Notes
to Consolidated Financial Statements
Nine
Months Ended September 30, 2019 and 2018
(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. The Company is in the process of dissolving Prosperity. The Company acquired 100% of the membership interests in Pure
Health Products, LLC, a New York limited liability company (“PHP” or “Pure Health Products”) effective
December 28, 2018. The Company’s durable equipment products, such as sam® units with CBD infused pads, are marketed
and sold through its wholly owned newly formed subsidiaries, Duramed Inc. (incorporated in or around November 2018) and DuramedNJ
LLC (incorporated in or around May 2019) (collectively, “Duramed”). Duramed began operating on or about February1,
2019. The Company’s wholly owned subsidiary, Radical Tactical LLC (“Radical Tactical”), formed May, 2019 provides
the marketplace with millennium targeted product lines such as vapes, gums, and kratom. The Company’s hemp aggregation business
is run through NY Hemp Depot LLC (the “Hemp Depot”), which was formed in or around July, 2019. The Company’s
hemp farming business is run through Green Grow Farms, Inc. (“Green Grow Farms”), which was formed in August, 2019.
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.
On
May 15, 2017, WRAP changed its name to Canbiola, Inc. (the “Company” or “CANB” or “Canbiola”).
Canbiola
specializes in the production and sale of a variety of hemp derived Cannabidiol (“CBD”) products such as oils, creams,
moisturizers, isolate, gel caps, spa products, and concentrates. Canbiola is developing its 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 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.
The
Company also owns document management and email marketing platforms which it is seeking to sell or repurpose.
For
the periods presented, the assets, liabilities, revenues, and expenses are those of CANB. Prosperity, Radical Tactical, NY Hemp
Depot and Green Grow Farms had no activity for the periods presented. Financial information for PHP and Duramed in the periods
have been consolidated with the Company’s financials.
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 September 30, 2019, the Company had cash and cash
equivalents of $471,068 and a working capital of $3,680,532. For the nine months ended September 30, 2019 and 2018, the Company
had net loss of $3,546,104 and $4,723,017, respectively. These factors raise substantial doubt as to the Company’s 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 subsidiaries, Pure Health products, Duramed,
Prosperity and Radical Tactical. All intercompany balances and transactions have been eliminated in consolidation.
(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.
(c)
Fair Value of Financial Instruments
The
Company’s 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 instrument’s 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) Accounts receivable
Accounts receivable are presented in the balance
sheet net of the allowance for doubtful accounts. Accounts receivable are written off when they are determined to be uncollectible.
The allowance for doubtful accounts is estimated based on the Company’s historical losses, the existing economic conditions
in the industry, and the financial stability of its customers. Bad debt expense was $0 for the nine months ended September 30,
2019 and twelve months ended December 31, 2018.
(f)
Inventory
Inventories
consist of raw materials and finished goods and are stated at the lower of cost or net realizable value. Cost is principally determined
using the first-in, first-out (FIFO) method.
(g) Prepaid expenses
Prepaid expenses include stock-based officer,
employee and consulting compensation of $2,784,451 and $2,576,070 at September 30, 2019 and December 31, 2018, respectively. The
Company’s policy is to record stock-based compensation as prepaids and expense over the term of employment and consulting
agreements.
(h)
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.
(i) 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.
(j) 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.
(k) 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 asset’s 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.
(l) Revenue Recognition
The Company recognizes
revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally
enforceable contract that meets criterial standards as to composition and substance is identified; (2) performance obligations
relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given
to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance
obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration
given, whether that control happens over time or not. Determination of criteria (3) and (4) are based on our management’s
judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those
amounts.
Private Label Customers,
Global CBD, LLC and TZ Wholesale, are wholesale distributors of the Company’s product, under their own wholesale private
label brand. The products are made to Company specifications and shipped directly to the wholesaler. The pricing is predicated
upon a volume discount negotiated at the time of the placement of the orders. Product is produced and labeled in the Washington
manufacturing facility and shipped directly to the Private Label customer who re-distributes to their retail and other customers.
The products are fully paid when shipped.
Revenue from product
sales is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred,
and collectability is reasonably assured.
The Company’s Duramed
Division provides a sam® Pro 2.0 medical device to patients through a doctor program whereby the physician evaluates the patients’
needs for medical necessity, and if determined that the device use would be beneficial, writes a prescription for the patient who
signs a rental form, for a 35 day cycle for the unit, that is submitted to Duramed who bills the appropriate insurance company.
The insurance company pays the invoice, or a negotiated amount via arbitration, and that revenue is reported as revenue when invoiced
to the insurance carrier. The collected amount is reconciled with the invoice amount on a daily basis.
(m) Cost of Product
Sales
The cost of product
sale is the total cost incurred to obtain a sale and the cost of the goods sold, and the Company’s policy is to recognize
it in the same manner as, and in conjunction with, revenue recognition. Cost of product sale primarily consisted of the costs
directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our CBD
products.
(n)
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 company’s 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 counterparty’s 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.
(o)
Advertising
Advertising
costs are expensed as incurred and amounted to $220,373 and $62,743 for the period ended September 30, 2019 and 2018, respectively.
(p)
Research and Development
Research
and development costs are expensed as incurred. In the period ended September 30, 2019 and 2018, the Company spent $105,000 and
$12,500 in research and development which was expenses as spent, respectively.
(q)
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 management’s 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.
(r)
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 9, 10 and 11).
(s)
Recent Accounting Pronouncements
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. Effective
January 1, 2019, we adopted this new accounting guidance using the effective date transition method, which permits entities to
apply the new lease standards using a modified retrospective transition approach at the date of adoption. As such, historical
periods will continue to be measured and presented under the previous guidance while current and future periods subject to this
new accounting guidance. Upon adoption we recorded a $100,681 right-of-use asset related to our one operating lease (see Note
14) and a $90,591 lease liability.
(t)
Basis of presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three- and nine-month periods ended September 30, 2019 are not
necessarily indicative of the results that may be expected for the year ended December 31, 2019.
(u)
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.
NOTE
4 – Inventories
Inventories
consist of:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Raw materials
|
|
$
|
101,199
|
|
|
$
|
79,652
|
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
|
-
|
|
|
|
7,452
|
|
Total
|
|
$
|
101,199
|
|
|
$
|
87,104
|
|
NOTE
5 – Notes Receivable
Notes
receivable consist of:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Note receivable dated November 30, 2015 from Stock Market Manager, Inc, interest at 3% per annum due November 30, 2020
|
|
$
|
19,389
|
|
|
$
|
19,389
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,389
|
|
|
|
19,389
|
|
|
|
|
|
|
|
|
|
|
Current portion of notes receivable
|
|
|
-
|
|
|
|
-
|
|
Noncurrent portion of notes receivable
|
|
$
|
19,389
|
|
|
$
|
19,389
|
|
Stock
Market Manager, Inc is affiliated with Carl Dilley, a Company director. In 2018, the Company received services from Stock Market
Manager valued at $19,611 in exchange for the cancellation of $19,611 in note receivables.
NOTE
6 – Property and Equipment, Net
Property
and Equipment, net, consist of:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Furniture & Fixtures
|
|
$
|
19,018
|
|
|
$
|
19,018
|
|
|
|
|
|
|
|
|
|
|
Office Equipment
|
|
|
12,378
|
|
|
|
20,992
|
|
|
|
|
|
|
|
|
|
|
Manufacturing Equipment
|
|
|
288,514
|
|
|
|
46,384
|
|
|
|
|
|
|
|
|
|
|
Medical Equipment
|
|
|
783,782
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,103,692
|
|
|
|
86,394
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(84,850
|
)
|
|
|
(26,775
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
1,018,842
|
|
|
$
|
59,619
|
|
NOTE
7 – Intangible Assets, Net
Intangible
assets, net, consist of:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Video conferencing software acquired by Prosperity in December 2009
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
Hemp license and technology
|
|
|
1,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CBD technology
|
|
|
198,655
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
3,548
|
|
|
|
3,548
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,259,083
|
|
|
|
60,428
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization and Impairment
|
|
|
(72,555
|
)
|
|
|
(60,428
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
1,186,528
|
|
|
$
|
-
|
|
The
CBD related technology were purchased from Hudilab, Inc. (“HUDI”) and Seven Chakras, LLC (“Seven Chakras”)
during the three months ended March 31, 2019. On January 14, 2019, the Company and PHP (collectively, the “buyer”)
entered into a License and Acquisition Agreement (the “LAA”) with HUDI. Pursuant to the LAA, HUDI will sell the technology
owned by it to the buyer in exchange for 7,500,000 shares of CANB common stock. On January 14, 2019, the shares were issued to
the owner of HUDI and valued at $131,625. On January 31, 2019, PHP entered into an Asset Purchase Agreement (the “Agreement”)
with Seven Chakras, LLC (“Seven Chakras”). Pursuant to the Agreement, PHP purchased the rights and title to (i) Seven
Chakras’ proprietary formulas, methods, trade secrets, and know-how related to the production of Seven Chakras’ products
containing cannabidiol (“CBD”), (ii) Seven Chakras’ tradename, domain name, and social media sites, and (iii)
other assets of Seven Chakras including but not limited to raw materials, equipment, packaging and labeling materials, mailing
lists, and marketing materials (collectively, the “Assets”). On February 20, 2019, the Company issued 1,000,000 shares
of CANB common stock valued at $17,030 to owners of Seven Chakras as additional consideration, along with the $50,000 cash payments,
pursuant to the agreement.
The hemp related license and technology purchased
from Shi Farms during the three months ended September 30, 2019. Hemp Depot will contract with farmers in New York to grow hemp
under a controlled program of specific strains, cultured feminized seeds, proven technology, and access to processing for their
crop. NY Hemp Depot will amalgamate the cultivated off-take from the farmers, combine and fill “super-sacks”
for shipping to the processing facility in Colorado to produce high-grade isolate or distillate for use in Canbiola’s manufacturing
facility in Lacey WA.
The
other intangible assets relate to the document management and email marketing divisions. Since December 31, 2017, the Company
do not expect any future positive cash flow from these divisions. Accordingly, the net carrying value of these intangible assets
was reduced to $0.
NOTE
8 – Notes and Loans Payable
Notes
and loans payable consist of:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
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
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
Note payable to Carl Dilley, a director of the Company, interest at 12.99% per annum, due February 1, 2021
|
|
|
1,311
|
|
|
|
10,899
|
|
|
|
|
|
|
|
|
|
|
Loan payable to McKenzie Webster Limited (“MWL”), non interest bearing, due on demand.
|
|
|
-
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
Loan payable to David Weissberg, interest at 10% per annum, due July 2020.
|
|
|
5,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,311
|
|
|
$
|
18,899
|
|
NOTE
9 – 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 shares of Series B Preferred Stock have no voting rights.
On
January 22, 2018, the Company issued 87,368 shares of CANB Series B Preferred Stock to RedDiamond Partners LLC (“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 Andrew Holtmeyer 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 Partners LLC (“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 Partners LLC (“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 Partners 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 September
30, 2018.
From
July 24, 2018 to September 26, 2018, RedDiamond Partners converted aggregately 263,263 shares of CANB Series B Preferred Stock
to 53,839,743 shares of CANB common stock.
On
August 28, 2018, September 14, 2018 and September 19, 2018, the Company issued 36,842 shares, 105,263 shares, and 105,263 shares
of CANB Series B Preferred Stock, respectively, to RedDiamond Partners LLC (“RedDiamond”) pursuant to an amended Securities
Purchase Agreement dated January 9, 2018, in exchange for proceeds of $35,000, $100,000 and $100,000, respectively, or $0.95 per
CANB Series B Preferred share.
From
October 2, 2018 to November 7, 2018, RedDiamond Partners converted aggregately 101,736 shares of CANB Series B Preferred Stock
to 13,094,733 shares of CANB common stock.
On
October 23, 2018 and November 14, 2018, the Company issued 200,000 shares and 52,500 shares of CANB Series B Preferred Stock,
respectively, to RedDiamond Partners LLC (“RedDiamond”) in exchange for proceeds of $190,000 and $49,875, respectively,
or $0.95 per CANB Series B Preferred share.
On
December 28,2018, Marco Alfonsi converted 3 shares of CANB Series A Preferred Stock to 30,000,000 shares of CANB common stock.
On
December 29, the Company issued 8 shares of CANB Series A Preferred Stock to three officers of the company (1 share to Stanley
L. Teeple, 5 shares to Pasquale Ferro and 2 shares to Andrew Holtmeyer), pursuant to the employment agreements with them. The
fair value of the issuance totaled at $4,624,000 and will be amortized over the vesting period of four years.
On
January 28, 2019, the Company issued 10,000,000 shares of CANB common stock to a consultant of the Company in exchange for the
retirement of 1 share of CANB Series A Preferred Stock.
From
February 21, 2019 to March 12, 2019, the Company issued aggregately 20,221,436 shares of CANB common stock to RedDiamond in exchange
for the retirement of 157,105 shares of CANB Series B Preferred Stock.
On
May 28, 2019, the Company issued 3 shares of CANB Series A Preferred Stock to Stanley L. Teeple pursuant to the employment agreement
with him. The fair value of the issuance totaled at $1,203,000 and will be amortized over the vesting period of four years.
On
April 26, 2019, the Company issued 1,930,693 shares of CANB common stock to RedDiamond in exchange for the retirement of 15,000
shares of CANB Series B Preferred Stock.
On
May 1, 2019, the Company issued 2,574,257 shares of CANB common stock to RedDiamond in exchange for the retirement of 20,000 shares
of CANB Series B Preferred Stock.
On
May 9, 2019, the Company issued 7,113,059 shares of CANB common stock to RedDiamond in exchange for the retirement of 55,263 shares
of CANB Series B Preferred Stock.
On
June 7, 2019, the Company issued 3,217,822 shares of CANB common stock to RedDiamond in exchange for the retirement of 25,000
shares of CANB Series B Preferred Stock.
NOTE
10 – Common Stock
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.
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. The shares issued to one of the directors were converted to options at June 11, 2018 (see Note 11).
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. The shares was issued at August 24, 2018.
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.
From
July 24, 2018 to September 26, 2018, the Company issued aggregately 53,839,743 shares of CANB common stock to RedDiamond in exchange
for the retirement of 263,263 shares of CANB Series B Preferred Stock.
On
July 31, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $3,225 fair value
of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended September 30, 2018.
On
August 9, 2018, Company received a conversion notice from a lender. As a result, 9,544,292 shares of CANB common stock was issued
to the lender in satisfaction of notes payable of $50,000 and accrued interest payable of $7,266 at August 21, 2018.
On
August 28, 2018, the Company issued 2,000,000 shares of CANB common stock to a consultant for services rendered. The $159,600
fair value of the 2,000,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September
30, 2018.
On
September 6, 2018, the Company issued 300,000 shares of CANB common stock to a consultant for services rendered. The $16,500 fair
value of the 300,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September
30, 2018.
On
September 6, 2018, the Company issued 500,000 shares of CANB common stock to a consultant for services rendered. The $27,500 fair
value of the 500,000 shares of CANB common stock was charged to consulting fees in the three months ended September 30, 2018.
On
September 6, 2018, the Company issued 8,430,331 shares of CANB common stock to a lender in satisfaction of notes payable of
$38,500 and accrued interest payable of $7,867.
On
September 7, 2018, the Company issued 5,121,694 shares of CANB common stock to a lender in satisfaction of notes payable of
$25,000 and accrued interest payable of $3,169.
On
September 7, 2018, the Company issued 10,045,667 shares of CANB common stock to a lender in satisfaction of notes payable of
$50,000 and accrued interest payable of $10,274.
On
September 8, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $11,500 fair
value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September
30, 2018.
On
September 10, 2018, the Company issued 500,000 shares of CANB common stock to a consultant for services rendered. The $19,950
fair value of the 500,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September
30, 2018.
On
September 17, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $10,750
fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September
30, 2018.
On
September 18, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $13,725
fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September
30, 2018.
On
September 20, 2018, the Company issued 7,407,407 shares of CANB common stock to an investor pursuant to a Stock Purchase Agreement
dated September 17, 2018, in exchange for proceeds of $200,000, or $0.027 per CANB common share.
On
September 21, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $14,500
fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September
30, 2018.
On
September 25, 2018, the Company issued 2,000,000 shares of CANB common stock to a consultant for services rendered. The $97,400
fair value of the 2,000,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September
30, 2018.
From
October 2, 2018 to November 7, 2018, the Company issued aggregately 13,094,733 shares of CANB common stock to RedDiamond in exchange
for the retirement of 101,736 shares of CANB Series B Preferred Stock.
From
November 5, 2018 to December 28, 2018, the Company issued aggregately 2,125,000 shares of CANB common stock to multiple consultants
for services rendered. The $80,665 fair value of the 2,125,000 shares of CANB common stock was partially charged to consulting
fees in the three months ended December 30, 2018.
From
December 3, 2018 to December 28, 2018, the Company issued aggregately 1,500,000 shares of CANB common stock to three board members
for services rendered. The $62,342 fair value of the 1,500,000 shares of CANB common stock was charged to director fees in the
three months ended December 30, 2018.
From
December 3, 2018 to December 28, 2018, the Company issued aggregately 22,413,794 shares of CANB common stock to multiple investors
pursuant to relative Stock Purchase Agreements dated on various dates, in exchange for total proceeds of $650,000.
On
December 11, 2018, the Company issued 891,089 shares of CANB common stock to RedDiamond in satisfaction of dividend payable of
$9,000.
On
December 19, 2018, the Company issued 891,089 shares of CANB common stock to Auctus, LLC pursuant to a cashless exercise of stock
options.
On
December 21, 2018, Company received a conversion notice from a lender. As a result, 9,372,100 shares of CANB common stock was
issued to the lender in satisfaction of notes payable of $83,500 and accrued interest payable of $10,221.
On
December 21, 2018, Company issued aggregately 4,370,629 shares of CANB common stock to four officers of the Company in satisfaction
of accrued compensation of $192,300.
On
December 28, 2018, the Company issued 3,096,827 shares of CANB common stock for the acquisition of Pure Health Products, LLC.
On
December 28, 2018, the Company issued 245,789 shares of CANB common stock to an officer of the Company pursuant to the Employment
Agreement dated December 29, 2018 with Andrew Holtmeyer. The $10,371 fair value of the issuance was charged to stock-based compensation
in the three months ended December 31, 2018.
On
December 29, the Company issued 30,000,000 shares of CANB common stock to Marco Alfonsi in exchange for the return of 3 shares
of CANB Series A Preferred Stock owned by Marco Alfonsi.
From
January 4, 2019 to March 27, 2019, the Company issued aggregately 41,431,994 shares of CANB common stock to multiple investors
pursuant to relative Stock Purchase Agreements dated on various dates, in exchange for total proceeds of $1,196,100.
On
January 14, 2019, the Company issued 7,500,000 shares of CANB common stock to Hudilab, Inc. (“HUDI”), pursuant to
a License and Acquisition Agreement for purchase of the technology owned by HUDI.
From
January 18, 2019 to March 17, 2019, the Company issued aggregately 24,600,000 shares of CANB common stock to multiple consultants
for services rendered.
From
January 19, 2019 to March 27, 2019, the Company issued aggregately 1,167,959 shares of CANB common stock to employee and officers
of the Company pursuant to employee agreement and in satisfaction of accrued compensation for the quarter ended March 31, 2019.
On
February 5, 2019, the Company issued 2,000,000 shares to the owner of TZ Wholesale LLC, pursuant to a Memorandum of Understanding
(the “MOU”) dated November 9, 2018.
On
February 20, 2019, the Company issued 1,000,000 shares of CANB common stock to owners of Seven Chakras pursuant to an Asset Purchase
Agreement (the “Agreement”) with Seven Chakras, LLC dated January 31, 2019.
From
April 1, 2019 through June 30, 2019 the company issued an aggregate of 15,511,767 shares of CANB Common Stock to multiple consultants
for services rendered.
From
April 1, 2019 through June 30, 2019, the Company issued an aggregate of 4,174,886 shares of CANB Common Stock to members of the
Advisory Board, Medical Advisory Board, and Sports Advisory Board for services rendered.
From
April 1, 2019 through June 30, 2019, the Company issued an aggregate of 1,384,621 shares of Common Stock under the terms of executive
employment agreements.
From
April 1, 2019 through June 30, 2019, the Company issued an aggregate of 25,862,071 shares of CANB shares under the terms of the
Stock Purchase Agreements for total proceeds of $750,000.
From
July 1, 2019 through September 30, 2019, the company issued an aggregate of 5,418,301 shares of CANB Common Stock to multiple
consultants for services rendered.
From
July 1, 2019 through September 30, 2019, the Company issued an aggregate of 5,500,000 shares of CANB Common Stock to members of
the Advisory Board, Medical Advisory Board, and Sports Advisory Board for services rendered.
From
July 1, 2019 through September 30, 2019, the Company issued an aggregate of 4,800,000 shares of Common Stock under the terms of
executive employment agreements.
From
July 1, 2019 through September 30, 2019, the Company issued an aggregate of 46,572,416 shares of CANB shares under the terms of
the Stock Purchase Agreements for total proceeds of $1,350,600.
From
July 1, 2019 through September 30, 2019, the Company issued an aggregate of 12,074,089 shares of CANB shares under the terms of
the Joint Venture Agreement.
NOTE
11 – 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, 2017
|
|
|
50,000
|
|
|
|
247,500
|
|
|
|
297,500
|
|
Granted in 2018
|
|
|
6,000,000
|
|
|
|
2,850,000
|
|
|
|
8,850,000
|
|
Cancelled in 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised in 2018
|
|
|
-
|
|
|
|
(850,000
|
)
|
|
|
(850,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
6,050,000
|
|
|
|
2,247,500
|
|
|
|
8,297,500
|
|
Granted in Q1, Q2 & Q3 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled in Q1, Q2 & Q3 2019
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
(50,000
|
)
|
Exercised in Q1, Q2 & Q3 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019
|
|
|
6,000,000
|
|
|
|
2,247,500
|
|
|
|
8,247,500
|
|
Issued
and outstanding stock options as of September 30, 2019 consist of:
Year
|
|
Number Outstanding
|
|
Exercise
|
|
|
Year of
|
|
Granted
|
|
And Exercisable
|
|
Price
|
|
|
Expiration
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
6,000,000
|
|
$
|
0.001
|
|
|
|
2023
|
|
On
June 11, 2018, the Company granted 3,000,000 options of CANB common stock to Carl Dilley, a former 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 Registrant’s 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 retired shares was expensed in the quarterly period ended June 30, 2018.
On
October 21, 2018, the Company granted 3,000,000 options of CANB common stock to Stanley L. Teeple, an officer and Director of
the Company. The options are exercisable for the purchase of one share of the Registrant’s 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 October 1, 2023.
The values of the Stock Options ($118,200) were calculated using the Black Scholes option pricing model and the following assumptions:
(i) $0.0395 share price, (ii) 5 years term, (iii) 221.96% expected volatility, (iv) 3.05% risk free interest rate and the fair
value of options was expensed in the quarterly period ended December 31, 2018
Issued
and outstanding warrants as of September 30, 2019 consist of:
Year
|
|
Number Outstanding
|
|
|
Exercise
|
|
|
Year of
|
|
Granted
|
|
And Exercisable
|
|
|
Price
|
|
|
Expiration
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
247,500
|
|
|
$
|
1.00
|
|
|
|
2020
|
|
2018
|
|
|
2,000,000
|
|
|
$
|
0.04345
|
(a)
|
|
|
2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,247,500
|
|
|
|
|
|
|
|
|
|
(a)
110% of the closing price of the Company’s common stock on the date that the Holder funds the full purchase price of the
Note.
NOTE
12 – 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% to pretax income (loss) as follows:
|
|
Nine Months September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Expected income tax (benefit) at 21%
|
|
$
|
(745,732
|
)
|
|
$
|
(991,834
|
)
|
|
|
|
|
|
|
|
|
|
Non-deductible stock-based compensation
|
|
|
502,103
|
|
|
|
268,064
|
|
|
|
|
|
|
|
|
|
|
Non-deductible amortization of debt discounts
|
|
|
-
|
|
|
|
19,735
|
|
|
|
|
|
|
|
|
|
|
Loss on stock issuance
|
|
|
-
|
|
|
|
539,398
|
|
|
|
|
|
|
|
|
|
|
Loss on debt conversion
|
|
|
-
|
|
|
|
298,310
|
|
|
|
|
|
|
|
|
|
|
Non-deductible expense from derivative liability
|
|
|
-
|
|
|
|
(240,774
|
)
|
|
|
|
|
|
|
|
|
|
Increase in deferred income tax assets valuation allowance
|
|
|
243,629
|
|
|
|
107,101
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
income tax assets consist of:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
|
1,888,222
|
|
|
|
1,644,593
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(1,888,222
|
)
|
|
|
(1,644,593
|
)
|
|
|
|
|
|
|
|
|
|
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 $1,888,222 attributable to the future utilization of the $5,947,071 net operating loss carryforward as of September
30, 2019 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred income tax asset in the
financial statements at September 30, 2019. 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, 2038 and 2039 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, $713,162 and $1,160,137, 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
Company’s U.S. Federal and state income tax returns prior to 2014 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 2014 tax year returns expired in September 2018.
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.
NOTE
13 – Segment Information
The
Company has one reportable segment: Durable Equipment Products.
The
accounting policies of the segment described above are the same as those described in Summary of Significant Accounting Policies
in Note 3. The Company evaluates the performance of the Durable Equipment Products segment based on income (loss) before income
taxes, which includes interest income.
|
|
Durable
Equipment
Products
|
|
Six months ended June 30, 2019
|
|
|
|
|
Revenue from external customers
|
|
|
604,792
|
|
Revenue from other segments
|
|
|
-
|
|
Segment profit
|
|
|
284,101
|
|
Segment assets
|
|
|
773,869
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
|
|
|
|
Revenue from external customers
|
|
|
969,483
|
|
Revenue from other segments
|
|
|
-
|
|
Segment profit
|
|
|
500,261
|
|
Segment assets
|
|
|
1,615,219
|
|
|
|
Three Months
Ended
September 30,
2019
|
|
|
Nine
Months
Ended
September 30,
2019
|
|
|
|
|
|
|
|
|
Total profit for reportable segment
|
|
$
|
216,750
|
|
|
$
|
500,852
|
|
Other income (expense) - net
|
|
|
(617
|
)
|
|
|
(591
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
216,133
|
|
|
$
|
500,261
|
|
NOTE
14 – 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 9). 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. At November 12, 2018, this Agreement
was terminated due to the execution of a new Employment Agreement with Marco Alfonsi for Alfonsi to serve as the Company’s
chief executive officer for cash compensation of $15,000 per month. Pursuant to the agreement, three of the eight previously issued
shares of CANB Series A Preferred Stock will be returned to the Company and converted into 30,000,000 common shares. On December
Alfonsi may terminate his employment upon 30 days written notice to the Company. The Agreement has an initial term of four years
and can be terminated upon the resignation or death of Mr. Alfonsi, and also can be terminated by the Company due to the failure
or neglect of Mr. Alfonsi to perform his duties, or due to the misconduct of Mr. Alfonsi in connection with the performance.
On
February 12, 2018, the Company executed an Executive Service Agreement (“Agreement”) with David Posel. The Agreement
provides that Mr. Posel services as the Company’s 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 9). Since
execution of the Posel Agreement, Mr. Posel has been re-assigned to COO for Pure Health Products, the Company’s subsidiary.
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 Company’s 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. At December 29, 2018, this Agreement was terminated due to the
execution of a new Employment Agreement with Andrew W Holtmeyer. The Agreement provides that Mr. Holtmeyer services as the Company’s
Executive Vice President Business for a term of 4 years. The Agreement also provides for compensation to Mr. Holtmeyer of $15,000
cash per month and the issuance of 245,789 shares of common stock upon signing of the agreement.
On
October 15, 2018, the Company executed an Employment Agreement (“Agreement”) with Stanley L. Teeple. The Agreement
provides that Mr. Teeple services as the Company’s Chief Financial Officer and Secretary for a term of 4 years. The Agreement
also provides for compensation to Mr. Teeple of $15,000 cash per month and the issuance of 1 share of Series A Preferred Stock
proportionately vesting over four years beginning December 31, 2018 upon execution of the Agreement. The Agreement can be terminated
upon the resignation or death of Mr. Teeple, and also can be terminated by the Company due to the failure or neglect of Mr. Teeple
to perform his duties, or due to the misconduct of Mr. Teeple in connection with the performance. In May 2019 Mr. Teeple was granted
an additional 3 shares of Series A Preferred.
On
December 28, 2018, the Company executed an Employment Agreement (“Agreement”) with Pasquale Ferro for Mr. Ferro to
serve as Pure Health Products’ president for cash compensation of $15,000 per month and the total issuance of 5 share of
Series A Preferred Stock proportionately vesting at the beginning of each year for a term of 4 years. Mr. Ferro may terminate
his employment upon 30 days written notice to the Company. The Agreement has an initial term of four years and can be terminated
upon the resignation or death of Mr. Ferro, and also can be terminated by the Company due to the failure or neglect of Mr. Ferro
to perform his duties, or due to the misconduct of Mr. Ferro in connection with the performance.
Effective
September 6, 2019 (the “Effective Date”), Canbiola, Inc. (the “Company” or “CANB”) approved
the appointment of Johnny J. Mack (“Mack”) as its President and Chief Operating Officer. Mack had been serving as
the Company’s interim COO. The Company and Mack entered into a new Employee Services Agreement (the “Agreement”)
to memorialize the terms of the foregoing. In consideration for Mack’s services, Mack was to (i) receive a base salary of
$15,000 per month, subject to increase after each yearly anniversary of the Agreement, (ii) be eligible to receive annual cash
or stock bonuses, (iii) be entitled to four weeks’ vacation time and five paid days for illness in accordance with the Company’s
policies, and (iv) receive a total of 32,000,000 options (“Options”) to purchase shares of the Company’s common
stock, with 8,000,000 Options vesting on the effective date and additional tranches of 8,000,000 Options vesting on each of the
first, second, and third anniversaries of the Effective Date, assuming Mack’s continued employment. Each Option is exercisable
at a price of $0.001 per share. The Company also agreed to hold harmless and indemnify Mack as authorized or permitted by law
and the Company’s governing documents, as the same may be amended from time to time, except for acts constituting negligence
or willful misconduct by Mack. The Company agreed to pay Mack a severance in the event the Agreement is terminated by the
Company without cause or by Mack for “good reason” or by reason of Mack’s death or disability. On October 4,
2019 Mack resigned from all of his office and director positions and the Company settled his termination for payment of all accrued
expenses, payout of all accrued time and base compensation of $13,315 and retention of his already earned 8 million options.
In addition, on October 10th, 2019
the Company appointed Philip Scala as its interim COO. Mr. Scala has acted as founder and CEO of Pathfinder Consultants International,
Inc. (“Pathfinder”) since 2008. The Company has entered into an employment agreement with Mr. Scala. Pursuant to the
agreement, Mr. Scala will receive a base salary of $2,500 per month. He will be entitled to incentive bonuses and pay increases
in accordance with the Company’s normal policies and procedures. Mr. Scala will also receive options to buy 500,000 common
shares of the Company at a price of $0.001 for a period of three years. The initial term of the agreement is for 90 days. The agreement
otherwise contains standard covenants and conditions.
Consulting
Agreements
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. The Company won the arbitration proceedings against T8 and T8 has been ordered to
return its shares to the Company.
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.
On
April 1, 2019, we engaged an advisor to provide consulting services under an Investor Relations and Advisory Agreement (the “Agreement”).
Pursuant to the Agreement, we agreed to pay the Consulting Firm a restricted common stock monthly fee of $5,500 per month for
consulting and services paid in advance of services each month. Starting May 1, 2019, the restricted common stock monthly fee
will decrease to $4,000 per month. The number of shares to be issued will be calculated based on the closing price of our common
shares on the 1st or preceding day of each month, if the 1st were to fall on a weekend or holiday. The shares shall not have registration
rights, and the shares may be sold subject to Rule 144.
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. On August 6, 2018, the Company renewed the lease agreement for a term of 36 months starting November 1, 2018. The lease
provides for monthly rentals of $3,193 for lease year 1, $3,289 for lease year 2, and $3,388 for lease year 3.
Rent
expense for the nine months ended September 30, 2019 and 2018 was $32,852 and $50,065, respectively.
At
September 30, 2019, the future minimum lease payments under non-cancellable operating leases were:
Year ended December 31, 2019
|
|
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9,772
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Year ended December 31, 2020
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|
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39,666
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Year ended December 31, 2021
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|
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33,880
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Total
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$
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83,318
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The
lease liability of $75,489 at September 30, 2019 as presented in the Consolidated Balance Sheet represents the discounted (at
our 10% estimated incremental borrowing rate) value of the future lease payments of 83,318 at September 30, 2019.
Major
Customers
For
the nine months ended September 30, 2019, there were no customers that accounted for more than 10% of total revenues.
For
the nine months ended September 30, 2018, one customer accounted for approximately 15% of total revenues.
NOTE
15 – Related Party Transactions
ProAdvanced
Group, Inc. (“PAG”), an entity controlled by the Company’s chief executive officer, is a customer of CANB. At
September 30, 2019, CANB had an account receivable from PAG of $7,240. For the nine months ended September 30, 2019, CANB had
revenues from PAG of $0.
Island
Stock Transfer (“IST”), an entity controlled by Carl Dilley, a former Company director, is both a customer and vendor
of CANB. At September 30, 2019, CANB had an account receivable from IST of $7,035. For the nine months ended September 30, 2019,
CANB had revenues from IST of $0.
Stock
Market Manager, Inc. is also an entity controlled by Mr. Dilley. For the nine months ended September 30, 2019, CANB had an account
payable to Stock Market Manager Inc. of $1,676.
LI
Accounting Associates, LLC (LIA), an entity controlled by a relative of the Managing Member PHP, is a vendor of CANB. At September
30, 2019, CANB did not have an account payable due to LIA. For the nine months ended September 30, 2019, CANB had expenses to
LIA of $10,750.
During
the nine months ended September 30, 2019, we had products and service sales to related parties totaling $0.
NOTE
17 – Subsequent Events
In
accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events through November 1, 2019, the date
on which these consolidated financial statements were available to be issued. There were material subsequent events that required
recognition or additional disclosure in these consolidated financial statements as follows:
The
Company signed a binding Letter of Intent to acquire certain assets of Iconic Brands, Inc. ICBN (Iconic Brands) is a publicly
held OTCQB Company. ICBN owns: a celebrity liquor private label business and 51% of Green Grow Farms, Inc. (GGFI). GGFI owns half
interest in Green Grow TX, a 50% interest in a ready to harvest 45-acre hemp grow in TN, a 5- hemp acre grow in Long Island, NY-
2 weeks from harvest, a NY Hemp License, and certain hemp harvesting and processing/drying equipment. CANB had executed a binding
Letter of Intent (LOI) to acquire the 51% of GGFI from ICBN for: 37.5 million shares of CANB common stock ($1 million in stock)
and a reset valuation on June 30, 2020 to validate the valuation of the shares at $1 million. The LOI is subject to proper due
diligence, audit, and signing of a definitive agreement.