NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2020 AND 2019
NOTE 1: DESCRIPTION
OF BUSINESS
GRN Holding Corporation, a Nevada corporation,
(“GRN,” “the Company,” “We," "Us" or “Our’) is a publicly-quoted shell
company seeking to create value for its shareholders by pursuing acquisitions, mergers and business combinations.
On June 20, 2019, GRN Funds, LLC, a Washington
limited liability company, and its manager and Chief Executive Officer, Justin Costello, purchased a total of 139 million shares
of the Company’s common stock representing 55.65% of its issued and outstanding shares, in a private transaction with Stephen
Flechner and David Cutler. As a result of the closing of the transaction on June 25, 2019, GRN Funds, LLC and Mr. Costello acquired
a majority of the issued shares eligible to vote. As a condition to the closing of the transaction, the Company’s Directors
Mr. Stephen Flechner and Mr. Ralph Shearing resigned, and Mr. Flechner resigned as Chief Executive Officer and President, and Mr.
Justin Costello was concurrently named Director of the Company, President and Chief Executive Officer. As a term and condition
of the transaction, Messrs. Flechner and Cutler agreed to satisfy Company outstanding liabilities totaling $111,579 and forgive
outstanding liabilities of $86,147.
On July 16, 2019, the Board of Directors met
and unanimously approved a resolution recommending an amendment to the Company’s articles of incorporation to change the
name of the Company to GRN Holding Corporation, and to file a Corporate Action Notification Form with FINRA to formally change
the Company’s name and trading symbol. The Board of Directors thereafter called for and convened a special meeting of the
stockholders. On July 16, 2019, stockholders beneficially owning a majority of the shares eligible to vote consented to the amendment
of the Company’s articles of incorporation to change its name to GRN Holding Corporation and authorized the filing of a Corporate
Action Notification Form with FINRA to formally change the Company’s name and trading symbol.
On August 19, 2019, the Company filed a formal
amendment to its articles of incorporation with the Nevada Secretary of State formally changing its name to GRN Holding Corporation.
On October 17, 2019, the Company entered into
an executive employment agreement with Justin Costello to secure his services as President, Secretary, Treasurer and Director of
the Company. The term of the agreement is for one year, which automatically renews for one-year terms. Mr. Costello agreed to an
annual salary of $1.00.
On November 5, 2019, FINRA notified the Company
of its processing and completion of the Corporate Action Notification Form to change the Company’s name to GRN Holding Corporation,
and the concurrent issuance of the new trading symbol: “GRNF” that is currently listed on the OTC Markets.
NOTE 2. GOING CONCERN
Our financial statements are prepared using
accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization
of assets and the liquidation of liabilities in the normal course of business. We have no ongoing business or income. For the year
ended April 30, 2020, we reported a net loss of $435,950, and had an accumulated deficit of $9,083,046 as of April 30, 2020. These
conditions raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern
is dependent upon our ability to raise additional debt or equity funding to meet our ongoing operating expenses and ultimately
in merging with another entity with experienced management and profitable operations. No assurances can be given that we will be
successful in achieving these objectives. The COVID-19 pandemic could have an impact on our ability to obtain financing to fund
operations. The Company is unable to predict the ultimate impact at this time. The financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The summary of significant accounting policies
is presented to assist in the understanding of the financial statements. These policies conform to accounting principles generally
accepted in the United States of America (“US GAAP”) and have been consistently applied. The Company has elected an
April 30 year-end. The Company has not earned any revenue to date.
Use of Estimates
The preparation
of financial statements in conformity with US 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
We maintain
cash balances in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents.
As of April 30, 2020, and 2019, our cash balance was $0.
Fair Value Measurements
ASC Topic
820, Fair Value Measurements and Disclosures ("ASC 820"), provides a comprehensive framework for measuring fair value
and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition
of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted
prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC
820 defines the hierarchy as follows:
Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types
of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities
listed on the New York Stock Exchange.
Level
2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of
the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded
securities or contracts or priced with models using highly observable inputs.
Level
3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities
included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective
models and forecasts used to determine the fair value of financial transmission rights.
Our financial instruments consist of bank overdraft,
prepaid expenses, accounts payable, accrued expenses - related parties, note payable and loans – related parties. The
carrying amount of our bank overdraft, prepaid expenses, accounts payable, accrued expenses- related parties, note payable and
loans payable – related party approximates their fair values because of the short-term maturities of these instruments
Related Party Transactions
A related party is generally defined as (i)
any person that holds 10% or more of our membership interests including such person's immediate families, (ii) our management,
(iii) someone that directly or indirectly controls, is controlled by or is under common control with us, or (iv) anyone who can
significantly influence our financial and operating decisions. A transaction is considered to be a related party transaction when
there is a transfer of resources or obligations between related parties. See Notes 6, 8 and 11 below for details of related party
transactions in the period presented.
Income Taxes
The provision for income taxes is computed
using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating
losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that
apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation
allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Revenue Recognition
Revenues are recognized when control of the
promised goods or services are transferred to a customer, in an amount that reflects the consideration that we expect to receive
in exchange for those goods or services. Once we establish revenue-generating activities, likely through acquisition of an operating
company, we intend to apply the following five steps in order to determine the appropriate amount of revenue to be recognized as
we fulfills our obligations under each of our agreements:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations
in the contract(s)
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to performance
obligations
Step 5: Recognize revenue when the entity satisfies
a performance obligation
At this time, we have not identified specific
planned revenue streams.
During the years ended April 30, 2020 and 2019,
we did not recognize any revenue.
Advertising Costs
We expense
advertising costs when advertisements occur. No advertising costs were incurred during the years ended April 30, 2020 or
2019.
Stock-Based Compensation
The cost
of equity instruments issued to non-employees in return for goods and services is measured by the fair value of the equity instruments
issued. Measurement date for non-employees is the grant date of the stock-based compensation. The cost of employee services received
in exchange for equity instruments is based on the grant date fair value of the equity instruments issued.
Net Loss per Share Calculation
Basic
net loss per common share ("EPS") is computed by dividing loss available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted
average shares outstanding, assuming all dilutive potential common shares were issued. Dilutive loss per share excludes all potential
common shares if their effect is anti-dilutive.
No potentially
dilutive debt or equity instruments were issued or outstanding during the years ended April 30, 2020 and 2019
Recently-Issued Accounting Pronouncements
We have
reviewed all the recently-issued, but not yet effective, accounting pronouncements and do not believe any of these pronouncements
will have a material impact on our financial statements.
NOTE 4. PREPAID EXPENSES
As of April 30, 2020, and 2019, our balance
of prepaid expenses was $58,265 and $0, respectively.
Effective
February 5, 2020, we entered into financing agreement to purchase a Directors’ and Officers’ insurance policy at a
projected annual cost of $75,809, excluding finance costs. We accounted for this transaction by amortizing the anticipated annual
cost of the policy on a straight-line basis over the anticipated one-year life of the policy.
As further
disclosed in Note 13 Subsequent Events below, on consideration, management decided not to maintain the policy in force and
the policy was cancelled for non-payment effective May 11, 2020.
NOTE 5. ACCOUNTS PAYABLE AND ACCRUALS
As April 30, 2020 and 2019, our balance of
accounts payable and accruals was $197,802 and $129,360, respectively.
Effective
June 25, 2019, as a condition of the change of control in the Company described above, our former principal shareholders agreed
to satisfy outstanding accounts payable totaling $111,579 by way of capital contributions to the Company. These capital contributions
have been recognized in additional paid in capital. Contemporaneously with these payments, creditors who were owed a total
of $125,000 agreed to accept payment of $92,619 in full and final of their liabilities. Accordingly, we recognized a gain of $32,381
on the settlement of these liabilities as other income.
As of April 20,2020, the balance of accounts
payable and accruals related primarily to legal fees and a deposit for our Directors’
and Officers’ insurance policy.
NOTE 6. ACCRUALS - RELATED PARTIES
As April 30, 2020 and 2019, our balance of
accrual – related parties was $0 and $77,218, respectively.
Effective
June 25, 2019, as a condition of the change of control in the Company described above, our former principal shareholders agreed
to settle the entire outstanding balance of accruals – related parties. The forgiveness of accruals-related parties of $77,218
has been recognized in additional paid in capital.
NOTE 7. NOTE PAYABLE
Effective
February 5, 2020, we entered into a financing agreement to purchase a Directors’ and Officers’ insurance policy. The
policy was set to expire in February 2021. Under the terms of the financing agreement, we were required to make 9 monthly payments
of $6,374 commencing March 3, 2020.
As of
April 30, 2020, we had made a single payment of $6,374 under the terms of this agreement. Total outstanding balance on the debt
at April 30, 2020 was $72,090. During the year ended April 30, 2020, total interest paid on the note was $469.
As
further disclosed in Note 13 Subsequent Events below, on consideration, management decided not to maintain the policy in
force and the policy was cancelled for
non-payment effective May 11, 2020 and no further payments have been made under this finance agreement.
The financing agreement terminated upon the Company’s decision to
cancel the policy, and the Company incurred no fees or penalties in connection with the cancellation of the financing agreement.
NOTE 8. LOANS - RELATED PARTIES
As of April 30, 2020, and 2019, our balance
of loans – related parties was $174,884 and $7,697, respectively.
Between May 1, 2019 and June 25, 2019, one
of our former principal shareholders advanced to us $1,232 to fund our working capital needs
Effective
June 25, 2019, as a condition of the change of control in the Company described above, our former principal shareholders agreed
to forgive the total balance of loans - related parties of $8,929. The forgiveness of the balance of $8,929 has been recognized
in additional paid in capital.
During the period from June 26, 2019 to April
30, 2020, our new principal shareholder, GRN Funds, LLC, advanced $174,884 to us by way of loan to fund our working capital requirements.
The loan is unsecured, interest free and due on demand.
NOTE 9. INCOME TAXES
On December 22, 2017, the U.S. government enacted
comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes
broad and complex changes to the U.S. tax code that affect fiscal 2018, including, but not limited to requiring a one-time transition
tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years. The Tax Act also establishes new
tax laws that will affect 2018 and later years, including, but not limited to, a reduction of the U.S. federal corporate tax rate
from 34% to 21%, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, net operating loss
deduction limitations, a base erosion, anti-tax abuse tax and a deduction for foreign-derived intangible income and a new provision
designed to tax global intangible low-taxed income.
We did not provide any current or deferred
US federal income tax provision or benefit for the years ended April 30, 2020 or 2019, as we incurred tax losses during both periods
When it is more likely than not, that a tax asset cannot be realized through future income, we must record an allowance against
any future potential future tax benefit. We have provided a full valuation allowance against the net deferred tax asset,
consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will
not earn income sufficient to realize the deferred tax assets during the carry forward periods.
The Company has not taken a tax position that,
if challenged, would have a material effect on the financial statements for the years ended April 30, 2020 or 2019 as defined under
ASC 740, "Accounting for Income Taxes." We did not recognize any adjustment to the liability for uncertain tax
position and therefore did not record any adjustment to the beginning balance of the accumulated deficit on the balance sheet.
The provision for income taxes differs from
the amount computed by applying the statutory federal and state income tax rates of 21% and 5%, respectively, to income before
provision for income taxes.
The deferred tax asset and valuation account
are as follows:
|
|
|
Year Ended
April 30,
2020
|
|
Year Ended
April 30,
2019
|
|
|
|
|
|
|
|
NOL Carryforward
|
|
$
|
2,267,700
|
|
|
$
|
2,154,400
|
|
|
Valuation Allowance
|
|
|
(2,267,700
|
)
|
|
|
(2,154,400
|
)
|
|
Net Deferred Tax Asset
|
|
$
|
—
|
|
|
$
|
—
|
|
A reconciliation of the income taxes computed at the statutory rate is as follows:
|
|
|
|
|
|
|
|
|
Year Ended
April 30,
2020
|
|
Year ended
April 30,
2019
|
|
|
|
|
|
|
|
Tax credit at statutory rate (26%)
|
|
$
|
113,300
|
|
|
$
|
32,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in valuation allowance
|
|
|
(113,300
|
)
|
|
|
(32,500
|
)
|
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The change in valuation allowance for the years
ended April 30, 2020 and 2019 was approximately $113,300 and $32,393, respectively.
As of April 30, 2020, the Company had a federal
net operating loss carryforward of approximately $8,722,100. The annual offset of this carryforward loss against any future taxable
profits will be substantially limited under the provisions of Internal Revenue Code Section 381 due to the change in control that
took place in the year ended April 30, 2020.
NOTE 10. COMMITMENTS & CONTINGENCIES
Legal Proceedings
As of the year ended April 30, 2020, and to
date the following are pending material litigations involving claims exceeding $5,000, that individually or in the aggregate, involves
the Company, or any of its directors, officers or affiliates:
1) Dean
Huge vs. Orlando Birgrager, Erik Blum, BBVI Consulting, SA, Weiser Global Capital Markets, Ltd., GRN Holding Corporation. Case
No. A-20-814980-C; District Court for Nevada, Clark County. This action seeks damages by plaintiff Huge against BBVI, Blum and
Weiser for breach of contract having to do with a private stock sale. The Company is named, but no allegations are made against
the Company in the complaint, nor is there any prayer for relief that seeks legal damages or costs against the Company that could
reasonably be calculated as a contingent liability at this time. The Company expects this case to be dismissed without any damages
against it that would result in a reasonably determinable and reportable contingent liability.
2) CCSAC,
Inc., a California corporation and CANN DISTRIBUTORS, INC., a California corporation vs. PACIFIC BANKING CORP., a Washington corporation,
JUSTIN COSTELLO, an individual and GRN FUNDS, LLC, a Washington limited liability company. Case No. 20-cv-02102, filed in the
U.S. District Court for the Northern District of California. This case involves claims of plaintiff CCSAC and CANN against Pacific
Banking Corp. for breach of contract whereby Pacific Banking Corp. was obligated to (1) make certain tax payments on behalf of
plaintiffs; (2) pay certain vendors; and, (3) make timely payroll payments. Plaintiff alleges that: (a) it transferred $2.8 million
dollars to Pacific Banking Corp. for these purposes pursuant to contract; (b) Pacific Banking Corp. transferred the funds to GRN
Funds, LLC, the majority stockholder of the Company, and its sole manager, Justin Costello, the Company’s sole officer and
director; and (c) defendant Pacific Banking Corp. failed to make the necessary payments under contract, provide a reconciliation,
or account for the funds. Aside from breach of contract, plaintiffs seek damages for negligence, fraud, declaratory relief/indemnification
and an injunction. Damages requested by the plaintiffs include compensatory damages of $2.8 million. Plaintiffs also pray for punitive
damages. Counsel for defendants filed motions to dismiss for lack of subject-matter and personal jurisdiction and for lack of adequate
process. Given the early stages of litigation. We are not able to reasonably determine of what amount of reportable contingent
liability, if any, may be attributable to GRN Funds, LLC or Mr. Costello as a result of this action. Mr. Costello is our sole director
and officer. He is also the manager of GRN Funds, LLC, our majority shareholder, and is an affiliate and owner of Pacific Banking
Corp.
We were not subject to any pending material
legal proceedings for the years ended April 30, 2020 and 2019 that are likely to result in a reasonably determinable and reportable
contingent liability.
Contractual
Obligations
On October 17, 2019, the Company entered into
an executive employment agreement with Justin Costello, its sole director and president, secretary and treasurer, for a term of
one year, which automatically renews for consecutive one year terms, with an annual salary of $1.00.
On October 21, 2019, the Company retained Nancy
Norton as legal counsel. The contract is terminable at will. The Company agreed to pay an annual salary of $135,000.
NOTE 11. SHAREHOLDERS’ DEFICIT
Preferred Stock
As of April 30, 2020, and 2019, we were authorized
to issue 10,000,000 shares of preferred stock with a par value of $0.001.
As of April 30, 2020, and 2019, no shares of
preferred stock were issued and outstanding.
Common Stock
As of April 30, 2020, and 2019, we were authorized
to issue 250,000,000 shares of common stock with a par value of $0.001.
On December 9,
2019, the Company issued 66,666 shares of common stock in stock compensation for
services at $65,999.
As of April 30, 2020, and 2019, 249,843,977
and 249,777,311 shares of common stock were issued and outstanding, respectively.
Additional Paid in Capital
Effective
June 25, 2019, as a condition of the change of control in the Company described above, our former principal shareholders agreed
to satisfy outstanding accounts payable by way of capital contributions to the Company totaling $111,579.
In addition,
effective June 25, 2019, as a condition of the change of control in the Company described above, our former principal shareholders
agreed to forgive accruals-related parties of $77,218 and loans-related parties of $8,829. The total forgiveness of $86,147 related
party debt has been recognized in additional paid in capital.
NOTE 12. SUBSEQUENT EVENTS
On consideration, management
decided not to maintain coverage under the Directors’ and Officers’ insurance
policy entered into effective February 5, 2020 and accordingly the policy was cancelled for non-payment effective May 11, 2020.
The financing agreement terminated upon the Company’s decision to cancel the policy, and the Company incurred no fees or
penalties in connection with the cancellation of the financing agreement.
The Company otherwise evaluated subsequent
events after April 30, 2020, in accordance with FASB ASC 855 Subsequent Events, through the date of the issuance of
these financial statements and has determined there have been no additional subsequent events for which disclosure is required.