CFN ENTERPRISES INC. The following information should be read in conjunction with our financial statements and accompanying notes included in this Annual Report on Form 10-K.
Overview
We own and operate CNP Operating, a leading CBD manufacturer vertically integrated with a 360 degree approach to the processing of high quality CBD products designed for growers, pharmaceutical, wellness providers, and retailers' needs, and a cannabis industry focused sponsored content and marketing business, or the CFN Business. Our ongoing operations currently consist primarily of CNP Operating and the CFN Business and we will continue to pursue strategic transactions and opportunities. We are currently in the process of launching an e-commerce network focused on the sale of general wellness CBD products.
CNP Operating provides toll processing services which includes extraction, distillation, remediation, isolation and chromatography. CNP Operating has a professional, organized and dedicated team with 30 years of combined experience. CNP Operating's state of the art facility has 30,000 square feet filled with proprietary technology distillation equipment, in house lab testing, distribution warehouse and white labelling product formulation and design.
The CFN Business generates revenue through sponsored content, including articles, press releases, videos, podcasts, advertisements and other media, email advertisements and other marketing campaigns run on behalf of public and private companies in the cannabis industry, helping them reach accredited, retail and institutional investors. Most revenue is generated through contracts involving a monthly cash payment.
The CFN Business' primary expenses come from advertising on platforms like Twitter and Facebook and from employee salaries and contractor fees. The CFN Business' content is primarily produced by a team of freelance writers and video content is produced through various vendors. The CFN Business also incurs hosting and development costs associated with maintaining and improving its website, web applications, and mobile applications. The CFN Business operates several media platforms, including CannabisFN.com, the CannabisFN iOS app, the CFN Media YouTube channel, the CFN Media podcast, and other venues. These properties are designed to educate and inform investors interested in the cannabis industry, as well as provide a platform for the clients of the CFN Business to reach investors. The CFN Business distributes content across numerous online platforms, including the CannabisFN.com website, press releases, financial news syndicates, search engines, YouTube, iTunes, Twitter, Instagram, Facebook, LinkedIn, and others.
The CFN Business targets the legal cannabis industry. According to
The CFN Business competes with other public relations firms for clients, as well
as online publishers for investors. Public relations competition includes
investor awareness firms like
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Results of Operations
The following are the results of our operations for the year ended
Year Ended
December 31,
2022 2021 Change
Net revenues $4,317,490 $3,157,783 $1,159,707
Cost of revenue 6,512,109 3,539,636 2,972,473
Gross profit (loss) (2,194,619) (381,853) (1,812,766)
Operating expenses:
Impairment expense 3,615,961 9,355,657 (5,739,696)
Selling, general and administrative 2,641,842 2,691,258 (49,416)
Total operating expenses 6,257,802 12,046,915 (5,789,113)
Loss from operations (8,452,422) (12,428,768) 3,976,346
Other income (expense):
Loss on conversion of debt (563,220) - (563,220)
Unrealized loss on marketable
securities (46,516) (45,658) (858)
Impairment of investments (200,000) - (200,000)
Loss on extinguishment of debt - (172,500) 172,500
SBA PPP loan forgiveness - 526,000 (526,000)
Interest expense (694,380) (93,170) (601,210)
Interest income 113 10,011 (9,898)
Other income 34,206 - 34,206
Total other income (expense),
net (1,469,797) 224,683 (1,694,480)
Provision for income taxes - - -
Net loss $(9,922,219) $(12,204,085) $2,281,866
Net Revenues
The Company's revenues are generated from the sale of promotional service packages to customers ranging from 3 to 6 months. The Company offers different packages tailored to the type and stage of the potential customer, such as public companies looking to increase their shareholder base, as well as private companies potentially looking to go public and attract capital and publicity.
During the year ended
The Company's subsidiary CNP Operating generated revenue of
Our revenue for 2022 and 2021 also included
relating to sales of product from our e-commerce network focused on the sale of
general wellness CBD products for the years ended
Costs of Revenue
The costs of revenue consist primarily of labor, fees paid for production of content for clients and the costs of placement of the content on various platforms. In 2022, the contracts required more production services and related labor than the contracts in 2021. As a result, the cost of revenue in 2022 was higher as a percentage of the revenue recognized during the year.
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The Company's cost of revenue for the year ended
Operating Expenses
The Company's operating expenses for the year ended
Other Income (Expense)
Other income (expense) was
Liquidity and Capital Resources
As of
The Company had a working capital deficit of
Management's plan to continue as a going concern includes raising capital in the form of debt or equity, growing its existing business acquired under the Emerging Growth Agreement, managing and reducing operating and overhead costs and continuing to pursue strategic transactions and opportunities including launching an e-commerce network focused on the sale of general wellness CBD, products.
These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
The following is a summary of our cash flows from operating, investing and
financing activities for the years ended
Year Ended
December 31,
2022 2021
Cash flows used in operating activities $(1,418,850) $(344,214) Net cash used in (provided by) investing activities
$1,601,078 $331,243
Net cash used in operating activities was
Net cash used in investing activities
Net cash provided by financing activities was
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for the year ended
Description of Indebtedness
On
In connection with the promissory note on
On
On
On
On
On
On
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the amount of any such loss. The Company has recorded the Zingarelli payments
during the period as contributions to additional paid in capital through
On
On
On
On
On
Future scheduled maturities of long-term debt are as follows.
December 31, 2022 2023$ 3,088,250 2024 793,585 2025 43,585 2026 27,263 2027 12,507 Thereafter 101,396 4,066,587
The aggregate current portion of long-term debt as of
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Obligations Under Preferred Stock
On
On
Other outstanding obligations at
Warrants
As of
Options
As of
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
COVID-19
In
Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
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Critical Accounting Policies Accounts Receivable
The Company's account receivables are due from sales billed to customers. The Company also maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company's customers to make payments. The Company periodically reviews these estimated allowances, including an analysis of the customers' payment history and creditworthiness, the age of the trade receivable balances and current economic conditions that may affect a customer's ability to make payments as well as historical collection trends for its customers as a whole. Based on this review, the Company specifically reserves for those accounts deemed uncollectible or likely to become uncollectible. When receivables are determined to be uncollectible, principal amounts of such receivables outstanding are deducted from the allowance.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
Subsequent to the closing of the Emerging Growth Agreement on
Income Taxes
Income taxes are accounted for in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives of five years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized.
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Goodwill
The Company's goodwill represents the excess of purchase price over tangible and
intangible assets acquired, less liabilities assumed arising from business
acquisitions.
Long-Lived Assets
In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.
Basic and Diluted Earnings Per Share
Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options, warrants and preferred stock (calculated using the modified-treasury stock method.
Share-Based Payment
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.
The Company has elected to use the Black-Scholes option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Common stock awards
The Company has granted common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been made in cash.
Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period.
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