ITEM 1. BUSINESS.
Overview
Frozen Food Gift Group, Inc., is a Delaware corporation which was formed in January 2009. On March 27, 2014, the Company consummated a reverse merger transaction as reported on Form 8-K dated March 28, 2014, and the Company will file required comprehensive disclosures in an amended Form 8-K on or before June 6, 2014. The subsequent discussion applies to the Company as at December 31, 2013.
Since 2009, the Company has operated as an e-commerce retailer under the brand “SendaScoop” that ships ice cream and related frozen dessert products as a gifted product throughout the United States. We restructured our original business plan to better position the Company to enter scalable revenue models that do not require significant marketing costs. To enable this objective the Company revised its e-commerce retail business to accept only high-volume quantity orders, which allowed us to focus our efforts on seeking wholesale distribution of the Company’s ice cream products as a supplier to specialty foods and gifting companies.
Additionally, we pursue partnerships with food products companies whereby the Company assists in product development and marketing of various food products in exchange for a revenue stream derived from royalties on product sales. The Company made progress on the new initiatives in 2013, including entering into our first royalty agreement in October of 2013 which we expect will begin to generate moderate revenues in 2014.
Our financial statements have been prepared assuming we will continue as a going concern. The Company has experienced a loss from operations during its development stage as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the period from inception to December 31, 2013, the Company incurred a net loss of approximately $2,187,627.
The Company is currently illiquid. There is substantial doubt about our ability to continue as a going concern, which is dependent on the Company’s ability to raise additional capital, as well as successful implementation of its business plan which contemplates increasing revenues significantly.
Management has been able, thus far, to finance the losses of the business through private placements of its common stock and the issuance of debt. Assurances cannot be given that adequate financing can be obtained to meet our capital needs. If we are unable to generate profits and to continue to obtain financing to meet our working capital requirements, we may have to curtail our business sharply or cease operations altogether. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis to retain our current financing, to obtain additional financing, and, ultimately, to attain profitability. Should any of these events not occur, we will be adversely affected and we may have to cease normal operations.
Since its inception, the Company has been funded by its Chairman and Chief Executive Officer, and persons related to or acquainted with these. We currently have no internal sources of liquidity. To remedy the current deficiency in our liquidity position, we continue to seek external sources of capital through additional private equity offerings, strategic agreements with partner companies, and private debt placement. To date, the majority of our funding has been derived from private debt placement from a small number of accredited investors, and it is possible that we will obtain future funding from these investors. Whether we will be successful in obtaining additional capital, or obtaining such capital on commercially reasonable terms, and whether we can significantly increase revenues, is uncertain. We are not aware of any known trends, favorable or unfavorable, in our capital resources nor aware of any material changes in the mix and relative cost of such resources. We are unable to predict whether any known demands, commitments, events or uncertainties will result in or are reasonably likely to result in the Company’s cash liquidity increasing or decreasing in any material way, which creates uncertainty in the Company’s ability to continue to operate.
Industry Background
The specialty foods and gifting categories allow for easy entry via an e-commerce website. The industry is fragmented and is composed of hundreds of competing companies of varying sizes from mom-and-pops to large national companies. The Internet has had a tremendous impact on the industry. Prior to the proliferation of the web, operators carried large overhead due largely to the necessity to be catalog mailers and to also retain a large customer service staff to process orders. We believe that the Internet allows small companies to successfully compete with much larger competitors.
Products
Under the SendaScoop brand, the Company offers customized ice cream cakes, ice cream sundae party boxes and ice cream cone party boxes with retail prices that range from $35.95 to $95.95. Each package contains all items required to enjoy the product such as spoons, plates, napkins, toppings and ice cream scoopers. The Company’s concept is to provide a complete “party in a box” with everything needed to celebrate an occasion or special event.
The product can also be customized in many ways. Customers can select from numerous options to customize and personalize their gift. With ice cream cakes, customers can choose the size of the cake, the ice cream flavors used in the cake, the writing on the cake and the color of the writing. Additionally, customers can provide a photograph to be placed on a cake and also include a personalized greeting card with their gift.
With our ice cream sundae party boxes, customers can choose the number of sundaes, the flavors of ice cream, the sauces and toppings included in the package, and a personalized greeting card can also be included. With our ice cream cone party boxes, customers can choose the number of cones, the type of cones, the flavors of ice cream, the toppings included in the package, and they can also include a personalized greeting card.
Marketing
The Company’s e-commerce retail website (www.sendascoop.com) relies upon Search Engine Optimization to generate traffic to the site. Our efforts relating to seeking wholesale supplier relationships and royalty partnerships do not require marketing initiatives.
Competition
The Company faces significant competition from both small and large companies. The use of the Internet allows limited barriers to entry, and as a result hundreds of operators operate similar businesses in the US. These companies offer a wide variety of products including fruit, meat, seafood, nuts, coffee, popcorn, desserts, cakes, cookies and chocolate, each of which competes with the Company’s products.
Suppliers
We utilize Global Specialty Products, Inc., of Orange, California, to supply, package and ship orders of our ice cream products. If for any reason Global were unavailable to continue preparing and shipping our orders, there are many other suppliers who provide similar services at competitive prices.
Regulatory
The Company’s industry is not regulated by any government agencies. The Company is not regulated by any government agencies.
Properties
None.
Employees
The Company currently has one employee, its Chief Executive Officer (Jonathan Irwin).
ITEM 1A.
ITEM 1A. RISK FACTORS.
Our business faces many risks, including, but not by way of limitation, those discussed below. Additional unknown risks or risks that we currently consider immaterial may also impair our business operations. If any of the events or circumstances described below actually occurs, our business, financial condition or results of operations could suffer, and the trading price of our shares of common stock could decline significantly. Investors should consider the specific risk factors discussed below, together with the “Cautionary Note Regarding Forward-Looking Information” and the other information contained in this Form 10-K and the other documents that we will file from time to time with the Securities and Exchange Commission.
-We have been the subject of a going concern opinion by our independent auditors who have raised substantial doubt as to our ability to continue as a going concern.
Our financial statements have been prepared assuming we will continue as a going concern. The Company has experienced a loss from operations during its development stage as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the period from inception to December 31, 2013, the Company incurred a net loss of approximately $2,187,627. Management has been able, thus far, to finance the losses of the business through private placements of its common stock and the issuance of debt. The Company's ability to continue as a going concern is contingent upon its ability to attain profitable operations by securing financing and implementing its business plan. The Company’s financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. Assurances cannot be given that adequate financing can be obtained to meet our capital needs. If we are unable to generate profits and to continue to obtain financing to meet our working capital requirements, we may have to curtail our business sharply or cease operations altogether. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis to retain our current financing, to obtain additional financing, and, ultimately, to attain profitability. Should any of these events not occur, we will be adversely affected and we may have to cease normal operations.
-If we are unable to obtain additional financing or generate revenue we will not have sufficient cash to continue operations.
We estimate we will need approximately $90,000 in additional capital infusion, in the form or debt or equity, or some combination, over the next 12 months. We cannot be certain that any such financing will be available on acceptable terms, or at all, and our failure to raise capital when needed would limit prevent our ability to continue our operations. Failure to secure additional financing in a timely manner and on favorable terms would have a material adverse effect on our financial performance, results of operations and stock price and require us to curtail or cease operations, sell off our assets, seek protection from our creditors through bankruptcy proceedings, or otherwise. Furthermore, additional equity financing may be dilutive to the holders of our common stock, and debt financing, if available, may involve restrictive covenants, and strategic relationships, if necessary to raise additional funds, and may require that we relinquish valuable rights.
-We currently operate at a loss.
The Company is currently operating at a loss, and there is no assurance that the business development plans and strategies of the Company will ever be successful, or that the Company will ever be able to operate profitably. If we cannot operate profitably, shareholders could lose their entire investment. We may not be able to generate revenues in the next twelve months sufficient to support our operations and therefore will have to rely on the infusion of additional debt or equity financing, to the extent available. Whether such additional financing will be available, or available on commercially reasonable terms, is at this date uncertain.
-Our business and prospects are difficult to evaluate.
As a development stage company, our business and prospects are difficult to evaluate because we have minimal operating history and our business model is evolving. As a result, an investment in us should be considered a high-risk investment whereby you could lose your entire investment.
-We face significant competition.
We face intense competition in the specialty foods, gifting and food products sectors from established companies. Many of these companies have significantly greater resources than ours and vastly more experience. Most of our competitors have significantly greater financial, technological, marketing and distribution resources than we do. Their greater capabilities in these areas enable them to better withstand periodic downturns in the industry, compete more effectively on the basis of price and production and more quickly develop new products. In addition, new companies may enter the markets in which we expect to compete, further increasing competition, and there are limited barriers to entry.
-We could fail to retain our Chief Executive Officer, which could be detrimental to our operations.
Our success largely depends on the efforts and abilities of our Chief Executive Officer, Jonathan F. Irwin. We do not have an employment agreement with Mr. Irwin, nor do we carry key man insurance on his life. The loss of his services could materially harm our business because of the cost and time necessary to find his successor.
-There is limited liquidity in our common stock.
Our common stock is currently available for trading on the OTC Bulletin Board, but with limited liquidity. Because of this limited liquidity, our stockholders may be unable to sell their shares. Moreover, sales or purchases of relatively small blocks of common stock could have a significant impact on the price at which our common stock is traded. The trading price of our common stock could be affected by a number of factors, including events described in the Risk Factors set forth herein, as well as our operating results, financial condition, public announcements by us, general conditions in our industries, and other events or factors. In a volatile market, we may experience wide fluctuations in the market price of our common stock, and these fluctuations may have a negative effect on the market price of our common stock.
-Our stock will likely be restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth (exclusive of principal residence) in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FORWARD LOOKING STATEMENTS
This Report and the documents incorporated by reference in this prospectus contain certain forward-looking statements and are based on the beliefs of our management as well as assumptions made by and information currently available to our management. Statements that are not based on historical facts, which can be identified by the use of such words as “likely,” “will,” “suggests,” “target,” “may,” “would,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” and similar expressions and their variants, are forward-looking. Such statements reflect our judgment as of the date of this prospectus and they involve many risks and uncertainties, including those described under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks and uncertainties could cause actual results to differ materially from those predicted in any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to update forward-looking statements.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
ITEM 2. PROPERTIES.
None.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) Market Information. Our common stock currently trades on the OTC Bulletin Board under the symbol “FROZ.” The following table sets forth the high and low bid prices of the Company’s common stock as traded on the OTC Bulletin Board for fiscal year ended December 31, 2013 (there was no trading activity on the OTC Bulletin Board in the Company’s stock for the fiscal year ended December 31, 2012). The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
(b) Holders. As of April 14, 2014, our Common Stock was held by 198 shareholders of record. Our transfer agent is Issuer Direct Corporation, with offices at 500 Perimeter Park Drive, Suite D, Morrisville, NC 27560, phone number 919-481-4000. The transfer agent is responsible for all record-keeping and administrative functions in connection with the common shares of stock.
(c) Dividends. We have never declared or paid a cash dividend. There are legal restrictions which preclude our ability to pay cash dividends on our common shares so long as we have an accumulated deficit. We do not anticipate declaring or paying any cash dividends in the foreseeable future.
(d) Securities Authorized for Issuance Under Equity Compensation Plans. The Company did not have an Equity Compensation Plan for the year ended December 31, 2013.
Recent Issuances of Unregistered Securities
In March 2013, in accordance with a convertible note the Company privately issued 300,000 shares of common stock to Long Side Ventures LLC to retire $3,000 of principal and interest in convertible debt which had a fair market value of $6,000.
In April 2013, pursuant to a Definitive Purchase Agreement the Company privately issued a total 17,600,000 shares of common stock with a value of $880,000 to the owners of Miami Ice Machine Company, Inc, with 8,800,000 shares issued to each individual (Jeffery Saltzman and Daniel Kaplan).
In April 2013, in accordance with a convertible note the Company privately issued 600,000 shares of common stock to Long Side Ventures LLC to retire $3,000 of principal and interest in convertible debt which had a fair market value of $6,000.
In April 2013, in accordance with a convertible note the Company privately issued 600,000 shares of common stock to Taconic Group LLC to retire $3,000 of principal and interest in convertible debt which had a fair market value of $6,000.
In May 2013, in accordance with a convertible note the Company privately issued 6,000,000 shares of common stock to Long Side Ventures LLC to retire $5,820 of principal and interest in convertible debt which had a fair market value of $11,640.
In May 2013, in accordance with a convertible note the Company privately issued 6,000,000 shares of common stock to Taconic Group LLC to retire $5,820 of principal and interest in convertible debt which had a fair market value of $11,640.
In June 2013, in accordance with a convertible note the Company privately issued 2,000,000 shares of common stock to R&T Sports Marketing to retire $1,400 of principal and interest in convertible debt which had a fair market value of $2,000.
In June 2013, in accordance with a convertible note the Company privately issued 8,089,324 shares of common stock to Tangiers Investors, LP to retire $13,751.85 of principal and interest in convertible debt which had a fair market value of $27,503.70.
In July 2013, in accordance with a convertible note the Company privately issued 2,000,000 shares of common stock to Jeffrey Saltzman to retire $1,400 of principal and interest in convertible debt which had a fair market value of $2,000.
In July 2013, in accordance with a convertible note the Company privately issued 6,000,000 shares of common stock to Long Side Ventures LLC to retire $6,000 of principal and interest in convertible debt which had a fair market value of $12,000.
In August 2013, in accordance with a convertible note the Company privately issued 6,229,587 shares of common stock to Taconic Group LLC to retire $3,924.64 of principal and interest in convertible debt which had a fair market value of $7,849.28.
In August 2013, in accordance with a convertible note the Company privately issued 16,398,371 shares of common stock to Tangiers Investors, LP to retire $5,739.43 of principal and interest in convertible debt which had a fair market value of $11,478.86.
In August 2013, in accordance with a convertible note the Company privately issued 7,700,000 shares of common stock to Long Side Ventures LLC to retire $1,771 of principal and interest in convertible debt which had a fair market value of $3,542.
In September 2013, in accordance with a convertible note the Company privately issued 20,821,533 shares of common stock to Tangiers Investors, LP to retire $6,246.46 of principal and interest in convertible debt which had a fair market value of $12,492.92.
In October 2013, in accordance with a convertible note the Company privately issued 22,903,480 shares of common stock to Tangiers Investors, LP to retire $5,725.87 of principal and interest in convertible debt which had a fair market value of $11,451.74.
In October 2013, in accordance with a convertible note the Company privately issued 7,700,000 shares of common stock to Long Side Ventures LLC LP to retire $1,925 of principal and interest in convertible debt which had a fair market value of $3,850.
In December 2013, in accordance with a convertible note the Company privately issued 7,700,000 shares of common stock to Brent Coetzee to retire $1,617 of principal and interest in convertible debt which had a fair market value of $2,310.
In instances described above where we issued securities in reliance upon Regulation D, we relied upon Rule 506 of Regulation D of the Securities Act. These stockholders who received the securities in such instances made representations that (a) the stockholder is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the stockholder agrees not to sell or otherwise transfer the purchased shares unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the stockholder has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, (d) the stockholder had access to all of our documents, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (e) the stockholder has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Management made the determination that the investors in instances where we relied on Regulation D are accredited investors (as defined in Regulation D) based upon management’s inquiry into their sophistication and net worth. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation D.
In instances described above where we relied upon Section 4(2) of the Securities Act in issuing securities, our reliance was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the stock took place directly between the offeree and us.
Repurchase of Shares
The Company did not repurchase any of our shares during the year ended December 31, 2013.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The following information should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in our financial statements and notes thereto and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Summary and Outlook of the Business
Frozen Food Gift Group, Inc., is a Delaware corporation which was formed in January 2009. On March 27, 2014, the Company consummated a reverse merger transaction as reported on Form 8-K dated March 28, 2014, and the Company will file required comprehensive disclosures in an amended Form 8-K on or before June 6, 2014. The subsequent discussion applies to the Company as at December 31, 2013.
Since 2009, the Company has operated as an e-commerce retailer under the brand “SendaScoop” that ships ice cream and related frozen dessert products as a gifted product throughout the United States. We restructured our original business plan to better position the Company to enter scalable revenue models that do not require significant marketing costs. To enable this objective the Company revised its e-commerce retail business to accept only high-volume quantity orders, which allowed us to focus our efforts on seeking wholesale distribution of the Company’s ice cream products as a supplier to specialty foods and gifting companies.
Additionally, we pursue partnerships with food products companies whereby the Company assists in product development and marketing of various food products in exchange for a revenue stream derived from royalties on product sales. The Company made progress on the new initiatives in 2013, including entering into our first royalty agreement in October of 2013 which we expect will begin to generate moderate revenues in 2014.
For fiscal years ended December 31, 2013 and 2012, the Company had net losses of $560,138 and $585,643 respectively. The losses primarily result from accrued salary of officers and directors and from professional fees. This is illustrated in the Company’s net loss for the year ended December 31, 2013 of $560,138, of which $284,658 came from these three categories (consisting of accrued officer’s compensation of $120,000, accrued director’s fees of $90,000 and professional fees of $74,658). Interest expense of $234,317 was also an important factor contributing to the loss.
Revenues
Revenues for the year ended December 31, 2013, were $0 compared to $3,406 for the year ended December 31, 2012. The Company recorded no revenues in 2013 due to a restructuring of its business plan that is designed to better position the Company to enter scalable revenue models that do not require significant marketing investments. The Company revised its e-commerce retail business to accept only high-volume quantity orders, of which there were zero in 2013, whereas we had previously accepted single-unit orders. Restricting the retail business allowed us to focus our efforts on seeking wholesale distribution partners in the specialty foods and gifting sectors, in addition to royalty partnerships with food products companies. The Company entered into its first royalty agreement late 2013, which we expect will generate moderate revenues in 2014.
Critical Accounting Policies
Revenue Recognition
In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company:
Revenue is recognized at the time the product is delivered. Provision for sales returns will be estimated based on the Company's historical return experience. Revenue is presented net of returns.
Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2013. The respective carrying value of certain on-balance sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.
Net Income (Loss) Per Common Share
The Company calculates net income (loss) per share based on the authoritative guidance. Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses common stock equivalents, if any, are not considered, as their effect would be anti-dilutive.
Income Taxes
Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.
ASC 740, Income Taxes, requires a company to first determine whether it is more likely than not (which is defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees in accordance with ASC 718, Compensation - Stock Compensation. ASC 718 requires all share-based compensation payments to be recognized in the financial statements based on the fair value using an option pricing model. ASC 718 requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates.
Equity instruments granted to non-employees are accounted for in accordance with ASC 505, Equity. The final measurement date for the fair value of equity instruments with performance criteria is the date that each performance commitment for such equity instrument is satisfied or there is a significant disincentive for non-performance.
Results of Operations for the Years Ended December 31, 2013 and 2012
Revenue. Revenues for the year ended December 31, 2013, were $0 compared to $3,406 for the year ended December 31, 2012. The Company recorded no revenues in 2013 due to a restructuring of its business plan that is designed to better position the Company to enter scalable revenue models that do not require significant marketing investments. The Company revised its e-commerce retail business to accept only high-volume quantity orders, of which there were zero in 2013, whereas we had previously accepted single-unit orders. Restricting the retail business allowed us to focus our efforts on seeking wholesale distribution partners in the specialty foods and gifting sectors, in addition to royalty partnerships with food products companies. The Company entered into its first royalty agreement late 2013, which we expect will generate moderate revenues in 2014.
Gross Profit. For the year ended December 31, 2013, gross profit was zero compared to $(887) for the year ended December 31, 2012. Based upon the restructuring of the Company’s business plan discussed above, the Company expects a moderate increase in revenue and gross profit in 2014.
Expenses. For the year ended December 31, 2013, total expenses were $408,649 compared to $339,446 for the year ended December 31, 2012. The majority of expenses are attributed to accrued salary of officers and directors and from professional fees, which combined to represent $284,658 of the total of $408,649 in 2013 (consisting of accrued officer’s compensation of $120,000, accrued director’s fees of $90,000 and professional fees of $74,658).
Net Loss. For the year ended December 31, 2013, the Company’s net loss was $560,138 compared to $585,643 for the year ended December 31, 2012. The losses primarily result from accrued salary of officers and directors and from professional fees. This is illustrated in the Company’s net loss for the year ended December 31, 2013 of $560,138, of which $284,658 came from these three categories (consisting of accrued officer’s compensation of $120,000, accrued director’s fees of $90,000 and professional fees of $74,658). Interest expense of $234,317 was also an important factor contributing to the loss.
For the year ended December 31, 2013, the Company’s accumulated deficit was $2,187,627 compared to $1,627,489 for the year ended December 31, 2012.
Financial Condition, Liquidity and Capital Resources
The Company is currently illiquid. There is substantial doubt about our ability to continue as a going concern, which is dependent on the Company’s ability to raise additional capital, as well as successful implementation of its business plan which contemplates increasing revenues significantly.
Management has been able, thus far, to finance the losses of the business through private placements of its common stock and the issuance of debt. Assurances cannot be given that adequate financing can be obtained to meet our capital needs. If we are unable to generate profits and to continue to obtain financing to meet our working capital requirements, we may have to curtail our business sharply or cease operations altogether. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis to retain our current financing, to obtain additional financing, and, ultimately, to attain profitability. Should any of these events not occur, we will be adversely affected and we may have to cease normal operations.
Since its inception, the Company has been funded by its Chairman and Chief Executive Officer, and persons related to or acquainted with these. We currently have no internal sources of liquidity. To remedy the current deficiency in our liquidity position, we continue to seek external sources of capital through additional private equity offerings, strategic agreements with partner companies, and private debt placement. To date, the majority of our funding has been derived from private debt placement from a small number of accredited investors, and it is possible that we will obtain future funding from these investors. Whether we will be successful in obtaining additional capital, or obtaining such capital on commercially reasonable terms, and whether we can significantly increase revenues, is uncertain. We are not aware of any known trends, favorable or unfavorable, in our capital resources nor aware of any material changes in the mix and relative cost of such resources. We are unable to predict whether any known demands, commitments, events or uncertainties will result in or are reasonably likely to result in the Company’s cash liquidity increasing or decreasing in any material way, which creates uncertainty in the Company’s ability to continue to operate.
The Company currently has no commitments for capital expenditures.
As of December 31, 2013, current assets were $1,112 consisting of cash. As of December 31, 2012, current assets were $122,533 consisting of $24,851 of cash, $1,133 of prepaid expenses and $96,549 in loan receivables.
As of December 31, 2013, total current liabilities were $1,254,128, which consisted of $854,696 of accounts payable expenses, $45,000 of customer deposits, $27,317 of payroll taxes and $327,115 of loan payable obligations. As of December 31, 2012, total current liabilities were $1,115,163, which consisted of $782,709 of accounts payable expenses, $45,000 in customer deposits and $287,454 of loan payable obligations.
For the year ended December 31, 2013, net cash used in operating activities was $(178,442), which primarily consisted of a net loss of $(560,138), provision for bad debts of $96,549, accounts payable and accrued expenses of $71,998 and $180,000 of stock issued to repay accrued expenses. For the year ended December 31, 2012, net cash used in operating activities was $(134,890), which primarily consisted of a net loss of $(585,643), derivative expense of $(81,636), accounts payable and accrued expenses of $161,625 and a derivative liability of $322,167.
For the year ended December 31, 2013, and for the year ended December 31, 2012, net cash used in investing activities was $20,000 for a territory acquisition investment and a $96,549 receivable loan respectively.
Net cash provided by financing activities for the year ended December 31, 2013, was $174,703, which included $69,895 in proceeds from common stock issuances, $98,349 in proceeds from convertible notes payable issuances and $25,800 in proceeds from other loans. For the year ended December 31, 2012, net cash provided by financing activities was $255,750, which included $131,250 in proceeds from common stock issuances, $175,000 in proceeds from convertible notes payable issuances and $(37,250) in loan repayments.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that apply to the Company.
Recent Developments during the Quarter
Miami Ice Machine Company - On February 22, 2013, Frozen Food Gift Group entered into a Definitive Purchase Agreement with Miami Ice Machine Company for $880,000 in restricted common stock. Payment of 17,600,000 shares of restricted common stock was issued shortly afterwards. On August 30, 2013, the Company received notice from one of the two prior owners, Mr. Jeffrey Saltzman, via his attorney, that states he believes he believes the Purchase Agreement is in dispute, and would like to enter into mediation to rescind the Agreement and negotiate a settlement. On September 6, 2013, the Company responded that it did not agree to enter into mediation. Because the Company was not able to fully audit Miami Ice Machine Company and thus did not consummate the transaction, the Company has not recorded or recognized any financial data such as revenues, gross profits or expenses directly relating to the operations of Miami Ice Machine Company. The company has recorded the shares as issued thus far, and will seek return of these shares if agreement cannot be reached. As of December 31, 2013, the Purchase Agreement is still in dispute and ongoing efforts are being made to resolve the issue.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements and supplemental schedule and notes thereto as of December 31, 2013 and 2012, and for each of the two years then ended, together with the independent registered public accounting firm’s reports thereon, are set forth on pages beginning on page of this Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
It is management's responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"). Our management has reviewed and evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2013. Following this review and evaluation, management determined that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
The deficiency in our disclosure controls and procedures is related to a lack of segregation of duties due to the lack of an accounting department and the fact that we only have one employee at present due to the limited financial resources of the Company. We continue to actively search for additional capital in order to be in position to remediate this lack of segregation of duties.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal controls over financial reporting or in other factors that could affect these internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to deficiencies and material weaknesses.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.
Based upon management’s assessment using the criteria contained in COSO, and for the reasons discussed below, our management has concluded that, as of December 31, 2013, our internal control over financial reporting was not effective.
Based on its evaluation, the Company's Chief Executive Officer identified a major deficiency that existed in the design or operation of our internal control over financial reporting that it considers to be a “material weakness”. The Public Company Accounting Oversight Board has defined a material weakness as a “significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.”
The deficiency in our internal control is related to a lack of segregation of duties due to our lack of an accounting department and the lack of experienced in-house accountants due to the limited financial resources of the Company. We continue to actively search for additional capital in order to be in position to add the necessary staff to address this material weakness.
ITEM 9A(T) CONTROLS AND PROCEDURES.
Not applicable.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth the names and positions of our executive officer and directors as of March 26, 2014. On March 27, 2014, the Company consummated a reverse merger transaction pursuant to which the Company’s then-existing officers and directors resigned and new directors were appointed, as reported on Form 8-K dated March 28, 2014.
Our directors are elected at our annual meeting of stockholders and serve for one year or until successors are elected and quality. Our Board of Directors elects our officer, and the term of office is at the discretion of the Board.
Our directors’ and executive officer’s ages and positions are as follows:
Matthew L. Schissler is the Chairman of the Board and a founder of the Company. Mr. Schissler has served with the Company since its inception. He previously served as Chairman of the Board and Chief Executive Officer of Cord Blood America, Inc., from 2003 to 2012. From April 2001 until January 2003, Mr. Schissler was the President and Chief Executive Officer of RainMakers International, an advertising agency that he founded. He earned a Bachelor of Arts in Biology from St. Mary’s College of Maryland in 1993.
John J. Berkeridge, Jr. is employed by Penske Truck Leasing as an Executive National Account Manager, where he has worked since February 2000. Mr. Berkeridge has served as a director of the Company from November 2009 to the present. Mr. Berkeridge’s duties at Penske Truck Leasing include the management of corporate relationships of large companies with headquarters in the Mid-Atlantic region of the US, in addition to managing new business acquisition for national accounts in the same geographic footprint.
Jonathan F. Irwin is the Chief Executive Officer and a founder of the Company. Mr. Irwin is also the Company’s Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer. He has served with the Company since its inception. Prior to joining the Company, from June 2004 to July 2009, he was the President of RoadRunner Advertising, Inc., an advertising agency that he founded. From April 1996 to June 2004, Mr. Irwin was the President of UR Media Group, a collegiate marketing firm that he founded. He earned a Masters in Business Administration in Finance from Loyola University of Maryland in 2003, and a Bachelor of Arts in Economics from St. Mary’s College of Maryland in 1992.
Involvement in Certain Legal Proceedings
None of our officers, directors, promoters or control persons has been involved in the past five years in any of the following:
(1)
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
(2)
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3)
Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
(4)
Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Committees; Audit Committee Financial Expert.
Our board does not have an Audit Committee or other committees.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires that our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission and with any exchange on which the Company's securities are traded. Officers, directors and persons owning more than ten percent of such securities are required by Commission regulation to file with the Commission and furnish the Company with copies of all reports required under Section 16(a) of the Exchange Act. To our knowledge, based solely upon our review of the copies of such reports furnished to us, during the fiscal year ended December 31, 2013, Section 16(a) filing requirements applicable to our officers and directors were not complied with.
Code of Ethics
Our Board has adopted a Code of Ethics that applies to all of our employees, including our Chief Executive Officer and persons performing similar functions. Although not required, the Code of Ethics also applies to our Board. The Code provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations, including insider trading, corporate opportunities and whistle-blowing or the prompt reporting of illegal or unethical behavior. We will provide a copy of the Code of Ethics to any person without charge, upon request. The request for a copy can be made in writing to Frozen Food Gift Group, Inc., 8844 Hillcrest Road, Kansas City, Missouri 64138, Attention: William Maher.
Changes in Nominating Procedures
None.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Overview
The following is a discussion of our program for compensating our named executive officer and directors. Currently, we do not have a compensation committee, and as such, our Board of Directors is responsible for determining the compensation of our named executive officer.
Compensation Program Objectives and Philosophy
The primary goals of our policy of executive compensation are to attract and retain the most talented and dedicated executives possible, to assure that our executives are compensated effectively in a manner consistent with our strategy and competitive practice and to align executive compensation with the achievement of our short- and long-term business objectives.
The Board of Directors considers a variety of factors in determining compensation of executives, including their particular background and circumstances, such as their training and prior relevant work experience, their success in attracting and retaining savvy and technically proficient managers and employees, increasing our revenues, broadening our product line offerings, managing our costs and otherwise helping to lead our Company through a period of rapid growth.
In the near future, we expect that our Board of Directors will form a compensation committee charged with the oversight of executive compensation plans, policies and programs of our Company and with the full authority to determine and approve the compensation of our Chief Executive Officer and make recommendations with respect to the compensation of any other executive officers. We expect that our compensation committee will continue to follow the general approach to executive compensation that we have followed to date, rewarding superior individual and company performance with commensurate cash compensation.
Elements of Compensation
Our compensation program for the named executive officer consists of base salary. The base salary we provide is intended to equitably compensate the named executive officer based upon their level of responsibility, complexity and importance of role, leadership and growth potential, and experience.
Base Salary
Our named executive officer receives a base salary commensurate with his role and responsibilities. Base salaries and subsequent adjustments, if any, are reviewed and approved by our Board of Directors annually, based on an informal review of relevant market data and the executive’s performance for the prior year, as well as the executive’s experience, expertise and position. The base salary paid to our named executive officer in 2013 and 2012 is reflected in the Summary Compensation Table below.
Stock-Based Awards under the Equity Incentive Plan
We do not provide equity awards as a component of compensation.
Employment Agreements
The Company does not currently have any employment agreements.
Retirement Benefits
We have not adopted a tax-qualified employee savings and retirement plan.
Perquisites
Historically, we have not provided our named executive officer with any perquisites and other personal benefits. We do not view perquisites as a significant element of our compensation structure, but do believe that perquisites can be useful in attracting, motivating and retaining the executive talent for which we compete. It is expected that our historical practices regarding perquisites will continue and will be subject to periodic review by our by our Board of Directors.
The following table sets forth the compensation paid to our Chief Executive Officer for each of our last two completed fiscal years.
Summary Compensation Table
The Company accrued or paid compensation to the executive officer for services rendered to the Company in all capacities during the 2013 and 2012 fiscal years as shown in the following table.
___________
(1)
The values shown in this column represent the dollar amount recognized for financial statement reporting purposes with respect to the 2013 and 2012 fiscal years.
(2)
In 2013, Mr. Irwin received $24,000 in cash compensation and $96,000 of deferred compensation. Deferred compensation is to be paid to Mr. Irwin by January 1, 2015, in cash payments and/or shares of stock in the Company.
(3)
In 2012, Mr. Irwin received $42,000 in cash compensation and $78,000 of deferred compensation. Deferred compensation is to be paid to Mr. Irwin by January 1, 2014, in cash payments and/or shares of stock in the Company.
Outstanding equity awards at fiscal year end.
None.
COMPENSATION OF DIRECTORS
Director Compensation for year ending December 31, 2013
The following table sets forth with respect to the named director compensation information inclusive of equity awards and payments made in the year ended December 31, 2013.
(1)
The values shown in this column represent the dollar amount recognized for financial statement reporting purposes with respect to the 2013 fiscal year.
(2)
Mr. Schissler received no cash compensation and $90,000 of deferred compensation. Deferred compensation is to be paid to Mr. Schissler by January 1, 2015, in cash payments and/or shares of stock in the Company.
Compensation Committee Interlocks and Insider Participation
We did not have a Compensation Committee during the year ended December 31, 2013. During the fiscal year ended December 31, 2013, none of our executive officers served on the Board of Directors of any entities whose directors or officers serve on our Board of Directors.
Compensation Committee Interlocks and Insider Participation
We did not have a compensation committee during the year ended December 31, 2013. During the fiscal year ended December 31, 2013, none of our executive officers served on the Board of Directors of any entities whose directors or officers serve on our Board of Directors.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information as of March 26, 2014, with respect to the beneficial ownership of our common stock, and includes the Company’s executive officer and directors as of the same date. On March 27, 2014, the Company consummated a reverse merger transaction pursuant to which the Company’s then-existing officers and directors resigned and new directors were appointed, as reported on Form 8-K dated March 28, 2014. As of April 14, 2014, the Company had 3,909,937,651 shares of common stock issued and outstanding. As of March 26, 2014, the date on which the following table is based, 959,163,889 shares of common stock were issued and outstanding and entitled to vote as to:
●
Each person known by the Company to own beneficially more than five percent of our issued and outstanding common stock;
●
Each director and prospective director of the Company;
●
The Company’s Chief Executive Officer and each person who serves as an executive officer of the Company; and all executive officers and directors of the Company as a group.
Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.
__________
* Less than 1% of the outstanding common stock.
(1) Except as noted above, the address for the above identified officer and directors of the Company is c/o Frozen Food Gift Group, Inc., 8844 Hillcrest Road, Kansas City, Missouri 64138. Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants, or convertible debt currently exercisable or convertible, or exercisable or convertible within 60 days of March 26, 2014, are deemed outstanding for computing the percentage of the person holding such option or warrant. Percentages are based on a total of 959,163,889 shares of common stock outstanding on March 26, 2014. As of April 14, 2014, the number of outstanding shares of the Company’s common stock was 3,909,937,651.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Transactions
None.
Director Independence
Mr. Schissler and Mr. Berkeridge are independent as that term is defined under the NASDAQ Marketplace Rules.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
David A. Aronson, CPA, P.A., serves as our independent registered public accounting firm and audited our financial statements for the years ended December 31, 2013 and 2012.
The Board of Directors pre-approves all audit and non-audit services performed by the Company’s auditor and the fees to be paid in connection with such services in order to assure that the provision of such services does not impair the auditor’s independence.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this report or incorporated herein by reference:
(1)
Our Consolidated Financial Statements begin on page of this Annual Report.
(2)
Financial Statement Schedules.
None.
(3)
Exhibits:
The following documents are filed as a part of this Annual Report or incorporated herein by reference:
* Filed herewith
(2)
Previously filed on Form S-1 on March 11, 2010.
(4)
Previously filed on Form S-1 on June 3, 2011.
(6)
Previously filed on Form 8-K on February 20, 2012.
(8)
Previously filed on Form 10-Q on May 14, 2012.
(10)
Previously filed on Form 8-K on November 29, 2012.
(12)
Previously filed on Form 10-Q on May 20, 2013.
(14)
Previously filed on Form 8-K on July 8, 2013.
(16)
Previously filed on Form 8-K on August 12, 2013.
(18)
Previously filed on Form 10-Q on August 19, 2013.
(20)
Previously filed on Form 8-K on November 19, 2013.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ TROY A. COVEY
Troy A. Covey
President, Director and Principal Executive Officer
April 15, 2014
Signature
Title
Date
/s/ ALEXANDER KRAMER
Alexander Kramer
Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer
April 15, 2014
Signature
Title
Date
/s/ WAYNE PATTERSON
Wayne Patterson
Chief Executive Officer
April 15, 2014
Signature
Title
Date
/s/ N. DOUGLAS PRITT
N. Douglas Pritt
Director
April 15, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
We have audited the accompanying balance sheet of Frozen Food Gift Group, Inc. (d/b/a Sendascoop.com), (A Development Stage Company) as of December 31, 2013, and the related statements of operations, stockholders' (deficit) and cash flows for the years ended December 31, 2013 and 2012, and for the period from inception (January 2, 2009) to December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frozen Food Gift Group, Inc. (d/b/a Sendascoop.com), (A Development Stage Company) as of December 31, 2013, and results of its operations and its cash flows for the years ended December 31, 2013 and 2012, and for the period from inception (January 2, 2009) to December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company has suffered a loss from operations and is in the development stage. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to this matter are also discussed in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ David A. Aronson, CPA, P.A.
--------------------------------------------
David A. Aronson, CPA. P.A.
North Miami Beach, Florida
April 11, 2014
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Statement of Stockholders' Equity
For the Period from January 2, 2009 (Inception) to December 31, 2013
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Statement of Stockholders' Equity
For the Period from January 2, 2009 (Inception) to December 31, 2013
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Statement of Stockholders' Equity
For the Period from January 2, 2009 (Inception) to December 31, 2013
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was created on January 2, 2009 and was incorporated in the state of Delaware later that year. The Company is in the development stage. The Company intends to sell ice cream and related frozen products via retail and wholesale distribution, and enter into royalty partnerships with food products companies. The Company has chosen December 31 as a year-end and has had limited activity from inception through December 31, 2013.
Revenue Recognition
In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company:
Revenue is recognized at the time the product is delivered. Provision for sales returns will be estimated based on the Company's historical return experience. Revenue is presented net of returns.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2013. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.
Net Income (Loss) Per Common Share
The Company calculates net income (loss) per share based on the authoritative guidance. Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses common stock equivalents, if any, are not considered, as their effect would be anti-dilutive.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Segment Information
The Company follows Accounting Standards Codification ("ASC") 280, "Segment Reporting". The Company currently operates in a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
Income Taxes
Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.
ASC 740, Income Taxes, requires a company to first determine whether it is more likely than not (which is defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees in accordance with ASC 718, Compensation - Stock Compensation. ASC 718 requires all share-based compensation payments to be recognized in the financial statements based on the fair value using an option pricing model. ASC 718 requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-Based Compensation (continued)
Equity instruments granted to non-employees are accounted for in accordance with ASC 505, Equity. The final measurement date for the fair value of equity instruments with performance criteria is the date that each performance commitment for such equity instrument is satisfied or there is a significant disincentive for non-performance.
Fair Value of Financial Instruments
The carrying amount of the Company’s financial instruments, which principally include cash, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The fair value assessment of the Company’s convertible notes payable and other loans payable are estimated based on recent negotiations between the Company and certain lenders. The assessment is considered to be a Level 3 assessment. The Company’s assessment of fair value for its outstanding convertible notes payable and other loans payable approximates the debts respective carrying values.
Financial Accounting Standards Board (or FASB) Accounting Standards Codification (or ASC) 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments (continued)
The Company’s recurring fair value measurements of financial assets and liabilities are disclosed in “Note 8 - Fair Value Measurements” below.
Derivative Liability
The conversion features embedded in the outstanding convertible notes payable are separately accounted for as a derivative liability in accordance with ASC 815-15, Embedded Derivative. This is because the number of shares that may be acquired upon conversion is indeterminable as the conversion rates are expressed as a percentage discount to the current fair value of common stock at the time of conversion. Derivative liabilities are valued when the host instruments (notes payable) are initially issued and are also revalued at each reporting date, with the change in the respective fair values being recorded as interest expense or interest income in the statements of operations.
Recently Adopted Accounting Pronouncements
There are no recent accounting pronouncements that apply to the Company.
Note 2. LOANS RECEIVABLE - OTHER
In November 2012, the Company advanced Miami Ice Machine Company ("MIMCO") $96,549 to facilitate the purchase of inventory. The Company had intended to acquire MIMCO through a stock purchase agreement in February 2013 but the acquisition was unable to be completed. The loan bears no interest and is due on demand. Management believes that the receivable is fully collectible.
Note 3. LOANS PAYBLE - STOCKHOLDERS
Matthew L. Schissler, the Company’s Chairman of the Board, loaned the Company $-0- and $-0- during the fiscal years ended December 31, 2013 and 2012, respectively. At December 31, 2013, the loan balance was $10,400. The loan bears no interest and is due on demand.
Jonathan F. Irwin, the Company’s Chief Executive Officer, loaned the Company $-0- and $1,000 during the fiscal years ended December 31, 2013 and 2012, respectively. At December 31, 2013, the loan balance was $5,138. The loan bears no interest and is due on demand.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 4. CONVERTIBLE NOTES PAYABLE - STOCKHOLDER
On October 9, 2013, the Company issued a convertible note to a stockholder of the Company in the principal amount of $23,500 with an original issue discount of $2,500. Terms of the note are as follows: principal balance of $25,000, maturity date of October 9, 2014, interest accrues at the rate of 10% per annum, principal is convertible into shares of common stock at a conversion rate equal to 50% of the lowest trading price during the 20 consecutive trading days prior to conversion, as defined in the agreement. Principal amounts may be repaid prior to maturity subject to a 25% prepayment penalty.
On November 19, 2013, the Company issued a convertible note to a stockholder of the Company in the principal amount of $10,772 with an original issue discount of $7,272. Terms of the note are as follows: principal balance of $10,772, maturity date of November 19, 2014, interest accrues at the rate of 10% per annum, principal is convertible into shares of common stock at a conversion rate equal to 50% of the lowest trading price during the 20 consecutive trading days prior to conversion, as defined in the agreement. Principal amounts may be repaid prior to maturity subject to a 25% prepayment penalty.
On February 25, 2013, the Company issued a convertible note to a stockholder of the Company in the principal amount of $25,000. Terms of the note are as follows: principal balance of $25,000, maturity date of August 25, 2013, interest accrues at the rate of 10% per annum, principal is convertible into shares of common stock at a conversion rate equal to 50% of the lowest trading price during the 20 consecutive trading days prior to conversion, as defined in the agreement.
On February 28, 2013, the Company issued a convertible note to a stockholder of the Company in the principal amount of $100,800. Terms of the note are as follows: principal balance of $100,800, maturity date of February 28, 2015, interest accrues at the rate of 12% per annum, principal is convertible into shares of common stock at a conversion rate equal to 50% of the average lowest intraday trading price during the 20 consecutive trading days prior to conversion, as defined in the agreement or $0.01, whichever is lower. During 2013, $21,516 of this note has been converted into common stock.
On May 1, 2013, the Company issued a convertible note to a stockholder of the Company in the principal amount of $15,000. Terms of the note are as follows: principal balance of $15,000, maturity date of May 1, 2014, interest accrues at the rate of 10% per annum, principal is convertible into shares of common stock at a conversion rate equal to 50% of the lowest trading price during the 20 consecutive trading days prior to conversion, as defined in the agreement.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 4. CONVERTIBLE NOTES PAYABLE - STOCKHOLDER (continued)
On June 1, 2013, the Company issued a convertible note to a stockholder of the Company in the principal amount of $12,000. Terms of the note are as follows: principal balance of $12,000, maturity date of June 1, 2014, interest accrues at the rate of 10% per annum, principal is convertible into shares of common stock at a conversion rate equal to 50% of the lowest trading price during the 20 consecutive trading days prior to conversion, as defined in the agreement.
On August 8, 2013, the Company issued a convertible note to a stockholder of the Company in the principal amount of $11,273. Terms of the note are as follows: principal balance of $11,273, maturity date of August 8, 2014, interest accrues at the rate of 10% per annum, principal is convertible into shares of common stock at a conversion rate equal to 50% of the lowest trading price during the 20 consecutive trading days prior to conversion, as defined in the agreement.
During 2012, the Company issued convertible notes aggregating to $275,920 in principal. Of these notes, $21,392 and $6,250 were converted into shares of common stock during 2013 and 2012, respectively. When issued in 2012, the notes generally became due after one year or less, accrued interest at 7% to 10%, and were generally convertible into shares of common stock at a conversion rate equal to 50% to 70% of the lowest trading price during the 20 consecutive trading days prior to conversion, as defined in the agreement.
Note 5. LOANS PAYBLE - OTHER
At December 31, 2013 the Company was indebted to an unrelated third party in the amount of $81,209. The loan has a stated interest rate of 12.00% for the entire term of the loan. Principal and all accrued interest are due in December 2013. Interest expense for the year ended December 31, 2013 was approximately $3,800.
At December 31, 2013 the Company was indebted to an unrelated third party in the amount of $27,000. The loan bears interest at 17% for its six month term. Principal and all accrued interest are payable when the note comes due in February 2014. Interest expense for the nine months ended September 2012 was approximately $5,500.
At December 31, 2013 the Company was indebted to an unrelated third party in the amount of $4,000 The loan bears no interest and is due on demand.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 6. STOCKHOLDERS' EQUITY
The Company has authorized 20,000,000,000 shares of common stock with a par value of $0.00001 per share. At December 31, 2013 and 2012, 267,476,543 and 229,173,063 shares of common stock were issued and outstanding, respectively.
In July 2013, The Company authorized 9,118,108 shares of Series A convertible preferred stock with a par value of $0.00001 per share. Series A preferred shares have anti-dilution protection with respect to conversion and voting rights. At December 31, 2013 and December 31, 2012, there were no shares of Series A convertible preferred stock issued and outstanding, respectively.
In July 2013, The Company authorized 20,500,000 shares of Series B convertible preferred stock with a par value of $0.00001 per share. Series B preferred shares are convertible into the Company's common stock on a 500 to 1 basis and vote on all matters on a 500 votes per one share basis. Series B has anti-dilution protection with respect to conversion and voting rights.
At inception, the Company issued 99,184,000 shares of its common stock for costs and services related to its organization aggregating $992, which approximated the fair market value of the costs and services provided. Accordingly, the Company recorded a charge to operations of $992 during the year ended December 31, 2009.
During August 2009 the Company entered into an agreement with two individuals for consulting services in exchange for the issuance of 2,000,000 shares of common stock. The shares were valued at their fair market value of $100,000 and the value was charged to
In July 2010 the Company issued 11,242,666 shares of its common stock for consulting services at par value $0.00001 (or $112). The shares were valued at their fair market value of $112 and the value was charged to operations as general and administrative expenses.
In September 2011 the Company issued 30,000 shares of its common stock for consulting services at $0.05 (or $1,500). The shares were valued at their fair market value of $1,500 and the value was charged to operations as general and administrative expenses.
In February 2012, the Company issued 9,118,108 shares of its common stock for cash at $0.0055 per share (or $50,000).
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 6. STOCKHOLDERS' EQUITY (continued)
In March 2012, the Company issued 2,022,014 shares of its common stock for consulting services at $0.0055 per share (or $11,121). The shares were valued at their fair market value of $11,121 and the value was charged to operations as professional fees.
In May 2012, the Company issued 3,050,000 shares of its common stock for cash at $0.0246 per share (or $75,000).
In May 2012, the Company issued 1,447,000 shares of its common stock for consulting services at $0.0245 per share (or $35,452). The shares were valued at their fair market value of $35,452 and the value was charged to operations as professional fees.
In June 2012, as per the terms of an antidilutive clause in a private placement, the Company issued 2,564,822 shares of its common stock for consulting services at $0.0292 per share. The shares were valued at their fair market value of $50,000 and the value was charged to operations as professional fees.
In June 2012, as per the terms of an antidilutive clause in a consulting agreement, the Company issued 311,316 shares of its common stock for consulting services at $0.0292 per share. The shares were valued at their fair market value of $9,090 and the value was charged to operations as professional fees.
In June 2012, the Company issued 625,000 shares of its common stock for consulting services at $0.0245 per share (or $15,313). The shares were valued at their fair market value of $15,313 and the value was charged to operations as professional fees.
In June 2012, as per the terms of an antidilutive clause in a private placement, the Company issued 233,721 shares of its common stock for consulting services at $0.0292 per share. The shares were valued at their fair market value of $6,825 and the value was charged to operations as professional fees.
In June 2012, as per the terms of an antidilutive clause in a private placement, the Company issued 58,172 shares of its common stock for consulting services at $0.0292 per share. The shares were valued at their fair market value of $1,699 and the value was charged to operations as professional fees.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 6. STOCKHOLDERS' EQUITY (continued)
In June 2012, as per the terms of an antidilutive clause in a private placement, the Company issued 15,512 shares of its common stock for consulting services at $0.0292 per share. The shares were valued at their fair market value of $453 and the value was charged to operations as professional fees.
In June 2012, as per the terms of an antidilutive clause in a consulting agreement, the Company issued 77,485 shares of its common stock for consulting services at $0.0292 per share. The shares were valued at their fair market value of $2,263 and the value was charged to operations as professional fees.
In March 2013, the Company issued 300,000 shares of common stock at $0.01 per share as partial conversion of a note.
In March 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 31,584 shares of its common stock for consulting services at $0.01 per share. The shares were valued at their fair market value of $316 and the value was charged to operations as professional fees.
In April 2013, the Company issued 1,200,000 shares of common stock at $0.005 per share as partial conversion of two notes.
In April 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 136,789 shares of its common stock for consulting services at $0.005 per share. The shares were valued at their fair market value of $684 and the value was charged to operations as professional fees.
In May 2013, the Company issued 4,000,000 shares of common stock at $0.0007 per share as partial conversion of a note.
In May 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 419,866 shares of its common stock for consulting services at $0.0007 per share. The shares were valued at their fair market value of $294 and the value was charged to operations as professional fees.
In May 2013, the Company issued 12,000,000 shares of common stock at $0.00097 per share as partial conversion of a note.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 6. STOCKHOLDERS' EQUITY (continued)
In May 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 1,259,600 shares of its common stock for consulting services at $0.00097 per share. The shares were valued at their fair market value of $1,222 and the value was charged to operations as professional fees.
In June 2013, the Company issued 8,089,324 shares of common stock at $0.0017 per share as partial conversion of a note.
In June 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 849,189 shares of its common stock for consulting services at $0.0017 per share. The shares were valued at their fair market value of $1,444 and the value was charged to operations as professional fees.
In July 2013, the Company issued 20,500,000 shares of preferred series B stock at $0.00878 per share as partial payment of certain accrued expenses.
In July 2013, the Company issued 6,000,000 shares of common stock at $0.001 per share as partial conversion of a note.
In July 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 629,851 shares of its common stock for consulting services at $0.001 per share. The shares were valued at their fair market value of $630 and the value was charged to operations as professional fees.
In July 2013, the Company issued 6,229,587 shares of common stock at $0.00063 per share as partial conversion of a note.
In July 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 1,283,732 shares of its common stock for consulting services at $0.00063 per share. The shares were valued at their fair market value of $809 and the value was charged to operations as professional fees.
In August 2013, the Company issued 16,398,371 shares of common stock at $0.00035 per share as partial conversion of a note.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 6. STOCKHOLDERS' EQUITY (continued)
In July 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 1,283,732 shares of its common stock for consulting services at $0.00035 per share. The shares were valued at their fair market value of $1,052 and the value was charged to operations as professional fees.
In August 2013, the Company issued 7,700,000 shares of common stock at $0.00023 per share as partial conversion of a note.
In August 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 3,813,190 shares of its common stock for consulting services at $0.00023 per share. The shares were valued at their fair market value of $877 and the value was charged to operations as professional fees.
In September 2013, the Company issued 20,821,533 shares of common stock at $0.0003 per share as partial conversion of a note.
In September 2013, as per the terms of an antidilutive clause in a private placement, the Company issued 5,998,697 shares of its common stock for consulting services at $0.0003 per share. The shares were valued at their fair market value of $1,800 and the value was charged to operations as professional fees.
In October 2013, the Company issued 22,903,480 shares of common stock at $0.00025 per share as partial conversion of a note.
In October 2013, the Company issued 7,700,000 shares of common stock at $0.00025 per share as partial conversion of a note.
In August 2013, the Company issued 7,700,000 shares of common stock at $0.00021 per share as partial conversion of a note.
Note 7. INCOME TAXES
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences are as follows:
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 7. INCOME TAXES (continued)
As of December 31, 2013, the Company has a net operating loss carryforward of approximately $2,188,000. This loss will be available to offset future taxable income. If not used, this carryforward loss will begin to expire in 2029. The deferred tax asset relating to the operating loss carryforward has been fully reserved at December 31, 2013. The principal difference between the operating loss for income tax purposes and reporting purposes results from the issuance of common shares for services.
Note 8. FAIR VALUE MEASUREMENTS
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and 2012.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 8. FAIR VALUE MEASUREMENTS (continued)
The following table includes a rollforward of amounts for the year ended December 31, 2013 and 2012 for liabilities classified within Level 3.
During 2013, the Company issued notes payable that contain conversion features that are being accounted for as separate derivative liabilities in accordance with ASC 815-15, Embedded Derivatives. Of the convertible notes payable issued and outstanding as of December 31, 2013, convertible notes payable with an initial face amount of $210,345 contain a conversion feature that allows the lender to convert their notes into shares of common stock at a discount of 50% of the stock’s then current fair value. As interest expense accrues, the interest accrual may also be converted into shares of common stock at the same discounted rate. During 2013, $21,516 of principal was converted into shares of common stock resulting in $21,516 of derivative liability being reclassified from liabilities to equity.
During 2012, the Company issued notes payable that contain conversion features that are being accounted for as separate derivative liabilities in accordance with ASC 815-15, Embedded Derivatives. Of the convertible notes payable issued and outstanding, convertible notes payable with an initial face amount of $175,000 contain a conversion feature that allows the lender to convert their notes into shares of common stock at a discount ranging from 50% to 70% of the stock’s then current fair value. As interest expense accrues, the interest accrual may also be converted into shares of common stock at the same discounted rate. Of these notes payable issued in 2012, principal amounts of $15,300 were converted into shares of common stock during 2013, resulting in $13,700 of derivative liabilities being reclassified from liabilities to equity.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 8. FAIR VALUE MEASUREMENTS (continued)
Of the convertible notes payable issued during 2012, a convertible note payable with an initial face amount of $100,920 contains a conversion feature that allows the lender to convert the note into shares of common stock at a conversion rate equal to 50% of the stock’s then current fair value, but the conversion rate cannot exceed $0.01 (a look-back provision). During 2013 and 2012, the lender converted principal of $32,094 and $6,250, respectively, of principal into shares of common stock, resulting in derivative liabilities of $16,041 and $15,238, respectively, of derivative liability being reclassified from liabilities to equity.
The Company values the embedded conversion features that do not have a look-back provision by determining the additional value the lender would receive as if the lender converted their notes payable and accrued interest into shares of common stock. This determination is equal to the value of the inherent beneficial conversion feature for the amount of debt and accrued interest that is outstanding at the time of determination.
For embedded conversion features that contain a look-back provision, the Company determines the fair value of the conversion feature in the same manner as above, but also includes in the fair value determination the value of the added look-back provision, which equal to the value of a call and a put option determined in accordance with ASC 718-50-55, Employee Share Purchase Plans - Implementation Guidance and Illustrations. The Company uses a Black-Scholes model to compute the call and put option values. Inputs into the Black-Scholes model are: remaining term of the conversion right, volatility, exercise price, underlying stock value, and risk-free interest rate. The term used is equal to the remaining term of the debt. The Company uses a peer group to compute volatility, which ranged between 37% and 31% during 2013 and 59% and 68% during 2012. Exercise price is equal to the floor conversion price of $0.01 per share. The Company uses the most recent price stock sold for as an estimate for the underlying stock value. The risk-free interest rate is based on interest rates paid by the U.S. government on its securities with maturities similar to the remaining term of the convertible note payable.
Note 9. BASIS OF REPORTING
The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 9. BASIS OF REPORTING (continued)
The Company has experienced a loss from operations during its development stage as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the period from inception to December 31, 2013, the Company incurred a net loss of approximately $2,188,000. In addition, the Company has no significant assets or revenue generating operations.
The Company's ability to continue as a going concern is contingent upon its ability to attain profitable operations by securing financing and implementing its business plan. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which the Company operates.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Note 10. COMMITMENTS
In February 2012, the Company entered into an agreement to sell, on a non-dilutive basis, 9,118,118 common shares, representing 7.5% of the Company's then outstanding common shares, for $50,000 (or approximately $0.055 per share) to an unrelated third party. The shares sold are restricted and have the option to be converted into preferred shares on a one for one basis for a five year term. At this time the Company has not yet established this preferred class of stock.
As a result of this issuance, the Company, under the terms of a consulting agreement dated July 2010, is obligated to issue an additional 1,932,805 shares of its common stock to a third party consultant (see notes 5 and 7) in order for that party to maintain its 9.99% ownership in the Company. At the same instant, the Company will also be required to issue an additional 3,477,150 shares of its common shares to the entity that acquired a 7.5% stake in the Company (see above).
Frozen Food Gift Group, Inc.
d/b/a Sendascoop.com
(A Development Stage Company)
Notes to Financial Statements
December 31, 2013
Note 11. CORRECTION OF AN ERROR
During the last quarter of 2013 the Company became aware that certain payroll tax liabilities and the associated interest and penalties had not been properly recorded in the Company's general ledger. The correction of this error had the effect of increasing the Company's accumulated deficit by $19,804 through December 31, 2011. The correction of the error also had the effect of increasing expenses and the accumulated deficit as of and for the year ended December 31, 2012 by an additional $5,784.
Note 12. SUBSEQUENT EVENT
On March 27, 2014, the Company consummated a Share Exchange Agreement with APT Group, Inc., as reported by the Company on Form 8-K filed on March 28, 2014. Pursuant to the agreement, the shareholders of APT exchanged up to one hundred percent (100%) of the total issued and outstanding shares of APT for Company Shares, resulting in APT being a wholly-owned or controlled subsidiary of the Company, and the Company being controlled by the existing shareholders of APT. This type of merger is referred to as a reverse acquisition, whereby, at the completion of the merger APT will be deemed to be the acquirer for accounting purposes.
The company will file required comprehensive disclosures in an amended Form 8-K to be filed on or before June 6, 2014, that will include audited financials of both companies for fiscal years 2012 and 2013.