrastructure, specifically the development and commercialization of a technology platform specifically designed for the Electronic Sports and Electronic Gaming markets. The platform will provide an omni-channel publishing tool, with talent identity protection and monetization tools provided in line with interaction and media creation services. Further publication and monetization products and services will be developed and acquired to support these efforts.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the three month period ending March 31, 2023 and not necessarily indicative of the results to be expected for the full year ending December 31, 2023. These unaudited financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount (“FDIC”).
Cash equivalents
The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents. There were
Recently issued accounting pronouncements
The Company has implemented all new applicable accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has no current source of revenue and an accumulated deficit of $
NOTE 4 - NOTES PAYABLE
On May 19, 2022, the Company issued a note payable
for $
| 9 |
On May 20, 2022, the Company issued a note payable
for $
On June 10, 2022, the Company issued a note payable
for $
On October 18, 2022, the Company issued a note
payable for $
On January 6, 2023, the Company issued a note
payable for $
On March 13, 2023, the Company issued a note payable
for $
NOTE 5 – RELATED PARTY TRANSACTIONS
During the year ended December 31, 2022, Forty
7 Select Holdings LLC (“Forty 7”) advanced the Company $
On January 10, 2023, the Company issued a note
payable for $
Refer to Note 7 for options to purchase shares of common stock issued to related parties.
NOTE 6 – PREFERRED STOCK
The Company has designated shares of Series
A Preferred Stock. The shares of Series A Preferred Stock have a par value of $ per share. The Series A Preferred Shares do not
have a dividend rate or liquidation preference and are not convertible into shares of common stock.
NOTE 7 – OPTIONS
In the first quarter of 2022, the Company entered into an Employment Agreement with Thomas Spruce, an officer and director of the Company. This Employment Agreement has a term of 2 years and automatically renews for an additional 6-month term unless terminated earlier. This agreement is terminable by each of the parties upon written notice. Under this Employment Agreement, the Company pays a base salary of $1.00 per year and issued options to purchase 500,000 restricted shares of the Company’s common stock at a strike price of $0.39 per share. The options vest over a period of two years and expire 10 years from the date of grant.
Effective April 12, 2022, the Company entered into an Advisory Agreement with Greg Shockey, an affiliate of the Company and service provider. Under this Advisory Agreement, the Company issued options to purchase 240,000 restricted shares of the Company’s common stock at a strike price of $0.39 per share. The options vest over a period of 1 year contingent upon service and expire 10 years from the date of grant.
Effective April 12, 2022, the Company entered into an Advisory Agreement with Danijella Dragas, a third-party service provider. Under this Advisory Agreement, the Company issued options to purchase 240,000 restricted shares of the Company’s common stock at a strike price of $0.39 per share. The options vest over a period of 1 year contingent upon service and expire 10 years from the date of grant. On March 23, 2023, the Advisory Agreement was cancelled, thereby terminating Danijella Dragas and forfeiting 60,000 unvested options.
| 10 |
On May 27, 2022, the Company entered into an Addendum to Employment Agreement with Thomas Spruce, which granted Mr. Spruce options to purchase an additional 250,000 restricted shares of the Company’s common stock at a strike price of $0.15 per share. The options vest immediately from the date of the grant and expire 10 years from the date of grant.
On November 16, 2022, the Company entered into an Employment Agreement with Jim Kellogg, which granted Mr. Kellogg options to purchase 300,000 restricted shares of the Company’s common stock at a strike price of $0.10 per share. The options vest over a period of 1 year contingent upon service and expire 10 years from the date of grant.
On February 1, 2023, the Company entered into an Advisor Agreement with Greg Shockey, which supersedes his previous Advisor Agreement with the Company, whereby, in exchange for business development and strategy consulting, investor relations, and facilitating meetings with targeted investors, as well as other services, the Company agreed to issue Greg Shockey options to purchase 60,000 restricted shares of common stock at signing and an additional 1,200,000 shares of restricted common stock every year thereafter for three years.
On February 1, 2023, Peter Hager was appointed as the Company’s President and Chief Executive Officer. Per the terms of the employment agreement Mr. Hager was granted options to purchase 6,400,000 restricted shares of the Company’s common stock, at the commencement of his initial term of services, for an exercise price $0.06 per share, vesting in installments of 500,000 shares per fiscal quarter with the first vesting date of April 1, 2023 and 1,000,000 options to purchase restricted shares of the Company’s common stock, at the commencement of his first renewal term of service.
On February 1, 2033, Thomas Spruce was appointed as the Company’s Secretary and Chief Operations Officer. Per the terms of the employment agreement Mr. Spruce was granted options to purchase 1,750,000 restricted shares of the Company’s common stock, at the commencement of his initial term of services, for an exercise price $0.06 per share, vesting with respect to the first 250,000 shares on February 1, 2023 and vesting with respect to the remaining 1,500,000 shares in installments of 125,000 shares per fiscal quarter with the first vesting date of April 1, 2023 and 250,000 options to purchase restricted shares of the Company’s common stock, at the commencement of his first renewal term of service.
Options issued in the three months ended March 31, 2023, with the following inputs:
| Options | ||||
| Share price | $ | |||
| Exercise Price | $ | |||
| Term | ||||
| Volatility | % | |||
| Risk Free Interest Rate | % | |||
| Dividend rate |
A summary of the status of the Company’s outstanding stock options and changes during the year is presented below:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contract Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2021 | $ | — | $ | — | ||||||||||||
| Granted | $ | $ | — | |||||||||||||
| Cancelled | ( | ) | $ | — | — | $ | — | |||||||||
| Exercised | — | $ | — | — | $ | — | ||||||||||
| Outstanding at December 31, 2022 | $ | $ | — | |||||||||||||
| Granted | $ | $ | — | |||||||||||||
| Cancelled | ( | ) | $ | — | — | $ | — | |||||||||
| Exercised | — | $ | — | — | $ | — | ||||||||||
| Outstanding at March 31, 2023 | $ | $ | — | |||||||||||||
| Exercisable at March 31, 2023 | $ | $ | — | |||||||||||||
| Range of Exercise Prices |
Number Outstanding 3/31/2023 |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price | |||
| $ |
$ |
| 11 |
NOTE 8 – WARRANTS
A summary of the status of the Company’s outstanding stock warrants and changes during the year is presented below:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contract Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | — | |||||||||||||
| Granted | $ | — | — | $ | — | |||||||||||
| Expired | — | $ | — | — | $ | — | ||||||||||
| Exercised | — | $ | — | — | $ | — | ||||||||||
| Outstanding at December 31, 2022 | $ | $ | — | |||||||||||||
| Granted | — | $ | — | — | $ | — | ||||||||||
| Expired | — | $ | — | — | $ | — | ||||||||||
| Exercised | — | $ | — | — | $ | — | ||||||||||
| Exercisable at March 31, 2023 | $ | $ | — | |||||||||||||
| Range of Exercise Prices |
Number Outstanding 3/31/2023 |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price | |||
| $ |
$ |
NOTE 9 – SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial statements were issued and has determined that there are no material subsequent events to disclose in these financial statements.
| 12 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with our financial statements and related notes thereto included in Part I, Item 1, above.
Forward Looking Statements
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:
·our future strategic plans
·our future operating results;
·our business prospects;
·our contractual arrangements and relationships with third parties;
·the dependence of our future success on the general economy;
·our possible future financings; and
·the adequacy of our cash resources and working capital.
These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Executive Overview
The Company was originally incorporated on May 17, 2017, under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. On May 23, 2018, the Certificate of Incorporation of the Company was amended to effect a change in the Company’s name from “Iris Grove Acquisition Corporation” to “CannAssist International Corporation”. On September 28, 2021, the Certificate of Incorporation of the Company was amended a second time to effect a change in the Company’s name from “CannAssist International Corporation” to the name “Electronic Servitor Publication Network, Inc.”
The Company's corporate office is located at 400 1ST Ave N., Ste. 100, Minneapolis, MN 55401. The URL of the Company’s website is https://www.xespn.com. The Company’s telephone number is (833) 991-0800.
The Company’s common stock trades on the OTCQB Venture Market under the stock ticker symbol “XESP.”
On July 1, 2021, and effective on October 9, 2021, Mark Palumbo, a former officer and director of the Company, and Forty 7 Select Holdings LLC, an entity controlled by Greg Shockey (who was an existing shareholder of the Company), entered into an agreement pursuant to which Mark Palumbo transferred all of his 1,000 shares of Series A Preferred Stock (representing 100% of the Company’s issued and outstanding Series A Preferred Stock), of the Company to Forty 7 Select Holdings LLC in a private transaction. The Series A Preferred Stock provides the holder thereof the right to vote 60% of the Company’s voting shares on any and all shareholder matters and thereby constituted a change of control of the Company. Further, Mark Palumbo contributed 7,500,000 shares of common stock held by him to the treasury of the Company for cancellation at no cost (the “Contribution”).
On July 23, 2021, the Company entered into a Technology License Agreement with Phitech Management, LLC, an entity controlled by Peter Hager (“Licensor”), to use, market, promote and distribute certain technology relating to content provisioning including the related patent applications, trade-secrets and associated knowhow, including methods, techniques, specifications, procedures, information, systems, knowledge and business processes required to practice and carry on business in the field of data collection, security and management (the “Technology”). The initial term of the License is 10-years (the “Initial Term”) and shall automatically be renewed for successive 1-year terms (each, a “Renewal Term”) unless the Company elects to terminate the License by giving 30 days’ written notice prior to commencement of a Renewal Term. In exchange for the License of the Technology, the Company issues to the Licensor 10,000,000 restricted shares of its common stock (which is an amount equal to $2,500,000 divided by $0.25, which was the closing market price of the Company’s common stock on the trading day prior to the effective date of the License Agreement). On October 9, 2021, at the Closing of the Technology License Agreement, the Company received the License to the Technology and issued Licensor 10,000,000 restricted shares of the Company’s common stock, at a cost basis of $0.25 per share.
| 13 |
On July 23, 2021, the Company and Mark Palumbo entered into an agreement (the “Spin-Off Agreement”) whereby, at the Closing, the Company shall transfer 100% of the issued and outstanding membership units of Xceptor LLC, an entity that was a wholly-owned subsidiary of the Company, to Mark Palumbo (along with the assets and liabilities associated with the prior business) for nominal consideration as a condition of the Change-in-Control (the “Spin-Off”). Furthermore, at the Closing, that certain Technology License Agreement entered into by and between the Company and Mark Palumbo dated April 29, 2019 (the “Palumbo License Agreement”) shall be terminated and the Company shall assign all rights to the underlying Intellectual Property (as defined in the Palumbo License Agreement) to Mark Palumbo. On October 9, 2021, at the Closing of the Spin-Off Agreement, the Company transferred 100% of the issued and outstanding membership units of Xceptor LLC to Mark Palumbo (along with the assets and liabilities associated with the prior business) in exchange for nominal consideration, and the Palumbo License Agreement was terminated.
The Company anticipates that it would need approximately $1,500,000 over the next 12 months to continue as a going concern, satisfy its capital commitments and continue its operations in accordance with its current business plan. In addition to revenues generated from sales, the Chief Executive Officer and several shareholders may fund the Company’s operations, if needed, during the next 12 months or until the Company can generate an ongoing source of capital sufficient to independently continue its operations.
Although the Company is no longer classified as a development-stage company, it has limited operating history and is expected to experience losses in the near term. The Company’s independent auditors have issued a report raising substantial doubt about the Company’s ability to continue as a going concern.
Results of Operation for the Three Months Ended March 31, 2023 and 2022
For the three months ended March 31, 2023, the Company had revenues of $0. In comparison, for the three months ended March 31, 2022, the Company had revenues of $0.
Operating expenses were $264,401 for the three months ended March 31, 2023. Operating expenses include $10,225 of general and administrative expense, $35,021 of professional fees, and $219,155 of non-cash stock-based compensation expense. In comparison, for the three months ended March 31, 2022, operating expenses were $124,094, including $1,659 of general and administrative expense, $25,000 of professional fees, and $97,435 of non-cash stock-based compensation expense for the issuance of warrants.
For the three months ended March 31, 2023, the Company posted a net loss of $264,401, compared to a net loss of $124,094 for three months ended March 31, 2022.
During the three months ended March 31, 2023, the Company used $50,327 of cash in operating activities and generated $42,000 in cash from financing activities, and the Company did not use or generate any cash in investing activities. In comparison, for the three months ended March 31, 2022, the Company used $15,042 of cash in operating activities and generated $19,643 in cash from financing activities, and the Company did not use or generate any cash in investing activities.
Liquidity and Capital Resources
The accompanying unaudited condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated revenues of $0 during the three months ended March 31, 2023 and had a net loss of $264,401 for the three months ended March 31, 2023. The Company has an accumulated deficit of $6,629,810 as of March 31, 2023. The Company requires capital for its contemplated operational and marketing activities. The obtainment of additional financing, through an additional capital raise, the successful development of the Company’s contemplated plan of operations, and its transition to the attainment of continued profitable operations are necessary for the Company to continue operations.
The Company used $50,327 of cash from operations for the three months ended March 31, 2023. Net cash provided by financing activities for the three months ended March 31, 2023 was $42,000.
As of March 31, 2023, the Company had $8,812 in cash.
Critical Accounting Estimates and Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 2 to the Financial Statements describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, contingencies and taxes. Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Financial Statements.
| 14 |
We are subject to various loss contingencies arising in the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired, or a liability has been incurred and the amount of the loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Management evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, they concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective for the quarterly period ended March 31, 2023.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2023, the Company implemented changes to its internal controls to remediate potential material weaknesses pertaining to the following aspects: timely and accurate reconciliation of accounts and lack of segregation of duties. These changes included hiring Peter Hager as the Company’s Chief Executive Officer and instituting processes whereby Jim Kellogg, the Company’s Chief Financial Officer, can oversee internal controls. There have been no other changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.
| 15 |
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On November 4, 2021, a lawsuit captioned CAMRON ELIZABETH v. MARK PALUMBO et al., Case No. CVPS2106116 was filed in the Superior Court of California, County of Riverside against the Company and certain of the former company’s (CannAssist International Corp.) executive officers (collectively, the “Defendants”). The Plaintiff and the former company (CannAssist International Corp.) entered into a Consulting Agreement dated November 20, 2020 (the “Consulting Agreement”), pursuant to which Plaintiff was engaged to provide certain sales and marketing services to that Company. As a condition of this Consulting Agreement, Plaintiff was paid a monthly fee and was granted restricted shares of the common stock of the former company that were subject to certain vesting conditions tied to Plaintiff’s service under the Consulting Agreement. The Consulting Agreement also contained provisions that enabled the former company to terminate the Consulting Agreement without cause after 10 days’ written notice. In September 2021, the former company exercised its right to terminate the Consulting Agreement because management of the former company at the time of termination was dissatisfied with the quality of Plaintiff’s services under the Consulting Agreement. Specifically, management of the former company at the time of termination received complaints from third parties that Plaintiff behaved inappropriately in meetings where Plaintiff made presentations to potential clients and vendors on behalf of the former company. In contrast, Plaintiff alleges, among other things, that the Defendants improperly misclassified Plaintiff as an independent contractor, that certain of the former company’s executive officers committed sexual harassment and defamation and that Defendants unlawfully terminated Plaintiff. A jury trial has been set for May 26, 2023. The Company believes it should not be a party to the lawsuit since the former company, including its operations, officers, employees, contractors, assets, and liabilities were all spun out as part of or as a result of the Spin Out Agreement dated July 23, 2021, and the Plaintiff never contracted with or was employed by the current Company. The Company believes that the lawsuit is without merit and intends to defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of this lawsuit.
Other than as described above, we know of no other material, existing or pending legal proceedings against the Company, nor is it involved as a plaintiff in any material proceeding or pending litigation. Other than as described above, we know of no other proceedings in which our directors, officers or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In the first quarter of 2022, the Company entered into an Employment Agreement with Thomas Spruce, an officer and sole director of the Company. Under this Employment Agreement, the Company issued options to purchase 500,000 restricted shares of the Company’s common stock at a strike price of $0.39 per share. The options vest over a period of 1.5 years contingent upon service and have an expiry date of 10 years from the date of grant. In the first quarter of 2023, the Company entered into a new Employment Agreement with Mr. Spruce. Under this new Employment Agreement, the Company issued options to purchase 1,750,000 restricted shares of the Company’s common stock, at the commencement of his initial term of services, for an exercise price $0.06 per share, vesting with respect to the first 250,000 shares on February 1, 2023 and vesting with respect to the remaining 1,500,000 shares in installments of 125,000 shares per fiscal quarter with the first vesting date of April 1, 2023 and 250,000 options to purchase restricted shares of the Company’s common stock, at the commencement of his first renewal term of service. The options have an expiry date of 10 years from the date of grant. The options were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.
In the first quarter of 2023, the Company entered into an Employment Agreement with Peter Hager, an officer of the Company. Under this Employment Agreement, the Company issued options to purchase 6,400,000 restricted shares of the Company’s common stock at a strike price of $0.06 per share and options to purchase 1,000,000 restricted shares of the Company’s common stock, at the commencement of his first renewal term of service. The options to purchase 6,400,000 restricted shares shall vest with respect to the first 400,000 shares on February 1, 2023, with the remaining 6,000,000 shares vesting in installments of 500,000 shares per fiscal quarter for each quarter of continuous service, beginning on April 1, 2023. The options were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.
In the first quarter of 2023, the Company entered into an Advisor Agreement with Greg Shockey, an advisor of the Company. Under this Advisor Agreement, the Company issued options to purchase 3,660,000 restricted shares of the Company’s common stock at a strike price of $0.06 per share. The options shall vest with respect to the first 60,000 shares on February 1, 2023, with the remaining 3,600,000 shares vesting in installments of 300,000 shares per fiscal quarter for each quarter of continuous service, beginning on April 1, 2023. The options were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.
| 16 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINING SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
| 17 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ELECTRONIC SERVITOR PUBLICATION NETWORK INC. | |
| Dated: May 15, 2023 |
By: /s/ Peter Hager Peter Hager Chief Executive Officer |
|
By: /s/ Jim Kellogg Jim Kellogg Chief Financial Officer
|
18