Notes to Consolidated Financial Statements
Six Months Ended June 30, 2018 and 2017
(Unaudited)
NOTE 1 Organization and Description of Business
Canbiola, Inc. was originally incorporated as WrapMail, Inc. (WRAP) in Florida on October 11, 2005. Effective January 5, 2015, WRAP acquired 100% ownership of Prosperity Systems, Inc. (Prosperity), a New York corporation incorporated on April 2, 2008. On May 15, 2017, WRAP changed its name to Canbiola, Inc. (the Company or CANB or Canbiola). The Company operates several divisions, including document management and email marketing platforms and a division specializing in the sale of products containing CBD. The Company used to operate its document and information platform from its wholly owned subsidiary, Prosperity Systems, Inc; however, after the acquisition of Prosperity, the Company transferred Prosperitys operations to WRAP and is presently in the process of dissolving Prosperity. For the periods presented, the assets, liabilities, revenues, and expenses are those of CANB. Prosperity had no activity for the periods presented.
Effective December 27, 2010, WRAP effected a 10 for 1 forward stock split of its common stock. Effective June 4, 2013, WRAP effected a 1 for 10 reverse stock split of its common stock. The accompanying consolidated financial statements retroactively reflect these stock splits.
Canbiola, Inc. is a US Company specializing in the sale of a variety of Cannabidiol (CBD) based products derived from Hemp, such as oils, creams, moisturizers, chews, vapes, isolate, gel caps, concentrate and water. Canbiola is developing their own line of proprietary products as well as seeking synergistic value through acquisitions in the Hemp Industry. Canbiola aims to be the premier provider of the highest quality Hemp derived natural CBD products on the market through sourcing the very best raw material and developing a variety of products we believe will improve people's lives in a variety of areas.
CANB expects to concentrate its future business activities on the sale of CBD products and does not plan to market or further develop its technology products.
NOTE 2 Going Concern Uncertainty
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in a normal course of business. As of June 30, 2018, the Company had cash and cash equivalents of $73,572 and a working capital deficit of $534,406. For the six months ended June 30, 2018 and 2017, the Company had net loss of $567,318 and $484,348, respectively. These factors raise substantial doubt as to the Companys ability to continue as a going concern. The Company plans to improve its financial condition by raising capital through sales of shares of its common stock. Also, the Company plans to expand its operation of CBD products to increase its profitability. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of CANB and its wholly owned subsidiary Prosperity from the date of its acquisition on January 5, 2015. All intercompany balances and transactions have been eliminated in consolidation.
The Company considers Pure Health products to be a variable interest entity as prescribed under Accounting guidelines. Due to the fact that the company is not dependent on Pure Health Products solely for manufacture, no consolidation of Pure Heath Products financial information is required.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
7
(c) Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, notes and loans payable, accounts payable, and accrued expenses payable. Except for the noncurrent note receivable, the fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short term maturity of these instruments. Based on comparable instruments with similar terms, the fair value of the noncurrent note receivable approximates its carrying value.
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
(d) Cash and Cash Equivalents
The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents.
(e) Inventory
All inventories are finished goods, and stated at the lower of cost or net realizable value. Cost is principally determined using the first-in, first-out (FIFO) method.
(f) Property and Equipment, Net
Property and equipment, net, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to operations as incurred.
(g) Intangible Assets, Net
Intangible assets, net, are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated economic lives of the respective assets.
(h) Goodwill and Intangible Assets with Indefinite Lives
The Company does not amortize goodwill and intangible assets with indefinite useful lives, but instead tests for impairment at least annually. When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its carrying value. If the estimated fair value of the reporting unit is determined to be less than its carrying value, goodwill is reduced, and an impairment loss is recorded.
(i) Long-lived Assets
The Company reviews long-lived assets held and used, intangible assets with finite useful lives and assets held for sale for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows associated with the asset is compared to the assets carrying amount to determine if a write-down is required. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds the fair value.
8
(j) Revenue Recognition
The Company recognizes service revenue over agreed periods of services delivered to customers and recognizes product sales upon shipment of the ordered products to customers, provided there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is deemed probable.
(k) Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (ASC) Topic 718, Compensation Stock Compensation (ASC718) and ASC 505-50, Equity Based Payments to Non-Employees.
In addition to requiring supplemental disclosures, ASC 718 addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.
In accordance with ASC 505-50, the Company determines the fair value of the stock based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached, or (2) the date at which the counterpartys performance is complete.
Options and warrants
The fair value of stock options and warrants is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year:
Risk-Free Interest Rate.
We utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of our awards.
Expected Volatility.
We calculate the expected volatility based on a volatility index of peer companies as we did not have sufficient historical market information to estimate the volatility of our own stock.
Dividend Yield.
We have not declared a dividend on its common stock since its inception and have no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.
Expected Term.
The expected term of options granted represents the period of time that options are expected to be outstanding. We estimated the expected term of stock options by using the simplified method. For warrants, the expected term represents the actual term of the warrant.
Forfeitures.
Estimates of option forfeitures are based on our experience. We will adjust our estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.
9
(l) Advertising
Advertising costs are expensed as incurred and amounted to $37,008 and $21,510 for the six months ended June 30, 2018 and 2017, respectively.
(m) Research and Development
Research and development costs are expensed as incurred.
(n) Income Taxes
Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
The Company has adopted the provisions required by the Income Taxes topic of the FASB Accounting Standards Codification. The Codification Topic requires the recognition of potential liabilities as a result of managements acceptance of potentially uncertain positions for income tax treatment on a more-likely-than-not probability of an assessment upon examination by a respective taxing authority. The Company believes that it has not taken any uncertain tax positions and thus has not recorded any liability.
(o) Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation. For the periods presented, the diluted net loss per share calculation excluded the effect of Series B preferred stocks and stock options outstanding (see Notes 7, 8 and 10).
(p) Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) which establishes revenue recognition standards. ASU 2014-19 is effective for annual reporting periods beginning after December 15, 2017. The update establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern including related disclosures. The impact of ASU 2014-19 on the Companys financial statements has not been significant.
In 2016, the FASB issued ASU 2016-2 (Topic 842) which establishes a new lease accounting model for lessees. Under the new guidance, lessees will be required to recognize right of use assets and liabilities for most leases having terms of 12 months or more. ASU 2016-2 is effective for fiscal years beginning after December 15, 2018. The impact on the Company's financial statements is not expected to be significant.
(q) Reclassifications
Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation. These reclassification adjustments had no effect on the Company's previously reported net income.
10
NOTE 4 Notes Receivable
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|
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|
|
|
Notes receivable consist of:
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|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Secured Promissory note dated October 17, 2017 due from Pure Health
Products, LLC (PHP), interest at 12% per annum, due October
17, 2018, secured by assets of PHP
|
|
$
75,000
|
|
$
75,000
|
|
|
|
|
|
Note receivable dated November 30, 2015 from Stock Market Manager, Inc, interest at 3% per annum due November 30, 2020
|
|
39,000
|
|
39,000
|
|
|
|
|
|
Total
|
|
114,000
|
|
114,000
|
|
|
|
|
|
Current portion of notes receivable
|
|
(75,000)
|
|
(75,000)
|
|
|
|
|
|
Noncurrent portion of notes receivable
|
|
$
39,000
|
|
$
39,000
|
Pursuant to an option Agreement dated November 10, 2017, the Company has an option expiring November 10, 2027 to purchase certain specified assets of Pure Health for $75,000, payable via cancellation of Pure Healths obligations under the Secured Promissory Note or in cash or cash equivalent.
Stock Market Manager, Inc is affiliated with Carl Dilley, a Company director.
NOTE 5 Property and Equipment, Net
Property and Equipment, net, consist of:
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|
|
|
|
|
June 30,
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|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Furniture & Fixtures
|
|
$
19,018
|
|
$
19,018
|
|
|
|
|
|
Office Equipment
|
|
12,378
|
|
12,378
|
|
|
|
|
|
Manufacturing Equipment
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|
38,355
|
|
-
|
|
|
|
|
|
Total
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69,751
|
|
31,396
|
|
|
|
|
|
Accumulated amortization
|
|
(21,852)
|
|
(20,248)
|
|
|
|
|
|
Net
|
|
$
47,899
|
|
$
11,148
|
11
NOTE 6 Intangible Assets, Net
Intangible assets, net, consist of:
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|
|
|
|
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June 30,
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December 31,
|
|
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2018
|
|
2017
|
|
|
|
|
|
Video conferencing software acquired by Prosperity in December 2009
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|
$
30,000
|
|
$
30,000
|
|
|
|
|
|
Enterprise and audit software acquired by Prosperity in April 2008
|
|
20,000
|
|
20,000
|
|
|
|
|
|
Patent costs incurred by WRAP
|
|
6,880
|
|
6,880
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|
|
|
|
|
Other
|
|
3,548
|
|
3,548
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|
|
|
|
|
Total
|
|
60,428
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|
60,428
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|
|
|
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|
Accumulated amortization and Impairment
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|
(60,428)
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|
(60,428)
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|
|
|
|
|
Net
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$
0
|
|
$
0
|
The above intangible assets relate to the document management and email marketing divisions. At December 31, 2017, we do not expect any future positive cash flow from these divisions. Accordingly, we have recorded an impairment expense of $21,509 at December 31, 2017 and reduced the net carrying value of these intangible assets to $0.
12
NOTE 7 Notes and Loans Payable
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Notes and loans payable consist of:
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|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
|
|
|
|
Convertible notes payable to lender dated from March 15, 2016 (as amended June 2, 2016) to November 15, 2017, interest at rates ranging from 12% to 14.99% per annum, due from April 6, 2017 to May 15, 2018, partially converted at March 22, 2017 and the remaining notes convertible into Common Stock at a Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of the lowest Closing Bid Price of the Common Stock for the 30 Trading Days preceding the Conversion Date net of
unamortized debt discount of $0 and $1,815, respectively
|
|
38,500
|
|
36,685
|
|
|
|
|
|
Convertible notes payable to lender dated February 1, 2016 (as amended December 21, 2016) and December 21, 2016, interest at 12% per annum, due February 1, 2017 and May 20, 2017, convertible into Common Stock at a Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of the lowest Closing Bid Price of the Common Stock for the 30 Trading Days preceding the Conversion Date net of unamortized debt discount of $0 and $0, respectively. The note date dated February 1, 2016 was fully converted at June 11, 2018
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50,000
|
|
65,000
|
|
|
|
|
|
Convertible notes payable to Pasquale and Rosemary Ferro dated from May 2, 2017 to May 4, 2018, interest at 12% per annum, due from September 16, 2017 to May 7, 2019 (as amended May 4, 2018), convertible into Common Stock at a Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of the lowest Closing Bid Price of the Common Stock for the 30 Trading Days preceding the Conversion Date net of unamortized debt discount of $8,451 and $19,613, respectively
|
|
105,049
|
|
73,887
|
|
|
|
|
|
Convertible note payable to lender dated August 8, 2017 interest at 12% per annum, due August 8, 2018, convertible into Common Stock at a Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of the lowest Closing Bid Price of the Common Stock for the 30 Trading Days preceding the Conversion Date net of unamortized debt discount of $2,671 and $15,068, respectively
|
|
22,329
|
|
9,932
|
|
|
|
|
|
Convertible note payable to lender dated June 6, 2018, interest at 12% per annum, due March 6, 2019, convertible into Common Stock at a Conversion Price equal to the lesser of 55% of the lowest Closing Bid Price of the Common Stock for the 25 Trading Days preceding the (i) Inception date or (ii) the Conversion Date net of unamortized debt discount of $91,209 and $0, respectively
|
|
22,791
|
|
-
|
|
|
|
|
|
Note payable to brother of Marco Alfonsi, Chief Executive Officer of the Company, interest at 10% per annum, due August 22, 2016 (now past due)
|
|
5,000
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|
5,000
|
|
|
|
|
|
Note payable to Carl Dilley, a director of the Company, interest at 12.99% per annum, due February 1, 2021
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|
15,000
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|
-
|
|
|
|
|
|
Loan payable to Mckenzie Webster Limited (MWL), an entity controlled by the former Chairman of the Board of Directors of the Company, non-interest bearing, due on demand
|
|
3,000
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|
3,000
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|
|
|
|
|
Total
|
|
$
261,669
|
|
$
193,504
|
13
The derivative liability of the convertible notes payable consists of:
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|
|
|
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|
|
|
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|
|
June 30, 2018
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|
December 31, 2017
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Face Value
|
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Derivative Liability
|
|
Face Value
|
|
Derivative Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to lender dated from March 15, 2016 (as amended June 2, 2016) to November 15, 2017, due from April 6, 2017 to May 15, 2018
|
|
|
38,500
|
|
|
$
74,119
|
|
|
38,500
|
|
|
248,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to lender dated February 1, 2016 (as amended December 21, 2016) and December 21, 2016, due February 1, 2017 and May 20, 2017. The note date dated February 1, 2016 was fully converted at June 11, 2018
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50,000
|
|
|
96,258
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|
|
65,000
|
|
|
418,889
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|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to Pasquale and Rosemary Ferro dated from May 2, 2017 to January 8, 2018, due from September 16, 2017 to May 7, 2019 (as amended May 4, 2018)
|
|
|
113,500
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|
|
258,669
|
|
|
93,500
|
|
|
611,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to lender dated June 6, 2018, due March 6, 2019
|
|
|
114,000
|
|
|
248,184
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to lender dated August 8, 2017, due August 8, 2018
|
|
|
25,000
|
|
|
49,856
|
|
|
25,000
|
|
|
171,765
|
|
|
|
|
|
|
|
|
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|
Totals
|
|
|
$
341,000
|
|
|
$
727,086
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|
|
$
222,000
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|
|
$
1,451,137
|
The above convertible notes contain a variable conversion feature based on the future trading price of the Company common stock. Therefore, the number of shares of common stock issuable upon conversion of the notes is indeterminate. Accordingly, we have recorded the fair value of the embedded conversion features as a derivative liability at the respective issuance dates (or amendment dates) of the notes ($460,316 total for the six months ended June 30, 2018) and charged the applicable amounts to debt discounts ($120,000 total for the six months ended June 30, 2018) and the remainder to other expense ($340,316 total for the six months ended June 30, 2018). The increase (decrease) in the fair value of the derivative liability from the respective issuance dates (or amendment dates) of the notes to the measurement date ($1,160,391 total decrease for the six months ended June 30, 2018) is charged (credited) to other expense (income). The fair value of the derivative liability of the notes is measured at the respective issuance dates and quarterly thereafter using the Black Scholes option pricing model. Assumptions used for the calculations of the derivative liability of the notes at June 30, 2018 include (1) stock price of $0.0215 per share, (2) exercise price of $0.0074 per share, (3) terms ranging from 0 days to 311 days, (4) expected volatility of 269% and (5) risk free interest rates ranging from 0.00% to 2.24%.
NOTE 8 Preferred Stock
Each share of Series A Preferred Stock is convertible into 10,000,000 shares of CANB common stock and is entitled to 20,000,000 votes.
Each share of Series B Preferred Stock has the first preference to dividends, distributions and payments upon liquidation, dissolution and winding-up of the Company, and is entitled to an accrued cumulative but not compounding dividend at the rate of 5% per annum whether or not declared. After six months of the issuance date, such share and any accrued but unpaid dividends can be converted into common stock at the conversion price which is the lower of (i) $0.0101; or (ii) the lower of the dollar volume weighted average price of CANB common stock on the trading day prior to the conversion day or the dollar volume weighted average price of CANB common stock on the conversion day. The share of Series B Preferred Stock has no voting rights.
14
The Company issued a total of 10 shares of CANB Series A Preferred Stock (5 shares to Mckenzie Webster Limited and 5 shares to Marco Alfonsi) in exchange for the retirement of a total of 100,000,000 shares of CANB common stock (50,000,000 shares from Mckenzie Webster Limited and 50,000,000 shares from Marco Alfonsi).
On October 4, 2017, the Company issued 3 shares of CANB Series A Preferred Stock to Alfonsi: 2 shares were the consideration for Alfonsis cancellation of accrued salaries payable of $127,803 owed to Alfonsi and 1 share (valued at $63,902) was issued pursuant to the new employment agreement with Alfonsi.
On November 30, 2017, MWL converted its 5 shares of CANB Series A Preferred Stock to 50,000,000 shares of CANB common stock.
On December 5, 2017, the Company issued 157,985 shares of CANB Series B Preferred Stock to RedDiamond Partners LLC (RedDiamond) pursuant to a Securities Purchase Agreement (the SPA) dated October 13, 2017, in exchange for proceeds of $150,000, or $0.95 per CANB Series B Preferred share.
On January 22, 2018, the Company issued 87,368 shares of CANB Series B Preferred Stock to RedDiamond pursuant to an amended Securities Purchase Agreement dated January 9, 2018, in exchange for proceeds of $83,000, or $0.95 per CANB Series B Preferred share.
On February 12, 2018, the Company issued 1 share of CANB Series A Preferred Stock to David Posel pursuant to a service agreement. The fair value of the issuance is $373,000 and will be amortized over the vesting period of four years.
On February 16, 2018, the Company issued 3 shares of CANB Series A Preferred Stock to David Posel pursuant to a service agreement. The fair value of the issuance is $1,020,000 and will be amortized over the vesting period of one year.
On February 16, 2018, the Company issued 87,368 shares of CANB Series B Preferred Stock to RedDiamond pursuant to an amended Securities Purchase Agreement dated January 9, 2018, in exchange for proceeds of $83,000, or $0.95 per CANB Series B Preferred share.
On March 20, 2018, the Company issued 87,368 shares of CANB Series B Preferred Stock to RedDiamond pursuant to an amended Securities Purchase Agreement dated January 9, 2018, in exchange for proceeds of $83,000, or $0.95 per CANB Series B Preferred share.
On April 13, 2018, April 25, 2018, May 3, 2018, June 19, 2018 and June 25, 2018, RedDiamond converted its 10,000 shares, 10,000 shares, 10,000 shares, 15,000 shares and 10,000 shares of CANB Series B Preferred Stock to 1,287,129 shares, 1,287,129 shares, 1,287,129 shares, 3,545,455 shares, and 2,363,636 shares of CANB common stock, respectively.
On May 14, 2018, the Company issued 1 share of CANB Series A Preferred Stock to a consultant pursuant to a Consulting Agreement dated May 11, 2018. The $150,000 fair value of the issuance was partially charged to consulting fees in the three months ended June 30, 2018.
NOTE 9 Common Stock
On February 2, 2017, the Company issued 200,000 shares of CANB common stock to a financial consultant for services rendered. The $11,000 fair value of the 200,000 shares of CANB common stock was charged to consulting fees in the three months ended March 31, 2017.
On February 13, 2017, the Company issued 1,685,900 shares of CANB common stock to the brother of the Chief Executive Officer of the Company in satisfaction of notes payable of $15,000 and accrued interest payable of $1,859.
On March 22, 2017, the Company issued 6,785,316 shares of CANB common stock to a lender in satisfaction of notes payable of $50,000 and accrued interest payable of $5,979.
On April 17, 2017, the Company issued 5,000,000 shares of CANB common stock to a consultant for services rendered. The $125,000 fair value of the 5,000,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2017.
On June 21, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,975 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2017.
15
On June 28, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,000 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2017.
On August 25, 2017, the Company issued 7,142,857 shares of CANB common stock to a lender in satisfaction of notes payable of $50,000 and accrued interest payable of $3,331.
On August 25, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $3,750 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2017.
On September 5, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $4,375 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2017.
On September 7, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $32,750 fair value of the 2,500,000 shares of CANB common stock was charged to consulting fees in the three months ended September 30, 2017.
On September 11, 2017, the Company issued 250,000 and 250,000 shares of CANB common stock to two consultants for services rendered, respectively. The $3,350 fair value of each 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2017.
On September 25, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $2,525 fair value of the 2,500,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2017.
On November 2, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $1,725 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended December 31, 2017.
On November 9, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $21,250 fair value of the 2,500,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
On November 30, 2017, the Company issued 50,000,000 shares of CANB common stock to Mckenzie Webster Limited in exchange for the retirement of 5 shares of CANB Series A Preferred Stock.
On December 5, 2017, the Company issued 250,000 and 250,000 shares of CANB common stock to two consultants for services rendered, respectively. The $3,000 fair value of each 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
On December 7, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $4,500 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
On December 18, 2017, the Company issued 500,000 shares of CANB common stock to a consultant for services rendered. The $9,050 fair value of the 500,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
On December 25, 2017, the Company issued 250,000 and 250,000 shares of CANB common stock to two consultants for services rendered, respectively. The $7,250 fair value of each 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
On February 7, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $9,825 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.
16
On February 9, 2018, the Company issued 3,000,000 and 3,000,000 shares of CANB common stock to its two directors for services rendered, respectively. The $101,400 fair value of each 3,000,000 shares of CANB common stock was charged to directors fees in the three months ended March 31, 2018.
On February 13, 2018, the Company issued 150,000 shares of CANB common stock to a consultant for services rendered. The $5,085 fair value of the 150,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.
On February 14, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $8,500 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.
On February 19, 2018, the Company issued 150,000 shares of CANB common stock to a consultant for services rendered. The $5,280 fair value of the 150,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.
On February 26, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $11,375 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.
On March 1, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $10,900 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended March 31, 2018.
On March 20, 2018, the Company issued
250,000 shares of CANB common stock to a consultant for services rendered. The $6,500 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended March 31, 2018.
On April 13, 2018, April 25, 2018, May 3, 2018, June 19, 2018 and June 25, 2018, the Company issued 1,287,129 shares, 1,287,129 shares, 1,287,129 shares, 3,545,455 shares, and 2,363,636 shares of CANB common stock to RedDiamond in exchange for the retirement of 10,000 shares, 10,000 shares, 10,000 shares, 15,000 shares and 10,000 shares of CANB Series B Preferred Stock, respectively.
On May 9, 2018, the Company issued 125,000 shares of CANB common stock to a consultant for services rendered.. The $1,812 fair value of the 125,000 shares of CANB common stock was partially charged to consulting fees in the three months ended June 30, 2018.
On May 29, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,000 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended June 30, 2018.
On May 31, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $4,600 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2018.
On June 4, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,750 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended June 30, 2018.
On June 11, 2018, the Company agreed to issue 2,749,429 shares of CANB common stock to a lender in satisfaction of notes payable of $15,000 and accrued interest payable of $4,246.
On June 18, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $6,250 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended June 30, 2018.
On June 22, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $8,250 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2018.
17
NOTE 10 Stock Options and Warrants
A summary of stock options and warrants activity follows:
|
|
|
|
|
|
|
Shares of Common Stock Exercisable Into
|
|
Stock
|
|
|
|
|
|
Options
|
|
Warrants
|
|
Total
|
Balance, December 31, 2016
|
50,000
|
|
247,500
|
|
297,500
|
Granted in 2017
|
-
|
|
-
|
|
-
|
Expired in 2017
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
Balance, December 31, 2017
|
50,000
|
|
247,500
|
|
297,500
|
Granted in 1Q, 2Q 2018
|
3,000,000
|
|
-
|
|
3,000,000
|
Cancelled in 1Q, 2Q 2018
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
Balance, June 30, 2018
|
3,050,000
|
|
247,500
|
|
3,297,500
|
Issued and outstanding stock options as of June 30, 2018 consist of:
|
|
|
|
|
|
|
Year
|
|
Number Outstanding
|
|
Exercise
|
|
Year of
|
Granted
|
|
And Exercisable
|
|
Price
|
|
Expiration
|
2009
|
|
50,000
|
|
$
1.000
|
|
2019
|
2018
|
|
3,000,000
|
|
$
0.001
|
|
2023
|
|
|
|
|
|
|
|
Total
|
|
3,050,000
|
|
|
|
|
On June 11, 2018, the Company granted 3,000,000 options of CANB common stock to Carl Dilley, a director of the Company, in exchange for the retirement of a total of 3,000,000 shares of CANB common stock from Carl Dilley. The options are exercisable for the purchase of one share of the Registrants Common Stock at an exercise price of $0.001 per share. The Options are fully vested and are exercisable as of the Grant Date and all shall expire June 11, 2023. The value of the Stock Options ($84,000) were calculated using the Black Scholes option pricing model and the following assumptions: (i) $0.028 share price, (ii) 5 years term, (iii) 262.00% expected volatility, (iv) 2.80% risk free interest rate and the difference between this value and the fair value of retied shares was expensed in the quarterly period ended June 30, 2018.
Issued and outstanding warrants as of June 30, 2018 consist of:
|
|
|
|
|
|
|
Year
|
|
Number Outstanding
|
|
Exercise
|
|
Year of
|
Granted
|
|
And Exercisable
|
|
Price
|
|
Expiration
|
2010
|
|
247,500
|
|
$
1.00
|
|
2020
|
|
|
|
|
|
|
|
Total
|
|
247,500
|
|
|
|
|
18
NOTE 11 Income Taxes
No provisions for income taxes were recorded for the periods presented since the Company incurred net losses in those periods.
The provisions for (benefits from) income taxes differ from the amounts determined by applying the U.S. Federal income tax rate of 21% and 35% to pretax income (loss) as follows:
|
|
|
|
|
|
|
Six Months June 30,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Expected income tax (benefit) at 21% and 35%
|
$
(122,791)
|
|
$
8,435
|
|
|
|
|
|
Loss on stock issuance
|
|
38,872
|
|
-
|
|
|
|
|
|
Loss on debt conversion
|
|
12,125
|
|
-
|
|
|
|
|
|
Non-deductible stock-based compensation
|
162,871
|
|
3,850
|
|
|
|
|
|
Non-deductible amortization of debt discounts
|
11,375
|
|
30,706
|
|
|
|
|
Non-deductible expense from derivative liability
|
(177,251)
|
|
(68,838)
|
|
|
|
|
Increase in deferred income tax assets valuation allowance
|
|
74,799
|
|
25,847
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$
-
|
|
$
-
|
Deferred income tax assets consist of:
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Net operating loss carryforward
|
|
1,469,157
|
|
1,394,358
|
|
|
|
|
|
Valuation allowance
|
|
(1,469,157)
|
|
(1,394,358)
|
|
|
|
|
|
Net
|
|
$
-
|
|
$
-
|
Based on management's present assessment, the Company has not yet determined it to be more likely than not that a deferred income tax asset of $1,469,176 attributable to the future utilization of the $4,329,487 net operating loss carryforward as of June 30, 2018 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred income tax asset in the financial statements at December 31, 2017. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforward expires in years 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2033, 2034, 2035, 2036, 2037 and 2038 in the amount of $1,369, $518,390, $594,905, $686,775, $159,141, $151,874, $135,096, $166,911, $311,890, $25,511, $338,345, $386,297, $496,798 and $356,185 respectively.
Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
The Companys U.S. Federal and state income tax returns prior to 2013 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The statute of limitations on the 2013 tax year returns expired in March 2017.
The Company recognizes interest and penalties associated with uncertain tax positions as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance sheets. There were no interest or penalties paid during 2018 and 2017.
19
NOTE 12 Commitments and Contingencies
Employment Agreements
On October 3, 2017, the Company executed an Executive Employment Agreement with Marco Alfonsi (Alfonsi) for Alfonsi to serve as the Company's chief executive officer and interim chief financial officer and secretary for cash compensation of $10,000 per month. Pursuant to the agreement, the Company issued a share of CANB Series A Preferred Stock to Alfonsi on October 4, 2017 (see Note 8). Alfonsi may terminate his employment upon 30 days written notice to the Company. The Company may terminate Alfonsi's employment upon written notice to Alfonsi by a vote of the Board of Directors.
On February 12, 2018, the Company executed an Executive Service Agreement (Agreement) with David Posel. The Agreement provides that Mr. Posel services as the Companys Chief Operating Officer for a term of 4 years. The Agreement also provides for compensation to Mr. Posel of $5,000 cash per month and the issuance of 1 share of Series A Preferred Stock at the inception of the Agreement. The Agreement can be terminated upon the resignation or death of Mr. Posel, and also can be terminated by the Company due to the failure or neglect of Mr. Posel to perform his duties, or due to the misconduct of Mr. Posel in connection with the performance. On February 12, 2018, 1 share of CANB Series A Preferred Stock were issued to Mr. Posel (see Note 8).
On February 16, 2018, the Company executed an Executive Service Agreement (Agreement) with Andrew W Holtmeyer. The Agreement provides that Mr. Holtmeyer services as the Companys Executive Vice President Business for a term of 3 years. The Agreement also provides for compensation to Mr. Holtmeyer of $10,000 cash per month and the issuance of 3, 2 and 1 share of Series A Preferred Stock at the beginning of each year. The Agreement can be terminated upon the resignation or death of Mr. Holtmeyer, and also can be terminated by the Company due to the failure or neglect of Mr. Holtmeyer to perform his duties, or due to the misconduct of Mr. Holtmeyer in connection with the performance. On February 16, 2018, 3 shares of CANB Series A Preferred Stock were issued to Mr. Holtmeyer (see Note 8).
Consulting Agreements
On July 29, 2017, the Company executed a Consulting Agreement with Andrew W Holtmeyer for Mr. Holtmeyer to serve as the Company's consultant for monthly cash payment of $5,000 through July 29, 2018. Effective February 16, 2018, the Company terminated the agreement due to the replacement of an Executive Service Agreement.
On September 6, 2017, the Company executed a Consulting Agreement with T8 Partners LLC (T8) for T8 to serve as the Company's consultant for stock compensation of a total of 10,000,000 restricted shares. Pursuant to the agreement, the Company issued 2,500,000 restricted shares of CANB common stock to T8 on September 7, 2017. Effective October 27, 2017, the Company terminated the agreement due to non-performance by T8.
On November 9, 2017, the Company executed a Consulting Agreement with Healthcare Advisory Group Company (Healthcare) for Healthcare to serve as the Company's consultant for stock compensation of a total of 5,000,000 restricted shares. Pursuant to the agreement, the Company issued 2,500,000 restricted shares of CANB common stock to Healthcare on November 9, 2017. Effective March 6, 2018, the Company terminated the agreement due to non-performance by Healthcare.
Lease Agreements
On December 1, 2014, Prosperity entered into a lease agreement with KLAM, Inc. for office space in Hicksville, New York for an initial term of one year commencing December 1, 2014. The lease provides for monthly rentals of $2,500 and provides Prosperity an option to renew the lease after the initial term. The Company has continued to occupy this space after November 30, 2015 under a month to month arrangement at $2,500 per month. KLAM, Inc. is controlled by the wife of the Company's chief executive officer Marco Alfonsi.
On September 11, 2015, the Company executed a lease agreement with an unrelated third party for office space in Hicksville, New York for a term of 37 months. The lease provides for monthly rentals of $2,922 for lease year 1, $3,009 for lease year 2, and $3,100 for lease year 3. The lease also provides for additional rent based on increases in base year operating expenses and real estate taxes.
Rent expense for the six months ended June 30, 2018 and 2017 was $33,065 and $32,530, respectively.
20
At June 30, 2018, the future minimum lease payments under non-cancellable operating leases were:
Year ended December 31, 2018
9,300
Total
$ 9,300
Major Customers
For the six months ended June 30, 2018, one customer accounted for approximately 14% of total revenues.
For the six months ended June 30, 2017, two customers accounted for approximately 45% and 29%, respectively, of total revenues.
Public Offering of Units
On August 2, 2016, the Companys Registration Statement on Form S-1 was declared effective by the Securities and Exchange Commission. On a self-underwritten basis, the Company is offering up to 40,000,000 Units at a price of $0.05 per Unit or $2,000,000 maximum. Each Unit consists of one share of Company common stock and one warrant to purchase ½ share of Company common stock at a price of $0.10 per share for a period of three years. There is no minimum offering amount or escrow required as a condition to closing and the Company may sell significantly fewer Units than those offered. The offering will terminate on August 2, 2018 unless earlier terminated or extended by the Companys filing of an amendment to the Registration Statement. To date, no Units have been sold.
NOTE 13 Related Party Transactions
ProAdvanced Group, Inc. (PAG), an entity controlled by the Companys chief executive officer, is a customer of CANB. At June 30, 2018, CANB had an account receivable from PAG of $7,240. For the six months ended June 30, 2018, CANB had revenues from PAG of $5,000.
Island Stock Transfer (IST), an entity controlled by Carl Dilley, a Company director, is both a customer and vendor of CANB. At June 30, 2018, CANB had an account receivable from IST of $6,035 and an account payable to IST of $2,138. For the six months ended June 30, 2018, CANB had revenues from IST of $3,000.
Stock Market Manager, Inc. is also an entity controlled by Mr. Dilley. For the six months ended June 30, 2018, CANB had an account payable to Stock Market Manager Inc. of $1,676.
In order to facilitate its operations, the Company has entered into a Production Agreement with Pure Health Products, LLC (PHP), a New York limited liability company. Pursuant to the Production Agreement, PHP will manufacture, package, and sell the Companys CBD infused products on an exclusive basis. PHP will not produce or manufacture any product containing any cannabis or hemp derivative for any person or entity other than the Company, and the Company controls the ingredients, recipe, manufacturing processes and procedures and quality and taste parameters for all Products produced at the PHP facility. PHP may also white label / rebrand or relabel the products on the Companys behalf pursuant to white label agreements entered into between the Company and third-party customers. Credit card sales are processed through PHP as well. Through its contractual relationship with PHP, the Company is able to control the manufacturing process of its products while reducing its production costs. In addition, the Company has the option to acquire certain assets of PHP should it elect to take over direct manufacture of its Products. For the six months ended June 30, 2018, purchase of CBD infused products from PHP totaled $79,754.
At June 30, 2018, we have a note receivable from PHP in the amount of $75,000. PHP is controlled by Pasquale Ferro. At June 30, 2018, we are indebted to Mr. Ferro and his wife Rosemary Ferro in the amount of $113,500.
The Company considers Pure Health products to be a variable interest entity as prescribed under Accounting guidelines. Due to the fact that the company is not dependent on Pure Health Products solely for manufacture, no consolidation of Pure Heath Products financial information is required.
During the six months ended June 30, 2018, we had products sales to related parties totaling $0.
21
NOTE 14 Subsequent Events
On August 6, 2018, the Company and its third party landlord executed a First Amendment to Lease (see Note 12). The amendment provides for the extension of the lease term for an additional three years commencing on November 1, 2018 and ending on October 31, 2021 at monthly rental of $3,193 for year 1, $3,289 for year 2, and $3,388 for year 3.
On August 13, 2018, the Company and Pasquale and Rosemary Ferro executed an Addendum to 12% Convertible Promissory Note (the Addendum). The Addendum provides for an increase in the maximum principal amount of the Note facility to $300,000 and extends the maturity date of the Note to June 30, 2021. The principal balance of the notes payable due to Pasquale and Rosemary Ferro under the Note facility at June 30, 2018 was $113,500 (see Note 7).
22