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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-K**

 

☒   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended **December 31, 2021**

 

or

 

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to _________.

 

Commission file number **000-52635**

 

| **CFN ENTERPRISES INC.**                                   |
|------------------------------------------------------------|
| **(Exact Name of Registrant as Specified in Its Charter)** |

 

| **Delaware**                 |   | **90-1559541**                             |
|------------------------------|--------|--------------------------------------------|
| **(State of Incorporation)** |   | **(IRS Employer**

**Identification No.)** |

 

**600 E. 8th STREET**

**WHITEFISH, MT 59937**

**(Address of Principal Executive Offices and Zip Code)**

 

**(833) 420-2636**

**(Registrant’s Telephone Number, including Area Code)**

 

Securities registered pursuant to Section 12(b) of the Act: **None**

 

Securities registered pursuant to Section 12(g) of the Act: **Common Stock, par value $0.001**

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. :

 

| Large accelerated filer | ☐ | Accelerated filer         | ☐ |
|-------------------------|---------|---------------------------|---------|
| Non-accelerated Filer   | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |                      |    |

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The aggregate market value of the common equity voting shares of the registrant held by non-affiliates on June 30, 2021was $3,300,000. For purposes of this calculation, an aggregate of 2,593,520 shares of Common Stock were held by the directors and officers of the registrant on June 30, 2021 and have been included in the number of shares of Common Stock held by affiliates.

 

The number of the registrant’s shares of Common Stock outstanding as of May 13, 2022: 33,823,864

 

In this Annual Report on Form 10-K, the terms the “Company,” “CFN Enterprises,” “we,” “us” or “our” refer to CFN Enterprises Inc., unless the context indicates otherwise.

 

Documents Incorporated by Reference: None

** **

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**CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS**

 

THIS ANNUAL REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE,” “EXPECT,” “ANTICIPATE,” “INTEND,” “PLAN,” “ESTIMATE,” “MAY,” “PREDICT,” “WILL,” “POTENTIAL,” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.

 

IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN OUR FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, GENERAL MARKET CONDITIONS, INCLUDING WEAKNESS IN THE ECONOMY, REGULATORY DEVELOPMENTS AND OTHER CONDITIONS WHICH ARE NOT WITHIN OUR CONTROL.

 

OTHER RISKS MAY ADVERSELY IMPACT US, AS DESCRIBED MORE FULLY IN THIS ANNUAL REPORT UNDER “ITEM 1A. RISK FACTORS.”

 

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD-LOOKING STATEMENTS.

 

EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

 

UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS “CFN”, THE “COMPANY”, “WE”, “OUR”, “REGISTRANT”, AND “US” MEANS CFN ENTERPRISES INC. AND ITS CONSOLIDATED SUBSIDIARIES.

 

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**CFN ENTERPRISES INC.**

**2021 ANNUAL REPORT ON FORM 10-K**

 

**Table of Contents**

 

|       |                                                                                                               |   |   | **Page** |   |
|------------|--------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|
| PART I     |                                                                                                               |   |   |     |   |
| ITEM 1.    | BUSINESS                                                                                                           |   |   | 4        |   |
| ITEM 1A.   | RISK FACTORS                                                                                                       |   |   | 6        |   |
| ITEM 1B.   | UNRESOLVED STAFF COMMENTS                                                                                          |   |   | 14       |   |
| ITEM 2.    | PROPERTIES                                                                                                         |   |   | 14       |   |
| ITEM 3.    | LEGAL PROCEEDINGS                                                                                                  |   |   | 14       |   |
| ITEM 4.    | MINE SAFETY DISCLOSURES                                                                                            |   |   | 14       |   |
|       |                                                                                                               |   |   |     |   |
| PART II    |                                                                                                               |   |   |     |   |
|       |                                                                                                               |   |   |     |   |
| ITEM 5.    | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |   |   | 15       |   |
| ITEM 6.    | SELECTED FINANCIAL DATA                                                                                            |   |   | 15       |   |
| ITEM 7.    | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |   |   | 21       |   |
| ITEM 7A.   | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |   |   | 21       |   |
| ITEM 8.    | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                        |   |   | 21       |   |
| ITEM 9.    | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES                              |   |   | 21       |   |
| ITEM 9A.   | CONTROLS AND PROCEDURES                                                                                            |   |   | 21       |   |
| ITEM 9B.   | OTHER INFORMATION                                                                                                  |   |   | 21       |   |
|       |                                                                                                               |   |   |     |   |
| PART III   |                                                                                                               |   |   |     |   |
|       |                                                                                                               |   |   |     |   |
| ITEM 10.   | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                             |   |   | 22       |   |
| ITEM 11.   | EXECUTIVE COMPENSATION                                                                                             |   |   | 23       |   |
| ITEM 12.   | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                     |   |   | 24       |   |
| ITEM 13.   | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          |   |   | 25       |   |
| ITEM 14.   | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                             |   |   | 25       |   |
|       |                                                                                                               |   |   |     |   |
| PART IV    |                                                                                                               |   |   |     |   |
|       |                                                                                                               |   |   |     |   |
| ITEM 15.   | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                            |   |   | 26       |   |
| ITEM 16.   | FORM 10-K SUMMARY                                                                                                  |   |   | 28       |   |
| SIGNATURES |                                                                                                               |   | 29     |     |

 

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| *Table of Contents* |

 

**PART I**

 

**Item 1. Business**

 

**Overview**

 

We own and operate CNP Operating, a leading cannabidiol, or 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 Grand View Research, the global cannabis industry is expected to reach $146.4 billion by 2025, driven by the legalization of medical and adult-use cannabis across a growing number of jurisdictions. According to the Marijuana Index, there are approximately 400 public companies involved in the cannabis industry, which represents the primary target market of the CFN Business. The CFN Business’ services are designed to help private companies prepare to go public and public companies grow their shareholder base through sponsored content and marketing outreach. The success of the CFN Business depends on the legal status of cannabis, investor demand for cannabis investments, and numerous other external factors.

 

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 Stockhouse Publishing, Catalyst Xchange, Stonebridge Partners and Midan Ventures. Online publisher competition includes firms like New Cannabis Ventures, Leafly and High Times. The CFN Business is regulated by rules established by the SEC, FINRA, and certain federal and state cannabis regulations.

 

On August 23, 2021, we entered into securities purchase agreements with CNP Operating LLC, a Colorado limited liability company and its owners, whereby the Company acquired 100% of CNP Operating from its owners in exchange for an aggregate of 354 million shares of our common stock. On August 25, 2021 the transaction was closed and CNP Operating became our wholly owned subsidiary.

 

On December 6, 2021, we effected a reverse split of our outstanding common stock in the ratio of 1-for-15, or the Reverse Stock Split. Share amounts in this annual report reflect the Reverse Stock Split.

 

Our principal offices are located at 600 E. 8th Street, Whitefish, Montana 59937. Our telephone number there is: (833) 420-2636. Our corporate website is: www.cfnenterprisesinc.com,, the contents of which are not part of this annual report.

 

Our Common Stock is quoted on the OTCQB Marketplace under the symbol “CNFN.” 

 

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**Industry and Market Opportunity**

 

|   | ● | The global cannabidiol (CBD) market has an estimated value of $9.3 billion for 2021 and is projected to grow at a 22.2% compound annual growth rate to reach $23.6 billion by 2025, according to Grand View Research. The business-to-consumer (B2C) segment is the largest segment of this market and is expected to exhibit the fastest growth rate over the forecast period.    |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | The global legal cannabis market is projected to grow at an 18.1% compound annual growth rate to reach $73.6 billion by 2027, according to Grand View Research. North America held the largest revenue share at 88.4%, but the recent legalization of cannabis for medical purposes in countries like Australia, Germany and Poland is expected to create lucrative opportunities. |
|   | ● | The psychedelics market is expected to grow from $2.08 billion to $6.86 billion between 2020 and 2027, representing a 16.3% compound annual growth rate, driven by the growing acceptance of psychedelic drugs for treating depression and other mental disorders.                                                                                                                 |

 

**Our Solutions**

 

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.

 

CFN Enterprises’ services are designed to help private companies prepare to go public and public companies grow their shareholder base through sponsored content and marketing outreach. The business targets the legal CBD, cannabis and psychedelics industries.

 

**How we market our services**

 

CNP Operating’s products are sold through our direct sales force and by attending industry related trade shows.

 

CFN Enterprises markets its services through its proprietary network of websites, including www.cannabisfn.com, social media channels and through its internal sales team.

 

**Competition**

 

CFN Enterprises competes with other public relations firms for clients, as well as online publishers for investors. Public relations competition includes investor awareness firms like Stockhouse Publishing, Catalyst Xchange, Stonebridge Partners and Midan Ventures. Online publisher competition includes firms like New Cannabis Ventures, Leafly and High Times.

 

CNP Operating competes with other CBD product manufacturers and sellers. The market for the sale of CBD-based products is fragmented and intensely competitive. Our competitors of CBD-based products include a combination of public and private companies who operate as combination of ecommerce and wholesale brands as well as brick and mortar retail operations.

 

**Government Regulation**

 

*CFN Business*

 

The CFN Business is regulated by rules established by the SEC, FINRA, and certain federal and state cannabis regulations. 

 

*CNP Operating Business*

* *

On December 20, 2018, the President of the United States signed the United States of the Agricultural Improvement Act of 2018, commonly known as the “Farm Bill,” into law. Among other things, this new law changed certain federal authorities relating to the production and marketing of hemp, defined as cannabis (Cannabis sativa L.), and hemp products containing less than 0.3 percent delta-9-tetrahydrocannabinol (THC, including removing hemp and derivatives of hemp from the Controlled Substance Act. January 15, 2021 the USDA issued its final rule regarding the Establishment of a Domestic Hemp Production Program which authorized hemp to be grown and processed legally in the United States and made it legal to transport in interstate commerce.

 

The Farm Bill recognizes hemp as distinct from its genetic cousin, marijuana, and specifically industrial hemp has been excluded from U.S. drug laws. The Farm Bill allows for each individual state to regulate industrial hemp and industrial hemp-based products or accept the USDA rules. Although no longer a controlled substance under federal law, cannabinoids derived from industrial hemp (other than THC) are still subject to a patchwork of state regulations. We are actively monitoring the regulations and proposed regulations in each state to ensure our operations are compliant.

 

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In conjunction with the enactment of the Farm Bill, the FDA released a statement about the status of CBD and the agency’s actions in the short term with regards to CBD will guide the industry. The statement noted that the Farm Bill explicitly preserved the FDA’s authority to regulate products containing cannabis or cannabis-derived compounds under the FDCA and Section 351 of the Public Health Service Act. This authority allows the FDA to continue enforcing the law to protect patients and the public while also providing potential regulatory pathways for products containing cannabis and cannabis-derived compounds. The statement also noted the growing public interest in cannabis and cannabis-derived products, including CBD, and informed the public that the FDA will treat products containing cannabis or cannabis-derived compounds as it does any other FDA-regulated products — meaning the products will be subject to the same authorities and requirements as FDA-regulated products containing any other substance, regardless of the source of the substance, including whether the substance is derived from a plant that is classified as hemp under the Farm Bill.

 

As of the date of this annual report, and based upon publicly available information, to our knowledge the FDA has not taken any enforcement actions against CBD companies. The FDA, however, has sent warning letters to companies demanding they cease and desist from the production, distribution, or advertising of CBD products, only relating to instances that such CBD companies have made misleading and unapproved label claims. We will continue to monitor the FDA’s position on CBD. In December 2020, the FTC announced it was going to seek penalties against companies making deceptive marketing claims and named 6 companies which it had targeted for making egregious and unsupported health claims. On March 5, 2021the FTC approved the final administrative consent orders with all 6 companies. We are unaware of any further actions and we will continue to monitor the FTC’s position with regards to deceptive marketing claims.

 

We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public information and the handling of customer complaints and regulations prohibiting unfair and deceptive trade practices. The growth and demand for online commerce has and may continue to result in more stringent consumer protection laws that impose additional compliance burdens on online companies. These laws may cover issues such as user privacy, spyware and the tracking of consumer activities, marketing e-mails and communications, other advertising and promotional practices, money transfers, pricing, product safety, content and quality of products and services, taxation, electronic contracts and other communications and information security.

 

There is also great uncertainty over whether or how existing laws governing issues such as sales and other taxes, auctions, libel, and personal privacy apply to the internet and commercial online services. These issues may take years to resolve. For example, tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the internet and commercial online services could result in significant additional taxes or regulatory restrictions on our business. These taxes or restrictions could have an adverse effect on our cash flows, results of operations and overall financial condition. Furthermore, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements.

 

**Employees**

 

As of December 31, 2021, we had 14 full-time employees, including all of our executive officers. None of our employees are covered by collective bargaining agreements, and we believe our relationships with our employees to be good.

** **

**Item 1A.****Risk Factors**

 

Our business faces risks.  If any of the events or circumstances described in the following risks actually occur, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline. Our investors and prospective investors should consider the following risks and the information contained under the heading "Cautionary Statement Concerning Forward Looking Statements" before deciding to invest in our common stock.

 

**Our resources are limited and it may impact how we implement our growth strategy which may impact our operations.**

 

Our resources are limited. Our working capital deficiency at December 31, 2021 amounts to $6,644,429. As we implement our growth strategy, poor strategic design or execution could impact negatively our operations and our cash flows. We expect that our expenses will continue to increase as we continue to develop and implement our products and services. Our capital requirements may vary materially from those currently planned if, for example, we incur unforeseen capital expenditures, incur unforeseen operating expenses, or make investments to maintain our competitive position. If this is the case, we may have to delay or abandon some or all of our development plans or otherwise forego market opportunities. We will need to generate significant revenues to be profitable in the future, and we may not generate sufficient revenues to be profitable on either a quarterly or annual basis in the future.

 

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**We have a history of losses.**

 

We have a history of losses and negative cash flows from operations. We had a net loss from continuing operations of approximately $12.4 million in 2021 and a net loss of approximately $1.2 million in 2020. Our operations have been financed primarily through proceeds from the issuance of equity, borrowing money through the issuance of promissory notes and use of a credit facility. We may continue to incur losses in the future.

 

**We have substantial indebtedness and obligations to pay interest.**

 

We currently have, and will likely continue to have, a substantial amount of indebtedness and obligations to pay interest from our preferred stock. Our indebtedness and interest obligations could, among other things, make it more difficult for us to satisfy our debt obligations, require us to use a large portion of our cash flow from operations to repay and service our debt and preferred stock or otherwise create liquidity problems, limit our flexibility to adjust to market conditions, place us at a competitive disadvantage and expose us to interest rate fluctuations. As of December 31, 2021, we had total debt outstanding of approximately $3,537,573, of which $2,219,882 was short term. As of December 31, 2021, we had 500 shares of Series A Preferred, Stock, each with a stated value of $1,000 per share which bears interest at 12% per annum, and 3,000 shares of Series B Preferred Stock, each with a stated value of $1,000 per share which bears interest at 6% per annum.

 

We expect to obtain the money to pay our expenses and pay the principal and interest on our indebtedness, interest on our preferred stock, and tax liabilities from cash flow from our operations and potentially from securities offerings. Accordingly, our ability to meet our obligations depends on our future performance and capital raising activities, which will be affected by financial, business, economic and other factors, many of which are beyond our control. If our cash flow and capital resources prove inadequate to allow us to pay the principal and interest on our debt, interest on our preferred stock and meet our other obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations, restructure or refinance our debt, which we may be unable to do on acceptable terms, and forego attractive business opportunities. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.

 

**Our independent registered public accounting firm has expressed in its report to our 2021 audited consolidated financial statements a substantial doubt about our ability to continue as a going concern**.

 

We have not generated sufficient revenues from our operations to fund our activities and are therefore dependent upon external sources for financing our operations. There is a risk that we will be unable to obtain the necessary financing to continue our operations on terms acceptable to us or at all. As a result, our independent registered public accounting firm has expressed in its auditors’ report on the consolidated financial statements for December 31, 2021, a substantial doubt regarding our ability to continue as a going concern. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Future reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. If we cannot continue as a going concern, our stockholders may lose their entire investment in the common stock.

 

**Our quarterly financial results will fluctuate, making it difficult to forecast our results of operation.**

 

Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are beyond our control, including:

 

| ● | Variability in demand and usage for our products and services;                                                                                   |
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| ● | Market acceptance of new and existing services offered by us, our competitors and potential competitors; and                                     |
|    |                                                                                                                                             |
| ● | Governmental regulations affecting the use of the Internet, including regulations concerning intellectual property rights and security features. |

 

Our current and future levels of expenditures are based primarily on our growth plans and estimates of expected future revenues. If our operating results fall below the expectation of investors, our stock price will likely decline significantly.

 

**Our financial and operating performance may be adversely affected by the coronavirus pandemic.**

 

The outbreak of a strain of coronavirus (COVID-19) in the U.S. has had an unfavorable impact on our business operations. Our main customer market suffered its worst decline, decreasing our revenue. Mandatory closures of businesses imposed by the federal, state and local governments to control the spread of the virus disrupted the operations of our management, business and finance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. economy and financial markets, which may result in a long-term economic downturn that could negatively affect future performance. We took steps to diversify our revenue model by creating our CBD ecommerce business which has higher margins during the second half of 2020 and reduce our costs. The extent to which COVID-19 will impact our business and our consolidated financial results further will depend on future developments which are highly uncertain and cannot be predicted at this time, but may result in a material adverse impact on our business, results of operations and financial condition.

** **

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**We face risks related to the macro economy.**

 

Continued uncertainty in global economic conditions continues to pose a risk to the overall economy and has adversely affected the online advertising market, which is now highly competitive. These economic conditions have impacted consumer confidence and customer demand for our products, as well as our ability to borrow money to finance our operations, to maintain our key employees, and to manage normal commercial relationships with our customers, suppliers and creditors. For example, customers have spent less on online advertising and other services. Although the economic outlook has improved since the credit crisis, if a worsening of current conditions or another economic crisis were to occur, our business and results of operations will continue to be negatively impacted.

 

**The CFN Business provides services to persons engaged in the cannabis industry. Cannabis remains illegal under Federal law.**

 

Despite the development of a regulated cannabis industry under the laws of certain states, these state laws regulating medical and adult cannabis use are in conflict with the Federal Controlled Substances Act, which classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that the Federal government has the right to regulate and criminalize cannabis, even for medical purposes, and thus Federal law criminalizing the use of cannabis preempts state laws that regulate its use. If the U.S. Department of Justice (“DOJ”) did take action against the cannabis industry, those of our clients operating in the legal cannabis industry would be lost to us.

 

To analyze this risk, we are relying heavily upon the various U.S. federal governmental memos issued in the past (including the memorandum issued by the DOJ on October 19, 2009, known as the “Ogden Memorandum”, the memorandum issued by the DOJ on August 29, 2013, known as the “Cole Memorandum” and other guidance), to remain acceptable to those state and federal entities that regulate, enforce, or choose to defer enforcement of certain current regulations regarding cannabis and that the U.S. federal government will not change its attitude to those practitioners in the cannabis industry as long as they comply with their state and local jurisdictional rules and authorities.

 

The legal cannabis industry is not yet well-developed, and many aspects of this industry’s development and evolution cannot be accurately predicted, and therefore losing any clients may have a material adverse effect on our business. While we have attempted to identify our business risks in the legal cannabis industry, you should carefully consider that there are other risks that cannot be foreseen or are not described in this annual report, which could materially and adversely affect our business and financial performance.

 

**As the possession and use of cannabis is illegal under the Federal Controlled Substances Act, we may be deemed to be aiding and abetting illegal activities through the services and data that we provide to cannabis dispensaries, cultivators and consumers. As a result, we may be subject to enforcement actions by law enforcement authorities, which would materially and adversely affect our business.**

 

Under Federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of cannabis is illegal. The CFN Business provides services to customers that are engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another’s criminal activities. The Federal aiding and abetting statute provides that anyone who “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.” As a result of such an action, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.

  

**Changes to Federal or state laws pertaining to industrial hemp could slow the use of industrial hemp in our CNP Operating business which would materially impact our revenues in future periods.**

** **

As of the date hereof, approximately 46 states have authorized industrial hemp programs pursuant to the Farm Bill, or under prior programs authorized under the 2014 Farm Bill, or have plans under review by the USDA. Effective January 1, 2022 several states without an approved plan under the Farm Bill, or a plan under review, will default to the USDA Hemp Producer License. Continued development of the industrial hemp industry will be dependent upon new legislative authorization of industrial hemp at the state level, and further amendment or supplementation of legislation at the federal level. Any number of events or occurrences could slow or halt progress all together in this space. While progress within the industrial hemp industry is currently encouraging, growth is not assured. While there appears to be ample public support for favorable legislative action, numerous factors may impact or negatively affect the legislative process(es) within the various states where we have business interests. Any one of these factors could slow or halt use of industrial hemp, which could negatively impact the business up to possibly causing us to discontinue operations as a whole. In addition, changes in Federal or state laws could require us to alter the way we conduct our business in order to remain compliant with applicable state laws in ways we are presently unable to foresee. These possible changes, if necessary, could be costly and may adversely impact our results of operations in future periods.

** **

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**Costs associated with compliance with numerous laws and regulations could impact our financial results. In addition, we could become subject to increased litigation risks associated with the CBD industry.**

** **

The manufacture, labeling and distribution by us of the hemp-based cannabinoid products is regulated by various federal, state and local agencies. These governmental authorities may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or the ability to sell products in the future. We are subject to regulation by the federal government and other state and local agencies as a result of our hemp-based cannabinoid products. The shifting compliance environment and the need to build and maintain robust systems to comply with different compliance in multiple jurisdictions increases the possibility that we may violate one or more of the requirements. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to our company, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, any of which could adversely affect the ability to operate our business and our financial results. Failure to comply with the various federal, state and local requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. We are seeing increasing state-level labeling requirements that may increase our costs with respect to monitoring and adhering to unique label requirements in addition to potential product and packaging obsolescence costs. Our advertising is subject to regulation by the U.S. Federal Trade Commission, or FTC, under the Federal Trade Commission Act, and is subject to various state regulations enforced by state agencies and state attorneys general. Additionally, some states also permit advertising and labeling laws to be enforced by private attorneys general who may seek relief for consumers, seek class-action certifications, seek class-wide damages and product recalls of products sold by us. Any actions against our company by governmental authorities or private litigants could be time consuming, costly to defend and could have a material adverse effect on our business, financial condition, and results of operations.

** **

**Uncertainty caused by potential changes to legal regulations could impact the use of CBD products.**

** **

There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the scope of operation of Farm Bill-compliant hemp programs relative to the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the U.S. Drug Enforcement Administration and/or the FDA and the extent to which manufacturers of products containing Farm Bill-compliant cultivators and processors may engage in interstate commerce. The uncertainties cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules. If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets.

** **

**We face intense competition from other marketing service providers.** 

 

We compete with many marketing service providers for consumers’ attention and spending. Our competitors may have substantially greater capital, longer operating histories, greater brand recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. Our competitors may also engage in more extensive development of their technologies and may adopt more comprehensive marketing and advertising campaigns than we can. Our competitors may develop products and service offerings that we do not offer or that are more sophisticated or more cost effective than our own. For these and other reasons, our competitors’ products and services may achieve greater acceptance in the marketplace than our own, limiting our ability to gain market share and customer loyalty and to generate sufficient revenues to achieve a profitable level of operations. Our failure to adequately address any of the above factors could harm our business and operating results.

 

In addition, as the barriers to entry in our market segment are not substantial, an unlimited number of new competitors could emerge, thereby making our goal of establishing a market presence even more difficult. Because our management expects competition in our market segment to continue to intensify, there can be no assurances we will ever establish a competitive position in our market segment.

 

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**The market for CBD products is highly competitive. If we are unable to compete effectively in the market, our business and operating results could be materially and adversely affected.**

 

The market for CBD products is a competitive and rapidly evolving market. There are numerous competitors in the industry, some of whom are more well-established with longer operating histories and greater financial resources than we have. We expect competition in the CBD industry to continue to intensify. We believe we will be able to compete effectively because of the quality of our products and customer service. However, there can be no assurance that we will effectively compete with existing or future competitors. Increased competition may also drive the prices of our products down, which may have a material adverse effect on our results of operations in future periods.

 

Given the rapid changes affecting the global, national and regional economies generally, and the CBD industry specifically, we may experience difficulties in establishing and maintaining a competitive advantage in the marketplace. Our success will depend on our ability to keep pace with any changes in such markets, especially legal and regulatory changes. Our success will depend on our ability to respond to, among other things, changes in the economy, market conditions and competitive pressures. Any failure to anticipate or respond adequately to such changes could have a material adverse effect on the our business, financial condition and results of operations.

 

**If we are unable to attract new customers or sell additional services and functionality to our existing customers, our revenue growth will be adversely affected.**

** **

To increase our revenues, we must add new customers, encourage existing customers to renew their agreements on terms favorable to us, increase their usage of our solutions, and sell additional functionality to existing customers. As our industry matures, as interactive channels develop further, or as competitors introduce lower cost and/or differentiated products or services that are perceived to compete with ours, our ability to sell and renew based on pricing, technology and functionality could be impaired. As a result, we may be unable to renew our agreements with existing customers or attract new customers or new business from existing customers on terms that would be favorable or comparable to prior periods, which could have an adverse effect on our revenue and growth, as well as our profitability and financial condition.

 

**We may not be successful in increasing our brand awareness.**

 

We believe that developing and maintaining awareness of the CFN brand is critical to achieving widespread acceptance of our existing and future services and is an important element in attracting new customers. In order to build brand awareness, we must succeed in our marketing efforts and provide high quality services. Our efforts to build our brand will involve significant expense. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.

 

**We depend on receipt of timely feeds from our content providers.** 

 

We depend on Web browsers, ISPs and online service providers to provide access over the Internet to our product and service offerings. Many of these providers have experienced significant outages or interruptions in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. These types of interruptions could continue or increase in the future.

 

**We rely on third-party computer hardware and software that may be difficult to replace or which could cause errors or failures of our service.**

 

We rely on computer hardware purchased or leased and software licensed from third parties in order to offer our services. This hardware and software may not continue to be available to us at reasonable prices, or on commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could significantly increase our expenses and otherwise result in delays in the provisioning of our service until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated, which could harm our business. Any errors or defects in third-party hardware or software could result in errors or a failure of our service which could harm our business. 

 

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**If our security measures are breached and unauthorized access is obtained to a customer’s data or our data or our information technology systems, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.**

 

Our service involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, and to litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, by employee error, malfeasance or otherwise, during the transfer of data to additional data centers or at any time, and may result in someone obtaining unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers may authorize third party technology providers, via our various Application Programming Interfaces, to access their customer data. Because we do not control the transmissions between our customers and third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the complete integrity or security of such transmissions or processing. Any security breach could result in a loss of confidence in the security of our service, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.

 

**Our future performance and success depends on our ability to retain our key personnel.**

 

Our future performance and success is heavily dependent upon the continued active participation of our current senior management team, including our President and Chief Executive Officer, Brian Ross. The loss of any of their services could have a material adverse effect on our business development and our ability to execute our growth strategy, resulting in loss of sales and a slower rate of growth. We do not maintain any “key person” life insurance for any of our employees.

 

**We may be subject to infringement claims on proprietary rights of third parties for software and other content that we distribute or make available to our customers.**

 

We may be liable or alleged to be liable to third parties for software and other content that we distribute or make available to our customers:

 

| ● | If the content or the performance of our services violates third party copyright, trademark, or other intellectual property rights; or |
|---------|----------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                   |
| ● | If our customers violate the intellectual property rights of others by providing content through our services.                         |

 

Any alleged liability could harm our business by damaging our reputation. Any alleged liability could also require us to incur legal expenses in defense and could expose us to awards of damages and costs including, but not limited to, treble damages for willful infringement, and would likely divert management’s attention which could have an adverse effect on our business, results of operations and financial condition.

 

We cannot assure you that third parties will not claim infringement by us with respect to past, current, or future technologies. Participants in our markets may be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. In addition, these risks are difficult to quantify in light of the continuously evolving nature of laws and regulations governing the Internet. Any claim relating to proprietary rights, whether meritorious or not, could be time-consuming, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements, and we cannot assure you that we will have adequate insurance coverage or that royalty or licensing agreements will be available on terms acceptable to us or at all. Further, we plan to offer our services and applications to customers worldwide, including to customers in foreign countries that may offer less protection for our intellectual property than the United States. Our failure to protect against misappropriation of our intellectual property and claims against us that we are infringing the intellectual property of third parties could have a negative effect on our business, revenues, financial condition and results of operations.

 

**Evolving government regulation could adversely affect our business prospects.**

 

We do not know with certainty how existing laws governing issues such as property ownership copyright and other intellectual property issues, taxation, illegal or obscene content, regulated industries, retransmission of media, personal privacy and data protection will apply to the Internet or to the distribution of multimedia and other proprietary content over the Internet. Most of these laws were adopted before the advent of the Internet and related technologies and therefore do not address the unique issues associated with the Internet and related technologies. Depending on how these laws developed and are interpreted by the judicial system, they could have the effect of:

 

| ● | Limiting the growth of the Internet;                                                            |
|---------|-------------------------------------------------------------------------------------------------|
|    |                                                                                            |
| ● | Creating uncertainty in the marketplace that could reduce demand for our products and services; |

   

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| ● | Increasing our cost of doing business;                                                                                      |
|---------|-----------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                        |
| ● | Exposing us to significant liabilities associated with content distributed or accessed through our products or services; or |
|    |                                                                                                                        |
| ● | Leading to increased product and applications development costs, or otherwise harm our business.                            |

  

Because of this rapidly evolving and uncertain regulatory environment, both domestically and internationally, we cannot predict how existing or proposed laws and regulations might affect our business.

 

In addition, as Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. In addition, taxation of services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may also be imposed. Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business.

 

**Dilutive securities may adversely impact our stock price.**

 

As of December 31, 2021, the following securities exercisable into shares of our Common Stock were outstanding: 

 

| ● | 350,463 shares of Common Stock issuable pursuant to the exercise of warrants |
|---------|------------------------------------------------------------------------------|
|    |                                                                         |
| ● | 210,667 shares of Common Stock issuable pursuant to the exercise of options  |

  

These securities represent, as of December 31, 2021, approximately 7.4%% of our Common Stock on a fully diluted, as exercised basis. 3,160,000 of the shares of Common Stock issuable pursuant to the exercise of options are beneficially owned by our management. In addition, our preferred stock is convertible into shares of our common stock at a conversion price to be mutually determined between us and the holders in the future, and could result in the issuance of a significant number of shares of common stock. The exercise of any of these options or warrants, both of which have fixed prices, or conversion of our preferred stock, may materially adversely affect the market price of our Common Stock and will have a dilutive effect on our existing stockholders.

 

**If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm the value of our stock.**

 

Effective internal control over financial reporting is necessary for us to provide reliable financial reports, effectively prevent fraud and operate as a public company. We have discovered areas of our internal control over financial reporting that need improvement. If we are unable to adequately maintain or improve our internal control over financial reporting, we may report that our internal controls are ineffective. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be negatively impacted. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information which could have a negative effect on the market price of our Common Stock and which could result in regulatory proceedings against us by, among others, the SEC.

 

**We have not voluntarily implemented various corporate governance measures, in the absence of which stockholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.**

 

Federal legislation, including the Sarbanes-Oxley Act of 2002 and The Dodd Frank Wall Street Reform and Consumer Protection Act, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the New York Stock Exchange or the Nasdaq Stock Market. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address the board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. We have not yet adopted some of these corporate governance measures and, since our securities are not listed on a national securities exchange, we are not required to do so. We have not adopted corporate governance measures such as an audit committee or other independent committees of our Board of Directors. In the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

 

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**The limited market for our Common Stock will make our stock price more volatile. Therefore, you may have difficulty selling your shares.**

 

The market for our Common Stock is limited and we cannot assure you that a larger market will ever be developed or maintained. Currently, our Common Stock is quoted on the OTCQB Marketplace. Securities quoted on the OTCQB Marketplace typically have low trading volumes. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, this may make it difficult or impossible for our shareholders to sell our Common Stock.

 

**There are generally no restrictions on the resale of our outstanding Common Stock. Sales by existing shareholders may depress the share price of our Common Stock and may impair our ability to raise additional capital through the sale of equity securities when needed.**

 

The possibility that substantial amounts of outstanding Common Stock may be sold in the public market may adversely affect prevailing market prices for our Common Stock. This could negatively affect the market price of our Common Stock and could impair our ability to raise additional capital through the sale of equity securities.

 

**Sales of shares of our Common Stock to the public may adversely impact our stock price.**

** **

Sales of shares of our Common Stock in the public market, or the perception that these sales might occur, could depress the market price of our Common Stock and may make it more difficult for our stockholders to sell their common stock at desirable prices. We are unable to predict the effect that sales may have on the prevailing market price of our Common Stock.

 

**Some of the shares issued and options granted under our stock plan may have been issued in transactions that were not exempt from registration under certain state securities laws, the result of which is that the holders of these shares and/or options may have rescission rights that could require us to reacquire the shares and/or options.**

 

Some of the shares issued and options granted under our equity compensation plan may not have been exempt from registration or qualification under the securities laws of certain states. We previously became aware that we may not have had a valid exemption for the issuance of these options and shares exercised upon exercise of these options under certain state laws. Because of the lack of registration and, potentially, the lack of a valid exemption from registration, the options we granted and the shares issued upon exercise of these options may have been issued in violation of certain state securities laws and may be subject to rescission.

 

If such shares and options are subject to rescission, we could be required to make payments to the holders of these shares and options in an amount not yet determinable by us. If any or all of the offerees reject the rescission offer, we may continue to be liable under state securities laws for payments to the offerees. If it is determined that we offered securities without properly registering them under state law, or securing an exemption from registration, regulators could impose monetary fines or other sanctions as provided under these laws. 

 

**Our Common Stock is subject to the “penny stock” rules of the SEC, and the trading market in our Common Stock is limited. This makes transactions in our Common Stock cumbersome and may reduce the value of your shares.**

 

The SEC has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

 

| ● | that a broker or dealer approve a person’s account for transactions in penny stocks; and                                                                     |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                               |
| ● | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

| ● | Obtain financial information and investment experience objectives of the person; and                                                                                                                                                                  |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                  |
| ● | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |

 

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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 

| ● | sets forth the basis on which the broker or dealer made the suitability determination; and                 |
|---------|------------------------------------------------------------------------------------------------------------|
|    |                                                                                                       |
| ● | that the broker or dealer received a signed, written statement from the investor prior to the transaction. |

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in its market value.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

** **

**We could become subject to litigation that could be costly, result in the diversion of management’s attention and require us to pay damages.**

 

From time to time, we may become involved in legal proceedings. Though we are not currently subject to any such proceedings, adverse outcomes in such proceedings may result in significant monetary damages or injunctive relief that could adversely affect our ability to conduct our business and could divert management’s attention.

 

**Item 1B.****Unresolved Staff Comments.**

 

None.

 

**Item 2.****Properties.** 

 

On June 20, 2019, we entered into a Lease Agreement with Emerging Growth, LLC for the lease of office space in Whitefish, Montana, for a period of one year at a rate of $1,500 per month. On August 5, 2020, the Company entered into a lease agreement with Emerging Growth, LLC for additional office space in Whitefish, Montana, replacing its previous lease from June 20, 2019. The term of the lease commenced on September 1, 2020 for a period of one year at a rate of $4,500 per month. The lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase. On March 30, 2021, we entered into a new lease agreement for these premises commencing April 1, 2021 for a period of three years at a rate of $4,500 per month, which lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase.

 

On July 1, 2019 CNP entered into a Lease Agreement with Blair Investments, LLC for the lease of commercial office and manufacturing space in Centennial, Colorado. The lease commenced on July 1,2019 for a period of four years at a rate of $16,025. The lease increases $0.50 per square foot per year for the duration of the lease.

 

On May 20, 2019 CNP entered into a Lease Agreement with Kevin Shively, for the lease of agricultural and manufacturing facilities in Idalia, Colorado. The lease commenced on May 20, 2019 for a period of 10 years at a rate of $5,000 per month.

  

On December 9, 2021, CFN Real Estate LLC, a Delaware limited liability company  and wholly-owned subsidiary of the Company, entered into a Lease Agreement (with Option to Purchase) with H2S2 LLC, a Colorado limited liability company, for property in Eaton, Colorado, consisting of 9.53 acres of agricultural land zoned with use for special review for hemp processing and storage, an 8,500 square foot C1D1 rated steel building, triple tunnel green houses with a total of 8,712 square feet, a shop building consisting of 3,825 square feet and a 2,280 square foot residence . The Company will use the Premises in connection with its CNP Operating cannabidiol (CBD) manufacturing business.  

  

The Lease has an eleven month term and contains an option to purchase the premises, each terminating on November 30, 2022. The total monthly rent under the lease during the term is an aggregate of $354,000, consisting of a $14,000 monthly lease payment, and an aggregate of $200,000 in non-refundable payments towards the option. The total purchase price for the premises under the option is $1.2 million, inclusive of the $200,000 in payments made during the term of the lease. If the option is exercised, the lease contains a 30-day automatic extension of the term at $14,000. 

  

We believe that our current leases are adequate and sufficient for our needs in the immediate future.

  

**Item 3.****Legal Proceedings.**

 

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that we currently believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. 

 

On October 18, 2021 the company settled a vendor dispute in the amount of $100,000 of which the initial payment of $40,000.00 was paid on the execution of the settlement and balance to paid in 48 equal monthly payments of $1,250.00. The balance as of December 31, 2021 is $56,250

 

**Item 4.****Mine Safety Disclosures.**

 

Not applicable.

 

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**PART II**

 

**Item 5. Market for****Registrant’s Common****Equity****, Related Stockholder Matters and Issuer Purchases of Equity Securities.**

 

Our Common Stock is quoted on the OTCQB Marketplace under the symbol “CNFN.” Quotations on the OTCQB Marketplace reflect prices between dealers, do not include retail mark-ups, markdowns, and commissions and may not necessarily represent actual transactions.

 

On December 6, 2021, we effected a reverse split of our outstanding common stock in the ratio of 1-for-15. Share amounts in this annual report reflect the Reverse Stock Split.

  

*Stockholders*

 

As of December 31, 2021, there were 1,036 stockholders of record of our Common Stock.

 

*Dividend Policy*

 

We have not declared or paid any cash dividends on our Common Stock since inception and we do not intend to pay any cash dividends on our Common Stock in the foreseeable future. We intend to retain any future earnings for use in the operation and expansion of our business. Any future decision to pay dividends on Common Stock will be at the discretion of our Board of Directors and will be dependent upon our fiscal condition, results of operations, capital requirements and other factors our Board of Directors may deem relevant.

 

*Recent Sales of Unregistered Securities*

 

On April 14, 2022, the Company entered into securities purchase agreements with investors for the purchase of an aggregate of 1,142,898 shares of common stock at a purchase price of $0.70 per share for gross proceeds of approximately $800,000. The shares were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended.

** **

Item 6. **Selected Financial Data.**

 

Not applicable.

 

**Item 7.****Management’s Discussion and Analysis of Financial Condition and Results of Operations.**

 

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 Grand View Research, the global cannabis industry is expected to reach $146.4 billion by 2025, driven by the legalization of medical and adult-use cannabis across a growing number of jurisdictions. According to the Marijuana Index, there are approximately 400 public companies involved in the cannabis industry, which represents the primary target market of the CFN Business. The CFN Business’ services are designed to help private companies prepare to go public and public companies grow their shareholder base through sponsored content and marketing outreach. The success of the CFN Business depends on the legal status of cannabis, investor demand for cannabis investments, and numerous other external factors.

 

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 Stockhouse Publishing, Catalyst Xchange, Stonebridge Partners and Midan Ventures. Online publisher competition includes firms like New Cannabis Ventures, Leafly and High Times. The CFN Business is regulated by rules established by the SEC, FINRA, and certain federal and state cannabis regulations.

 

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**Results of Operations**

 

The following are the results of our operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020:

 

|                                  |   | **For the Year Ended** |        |   |                  |   |
|---------------------------------------|--------|------------------------|-------------|--------|------------------|--------|
|                                  |   | **December 31,**       |        |   | **December 31,** |   |   |  |   |
|                                  |   | **2021**               |        |   | **2020**         |   |   | **Change** |   |
|                                  |   |                   |        |   |             |   |   |   |   |
| Net revenues                          |   | $                      | 3,157,783   |   |             | $      | 506,490 |   |   | $ | 2,217,929 |   |
| Cost of revenue                       |   |                   | 3,539,636   |   |             |   | 536,738 |   |   |   | 3,025,445 |   |
| Gross loss                            |   |                   | (381,853    | )      |             |   | (30,248 | ) |   |   | (807,516 | ) |
|                                  |   |                   |        |   |             |   |   |   |   |   |   |   |
| Operating expenses:                   |   |                   |        |   |             |   |   |   |   |   |   |   |
| Impairment charge                     |   |                   | 9,355,657   |   |             |   |   |   |   |   |   |   |
| Selling, general and administrative   |   |                   | 2,691,258   |   |             |   | 1,199,410 |   |   |   | 10,287,973 |   |
| Total operating expenses              |   |                   | 12,046,915  |   |             |   | 1,199,410 |   |   |   | 10,287,973 |   |
|                                  |   |                   |        |   |             |   |   |   |   |   |   |   |
| Loss from operations                  |   |                   | (12,428,768 | )      |             |   | (1,229,658 | ) |   |   | 11,095,488 |   |
|                                  |   |                   |        |   |             |   |   |   |   |   |   |   |
| Other income (expense):               |   |                   |        |   |             |   |   |   |   |   |   |   |
| Loss on extinguishment of debt        |   |                   | (172,500    | )      |             |   |   |   |   |   | (172,500 | ) |
| Unrealized gain (loss) on investments |   |                   | (45,658     | )      |             |   |   |   |   |   | (40,180 | ) |
| Forgiveness of SBA Loan     |   |                   | 526,000     |   |             |   | 10,000 |   |   |   | 516,000 |   |
| Interest expense                      |   |                   | (93,170     | )      |             |   | (51,615 | ) |   |   | (41,555 | ) |
| Interest income                       |   |                   | 10,001      |   |             |   | 19 |   |   |   | 9,992 |   |
| Total other income (expense)          |   |                   | 224,683     |        |             |   | (41,596 | ) |   |   | (271,127 | ) |
|                                  |   |                   |        |   |             |   |   |   |   |   |   |   |
| Net loss from continuing operations   |   |                   | (12,204,085 | )      |             |   | (1,271,254 | ) |   |   | 10,824,361 |   |

 

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 twelve months ended December 31, 2021, the Company realized $684,000 of campaign revenue  compared to $497,000 for the same period in the prior year. 

 

The Company’s subsidiary CNP Operating generated revenue of $3.0 million from the sale of products produced from hemp material and manufactured into CBD distillate.

 

Our revenue for 2021 also included $58,629 relating to sales of product from our e-commerce network focused on the sale of general wellness CBD products.  This network was launched during the fourth quarter of 2020 with revenue of $9,000.  

 

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 2021, the contracts required more production services and related labor than the contracts in 2020. As a result, the cost of revenue in 2021 was higher as a percentage of the revenue recognized during the year.

 

The Company’s cost of revenue for the year ended December 31, 2021 were higher than those in the corresponding year in 2020 due largely to the acquisition of CNP Operating which represented approximately $3.1 million of cost of revenue which primarily represents the cost of hemp material, manufacturing material such as solvent, fuel and equipment depreciation.

 

Operating Expenses

 

The Company’s operating expenses for the year ended December 31, 2021 were higher than those in the corresponding year in 2020 due largely to the acquisition of CNP Operating which represented approximately $2.6 million of additional general and administrative expenses representing wages. In addition, the Company wrote off goodwill of $9.3 million as an impairment to a long lived asset.

 

Other income increased during the year ended December 31, 2021, due to the forgiveness of $526,000 for the SBA PPP loan. In addition, the investments received by East West for services were marked to market and resulted in an unrealized loss of $45,658 for the year and a $172,500 loss on extinguishment of debt incurred as it issued common stock in payment of interest payable and extension of the maturity date on a note payable. The Company did not have a similar loss during the year ended December 31, 2020.

 

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**Liquidity and Capital Resources**

 

On May 6, 2020, we received $263,000 in the form of a loan from the PPP, as well $150,000 in proceeds from a loan with the SBA on June 24, 2020. We also received a second PPP loan of $263,000 on February 25, 2021. Our plan to continue as a going concern includes raising additional capital in the form of debt or equity, growing the business acquired under the Emerging Growth Agreement and managing and reducing operating and overhead costs. We cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for us to raise additional capital on an immediate basis.

 

These matters, among others, raise substantial doubt about our ability 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 we 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 year ended December 31, 2021 and 2020.

 

|                                                  |   | **Year Ended**   |     |
|-------------------------------------------------------|--------|------------------|----------|
|                                                  |   | **December 31,** |     |   | **December 31,** |   |
|                                                  |   | **2021**         |     |   | **2020** |   |
| Cash flows used in operating activities               |   | $                | (344,214 | ) |   | $ | (483,522 | ) |
| Cash flows provided by (used in) investing activities |   | $                | 22,885   |   |   | $ | (206,634 | ) |
| Cash flows provided by (used in) financing activities |   | $                | 331,243  |   |   | $ | 763,000 |   |

 

As of December 31, 2021, we had unrestricted cash of $170,015. 

 

Net cash used in operating activities was $344,214 during the year ended December 31, 2021, compared to $483,522 during the same period in 2020. 

 

Net cash provided by investing activities $22,885 during the year ended December 31, 2021, compared with cash provided used in investing activities of 206,634 during the same period in 2020. 

 

Net cash provided by financing activities was $331,243 for the year ended December 31, 2021 was the result of proceeds from a second PPP loan of $263,000, the sale of common stock for $10,000 and the exercise of $50,000 of warrants. In 2020 net cash provided from investing activities related of $763,000 was the result of proceeds from notes payable of $413,000, offset by the payment of preferred stock interest of $45,000. 

 

**Description of Indebtedness**

 

On September 10, 2019, the Company entered into a promissory note payable whereby the Company borrowed $500,000 bearing interest at 8% per annum. Interest on the note is payable quarterly on the first business day of December, March, June and September commencing December 1, 2019. In May 2021, the Company and the holder of the promissory note reached an agreement to extend the maturity date of the note from September 30, 2022 to September 30, 2024. In connection with the extension, the Company issued 2,000,000 shares of its common stock to the noteholder in lieu of $40,000 of interest accrued and accruing on the promissory note through December 31, 2021.

 

In connection with the promissory note on September 10, 2019, the Company issued warrants to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.10 per share. The warrants were exercised on June 30, 2021 and the Company received $50,000. 

 

The note was discounted by $17,624 allocated from the valuation of the warrants issued. The discount recorded on the note is being amortized as interest expense through the maturity date, which amounted to $4,427 and $4,425 for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, the net book value of the promissory note amounted to $494,498 including the principal amount outstanding of $500,000 net of the remaining discount of $5,502.

 

On May 6, 2020, the Company entered into a promissory note, or the Note, with Pacific Western Bank, evidencing an unsecured loan, or the Loan, in the amount of $263,000 made to the Company under the Paycheck Protection Program, or the PPP. The interest rate on the Loan is 1.0% per annum. The Note matures on May 6, 2022. The Company has applied for full forgiveness of the amounts due under the Note and received forgiveness during the period ending September 30, 2021.

 

On June 24, 2020, the Company entered into a Loan Authorization and Agreement with the SBA under which the Company borrowed $150,000 and issued to the SBA a note and security agreement for the amount borrowed. Outstanding borrowings accrue interest at a rate of 3.75% per annum, and installment payments, including principal and interest, of $731 are due monthly and begin 12 months from the date of the loan agreement. The balance of any remaining principal and interest is due 30 years from the date of the loan agreement. As collateral for the borrowing, the Company granted the SBA a security interest in substantially all assets of the Company.

 

On February 25, 2021, the Company entered into a secondary promissory note, or the Second PPP Note, with Pacific Western Bank, evidencing an unsecured loan, or the Second Loan, in the amount of $263,000 made to the Company under the PPP. The interest rate on the Loan is 1.0% per annum. The Note matures on May 6, 2022. The Company applied for full forgiveness of the amounts due under the Note and received forgiveness in February 2022 therefore the company has recorded the forgiveness as of December 31, 2021. 

 

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On October 28, 2019, the Company’s subsidiary CNP Operating entered into a promissory note payable with Complete Business Solutions Group, Inc (“CBSG”) whereby the Company borrowed $3,050,000. The outstanding balance of the note was $2,218,000 at December 31, 2021. 

 

On September 30, 2019, the Company’s subsidiary CNP Operating entered into a promissory note payable with Eagle Six Consultants, Inc. (“Eagle”) whereby the Company borrowed $550,000 bearing interest at 16% per annum. The outstanding balance of the note was $300,000 at December 31, 2021.

 

On June 6, 2020, the Company’s subsidiary CNP Operating entered into a second promissory note payable with Eagle whereby the Company borrowed $300,000 bearing interest at 18% per annum. The outstanding balance of the note was $20,000 December 31, 2021.

 

On May 12, 2021 the Company’s subsidiary CNP Operating restructured the CSBG note payable of $2,957,000, the Eagle #1 note payable of $550,000 and the Eagle #2 note payable of $300,000 by entering into a payment and indemnification agreement with the receivers/trustee of CBSG and Eagle. The receiver has agreed that the balance of the outstanding amounts will be paid over the course of 24 months in equal payments of $158,625. Further, the Company shall pay $20,000 per month toward the balance and Anthony Zingarelli (“Zingarelli”) and Colorado Sky Industrial Supply LLC (“CSIS”), agree to personally pay the sum of $138,625 per month. Zingarelli is the only member of CNP Operating that signed a personal guarantee on the loans and Zingarelli is the sole member of CSIS. Zingarelli and CSIS has agreed to indemnify and hold the Company harmless from any and all losses, liabilities and claims. If a loss is incurred by the Company with respect to any claims, Zingarelli shall reimburse the Company for the amount of any such loss. The Company has recorded the Zingarelli payments during the period as contributions to additional paid in capital.

 

On January 10, 2020 the Company’s subsidiary CNP Operating purchased a distillation machine for $248,000. The company paid $108,000 and entered into a promissory note with company owned by one of the partners. The original value of the note was $140,000 and has no terms such as interest rate, maturity or monthly payments. Imputed interested was not material. The outstanding balance of the note was $42,252 at December 31, 2021.

 

On Nov 19, 2020 the Company’s subsidiary CNP Operating purchased equipment for $58,095 which was financed at zero interest rate. The monthly payments of $968 will be made for the next 60 months and mature on Nov 19, 2025. Imputed interested was not material. The outstanding balance of the note was $45,508 at December 31, 2021.

 

The Company’s subsidiary CNP Operating also entered into a note payable during 2020 with the landlord for additional improvements to the facility in Centennial, Colorado. The outstanding balance of this note was $11,708 at December 31, 2020 and $43,261 as of December 31, 2021 because additional improvements were completed during the period.

 

On October 19, 2021, the Company borrowed $250,000 from a lender and issued a promissory note for the repayment of the amount borrowed. The promissory note is unsecured, has a maturity date of December 31, 2024 and all principal is due upon maturity. The amount borrowed accrues interest at 12% per annum and accrued interest is payable monthly commencing on December 1, 2021. The promissory note contains customary events of default permitting acceleration of repayment for nonpayment of amounts due, a bankruptcy related proceeding, breach of representations or covenants, sale of substantially all assets, and change of control.

 

Future scheduled maturities of long-term debt are as follows.

 

|       |   | **Year Ended**   |      |
|------------|--------|------------------|-----------|
|       |   | **December 31,** |      |
|       |   |             |      |
| 2022       |   | $                | 2,219,882 |   |
| 2022       |   |             | 657,621   |   |
| 2023       |   |             | 26,047    |   |
| 2024       |   |             | 509,163   |   |
| 2025       |   |             | 3,153     |   |
| Thereafter |   |             | 121,706   |   |
| Total      |   | $                | 3,537,573 |   |

 

The aggregate current portion of long-term debt as of December 31, 2021 amounted to $2,219,882, which represents the contractual principal payments due in the next 12 months period.

 

**Obligations Under Preferred Stock**

 

On June 20, 2019, existing debtholders were issued an aggregate of 500 shares of Series A Preferred Stock, each with a stated value per share of $1,000, as conversion of $500,000 worth of outstanding promissory notes. The Series A Preferred Stock bears interest at 12% per annum, and is convertible into our common stock at the election of the holder at a conversion price per share to be mutually agreed between us and the holder in the future, and be redeemable at our option following the third year after issuance, without voting rights or a liquidation preference.

 

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On June 20, 2019, we issued 3,000 shares of Series B Preferred Stock, each with a stated value of $1,000 per share, to Emerging Growth, LLC as part of the Emerging Growth Agreement. The aggregate fair value of $687,000 was recorded as part of the acquisition price of the net assets acquired from Emerging Growth, LLC. The Series B Preferred Stock bears interest at 6% per annum and is convertible into our common stock at the election of Emerging Growth, LLC at a conversion price per share to be mutually agreed between us and Emerging Growth, LLC in the future, without voting rights or a liquidation preference, except with respect to accrued penalty interest.

 

**Other outstanding obligations at December 31, 2021**

* *

*Warrants*

 

As of December 31, 2021, 312,500 shares of our common stock are issuable pursuant to the exercise of warrants.

 

*Options*

 

As of December 31, 2021, 210,667 shares of our common stock are issuable pursuant to the exercise of options.

 

**Off-Balance Sheet Arrangements**

 

We have no off-balance sheet arrangements.

 

**COVID-19**

 

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including each of the areas in which we operate. While to date we have not been required to stop operating, COVID-19 has had and is expected to continue to have an adverse effect on the financial condition of us and our customers. The outbreak of COVID-19 in the U.S. has had an unfavorable impact on our business operations. Our main customer market suffered its worst decline, decreasing our revenue. Mandatory closures of businesses imposed by the federal, state and local governments to control the spread of the virus is disrupting the operations of our management, business and finance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. economy and financial markets, which may result in a long-term economic downturn that could negatively affect future performance. We took steps to diversify our revenue model by creating our CBD ecommerce business which has higher margins during the second half of 2020 and reduce our costs. The extent to which COVID-19 will impact our business and our consolidated financial results further will depend on future developments which are highly uncertain and cannot be predicted at this time, but may result in a material adverse impact on our business, results of operations and financial condition.

 

**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. 

 

**Critical Accounting Policies **

 

*Accounts Receivable*

* *

The Company’s account receivables are due from customers relating to contracts to provide investor relation services. Collateral is currently not required. 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. The allowance for doubtful accounts as of December 31, 2021 and 2020 amounted to $337,192 and $183,750, respectively.

 

*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 June 20, 2019, the Company’s revenue is generated from the sale of promotional service packages to its 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. The services provided by the Company include advertising, publishing of interviews and articles across its network and featuring of client content on its newsletters and social media. The packages all have fixed prices that are billed monthly over the terms of the agreement in even amounts. The Company recognizes revenue for its performance obligation associated with its contracts with customers over time as work is performed, which is deemed to occur evenly throughout the duration of the contract. This also reflects the pattern in which costs are incurred on performing the contracts. To the extent revenue recognized on contracts at each period end exceeds collections, the amounts are reflected as accounts receivable. To the extent collections on contracts at each period end exceeds revenue recognized, the amounts are reflected as deferred revenue.

 

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*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. 

 

*Goodwill*

 

The Company’s goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from business acquisitions. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level. There was an impairment charge of $9,355,657 during the year ended December 31, 2021 related to the impairment of goodwill acquired from the CNP Operating Agreement.

 

*Investment*

 

On December 24, 2020, the Company acquired a 9.8% interest in the outstanding stock of a privately held company.  As the stock has no readily determinable fair value, the Company accounts for this stock received using the cost method, less adjustments for impairment.  At each reporting period, management reviews the status of the investment to determine if any indicators of impairment have occurred.  There were no impairment charges recorded related to investments during the year ended December 31, 2021 or 2020.

 

*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. There was an impairment charge of $9,355,657 during the year ended December 31, 2021 related to the impairment of marketing-related intangible assets acquired from the CNP Operating acquisition.

 

*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). As of December 31, 2021, the Company had 210,667 outstanding stock options and 311,112 outstanding warrants and 3,500 preferred stock which were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive.  As of December 31, 2020, the Company had 210,667 outstanding stock options, 350,463 outstanding warrants and 3,500 preferred stock which were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive. As a result, the basic and diluted earnings per share are the same for each of the periods presented.

 

*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.

 

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*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.

 

**Item 7A. Quantitative and Qualitative Disclosures About Market Risk.**

 

Not applicable.

 

**Item 8. Financial Statements and Supplementary Data.**

 

The information required by this item is included in Item 15 of this Annual Report on Form 10-K.

 

**Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.**

 

None.

 

**Item 9A. Controls and Procedures.**

 

**Evaluation of Disclosure Controls and Procedures** 

 

Under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer and Principal Financial Officer), we conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on this evaluation, our Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) concluded that our disclosure controls and procedures were not effective as of December 31, 2021 (the end of the period covered by this report).

 

**Management’s Annual Report on Internal Control over Financial Reporting** 

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

 

As required by Section 404 of the Sarbanes-Oxley Act of 2002 and the related rule of the SEC, management assessed the effectiveness of our internal control over financial reporting using the *Internal Control-Integrated Framework (2013)* developed by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2021. 

 

*Auditor Attestation*

 

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report. 

 

**Changes in Internal Control over Financial Reporting** 

 

During the year ended December 31, 2021, in order to remediate the segregation of duties and other deficiencies initially created by the departure of our accounting department in June 2019, we hired accounting consultants to perform our account reconciliations and other day-to-day accounting requirements. The internal control structure was also documented and assessed in the areas of financial reporting and disclosure controls as it relates to our continuing operations. In addition, we revised and improved the use of our systems for getting appropriate approvals for purchases and other activities that require authorization. However, our ability to file timely reports is heavily dependent on having the necessary financial resources to pay consultants and other service providers involved with performing key elements of our disclosure and financial reporting controls. Our current financial condition, brought on in-part by COVID-19, has temporarily hindered our ability to file timely reports for this reason which has now been remedied. As a result, we have assessed our disclosure controls and controls over financial reporting as ineffective. 

 

**Item 9B. Other Information** 

 

Given the timing of events, the following information is included in this Form 10-K pursuant to Item 1.01 “Entry into a Material Definitive Agreement” of Form 8-K in lieu of filing a Form 8-K.

 

On May 11, 2022, the Company’s subsidiary, CFN Real Estate II, LLC,  entered into a promissory note with a lender for the repayment of $500,000 in connection with the $500,000 refinancing of the Company’s property located in Wray, Colorado. The company received the proceeds from the refinancing on May 13, 2022. Accrued interest at the rate of 12% is payable monthly commencing on June 15, 2022, and the principal of the promissory note is payable upon maturity on June 15, 2024. The lender received a security interest in the property and equipment contained therein as collateral for the promissory note.  The promissory note contains customary events of default and other conditions.

 

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**PART III**

  

**Item 10. Directors, Executive Officers and Corporate Governance.**

  

The following table sets forth the names, ages and principal position of our executive officers and directors as of December 31, 2021:

  

| **Name**            | ** ** | **Age** | ** ** | **Position**                                              |
|---------------------|------------|---------|------------|-----------------------------------------------------------|
| Brian Ross          |       | 47      |       | Chairman of the Board, President, Chief Executive Officer |
| Vince Kandis        |       | 62      |       | President of CNP Operating                                |
| Spiro Kandis        |       | 57      |       | Chief Product Officer of CNP Operating                    |
| Mario Marsillo, Jr. |       | 53      |       | Director, Chief Investment Officer                        |

  

**Brian Ross.** Mr. Ross has served as our President, Chief Executive Officer and director since November 2005, and as our Chairman of the Board since March 2013. He previously served as Senior Vice President of Business Development for iMall, Inc. from 1994 and became Director of Investor Relations in June 1997. iMall, Inc. was acquired by Excite@Home in October 1999. Mr. Ross then served as a Business Development Manager in Excite@Home’s E-Business Services Group until December 1999. After the sale of iMall, Mr. Ross was a founding investor of GreatDomains Inc. which was sold in October 2000 to Verisign. Between 2000 and 2003, he was Director of Business Development for Prime Ventures Inc., a leading Venture Partner firm focusing on early stage companies in Southern California. In July 2004, Mr. Ross became a founding investor in E-force Media, a diversified online marketing company where he acted as interim Director of Business Development. Mr. Ross attended UC Santa Barbara.

 

We believe that Mr. Ross is qualified to serve as a director for the following reasons: Mr. Ross, who is one of our founders, is an Internet industry veteran with over two decades of experience. He has been our Chief Executive Officer for more than ten years and he has a proven track record with the aforementioned companies, which were all operating in online marketing solutions and e-commerce. Additionally, Mr. Ross has played an important role in the development and growth of various Internet companies, taking them from start-up companies through the various stages of their growth cycle.

 

**Vince Kandis.** Mr. Kandis has served as President of CNP Operating since August 2021 and was President of CNP Operating prior to the acquisition by the Company. Before its merging with CNP Operating in 2019, Mr. Kandis was the President of Sidnak Solutions, a fully integrated CBD company, from January 2017. Until November 2019, Mr. Kandis was a veteran senior executive of Spectrum Distribution & Marketing, having over 30 years of experience in direct response marketing. Mr. Kandis and Spectrum are best known for the inspiration behind Hydroderm, Vyotech Sports Nutrition, the Hollywood Diet, Celebrity diet and many more. Mr. Kandis studied business marketing at Brigham Young University.

 

**Spiro Kandis**, Mr. Kandis has served as Chief Product Officer of CNP Operating since August 2021 and was Chief Product Officer of CNP Operating prior to the acquisition by the Company. Before its merging with CNP Operating in 2019, Mr. Kandis was the CEO of Sidnak Solutions, a fully integrated CBD company, from January 2017. Until November 2019, Mr. Kandis was the primary spokesperson for Experimental Applied Sciences (EAS), the largest sports nutrition company in the world at the time. Mr. Kandis has been involved in sports nutrition and direct response marketing for over 30 years and is best known for his involvement and creation of Hydroderm, Vyotech Sports Nutrition Vitalatrim and many more. Mr. Kandis studied sports medicine at Colorado State University.

 

Mario Marsillo Jr. Mr. Marsillo has been a director since April 2014 our Director of Corp Development since August 1, 2019 until August 2021, and our Chief Investment Officer since August 2021. Mr. Marsillo was until June 30, 2019 the Managing Director of Private Equity for Network 1 Financial Securities Inc., or Network 1, a New Jersey based FINRA member firm offering a wide array of investment banking services and has been with Network 1 since 2010. Prior to his association with Network 1, Mr. Marsillo acquired Skyebanc, Inc., a registered broker dealer, with a specialty towards private equity, and served as its Vice President of Private Equity and Business Development. Mr. Marsillo currently holds the Series 7, 63 79, and 24 FINRA qualifying examinations. Mr. Marsillo attended the City University of New York.

 

We believe Mr. Marsillo is qualified to serve as a director because Mr. Marsillo is a sophisticated businessman with investment banking and private equity experience, was an early investor in us and has previously assisted us in raising capital.

 

|                |
|---------------------|
| 22                  |
|                     |
| *Table of Contents* |

 

**Code of Ethics**

 

We have adopted a Code of Business Conduct Ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We will provide a copy of our Code of Ethics, free of charge, upon request.

 

**Committees of the Board of Directors**

 

Our Board of Directors has not yet established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee. The typical functions of such committees are currently being undertaken by our Board of Directors.

 

**Audit Committee Financial Expert**

 

Currently no member of our Board of Directors is an audit committee financial expert.

 

**Item 11.****Executive Compensation.**

 

The following table sets forth, for the last two completed fiscal years, all compensation paid, distributed or accrued for services rendered to us by (i) all individuals serving as our principal executive officer or acting in a similar capacity during the last completed fiscal year, regardless of compensation level; and (ii) our two most highly compensated executive officers, other than the principal executive officer, who were serving as executive officers at the end of the last completed fiscal year and whose total compensation exceeded $100,000:

  

**Summary Compensation Table**

    

| **Name and Principal Position**                      | ** ** | **Year** | ** ** | **Salary ($)** | ** ** | ** ** | **Bonus ($)** | ** ** | ** ** | **Stock Awards** | ** ** | ** ** | **Option Awards ($)** | ** ** | ** ** | **Non-Equity Incentive Plan Compensation ($)** | ** ** | ** ** | **Non-Qualified Deferred Compensation Earnings** | ** ** | ** ** | **All Other Compensation ($) (1)** | ** ** | ** ** | **Total ($)** |   |
|------------------------------------------------------|------------|----------|------------|----------------|------------|------------|---------------|------------|------------|------------------|------------|------------|-----------------------|------------|------------|------------------------------------------------|------------|------------|--------------------------------------------------|------------|------------|------------------------------------|------------|------------|---------------|--------|
| Brian Ross,                                          |       | 2021     |       |           | -          |       |          |       | -          |             |       |       | -                     |       |       |                                           | -          |       |                                             |       | -          |                               |       |       | -             |   |   |   |   |   |   |   |
| Chief Executive Officer                              |       | 2020     |       |           | 338,215    | (2)        |          |       | -          |             |       |       | -                     |       |       |                                           | -          |       |                                             |       | -          |                               |       |       | -             |   |   |   | 20,525 |   |   |   | 355,529 |   |
|                                                 |       |     |       |           |       |       |          |       |       |             |       |       |                  |       |       |                                           |       |       |                                             |       |       |                               |       |       |          |   |   |   |   |   |   |   |   |   |
| Vince Kandis, President of CNP Operating             |       |     |       |           |       |       |          |       |       |             |       |       |                  |       |       |                                           |       |       |                                             |       |       |                               |       |       |          |   |   |   |   |   |   |   |   |   |
|                                                 |       |     |       |           |       |       |          |       |       |             |       |       |                  |       |       |                                           |       |       |                                             |       |       |                               |       |       |          |   |   |   |   |   |   |   |   |   |
| Spiro Kandis, Chief Product Officer of CNP Operating |       |     |       |           |       |       |          |       | -          |             |       |       | -                     |       |       |                                           | -          |       |                                             |       | -          |                               |       |       | -             |   |   |   |   |   |   |   |   |   |
|                                                 |       |     |       |           |       |       |          |       | -          |             |       |       | -                     |       |       |                                           | -          |       |                                             |       | -          |                               |       |       | -             |   |   |   | - |   |   |   | - |   |

 

|   | (1) | Includes health-related insurance paid by us on behalf of the officer. |
|--------|-----|------------------------------------------------------------------------|
|   | (2) | Excludes $95,089 in deferred compensation paid in 2019.                |
|   | (3) | Damon Stein resigned from the Company on January 2, 2020               |

 

If we elect to terminate the employment of any of the officers listed above without cause during the term of his respective employment agreement as described below, each shall be entitled to a severance payment of the greater of the remaining payments due on the term of the agreement or an annual base salary of one year, and all unvested options, bonuses and other compensation shall vest on the date of termination. 

 

|                |
|---------------------|
| 23                  |
|                     |
| *Table of Contents* |

 

**Employment Agreements**

 

We have written employment agreements with all of our employees. The main terms of the executive employment agreements of Brian Ross, our Chairman of the Board, President and Chief Executive Officer, Vince Kandis, President of CNP Operating, and Spiro Kandis, Chief Product Officer of CNP Operating, are summarized below.

 

On August 25, 2021, the Company entered into new employment agreements with Brian Ross, Vince Kandis, and Spiro Kandis, (the “Employment Agreements”), each effective until December 31, 2026.  Under the Employment Agreements, Brian Ross, Vince Kandis and Spiro Kandis will each be paid an annual base salary of $300,000. Each officer is entitled to an annual raise of three percent and additional annual raises and bonuses at the discretion of the Company’s Board of Directors, such bonuses not to exceed 100% of each officer’s annual base salary. Each officer is also entitled to other benefits including reimbursement for reasonable business expenses and payment towards health insurance premiums. Each Employment Agreement contains customary confidentiality and assignment of work product provisions and may be terminated by the Company without cause upon 30-days prior written notice. If the Company elects to terminate an Employment Agreement without cause during the term, such officer shall be entitled to a severance payment of the greater of the remaining payments under the Employment Agreement or an annual base salary of one year.  If terminated by the officer or for cause, the officer is entitled to amounts accrued through the date of termination.

 

*Pension, Retirement or Similar Benefit Plans*

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive stock options at the discretion of our Board in the future.

 

**Outstanding Equity Awards at Fiscal Year-End**

 

The following table presents the outstanding equity awards held as of December 31, 2021 by our Executive Officers.

 

| **Name**   |   | **Number of Securities Underlying**

** Unexercised Options (#) Exercisable** |    |   | **Number of Securities Underlying**

** Unexercised Options (#)**

** Unexercisable** |   |   | **Option Exercise**

** Price ($)** |   |   | **Option**

** Expiration Date** |   |
|------------|--------|------------------------------------------------------------------------------------|---------|--------|-------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------|--------|--------|---------------------------------------|--------|
| Brian Ross |   |                                                                               | 206,667 |   |                                                                                            |   | -      |                                     |   |   | 0.31                                  |   |   | 5/24/22 |   |

 

**Director Compensation **

** **

There was no separate director’s compensation paid during the year ended December 31, 2021. Mr. Ross and Mr. Marsillo, Jr. are compensated as our officers.

 

**Item 12.****Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.**

 

As of December 31, 2021, we had 31,680,966 shares of our Common Stock issued and outstanding. The following, table sets forth information regarding the beneficial ownership of our Common Stock as of May 13, 2022 by:

 

| ● | each person known by us to be the beneficial owner of more than 5% of our Common Stock; |
|---------|-----------------------------------------------------------------------------------------|

   

| ● | our directors;                                                                  |
|---------|---------------------------------------------------------------------------------|
|    |                                                                            |
| ● | each of our executive officers named in the compensation tables in Item 11; and |
|    |                                                                            |
| ● | all of our executive officers and directors as a group.                         |

 

|                                                          |   | **Common Stock** |      |
|---------------------------------------------------------------|--------|------------------|-----------|
| Name                                                          |   | **# of Shares**  |      |   | **% of Class** |   |
| Brian Ross (1)                                                |   |             | 724,000   |   |   |   | 2.2 | % |
| Mario Marsillo Jr. (2)                                        |   |             | 91,982    |   |   |   | 0.0 | % |
| Anthony Zingarelli                                            |   |             | 5,015,000 |   |   |   | 15.8  | % |
| Isaac Shehebar                                                |   |             | 8,047,600 |   |   |   | 25.4  | % |
| Spiro Kandis                                                  |   |             | 2,832,000 |   |   |   | 8.9 | % |
| Vincent Kandis                                                |   |             | 1,888,000 |   |   |   | 5.9 | % |
| Emerging Growth LLC (4)                                       |   |             | 2,436,667 |   |   |   | 7.6 | % |
| All current officers and directors as a group (3 persons) (5) |   |             | 7,972,649 |   |   |   | 59.9 | % |

  

|   | (1) | Includes 206,667 options held by Mr. Ross and 1,000 warrants vested held by Mr. Ross’ spouse and that will vest within the next 60 days. Mr. Ross disclaims beneficial ownership of the 1,000 warrants vested except to the extent of his pecuniary interest therein. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2) | Includes 4,000 options vested and that will vest within the next 60 days.                                                                                                                                                                                                   |
|   | (4) | Affiliate with a greater than 10% ownership.                                                                                                                                                                                                                                |
|   | (5) | Includes 210,667 options and 1,000 warrants vested and that will vest within the next 60 days.                                                                                                                                                                              |

 

*Securities authorized for issuance under equity compensation plans.* 

 

The table below provides information regarding all compensation plans as of the end of the most recently completed fiscal year (including individual compensation arrangements) under which equity securities of the registrant are authorized for issuance. Our stock option plan, or the Plan, was adopted effective as of December 15, 2006 and options may be granted under the Plan through December 14, 2016; the Plan is now expired. The Plan was amended effective as of May 17, 2006, May 5, 2011, and May 27, 2012 to increase the number of shares available under the Plan for non-qualified stock options from 4,300,000 to 22,500,000. The Plan was amended effective May 24, 2012 to increase the number of options that may be granted in any year to any optionee from 2,000,000 to 4,000,000 shares. The Plan permitted the grant of both incentive stock options (if our shareholders approve the plan) and non-qualified stock options. In addition, in 2014, we issued warrants to purchase up to an aggregate of 5,050,000 shares of our Common Stock to certain of our executive officers as individual compensation arrangements.

 

|                |
|---------------------|
| 24                  |
|                     |
| *Table of Contents* |

 

| **Equity Compensation Plan Information**                   |
|------------------------------------------------------------|
| **Plan Category**                                          |   | **Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)** |   |   | **Weighted-average price of outstanding options, warrants and rights (b)** |   |   | **Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)** |   |
| Equity compensation plans approved by security holders     |   |   | n/a |   |   |   | n/a |   |   |   | n/a |   |
| Equity compensation plans not approved by security holders |   |   | 8,416,944 |   |   | $ | 0.33 |   |   |   | - |   |
| Total                                                      |   |   | 8,416,944 |   |   | $ | 0.33 |   |   |   | - |   |

 

**Item 13.****Certain Relationships and Related Party Transactions, and Director Independence.**

 

**Related Person Transactions**

 

None.

 

**Director Independence**

 

As our Common Stock is currently quoted on the OTCQB Marketplace, we are not subject to the rules of any national securities exchange which require that a majority of a listed company’s directors and specified committees of the Board of Directors meet independence standards prescribed by such rules. We believe that none of our directors would qualify as “independent” if we were subject to the rules of the Nasdaq Stock Market.

 

**Item 14. Principal Accountant Fees and Services**

 

The following table summarizes the fees of RBSM LLP, our independent registered public accounting firm billed for each of the last two fiscal years for audit services and other services:

 

| **Fee Category** |   | **2021** |    |   | **2020** |   |
|------------------|--------|----------|---------|--------|----------|--------|
|             |   |     |    |   |     |   |
| Audit Fees (1)   |   | $        | 135,000 |   |     | $      | 81,000 |   |
| Tax Fees (2)     |   |     | 15,000  |   |     |   | 10,000 |   |
|             |   |     |    |   |     |   |   |   |
| Total Fees       |   | $        | 150,000 |   |     | $      | 91,000 |   |

  

(1) Consists of fees billed for professional services rendered in connection with the audit of our annual financial statements, review of our Form 10-K, review of our interim financial statements included in our Form 10-Q and services that are normally provided by our independent registered public accounting firm in connection with year-end statutory and regulatory filings or engagements.

 

(2) Consists of fees billed for professional services for our tax compliance, tax advice and tax planning.

 

We do not have an Audit Committee. Our Board of Directors pre-approves all auditing services and permissible non-audit services provided to us by our independent registered public accounting firm. All fees listed above were pre-approved in accordance with this policy. 

 

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| *Table of Contents* |

 

**PART IV**

 

**Item 15. Exhibits and Financial Statement Schedules**

 

| a. | Index to Financial Statements and Financial Statement Schedules |
|----|-----------------------------------------------------------------|

 

|                                                                                                             | Page       |
|------------------------------------------------------------------------------------------------------------------|------------|
| Report of Independent Registered Public Accounting Firm                                                          | F-2        |
| Consolidated Balance Sheets as of December 31, 2021 and 2020                                                     | F-4        |
| Consolidated Statements of Operations for the years ended December 31, 2021 and 2020                             | F-5        |
| Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020                     | F-6        |
| Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2021 and 2020 | F-7        |
| Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020                             | F-8        |
| Notes to Consolidated Financial Statements                                                                       | F-9 - F-22 |

 

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.

 

| b. | Exhibits |
|----|----------|

 

| **EXHIBIT**
**NO.** |  

  | **DESCRIPTION**                                                                                                                                                                                             |
|---------------------|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                     |      |                                                                                                                                                                                                   |
| 2.1                 |           | Asset Purchase Agreement, dated May 15, 2019, by and between Accelerize Inc. and CAKE Software Inc. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 20, 2019). |
|                     |           |                                                                                                                                                                                                        |
| 3.1**               |           | Composite Copy of Certificate of Incorporation, as amended as of October 10, 2014, February 4, 2019, October 22, 2019, and December 6, 2021.                                                                |
|                     |      |                                                                                                                                                                                                   |
| 3.2                 |           | Certificate of Designation of 10% Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).    |
|                     |           |                                                                                                                                                                                                        |
| 3.3                 |           | Certificate of Designation of 8% Series B Convertible Preferred Stock (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB filed on August 13, 2007).          |
|                     |      |                                                                                                                                                                                                   |
| 3.4                 |           | By-laws of the Company (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).                                                                   |
|                     |      |                                                                                                                                                                                                   |
| 3.5                 |           | Certificate of Amendment to the Certificate of Designation of 8% Series B Convertible Preferred Stock (incorporated by reference to the Company's Annual Report on Form 10-K filed on March 29, 2012).      |
|                     |           |                                                                                                                                                                                                        |
| 3.6                 |           | Certificate of Designation of Series A Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K filed on June 21, 2019).                                                |
|                     |           |                                                                                                                                                                                                        |
| 3.7                 |           | Certificate of Designation of Series B Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K filed on June 21, 2019).                                                |
|                     |      |                                                                                                                                                                                                   |
| 4.1                 |           | Form of Common Stock Certificate (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).                                                         |
|                     |      |                                                                                                                                                                                                   |
| 4.2                 |           | Form of Warrant to Purchase Stock issued on June 30, 2016 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2016).                                         |
|                     |      |                                                                                                                                                                                                   |
| 4.3                 |           | Form of Warrant to Purchase Stock issued November 29, 2016 (incorporated by reference to the Company’s Current Report on Form 8-K filed on November 30, 2016).                                   |
|                     |           |                                                                                                                                                                                                        |
| 4.4                 |           | Form of Warrant to Purchase Stock issued on August 14, 2017 (incorporated by reference to the Company’s Current Report on Form 8-K filed on August 16, 2017).                                         |
|                |           |                                                                                                                                                                                                        |
| 4.5                 |           | Form of Warrant to Purchase Stock issued on September 12, 2019 (incorporated by reference to the Company’s Current Report on Form 8-K filed on September 18, 2019).                                   |
|                |           |                                                                                                                                                                                                        |
|                |           | [Add recent warrants issued]                                                                                                                                                                                |
|                |           |                                                                                                                                                                                                        |
| 10.1*               |           | Employment Agreement, dated August 25, 2021 between CFN Enterprises Inc. and Brian Ross (incorporated by reference to the Company's Current Report on Form 8-K filed on August 31, 2022).              |

  

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| 10.2*        |   | Employment Agreement, dated August 25, 2021 between CFN Enterprises Inc. and Vince Kandis (incorporated by reference to the Company's Current Report on Form 8-K filed on August 31, 2022).                                                                                                                                                         |
|--------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.3*        |   | Employment Agreement, dated August 25, 2021 between CFN Enterprises Inc. and Spiro Kandis (incorporated by reference to the Company's Current Report on Form 8-K filed on August 31, 2022).                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                           |
| 10.4*        |   | Employment Agreement, dated August 25, 2021 between CFN Enterprises Inc. and Mario Marsillo, Jr. (incorporated by reference to the Company's Current Report on Form 8-K filed on August 31, 2022).                                                                                                                                                  |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.5*        |   | Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).                                                                                                                                                                                     |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.6*        |   | Form of Stock Option Agreement (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on December 22, 2006).                                                                                                                                                                                                   |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.7*        |   | Amendment No. 1 to Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on May 10, 2011).                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.8*        |   | Amendment No. 2 to Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on May 10, 2011).                                                                                                                                                                                   |
|         |   |                                                                                                                                                                                                                                                                                                                                           |
| 10.9*        |   | Amendment No. 3 to Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company's Annual Report on Form 10-K filed on March 29, 2012).                                                                                                                                                                                    |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.10*       |   | Amendment No. 4 to Accelerize New Media, Inc. Stock Option Plan (incorporated by reference to the Company's Current Report on Form 8-K filed on May 29, 2012).                                                                                                                                                                                 |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.11*       |   | Form of Stock Option Agreement (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2015).                                                                                                                                                                                                              |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.12*       |   | Form of Stock Option Agreement (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2015).                                                                                                                                                                                                              |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.13*       |   | Form of Restricted Stock Agreement entered into on July 1, 2016 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2016).                                                                                                                                                                         |
|              |   |                                                                                                                                                                                                                                                                                                                                           |
| 10.14*       |   | Form of Restricted Stock Agreement entered into on July 1, 2017 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2017).                                                                                                                                                                        |
|              |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.15*       |   | Form of Restricted Stock Agreement entered into on July 1, 2018 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2018).                                                                                                                                                                        |
|              |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.16        |   | Form of Promissory Note issued on September 12, 2019 (incorporated by reference to the Company’s current report on Form 8-K filed on September 18, 2019).                                                                                                                                                                                     |
|              |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.17        |   | Form of Promissory Note issued on May 6, 2020 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on June 15, 2020).                                                                                                                                                                                                 |
|              |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.18        |   | Loan Authorization and Agreement between the U.S. Small Business Administration and CFN Enterprises Inc., dated June 24, 2020, and forms of related Promissory Note and Security Agreement issued by CFN Enterprises Inc. on June 24, 2020 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on June 30, 2020). |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.19        |   | Form of Commercial Lease Agreement dated August 5, 2020 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 10, 2020).                                                                                                                                                                                  |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.20        |   | Form of Promissory Note issued on February 8, 2021 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 31, 2021).                                                                                                                                                                                           |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.21        |   | Lease Agreement dated March 30, 2021 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 31, 2021).                                                                                                                                                                                                         |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.22        |   | Form of Promissory Note issued on October 19, 2021 (incorporated by reference to the Company’s Current Report on Form 10-Q filed on October 22, 2021).                                                                                                                                                                                        |
|         |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.23        |   | Lease Agreement (with option to purchase) dated December 9, 2021 (incorporated by reference to the Company’s Current Report on Form 8-K filed on December 9, 2021).                                                                                                                                                                           |

   

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| 10.24** |   | Form of Promissory Note issued on April 8, 2022.                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.25** |   | Purchase and Sale Agreement with Kind Roots Botanicals, LLC, dated April 15, 2022.                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.26** |   | Form of Promissory Note entered on May 11, 2022                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 23.1**  |   | Consent of RBSM LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 31.1**  |   | Rule 13a-14(a) Certification.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 32.1*** |   | Certification pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 101.1** |   | The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Changes in Stockholders’ Deficit, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements. |

  

* Management contract or compensatory plan or arrangement. 

** Filed herewith.

*** Furnished herewith.

 

**Item 16.****Form 10-K Summary.**

 

None. 

 

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| 28                  |
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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

| **CFN ENTERPRISES INC.**              |           |   |
|---------------------------------------|----------------|--------|
|                                  |           |   |
| By:                                   | /s/ Brian Ross |   |   |
| Brian Ross                            |           |   |
| President and Chief Executive Officer |           |   |

 

Date: May 13, 2022

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

| **SIGNATURE**              | ** ** | **TITLE**                                                                                    | ** ** | **DATE**     |
|----------------------------|------------|----------------------------------------------------------------------------------------------|------------|--------------|
|                       |       |                                                                                         |       |         |
| By: /s/ Brian Ross         |       | Chairman of the Board, President and Chief Executive Officer                                 |       | May 13, 2022 |
| Brian Ross                 |       | (Principal executive officer, principal financial officer and

principal accounting officer) |       |         |
|                       |       |                                                                                         |       |         |
| By: /s/ Mario Marsillo Jr. |       | Director                                                                                     |       | May 13, 2022 |
| Mario Marsillo Jr.         |       |                                                                                         |       |         |

 

|                |
|---------------------|
| 29                  |
|                     |
| *Table of Contents* |

 

**CFN ENTERPRISES INC.** 

 

**FINANCIAL STATEMENTS**

 

**AS OF DECEMBER 31, 2021 and 2020**

          

Index to Financial Statements and Financial Statement Schedules

 

The following consolidated financial statements and financial statement schedules are included on the pages indicated:

 

|                                                                                                             | Page       |
|------------------------------------------------------------------------------------------------------------------|------------|
| Report of Independent Registered Public Accounting Firm                                                          | F-2        |
| Consolidated Balance Sheets as of December 31, 2021 and 2020                                                     | F-4        |
| Consolidated Statements of Operations for the years ended December 31, 2021 and 2020                             | F-5        |
| Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020                     | F-6        |
| Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2021 and 2020 | F-7        |
| Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020                             | F-8        |
| Notes to Consolidated Financial Statements                                                                       | F-9 - F-22 |

 

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|---------------------|
| F-1                 |
|                     |
| *Table of Contents* |

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

 

Stockholders of CFN Enterprises, Inc.

 

**Opinion on the Financial Statements**

 

We have audited the accompanying balance sheets of CFN Enterprises, Inc. and Subsidiary (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

**The Company’s Ability to Continue as a Going Concern**

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and will require additional capital to continue as a going concern. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The consolidated 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 outcome of this uncertainty.

 

**Basis for Opinion**

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

 

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|---------------------|
| F-2                 |
|                     |
| *Table of Contents* |

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

**Critical Audit Matters**

 

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.

 

| */s/ RBSM LLP*                                            |   |   |
|-----------------------------------------------------------|--------|--------|
|                                                      |   |   |   |
| We have served as the Company’s auditor since 2012. |   |   |
|                                                      |   |   |   |
| New York, NY                                              |   |   |
| Dated: May 13, 2022

PCAOB ID: 587                        |   |   |   |

 

 

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|---------------------|
| F-3                 |
|                     |
| *Table of Contents* |

 

**CFN ENTERPSISES INC.**

CONSOLIDATED BALANCE SHEETS

  

|                                                                                                                                                                 |   | **December 31,** |        |   | **December 31,** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|-------------|--------|------------------|------------|
|                                                                                                                                                                 |   | **2021**         |        |   | **2020**         |       |
|                                                                                                                                                                 |   |                  |        |   |                  |       |
| **Assets**                                                                                                                                                           |   |
|                                                                                                                                                                 |   |             |        |   |             |       |
| Current assets                                                                                                                                                       |   |             |        |   |             |       |
| Cash                                                                                                                                                                 |   | $                | 170,015     |   |             | $          | 160,115 |   |
| Restricted cash                                                                                                                                                      |   |             | 20,014      |   |             |       | 20,000 |   |
| Accounts receivable, net                                                                                                                                             |   |             | 142,271     |   |             |       | 9,000 |   |
| Inventory                                                                                                                                                            |   |             | 157,706     |   |             |       | 39,017 |   |
| Marketable Securities                                                                                                                                                |   |             | 46,516      |   |             |       | - |   |
| Prepaid expenses and other current assets                                                                                                                            |   |             | 115,000     |   |             |       | 14,500 |   |
| Total current assets                                                                                                                                                 |   |             | 651,522     |   |             |       | 242,632 |   |
|                                                                                                                                                                 |   |             |        |   |             |       |   |   |
| Other assets                                                                                                                                                         |   |             |        |   |             |       |   |   |
| Investment                                                                                                                                                           |   |             | 200,000     |   |             |       | 200,000 |   |
| Right of Use Asset                                                                                                                                                   |   |             | 663,575     |   |             |       |   |   |
| Other Assets                                                                                                                                                         |   |             | 42,131      |   |             |       |   |   |
| Property and equipment                                                                                                                                               |   |             | 5,135,996   |   |             |       | 7,845 |   |
| Total other assets                                                                                                                                                   |   |             | 6,041,702   |   |             |       | 207,845 |   |
| Total assets                                                                                                                                                         |   | $                | 6,693,224   |   |             | $          | 450,477 |   |
|                                                                                                                                                                 |   |             |        |   |             |       |   |   |
| **Liabilities and Stockholders' Deficit**                                                                                                                            |
|                                                                                                                                                                 |   |             |        |   |             |       |   |   |
| Current liabilities                                                                                                                                                  |   |             |        |   |             |       |   |   |
| Accounts payable and accrued expenses                                                                                                                                |   | $                | 1,997,039   |   |             | $          | 396,316 |   |
| Accrued Liabilities                                                                                                                                                  |   |             | 1,675,230   |   |             |       | 550,530 |   |
| Payments in advance of securities sale                                                                                                                               |   |             | 590,020     |   |             |       |   |   |
| Due to related party                                                                                                                                                 |   |             | 495,264     |   |             |       |   |   |
| Deferred revenues                                                                                                                                                    |   |             | 39,824      |   |             |       | 25,815 |   |
| Current portion of notes payable                                                                                                                                     |   |             | 2,219,882   |   |             |       | 188,249 |   |
| Current portion of right of use liability                                                                                                                            |   |             | 198,869     |   |             |       |   |   |
| Current liabilities of discontinued operations                                                                                                                       |   |             | 79,823      |   |             |       | 79,823 |   |
| Total current liabilities                                                                                                                                            |   |             | 7,295,951   |   |             |       | 1,240,733 |   |
| Right of Use Liability                                                                                                                                               |   |             | 475,325     |   |             |       |   |   |
| Long-term note payable, net of current portion and discounts                                                                                                         |   |             | 1,317,691   |   |             |       | 714,812 |   |
| Total liabilities                                                                                                                                                    |   |             | 9,088,967   |   |             |       | 1,955,545 |   |
|                                                                                                                                                                 |   |             |        |   |             |       |   |   |
| Commitments and contingencies                                                                                                                                        |   |             |        |   |             |       |   |   |
|                                                                                                                                                                 |   |             |        |   |             |       |   |   |
| Stockholders' deficit                                                                                                                                                |   |             |        |   |             |       |   |   |
| Series A Preferred stock, $0.001 par value, 500 shares authorized, 500 shares issued and outstanding as of December 31, 2021 and 2020                                |   |             | 1           |   |             |       | 1 |   |
| Series B Preferred stock, $0.001 par value, 3,000 shares authorized, 3,000 shares issued and outstanding as of December 31, 2021 and 2020                            |   |             | 3           |   |             |       | 3 |   |
| Common stock, $0.001 par value, 500,000,000 shares authorized, 31,679,481 and 6,986,147 shares issued and outstanding as of December 31, 2021 and 2020, respectively |   |             | 31,679      |   |             |       | 6,986 |   |
| Common stock issuable                                                                                                                                                |   |             | -           |   |             |       | 492,500 |   |
| Additional paid-in capital                                                                                                                                           |   |             | 46,399,451  |   |             |       | 34,379,644 |   |
| Accumulated deficit                                                                                                                                                  |   |             | (48,833,880 | )      |             |       | (36,384,202 | ) |
| Accumulated other comprehensive income                                                                                                                               |   |             | -           |   |             |       | - |   |
| Total stockholders' deficit                                                                                                                                          |   |             | (2,402,746  | )      |             |       | (1,505,068 | ) |
| Non-controlling interest                                                                                                                                             |   |             | 7,003       |   |             |       | - |   |
| Total stockholders’ deficit                                                                                                                                    |   |             | (2,395,743  | )      |             | (1,505,068 | )  |
| Total liabilities and stockholders' deficit                                                                                                                          |   | $                | 6,693,224   |   |             | $          | 450,477 |   |
|                                                                                                                                                                 |   |             |        |   |             |       |   |   |
| See accompanying notes to consolidated financial statements                                                                                                          |

    

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| F-4                 |
|                     |
| *Table of Contents* |

 

**CFN ENTERPRISES INC.**

CONSOLIDATED STATEMENTS OF OPERATIONS

 

|                                                               |   | **For the Year Ended** |        |
|--------------------------------------------------------------------|--------|------------------------|-------------|
|                                                               |   | **December 31,**       |        |   | **December 31,** |   |
|                                                               |   | **2021**               |        |   | **2020** |   |
|                                                               |   |                   |        |   |   |   |
| Net revenues                                                       |   | $                      | 3,157,783   |   |   | $ | 506,490 |   |
| Cost of revenue                                                    |   |                   | 3,539,636   |   |   |   | 536,738 |   |
| Gross loss                                                         |   |                   | (381,853    | ) |   |   | (30,248 | ) |
|                                                               |   |                   |        |   |   |   |   |   |
| Operating expenses:                                                |   |                   |        |   |   |   |   |   |
| Impairment charge                                                  |   |                   | 9,355,657   |   |   |   | - |   |
| Selling, general and administrative                                |   |                   | 2,691,258   |   |   |   | 1,199,410 |   |
| Total operating expenses                                           |   |                   | 12,046,915  |   |   |   | 1,199,410 |   |
|                                                               |   |                   |        |   |   |   |   |   |
| Loss from operations                                               |   |                   | (12,428,768 | ) |   |   | (1,229,658 | ) |
|                                                               |   |                   |        |   |   |   |   |   |
| Other income (expense):                                            |   |                   |        |   |   |   |   |   |
| Loss on extinguishment of debt                                     |   |                   | (172,500    | ) |   |   | (71,377 | ) |
| Other income                                                       |   |                   | -           |   |   |   | 10,000 |   |
| Unrealized loss on marketable securities                           |   |                   | (45,658     | ) |   |   |   |   |
| SBA PPP loan forgiveness                                           |   |                   | 526,000     |   |   |   |   |   |
| Interest expense                                                   |   |                   | (93,170     | ) |   |   | (51,615 | ) |
| Interest income                                                    |   |                   | 10,011      |   |   |   | 19 |   |
| Total other income (expense)                                       |   |                   | 224,683     |  |   |   | (112,973 | ) |
|                                                               |   |                   |        |   |   |   |   |   |
| Net loss before provision for income taxes                         |   |                   | (12,204,085 | ) |   |   | (1,342,631 | ) |
| Provision for income taxes                                         |   |                   | -           |   |   |   | - |   |
| Net loss from continuing operations                                |   |                   | (12,204,085 | ) |   |   | (1,342,631 | ) |
| Loss from discontinued operations, net of tax                      |   |                   | -           |   |   |   | (80,422 | ) |
| Net loss                                                           |   | $                      | (12,204,085 | ) |   | $ | (1,423,053 | ) |
| Preferred stock interest                                           |   |                   | 240,000     |   |   |   | 240,000 |   |
| Net loss available to common shareholders                          |   | $                      | (12,444,085 | ) |   | $ | (1,663,053 | ) |
| Net loss attributable to non-controlling interest                  |   |                   | (5,593      | ) |   |   |   |   |
| Net loss available to common shareholders                          |   | $                      | (12,449,678 | ) |   | $ | (1,663,053 | ) |
| Net loss from continuing operations per share, basic and diluted   |   | $                      | (0.77       | ) |   | $ | (0.24 | ) |
|                                                               |   |                   |        |   |   |   |   |   |
| Net loss from discontinued operations per share, basic and diluted |   | $                      | (0.00       | ) |   | $ | (0.01 | ) |
|                                                               |   |                   |        |   |   |   |   |   |
| Net loss per share, basic and diluted                              |   | $                      | (0.77       | ) |   | $ | (0.25 | ) |
|                                                               |   |                   |        |   |   |   |   |   |
| Weighted average number of common                                  |   |                   |        |   |   |   |   |   |
| shares outstanding, basic and diluted                              |   |                   | 16,227,143  |   |   |   | 6,784,028 |   |
|                                                               |   |                   |        |   |   |   |   |   |
| See accompanying notes to consolidated financial statements        |

    

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| F-5                 |
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| *Table of Contents* |

 

**CFN ENTERPRISES INC.**

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 

  

|                                                        |   | **For the Year Ended** |        |
|-------------------------------------------------------------|--------|------------------------|-------------|
|                                                        |   | **December 31,**       |        |   | **December 31,** |   |
|                                                        |   | **2021**               |        |   | **2020** |   |
|                                                        |   |                   |        |   |   |   |
| Net loss                                                    |   | $                      | (12,449,678 | ) |   | $ | (1,591,676 | ) |
| Other comprehensive loss, net of tax:                       |   |                   |        |   |   |   |   |   |
| Foreign currency translation adjustments                    |   |                   | -           |   |   |   | (456 | ) |
| Total other comprehensive loss, net of tax                  |   |                   | -           |   |   |   | (456 | ) |
| Comprehensive loss                                          |   | $                      | (12,449,678 | ) |   | $ | (1,592,132 | ) |
|                                                        |   |                   |        |   |   |   |   |   |
| See accompanying notes to consolidated financial statements |

 

  

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| F-6                 |
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| *Table of Contents* |

 

**CFN ENTERPRISES INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT**

  

 

|                                                              |   | **Series A Preferred Stock** |   |   | **Series B Preferred Stock** |   |   | **Common Stock** |   |   | **Common Stock** |   |   | **Additional Paid-in** |   |   | **Accumulated** |   |       | **Non-controlling** |   |   | **Accumulated Other Comprehensive** |   |   |             |     |
|-------------------------------------------------------------------|--------|------------------------------|--------|--------|------------------------------|--------|--------|------------------|--------|--------|------------------|--------|--------|------------------------|--------|--------|-----------------|--------|------------|---------------------|--------|--------|-------------------------------------|--------|--------|-------------|----------|
|                                                              |   | **Shares**                   |   |   | **Amount**                   |   |   | **Shares**       |   |   | **Amount**       |   |   | **Shares**             |   |   | **Amount**      |   |       | **Issuable**        |   |   | **Capital**                         |   |   | **Deficit** |     |   | **Interest** |   |   | **Income** |   |   | **Total** |   |
|                                                              |   |                         |   |   |                         |   |   |             |   |   |             |   |   |                   |   |   |            |   |       |                |   |   |                                |   |   |        |     |   |   |   |   |   |   |   |   |   |
| **Balance, December 31, 2019**                                    |   |                         | 500    |   |                         | $      | 1      |             |   |   | 3,000            |   |   | $                      | 3      |   |            |   | 6,645,314  |                |   | $      | 6,645                               |   |   | $           | -        |   |   | $ | 34,124,360 |   |   | $ | (34,721,149 | ) |   | $ | - |   |   | $ | (83,473 | ) |   | $ | (673,613 | ) |
|                                                              |   |                         |   |   |                         |   |   |             |   |   |             |   |   |                   |   |   |            |   |       |                |   |   |                                |   |   |        |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Share based compensation                                          |   |                         | -      |   |                         |   | -      |             |   |   | -                |   |   |                   | -      |   |            |   | 20,833     |                |   |   | 21                                  |   |   |        | -        |   |   |   | 15,604 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 15,625 |   |
|                                                              |   |                         |   |   |                         |   |   |             |   |   |             |   |   |                   |   |   |            |   |       |                |   |   |                                |   |   | $           | 492,500  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 492,500 |   |
| Shares issued as payment of accounts payable and accrued interest |   |                         |   |   |                         |   |   |             |   |   |             |   |   |                   |   |   |            |   | 320,000    |                |   |   | 320                                 |   |   |        |     |   |   |   | 239,680 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 240,000 |   |
| Preferred stock interest                                          |   |                         | -      |   |                         |   | -      |             |   |   | -                |   |   |                   | -      |   |            |   | -          |                |   |   | -                                   |   |   |        |     |   |   |   | - |   |   |   | (240,000 | ) |   |   | - |   |   |   | - |   |   |   | (240,000 | ) |
| Net loss                                                          |   |                         | -      |   |                         |   | -      |             |   |   | -                |   |   |                   | -      |   |            |   | -          |                |   |   | -                                   |   |   |        |     |   |   |   | - |   |   |   | (1,423,053 | ) |   |   | - |   |   |   | - |   |   |   | (1,423,053 | ) |
| Foreign currency translation                                      |   |                         |   |   |                         |   |   |             |   |   |             |   |   |                   |   |   |            |   |       |                |   |   |                                |   |   |        |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 83,829 |   |   |   | 83,829 |   |
| **Balance, December 31, 2020**                                    |   |                         | 500    |   |                         | $      | 1      |             |   |   | 3,000            |   |   | $                      | 3      |   |            |   | 6,986,147  |                |   | $      | 6,986                               |   |   | $           | 492,500  |   |   | $ | 34,379,644 |   |   | $ | (36,384,202 | ) |   | $ | - |   |   | $ | - |   |   | $ | (1,505,068 | ) |
|                                                              |   |                         |   |   |                         |   |   |             |   |   |             |   |   |                   |   |   |            |   |       |                |   |   |                                |   |   |        |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued as payment for accrued interest                     |   |                         | -      |   |                         |   | -      |             |   |   | -                |   |   |                   | -      |   |            |   | 116,667    |                |   |   | 117                                 |   |   |        | -        |   |   |   | 157,383 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 157,500 |   |
| Non-controlling interest partner                                  |   |                         |   |   |                         |   |   |             |   |   |             |   |   |                   |   |   |            |   |       |                |   |   |                                |   |   |        |     |   |   |   |   |   |   |   |   |   |   |   | 1,410 |   |   |   |   |   |   |   |   |   |
| Issuance of common stock for interest                             |   |                         | -      |   |                         |   | -      |             |   |   | -                |   |   |                   | -      |   |            |   | 943,333    |                |   |   | 943                                 |   |   |        | (492,500 | ) |   |   | 661,557 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 170,000 |   |
| Shares issued as exercise of warrant                              |   |                         |   |   |                         |   |   |             |   |   |             |   |   |                   |   |   |            |   |       |                |   |   |                                |   |   |        | 50,000   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| Payment of CSIS Debt by shareholder                               |   |                         |   |   |                         |   |   |             |   |   |             |   |   |                   |   |   |            |   |       |                |   |   |                                |   |   |        |     |   |   |   | 554,500 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 554,500 |   |
| Issuance of common stock for CNP                                  |   |                         | -      |   |                         |   | -      |             |   |   | -                |   |   |                   | -      |   |            |   | 23,600,000 |                |   |   | 23,600                              |   |   |        | -        |   |   |   | 10,596,400 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 10,620,000 |   |
| Shares issued as for exercise of warrant                          |   |                         | -      |   |                         |   | -      |             |   |   | -                |   |   |                   | -      |   |            |   | 33,333     |                |   |   | 33                                  |   |   |        | (50,000  | ) |   |   | 49,967 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Preferred stock interest                                          |   |                         | -      |   |                         |   | -      |             |   |   | -                |   |   |                   | -      |   |            |   | -          |                |   |   | -                                   |   |   |        | -        |   |   |   | - |   |   |   | (240,000 | ) |   |   |   |   |   |   | - |   |   |   | (240,000 | ) |
| Net loss                                                          |   |                         | -      |   |                         |   | -      |             |   |   | -                |   |   |                   | -      |   |            |   | -          |                |   |   | -                                   |   |   |        | -        |   |   |   | - |   |   |   | (12,209,678 | ) |   |   | 5,593 |   |   |   | - |   |   |   | (12,204,085 | ) |
| **Balance, December 31, 2021**                                    |   |                         | 500    |   |                         | $      | 1      |             |   |   | 3,000            |   |   | $                      | 3      |   |            |   | 31,679,481 |                |   | $      | 31,679                              |   |   | $           | -        |   |   | $ | 46,399,451 |   |   | $ | (48,833,880 | ) |   | $ | 7,003  |   |   | $ | - |   |   | $ | (2,395,743 | ) |

  

See accompanying notes to the consolidated financial statements

   

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| F-7                 |
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| *Table of Contents* |

 

**CFN ENTERPRISES INC.**

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

|                                                                                 |   | **For the Year Ended** |        |
|--------------------------------------------------------------------------------------|--------|------------------------|-------------|
|                                                                                 |   | **December 31,**       |        |   | **December 31,** |   |
|                                                                                 |   | **2021**               |        |   | **2020** |   |
|                                                                                 |   |                   |        |   |   |   |
| **Cash flows from operating activities**                                             |   |                   |        |   |   |   |
| Net loss                                                                             |   | $                      | (12,204,085 | ) |   | $ | (1,423,053 | ) |
| Gain (loss) from discontinued operations                                             |   |                   | -           |   |   |   | (80,422 | ) |
| Net loss from continuing operations                                                  |   |                   | (12,204,085 | ) |   |   | (1,342,631 | ) |
|                                                                                 |   |                   |        |   |   |   |   |   |
| Adjustments to reconcile net loss to net cash used in operating activities:          |   |                   |        |   |   |   |   |   |
| Depreciation and amortization                                                        |   |                   | 382,916     |   |   |   | 1,809 |   |
| Loss on extinguishment of debt                                                       |   |                   | 172,500     |   |   |   | 71,377 |   |
| Amortization of deferred financing cost                                              |   |                   | 4,437       |   |   |   | 5,884 |   |
| Provision for bad debt                                                               |   |                   | -           |   |   |   | 20,000 |   |
| Share-based compensation                                                             |   |                   | -           |   |   |   | 15,625 |   |
| Forgiveness of SBA PPP loan                                                          |   |                   | (526,000    | ) |   |   | - |   |
| Impairment of long-term asset                                                        |   |                   | 9,355,657   |   |   |   | - |   |
| Unrealized gain (loss) on marketable securities                                      |   |                   | 45,660      |   |   |   | - |   |
| Amortization of Right of Use Asset                                                   |   |                   | 67,461      |   |   |   | - |   |
| Non-controlling interest                                                             |   |                   | 1,410       |   |   |   | - |   |
| Changes in operating assets and liabilities:                                         |   |                   |        |   |   |   |   |   |
| Accounts receivable                                                                  |   |                   | 364,694     |   |   |   | 43,649 |   |
| Inventory                                                                            |   |                   | 488,074     |   |   |   | (39,017 | ) |
| Prepaid expenses and other current assets                                            |   |                   | 32,500      |   |   |   | (10,364 | ) |
| Accounts payable and accrued expenses                                                |   |                   | 1,547,899   |   |   |   | 756,430 |   |
| Deferred revenue                                                                     |   |                   | 14,009      |   |   |   | 10,081 |   |
| Right of use of liability                                                            |   |                   | (91,346     | ) |   |   | - |   |
|                                                                                 |   |                   |        |   |   |   |   |   |
| Net cash used in operating activities of continuing operations                       |   |                   | (344,214    | ) |   |   | (467,157 | ) |
| Net cash used in operating activities of discontinued operations                     |   |                   | -           |   |   |   | (16,365 | ) |
| Net cash used in operating activities                                                |   |                   | (344,214    | ) |   |   | (483,522 | ) |
|                                                                                 |   |                   |        |   |   |   |   |   |
| **Cash flows from investing activities**                                             |   |                   |        |   |   |   |   |   |
| Purchase of property and equipment                                                   |   |                   | 52,543      |   |   |   | (6,634 | ) |
| Payments for investment                                                              |   |                   | (92,176     | ) |   |   | (200,000 | ) |
| Cash acquired in acquisition of CNP operating, LLC.                                  |   |                   | 62,518      |   |   |   | - |   |
| Net cash provided by (used in) investing activities                                  |   |                   | 22,885      |   |   |   | (206,634 | ) |
| **Cash flows from financing activities**                                             |   |                   |        |   |   |   |   |   |
| Payment of preferred stock interest                                                  |   |                   | -           |   |   |   | (60,000 | ) |
| Proceeds from sale of common stock                                                   |   |                   | 10,000      |   |   |   | 410,000 |   |
| Proceeds from warrant exercised                                                      |   |                   | 50,000      |   |   |   | - |   |
| Payment of notes payable                                                             |   |                   | (140,651    | ) |   |   |   |   |
| Proceeds from promissory notes                                                       |   |                   | 411,894     |   |   |   | 413,000 |   |
| Net cash provided by financing activities                                            |   |                   | 331,243     |   |   |   | 763,000 |   |
| Net cash used in financing activities of discontinued operations                     |   |                   | -           |   |   |   | - |   |
| Net cash provided by financing activities                                            |   |                   | 373,495     |   |   |   | 763,000 |   |
|                                                                                 |   |                   |        |   |   |   |   |   |
| Effect of exchange rate fluctuations on cash                                         |   |                   | -           |   |   |   | (456 | ) |
|                                                                                 |   |                   |        |   |   |   |   |   |
| Net change in cash and restricted cash                                               |   |                   | 9,914       |   |   |   | 72,388 |   |
| Cash and restricted cash, beginning of the period                                    |   |                   | 180,115     |   |   |   | 107,727 |   |
| **Cash and restricted cash, end of the period**                                      |   | $                      | 190,029     |   |   | $ | 180,115 |   |
|                                                                                 |   |                   |        |   |   |   |   |   |
| **Supplemental disclosure of cash flow information:**                                |   |                   |        |   |   |   |   |   |
| Interest paid                                                                        |   | $                      | -           |   |   | $ | - |   |
| Income taxes paid                                                                    |   | $                      | -           |   |   | $ | - |   |
|                                                                                 |   |                   |        |   |   |   |   |   |
| **Supplemental disclosure of non-cash investing and financing information:**         |   |                   |        |   |   |   |   |   |
| Fair value of warrants issued in connection with line of credit and promissory notes |   | $                      | -           |   |   | $ | - |   |
| Accrual of preferred stock interest                                                  |   | $                      | 240,000     |   |   | $ | 240,000 |   |
| Accrued interest reclassed to credit facility                                        |   | $                      | -           |   |   | $ | - |   |
| Issuance of common stock sold in previous year                                       |   | $                      | 492,500     |   |   | $ | - |   |
| Addition of Right of Use Asset                                                       |   | $                      | 181,134     |   |   | $ | - |   |
| Investments received for services                                                    |   | $                      | 92,175      |   |   | $ | - |   |
| Issuance common stock for acquisition of CNP Operating, LLC                          |   | $                      | 10,620,000  |   |   | $ | - |   |
| Issuance of common stock for payment of accrued preferred stock interest             |   | $                      | -           |   |   | $ | 104,931 |   |
| Issuance of common stock as payment of accounts payable and accrued expenses         |   | $                      | -           |   |   | $ | 146,192 |   |
|                                                                                 |   |                   |        |   |   |   |   |   |
| See accompanying notes to consolidated financial statements                          |

    

|                |
|---------------------|
| F-8                 |
|                     |
| *Table of Contents* |

 

**CFN ENTERPRISES INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**December 31, 2021 and 2020**

 

**NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION**

 

Organization

 

CFN Enterprises Inc., formerly known as Accelerize Inc., or the Company, is a Delaware corporation incorporated on November 22, 2005. Effective October 22, 2019, the Company filed a certificate of amendment to its certificate of incorporation with the Secretary of State of the State of Delaware to change its corporate name to CFN Enterprises Inc.

 

On May 15, 2019, the Company entered into an asset purchase agreement or the Emerging Growth Agreement with Emerging Growth, LLC, or the Seller or Emerging Growth, pursuant to which the Company acquired certain assets from the Seller related to its sponsored content and marketing business for a purchase price consideration consisting of $420,000 in cash, 30,000,000 shares of the Company’s common stock, and 3,000 shares of Series B preferred stock with a total stated value of $3,000,000 which bears interest at 6% per annum and is convertible into the Company’s common stock at a conversion price to be mutually agreed in the future, without voting rights or a liquidation preference except with respect to default interest. The securities were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended. The closing of the purchase of the assets pursuant to the Emerging Growth Agreement occurred on June 20, 2019.

 

The Company’s operations consist of the sponsored content and marketing business from the assets acquired pursuant to the Emerging Growth Agreement.

 

On January 22, 2021, the Company invested $35,000 in a new joint venture focused on sponsored content and marketing called East West Asset Management or East West. East West was formed as a Limited Liability Company in the State of Nevada on November 13, 2020. CFN owns 50% of the entity and one of its officers holds the title of Member Manager in East West. The Company has concluded that East West is a variable interest entity in accordance with applicable accounting standards and guidance. As such, the accounts and results of East West have been included in the Company’s condensed consolidated financial statements. 

 

On August 23, 2021, the Company entered into securities purchase agreements with CNP Operating, LLC, a Colorado limited liability company, or CNP Operating, and the owners of all of the equity interests of CNP Operating, or the Owners, whereby the Company acquired 100% of CNP Operating from the Owners in exchange for an aggregate of 354 million shares of the Company’s common stock. The securities were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended. On August 25, 2021 the transaction was closed and CNP Operating became a wholly owned subsidiary of the Company.

 

CNP Operating is a leading cannabidiol, or 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. CNP Operating provide 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, ISO compliant, has 30,000 square feet filled with proprietary technology distillation equipment, in house lab testing, distribution warehouse and white labelling product formulation and design.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis which implies the Company will continue to meet its obligations for the next 12 months as of the date these financial statements are issued.

   

The Company had a working capital deficit of $6,644,429 and an accumulated deficit of $48,833,880 as of December 31, 2021.  The Company also had a net loss of $12,449,678 for the year ended December 31, 2021.

   

Management’s plan to continue as a going concern includes raising capital in the form of debt or equity, growing the CNP Operating business and 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.

 

|                |
|---------------------|
| F-9                 |
|                     |
| *Table of Contents* |

 

COVID-19

 

The outbreak of a strain of coronavirus (COVID-19) in the U.S. has had an unfavorable impact on our business operations. Our main customer market suffered its worst decline, decreasing our revenue. Mandatory closures of businesses imposed by the federal, state and local governments to control the spread of the virus disrupted the operations of our management, business and finance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. economy and financial markets, which may result in a long-term economic downturn that could negatively affect future performance. We took steps to diversify our revenue model by creating our CBD ecommerce business which has higher margins during the second half of 2020 and to acquire CNP Operating in August 2021and to reduce our costs. The extent to which COVID-19 will impact our business and our consolidated financial results further will depend on future developments which are highly uncertain and cannot be predicted at this time, but may result in a material adverse impact on our business, results of operations and financial condition.

 

Basis of Presentation

 

The accompanying consolidated financial statements include the results of operations of the Company and Cake Marketing UK Ltd., or the Subsidiary. The Company discontinued its operations associated with its CAKE Business and the operations of its Subsidiary in May 2019. The Subsidiary was officially dissolved in August 2020. These accounts have been presented as discontinued operations in the accompanying consolidated financial statements. Continuing operations presented in periods prior reflect administrative expenses associated with business insurance, legal and accounting fees that the Company will continue to incur. All intercompany accounts and transactions between the Company and its Subsidiary have been eliminated in consolidation.

 

During the period, the Company concluded that East West is a variable interest entity in accordance with applicable accounting standards and guidance. As such, the accounts and results of East West have been included in the Company’s condensed consolidated financial statements.

** **

**NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reported period. Actual results will differ from those estimates. Included in these estimates are assumptions about collection of accounts receivable, useful life of fixed assets and intangible assets, borrowing rate considered for operating lease right-of-use asset and related operating lease liability, and assumptions used in Black-Scholes valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.

 

Financial Statement Reclassification

 

Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications.

 

Segment Reporting

  

The Company’s sponsored content and marketing business acquired from Emerging Growth in June 2019 has historically been its one reportable segment.  In late 2020, the Company launched an e-commerce network focused on the sale of general wellness CBD products.  As of December 31, 2021, sales of these products and the operating activities associated with the e-commerce business have not been significant.  However, management expects this e-commerce business to eventually become a reportable segment under GAAP as the business grows and the activity becomes more significant. The Company’s acquisition of CNP Operating in August 2021 results in an additional reporting segment that will be provided in future periods.

  

Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased, to be cash equivalents. The Company has restricted cash as a result of its corporate card program through its bank, which requires collateral placed in a money market account. During the year ended December 31, 2021 and 2020, the Company had restricted cash balances of $20,014 and $20,000, respectively, included as a component of total cash and restricted cash as presented on the accompanying consolidated statement of cash flows.

 

Accounts Receivable

 

The Company’s account receivables are due from customers relating to contracts to provide investor relation services. Collateral is currently not required. 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. The allowance for doubtful accounts as of December 31, 2021 and 2020 amounted to $337,192 and $183,750, respectively.

 

|                |
|---------------------|
| F-10                |
|                     |
| *Table of Contents* |

 

Inventory

 

The Company’s inventory consists of finished goods acquired for its e-commerce network business it is currently in the process of launching. The inventory is valued at the lower of cost (first-in, first-out) or estimated net realizable value. 

 

Concentration of Credit Risks

 

The Company is subject to concentrations of credit risk primarily from cash and cash equivalents and accounts receivable.

 

The Company’s cash and cash equivalents accounts are held at a financial institution and are insured by the Federal Deposit Insurance Corporation, or the FDIC, up to $250,000. From time-to-time, the Company’s bank balances exceed the FDIC insurance limit. To reduce its risk associated with the failure of such financial institutions, the Company periodically evaluates the credit quality of the financial institution in which it holds deposits.

 

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.

 

The Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered.

 

Subsequent to the closing of the Emerging Growth Agreement on June 20, 2019, the Company’s revenue is generated from the sale of promotional service packages to its 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. The services provided by the Company include advertising, publishing of interviews and articles across its network and featuring of client content on its newsletters and social media. The packages all have fixed prices that are billed monthly over the terms of the agreement in even amounts. The Company recognizes revenue for its performance obligation associated with its contracts with customers over time as work is performed, which is deemed to occur evenly throughout the duration of the contract. This also reflects the pattern in which costs are incurred on performing the contracts. To the extent revenue recognized on contracts at each period end exceeds collections, the amounts are reflected as accounts receivable. To the extent collections on contracts at each period end exceeds revenue recognized, the amounts are reflected as deferred revenue.

 

The Company accounts for its CNP Operating revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered.

 

Shipping and Handling Fees and Costs

 

Amounts billed to customers for shipping and handling fees are presented in revenue. Costs incurred for shipping and handling are included in cost of revenue.

 

Fair Value of Financial Instruments

 

The Company accounts for assets and liabilities measured at fair value on a recurring basis in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements.

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

| Level 1: | Observable inputs such as quoted market prices in active markets for identical assets or liabilities.                                   |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                    |
| Level 2: | Observable market-based inputs or unobservable inputs that are corroborated by market data.                                             |
|     |                                                                                                                                    |
| Level 3: | Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. |

 

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|---------------------|
| F-11                |
|                     |
| *Table of Contents* |

 

*Additional Disclosures Regarding Fair Value Measurements*

 

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and lines of credit approximate their fair value due to the short-term maturity of these items.

 

Advertising

 

The Company expenses advertising costs as incurred. Advertising expenses relating to continuing operations for the year ended December 31, 2021 and 2020 amounted to $69,725 and $128,981, respectively. 

 

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. 

 

Goodwill

 

The Company’s goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from business acquisitions. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level. There was an impairment charge of $9,355,657 during the year ended December 31, 2021 related to the impairment of goodwill acquired from the CNP Operating Agreement.

 

Investment

 

On December 24, 2020, the Company acquired a 9.8% interest in the outstanding stock of a privately held company for $200,000. As the stock has no readily determinable fair value, the Company accounts for this stock received using the cost method, less adjustments for impairment. At each reporting period, management reviews the status of the investment to determine if any indicators of impairment have occurred. 

 

There were no impairment charges recorded related to investments during the year ended December 31, 2021 or 2020.

 

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 and warrants (calculated using the modified-treasury stock method). As of December 31, 2021, the Company had 210,667 outstanding stock options, 311,112 outstanding warrants and 3,500 shares of preferred stock which were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive.  As of December 31, 2020, the Company had 210,667 outstanding stock options and 350,463 outstanding warrants and 3,500 shares of preferred stock which were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive. As a result, the basic and diluted earnings per share are the same for each of the periods presented.

 

|                |
|---------------------|
| F-12                |
|                     |
| *Table of Contents* |

 

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. Warrants granted in connection with ongoing arrangements are more fully described in Note 6, Stockholders’ Deficit. 

 

Leases

 

The Company adopted Accounting Standards Update No. 2016-02, Leases (“Topic 842”) using the modified retrospective method. This accounting standard requires a lessee to recognize an asset and liability for most leases on its balance sheet. Upon adoption, right-of-use (ROU) assets and lease liabilities for operating leases were recorded in the amount of $181,134 and $181,134, respectively

 

The Company elected the practical expedient method permitted under the transition guidance, which allows a carryforward of historical lease classification, the assessment on whether a contract was or contains a lease, and the initial direct costs for any leases that existed prior to July 1, 2019. The Company also elected to recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

 

Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement and leases with an initial term of 12 months or less are not included in lease liabilities or ROU asset. As most leases do not provide an implicit rate, a rate which approximates the Company’s incremental borrowing rate is used, based on the information available at commencement date, in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred. Lease agreements generally do not contain residual value guarantees or restrictive covenants. Over the lease term, the Company uses the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized in a manner that results in straight-line expense recognition. 

 

**NOTE 3: PROPERTY AND EQUIPMENT**

 

The Company’s property and equipment relating to continuing operations consist of the following:

 

|                                               |   | **December 31,** |       |   | **December 31,** |   |
|----------------------------------------------------|--------|------------------|------------|--------|------------------|--------|
|                                               |   | **2021**         |       |   | **2020**         |   |
|                                               |   |             |       |   |             |   |
| Machinery & equipment                          |   | $                | 7,732,643  |   |             | $      | 12,546 |   |
| Furniture and equipment and leasehold improvements |   |             | 411,294    |   |             |   | 2,227 |   |
|                                               |   |             | 8,143,937  |   |             |   | 14,773 |   |
|                                               |   |             |       |   |             |   |   |   |
| Less: accumulated depreciation                     |   |             | (3,007,941 | )      |             |   | (6,928 | ) |
|                                               |   |             |       |   |             |   |   |   |
|                                               |   | $                | 5,135,996  |   |             | $      | 7,845 |   |

  

Depreciation expense from continuing operations for the year ended December 31, 2021 and 2020 amounted to $483,920 and $1,809, respectively.

  

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|---------------------|
| F-13                |
|                     |
| *Table of Contents* |

 

**NOTE 4: MARKETABLE SECURITIES**

 

During the first quarter of 2021, the Company began offering customers of its East West Venture who purchase services the option to pay the contract price in securities issued by the Customer which could be a common stock, preferred stock or convertible debentures. In accordance with ASC 606 - Revenue Recognition, the Company will value the shares received at the fair market value of the date the contract is executed. The shares received will be accounted for in accordance with ASC 320 – Investments – Debt and Equity Securities, as such the shares will be classified as available-for-sale securities and will be measured at each reporting period at fair value with the unrealized gain or (loss) as a component of other income (expense). Upon the sale of the shares, the Company will record the gain or (loss) in the consolidated statement of operations as a component of net income (loss).

 

|                          |   | **December 31,**

**2021** |    |
|-------------------------------|--------|----------------------------|---------|
| Balances at beginning of year |   | $                          | -       |   |
| Additions                     |   |                       | 92,175  |   |
| Sale of marketable securities |   |                       | -       |   |
| Change in fair value          |   |                       | (45,659 | ) |
| Balances at period end        |   | $                          | 46,516  |   |

  

The Company accounts for its investments in equity securities in accordance with ASC 321-10 Investments - Equity Securities. The equity securities may be classified into two categories and accounted for as follows:

 

| · | Equity securities with a readily determinable fair value are reported at fair value, with unrealized gains and losses included in earnings. Any dividends received are recorded in interest income, the fair value of equity investments with fair values is primarily obtained from third-party pricing services.                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Equity securities without a readily determinable fair value are reported at their cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer and their impact on fair value. Any dividends received are recorded in interest income. For equity investments without readily determinable fair values, when an orderly transaction for the identical or similar investment of the same issuer is identified, we use the valuation techniques permitted under ASC 820 Fair Value Measurement to evaluate the observed transaction(s) and adjust the fair value of the equity investment |

  

**NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS**

** **

The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash and accounts payable and accrued expenses, approximate their respective fair values due to the short-term nature of such instruments.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis.

 

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The Company considers marketable securities quoted on the NASDAQ, Canadian Stock Exchange and OTC Pink sheets and then discounts the value after considering Rule 144 restrictions and market liquidity to be fair valued with Level 1 inputs. The Company had the following financial assets of December 31, 2021:

 

|                  |   | **Balance as of December 31, 2021** |   |   | **Significant Unobservable Inputs**

**(Level 1)** |   |   | **Significant Unobservable Inputs**

**(Level 2)** |   |   | **Significant Unobservable Inputs**

**(Level 3)** |   |
|-----------------------|--------|-------------------------------------|--------|--------|----------------------------------------------------|--------|--------|----------------------------------------------------|--------|--------|----------------------------------------------------|--------|
| Marketable Securities |   | $                                   | 46,516 |   |                                               | $      | 46,516 |                                               |   | $      | -                                                  |   |   | $ | - |   |
| Total Assets          |   | $                                   | 46,516 |   |                                               | $      | 46,516 |                                               |   | $      | -                                                  |   |   | $ | - |   |

** **

**NOTE 6: NOTE PAYABLE**

  

On September 10, 2019, the Company entered into a promissory note payable whereby the Company borrowed $500,000 bearing interest at 8% per annum. Interest on the note is payable quarterly on the first business day of December, March, June and September commencing December 1, 2019. In May 2021, the Company and the holder of the promissory note reached an agreement to extend the maturity date of the note from September 30, 2022 to September 30, 2024. In connection with the extension, the Company issued 133,333 shares of its common stock to the noteholder in lieu of $40,000 of interest accrued and accruing on the promissory note through December 31, 2021.

    

In connection with the promissory note on September 10, 2019, the Company issued warrants to purchase 33,333 shares of the Company’s common stock at an exercise price of $0.10 per share. The warrants were exercised on June 30, 2021 and the Company received $50,000. 

   

The note was discounted by $17,624 allocated from the valuation of the warrants issued. The discount recorded on the note is being amortized as interest expense through the maturity date, which amounted to $4,427 and $4,425 for the nine months ended September 30, 2021 and 2020, respectively. As of December 31, 2021, the net book value of the promissory note amounted to $494,498 including the principal amount outstanding of $500,000 net of the remaining discount of $5,502.

  

|                |
|---------------------|
| F-14                |
|                     |
| *Table of Contents* |

 

On May 6, 2020, the Company entered into a promissory note, or the Note, with Pacific Western Bank, evidencing an unsecured loan, or the Loan, in the amount of $263,000 made to the Company under the Paycheck Protection Program, or the PPP. The interest rate on the Loan is 1.0% per annum. The Note matures on May 6, 2022. The Company has applied for full forgiveness of the amounts due under the Note and received forgiveness during the period ending September 30, 2021.

 

On June 24, 2020, the Company entered into a Loan Authorization and Agreement with the SBA under which the Company borrowed $150,000 and issued to the SBA a note and security agreement for the amount borrowed. Outstanding borrowings accrue interest at a rate of 3.75% per annum, and installment payments, including principal and interest, of $731 are due monthly and begin 12 months from the date of the loan agreement. The balance of any remaining principal and interest is due 30 years from the date of the loan agreement. As collateral for the borrowing, the Company granted the SBA a security interest in substantially all assets of the Company.

 

On February 25, 2021, the Company entered into a secondary promissory note, or the Second PPP Note, with Pacific Western Bank, evidencing an unsecured loan, or the Second Loan, in the amount of $263,000 made to the Company under the PPP. The interest rate on the Loan is 1.0% per annum. The Note matures on May 6, 2022. The Company applied for full forgiveness of the amounts due under the Note and received forgiveness in February 2022 therefore the company has recorded the forgiveness as of December 31, 2021. 

 

On October 28, 2019, the Company’s subsidiary CNP Operating entered into a promissory note payable with Complete Business Solutions Group, Inc (“CBSG”) whereby the Company borrowed $3,050,000. The outstanding balance of the note was $2,218,000 at December 31, 2021. 

 

On September 30, 2019, the Company’s subsidiary CNP Operating entered into a promissory note payable with Eagle Six Consultants, Inc. (“Eagle”) whereby the Company borrowed $550,000 bearing interest at 16% per annum. The outstanding balance of the note was $300,000 at December 31, 2021.

 

On June 6, 2020, the Company’s subsidiary CNP Operating entered into a second promissory note payable with Eagle whereby the Company borrowed $300,000 bearing interest at 18% per annum. The outstanding balance of the note was $20,000 December 31, 2021.

 

On May 12, 2021 the Company’s subsidiary CNP Operating restructured the CSBG note payable of $2,957,000, the Eagle #1 note payable of $550,000 and the Eagle #2 note payable of $300,000 by entering into a payment and indemnification agreement with the receivers/trustee of CBSG and Eagle. The receiver has agreed that the balance of the outstanding amounts will be paid over the course of 24 months in equal payments of $158,625. Further, the Company shall pay $20,000 per month toward the balance and Anthony Zingarelli (“Zingarelli”) and Colorado Sky Industrial Supply LLC (“CSIS”), agree to personally pay the sum of $138,625 per month. Zingarelli is the only member of CNP Operating that signed a personal guarantee on the loans and Zingarelli is the sole member of CSIS. Zingarelli and CSIS has agreed to indemnify and hold the Company harmless from any and all losses, liabilities and claims. If a loss is incurred by the Company with respect to any claims, Zingarelli shall reimburse the Company for the amount of any such loss. The Company has recorded the Zingarelli payments during the period as contributions to additional paid in capital.

 

On January 10, 2020 the Company’s subsidiary CNP Operating purchased a distillation machine for $248,000. The company paid $108,000 and entered into a promissory note with company owned by one of the partners. The original value of the note was $140,000 and has no terms such as interest rate, maturity or monthly payments. Imputed interested was not material. The outstanding balance of the note was $42,252 at December 31, 2021.

 

On Nov 19, 2020 the Company’s subsidiary CNP Operating purchased equipment for $58,095 which was financed at zero interest rate. The monthly payments of $968 will be made for the next 60 months and mature on Nov 19, 2025. Imputed interested was not material. The outstanding balance of the note was $45,508 at December 31, 2021.

 

The Company’s subsidiary CNP Operating also entered into a note payable during 2020 with the landlord for additional improvements to the facility in Centennial, Colorado. The outstanding balance of this note was $11,708 at December 31, 2020 and $43,261 as of December 31, 2021 because additional improvements were completed during the period.

 

On October 19, 2021, the Company borrowed $250,000 from a lender and issued a promissory note for the repayment of the amount borrowed. The promissory note is unsecured, has a maturity date of December 31, 2024 and all principal is due upon maturity. The amount borrowed accrues interest at 12% per annum and accrued interest is payable monthly commencing on December 1, 2021. The promissory note contains customary events of default permitting acceleration of repayment for nonpayment of amounts due, a bankruptcy related proceeding, breach of representations or covenants, sale of substantially all assets, and change of control.

 

|                |
|---------------------|
| F-15                |
|                     |
| *Table of Contents* |

 

Future scheduled maturities of long-term debt are as follows.

 

|       |   | **Year Ended**   |      |
|------------|--------|------------------|-----------|
|       |   | **December 31,** |      |
|       |   |             |      |
| 2022       |   | $                | 2,219,882 |   |
| 2022       |   |             | 657,621   |   |
| 2023       |   |             | 26,047    |   |
| 2024       |   |             | 509,163   |   |
| 2025       |   |             | 3,153     |   |
| Thereafter |   |             | 121,706   |   |
| Total      |   | $                | 3,537,573 |   |

 

The aggregate current portion of long-term debt as of December 31, 2021 amounted to $2,219,882, which represents the contractual principal payments due in the next 12 months period.

 

**NOTE 7: STOCKHOLDERS’ DEFICIT**

 

**Common Stock**

  

On December 6, 2021, the Company effected a reverse split of its outstanding common stock in the ratio of 1-for-15.

   

Effective April 3, 2020, the Company granted 33,333 of restricted shares of its common stock to a consultant for services as an advisory board member, with 16,667 shares vesting immediately and the remainder vesting in four equal quarterly installments commencing on July 1, 2020. During 2020, the Company recorded $15,625 of share-based compensation expense. The arrangement was terminated on July 17, 2020, and the unvested portion of the restricted stock grant of 12,500 shares were forfeited.

 

Effective August 6, 2020, the Company and Emerging Growth reached an agreement whereby the Company issued 320,000 shares of its common stock with a value of $240,000 to Emerging Growth as payment for outstanding liabilities due to Emerging Growth totaling $209,931.  The outstanding liabilities due to Emerging Growth included $104,931 in outstanding accrued interest on the Series B Preferred Stock through August 31, 2020, as well as $105,000 of outstanding payables.  The additional $30,069 was recorded as loss on extinguishment of debt during 2020.   

 

Effective October 13, 2020, the Company and the holder of its $500,000 promissory note payable issued on September 10, 2019 (see Note 5) reached an agreement whereby the Company agreed to issue 110,000 shares of its common stock with a value of $82,500 to the noteholder as payment of $41,192 of accrued interest on the promissory note.  This resulted in a loss on extinguishment of debt of $41,308 in 2020.  The common shares were issued on January 2, 2021 and are reflected as common shares issuable as of December 31 2020.

 

In December 2020, the Company received $410,000 in cash in respect of a sale of an aggregate total of 700,000 shares of its common stock for proceeds of $420,000.  The Company received the remaining $10,000 for the sale in January 2021 and the common shares were issued in January 2021.  The Company has reflected the $410,000 received in common shares issuable in the statement of shareholders equity.    

 

In January 2021, the Company issued 810,000 shares of common stock, of which 793,333 were issuable on December 31, 2020 and 16,667 were sold in 2021 for $10,000.

 

In March 2021, the Company issued 116,667 shares of common stock in exchange for $105,000 of interest accrued to Emerging Growth as a result of holding the Series B Preferred stock. The fair value of the shares was $157,500 and the Company recognized a loss on extinguishment of debt in the amount of $52,500.

 

In May 2021, in connection with the maturity extension of the $500,000 promissory note (Note 4), the Company issued 133,333 shares of its common stock to the noteholder in lieu of $40,000 of interest accrued and accruing on the promissory note through December 31, 2021. The fair value of the shares was $160,000 and the Company recognized a loss on extinguishment of debt in the amount of $120,000.

 

In June 2021, the Company received $50,000 in cash in respect to an exercise of warrants by a Note holder. The Company has reflected the $50,000 received in common shares issuable in the statement of stockholder’s equity as the Company issued 33,333 shares of common stock on July 7, 2021.  

 

On August 23, 2021, the Company entered into securities purchase agreements with CNP Operating, whereby the Company acquired 100% of CNP Operating from the Owners in exchange for an aggregate of 23,600,000 shares of Company common stock. The securities were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended. 

 

**Preferred Stock**

 

The Company is authorized to issue 2,000,000 shares of preferred stock with a par value of $0.001 per share, of which 500 have been authorized as Series A Preferred Stock and 3,000 have been authorized as Series B Preferred Stock.

 

|                |
|---------------------|
| F-16                |
|                     |
| *Table of Contents* |

 

On June 20, 2019, the Company issued to certain of its promissory noteholders an aggregate of 500 shares of Series A Preferred Stock, each with a stated value per share of $1,000, as conversion of $500,000 worth of outstanding promissory notes. The Series A Preferred Stock accumulate dividends at 12% per annum, and is convertible into the Company’s common stock at the election of the holder at a conversion price per share to be mutually agreed between the Company and the holder in the future, and be redeemable at the Company’s option following the third year after issuance, without voting rights or a liquidation preference.

 

On June 20, 2019, the Company issued 3,000 shares of Series B Preferred Stock to Emerging Growth each with a stated value of $1,000 per share, as part of the Emerging Growth Agreement. The aggregate fair value of $687,000 was recorded as part of the acquisition price of the net assets acquired from Emerging Growth. The Series B Preferred Stock accumulates dividends at 6% per annum and is convertible into the Company’s common stock at the election of Emerging Growth at a conversion price per share to be mutually agreed between the Company and Emerging Growth in the future, without voting rights or a liquidation preference, except with respect to accrued penalty interest.

 

For the year ended December 31, 2021 and 2020, the Company incurred $240,000 and $240,000, respectively, of interest from the outstanding preferred stock.

 

**Warrants**

 

The following summarizes the Company’s warrant activity for the year ended December 31, 2021 and 2020.

 

|                                             |   |              |     |   |               |   |   | **Weighted-**   |   |
|--------------------------------------------------|--------|--------------|----------|--------|---------------|--------|--------|-----------------|--------|
|                                             |   |              |     |   |               |   |   | **Average**     |   |
|                                             |   |              |     |   | **Weighted-** |   |   | **Remaining**   |   |
|                                             |   |              |     |   | **Average**   |   |   | **Contractual** |   |
|                                             |   |              |     |   | **Exercise**  |   |   | **Life**        |   |
|                                             |   | **Warrants** |     |   | **Price**     |   |   | **(Years)**     |   |
|                                             |   |         |     |   |          |   |   |            |   |
| Outstanding at January 1, 2020                   |   |         | 502,930  |   |          | $      | 7.95   |            |   |   | 4.16 |   |
| Forfeited/cancelled                              |   |         | (152,467 | )      |          |   | 7.80   |            |   |   |   |   |
| Outstanding at December 31, 2020                 |   |         | 350,463  |   |          |   | 7.80   |            |   |   | 3.56 |   |
| Exercised                                        |   |         | (4,630   | )      |          | $      | 1.50   |            |   |   |   |   |
| Forfeited/cancelled                              |   |         | (33,333  | )      |          |   | 6.75   |            |   |   |   |   |
| Outstanding at December 31, 2021                 |   |         | 312,500  |   |          | $      | 4.95   |            |   |   | 2.61 |   |
|                                             |   |         |     |   |          |   |   |            |   |   |   |   |
| Vested and expected to vest at December 31, 2021 |   |         | 312,500  |   |          | $      | 4.95   |            |   |   | 2.61 |   |
|                                             |   |         |     |   |          |   |   |            |   |   |   |   |
| Exercisable at December 31, 2021                 |   |         | 312,500  |   |          | $      | 4.95   |            |   |   | 2.61 |   |

  

As of December 31, 2021 all outstanding warrants were fully vested and there was no remaining unrecorded compensation expense.

 

The warrants granted during 2021 and 2020 were valued using the Black-Scholes pricing method using the following assumptions below.

 

|                      |   | **2021** | **2020** |
|---------------------------|--------|----------|----------|
| Expected life in years    |   | NA       | NA       |
| Stock price volatility    |   | NA       | NA       |
| Risk free interest rate   |   | NA       | NA       |
| Expected dividends        |   | NA       | NA       |
| Estimated forfeiture rate |   | NA       | NA       |

 

**Options**

 

The Company had a Stock Option Plan, or the Plan, under which the total number of shares of capital stock of the Company that may be subject to options under the Plan is currently 1,500,000 shares of Common Stock from either authorized but unissued shares or treasury shares. The Plan expired on December 14, 2016.

 

|                |
|---------------------|
| F-17                |
|                     |
| *Table of Contents* |

 

The following summarizes the Company’s stock option activity for the year ended December 31, 2021 and 2020.

 

|                                             |   |             |     |   |               |   |   | **Weighted-**   |   |
|--------------------------------------------------|--------|-------------|----------|--------|---------------|--------|--------|-----------------|--------|
|                                             |   |             |     |   |               |   |   | **Average**     |   |
|                                             |   |             |     |   | **Weighted-** |   |   | **Remaining**   |   |
|                                             |   |             |     |   | **Average**   |   |   | **Contractual** |   |
|                                             |   |             |     |   | **Exercise**  |   |   | **Life**        |   |
|                                             |   | **Options** |     |   | **Price**     |   |   | **(Years)**     |   |
|                                             |   |        |     |   |          |   |   |            |   |
| Outstanding at January 1, 2020                   |   |        | 421,333  |   |          | $      | 4.95   |            |   |   | 2.45 |   |
| Forfeited/cancelled                              |   |        | (210,667 | )      |          |   | 12.90  |            |   |   |   |   |
| Outstanding at December 31, 2020                 |   |        | 210,667  |   |          | $      | 4.95   |            |   |   | 1.44 |   |
| Forfeited/cancelled                              |   |        | -        |   |          |   |   |            |   |   |   |   |
| Outstanding at December 31, 2021                 |   |        | 210,667  |   |          | $      | 4.95   |            |   |   | .94 |   |
|                                             |   |        |     |   |          |   |   |            |   |   |   |   |
| Vested and expected to vest at December 31, 2021 |   |        | 210,667  |   |          | $      | 4.95   |            |   |   | .94 |   |
|                                             |   |        |     |   |          |   |   |            |   |   |   |   |
| Exercisable at December 31, 2021                 |   |        | 210,667  |   |          | $      | 4.95   |            |   |   | .94 |   |

 

As of December 31, 2021 all outstanding options were fully vested and there is no remaining unrecorded compensation expense.

 

**NOTE 8: DISCONTINUED OPERATIONS**

 

During May 2019, the Company decided to discontinue most of its operating activities pursuant to the Asset Purchase Agreement entered into with CAKE Software, Inc. (see Note 1).

 

In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of December 31, 2021 and 2020, and consist of the following:

 

|                                                 |   | **December 31,** |   |   | **December 31,** |   |
|------------------------------------------------------|--------|------------------|--------|--------|------------------|--------|
|                                                 |   | **2021**         |   |   | **2020**         |   |
|                                                 |   |             |   |   |             |   |
| **Current liabilities of discontinued operations**   |   |             |   |   |             |   |
| Accounts payable and accrued expenses                |   | $                | 79,823 |   |             | $      | 79,823 |   |
| Total current liabilities of discontinued operations |   | $                | 79,823 |   |             | $      | 79,823 |   |

 

|                |
|---------------------|
| F-18                |
|                     |
| *Table of Contents* |

 

In accordance with the provisions of ASC 205-20, the Company has excluded the results of discontinued operations from its results of continuing operations in the accompanying consolidated statements of operations. The results of the discontinued operations of the CAKE Marketing UK Business for the year ended December 31, 2021 and 2020 have been reflected as discontinued operations in the consolidated statements of operations, and consist of the following:

** **

|                                                                             |   | **For the Year Ended** |   |
|----------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                             |   | **December 31,**       |   |   | **December 31,** |   |
|                                                                             |   | **2021**               |   |   | **2020** |   |
|                                                                             |   |                   |   |   |   |   |
| Net revenues                                                                     |   | $                      | -      |   |   | $ | - |   |
| Cost of revenue                                                                  |   |                   | -      |   |   |   | - |   |
| Gross profit                                                                     |   |                   | -      |   |   |   | - |   |
|                                                                             |   |                   |   |   |   |   |   |   |
| Operating expenses:                                                              |   |                   |   |   |   |   |   |   |
| Research and development                                                         |   |                   | -      |   |   |   | - |   |
| Sales and marketing                                                              |   |                   | -      |   |   |   | - |   |
| General and administrative                                                       |   |                   | -      |   |   |   | (3,507 | ) |
| Total operating expenses                                                         |   |                   |   |   |   |   | (3,507 | ) |
|                                                                             |   |                   |   |   |   |   |   |   |
| Loss from operations                                                             |   |                   | -      |   |   |   | 3,507 |   |
|                                                                             |   |                   |   |   |   |   |   |   |
| Other income (expense):                                                          |   |                   |   |   |   |   |   |   |
| Gain on sale of discontinued operations                                          |   |                   | -      |   |   |   | - |   |
| Loss on foreign currency translation                                             |   |                   | -      |   |   |   | (83,929 | ) |
| Interest income                                                                  |   |                   | -      |   |   |   | - |   |
| Interest expense                                                                 |   |                   | -      |   |   |   | - |   |
| Total other income (expense)                                                     |   |                   | -      |   |   |   | (83,929 | ) |
|                                                                             |   |                   |   |   |   |   |   |   |
| Net income (loss) from discontinued operations before provision for income taxes |   |                   | -      |   |   |   | (80,422 | ) |
| Provision for (benefit from) income taxes                                        |   |                   | -      |   |   |   | - |   |
| Net income (loss) from discontinued operations                                   |   | $                      | -      |   |   | $ | (80,422 | ) |

 

**NOTE 9: INCOME TAXES**

 

The components of the provision for income taxes for the years ended December 31, 2021 and 2020 consisted of the following. The provision for income taxes in 2020 is a result of the gain on the sale of the CAKE Business, and therefore has been classified as a component of discontinued operations.

 

|           |       | **Years Ended**  | ** ** |
|----------------|------------|------------------|------------|
| ** **     | ** ** | **December 31,** | ** ** |
| ** **     | ** ** | **2021**         | ** ** | ** ** | **2020** |   |
| Current        |       |             |       |   |   |   |
| Federal        |       |             | -          |   |   |   | - |   |
| State          |       |             | -          |   |   |   | - |   |
| Total current  |       | $                | -          |   |   | $ | - |   |
| Deferred       |       |             |       |   |   |   |   |   |
| Federal        |       |             | -          |   |   |   | - |   |
| State          |       |             | -          |   |   |   | - |   |
| Total deferred |       | $                | -          |   |   | $ | - |   |
| Total          |       | $                | -          |   |   | $ | - |   |

 

A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows: 

 

|                                                 |       | **Years Ended**  | ** ** |
|------------------------------------------------------|------------|------------------|------------|
| ** **                                           | ** ** | **December 31,** | ** ** |
| ** **                                           | ** ** | **2021**         | ** ** | ** ** | **2020** |   |
| Statutory federal rate                               |       |             | -          |   |   |   | 21.0 | % |
| State income taxes net of federal income tax benefit |       |             | -          |   |   |   | 0.7 | % |
| Permanent differences for tax purposes               |       |             | -          |   |   |   | 0.0 | % |
| Change in valuation allowance                        |       |             | -          |   |   |   | -20.3 | % |
| Effective income tax rate                            |       |             | -          |   |   |   | 0.0 | % |

 

|                |
|---------------------|
| F-19                |
|                     |
| *Table of Contents* |

 

The income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of 21%, primarily due to the change in the valuation allowance and state income tax benefit, offset by nondeductible expenses.

 

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 components of the deferred tax assets and liabilities are as follows: 

 

|                             |       | **Years Ended**  | ** ** |
|----------------------------------|------------|------------------|------------|
| ** **                       | ** ** | **December 31,** | ** ** |
| ** **                       | ** ** | **2021**         | ** ** | ** ** | **2020** |   |
| Deferred tax assets:             |       |             |       |   |   |   |
| Net operating loss carryforwards |       | $                | 3,518,643  |   |   | $ | 3,518,643 |   |
| Impairment of intangible assets  |       |             | 1,054,294  |   |   |   | 1,054,294 |   |
| Stock-based compensation         |       |             | 21,163     |   |   |   | 21,163 |   |
| Other temporary differences      |       |             | (321,112   | ) |   |   | (321,112 | ) |
| Total deferred tax assets        |       |             | 4,272,988  |   |   |   | 4,272,988 |   |
| Change in valuation allowance    |       |             | (4,272,988 | ) |   |   | (4,272,988 | ) |
| Effective income tax rate        |       | $                | -          |   |   | $ | - |   |

  

At December 31, 2021, the Company had available net operating loss carryovers of approximately $13.1 million that may be applied against future taxable income and expires at various dates between 2027 and 2039, subject to certain limitations. The Company has a deferred tax asset arising substantially from the benefits of such net operating loss deduction and has recorded a valuation allowance for the full amount of this deferred tax asset since it is more likely than not that some or all of the deferred tax asset may not be realized. 

 

The Company files income tax returns in the U.S. federal jurisdiction and California and is subject to income tax examinations by federal tax authorities for tax years ended 2017 and later and by California authorities for tax years ended 2014 and later. The Company currently is not under examination by any tax authority. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of December 31, 2020, the Company has no accrued interest or penalties related to uncertain tax positions.

** **

|                |
|---------------------|
| F-20                |
|                     |
| *Table of Contents* |

 

**NOTE 10: ACQUISITONS**

** **

On August 25, 2021, the Company acquired CNP Operating for a purchase price consideration consisting of 23,600,000 shares of the Company’s common stock valued at $10,620,000.

 

Also, during 2019, CNP Operating acquired certain inventory from CSIS and a portion of that inventory became damaged or obsolete.  CNP Operating assumed the obligation for the debt with CBSG for $3,050,000 and CSIS and its sole member guaranteed the CBSG debt.  CSIS has agreed to fund the loan repayments at $138,625 per month for 24 months.  The original balance of the CBSG debt assumed by CNP Operating has been offset as a contribution receivable from CSIS and treated as an initial reduction in members’ equity.  As payments are made by CSIS on the CBSG debt the balance of those payments will be treated as members’ contributions. That balance was $2,218,000 at December 31, 2021.

 

The purchase price allocation at fair value is below. The business combination accounting is not yet complete and the amounts assigned to the net assets acquired are provisional. Therefore, the final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the net assets acquired. 

 

|                                                         |   | **August 25,**

**2021** |       |
|--------------------------------------------------------------|--------|--------------------------|------------|
|                                                         |   | **Unaudited**            |       |
| **Assets**                                                   |   |                     |       |
|                                                         |   |                     |       |
| Current assets                                               |   |                     |       |
| Cash                                                         |   | $                        | 60,589     |   |
| Accounts receivable, net                                     |   |                     | 496,795    |   |
| Inventory                                                    |   |                     | 532,349    |   |
| Current portion of note receivable                           |   |                     | 133,000    |   |
| Total current assets                                         |   |                     | 1,222,733  |   |
|                                                         |   |                     |       |   |
| Other assets                                                 |   |                     |       |   |
| Right of Use Asset                                           |   |                     | 549,902    |   |
| Property and equipment, net of accumulated depreciation      |   |                     | 5,563,610  |   |
| Goodwill                                                     |   |                     | 9,261,591  |   |
| Other Assets                                                 |   |                     | 16,573     |   |
| Total other assets                                           |   |                     | 15,391,676 |   |
| Total assets                                                 |   | $                        | 16,614,409 |   |
|                                                         |   |                     |       |   |
| **Liabilities**                                              |   |                     |       |   |
|                                                         |   |                     |       |   |
| Current liabilities                                          |   |                     |       |   |
| Accounts payable and accrued expenses                        |   | $                        | 1,829,418  |   |
| Due to CSIS                                                  |   |                     | 298,760    |   |
| Current portion of lease obligation                          |   |                     | 198,869    |   |
| Current portion of notes payable                             |   |                     | 1,990,021  |   |
| Total current liabilities                                    |   |                     | 4,317,068  |   |
|                                                         |   |                     |       |   |
| Lease obligation, less current portion                       |   |                     | 359,979    |   |
| Long-term note payable, net of current portion and discounts |   |                     | 1,317,362  |   |
| Total liabilities                                            |   |                     | 1,677,341  |   |
|                                                         |   |                     |       |   |
| Total Purchase Price Consideration                           |   | $                        | 10,620,000 |   |

 

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| F-21                |
|                     |
| *Table of Contents* |

 

The purchase price was 23,600,000 shares of common stock at $0.45 per share totaling $10,620,000.

 

The historical operations of CNP Operating were as follows:

 

|                                |   | **Six Months Ended**

**June 30,**

**2021** |      |   | **Twelve months ended**

**December 31,**

**2020** |   |
|-------------------------------------|--------|----------------------------------------------|-----------|--------|-----------------------------------------------------|--------|
|                                |   | **Unaudited**                                |      |   | **Audited**                                         |   |
| Net revenues                        |   | $                                            | 5,541,627 |   |                                                | $      | 6,183,469 |   |
| Cost of revenue                     |   |                                         | 3,546,763 |   |                                                |   | 5,772,804 |   |
| Gross profit (loss)                 |   |                                         | 1,976,864 |   |                                                |   | 410,665 |   |
|                                |   |                                         |      |   |                                                |   |   |   |
| Operating expenses:                 |   |                                         |      |   |                                                |   |   |   |
| Selling, general and administrative |   |                                         | 2,159,390 |   |                                                |   | 3,829,785 |   |
| Total operating expenses            |   |                                         | 2,159,390 |   |                                                |   | 3,829,785 |   |
|                                |   |                                         |      |   |                                                |   |   |   |
| Loss from operations                |   |                                         | (182,526  | )      |                                                |   | (3,419,120 | ) |
|                                |   |                                         |      |   |                                                |   |   |   |
| Total other expense                 |   |                                         | (28,730   | )      |                                                |   | (222,376 | ) |
|                                |   |                                         |      |   |                                                |   |   |   |
| Net loss                            |   | $                                            | (211,256  | )      |                                                | $      | (3,641,496 | ) |

** **

The following unaudited pro forma consolidated results of operations have been prepared, expressed in rounded thousands, as if the acquisition of CNP Operating had occurred as of January 1, 2020: 

 

|                                                                     |   | Years Ended December 31, |       |
|--------------------------------------------------------------------------|--------|--------------------------|------------|
|                                                                     |   | 2021                     |       |   | 2020 |   |
|                                                                     |   |                     |       |   |   |   |
| Revenue                                                                  |   | $                        | 10,602,000 |   |   | $ | 6,183,000 |   |
|                                                                     |   |                     |       |   |   |   |   |   |
| Net loss from continuing operations                                      |   | $                   | (874,000   | ) |   | $  | (3,419,000 | ) |
|                                                                     |   |                     |       |   |   |   |   |   |
| Net loss per share from continuing operations                            |   | $                   | (0.05      | ) |   | $  | (0.50 | ) |
|                                                                     |   |                     |       |   |   |   |   |   |
| Weighted average number of common stock shares – Basic and diluted |   |                     | 16,227,143 |   |   |   | 6,784,028 |   |

  

**NOTE 11: LEASES**

 

On June 20, 2019, the Company entered into a Lease Agreement with Emerging Growth for the lease of office space in Whitefish, Montana, for a period of one year at a rate of $1,500 per month. On August 5, 2020, the Company entered into a lease agreement with Emerging Growth for additional office space in Whitefish, Montana, replacing its previous lease from June 20, 2019. The term of the lease commenced on September 1, 2020 for a period of one year at a rate of $4,500 per month. The lease contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase. Management has elected a policy to exclude leases with an initial term of 12 months or less from the balance sheet presentation required under ASC 842. As a result, the office lease has been excluded from balance sheet presentation as it has an original term of 12 months or less.

 

On March 30, 2021, the Company entered into a new lease with Emerging Growth, which took the place of the old lease effective April 1, 2021. The lease provides for payments of $4,500 per month and has a term of three years and contains an option for the Company to renew the lease for a period of one additional year at a monthly rent subject to a 3% increase. 

 

On June 4, 2019, the Company’s subsidiary CNP Operating entered into a Lease Agreement with Blair Investments, LLC for the lease of office space in Centennial Colorado, for a period of 3 year at a rate of $10,521 per month. On September 26, 2019 this agreement was terminated and replaced with a new agreement starting October 1, 2019 and expiring on June 30, 2023. 

 

On October 26, 2020 the Company’s subsidiary CNP Operating entered into an amendment to the previous agreement to extend the lease to June 30, 2024, adjust the monthly rent schedule, the landlord agreed to install additional HVAC equipment and the Company agreed to reimburse the landlord $40,000 over a 4-year period with a monthly payment amount of $835.

 

The following is a summary of future minimum lease payments and related liabilities for all non-cancelable operating leases maturing as of December:

 

|                                             |   | **Operating**

**Leases** |      |
|--------------------------------------------------|--------|---------------------------|-----------|
| 2022                                             |   | $                         | 198,869   |   |
| 2023                                             |   |                      | 256,155   |   |
| 2024                                             |   |                      | 262,727   |   |
| 2025                                             |   |                      | 74,161    |   |
| Thereafter                                       |   |                      | -         |   |
| Total minimum lease payments including interest  |   |                      | 791,912   |   |
| Less: Amounts representing interest              |   |                      | (117,718  | ) |
| Present value of minimum lease payments          |   |                      | 674,194   |   |
| Less:  Current portion of lease liabilities |   |                      | (198,869  | ) |
| Non-current portion of lease liabilities         |   | $                         | 475,325   |   |
|                                             |   |                      |      |   |
| Cash payments on lease liabilities               |   | $                         | 1,035,002 |   |
| Weighted average remaining lease term            |   | 3.5 year                  |      |
| Weighted average discount rate                   |   |                      | 10        | % |

  

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| F-22                |
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| *Table of Contents* |

 

**NOTE 12: COMMITMENTS AND CONTINGENCIES**

 

Legal Proceedings

 

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any legal proceedings that it currently believes, if determined adversely to the Company, would individually or taken together have a material adverse effect on the Company’s business, operating results, financial condition or cash flows.

  

On October 18, 2021 the Company settled a vendor dispute in the amount of $100,000 of which the initial payment of $40,000.00 was paid on the execution of the settlement and balance to paid in 48 equal monthly payments of $1,250.00. The balance as of December 31, 2021 is $56,250

  

**NOTE 13: SUBSEQUENT EVENTS**

  

On April 14, 2022, the Company entered into securities purchase agreements with investors for the purchase of an aggregate of 1,142,898 shares of common stock at a purchase price of $0.70 per share for gross proceeds of approximately $800,000. The shares were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

On April 29, 2022, the Company issued 1,000,000 shares of common stock in connection with the closing of the purchase of property in Wray, Colorado, by the Company’s subsidiary CFN Real Estate II, LLC. The shares were issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

On May 11, 2022, the Company’s subsidiary, CFN Real Estate II, LLC,  entered into a promissory note with a lender for the repayment of $500,000 in connection with the $500,000 refinancing of the Company’s property located in Wray, Colorado. The company received the proceeds from the refinancing on May 13, 2022. Accrued interest at the rate of 12% is payable monthly commencing on June 15, 2022, and the principal of the promissory note is payable upon maturity on June 15, 2024. The lender received a security interest in the property and equipment contained therein as collateral for the promissory note.  The promissory note contains customary events of default and other conditions.

  

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| F-23   |