Annual Report (10-k)

Date : 04/14/2017 @ 3:04PM
Source : Edgar (US Regulatory)
Stock : Cabinet Grow Inc. (PC) (CBNT)
Quote : 0.61  0.0 (0.00%) @ 4:19PM

Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2016

 

OR

 

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

 

Commission File Number: 333-197749

 

CABINET GROW, INC.
(Exact name of registrant as specified in its charter)

 

Nevada   46-5546647
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
319 Clematis Street, Suite 812    
West Palm Beach, FL   33401
(Address of principal executive offices)   (Zip Code)

 

(561) 249-6511
(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, $0.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defin ed 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) 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑

 

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

 

Large accelerated filer o     Accelerated filer ☐
   
Non-accelerated filer☐ (Do not check if a smaller reporting company)     Smaller reporting company ☑

 

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

 

As of June 30, 2016, the aggregate market value of the voting and non-voting common equity held by non-affiliates was $84,664.

 

The number of shares outstanding of the registrant’s $0.001 par value Common Stock as of April 14, 2017, was 1,200,043 shares.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

     

 

Table of Contents

 

 

  PART I Page
     
Item 1 Business 4
Item 1A Risk Factors 5
Item 1B Unresolved Staff Comments 5
Item 2 Properties 5
Item 3 Legal Proceedings 5
Item 4 Mine Safety Disclosures 5
     
  PART II  
     
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 5
Item 6 Selected Financial Data 7
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 7
Item 7A Quantitative and Qualitative Disclosures About Market Risk 14
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14
Item 9A Controls and Procedures 15
Item 9B Other Information 16
     
  PART III  
     
Item 10 Directors, Executive Officers and Corporate Governance 16
Item 11 Executive Compensation 17
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 18
Item 13 Certain Relationships and Related Transactions, and Director Independence 18
Item 14 Principal Accountant Fees and Services 19
     
  PART IV  
     
Item 15 Exhibits and Financial Statement Schedules 20
  Signatures 23

2
 

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “project”, “believe”, “anticipate”, “plan”, “expect”, “estimate”, “intend”, “should”, “would”, “could”, or “may”, or other such words, verbs in the future tense and words and phrases that convey similar meaning and uncertainty of future events or outcomes to identify these forward–looking statements. There are a number of important factors beyond our control that could cause actual results to differ materially from the results anticipated by these forward–looking statements. While we make these forward–looking statements based on various factors and using numerous assumptions, you have no assurance the factors and assumptions will prove to be materially accurate when the events they anticipate actually occur in the future.

 

The forward–looking statements are based upon our beliefs and assumptions using information available at the time we make these statements. We caution you not to place undue reliance on our forward–looking statements as (i) these statements are neither predictions nor guaranties of future events or circumstances, and (ii) the assumptions, beliefs, expectations, forecasts and projections about future events may differ materially from actual results. We undertake no obligation to publicly update any forward–looking statement to reflect developments occurring after the date of this report.

 

3
 

PART I

 

ITEM 1. DESCRIPTION OF BUSINESS.

 

(a) General Business Development

 

Corporate History

 

Cabinet Grow, Inc. (the “Company,” “Cabinet Grow” or “we”) was formed to fill the gap in the small scale homegrown horticultural market and through our predecessor, Universal Hydro (“Hydro”), began operations in California in 2008. On April 28, 2014, the Company changed its name to Cabinet Grow, Inc. and all of the business, assets and liabilities of Hydro were assigned to Cabinet Grow. On May 15, 2014, Cabinet Grow redomiciled to Nevada when it merged with Cabinet Grow, Inc., a Nevada corporation.

 

On November 24, 2015, the Company announced as a result of a working capital deficiency the Company has significantly reduced its’ cabinet making operations, including the layoff of all non-executive employees and has stopped taking new orders from customers.

 

(b) Financial Information about Segments

 

The Company currently operates in one reporting segment

 

(c) Narrative Description of Business

 

Through December 2015, we assembled and sold cabinet-based horticultural systems. The Company purchased cabinets, as well as lights, filters and fans, from third party suppliers. Upon receipt of an order from a customer, the Company assembled the parts into a “finished horticulture” cabinet for sale. The design and production of our hydroponic and soil grow cabinets make the process of growing in a self-contained cabinet automated and simplified.

 

On November 24, 2015, the Company announced as a result of a working capital deficiency that the Company has significantly reduced operations, including the layoff of all non-executive employees and has stopped taking new orders from customers.

 

On December 31, 2015, the Company agreed to purchase a 100% membership interest (the “ Membership Interest ”) in Quasar, LLC, a Utah limited liability company (“ Quasar ”), from Tonaquint, Inc., a Utah corporation (“ Seller ”). The Company has agreed to purchase (the “ Purchase ”) the Membership Interest from the Seller for a purchase price of $180,000.00 pursuant to the terms of a Membership Interest Purchase Agreement (the “ Purchase Agreement ”).

 

The Company paid for the Purchase by delivering to Seller at the closing a Secured Promissory Note (the “ Note ”). The Note is secured by the Company’s pledge of the Membership Interest pursuant to a Membership Interest Pledge Agreement (the “ Pledge Agreement ”) and by a first position Deed of Trust, Security Agreement and Financing Statement in favor of Seller encumbering certain real property owned by Quasar (the “ Trust Deed ,” and together with the Purchase Agreement, the Note, the Pledge Agreement, and all other documents entered into in conjunction therewith, the “ Purchase Documents ”).

 

Also on December 31, 2015, Quasar entered into a one year lease agreement, whereby the base rent is $1,000 and the tenant is responsible for all operating costs and real estate taxes of the leased property.

In conjunction with the Purchase, other than the sale of 3 cabinets in January 2016, the Company ceased its prior business as a manufacturer and distributor of cabinet-based horticultural systems, and the Company’s current business activity is in the land leasing business.

Employees

 

As of December 31, 2016, we had no employees.

 

4
 

Intellectual Property

 

Our intellectual property consists of brands and their related trademarks and websites, customer lists and affiliations, product know-how and technology, and marketing intangibles.

 

Our other intellectual property is primarily in the form of trademarks and domain names. We own the U.S. trademarks for Flip LED TM , Universal Hydro TM , and Cabinet Grow TM . We also hold rights to URLs related to our business, including URLs that are actively used in our day-to-day business such as www.cabinetgrow.com.

 

We have a policy of entering into confidentiality and non-disclosure agreements with our employees and some of our vendors and customers (some customers are also wholesale distributors for competitors’ products) as we deem necessary. These agreements and policies are intended to protect our intellectual property, but we cannot ensure that these agreements or the other steps we have taken to protect our intellectual property will be sufficient to prevent theft, unauthorized use or adverse infringement claims. We cannot prevent piracy of our methods and features, and we cannot determine the extent to which our methods and features are being pirated.

 

ITEM 1A. RISK FACTORS

 

Not required for a smaller reporting company.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Not required for a smaller reporting company.

 

ITEM 2. PROPERTIES.

 

We leased approximately 4,427 square feet of office and manufacturing space in Irvine, California pursuant to a lease that expired on September 30, 2016. Effective February 19, 2016, the Company entered into a sublease with an unaffiliated third party, whereby, pursuant to the sublease Company received $36,750 through September 30, 2016.

 

For public reporting purposes and corporate correspondences regarding such, the Company utilizes the office address of a company controlled by our former CFO in West Palm Beach, FL at no charge.

 

ITEM 3. LEGAL PROCEEDINGS.

 

We are not a party to any material litigation, nor, to the knowledge of management, is any litigation threatened against us that may materially affect us.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

The following table sets forth for the periods indicated the high and low bid quotations for our common stock. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions. The prices below have been adjusted for the 1 for 250 reverse split that was effective March 9, 2017.

5
 

 

Period     High       Low  
Fiscal Year 2016                
First Quarter (January 1, 2016 – March 31, 2016)   $                4.975     $ 2.50  
Second Quarter (April 1, 2016 – June 30, 2016)   $ 4.50     $ 2.25  
Third Quarter (July 1, 2016 – September 30, 2016)   $ 4.25     $ 1.25  
Fourth Quarter (October 1, 2016 – December 31,2016)   $ 12.25     $ 1.50  
                 
Period     High       Low  
Fiscal Year 2015                
First Quarter (January 1, 2015 – March 31, 2015)   $ N/A     $ N/A  
Second Quarter (April 1, 2015 – June 30, 2015)   $ N/A     $ N/A  
Third Quarter (July 1, 2015 – September 30, 2015)   $ 270.00     $ 100. 00
Fourth Quarter (October 1, 2015 – December 31,2015)   $ 125.00     $ 2.50  
                 

(b) Holders.

 

The number of record holders of our common stock as of April 7, 2017 is 59.

 

(c) Dividends

 

The Company did not declare any cash dividends for the years ended December 31, 2016 and 2015. Our Board of Directors does not intend to distribute any cash dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the Board of Directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

(d) Securities authorized for issuance under equity compensation plans

 

None.

 

Recent Sales of Unregistered Equity Securities

 

During the year ended December 31, 2015, the Company sold 2,008 shares of common stock and received $200,800.

 

On April 1, 2015, the Company agreed to issue 300 shares of common stock to a consultant. The Company valued the shares at $100 per share. Accordingly, $30,000 is included in stock compensation expense for the year ended December 31, 2015.

 

On April 15, 2015 and May 15 2015, the Company issued 50 shares of stock to Hayden.

 

On July 16, 2015, CVP converted $50,000 of accrued and unpaid interest under the Company Note into 1,015 shares of common stock.

 

On July 21, 2015, the Company issued 1,400 shares of restricted common stock to a consultant. The Company valued the shares at $100 per share. Accordingly, $140,000 is included in stock compensation expense for the year ended December 31, 2015.

 

On July 21, 2015, 70 shares of common stock were issued equal in value to an aggregate of $7,000 per month to two employees as part of their compensation. Accordingly, $7,000 is included in stock compensation expense for the year ended December 31, 2015.

 

On July 21, 2015, the Company agreed to issue 300 shares of common stock to a consultant. The Company valued the shares at $100 per share. Accordingly, $30,000 is included in stock compensation expense for the year ended December 31, 2015.

 

6
 

On July 24, 2015, the board of directors of the Company approved the granting of 5,294 shares of restricted common stock to employees, including 3,000 shares awarded to the Company’s CFO at the time. The Company valued the shares at $100 per shares and has included $529,400 in stock compensation expense for the year ended December 31, 2015. The board of directors also approved the issuance of common stock equal in value to an aggregate of $7,000 (amended to $6,000) per month to two employees as part of their compensation.

 

On August 4, 26, and 28, 2015, the Company issued 1,725, 230 and 920, respectively, of restricted shares of common stock upon the conversion from the holders of the August 2015 Notes. The shares were issued at $50 per share.

 

On August 4, 2015, the Company issued 400 restricted shares of common stock to a consultant. The Company valued the shares at $100 per share and has included $40,000 in stock compensation expense for the year ended December 31, 2015.

 

On September 30, 2015, the Company agreed to issue 40 restricted shares of common stock to a consultant. The Company valued the shares at $100 per share and has included $4,000 in stock compensation expense for the year ended December 31, 2015. The shares were certificated in October 2015.

 

On October 27, 2015, the Company issued 115 shares of restricted common stock upon the conversion of the September 2015 Note.

 

On October 27, 2015, the Company issued 40 restricted shares of common stock to a consultant. The Company valued the shares at $62.50 per share and has included $2,500 in stock compensation expense for the year ended December 31, 2015.

 

On October 27, 2015, 185 shares of common stock were issued equal in value to an aggregate of $18,500 per month to two employees as part of their compensation. Accordingly, $18,500 is included in stock compensation expense for the year ended December 31, 2015.

 

On July 27, 2016, Dove converted $920,306 of principal and accrued and unpaid interest under the Company Note into 1,051,778 shares of common stock.

 

All such shares were issued in reliance on the exemption found in Section 4(a)(2) of the Securities Act of 1933, as amended. Each share recipient was provided with access to information which would be required to be included in a registration statement and such issuances did not involve a public offering.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

Not applicable to a smaller reporting company.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OR PLAN OF OPERATION.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto for the years ended December 31, 2016 and 2015.

 

The independent auditor’s report on our financial statements for the years ended December 31, 2016 and 2015 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 10 to the audited consolidated financial statements.

 

While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditor has raised substantial doubt about our ability to continue as a going concern.

 

7
 

Through December 2015, we assembled and sold cabinet-based horticultural systems. The Company purchased cabinets, as well as lights, filters and fans, from third party suppliers. Upon receipt of an order from a customer, the Company assembled the parts into a “finished horticulture” cabinet for sale. The design and production of our hydroponic and soil grow cabinets make the process of growing in a self-contained cabinet automated and simplified. Our mission is to make hydroponic and soil growing simpler, more efficient and a better value than other products found on the market.

 

On November 24, 2015, the Company announced as a result of a working capital deficiency the Company has significantly reduced operations, including the layoff of all non-executive employees and has stopped taking new orders from customers.

 

On December 31, 2015, the Company agreed to purchase a 100% membership interest (the “ Membership Interest ”) in Quasar, LLC, a Utah limited liability company (“ Quasar ”), from Tonaquint, Inc., a Utah corporation (“ Seller ”). The Company has agreed to purchase (the “ Purchase ”) the Membership Interest from the Seller for a purchase price of $180,000.00 pursuant to the terms of a Membership Interest Purchase Agreement (the “ Purchase Agreement ”).

 

The Company paid for the Purchase by delivering to Seller at the closing a Secured Promissory Note (the “ Note ”). The Note is secured by the Company’s pledge of the Membership Interest pursuant to a Membership Interest Pledge Agreement (the “ Pledge Agreement ”) and by a first position Deed of Trust, Security Agreement and Financing Statement in favor of Seller encumbering certain real property owned by Quasar (the “ Trust Deed ,” and together with the Purchase Agreement, the Note, the Pledge Agreement, and all other documents entered into in conjunction therewith, the “ Purchase Documents ”).

 

In conjunction with the Purchase, other than the sale of 3 cabinets in January 2016, the Company ceased its prior business as a manufacturer and distributor of cabinet-based horticultural systems and began operations in the land leasing business.

 

Results of Operations

 

For the year ended December 31, 2016 compared to December 31, 2015

 

Revenues, related party

 

Revenues, related party for the year ended December 31, 2016, of $12,000 was pursuant to a lease, whereby effective December 31, 2015, Quasar LLC, the Company’s wholly owned subsidiary, entered into a one year lease agreement with a related party tenant. Pursuant to the lease the tenant will pay $1,000 per month to Quasar.

 

Operating Expenses

 

Operating expenses for the year ended December 31, 2016 were $41,959 compared to $498,460 for the year ended December 31, 2015. The expenses were comprised of the following:

 

   

 

Year ended December 31,

Description   2016   2015
Professional fees   $ 82,153     $ 416,785  
Depreciation     1,034       —    
Gain on debt payments     (59,646 )     —    
Other general and administrative     18,418       82,175  
Total   $ 41,959     $ 498,960  

 

 

Other Expenses

 

Other expense for the year ended December 31, 2016 were $2,625,563 compared to $1,774,062 for the year ended December 31, 2015. Amounts included in other expenses for the 2016 period was an expense of $918,956 for the change in the fair value of derivative liabilities, compared to $648,540 for the 2015 period. Interest expense, other for the year ended December 31, 2016 and 2015 were as follows:

 

8
 

    Year ended December 31,
Description   2016   2015
Amortization of discount on convertible notes   $ 987,245     $ 740,890  
Face value of issued interest, convertible notes     359,637       108,849  
Debt default penalty     344,654       270,057  
Amortization of deferred financing costs     3,288       2,783  
Other     11,783       2,852  
Total   $ 1,706,607     $ 1,125,521  

 

Net Loss

 

Net loss for the year ended December 31, 2016, was $2,687,541 compared to $3,468,283 for the year ended December 31, 2015, primarily as a result of increases of $918,956 and $648,540, in the fair value of derivative liabilities for the years ended December 31, 2016 and 2015, respectively. There was also an increase in interest expense for the year ended December 31, 2016 of $581,086, compared to the year ended December 31, 2015. Included in the net loss is the loss of discontinued operations of $32,020 and $1,195,262 for the years ended December 31, 2016 and 2015, respectively.

 

Capital Resources and Liquidity

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of December 31, 2016, we had $1,582 in cash or cash equivalents on hand. At December 31, 2016 we had current liabilities of $2,917,700 compared to current assets of $5,583 which resulted in a negative working capital position of $2,912,117. The current liabilities are comprised principally of accounts payable, accrued expenses, convertible note payable (related party), derivative liabilities and note payable to a stockholder.

 

Operating Activities

 

Cash flows from operations provided $250,859 for the year ending December 31, 2016 compared to $153,401 for the year ended December 31, 2015. For the year ended December 31, 2016, non-cash activity of; $987,245 of amortization of discounts and fees on convertible notes, $918,956 of derivative liability expense, the recording of initial discounts on convertible notes of $509,969, $43,462 of gain on convertible debt payments and $32,020 of a net loss on discontinued operations were major factors to adjust net loss to net cash used in operating activities.

 

Non-cash expenses for the nine months ended September 30, 2015, of $465,639 of amortization of discounts on convertible notes and deferred financing fees, the recording of initial discounts on convertible notes of $2,021,387, loss on discontinued operations of $1,098,195 and a gain of $60,603 for the change in fair value of derivative liabilities were major adjusting factors to reconcile the Company’s net loss of $3,521,968 to net cash provided by operating activities.

 

Investing Activities

 

There was no cash flow activity from continuing operations related to investing activities for the nine months ended September 30, 2016 and 2015, respectively.

 

Financing Activities

 

There was no cash provided by financing activities from continuing operations for the nine months ended September 30, 2016, compared to $570,864 for the nine months ended September 30, 2015. During the nine months ended September 30, 2015 the Company received proceeds of $363,750 from the issuance of convertible promissory notes, $200,800 from the sale of shares of common stock and $6,314 for the amounts received from a stockholder.

 

9
 

Capital Resources and Recent Financings

 

On June 3, 2014, the Board authorized the Company to enter into a Securities Purchase Agreement (“SPA”) with Chicago Venture Partners, L.P. (“CVP”). Pursuant to the SPA, the Company agreed to issue to CVP a Secured Convertible Promissory Note in the principal amount of $1,657,500 (the “Note”).

 

On April 29, 2016, CVP and Tonaquint sold and transferred all of their ownership and rights under the CVP SPA and Note and the Tonaquint SPA and related Purchase documents to The Dove Foundation (“Dove”).

 

On June 6, 2014, the Company executed the SPA with CVP, for the sale of the Company Note in the principal amount of up to $1,657,500 (which included CVP’s legal expenses in the amount of $7,500 and a $150,000 OID) for $1,500,000, consisting of $500,000 paid in cash on June 11, 2014 (the “Closing Date”), two $250,000 secured promissory notes and two $250,000 promissory notes (the “Investor Notes”), aggregating $1,000,000, bearing interest at the rate of 10% per annum. The Investor Notes are due 30 months from the Closing Date and may be prepaid, without penalty.

 

As security for the Note, the Company’s CEO and former COO each pledged to CVP their 50 shares of Class A Preferred Stock (see Note 8). On August 5, 2016, Dove acquired all of the Class A Preferred Stock.

 

Pursuant to the terms of the Note, the Company was required to deliver the Installment Amount (as defined in the Note) on or before each Installment Date (as defined in the Note) until the Note was repaid. The Company failed to deliver the Installment Amount in June 2015, July 2015 and August 2015 (each, a “Breach” and collectively, the “Breaches”). Each such Breach would constitute a separate event of default pursuant to the terms of the Note if so declared by the Lender.

 

On September 10, 2015, the Company entered into a forbearance and standstill agreement (the “Forbearance and Standstill Agreement”) with CVP and Matt Lee and Sam May, pursuant to which CVP agreed to refrain and forbear temporarily from exercising and enforcing remedies under the Note.

 

On May 17, 2016, the Company received notification that Dove has waived the 9.99% ownership limitation contained in the CVP Note, thereby creating a potential change in control of the Company.

 

On July 27, 2016, the Company received a Notice of Breach of Secured Convertible Promissory Note from Dove regarding the December 2015 and January 2016 installment payments. Pursuant to the terms and conditions of the default, the lender elected to multiply the outstanding balance by 125%, or $270,056 for the December default (included in the December 31, 2015, balances) and $344,654 for the January default. The Lender also increased the interest rate to 22% per annum pursuant to the default. Also on July 27, 2016, Dove sent the Company a conversion notice to issue 1,051,778 shares of common stock in exchange for the cancellation of $920,306 of interest and principal due. Immediately after the conversion Dove owned approximately 87.6% of the common stock of the Company.

 

The Note may be converted at the option of the holder, on the date that is six months from the Trading Date (defined in the Purchase Agreement as the date on which the Common Stock is first trading on an Eligible Market, but in any event the Company shall cause its Common Stock to be trading on an Eligible Market within nine months of the Closing Date of June 11, 2014) or at any time thereafter at a conversion price of $49.40. The conversion price is equal to $6,500,000 divided by 132,000 (the amount of fully diluted shares of Common Stock of the Company on the date the Company filed its’ Registration Statement). In the event the Company elects to prepay all or any portion of the Company Note, the Company is required to pay to CVP an amount in cash equal to 125% multiplied by the sum of all principal, interest and any other amounts owing. On July 16, 2015, CVP converted $50,000 of accrued and unpaid interest under the Company Note into 1,015 shares of common stock.

 

10
 

Initially, the Company determined that the conversion feature of the convertible note did not meet the criteria of an embedded derivative and therefore the conversion feature was not bi-furcated and accounted for as a derivative because the Company was a private company, there was no quoted price and no active market for the Company’s common stock. Since the convertible note included an embedded conversion feature that did not qualify to be bi-furcated as a derivative, management evaluated this feature to determine whether it meets the definition of a beneficial conversion feature (“BCF”) within the scope of ASC 470-20, “Debt with Conversion and Other Options”, and determined that a BCF existed. During the year ended December 31, 2015, and prior to the Company becoming a public company, the Company received $163,000 in new funding and recorded a BCF expense in the amount of $163,000. The Company began trading as a public Company on July 13, 2015, and on that date the Company determined that the conversion feature of the Note represented an embedded derivative since the Note is convertible into a variable number of shares upon conversion. Accordingly, on July 13, 2015, the Note was not considered to be conventional debt under ASC 815 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of the derivative instruments for the fundings of the Note that occurred prior to July 13, 2015, were recorded as a liability on July 13, 2015, on the consolidated balance sheet with the corresponding amount recorded as a discount to the Note. Such discount is being amortized from the date of issuance to the maturity date of the Note. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet.

 

We presently have 300,000,000 shares of common stock authorized, of which 1,200,043 shares were issued and outstanding as of December 31, 2016 and April 14, 2017.

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Critical Accounting Policies

 

BASIS OF PRESENTATION

 

The accompanying financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America.

 

EMERGING GROWTH COMPANY

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

DISCONTINUED OPERATIONS

 

On December 31, 2015, the Company’s Board of Directors approved the purchase of certain real property as described in Note 1. As a result of the purchase, the Company’s prior business operations have been (re)classified as discontinued operations on a retrospective basis for all periods presented herein.

 

11
 

CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

 

ACCOUNTS RECEIVABLE

 

Substantially all individuals pay in advance of their product being shipped. During the year ended December 31, 2015, the Company occasionally shipped product with payment terms of 30 to 60 days to retailers. For these shipments, the Company records accounts receivable from amounts due from its customers upon the shipment of products. The allowance for losses is established through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when management believes collectability is unlikely. The allowance (if any) is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience. For the years ended December 31, 2016 and 2015, management’s evaluation did not require any allowance for uncollectible receivables.

 

INVENTORY

 

Inventory is valued at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Provision for potentially obsolete or slow moving inventory is made based on management analysis or inventory levels and future sales forecasts. Based on management’s analysis as of December 31, 2015, the Company recorded a write down of inventory of $31,598.

 

LAND, PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost, and depreciation is provided by use of straight-line methods over the estimated useful lives of the assets. The estimated useful lives of property and equipment are as follows:

 

Manufacturing equipment 10 years
Office equipment and furniture 7 years
Computer hardware and software 3 years

 

The Company's property and equipment consisted of the following at December 31, 2016 and 2015:

 

    2016   2015
Furniture and Equipment   $ 3,318     $ 3,318  
Manufacturing equipment     826       826  
Software     2,912       2,912  
Land     180,000       180,000  
Accumulated depreciation     (5,407 )     (4,373 )
Balance   $ 181,649     $ 182,683  

 

Depreciation expense for the year ended December 31, 2016, was $1,034 and was $28,958 (included in loss of discontinued operations) for the year ended December 31, 2015.

 

REVENUE RECOGNITION

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, “Revenue Recognition.” ASC 605 requires that the following four basic criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue from leased property during the month the tenant is responsible for payment. Revenues from the sale of cabinets are included in net loss from discontinued operations for all periods presented herein.

 

12
 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”).

 

Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.

 

The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial instruments are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The three hierarchy levels are defined as follows:

 

Level 1 – Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

 

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

 

The Company's financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued expenses, note payable and convertible debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. The Company’s derivative liability (conversion option and warrant derivative) is valued using the level 3 inputs.  The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

 

The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2016 and December 31, 2015 for each fair value hierarchy level:

 

December 31, 2016   Derivative
Liability
  Total
Level I   $ —       $ —    
Level II   $ —       $ —    
Level III   $ 1,225,083     $ 1,225,083  
 December 31, 2015                
Level I   $ —       $ —    
Level II   $ —       $ —    
Level III   $ 1,648,255     $ 1,648,255  

 

13
 

INCOME TAXES

 

Prior to May 2014, the Company was organized as a sole proprietorship and was not subject to income taxes. Rather, the Company’s sole stockholder was subject to income taxes on the Company’s taxable activity. In May 2014, the Company became subject to income taxes and will be subject to Federal and State income taxes as a corporation.

 

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

 

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. Interest and penalties are classified as a component of interest and other expenses. To date, the Company has not been assessed, nor paid, any interest or penalties.

 

Uncertain tax positions are measured and recorded by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized.

 

EARNINGS (LOSS) PER SHARE

 

The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. For the periods ending ended December 31, 2016 and 2015, 445,603 and 1,049,418 shares of common stock, respectively, underlying convertible debt and warrants have been excluded from the computation diluted earnings per share because they are antidilutive.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the Company's present or future consolidated financial statements.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 to F-17 of this annual report on Form 10-K.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

14
 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer who is also the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report. Based on that review and evaluation, the CEO/CFO has concluded that as of December 31, 2016, the Company’s disclosure controls and procedures, were not effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.

 

Management’s Report on Internal Controls over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and disposition of our assets;
Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our asset s that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our Principal Executive Officer and CFO have evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this evaluation, we concluded that our internal control over financial reporting was not effective as of December 31, 2016 as described below.

 

We assessed the effectiveness of the Company’s internal control over financial reporting as of evaluation date and identified the following material weaknesses:

 

Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.

 

Inadequate Segregation of Duties : We have an inadequate number of personnel to properly implement control procedures.

 

Lack of Audit Committee: We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.

 

We have discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of this material weakness, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.

 

15
 

This annual report on Form 10-K 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 the rules of the SEC that permit us to provide only management’s report in this annual report on Form 10-K.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our directors are elected by the shareholders to a term of one year and serve until their successors are elected and qualified. Our officers are appointed by the Board of Directors to a term of one year and serve until their successors are duly appointed and qualified, or until the officer is removed from office. The Board of Directors has no nominating, audit or compensation committees.

 

The names, ages and positions of our officers and directors are set forth below:

 

Name   Age   Positions Held
Samuel May   35   Chief Executive Officer, Chief Financial Officer and Sole Director

 

Samuel May, Chief Executive Officer, Chief Financial Officer and Director . Mr. May has served as our CEO and President and as a Director since May 14, 2014, and was President, Chief Financial Officer and a Director of our predecessor California company from April 28, 2014 through May 15, 2014, the date our predecessor California company merged with and into the Company. Since 2008, Mr. May has assisted Mr. Lee in Mr. Lee’s sole proprietorship, Universal Hydro. He has been involved in a variety of companies as a founder and operator since 2000 and in 2004 he co-founded Main Street Lending, a mortgage lender that developed a mortgage loan program designed to leverage a debtor’s home equity to obtain an early exit from Chapter 13 bankruptcy. Mr. May was responsible for lender relations and directed the in-house sales, processing, and escrow teams. Cabinet Grow is Sam’s fourth venture in 14 years.

 

Mr. May’s experience as our Chief Executive Officer and involvement with our formation, along with his knowledge of our business, management skills and previous success in launching new companies, has led our board of directors to conclude that he should continue to serve as a director.

 

Corporate Governance

 

Our directors have not established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee, or any committee performing a similar function. The functions of those committees are being undertaken by our officers and directors. Because we do not have any independent directors, our officers and directors believe that the establishment of committees of the Board would not provide any benefits to our company and could be considered more form than substance.

 

We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our officers and directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our officers and directors have not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors.

 

16
 

Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of director nominees.

 

As with most small, early stage companies until such time our company further develops our business, achieves a stronger revenue base and has sufficient working capital to purchase directors and officers insurance, we do not have any immediate prospects to attract independent directors. When we are able to expand our Board of Directors to include one or more independent directors, we intend to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, all executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during 2015.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table summarizes all compensation recorded by us for the years ended December 31, 2016 and December 31, 2015 for the officers listed.

 

SUMMARY COMPENSATION TABLE

Name & Principal Position   Year   Salary   Stock Awards   Option Awards   All Other Compensation   Total
Samuel May     2016     $ —       $ —       $ —       $ —       $ —    
Chief Executive Officer     2015     $ 59,576     $ —       $ —       $ —       $ 59,576  

 

There are no compensatory plans or arrangements, including payments to be received from the Company with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company, or our subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company.

 

Employment Agreements with Executive Officers

 

There are no current employment agreements between the Company and our executive officer or understandings regarding future compensation.

 

Outstanding Equity Awards at Fiscal Year-End

 

None.

 

Compensation of Directors

 

Our current directors do not receive compensation for their service on the Board of Directors. The Board of Directors has the authority to fix the compensation of directors. We do not intend to pay employee directors a separate fee for their services.

 

17
 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding beneficial ownership of our common stock and preferred stock as of April 14, 2017, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, (ii) each director and each of our Named Executive Officers and (iii) all executive officers and directors as a group. As of April 14 , 2017, there were 1,200,043 shares of our common stock outstanding and 100 shares of our Class A Preferred Stock outstanding.

 

The number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.

 

    Common Stock   Class A Preferred Stock
Name and Address of Beneficial Owner (1)   Amount and Nature of Beneficial Ownership   Percent of Class   Amount and Nature of Beneficial Ownership   Percent of Class
Samuel May     60,000       5.0 %                
3322 Nevada Avenue
Costa Mesa, CA. 92626
                               
                                 
The Dove Foundation
4783 Lake Valley Drive
Lisle, IL 60532
    1,051,779       87.7 %     100       100 %
                                 
All Officers and Directors as a group (1 person)     60,000       5.0 %                

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Party Transactions

 

On May 15, 2014, the Company filed Articles of Merger (the “Merger”) with the Secretary of State of Nevada whereby Cabinet Grow, Inc. (a California Corporation) merged with and into the Company. Pursuant to the Merger, the Company issued in the aggregate 1200,000 shares of common stock (60,000 shares each to Mr. May and Mr. Lee, the two shareholders of the California Corporation).

During the year ended December 31, 2015, The Company’s former COO loaned the Company various amounts for Company expenses. Included in the advances and repayments is the activity from several credit cards that are in the name of the stockholder but were used for Company purposes (see note 6). The Company recorded interest expense of $984 and $948 for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016 the former COO was owed accrued interest of $4,610 and is included in accounts payable and accrued liabilities, stockholders, on the December 31, 2016, balance sheet.

 

18
 

Management Fees

For the years ended December 31, 2016 and 2015, the Company paid its’ officers and former officers the following amounts:

 

    2016   2015
Chief Executive Officer (“CEO”)   $ —       $ 59,576  
Chief Operating Officer (“COO”)     —         51,234  
Chief Financial Officer (“CFO”)     —         55,650  
Total   $ —       $ 166,460  

 

As of December 31, 2016 the Company owed $14,424, $22,766 and $16,350 to the CEO, former COO and former CFO, respectively, for accrued and unpaid fees. Of this amount, $37,190 is included in liabilities of discontinued operations and $16,350 is included in accounts payable and accrued liabilities, stockholders, on the December 31, 2016, balance sheet. Currently, Mr. May is the sole officer.

 

On May 11, 2015, the Board approved increases to the salaries of each of the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Operating Officer (“COO”) from $5,000 per month to $8,000 per month. The increases will only be paid when and if the cash flow of the Company is sufficient.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table shows the fees that were billed for the audit and other services for the fiscal year ended December 31, 2016, provided by D. Brooks and Associates CPA’s P.A., MaloneBailey, LLP and KLJ & Associates, LLP and to D. Brooks and Associates CPAs P.A. for the fiscal year ended December 31, 2015.

 

    2016   2015
Audit Fees   $ 36,560     $ 18,628  
Audit-Related Fees     —         —    
Tax Fees     —         —    
All Other Fees     —         —    
  Total   $ 36,560     $ 18,628  

 

Audit Fees — This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

 

Audit-Related Fees — This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.”

 

Tax Fees — This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice.

 

All Other Fees — This category consists of fees for other miscellaneous items.

 

19
 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) 1. Financial Statements
     
    The consolidated financial statements and Report of Independent Registered Public Accounting Firm are included on pages F-1 through F-17.
     
  2. Financial Statement Schedules
     
    All schedules for which provisions made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.
     
  3. Exhibits (including those incorporated by reference).

 

Exhibit

Number

  Description of Exhibit
3.1   Articles of Incorporation filed with the California Secretary of State on April 28, 2014. (Incorporated herein by reference to Exhibit 3.1 as part of the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
3.2   Articles of Incorporation filed with the California Secretary of State on April 28, 2014. (Incorporated herein by reference to Exhibit 3.2 as part of the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
3.3   Bylaws of Cabinet Grow, Inc. (California Corporation). (Incorporated herein by reference to Exhibit 3.3 as part of the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
3.4   Articles of Merger and Agreement and Plan of Merger filed with the Nevada Secretary of State on May 16, 2014. (Incorporated herein by reference to Exhibit 3.4 as part of the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
3.5   Bylaws of Cabinet Grow, Inc. (Nevada corporation). (Incorporated herein by reference to Exhibit 3.5 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
3.6   Amended and Restated Articles of Incorporation as filed with the Nevada Secretary of State on May 2, 2016.(Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on May 6, 2016).
4.1   Certificate of Designation Class A Preferred Stock. (Incorporated herein by reference to Exhibit 4.1 as part of the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
4.2   Class A Preferred Stock Purchase Agreement between Cabinet Grow, Inc. and Sam May dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.2 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.3   Class A Preferred Stock Purchase Agreement between Cabinet Grow, Inc. and Matt Lee dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.3 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.4   $22,000 Convertible Promissory Note with Gary Gilman. (Incorporated herein by reference to Exhibit 4.4 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.41   $22,000 Convertible Promissory Note with Sean Cook. (Incorporated herein by reference to Exhibit 4.41 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.42   $22,000 Convertible Promissory Note with Maureen Lee. (Incorporated herein by reference to Exhibit 4.42 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
20
 
4.5   Security Purchase Agreement (“SPA”) Chicago between Cabinet Grow, Inc. and Chicago Venture Partners, L.P. dated June 6, 2014. (Includes Exhibit N). (Incorporated herein by reference to Exhibit 4.5 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.6   Secured Convertible Promissory Note between Cabinet Grow, Inc. and Chicago Venture Partners, L.P. dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.6 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.7   Pledge Agreement between Sam May and Chicago Venture Partners, L.P. dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.7 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.8   Pledge Agreement between Matt Lee and Chicago Venture Partners, L.P. dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.8 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.9   Warrant to Purchase Common Stock between Cabinet Grow, Inc. and Chicago Venture Partners, L.P. dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.9 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.10   Amended form of Subscription Agreement. (Incorporated herein by reference to Exhibit 4.10 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.11   Membership Interest Pledge Agreement (Buyer Pledge Agreement). (Incorporated herein by reference to Exhibit 4.11 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.12   Allocation of Purchase Price. (Incorporated herein by reference to Exhibit 4.12 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.13   Secured Buyer Note #2. (Incorporated herein by reference to Exhibit 4.13 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.14   Secured Buyer Note #4. (Incorporated herein by reference to Exhibit 4.14 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.15   Security Agreement. (Incorporated herein by reference to Exhibit 4.15 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.16   Irrevocable Transfer Agent Instructions. (Incorporated herein by reference to Exhibit 4.16 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.17   Secretary’s Certificate. (Incorporated herein by reference to Exhibit 4.17 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
4.18   Share Issuance Resolution. (Incorporated herein by reference to Exhibit 4.18 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
10.1   Agreement to Assign Assets between Cabinet Grow, Inc. and Matt Lee dated April 30, 2014. (Incorporated herein by reference to Exhibit 10.1 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
10.2   Merger Agreement. (Incorporated herein by reference to Exhibit 10.2 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
10.3   Promissory Note between Cabinet Grow, Inc. and Matt Lee dated April 29, 2014. (Incorporated herein by reference to Exhibit 10.3 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
10.4   Secured Buyer Note #1. (Incorporated herein by reference to Exhibit 10.4 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
10.5   Secured Buyer Note #3. (Incorporated herein by reference to Exhibit 10.5 as part of the Company’s Registration Statement on Form S-1 Amendment No. 1 as filed with the SEC on September 26, 2014).
10.6 +   Cabinet Grow, Inc. 2015 Equity Compensation Plan. (Incorporated herein by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2015).
10.7 +   Form of Stock Option Agreement under the Cabinet Grow, Inc. 2015 Equity Compensation Plan. (Incorporated herein by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2015).
21
 
10.8 +   Form of Stock Award Agreement for Restricted Stock under the Cabinet Grow, Inc. 2015 Equity Compensation Plan. (Incorporated herein by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2015).
10.9   Forbearance and Standstill Agreement dated September 10, 2015 by and among Chicago Venture Partners, L.P., Cabinet Grow, Inc., Matt Lee and Sam May (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 24, 2015).
10.10   Membership Interest Purchase Agreement, dated as of December 31, 2015, between Cabinet Grow, Inc. and Tonaquint, Inc.(Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on January 6, 2016).
10.11   Secured Promissory Note issued by Cabinet Grow, Inc. to Tonaquint, Inc. (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on January 6, 2016).
10.12   Membership Interest Pledge Agreement, dated as of December 31, 2015, between Cabinet Grow, Inc. and Tonaquint, Inc. (Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K as filed with the SEC on January 6, 2016).
10.13  

Deed of Trust, Security Agreement and Financing Statement, dated as of December 31, 2015, between Cabinet Grow, Inc. and Tonaquint, Inc. (Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K as filed with the SEC on January 6, 2016).

 

31.1*   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Chief Financial Officer
32.1*   Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS**   XBRL Instance
101.SCH**   XBRL Taxonomy Extension Schema
101.CAL**   XBRL Taxonomy Extension Calculation Linkbase
101.DEF**   XBRL Taxonomy Extension Definition Linkbase
101.LAB**   XBRL Taxonomy Extension Labels Linkbase
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of this annual report on Form 10-K for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

+ Management contract or compensatory plan or arrangement.

 

 

 

 

22
 

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.

 

Cabinet Grow, Inc.

 

By: /s/ Samuel May            
  Samuel May
  Chief Executive Officer
   
Date: April 14, 2017
   

 

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

 

Signature   Title   Date
/s/ Samuel May              Chief Executive Officer, Chief Financial Officer and Director (principal executive officer and principal financial officer)    April 14, 2017

 

 

23
 

CABINET GROW, INC.

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

INDEX TO FINANCIAL STATEMENTS

 

 

Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2016 and 2015 F-3
Consolidated Statements of Operations for the years ended December 31, 2016 and 2015 F-4
Consolidated Statement of Changes in Stockholders Deficit for the years ended December 31, 2016 and 2015 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015 F-6
Notes to Consolidated Financial Statements F-7 – F-17

 

F- 1
 

 



 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and

Stockholders of Cabinet Grow, Inc.

 

We have audited the accompanying consolidated balance sheets of   Cabinet Grow, Inc. as of December 31, 2016 and 2015 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. Cabinet Grow, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cabinet Grow, Inc. as of December 31, 2016 and 2015, the results of their operations, and their cash flows, for the years ended December 31, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 9 to the financial statements, the entity has suffered recurring losses from operations and has a net working capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ KLJ & Associates, LLP

 

 

KLJ & Associates, LLP

Edina, MN
April 14, 2017

 

F- 2
 

 

CABINET GROW, INC.
CONSOLIDATED BALANCE SHEETS
         
    December 31,   December 31,
    2016   2015
ASSETS                
                 
Current Assets:                
Cash and cash equivalents   $ 1,582     $ —    
Prepaid assets and other     4,000       —    
Assets of discontinued operations     —         44,915  
Total current assets     5,583       44,915  
                 
Land and property, furniture and fixtures and equipment, net of accumulated depreciation of $5,407 (2016) and $4,373 (2015)     181,649       182,683  
Total assets   $ 187,232     $ 227,598  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
                 
Current Liabilities:                
Accounts payable and accrued expenses   $ 144,425     $ 131,547  
Accounts payable and accrued expenses, stockholders     20,960       25,475  
Note payable, related party     180,000       180,000  
Convertible notes payable, related party, net of discount of $531,187 (2015)     1,229,360       774,820  
Derivative liability     1,225,803       1,648,255  
Liabilities of discontinued operations     117,352       166,260  
Total current liabilities     2,917,900       2,926,357  
                 
Stockholders' Deficit:                
Common stock, $0.001 par value; 300,000,000 shares authorized; 1,200,043 (2016) and 148,221 (2015) shares issued and outstanding     1,200       148  
Preferred stock, $0.001 par value; 10,000,000 shares authorized Series A preferred stock, $0.001 par value; 100 shares issued and authorized     —         —    
Additional paid-in capital     5,141,459       2,486,880  
Accumulated deficit     (7,873,328 )     (5,185,787 )
                 
Total stockholders' deficit     (2,730,669 )     (2,698,759 )
                 
    $ 187,232     $ 227,598  

 

 

F- 3
 

CABINET GROW, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
         
    Year ended December 31,
    2016   2015
Revenues, related party   $ 12,000     $ —    
                 
Operating Expenses:                
Professional fees     82,153       416,785  
General and administrative     18,418       82,175  
Depreciation and amortization     1,034       —    
Gain on debt payments     (59,646 )     —    
                 
Total operating expenses     41,959       498,960  
                 
Loss from operations     (29,959 )     (498,960 )
                 
Other income (expenses):                
Derivative liability     (918,956 )     (648,540 )
Interest expense     (1,706,607 )     (1,125,521 )
                 
Total other expense, net     (2,625,563 )     (1,774,062 )
                 
Net loss from continuing operations     (2,655,521 )     (2,273,021 )
Discontinued operations:                
Loss from discontinued operations, net of income taxes     (32,020 )     (1,195,262 )
Net loss   $ (2,687,541 )   $ (3,468,283 )
                 
Basic and diluted loss per share:                
Continuing operations   $ (4.42 )   $ (16.13 )
Discontinued operations   $ (0.05 )   $ (8.48 )
                 
    $ (4.47 )   $ (24.61 )
Weighted average number of common shares outstanding                
Basic and diluted     600,630       140,928  

 

 

F- 4
 

CABINET GROW, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
YEARS ENDED DECEMBER 31, 2016 and 2015
                                     
    Common stock   Common stock to be issued   Preferred stock   Additional Paid-in   Accumulated   Total Stockholders’
    Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit
Balances January 1, 2015     132,400     $ 132       1,409     $ 1       100     $ —       $ 865,209     $ (1,717,505 )   $ (852,163 )
                                                                         
Sale of common stock     2,008       2       —         —         —         —         200,798       —         200,800  
                                                                         
Common issued for settlement of convertible note and accrued interest     5,644       6       (1,409 )     (1 )     —         —         471,506       —         471,511  
                                                                         
Beneficial conversion feature on convertible debt     —         —         —         —         —         —         163,000       —         163,000  
                                                                         
Common stock issued for services     2,620       3       —         —         —         —         231,472       —         231,475  
                                                                         
Common stock issued as part of employee wages     255       0       —         —         —         —         25,500       —         25,500  
                                                                         
Common stock granted to employees     5,294       5       —         —         —         —         529,395       —         529,400  
                                                                         
Net loss     —         —         —         —         —         —         —         (3,468,283 )     (3,468,283 )
                                                                         
Balances December 31, 2015     148,221       148       —         —         100       —         2,486,880       (5,185,787 )     (2,698,759 )
                                                                         
Common issued for settlement of convertible note and accrued interest     1,051,779       1,052       —         —         —         —         2,654,579       —         2,655,632  
                                                                         
Rounding up of shares from reverse split     43       —         —         —         —         —         —         —         —    
                                                                         
Net loss     —         —         —         —         —         —         —         (2,687,541 )     (2,687,541 )
                                                                         
Balances December 31, 2016     1,200,043     $ 1,200       —       $ —         100     $ —       $ 5,141,459     $ (7,873,328 )   $ (2,730,669 )
                                                                         
See notes to consolidated financial statements.

 

 

F- 5
 

CABINET GROW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
         
      For the year ended December 31,  
      2016       2015  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (2,687,541 )   $ (3,468,283 )
Net loss from discontinued operation     32,020       1,195,262  
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Gain on convertible debt reduction     (43,462 )     —    
Depreciation     1,034       —    
Amortization of discounts on convertible notes     987,245       463,637  
Change in fair value of derivative liabilities     918,956       (60,603 )
Initial derivative liability on convertible notes     509,969       2,021,387  
Amortization of deferred financing fees     3,288       2,002  
Changes in operating assets and liabilities:                
Increase in :                
Prepaid assets and other     4,000       —    
Increase in :                
Accounts payable and accrued expenses     529,867       —    
Accounts payable and accrued expenses, stockholder     (4,515 )     —    
Net cash provided by operating activities- continuing operations     250,859     153,401  
Net cash used in operating activities- discontinued operations     (212,527 )     (763,990 )
Net cash provided by (used in) operating activities     38,332       (610,589 )
                 
Cash flows from investing activities:                
Net cash used in investing activities- discontinued operations     —         (4,023 )
Net cash used in investing activities     —         (4,023 )
                 
Cash flows from financing activities:                
Proceeds from issuance of convertible debt from related party     —         233,000  
Proceeds from issuance of convertible debt     —         130,750  
Amounts from advances and credit card charges from stockholder     —         6,314  
Proceeds from sale of common stock     —         200,800  
Net cash provided by financing activities- continuing operations     —         570,864  
Net cash used in financing activities- discontinued operations     (36,750 )     (17,724 )
Net cash provided by (used in) financing activities     (36,750 )     553,140  
                 
Net decrease in cash and cash equivalents     1,582     (61,472 )
Cash and cash equivalents, beginning     —         61,472  
                 
Cash and cash equivalents, ending   $ 1,582     $ —    
                 
Supplemental disclosure of cash flow information:                
                 
Cash paid for interest   $ 9,995     $ 3,071  
                 
Cash paid for income taxes   $ —       $ —    
                 
Schedule of non-cash financing activities:                
                 
Original issue discount on convertible promissory notes   $ 18,676     $ 42,050  
                 
Accounts payable paid directly by related party lender   $ 186,758     $ —    
                 
Debt discount for derivatives   $ 452,865     $ —    
                 
Reclassification of derivative liability for note and interest converted   $ 1,735,324     $ —    

 

F- 6
 

 

CABINET GROW, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016 AND 2015

 

 

NOTE 1 - ORGANIZATION

 

BUSINESS

 

Cabinet Grow, Inc. (the “Company” or “CG-NV”) began operations in California in 2008, doing business as Universal Hydro (“Hydro”). Prior to April 2014, the Company was a sole proprietorship owned by its’ former chief operating officer and stockholder. On April 28, 2014, the Company registered with the Secretary of State of California as Cabinet Grow, Inc. (CG-CA), and all of the business, assets and liabilities of Hydro were assigned to CG-CA. On May 14, 2014, the Company filed Articles of Incorporation with the Nevada Secretary of State. On May 15, 2014, CG-CA merged with CG-NV, with CG-NV being the surviving entity. All references herein to CG or the Company refer to CG-NV, CG-CA and Hydro.

 

On November 24, 2015, the Company announced as a result of a working capital deficiency the Company has significantly reduced its’ cabinet making operations, including the layoff of all non-executive employees and has stopped taking new orders from customers.

 

On December 31, 2015, the Company agreed to purchase a 100% membership interest (the “ Membership Interest ”) in Quasar, LLC, a Utah limited liability company (“ Quasar ”), from Tonaquint, Inc., a Utah corporation (“ Seller ”). Quasar and the Seller are related parties to Chicago Venture Partners, L.P. (“CVP”), and the Company’s main lender (See Note 3). The Company has agreed to purchase (the “ Purchase ”) the Membership Interest from the Seller for a purchase price of $180,000 pursuant to the terms of a Membership Interest Purchase Agreement (the “ Purchase Agreement ”).

 

The Company paid for the Purchase by delivering to Seller at the closing a Secured Promissory Note (the “ Note ”). The Note is secured by the Company’s pledge of the Membership Interest pursuant to a Membership Interest Pledge Agreement (the “ Pledge Agreement ”) and by a first position Deed of Trust, Security Agreement and Financing Statement in favor of Seller encumbering certain real property owned by Quasar (the “ Trust Deed ,” and together with the Purchase Agreement, the Note, the Pledge Agreement, and all other documents entered into in conjunction therewith, the “ Purchase Documents ”). Quasar’s sole asset is a certain parcel of real property located in Midland Texas (the “Quasar Property”).

 

Also on December 31, 2015, the Company entered into a one year lease agreement with a related party tenant for the Quasar Property. Pursuant to the agreement, the tenant will pay $1,000 per month and the tenant is responsible for all operating costs of the Quasar Property including real estate taxes.

 

In conjunction with the Purchase, other than the sale of 3 cabinets in January 2016, the Company ceased its prior business as a manufacturer and distributor of cabinet-based horticultural systems (presented as discontinued operations for the three and six months ended June 30, 2016 and 2015) and began operations in the land leasing business.

 

On March 18, 2016, the Board of Directors (the “Board”) of the Company, acting pursuant to a Majority Consent of Stockholders, approved an amendment to the Articles of Incorporation (the “Amended and Restated Articles”) to among other matters, clarify that of the 310,000,000 shares of authorized capital stock of the Company, 300,000,000 shares are designated as common stock and 10,000,000 shares are designated as preferred stock, and to clarify that of the 10,000,000 shares of preferred stock, 100 have been designated as Class A Preferred Stock. Additionally, the Board has the authority to create and designate the rights and preferences of, additional series of preferred stock, without further stockholder approval. The Board also approved a resolution giving the Board the authority to effect between a 1:10 and a 1:250 consolidation of the outstanding common stock at any time before December 31, 2016, and to leave the authorized shares of common stock unchanged at 300,000,000. On May 2, 2016, the Company filed the Amended and Restated Articles with the Nevada Secretary of State. On December 30, 2016, the Board authorized a consolidation, whereby every 250 shares of the Company’s common stock would be consolidated into 1 share. The consolidation became effective on March 9, 2017. All share amounts for all periods presented have been retroactively adjusted to reflect the Forward Split.

 

F- 7
 

On April 29, 2016, CVP and Tonaquint sold and transferred all of their ownership and rights under the CVP SPA and Note and the Tonaquint SPA and related Purchase documents to The Dove Foundation (“Dove”). On May 17, 2016, the Company received notification that Dove has waived the 9.99% ownership limitation contained in the CVP Note, thereby creating a potential change in control of the Company.

 

On July 27, 2016, the Company received a Notice of Breach of Secured Convertible Promissory Note from Dove regarding the December 2015 and January 2016 installment payments. Pursuant to the terms and conditions of the default, the lender elected to multiply the outstanding balance by 125%, or $270,056 for the December default (included in the December 31, 2015, balances) and $344,654 for the January default. The Lender also increased the interest rate to 22% per annum pursuant to the default.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

The accompanying financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America.

 

EMERGING GROWTH COMPANY

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

DISCONTINUED OPERATIONS

 

On December 31, 2015, the Company’s Board of Directors approved the purchase of certain real property as described in Note 1. As a result of the purchase, the Company’s prior business operations have been (re)classified as discontinued operations on a retrospective basis for all periods presented herein.

 

CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

 

ACCOUNTS RECEIVABLE

 

Substantially all individuals pay in advance of their product being shipped. During the year ended December 31, 2015, the Company occasionally shipped product with payment terms of 30 to 60 days to retailers. For these shipments, the Company records accounts receivable from amounts due from its customers upon the shipment of products. The allowance for losses is established through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when management believes collectability is unlikely. The allowance (if any) is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience. For the years ended December 31, 2016 and 2015, management’s evaluation did not require any allowance for uncollectible receivables.

 

F- 8
 

INVENTORY

 

Inventory is valued at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Provision for potentially obsolete or slow moving inventory is made based on management analysis or inventory levels and future sales forecasts. Based on management’s analysis as of December 31, 2015, the Company recorded a write down of inventory of $31,598.

 

LAND, PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost, and depreciation is provided by use of straight-line methods over the estimated useful lives of the assets. The estimated useful lives of property and equipment are as follows:

 

Manufacturing equipment 10 years
Office equipment and furniture 7 years
Computer hardware and software 3 years

 

The Company's property and equipment consisted of the following at December 31, 2016 and 2015:

 

    2016   2015
Furniture and Equipment   $ 3,318     $ 3,318  
Manufacturing equipment     826       826  
Software     2,912       2,912  
Land     180,000       180,000  
Accumulated depreciation     (5,407 )     (4,373 )
Balance   $ 181,649     $ 182,683  

 

Depreciation expense for the year ended December 31, 2016, was $1,034 and was $28,958 (included in loss of discontinued operations) for the year ended December 31, 2015.

 

REVENUE RECOGNITION

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, “Revenue Recognition.” ASC 605 requires that the following four basic criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue from leased property during the month the tenant is responsible for payment. Revenues from the sale of cabinets are included in net loss from discontinued operations for all periods presented herein.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”).

 

Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.

 

F- 9
 

The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial instruments are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The three hierarchy levels are defined as follows:

 

Level 1 – Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

 

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

 

The Company's financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued expenses, note payable and convertible debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. The Company’s derivative liability (conversion option and warrant derivative) is valued using the level 3 inputs.  The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

 

The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2016 and December 31, 2015 for each fair value hierarchy level:

 

December 31, 2016   Derivative
Liability
  Total
Level I   $ —       $ —    
Level II   $ —       $ —    
Level III   $ 1,225,083     $ 1,225,083  
December 31, 2015                
Level I   $ —       $ —    
Level II   $ —       $ —    
Level III   $ 1,648,255     $ 1,648,255  

 

INCOME TAXES

 

Prior to May 2014, the Company was organized as a sole proprietorship and was not subject to income taxes. Rather, the Company’s sole stockholder was subject to income taxes on the Company’s taxable activity. In May 2014, the Company became subject to income taxes and will be subject to Federal and State income taxes as a corporation.

 

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

 

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. Interest and penalties are classified as a component of interest and other expenses. To date, the Company has not been assessed, nor paid, any interest or penalties.

 

F- 10
 

Uncertain tax positions are measured and recorded by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized.

 

EARNINGS (LOSS) PER SHARE

 

The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. For the periods ending ended December 31, 2016 and 2015, 445,603 and 1,049,418 shares of common stock, respectively, underlying convertible debt and warrants have been excluded from the computation diluted earnings per share because they are antidilutive.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the Company's present or future consolidated financial statements.

 

NOTE 3 – CONVERTIBLE NOTES PAYABLE

 

THE DOVE FOUNDATION, RELATED PARTY

 

On June 3, 2014, the Board authorized the Company to enter into a Securities Purchase Agreement (“SPA”) with Chicago Venture Partners, L.P. (“CVP”). Pursuant to the SPA, the Company agreed to issue to CVP a Secured Convertible Promissory Note in the principal amount of $1,657,500 (the “Note”).

 

On April 29, 2016, CVP and Tonaquint sold and transferred all of their ownership and rights under the CVP SPA and Note and the Tonaquint SPA and related Purchase documents to The Dove Foundation (“Dove”).

 

On June 6, 2014, the Company executed the SPA with CVP, for the sale of the Company Note in the principal amount of up to $1,657,500 (which included CVP’s legal expenses in the amount of $7,500 and a $150,000 OID) for $1,500,000, consisting of $500,000 paid in cash on June 11, 2014 (the “Closing Date”), two $250,000 secured promissory notes and two $250,000 promissory notes (the “Investor Notes”), aggregating $1,000,000, bearing interest at the rate of 10% per annum. The Investor Notes are due 30 months from the Closing Date and may be prepaid, without penalty.

 

A summary of the convertible note payable balance as of December 31, 2016 and 2015, is as follows:

 

    2016   2015
Beginning balance   $ 1,306,007     $ 733,500  
Convertible notes-newly issued     205,434       463,450  
Debt default penalty     344,654       270,057  
Payments of convertible notes     (36,750 )     —    
Conversions of convertible notes     (589,985 )     (161,000 )
Unamortized discount     —         (531,187 )
Total   $ 1,229,360     $ 774,820  

 

The newly issued funded amounts for the year ended December 31, 2016, were made directly to various vendors from CVP and includes $18,676 of OID. The Company has also not recorded the remaining balance of the Investor Notes issued by CVP to the Company.

 

As security for the Note, the Company’s CEO and former COO each pledged to CVP their 50 shares of Class A Preferred Stock (see Note 8). On August 5, 2016, Dove acquired all of the Class A Preferred Stock.

 

F- 11
 

Pursuant to the terms of the Note, the Company was required to deliver the Installment Amount (as defined in the Note) on or before each Installment Date (as defined in the Note) until the Note was repaid. The Company failed to deliver the Installment Amount in June 2015, July 2015 and August 2015 (each, a “Breach” and collectively, the “Breaches”). Each such Breach would constitute a separate event of default pursuant to the terms of the Note if so declared by the Lender.

 

On September 10, 2015, the Company entered into a forbearance and standstill agreement (the “Forbearance and Standstill Agreement”) with CVP and Matt Lee and Sam May, pursuant to which CVP agreed to refrain and forbear temporarily from exercising and enforcing remedies under the Note.

 

On May 17, 2016, the Company received notification that Dove has waived the 9.99% ownership limitation contained in the CVP Note, thereby creating a potential change in control of the Company.

 

On July 27, 2016, the Company received a Notice of Breach of Secured Convertible Promissory Note from Dove regarding the December 2015 and January 2016 installment payments. Pursuant to the terms and conditions of the default, the lender elected to multiply the outstanding balance by 125%, or $270,056 for the December default (included in the December 31, 2015, balances) and $344,654 for the January default. The Lender also increased the interest rate to 22% per annum pursuant to the default. Also on July 27, 2016, Dove sent the Company a conversion notice to issue 1,051,778 shares of common stock in exchange for the cancellation of $920,306 of interest and principal due. Immediately after the conversion Dove owned approximately 87.6% of the common stock of the Company.

 

The Note may be converted at the option of the holder, on the date that is six months from the Trading Date (defined in the Purchase Agreement as the date on which the Common Stock is first trading on an Eligible Market, but in any event the Company shall cause its Common Stock to be trading on an Eligible Market within nine months of the Closing Date of June 11, 2014) or at any time thereafter at a conversion price of $0.1976. The conversion price is equal to $6,500,000 divided by 33,000,000 (the amount of fully diluted shares of Common Stock of the Company on the date the Company filed its’ Registration Statement). In the event the Company elects to prepay all or any portion of the Company Note, the Company is required to pay to CVP an amount in cash equal to 125% multiplied by the sum of all principal, interest and any other amounts owing. On July 16, 2015, CVP converted $50,000 of accrued and unpaid interest under the Company Note into 1,015 shares of common stock.

 

Initially, the Company determined that the conversion feature of the convertible note did not meet the criteria of an embedded derivative and therefore the conversion feature was not bi-furcated and accounted for as a derivative because the Company was a private company, there was no quoted price and no active market for the Company’s common stock. Since the convertible note included an embedded conversion feature that did not qualify to be bi-furcated as a derivative, management evaluated this feature to determine whether it meets the definition of a beneficial conversion feature (“BCF”) within the scope of ASC 470-20, “Debt with Conversion and Other Options”, and determined that a BCF existed. During the year ended December 31, 2015, and prior to the Company becoming a public company, the Company received $163,000 in new funding and recorded a BCF expense in the amount of $163,000. The Company began trading as a public Company on July 13, 2015, and on that date the Company determined that the conversion feature of the Note represented an embedded derivative since the Note is convertible into a variable number of shares upon conversion. Accordingly, on July 13, 2015, the Note was not considered to be conventional debt under ASC 815 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of the derivative instruments for the fundings of the Note that occurred prior to July 13, 2015, were recorded as a liability on July 13, 2015, on the consolidated balance sheet with the corresponding amount recorded as a discount to the Note. Such discount is being amortized from the date of issuance to the maturity date of the Note. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet.

 

WARRANT

 

The Company also issued a five year warrant to CVP to purchase the number of shares equal to $420,000 divided by 70% of the average of the three lowest closing bid prices in the 20 trading days immediately after becoming public (the “Market Price”). Since the Company was not public and could not determine the Market Price, based on the current discounted cash flow valuation, the Company initially estimated that CVP can purchase 24,000 shares of common stock, with an exercise price of $50 per share. As of December 31, 2016 and 2015, based on the Market Price, the Company estimated the number of shares that CVP can purchase to be 6,545.

 

F- 12
 

Accounting Standard Codification “ASC” 815 –  Derivatives and Hedging , which provides guidance on determining what types of instruments or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements can affect the accounting for warrants issued by the Company. As the detachable warrants issued with the Note do not have fixed settlement provisions because their exercise prices may be lowered if the Company issues securities at lower prices in the future, we have concluded that the warrants are not indexed to the Company’s stock and are to be treated as derivative liabilities.

 

The warrants were valued using the Black-Scholes option pricing model. In order to calculate the fair value of the warrants, certain assumptions were made regarding components of the model, including the closing price of the underlying common stock, risk-free interest rate, volatility, expected dividend yield, and expected life. Changes to the assumptions could cause significant adjustments to valuation. Since the Company was not public, an estimated a volatility factor utilizing an average of comparable published volatilities of peer companies was utilized. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. The warrants associated with the Note were initially valued and recorded a derivative liability of $577,100 using the Black-Scholes valuation methodology and the Company also recorded an initial derivative liability expense of $77,100 and a discount to the Note of $500,000.

 

On December 31, 2016, the Company revalued the warrant at $12,435 using the Black- Scholes option pricing model and recorded a credit to derivative liability expense for the year ended December 31, 2016, and decreased the derivative liability by $1,356 on the balance sheet as of December 31, 2016.

 

NOTE 4 – NOTE DISCOUNTS AND DERIVATIVE LIABLITIES

 

A summary of the note discount balances as of December 31, 2016 and 2015, is as follows:

 

    2016   2015
Beginning balance   $ 531,187     $ 376,022  
Initial note discounts     456,058       896,145  
Amortization     (987,245 )     (579,980 )
Reduction for conversions     —         (161,000 )
Total   $ —       $ 531,187  

 

The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet.

 

A summary of the derivative liability balance as of December 31, 2016 and 2015, is as follows:

 

    2016   2015
Beginning balance   $ 1,648,255     $ 581,373  
Initial derivative liability     509,969       2,021,387  
Fair value change     846,370       (694,265 )
Reduction for debt payments/conversions     (1,778,791 )     (206,240 )
Total   $ 1,225,803     $ 1,648,255  

 

 

The fair value on the commitment dates for the Note fundings from January 1, 2016 through December 31, 2016, and the re-measurement date for the Company’s derivative liabilities were based upon the following management assumptions:

 

      Commitment Date       Re-Measurement Date  
Expected dividends     -0-       -0-  
Expected volatility     92%-215%       196 %
Expected term     .12-.84 years       .12 years  
Risk free interest     .19%-.58%       .51 %

 

Since the Company did not have a sufficient trading history, an estimated a volatility factor utilizing an average of comparable published volatilities of peer companies was utilized.

 

F- 13
 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

For the years ended December 31, 2016 and 2015, the Company paid its’ officers and former officers the following amounts:

 

    2016   2015
Chief Executive Officer (“CEO”)   $ —       $ 59,576  
Chief Operating Officer (“COO”)     —         51,234  
Chief Financial Officer (“CFO”)     —         55,650  
Total   $ —       $ 166,460  

 

As of December 31, 2016 the Company owed $14,424, $22,766 and $16,350 to the CEO, former COO and former CFO, respectively, for accrued and unpaid fees. Of this amount, $37,190 is included in liabilities of discontinued operations and $16,350 is included in accounts payable and accrued liabilities, stockholders, on the December 31, 2016, balance sheet. Currently, Mr. May is the sole officer.

 

NOTE PAYABLE, STOCKHOLDER

 

The Company’s former COO loaned the Company various amounts for Company expenses. The Company recorded interest expense of $984 and $948 for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, the former COO was owed accrued interest of $4,610 and $3,625, respectively, which is included in accounts payable and accrued liabilities, stockholders, on the balance sheets presented herein. As of December 31, 2016 and 2015, the loan balance was $12,482, which is included in liabilities of discontinued operations.

 

NOTE PAYABLE, RELATED PARTY

 

On December 31, 2015, the Company agreed to purchase a 100% membership interest (the “ Membership Interest ”) in Quasar, LLC, a Utah limited liability company (“ Quasar ”), from Tonaquint, Inc., (“Tonaquint”) a Utah corporation (“ Seller ”). Tonaquint is a related party to CVP as the same person is the control person of both Tonaquint and CVP. The Company has agreed to purchase (the “ Purchase ”) the Membership Interest from the Seller for a purchase price of $180,000 pursuant to the terms of a Membership Interest Purchase Agreement (the “ Purchase Agreement ”).

 

The Company paid for the Purchase by delivering to Seller at the closing a Secured Promissory Note (the “ Note ”). The Note is secured by the Company’s pledge of the Membership Interest pursuant to a Membership Interest Pledge Agreement (the “ Pledge Agreement ”) and by a first position Deed of Trust, Security Agreement and Financing Statement in favor of Seller encumbering certain real property owned by Quasar (the “ Trust Deed ,” and together with the Purchase Agreement, the Note, the Pledge Agreement, and all other documents entered into in conjunction therewith, the “ Purchase Documents ”).

 

Also on December 31, 2015, Quasar entered into a one year lease of the property to Miller Fabrication, LLC (“Miller”). Miller is controlled by the same individual as Tonaquint and CVP, and therefore is a related party to the Company.

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

LEASE AGREEMENTS

 

Effective August 1, 2014, the Company moved into a 4,427 square foot facility under a new lease agreement, in an industrial complex in Irvine California. The Company entered into a 26 month lease, pursuant to which, there is no base rent for the first two months, beginning October 1, 2014, the monthly lease is $4,870 plus CAM charges of $354 and rent increases to $5,091 on October 1, 2015 for the final twelve months. The Company was straight lining the 24 months costs over the 26 month term of the lease through December 31, 2015, and in January 2016, the Company realized as an expense the remainder of the lease and recorded a liability. Effective February 19, 2016, the Company entered into a sublease with an unaffiliated third party, whereby, pursuant to the sublease CVP was to receive $5,500 per month through September 30, 2016 from the sub-tenant. For the year ended December 31, 2016, the Company received $36,750 under the terms of the sublease. The Company reduced the CVP convertible note for the proceeds and reduced rent expense. Net rent expense was $36,034 and $39,637 for years ended December 31, 2016 and 2015, respectively, and is included in loss from discontinued operations.

 

F- 14
 

NOTE 7 – STOCKHOLDERS’ EQUITY

 

COMMON STOCK

 

On March 18, 2016, the Board of Directors of the Company, acting pursuant to a Majority Consent of Stockholders, approved an amendment to the Articles of Incorporation (the “Amended and Restated Articles”) to among other matters, clarify that of the 310,000,000 shares of authorized capital stock of the Company, 300,000,000 shares are designated as common stock and 10,000,000 shares are designated as preferred stock, and to clarify that of the 10,000,000 shares of preferred stock, 100 have been designated as Class A Preferred Stock. Additionally, the Board has the authority to create and designate the rights and preferences of, additional series of preferred stock, without further stockholder approval. On May 2, 2016, the Company filed the Amended and Restated Articles with the Nevada Secretary of State. The Board also approved a resolution giving the Board the authority to effect between a 1:10 and a 1:250 consolidation of the outstanding common stock at any time before December 31, 2016, and to leave the authorized shares of common stock unchanged at 300,000,000. On December 30, 2016, the Board authorized a consolidation, whereby every 250 shares of the Company’s common stock would be consolidated into 1 share. The consolidation become effective on March 9, 2017.

 

On July 27, 2016, the Company issued 1,051,778 shares of common stock in exchange for the cancellation of $920,306 of interest and principal due on a convertible note.

 

CLASS A PREFERRED STOCK

 

On June 3, 2014, the Company’s Board of Directors adopted and approved the Class A Preferred Stock Certificate of Designation, establishing the terms, conditions and relative rights of the Class A Preferred Stock, including that the holders of the Class A Preferred Stock (the “Class A Holders”) shall have limited voting rights and powers compared to the voting rights and powers of holders of Common Stock and other series of Preferred Stock. The Class A Holders shall be entitled to notice of any shareholders meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote, but only with respect to the following matters (collectively, the “Class A Voting Matters”): (i) the appointment and/or removal of any member of the Company’s board of directors, (ii) any matter related to or transaction (or series of transactions) pursuant to which the Company would sell or license all or substantially all of its assets or the stockholders of the Company would sell all or substantially all of their shares of the Company’s stock or where the Company would merge with or into any other entity, (iii) causing the Company to register its Common Stock for trading pursuant to the Securities Exchange Act of 1934, as amended, including by filing a Registration Statement on Form S-1 with the Securities Exchange Commission and filing and obtaining FINRA approval of a Form 15c2-11, and (iv) with respect to any matter involving a transaction whereby the Company will become part of or merge into an existing public company. For so long as Class A Preferred Stock is issued and outstanding, the holders of Class A Preferred Stock shall vote together as a single class with the holders of the Corporation’s Common Stock and the holders of any other class or series of shares entitled to vote with the Common Stock, with the holders of Class A Preferred Stock being entitled to fifty-one percent (51%) of the total votes on only Class A Preferred Voting Matters regardless of the actual number of shares of Class A Preferred Stock then outstanding, and the holders of Common Stock and any other shares entitled to vote being entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power for any Class A Preferred Voting Matter. The Board also approved the issuance of 50 shares each of the Class A Preferred Stock to the Company’s Chief Executive Officer and Chief Operating Officer. The issued shares of the Class A Preferred Stock were valued at $428,000 based primarily on management’s estimate of the fair value of the control features embedded in the Class A preferred stock. On August 5, 2016, in two private transactions, Dove purchased in the aggregate, 100 shares of Class A Preferred Stock from two shareholders (50 shares each), representing 100% of the issued and outstanding Class A Preferred Stock.

 

WARRANTS

 

In June 2014, the Company issued a five year warrant to CVP to purchase the number of shares equal to $420,000 divided by 70% of the average of the three lowest closing bid prices in the 20 trading days immediately after becoming public (the “Market Price”). Since the Company was not public and could not determine the Market Price, based on the current discounted cash flow valuation, the Company initially estimated that CVP can purchase 24,000 shares of common stock, with an exercise price of $0.20 per share. As of December 31, 2016 and 2015, based on the Market Price, the Company estimated the number of shares that CVP can purchase to be 6,545.

 

F- 15
 

NOTE 8 – DISCONTINUED OPERATIONS

 

In December 2015, the Company’s board of directors approved the purchase of certain real property and completed the purchase on December 31, 2015. In January 2016, the Company ceased its’ prior business activity of marketing, manufacturing and selling horticulture cabinets.

 

ASC 205-20 “Discontinued Operations” establishes that the disposal or abandonment of a component of an entity or a group of components of an entity should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. As a result, the Company’s results of operations have been reclassified as discontinued operations on a retrospective basis for all periods presented. Accordingly, the assets and liabilities of this component are separately reported as “assets and liabilities of discontinued operations” as of December 31, 2016 and 2015. The results of operations of this component, for all periods, are separately reported as “discontinued operations”.

 

A reconciliation of the major classes of line items constituting the loss from discontinued operations, net of income taxes as is presented in the Consolidated Statements of Operations for the years ended December 31, 2016, and 2015 are summarized below:

 

    Years ended December 31,
    2016   2015
Sales   $ 7,350     $ 702,602  
Cost of goods sold     —         515,461  
   Gross margin     7,350       187,141  
Operating expenses:                
   Salaries and management fees     —         592,588  
   Depreciation and amortization     —         28,958  
   Selling, advertising and marketing     —         279,700  
   Rent     36,034       39,637  
   General and administrative     7,417       143,344  
   Professional fees     —         290,773  
   Other     (4,081 )     7,403  
      Total operating expenses     39,370       1,382,403  
Loss from discontinued operations                
  net of income taxes   $ (32,020 )   $ (1,195,262 )

 

The following table presents the reconciliation of carrying amounts of major classes of assets and liabilities of the Company classified as discontinued operations in the consolidated balance sheets at December 31, 2016 and 2015:

 

 

    2016   2015

Carrying amounts of major classes of assets

included as part of discontinued operations

               
Current assets:                
Cash and cash equivalents   $ —       $ 2,587  
Accounts receivable, net     —         1,500  
Prepaid expenses and other current assets     —         41,128  
Total current assets included in the assets of discontinued operations     —       $ 44,915  
                 

Carrying amounts of major classes of liabilities

included as part of discontinued operations

               
Current liabilities:                
Accounts payable and accrued expenses   $ 67,680     $ 103,088  
Accounts payable and accrued expenses, stockholders     37,190       48,190  
Customer deposits     —         2,500  
Note payable, stockholder     12,482       12,482  
Total current liabilities included in the liabilities of discontinued operations   $ 117,352     $ 166,260  

 

F- 16
 

NOTE 9 – GOING CONCERN

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of December 31, 2016 and 2015, the Company had an accumulated deficit of $7,873,328 and $5,185,787 and as of December 31, 2016, a working capital deficit of $2,912,317. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management’s Plans

 

As a result of a working capital deficiency the Company ceased its prior business as a manufacturer and distributor of cabinet-based horticultural systems operations. On December 31, 2015, the Company agreed to purchase a 100% membership interest (the “ Membership Interest ”) in Quasar, LLC, a Utah limited liability company (“ Quasar ”), from Tonaquint, Inc., a Utah corporation (“ Seller ”). Quasar (prior to the purchase) and Tonaquint are related parties to CVP, the Company’s main lender. The Company has agreed to purchase the Membership Interest from the Seller for a purchase price of $180,000 pursuant to the terms of a Membership Interest Purchase Agreement. The Company now operates in the land leasing business.

 

NOTE 10 – SUBSEQUENT EVENTS

 

On March 9, 2017, the share consolidation, whereby every 250 shares of the Company’s common stock has been consolidated into 1 share became effective upon approval from the required regulatory authorities (see Note 1).

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2016 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described above.

 

 

 F-17

Cabinet Grow Inc. (USOTC:CBNT)
Historical Stock Chart

1 Year : From Apr 2016 to Apr 2017

Click Here for more Cabinet Grow Inc. Charts.

Cabinet Grow Inc. (USOTC:CBNT)
Intraday Stock Chart

Today : Tuesday 25 April 2017

Click Here for more Cabinet Grow Inc. Charts.



Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.


NYSE, AMEX, and ASX quotes are delayed by at least 20 minutes.
All other quotes are delayed by at least 15 minutes unless otherwise stated.