Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter time that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, 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. (Check one):
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 Act). Yes [ ] No [X]
The aggregate market value of voting stock held by non-affiliates of the registrant on June 30, 2017, was $1,473,714, based on the last reported sale price of the registrants Common Stock on the OTC Markets on that date.
As of April 3, 2018, the registrant had outstanding 233,122,323 shares of common stock, $0.00 par value per share.
Certain statements contained or incorporated by reference in this Annual Report on Form 10-K are considered forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) concerning our business, results of operations, economic performance and/or financial condition, based on managements current expectations, plans, estimates, assumptions and projections. Forward-looking statements are included, for example, in the discussions about:
Any statements contained in this report that are not statements of historical fact may be deemed forward-looking statements. Forward-looking statements generally are identified by the words expects, anticipates, believes, intends, estimates, aims, plans, may, could, will, will continue, seeks, should, predict, potential, outlook, guidance, target, forecast, probable, possible or the negative of such terms and similar expressions. Forward-looking statements are subject to change and may be affected by risks and uncertainties, most of which are difficult to predict and are generally beyond our control. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events, except as required by law, although we intend to continue to meet our ongoing disclosure obligations under the U.S. securities laws and other applicable laws.
We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements, and therefore you should not place too much reliance on them. These factors include, among others, those described herein, under Risk Factors and elsewhere in this Annual Report and in our other public reports filed with the Securities and Exchange Commission. It is not possible to predict or identify all such factors, and therefore the factors that are noted are not intended to be a complete discussion of all potential risks or uncertainties that may affect forward-looking statements. If these or other risks and uncertainties materialize, or if the assumptions underlying any of the forward-looking statements prove incorrect, our actual performance and future actions may be materially different from those expressed in, or implied by, such forward-looking statements. We can offer no assurance that our estimates or expectations will prove accurate or that we will be able to achieve our strategic and operational goals.
Forward-looking statements are based on information we have when those statements are made or managements good faith belief as of that time with respect to future events, and are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.
Moreover, new risks regularly emerge and it is not possible for our management to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this prospectus are based on information available to us on the date of this Annual Report. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this Annual Report.
We qualify as an emerging growth company as defined in Section 101 of the Jumpstart our Business Startups Act (JOBS Act) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2017, the last day of our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.
As an emerging growth company, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
We will remain an emerging growth company until the earliest to occur of: (i) our reporting $1 billion or more in annual gross revenues; (ii) the end of fiscal year 2019; (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million on the last business day of our second fiscal quarter.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Our board of directors is elected annually by our shareholders. The board of directors elects our executive officers annually. Our directors and executive officers as of April 3, 2018 are as follows:
|
|
|
Name
|
Age
|
Position
|
Marco Alfonsi
|
57
|
CEO, Director, interim Secretary and CFO
|
Carl Dilley
|
63
|
Director
|
David Posel
|
39
|
Chief Operating Officer (COO)
|
Marco Alfonsi
,
CEO and director and interim CFO and Secretary,
has been a financial service professional for the past 20 years. Mr. Alfonsi was appointed director and CEO of the Company in or around January, 2015. Immediately prior to that, he spent eight years serving as the CEO of Prosperity Systems, Inc.
Throughout his career, Mr. Alfonsi was directly and indirectly involved in raising over $100 million dollars for small and medium sized business. Prior to his involvement in the financial services industry, Mr. Alfonsi has owned, operated, financed and sold several businesses. Mr. Alfonsi successfully started and managed two companies (ExecuteDirect.com, and Bakers Express of New York, Inc.), and held senior management positions with a number of financial institutions, including: Global American Investments, Clark Street Capital and Basic Investors.
Carl Dilley
, director, is a career entrepreneur serving as an officer or director in many different companies and industries. With key roles at Spartan Securities and Island Stock Transfer, Mr. Dilley has been instrumental in taking over 400 companies public. He is currently a managing partner of Connect X Capital Partners, which owns a group of financial services and other companies including: Island Capital Management, LLC, Spartan Securities Group, Ltd., Proxy and Printing LLC., Endeavour Insurance Partners and Pioneer Recycling LLC. He has served as president of Island Stock Transfer, a division of Island Capital Management, LLC from 2003 to present and currently acts as senior executive officer responsible for oversight of the day to day operations. He has also acted as CEO of Vacation Travel Corp, from 2003 to present, president of Hurricane Motorsports, Inc. from 2008 to present, director and COO of Endurance Exploration Group from January, 2014 to present, director of Perpetual Industries, Inc. from March, 2015 to present. Mr. Dilley was elected director of the Company in 2014. It is Mr. Dilleys decades of business experience, including serving as officer and director of numerous public and private entities, several in similar industries as the Company that led to the conclusion that he should serve as our director.
Mr. Dilley has been involved in the investment Industry since 1983, and previously held FINRA series 24, 66, and 7 Securities licenses to perform retail, investment banking and new listing services functions for Spartan, where he served as managing partner until January 2015. He stepped down to assume the role as President of Pioneer Recycling in January 2015. He has taken University level courses in accounting, finance, and statistics and holds a Canadian Finance II designation and fellow of Canadian Securities Institute and completed Part I and II of the CFA (Chartered Financial Analyst program) at University of West Virginia.
David Posel
, COO, started his earliest years as a metallurgical engineer at AGCO Metalex, a large precious metals refinery in Washington State. The son of a Ph.D. chemist, Boeing engineer and mathematics major, he quickly went on to the Semiconductor manufacturing industry for nearly a decade as a metallic silicon coatings engineer, leaving to attend ASU West in Arizona. With an engineering and metallurgical chemistry background, Mr. Posel switched gears to Organic agricultural production for an additional eight years. Mr. Posel was farm director and chief environmental scientist for what was once the oldest Organic farm in the state of Colorado before moving into the more advanced world of CBD, hemp production and custom product development.
Mr. Posel has spent years earning the respect of CBD market leaders and forming solid business relationships both in the US and abroad. His legacy began by making the first CBD infused consumer product offered in the US with 99% isolate, 'CrystalPure CBD' which is now sold under our brand. As COO of Canbiola, Mr. Posel continues to engage market leaders and takes the lead in producing multiple first-to-market products for the CBD industry, and pushes product boundaries to expand hemp product lines across the board. Mr. Posel was appointed as COO of the Company on or around February 7, 2018.
15
Board Committees
We have not yet established an audit committee, compensation committee, or nominating committee. During 2017, the functions ordinarily handled by these committees were handled by our entire Board.
Family Relationships
There are no familial relationships between any of our officers and directors.
Director or Officer Involvement in Certain Legal Proceedings
Our directors and executive officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.
Director Independence
The Company is not currently listed on any national securities exchange that has a requirement that the board of directors be independent. At this time, Mr. Dilley is an independent director as that term is defined under the rules of the NASDAQ Capital Market.
Code of Ethics
We have not adopted a Code of Ethics that applies to all of our employees and officers, and the members of our Board of Directors due to the financial constraints of doing so.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on our review of the reports filed by Reporting Persons, we believe that, during the year ended December 31, 2017, the Reporting Persons met all applicable Section 16(a) filing requirements.
16
Item 11.
Executive Compensation
The table below summarizes all compensation awarded to, earned by, or paid to our executive officers and directors for all services rendered in all capacities to us during the previous two fiscal years, as of December 31, 2017.
|
|
|
|
|
|
|
|
|
|
Executive Summary Compensation Table
|
Name and principal position
|
Year
|
Salary
|
Bonus
|
Stock awards
|
Option awards
|
Non-equity incentive plan compensation
|
Non-qualified deferred compensation earnings
|
All other compensation
|
Total
|
Marco Alfonsi(1)
|
2016
|
$
72,000
|
$
0
|
$
0
|
$
0
|
$
0
|
$
0
|
$
0
|
$
72,000
|
CEO and Director
|
2017
|
$
84,000
|
$
0
|
$
63,902
|
$
0
|
$
0
|
$
0
|
$
0
|
$
147,902
|
(1) Pursuant to an employment agreement entered on or around May 14, 2015, Marco Alfonsi was entitled to receive compensation of $6,000 per month through September 31, 2017 when the contract expired. On or around October 3, 2017, the Company entered into a new employment agreement with Mr. Alfonsi whereby he is entitled to receive $10,000 per month for a period of three years. Mr. Alfonsi also received one share of Class A Preferred Stock upon his execution of the new agreement. In addition, on or around October 4, 2017, the Company authorized the issuance of an additional two shares of Class A Preferred Stock to Mr. Alfonsi in consideration for cancellation of approximately $120,000 of deferred income owed to Mr. Alfonsi.
We do not have an equity incentive plan and no named executive officer has unexercised outstanding equity awards.
The table below summarizes all compensation awarded to, earned by, or paid to our non-interested directors for all services rendered in all capacities to us during the previous two fiscal years, as of December 31, 2017.
|
|
|
|
|
|
|
|
|
Non-Interested Director Summary Compensation Table
|
Name and principal position
|
Year
|
Fees Earned or Paid in Cash
|
Stock awards
|
Option awards
|
Non-equity incentive plan compensation
|
Non-qualified deferred compensation earnings
|
All other compensation
|
Total
|
Carl Dilley
|
2016
|
$
0
|
$
0
|
$
0
|
$
0
|
$
0
|
$
0
|
$
0
|
Director
|
2017
|
$
0
|
$
0
|
$
0
|
$
0
|
$
0
|
$
0
|
$
0
|
No director has received cash compensation for their directorship.
We do not have a compensation committee and compensation for our directors and officers is determined by our board of directors.
We reimburse Non-Employee Directors for actual out-of-pocket costs incurred to attend board meetings. No additional compensation is paid for attendance in person or by telephone at board meetings.
17
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following tables set forth the ownership, as of April 3, 2018, of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding voting stock, our directors, and our executive officers and directors as a group. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control. The Companys principal office is the business address for each of the named shareholders.
There are 233,122,323 shares of common stock outstanding as of April 3, 2018, and 12 shares of Series A preferred stock issued and outstanding, which in aggregate are convertible into 120,000,000 shares of common stock at any time and represent 240,000,000 votes. There are a total of approximately 473,122,323 votes eligible to be cast in any Company vote as of April 3, 2018.
On December 5, 2017, the Company issued 157,985 shares of CANB Series B Preferred Stock to RedDiamond Partners LLC (RedDiamond) pursuant to a Securities Purchase Agreement (the SPA) dated October 13, 2017, in exchange for proceeds of $150,000, or $0.95 per CANB Series B Preferred share.
Each share of Series B Preferred Stock has the first preference to dividends, distributions and payments upon liquidation, dissolution and winding-up of the Company, and is entitled to an accrued cumulative but not compounding dividend at the rate of 5% per annum whether or not declared. After six months of the issuance date, such share and any accrued but unpaid dividends can be converted into common stock at the conversion price which is the lower of (i) $0.0101; or (ii) the lower of the dollar volume weighted average price of CANB common stock on the trading day prior to the conversion day or the dollar volume weighted average price of CANB common stock on the conversion day. The share of Series B Preferred Stock has no voting rights.
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities.
Except as otherwise indicated and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. Unless stated otherwise, the business address for these shareholders is 960 South Broadway, Suite 120, Hicksville NY 11801.
18
|
|
|
|
|
|
|
|
Name
|
Title
|
Number of Common Shares
|
% of Common Shares
|
Number of Series A Preferred Shares
|
% of Series A Preferred Shares
|
% of Eligible Votes
|
Number of Warrants currently exercisable or exercisable in the next 60 days
|
Marco Alfonsi[1]
|
CEO, Director
|
30,440,000
|
13.07%
|
8
|
67%
|
40.27%
|
0
|
Carl Dilley[2]
|
Director
|
4,085,034
|
1.75%
|
0
|
0%
|
0.01%
|
0
|
Andrew Holtmeyer
|
Vice President
|
0
|
0.00%
|
3
|
25%
|
12.68%
|
0
|
David Posel
|
CTO
|
0
|
0.00%
|
1
|
8%
|
4.23%
|
0
|
All officers and directors as a group [2 persons]
|
|
34,525,034
|
20.55%
|
12
|
100%
|
57.19%
|
0
|
(1) As of April 3, 2018, Marco Alfonsi owns approximately 30,440,000 shares of common stock and 8 shares of Series A preferred stock, which are convertible into 80,000,000 shares and equal 160,000,000 votes. Prior to October 29, 2015, Mr. Alfonsi owned 81,000,000 shares of the Companys common stock, at which time it was agreed that he would retire 50,000,000 shares of common stock for 5 shares of Series A Preferred Stock. In addition to the listed shares, four members of Mr. Alfonsis family hold an aggregate of 10,000,000 shares of common stock, which shares have not been included in the above calculations.
(2) Carl Dilley holds 4,085,034 shares in his individual name. In addition, entities in which Mr. Dilley holds a minority interest own shares in the Company1,000 shares are held by Endurance Exploration Group and 1,000 shares are held by Spartan Securities Group, Ltd.
The following tables set forth the ownership of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding voting stock, excluding our directors and our executive officers
|
|
|
|
|
|
|
Name
|
Number of Common Shares
|
% of Common Shares
|
Number of Series B Preferred Shares
|
% of Series B Preferred Shares
|
% of Eligible Votes
|
Number of Warrants currently exercisable or exercisable in the next 60 days
|
McKenzie Webster Limited[1]
|
77,003,685
|
33.07%
|
0
|
0%
|
16.28%
|
0
|
RedDiamond Partners LLC [2]
|
0
|
0.00%
|
332,721
|
100%
|
0.00%
|
0
|
(1)
McKenzie Webster Limited is controlled by the Companys former director and CFO, Rolv Heggenhougen. The business address for this shareholder is 445 NE 12
th
Ave., Fort Lauderdale, Florida 33301.
(2)
RedDiamond Partners LLC is controlled by John DeNobile, a non-affiliate of the Company. Each share of Series B Preferred Stock can be converted into common stock at the conversion price which is the lower of (i) $0.0101; or (ii) the lower of the dollar volume weighted average price of CANB common stock on the trading day prior to the conversion day or the dollar volume weighted average price of CANB common stock on the conversion day. The shares of Series B Preferred Stock have no voting rights. The business address for this shareholder is 156 W Saddle River Rd, Saddle River, NJ 07458.
The above tables are based upon information derived from our stock records. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown.
19
Item 13.
Certain Relationships and Related Party Transactions
Except as described herein (or within the section entitled Executive Compensation of this prospectus), none of the following parties (each a Related Party) has, in our fiscal years ended 2016 and 2017, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
any of our directors or officers;
any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock; or
any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the above persons.
On or around February 1, 2016, the Company issued the CEOs brother, Paul Alfonsi, a promissory note in the amount of $15,000 in exchange for a loan of $15,000 from Paul Alfonsi. The note has a six month maturity and bears 12% simple interest. On February 13, 2017, the Company issued 1,685,900 shares of WRAP common stock to the brother of the Chief Executive Officer of the Company in satisfaction of notes payable of $15,000 and accrued interest payable of $1,859.
ProAdvanced Group, Inc. (PAG), an entity controlled by the Companys chief executive officer, is a customer of CANB. As of December 31, 2017, CANB had an account receivable from PAG of $2,240. For the year ended December 31, 2017, CANB had revenues from PAG of $1,050.
Island Stock Transfer (IST), an entity controlled by Carl Dilley, a Company director, is both a customer and vendor of CANB. As of December 31, 2017, CANB had an account receivable from IST of $3,035 and an account payable to IST of $3,035. For the year ended December 31, 2017, CANB had revenues from IST of $6,000.
Stock Market Manager, Inc. is also an entity controlled by Mr. Dilley. For the year ended December 31, 2017, CANB had an account payable to Stock Market Manager Inc. of $1,676.
On or around October 3, 2018, the Company entered into an employment agreement with its CEO, Marco Alfonsi for a three-year term at a salary of $10,000 per month. Mr. Alfonsi was also issued one share of Class A Preferred Stock upon execution of the Agreement.
In order to facilitate its operations, the Company has entered into a Production Agreement with Pure Health Products, LLC (PHP), a New York limited liability company. Pursuant to the Production Agreement, PHP will manufacture, package, and sell the Companys CBD infused products on an exclusive basis. PHP will not produce or manufacture any product containing any cannabis or hemp derivative for any person or entity other than the Company, and the Company controls the ingredients, recipe, manufacturing processes and procedures and quality and taste parameters for all Products produced at the PHP facility. PHP may also white label / rebrand or relabel the products on the Companys behalf pursuant to white label agreements entered into between the Company and third-party customers. Credit card sales are processed through PHP as well. Through its contractual relationship with PHP, the Company is able to control the manufacturing process of its products while reducing its production costs. In addition, the Company has the option to acquire certain assets of PHP should it elect to take over direct manufacture of its Products. For the year ended December 31, 2017, purchase of CBD infused products from PHP totaled $19,095.
20
At December 31, 2017, we have a note receivable from PHP in the amount of $75,000. PHP is controlled by Pasquale Ferro. At December 31, 2017, we are indebted to Mr. Ferro and his wife Rosemary Ferro in the amount of $93,500.
During 2017 we had products sales to related parties totaling $331.
Item 14.
Principal Accounting Fees and Services
The following table sets forth fees billed to us by BMKR, LLP, our independent registered public accounting firm, during the fiscal years ended December 31, 2017 and December 31, 2016 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements; (ii) services by our independent registered public accounting firms that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as audit fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning; and (iv) all other fees for services rendered.
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
Audit Fees
|
|
|
$
31,700
|
|
|
|
$
24,000
|
Audited Related Fees
|
|
|
$
-
|
|
|
|
$
-
|
Tax Fees
|
|
|
$
-
|
|
|
|
$
-
|
All Other Fees
|
|
|
$
-
|
|
|
|
$
-
|
21
Notes to Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
NOTE 1 Organization and Description of Business
Canbiola, Inc. was originally incorporated as WrapMail, Inc. (WRAP) in Florida on October 11, 2005. Effective January 5, 2015, WRAP acquired 100% ownership of Prosperity Systems, Inc. (Prosperity), a New York corporation incorporated on April 2, 2008. On May 15, 2017, WRAP changed its name to Canbiola, Inc. (the Company or CANB or Canbiola). The Company operates several divisions, including document management and email marketing platforms and a division specializing in the sale of products containing CBD. The Company used to operate its document and information platform from its wholly owned subsidiary, Prosperity Systems, Inc; however, after the acquisition of Prosperity, the Company transferred Prosperitys operations to WRAP and is presently in the process of dissolving Prosperity. For the periods presented, the assets, liabilities, revenues, and expenses are those of CANB. Prosperity had no activity for the periods presented.
Effective December 27, 2010, WRAP effected a 10 for 1 forward stock split of its common stock. Effective June 4, 2013, WRAP effected a 1 for 10 reverse stock split of its common stock. The accompanying consolidated financial statements retroactively reflect these stock splits.
Canbiola, Inc. is a US Company specializing in the sale of a variety of Cannabidiol (Hemp) based products such as oils, creams, moisturizers, chews, vapes, isolate, gel caps, concentrate and water. Canbiola is developing their own line of proprietary products as well as seeking synergistic value through acquisitions in the Hemp Industry. Canbiola aims to be the premier provider of the highest quality Hemp natural products on the market through sourcing the very best raw material and developing a variety of products we believe will improve people's lives in a variety of areas.
CANB expects to concentrate its future business activities on the sale of Cannabidiol based.
NOTE 2 Going Concern Uncertainty
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in a normal course of business. As of December 31, 2017, the Company had cash and cash equivalents of $1,652 and a working capital deficit of $1,791,732. For the years ended December 31, 2017 and 2016, the Company had net losses of $2,139,719 and $665,050, respectively. These factors raise substantial doubt as to the Companys ability to continue as a going concern. The Company plans to improve its financial condition by raising capital through sales of shares of its common stock. Also, the Company plans to expand its operation of CBD products to increase its profitability. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of CANB and its wholly owned subsidiary Prosperity from the date of its acquisition on January 5, 2015. All intercompany balances and transactions have been eliminated in consolidation.
The Company considers Pure Health products to be a variable interest entity as prescribed under Accounting guidelines. Due to the fact that the company is not dependent on Pure Health Products solely for manufacture, no consolidation of Pure Heath Products financial information is required.
F-9
(b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(c) Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, notes and loans payable, accounts payable, and accrued expenses payable. Except for the noncurrent note receivable, the fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short term maturity of these instruments. Based on comparable instruments with similar terms, the fair value of the noncurrent note receivable approximates its carrying value.
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
(d) Cash and Cash Equivalents
The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents.
(e) Inventory
All inventories are finished goods, and stated at the lower of cost or net realizable value. Cost is principally determined using the first-in, first-out (FIFO) method.
(f) Property and Equipment, Net
Property and equipment, net, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to operations as incurred.
(g) Intangible Assets, Net
Intangible assets, net, are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated economic lives of the respective assets.
F-10
(h) Goodwill and Intangible Assets with Indefinite Lives
The Company does not amortize goodwill and intangible assets with indefinite useful lives, but instead tests for impairment at least annually. When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its carrying value. If the estimated fair value of the reporting unit is determined to be less than its carrying value, goodwill is reduced, and an impairment loss is recorded.
(i) Long-lived Assets
The Company reviews long-lived assets held and used, intangible assets with finite useful lives and assets held for sale for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows associated with the asset is compared to the assets carrying amount to determine if a write-down is required. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds the fair value.
(j) Revenue Recognition
The Company recognizes service revenue over agreed periods of services delivered to customers and recognizes product sales upon shipment of the ordered products to customers, provided there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is deemed probable.
(k) Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (ASC) Topic 718, Compensation Stock Compensation (ASC718) and ASC 505-50, Equity Based Payments to Non-Employees.
In addition to requiring supplemental disclosures, ASC 718 addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.
In accordance with ASC 505-50, the Company determines the fair value of the stock based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached, or (2) the date at which the counterpartys performance is complete.
F-11
Options and warrants
The fair value of stock options and warrants is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year:
Risk-Free Interest Rate.
We utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of our awards.
Expected Volatility.
We calculate the expected volatility based on a volatility index of peer companies as we did not have sufficient historical market information to estimate the volatility of our own stock.
Dividend Yield.
We have not declared a dividend on its common stock since its inception and have no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.
Expected Term.
The expected term of options granted represents the period of time that options are expected to be outstanding. We estimated the expected term of stock options by using the simplified method. For warrants, the expected term represents the actual term of the warrant.
Forfeitures.
Estimates of option forfeitures are based on our experience. We will adjust our estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.
(l) Advertising
Advertising costs are expensed as incurred and amounted to $28,322 and $11,901 for the years ended December 31, 2017 and 2016, respectively.
(m) Research and Development
Research and development costs are expensed as incurred.
(n) Income Taxes
Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
F-12
The Company has adopted the provisions required by the Income Taxes topic of the FASB Accounting Standards Codification. The Codification Topic requires the recognition of potential liabilities as a result of managements acceptance of potentially uncertain positions for income tax treatment on a more-likely-than-not probability of an assessment upon examination by a respective taxing authority. The Company believes that it has not taken any uncertain tax positions and thus has not recorded any liability.
(o) Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation. For the periods presented, the diluted net loss per share calculation excluded the effect of Series B preferred stocks and stock options outstanding (see Notes 7, 8 and 10).
(p) Recent Accounting Pronouncements
Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and therefore have not yet been adopted by the Company. These include:
In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) which establishes revenue recognition standards. ASU 2014-19 is effective for annual reporting periods beginning after December 15, 2017. The update establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern including related disclosures.
In 2016, the FASB issued ASU 2016-2 (Topic 842) which establishes a new lease accounting model for lessees. Under the new guidance, lessees will be required to recognize right of use assets and liabilities for most leases having terms of 12 months or more. ASU 2016-2 is effective for fiscal years beginning after December 15, 2018.
The impact on the Company's financial statements has not yet been determined.
(q) Reclassifications
Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation. These reclassification adjustments had no effect on the Company's previously reported net income.
F-13
NOTE 4 Notes Receivable
|
|
|
|
|
|
Notes receivable consist of:
|
|
|
|
|
|
December 31,
2017
|
|
December 31,
2016
|
Secured Promissory note dated October 17, 2017 due from Pure Health Products, LLC (PHP), interest at 12% per annum, due October 17, 2018, secured by assets of PHP
|
|
$
75,000
|
|
$
-
|
|
|
|
|
|
Note receivable dated November 30, 2015 from Stock Market Manager, Inc, interest at 3% per annum due November 30, 2020
|
|
39,000
|
|
39,000
|
|
|
|
|
|
Total
|
|
114,000
|
|
39,000
|
|
|
|
|
|
Current portion of notes receivable
|
|
(75,000)
|
|
-
|
Noncurrent portion of notes receivable
|
|
$
39,000
|
|
$
39,000
|
Pursuant to an option Agreement dated November 10, 2017, the Company has an option expiring November 10, 2027 to purchase certain specified assets of Pure Health for $75,000, payable via cancellation of Pure Healths obligations under the Secured Promissory Note or in cash or cash equivalent.
Stock Market Manager, Inc is affiliated with Carl Dilley, a Company director.
NOTE 5 Property and Equipment, Net
Property and Equipment, net, consist of:
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Furniture & Fixtures
|
|
$
19,018
|
|
$
19,018
|
|
|
|
|
|
Office Equipment
|
|
12,378
|
|
12,378
|
|
|
|
|
|
Total
|
|
31,396
|
|
31,396
|
|
|
|
|
|
Accumulated amortization
|
|
(20,248)
|
|
(17,021)
|
|
|
|
|
|
Net
|
|
$
11,148
|
|
$
14,375
|
F-14
NOTE 6 Intangible Assets, Net
Intangible assets, net, consist of:
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Video conferencing software acquired
|
|
|
|
|
by Prosperity in December 2009
|
|
$
30,000
|
|
$
30,000
|
|
|
|
|
|
Enterprise and audit software acquired
|
|
|
|
|
by Prosperity in April 2008
|
|
20,000
|
|
20,000
|
|
|
|
|
|
Patent costs incurred by WRAP
|
|
6,880
|
|
6,880
|
|
|
|
|
|
Other
|
|
3,548
|
|
3,548
|
|
|
|
|
|
Total
|
|
60,428
|
|
60,428
|
|
|
|
|
|
Accumulated amortization and Impairment
|
|
(60,428)
|
|
(34,947)
|
|
|
|
|
|
Net
|
|
$
0
|
|
$
25,481
|
The above intangible assets relate to the document management and email marketing divisions. At December 31, 2017, we do not expect any future positive cash flow from these divisions. Accordingly, we have recorded an impairment expense of $21,509 at December 31, 2017 and reduced the net carrying value of these intangible assets to $0.
F-15
NOTE 7 Notes and Loans Payable
|
|
|
|
|
|
Notes and loans payable consist of:
|
|
|
|
|
|
December 31,
2017
|
|
December 31,
2016
|
Convertible note payable to lender dated February 1, 2016 (as amended
December 21, 2016), interest at 12% per annum, due February 1,
2017, convertible into Common Stock at a Conversion Price equal to the
Lesser of (i) $0.01 per share or (ii) 50% of the lowest Bid Price of the
Common Stock for the 30 Trading Days preceding the Conversion Date
fully converted at February 13, 2017
|
|
$
-
|
|
$
3,571
|
|
|
|
|
|
Convertible notes payable to lender dated from March 15, 2016 (as amended June 2, 2016) to November 15, 2017, interest at rates ranging from 12% to 14.99% per annum, due from April 6, 2017 to May 15, 2018, partially converted at March 22, 2017 and the remaining notes convertible into Common Stock at a Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of the lowest Closing Bid Price of the Common Stock for the 30 Trading Days preceding the Conversion Date net of
unamortized debt discount of $1,815 and $34,411, respectively
|
|
36,685
|
|
39,839
|
|
|
|
|
|
Convertible notes payable to lender dated February 1, 2016 (as amended
December 21, 2016) and December 21, 2016, interest at 12% per
annum, due February 1, 2017 and May 20, 2017, convertible into
Common Stock at a Conversion Price equal to the lesser of (i) $0.01 per
share or (ii) 50% of the lowest Closing Bid Price of the Common Stock
for the 30 Trading Days preceding the Conversion Date net of
unamortized debt discount of $0 and $58,095, respectively
|
|
65,000
|
|
6,905
|
|
|
|
|
|
Convertible notes payable to Pasquale and Rosemary Ferro dated from
May 2, 2017 to October 13, 2017, interest at 12% per annum, due from
September 16, 2017 to May 7, 2018, convertible into Common Stock at a
Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of
the lowest Closing Bid Price of the Common Stock for the 30 Trading
Days preceding the Conversion Date net of unamortized debt discount
of $19,613 and $0, respectively
|
|
73,887
|
|
-
|
|
|
|
|
|
Convertible note payable to lender dated August 8, 2017 interest at 12% per
annum, due August 8, 2018, convertible into Common Stock at a
Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of
the lowest Closing Bid Price of the Common Stock for the 30 Trading
Days preceding the Conversion Date net of unamortized debt discount
of $15,068 and $0, respectively
|
|
9,932
|
|
-
|
|
|
|
|
|
Note payable to brother of Marco Alfonsi, Chief Executive Officer of the Company, interest at 10% per annum, due August 22, 2016 (now past due)
|
|
5,000
|
|
5,000
|
|
|
|
|
|
Loan payable to Mckenzie Webster Limited (MWL), an entity controlled by the former Chairman of the Board of Directors of the Company, non-interest bearing, due on demand
|
|
3,000
|
|
3,000
|
Total
|
|
$
193,504
|
|
$
58,315
|
F-16
The derivative liability of the convertible notes payable consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
Face Value
|
|
Derivative Liability
|
|
Face Value
|
|
Derivative Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable to lender dated
February 1, 2016 (as amended
December 21, 2016), due February 1,
2017
|
|
|
$
-
|
|
|
$
-
|
|
|
$
15,000
|
|
|
$
31,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to lender dated from March 15, 2016 (as amended June 2, 2016) to November 15, 2017, due from April 6, 2017 to May 15, 2018
|
|
|
$
38,500
|
|
|
$
248,597
|
|
|
$
74,250
|
|
|
$
171,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to lender dated
February 1, 2016 (as amended
December 21, 2016) and December 21,
2016, due February 1, 2017 and May
20, 2017
|
|
|
$
65,000
|
|
|
$
418,889
|
|
|
$
65,000
|
|
|
$
149,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to Pasquale and
Rosemary Ferro dated from May 2,
2017 to October 13, 2017, due from
September 16, 2017 to May 7, 2018
|
|
|
$
93,500
|
|
|
$
611,886
|
|
|
$
-
|
|
|
$
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to lender dated
August 8, 2017, due August 8, 2018
|
|
|
$
25,000
|
|
|
$
171,765
|
|
|
$
-
|
|
|
$
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
$
222,000
|
|
|
$
1,451,137
|
|
|
$
154,250
|
|
|
$
352,688
|
The above convertible notes contain a variable conversion feature based on the future trading price of the Company common stock. Therefore, the number of shares of common stock issuable upon conversion of the notes is indeterminate. Accordingly, we have recorded the fair value of the embedded conversion features as a derivative liability at the respective issuance dates (or amendment dates) of the notes ($445,112 and $629,828 total for the year ended December 31, 2017 and 2016) and charged the applicable amounts to debt discounts ($182,750 and $154,250 total for the year ended December 31, 2017 and 2016) and the remainder to other expense ($262,362 and $475,578 total for the year ended December 31, 2017 and 2016). The increase (decrease) in the fair value of the derivative liability from the respective issuance dates (or amendment dates) of the notes to the measurement date ($926,819 total increase and $277,140 total decrease for the year ended December 31, 2017 and 2016) are charged (credited) to other expense (income). The fair value of the derivative liability of the notes is measured at the respective issuance dates and quarterly thereafter using the Black Scholes option pricing model. Assumptions used for the calculations of the derivative liability of the notes at December 31, 2017 include (1) stock price of $0.0335 per share, (2) exercise price of $0.0045 per share, (3) terms ranging from 0 days to 220 days, (4) expected volatility of 287% and (5) risk free interest rates ranging from 0.00% to 1.58%. Assumptions used for the calculations of the derivative liability of the notes at December 31, 2016 include (1) stock price of $0.029 per share, (2) exercise price of $0.01 per share, (3) terms ranging from 32 days to 242 days, (4) expected volatility of 243% and (5) risk free interest rates ranging from 0.46% to 0.65%.
F-17
NOTE 8 Preferred Stock
The Company issued a total of 10 shares of CANB Series A Preferred Stock (5 shares to Mckenzie Webster Limited and 5 shares to Marco Alfonsi) in exchange for the retirement of a total of 100,000,000 shares of CANB common stock (50,000,000 shares from Mckenzie Webster Limited and 50,000,000 shares from Marco Alfonsi).
On October 4, 2017, the Company issued 3 shares of CANB Series A Preferred Stock to Alfonsi: 2 shares were the consideration for Alfonsis cancellation of accrued salaries payable of $127,803 owed to Alfonsi and 1 share (valued at $63,902) was issued pursuant to the new employment agreement with Alfonsi.
On November 30, 2017, MWL converted its 5 shares of CANB Series A Preferred Stock to 50,000,000 shares of CANB common stock.
Each share of Series A Preferred Stock is convertible into 10,000,000 shares of CANB common stock and is entitled to 20,000,000 votes.
On December 5, 2017, the Company issued 157,985 shares of CANB Series B Preferred Stock to RedDiamond Partners LLC (RedDiamond) pursuant to a Securities Purchase Agreement (the SPA) dated October 13, 2017, in exchange for proceeds of $150,000, or $0.95 per CANB Series B Preferred share.
Each share of Series B Preferred Stock has the first preference to dividends, distributions and payments upon liquidation, dissolution and winding-up of the Company, and is entitled to an accrued cumulative but not compounding dividend at the rate of 5% per annum whether or not declared. After six months of the issuance date, such share and any accrued but unpaid dividends can be converted into common stock at the conversion price which is the lower of (i) $0.0101; or (ii) the lower of the dollar volume weighted average price of CANB common stock on the trading day prior to the conversion day or the dollar volume weighted average price of CANB common stock on the conversion day. The share of Series B Preferred Stock has no voting rights.
NOTE 9 Common Stock
On January 2, 2016, the Company issued 104,500 shares of CANB common stock to a technical consultant in satisfaction of a $12,864 account payable to that vendor.
On March 9, 2016, the Company issued 140,000 shares of CANB common stock to a technical consultant in satisfaction of a $8,693 account payable to that vendor.
On October 6, 2016, the Company issued 400,000 shares of CANB common stock to a technical consultant in satisfaction of a $25,617 account payable to that vendor.
On February 2, 2017, the Company issued 200,000 shares of CANB common stock to a financial consultant for services rendered. The $11,000 fair value of the 200,000 shares of CANB common stock was charged to consulting fees in the three months ended March 31, 2017.
On February 13, 2017, the Company issued 1,685,900 shares of CANB common stock to the brother of the Chief Executive Officer of the Company in satisfaction of notes payable of $15,000 and accrued interest payable of $1,859.
On March 22, 2017, the Company issued 6,785,316 shares of CANB common stock to a lender in satisfaction of notes payable of $50,000 and accrued interest payable of $5,979.
On April 17, 2017, the Company issued 5,000,000 shares of CANB common stock to a consultant for services rendered. The $125,000 fair value of the 5,000,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2017.
F-18
On June 21, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,975 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2017.
On June 28, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,000 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2017.
On August 25, 2017, the Company issued 7,142,857 shares of CANB common stock to a lender in satisfaction of notes payable of $50,000 and accrued interest payable of $3,331.
On August 25, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $3,750 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2017.
On September 5, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $4,375 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2017.
On September 7, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $32,750 fair value of the 2,500,000 shares of CANB common stock was charged to consulting fees in the three months ended September 30, 2017.
On September 11, 2017, the Company issued 250,000 and 250,000 shares of CANB common stock to two consultants for services rendered, respectively. The $3,350 fair value of each 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2017.
On September 25, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $2,525 fair value of the 2,500,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2017.
On November 2, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $1,725 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended December 31, 2017.
On November 9, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $21,250 fair value of the 2,500,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
On November 30, 2017, the Company issued 50,000,000 shares of CANB common stock to Mckenzie Webster Limited in exchange for the retirement of 5 shares of CANB Series A Preferred Stock.
On December 5, 2017, the Company issued 250,000 and 250,000 shares of CANB common stock to two consultants for services rendered, respectively. The $3,000 fair value of each 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
On December 7, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $4,500 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
On December 18, 2017, the Company issued 500,000 shares of CANB common stock to a consultant for services rendered. The $9,050 fair value of the 500,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
F-19
On December 25, 2017, the Company issued 250,000 and 250,000 shares of CANB common stock to two consultants for services rendered, respectively. The $7,250 fair value of each 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 31, 2017.
NOTE 10 Stock Options and Warrants
A summary of stock options and warrants activity follows:
|
|
|
|
|
|
|
Shares of Common Stock Exercisable Into
|
|
Stock
|
|
|
|
|
|
Options
|
|
Warrants
|
|
Total
|
Balance, December 31, 2015
|
200,000
|
|
307,500
|
|
507,500
|
Granted in 2016
|
-
|
|
-
|
|
-
|
Expired in 2016
|
(150,000)
|
|
(60,000)
|
|
(210,000)
|
|
|
|
|
|
|
Balance, December 31, 2016
|
50,000
|
|
247,500
|
|
297,500
|
Granted in 1Q, 2Q and 3Q 2017
|
-
|
|
-
|
|
-
|
Cancelled in 1Q, 2Q and 3Q 2017
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
Balance, December 31, 2017
|
50,000
|
|
247,500
|
|
297,500
|
Issued and outstanding stock options as of December 31, 2017 consist of:
|
|
|
|
|
|
|
|
Year
|
|
Number Outstanding
|
|
|
Exercise
|
|
Year of
|
Granted
|
|
And Exercisable
|
|
|
Price
|
|
Expiration
|
|
|
|
|
|
|
|
|
2009
|
|
50,000
|
|
|
$
1.00
|
|
2019
|
|
|
|
|
|
|
|
|
Total
|
|
50,000
|
|
|
|
|
|
Issued and outstanding warrants as of December 31, 2017 consist of:
|
|
|
|
|
|
|
|
Year
|
|
Number Outstanding
|
|
|
Exercise
|
|
Year of
|
Granted
|
|
And Exercisable
|
|
|
Price
|
|
Expiration
|
|
|
|
|
|
|
|
|
2010
|
|
247,500
|
|
|
$
1.00
|
|
2020
|
|
|
|
|
|
|
|
|
Total
|
|
247,500
|
|
|
|
|
|
F-20
NOTE 11 Income Taxes
No provisions for income taxes were recorded for the periods presented since the Company incurred net losses in those periods.
The provisions for (benefits from) income taxes differ from the amounts determined by applying the U.S. Federal income tax rate of 35% to pretax income (loss) as follows:
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Expected income tax (benefit) at 35%
|
$
(748,902)
|
|
$
(232,768)
|
|
|
|
|
|
Non-deductible stock-based compensation
|
81,057
|
|
10,500
|
|
|
|
|
|
Non-deductible amortization of debt discounts
|
87,566
|
|
17,610
|
|
|
|
|
Non-deductible loss on debt conversion
|
11,334
|
|
-
|
|
|
|
|
Non-deductible loss on stock issuance
|
67,043
|
|
-
|
|
|
|
|
Non-deductible impairment of intangible assets
|
7,527
|
|
-
|
|
|
|
|
Non-deductible expense from derivative liability
|
320,495
|
|
69,453
|
|
|
|
|
Increase in deferred income tax assets
|
|
|
|
|
valuation allowance
|
|
173,879
|
|
135,205
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$
-
|
|
$
-
|
Deferred income tax assets consist of:
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Net operating loss carryforward
|
|
1,394,358
|
|
1,220,479
|
|
|
|
|
|
Valuation allowance
|
|
(1,394,358)
|
|
(1,220,479)
|
|
|
|
|
|
Net
|
|
$
-
|
|
$
-
|
Based on management's present assessment, the Company has not yet determined it to be more likely than not that a deferred income tax asset of $1,394,358 attributable to the future utilization of the $3,973,302 net operating loss carryforward as of December 31, 2017 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred income tax asset in the financial statements at December 31, 2017. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforward expires in years 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2033, 2034, 2035, 2036 and 2037 in the amount of $1,369, $518,390, $594,905, $686,775, $159,141, $151,874, $135,096, $166,911, $311,890, $25,511, $338,345, $386,297 and $496,798 respectively.
Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
F-21
The Companys U.S. Federal and state income tax returns prior to 2013 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The statute of limitations on the 2013 tax year returns expired in March 2017.
The Company recognizes interest and penalties associated with uncertain tax positions as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance sheets. There were no interest or penalties paid during 2017 and 2016.
NOTE 12 Commitments and Contingencies
Employment Agreements
On October 3, 2017, the Company executed an Executive Employment Agreement with Marco Alfonsi (Alfonsi) for Alfonsi to serve as the Company's chief executive officer and interim chief financial officer and secretary for cash compensation of $10,000 per month. Pursuant to the agreement, the Company issued a share of CANB Series A Preferred Stock to Alfonsi on October 4, 2017 (see Note 8). Alfonsi may terminate his employment upon 30 days written notice to the Company. The Company may terminate Alfonsi's employment upon written notice to Alfonsi by a vote of the Board of Directors.
On August 17, 2015, the Company executed an Employment Agreement with Romuald Stone (Stone) for Stone to serve as the Company's Chief Technology Officer for cash compensation of $12,500 per month. Effective August 17, 2016, the agreement terminated.
Consulting Agreements
On July 29, 2017, the Company executed a Consulting Agreement with
Andrew W Holtmeyer
for Mr. Holtmeyer to serve as the Company's consultant for monthly cash payment of $5,000 through July 29, 2018. Effective February 16, 2018, the Company terminated the agreement due to the replacement of an Executive Service Agreement.
On September 6, 2017, the Company executed a Consulting Agreement with T8 Partners LLC (T8) for T8 to serve as the Company's consultant for stock compensation of a total of 10,000,000 restricted shares. Pursuant to the agreement, the Company issued 2,500,000 restricted shares of CANB common stock to T8 on September 7, 2017. Effective October 27, 2017, the Company terminated the agreement due to non-performance by T8.
On November 9, 2017, the Company executed a Consulting Agreement with Healthcare Advisory Group Company (Healthcare) for Healthcare to serve as the Company's consultant for stock compensation of a total of 5,000,000 restricted shares. Pursuant to the agreement, the Company issued 2,500,000 restricted shares of CANB common stock to Healthcare on November 9, 2017. Effective March 6, 2018, the Company terminated the agreement due to non-performance by Healthcare.
Lease Agreements
On December 1, 2014, Prosperity entered into a lease agreement with KLAM, Inc. for office space in Hicksville, New York for an initial term of one year commencing December 1, 2014. The lease provides for monthly rentals of $2,500 and provides Prosperity an option to renew the lease after the initial term. The Company has continued to occupy this space after November 30, 2015 under a month to month arrangement at $2,500 per month. KLAM, Inc. is controlled by the wife of the Company's chief executive officer Marco Alfonsi.
On September 11, 2015, the Company executed a lease agreement with an unrelated third party for office space in Hicksville, New York for a term of 37 months. The lease provides for monthly rentals of $2,922 for lease year 1, $3,009 for lease year 2, and $3,100 for lease year 3. The lease also provides for additional rent based on increases in base year operating expenses and real estate taxes.
Rent expense for the years ended December 31, 2017 and 2016 was $65,060 and $65,060, respectively.
F-22
At December 31, 2017, the future minimum lease payments under non-cancellable operating leases were:
Year ended December 31, 2018
27,900
Total
$ 27,900
Major Customers
For the year ended December 31, 2017, three customers accounted for approximately 45%, 29% and 14%, respectively, of total service revenues.
For the year ended December 31, 2016, three customers accounted for approximately 36%, 30% and 11%, respectively, of total service revenues.
Public Offering of Units
On August 2, 2016, the Companys Registration Statement on Form S-1 was declared effective by the Securities and Exchange Commission. On a self-underwritten basis, the Company is offering up to 40,000,000 Units at a price of $0.05 per Unit or $2,000,000 maximum. Each Unit consists of one share of Company common stock and one warrant to purchase ½ share of Company common stock at a price of $0.10 per share for a period of three years. There is no minimum offering amount or escrow required as a condition to closing and the Company may sell significantly fewer Units than those offered. The offering will terminate on August 2, 2018 unless earlier terminated or extended by the Companys filing of an amendment to the Registration Statement. To date, no Units have been sold.
Litigation
On November 25, 2016, the landlord under the lease agreement dated September 11, 2015 (QPR) served us a Notice of Default. On December 5, 2016, QPR filed a Petition to Recover Possession of Real Property seeking unpaid rent of $12,540 (as of November 21, 2016) and possession of the premises. The Company subsequently paid QPR and QPR dismissed the action.
NOTE 13 Related Party Transactions
ProAdvanced Group, Inc. (PAG), an entity controlled by the Companys chief executive officer, is a customer of CANB. For the year ended December 31, 2017, CANB had an account receivable from PAG of $2,240. For the year ended December 31, 2017, CANB had revenues from PAG of $1,050.
Island Stock Transfer (IST), an entity controlled by Carl Dilley, a Company director, is both a customer and vendor of CANB. As of December 31, 2017, CANB had an account receivable from IST of $3,035 and an account payable to IST of $3,035. For the year ended December 31, 2017, CANB had revenues from IST of $6,000.
Stock Market Manager, Inc. is also an entity controlled by Mr. Dilley. For the year ended December 31, 2017, CANB had an account payable to Stock Market Manager Inc. of $1,676.
F-23
In order to facilitate its operations, the Company has entered into a Production Agreement with Pure Health Products, LLC (PHP), a New York limited liability company. Pursuant to the Production Agreement, PHP will manufacture, package, and sell the Companys CBD infused products on an exclusive basis. PHP will not produce or manufacture any product containing any cannabis or hemp derivative for any person or entity other than the Company, and the Company controls the ingredients, recipe, manufacturing processes and procedures and quality and taste parameters for all Products produced at the PHP facility. PHP may also white label / rebrand or relabel the products on the Companys behalf pursuant to white label agreements entered into between the Company and third-party customers. Credit card sales are processed through PHP as well. Through its contractual relationship with PHP, the Company is able to control the manufacturing process of its products while reducing its production costs. In addition, the Company has the option to acquire certain assets of PHP should it elect to take over direct manufacture of its Products. For the year ended December 31, 2017, purchase of CBD infused products from PHP totaled $19,095.
At December 31, 2017, we have a note receivable from PHP in the amount of $75,000. PHP is controlled by Pasquale Ferro. At December 31, 2017, we are indebted to Mr. Ferro and his wife Rosemary Ferro in the amount of $93,500.
The Company considers Pure Health products to be a variable interest entity as prescribed under Accounting guidelines. Due to the fact that the company is not dependent on Pure Health Products solely for manufacture, no consolidation of Pure Heath Products financial information is required.
During 2017 we had products sales to related parties totaling $331.
NOTE 14 Subsequent Events
On January 8, 2018, the Company issued a $10,000 Convertible Promissory Note to a lender for loan proceeds of $10,000. The note bears interest at a rate of 12% per annum, is due on July 8, 2018, and is convertible at the option of the lender into shares of the Company common stock at a Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of the lowest Closing Bid Price of the Common Stock for the 30 Trading Days preceding the Conversion Date.
On January 9, 2018, the Company amended a Securities Purchase Agreement (the SPA) with RedDiamond Partners LLC (RedDiamond). Pursuant to the amended Agreement, RedDiamond agreed to purchase additional aggregate of $249,000 of Series B Preferred Shares (Preferred Shares), at $0.95 per share, for an aggregate of 262,104 Preferred Shares. The SPA provides for the purchase to be conducted through three equal tranches of $83,000 or 87,368 Preferred Shares per tranche. On January 22, 2018, the Company received $83,000 from RedDiamond. Additional two closings are to be conducted on each monthly anniversary following the date of the First Closing (Additional Closings) until RedDiamond has purchased an aggregate of 262,104 Preferred Shares for $249,000. The Series B Preferred Shares (designated on November 15, 2017) have no voting rights, are entitled to dividends at a rate of 5% per annum and are convertible into shares of common stock at a Conversion Price (as defined in the SPA), subject to a $20,000 maximum per Monthly Conversion Period.
On February 1, 2018, the Company issued a Promissory Note of $15,000 to a lender for loan proceeds of $15,000. The note bears interest at a rate of 12.99% per annum, are due on February 1, 2021.
On February 7, 2018, the Company issued 150,000 shares of CANB common stock to a consultant for services rendered. The $9,825 fair value of the 250,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended March 31, 2018.
On February 9, 2018, the Company issued 3,000,000 and 3,000,000 shares of CANB common stock to its two directors for services rendered, respectively. The $101,400 fair value of each 3,000,000 shares of CANB common stock will be charged to officers compensation in the three months ended March 31, 2018.
F-24
On February 12, 2018, the Company executed an Executive Service Agreement (Agreement) with David Posel. The Agreement provides that Mr. Posel services as the Companys Chief Operating Officer for a term of 4 years. The Agreement also provides for compensation to Mr. Posel of $5,000 cash per month and the issuance of 1 share of Series A Preferred Stock at the inception of the Agreement. The Agreement can be terminated upon the resignation or death of Mr. Posel, and also can be terminated by the Company due to the failure or neglect of Mr. Posel to perform his duties, or due to the misconduct of Mr. Posel in connection with the performance. On February 12, 2018, 1 share of CANB Series A Preferred Stock were issued to Mr. Posel.
On February 13, 2018, the Company issued 150,000 shares of CANB common stock to a consultant for services rendered. The $5,085 fair value of the 150,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended March 31, 2018.
On February 14, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $8,500 fair value of the 250,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended March 31, 2018.
On February 16, 2018, the Company executed an Executive Service Agreement (Agreement) with Andrew W Holtmeyer. The Agreement provides that Mr. Holtmeyer services as the Companys Executive Vice President Business for a term of 3 years. The Agreement also provides for compensation to Mr. Holtmeyer of $10,000 cash per month and the issuance of 3, 2 and 1 share of Series A Preferred Stock at the beginning of each year. The Agreement can be terminated upon the resignation or death of Mr. Holtmeyer, and also can be terminated by the Company due to the failure or neglect of Mr. Holtmeyer to perform his duties, or due to the misconduct of Mr. Holtmeyer in connection with the performance. On February 16, 2018, 3 shares of CANB Series A Preferred Stock were issued to Mr. Holtmeyer.
On February 19, 2018, the Company issued 150,000 shares of CANB common stock to a consultant for services rendered. The $5,280 fair value of the 150,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended March 31, 2018.
On February 26, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $11,375 fair value of the 250,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended March 31, 2018.
On March 1, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $10,900 fair value of the 250,000 shares of CANB common stock will be charged to consulting fees in the three months ended March 31, 2018.
On March 6, 2018, the Company terminated its consulting agreement with Healthcare Advisory Group due to the nonperformance.
On March 20, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $10,900 fair value of the 250,000 shares of CANB common stock will be charged to consulting fees in the three months ended March 31, 2018.
In accordance with FASB ASC 855,
Subsequent Events
, the Company has evaluated subsequent events through April 3, 2018, the date on which these consolidated financial statements were available to be issued. Except as disclosed above, there were no material subsequent events that required recognition or additional disclosure in these consolidated financial statements.
F-25