The accompanying notes are an integral part of these condensed financial statements
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
:
Greenhouse Solutions, Inc. (the “Company” or “Greenhouse Solutions”), is a Nevada corporation. The Company was incorporated under the laws of the State of Nevada on April 8, 2009. The Company was involved in the sale and distribution of urban gardening products and greenhouses on the North American Market, but is currently expanding the business into the development, marketing, production, and sale of hemp oil-enhanced products for both personal health use and canine use, in addition to probiotic-based nutraceuticals. As a nutraceutical company, the Company engages in the acquisition, licensing and commercialization of nutraceutical products and technologies.
Basis of presentation – Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with U. S. generally accepted accounting principles for financial information and with the instructions to Form 10-Q. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended March 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. These unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months and nine months ended December 31, 2016 are not necessarily indicative of the results that may be expected for the year ending March 31, 2017.
Going Concern
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred an accumulated deficit since inception of $4,537,082 through December 31, 2016, and has not yet established a minimal on-going source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through borrowings from financial institutions or related parties. By doing so, the Company hopes to generate sufficient capital to execute its business plan of providing financial consulting services on an ongoing basis. Management believes that actions presently being taken to obtain additional funding to provide the opportunity for the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
The Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties and all highly liquid investments with an original maturity of three months or less as cash equivalents.
Revenue recognition
The Company has realized minimal revenues from operations. The Company recognizes revenues when the sale and/or distribution of products is complete, risk of loss and title to the products have transferred to the customer, there is persuasive evidence of an agreement, acceptance has been approved by the customer, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable. Net sales will be comprised of gross revenues less expected returns, trade discounts, and customer allowances that will include costs associated with off-invoice markdowns and other price reductions, as well as trade promotions and coupons. The incentive costs will be recognized at the later of the date on which the Company recognized the related revenue or the date on which the Company offers the incentive. The Company has two sources of income: (1) is the sale to distributors and other mass marketers; and (2) is the sale to individuals over the internet. Sales to distributors and mass marketers are recognized at the time of shipment and invoicing. Sales to individuals are recognized at the time the sale is paid for by the customer.
Basic and Diluted Loss per Share
The Company has realized minimal revenues from operations. The Company recognizes revenues when the sale and/or distribution of products is complete, risk of loss and title to the products have transferred to the customer, there is persuasive evidence of an agreement, acceptance has been approved by the customer, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable. Net sales will be comprised of gross revenues less expected returns, trade discounts, and customer allowances that will include costs associated with off-invoice markdowns and other price reductions, as well as trade promotions and coupons. The incentive costs will be recognized at the later of the date on which the Company recognized the related revenue or the date on which the Company offers the incentive. The Company has two sources of income: (1) is the sale to distributors and other mass marketers; and (2) is the sale to individuals over the internet. Sales to distributors and mass marketers are recognized at the time of shipment and invoicing. Sales to individuals are recognized at the time the sale is paid for by the customer.
Income Taxes
The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.
The Company maintains a valuation allowance with respect to deferred tax asset. Greenhouse Solutions establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change estimate.
Carrying Value, Recoverability and Impairment of Long-Lived Assets
The Company has adopted paragraph 360-10-35-17 of FASB Accounting Standards Codification for its long-lived assets. The Company’s long –lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
The company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the assets expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company considers the following to be some examples of important indicators that may trigger an impairment review; (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner of use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
The impairment charges, if any, are included in operating expenses in the accompanying statements of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
The Company’s significant estimates include income taxes provision and valuation allowance of deferred tax assets; the fair value of financial instruments; the carrying value and recoverability of long-lived assets, and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Fair value of Financial Instruments
The estimated fair values of financial instruments were determined by management using available market information and appropriate valuation methodologies. The carrying amounts of financial instruments including cash approximate their fair value because of their short maturities.
Office Furniture and Equipment
Office furniture and equipment are recorded at cost and depreciated under the straight-line method over the estimated useful life of the asset. At December 31, 2016, the Company had computer equipment of $1,398 with corresponding accumulated depreciation of $513 which is being depreciated over 5 years. Depreciation expense for the quarters ended December 31, 2016 and 2015 were $70 each respectively.
Long Lived Assets
In accordance with ASC 350 the Company regularly reviews the carrying value of intangible and other long lived assets for the existence of facts or circumstances both internally and externally that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.
Stock-based Compensation
The Company accounts for stock-based compensation issued to employees based on FASB accounting standard for Share Based Payment. It requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award – the requisite service period (usually the vesting period). It requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The scope of the FASB accounting standard includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.
As of December 31, 2016, the Company had no stock-based compensation plans nor had it granted any stock options. Accordingly, no stock-based compensation has been recorded to date.
Recent pronouncements
Management has evaluated accounting standards and interpretations issued but not yet effective as of December 31, 2016, and does not expect such pronouncements to have a material impact on the Company’s financial position, operations, or cash flows.
NOTE 3 - RELATED PARTY TRANSACTIONS
Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis, as the requisite conditions of competitive, free market dealings may not exist. Representation about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of advances from stockholders due to their related party nature.
During the quarter ended September 30, 2016 a stockholder of the Company advanced a total of $23,760. During the quarter ended December 31, 2016 the Company paid $28,500 toward accounts payable to related parties and recorded an increase of $25,500 in current payables to these same parties. These payables represent compensation owed to these parties. As at December 31, 2016 the total of accounts payable to related parties was $108,000. These advances are unsecured, not represented by any formal loan agreement and bear no interest.
NOTE 4 – STOCK ISSUED FOR ACCOUNTS PAYABLE
On September 23, 2016, the Company issued 503,245 shares of its common stock in settlement of $45,292 in accounts payable. The stock was valued at $0.09 per share which was the closing price of the stock on the date of approval and issuance of the shares. Since the valuation and the trading price were equivalent there is no gain or loss recognized.
NOTE 5 – WARRANTS
On November 18, 2016, the Company issued a series A and series B warrant to SBI Investments LLC to purchase up to 150,000 shares for each series. The warrants have an average exercise price of $0.10. The Company has analyzed the transaction using the Black-Scholes valuation model and accordingly recorded an expense of $15 ,469 series as derivative financial instrument interest expense.
The following table summarizes all warrant activity of the Company.
|
|
Shares under
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
Warrant
|
|
|
Price
|
|
|
Life
|
|
Balance at March 31, 2014
|
|
|
0
|
|
|
$
|
-
|
|
|
|
0
|
|
Granted
|
|
|
300,000
|
|
|
$
|
0.20
|
|
|
|
0.58
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Expired
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Balance at March 31, 2015
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,525,000
|
|
|
$
|
0.20
|
|
|
|
1.28
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Expired
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Balance at March 31, 2016
|
|
|
3,825,000
|
|
|
|
|
|
|
|
1.33
|
|
Granted
|
|
|
300,000
|
|
|
$
|
0.10
|
|
|
|
1.88
|
|
Exercised
|
|
|
-
|
|
|
|
0
|
|
|
|
0
|
|
Expired
|
|
|
(75,000
|
)
|
|
|
0
|
|
|
|
0
|
|
Balance at December 31, 2016
|
|
|
4,050,000
|
|
|
|
|
|
|
|
0.52
|
|
NOTE 6 – SECURITIES PURCHASE AGREEMENT & CONVETIBLE PROMISSORY NOTE
On November 18, 2016, the Company signed a Convertible Promissory Note with SBI Investments LLC. The terms and conditions are as follows:
The face value of the note is $275,000 and the maturity date is November 18, 2018. The note includes a reduction of proceeds in the amount of $25,000 which is considered Original Issue Discount, which will be amortized as interest expense over the one year life of the note. At the time of disbursement there was a deduction from proceeds to the Company of $5,000 for legal fees related to the issuance of the promissory note. Repayment is to begin six months after the date of the note, is to be made bi-weekly and shall be 1/12 of the outstanding principal and interest until paid in full. In the event the note is not paid in full by the maturity date the entire balance becomes due and payable.
The Securities Purchase Agreement includes a right to buy up to 300,000 warrants attached for 150,000 warrant shares of Series A warrants and 150,000 warrant shares of Series B warrants. These warrants are discussed in the preceding Note 5.
Any payment on the note or the note principal and interest in full may be converted into Common Stock at the sole option of the holder at a price equal to 65% of the three lowest Volume Weighted Average Price (VWAP) of the Common Stock for the 20 consecutive trading days ending on the trading day that is immediately prior to the conversion date. The Beneficial Ownership Limitation is 4.99% except that the holder of the note may increase this limitation to no more 9.99% under certain circumstances. At December 31, 2016, there were 95,784,458 shares of Common Stock of the Company outstanding. Under these restrictions, the maximum number of shares that could be issued by the Company would be 5,030,675 under the 4.99% limitation and 10,630,893 under the 9.99% limitation. The warrants issues as part of the Securities Purchase Agreement are subject to this limitation. SBI Investments, LLC may begin to excise its conversion rights six months following the signing of the note, or May 18th, 2017.
The Company accounts for this beneficial conversion feature as a derivative under ASC 815-10-15-83 and valued separately from the note at fair value. The beneficial conversion feature of the note is revalued at each subsequent reporting date at fair value and any changes in fair value will result in a gain or loss in those periods. At December 31, 2016, the fair value of beneficial conversion feature was $250,652. The Company recorded the fair value of beneficial conversion feature as loan issuance costs and will be amortized over six months. For the 3 months ended December 31, 2016 the total amortization recorded was $59,878. At the same time the Company recorded a $25,000 addition to this same loan issuance costs for the value of the Original Issue Discount as detailed in the loan agreement. Amortization for this portion of the loan issuance costs is $5,972. Therefore the total loan issuance costs is $275,652 and the total amortization recorded for the quarter ended December 31, 2016, is $65,850 resulting in a balance of $209,802 as is shown on the balance sheet under the category of “Other assets” with the label of “Loan costs”.
NOTE 7 – STOCKHOLDER’S DEFICIT
The total number of common shares authorized that may be issued by the Company is 200,000,000 shares with a par value of $0.0001 per share. The Company is authorized to issue 25,000,000 shares of preferred stock with a par value of $0.0001 per share. As at December 31, 2016 there are no preferred shares issued or outstanding.
As at December 31, 2016 the total number of common shares outstanding was 95,784,458. The Company has an ongoing program of private placements to raise funds to support the operations. During the quarter ended December 31, 2016 the Company did not receive any proceeds through private placement activity.
In August of 2015 the Company received notice from an investor that they wished to rescind the transaction and have their money refunded. Since the shares had not been issued the refund is shown as a liability of the Company.
As at December 31, 2016 there were monies received for 662,000 shares that had not yet been issued.
NOTE 8 – INCOME TAXES
A reconciliation of the provision for income taxes at the United States federal statutory rate of 34% and a Colorado state rate of 5% compared to the Company’s income tax expense as reported is as follows:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Net loss before income taxes
|
|
$
|
(309,135
|
)
|
|
$
|
(2,713,524
|
)
|
Adjustment for warrant expense
|
|
|
-
|
|
|
|
1,354,015
|
|
Adjustment for impairment expense
|
|
|
|
|
|
|
510,000
|
|
Deductible net loss
|
|
|
(309,135
|
)
|
|
|
(849,509
|
)
|
Income tax rate
|
|
|
39
|
%
|
|
|
39
|
%
|
Income tax recovery
|
|
|
(120,560
|
)
|
|
|
(331,310
|
)
|
Valuation allowance change
|
|
|
120,560
|
|
|
|
331,310
|
|
Provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The significant components of deferred income tax assets at December 31, 2016 and 2015 are as follows:
|
|
December 31,
2016
|
|
|
March 31,
2016
|
|
Net operating loss carryforward
|
|
$
|
(4,845,351
|
)
|
|
$
|
(4,227,947
|
)
|
Adjustment for warrant expense
|
|
|
1,373,708
|
|
|
|
1,354,015
|
|
Adjustment for impairment expense
|
|
|
1,660,000
|
|
|
|
1,660,000
|
|
Deductible net loss
|
|
|
(1,503,374
|
)
|
|
|
(1,213,932
|
)
|
Valuation allowance
|
|
|
1,503,374
|
|
|
|
1,213,932
|
|
Net deferred income tax asset
|
|
|
-
|
|
|
|
-
|
|
As of December 31, 2016, and 2015, the Company has no unrecognized income tax benefits. The Company’s policy for classifying interest and penalties associated with unrecognized income tax benefits is to include such items as tax expense. No interest or penalties have been recorded during the years ended March 31, 2016 and 2015, and no interest or penalties have been accrued as of December 31, 2016, and 2015. As of December 31, 2016, and 2015 the Company did not have any amounts recorded pertaining to uncertain tax positions. Current management believes that the last time a corporation tax return was filed was for fiscal year 2010. Management is currently taking the necessary actions to correct this deficiency. Due to a history of ongoing losses it is not expected that there would be any penalties or interest owed due to the non-filing status.
The tax years from 2012 and forward remain open to examination by federal and state authorities due to net operating loss and credit carryforwards. The Company is currently not under examination by the Internal Revenue Service or any other taxing authorities.
NOTE 9 – RESTATEMENT
In connection with the filing of a restated form 10-K for the fiscal year ended March 31, 2015 there were certain adjustments made in each quarterly period during the fiscal year. Management has reviewed these changes for this current quarter and determined that the changes are not material. In the interests of clarity and information the following notes detailing the changes are hereby included:
|
|
Condensed Statement
of Operations
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2015
|
|
|
|
Restated
|
|
|
As filed
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenues
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Consulting services
|
|
|
107,920
|
|
|
|
103,000
|
|
Corporate communications
|
|
|
-
|
|
|
|
-
|
|
Depreciation expense
|
|
|
70
|
|
|
|
70
|
|
Management consulting - related parties
|
|
|
31,500
|
|
|
|
33,789
|
|
Professional fees
|
|
|
111,035
|
|
|
|
96,035
|
|
Research and development
|
|
|
3,800
|
|
|
|
3,800
|
|
Impairment expense
|
|
|
510,000
|
|
|
|
420,000
|
|
Private placement expense
|
|
|
372,000
|
|
|
|
372,000
|
|
Warrant expense
|
|
|
1,354,015
|
|
|
|
1,354,015
|
|
General and administrative
|
|
|
16,866
|
|
|
|
16,867
|
|
|
|
|
2,507,206
|
|
|
|
2,399,576
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
|
(2,507,206
|
)
|
|
|
(2,399,576
|
)
|
|
|
Condensed Statement
of Cash Flows
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2015
|
|
|
|
Restated
|
|
|
As filed
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net Loss
|
|
|
(2,713,525
|
)
|
|
|
(2,605,895
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
210
|
|
|
|
210
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease in accounts receivable
|
|
|
19,366
|
|
|
|
19,365
|
|
(Decrease) in accounts payable and accrued liabilities
|
|
|
(10,163
|
)
|
|
|
(10,163
|
)
|
Stock issued for services
|
|
|
196,419
|
|
|
|
178,790
|
|
(Increase) in inventory
|
|
|
(29,504
|
)
|
|
|
(29,504
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,537,197
|
)
|
|
|
(2,447,197
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities
|
|
|
|
|
|
|
|
|
Stock issued for IP licenses
|
|
|
510,000
|
|
|
|
420,000
|
|
Net cash used in investing activities
|
|
|
510,000
|
|
|
|
420,000
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Loans from related parties
|
|
|
(50,011
|
)
|
|
|
(50,011
|
)
|
Proceeds from Common Stock sales
|
|
|
420,000
|
|
|
|
420,000
|
|
Common shares issued for subscriptions received
|
|
|
-
|
|
|
|
-
|
|
Stock issued for private placement expense
|
|
|
372,000
|
|
|
|
372,000
|
|
Increase in stock purchase refund
|
|
|
15,000
|
|
|
|
15,000
|
|
Paid in capital – warrants
|
|
|
1,354,015
|
|
|
|
1,354,015
|
|
Proceeds from shares subscribed
|
|
|
(90,000
|
)
|
|
|
(90,000
|
)
|
Net Cash Provided by Financing Activities
|
|
|
2,021,004
|
|
|
|
2,021,004
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) in Cash
|
|
|
(6,193
|
)
|
|
|
(6,193
|
)
|
|
|
|
|
|
|
|
|
|
Cash at the Beginning of the Period
|
|
|
11,164
|
|
|
|
11,164
|
|
|
|
|
|
|
|
|
|
|
Cash at the End of the Period
|
|
$
|
4,971
|
|
|
$
|
4,971
|
|
NOTE 10 – SUBSEQUENT EVENTS
Management has examined the activities of the Company subsequent to the closing date of these financial statements and had determined that there was one event requiring disclosure. The Securities Purchase Agreement afforded the lender the option to purchase a second convertible note with the same terms, excluding the warrants, between 60 and 90 days after signing the original note. The lender has advised the Company that it will not complete this second purchase.