Unaudited financial statements of ReachOut as of December 31, 2022 and 2023

EX-10.7 9 yuenglings_ex10-7.htm EXHIBIT 10.7

 

Exhibit 10.7

 

REACHOUT TECHNOLOGY CORP.

 

FINANCIAL STATEMENTS

 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Unaudited

 

Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022		F-2
Consolidated Statements of Operations for the Years ended December 31, 2023 and December 31, 2022		F-3
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2023 and December 31, 2022		F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 2023 and December 31, 2022		F-5
Notes to Financial Statements		F-6

 

 

REACHOUT TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

Unaudited

 

		December 31, 2023				December 31, 2022
ASSETS
Current Assets:
Cash		$	312,658			$	571,578
Accounts receivable			239,825				55,655
Prepaid expenses			143,329				155,972
Loans to related parties			126,738				-
Inventory			552,886				-
Total Current Assets			1,375,436				783,215
Other Assets:
Prepaid expenses, non-current portion			-				131,884
Deposits			8,618				-
Furniture and fixed assets, net			540,763				-
Goodwill			7,873,202				5,363,173
Right of use asset			518,968				109,456
Total non-current assets			8,941,551				5,604,513
Total Assets		$	10,316,987			$	6,387,728
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable		$	699,741			$	51,407
Accrued expense			578,972				352,376
Other current liabilities, customer pre-payments			-				31,444
Due to officers			309,725				132,225
Due to affiliated companies			1,864,540				619,399
Due to financial institutions			996,243				-
Seller notes and loans payable related parties, current portion			1,782,217				289,398
Vehicle and equipment loans			436,799				-
SBA loan payable			423,300				-
Term note payable, related parties			1,175,000
Officer life insurance liability, current portion			450,000				382,500
Lease liability, current portion			171,315				46,756
Total Current Liabilities			8,887,852				1,905,505
Non-Current Liabilities:
Notes payable, non-current portion related parties			192,932				578,795
Term notes payable, related parties			-				1,175,000
Officer life insurance premium, non-current portion			2,250,000				2,700,000
Lease liability, non-current portion			347,605				62,701
Total Non-Current Liabilities			2,790,537				4,516,496
Total Liabilities			11,678,389				6,422,001
Commitments and contingencies			-				-
Stockholders’ Deficit:
Common stock to be issued			496,214				660,000
Preferred stock, $0.0001 par value, 2,000,000 shares authorized, 0 and 1,000,000 shares issued and outstanding as of December 31, 2023 and 2022, respectively			-				100
Common stock, $0.0001 par value, 30,000,000 shares authorized, 24,907,279 and 12,377,835 shares issued and outstanding as of December 31, 2023 and 2022, respectively			2,491				1,239
Additional paid in capital			1,428,453				1,030,947
Accumulated deficit			(3,288,560	)			(1,726,560	)
Total Stockholders’ Deficit			(1,361,402	)			(34,273	)
TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT		$	10,316,987			$	6,387,728

 

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

 

 

REACHOUT TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

 

		For the Years Ended December 31,
		2023				2022
Revenue		$	4,240,477			$	1,140,574
Cost of goods sold			1,985,969				724,738
Gross margin			2,245,508				415,836
Operating Expenses:
General and administrative expenses			983,418				559,378
Compensation			2,096,548				652,216
Professional fees			406,883				454,296
Total operating expenses			3,486,849				1,665,890
Loss from operations			(1,232,341	)			(1,250,054	)
Other income (expense):
Interest expense			(512,473	)			(91,746	)
Total other expense			(512,473	)			(91,746	)
Loss before provision for income tax			(1,744,814	)			(1,341,800	)
Provision for income tax			-				-
Net loss		$	(1,744,814	)		$	(1,341,800	)
Basic loss per share		$	(0.11	)		$	(0.11	)
Diluted loss per share		$	(0.11	)		$	(0.11	)
Basic weighted average shares			15,283,590				12,170,199
Diluted weighted average shares			15,283,590				12,170,199

 

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

 

 

REACHOUT TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Unaudited

 

		Common Stock								Series A Preferred Stock								Additional Paid in				Shares to be issued				Accumulated				Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Amount				Deficit				Deficit
Balance, December 31, 2021			12,039,166			$	1,205				1,000,000			$	100			$	997,308				-			$	(384,760	)		$	613,853
Shares issued for services			76,666				8				-				-				76,658				-				-				76,666
Shares issued for compensation			50,000				5				-				-				49,995				-				-				50,000
Shares issued for cash			212,000				21				-				-				211,979				-				-				212,000
Public offering costs			-				-				-				-				(305,000	)			-				-				(305,000	)
Vesting of restricted stock units issued for service			-				-				-				-				7				-				-				8
Common shares to be issued			-				-				-				-				-				660,000				-				660,000
Net Loss for the year ended December 31, 2022			-				-				-				-				-				-				(1,341,800	)			(1,341,800	)
Balance, December 31, 2022			12,377,832				1,239				1,000,000				100				1,030,947				660,000				(1,726,560	)			(34,273	)
Shares issued for IND purchase			500,000				50				-				-				499,950				(500,000	)			-				-
Shares issued as compensation, employees and directors			11,869,444				1,187				-				-				879,730				-				-				880,917
Shares issued for cash			125,000				13				-				-				124,988				(125,000	)
Shares issued for service			35,000				4				-				-				34,997				-				-				35,000
Surrender and cancellation of preferred shares			-				-				(1,000,000	)			(100	)			100				-				-				-
Shares to be issued, acquisition of RedGear, LLC			-				-				-				-				-				461,214				-				461,214
Capital adjustment acquisitions			-				-				-				-				(1,142,258	)			-				425,783				(959,444	)
Net Loss for the year ended December 31, 2023			-				-				-				-				-				-				(1,744,814	)			(1,744,814	)
Balance, December 31, 2023			24,907,279			$	2,492				-			$	-			$	1,428,453			$	496,214			$	(3,288,560	)		$	(1,361,402	)

 

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

 

 

REACHOUT TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

 

		For the Years Ended December 31,
		2023				2022
Cash flows from operating activities:
Net loss		$	(1,744,814	)		$	(1,341,800	)
Adjustments to reconcile net loss to net cash used in operating activities:
Shares issued for services			35				113,388
Shares issued and to be issued for compensation and services			277,050				186,672
Depreciation			65,361				-
Vesting of Restricted Stock Units			-				6
Bad debt expense			-				6,880
Related party advances funding operations			(4,924	)			10,000
Changes in assets and liabilities:
Accounts receivable			(52,884	)			(162,151	)
Prepaid expense			12,693				(95,090	)
Right of use asset net of liabillity			(50	)			-
A/P & Accrued liabilities			920,908				89,757
Customer deposits			31,444				-
Net cash used in operating activities			(789,191	)			(1,192,388	)
Cash flows from investing activities:
Cash acquired in acquisition			58,455				613,077
Cash paid in acquisition			(1,249,248	)			(325,000	)
ULI payable			-				382,500
Fixed assets acquired			(99,065	)			-
Net cash used in investing activities			(1,289,858	)			670,577
Cash flows from financing activities:
Loan proceeds – Fora			1,225,000				-
Loan repayments – Fora			(399,750	)			-
Sale of common stock			-				212,000
Cash received for stock to be issued			-				125,000
Repayment of seller notes			(207,831	)			-
Other loan repayments			(32,740	)			-
Proceeds from affiliate advances			809,141				-
Proceeds – related party loans			436,000				762,836
Payments – related party loans			(68,437	)			(143,437	)
Net cash provided by financing activities			1,829,820				956,399
Net change in cash			(249,229	)			434,588
Cash, beginning of year			571,578				136,990
Cash, end of year		$	312,658			$	571,578
Cash paid during the period for:
Interest		$	-			$	-
Income taxes		$	-			$	-
Supplemental Disclosure of Non-Cash Activity:
Shares to be issued for acquisition		$	461,214			$	500,000
Shares issued for services			35,067				7
Right-of-use asset and lease liability – ASC 842		$	767,068				174,098

 

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

 

 

REACHOUT TECHNOLOGY, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Unaudited

 

NOTE 1 - NATURE OF OPERATIONS

 

Reachout Technology, Corp. (the “Company”) is a corporation formed on February 13, 2020 under the laws of the State of Delaware. The Company provides cybersecurity and IT management solutions to businesses to protect their complete operating landscape and data secrets. The Company is headquartered in Chicago, Illinois.

 

From formation on February 13, 2022 until the acquisition of Innovative Design Networks, LLC (“IND”) on September 2, 2022, the Company had no principal operations or revenue. The Company’s activities from inception to the aforementioned acquisition primarily consisted of formation activities, acquisition research and preparations to raise capital. Since the Company has commenced its planned principal operations, it will incur significant additional expenses. The Company is dependent upon additional capital resources for its planned principal operations and is subject to significant risks and uncertainties.

 

Having acquired IND as a wholly owned subsidiary on September 2, 2022, planned operations have commenced. IND is a New Jersey limited liability company and the Company acquired 100% of the member’s interest of IND in exchange for cash, notes payable, commitment to purchase universal life insurance policies for the two principals and 500,000 restricted shares of the Company’s common stock. The transaction was deemed to be a business combination and the Company has applied acquisition accounting under ASC 805. IND provides cybersecurity and IT management solutions to businesses to protect their complete operating landscape and data secrets.

 

The Company entered into a Membership Interest Purchase Agreement on September 29, 2023 with RedGear, LLC, a Texas limited liability company and acquired 100% of the member’s interest of RedGear, LLC, in exchange for cash, a note payable and the assumption of certain liabilities of RedGear, LLC. The transaction was deemed to be a business combination and the Company has applied acquisition accounting under ASC 805. RedGear provides cybersecurity and IT management solutions to businesses to protect their complete operating landscape and data secrets.

 

Reverse Merger/Acquisition of ReachOut Technology Corp.

 

On November 9,2023, the Company closed the Share Exchange and Control Block Transfer Agreements with Yuenglings Cream Corporation (“YCRM”) whereby 100% of the membership interests of the Company were exchanged for YRCM’s Series C Preferred Stock which are convertible into 87.5% of the total issued and outstanding shares of common stock of the YCRM.

 

The Share Exchange is intended to constitute a reorganization with the meaning of Section 368 of the Internal Revenue Code of 1986 (as amended).

 

As a result of the transaction, the Company became a subsidiary of the YCRM.

 

The Company evaluated the substance of the merger transaction and found it met the criteria for the accounting and reporting treatment of a reverse acquisition under ASC 805 (Business Combinations)-40-45 (Reverse Acquisition and Other Presentation Matters) and accordingly the operations of the Company will be consolidated into YCRM as well as the financial condition from the closing date of the transaction. The historic results of operations will reflect those of the Company. As such, the Company is treated as the acquirer while the YCRM is treated as the acquired entity for accounting and financial reporting purposes.

 

Under reverse merger accounting, the comparative historical financial statements of YCRM, as the legal acquirer, are those of the accounting acquirer, (the Company), the Company’s financial statements prior to the closing of the reverse acquisition; reflect only the business of ReachOut and its subsidiaries.

 

 

NOTE 2 - GOING CONCERN

 

The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt and the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated profits since inception, has sustained net losses of $1,744,814 for the year ended December 31, 2023, and has incurred negative cash flows from operations for the period. As of December 31, 2023, the working capital deficit, stockholders’ deficit, and accumulated deficit was $7,512,416 $1,361,402 and $3,288,560, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern for the next twelve months is dependent upon its ability to generate sufficient cash flows from operations to meet its obligations. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses or obtain financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing shareholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company would be unable to execute upon the business plan or pay costs and expenses as they are incurred, which would have a material, adverse effect on the business, financial condition and results of operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities as a result of this uncertainty.

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). The accompanying consolidated financial statements include the accounts of ReachOut Technology Corp. and its wholly-owned subsidiaries, ReachOut IND and RedGear. All significant intercompany accounts and transactions have been eliminated in consolidation. Since September 2, 2022 following the purchase of 100% of the membership interests in Innovative Network Designs LLC, (now ReachOut IND) and RedGear, LLC on September 29, 2023, the operations, assets and liabilities have been consolidated into the Company.

 

Use of Estimates

 

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, inventory, revenue recognition and the valuations of common stock. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. At December 31, 2023 and 2022, all of the Company’s cash and cash equivalents were held at accredited financial institutions. As of December 31, 2023, the Company had $84,785 in excess of insured amounts at one financial institution.

 

The Company’s subsidiary, Innovative Design Networks, has two clients having outstanding unpaid account representing a total of 79% of the accounts receivable balance at December 31, 2023. The RedGear subsidiary has three clients having outstanding unpaid accounts receivable representing a total of 66% of its total receivables as of December 31, 2023.

 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents.

 

Fair Value Measurements

 

Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined 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 must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

 

The carrying values of the Company’s assets and liabilities approximate their fair values.

 

Revenue Recognition

 

The Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”), effective January 1, 2018. The Company determines revenue recognition through the following steps:

 

Identification of a contract with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract; and

Recognition of revenue when or as the performance obligations are satisfied.

 

Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers in an amount that reflects the consideration expected to be received in exchange for transferring goods or services to customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance.

 

It is management’s practice to only invoice for services and goods to be provided within the coming month. While services may not be fully transferred the client is in fact obligated to pay the invoiced amount unless the contract is terminated with prior notice.

 

Advertising Costs

 

Advertising costs are expensed as incurred and are included in General and Administrative expenses. Expenditures amounted to $172,795 and $385,550, for the years ended December 31, 2023 and 2022, respectively.

 

 

Deferred Offering Costs

 

The Company complies with the requirements of Accounting Standards Codification (“ASC”) 340, Other Assets and Deferred Costs, with regards to offering costs. Prior to the completion of an offering, offering costs are capitalized. The deferred offering costs are charged to additional paid-in capital or as a discount to debt, as applicable, upon the completion of an offering or to expense if the offering is not completed. As of December 31, 2023 and 2022 the Company had recorded $0 and $0 in deferred offering costs, respectively. The costs of $305,000 recognized during the year ended December 31, 2021, were recognized as a charge to additional paid in capital during the year ended December 31, 2022.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation — Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services. In accordance with ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting share-based payment transactions for acquiring goods and services from nonemployees are included. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.

 

Income Taxes

 

The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is unlikely that the deferred tax assets will not be realized. The Company assesses its income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances, and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, the Company’s policy is be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.

 

Net Loss per Share

 

Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti- dilutive. As all potentially dilutive securities are anti-dilutive as of December 31, 2023 and 2022, diluted net loss per share is the same as basic net loss per share for each period presented. Potentially dilutive items outstanding as of December 31, 2023 and 2022, are as follows:

 

		Year Ended December 31,				Year Ended December 31,
		2023				2022
Series A preferred stock			-				1,000,000
Common shares to be issued			496,214				660,000
Total potentially dilutive shares			496,214				1,660,000

 

 

Convertible Notes with Fixed Rate Conversion Options

 

The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.

 

Derivative Liabilities

 

The Company may enter into convertible notes, some of which contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.

 

Business Combinations

 

In accordance with ASC 805-10, “Business Combinations”, we account for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that we hold in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in our results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.

 

Related Party Transactions

 

We follow FASB ASC subtopic 850-10, “Related Party Transactions”, for the identification of related parties and disclosure of related party transactions.

 

Pursuant to ASC 850-10-20, related parties include: a) our affiliates; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d) our principal owners; e) our management; f) other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

 

Material related party transactions are required to be disclosed in the consolidated financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance (ASC Topic 840). Under the new guidance, codified as ASC Topic 842, the lease liability must be measured initially based on the present value of future lease payments, subject to certain conditions. The right-of-use asset must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense generally is flat (straight-line) throughout the life of the lease. For finance leases, periodic expense declines over the life of the lease. The new standard, as amended, provides an option for entities to use the cumulative-effect transition method. As permitted, the Company adopted ASC Topic 842 effective June 1, 2020. The adoption of ASC Topic 842 did not have a material impact on the Company’s consolidated financial statements.

 

The Company’s subsidiaries have recognized the Right of Use assets and related liabilities for leases and sublease for the office facilities in New Jersey, Texas and Arizona during the years ended December 31, 2023 and 2022, and following the acquisitions are accounted for under ASC 842. The corporate office is an informal arrangement which provides for office space in a shared office environment with a company controlled by the CEO and is exempt from ASC 842 treatment. During the year ended December 31, 2023 and 2022 the Company recognized a lease liabilities of $767,068 (2023) and $174,098 (2022) and the related right-of-use asset for the same amounts, and will amortize both over the life of the lease.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 eliminates the separate accounting model for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees. The accounting remains different for attribution, which represents how the equity-based payment cost is recognized over the vesting period, and a contractual term election for valuing nonemployee equity share options. ASU 2018-07 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU 2018-07 on February 13, 2020 and the adoption did not have a material impact on its financial statements.

 

In May 2014, the FASB issued ASC 606, providing new revenue recognition guidance that superseded existing revenue recognition guidance. The update, as amended, requires the recognition of revenue related to the transfer of goods or services to customers reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, as well as additional qualitative and quantitative disclosures about revenues. The Company adopted the new revenue recognition guidance as of February 13, 2020. The adoption of this standard had no material impact on its financial statements.

 

 

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470- 20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. The Company adopted ASU 2017-11 on February 13, 2020 and the adoption did not have a material impact on its financial statements.

 

In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity, and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company adopted ASU 2020-06 on February 13, 2020 and the adoption did not have any impact on its financial statements.

 

Management does not believe that any other recently issued accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

 

NOTE 4 - GOODWILL

 

The Company acquired the operations, assets and liabilities of Innovative Network Designs, LLC during the year ended December 31, 2022. The Company recognized goodwill of $5,363,173. During the year ended December 31, 2023 the Company acquired the operations, assets and liabilities or RedGear, LLC and recognized goodwill of $2,510,029. The goodwill asset is compared to its fair value at least annually. The Company follows ASC 350 20 – Goodwill.

 

 

Membership Interest Purchase Agreement

 

Innovative Network Designs, LLC

 

The Company entered into a Membership Interest Purchase Agreement on August 1, 2022 with Innovative Network Designs, LLC, a New Jersey limited liability company and acquired 100% of the member’s interest of Innovative Network Designs, LLC, in exchange for cash, notes payable, commitment to purchase universal life insurance policies for the two principals and 500,000 restricted shares of the Company’s common stock. The transaction was deemed to be a business combination and the Company applied acquisition accounting under ASC 805. Upon closing (September 2, 2022) the total value of the consideration given for the purchase was $6,018,193. Included in the purchase consideration: is the commitment to pay universal life insurance policies for a total cash value of $3,150,000 over seven years ($382,500 annually), which the Company anticipates will be financed by a third party; a term promissory note (24 months with a ballon payment at maturity); a promissory note secured by a second priority lien on all the Company’s membership interests and other defined assets (amortizable); and 500,000 shares of the Company’s common stock, valued at $1.00 per share (the offering price of the Company’s regulation A offering documents). The purchase price was allocated to net tangible assets of $655,020 with the balance of $5,363,173 allocated to goodwill, which is not amortized to expense (see note 5). The assets and liabilities (with the exception of the lease related items) are short term and therefore book value approximates the fair value. Management believes that there is significant value in the customer list and the trade name, but has not done separate valuation analysis. An impairment analysis will consider each potential sub component (customer list, workforce in place etc.) of the Goodwill recorded in accordance with the relevant accounting standards at least annually and more frequently should there be any financial or economic issues suggesting an impairment.

 

Assets Acquired and Liabilities Assumed

 

Assets Acquired		Fair Value
Cash		$	613,077
Accounts Receivable			217,816
Prepaid Expenses			62,706
Right of Use Asset			109,456
Total Assets		$	1,003,055
Liabilities Assumed
Accounts Payable		$	49,936
Accrued Expenses			118,521
Sales Tax Payable			70,122
Lease Liabilities			109,457
Total Liabilities		$	348,036
Consideration Value
Cash		$	325,000
Convertible Note			1,175,000
Universal Life Insurance Commitment			3,150,000
Promissory Note			868,193
Common Stock			500,000
Total Purchase Price			6,018,193
Less, net asset value			655,020
Value of intangible assets		$	5,363,173

 

 

Acquisition - Red Gear LLC

 

The Company entered into a Membership Interest Purchase Agreement on September 29, 2023 with RedGear, LLC, a Texas limited liability company and acquired 100% of the member’s interest of RedGear, LLC, in exchange for cash, a note payable and the assumption of certain liabilities of RedGear, LLC. The transaction was deemed to be a business combination and the Company applied acquisition accounting under ASC 805. Upon closing (September 29, 2023) the total value of the consideration given for the purchase was $2,564,035 The purchase price was allocated to net tangible assets of $54,006 with the balance of $2,510,029 allocated to goodwill, which is not amortized to expense. The Company hired an independent accounting firm to validate the Adjusted EBITDA (as defined in the closing documents). The results of the validation may result in a purchase price adjustments. The fair value of certain assets and liabilities may result in an adjustment to the carrying value of the investment in RedGear, LLC. Management believes that there is significant value in the customer list and the trade name, but has not done separate valuation analysis. An impairment analysis will consider each potential sub component (customer list, workforce in place etc.) of the Goodwill recorded in accordance with the relevant accounting standards at least annually and more frequently should there be any financial or economic issues suggesting an impairment.

 

Assets Acquired and Liabilities Assumed

 

Assets Acquired		Fair Value
Cash		$	58,455
Accounts Receivable			108,318
Receivable, Related Party			126,643
Inventory			259,011
Fixed Assets,			548,552
Right of Use Asset			485,874
Total Assets		$	1,693,949
Liabilities Assumed
Accounts payable		$	46,278
Accrued Expenses			57,856
Bank line of credit			50,000
Vehicle and equipment loans payable			469,539
SBA Loan			423,000
Lease Liabilities			592,970
Total Liabilities		$	1,639,942
Consideration Value
Cash		$	1,249,248
Promissory Note			1,314,787
Total Purchase Price			2,564,035
Tangible Net Assets			54,006
Value of intangible assets		$	2,510,029

 

NOTE 5 - TERM NOTE PAYABLE

 

On October 1, 2022 the Company issued a term promissory note to the sellers of the membership interest in Innovative Network Designs LLC. Under the option selected by the holder of the note, a ballon payment of principal is due on October 1, 2024. The note principal is $1,175,000 bears interest at 24%, matures on October 1, 2024. The principal $1,175,000 and accrued interest at December 31, 2023 is $351,534.

 

 

NOTE 6 - NOTES PAYABLE

 

On October 1, 2022 the Company issued a secured promissory note to the sellers of the membership interest in Innovative Network Designs LLC. The note principal is $868,193 bears interest at 7%, matures on April 2, 2025. The note amortizes over the term with the first principal payment of $96,466 due on April 15, 2023, along with $37,463 of accrued interest. Subsequent quarterly payments of interest and principal begin on July 15, 2026 and continue through maturity. The note is secured by a second priority lien on the membership interest purchased by the Company and certain other assets related to the acquisition. The current portion due is $467,430 and the non-current portion due is $192,932, as of December 31, 2023. Accrued interest is $72,869 as of December 31, 2023.

 

On September 29, 2023, the Company issued a promissory note to the former members of RedGear, LCC as partial payment for the RedGear acquisition. The note principal is $1,314,787, bears interest at 8% and matures on September 28, 2024. Principal is subject to adjustment based on the findings of a third-party accounting firm related to EBITDA reported compared to actual. The examination is not complete and therefore no adjustment is warranted at December 31, 2023. Accrued interest is $26,800 as of December 31, 2023.

 

Period		Principal				Interest				Total
January 15, through October 15, 2024			1,782,217				198,699				560,746
January 15, through March 2, 2025			192,932				4,255				197,187
Totals		$	1,975,149			$	202,954			$	2,183,870

 

NOTE 7 - OFFICER LIFE INSURANCE PREMIUMS PAYABLE

 

On October 1, 2022, the Company committed to paying life insurance with the sellers of the membership interest in Innovative Network Designs LLC. The total amount of the liability was $3,150,000 to be paid in equal installments of $450,000 over seven years. The current portion due is $450,000 and the non-current portion due is $2,250,000, as of December 31, 2023.

 

Year Ended December 31:		Insurance Premiums Due
2024			450,000
2025			450,000
2026			450,000
2027 - 2029			1,350,000
Total		$	2,700,000

 

NOTE 8 - STOCKHOLDERS’ DEFICIT

 

As of December 31, 2023 and 2022, the Company was authorized to issue a total of 2,000,000 shares of preferred stock and 30,000,000 shares of common stock, $0.0001 par value.

 

Preferred Stock

 

The preferred stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any unissued series of preferred stock, and to fix the number of shares of any series of preferred stock and the designation of any such series of preferred stock. The preferred stock is convertible into shares of common stock into an equivalent number of shares.

 

During the period ended December 31, 2020, the Company issued 1,000,000 shares of Series A convertible preferred stock as founder stock. The Company recorded stock compensation expense of $100, or a $0.0001 per share, fair value, in connection with the issuance.

 

In December 2023, the CEO surrendered all issued and outstanding shares of Series A convertible preferred stock which were then cancelled by the Company.

 

Common Stock

 

The Company has 24,757,279 and 12,377,835 shares of common stock, issued and outstanding as of December 31, 2023 and 2022, respectively.

 

Each holder of common stock is entitled to one vote for each share of common stock held. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event, assets of the Company available for distribution shall be distributed to common shareholders pro rata based on the number of shares held. No distributions have been made on shares of common stock to date. On November 9, 2023, the Company became a subsidiary of Yuengling’s Ice Cream Corporation (“YCRM”) in a reverse merger transaction. The common stock holders received Series C Preferred Stock convertible into 87.5% of the YCRM common stock. The shares of YCRM Series C Preferred Stock will be distributed to the common stockholders of the Company on a pro rata basis.

 

 

Regulation A Offering

 

On November 11, 2021, the Company submitted its registration statement filed on Form 1-A. The registration statement became effective on November 18, 2021. The offering provided for the issuance of up to 6,000,000 shares of common stock at a price of $1.00, under subscriptions. The Company will use the proceeds for working capital.

 

Common Stock Issuances

 

During the year ended December 31, 2023 the Company issued 150,000 shares of common stock to a key employee of Innovative Design Networks LLC, as compensation. The shares were valued at the public offering price of $1.00.

 

During the year ended December 31, 2023, the Company issued 35,000 shares of common stock for services. The shares were valued at $1.00.

 

During the year ended December 31, 2023, the Company issued 194,444 shares of common stock for to a Board member as compensation. The shares were valued at $1.00.

 

During the year ended December 31, 2023, the Company issued 11,000,000 shares of common stock to the Company’s founder. The shares were valued at $0.001

 

During the year ended December 31, 2023, the Company issued 525,000 shares of common stock to employees for compensation. The shares were valued at $1.00.

 

During the year ended December 31, 2023, the Company committed to issue 461,214 shares of common stock to key employees of RedGear, LLC. The shares will be valued at $1.00.

 

During the year ended December 31, 2023, the Company issued, 625,000 shares of common stock that were classified as shares to be issued at December 31, 2022.

 

During the year ended December 31, 2022, the Company issued 212,000 shares of common stock for cash. Those shares were valued at the public offering price of $1.00.

 

During the year ended December 31, 2022, the Company issued 76,666 shares of common stock for services. The shares were valued at $1.00.

 

During the year ended December 31, 2022, the Company issued 50,000 shares of common stock for compensation. The shares were valued at $1.00.

 

During the year ended December 31, 2022, the Company committed to issue 660,000 shares of common stock:

 

Ø

500,000 of the above shares for the acquisition of Innovative Design Networks LLC;

 

Ø

125,000 of the above shares for cash; and

 

Ø

35,000 were committed under the terms of a private placement investment.

 

Those shares were valued at the public offering price of $1.00.

 

The shares to be issued for the acquisition and cash were issued during the year ended December 31, 2023.

 

Restricted Stock Units

 

In May 2020, the Company authorized a total of 200,001 restricted stock units (“RSUs”) to be issued to its three board of directors as compensation. The RSUs vest annually in equal increments beginning on July 1, 2020. The Company has issued a total of 66,669 RSUs, as of December 31, 2022, with 133,332 RSUs expected to be issued during 2023. The Company utilized the grant- date fair value of the underlying common stock of par ($0.0001). The shares underlying the RSU are issued in the fiscal year following full vesting. The Company will recognize expense for these issuances over the vesting period. The Company recorded a total of approximately $20, in stock compensation expense as a result of the issuances and vesting from 2020 to December 31, 2022.

 

As of December 31, 2023, there were 200,001 vested RSUs and unrecognized compensation cost of $0.

 

 

NOTE 9 - RELATED PARTY TRANSACTIONS

 

In February 2020, the Company recorded stock compensation expense of $110,000 for the accrual of the founder’s stock issuances with a corresponding entry to loan payable, related party. The loan payable, related party balance was reduced to $0 upon the issuance of the 1,000,000 shares of Series A convertible preferred stock and 10,000,000 shares of common stock issued to the founder. During 2020, 66,669 Restricted Stock Units (“RSUs”) were issued to the CEO (and Chairman of the Board) for compensation. The RSUs fully vest over one year of the issuance date and are fully vested as of December 31, 2022.

 

During the years ended December 31, 2022 and 2021, the Company’s CEO advanced the Company funds for operating expenses. At December 31, 2023 and 2022, the outstanding balances owed were $132,225 and $132,225, respectively. No interest is due on this informal arrangement. No such advances were issued during the year ended December 31, 2023.

 

During the years ended December 31, 2023 and 2022, an entity controlled by the CEO advanced (net of repayments) the Company $809,141 and $619,399, respectively. The Company used the funds to pay various operating expenses. The balance due is $1,428,540 at December 31, 2023 and is included in due to affiliated companies as presented on the balance sheet.

 

YCRM advanced $436,000 to the Company during the year ended December 31, 2023, which is currently outstanding and is included in due to affiliated companies as presented on the balance sheet.

 

During the year ended December 31, 2022, the Company issued notes to former owners of the membership interest in Innovative Network Designs, LLC (now ReachOut IND) and committed to purchase universal life insurance for officers of ReachOut IND. The notes issued were a convertible promissory note for $1,175,000 and promissory note for $868,193, the commitment to purchase life insurance totaled $3,150,000, see footnotes 5, 6 and 7.

 

During the year ended December 31, 2023, the Company issued 11,000,000 shares of the Company’s common stock to the CEO as founder shares.

 

During the year ended December 31, 2023, the Company issued notes totaling $1,314,787 to the former owners of the membership interest in RedGear, LLC and paid cash of $1,249,248, see footnotes 5, and 7.

 

The Company’s subsidiary RedGear LLC has $40,000 outstanding for bank line of credit at December 31, 2023. The line of credit account is held under the name of a former member of RedGear, LLC.

 

Compensation due to a current officer of RedGear amounts to $137,500 at December 31, 2023.

 

RedGear is obligated under office leases to a company controlled by the former owners of the RedGear membership interests. The office space is in two locations in the city of El Paso, Texas and covers approximately 10,000 square feet in total. The liability as calculated for the right to use asset (under ASC 842) is $406,015, which is included in the lease amounts for the year ended December 31, 2023 in note 11.

 

The Company and the former principle of ReachOut IND entered into an employment agreement. The former head of ReachOut IND is named as Regional Vice President of Northeast (the Executive) at an annual salary of $250,000, plus incentive compensation with a target bonus of 10% of salary and a equity incentive of up to $1,400,00 value of Restricted Stock Units vesting ratably over seven years. The Executive is also given an annual expense stipend of $5,000, eligibility for employee benefits and specified paid leave. The initial term of the agreement is 24 months. (see note 12)

 

NOTE 10 - INCOME TAXES

 

The Company recognizes deferred tax assets and liabilities for the tax effects of differences between the financial statement and tax basis of assets and liabilities. A valuation allowance is established to reduce the deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. The acquisition of Innovative Network Designs, LLC yielded no net operating losses as they reported taxes as a pass-through entity until the acquisition date.

 

 

As of December 31, 2023, the Company has net operating loss carryforwards of approximately $2,090,000 to reduce future taxable income. A valuation allowance for the entire amount of deferred tax assets has been established as of December 31, 2023 and 2022.

 

The provision for (benefit from) income taxes consist of the following:

 

			Year Ended December 31, 2023				Year Ended December 31, 2022
Current
Federal		$	-			$	-
State			-				-
			-				-
Deferred
Federal			-				-
State			-				-
			-				-
Total income tax provision (benefit)		$	-			$	-

 

A reconciliation of the provision for income taxes at the federal and state statutory rates of 21% and 7.5% (Illinois), 11.5% (New Jersey) and 2% of gross sales (Texas) respectively to the Company’s provision for income tax is as follows:

 

		Year Ended December 31, 2023				Year Ended December 31, 2022
U.S. Federal (tax benefit) provision at statutory rate		$	(366,411	)		$	(289,339	)
State (tax benefit) income taxes, net of federal benefit			(162,361	)			(109,084	)
Permanent differences			-				215
Temporary differences			-				-
Changes in valuation allowance			528,772				390,207
Total		$	-			$	-

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents the significant components of the Company’s deferred tax assets and liabilities for the periods presented:

 

		December 31, 2023				December 31, 2022
Deferred Tax Assets
Net operating losses			1,078,100				549,300
Total deferred tax assets			1,078,100				549,300
Valuation allowance			(1,078,100	)			(549,300	)
Net deferred tax assets			-				-
Deferred Tax Liabilities
Total deferred tax liabilities			-				-
Net deferred tax		$	-			$	-

 

 

The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. Due to the history of losses the Company has generated in the past, the Company believes that it is not more likely than not that all of the deferred tax assets in the U.S. can be realized as of December 31, 2023 and 2022, accordingly, the Company has recorded a full valuation allowance on its deferred tax assets.

 

The Company is not currently under any international or any United States federal, state and local income tax examinations for any taxable years. All of the Company’s net operating losses are subject to tax authority adjustment upon examination.

 

NOTE 11 - COMMITMENTS AND CONTINGENCIES

 

Commitments

 

Lease Obligations

 

Effective October 2020, the Company’s subsidiary (RedGear, LLC) renewed the lease for the principle offices at 123 West Mills Avenue, El Paso, Texas. The lease extends through September 30, 2025, for $1,350.20 per month with annual escalation of 2%. The liability and Right of Use Asset was recognized for $61,590. No subsequent renewal is certain at December 31, 2023.

 

Effective October 29, 2021, the Company’s subsidiary (RedGear, LLC) entered into a lease for office facilities at 3636 North Central Avenue, Phoenix, Arizona. The lease extends through October 31, 2025, for $3,224.83 per month with annual escalation of 3%. The liability and Right of Use Asset was recognized for $125,364. No subsequent renewal is certain at December 31, 2023.

 

Effective September 29, 2023, the Company’s subsidiary (RedGear, LLC) entered into a lease for office facilities at 10033 Carnegie Avenue, El Paso, Texas. The lease extends through September 28, 2028, for $5,018.00 per month with annual escalation of 3%. The liability and Right of Use Asset was recognized for $232,940. No subsequent renewal is certain at December 31, 2023. The lessor is considered a related party (see note 9).

 

Effective September 29, 2023, the Company’s subsidiary (RedGear, LLC) entered into a lease for office facilities at 6713 Viscount Blvd. El Paso, Texas. The lease extends through September 28, 2028, for $3,600.00 per month with annual escalation of 5%. The liability and Right of Use Asset was recognized for $173,076. No subsequent renewal is certain at December 31, 2023. The lessor is considered a related party (see note 9).

 

On May 1, 2021 the Company’s subsidiary IND (acquired September 2, 2022, see note 6) entered into a sublease for its office in Whippany, NJ for a term commencing on June 1, 2021 extending through February 28, 2025 at an initial monthly rent of approximately $4,847. The liability and Right of Use Asset was recognized for $174,076. The sublease is renewable under the condition that the sublandlord renews its lease, therefore no subsequent extension is considered in the lease Right of Use Asset or the related lease liability beyond the initial term.

 

The Company recognized a right-of-use assets of and a related lease liabilities of $767,068, which represents the fair value of the lease payments calculated as present value of the minimum lease payments using a discount rate of 12.9% on date of the lease execution in accordance with ASC 842. The asset and liability will be amortized as monthly payments are made and lease expense will be recognized on a straight-line basis over the term of the sublease.

 

The offices for ReachOut Corp. is shared with a related party ReachOut IL (an S corporation), under an arrangement that is not formalized.

 

 

Right of use asset (ROU) is summarized below:

 

		December 31, 2023				September 30, 2022
Operating lease at inception		$	767,068			$	174,098
Less accumulated reduction			(248,100	)			(64,642	)
Balance ROU asset		$	518,969			$	109,456

 

Operating lease liability related to the ROU asset is summarized below:

 

Operating lease liabilities at inception		$	767,068			$	174,098
Reduction of lease liabilities			(248,147	)			(64,641	)
Total lease liabilities		$	518,920			$	109,457
Less: current portion			(171,316	)			46,756
Lease liabilities, non-current		$	347,605			$	62,701

 

Non-cancellable operating lease total future payments are summarized below:

 

Total minimum operating lease payments		$	707,347			$	126,048
Less discount to fair value			(188,426	)			(16,592	)
Total lease liability		$	518,920			$	109,457

 

Future minimum lease payments under non-cancellable operating leases at December 31, 2023 are as follows:

 

Years ending December 31,		Amount
2024			221,119
2025			166,502
2026			110,289
2027			116,928
2028			90,510
Total minimum non-cancelable operating lease payments		$	707,347

 

For the period (from acquisition date) September 29, through December 31, 2023, rent expense for RedGear, LLC was $43,355 and for ReachOut IND it was $58,171, for the year ending December 31, 2023. The total for all leases amounted to $101,526.

 

Contingencies

 

The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matters will have a material adverse effect on its business, financial condition or results of operations.

 

 

NOTE 12 - SUBSEQUENT EVENTS

 

Asset Purchase

 

On April 8, 2024, the Company acquired the assets of Singer Networks LLC (Singer), an Illinois limited liability. Singer is a service provider that manages the technology needs for its clients. Under the terms of the agreement the Company has acquired all the tangible and intangible assets of Singer with the exception of cash and bank accounts, accounts receivable (as of closing date) and the Singer benefit plan. The purchase price is comprised of $121,413 in cash and 750,000 preferred shares of Yuengling’s Ice Cream Corporation (“YCRM”). The preferred shares have a stated value of $1.00 and are convertible in YCRM common shares under the terms of the Certificate of Designation.

 

Change to Employment Agreement

 

On May 3, 2024, the employment agreement with the former principle of ReachOut IND has been amended in accordance with the terms of the employment agreement. The amendment takes effect on May 16, 2023, and reduces annual compensation to $125,000, and alters the responsibilities of his management role.