NOTES
TO UNAUDITED FINANCIAL STATEMENTS
(Unaudited)
|
1.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Organization
and Description of Business
Vet
Online Supply Inc. (the Company) is a Florida corporation incorporated on May 31, 2014. The Company engages in the
online sale of its own holistic product line for pets, as well as targeting the larger Big-Box Pet retail suppliers, and during
the first quarter of 2018, discontinued its legacy veterinarian supplies lines. The company discontinued its legacy line of products
to increase margins and profitability with its own brand-name holistic products. These new holistic pet products are designed
to help with arthritis, compromised immune systems, stress responses, aggression and digestive issues and may also be useful in
treating acute ailments like sprains and strains, torn ligaments, bone breaks and even during post-operative care to reduce swelling,
pain and stiffness. The Companys web-based eCommerce platform with our products is on our website,
www.vetonlinesupplies.com
.
The website gives our potential clients the ability to purchase quality pet products by placing their order any time of day at
their convenience.
Distribution
channels include its existing online retail sales platform and fulfillment, and direct sales through its global manufacturing
sales representative network. Although selling pet products online is not entirely new to the company, we anticipate that this
medium will continue to grow as our brand continues to achieve recognition. We believe that by providing high quality holistic
pet products at competitive prices and to customers online, Vet Online Supply hopes to become a go-to solution for
pet owners everywhere. In addition, online vs. catalogue has the benefit of, among other things, search tools and accounts
that remember previous purchases, and expedited ordering.
On
April 22, 2019, the Company approved the authorization of a 1 for 3,000 reverse stock split of the Companys outstanding
shares of common stock. The Companys financial statements have been retroactively adjusted for this stock split for all
periods presented.
To
date, our activities have been limited to formation, the raising of equity capital, and the initial stages of implementation of
our business plan. We filed a Form S-1 Registration Statement with the U.S. Securities and Exchange Commission, received a notice
of effect and trade on the OTC Markets, PINK under the symbol VTNL. We are continuing to explore additional sources of capital.
We anticipate incurring operating losses as we continue to implement our business plan.
Financial
Statement Presentation
The
audited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in
the United States of America (U.S. GAAP).
Fiscal
year end
The
Company has selected December 31 as its fiscal year end.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future
periods may be based upon amounts that differ from these estimates.
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents.
Revenue
Recognition and Related Allowances
The
Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09) as amended, as of
January 1, 2018 with no material impact. The Company primarily generates net revenue through product sales to distributors and
to retail customers on its website. Revenue is recognized upon transfer of control of promised products to customers which is
generally upon shipment in an amount that reflects the consideration we expect to receive in exchange for those products or services.
Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to
governmental authorities.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are stated at the amount that management expects to collect from outstanding balances. Bad debts and allowances are
provided based on historical experience and managements evaluation of outstanding accounts receivable. Management evaluates
past due or delinquency of accounts receivable based on the open invoices aged on due date basis. The allowance for doubtful accounts
at June 30, 2019 and December 31, 2018 is $0.
Inventories
The
Company is a manufacturer of premium CBD infused holistic pet products and as such will maintain inventory on site. The company
directly drop ships to customers when ordered. The Company has wholesale distributors that purchase products in bulk inventory.
Warranty
The
Company is a manufacturer of products which are shipped to our customers directly from the company and as a result, there are
costs that may be incurred by the Company under the terms of the limited warranty provided by the company directly to the purchasers.
We provide provisions for obligations which may arise under manufacturers warranties and therefore incur liabilities. We
warranty the product for packaging and shipping.
Advertising
and Marketing Costs
The
company provides website online marketing of its products, as well as wholesalers who market the product. The company also utilises
various public press releases to provide public information about its product line and future products under development. Advertising
and marketing costs are expensed as incurred for the three and six months ended June 30, 2019 were $1,085 and $3,800, respectively.
($5,850 – December 31, 2018).
Fair
Value of Financial Instruments
Fair
value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly
transaction between market participants at the measurement date and in the principal or most advantageous market for that asset
or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset
or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration
of non-performance risk including our own credit risk.
In
addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value
hierarchy for valuation inputs is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which
inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three
levels and which is determined by the lowest level input that is significant to the fair value measurement in its entirety.
These
levels are:
Level
1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level
2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the
market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level
3 - inputs are generally unobservable and typically reflect managements estimates of assumptions that market participants
would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include
option pricing models, discounted cash flow models, and similar techniques.
Financial
assets and liabilities measured at fair value on a recurring basis:
|
|
Input
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
Level
|
|
Fair Value
|
|
|
Fair Value
|
|
Derivative Liability
|
|
3
|
|
$
|
1,189,195
|
|
|
$
|
1,426,982
|
|
Total Financial Liabilities
|
|
|
|
$
|
1,189,195
|
|
|
$
|
1,426,982
|
|
In
managements opinion, the fair value of convertible notes payable and advances payable is approximate to carrying value
as the interest rates and other features of these instruments approximate those obtainable for similar instruments in the current
market. Unless otherwise noted, it is managements opinion that the Company is not exposed to significant interest, exchange
or credit risks arising from these financial instruments. As of June 30, 2019 and December 31, 2018, the balances reported for
cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities, approximate the fair value because of
their short maturities.
Income
taxes
The
Company has adopted SFAS No. 109 – Accounting for Income Taxes. ASC Topic 740 requires the use of the asset
and liability method of accounting for income taxes. Under the asset and liability method of ASC Topic 740, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled.
Basic
and Diluted Loss Per Share
In
accordance with ASC Topic 280 – Earnings Per Share, the basic loss per common share is computed by dividing
net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common
share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares
were dilutive.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which replaces existing revenue
recognition guidance. The updated guidance requires companies to recognize revenue in a way that depicts the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the standard on January 1,
2018, using a modified retrospective approach, with the cumulative effect of initially applying the standard recognized in retained
earnings at the date of adoption.
In
February 2016, the FASB issued ASU 2016-02 (ASC Topic 842), Leases. The ASU amends a number of aspects of lease accounting, including
requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset
and corresponding lease liability, measured at the present value of the lease payments. The amendments in this ASU are effective
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is
permitted. The Company does not believe this ASU will have an impact on our results of operation, cash flows, or financial condition,
given that it does not currently have any leases in effect.
The
Company has experienced net losses to date, and it has not generated sufficient revenue from operations to meet our operational
overhead. We will need additional working capital to service debt and for ongoing operations, which raises substantial doubt about
our ability to continue as a going concern. Management of the Company is preparing a strategy to meet operational shortfalls which
may include equity funding, short term or long-term financing or debt financing, to enable the Company to reach profitable
operations. Historically, the Companys sole officer and director has provided short term loans to meet working capital shortfalls.
We have recently entered into financing agreements with various third parties to meet our capital needs in fiscal 2019.
The
accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying
amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Prepaid expenses
|
|
$
|
—
|
|
|
$
|
3,000
|
|
Prepaid
fees represent amounts paid in advance for future contractual benefits to be received. Contracting expenses paid in advance are
recorded as a prepaid asset and then amortized to the statements of operations when services are rendered, or over the life of
the contract using the straight-line method.
During
the six months ended June 30, 2019, the Company reclassed prepaid employee wages that were paid during the year ended December
31, 2018.
|
4.
|
CONVERTIBLE
NOTES PAYABLE
|
As
of June 30, 2019 and December 31, 2018, notes payable were comprised of the following:
|
|
Original
|
|
|
Original
|
|
Due
|
|
Interest
|
|
Conversion
|
|
June 30,
|
|
|
December 31,
|
|
|
|
Note Amount
|
|
|
Note Date
|
|
Date
|
|
Rate
|
|
Rate
|
|
2019
|
|
|
2018
|
|
APG Capital #2
|
|
|
31,500
|
|
|
6/25/2018
|
|
6/25/2019
|
|
12%
|
|
Variable
|
|
|
31,500
|
|
|
|
31,500
|
|
Auctus Fund #2
|
|
|
84,000
|
|
|
1/10/2018
|
|
10/10/2018
|
|
24%
|
|
Variable
|
|
|
31,285
|
|
|
|
47,373
|
|
Auctus Fund #3
|
|
|
175,000
|
|
|
2/6/2018
|
|
11/6/2018
|
|
24%
|
|
Variable
|
|
|
175,000
|
|
|
|
175,000
|
|
Auctus Fund #4
|
|
|
90,000
|
|
|
3/6/2018
|
|
12/6/2018
|
|
24%
|
|
Variable
|
|
|
90,000
|
|
|
|
90,000
|
|
Auctus Fund #5
|
|
|
100,000
|
|
|
6/14/2018
|
|
3/14/2019
|
|
24%
|
|
Variable
|
|
|
100,000
|
|
|
|
100,000
|
|
Auctus Fund #6
|
|
|
75,000
|
|
|
8/13/2018
|
|
5/13/2019
|
|
12%
|
|
Variable
|
|
|
75,000
|
|
|
|
75,000
|
|
Auctus Fund #7
|
|
|
25,000
|
|
|
10/11/2018
|
|
7/11/2019
|
|
12%
|
|
Variable
|
|
|
25,000
|
|
|
|
25,000
|
|
Auctus Fund #8
|
|
|
25,750
|
|
|
12/20/2018
|
|
9/20/2019
|
|
12%
|
|
Variable
|
|
|
25,750
|
|
|
|
25,750
|
|
Auctus Fund #9
|
|
|
57,000
|
|
|
4/12/2019
|
|
1/12/2020
|
|
12%
|
|
Variable
|
|
|
57,000
|
|
|
|
—
|
|
EMA Financial #2
|
|
|
50,000
|
|
|
12/15/2017
|
|
12/15/2018
|
|
12%
|
|
Variable
|
|
|
8,474
|
|
|
|
8,474
|
|
EMA Financial #3
|
|
|
100,000
|
|
|
3/5/2018
|
|
3/5/2019
|
|
24%
|
|
Variable
|
|
|
73,305
|
|
|
|
83,499
|
|
EMA Financial #4
|
|
|
25,000
|
|
|
10/10/2018
|
|
7/10/2019
|
|
24%
|
|
Variable
|
|
|
25,000
|
|
|
|
25,000
|
|
Emerging Corp Cap #1
|
|
|
83,333
|
|
|
2/12/2018
|
|
2/11/2019
|
|
22%
|
|
Variable
|
|
|
74,933
|
|
|
|
74,933
|
|
Emerging Corp Cap #2
|
|
|
110,000
|
|
|
10/31/2018
|
|
10/31/2019
|
|
12%
|
|
Variable
|
|
|
110,000
|
|
|
|
110,000
|
|
Power Up Lending #8
|
|
|
33,000
|
|
|
6/25/2018
|
|
4/15/2019
|
|
12%
|
|
Variable
|
|
|
—
|
|
|
|
33,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
902,247
|
|
|
|
904,529
|
|
Debt discount
|
|
|
(133,446
|
)
|
|
|
(313,258
|
)
|
Financing costs./Original issue discount
|
|
|
(11,712
|
)
|
|
|
(36,047
|
)
|
Notes payable, net of discount
|
|
$
|
757,089
|
|
|
$
|
555,224
|
|
During
the six months ending June 30, 2019, the Company received proceeds from new convertible notes of $48,250. The Company recorded
no payments on their convertible notes, and conversions of $59,282 of convertible note principal. All of the Companys convertible
notes have a conversion rate that is variable, and therefore, the Company has accounted for their conversion features as derivative
instruments (see Note 5). The Company also recorded amortization of $275,598 on their convertible note debt discounts and loan
fees. As of June 30, 2019, the convertible notes payable are convertible into 6,545,274 shares of the Companys common
stock.
During
the six months ending June 30, 2018, the Company received proceeds from new convertible notes of $711,250. The Company recorded
no payments on their convertible notes, and conversions of $297,119 of convertible note principal. The Company recorded penalties
of $47,727, of which $32,762 was converted into the Companys common stock. The Company recorded loan fees on new convertible
notes of $116,083, which increased the debt discounts recorded on the convertible notes during the six months ending June 30,
2018. All of the Companys convertible notes have a conversion rate that is variable, and therefore, the Company has accounted
for their conversion features as derivative instruments (see Note 5). As a result of recording derivative liabilities at note
inception, the Company increased the debt discount recorded on their convertible notes by $882,333 during the six months ended
June 30, 2018. The Company also recorded amortization of $552,334 on their convertible note debt discounts and $73,345 on loan
fees.
During
the three months ended June 30, 2019 and 2018, the Company recorded interest expense of $44,669 and $18,910, respectively, on
its convertible notes payable. During the three months ended June 30,2019 and 2018, the Company recorded conversions of $0 and
$4,615, respectively of convertible note interest.
During
the six months ended June 30, 2019 and 2018, the Company recorded interest expense of $83,753 and $30,532, respectively, on its
convertible notes payable. During the six months ended June 30, 2019 and 2018, the Company recorded conversions of $4,938 and
$8,888, respectively of convertible note interest. As of June 30, 2019 and 2018, the accrued interest balance was $140,402
and $27,877, respectively.
As
of June 30, 2019, we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive
acquisitions and activities.
|
5.
|
DERIVATIVE
LIABILITIES
|
The
following table represents the Companys derivative liability activity for the embedded conversion features for the periods
ending June 30, 2019 and December 31, 2018:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Balance, beginning of period
|
|
$
|
1,426,982
|
|
|
$
|
625,214
|
|
Initial recognition of derivative liability
|
|
|
108,198
|
|
|
|
5,441,395
|
|
Conversion of derivative instruments to Common Stock
|
|
|
(121,575
|
)
|
|
|
(1,958,802
|
)
|
Mark-to-Market adjustment to fair value
|
|
|
(224,410
|
)
|
|
|
(2,680,825
|
)
|
Balance, end of period
|
|
$
|
1,189,195
|
|
|
$
|
1,426,982
|
|
During
the six months ended June 30, 2019 and 2018, the Company recorded derivative liabilities for embedded conversion features related
to convertible notes payable of $108,198 and $4,866,511, respectively.
During
the six months ended June 30, 2019 and 2018, in conjunction with convertible notes payable principal and accrued interest being
converted into common stock of the Company, derivative liabilities were reduced by $121,575 and $1,634,102, respectively.
For
the three months ended June 30, 2019 and 2018, the Company performed a final mark-to-market adjustment for the derivative liability
related to the convertible notes and the carrying amount of the derivative liability related to the conversion feature and recognized
a gain on the derivative liability valuation of $183,084 and $813,302, respectively.
For
the six months ended June 30, 2019 and 2018, the Company performed a final mark-to-market adjustment for the derivative
liability related to the convertible notes and the carrying amount of the derivative liability related to the conversion feature
and recognized a gain on the derivative liability valuation of $224,410 and $1,238,982, respectively.
The
Company uses the Black-Scholes option pricing model to estimate fair value for those instruments convertible into common shares
at inception, at conversion or extinguishment date, and at each reporting date. During the six months ended June 30, 2019, the
company used the following assumptions in their Black-Scholes model: (1) risk free interest rate 1.71% - 2.44%, (2) term of 0.12
years – 5 years, (3) expected stock volatility of 185.7% - 568.21%, (4) expected dividend rate of 0%, (5) common stock price
of $0.0001, and (6) exercise price of $0.00005 - $0.03.
These
instruments were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or
any net investment in a foreign operation. The instruments do not qualify for hedge accounting, and as such, all future changes
in the fair value will be recognized in earnings until such time as the instruments are exercised, converted or expire.
On
March 28, 2017, the Company filed an amendment to its articles of incorporation designating 20,000 shares of its authorized preferred
stock, par value $0.001 as Series B Voting Preferred Stock. The Series B Voting Preferred Stock shall have the right
to vote the shares on any matter requiring shareholder approval on the basis of 4 times the votes of all the issued and outstanding
shares of common stock, as well as any issued and outstanding preferred stock.
On
March 1, 2018, 1,000 shares of Series B Voting Preferred Stock were issued to Daniel Rushford.
On
October 25, 2018, the Companys Board of Directors authorized the creation of 2,000,000 shares of Series A Preferred Stock
with a par value of $0.001, and on October 30, 2018 a Certificate of Designation was filed with the Florida Secretary of State.
Upon written notice to the Corporation, the holder of Series A Preferred stock may convert their shares into ten (10) shares of
fully paid and nonassessable shares of Common Stock of the Corporation. The holders shall have no voting rights on corporate matters,
unless and until they convert their Series A shares into Common Shares, at which time they will have the same voting rights as
all Common Shareholders have; their consent shall not be required for taking any corporate action.
As
of June 30, 2019, 2,000,000 Series A Preferred shares and 10,000,000 Series B Preferred shares were authorized, of which 0 Series
A shares were issued and outstanding, (0 shares as of December 31, 2018) and 1,000 Series B shares were issued and outstanding
(1,000 shares as of December 31, 2018).
On
March 15, 2018, the Company announced that its Board of Directors has determined that it is in the best interests of the Corporation
to initiate a program to reacquire certain shares of stock from its stockholders, and to thereafter retire said shares as
non-voting Treasury stock. The Corporation has approved a Share Repurchase Program (the Program) to accomplish this.
The Corporation hereby will make an offer of redemption to its shareholders in accordance with the terms of the Program. The specific
timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other
considerations. The Program does not obligate the Company to acquire any particular amount of stock, and the Program may be suspended
or discontinued at any time at the Companys discretion. The Company discontinued this program on June 30, 2019.
On
March 27, 2018, the Company approved the issuance of 7,248 shares of the Companys common stock for services provided by
a consultant, in the form of stock awards which shall vest as of the date of grant. The shares were valued at the fair
market value on the date of grant totaling $39,139, which has been expensed as stock-based compensation as part of consulting
expenses.
On
April 30, 2018, the Company filed a Certificate of Amendment to increase the number of authorized common shares from 25,000,000,000
to 50,000,000,000 with a par value of $0.001.
During
the year ended December 31, 2018, the holders of convertible notes converted a total of $560,907 of principal, accrued interest,
note fees and penalties into 1.201,212 shares of common stock. The common stock was valued at $2,519,708 based on the market
price of the Companys stock on the date of conversion. The issuance extinguished $1,958,802 worth of derivative liabilities,
and $(1,083,929) was recorded as additional paid in capital.
On
April 22, 2019, the Majority Preferred Series B Shareholders of the Company, owning a majority of the Companys voting securities,
approved a resolution authorizing the Company to amend the Articles of Incorporation to accomplish the Reverse Split of the Corporations
issued and outstanding shares of 1 for 3,000 of Common Stock having a par value of $0.001 per share. The Board believes that the
Articles of Amendment better reflects the nature of the Companys anticipated operations. On April 23, 2019, the Company filed
Schedule PRE 14C with the Securities and Exchange Commission and is now on a twenty-business day waiting period to file the Schedule
14C.
During
the six months ended June 30, 2019, the holders of convertible notes converted a total of $64,220 of principal and accrued interest,
and $1,500 in note fees into 444,281 shares of common stock. The common stock was valued at $308,870 based on the market
price of the Companys stock on the date of conversion. The issuance extinguished $121,575 worth of derivative liabilities
and $1,267,126 was recorded as additional paid in capital.
As
of June 30, 2019 and December 31, 2018 there were 1,942,319 and 1,498,038
shares
issued and ,outstanding, respectively.
Warrants
On
June 19, 2017, the Company executed a Common Stock Purchase Warrant for 850,000 shares. The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price of $0.03 per share for a term of five years. If the market price
of one share of common stock is greater than the Exercise Price, the holder may elect to receive warrant shares pursuant to cashless
exercise.
On
June 14, 2018, the Company executed a Common Stock Purchase Warrant for 16,667 shares. The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price of $0.001 per share for a term of five years. If the market price
of one share of common stock is greater than the Exercise Price, the holder may elect to receive warrant shares pursuant to cashless
exercise.
On
August 13, 2018, the Company executed a Common Stock Purchase Warrant for 12,500 shares. The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price of $0.001 per share for a term of five years. If the market price
of one share of common stock is greater than the Exercise Price, the holder may elect to receive warrant shares pursuant to cashless
exercise.
On
October 11, 2018, the Company executed a Common Stock Purchase Warrant for 8,333 shares. The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price of $0.001 per share for a term of five years. If the market price
of one share of common stock is greater than the Exercise Price, the holder may elect to receive warrant shares pursuant to cashless
exercise.
On
December 20, 2018, the Company executed a Common Stock Purchase Warrant for 8,583 shares. The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price of $0.001 per share for a term of five years. If the market price
of one share of common stock is greater than the Exercise Price, the holder may elect to receive warrant shares pursuant to cashless
exercise.
During
the year ended December 31, 2018, a warrant holder exercised the warrants and the Company issued 66,508 shares of common stock
through a cashless exercise of the warrants.
On
April 12, 2019, the Company executed a Common Stock Purchase Warrant for 19,000 shares. The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price of $0.001 per share for a term of five years. If the market price
of one share of common stock is greater than the Exercise Price, the holder may elect to receive warrant shares pursuant to cashless
exercise .
We
account for common stock purchase warrants as derivative liabilities and debt issuance costs on the balance sheet at fair value,
and changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet
date subsequent to the initial issuance of the warrant.
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8.
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RELATED
PARTY TRANSACTIONS
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Mr.
Matthew C. Scott
, Director
On
April 1, 2017, the Company expanded its board of directors to include Matthew C. Scott. Concurrently, the Company entered
into a consulting agreement with Mr. Scott for a term of one year, whereby Mr. Scott shall receive an annual fee of $100,000 payable
in quarterly installments. Furthermore, effective April 1, 2017 the Company agreed to issue Mr. Scott 667 shares of restricted
common stock for his services as a director. The shares upon issue will be held by the Company for a term of six months and are
cancelable should Mr. Scott not serve in his capacity as director for a minimum term of six months.
The
Company recorded $140,000 in share-based compensation in respect of the 667 shares issuable based on the fair market value on
April 1, 2017, which has been recorded on the balance sheet as liabilities for unissued shares. Furthermore, a total of
$140,000 has been expensed in the year ending December 31, 2017 as stock-based compensation as part of consulting expenses. As
of the date of this report, the shares have not been issued.
On
October 15, 2017, the Board of Directors of the Company approved the issuance of 25,000 restricted common shares to Matthew Scott
to satisfy accrued fees of $50,000, pursuant his agreement dated April 1, 2017. The shares were issued on November 13, 2017 and
were valued at $1,2000,000, based on the market value on the date the shares were approved for issuance, and $1,150,000 was recorded
as a loss on settlement of debt of the statement of operations.
On
April 1, 2018, the Company agreed to renew the Consulting Agreement dated April 1, 2017 for one year.
On
November 8, 2018, Mr. Scott resigned as a Director and agreed to forfeit all stock and outstanding debts owed to him pursuant
to his Consulting Agreement. The Company recorded a reduction of $210,000 to accounts payable and unissued shares with a
corresponding entry to additional paid in capital.
Mr.
Samuel Berry, Director
On
June 19, 2017, the Company entered into a Consulting Agreement with Mr. Samuel Berry. Mr. Berry will receive an annual salary
of $50,000, payable in quarterly installments at $12,500 per quarter.
On
June 19, 2017 the Board of Directors appointed Mr. Samuel Berry as Director. For accepting the position of Director,
Mr. Berry will receive 333 Shares of the Companys common stock. Additionally, Mr. Berry will be paid $500 for each board meeting
for which he is physically present.
The
Company recorded $50,000 in respect to the value of 333 unissued shares as liabilities for unissued shares and expensed $50,000
as stock-based compensation as part of consulting expenses in the period ended June 30, 2017. As of the date of this report, the
shares have not been issued.
On
October 15, 2017, the Board of Directors of the Company approved the issuance of 25,000 restricted common to Samuel Berry
to satisfy consulting fees of $50,000, pursuant his agreement dated June 19, 2017. The shares were issued on November 13, 2017
and were valued at $1,200,000 based on the market value on the date the shares were approved for issuance, and $1,150,000 was
recorded as a loss on settlement of debt on the statement of operations.
On
June 19, 2019, the Company agreed to renew the Consulting Agreement dated June 19, 2017 for one year .
During
the six months ended June 30, 2019, the Company accrued $25,000 in consulting fees in connection to his agreement.
Daniel
Rushford, President, CEO, Secretary, Treasurer and Director
On
August 28, 2017, the Company entered into an Employment Agreement with Mr. Daniel Rushford with regard to being appointed as the
new Chief Executive Officer, President, Secretary, Treasurer and Member of the Board of Directors. Mr. Rushford will receive a
monthly salary of $2,000 to be paid at the end of each month. Unpaid amounts will accrue annual interest of 6%. The term of the
Consulting Agreement is for two years; renewable upon mutual consent.
On
November 13, 2017, the Company issued 8,333 restricted common shares for $25,000 in share-based compensation that were valued
at $95,000 based on the market value on the date of issuance, and $70,000 was recorded as a loss on settlement of debt.
On
January 2, 2018, the Company approved an increase in salary to $3,000 per month.
During
the six months ended June 30, 2019, the Company accrued wages of $18,000 in connection with his agreement.
Deferred
income taxes are determined using the liability method for the temporary differences between the financial reporting basis and
income tax basis of the Companys assets and liabilities. Deferred income taxes are measured based on the tax rates expected to
be in effect when the temporary differences are included in the Companys tax return. Deferred tax assets and liabilities are
recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts
of assets and liabilities and their respective tax bases.
Operating
loss carry forwards generated during the period from May 25, 2014 (date of inception) through June 30, 2019 of approximately $9,715,770
will begin to expire in 2034. The Company applies a statutory income tax rate of 21%. Accordingly, deferred tax
assets related to net operating loss carry-forwards total approximately $2,040,312 at June 30, 2019.
All
tax years since inception are open to examination by the Internal Revenue Service.
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10.
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COMMITMENTS
AND CONTINGENCIES
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On
March 28, 2017, the Company entered into an investor relations agreement with a third party, whereby the third party will provide
advertising, promotional and marketing services for the Company between April 1, 2017 and July 1, 2017. In consideration of the
foregoing services performed by the third party, the Company will pay a fee of 640 restricted shares on or before April 1, 2017.
In addition, the third party will remain the owner of at least 1% of the companys outstanding shares for a 1-year period. On
April 1, 2018, the Company shall issue additional shares as necessary to bring the total number of shares paid to the third party
to equal 1% of the outstanding shares of common stock as of 4/1/2018. In the event the Company does not issue the shares as required
under this provision, the Company will be subject to a penalty of $5,000 per month until the shares are issued.
640
shares were issued on March 28, 2017 and valued at the fair market value on the date of grant totaling $96,000, which amount has
been expensed as stock-based compensation as part of consulting expenses.
7,248
shares were issued on March 27, 2018 and valued at the fair market value on the date of grant totaling $39,139, which amount has
been expensed as stock-based compensation as part of consulting expenses.
In
respect to the investor relations agreement, 5 additional shares have been allocated for issuance effective May 16,
2017, and $825 has been expensed as stock-based compensation as part of consulting expenses due to 500 shares of common stock
issued to a consultant.
The
5 shares were not issued as of June 30, 2019, and $825 is recorded on the balance sheet as liabilities for unissued shares.
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(2).
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Consultant
Agreement
|
On
January 24, 2018, the Company entered into a Consulting Agreement with BAS1. The Company has agreed to pay BAS1 a fee of $10,000
for a 30-day marketing awareness program.
As
of June 30, 2019, the Company paid of $7,500 to the advisor in respect to this agreement.
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(3).
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Distribution
Agreement
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On
February 23, 2018, the Company entered into an Exclusive Agreement for Distribution with a west coast distributor, whereby the
distributor will exclusively distribute all Pet CDB Products owned by the Company. Furthermore, the distributor will purchase
$3,000,000 of product at negotiable prices for a period of 24 months for distribution. As of June 30, 2019, this agreement
is in affect.
On
April 3, 2018, the Company agreed to enter in to a 12-month exclusive agreement with a west coast distributor, whereas the distributor
has agreed to purchase $6.5M on Oral Pet Sprays from Vet Online Supply Inc. during the next 12 months. Vet Online Supply is allowing
an exclusive agreement to purchase and place our CBD Pet products in California marijuana dispensaries through April 3, 2019.
On April 3, 2019, the Company chose not to extended the agreement.
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(4).
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Consultant
Agreement
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On
March 1, 2018, the Company executed a Consulting Agreement whereby the Consultant will receive a retainer of $50,000 per month
for nine months to revise an online retail website, Private-Label product contract and distribution for veterinarian supplies
and holistic based pet products.
On
March 15, 2018, the Company agreed to engage in an additional contract with the consultant for $200,000.
On
October 1, 2018, the Company executed an additional Consulting Agreement whereby the Consultant will receive a fee of $350,000
to expand the business product sales, marketing and new product development, develop new distribution channels, and the
development of a new subsidiary providing services in Cryptocurrency. This involves negotiating contracts, raising capital with
new funding partners, and establishing the criteria to expand the Companys business model.
As
of June 30, 2019, the Company paid of $448,050 to the advisor in respect of these agreements. The balance due on these
agreements is $151,950 and is due on or before December 31, 2019.
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(5).
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Consultant
Agreement
|
On
August 1, 2018, the Company entered into a National Sales Rep Agreement for a period of three years, to recruit and manage new
sales representatives. In consideration of services performed, the Company will pay a commission of 25% of gross proceeds
to be paid in cash, and 10% of gross proceeds to be paid in restricted common stock. In addition, the Company has agreed
to pay a fee of $25,000 in the form of restricted common stock upon signing of the Agreement.
The
Company recorded $25,000 in respect to the value of unissued shares as liabilities for unissued shares and expensed $25,000 as
stock-based compensation as part of consulting expenses. At June 30, 2019 the shares remained unissued.
On
July 22, 2019, the Company appointed Samuel Berry as the Chief Financial Officer of the company. Mr. Berry was appointed as a
Director on June 19, 2017. For accepting the position of CFO, Mr. Berry will receive $45,000 annual salary.
On
July 22, 2019, the Company entered in a Convertible Promissory Note with Auctus Fund LLC in the amount of $31,000. The note is
unsecured, bears interest at 12% per annum, and matures on April 22, 2020.