N
OTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2016
NOTE 1
-
ORGANIZATION AND BASIS OF PRESENTATION
The
unaudited condensed consolidated financial statements included
herein have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission
(“SEC”). The financial statements and notes are
presented as permitted on Form 10-Q and do not contain
certain information included in the Company’s annual
statements and notes. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States
of America have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the
Annual Report on Form 10-K for the year ended December 31, 2015
filed with the SEC, including the audited financial statements and
the accompanying notes thereto.
These
unaudited financial statements reflect all adjustments, including
normal recurring adjustments which, in the opinion of management,
are necessary to present fairly the operations and cash flows for
the periods presented.
On
September 2, 2006, Celtic Capital, Inc. was incorporated in the
State of Nevada. On October 20, 2008, Celtic Capital, Inc. changed
its name to Entertainment Educational Arts Inc. On May 12, 2010,
the Company changed its name to DNA Precious Metals, Inc. (the
“Company”). On October 29, 2010, the Company formed DNA
Canada Inc., a Canadian (Province of Quebec) incorporated company,
as a wholly-owned subsidiary. The Company operated certain
exploration operations through this Canadian entity.
The
Company acquired certain mining claims on September 9, 2011 located
in the Montauban and Chavigny townships near Grondines-West in the
Portneuf County of Quebec, Canada.
On
October 30, 2013 and November 27, 2013, the Company entered into
binding agreements for the asset acquisitions of an undivided one
hundred percent (100%) interest in certain mineral claims and
mining assets located in the Province of Quebec’s Montauban
and Chavigny townships near Grondines West, in the county of
Portneuf, specifically Mining Lease BM 748 and Mining Concession
Miniere CM 410. The purchase price was CDN$75,000 together with the
issuance of 10,500 common shares of the Company. The common shares
for the acquisition were valued at their fair market value on the
day they were issued which totaled $496,860. In connection with the
asset purchase, the Company also issued 400 shares of common stock
to a former supplier of the vendor for mining related information
of the assets purchased valued at $20,000 along with cash
consideration of CDN$20,000. The transaction was approved by a
bankruptcy court in Montreal, Quebec overviewing the financial
restructuring of the vendor on April 17, 2014.
On
January 10, 2014, the Company entered into an asset purchase
agreement for an undivided one hundred percent (100%) interest in
certain mineral claims located in the Province of Quebec’s
Montauban and Chavigny townships near Grondines West, in the county
of Portneuf, including claims, rights, concessions and leases. The
purchase price was CDN$70,000, 10,000 common shares of the Company
and a one percent (1%) net smelter return. The Company paid
CDN$10,000 upon the signing of the asset purchase agreement with
the cash balance due, along with the common shares, upon the
closing of the asset purchase agreement and transfer of the mineral
claims in the name of the Company. The transfer of the mineral
claims was completed in February 2014 whereby the remaining cash
balance due and the common shares were released to the
vendor.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 1
-
ORGANIZATION
AND BASIS OF PRESENTATION (CONTINUED)
The
common shares for the acquisition were valued at their fair market
value on the day they were issued which totaled $340,000. The total
cost of the acquisition amounted to $403,840.
On
April 14, 2014, the Company entered into an asset purchase
agreement for an undivided one hundred percent (100%) interest in
fifty-seven (57) mining claims located in the Province of
Quebec’s Montauban and Chavigny townships near Grondines
West, in the county of Portneuf. The purchase price was CDN$5,000
(US $4,547).
On
December 4, 2014, the Company presented a renewal request with the
Government of the Province of Quebec to renew all 122 claims.
This was granted through a decision dated February 23,
2015.
On January 16, 2015, Breathe LLC, a Tennessee limited liability
company, and Breathe eCigs. Corp., a Tennessee corporation
(“Breathe”), entered into a Share Exchange Agreement
(the “Exchange Agreement”) with the Company, whereby
the Company acquired all of the issued and outstanding membership
interests Breathe LLC in consideration for the issuance of
1,500,000 shares of the Company’s common stock to the members
of Breathe LLC.
As a
result of the transaction effected by the Exchange Agreement, at
closing Breathe became a wholly owned subsidiary of the Company,
with the former Breathe equity holders owning approximately 56% of
the then issued and outstanding common stock of the Company. The
Company accounted for this acquisition as a reverse merger, whereby
Breathe became the accounting acquirer. As a result, the
comparative figures are those of Breathe.
In
connection with the acquisition of Breathe LLC, on March 5, 2015
the Company entered into an Agreement and Plan of Merger (the
“Merger Agreement”) pursuant to which the Company
merged with its wholly owned subsidiary, Breathe eCig Corp. The
sole purpose of the Merger was to effect a change of the Company's
name from DNA Precious Metals, Inc. to Breathe eCig Corp. This name
change more accurately reflected the Company’s operations at
the time.
With
the acquisition of Breathe LLC, the Company determined to spin-off
the operations of its mining operations, which were being conducted
through the Company’s wholly owned subsidiary, DNA Canada,
Inc. (“DNAC”). Effective February 3, 2015,
the Company declared a stock dividend whereby each of the
Company’s shareholders on the record date (February 3, 2015)
would receive one share of DNAC for every two shares of the
Company’s common stock owned.
The former members
of Breathe LLC tendered their shares of DNAC for redemption by the
Company.
With
the completion of the spin-off, the Company was no longer in the
mining field and its sole and exclusive business operations was the
marketing of its electronic cigarettes and related vapor devices.
In March 2015, the Company entered into Distribution Agreements
with various distributors for the distribution of the
Company’s products.
On May
11, 2015, the Company formed two wholly owned subsidiaries to
conduct non-eCigarette related business by way of holding medical
device and other related intellectual property for the future
development of for-profit activates and/or partnerships. Currently
these entities are inactive, and neither holds any assets, carries
any liabilities nor holds any intellectual
property.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 1
-
ORGANIZATION
AND BASIS OF PRESENTATION (CONTINUED)
On
January 25, 2016, Mr. Seth M. Shaw succeeded Mr. Joshua Kimmel
as Chief Executive Officer of the Company. Mr. Kimmel
resigned as a director and officer of the Company at that
time.
On
March 15, 2016, following the receipt of written consents
representing a majority of its issued and outstanding shares, the
Company filed an amendment to its Articles of Incorporation with
the Nevada Secretary of State, increasing its authorized common
stock from 500,000,000 to 8,000,000,000 shares.
On
April 5, 2016, Mr. Shinsuke Nakano was appointed Chief Executive
Officer of the Company. Simultaneously, Mr. Shaw was
appointed Interim Chief Financial Officer and Director.
As of March 30, 2016, pursuant to a settlement agreement under
trademark litigation with plaintiff, Breathe LLC (a Florida limited
liability company, or “Breathe Florida”), the Company
ceased its continuing operations in the eCigarette business. In
accordance with the settlement agreement, the Company was required
to pay two cash payments to Breathe Florida ($10,000 was paid on
March 31, 2016 and $15,000 was paid on August 10, 2016). Under this
agreement, the Company also was required to issue 500,000
restricted common shares of Company stock to Breathe Florida in
addition to the transfer of 5,000,000 common shares which it held
in Tauriga Sciences, Inc. At September 30, 2016 the value of the
shares was $20,500 ($0.0041 per share). The Company further agreed
to split 50/50 any future sales of its held inventory. The sale of
inventory was to be a joint effort by the two companies and was
expected to last for one year from April 1, 2016. The
Company’s management does not expect to sell the remaining
inventory and has fully impaired the asset as of September 30,
2016.
On
April 5, 2016, the Company announced its intention to give White
Fox Ventures Inc. a majority controlling interest in the Company
pursuant to an Acquisition Agreement by which White Fox Ventures
Inc. was to be acquired for an
undetermined number of shares
equating 85% of the total issued and outstanding capital of the
Company.
The deal was initially scheduled to close on
April 15, 2016, subject to extension. On May 6, 2016, the Company
and White Fox Ventures Inc. rescinded the transaction following the
due diligence on the acquisition. It was determined that the
agreement and acquisition were not in the best interests of the
Company at the time. The principal of White Fox Ventures Inc.,
Shinsuke Nakano (“Nakano”), and investors had invested
$196,557 into the Company in the form of payment of various
settlements and invoices outstanding. The investment was treated as
private placement at $0.0001, whereby the Company, on May 10, 2016,
issued to Nakano and investors 19,655,700 shares of common stock,
representing approximately 72% of the shares of the Company at the
time. In addition, Nakano was named as the Chief Executive Officer
of the Company and the Chairman of the Board and Mr. Takehiro Abe
was appointed to the positions of Chief Operating Officer ("COO")
and Director ("Board Member".)
On May
23, 2016, the Company filed with the Secretary of State for the
State of Nevada, the amendment to its Articles of Incorporation to
change the name of the company to White Fox Ventures, Inc.
(“White Fox”) to better reflect the new direction of
the business and to effect a 100:1 reverse stock
split.
On June
17, 2016, the Company formed a subsidiary with 99% majority
ownership stake. The remaining 1% of the equity in this
subsidiary, White Fox Japan LLC, is held by the Company’s
Chief Operating Officer and Director, Takehiro Abe, a related
party. The Company currently conducts all transactional
operational activity through this subsidiary, which plans, manages
and promotes seminars and classes in
Japan.
On June
22, 2016, FINRA announced its final approval for the
Company’s change of name to White Fox Ventures, Inc., as well
as a 100:1 reverse stock split and the Company’s new ticker
symbol, AWAW, which began trading on July 20, 2016. All
share figures are shown in this report are on a post reverse split
basis.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 1
-
ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Going Concern
T
he
condensed consolidated financial statements have been prepared on a
going concern basis. The going concern basis of presentation
assumes that the Company will continue in operation for the
foreseeable future and be able to realize its assets and discharge
its liabilities and commitments in the normal course of
business. The Company has generated net losses from operations
totaling $866,910 and $5,496,643 for the nine months ended
September 30, 2016 and 2015, respectively. Losses from discontinued
operations were $147,675 and $2,217,944 for the nine months ended
September 30, 2016 and 2015, respectively.
The
Company’s continuation as a going concern is dependent upon,
amongst other things, continued financial support from its
shareholders, attaining a satisfactory revenue level, attainment of
profitable operations and the generation of cash from operations
and the ability to secure new financing arrangements and new
capital to carry out its business plan. These matters
are dependent on a number of items outside of the Company’s
control and there exists material uncertainties that may cast
significant doubt about the Company’s ability to continue as
a going concern.
On March 30, 2016, the Company discontinued the operations of its
eCigarette business as a result of the settlement agreement that
the Company entered into with Breathe Florida. The Company was able
to convert over $1,050,000 in debt in exchange for the intellectual
property of the Company in the eCig industry, and agreed to exit
the industry and sell off or dispose of all remaining inventory
during the next fiscal year. The Company’s management does
not expect to sell the remaining inventory and has fully impaired
the asset as of September 30, 2016.
The
Company can give no assurance that it will achieve profitability
through its subsidiary in its new business of membership sales
providing business seminars and classes in Japan, or be capable of
sustaining profitable continuing operations. These condensed
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of the carrying
amounts of assets or the amount and classification of liabilities
that might result if the Company is unable to continue as a going
concern. These factors raise substantial doubt regarding the
ability of the Company to continue as a going concern.
Basis of Accounting
These
condensed consolidated financial statements are prepared in
conformity with United States generally accepted accounting
principles (“U.S. GAAP”) and are presented in U.S.
dollars.
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates. Estimates include but are not limited to stock-based
compensation and tax valuation allowances.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 2
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The
condensed consolidated financial statements include the accounts of
the Company and Breathe as the acquisition of Breathe was accounted
for as a reverse merger and Breathe is the accounting acquirer,
from the effective date of the Merger between the Company and
Breathe eCigs Corp. All intercompany transactions and accounts had
been eliminated on consolidation.
On
January 16, 2015, Breathe LLC, a Tennessee limited liability
company, and Breathe eCigs Corp., a Tennessee corporation
(“Breathe”), entered into a Share Exchange Agreement
(the “Exchange Agreement”) with the Company, whereby
the Company acquired all of the issued and outstanding shares of
common stock of Breathe in consideration for the issuance of
1,500,000 shares of common stock. The consolidation of Breathe
eCigs Corp began January 16, 2015 through March 29, 2016 as part of
continuing operations. On March 30, 2016, Breathe eCigs Corp. was
moved to discontinued operations with retroactive restatement for
comparative purposes.
On June
17, 2016, the Company formed a subsidiary with 99% majority
ownership stake. The remaining 1% of the equity in this
subsidiary, White Fox Japan LLC, is held by the Company's Chief
Operating Officer and Director, Takehiro Abe, a related
party. The Company currently conducts all of its
transactional operational activity through this subsidiary, which
plans, manages and promotes seminars and classes in Japan.
Consolidation of the subsidiary began with the commencement of
operations upon initial funding on July 19, 2016 through the period
ended September 30, 2016.
Business Combination
On
January 16, 2015, Breathe LLC, a Tennessee limited liability
company, and Breathe eCigs., a Tennessee corporation
(“Breathe”) entered into the Exchange Agreement with
the Company, whereby the Company acquired all of the issued and
outstanding shares of common stock of Breathe in consideration for
the issuance of 1,500,000 shares of common stock. This business
combination was accounted for as a reverse merger whereby Breathe
is the accounting acquirer, since the former Breathe shareholders
then controlled greater than 50% of the voting control of the
Company.
Stock Based Compensation
The
Company estimates the fair value of stock based payment awards made
to officers and directors related to the Company’s stock
incentive plan, on the date of grant using an option-pricing model.
The value of the portion of the award that is ultimately expected
to vest is recognized as an expense ratably over the requisite
service periods. The Company uses the Black-Scholes option pricing
model to determine the fair value of the stock-based compensation
that it grants to officers and directors. The Company is required
to make certain assumptions in connection with this determination,
the most important of which involves the calculation of volatility
with respect to the price of its common stock. The computation of
volatility is intended to produce a volatility value that is
representative of the Company’s expectations about the future
volatility of the price of its common stock over an expected term.
Shares of the Company commenced trading on August 22, 2013. As a
result, the volatility value that the Company calculated may differ
from the future volatility of the price of its shares of common
stock.
Upon
the exercise of stock options, any consideration received and the
amounts previously recorded under stock-based compensation are
credited to share capital. Upon the issuance of shares resulting
from share awards, amounts previously recorded under stock based
compensation are credited to share capital.
Comprehensive Income (Loss)
The
Company adopted ASC 220-10, “Reporting Comprehensive
Income,” (formerly SFAS No. 130). ASC 220-10 requires the
reporting of comprehensive income in addition to net income from
operations.
Comprehensive
income is a more inclusive financial reporting methodology that
includes disclosure of information that historically has not been
recognized in the calculation of net income.
The condensed consolidated financial statements
include the accounts and activities of t
he 99% majority
owned subsidiary, White Fox Japan LLC, which is presented with a
non-controlling interest of 1% for the share owned by a related
party, the Company's Chief Operating Officer and Director, Takehiro
Abe. The subsidiary conducts all transactional operational activity
of the Company. The subsidiary will plans, manages and
promotes seminars and classes in Japan.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 2
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
The
Company considers all highly liquid debt instruments and other
short-term investments (measured on the purchase date) with
maturity of three months or less, when purchased, to be cash
equivalents.
Marketable Securities
Marketable
equity securities included in Investment-available for resale
(current) and other investments (non-current) are stated at the
lower of cost or market in the aggregate. Unrealized gains
or losses appear in Other Comprehensive Income (Loss).
Realized gains and losses on the sale of securities are based
on the average cost of all the units of a particular security held
at the time of sale.
Income Taxes
The
Company uses the liability method of accounting for income taxes
under which deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted or substantially enacted tax rates in
effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as
part of the provision for income taxes in the period that includes
the enactment date. Deferred tax liabilities are always provided
for in full. Deferred tax assets are recognized to the extent that
it is probable that they will be able to be utilized against future
taxable income. Deferred tax assets and liabilities are offset only
when the Company has a right and intention to set off current tax
assets and liabilities from the same taxation authority. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to amounts that are expected to be realized.
The
Company accounts for income taxes pursuant to the provision of ASC
740-10, “Accounting for Income Taxes” (“ASC
740-10”) which requires, among other things, an asset and
liability approach to calculating deferred income taxes. The asset
and liability approach requires the recognition of 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. A valuation allowance is provided
to offset any net deferred tax assets for which management believes
it is more likely than not that the net deferred asset will not be
realized.
The
Company follows the provision of ASC 740-10 related to Accounting
for Uncertain Income Tax Position. When tax returns are filed,
there may be uncertainty about the merits of positions taken or the
amount of the position that would be ultimately
sustained.
In
accordance with the guidance of ASC 740-10, the benefit of a tax
position is recognized in the financial statements in the period
during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated
with other positions.
Tax
positions that meet the more likely than not recognition threshold
are measured as the largest amount of tax benefit that is more than
50 percent likely of being realized upon settlement with the
applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as
described above should be reflected as a liability for uncertain
tax benefits in the accompanying balance sheet along with any
associated interest and penalties that would be payable to the
taxing authorities upon examination. The Company believes its tax
positions are all highly certain of being upheld upon examination.
As such, the Company has not recorded a liability for uncertain tax
benefits.
The
Company has adopted ASC 740-10-25, “Definition of
Settlement”, which provides guidance on how an entity should
determine whether a tax position is effectively settled for the
purposes of recognizing previously unrecognized tax benefits and
provides that a tax position can be effectively settled upon the
completion and examination by a taxing authority without being
legally extinguished. For tax positions considered effectively
settled, an entity would recognize the full amount of tax benefit,
even if the tax position is not considered more likely than not to
be sustained based solely on the basis of its technical merits and
the statute of limitations remains open. The federal and state
income tax returns of the Company are subject to examination by the
IRS and state taxing authorities generally for three years after
they were filed.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 2
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The
Company recognizes revenues from the sale of the Company’s
products when the following criteria are met: (i) persuasive
evidence of an arrangement exists; (ii) delivery has occurred;
(iii) the price to the customer is fixed or determinable; and (iv)
collection of the sales price is reasonably
assured. Delivery occurs when goods are shipped and
title and risk of loss have passed to the
customer. Revenue is deferred in all instances where the
earnings process is incomplete. Payments received before
all the relevant criteria for revenue recognition are satisfied
will be recorded as deferred revenue. Revenues and costs
of revenues from consulting contracts will be recognized during the
period in which the service will be performed. All
revenues will be reported net of any sales discounts or
taxes.
Any revenues
applicable to discontinued operations are
included
.
Deferred
Revenue
The
Company defers revenue for funds received on contracts where future
value is received or could be received by the subscriber. The
contracts fall into one of two categories; annual and lifetime
memberships. The AWA Plus membership and the Premium membership are
both annual memberships and the revenue received on these contracts
are recognized pro-rata over the life of the contract or twelve
months. Crest Partner and Partner memberships are lifetime
memberships. Lifetime memberships are valid only when an annual
membership is purchased and in good standing. The revenue on these
contracts recognized over the expected duration of the contracts.
In the absence of an observable duration, the Company has estimated
that the duration of the contracts will be 36 months. Once an
average length can be estimated the Company will reevaluate this
assumption.
Trade Receivables and Allowance for Doubtful Accounts
The
Company was engaged up until March 30, 2016 in the sales and
distribution in the consumer products market through sales to
distributors, wholesalers and direct to consumers via e-commerce
sales of eCigarettes for use by consumers. Trade
receivables consisted primarily of amounts due to the Company from
its normal business activities whereby approved distributors and
wholesalers were extended terms after down payments on orders. The
Company controlled credit risk related to the trade receivables
through credit approvals, credit limits and monitoring procedures,
and performed ongoing credit evaluations of the customers. In
assessing the carrying value of its trade receivables, the Company
estimated the recoverability by making assumptions based on factors
such as current overall and industry-specific economic conditions,
historical and anticipated customer performance, historical
write-off and collection experience, the level of past-due amounts,
and specific risks identified in the accounts receivable portfolio.
Additional changes to the allowance could be necessary in the
future if a customer’s creditworthiness deteriorates, or if
actual defaults are higher than the Company’s historical
experience. Any difference could result in an increase or
decrease in the allowance for doubtful accounts. All accounts
receivable, net of an allowance are considered uncollectable and
have a carrying value of $0 in light of the discontinuance of
operations in the consumer products market.
Prepaid Expenses
At
times the Company pays for services, commissions, contracts or
obligations under other agreements where the value of those
services may extend beyond the current period. These amounts are
recognized over the useful benefit period. The Company classifies
amounts paid for sales commissions on contracts sold by a third
party. These commissions are recognized to match the revenue
recognized of the contracts. The Company also classifies costs of
production of promotional content to recognize expense over the
period content is in use.
Inventory
Finished Goods Inventory
- Finished goods inventory is
stated at the lower of cost or market determined by the first-in,
first-out method, and include salable eCigarette product items and
supplies that are sale ready to ship to consumers, wholesalers or
distributers. Shipping and handling costs (consisting of all costs
to warehouse, pick, pack and deliver inventory to customers) will
be included in cost of goods sold. Samples were included in
marketing expenses which are a component of general and
administrative costs. Expenses, upon disposition, were reclassified
to loss from discontinued operations. The Company in March 2015
entered into Distribution Agreements with various distributors for
the distribution of the Company’s products. The Company
placed an initial order for merchandise in the amount of $437,750
on March 27, 2015. The Company outsourced the assembly and
production of its products held for resale and did not hold any of
the product in its possession. The Company’s inventory is
received, housed and distributed by a third-party fulfillment
provider. As of September 30, 2016, the inventory held by the
third-party fulfillment provider had a value of
$227,685.
As of
March 30, 2016, pursuant to a settlement agreement under trademark
litigation, the Company had ceased its continuing operations in the
eCigarette business. The Company agreed to split 50/50 any future
sales of its held inventory with Breathe Florida. The sale of
inventory is a joint effort by the two companies and shall last for
one year from April 1, 2016. After such period, the Company will
dispose of any remaining inventory.
As a result of the settlement agreement and the discontinuance of
the eCig operation, management estimated that it could sell the
current inventory at $.50 for each $1 of inventory. Therefore an
allowance was recorded to recognize the current expected net
realizable value of the on-hand inventory. The inventory
balance was $0 and $114,067 as of September 30, 2016 and December
31, 2015, respectively. This balances are reflected in inventory
from discontinued operations. The Company’s management does
not expect to sell the remaining inventory and has fully impaired
the asset as of September 30, 2016.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 2
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss Per Share of Common Stock
Basic
net loss per share (“Basic EPS”) is computed by
dividing net loss available to common shareholders by the weighted
average number of common shares outstanding for the
period.
Diluted
loss per share is computed by dividing adjusted net income
available to common shareholders by the weighted average number of
common shares outstanding adjusted for the effects of all dilutive
common share issuances.
Dilutive
common share issuances shall be deemed to have been converted into
ordinary shares at the beginning of the period.
For the
purpose of calculating diluted
loss
per
share, the Company shall assume the exercise of dilutive stock
options and warrants, as well as shares reserved for the conversion
of certain notes payable. The assumed proceeds from these
instruments shall be regarded as having been received from the
issue of common shares at the average market price of common shares
during the period. Dilutive common share issuances are not included
in the computation of diluted
loss
per
share when the Company reports a loss because to do so would be
anti-dilutive for the periods presented.
Derivative Financial Instruments
The
Company does not use derivative instruments to hedge exposures to
cash flow, market or foreign currency risks. The Company evaluates
all of its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the
statements of operations. The classification of derivative
instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each
reporting period.
The
accounting treatment for derivative financial instruments requires
that the Company record the conversion option and related warrants
at their fair values as of the inception date of the agreements,
and at fair value as of each subsequent balance sheet date, should
the characteristics of these instruments warrant the need to record
the derivative liability.
During
the year ended December 31, 2014, as a result of entering into the
convertible notes, the Company was required to classify certain
non-employee warrants as derivative liabilities and record them at
their fair values at each balance sheet date. Any change in fair
value was recorded as a change in the fair value of derivative
liabilities for each reporting period at each balance sheet date.
The Company reassessed the classification at each balance sheet
date. If the classification changed as a result of events during
the period, the contract was reclassified as of the date of the
event that caused the reclassification.
The
fair value of conversion options at a fixed number of shares is
recorded using the intrinsic value method. Conversion options at
variable rates and any options and warrants with ratchet provisions
are deemed to contain a “down-round protection”.
Accordingly, they do not meet the scope exception for treatment as
a derivative under ASC 815 since “down-round
protection” is not an input into the calculation of the fair
value of the equity instruments and cannot be considered
“indexed to the Company’s own stock”, which is a
for the scope exception as outlined under ASC 815.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 2
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Financial Instruments (Continued)
The
Company issued convertible notes and warrants and has determined
that a conversion option is embedded in the notes and it is
required to bifurcate the conversion option from the host contract
under ASC 815 and account for the derivatives at fair value. The
estimated fair value of the conversion option was determined using
the binomial model. The fair value of the conversion option was
classified as a liability until the debt was converted by the note
holders or paid back by the Company. The fair value was affected by
changes in inputs to that model including the stock price, expected
stock price volatility, the contractual term, and the risk-free
interest rate. The Company continued to classify the fair value of
the conversion option as a liability until the conversion option
was exercised, expired or amended in a way that would no longer
require these conversion options to be classified as a liability,
whichever comes first. The Company has adopted a sequencing policy
that reclassifies contracts (from equity to assets or liabilities)
with the most recent inception date first. Thus any
available shares are allocated first to contracts with
the most recent inception date.
For the
binomial lattice options pricing model, the Company used the
following assumptions and weighted average fair value ranges as at
the transaction date, April 28, 2014:
|
Convertible
Notes:
|
|
|
|
Risk free interest
rate
|
0.0577
%
|
N/A
|
|
Dividend
yield
|
N/A
|
N/A
|
|
Volatility
|
86.31
%
|
N/A
|
|
Warrants:
|
|
|
|
Risk free interest
rate
|
0.144
%
|
N/A
|
|
Dividend
yield
|
N/A
|
N/A
|
|
Volatility
|
97.33
%
|
N/A
|
The
Company had repaid the debt associated with the derivative
liability in December 2014. However, it carried the warrants
through the conversion of those warrants in September 2015. As a
result of the conversion of the warrants, the entire derivative
liability was extinguished as of September 30, 2015. The Company
has no other instruments that contain embedded
derivatives.
Prior
to the effective date of the March 15, 2016 amendment to the
Company's Articles of Incorporation increasing the authorized
common shares of the Company from 500,000,000 to 8,000,000,000
shares, the Company did not have sufficient authorized shares to
effectuate any conversion of convertible notes outstanding with
either of the two noteholders. The Company remained in constant
negotiations with the noteholders resulting in amended agreements
dated March 25, 2016 and March 29, 2016, respectively, and the
noteholders did not exercise their right to issue the Company a
notice of default. At no time did the Company consider that the
notes outstanding could not be fully settled. Upon the filing of
the amendment to the Articles of Incorporation the Company in
effect, cured any default under the note agreements, and as a
result, no derivative liability was recorded by the Company. The
amended note agreements reflect the current number of common shares
needed to settle the remaining convertible note agreements and
there are sufficient shares available to settle these
agreements.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current
year presentation. The reclassifications had no effect on the net
loss or cash flows of the Company.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 2
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Restated Financial Statements
Prior
year amounts are presented in accordance with Amendment No. 1 to
Form 10 Q/A for the quarters ended March 31, 2015 and September 30,
2015 as filed with the Securities and Exchange Commission on
November 10, 2015. The required adjustments were made to properly
account for the acquisition of Breathe eCigs Corp. (formerly
Breathe LLC) on January 16, 2015 as a reverse merger for accounting
purposes.
Recently Issued Accounting Standards
In
February 2016, FASB issued ASU 2016-02, Leases (Topic 842).
The new standard requires lessees to apply a dual approach,
classifying leases as either finance or operating leases based on
the principle of whether or not the lease is effectively a financed
purchase by the lessee. This classification will determine whether
lease expense is recognized based on an effective interest method
or on a straight-line basis over the term of the lease. A lessee is
also required to record a right-of-use asset and a lease liability
for all leases with a term of greater than 12 months regardless of
their classification. Leases with a term of 12 months or less will
be accounted for similar to existing guidance for operating leases.
The new guidance will be effective for annual reporting periods
beginning after December 15, 2018, including interim periods within
that reporting period and is applied retrospectively. Early
adoption is permitted. We are currently in the process of assessing
the impact the adoption of this guidance will have on the
Company’s consolidated financial statements.
During
August 2014, the FASB issued ASU No. 2014-15, “Presentation
of Financial Statements—Going Concern.” The provisions
of ASU No. 2014-15 require management to assess an entity’s
ability to continue as a going concern by incorporating and
expanding upon certain principles that are currently in U.S.
auditing standards. Specifically, the amendments (1) provide a
definition of the term substantial doubt, (2) require an evaluation
every reporting period including interim periods, (3) provide
principles for considering the mitigating effect of
management’s plans, (4) require certain disclosures when
substantial doubt is alleviated as a result of consideration of
management’s plans, (5) require an express statement and
other disclosures when substantial doubt is not alleviated, and (6)
require an assessment for a period of one year after the date that
the financial statements are issued (or available to be issued).
The amendments in this ASU are effective for the annual period
ending after December 15, 2016, and for annual periods and interim
periods thereafter. The Company is currently assessing the impact
of this ASU on the Company’s consolidated financial
statements.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 3
-
ACQUISITION
Breathe eCigs Corp. Acquisition and Spin-off of DNA Canada,
Inc.
On
January 16, 2015, Breathe LLC, a Tennessee limited liability
company, and Breathe eCigs Corp., a Tennessee corporation
(“Breathe”), entered into a Share Exchange Agreement
(the “Exchange Agreement”) with the Company, whereby
the Company acquired all of the issued and outstanding shares of
common stock of Breathe in consideration for the issuance of
1,500,000 shares of common stock.
As a
result of the transaction effected by the Exchange Agreement, at
closing Breathe became a wholly owned subsidiary of the Company,
with the former Breathe equity holders owning approximately 56% of
the then issued and outstanding common stock of the Company. The
Company accounted for this acquisition as a reverse merger, whereby
Breathe became the accounting acquirer. As a result, the
comparative figures are those of Breathe.
With the acquisition of Breathe, management determined that it
would be in the best interest of the Company and its shareholders
to spin off the exploration stage mining business from the
eCigarette business, in order to allow each company to focus on its
principal business activity and to facilitate capital formation.
The Company declared a stock dividend to its shareholders of record
as of February 3, 2015 of its wholly owned subsidiary, DNA Canada,
Inc. Each shareholder of record on the record date received
one share of DNA Canada, Inc. for every two shares of the Company
owned by the shareholder on this date. With the completion of
the stock dividend, the Company no longer has an equity interest in
DNA Canada, Inc.
The
former shareholders of Breathe participating in the stock dividend
were required to tender for redemption any shares of DNA Canada,
Inc. common stock received pursuant to the stock dividend in
accordance with the Exchange Agreement.
On
March 5, 2015, the Company and Breathe entered into an Agreement
and Plan of Merger pursuant to which the Company merged with its
wholly owned subsidiary, Breathe. As permitted under Nevada law,
the sole purpose of the Merger was to affect a change to the
Company’s name from DNA Precious Metals, Inc. to Breathe.
This change to the Amended Articles of Incorporation and name
change took effect on March 11, 2015.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 4
-
DISCONTINUED OPERATIONS
Trademark
Settlement/Disposal of eCigarette Operations
As of
March 30, 2016, pursuant to a settlement agreement under trademark
litigation with plaintiff, Breathe LLC (a Florida limited liability
company, or “Breathe Florida”), the Company ceased its
continuing operations in the eCigarette business. In accordance
with the settlement agreement, the Company was required to pay two
cash payments to Breathe Florida (with $10,000 paid on March 31,
2016 and $15,000 paid on August 10, 2016). Under the agreement, the
Company also was required to issue 500,000 restricted common shares
of Company stock in addition to the transfer of 5,000,000 common
shares which it held in Tauriga Sciences, Inc. At September 30,
2016 the value of the shares was $20,500 ($0.0041 per share.) The
Company transferred the shares of Tauriga Sciences, Inc. on
November 2, 2016. The Company further agreed to split 50/50 any
future sales of its held inventory with Breathe
Florida. The sale of inventory shall be a joint effort
by the two companies and shall last for a duration of one year from
April 1, 2016. After such period, the Company will dispose of any
remaining inventory. The Company does not expect to sell the
remaining inventory and has fully impaired the asset as of
September 30, 2016.
As a
result of the disposal of the business and the discontinuance of
the eCigarette operations, the following chart reflects the results
of the condensed consolidated financial statements as loss from
discontinued operations as of September 30, 2016:
|
WHITE FOX VENTURES, INC.
|
|
(FORMERLY BREATHE ECIG CORP.)
|
|
CONSOLIDATED STATEMENTS OF DISCOUNTED OPERATIONS
|
|
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND
2015
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
$
-
|
$
64,218
|
$
19
|
$
70,218
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
-
|
93,447
|
1,851
|
100,504
|
|
|
|
|
|
|
|
GROSS LOSS
|
-
|
(29,229
)
|
(1,832)
|
(30,286
)
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
Research
and development
|
-
|
10
|
-
|
2,188
|
|
Marketing,
advertising and promotion
|
-
|
95,930
|
9,000
|
534,163
|
|
Rent
|
3,561
|
3,561
|
10,683
|
4,748
|
|
Salaries
and related expenses, including stock-based
compensation
|
-
|
53,660
|
10,911
|
167,810
|
|
Professional
fees
|
-
|
26,939
|
-
|
1,182,175
|
|
Depreciation
and amortization
|
-
|
12,585
|
-
|
25,034
|
|
General
and administrative
|
-
|
104,464
|
1,631
|
271,540
|
|
Total operating expenses
|
3,561
|
297,149
|
32,225
|
2,187,652
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSE
|
|
|
|
|
|
Loss
from Inventory valuation LCM
|
113,842
|
-
|
113,618
|
-
|
|
Total other (income) expense
|
113,842
|
-
|
113,618
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from discontinued operations
|
$
(117,403
)
|
$
(326,378
)
|
$
(147,675
)
|
$
(2,217,944
)
|
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 4
-
DISCONTINUED OPERATIONS (CONTINUED)
Trademark Settlement/Disposal of eCigarette Operations
(Continued)
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
BALANCE SHEET FROM DISCONTINUED OPERATIONS
|
|
|
|
|
Inventory of
discontinued operations, net of valuation
allowance
|
$
-
|
114,067
|
|
|
|
|
|
Liabilities of
discontinued operations
|
$
239,004
|
232,771
|
NOTE 5 - INVESTMENT - AVAILABLE
FOR SALE SECURITY
On March 31, 2015, the Company received 10,869,565 common shares of
Tauriga Sciences, Inc. (“TAUG”) (valued at $100,000) in
exchange for 26,667 shares in connection with a
commercialization/license agreement with TAUG to jointly develop a
new line of business involving CBD oil cartridges on the same date.
The Company shares were reflected as an investment. Due to the very
low stock value of both companies and with the Company exiting the
eCigarette business, both companies have impaired their respective
investment to $0 as December 31, 2015. As of March 30, 2016,
pursuant to the settlement agreement under trademark litigation
with plaintiff, Breathe Florida, the Company was required to
transfer 5,000,000 of the shares it held in Tauriga Sciences, Inc.
(the transfer was done on November 2, 2016.) At September 30, 2016,
the value of total shares held was $44,565 ($0.0041 per
share.)
On
August 22, 2016 the Company entered into an agreement to invest
$2,500,000 into NQ Minerals, PLC, an Australian mining company
listed in London under the symbol of NQMI. Upon entering this
agreement the Company invested $150,000, purchasing 1,351,351
shares. At September 30, 2016 the Company invested an additional
$100,000 receiving 900,901 common shares. Effective December
1, 2016 the Company has withdrawn from its commitment to NQ
Materials PLC to purchase a $2,500,000 stake in the company.
At the time of the termination of this agreement the Company had
invested $250,000 acquiring 2,252,252 common shares. With the
withdrawal from the commitment the Company has classified the
entire investment as a current asset. At September 30, 2016, the
Company recorded an unrecognized loss in Other Comprehensive Income
in the amount of $103,604.
The loss was
determined by recalculating the investment at it's fair value at
September 30, 2016 and adjusting the valuation account to reflect
the change in value.
NOTE 6
-
CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES
The following is a summary of convertible notes payable and the
related derivative liabilities associated with the convertible
notes payable. As a result of the reverse merger,
Breathe assumed responsibility of these DNA Precious Metals, Inc.
notes, and any related derivative liability that exists under these
notes related to the warrant agreements. Therefore, a full
discussion has been provided for clarification.
On May
18, 2015, Typenex Co-Investment, LLC (“Typenex”) filed
a binding arbitration against the Company in the State of Utah (the
“Utah Lawsuit”) regarding a certain Warrant to purchase
shares of the Company’s common stock. The Utah Lawsuit is
described in more detail in Item 3 of the Company’s Annual
Report for the year ended December 31, 2015 and subsequent
filings.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 6
-
CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES
(CONTINUED)
On October 13, 2015, Typenex and the Company participated in a
mediation in an attempt to resolve the Utah Lawsuit without either
party having to incur additional legal and court
fees. As a result of the mediation and in order to
resolve the Utah Lawsuit and the Arbitration and all other disputes
between, on November 17, 2015 (the “Typenex
Effective Date”), the Company and Typenex entered into a
Settlement Agreement, Waiver and Release of Claims (the
“Settlement Agreement”) and related Exchange Agreement
(the “Exchange Agreement”), Pursuant to the terms of
the Settlement Agreement and Exchange Agreement, the Company agreed
to issue to Typenex 80,000 shares of the Company’s common
shares of stock in exchanges for any rights Typenex may or may not
have had under the Warrant. The Company will deliver the shares to
Typenex in two installments: (i) 40,000 Shares with five trading
days of the Effective Date (the “First Installment
Shares”) and (ii) 40,000 Shares on or before January 1, 2016
(the “Second Installment Shares”). The First
Installment Shares and the Second Installment Shares are
collectively referred to herein as the Typenex Shares.
Additionally,
pursuant to the Settlement Agreement, beginning on January 1, 2016,
Typenex had the right to put the Typenex Shares back to the Company
(the “Put Right”) at the following prices: (a) for
Typenex Shares put to the Company from January 1, 2016 to April 30,
2016 the price would be $1.00 per share. (b) for Typenex Shares put
to the Company from May 1, 2016 to August 31, 2016 the price would
be $2.00 per share. and (c) for any Typenex Shares put to Company
between September 1, 2016 and December 31, 2016, the price would be
$3.00 per share. Typenex had the right to put up to 6,667 Typenex
Shares per month to Company (the “Monthly Put Amount”)
per month. If the number of Typenex Shares put to
Company in a given month was less than the Monthly Put Amount (such
difference, the “Rollover Shares”), Typenex had the
right to put such Typenex Shares to Company at any time in the same
or immediately succeeding period. In addition to the
Monthly Put Amount, Typenex also had the right to put up to 6,667
Rollover Shares per month to Company. Additionally, Typenex
agreed that during any calendar week it would not sell more Typenex
Shares than the greater of (i) 10% of the weekly trading volume of
the Common Stock as reported on Bloomberg, L.P. or (ii) an
aggregate market value of $5,000. At such time that Typenex’s
Net Sales (gross proceeds of sales of the Typenex Shares sold in a
minus any trading commissions or costs associated with clearing and
selling such Typenex Shares minus the purchase price paid for any
shares of Common Stock purchased on the open market) of Typenex
Shares was equal to or greater than $200,000, Typenex’s Put
Right would automatically terminate and Typenex would have no
further rights to put Typenex Shares or Rollover
Shares.
Upon
execution of the Settlement Agreement and Exchange Agreement, both
parties released all claims each may have against the other
relating to any other agreements to which both may be
party. Under the Settlement Agreement, the Company
executed a Confession of Judgment in the amount of $500,000 (the
“Confession of Judgment”). In the event the
Company committed a material breach of the Settlement Agreement
which was not cured within five trading days, Typenex would have
the right to enforce the Confession of Judgment. The
Confession of Judgment, if filed as set forth above, would have
carried an interest rate of 12% until paid.
On
March 25, 2016, the Company paid $55,000 to Typenex to settle all
obligations resulting from these agreements.
Convertible Note dated June 8, 2015
On June
8, 2015, the Company entered into a 12% convertible redeemable note
payable with an investor. The principal amount of the note was
$100,000, with net proceeds received of $96,500. The $3,500
represented legal fees. This note was to mature on June 8, 2016.
The note bore interest at 12%, compounded annually. The note was
convertible, in whole or in part, into shares of the
Company’s common stock at a conversion price equal to the
lower of closing price of the common stock on the principle market
on the training day immediately preceding the closing date or 35%,
of the lowest trading price of the Company’s common stock
during the 20 trading days prior to conversion. Under terms of the
convertible note agreement, if the closing sale price at any time
fell below $5.00, then such 35% figure specified above would be
reduced to 20%. The stock closing price went below $5.00
per share in the three months ended September 30,
2015.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 6
-
CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES
(CONTINUED)
Convertible Note Dated June 8, 2015
(Continued)
Under
the convertible note agreement, the Company was required to
maintain a sufficient number of shares, free from preemptive
rights, to provide for the issuance of common stock upon
conversion. The Company was required at all times to authorize a
reserve of five times the number of shares that are actually
issuable upon full conversion of this note. The Company initially
instructed the transfer agent to reserve 165,000 shares of common
stock for the noteholder for issuance upon
conversion. The noteholder waived the
requirement of the reserve shares above and beyond what was
needed to convert through the maturity date, notwithstanding the
initial reserve amount. At September 30, 2015 the number
of shares that were issuable upon full conversion of then
outstanding principal and accrued unpaid interest was 740,943,
based on 20% of the lowest trading price of the Company’s
common stock as reported on the OTCQB for the twenty prior trading
days including the day upon which a notice of conversion is
delivered ($0.70).
On January 4, 2016 the Company issued 166,700 shares of common
stock to the holder of the convertible note upon the
noteholder’s conversion of $10,002 of principal only into
shares. The applicable conversion price was
$0.06. Upon this conversion, the note had a remaining
balance including default interest fees of
$40,000.
On
March 29, 2016, the Company entered into an agreement with this
noteholder to amend this convertible note to cure the default
clause of the original agreement (no notice of default was
provided). The event of default was due to the
Company’s inability to reserve sufficient shares required by
the convertible note agreement based on the total authorized and
unissued shares, which was subsequently cured with the increase of
the authorized shares to 8,000,000,000 on March 15,
2016. The holder agreed to reset the total balance due
to the “Adjusted Current Balance” of
$40,000. Also, under the agreement the price of future
conversions would be set at $0.10. The Company was
further required to reserve common shares of not less than 400,000.
From the date of this agreement, the note shall not be subject to
interest.
On April 11, 2016, the Company issued 200,000 shares of common
stock (of the 400,000) to the noteholder. The noteholder
converted $2,030 of principal only for the shares. Upon this
conversion, the note had a balance of $37,970. Upon the issuance of
the remaining 200,000 shares, any applicable loss on conversion
will be recorded at that time.
As of July 15, 2016, the noteholder rendered notice of conversion
to the transfer agent to convert $1,898 of outstanding principal.
1,897,700 shares were issued at a conversion rate of $0.001 (the
pre-split basis). The Company believes that the stock should have
been issued on a post-split basis whereby $189,770 of conversion
value was transferred. The Company applied these shares towards the
outstanding balance of the note of $40,000 ($0.021 per share.)
There is no guarantee that the Company will be able to recover the
shares or receive value from the excess shares
transferred.
The note balance was $0 and $50,002 as of September 30, 2016 and
December 31, 2015, respectively.
Convertible Note dated June 10, 2015
On June
10, 2015, the Company entered into a 12% convertible redeemable
note payable with an investor. The principal amount of the note is
$82,500, with net proceeds received of $75,000. The $7,500
represents an original issue discount. This note was to mature on
September 10, 2016. The note bore interest at 12%, compounded
annually. The note was convertible, in whole or in part, into
shares of the Company’s common stock at a conversion price
will be the lower of 60% of the lowest trading price of the
Company’s common stock as of the date of conversion notice or
$6.00 per share.
As
consideration for the holder’s commitment to purchase this
debenture, the Company issued 6,000 shares of the Company’s
common stock to the holder.
In
December 2015, the noteholder in three (3) separate conversions,
converted $47,250 into 600,000 shares of common stock. Two of these
note conversions were performed at a price below par value. The
result was that $22,500 represented a discount to the common stock
(which is reflected net in APIC).
In
March 2016, the noteholder in three (3) separate conversions
converted $11,188 of principal and accrued fees into 765,000 shares
of stock leaving a balance due under this note including interest
and fees of $143,000.
On
March 25, 2016, the Company entered into an agreement with the
noteholder to amend original note agreement. As part of
this amendment, the Company paid $20,000 in cash to the noteholder
and the noteholder agreed to reset the total balance due to the
“Adjusted Current Balance” of $123,000 representing
1,230,000 shares to be issued at $0.10.
The note balance was $0 and $154,188 as of September 30, 2016 and
December 31, 2015, respectively.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 6
-
CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES
(CONTINUED)
In
March 2016, the noteholder in three (3) separate conversions
converted $11,188 of principal and accrued fees into 765,000 shares
of stock leaving a balance due under this note including interest
and fees of $143,000.
On
March 25, 2016, the Company entered into an agreement with the
noteholder to amend original note agreement. As part of
this amendment, the Company paid $20,000 in cash to the noteholder
and the noteholder agreed to reset the total balance due to the
“Adjusted Current Balance” of $123,000 representing
1,230,000 shares to be issued at $0.10
Convertible Note dated December 23, 2015
On
December 23, 2015, the Company entered into a 12% convertible
redeemable note payable with an investor in the amount of $72,263.
This note matures on December 23, 2016. The note bears interest at
12%, compounded annually. Any amount of principal or interest on
this note which is not paid when due shall bear an interest rate of
24% per year (“default interest”.) The note may be
converted, in whole or in part, into shares of the Company’s
common stock. The conversion price will be the lower of 55%,
equivalent to a 45% discount, of the lowest trading price of the
Company’s common stock during the 20 consecutive training
days immediately preceding the conversion date and the closing sale
price of the common stock on the principal market on the trading
day immediately preceding the closing date. If the Company's share
price at any time loses the bid (ex: 0.0001 on the
“ask” and zero market makers on the bid on level 2),
then the conversion price may, in the holder’s sole and
absolute discretion, be reduced to a fixed conversion price of
$0.001 (if lower than the conversion price otherwise.)
Under
terms of this agreement, the Company was required to set up an
initial reserve of 50,000 common shares of stock for the potential
conversion of convertible note principal and interest with an
additional reserve of 2,450,000 shares of common stock in the name
of the holder for issuance upon conversion as soon as a sufficient
number of on issued shares become authorized, no later than January
25, 2016. This amount was duly reserved with transfer agent. The
Company is required to have authorized and reserved five times the
number of shares that are actually issuable upon full conversion of
this note.
On
March 29, 2016, the Company entered into an agreement with the
noteholder to amend this convertible note. As a result,
the Company paid $6,271 in cash to the noteholder and the
noteholder agreed to reset the total balance due to the
“Adjusted Current Balance” of $78,366. Also,
under the agreement the price of future conversions will be set at
$0.10. No shares have been issued to the noteholder
subsequent to this agreement.
The
balance as of September 30, 2016 and December 31, 2015, was $92,000
including accumulated penalties and interest of $19,737 which was
restructured as a convertible note with a fixed conversion of $0.10
with 0% annual interest.
Convertible Note dated December 24, 2015
On
December 24, 2015, the Company entered into an 11% convertible
redeemable note payable with an investor in the amount of $43,000.
This note matures on December 24, 2016. The note will also bear
interest at 11%, compounded annually. Any amount of principal or
interest on this note which is not paid when due shall bear an
interest rate of 24% per year (“default interest”).
Original issue discount was recognized on this note in the amount
of $18,000. Deducted from the cash proceeds of this note were
$10,000 to cover legal and miscellaneous
expenses. $15,000 was paid in cash to the
Company.
On
March 29, 2016, the Company entered into an agreement with the
noteholder to amend this convertible note. As a result, the Company
paid $3,729 in cash to the noteholder and the noteholder agreed to
reset the total balance due to the “Adjusted Current
Balance” of $46,634. Also, under the agreement the
price of future conversions will be set at $0.10. The
Company has not issued any shares under this
agreement.
The
balance at September 30, 2016 and December 31, 2015 was $43,000
including $10,000 in default fees.
All
convertible notes payable are due within one year and are reflected
as current liabilities in the condensed consolidated balance sheet
at September 30, 2016.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 6
-
CONVERTIBLE NOTES AND DERIVATIVE
LIABILITIES(CONTINUED)
At
September 30, 2016, the Company had $0 remaining in discount of the
original issue discount with respect to these notes. Amortization
of the original issue discount for the nine months ended September
30, 2016 and 2015 was $19,829 and $14,855. Interest
expense on the convertible notes for the nine months ended
September 30, 2016 and 2015 was $21,891 and $32,477, respectively.
Accrued interest on these convertible notes for three months ended
September 30, 2016 was $0.
NOTE 7
-
STOCKHOLDERS’ DEFICIT
Preferred Stock
The
Company was established on September 2, 2006 with 10,000,000 shares
of preferred stock authorized with a par value of $0.001. The
Company has not issued any preferred stock.
Common Stock
The
Company was established on September 2, 2006 with 100,000,000
shares of common stock authorized with a par value of $0.001. On
December 8, 2011, the Company amended the authorized stock to
150,000,000 shares. On March 17, 2014, the Company amended the
authorized stock to 500,000,000 shares. On March 15, 2016, the
Company’s shareholders ratified management's restructuring
plan by approving the increase in authorized shares to
8,000,000,000.
On May
23, 2016, the Company filed with the Secretary of State for the
State of Nevada, the amendment to its Articles of Incorporation to
change the name of the company to White Fox Ventures, Inc.
(“White Fox”) to better reflect the new direction of
the business and to effect a 100:1 reverse stock split. On May 27,
2016, the Company filed the necessary documents with FINRA
requesting these items as well as requesting a new ticker
symbol.
On June
22, 2016, FINRA announced its final approval for the
Company’s change of name to White Fox Ventures, Inc., as well
as the 100:1 reverse stock split. The Company began trading
under its new Ticker symbol, AWAW, on July 20, 2016. All
share figures are shown in this report are on a post reverse split
basis.
The
Company issued the following shares of common stock in
2015:
On
January 20, 2015 1,500,000 shares were issued in the acquisition of
Breathe which was accounted for as reverse merger.
On March 31, 2015, the Company issued 26,667 shares to Tauriga
Sciences, Inc. (“TAUG”) in connection with a
commercialization/license agreement with TAUG to jointly develop a
new line of business involving CBD oil cartridges on the same date.
The Company received from TAUG 10,869,565 shares of TAUG common
stock (valued at $100,000) in exchange for the Company shares
(reflected as an investment). Due to the very low stock value of
both companies and with the Company exiting the eCigarette
business, both companies have impaired their respective investment
to $0 as December 31, 2015. At September 30, 2016, the value of
total shares held was $44,565 ($0.0041 per share) classified as
Investment – available for resale
security.
On May
10, 2015, the Company issued a supplier 7,500 shares of common
stock at a value of $22,500 for the payment of inventory ($3.00 per
share) and 3,000 shares of common stock valued at $9,000 ($3.00 per
share) to a former noteholder ("Iconic") as part of an Assignment
and Assumption Agreement dated May 7, 2015.
269,839
common shares were issued for cash in the amount of $1,047,270 at
an average share price of $3.90.
718,588
shares of common stock for consulting services rendered and to be
rendered accrued as of December 31, 2015 in the amount of
$5,547,305 including the cost of 65,000 shares to be issued ($7.70
per share) including an agreement with Maxim Group LLC ("Maxim") to
provide general financial advisory and investment banking services
in exchange for 2.5% of the then issued and outstanding stock at
the date of execution. The number of shares of common stock issued
and outstanding at the time of this agreement was 2,763,527. At
that date 2.5% of the issued and outstanding common stock equaled
69,088 shares. The Company, on May 18, 2015 canceled shares in the
amount of 31,500 shares due to services never provided at a value
of $157,500 ($5.00 per share).
850,743
common shares were issued for the conversion of principal and
accrued interest by the holders of convertible notes at a value of
$406,385 having and average share price of $0.50 at
conversion.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 7
-
STOCKHOLDERS’ DEFICIT (CONTINUED)
Common
Stock (Continued)
171,500
common shares of stock were issued to noteholders as commitment and
assignment shares and recorded as debt financing cost at a value of
$176,050 (average price $1.00.)
Under the first tranche of a July 2, 2015 securities purchase
agreement, a single investor committed $240,000 for purchase of
common stock and warrants. Net proceeds to the Company
from the transaction were $233,500, with $6,500 credited to the
purchaser for legal fees. The securities purchase
agreement also called for a second tranche investment by the
investor in the amount of $200,000, conditioned upon the effective
date of a registration statement to be filed by the Company
pursuant to a related registration rights agreement. The
Company could terminate the second tranche in its sole
discretion. The Company filed a Registration Statement on
Form S-1 with the SEC on August 17, 2015. On
October 2, 2015, the Company submitted a request for withdrawal of
the previously filed Form S-1 pursuant to Rule 477 under the
Securities Act
.
Under this agreement, the Company was obligated to issue 40,000
common shares of its stock at $6.00 per share subject to
adjustments for stock splits, stock dividends, stock combinations
and other similar transactions after the date of
agreement. The final purchase price was subject to
adjustment based on the closing price of the common stock on a date
six months immediately following the closing date. The
final purchase price was also subject to a second adjustment based
on the closing price of the common stock thirty days following the
first adjustment date.
Under
the agreement, at any time while warrants are outstanding, if the
Company sold or grants any option to purchase, or sell or any
common stock or common stock equivalents, at an effective price per
share less than the exercise price then in effect but greater than
$10.00 (price adjusted) will be considered a “dilutive
issuance” and the holder of the warrant will be entitled to
receive shares of common stock at an effective price per share that
is less than the exercise price.
The
warrants issued under the agreement gave the investor the right to
purchase, on a cashless basis at the investor’s election, up
to 40,000 common shares at an exercise price of $20.00, subject to
adjustment. At any time while warrants are outstanding, if the
Company sells, or grants any option to purchase, any common stock
or common stock equivalents at an effective price per share less
than the exercise price then in effect but greater than $10.00
(price adjusted), the exercise price of the warrant will be
adjusted downward to equal the lower price at which the common
stock or common stock equivalents were sold.
On
August 25, 2015, the Company consented to an assignment agreement
whereby the assignor received $265,000 cash in exchange for the
transfer of rights pursuant to the securities purchase agreement
dated July 2, 2015. As part of this agreement, the
Company directly paid to the assignee $180,000 in exchange for the
assignee waiving all rights under the original agreement related to
price adjustments, the second tranche issuance and
warrants.
On
September 8, 2015, warrants to purchase 6,906 common shares were
exercised on a cashless basis to convert to 75,415 common shares
based on a price reset to equal the conversion price associated
with the debt agreements from the stated strike price of $75.00.
The price reset which resulted in the conversion to 75,415 common
shares was based on the difference between the market value of the
stock at the time (market price of $25.00 multiplied by exercise
shares of 6,906) and the exercise price ($3.75) multiplied by
number of exercise shares (6,906.) This number was then divided by
the adjusted price of the common stock ($1.946).
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 7
-
STOCKHOLDERS’ DEFICIT (CONTINUED)
As of December 31, 2015, the Company had 4,708,113 shares of common
stock issued and outstanding. As of December 31, 2015,
the Company had a liability of $82,710 for stock to be issued as
conversion shares under the note settlement agreement of the March
13, 2015 8% convertible note. Shares were to be issued
in three issuances of 5,000 not to have a value less than $5,000
each, on each of November 1, 2015, December 1, 2015 and January 1,
2016. The Company reversed liability for stock issuable under a
distribution agreement in the amount of 50,000 common shares which
had a value of $37,500 ($0.75 per share) due to that agreement no
longer being in effect. The Company further had a
liability for stock to be issued under a consulting agreement to
issue 14,000 shares in the amount of $17,710 ($1.30 per share.) The
liability for those shares is included with the note payable
balances.
The
Company made payments in the amount of $180,000 to buy back price
adjustment rights, warrants and additional issuance rights
transferred to the assignee under the original stock purchase
agreement dated July 2, 2015.
The
Company issued the following shares of common stock in
2016:
In the nine months ended September 30,
2016, the Company issued 4,259,501 shares of common stock to
holders of convertible notes
. The noteholders
converted $186,220 of principal and interest for the
shares. The applicable conversion prices ranged from
$0.01 to $0.10 per share.
In the nine months ended September 30, 2016, the Company issued
858,326 shares of common stock to
Giovanni
and Peter Comito and their
affiliates pursuant to the
Comprehensive Settlement
Agreement entered into on March 9, 2016 to convert $1,050,000 in
notes payable and acquire the intellectual property of the
Company.
In the nine months ended September 30, 2016
, the Company
issued 550,000 common shares to a related party for the settlement
of payments made on behalf of the Company. The Company
recognized a loss on debt conversion for the amount in excess
of the closing stock price on the day of issuance over the value of
the liabilities settled in the amount of $12,500 (550,000 shares at
$0.10).
In the
nine months ended September 30, 2016, the Company issued 57,955,283
shares of common stock to Company board members and officers
and other investors, who had invested $817,088 in the Company in
the form of payment of various settlements and invoices
outstanding. These investments were treated as private placements
with prices ranging from $0.01 to $0.18 per share.
In the
nine months ended September 30, 2016, the Company issued 350,000
shares of common stock with a value of $3,255 ($0.0093 per
share) along with $10,000 to settle fees due for services in the
amount of $118,575. The Company recognized a gain on settlement of
$115,320.
On April 15, 2016, the
Company issued 500,000 common shares
pursuant to a
settlement agreement entered into on March 30, 2016, concerning
trademark litigation with plaintiff, Breathe LLC (a Florida limited
liability company).
The shares were valued at
$50,000, or $0.10 per share, based upon t
he closing price of
the stock as of the day the Company entered into the settlement
agreement.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 7
-
STOCKHOLDERS’ DEFICIT (CONTINUED)
Authorized Reserved Shares
Several of the Company’s convertible notes required the
Company to authorize and reserve four and in some cases five times
the number of shares that were actually issuable upon full
conversion of the notes (based on the conversion price of the notes
in effect from time to time.) The noteholders waived the
requirement of the reserve shares beyond what was needed to
convert through the maturity date, notwithstanding the initial
reserve amount. The Company did not have sufficient authorized and
unissued common shares to convert all convertible notes, and
exercise all outstanding warrants, as of December 31, 2015.
However, the Company’s March 15, 2016 amendment to its
Articles of Incorporation, which increased the authorized capital
of the Company, cured any deficiency under these obligations. As
noted herein, the noteholders had waived this requirement in
anticipation of the Company’s charter amendment to increase
the authorized number of common shares.
Stock Options
On
August 12, 2013, the Company approved and adopted the 2013 Stock
Incentive Plan (the “Plan”). Under the 2013 Stock
Incentive Plan, the Company may grant options or share awards to
its full-time employees, executive officers, directors and
consultants up to a maximum of 80,000 common shares. Under the
Plan, the exercise price of each option will be established at the
time of grant, but may not be less than $25.00. Stock options vest
as stipulated in the stock option agreement and their maximum term
is 8 years.
The
following table summarizes information about the Company’s
stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding, beginning of period
|
-
|
$
-
|
2,000
|
$
25.00
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
|
-
|
-
|
|
Forfeited
|
-
|
|
-
|
-
|
|
Expired
|
-
|
$
-
|
(2,000
)
|
(25.00
)
|
|
|
|
|
|
|
|
Options
outstanding, end of period
|
-
|
-
|
-
|
-
|
Under
the Plan, the minimum exercise price of each option has been
established at $25.00. Stock options will vest as stipulated in the
stock option agreement and their maximum term is 8 years. In
the year ended December 31, 2015 the last of these options expired.
There are no outstanding options as of September 30, 2016, and the
Company does not anticipate issuing new options under the
Plan.
Stock
options-based compensation expense included in the condensed
consolidated statements of operations and comprehensive loss for
the nine months ended September 30, 2016 and 2015 was
$0.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 7
-
STOCKHOLDERS’ DEFICIT (CONTINUED)
Warrants
The
following table summarizes the Company’s share warrants
outstanding as of September 30, 2016 and December 31,
2015:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding, beginning of year
|
-
|
-
|
$
-
|
15,406
|
1.5
|
$
66.00
|
|
Granted
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
(6,906
)
|
-
|
-
|
|
Expired
|
-
|
-
|
-
|
(8,500
)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding, end of year
|
-
|
-
|
$
-
|
-
|
-
|
$
-
|
On September 8, 2015, the cashless warrants to purchase 6,906
common shares were exercised to convert to 75,415 common shares
based on a price reset to equal the conversion price associated
with the debt agreements from the stated strike price of $75.00.
The price reset which resulted in the conversion to 75,415 common
shares was based on the difference between the current market value
(market price of $25.00 multiplied by exercise shares of 6,906) and
the exercise price ($3.75) multiplied by number of exercise shares
(6,906). This number is then divided by the adjusted price of the
common stock ($1.946).
As of September 30, 2016, there are no warrants
outstanding.
NOTE 8
-
LICENSE AGREEMENT AND INVESTMENT
On
March 31, 2015, the Company and TAUG entered into a non-exclusive
license agreement, whereby TAUG would provide CBD oil cartridges to
be used in the Breathe eCigs Corp. e-cigarette
products. In accordance with the agreement, TAUG was to
receive a royalty of 50% of the net revenues associated with the
sale of certain products specified in the agreement. In
addition, there was a share swap between TAUG and the Company
valued at $100,000. The Company issued 26,667 shares at
$3.75 for the commercialization of the products. TAUG
issued 10,869,565 shares of its stock to acquire the license
agreement (investment).
|
Description
|
|
|
Stock
issued
|
$
100,000
|
|
|
|
|
Total
|
$
100,000
|
|
Less: Management
impairment valuation
|
100,000
|
|
Net September 30,
2016 and December 31, 2015 balances
|
$
-
|
|
|
|
|
Issued 26,667
shares of Company common stock
|
26,667
|
|
at $1.00 per
share.
|
$
3.75
|
|
Share
value
|
$
100,000
|
|
Less: Management
impairment valuation
|
$
100,000
|
|
Net September 30,
2016 and December 31, 2015 balances
|
$
-
|
At March 30, 2016 it was determined by management of both companies
that the value of the investment based on stock value and the
absence of a business venture to be pursued was valueless.
Therefore, the entire investment and commercialization fees
recorded were written off completely. At September 30, 2016, the
value of total shares held was $44,565 ($0.0041 per share)
classified as Investment – available for resale
security.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 9
-
RELATED PARTY TRANSACTIONS
On
August 24, 2015, the Company received funds from 3476863 Canada
Inc. (Peter Comito) in the amount of $50,000 under a Stock Purchase
Agreement. The Company intended to convert these funds
into equity through the issuance of common shares of
stock. On March 28, 2016, the Company issued common
shares under a settlement agreement to satisfy this
obligation.
On
September 22, 2015, Giovanni Comito purchased 104,000 shares of the
Company’s common stock, par value $0.10, from Joshua Kimmel,
the Company’s Chief Executive Officer, Chief Financial
Officer and member of the Board of Directors at the time, for an
aggregate purchase price of $75,000. All such shares
were “restricted securities” at the time of the
purchase and will continue to be “restricted
securities” as such term is defined under Rule 144 of the
Securities Act of 1933, as amended.
On
September 22, 2015, the Company issued an unsecured promissory note
to Kimmel in consideration for gross proceeds to the Company of
$75,000 (constituting all proceeds received by Kimmel as part of
the Comito Purchase). The Kimmel Note accrued interest
at 4.5% per annum unless there were an event of default, in which
case the interest rate increased to 9.0% per annum. The
entire principal amount and all accrued but unpaid interest under
the Kimmel Note became due and payable by the Company on September
22, 2016. As of September 30, 2016, accrued interest was
$3,477.
On
September 30, 2015, the Company issued an unsecured promissory note
to Giovanni Comito in consideration for gross proceeds to the
Company of $400,000 pursuant to a letter of intent
(“LOI”) purchase agreement for the sale of intellectual
property held by the Company. The Giovanni Comito Note
accrued interest at 4.5% per annum unless there were an event of
default in which case the interest rate increased to 9.0% per
annum. The entire principal amount and all accrued but
unpaid interest under the Giovanni Comito Note was due and payable
by the Company no later than March 31, 2016. On March
28, 2016 this obligation was satisfied as described
below.
During
the three months ended December 31, 2015 the Company, issued nine
unsecured promissory note to Peter Comito and affiliated companies
in consideration for gross proceeds to the Company of $500,000
pursuant to the LOI. The Notes accrued interest at 4.5%
per annum unless there were an event of default in which case the
interest rate increased to 9.0% per annum. The entire
principal amount and all accrued but unpaid interest under the
Notes was due and payable by the Company no later than six months
after issuance. On March 28, 2016 this obligation was
satisfied as described below.
On October 28, 2015, the Company, issued an unsecured promissory
note to 9138-1095 Quebec Inc. (Angelo Chiapetta) in consideration
for gross proceeds to the Company of $50,000 pursuant to the
LOI. The 9138-1095 Quebec Inc. (Angelo Chiapetta) Note
accruef interest at 4.5% per annum unless there were an event of
default in which case the interest rate increased to 9.0% per
annum. The entire principal amount and all accrued but
unpaid interest under the 9138-1095 Quebec Inc. (Angelo Chiapetta)
was due and payable by the Company no later than April 28,
2016. On March 28, 2016 this obligation was satisfied as
described below.
On
November 4, 2015, the Company, issued an unsecured promissory note
to 7091061 Canada Inc. (Carmine D'Argenio) in consideration for
gross proceeds to the Company of $50,000 pursuant to the
LOI. The 7091061 Canada Inc. (Carmine D'Argenio) Note
accrued interest at 4.5% per annum unless there were an event of
default in which case the interest rate increased to 9.0% per
annum. The entire principal amount and all accrued but
unpaid interest under the 7091061 Canada Inc. (Carmine D'Argenio)
was due and payable by the Company no later than May 4,
2016. On March 28, 2016 this obligation was satisfied as
described below.
On
March 28, 2016, the Company’s obligations under each of the
Giovanni Comito Note, the nine Peter Comito Notes, the 9138-1095
Quebec Inc. (Angelo Chiapetta) Note and the 7091061 Canada Inc.
(Carmine D’Argenio) Note were satisfied with the collective
issuance of 858,326 shares to settle a total of $1,050,000 related
party notes relating to the purchase of the Company’s
intellectual property.
During
the three months ended March 31, 2016 a related party paid expenses
and debt on behalf of the Company in the amount of $42,500 which
was agreed to be settled for 550,000 shares of Company stock,
issued April 4, 2016.
During
the nine months ended September 30, 2016 related parties funded
obligations of the Company in the amount of
$987,592. This amount as of November 30, 2016, was
$996,667. The Company issued 52,862,002 shares of common stock
to settle these obligations through November 30, 2016, with $15,618
still due.
Notes Payable
On August 9, 2016, the Company entered into a 12-month
non-convertible note with a related party in the amount of $25,000
bearing an interest rate of 8%. The note matures on
August 9, 2017. If the note defaults, the lender at its discretion
may convert principal and accrued interest into common stock at a
value of $0.01 per share.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 10
-
PROVISION FOR INCOME TAXES
As of
September 30, 2016, there is no provision for income taxes, current
or deferred.
|
Net operating
losses carryforward
|
$
1,567,001
|
|
Valuation
allowance
|
(1,567,001
)
|
|
|
$
-
|
The
Company has approximately $10,446,674 in net operating losses as of
September 30, 2016 available to offset future taxable income
through 2036. The Company has established a valuation allowance
equal to the full amount of the deferred tax assets due to the
uncertainty of the utilization of the operating losses in future
periods.
A
reconciliation of the Company’s effective tax rate as a
percentage of income before taxes and the statutory rate for year
ended September 30, 2016 is summarized below:
|
Federal
rate
|
15%
|
|
State
rate
|
-%
|
|
|
|
|
Combined Tax
Rate
|
15%
|
|
Valuation
allowance
|
(15)%
|
NOTE 11
-
COMMITMENTS
The
Company had the following financial commitments, represented by
lease agreements, as of September 30 2016,
|
Year ending
December 31,
|
|
|
2016
|
$
26,241
|
|
2017
|
103,271
|
|
2018
|
50,013
|
|
|
$
179,241
|
Rent expense for the three and nine months ended September 30, 2016
was $25,519 and $21,958 compared to $3,561 and $4,748 for the same
period in the prior year. Rental amounts are presented
in both continuing and discontinued operations.
On
March 15, 2015 the Company entered into a 38-month lease agreement
for office space 322 Nancy Lane, Suite 7, Knoxville, Tennessee.
This office was the former operational headquarters for the
Company. The Company is currently working with the
landlord to find another tenant for this space and remove this
obligation.
On
April 25, 2016 the Company entered into a lease agreement for
virtual office space on New York City, New York to conduct Company
business and investor relations. Rent payments commenced
on May 1, 2016. The total commitment is $2,790 with an
expiration of April 30, 2017.
On
September 20, 2016, White Fox Japan LLC, the Company’s
majority owned subsidiary entered into an approximately two-year
lease for office space in Tokyo, Japan. The lease
commenced on August 1, 2016, expiring September 19,
2018. Rent is fixed over the lease period at $7,300 per
month.
WHITE FOX VENTURES, INC.
(FORMERLY BREATHE ECIG CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2016
NOTE 12
-
SUBSEQUENT EVENTS
Corporate Matters
On
October 17, 2016, the Company’s CEO, Shinsuke Nakano
repurchased from former Chief Financial Officer, Seth Shaw,
3,200,000 shares at price of $0.01 for a total value of
$32,000.
On November 2, 2016, the Company transferred the 5,000,000 common
shares which it holds in Tauriga Sciences, Inc. pursuant to the
March 30, 2016 settlement agreement under trademark litigation with
Breathe LLC (a Florida limited liability company.) At the time of
the transfer, the shares had a fair market value of $36,500
($0.0073.)
Effective
December 1, 2016 the Company has withdrawn from its commitment to
NQ Materials PLC to purchase a $2,500,000 stake in the company. At
the time of the termination of this agreement the Company had
invested $250,000 acquiring 2,252,252 common shares.
Stock Issuances
On
October 18, 2016, the Company issued 4,501,719 common shares valued
at $112,543 ($0.025 per share) to Chief Executive Officer, Shinsuke
Nakano, as repayment of funds used to fund consultants in the areas
of legal, administration, web design and accounting as well as a
$100,000 investment in NQ Materials PLC representing the second
tranche of the investment. These shares were recorded as a private
placement sale of common shares.
ITEM
2.
M
ANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The discussion of the financial condition and results of operations
of the Company set forth below should be read in conjunction with
the consolidated financial statements and related notes thereto
included elsewhere in this Form 10-Q. This Form 10-Q
contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Form 10-Q that
are not purely historical are forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. When used in this Form 10-Q, or in the documents
incorporated by reference into this Form 10-Q, the words
“anticipate”, “believe”,
“estimate”, “intend” and
“expect” and similar expressions are intended to
identify such forward-looking statements. Such forward-looking
statements include, without limitation, the statements regarding
the Company’s strategy, future sales, future expenses, future
liquidity and capital resources. All forward-looking statements in
this Form 10-Q are based upon information available to the
Company on the date of this Form 10-Q, and the Company assumes
no obligation to update any such forward-looking statements. The
Company’s actual results could differ materially from those
discussed in this Form 10-Q. Factors that could cause or
contribute to such differences (“Cautionary
Statements”) include, but are not limited to, those discussed
in Item 1. Business — “Risk Factors” and
elsewhere in the Company’s Annual Report on Form 10-K,
which are incorporated by reference herein and in this report. All
subsequent written and oral forward-looking statements attributable
to the Company, or persons acting on the Company’s behalf,
are expressly qualified in their entirety by the Cautionary
Statements.
Corporate History
White
Fox Ventures, Inc. is a Nevada corporation organized September 2,
2006. Our original name was Celtic Capital, Inc.
On October 20, 2008, we changed our name to
Entertainment Education Arts Inc. On May 12, 2010, we changed
our name to DNA Precious Metals, Inc. On March 5, 2015
pursuant to an agreement and plan of merger, the Company changed
its name to Breathe eCig Corp. On May 23, 2016, the
Company changed its name to White Fox Ventures, Inc. to better
reflect its new business direction after the trademark legal
settlement and discontinuance of the eCigarette operation. White
Fox Ventures, Inc. may also be referred to as “White
Fox”, “we”, “us” or the
“Company”.
From
May 2010 through February 3, 2015, we were an exploration stage
mining company. The Company’s focus was the
development of the Montauban Mining Project, located in the
Montauban and Chavigny townships near Grondines-West in Portneauf
County, Quebec, Canada (the “Montauban Mine Property”
or “Property”). Recognizing the need to secure
significant additional capital to put the Property into production,
management began to focus its attention on other business
opportunities which would not require the significant capital
required to expand the Property. In furtherance thereof,
on January 16, 2015, the Company entered into a share exchange
agreement with Breathe LLC, a Tennessee limited liability company,
whereby the Company acquired all of the issued and outstanding
membership interests in Breathe LLC in consideration for the
issuance of 1,500,000 shares of the Company’s common stock to
the members of Breathe, LLC.
Following
the acquisition of Breathe LLC, on March 5, 2015 we entered into an
Agreement and Plan of Merger (the “Merger Agreement”)
pursuant to which the Company merged with its wholly owned
subsidiary, Breathe eCig Corp., the sole purpose of which was to
effect a change of the Company's name from DNA Precious Metals,
Inc. to Breathe eCig Corp.
With
the acquisition of Breathe LLC, the Company determined to spin-off
the operations of its mining operations which were being conducted
through its wholly owned subsidiary, DNA Canada, Inc
(“DNAC”). Effective February 3, 2015, we
declared a stock dividend whereby each of the Company’s
shareholders on the record date (February 3. 2015) would receive
one share of DNAC for every two shares of the Company’s
common stock owned. The former members of Breathe LLC
tendered their shares of DNAC for redemption by the
Company.
With the completion of the spin-off, the Company exited the mining
field and its sole and exclusive business operations was marketing
its electronic cigarettes and related vapor devices. Following the
trademark litigation through which the Company agreed to cease its
continuing operations in the electronic cigarette business, and the
investment by the new management team, each of which developments
is described in more detail below, the Company’s business
model changed to the development of business academies in
Japan.
On May 23, 2016, the Company filed with the Secretary of State for
the State of Nevada, the amendment to its Articles of Incorporation
to change the name of the company to White Fox Ventures, Inc.
(“White Fox”) to better reflect the new direction of
the business and to effect a 100:1 reverse stock split. On May 27,
2016, the Company filed the necessary documents with FINRA
requesting these items as well as requesting a new ticker symbol,
AWAW. FINRA announced its final approval on June 22,
2016.
On June 17, 2016, the Company formed a subsidiary with a 99%
majority ownership stake. The remaining non-controlling
one percent of this subsidiary, White Fox Japan LLC, is owned by a
related party, the Company’s Chief Operating Officer and
Director, Takehiro Abe. The Company currently conducts
all of its transactional operational activity through this
subsidiary, which plans, manages and promotes seminars and classes
in Japan.
Breathe eCigs Corp. Acquisition and Spin-off of DNA Canada,
Inc.
On
January 16, 2015, the Company entered into a share exchange
agreement with Breathe LLC, a Tennessee limited liability company
whereby the Company acquired all of the issued and outstanding
membership interests in Breathe LLC in consideration for the
issuance of 1,500,000 shares of the Company’s common stock to
the members of Breathe LLC.
As a
result of the transaction effected by the Exchange Agreement, the
former Breathe equity holders members owned approximately 56%
of the then issued and outstanding common stock of the
Company. As a result, the Company accounted for this
transaction as a reverse merger whereby the accounting acquirer and
the comparative figures are those of Breathe.
Trademark Settlement/Disposal of eCigarette Operations
As of
March 30, 2016, pursuant to a settlement agreement under trademark
litigation with the plaintiff, Breathe LLC (a Florida limited
liability company), the Company ceased its continuing operations in
the eCigarette business. In accordance with the settlement
agreement, the Company paid two cash payments totaling $25,000 and
issued 500,000 restricted common shares of Company stock (valued at
$50,000) to the plaintiff. In addition, the Company agreed to
transfer 5,000,000 common shares which it held in Tauriga Sciences,
Inc. At September 30, 2016 the value of the shares was $20,500
($0.0041 per share.) The Company further agreed to split 50/50 any
future sales of its held inventory. The sale of
inventory shall be a joint effort by the two companies and shall
last for one year from April 1, 2016. After such period, the
Company will dispose of any remaining inventory. The Company does
not expect to sell the remaining inventory and has fully impaired
the asset as of September 30, 2016.
On
November 2, 2016, the Company transferred the 5,000,000 common
shares which it held in Tauriga Sciences, Inc.
White Fox Ventures Inc.
In an agreement dated as of April 1, 2016, the Company agreed to
acquire White Fox Ventures Inc. for in an undetermined amount of
shares equating 85% of the total authorized capital of the Company.
White Fox Ventures Inc., a Nevada Corporation was in existence less
than 60 days and the only asset in the company was a license
agreement that it had entered into with a Japanese company. Since
the license agreement only stipulated a royalty fee on sales, White
Fox Ventures Inc. did not record a value to the agreement. When the
Company was completing its due diligence on this acquisition, it
determined that the agreement and acquisition were not in the best
interests of the Company at that time. As a result of this, the
agreement was rescinded as noted in the Current Report on Form 8-K
filed with the SEC on May 16, 2016. The principal of
White Fox Ventures Inc., Mr. Shinsuke Nakano (“Nakano”)
and investors had invested $196,557 into the Company in the form of
payment of various settlements and invoices outstanding. The
investment was treated as private placement at $0.01 per share,
whereby the Company, on May 10, 2016, issued to Nakano and the
investors 19,655,700 shares of common stock, which represented
71.7% of the shares issued and outstanding at the time the
agreement was rescinded. In addition, for their investments, Nakano
was named as the Chief Executive Officer of the Company and the
Chairman of the Board and Mr. Abe was named to the position of
Chief Operating Officer ("COO") and Director.
The operations of White Fox Ventures, Inc.
:
ABOUT WHITE FOX VENTURES, INC.
The
Company was formed as Breathe, LLC in October 2013 and Breathe
eCigs. Corp. was formed on December 31, 2014. On
December 31, 2014, Breathe, LLC entered into a Bill of Sale to
transfer 100% of the assets to Breathe eCigs Corp. Breathe eCigs
Corp. operated as a development stage company that developed,
marketed and distributed electronic cigarettes
(“E-cigarettes”), vaporizers, e-liquids (i.e., liquid
nicotine) and related accessories. As of March 30, 2016,
pursuant to the settlement agreement under trademark litigation
with plaintiff, Breathe LLC (a Florida organization), the Company
had ceased its continuing operations in the eCigarette
business.
The Company does
not expect to sell the remaining inventory and has fully impaired
the asset as of September 30, 2016.
With
the departure of Joshua Kimmel on January 25, 2016 and the
discontinuance of operations the Company, the Company struggled to
obtain capital. The Company was able to settle debts for
stock, obtain funding via related parties as well as from a
Japanese based investor group with principals of Japanese based
White Fox, Co. Ltd. investing $987,592 through September 30,
2016. The amount invested through November 30, 2016, was
$996,667. The Company issued 52,862,002 shares of common stock
to settle these obligations through November 30, 2016, with $15,618
still due.
On May
23, 2016, the Company filed with the Secretary of State for the
State of Nevada, the amendment to its Articles of Incorporation to
change the name of the company to White Fox Ventures, Inc.
(“White Fox”) to better reflect the new direction of
the business and to effect a 100:1 reverse stock split. On May 27,
2016, the Company filed the necessary documents with FINRA
requesting these items as well as requesting a new ticker
symbol.
On June
22, 2016, FINRA announced its final approval for the
Company’s change of name to White Fox Ventures, Inc., as well
as a 100:1 reverse stock split and the Company’s new
ticker symbol, AWAW, which began trading on July 20,
2016.
The Company currently conducts all transactional operational
activity of the Company through its 99% owned subsidiary, White Fox
Japan LLC. The subsidiary will plan, manage and promote
seminars and classes in Japan.
BUSINESS STRATEGY
The
Company's new core focus is the establishment of business academies
throughout Japan. The Company has operations throughout Japan:
Sapporo, Sendai, Tokyo, Matsumoto, Nagoya, Osaka, Okoyama, Kumamoto
and Fukuoka. The Company also plans to launch its academy via
online throughout Japan.
White
Fox is currently developing its online proprietary application to
be exclusively utilized by its academy members. This application
shall be available for direct downloading onto smartphones, such
as: iPhones, Android as well as iOS and Tablet devices. The Company
expects to launch this application sometime during winter of 2017
(1st Quarter, 2017).
The
Company is currently evaluating possible investment banking
relationships in Japan as well as in New York for the purpose of
securing additional working capital and further corporate
advice.
Management
believes that White Fox is building a solid future for shareholders
by establishing a strong corporate team focused on both the
Company's product offering as well as multi-faceted support for
such offerings. The management team is excited about its ongoing
transition as a publicly traded company and will do their best to
achieve profitability and maintain stable growth as soon as
possible. The Company will continue to update shareholders about
important progress being realized.
Market Opportunity
We believe that the market potential in Japan and worldwide will
continue to rise for the foreseeable future and believe we can
garner 10,000 users and/or subscribers by the second quarter of
2017.
We believe that the market opportunity for online financial
academies represents a significant potential for the years to come.
We believe that the ongoing transition to online and mobile banking
also offers an opportunity to introduce younger generations to
important concepts in personal finance through online and mobile
platforms. White Fox’s academies seek to provide academic and
hands-on experience to a new generation of savers and
investors.
Marketing and Growth Strategies
Our
marketing strategy involves:
●
Collection or
purchase of e-mail lists of a prospective audience
●
Automated e-mail
delivery to the e-mail addresses on the lis
t (e
.g., video ad
distribution every day at 6:00 p.m. Market Launch May
2016)
●
Introduction of
White Fox Online Academy videos.
●
Use of
distribution agents who will sell White Fox products for a
finder’s fee or commission or mark up.
We sell
our products via the Internet. We estimate that the conversion rate
in obtaining new customers will be approximately 1% ~ 2% from our
total emails or links sent or opened. We are currently
concentrating our efforts on reaching as many potential new members
from pre-selected lists as we can. We currently have a list of
100,000 likely candidates. After obtaining new members or customers
for our academy videos, we can sell other products, such as digital
coins or special seminars.
Upon
the company reaching 10,000 members, we plan to issue our own
corporate debit card.
We
believe our revenue flow will be somewhat stable from ongoing
membership fees even without the various added income potentials
previously described. Because our business plan is in its early
stages, we can give no assurances that our expected conversion rate
will be met, that we will be able to obtain a substantial number of
members or customers for our online videos, that we will be able to
sell additional products to our existing members or customers, or
that we will be able to achieve a growth rate or revenue base from
ongoing membership fees that will make our operations
profitable.
DISCUSSION OF RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with, and is
qualified in its entirety by, our unaudited financial statements
for the three and nine month periods ended September 30, 2016 and
September 30, 2015, and certain other financial information
included elsewhere in this report.
From
May 2010 through February 3, 2015 the Company was an exploratory
stage-mining corporation. The Company did not commence mining
operations nor did we generate revenues. With the
acquisition of Breathe in January 2015, our sole business objective
became the eCigarette industry. The mining operations
were divested pursuant to a stock dividend received by the
shareholders of the Company.
As a
result of the Exchange Agreement, the Company accounted for this
transaction as a reverse merger whereby Breathe was the accounting
acquirer and the comparative period figures are those of
Breathe.
As of
March 30, 2016, pursuant to a settlement agreement under trademark
litigation with the plaintiff, Breathe LLC (a Florida limited
liability company), the Company ceased its continuing operations in
the eCigarette business. The Company further agreed to split 50/50
any future sales of its held inventory. The sale of
inventory shall be a joint effort by the two companies and shall
last for one year from April 1, 2016. After such period, the
Company will dispose of any remaining inventory.
The Company does not expect to sell the remaining inventory and has
fully impaired the asset as of September 30,
2016.
Results of Operations for Three and Nine Months Ended September 30,
2016 and 2015
Discontinued operations
As of
March 30, 2016, pursuant to a settlement agreement under trademark
litigation with a plaintiff, the Company ceased its continuing
operations in the eCigarette business.
For the
nine months ended September 30, 2016 the Company had virtually no
revenue from its discontinued operations compared to $64,218 and
$70,218 for the three and nine months ended September 30,
2015.
Cost of Sales from discontinued operations
For the
three and nine months ended September 30, 2016 and 2015 the Company
had cost of goods sold attributable to its discontinued operations
of $0 and $1,851 compared to $93,447 and $100,504 for the same
period in the prior year, related to monthly fees from the
third-party inventory holding company which still holds our
remaining inventory.
The
Company agreed to split 50/50 any future sales of its held
inventory. The sale of inventory shall be a joint effort
by the two companies and shall last for one year from April 1,
2016. After such period, the Company will dispose of any remaining
inventory.
The Company does
not expect to sell the remaining inventory and has fully impaired
the asset as of September 30, 2016.
Loss from discontinued operations
For the
three months ended September 30, 2016, the loss from discontinued
operations was $117,403 compared to $326,378 in the three months
ended September 30, 2015. The difference was driven by marketing,
general and administrative expenses and professional fees in 2015
as the Company was starting up operations.
For the
nine months ended September 30, 2016, the loss from discontinued
operations was $147,675 compared to $2,217,944 in the prior period.
The difference was driven by marketing, general and administrative
expenses and professional fees in 2015 as the Company was starting
up operations.
Results from continuing operations –
The
Company’s continuing operations through its majority owned
subsidiary, White Fox Japan LLC, are in the financial services and
technology sector focused on its revenue generating investor
academy. The Company offers multiple products as trial and annual
membership subscriptions. The Company also offers lifetime premium
membership levels which are offered to annual paying
members.
Crest Partner membership –
this is
an exclusive lifetime membership which requires acceptance based on
an interview process. These advanced members must be very
familiar with AWA and assist in the learning and Academy training
of AWA members. In order to maintain a Crest Partner
Membership, the member must maintain an active annual Premium or
AWA Plus membership.
Partner membership-
this is a lifetime
membership whereby members assist in the learning and Academy
training of AWA members. In order to maintain a Partner
Membership, the member must maintain an active annual Premium or
AWA Plus membership.
Premium membership --
Premium is a
general annual membership. The member has access to the basic
AWA Academy and may participate in the nationwide academy as many
times as possible. Premiums members may increase knowledge by
contacting Partners and Crest partners at various
locations.
AWA plus –
this is the basic
annual membership level of AWA. The member has access to the
basic AWA Academy.
New memberships sold –
the below chart shows new
membership contracts. The number of members is the total of Premium
and Plus members because Partner and Crest Partners must first have
a basic annual membership
:
|
|
Three months ended September 30, 2016
|
Nine months ended September 30, 2016
|
|
Plus
|
94
|
94
|
|
Premium
|
103
|
103
|
|
Partner
|
29
|
29
|
|
Crest
|
23
|
23
|
New product sales - cash receipts and credit card receipts or
credit card receivable-
the below amounts show cash and
credit card receipts (both received and in transit for the period
ended September 30, 2016.) Most of these amounts are not reflected
in revenue recognized for the current period, but are
recorded as deferred revenue and recognized over different
periods of time. Plus and Premium memberships are recognized
prorata over a twelve month period. The lifetime memberships of
Partner or Crest levels are recognized over the average length of
time that these memberships are active. Since this operation is new
there is no track record to calculate the average length of these
memberships. The company has chosen to recognize these amounts
prorata over thirty-six months. This number will be revaluated
annually to determine if there is a more appropriate period over
which to recognize revenue from these lifetime
contracts.
|
Product
|
|
|
|
|
Premium
Membership
|
$
199,595
|
(25,170
)
|
$
174,425
|
|
Crest Partner
Membership
|
282,290
|
(5,629
)
|
276,661
|
|
Partner
Membership
|
113,191
|
(1,965
)
|
111,226
|
|
Plus
Membership
|
10,823
|
(119
)
|
10,704
|
|
Events
|
951
|
(501
)
|
450
|
|
Totals
|
$
606,850
|
(33,385
)
|
$
573,465
|
|
|
|
|
|
|
Less selling
fees
|
|
9,954
|
|
|
Total
Revenue
|
|
$
(23,431
)
|
|
Revenue and Cost of Goods Sold
|
REVENUE
|
|
|
|
|
|
Premium
Membership
|
$
1,544
|
8,357
|
15,269
|
$
25,170
|
|
Crest Partner
Membership
|
-
|
539
|
5,090
|
5,629
|
|
Partner
Membership
|
71
|
309
|
1,585
|
1,965
|
|
Plus
Membership
|
-
|
-
|
119
|
119
|
|
Events
|
448
|
-
|
53
|
501
|
|
Less selling
fees
|
(2,420
)
|
(2,720
)
|
(4,814
)
|
(9,954
)
|
|
Total
Revenue
|
$
(356
)
|
6,485
|
17,302
|
$
23,431
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
|
|
|
Event
Cost
|
11,032
|
11,919
|
11,001
|
33,953
|
|
Production
Expense
|
9,985
|
9,985
|
12,286
|
32,255
|
|
Member
Dinners
|
|
1,942
|
1,606
|
3,548
|
|
Total Cost of Goods
Sold
|
$
21,017
|
23,846
|
24,893
|
$
69,756
|
|
|
|
|
|
|
|
Total Gross Margin
(net loss)
|
$
(21,373
)
|
$
(17,361
)
|
$
(7,591
)
|
$
(46,325
)
|
Revenue –
For the three and nine months ended
September 30, 2016 net revenue recognized was $23,431compared to $0
for the same period in the prior year. Deferred revenue on
contracts membership at September 30, 2016 was $573,465 compares to
$0 for the same period in the prior year.
Cost of goods sold -
For the three and nine months ended
September 30, 2016 cost of goods sold was $69,756 or 297.7% of
revenue compared to $0 for the same period in the prior year. Gross
loss on sales was ($46,325) or (197.7%) of revenue for both the
three and nine months ended September 30, 2016 compared to $0 for
the same periods in the prior year.
Professional fees –
For the three months ended
September 30, 2016 and 2015 professional fees were $194,758 and
$302,787. Professional fees include consulting fees paid
to advisors involved with restructuring the Company. The
other amounts expensed were for legal and accounting
fees.
For the
nine months ended September 30, 2016 and 2015 professional fees
were $380,659 and $4,762,594. Professional fees include
consulting fees paid to advisors involved in restructuring the
Company. The other amounts expensed were for legal and
accounting.
General and administrative –
For the three and
nine months ended September 30, 2016, General and administrative
expense was $64,674 and $127,641 compared to $63,623 and $150,163,
respectively, in the same periods of the prior year.
Net loss
Net loss
.
Net loss
attributable to common shareholders for the three months ended
September 30, 2016 totaled $307,908 compared to a net loss
attributable to common shareholders of $1,038,807 for the third
quarter of the prior year. Net loss from continuing
operation prior to the elimination of non-controlling interest for
the three months ended September 30, 2016 and 2015 was $190,505 and
$712,429 respectively. Loss from discontinued operations
for the three months ended September 30, 2016 and 2015 was $117,403
and $326,378, respectively.
Net
loss attributable to common shareholders for the nine months ended
September 30, 2016 totaled $1,008,269 and compared to a net loss
attributable to common shareholders of $7,714,587 for the nine
months ended September 30, 2015. Net loss from
continuing operation prior to the elimination of non-controlling
interest for the nine months ended September 30, 2016 and 2015 was
$866,910 and $5,496,643, respectively. Loss from
discontinued operations for the nine months ended September 30,
2016 and 2015 was $147,675 and $2,217,944,
respectively.
Liquidity and Capital Resources
Total assets
Through
September 30, 2016 operations had been primarily funded through
debt and equity financing. During the nine months ended September
30, 2016, we raised $587,747 through the issuance of notes and
$917,088 through the sale of our common stock.
At
September 30, 2016, we had $57,718 in cash, prepaid expenses of
$190,587, $190,961 recorded as a marketable securities in an
investment and sales receivable (credit card settlements in
transit) of $181,207. Total current assets were
$620,473.
The
company also has property and equipment, net of depreciation, in
the amount $41,522 and a $50,000 investment in a privately held
company consisting of less than 2% ownership. Total assets were
$711,995 of September 30, 2016. At December 31, 2015, we had cash
totaling $10,955.
Total liabilities
Current
liabilities at September 30, 2016 totaled $1,134,339 as compared to
$2,271,674 at December 31, 2015. Our current liabilities as of
September 30, 2016 included $132,970 related to current notes
payable, as well as accrued interest of $3,745. Notes payable for
related parties for the period ended September 30, 2016 was
$385,047 compared to $1,175,000 at December 31, 2015. The decrease
was due to the March 28, 2016 settlement of certain obligations
with the collective issuance of 858,326 shares to settle a total of
$1,050,000 related party notes related to the purchase of the
Company’s intellectual property in connection with a
lawsuit. Other current liabilities at September 30, 2016
were a liability to issue stock of $135,710 and accounts payable of
$237,863 compared to $444,670 at December 31, 2015. Liabilities
from discontinued operations for the nine months ended September
30, 2016 were $239,004 compared to $232,771 at December 31,
2015. We had deferred revenue on sales in the amount of
$573,465 recorded as a long- term liability at September 30, 2016.
The Company had no long-term liabilities as of December 31,
2015.
We
believe that our cash on hand at September 30, 2016 plus cash from
on-going operations will be sufficient to fund our current working
capital requirements. We may continue to seek additional
equity financing. However, there is no assurance that we will be
successful in our equity private placements or if we are that the
terms will be beneficial to our shareholders.
Cash flow from operations.
During the nine months ended
September 30, 2016 the Company had a negative cash flow from
operations in the amount of $880,826 compared to negative cash flow
from operations of $1,806,389 for the same period in the
prior-year.
Cash flow used in investing activities
. During the nine
months ended September 30, 2016 the company used $342,901 from
investing activities compared $0 to the same period in the
prior-year.
Cash flow from financing.
During the nine months ended
September 30, 2016 the Company received $1,259,635 from financing
activities compared to $1,910,277 for the same period in the prior
year. During the nine months ended September 30, 2016
the Company received $0 in proceeds resulting from the issuance of
convertible notes compared to $770,250 for the same period in the
prior year, $587,747 from promissory notes from related parties and
$917,088 in proceeds from common stock issued, offset by $245,200
used in the repayment of notes payable.
Going Concern Qualifications
The
condensed consolidated financial statements have been prepared on a
going concern basis. The going concern basis of presentation
assumes that the Company will continue in operation for the
foreseeable future and be able to realize its assets and discharge
its liabilities and commitments in the normal course of business.
The Company has generated net losses from continuing and
discontinued operations attributable to common shareholders
totaling $1,014,585 and $7,714,587 for the nine months ended
September 30, 2016 and 2015, respectively. The Company’s
continuation as a going concern is dependent upon, amongst other
things, developing a new line of business as well as continued
financial support from its shareholders and lenders, attaining a
satisfactory revenue level, attainment of profitable operations and
the generation of cash from operations and the ability to secure
new financing arrangements and new capital to carry out its
business plan. These matters are dependent on a number of items
outside of the Company’s control and there exist material
uncertainties that may cast significant doubt about the
Company’s ability to continue as a going concern. The Company
can give no assurance that it will achieve profitability or be
capable of sustaining profitable operations in its new business of
White Fox. These condensed consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of the carrying amounts of assets or the amount and
classification of liabilities that might result if the Company is
unable to continue as a going concern. These factors raise
substantial doubt regarding the ability of the Company to continue
as a going concern. The Company recently raised $587,747 in net
debt proceeds for which full settlement was attained by the
issuance of common stock of the Company and $917,088 of equity
proceeds during the nine months ended September 30, 2016, to pay
for the reorganization costs.
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QUANTITATIVE AND
Q
UALITATIVE
DISCLOSURESABOUT MARKET RISK.
|
Not
applicable
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CONTROLS AND
P
ROCEDURES.
|
As of
the end of the period covered by this quarterly report
on Form 10-Q, the Company’s Chief Executive Officer
and Chief Financial Officer conducted an evaluation of the
Company’s disclosure controls and procedures (as defined in
Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934).
Based upon this evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were
not effective as of such date.
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during the period covered by this Quarterly Report
on Form 10-Q that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.