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.
|
Income tax provision at the federal statutory rate
|
39
|
|
%
|
|
Effect of operating losses
|
|
|
(39
|
)
|
%
|
|
|
|
|
0
|
|
%
|
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.
|
(In thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability - conversion features
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
319,058
|
|
|
$
|
319,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability - conversion features
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
318,915
|
|
|
$
|
318,915
|
|
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.
|
(In thousands)
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Derivative liability - December 31, 2012
|
|
$
|
318,915
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of host instruments (notes payable) and separate recognition of embedded conversion features
|
|
|
210,345
|
|
|
|
333,808
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to equity upon conversion of debt
|
|
|
(52,008
|
)
|
|
|
(15,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Recording of conversion feature liability for accrued interest
|
|
|
22,137
|
|
|
|
1,593
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value conversion feature liability
|
|
|
(180,331
|
)
|
|
|
(1,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability - December 31, 2012
|
|
$
|
319,058
|
|
|
$
|
318,915
|
|
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.
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