Quarterly Report (10-q)

Date : 05/23/2019 @ 1:39PM
Source : Edgar (US Regulatory)
Stock : Canbiola Inc (QB) (CANB)
Quote : 1.23  1.2224 (16084.21%) @ 9:40PM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

COMMISSION FILE NUMBER: 000-55753

 

Canbiola. inc.

(Exact name of Registrant as specified in its charter)

 

Florida   20-3624118

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

960 South Broadway, Suite 120

Hicksville NY 11801

(Address of principal executive offices)

 

(516) 590-1846

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal, if changed since last report)

 

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 period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
Emerging Growth Company [X]    

(Do not check if smaller reporting company)

 

   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes [X] No

 

The number of shares of the registrant’s only class of common stock issued and outstanding as of May 17, 2019 was 552,992,664 shares.

 

 

 

 

 

 

CANBIOLA, INC.

FORM 10-Q

March 31, 2019

 

TABLE OF CONTENTS

 

    Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements 3
  Consolidated Balance Sheets March 31, 2019 and December 31, 2018 3
  Consolidated Statements of Operations – Three Months Ended March 31, 2019 and 2018 4
  Consolidated Statements of Cash Flows – Three Months Ended March 31, 2019 and 2018 5
  Condensed Notes to Unaudited Consolidated Financial Statements. 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 23
Item 3 Quantitative and Qualitative Disclosures About Market Risk. 24
Item 4 Controls and Procedures. 24
PART II - OTHER INFORMATION
     
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 25

 

2

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Canbiola, Inc. and Subsidiary

Consolidated Balance Sheets

 

    March 31, 2019     December 31, 2018  
Assets                
Current assets:                
Cash and cash equivalents   $ 567,291     $ 807,747  
Accounts receivable, less allowance for doubtful
accounts of $0 and $0, respectively
    324,449       39,172  
Inventory     77,110       87,104  
Prepaid expenses - current     238,079       210,351  
Deposit - current     150,000       -  
Total current assets     1,356,929       1,144,374  
                 
Property and equipment, at cost less accumulated depreciation of $34,738 and $20,248, respectively     743,368       59,619  
                 
Other assets:                
Deposit - noncurrent     19,787       48,726  
Prepaid expenses - noncurrent     2,061,356       2,365,719  
Note receivable - noncurrent     19,389       19,389  
Intangible assets, net of accumulated amortization of $2,194 and $0, respectively     196,461       -  
Goodwill (Note 4)     55,849       55,849  
Right-of-Use Asset     90,591       -  
Total other assets     2,443,433       2,489,683  
                 
Total assets   $ 4,543,730     $ 3,693,675  
                 
Liabilities and Stockholders’ Deficiency                
Current liabilities:                
Notes and loans payable   $ 17,370     $ 19,205  
Accounts payable     126,747       73,059  
Accrued officers compensation     68,750       68,750  
Other accrued expenses payable     44,955       43,778  
Current portion of lease liability     31,466       -  
Total current liabilities     289,288       204,792  
                 
Non-current portion of lease liability     59,125       -  
                 
Total liabilities     348,413       204,792  
                 
Commitments and contingencies (Notes 14)                
                 
Stockholders’ deficiency:                
Preferred stock, authorized 5,000,000 shares:                
Series A Preferred stock, no par value: authorized 20 shares, issued and outstanding 17 and 18 shares, respectively     4,546,924       4,557,424  
Series B Preferred stock, $0.001 par value: authorized 500,000 shares, issued and outstanding 342,853 and 499,958 shares, respectively     322       479  
Common stock, no par value; authorized 750,000,000 shares, issued and outstanding 548,487,714 and 440,566,325 shares, respectively     18,531,529       16,624,557  
Additional Paid-in capital     872,976       872,976  
Additional Paid-in capital – Stock Options (Note 12)     202,200       202,200  
Accumulated deficit     (19,958,634 )     (18,768,753 )
Total stockholders’ deficiency     4,195,317       3,488,883  
                 
Total liabilities and stockholders’ deficiency   $ 4,543,730     $ 3,693,675  

 

See notes to consolidated financial statements.

 

3

 

 

Canbiola, Inc. and Subsidiary

Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended March 31, 2019 and 2018

(Unaudited)

 

    2019     2018  
Revenues                
Product Sales   $ 515,360     $ 62,969  
Service Revenue     1,800       6,800  
Total Revenues     517,160       69,769  
Cost of product sales     262,553       44,587  
Gross Profit     254,607       25,182  
                 
Operating costs and expenses:                
Officers and directors compensation (including stock- based compensation of $262,420 and $202,800 respectively)     445,550       262,800  
Consulting fees (including stock-based compensation of $565,776 and $11,000, respectively)     663,751       275,908  
Advertising expense     26,388       22,333  
Hosting expense     450       3,668  
Rent expense     11,860       16,265  
Professional fees     37,836       13,383  
Depreciation of property and equipment     2,765       803  
Amortization of intangible assets     2,194       -  
Other     235,881       64,713  
                 
Total operating expenses     1,426,675       659,873  
                 
Loss from operations     (1,172,068 )     (634,691 )
                 
Other income (expense):                
Interest income     -       2,512  
Income (expense) from derivative liability     -       1,075,706  
Interest expense (including amortization of debt discounts of $0 and $28,464, respectively)     (446 )     (35,969 )
                 
Other income (expense) - net     (446 )     1,042,249  
                 
Income (Loss) before provision for income taxes     (1,172,514 )     407,558  
                 
Provision for income taxes     -       -  
                 
Net income (loss) and comprehensive loss   $ (1,172,514 )   $ 407,558  
                 
Net income (loss) per common share - basic and diluted   $ (0.00 )   $ 0.00  
                 
Weighted average common shares outstanding –                
Basic     501,585,684       229,607,879  
Diluted     732,708,830       365,602,196  

 

See notes to consolidated financial statements.

 

4

 

 

Canbiola, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

 

    Three Months Ended March 31,  
    2019     2018  
Operating Activities:                
Net income   $ (1,172,514 )   $ 407,558  
Adjustments to reconcile net loss to net cash used in operating activities:                
Stock-based compensation, net of prepaid stock-
based consulting fees
    828,196       430,708  
Expense from derivative liability     -       (1,075,707 )
Depreciation of property and equipment - General     2765       803  
Depreciation of property and equipment - COGS     5,198       -  
Amortization of intangible assets     2,194       -  
Amortization of debt discounts     -       28,464  
Changes in operating assets and liabilities:                
Accounts receivable     (285,277 )     (5,720 )
Inventory     9,994       1,172  
Security deposit     (121,061 )     -  
Accounts payable     38,819       (52,274 )
Accrued officers compensation     -       52,500  
Other accrued expenses payable     1,177       4,291  
                 
Net cash used in operating activities     (690,509 )     (208,205 )
                 
Investing Activities:                
Intangible assets additions     (50,000 )     -  
Fixed assets additions     (694,212 )     (13,330 )
                 
Net cash used in investing activities     (744,212 )     (13,330 )
                 
Financing Activities:                
Repayments of notes and loans payable     (1,835 )     -  
Proceeds received from notes and loans payable     -       25,000  
Proceeds from sale of common stock     1,196,100       -  
Proceeds from sale of Series B preferred stock     -       249,000  
                 
Net cash provided by financing activities     1,194,265       274,000  
                 
Increase (decrease) in cash and cash equivalents     (240,456 )     52,465  
                 
Cash and cash equivalents, beginning of period     807,747       1,652  
                 
Cash and cash equivalents, end of period   $ 567,291     $ 54,117  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:                
Income taxes paid   $ -     $ -  
Interest paid   $ -     $ -  
                 
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
               
               
Issuance of common stock in acquisition of Intangible assets   $ 148,655     $ -  
Issuance of common stock in satisfaction of Officers compensation   $ 54,340     $ -  
Issuance of common stock in satisfaction of directors fees   $ -     $ 202,800  
Issuance of common stock for services rendered   $ 497,220     $ -  

 

See notes to consolidated financial statements.

 

5

 

 

Canbiola, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2019 and 2018

(Unaudited)

 

NOTE 1 – Organization and Description of Business

 

Canbiola, Inc. was originally incorporated as WrapMail, Inc. (“WRAP”) in Florida on October 11, 2005. Effective January 5, 2015, WRAP acquired 100% ownership of Prosperity Systems, Inc. (“Prosperity”), a New York corporation incorporated on April 2, 2008. The Company is in the process of dissolving Prosperity. The Company acquired 100% of the membership interests in Pure Health Products, LLC, a New York limited liability company (“PHP” or “Pure Health Products”) effective December 28, 2018. The Company formed Duramed, Inc., a Nevada corporation (“Duramed”) in November 2018, to facilitate the manufacture and sale of durable medical equipment incorporating CBD.

 

Effective December 27, 2010, WRAP effected a 10 for 1 forward stock split of its common stock. Effective June 4, 2013, WRAP effected a 1 for 10 reverse stock split of its common stock. The accompanying consolidated financial statements retroactively reflect these stock splits.

 

On May 15, 2017, WRAP changed its name to Canbiola, Inc. (the “Company” or “CANB” or “Canbiola”).

 

Canbiola specializes in the production and sale of a variety of hemp derived Cannabidiol (“CBD”) products such as oils, creams, moisturizers, isolate, gel caps, concentrate and water. Canbiola is developing its own line of proprietary products as well as seeking synergistic value through acquisitions in the Hemp Industry. Canbiola aims to be the premier provider of the highest quality hemp CBD products on the market through sourcing the very best raw material and developing a variety of products we believe will improve people’s lives in a variety of areas.

 

The Company also operates document management and email marketing platforms. 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 Prosperity’s operations to the Company directly.

 

For the periods presented, the assets, liabilities, revenues, and expenses are those of CANB. Prosperity had no activity for the periods presented. Financial information for PHP and Duramed in the periods have been consolidated with the Company’s financials.

 

NOTE 2 – Going Concern Uncertainty

 

The consolidated financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in a normal course of business. As of March 31, 2019, the Company had cash and cash equivalents of $567,291 and a working capital of $1,067,641. For the three months ended March 31, 2019 and 2018, the Company had net loss of $1,172,514 and a gain of $407,558, respectively. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company plans to improve its financial condition by raising capital through sales of shares of its common stock. Also, the Company plans to expand its operation of CBD products to increase its profitability. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 3 – Summary of Significant Accounting Policies

 

(a) Principles of Consolidation

 

The consolidated financial statements include the accounts of CANB and its wholly owned subsidiaries, Pure Health products, Duramed, and Prosperity. All intercompany balances and transactions have been eliminated in consolidation.

 

6

 

 

(b) Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

(c) Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, notes and loans payable, accounts payable, and accrued expenses payable. Except for the noncurrent note receivable, the fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short term maturity of these instruments. Based on comparable instruments with similar terms, the fair value of the noncurrent note receivable approximates its carrying value.

 

Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

 

Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2 - applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

(d) Cash and Cash Equivalents

 

The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents.

 

(e) 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.

 

7

 

 

(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 asset’s carrying amount to determine if a write-down is required. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds the fair value.

 

(j) Revenue Recognition

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criterial standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given, whether that control happens over time or not. Determination of criteria (3) and (4) are based on our management’s judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.

 

Private Label Customers, Global CBD, LLC and TZ Wholesale, are wholesale distributors of the Company’s product, under their own wholesale private label brand. The products are made to Company specifications, and shipped directly to the wholesaler. The pricing is predicated upon a volume discount negotiated at the time of the placement of the orders. Product is produced and labeled in the Washington manufacturing facility and shipped directly to the Private Label customer who re-distributes to their retail and other customers. The products are fully paid when shipped.

 

Revenue from product sales is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.

 

The Company’s Duramed Division provides a sam® Pro 2.0 medical device to patients through a doctor program whereby the physician evaluates the patients needs for medical necessity, and if determined that the device use would be beneficial, writes a prescription for the patient who signs a rental form, for a 35 day cycle for the unit, that is submitted to Duramed who bills the appropriate insurance company. The insurance company pays the invoice, or a negotiated amount via arbitration, and that revenue is reported as revenue when invoiced to the insurance carrier. The collected amount is reconciled with the invoice amount on a daily basis.

 

(k) Cost of Product Sales

 

The cost of product sale is the total cost incurred to obtain a sale and the cost of the goods sold, and the Company’s policy is to recognize it in the same manner as, and in conjunction with, revenue recognition. Cost of product sale primarily consisted of the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our CBD products.

 

8

 

 

(l) Stock-Based Compensation

 

Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation” (“ASC718”) and ASC 505-50, “Equity – Based Payments to Non-Employees.”

 

In addition to requiring supplemental disclosures, ASC 718 addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.

 

In accordance with ASC 505-50, the Company determines the fair value of the stock based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached, or (2) the date at which the counterparty’s performance is complete.

 

Options and warrants

 

The fair value of stock options and warrants is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year:

 

Risk-Free Interest Rate.

 

We utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of our awards.

 

Expected Volatility.

 

We calculate the expected volatility based on a volatility index of peer companies as we did not have sufficient historical market information to estimate the volatility of our own stock.

 

Dividend Yield.

 

We have not declared a dividend on its common stock since its inception and have no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.

 

Expected Term.

 

The expected term of options granted represents the period of time that options are expected to be outstanding. We estimated the expected term of stock options by using the simplified method. For warrants, the expected term represents the actual term of the warrant.

 

Forfeitures.

 

Estimates of option forfeitures are based on our experience. We will adjust our estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

 

9

 

 

(m) Advertising

 

Advertising costs are expensed as incurred and amounted to $26,388 and $22,333 for the period ended March 31, 2019 and 2018, respectively.

 

(n) Research and Development

 

Research and development costs are expensed as incurred. In the period ended March 31, 2019 and 2018, the Company spent $17,500 and $2,500 in research and development which was expenses as spent, respectively.

 

(o) Income Taxes

 

Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.

 

The Company has adopted the provisions required by the Income Taxes topic of the FASB Accounting Standards Codification. The Codification Topic requires the recognition of potential liabilities as a result of management’s acceptance of potentially uncertain positions for income tax treatment on a “more-likely-than-not” probability of an assessment upon examination by a respective taxing authority. The Company believes that it has not taken any uncertain tax positions and thus has not recorded any liability.

 

(p) 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).

 

(q) Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606) which establishes revenue recognition standards. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017. The impact of ASU 2014-09 on the Company’s financial statements has not been significant.

 

In 2016, the FASB issued ASU 2016-2 (Topic 842) which establishes a new lease accounting model for lessees. Under the new guidance, lessees will be required to recognize right of use assets and liabilities for most leases having terms of 12 months or more. Effective January 1, 2019, we adopted this new accounting guidance using the effective date transition method, which permits entities to apply the new lease standards using a modified retrospective transition approach at the date of adoption. As such, historical periods will continue to be measured and presented under the previous guidance while current and future periods subject to this new accounting guidance. Upon adoption we recorded a $100,681 right-of-use asset related to our one operating lease (see Note 13) and a $90,591 lease liability.

 

(r) 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.

 

10

 

 

NOTE 4 – Acquisition of Pure Health Products, LLC

 

Effective December 28, 2018, CANB acquired 100% ownership of Pure Health Products, LLC (“Pure Health”) in exchange for the cancellation of CANB’s $75,000 note receivable from Pure Health and $10,827 accrued interest thereon and issuance of 3,096,827 newly issued shares of CANB common stock (valued at the $0.0578 closing trading price on December 28, 2018 or $178,997, see Note 11). The acquisition has been accounted for in the accompanying consolidated financial statements as a purchase transaction. Accordingly, the financial position and results of operations of Pure Health prior to the date of the acquisition have been excluded from the accompanying consolidated financial statements.

 

The estimated fair values of the identifiable net assets of Pure Health at December 28, 2018 (effective date of acquisition) consisted of:

 

Cash and cash equivalents   $ 404  
Accounts receivable from CANB     16,676  
Inventory     79,652  
Property and equipment, net     7,559  
         
Security deposit     2,100  
         
Total assets     106,391  
         
Accounts payable, including $34,419 due to CANB     49,825  
         
Total liabilities     49,825  
         
Identifiable net assets   $ 56,566  

 

Goodwill of $55,849 (excess of the $112,415 fair value of the 3,096,827 shares of CANB common stock issued to Pure Health’s stockholders over the $56,566 identifiable net assets of Pure Health at December 28, 2018 after reflecting the $85,827 cancellation of the $75,000 note payable and $10,827 accrued interest) was recorded from the acquisition.

 

The following pro forma information summarizes the results of operations for the periods indicated as if the acquisition occurred at December 31, 2017. The pro forma information is not necessarily indicative of the results that would have been reported had the transaction actually occurred on December 31, 2017, nor is it intended to project results of operations for any future period.

 

    Three Months Ended  
    March 31,  
    2019     2018  
             
Product sales   $ 515,360     $ 67,207  
                 
Cost of product sales     262,553       42,607  
                 
Gross profit on product sales     252,807       24,600  
                 
Service revenue     1,800       6,800  
                 
Total gross profit     254,607       31,400  
                 
Operating expenses     1,426,675       673,665  
                 
Loss from operations     (1,172,068 )     (642,265 )
                 
Other income (loss) - net     (446 )     1,042,249  
                 
Net income (loss)   $ (1,172,514 )   $ 399,984  
Net income (loss) per common share- basic and diluted   $ (0.00 )   $ 0.00  
                 
Weighted average common shares outstanding –                
Basic     501,585,684       229,607,879  
Diluted     732,708,830       365,602,196  

 

11

 

 

NOTE 5 – Inventories

 

Inventories consist of:

 

  March 31, 2019     December 31, 2018  
Raw materials   $ 72,148     $ 79,652  
                 
Finished goods     4,962       7,452  
Total   $ 77,110     $ 87,104  

 

NOTE 6 – Notes Receivable

 

Notes receivable consist of:

 

  March 31, 2019     December 31, 2018  
Note receivable dated November 30, 2015 from Stock Market Manager, Inc, interest at 3% per annum due November 30, 2020   $ 19,389     $ 19,389  
                 
Total     19,389       19,389  
                 
Current portion of notes receivable     -       -  
Noncurrent portion of notes receivable   $ 19,389     $ 19,389  

 

Stock Market Manager, Inc is affiliated with Carl Dilley, a Company director. In 2018, the Company received services from Stock Market Manager valued at $19,611 in exchange for the cancellation of $19,611 in note receivables.

 

12

 

 

NOTE 7 – Property and Equipment, Net

 

Property and Equipment, net, consist of:

 

    March 31, 2019     December 31, 2018  
             
Furniture & Fixtures   $ 19,018     $ 19,018  
                 
Office Equipment     12,378       20,992  
                 
Manufacturing Equipment     746,710       46,384  
                 
Total     778,106       86,394  
                 
Accumulated amortization     (34,738 )     (26,775 )
                 
Net   $ 743,368     $ 59,619  

 

NOTE 8 – Intangible Assets, Net

 

Intangible assets, net, consist of:

 

    March 31, 2019     December 31, 2018  
             
Video conferencing software acquired by Prosperity in December 2009   $ 30,000     $ 30,000  
                 
Enterprise and audit software acquired by Prosperity in April 2008     20,000       20,000  
                 
Patent costs incurred by WRAP     6,880       6,880  
                 
CBD Technology     198,655       -  
                 
Other     3,548       3,548  
                 
Total     259,083       60,428  
                 
Accumulated amortization and Impairment     (60,428 )     (60,428 )
                 
Net   $ 198,655     $ 0  

 

The CBD related technology were purchased from Hudilab, Inc. (“HUDI”) and Seven Chakras, LLC (“Seven Chakras”) in the three months ended March 31, 2019. On January 14, 2019, the Company and PHP (collectively, the “buyer”) entered into a License and Acquisition Agreement (the “LAA”) with HUDI. Pursuant to the LAA, HUDI will sell the technology owned by it to the buyer in exchange for 7,500,000 shares of CANB common stock. On January 14, 2019, the shares were issued to the owner of HUDI and valued at $131,625. On January 31, 2019, PHP entered into an Asset Purchase Agreement (the “Agreement”) with Seven Chakras, LLC (“Seven Chakras”). Pursuant to the Agreement, PHP purchased the rights and title to (i) Seven Chakras’ proprietary formulas, methods, trade secrets, and know-how related to the production of Seven Chakras’ products containing cannabidiol (“CBD”), (ii) Seven Chakras’ tradename, domain name, and social media sites, and (iii) other assets of Seven Chakras including but not limited to raw materials, equipment, packaging and labeling materials, mailing lists, and marketing materials (collectively, the “Assets”). On February 20, 2019, the Company issued 1,000,000 shares of CANB common stock valued at $17,030 to owners of Seven Chakras as additional consideration, along with the $50,000 cash payments, pursuant to the agreement.

 

13

 

 

The other intangible assets relate to the document management and email marketing divisions. Since December 31, 2017, the Company do not expect any future positive cash flow from these divisions. Accordingly, the net carrying value of these intangible assets was reduced to $0.

 

NOTE 9 – Notes and Loans Payable

 

Notes and loans payable consist of:

 

  March 31, 2019     December 31, 2018  
Note payable to brother of Marco Alfonsi, Chief Executive Officer of the Company, interest at 10% per annum, due August 22, 2016 (now past due)     5,000       5,000  
                 
Note payable to Carl Dilley, a director of the Company, interest at 12.99% per annum, due February 1, 2021     10,899       10,899  
                 
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   $ 18,899     $ 18,899  

 

NOTE 9 – Preferred Stock

 

Each share of Series A Preferred Stock is convertible into 10,000,000 shares of CANB common stock and is entitled to 20,000,000 votes.

 

Each share of Series B Preferred Stock has the first preference to dividends, distributions and payments upon liquidation, dissolution and winding-up of the Company, and is entitled to an accrued cumulative but not compounding dividend at the rate of 5% per annum whether or not declared. After six months of the issuance date, such share and any accrued but unpaid dividends can be converted into common stock at the conversion price which is the lower of (i) $0.0101; or (ii) the lower of the dollar volume weighted average price of CANB common stock on the trading day prior to the conversion day or the dollar volume weighted average price of CANB common stock on the conversion day. The shares of Series B Preferred Stock have no voting rights.

 

On January 22, 2018, the Company issued 87,368 shares of CANB Series B Preferred Stock to RedDiamond Partners LLC (“RedDiamond”) pursuant to an amended Securities Purchase Agreement dated January 9, 2018, in exchange for proceeds of $83,000, or $0.95 per CANB Series B Preferred share.

 

On February 12, 2018, the Company issued 1 share of CANB Series A Preferred Stock to David Posel pursuant to a service agreement. The fair value of the issuance is $373,000 and will be amortized over the vesting period of four years.

 

On February 16, 2018, the Company issued 3 shares of CANB Series A Preferred Stock to Andrew Holtmeyer pursuant to a service agreement. The fair value of the issuance is $1,020,000 and will be amortized over the vesting period of one year.

 

On February 16, 2018, the Company issued 87,368 shares of CANB Series B Preferred Stock to RedDiamond Partners LLC (“RedDiamond”) pursuant to an amended Securities Purchase Agreement dated January 9, 2018, in exchange for proceeds of $83,000, or $0.95 per CANB Series B Preferred share.

 

On March 20, 2018, the Company issued 87,368 shares of CANB Series B Preferred Stock to RedDiamond Partners LLC (“RedDiamond”) pursuant to an amended Securities Purchase Agreement dated January 9, 2018, in exchange for proceeds of $83,000, or $0.95 per CANB Series B Preferred share.

 

On April 13, 2018, April 25, 2018, May 3, 2018, June 19, 2018 and June 25, 2018, RedDiamond Partners converted its 10,000 shares, 10,000 shares, 10,000 shares, 15,000 shares and 10,000 shares of CANB Series B Preferred Stock to 1,287,129 shares, 1,287,129 shares, 1,287,129 shares, 3,545,455 shares, and 2,363,636 shares of CANB common stock, respectively.

 

14

 

 

On May 14, 2018, the Company issued 1 share of CANB Series A Preferred Stock to a consultant pursuant to a Consulting Agreement dated May 11, 2018. The $150,000 fair value of the issuance was partially charged to consulting fees in the three months ended September 30, 2018.

 

From July 24, 2018 to September 26, 2018, RedDiamond Partners converted aggregately 263,263 shares of CANB Series B Preferred Stock to 53,839,743 shares of CANB common stock.

 

On August 28, 2018, September 14, 2018 and September 19, 2018, the Company issued 36,842 shares, 105,263 shares, and 105,263 shares of CANB Series B Preferred Stock, respectively, to RedDiamond Partners LLC (“RedDiamond”) pursuant to an amended Securities Purchase Agreement dated January 9, 2018, in exchange for proceeds of $35,000, $100,000 and $100,000, respectively, or $0.95 per CANB Series B Preferred share.

 

From October 2, 2018 to November 7, 2018, RedDiamond Partners converted aggregately 101,736 shares of CANB Series B Preferred Stock to 13,094,733 shares of CANB common stock.

 

On October 23, 2018 and November 14, 2018, the Company issued 200,000 shares and 52,500 shares of CANB Series B Preferred Stock, respectively, to RedDiamond Partners LLC (“RedDiamond”) in exchange for proceeds of $190,000 and $49,875, respectively, or $0.95 per CANB Series B Preferred share.

 

On December 28,2018, Marco Alfonsi converted 3 shares of CANB Series A Preferred Stock to 30,000,000 shares of CANB common stock.

 

On December 29, the Company issued 8 shares of CANB Series A Preferred Stock to three officers of the company (1 share to Stanley L. Teeple, 5 shares to Pasquale Ferro and 2 shares to Andrew Holtmeyer), pursuant to the employment agreements with them. The fair value of the issuance totaled at $4,624,000 and will be amortized over the vesting period of four years.

 

On January 28, 2019, the Company issued 10,000,000 shares of CANB common stock to a consultant of the Company in exchange for the retirement of 1 share of CANB Series A Preferred Stock.

 

From February 21, 2019 to March 12, 2019, the Company issued aggregately 20,221,436 shares of CANB common stock to RedDiamond in exchange for the retirement of 157,105 shares of CANB Series B Preferred Stock.

 

NOTE 11 – Common Stock

 

On February 7, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $9,825 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.

 

On February 9, 2018, the Company issued 3,000,000 and 3,000,000 shares of CANB common stock to its two directors for services rendered, respectively. The $101,400 fair value of each 3,000,000 shares of CANB common stock was charged to directors fees in the three months ended March 31, 2018. The shares issued to one of the directors were converted to options at June 11, 2018 (see Note 10).

 

On February 13, 2018, the Company issued 150,000 shares of CANB common stock to a consultant for services rendered. The $5,085 fair value of the 150,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.

 

On February 14, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $8,500 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.

 

15

 

 

On February 19, 2018, the Company issued 150,000 shares of CANB common stock to a consultant for services rendered. The $5,280 fair value of the 150,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.

 

On February 26, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $11,375 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended March 31, 2018.

 

On March 1, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $10,900 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended March 31, 2018.

 

On March 20, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $6,500 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended March 31, 2018.

 

On April 13, 2018, April 25, 2018, May 3, 2018, June 19, 2018 and June 25, 2018, the Company issued 1,287,129 shares, 1,287,129 shares, 1,287,129 shares, 3,545,455 shares, and 2,363,636 shares of CANB common stock to RedDiamond in exchange for the retirement of 10,000 shares, 10,000 shares, 10,000 shares, 15,000 shares and 10,000 shares of CANB Series B Preferred Stock, respectively.

 

On May 9, 2018, the Company issued 125,000 shares of CANB common stock to a consultant for services rendered.. The $1,812 fair value of the 125,000 shares of CANB common stock was partially charged to consulting fees in the three months ended June 30, 2018.

 

On May 29, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,000 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended June 30, 2018.

 

On May 31, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $4,600 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2018.

 

On June 4, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,750 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended June 30, 2018.

 

On June 11, 2018, the Company agreed to issue 2,749,429 shares of CANB common stock to a lender in satisfaction of notes payable of $15,000 and accrued interest payable of $4,246. The shares was issued at August 24, 2018.

 

On June 18, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $6,250 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended June 30, 2018.

 

On June 22, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $8,250 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended June 30, 2018.

 

From July 24, 2018 to September 26, 2018, the Company issued aggregately 53,839,743 shares of CANB common stock to RedDiamond in exchange for the retirement of 263,263 shares of CANB Series B Preferred Stock.

 

On July 31, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $3,225 fair value of the 250,000 shares of CANB common stock was charged to consulting fees in the three months ended September 30, 2018.

 

16

 

 

On August 9, 2018, Company received a conversion notice from a lender. As a result, 9,544,292 shares of CANB common stock was issued to the lender in satisfaction of notes payable of $50,000 and accrued interest payable of $7,266 at August 21, 2018.

 

On August 28, 2018, the Company issued 2,000,000 shares of CANB common stock to a consultant for services rendered. The $159,600 fair value of the 2,000,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2018.

 

On September 6, 2018, the Company issued 300,000 shares of CANB common stock to a consultant for services rendered. The $16,500 fair value of the 300,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2018.

 

On September 6, 2018, the Company issued 500,000 shares of CANB common stock to a consultant for services rendered. The $27,500 fair value of the 500,000 shares of CANB common stock was charged to consulting fees in the three months ended September 30, 2018.

 

On September 6, 2018, the Company issued 8,430,331 shares of CANB common stock to a lender in satisfaction of notes payable of $38,500 and accrued interest payable of $7,867.

 

On September 7, 2018, the Company issued 5,121,694 shares of CANB common stock to a lender in satisfaction of notes payable of $25,000 and accrued interest payable of $3,169.

 

On September 7, 2018, the Company issued 10,045,667 shares of CANB common stock to a lender in satisfaction of notes payable of $50,000 and accrued interest payable of $10,274.

 

On September 8, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $11,500 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2018.

 

On September 10, 2018, the Company issued 500,000 shares of CANB common stock to a consultant for services rendered. The $19,950 fair value of the 500,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2018.

 

On September 17, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $10,750 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2018.

 

On September 18, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $13,725 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2018.

 

On September 20, 2018, the Company issued 7,407,407 shares of CANB common stock to an investor pursuant to a Stock Purchase Agreement dated September 17, 2018, in exchange for proceeds of $200,000, or $0.027 per CANB common share.

 

On September 21, 2018, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $14,500 fair value of the 250,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2018.

 

On September 25, 2018, the Company issued 2,000,000 shares of CANB common stock to a consultant for services rendered. The $97,400 fair value of the 2,000,000 shares of CANB common stock was partially charged to consulting fees in the three months ended September 30, 2018.

 

From October 2, 2018 to November 7, 2018, the Company issued aggregately 13,094,733 shares of CANB common stock to RedDiamond in exchange for the retirement of 101,736 shares of CANB Series B Preferred Stock.

 

17

 

 

From November 5, 2018 to December 28, 2018, the Company issued aggregately 2,125,000 shares of CANB common stock to multiple consultants for services rendered. The $80,665 fair value of the 2,125,000 shares of CANB common stock was partially charged to consulting fees in the three months ended December 30, 2018.

 

From December 3, 2018 to December 28, 2018, the Company issued aggregately 1,500,000 shares of CANB common stock to three board members for services rendered. The $62,342 fair value of the 1,500,000 shares of CANB common stock was charged to director fees in the three months ended December 30, 2018.

 

From December 3, 2018 to December 28, 2018, the Company issued aggregately 22,413,794 shares of CANB common stock to multiple investors pursuant to relative Stock Purchase Agreements dated on various dates, in exchange for total proceeds of $650,000.

 

On December 11, 2018, the Company issued 891,089 shares of CANB common stock to RedDiamond in satisfaction of dividend payable of $9.000.

 

On December 19, 2018, the Company issued 891,089 shares of CANB common stock to Auctus, LLC pursuant to a cashless exercise of stock options.

 

On December 21, 2018, Company received a conversion notice from a lender. As a result, 9,372,100 shares of CANB common stock was issued to the lender in satisfaction of notes payable of $83,500 and accrued interest payable of $10,221.

 

On December 21, 2018, Company issued aggregately 4,370,629 shares of CANB common stock to four officers of the Company in satisfaction of accrued compensation of $192,300.

 

On December 28, 2018, the Company issued 3,096,827 shares of CANB common stock for the acquisition of Pure Health Products, LLC.

 

On December 28, 2018, the Company issued 245,789 shares of CANB common stock to an officer of the Company pursuant to the Employment Agreement dated December 29, 2018 with Andrew Holtmeyer. The $10,371 fair value of the issuance was charged to stock-based compensation in the three months ended December 31, 2018.

 

On December 29, the Company issued 30,000,000 shares of CANB common stock to Marco Alfonsi in exchange for the return of 3 shares of CANB Series A Preferred Stock owned by Marco Alfonsi.

 

From January 4, 2019 to March 27, 2019, the Company issued aggregately 41,431,994 shares of CANB common stock to multiple investors pursuant to relative Stock Purchase Agreements dated on various dates, in exchange for total proceeds of $1,196,100.

 

On January 14, 2019, the Company issued 7,500,000 shares of CANB common stock to Hudilab, Inc. (“HUDI”), pursuant to a License and Acquisition Agreement for purchase of the technology owned by HUDI.

 

From January 18, 2019 to March 17, 2019, the Company issued aggregately 24,600,000 shares of CANB common stock to multiple consultants for services rendered.

 

From January 19, 2019 to March 27, 2019, the Company issued aggregately 1,167,959 shares of CANB common stock to employee and officers of the Company pursuant to employee agreement and in satisfaction of accrued compensation for the quarter ended March 31, 2019.

 

On February 5, 2019, the Company issued 2,000,000 shares to the owner of TZ Wholesale LLC, pursuant to a Memorandum of Understanding (the “MOU”) dated November 9, 2018.

 

On February 20, 2019, the Company issued 1,000,000 shares of CANB common stock to owners of Seven Chakras pursuant to an Asset Purchase Agreement (the “Agreement”) with Seven Chakras, LLC dated January 31, 2019.

 

NOTE 12 – Stock Options and Warrants

 

A summary of stock options and warrants activity follows:

 

    Shares of Common Stock Exercisable Into  
    Stock              
    Options     Warrants     Total  
Balance, December 31, 2017     50,000       247,500       297,500  
Granted in 2018     6,000,000       2,850,000       8,850,000  
Cancelled in 2018     -       -       -  
Exercised in 2018     -       (850,000 )     (850,000 )
                         
Balance, December 31, 2018     6,050,000       2,247,500       8,297,500  
Granted in Q1 2019     -       -       -  
Cancelled in Q1 2019     -       -       -  
Exercised in Q1 2019     -       -       -  
                         
Balance, March 31, 2019     6,050,000       2,247,500       8,297,500  

 

18

 

 

Issued and outstanding stock options as of March 31, 2019 consist of:

 

Year   Number Outstanding     Exercise     Year of  
Granted   And Exercisable     Price     Expiration  
                   
2009     50,000     $ 1.000       2019  
2018     6,000,000     $ 0.001       2023  
                         
Total     3,050,000                  

 

On June 11, 2018, the Company granted 3,000,000 options of CANB common stock to Carl Dilley, a former director of the Company, in exchange for the retirement of a total of 3,000,000 shares of CANB common stock from Carl Dilley. The options are exercisable for the purchase of one share of the Registrant’s Common Stock at an exercise price of $0.001 per share. The Options are fully vested and are exercisable as of the Grant Date and all shall expire June 11, 2023. The value of the Stock Options ($84,000) were calculated using the Black Scholes option pricing model and the following assumptions: (i) $0.028 share price, (ii) 5 years term, (iii) 262.00% expected volatility, (iv) 2.80% risk free interest rate and the difference between this value and the fair value of retired shares was expensed in the quarterly period ended June 30, 2018.

 

On October 21, 2018, the Company granted 3,000,000 options of CANB common stock to Stanley L. Teeple, an officer and Director of the Company. The options are exercisable for the purchase of one share of the Registrant’s Common Stock at an exercise price of $0.001 per share. The Options are fully vested and are exercisable as of the Grant Date and all shall expire October 1, 2023. The values of the Stock Options ($118,200) were calculated using the Black Scholes option pricing model and the following assumptions: (i) $0.0395 share price, (ii) 5 years term, (iii) 221.96% expected volatility, (iv) 3.05% risk free interest rate and the fair value of options was expensed in the quarterly period ended December 31, 2018

 

Issued and outstanding warrants as of March 31, 2019 consist of:

 

Year   Number Outstanding     Exercise     Year of  
Granted   And Exercisable     Price     Expiration  
                   
2010     247,500     $ 1.00       2020  
2018     2,000,000     $ 0.04345 (a)     2023  
                         
Total     2,247,500                  

 

(a) 110% of the closing price of the Company’s common stock on the date that the Holder funds the full purchase price of the Note.

 

NOTE 13 – Income Taxes

 

No provisions for income taxes were recorded for the periods presented since the Company incurred net losses in those periods.

 

19

 

 

The provisions for (benefits from) income taxes differ from the amounts determined by applying the U.S. Federal income tax rate of 21% and 35% to pretax income (loss) as follows:

 

    Three Months March 31,  
    2019     2018  
             
Expected income tax (benefit) at 21%   $ (246,228 )   $ 85,587  
                 
Non-deductible stock-based compensation     173,921       90,449  
                 
Non-deductible amortization of debt discounts     -       5,977  
                 
Non-deductible expense from derivative liability     -       (225,898 )
                 
Increase in deferred income tax assets valuation allowance     72,307       43,885  
                 
Provision for (benefit from) income taxes   $ -     $ -  

 

Deferred income tax assets consist of:

 

    March 31,     December 31,  
    2019     2018  
             
Net operating loss carryforward     1,716,900       1,644,593  
                 
Valuation allowance     (1,716,900 )     (1,644,593 )
                 
Net   $ -     $ -  

 

Based on management’s present assessment, the Company has not yet determined it to be more likely than not that a deferred income tax asset of $1,716,900 attributable to the future utilization of the $5,131,252 net operating loss carryforward as of December 31, 2018 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred income tax asset in the financial statements at March 31, 2019. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforward expires in years 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2033, 2034, 2035, 2036, 2037, 2038 and 2039 in the amount of $1,369, $518,390, $594,905, $686,775, $159,141, $151,874, $135,096, $166,911, $311,890, $25,511, $338,345, $386,297, $496,798, $713,162 and $344,318, respectively.

 

Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.

 

The Company’s U.S. Federal and state income tax returns prior to 2014 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The statute of limitations on the 2014 tax year returns expired in September 2018.

 

The Company recognizes interest and penalties associated with uncertain tax positions as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance sheets. There were no interest or penalties paid during 2018 and 2017.

 

20

 

 

NOTE 14 – Commitments and Contingencies

 

Employment Agreements

 

On October 3, 2017, the Company executed an Executive Employment Agreement with Marco Alfonsi (“Alfonsi”) for Alfonsi to serve as the Company’s chief executive officer and interim chief financial officer and secretary for cash compensation of $10,000 per month. Pursuant to the agreement, the Company issued a share of CANB Series A Preferred Stock to Alfonsi on October 4, 2017 (see Note 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. At November 12, 2018, this Agreement was terminated due to the execution of a new Employment Agreement with Marco Alfonsi for Alfonsi to serve as the Company’s chief executive officer for cash compensation of $15,000 per month. Pursuant to the agreement, three of the eight previously issued shares of CANB Series A Preferred Stock will be returned to the Company and converted into 30,000,000 common shares. On December Alfonsi may terminate his employment upon 30 days written notice to the Company. The Agreement has an initial term of four years and can be terminated upon the resignation or death of Mr. Alfonsi, and also can be terminated by the Company due to the failure or neglect of Mr. Alfonsi to perform his duties, or due to the misconduct of Mr. Alfonsi in connection with the performance.

 

On February 12, 2018, the Company executed an Executive Service Agreement (“Agreement”) with David Posel. The Agreement provides that Mr. Posel services as the Company’s Chief Operating Officer for a term of 4 years. The Agreement also provides for compensation to Mr. Posel of $5,000 cash per month and the issuance of 1 share of Series A Preferred Stock at the inception of the Agreement. The Agreement can be terminated upon the resignation or death of Mr. Posel, and also can be terminated by the Company due to the failure or neglect of Mr. Posel to perform his duties, or due to the misconduct of Mr. Posel in connection with the performance. On February 12, 2018, 1 share of CANB Series A Preferred Stock were issued to Mr. Posel (see Note 8). Since execution of the Posel Agreement, Mr. Posel has been re-assigned to COO for Pure Health Products, the Company’s subsidiary.

 

On February 16, 2018, the Company executed an Executive Service Agreement (“Agreement”) with Andrew W Holtmeyer. The Agreement provides that Mr. Holtmeyer services as the Company’s Executive Vice President Business for a term of 3 years. The Agreement also provides for compensation to Mr. Holtmeyer of $10,000 cash per month and the issuance of 3, 2 and 1 share of Series A Preferred Stock at the beginning of each year. The Agreement can be terminated upon the resignation or death of Mr. Holtmeyer, and also can be terminated by the Company due to the failure or neglect of Mr. Holtmeyer to perform his duties, or due to the misconduct of Mr. Holtmeyer in connection with the performance. At December 29, 2018, this Agreement was terminated due to the execution of a new Employment Agreement with Andrew W Holtmeyer. The Agreement provides that Mr. Holtmeyer services as the Company’s Executive Vice President Business for a term of 4 years. The Agreement also provides for compensation to Mr. Holtmeyer of $15,000 cash per month and the issuance of 245,789 shares of common stock upon signing of the agreement.

 

On October 15, 2018, the Company executed an Employment Agreement (“Agreement”) with Stanley L. Teeple. The Agreement provides that Mr. Teeple services as the Company’s Chief Financial Officer and Secretary for a term of 4 years. The Agreement also provides for compensation to Mr. Teeple of $15,000 cash per month and the issuance of 1 share of Series A Preferred Stock upon execution of the Agreement. The Agreement can be terminated upon the resignation or death of Mr. Teeple, and also can be terminated by the Company due to the failure or neglect of Mr. Teeple to perform his duties, or due to the misconduct of Mr. Teeple in connection with the performance.

 

On December 28, 2018, the Company executed an Employment Agreement (“Agreement”) with Pasquale Ferro for Mr. Ferro to serve as Pure Health Products’ president for cash compensation of $15,000 per month and the total issuance of 5 share of Series A Preferred Stock proportionately vesting at the beginning of each year for a term of 4 years. Mr. Ferro may terminate his employment upon 30 days written notice to the Company. The Agreement has an initial term of four years and can be terminated upon the resignation or death of Mr. Ferro, and also can be terminated by the Company due to the failure or neglect of Mr. Ferro to perform his duties, or due to the misconduct of Mr. Ferro in connection with the performance.

 

21

 

 

Consulting Agreements

 

On September 6, 2017, the Company executed a Consulting Agreement with T8 Partners LLC (“T8”) for T8 to serve as the Company’s consultant for stock compensation of a total of 10,000,000 restricted shares. Pursuant to the agreement, the Company issued 2,500,000 restricted shares of CANB common stock to T8 on September 7, 2017. Effective October 27, 2017, the Company terminated the agreement due to non-performance by T8. The Company won the arbitration proceedings against T8 and T8 has been ordered to return its shares to the Company.

 

On November 9, 2017, the Company executed a Consulting Agreement with Healthcare Advisory Group Company (“Healthcare”) for Healthcare to serve as the Company’s consultant for stock compensation of a total of 5,000,000 restricted shares. Pursuant to the agreement, the Company issued 2,500,000 restricted shares of CANB common stock to Healthcare on November 9, 2017. Effective March 6, 2018, the Company terminated the agreement due to non-performance by Healthcare.

 

Lease Agreements

 

On December 1, 2014, Prosperity entered into a lease agreement with KLAM, Inc. for office space in Hicksville, New York for an initial term of one year commencing December 1, 2014. The lease provides for monthly rentals of $2,500 and provides Prosperity an option to renew the lease after the initial term. The Company has continued to occupy this space after November 30, 2015 under a month to month arrangement at $2,500 per month. KLAM, Inc. is controlled by the wife of the Company’s chief executive officer Marco Alfonsi.

 

On September 11, 2015, the Company executed a lease agreement with an unrelated third party for office space in Hicksville, New York for a term of 37 months. The lease provides for monthly rentals of $2,922 for lease year 1, $3,009 for lease year 2, and $3,100 for lease year 3. The lease also provides for additional rent based on increases in base year operating expenses and real estate taxes. On August 6, 2018, the Company renewed the lease agreement for a term of 36 months starting November 1, 2018. The lease provides for monthly rentals of $3,193 for lease year 1, $3,289 for lease year 2, and $3,388 for lease year 3.

 

Rent expense for the year ended December 31, 2018 and 2017 was $67,165 and $65,060, respectively.

 

At March 31, 2019, the future minimum lease payments under non-cancellable operating leases were:

 

Year ended December 31, 2019     28,932  
Year ended December 31, 2020     39,666  
Year ended December 31, 2021     33,880  
Total   $ 102,478  

 

The lease liability of $90,591 at March 31, 2019 as presented in the Consolidated Balance Sheet represents the discounted (at our 10% estimated incremental borrowing rate) value of the future lease payments of 102,478 at March 31, 2019.

 

Major Customers

 

For the three months ended March 31, 2019, there were no customers that accounted for more than 10% of total revenues.

 

For the three months ended March 31, 2018, one customer accounted for approximately 13% of total revenues.

 

NOTE 15 – Related Party Transactions

 

ProAdvanced Group, Inc. (“PAG”), an entity controlled by the Company’s chief executive officer, is a customer of CANB. At March 31, 2019, CANB had an account receivable from PAG of $7,240. For the three months ended March 31, 2019, CANB had revenues from PAG of $0.

 

Island Stock Transfer (“IST”), an entity controlled by Carl Dilley, a former Company director, is both a customer and vendor of CANB. At March 31, 2019, CANB had an account receivable from IST of $7,932. For the three months ended March 31, 2019, CANB had revenues from IST of $0.

 

Stock Market Manager, Inc. is also an entity controlled by Mr. Dilley. For the three months ended March 31, 2019, CANB had an account payable to Stock Market Manager Inc. of $1,676.

 

During the three months ended March 31, 2019, we had products and service sales to related parties totaling $0.

 

NOTE 16 – Subsequent Events

 

From April 29, 2019 to May 1, 2019, the Company issued aggregately 4,504,950 shares of CANB common stock to RedDiamond in exchange for the retirement of 35,000 shares of CANB Series B Preferred Stock.

 

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events through May 17, 2019, 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.

 

22

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

Canbiola, Inc. was originally formed as a Florida corporation on October 11, 2005, under the name of WrapMail, Inc. Effective January 5, 2015, we acquired 100% ownership of Prosperity Systems, Inc., which the Company is in the process of dissolving. Effective December 28, 2018, we acquired 100% ownership of Pure Health Products. In November 2018, we formed Duramed as a wholly-owned subsidiary. The Company is presently in the process of dissolving Prosperity.

 

We manufacture and sell products containing CBD. We also provide document, project, marketing and sales management systems to our residual business clients through our website and proprietary software, which divisions are being wound-down. The consolidated financial statements include the accounts of CANB and its wholly owned subsidiary Pure Health Products and DuraMed for the three months ended March 31, 2019.

 

Results of Operations

 

Three Months Ended March 31, 2019 compared with Three Months Ended March 31, 2018:

 

Revenues increased $447,391 from $69,769 in 2018 to $517,160 in 2019.

 

Cost of product sales increased $217,966 from $44,587 in 2018 to $262,553 in 2019 due to the expansion of current product sales and launch of new product sales in Duramed.

 

Officers and director’s compensation increased $182,750 from $262,800 in 2018 to $445,550 in 2019. The 2019 expense amount(445,550) includes stock-based compensation($262,420) paid to officers and employees. The 2018 expense amount ($262,800) includes stock-based compensation ($202,800) paid to the advisory board members.

 

Consulting fees increased $387,843 from $275,908 in 2018 to $663,751 in 2019. The 2019 expense amount ($663,751) includes stock-based compensation of $565,776, resulting from stock issued for the service of consultants. The 2018 expense amount ($275,908) includes stock-based compensation of $11,000, resulting from stock issued for the service of consultants.

 

Advertising expense increased $4,055 from $22,333 in 2018 to $26,388 in 2019.

 

Hosting expense decreased $3,218 from $3,668 in 2018 to $450 in 2019.

 

Rent expense decreased $4,405 from $16,265 in 2018 to $11,860 in 2019.

 

Professional fees increased $24,453 from $13,383 in 2018 to $37,836 in 2019.

 

Depreciation of property and equipment increased $1,962 from $803 in 2018 to $2,765 in 2019.

 

Amortization of intangible assets increased $2,194 from $0 in 2018 to $2,194 in 2019.

 

Other operating expenses increased $171,168 from $64,713 in 2018 to $235,881 in 2019. The increase was due largely to higher referral fees, travel expense, and news announcement fees in 2019 compared to 2018.

 

Net income decreased $1,580,072 from income of $407,558 in 2018 to a loss of $1,172,514 in 2019. The decrease was due to the $766,802 increase in total operating expenses and the decrease of $1,042,695 in other income – net from $1,042,249 other income – net in 2018 to $446 other expense– net in 2019, offset by the $447,391 increase in revenues.

 

23

 

 

Liquidity and Capital Resources

 

At March 31, 2019, we had cash and cash equivalents of $567,291 and working capital of $1,067,641.

 

Cash and cash equivalents decreased $240,456 from $807,747 at December 31, 2018 to $567,291 at March 31, 2019. For the three months ended March 31, 2019, $1,194,265 was provided by financing activities, $744,212 was used in investing activities, and $690,509 was used in operating activities.

 

We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.

 

We currently have no commitments with any person for any capital expenditures.

 

We have no off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

None.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

As of March 31, 2019, our principal executive officer and principal financial officer conducted an evaluation regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon the evaluation of these controls and procedures, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

(B) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

There were no changes in our internal control over financial reporting in our fiscal quarter for the period March 31, 2019 covered by this Quarterly Report on Form 10-Q, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not currently a party to any legal proceedings.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to provide risk factors in this Form 10-Q.

 

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

 

Sales of unregistered securities during the quarterly period ended March 31, 2019 follows:

 

From January 4, 2019 to March 27, 2019, the Company issued aggregately 41,431,994 shares of CANB common stock to multiple investors pursuant to relative Stock Purchase Agreements dated on various dates, in exchange for total proceeds of $1,196,100.

 

On January 14, 2019, the Company issued 7,500,000 shares of CANB common stock to Hudilab, Inc. (“HUDI”), pursuant to a License and Acquisition Agreement for purchase of the technology owned by HUDI.

 

24

 

 

From January 18, 2019 to March 17, 2019, the Company issued aggregately 24,600,000 shares of CANB common stock to multiple consultants for services rendered.

 

From January 19, 2019 to March 27, 2019, the Company issued aggregately 1,167,959 shares of CANB common stock to employee and officers of the Company pursuant to employee agreement and in satisfaction of accrued compensation for the quarter ended March 31, 2019.

 

On February 5, 2019, the Company issued 2,000,000 shares to the owner of TZ Wholesale LLC, pursuant to a Memorandum of Understanding (the “MOU”) dated November 9, 2018.

 

On February 20, 2019, the Company issued 1,000,000 shares of CANB common stock to owners of Seven Chakras pursuant to an Asset Purchase Agreement (the “Agreement”) with Seven Chakras, LLC dated January 31, 2019.

 

With respect to the transactions noted above, each of the recipients of securities of the Company was an accredited investor, or is considered by the Company to be a “sophisticated person”, inasmuch as each of them has such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of receiving securities of the Company. No solicitation was made and no underwriting discounts were given or paid in connection with these transactions. The Company believes that the issuance of its securities as described above was exempt from registration with the Securities and Exchange Commission pursuant to Section 4(a)(2) of the Securities Act of 1933.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

3.1   Articles of Incorporation, as amended*
3.2   Bylaws*
31.1   Chief Executive Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Chief Financial Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
*   filed with the Form S-1 Registration Statement filed with the SEC on December 2, 2015 and incorporated herein by reference.

 

25

 

 

SIGNATURES

 

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

 

  CANBIOLA, INC.
     
Date: May 23, 2019 By: /s/ Marco Alfonsi
    Marco Alfonsi, Chief Executive Officer
     
Date: May 23, 2019 By: /s/ Stanley L. Teeple
    Stanley L. Teeple, Chief Financial Officer

 

26

 

 

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