NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on substantially the same basis as the audited financial statements included in the Intelligent Buying Inc. Annual Report on Form 10-K for the year ended December 31, 2018. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission (SEC) rules and regulations regarding interim financial statements. All amounts included herein related to the condensed financial statements as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 are unaudited and should be read in conjunction with the audited financial statements and the notes there to included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
In the opinion of management, the accompanying financial statements include all necessary adjustments for the fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the full fiscal year ending December 31, 2018 or any other period.
Business description
The financial statements presented are those of Intelligent Buying, Inc. (the “Company”). The Company was incorporated under the laws of the State of California on March 22, 2004 and until October, 2016 was in the business of media advertising and acquiring high-end computer and networking equipment from resellers and end-users and then reselling this equipment at discounted prices.
On January 28, 2015, we filed a Report with the Securities and Exchange Commission on Form 8-K, which announced that (a) our principal shareholders had sold their shares of common stock to AMS Encino Investments, Inc., a California corporation controlled by Hector Guerrero, and (b) our principal shareholders were resigning as our officers and directors, and were appointing Mr. Guerrero and Jonathan Herzog as our new officers and directors. That change of control was completed on February 9, 2015.
As of May 31, 2018, AMS Encino Investments, Inc. (“AMS”) entered into a Common Stock Purchase Agreement (the “Stock Purchase Agreement”) pursuant to which AMS agreed to sell to Bagel Hole, Inc. (the “Purchaser”), the 5,753,333 shares of common stock (the “Shares”) of the “Company” owned by AMS, constituting approximately 79.3% of the Company’s 7,256,600 issued and outstanding common shares, for $90,000. The transaction was consummated on June 15, 2018; and as a result of the sale there was a change of control of the Company. The Purchaser transferred 100,000 of those shares to unaffiliated persons. There is no family relationship or other relationship between AMS and the Purchaser.
As a result of the sale under the Stock Purchase Agreement, Hector Guerrero, who was CEO of AMS and was the Company’s sole officer and director, resigned as the Company’s sole officer and director, and appointed Philip Romanzi, who is the owner of the Purchaser, as the sole director of the Company. Mr. Romanzi is now the Company’s sole officer and director.
On March 13, 2019, we entered into a Reorganization Agreement (the “Reorganization Agreement”) pursuant to which the Company agreed to acquire Jaguaring Company d/b/a Cannavolve (“Cannavolve”), a Washington corporation.
Cannavolve, based in Seattle, is a privately-owned accelerator serving the cannabis and hemp industry. Cannavolve has three operating divisions: Green Ambrosia Jamaica; Consumer Products Group; and Seattle Development Group. The business plan calls for (a) taking majority stakes, (b) acquiring companies in their entirety, and/or (c) conducting joint ventures within the global cannabis and hemp space. Cannavolve’s strategy is to develop these portfolio positions for the purpose of selling them or spinning them off as their own public companies, with the objective of maximizing shareholder value.
5
INTELLIGENT BUYING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The material terms of the Reorganization Agreement are as follows:
(a)
There are currently 7,256,600 shares of INTB issued and outstanding, and that number will remain the same until completion of the Reorganization, except for (1) common shares issuable upon conversion of the 100,000 preferred shares to be issued to and owned by Principal Holdings, LLC, in exchange for its services in negotiating and structuring the Reorganization Agreement and the capitalization, and performing due diligence; and (2) up to 1,415,140 common shares issuable at $.05 per shares upon conversion of the $70,757 convertible promissory note (the “Note”), owed to PureEnergy714, a New Jersey limited liability company. No common shares may be issued to the holder of the Note until March 6, 2020.
(b)
Upon completion of the Reorganization, the 7,256,600 shares are to be held by the following persons:
INCLUDED IN CANNAVOLVE’s 3,446,950 SHARES:
(1)
All current Cannavolve shareholders, both Class A and Class B Common.
(2)
All common shares issued upon conversion of all existing Cannavolve convertible notes.
(3)
All common shares issued to raise $100,000 in its Pre-Closing Offering, at a $10M post-offering valuation, i.e. 72,566 shares.
INCLUDED IN INTB’s 3,446,950 shares:
(1)
INTB’s currently issued and outstanding common shares, except those not Included In either Cannavolve’s or INTB’s shares.
(2)
All common shares issued to raise $400,000 in its Pre-Closing Offering, at a $10M post-offering valuation, i.e., 290,264 shares.
NOT INCLUDED IN EITHER CANNAVOLVE’s OR INTB’s SHARES:
(1)
All INTB shares issuable upon conversion of the 100,000 preferred shares.
(2)
362,700 of INTB’s 7,256,600 issued and outstanding common shares.
(3)
All shares issuable pursuant to the Convertible Note.
(c)
As of the Closing of the Reorganization, INTB will have five directors, two of whom will be Dante Jones and Eric Swaney, who currently are Cannavolve’s principal shareholders officers and directors; and three of the directors, as yet unnamed, will be designees of INTB.
(d)
Philip Romanzi, currently the Company’s sole officer and director, is expected to resign as an officer and director, and to either cancel most of the 5,653,333 INTB shares his company Bagel Hole, Inc. (“Bagel Hole”) currently owns, or sell most of them to INTB’s new management and others. As a result of the changes in management and ownership of the common shares and the preferred shares, upon completion of the Reorganization, there will be a change of control of INTB.
(e)
As a condition of the Closing, a total of $500,000 must be raised pursuant to a SEC Rule 506(c) offering, for which Cannavolve’s current management is responsible to raise $100,000; and INTB is responsible to raise the remaining $400,000.
(f)
As another condition of Closing both Cannavolve and INTB must provide audited financial statements in accordance with US GAAP. Currently, INTB has provided audited financial statements for the years ended December 31, 2016 and December 31, 2017, but is delinquent in filing its Forms 10-Q for the quarters ended June 30, 2018 and September 30, 2018. It is also expected that INTB will be required to file its From 10-K for the year ended December 31, 2018, with audited financial statements.
6
INTELLIGENT BUYING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(g)
The Preferred Stock to be issued to Principal Holdings LLC will have voting power equal to the percentage of common shares that equals 51% of the total number of shares issued and outstanding, and which may be voted for any matter requiring 51% approval by shareholder vote of the common shares. The 100,000 shares of Preferred Stock are to be issued to and owned by Principal Holdings, LLC, whose control person is Danielle Doukas.
As a result of the Company entering into the Reorganization Agreement and agreeing to perform in accordance with its terms, the Company announced that it is no longer a “shell.”
On April 26, 2019, the parties amended the Reorganization Agreement. The material terms of the amended Reorganization Agreement are as follows:
1.
Section 3.01(c) of the Reorganization Agreement is hereby amended, so that Section 3.01(c) shall be and read as follows:
“(c) Capital Structure. The authorized capital stock of the Company consists of 50,000,000 shares of Company common stock at par value $.001 per share, and 25,000,000 shares of Preferred Stock, par value $.001 per share. There are 7,256,600 shares of common stock currently issued and outstanding, and 100,000 shares of Preferred Stock, which Preferred Stock will be issued to Principal Holdings, LLC (“Principal”) before the Closing, in consideration of Principal successfully negotiating the purchase of INTB, structuring this Agreement and the capitalization, and performing due-diligence. All outstanding shares of common stock and Preferred Stock of the Company are duly authorized, validly issued, fully paid and non assessable and are not subject to preemptive rights. At and as of the Closing INTB’s current principal shareholder (the “INTB Principal”) will return to INTB, for cancellation and retirement, 3,446,950 shares owned by the INTB Principal, so that, as a result of the retirement of the 3,446,950 shares by the INTB Principal, and the issuance of up to 3,446,950 shares to the HOLDERS, INTB will have issued and outstanding 7,256,600 common shares as of the Closing. There are no outstanding bonds, debentures, notes or other indebtedness or other securities of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote, except for (1) the INTB Convertible Note (the “INTB Note,” a copy of which is attached hereto as Exhibit “B”; and (2)the issuance of restricted INTB shares pursuant to a minimum of $1,500,000, up to a maximum of $2,000,000 (net of fees, costs and commissions) in a Rule 506(c) offering (the “Pre-Closing Offering”) before the Closing of the Reorganization contemplated by this Agreement. INTB and CANNAVOLVE both acknowledge and agree that all of the proceeds from the Pre-Closing Offering will be held in escrow, and none of the proceeds of the offering, will be released to INTB until completion of the Closing. Except for the INTB Note, the Pre-Closing Offering, and proposed issuance of common shares to the HOLDERS pursuant to this Agreement, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity or voting securities of the Company. There are no agreements or arrangements pursuant to which the Company is or could be required to register shares of Company Common Stock or other securities under the Securities Act of 1933, as amended (the "Securities Act"), except as set forth in Article VII, Post-Closing Recapitalization.”
2.
The following words are added to the end of Section 3.02(c): "except as set forth in Article VII, Post-Closing Recapitalization.”
3.
The following Article and Section is hereby added to the Reorganization Agreement:
“ARTICLE VII
POST-CLOSING RECAPITALIZATION
7.01 Increase in Authorized Common Shares; Forward Split. Immediately after completion of the Reorganization, each of CANNAVOLVE, INTB and HOLDERS shall cause INTB to (a) increase its authorized common shares to 500,000,000, and (b) effect a 6.69341354721-for-1 forward split of the 8,964,036 common shares which will be issued and outstanding as of the Closing of the Reorganization, to 60,000,000 common shares. All parties shall cooperate to effect this recapitalization, as promptly as practicable.”
7
INTELLIGENT BUYING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4.
Other than as specifically set forth above, the Reorganization Agreement is hereby confirmed, and remains in full force and effect.
Uses of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted accounting principles accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. Actual results could differ from those estimates.
Net loss per share
Authoritative guidance on Earnings per Share requires dual presentation of basic and diluted earnings or loss per share (“EPS”) for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution; diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic loss per share is computed by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company, unless the effect is to reduce a loss or increase earnings per share.
Stock-based compensation
The Company has adopted the FASB standard on Share-Based Payment, which addresses the accounting for share-based payment transactions. The standard eliminates the ability to account for share-based compensation transactions using old standards, and generally requires instead that such transactions be accounted and recognized in the statement of operations based on their fair value. The standard is effective for public companies that file as small business issuers as of the first interim or annual reporting period that begins after December 15, 2005. Depending upon the number of and terms for options that may be granted in future periods, the implementation of this standard could have a significant non-cash impact on results of operations in future periods.
New Accounting Pronouncements
From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
8
INTELLIGENT BUYING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
2. INCOME TAXES
The Company’s income tax benefit differs from the expected income tax benefit by applying the U.S. Federal statutory rate of 21% to net income (loss) as follows:
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|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Income tax benefit at statutory rate of 21%
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
—
|
|
|
|
—
|
|
|
|
|
$
|
—
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|
|
$
|
—
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|
The tax effects of temporary differences that give rise to the Company’s net deferred tax liability as of March 31, 2019 and December 31, 2018 are as follows:
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|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
Net Operating Losses
|
|
$
|
196,000
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|
|
$
|
186,000
|
|
|
Less: Valuation Allowance
|
|
|
(196,000
|
)
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|
|
(186,000
|
)
|
|
Deferred Tax Assets – Net
|
|
$
|
—
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|
|
$
|
—
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|
As of March 31, 2019, the Company had approximately $935,000 of federal and state net operating loss carryovers (“NOLs”), which begin to expire in 2038. Utilization of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under regulations.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 34% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. We have estimated our provision for income taxes in accordance with the Tax Act and guidance available as of the date of this filing but have kept the full valuation allowance. As a result the Company has recorded no income tax expense during the three months ended March 31, 2019.
The Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 34% to 21%, resulting in a deferred tax expense of approximately $103,000 in 2017 that is still fully valued against as of March 31, 2019. This expense is attributable to the Company being in a net deferred tax asset position at the time of remeasurement. The company maintains a full valuation allowance.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The deferred tax expense recorded in connection with the remeasurement of deferred tax assets is a provisional amount and a reasonable estimate at December 31, 2017 based upon the best information currently available. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed.
9
INTELLIGENT BUYING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
3. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses since inception and has an accumulated deficit of $934,680 as of March 31, 2019. The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These factors among others, raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of these uncertainties. The Company will require additional financing moving forward and is pursuing various strategies to accomplish this, including seeking equity funding and/or debt funding from private placement sources. Although management believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. There are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
4. LOAN PAYABLE- OTHER
Since the change of control of the Company in May 2018, we have received advances from Pure Energy 714 LLC, an unaffiliated entity, with an outstanding balance of $156,675 as of December 31, 2018, at which time there was no formal arrangement between the Company and Pure Energy 714 LLC regarding the terms for repayment of these advances. This amount of $156,675 was still outstanding as of March 31, 2019. On March 15, 2019, specific terms were reached on $70,757 of such advances pursuant to an unsecured convertible promissory note entered into between the Company and Pure Energy 714 LLC, the terms call for repayment of the advances including interest on any unconverted principal amount at a rate of 4% per annum and a repayment date on or before August 15, 2022. Additional terms include a voluntary conversion option, pursuant to which Pure Energy 714 LLC may convert any outstanding balance at $0.05 per share into shares of common stock.
5. STOCKHOLDERS’ (DEFICIENCY)
Preferred stock
At March 31, 2019 and December 31, 2018, the Company had no shares of its preferred stock issued and outstanding.
Common stock
At March 31, 2019 and December 31, 2018, the Company had 7,256,600 shares of its common stock issued and outstanding.
10
INTELLIGENT BUYING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. SUBSEQUENT EVENTS
On April 26, 2019, the parties amended the Reorganization Agreement. The material terms of the amended Reorganization Agreement are as follows:
1.
Section 3.01(c) of the Reorganization Agreement is hereby amended, so that Section 3.01(c) shall be and read as follows:
“(c) Capital Structure. The authorized capital stock of the Company consists of 50,000,000 shares of Company common stock at par value $.001 per share, and 25,000,000 shares of Preferred Stock, par value $.001 per share. There are 7,256,600 shares of common stock currently issued and outstanding, and 100,000 shares of Preferred Stock, which Preferred Stock will be issued to Principal Holdings, LLC (“Principal”) before the Closing, in consideration of Principal successfully negotiating the purchase of INTB, structuring this Agreement and the capitalization, and performing due-diligence. All outstanding shares of common stock and Preferred Stock of the Company are duly authorized, validly issued, fully paid and non assessable and are not subject to preemptive rights. At and as of the Closing INTB’s current principal shareholder (the “INTB Principal”) will return to INTB, for cancellation and retirement, 3,446,950 shares owned by the INTB Principal, so that, as a result of the retirement of the 3,446,950 shares by the INTB Principal, and the issuance of up to 3,446,950 shares to the HOLDERS, INTB will have issued and outstanding 7,256,600 common shares as of the Closing. There are no outstanding bonds, debentures, notes or other indebtedness or other securities of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote, except for (1) the INTB Convertible Note (the “INTB Note,” a copy of which is attached hereto as Exhibit “B”; and (2)the issuance of restricted INTB shares pursuant to a minimum of $1,500,000, up to a maximum of $2,000,000 (net of fees, costs and commissions) in a Rule 506(c) offering (the “Pre-Closing Offering”) before the Closing of the Reorganization contemplated by this Agreement. INTB and CANNAVOLVE both acknowledge and agree that all of the proceeds from the Pre-Closing Offering will be held in escrow, and none of the proceeds of the offering, will be released to INTB until completion of the Closing. Except for the INTB Note, the Pre-Closing Offering, and proposed issuance of common shares to the HOLDERS pursuant to this Agreement, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity or voting securities of the Company. There are no agreements or arrangements pursuant to which the Company is or could be required to register shares of Company Common Stock or other securities under the Securities Act of 1933, as amended (the "Securities Act"), except as set forth in Article VII, Post-Closing Recapitalization.”
2.
The following words are added to the end of Section 3.02(c): "except as set forth in Article VII, Post-Closing Recapitalization.”
3.
The following Article and Section is hereby added to the Reorganization Agreement:
“ARTICLE VII
POST-CLOSING RECAPITALIZATION
7.01 Increase in Authorized Common Shares; Forward Split. Immediately after completion of the Reorganization, each of CANNAVOLVE, INTB and HOLDERS shall cause INTB to (a) increase its authorized common shares to 500,000,000, and (b) effect a 6.69341354721-for-1 forward split of the 8,964,036 common shares which will be issued and outstanding as of the Closing of the Reorganization, to 60,000,000 common shares. All parties shall cooperate to effect this recapitalization, as promptly as practicable.”
4.
Other than as specifically set forth above, the Reorganization Agreement is hereby confirmed, and remains in full force and effect.
The Company has evaluated subsequent events through the date these financial statements were issued. There have been no other events that would require adjustments to or disclosures in the financial statements.
11