UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)
   
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                   
For the quarterly period ended June 30, 2019
                   
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
                   

For the transition period from _____ to____

 

                   
Commission file number: 000-55788
                   
CANNA CORPORATION
(Exact name of registrant as specified in its charter)
                   
Colorado         46-3289369
(State of Incorporation)         (IRS Employer ID Number)
                   

8358 West Oakland Park Blvd., Suite 300, Sunrise, Florida 33323

(Address of principal executive offices)
                   
(954) 406-0750
(Registrant's Telephone number)
                   
_________________________
(Former Address and phone of principal executive offices)
                   

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.

Yes [x]             No [ ]
                   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 for Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [x]             No [  ]
 
 
 

 

Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [x]   Smaller reporting company [x]
Emerging growth company [x]          
                   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
                   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [_]   No [x]

 

 

As of May 14, 2020 there were 239,062,949 shares of the registrant’s common stock issued and outstanding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION Page
     
Item 1 Condensed Consolidated Financial Statements (Unaudited) 1
  Condensed Consolidated Balance Sheets – June 30, 2019 and December 31, 2018 (Unaudited) 2
  Condensed Consolidated Statements of Operations – Three and six months ended June 30, 2019 and 2018 (Unaudited)

3

 

  Condensed Consolidated Statements of Changes in Shareholders’ Deficit – Six months ended June 30, 2019 and 2018 (Unaudited) 4
  Condensed Consolidated Statements of Cash Flows -Six months ended June 30, 2019 and 2018 (Unaudited) 5
  Notes to the Condensed Consolidated Financial Statements (Unaudited) 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 21
Item 3 Quantitative and Qualitative Disclosures about Market Risk- Not Applicable 23
Item 4 Controls and Procedures 23
     
  PART II- OTHER INFORMATION  
Item 1 Legal Proceeding 24
Item 1A Risk Factors - Not Applicable 24
Item 2 Unregistered Sales of Equity. Securities and Use of Proceeds 24
Item 3 Defaults on Senior Securities - Not Applicable 25
Item 4 Mine Safety. Disclosure - Not Applicable 25
Item 5 Other Information 25
Item 6 Exhibits 26
  Signatures 27

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 

 

 

Canna Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
 
    June 30, 2019   December 31, 2018
                 
ASSETS                
Current assets                
Cash and cash equivalents   $ 4,439     $ 7,034  
Assets held-for-sale     1,455,047       1,590,992  
Total current assets     1,459,486       1,598,026  
                 
Total assets   $ 1,459,486     $ 1,598,026  
                 
LIABILITIES AND SHAREHOLDERS' DEFICIT                
Current liabilities:                
Accrued interest   $ 40,607     $ 28,595  
Accrued interest - related party     18,783       14,798  
Derivative liability     3,316,596       2,296,080  
Convertible notes payable, net of discounts of $266,197 and $418,314     502,885       291,686  
Convertible notes payable - related party, net of discounts of $0 and $12,126     57,154       45,028  
Related party loans     349,254       340,527  
Liabilities held-for-sale     2,345,861       1,534,235  
Total current liabilities     6,631,140       4,550,949  
                 
Total liabilities     6,631,140       4,550,949  
                 
Mezzanine Equity                
Series A Convertible Preferred stock:  $0.0001 par value: 1,000,000 shares authorized:803,000 and 953,000 shares issued and outstanding at June 30, 2019 and at December 31, 2018 respectively     105,300       120,300  
Shareholders’ deficit                
Preferred stock other designations: $0.0001 par value: 10,000,000 shares authorized: 0 and 0 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively     —         —    
Common stock: $0.0001 par value: 350,000,000 shares authorized:226,965,896 and 59,803,654 shares issued and outstanding at June 30, 2019 and December 31, 2018 respectively     22,696       5,980  
                 
Additional paid-in Capital     2,713,159       1,131,837  
Accumulated deficit     (7,281,193 )     (3,905,831 )
Total Canna Corporation shareholders' deficit     (4,545,338 )     (2,768,014 )
Non-controlling interest     (731,616 )     (305,209 )
Total shareholders' deficit     (5,276,954 )     (3,073,223 )
Total liabilities and shareholders’ deficit   $ 1,459,486     $ 1,598,026  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2 

 

Canna Corporation
Condensed Consolidated Statements of Operation
(Unaudited)
                 
    For the three months ended   For the six months ended
    June 30,   June 30,
    2019   2018   2019   2018
                 
OPERATING EXPENSE                                
General and administrative expenses   $ 116,756     $ 15,648     $ 136,317     $ 53,948  
Total operating expense     116,756       15,648       136,317       53,948  
Loss from operations     (116,756 )     (15,648 )     (136,317 )     (53,948 )
OTHER INCOME (EXPENSES)                                
Interest expense and amortization of debt discount     (431,982 )     (68,359 )     (1,059,113 )     (349,143 )
Change in fair value of derivative liability     (1,145,795 )     (557,463 )     (1,460,364 )     3,614,566  
Fixed assets write-off     —         —         —         (498 )
Gain (loss) on extinguishment of debt     —         —         (198,403 )     137,054  
Subscription receivable write-off     —         (250 )     —         (250 )
Total other income (expense)     (1,577,777 )     (626,072 )     (2,717,880 )     3,401,729  
                                 
Income (loss) from continuing operation     (1,694,533 )     (641,720 )     (2,854,197 )     3,347,781  
Loss from discontinued operation     (8,962 )     —         (947,572 )     —    
                                 
NET INCOME (LOSS)   $ (1,703,495 )   $ (641,720 )   $ (3,801,769 )   $ 3,347,781  
                                 
Less: loss attributable to non-controlling interest     (4,032 )     —         (426,407 )     —    
                                 
Net income (loss) attributable to Canna Corporation shareholders     (1,699,463 )     (641,720 )     (3,375,362 )     3,347,781  
                                 
Net income (loss) per share applicable to common stockholders - basic   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ 0.10  
Income (loss) from continuing operation per share applicable to common stockholders - basic   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ 0.10  
Loss from discontinued operation per share applicable to common stockholders - basic   $ (0.00 )   $ 0.00     $ (0.00 )   $ 0.00  
                                 
Net income (loss) per share applicable to common stockholders - diluted   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ 0.00  
Income (loss) from continuing operation per share applicable to common stockholders - diluted   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ 0.00  
Loss from discontinued operation per share applicable to common stockholders - diluted   $ (0.00 )   $ 0.00     $ (0.01 )   $ 0.00  
                                 
Weighted average number of common shares outstanding - basic     226,965,896       42,787,728       175,835,076       33,852,073  
                                 
Weighted average number of common shares outstanding - diluted     226,965,896       42,787,728       175,835,076       1,000,914,420  

See accompanying notes to the unaudited condensed consolidated financial statements.

3 

 

Canna Corporation
Condensed Consolidated Statements of Changes in Shareholders' Equity (Deficit)
                         
    Common Stock                
    Shares   Amount   Additional Paid in Capital   Accumulated Deficit   Non-Controlling Interest   Total Shareholders' Deficit
BALANCE, DECEMBER 21, 2017     3,915,769     $ 392     $ 605,615     $ (5,222,959 )   $ —       $ (4,616,952 )
Cancellation of common shares     (156,000 )     (16 )     (2,324 )                     (2,340 )
Issuance of common shares for conversion of debt     265,902       27       47,320                       47,347  
Issuance of common shares for conversion of preferred stock     37,000,000       3,700                               3,700  
Net income                             3,989,500               3,989,500  
BALANCE, MARCH 31, 2018     41,025,671     $ 4,103     $ 650,611     $ (1,233,459 )   $ —       $ (578,745 )
Issuance of common shares for conversion of debt     232,533       23       17,627                       17,650  
Subscription receivable write-off     2,500,000       250                               250  
Net loss                             (641,720 )             (641,720 )
BALANCE, JUNE 30, 2018     43,758,204     $ 4,376     $ 668,238     $ (1,875,179 )   $ —       $ (1,202,565 )
                                                 
BALANCE, December 31, 2018     59,803,654     $ 5,980     $ 1,131,837     $ (3,905,831 )   $ (305,209 )   $ (3,073,223 )
Issuance of common shares for convertible debt and resolution of derivative liabilities     17,162,242       1,716       1,581,322                       1,583,038  
Issuance of common shares for preferred stock     150,000,000       15,000                               15,000  
Net loss                             (1,675,899 )     (422,375 )     (2,098,274 )
BALANCE, March 31, 2019     226,965,896     $ 22,696     $ 2,713,159     $ (5,581,730 )   $ (727,584 )   $ (3,573,459 )
                                                 
Net loss                             (1,699,463 )     (4,032 )     (1,703,495 )
BALANCE, June 30, 2019     226,965,896     $ 22,696     $ 2,713,159     $ (7,281,193 )   $ (731,616 )   $ (5,276,954 )

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

4 

 

Canna Corporation
Condensed Consolidated Statements of Cash-Flows
(Unaudited)
    Six Month Ended
    June 30,
    2019   2018
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net income (loss)   $ (3,801,769 )   $ 3,347,781  
Loss from dicontinued operations     947,572       —    
Loss from continuing operations     (2,854,197 )     3,347,781  
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Fixed assets written off     —         498  
(Gain) loss on extinguishment of debt     198,403       (137,054 )
Amortization of debt discount     1,011,433       216,472  
Change in fair value of derivative liability     1,460,364       (3,614,566 )
Subscription receivable write-off     —         250  
Change in operating assets and liabilities:                
Accrued interest     47,675       132,671  
Net cash used in operating activities - continuing operations     (136,322 )     (53,948 )
Net cash used in operating activities - discontinued operations     (322,902 )     —    
Net cash used in operating activities     (459,224 )     (53,948 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Net cash used in investing activities  - continuing operations     —         —    
Net cash used in investing activities - discontinued operations     (103,805 )     —    
Net cash used in investing activities     (103,805 )     —    
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from convertible notes payable     125,000       —    
Proceeds from related party loans     28,727       54,401  
Repayment of related party loans     (20,000 )     —    
Net cash provided by financing activities - continuing operations     133,727       54,401  
Net cash provided by financing activities  - discontinued operations     250,394       —    
Net cash provided by financing activities     384,121       54,401  
                 
NET CHANGE IN CASH     (178,908 )     453  
Cash, beginning of period - continuing operation     7,034       —    
Cash, beginning of period - discontinued operation     176,313       —    
Cash, end of period - continuing operation   $ 4,439     $ 453  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES                
Issuance of shares of common stock for conversion of debt   $ 1,583,038     $ 64,997  
Issuance of shares of common stock for conversion of preferred stock   $ 15,000     $ 3,700  
Derivative liabilities recognized as debt discounts   $ 847,190     $ —    
Cancellation of common shares   $ —       $ 2,340  
                 
SUPPLEMENTAL DISCLOSURES:                
Cash paid for income taxes   $ —       $ —    
Cash paid for interest   $ —       $ —    

 

See accompanying notes to the unaudited condensed consolidated financial statements.

5 

Canna Corporation

Notes to the Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

NOTE l: NATURE OF ORGANIZATION

Canna Corporation (the "Company") was initially a Florida Corporation incorporated on July 29, 2013, established to manufacture and distribute high-quality, hand rolled, premium cigars under the Rich Cigars brand name. The Company had branded custom cigars to be sold via the internet and through retail locations. The Company's primary operations are currently through Northway Mining, LLC as a data center for third parties’ cryptomining processes located in New York State, in which the Company has a majority interest (55%) acquired on August 1, 2018. Management intends to conduct our business principally in the U.S.

Northway Mining, LLC’s (“NWM”) core business is providing hosting and security services for third parties’ cryptomining processes, including continuous camera recording, night-vision, motion activation, and automatic text notification to onsite staff.

In November 2017, the Company underwent a change in control and became a Colorado corporation. As a result of this change, the Company changed the business name to Intercontinental Technology, Inc. in order to reflect a change in the Company's direction and overall strategy. The Company's strategic direction was to focus on the acquisition, development, and marketing of proprietary patented products that are readily marketable internationally, and at the same time, entering the business of cryptocurrency mining by the ownership of multiple cryptocurrency mining machines.

On December 26, 2017, the Company completed a reorganization. Rich Cigars, Inc., having been renamed to RCGR SUB, Inc., became a direct, wholly-owned subsidiary of a newly formed Delaware corporation, First Intercontinental Technology, Inc. First Intercontinental Technology, Inc. was then considered the parent and is now the public entity. Additionally, another Delaware corporation was formed, Intercontinental Services, Inc. As of the effective date of the merger, all outstanding shares of common stock and preferred stock of Rich Cigars, Inc. were automatically converted into identical shares of common stock or preferred stock in the parent on a one-for-one basis.

On February 16, 2018, the Company's Board of Directors voted to annul and vitiate the series of transactions in Delaware by filing certificates of correction with Delaware's Secretary of State. On February 21, 2018, the Company amended and restated the Articles of incorporation in order to change the Company's name to Mining Power Group, Inc.

On April 4, 2019, the Company effected a name change in the State of Colorado from Mining Power Group, Inc. to “Canna Corporation” in preparation for a refocus of its business plan.  Similarly, the name change was filed in the State of Florida, where the Company’s headquarters are located.

NOTE 2: GOING CONCERN

These consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. As of June 30, 2019, the Company has an accumulated deficit of $7,281,193 since inception. This raises substantial doubt about the Company's ability to continue as a going concern.

The extent of the impact of the coronavirus ("COVID-19") outbreak on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions, and the impact of COVID-19 on the overall economy, all of which are highly uncertain and cannot be predicted. If the overall economy is impacted for an extended period, the Company’s future operating results may be materially adversely affected.

Management's plans include raising capital through the equity markets to fund operations and eventually generate revenue through its business; however, there can be no assurance that the Company will be successful in such activities. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classifications of the liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3: DISCONTINUED OPERATIONS

As of June 30, 2019, the Company was under ongoing negotiation to transfer Northway Mining, LLC to a related party, who at the time of filing this 10Q was no longer a related party. Due to the foregoing, on July 1, 2019, the Company entered into certain Membership Interest Transfer Agreement and announced a change in the strategic focus by not continuing the cryptocurrency business unit.

6 

As a result of this shift, the Company has disclosed in the financials as Assets held-for-sale the amount of $1,455,047 and Liabilities held-for-sale in the amount of $ 2,345,861 reorganizing a cessation of its business operations for Northway Mining, LLC, in accordance with Accounting Standards Codification (ASC) 205-20, Discontinued Operations. As such, the historical results of Northway Mining, LLC, have been classified as discontinued operations. As of December 31, 2018, assets of discontinued operations consisted of property and equipment, cash and other assets, totals $1,590,992. As of December 31, 2018, liabilities of discontinued operations consisted of accounts payable and loans total $1,534,235.

Assets and liabilities held-for-sale as of June 30, 2019 and December 31,2018 consisted of the following:

    June 30,   December 31,
    2019   2018
Assets held-for-sale                
Cash and cash equivalents   $ —       $ 176,313  
Cryptocurrency     —         6,189  
Property and equipment, net     1,455,047       1,408,490  
Total   $ 1,455,047     $ 1,590,992  
                 
Liabilities held-for-sale                
Current liabilities:                
Accounts payable   $ 301,548     $ 58,628  
Checks drawn in excess of bank balance     9,139       27,793  
Accrued expenses     5,080       5,080  
Payroll liabilities     7,519       7,707  
Related party loans     359,114       20,001  
Auto loans     44,256       45,950  
Loans payable - net of discounts $0 and $180,085     1,363,843       1,010,714  
Deferred revenue     255,362       275,362  
Contingent liability     —         83,000  
Total   $ 2,345,861     $ 1,534,235  

Results of the discontinued operations for the three months and six months ended June 30, 2019 and 2018 are:

    Three months ended   Six months ended
    June 30,   June 30,
    2019   2018   2019   2018
REVENUES   $ —       $ —       $ 10,392     $ —    
COST OF SALES     —         —         436,403       —    
GROSS PROFIT     —         —         (426,011 )     —    
General and administrative expenses     40,416       —         124,068       —    
Depreciation expense     28,783       —         57,248       —    
Total operating expense     69,199       —         181,316       —    
Loss from operations     (69,199 )     —         (607,327 )     —    
OTHER INCOME (EXPENSES)                                
Interest expense and amortization of debt discount     (83,667 )     —         (477,960 )     —    
Impairment loss on cryptocurrency     —         —         (6,189 )     —    
Gain on extinguishment of debt     143,904       —         143,904       —    
Total other income (expense)     60,237       —         (340,245 )     —    
Loss from discontinued operations   $ (8,962 )   $ —       $ (947,572 )   $ —    

 

7 

The following table provides supplemental cash flow information related to discontinued operations:

    Six Month Ended
    June 30,
    2019
CASH FLOWS FROM OPERATING ACTIVITIES:        
Loss from discontinued operation   $ (947,572 )
Adjustments to reconcile loss from discontinued operation to net cash used in operating activities - discontinued operation:        
Gain on extinguishment of debt     (143,904 )
Amortization of debt discount     207,040  
Depreciation expense     57,248  
Impairment loss on cryptocurrency     6,189  
Default penalty interest     270,920  
Change in operating assets and liabilities:        
Accounts payable and accrued expenses     247,365  
Payroll liability     (188 )
Deferred revenue     (20,000 )
Net cash used in operating activities - discontinued operations     (322,902 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Cash paid for fixed assets acquisition     (103,805 )
Net cash used in investing activities - discontinued operations     (103,805 )
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Bank overdraft     (18,654 )
Proceeds from notes payable     112,400  
Repayment of notes payable     (65,506 )
Proceeds from related party loans     307,134  
Repayment of related party loans     (83,286 )
Repayment of auto loan     (1,694 )
Net cash provided by financing activities  - discontinued operations     250,394  

 

NOTE 4: SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

Principles of Consolidation

The accompanying consolidated financial statements of Canna Corporation include its majority owned subsidiary Northway Mining, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

The consolidated financial statements include the accounts of Canna Corporation and its subsidiary Northway Mining, LLC, which are controlled and owned 55% by Canna Corporation.

All of the equity interests in Northway Mining not held by the Company are reflected as non-controlling interests. In the consolidated statements of operations, we allocate net income (loss) attributable to non-controlling interests to arrive at net income (loss) attributable to the Company.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.

 

In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2019 and the

8 

results of operations and cash flows for the periods presented. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on June 17, 2019.

 

The Company has elected a December 31 fiscal year-end.

Use of Estimates

The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") in the United States of America requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements.

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company’s long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Cash and Cash Equivalents

The Company considers all investments with a maturity date of three months or less when purchased to be cash equivalents. The Company had cash in the amount of $4,439 and $183,347 as of June 30, 2019 and December 31, 2018, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay.

Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company determines when receivables are past due or delinquent based on how recently payments have been received. The Company has net $0 in accounts receivable at June 30, 2019 and December 31, 2018.

Cryptocurrencies

The Company receives cryptocurrencies from its customers as a form of payment and converts them into cash in less than 3 months from receipt. The Company accounts for its cryptocurrencies as indefinite-lived intangible assets at historical cost less impairment in accordance with ASC 350 Intangibles - Goodwill and Other. During the six months ended June 30, 2019 and 2018, the Company recorded impairment losses of $6,189 and $0, respectively, resulting in cryptocurrency balances of $0 and $6,189 as of June 30, 2019 and December 31, 2018, respectively.

Property and Equipment

Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized.

Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values shown in the table below) over the estimated useful lives of the respective assets.

Fixed Asset   Estimated Useful Life (Years)
Building     39  
Improvements     5  
Furniture and office equipment     5  
Computer Equipment     5  
Vehicles     5  

 

Upon the sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations. During the six months ended June 30, 2019 and 2018, the Company purchased $103,805 and $0, respectively, of fixed assets, wrote off $0 and $498, respectively, of fixed assets, and recorded $57,248 and $0, respectively, of depreciation expense, resulting in net fixed assets of $1,455,047 and $1,408,490 at June 30, 2019 and December 31, 2018, respectively, which are reflected as assets held-for-sale and discontinued operations (Note 3) in the accompanying financial statements as follows:

 

9 

 

Description   Total Acquisition Cost   Span of Life (years)   Depreciation   Net Value June 30, 2019
        Accumulated as of December 31, 2018   Dep Exp 2019 Q1   Dep Exp 2019 Q2   Accumulated as of June 30, 2019    
                             
Computer Equipment   $ 8,990       5       543       480       487     $ 1,510     $ 7,480  
Improvements     196,390       5       11,676       9,685       9,793     $ 31,154     $ 165,236  
Office Equipment & Furniture     2,882       5       90       142       144     $ 376     $ 2,506  
Pods     185,996       5       5,289       9,172       9,274     $ 23,735     $ 162,261  
Real Estate - Land     102,218       —         —         —         —       $ —       $ 102,218  
Real Estate - Building     982,682       39       968       6,203       6,272     $ 13,443     $ 969,239  
Vehicle     56,435       5       4,731       2,783       2,814     $ 10,328     $ 46,107  
Total   $ 1,535,592             $ 23,297     $ 28,465     $ 28,783     $ 80,545     $ 1,455,047  

 

Deferred revenue

The Company recognizes revenue for subscription hosting service sales over the subscription period and deferred revenue is recorded for the portion of the subscription period subsequent to each reporting date. As of June 30, 2019 and December 31, 2018, the balances of deferred revenue were $255,362 and $275,362, respectively. The decreased amount is a result of $20,000 refunded to a customer. No services were performed to clients during the six months ended June 30, 2019 related to the deferred revenue, which is included in liabilities held-for-sale (Note 3).

Beneficial Conversion Feature

If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature ("BCF"). A BCF is recorded by the Company as a debt discount pursuant to ASC 470-20 Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 Derivatives and Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 Debt with Conversion and Other Options for consideration of any beneficial conversion features.

Derivative Financial Instruments

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments,

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management determines if the convertible debt host instrument is conventional convertible debt and, further, if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black Scholes option-pricing model.

Fair Value of Financial Instruments

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on our principal or, in the absence of a principal, most advantageous market for the specific asset or liability.

U.S. generally accepted accounting principles provide for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:

Level 1: Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:

● quoted prices for similar assets or liabilities in active markets;

● quoted prices for identical or similar assets or liabilities in markets that are not active;

● inputs other than quoted prices that are observable for the asset or liability; and

● inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3: Inputs that are unobservable and reflect management’s own assumptions about the inputs market participants would use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).

Our financial instruments consist of cash, accounts receivable, accounts payable, and debt. We have determined that the book value of our outstanding financial instruments as of June 30, 2019 and December 31, 2018, approximates the fair value due to their short-term nature.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of December 31, 2018 and June 30, 2019:

  

    Level 1   Level 2   Level 3   Total
Derivative Liability                                
December 31, 2018   $ —       $ —       $ 2,296,080     $ 2,296,080  
June 30, 2019   $ —       $ —       $ 3,316,596     $ 3,316,596  

 

The Company reflects the fair value for liabilities using the Black Scholes pricing model. The following chart discloses the estimated fair values for the Company’s derivative financial instruments based on the parameters disclosed in our Notes 5 and 6 hereto:

Derivative Liability Reconciliation  

June 30,

2019

 

December 31,

2018

         
 Balance beginning of the period   $ 2,296,080     $ 4,454,993  
 Derivative liability additions associated with convertible debt     847,190       5,840,449  
 Derivative liability reductions due to conversions or settlement of underlying debt     (1,287,038 )     560,945  
 Change in Fair Value     1,460,364       (8,560,307 )
 Ending Balance   $ 3,316,596     $ 2,296,080  

 

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Revenue Recognition

Effective January 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) standard update ASU 2014-09, “Revenue from Contracts with Customers,” (“Topic 606”) which provides a principles-based, five-step approach to measure and recognize revenue from contracts with customers. Revenue is recognized when the following criteria are met:

Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when, or as, we satisfy performance obligation.

The adoption of this guidance did not have a material impact on the Company’s consolidated statements of operations, cash flows, shareholders’ equity (deficit), or balance sheets as of the adoption date.

The Company did not generate any revenues during the six months ended June 30, 2019. Revenues generated during the six months ended June 30, 2018 totaled $10,392 and were included in net loss from discontinued operations in the accompanying statements of operations (Note 3).

We periodically review for any expected period of substantial involvement under the agreements that provide for non-refundable up-front payments and fees. If applicable, we will adjust the amortization periods when appropriate to reflect changes in assumptions relating to the duration of our expected involvement.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Additionally, the recognition of future tax benefits, such as net operating loss carryforwards, is required to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are determined using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company's assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.

The Company files income tax returns in the United States, New York and Florida, which are subject to examination by the tax authorities in these jurisdictions. Generally, the statute of limitations related to the Company's federal and state income tax return is three years. The state impact of any federal changes for prior years remains subject to examination for a period up to five years after formal notification to the states.

Management has evaluated tax positions in accordance with ASC 740, Income Taxes, and has not identified any significant tax positions, other than those disclosed. All of the Company's tax years since inception remain subject to examination by Federal and State jurisdictions.

Earnings Per Share

Basic net income per common share ("Basic EPS'') excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share ("Diluted EPS'') reflects the potential dilution that could occur if stock options or other contracts to issue shares of common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income per common share.

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    Six Months Ended June 30
    2019   2018 
Continuing Operations                
Numerator                
Net income (loss) from continuing operations, net of tax   $ (2,854,197 )   $ 3,347,781  
                 
Denominator                
Weighted average common shares outstanding, basic     175,835,076       33,852,073  
Convertible preferred stock     —         963,000,000  
Convertible promissory notes     —         4,062,347  
Weighted average common shares outstanding, diluted     175,835,076       1,000,914,420  
Basic EPS from continuing operations   $ (0.02 )   $ 0.10  
Diluted EPS from continuing operations   $ (0.02 )   $ 0.00  
                 
Discontinued Operations                
Numerator                
Income (loss) from discountinued operations, net of tax     (947,572 )     —    
Less: Income (loss) attributable to noncontrolling interest, net of tax     (426,407 )     —    
Income (loss) available to common stockholders     (521,165 )     —    
                 
Denominator                
Weighted average common shares outstanding, basic     175,835,076       33,852,073  
Convertible preferred stock     —         963,000,000  
Convertible promissory notes     —         4,062,347  
Weighted average common shares outstanding, diluted     175,835,076       1,000,914,420  
Basic EPS from discontinued operations   $ (0.00 )   $ 0.00  
Diluted EPS from discontinued operations   $ (0.00 )   $ 0.00  

 

For the three and six months ended June 30, 2019 and three months ended June 30, 2018, the convertible instruments, consisting of 173,835,076 and 1,000,914,420 common shares into which our outstanding convertible preferred stock and convertible promissory notes, respectively, are convertible, are anti-dilutive and therefore, have been excluded from earnings (loss) per share.

 

NOTE 5: NOTES PAYABLE

Convertible Notes Payable

Power Up Lending Group, LTD

On May 30, 2017, the Company entered into a convertible advance with Power Up Lending Group, LTD. The advance, with a face value of $38,000, bore interest at 12% per annum and was payable on March 5, 2018. The note was issued at a 7% discount, resulting in net proceeds received after issuance costs and fees of $35,000. Additionally, the note was convertible at the holder's discretion into shares of the Company's common stock based on a conversion formula of 60% multiplied by the lowest price of the common shares for the 15 trading prior to which the Notice of Conversion was received. During the year ended December 31, 2018, the noteholder converted $50,858 of principal and interest into common stock, resulting in $0 and $2,387 in principal and interest as of June 30, 2019 and December 31, 2018, respectively. The value of the conversion feature was assigned to the derivative liability. The Company valued this conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 0 days term to maturity, risk free interest rate of 0% and annualized volatility of 0%, valued at $9,252.

 

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Eagle Equities LLC

During 2018, the Company entered into three notes with Eagle Equities LLC. The notes are convertible at the holder’s discretion into shares of the Company’s common stock based on a conversion formula of 60% multiplied by the lowest price of the common shares for the 15 day trading period prior to which the Notice of Conversion is received. In the event the Company experiences a DTC Chill on its shares, the Conversion Price shall be decreased to 50% instead of 60% while that chill is in effect. In accordance with ASC 835-30-45, Interest, the Company records the fees, costs, and original issue discount as reduction of the carrying amount of the debt and amortizes the balances over the life of the debt instrument. If the Company fails to maintain the share reserve at the 4x discount of the note 60 days after the issuance of the note, the conversion discount shall be increased by 10%. The conversion formula created an embedded derivative conversion feature for each note. The notes are summarized as follows:

On July 3, 2018, the Company entered into a convertible note with Eagle Equities LLC. The note, with a face value of $100,000, bears interest at 8% per annum and is payable on July 3, 2019. The net proceeds received after issuance costs and fees was $96,500. On January 22, 2019, Eagle Equities LLC declared a default of the convertible note payable to them resulting in fees and penalties equal to $32,108 due to the Company’s delinquent SEC filings. Also on January 22, 2019 Eagle Equities LLC, sold all of its potentially dilutive convertible note to M Svorai Investment, Inc, a related party, included $7,600 in accrued interest. On February 2, 2019 M Svorai Investments, Inc exercised the convertible option, resulting in 5,162,242 shares issued; at a price of $0.02712 per share issued for $132,108 in principal and $7,892 in interest accrued to the conversion date. The remaining balance principal and interest as of June 30, 2019 was $0. As of December 31, 2018, principal and interest balances were $100,000 and $7,118, respectively.

On August 10, 2018, the Company entered into a convertible note with Eagle Equities LLC. The note, with a face value of $300,000, bears interest at 8% per annum and is payable on August 10, 2019. The net proceeds received after issuance costs and fees was $285,000. On March 14, 2019 Eagle Equities LLC declared a default of the convertible note payable to them resulting in fees and penalties equal to $142,884 due to the Company’s delinquent SEC filings, and in same date, sold all of its potentially dilutive convertible note to Back Nine Capital, LLC $147,628, to One Investment Capital, Inc $147,628 and to Sign N Drive Auto Mall, Inc $147,628. As of June 30, 2019 the following chart show the balances on principal and interest as of June 30, 2019:

Lender   June 30, 2019
    Principal     Interest  
Back Nine Capital, LLC (Eagle 2)   $ 147,628     $ 7,859  
One Investment Capital, Inc (Eagle 2)     147,628       7,859  
Sign N Drive Auto Mall, Inc (Eagle 2)     147,628       7,859  
Total:   $ 442,884     $ 23,577  

 

On March 14, 2019, Back Nine Capital LLC, purchased one third of a potentially dilutive convertible note held by Eagle Equities, LLC, issued on August 10, 2018 with a face value of $300,000 and $142,884 as Default Charges, therefore Back Nine Capital, LLC, now held $147,628. The Company valued the related conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 41 days to maturity, risk free interest rate of 2.18% and annualized volatility of 348%, valued at $398,329. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to amortized over the life of the convertible debt. The principal and interest balances as of June 30, 2019 were $147,628 and $7,859 respectively.

On March 14, 2019, One Investment Capital, Inc, purchased one third of a potentially dilutive convertible note held by Eagle Equities, LLC, issued on August 10, 2018 with a face value of $300,000 and $142,884 as Default Charges, therefore One Investment Capital, Inc, now held $147,628. The Company valued the related conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 41 days to maturity, risk free interest rate of 2.18% and annualized volatility of 348%, valued at $398,329. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to amortized over the life of the convertible debt. The principal and interest balances as of June 30, 2019 were $147,628 and $7,859 respectively.

On March 14, 2019, Sign N Drive Auto Mall, Inc, purchased one third of a potentially dilutive convertible note held by Eagle Equities, LLC, issued on August 10, 2018 with a face value of $300,000 and $142,884 as Default Charges, therefore Sign N Drive Auto Mall, Inc, now held $147,628. The Company valued the related conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 41 days to maturity, risk free interest rate of 2.18% and annualized volatility of 348%, valued at $398,329. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to amortized over the life of the convertible debt. The principal and interest balances as of June 30, 2019 were $147,628 and $7,859 respectively.

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On August 10, 2018, the Company entered into a convertible note with Eagle Equities LLC. The note, with a face value of $100,000, bears interest at 8% per annum and is payable on August 10, 2019. The net proceeds received after issuance costs and fees was $95,000. The principal and interest balances as of March 14, 2019 were $100,000 and $ 5,384, respectively. As of December 31, 2018, principal and interest balances were $100,000 and $3,784, respectively. On March 14, 2019 Eagle Equities LLC declared a default of the convertible note payable to them in the amount of $47,198 due to the Company’s SEC delinquent filings, and in same date Eagle Equities LLC, sold all of its potentially dilutive convertible note to Gary Berlly, an individual, included $47,198 in accrued interest and penalties. The Company valued the related conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 41 days term to maturity, risk free interest rate of 2.18% and annualized volatility of 348%, valued at $397,179. The value of the conversion feature was assigned to the derivative liability and created a loss and debt discount to be amortized over the life of the convertible debt. The principal and interest balances as of June 30, 2019 were $147,198 and $7,840 respectively.

Firstfire Global Opportunity Fund, LLC

On September 11, 2018, the Company entered into a convertible note with Firstfire Global Opportunities Fund, LLC. The note, with a face value of $210,000, bears interest at 5% per annum and was payable on June 11, 2019. The note was issued at a $10,000 (“OID”) discount. The net proceeds received after issuance costs and fees was $195,000. Additionally, the note is convertible at the holder's discretion into shares of the Company's common stock based on a conversion formula of 65% multiplied by the lowest price of the common shares for the 20 consecutive trading days period immediately preceding the Trading Day that the Company receives a Notice of Conversion. The conversion formula created an embedded derivative conversion feature.

On January 16, 2019, Firstfire Global Opportunities Fund, LLC sold all of its potentially dilutive convertible note of $210,000 issued on September 11, 2018 to: (i) twenty five percent (25%) of its potentially dilutive convertible note to Back Nine Capital LLC, or $52,500; (ii) twenty five percent (25%) of its potentially dilutive convertible note to Gary Berlly, or $52,500; (iii) twenty five percent (25%) of its potentially dilutive convertible note to One Investment Capital, or $52,500 and (iv) twenty five percent (25%) of its potentially dilutive convertible note to Sig N Drive Auto Mall, Inc, or $52,500.

On January 22, 2019, Back Nine Capital, LLC exercised the convertible option, resulting in 3,000,000 shares issued; at a price of $0.0130 per share issued for $39,000 in principal. The balance on the note as of June 30, 2019 was $13,500 and $766 in accrued interest. The Company valued this conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 0 days term to maturity, risk free interest rate of 0% and annualized volatility of 0%, valued at $51,040. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to be amortized over the life of the convertible debt.

On January 23, 2019, Gary Berlly exercised the convertible option, resulting in 3,000,000 shares issued; at a price of $0.0130 per share issued for $39,000 in principal. The balance on the note as of June 30, 2019 was $13,500 and $766 in accrued interest. The Company valued this conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 0 days term to maturity, risk free interest rate of 0% and annualized volatility of 0%, valued at $51,040. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to be amortized over the life of the convertible debt.

On January 23, 2019, One Investment Capital, Inc exercised the convertible option, resulting in 3,000,000 shares issued; at a price of $0.0130 per share issued for $39,000 in principal. The balance on the note as of June 30, 2019 was $13,500 and $766 in accrued interest. The Company valued this conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 0 days term to maturity, risk free interest rate of 0% and annualized volatility of 0%, valued at $51,040. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to be amortized over the life of the convertible debt.

On January 23, 2019, Sign N Drive Auto Mall, Inc exercised the convertible option, resulting in 3,000,000 shares issued; at a price of $0.0130 per share issued for $39,000 in principal. The balance on the note as of June 30, 2019 was $13,500 and $766 in accrued interest. The Company valued this conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 0 days term to maturity, risk free interest rate of 0% and annualized volatility of 0%, valued at $51,040. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to be amortized over the life of the convertible debt.

On April 9, 2019, the Company entered into a convertible note with Sign N Drive Auto Mall, Inc. The note, with a face value of $15,000, bears interest at 12% per annum and is payable on April 9, 2020, net of proceeds was $15,000. The conversion price (the "Conversion

15 

Price") shall be a sixty percent (60%) discount to the lowest closing bid price of the common stock of the Company during the thirty (30) trading days before the Conversion Date, as reported by OTC Markets or a comparable reporting agency. The conversion formula created an embedded derivative conversion feature. The Company valued this conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 284 days term to maturity, risk free interest rate of 1.92% and annualized volatility of 376%, valued at $133,720. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to be amortized over the life of the convertible debt. The principal and interest balances as of June 30, 2019 were $15,000 and $448 respectively.

On April 26, 2019, the Company entered into a convertible note with Sign N Drive Auto Mall, Inc. The note, with a face value of $100,000, bears interest at 12% per annum and is payable on April 26, 2020, net of proceeds was $100,000. The conversion price (the "Conversion Price") shall be a sixty percent (60%) discount to the lowest closing bid price of the common stock of the Company during the thirty (30) trading days before the Conversion Date, as reported by OTC Markets or a comparable reporting agency. The conversion formula created an embedded derivative conversion feature. The Company valued this conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 300 days term to maturity, risk free interest rate of 1.92% and annualized volatility of 368%, valued at $892,009. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to be amortized over the life of the convertible debt. The principal and interest balances as of June 30, 2019 were $100,000 and $2,992 respectively.

On June 28, 2019, the Company entered into a convertible note with Sunny Isles Capital, Inc. The note, with a face value of $10,000, bears interest at 12% per annum and is payable on June 28, 2020, net of proceeds was $10,000. The conversion price (the "Conversion Price") shall be a sixty percent (60%) discount to the lowest closing bid price of the common stock of the Company during the thirty (30) trading days before the Conversion Date, as reported by OTC Markets or a comparable reporting agency. The conversion formula created an embedded derivative conversion feature. The Company valued this conversion feature using the Black Scholes valuation model with the following assumptions: (i) as of June 30, 2019: dividend yield of zero, 364 days term to maturity, risk free interest rate of 1.92% and annualized volatility of 345%, valued at $89,450. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to be amortized over the life of the convertible debt. The principal and interest balances as of June 30, 2019 were $10,000 and $299 respectively.

At December 31, 2018, the above loans had an aggregate outstanding principal balance of $710,000 and unamortized debt discount of $418,314, resulting in net principal of $291,686.

June 30, 2019 Convertible Notes Payable Summary - Third Parties
Lender   Principal   Interest   Unamortized debt discount   Net
Power Up Lending, LTD   $ —       $ 2,387     $ —       $ 2,387  
Back Nine Capital, LLC     13,500       766       —         14,266  
Gary Berlly     13,500       766       —         14,266  
One Investment Capital, Inc     13,500       766       —         14,266  
Sign N Drive Auto Mall, Inc     13,500       766       —         14,266  
Gary Berlly(Eagle 3)     147,198       7,840       (40,504 )     114,534  
Back Nine Capital, LLC (Eagle 2)     147,628       7,859       (40,623 )     114,864  
One Investment Capital, Inc (Eagle 2)     147,628       7,859       (40,623 )     114,864  
Sign N Drive Auto Mall, Inc (Eagle 2)     147,628       7,859       (40,623 )     116,864  
Sign N Drive Auto Mall, Inc     15,000       449       (11,639 )     3,810  
Sign N Drive Auto Mall, Inc     100,000       2,992       (82,240 )     20,752  
Sunny Isles Capital, LLC     10,000       299       (9,945 )     354  
Total   $ 769,082     $ 40,606     $ (226,197 )   $ 545,493  

 

Loans Payable

The Company acquired certain real estate and vehicles, [the unpaid balance is guaranteed by mortgages with a 12 months maturity 5% interest rate, along with a lien and 72 month maturity on the vehicles], all outstanding liabilities are held for sale included in (Note 3).

The total mortgage balance with 707 Flats Rd. and Marsan Properties as of December 31, 2018 was $617,400 and $532,487 as of June 30, 2019, which is payable in December 2019 (no default terms).

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The Company also has loan agreements with:

 

(i) Ultegra Partner, based on an agreement executed as of December 20, 2018 and payable in weekly payments $11,583, last installment due on January 6, 2020, net proceeds of $339,500. This debt was settled as of February 22, 2019 for no gain or loss, and included a prospective payment schedule based on the future sale of certain assets.
(ii) Atlas Advanced, based on an agreement executed as of December 10, 2018, the Company received net proceeds of $67,450, payable in 90 daily payments of $1,216, last installment due on April 23, 2019. This debt was settled as of June 11, 2019 for one payment of $25,000 (Note 9).
(iii) The 1st Scotia Bank vehicle loan is deferred as follows: (a) within 12 month period: $8,239 (included in the balance sheet as Auto loan, current), and (b) thereafter: $36,017 (included in the balance sheet as Auto loan, non-current) in payments of $9,887 in each of the years 2020 through 2022, and $6,356 in the year 2023. The interest rate for 1st Scotia Bank is 7.29%. This loan is not presented in the following chart, as there is no associated debt discount.
(iv) Grand Capital based on an agreement executed as of January 3, 2019, this loan was payable in 72 daily payments of $922 with the last installment due on June 11, 2019. This debt was settled and refinanced on May 2, 2019, and the original note was replaced with a new note for $55,175, resulting in a gain of $1,216

 

At December 31, 2018, the aggregate principal balance and unamortized debt discount on these loans totaled $1,190,799 and $180,085, respectively, at December 31, 2018. During the six months ended June 30, 2019 and 2018, the Company received, in aggregate, total proceeds of $112,400 and $0, respectively. The principal balance as of June 30, 2019 was $1,363,843, and $0 in unamortized debt discount.

LENDER   LOAN AMOUNT NET OF PROCEEDS   DEBT DISC. & ORIGIN. FEES   INT RATE   TERMS OF PAYMENT   BALANCE AS OF JUNE 30, 2019
Grand Capital Settlement     55,174     —         —         —        monthly   51,174
Ultegra - Settlement     680,000     —         —         —        Assets Sale   608,582
Marsan - Settlement     551,087     —         —         5 %    monthly   539,087
Marsan - Settlement - Escrow Taxes     34,400     —         —         —        monthly   30,100
707 Flats Rd. - Premier     134,900     —                           134,900
    $ 1,455,562   $ —       $ —                   $1,363,843

 

NOTE 6: RELATED PARTY LOANS

Convertible Notes Payable

On February 21, 2018 Crown Bridge Partners LLC, sold part of its potentially dilutive convertible note to D&D Capital, Inc, a related party. The Company valued this conversion feature using the Black Scholes valuation model; as of June 30, 2019, due to the note is in default there are no assumptions, therefore the note has a conversion option’s value of $38,072. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to be amortized over the life of the convertible debt. The remaining principal balance as of June 30, 2019 is $ 7,379. Accrued interest related to this note was $833 and $541 at June 30, 2019 and December 31, 2018, respectively

During the three months ended March 31, 2018, Kodiak Capital declared a default of the convertible note payable to them invoking 22% retroactive interest and also put into effect a penalty of $2,000 per day for non-delivery of the shares according to the note agreement, which led to increasing the balance of the note to $142,633 (including $2,630 accrued interest on the Kodiak note) at March 31, 2018. On February 15, 2018, S&E Capital, LLC, a related party to Mining Power Group Inc., reached an agreement with Kodiak Capital to purchase the note. As a result, the Company recognized a gain of $137,054. During 2018, S&E Capital, Inc., exercised the convertible option, resulting in 2,450,000 shares issued; at a price of $0.04134 per share issued for $101,283 in principal and $11,497 in accrued interest.

The Company valued this conversion feature using the Black Scholes valuation model; as of June 30, 2019 due to the note is in default there are no assumptions, therefore the note has a conversion option’s value of $357,767. The value of the conversion feature was assigned to the derivative liability and created a loss and a debt discount to be amortized over the life of the convertible debt. The remaining principal balance as of June 30, 2019 was $ 49,775 and $17,950 in accrued interest.

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Lender   Principal   Unamortized Debt Discount   Net
D&D Capital, Inc   $ 7,379     $ —       $ 7,379  
S&E Capital, LLC     49,775       —         49,775  
Notes Related Parties   $ 57,154     $ —       $ 57,154  

 

At June 30, 2019 and December 31, 2018, the principal amount and interest on these loans totaled $57,154 and $18,784, and $57,154 and $14,798, respectively.

Other Related Party Loans

The Company has non-interest bearing demand loans with various related parties. During the six months ended June 30, 2019 and 2018, the Company received $335,862 and $54,401, respectively, in proceeds from these loans, and made repayments of $103,286 and $0, respectively, resulting in principal balances of $708,367 and $360,528 as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019 $359,114 are included as Liabilities held for sale (Note 3)

NOTE 7: EQUITY

Transactions for the six months ended June 30, 2018

On January 4, 2018 Power Up cancelled a conversion of $2,340 or 156,000 shares of common stock.

On January 10, 2018 the Company issued 37,000,000 common stock restricted shares, $0.0001 par value per share, converting 37,000 shares of the one million (1,000,000) Series A Preferred Stock,

On February 28, 2018 the Company issued 156,333 shares of common stock valued at the conversion price of $0.18. The shares were issued to convert $28,140 of the principal amount of the note dated May 30, 2017 to Power Up Lending Group Ltd.

On March 6, 2018 the Company issued 109,569 shares of common stock valued at the conversion price of $0.18. The shares were issued to convert $16,928 of the principal amount and $2,280 of accrued and unpaid interest of the Note dated as of May 30, 2017 to Power Up Lending Group Ltd.

On April 25, 2018 the Company issued 45,000 shares of common stock value at the conversion price of $0.08. The shares were issued to convert $3,510 of the principal amount of the Note dated as of May 30, 2017, to Power Up Lending Group Ltd.

On April 25, 2018 the Company issued 187,533 shares of common stock value at the conversion price of $0.08. The shares were issued to convert $14,140 of the principal amount of the Note dated as of September 27, 2017, to Power Up Lending Group Ltd.

On May 3, 2018 the Company issued 2,500,000 shares of common stock at $0.0001 par value to Shelby White, which were subsequently cancelled in July 2018.

Transactions for the six months ended June 30, 2019:

On January 28, 2019 the Company issued 60,000,000 common stock restricted shares, $ 0.0001 par value per share, converting 60,000 shares of the one million (1,000,000) Series A Preferred Stock.

On February 1, 2019 the Company issued 3,000,000 shares of common stock at the conversion price of $0.0130. The shares were issued to convert $39,000 of principal amount, on the note dated September 11, 2018 to Gary Berlly.

On February 1, 2019 the Company issued 3,000,000 shares of common stock at the conversion price of $$0.0130. The shares were issued to convert $39,000 of principal amount, on the note dated September 11, 2018 to Back Nine Capital, LLC.

On February 1, 2019 the Company issued 3,000,000 shares of common stock at the conversion price of $$0.0130. The shares were issued to convert $39,000 of principal amount, on the note dated September 11, 2018 to One Investment Capital, Inc.

On February 1, 2019 the Company issued 3,000,000 shares of common stock at the conversion price of $$0.0130. The shares were issued to convert $39,000 of principal amount, on the note dated September 11, 2018 to Sing N Drive Auto Mall, Inc.

On February 4, 2019 the Company issued 5,162,242 shares issued; at a price of $0.02712. The shares were issued to convert $132,108 in principal and $7,892 in interest, on the note dated July 3, 2018, to M Svorai Investments, Inc a related party.

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In connection with the above debt conversions occurring in February 2019, derivative liabilities totaling $1,287,038 were eliminated, with the offset recorded as an increase to additional paid-in capital.

On March 15, 2019 the Company issued 40,000,000 common stock restricted shares, $ 0.0001 par value per share, converting 40,000 shares of the one million (1,000,000) Series A Preferred Stock.

On March 22, 2019 the Company issued 50,000,000 common stock restricted shares, $ 0.0001 par value per share, converting 50,000 shares of the one million (1,000,000) Series A Preferred Stock.

NOTE 8: COMMITMENTS AND CONTINGENCIES;

During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of June 30, 2019 and December 31, 2018, the Company had $0 and $83,000 in contingent liabilities, and the below outstanding lawsuits against the Company:

As of December 31, 2018, the Company recognized $83,000 in contingent liabilities, as per the lawsuit Atlas Funding vs. Northway Mining, which resulted in an initial judgment amount of $109,512, and Grand Capital vs. Northway Mining, which resulted in an initial judgment amount of $75,225, initiated against the Company. On May 2, 2019, the Company settled the lawsuit of Grand Capital vs. Northway Mining. Based on the settlement agreement, the Company issued a new note for $55,175 to replace the original note and made a commitment to make a weekly payment of $1,000 against the new note. On June 11, 2019, the Company settled the lawsuit of Atlas Funding vs. Northway Mining for one payment of $25,000. As a result of the settlement of both debts, the Company recognized a gain on settlement of $60,904 in addition to $83,000 due to the elimination of the contingent liability associated with the lawsuits. The total gain of $143,904 has been included in net loss from discontinued operations (Note 3).

NOTE 9: SUBSEQUENT EVENTS AFTER JUNE 30, 2019

The Company has evaluated subsequent events that occurred through the date these financial statements were issued and has determined there are subsequent events as follows:

Acquisition and Change in Control

On July 1, 2019 the Company sold any and all interest of Northway Mining, LLC to Dror Svorai, under common control and all its operations on behalf of Canna Corporation have been discontinued.

On January 16, 2020, the Company entered into an agreement (the "Acquisition Agreement"), to acquire the majority ownership interest of Agra Nutraceuticals Corporation ("Agra"), a Colorado corporation, having a registered business address of 67 SW 12th Ave, Ste 500, Deerfield Beach, Florida 33442. Pursuant to the Acquisition Agreement the Company will acquire 77.5% of the issued and outstanding shares of common stock of Agra to be transferred from the majority shareholder of Agra, SBS Eco Trust. In consideration for the acquisition of the Agra shares, Dror Svorai, the Company's majority shareholder, President, CEO and sole officer and director, transferred his 803,000 shares of the Company’s Series A Preferred Stock and 197,000,000 shares of its common stock to SBS Eco.

In connection with the Acquisition Agreement, the Company underwent a change of control. As a result of the Acquisition, the SBS Eco Trust, whose trustee is Esther Bittelman, an individual, and Secretary of Agra, became controlling and majority shareholder of the Registrant (the "Change of Control").

As a result of entry into the Acquisition Agreement, Mr. Svorai resigned at the end of the business day on January 17, 2020, following the appointments and acceptances by the new officers and directors of the Company, Agra will be operated as a majority-owned subsidiary of the Company. The Acquisition will become effective 20 days following the mailing of the Information Statement to shareholders pursuant to Schedule 14. The mailing has not occurred yet.

Promissory Note Conversions

On January 16, 2020, Back Nine Capital, LLC, irrevocably elected to exercise the right granted under certain Convertible Promissory Note dated September 11, 2018 and assigned to the current holder per that certain Note Purchase and Assignment Agreement, dated January 16, 2019, to convert $15,744 including principal together with any unpaid regular and penalty interest accrued, into 832,351 shares of the Company’s common stock at a price of $0.018915

On January 16, 2020 D&D Capital Inc., irrevocably elected to exercise the rights granted under that certain Convertible Promissory Note date July 1, 2019 to convert $125,712 into 9,600,000 shares of the Company’s common stock at a price of $0.013095.

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On January 16, 2020 Gary Berlly irrevocably elected to exercise the right granted under certain Convertible Promissory Note dated September 11, 2018 and assigned to the current holder per that certain Note Purchase and Assignment Agreement, dated January 16, 2019, to convert $15,744 including principal together with any unpaid regular and penalty interest accrued, into 832,351 shares of the Company’s common stock at a price of $0.018915

On January 16, 2020 Sign N Drive Auto Mall, Inc., irrevocably elected to exercise the right granted under certain Convertible Promissory Note dated September 11, 2018 and assigned to the current holder per that certain Note Purchase and Assignment Agreement, dated January 16, 2019, to convert $15,744 including principal together with any unpaid regular and penalty interest accrued, into 832,351 shares of the Company’s common stock at a price of $0.018915

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements and Associated Risks.

This Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate,” or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.

Going Concern

Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. As reflected in the accompanying financial statements, as of June 30, 2019, we had an accumulated deficit totaling $7,281,192. This raises substantial doubts about our ability to continue as a going concern.

The extent of the impact of the coronavirus ("COVID-19") outbreak on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions, and the impact of COVID-19 on the overall economy, all of which are highly uncertain and cannot be predicted. If the overall economy is impacted for an extended period, the Company’s future operating results may be materially adversely affected.

 

Plan of Operation

The Company was incorporated under the laws of the State of Florida on July 29, 2013. The Company was established to manufacture and distribute high-quality, hand rolled, premium cigars under the Rich Cigars brand name. Beginning in December 2017, the Company wound down and discontinued its operations pertaining to the manufacture and distribution of cigars. Effective at the same date, the Company began the process of re-focusing its operations to become a holding company wherein its primary focus would be to own and operate subsidiary companies in the cryptocurrency business, principally companies either engaged in cryptocurrency mining directly, data center operations for cryptomining, or the development of proprietary products and services for the cryptocurrency business sector itself.

On August 1, 2018 the Company had entered into an agreement (the "Acquisition Agreement") to acquire the majority ownership interest of Northway Mining, LLC., a New York limited liability company, located at 707 Flats Road, Athens, New York. Based on the Acquisition Agreement, the Company was granted by the membership a fifty-five percent (55%) ownership in Northway, free and clear of all encumbrances, liens and other obligations, and the remaining forty-five percent (45%) shall remain owned by the previous members. As a result of this acquisition, Northway became a majority-owned subsidiary of the Company.

On July 1, 2019 the Company sold any and all interest of Northway Mining, LLC to Dror Svorai, under common control and all its operations on behalf of Canna Corporation have been discontinued.

On January 16, 2020, the Company entered into an agreement (the "Acquisition Agreement"), to acquire the majority ownership interest of Agra Nutraceuticals Corporation ("Agra"), a Colorado corporation, having a registered business address of 67 SW 12th Ave, Ste 500, Deerfield Beach, Florida 33442. Pursuant to the Acquisition Agreement the Company will acquire 77.5% of the issued and outstanding shares of common stock of Agra to be transferred from the majority shareholder of Agra, SBS Eco Trust. In consideration for the acquisition of the Agra shares, Dror Svorai, the Company's majority shareholder, President, CEO and sole officer and director, transferred his 803,000 shares of the Company’s Series A Preferred Stock and 197,000,000 shares of its common stock to SBS Eco.

In connection with the Acquisition Agreement, the Company underwent a change of control. As a result of the Acquisition, the SBS Eco Trust, whose trustee is Esther Bittelman, an individual, and Secretary of Agra, became controlling and majority shareholder of the Registrant (the "Change of Control").

As a result of entry into the Acquisition Agreement, Mr. Svorai resigned at the end of the business day on January 17, 2020, following the appointments and acceptances by the new officers and directors of the Company, Agra will be operated as a majority-owned subsidiary of the Company. The Acquisition will become effective 20 days following the mailing of the Information Statement to shareholders pursuant to Schedule 14. The mailing has not occurred yet.

 

 

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Results of Operations

Three Months Ended June 30, 2019 Compared to June 30, 2018

For the three months ended June 30, 2019, we had $0 in revenues from continuing operations and $0 in cost of goods sold from continuing operations compared to $0 and $0, respectively, for the same period in 2018. For the three months ended June 30, 2019, our total operating expenses from continuing operations were $116,756, as compared to $15,648 for the three months ended June 30, 2018, the increase in operating expenses was mainly due to an increase in legal fees related to lawsuits initiated against the Company in the current period.

For the three months ended June 30, 2019, we had $431,982 in interest expense and amortization of debt discounts related to convertible promissory notes, compared to $68,359 for the same period in 2018. The increase in interest expense is due to the issuance of new convertible notes. For the three months ended June 30, 2019, we had a loss of $1,145,795 from change in fair value of derivative liability, and $557,463 for the same period in 2018. The issuance of new convertible loans and penalties incurred during the period and the changes in the assumptions used to value the derivative liability are the main sources for such increases.

For the three months ended June 30, 2019, we had a loss from discontinued operation of $8,692 related to the disposal of our subsidiary, Northway Mining LLC on July 1, 2019, as compared to $0 for the three months ended June 30, 2018. The loss of $8,962 represents the results of operations of the subsidiary for the three months ended June 30, 2019. The subsidiary was acquired on August 11, 2018, so no results of operations of the subsidiary are presented for the three months ended June 30, 2018.

For the three months ended June 30, 2019, we had a net loss of $1,703,495 from continuing operations, compared to a loss of $641,720 for the same period in 2018. The main reasons for this increase in losses was the lack of income from operations due to the fall in the cryptocurrencies market, the lawsuits, penalties and increase in interest expense related to issuance of new convertible debts.

Six Months Ended June 30, 2019 Compared to June 30, 2018

For the six months ended June 30, 2019, we had $0 in revenues from continuing operations and $0 in cost of goods sold compared to $0 and $0, respectively, for the same period in 2018. For the six months ended June 30, 2019, our total operating expenses was $136,317, as compared to $53,948 for the six months ended June 30, 2018. The increase in operating expenses was due to an increase in professional fees.

For the six months ended June 30, 2019, we had $1,059,113 in interest expense and amortization of debt discount, compared to $349,143 for the same period in 2018. The increase is due to the issuance of new convertible notes. For the six months ended June 30, 2019, we had a loss of $1,460,364 from change in fair value of derivative liability, and a gain of $3,614,566 for the same period in 2018. The increase in debt and certain penalties from previous debt and the changes in the assumptions used to value the derivative liability are the main reasons for the increase. For the six months ended June 30, 2019, we had a loss on extinguishment of debt of $198,403, compared to a gain of $137,054 for the six months ended June 30, 2018 due to the modification and extinguishment of certain convertible notes.

For the six months ended June 30, 2019, we had a loss from discontinued operation of $927,572 related to the disposal of our subsidiary, Northway Mining LLC on July 1, 2019, as compared to $0 for the six months ended June 30, 2018.

For the six months ended June 30, 2019, we had a net loss of $3,801,769 compared to a net income of $3,347,781 for the same period 2018. the main reason of this fluctuation is the change in the fair value of the derivative liability.

Liquidity and Capital Resources

As of June 30, 2019, our cash balance was $4,439 as compared to $7,034 at December 31, 2018. Our plan for satisfying our cash requirements for the next twelve months is through the sale of shares of our common stock, third party financing, and/or traditional bank financing. We do not anticipate generating sufficient amounts of revenues to meet our working capital requirements. Consequently, we intend to make appropriate plans to ensure sources of additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities.

The Company must raise additional funds in order to fund our continuing operations. We may not be successful in our efforts to raise additional funds or achieve profitable operations. Even if we are able to raise additional funds through the sale of our securities or through the issuance of debt securities, or loans from our directors or financial institutions our cash needs could be greater than anticipated in which case we could be forced to raise additional capital. At the present time, we have no commitments for any additional financing, and there can be no assurance that, if needed, additional capital will be available to us on commercially acceptable terms or

22 

at all. These conditions raise substantial doubt as to our ability to continue as a going concern, which may make it more difficult for us to raise additional capital when needed. If we cannot get the needed capital, we may not be able to become profitable and may have to curtail or cease our operations.

Operating Activities

During the six months ended June 30, 2019, the Company used cash in the amount of $459,226 in operating activities, compared to $53,948 over the same period in 2018. This increase is mainly related to the increase in operating activities from discontinued operations of Northway Mining LLC, which did not exist as of June 30, 2018.

Investing Activities

During the six months ended June 30, 2019, the Company used cash in the amount of $103,805 in investing activities of discontinued operation, compared to $0 over the same period in 2018. During the six months of 2019, Northway Mining LLC, acquired equipment to use in its crypto currency mining activity.

Financing Activities

During the six months ended June 30, 2019, $384,121 in net cash was provided to the Company from its financing activities, compared to $54,401 over the same period in 2018. The increase in net cash provided by financing activities from continuing operation for the six months ended June 30, 2019 was mainly due to the issuance of new convertible notes payable for $125,000 compared to $0 for the same period June 30, 2018. The increase in financing activities from discontinued operation was related to new debts issued by Northway Mining LLC , which did not exist as of June 30, 2018.

The Company intends to seek additional funding through public or private financings to fund our operations through fiscal 2019 and beyond. However, if we are unable to raise additional capital when required or on acceptable terms, or achieve cash flow positive operations, we may have to significantly delay product development and scale back operations both of which may affect our ability to continue as a going concern.

Off Balance Sheet Arrangements

None

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

Management has carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Due to the lack of personnel and outside directors, management acknowledges that there are deficiencies in these controls and procedures. Thus, the results of this evaluation determined that our disclosure controls and procedures, as well as our internal control over financial reporting, were ineffective as of June 30, 2019.

Changes in Internal Control Over Financial Reporting

There were no changes, in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)) during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

23 

 

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Salcido Enterprises LLC, v Northway. Supreme Court of the State of New York, County of Greene, Case Index No. 18-01082, filed January 10, 2019. Case was dismissed against the Company by the court without prejudice.

Atlas Funding v Northway. The Company accrued a liability of $55,000 based on the Company’s attorney’s assessment. This lawsuit was filed due to default debt. This lawsuit was settled by the managing member of Northway. On June 11, 2019, the Company settled the lawsuit of Atlas Funding vs. Northway Mining for one payment of $25,000. As result of the settlement of both debts, the Company recognized a gain on settlement of $55,245

Northway Mining, LLC vs. Marsan Properties, Inc. vs. Northway Mining, Supreme Court of the State of New York, County of Greene, Case Index No. 2019-269 filed April 11, 2019. The parties agreed to sign a Stipulation of Settlement wherein the debt on the property will be refinanced.

Premier Properties, Inc vs CSX4236 and Northway Mining, LLC. Supreme Court of the State of New York, County of Greene, Case Index No. 18-0825, pertaining to foreclosure on property located at 707 Flats Road, Athens, NY. At this time there is an ongoing negotiation with a potential outcome of selling this property and therefore paying off the debt. This property is no longer used by Northway.

Ultegra Financial Partners, Inc vs Northway Mining LLC. District Court of the District of Colorado, was settled in the amount of $680,000 on which the Company paid $30,000 and the remaining amount shall be paid with the sale of some of the Company’s assets, accordingly the Settlement Agreement and Releases executed on February 22, 2019. The aforementioned payment was recorded in the account Ultegra Financial Partners, Inc, deducting the $30,000 from the settled debt.

9384-2557 Quebec Inc, Minedmap, Inc and Serenity Alpha, LLC - Husk Mining, LLC vs Northway Mining LLC and others. United States District Court for the Eastern District of New York, Case No. 1:19-CV-1994, filed on April 7, 2019. Case involves several causes of action and open-ended claims. The Company was never served, and searching on PACER (Public Access to Court Electronic Records) no results were obtained, therefore it is the Company understanding that such lawsuit doesn’t exist.

Grand Capital vs. Northway Mining LLC and others. Supreme Court of the State of New York County of Steuben, Index No. E2019-0138CV, filed on February 5, 2019. Claim is for $75,225, case is pending. According to the Company’s attorney’s legal opinion, the Company accrued a contingency liability of $28,000. On May 2, 2019, the Company settled the lawsuit Grand Capital vs. Northway Mining on $55,175 payable in successive payments thereon, as consequence of the settlement, the Company issued a new note for $55,175 to replace the original note and made a commitment to make a weekly payment of $1,000 against the new note. During the period ended June 30, 2019, the managing member of Northway Mining, assumed responsibility for settlement payments. After the first payment Grand Capital agrees to forebear from enforcing any UCC liens, judgment levies, and/or restraints on the Company account.

As the Company disposed of all of its interests in Northway Mining effective July 1, 2019, the Company does not believe that it has any liability or other exposure with regard to any of the above lawsuits.

 

ITEM 1A. RISK FACTORS

 

Not Applicable to Smaller Reporting Companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 16, 2020, the Company issued 832,351 common stock shares, at a price of $ 0.018915. The shares were issued to convert $15,744 including principal together with any unpaid regular and penalty interest accrued, on the note dated September 11, 2018 and assigned to Back Nine Capital, LLC per that certain Note Purchase and Assignment Agreement, dated January 16, 2019.

On January 16, 2020 the Company issued 9,600,000 common stock shares at a price of $0.013095. The shares were issued to convert $125,712 including principal together with any unpaid regular and penalty interest accrued, on the note dated date July 1, 2019 to D&D Capital Inc stock.

On January 16, 2020 the Company issued 832,351 common stock shares, at a price of $ 0.018915. The shares were issued to convert $15,744 including principal together with any unpaid regular and penalty interest accrued, on the note dated September 11, 2018 and assigned to Gary Berlly per that certain Note Purchase and Assignment Agreement, dated January 16, 2019.

24 

On January 16, 2020 the Company issued 832,351 common stock shares, at a price of $ 0.018915. The shares were issued to convert $15,744 including principal together with any unpaid regular and penalty interest accrued, on the note dated September 11, 2018 and assigned to Sign N Drive Auto Mall, Inc., per that certain Note Purchase and Assignment Agreement, dated January 16, 2019. 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4. MINE SAFETY DISCLOSURE

Not Applicable.

ITEM 5. OTHER INFORMATION

Amendment to Articles of Incorporation Changing Name of the Company

On April 4, 2019, the Company filed an amendment to its Articles of Incorporation whereby it changed its name to “Canna Corporation.”

Acquisition and Change of Control of the Company

On January 16, 2020, the Company entered into an agreement (the "Acquisition Agreement"), to acquire the majority ownership interest of Agra Nutraceuticals Corporation ("Agra"), a Colorado corporation, having a registered business address of 67 SW 12th Ave, Ste 500, Deerfield Beach, Florida 33442. Pursuant to the Acquisition Agreement the Company will acquire 77.5% of the issued and outstanding shares of common stock of Agra to be transferred from the majority shareholder of Agra, SBS Eco Trust. In consideration for the acquisition of the Agra shares, Dror Svorai, the Company's majority shareholder, President, CEO and sole officer and director, transferred his 803,000 shares of the Company’s Series A Preferred Stock and 197,000,000 shares of its common stock to SBS Eco.

In connection with the Acquisition Agreement, the Company underwent a change of control. As a result of the Acquisition, the SBS Eco Trust, whose trustee is Esther Bittelman, an individual, and Secretary of Agra, became controlling and majority shareholder of the Registrant (the "Change of Control").

As a result of entry into the Acquisition Agreement, Mr. Svorai resigned at the end of the business day on January 17, 2020, following the appointments and acceptances by the new officers and directors of the Company, Agra will be operated as a majority-owned subsidiary of the Company. The Acquisition will become effective 20 days following the mailing of the Information Statement to shareholders pursuant to Schedule 14. The mailing has not occurred yet.

Change in Officers and Directors.

On January 16, 2020, as a result of the Company’s entry into that certain Acquisition Agreement effecting a change of control of the Company, the following persons became new members of the Board of Directors of the Company and its officers (the “New Members and Officers”):

Name Position
Sacha Alessandro Ceruti President and CEO, Director
Devin Avery Treasurer, Director
Esther Bittelman Secretary, Director
Daniel Rodgers Director
Syed Rizvi Director
David Lilly Director

 

Following the acceptance of the six new members to the board of directors, and their appointment of the new officers and directors, Dror Svorai, President and CEO, and sole Director, resigned effective end of the business day on January 17, 2020.

Mr. Svorai did not resign as a result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices.

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ITEM 6. EXHIBITS

Exhibits. The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

EXHIBIT NO.   DESCRIPTION
3.1   Amendment to Articles of Incorporation, dated April 4, 2019
31.1   Certification of Chief Executive Officer and Acting Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
32.1   Certification of Chief Executive Officer and Acting Chief Financial Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-101.INS   XBRL INSTANCE DOCUMENT*
EX-101.SCH   XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT*
EX-101.CAL   XBRL TAXONOMY EXTENSION CALCULATION LINKBASE*
EX-101.DEF   XBRL TAXONOMY EXTENSION DEFINITION LINKBASE*
EX-101.LAB   XBRL TAXONOMY EXTENSION LABELS LINKBASE*
EX-101.PRE   XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE*

 

* Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections. 

 

26 

 

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CANNA CORPORATION

(Registrant)

 

Dated: May 14, 2020

 

 

By:/s/Sacha Alessandro Ceruti ________

Sacha Alessandro Ceruti

(Chief Executive Officer, Principal Executive

Officer, Acting Chief Financial Officer

and Principal Accounting Officer)

 

 

 

 

 

 

 

 

 

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