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Can B Corp - Quarter Report: 2017 September (Form 10-Q)

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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 September 30, 2017

 

[  ]    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: 333-208293

 

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 November 16, 2017 was 173,822,323 shares.



1






CANBIOLA, INC.

FORM 10-Q

September 30, 2017

 

TABLE OF CONTENTS

 

 

Page No.

PART I. - FINANCIAL INFORMATION

Item 1.

Financial Statements  

 

 

Consolidated Balance Sheets – September 30, 2017 and December 31, 2016

3

 

Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2017 and 2016

4

 

Consolidated Statements of Cash Flows – Three and Nine Months Ended September 30, 2017 and 2016

6

 

Condensed Notes to Unaudited Consolidated Financial Statements.

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

19

Item 4.

Controls and Procedures.

19

 PART II - OTHER INFORMATION

 

 

 

Item 1.  

Legal Proceedings  

20

Item 1A.  

Risk Factors  

20

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds  

20

Item 3.  

Defaults Upon Senior Securities  

21

Item 4.  

Mine Safety Disclosures  

21

Item 5.

Other Information

21

Item 6.

Exhibits

21


 



2






PART 1 - FINANCIAL INFORMATION


Item 1. Financial Statements.


 Canbiola, Inc. and Subsidiary

Consolidated Balance Sheets

 

 

September 30,

 

December 31,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

   Cash and cash equivalents

 

$

4,225 

 

$

30,193 

   Accounts receivable, less allowance for doubtful

      accounts of $0 and $0, respectively

 

22,030 

 

13,742 

   Inventory

 

12,417 

 

   Prepaid expenses

 

62,134 

 

2,500 

   Total current assets

 

100,806 

 

46,435 

 

 

 

 

 

Property and equipment, at cost less accumulated

 

 

 

 

   depreciation of $19,442 and $17,021, respectively

 

11,954 

 

14,375 

 

 

 

 

 

Other assets:

 

 

 

 

   Security deposit

 

11,687 

 

11,687 

   Note receivable

 

39,000 

 

39,000 

   Intangible assets, net of accumulated

 

 

 

 

      amortization of $37,926 and $34,947, respectively

 

22,502 

 

25,481 

   Total other assets

 

73,189 

 

76,168 

 

 

 

 

 

Total assets

 

$

185,949 

 

$

136,978 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

Current liabilities:

 

 

 

 

   Notes and loans payable

 

$

162,604 

 

$

58,315 

   Derivative Liability

 

279,928 

 

352,688 

   Accounts payable

 

135,683 

 

54,714 

   Accrued officers compensation

 

188,750 

 

134,750 

   Other accrued expenses payable

 

65,691 

 

51,099 

   Total current liabilities and total liabilities

 

832,656 

 

651,566 

Commitments and contingencies (Notes 7 and 12)

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficit):

 

 

 

 

   Preferred stock, no par value; authorized 5,000,000 shares:  

      Series A Preferred stock, no par value:

 

 

 

 

         authorized 20 shares, issued and outstanding

 

 

 

 

         10 and 10 shares, respectively

 

103,664 

 

103,664 

   Common stock, no par value; authorized

 

 

 

 

      750,000,000 shares, issued and outstanding

 

 

 

 

      171,072,323 and 146,008,250 shares, respectively

 

12,223,631 

 

11,889,505 

   Accumulated deficit

 

(12,974,002)

 

(12,507,757)

   Total stockholders' equity (deficit)

 

(646,707)

 

(514,588)

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

 

$

185,949 

 

$

136,978 

See notes to consolidated financial statements.

 

 

 

 




3









Canbiola, Inc. and Subsidiary

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

Revenues

 

 

 

 

 

 

 

 

 

 

 

   Service Revenue

 

$

43,507 

 

 

$

71,990 

 

 

$

1,800 

 

 

$

24,327 

   Product Sales

 

22,433 

 

 

 

 

20,298 

 

 

Total Revenues

 

$

65,940 

 

 

$

71,990 

 

 

$

22,098 

 

 

$

24,327 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

   Cost of product sales

 

11,698 

 

 

 

 

10,559 

 

 

   Officers and directors compensation and payroll taxes (including

 

 

 

 

 

 

 

 

 

 

 

      stock - based compensation of $0, $0, $0 and $0 respectively

 

58,209 

 

 

159,463 

 

 

19,377 

 

 

38,897 

   Consulting fees (including stock-based compensation of $113,438

 

 

 

 

 

 

 

 

 

 

 

       $30,000, $76,209 and $0 respectively)

 

182,491 

 

 

98,473 

 

 

110,709 

 

 

4,104 

   Advertising expense

 

35,312 

 

 

10,301 

 

 

13,802 

 

 

5,551 

   Hosting expense

 

17,619 

 

 

20,465 

 

 

2,932 

 

 

8,325 

   Rent expense

 

48,795 

 

 

48,795 

 

 

16,265 

 

 

16,265 

   Professional fees

 

70,706 

 

 

36,787 

 

 

7,970 

 

 

20,050 

   Depreciation of property and equipment

 

2,421 

 

 

2,459 

 

 

807 

 

 

806 

   Amortization of intangible assets

 

2,979 

 

 

2,980 

 

 

993 

 

 

993 

   Other

 

81,161 

 

 

34,911 

 

 

20,642 

 

 

13,464 

 

 

 

 

 

 

 

 

 

 

 

 

   Total operating expenses

 

511,391 

 

 

414,634 

 

 

204,056 

 

 

108,455 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(445,451)

 

 

(342,644)

 

 

(181,958)

 

 

(84,128)

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

   Interest income

 

879 

 

 

877 

 

 

293 

 

 

292 

   Loss on debt conversion

 

(32,383)

 

 

 

 

(32,383)

 

 

   Income (expense) from derivative liability

 

252,010 

 

 

 

 

305,665 

 

 

   Interest expense (including amortization of debt discounts of $219,288, $0,

       $66,183 and $0 respectively)

 

(241,300)

 

 

(375)

 

 

(73,514)

 

 

(125)



4







 

 

 

 

 

 

 

 

 

 

 

 

   Other income (expense) – net

 

(20,794)

 

 

(502)

 

 

200,061

 

 

167 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before provision for income taxes

 

(466,245)

 

 

(342,142)

 

 

18,103

 

 

(83,961)

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) and comprehensive income (loss)

 

$

(466,245)

 

 

$

(342,142)

 

 

$

18,103

 

 

$

(83,961)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share – basic and diluted

 

 

 

 

 

 

 

 

 

 

 

   Basic

 

$

(0.00)

 

 

$

(0.00)

 

 

$

0.00

 

 

$

(0.00)

   Diluted

 

$

(0.00)

 

 

$

(0.00)

 

 

$

0.00

 

 

$

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding –

 

 

 

 

 

 

 

 

 

 

 

   Basic

 

156,928,795 

 

 

146,009,710 

 

 

164,000,506

 

 

146,012,598 

   Diluted

 

273,703,025 

 

 

146,009,710 

 

 

289,732,512

 

 

146,012,598 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.





5









Canbiola, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

2017

 

2016

Operating Activities:

 

 

 

 

 Net income (loss)

 

$

(466,245)

 

$

(342,142)

   Adjustments to reconcile net income (loss) to net

 

 

 

 

      cash used in operating activities:

 

 

 

 

      Stock-based compensation, net of prepaid stock based  

         consulting fees

 

113,438 

 

30,000 

      Loss on debt conversion

 

32,383 

 

      Expense (income) from derivative liability   

 

(252,010)

 

      Depreciation of property and equipment   

 

2,421 

 

2,460 

      Amortization of intangible assets

 

2,979 

 

2,980 

      Amortization of debt discounts

 

219,288 

 

   Changes in operating assets and liabilities:

 

 

 

 

      Accounts receivable

 

(8,288)

 

(2,981)

      Inventory

 

(12,417)

 

      Prepaid expenses

 

2,500 

 

9,671 

      Accounts payable

 

80,973 

 

66,819 

      Accrued officers compensation

 

54,000 

 

116,750 

      Other accrued expenses payable

 

25,760 

 

12,612 

 

 

 

 

 

   Net cash used in operating activities

 

(205,218)

 

(103,831)

 

 

 

 

 

Investing Activities:

 

 

 

 

   Net cash used in investing activities

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

   Proceeds received from notes and loans payable

 

179,250 

 

86,933 

 

 

 

 

 

   Net cash provided by financing activities

 

179,250 

 

86,933 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

(25,968)

 

(16,898)

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

30,193 

 

18,373 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

4,225 

 

$

1,475 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

    Income taxes paid

 

$

 

$

Interest paid

 

$

 

$

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

    Issuance of common stock in satisfaction of debt

 

$

115,000 

 

$

 

 

 

 

 

    Issuance of common stock in satisfaction of accrued interest

 

$

11,168 

 

$

 

 

 

 

 

    Issuance of common stock in satisfaction of accounts payable

 

$

 

$

47,174 

See notes to consolidated financial statements.

 

 

 

 





6







Canbiola, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Three Months Ended September 30, 2017 and 2016

(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.  On May 15, 2017, WRAP changed its name to Canbiola, Inc. (the “Company” or “CANB” or “Canbiola”). The Company operates several divisions, including document management and email marketing platforms and a division specializing in the sale of products containing CBD. The Company used to operate its document and information platform from its wholly owned subsidiary, Prosperity Systems, Inc (“Prosperity”); however, after the acquisition of Prosperity, the Company transferred Prosperity’s operations to WRAP and is presently in the process of dissolving Prosperity. For the periods presented, the assets, liabilities, revenues, and expenses are those of CANB. Prosperity had no activity for the periods presented. Effective December 27, 2010, WRAP effected a 10 for 1 forward stock split of its common stock. Effective June 4, 2013, WRAP effected a 1 for 10 reverse stock split of its common stock. The accompanying consolidated financial statements retroactively reflect these stock splits.


Canbiola, Inc. is a US Company specializing in the sale of a variety of Cannabidiol (Hemp) based products such as oils, creams, moisturizers, chews, vapes, isolate, gel caps, concentrate and water. Canbiola is developing their own line of proprietary products as well as seeking synergistic value through acquisitions in the Hemp Industry. Canbiola aims to be the premier provider of the highest quality Hemp natural products on the market through sourcing the very best raw material and developing a variety of products we believe will improve people's lives in a variety of areas.


NOTE 2 – Going Concern Uncertainty


The consolidated financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in a normal course of business. As of September 30, 2017, the Company had cash and cash equivalents of $4,225 and negative working capital of $731,850. For the nine months ended September 30, 2017 and 2016, the Company had net losses of $466,245 and $342,142, 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 start a health supplements business to attain profitable operations. 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 – Interim Financial Statements


The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they may not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The interim financial statements should be read in conjunction with the Company’s latest annual financial statement. In the opinion of management, the unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation. Operating results for the three-month period ended September 30, 2017 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2017.


NOTE 4 – Summary of Significant Accounting Policies


(a)  Principles of Consolidation

 

The consolidated financial statements include the accounts of CANB and its wholly owned subsidiary Prosperity from the date of its acquisition on January 5, 2015. All intercompany balances and transactions have been eliminated in consolidation.

   

(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.




7






(c)  Fair Value of Financial Instruments


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


(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 over agreed periods of services delivered to customers, provided there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is deemed probable.



8






(k) Stock-Based Compensation


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


In addition to requiring supplemental disclosures, ASC 718 addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the 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.


(l)  Advertising


Advertising costs are expensed as incurred and amounted to $35,312 and $10,301 for the nine months ended September 30, 2017 and 2016, respectively.      


(m) Research and Development


Research and development costs are expensed as incurred.




9






(n)  Income Taxes


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


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.


(o)  Net Income (Loss) per Common Share


Basic net income (loss) per common share is computed on the basis of the weighted average   number of common shares outstanding during the period.


Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding.  Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation. For the three and nine months ended September 30, 2016, the diluted net loss per share calculation excluded the effect of convertible notes payable, Series A preferred stock and stock options outstanding (see Notes 7, 8 and 10).


(p)  Recent Accounting Pronouncements


Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and therefore have not yet been adopted by the Company.  These include:


In August 2014, the FASB issued ASU 2014-15 “Disclosure about an Entity’s Ability to Continue as a Going Concern”. The update establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern including related disclosures.


In 2016, the FASB issued ASU 2016-2 (topic 842) which establishes a new lease accounting model for lessees. Under the new guidance, lessees will be required to recognize right of use assets and liabilities for most leases having terms of 12 months or more.

 

The impact on the Company’s financial statements has not yet been determined.


(q) Reclassifications


Certain amounts in the prior period 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 5 – Note Receivable


At September 30, 2017 and December 31, 2016, the $39,000 note receivable bears interest at a rate of 3% per annum and is due November 30, 2020. The receivable arose from the Company’s sale of its 50% interest in Stock Market Manager, Inc. to Endeavour Cooperative Partners, LLC (“Endeavour”) on November 30, 2015. Endeavour is affiliated with Carl Dilley, a Company director.


NOTE 6 – Intangible Assets, Net


Intangible assets, net, consist of:


 

 

September 30,

 2017

 

December 31, 2016

Video conferencing software acquired

  by Prosperity in December 2009

 

$

30,000 

 

$

30,000 

 

 

 

 

 

Enterprise and audit software acquired

  by Prosperity in April 2008

 

20,000 

 

20,000 

 

 

 

 

 

Patent costs incurred by CANB

 

6,880 

 

6,880 

 

 

 

 

 

Other

 

3,548 

 

3,548 

 

 

 

 

 

Total

 

60,428 

 

60,428 

 

 

 

 

 

Accumulated amortization

 

(37,926)

 

(34,947)

 

 

 

 

 

Net

 

$

22,502 

 

$

25,481 


Expected future amortization expense for intangible assets as of September 30, 2017 follows:


 

 

Amount

Year Ending December 31, 2017

 

$

995

Year Ending December 31, 2018

 

3,975

Year Ending December 31, 2019

 

3,975

Year Ending December 31, 2020

 

3,975

Year Ending December 31, 2021

 

3,975

Thereafter

 

5,607

 

 

 

Total

 

$

22,502




11






NOTE 7 – Notes and Loans Payable


Notes and loans payable consist of:


 

 

September 30,

 2017

 

December 31, 2016

Convertible note payable to lender dated February 1, 2016 (as amended         

        December 21, 2016), interest at 12% per annum, due February 1,

        2017, convertible into Common Stock at a Conversion Price equal to the

        Lesser of (i) $0.01 per share or (ii) 50% of the lowest Bid Price of the

        Common Stock for the 30 Trading Days preceding the Conversion Date       

        –fully converted at February 13, 2017

 

$

-

 

$

3,571

 

 

 

 

 

Convertible notes payable to lender dated from March 15, 2016 (as amended June 2, 2016) to September 13, 2017, interest at rates ranging from 12% to 14.99% per annum, due from April 6, 2017 to March 13, 2018, partially converted at March 22, 2017 and the remaining notes convertible into Common Stock at a Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of the lowest Closing Bid Price of the Common Stock for the 30 Trading Days preceding the Conversion Date – net of

        unamortized debt discount of $1,643 and $34,411, respectively   

 

35,357

 

39,839

 

 

 

 

 

Convertible notes payable to lender dated February 1, 2016 (as amended

        December 21, 2016) and December 21, 2016, interest at 12% per

        annum, due February 1, 2017 and May 20, 2017, convertible into

        Common Stock at a Conversion Price equal to the lesser of (i) $0.01 per

        share or (ii) 50% of the lowest Closing Bid Price of the Common Stock

        for the 30 Trading Days preceding the Conversion Date – net of

        unamortized debt discount of $0 and $58,095, respectively     

 

65,000

 

6,905

 

 

 

 

 

Convertible notes payable to Pasquale and Rosemary Ferro dated from

        May 2, 2017 to November 3, 2017, interest at 12% per annum, due from

        September 16, 2017 to May 7, 2018, convertible into Common Stock at a

        Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of

        the lowest Closing Bid Price of the Common Stock for the 30 Trading

        Days preceding the Conversion Date – net of unamortized debt discount

        of $40,883 and $0, respectively     

 

50,617

 

-

 

 

 

 

 

Convertible note payable to lender dated August 8, 2017 interest at 12% per

        annum, due August 8, 2018, convertible into Common Stock at a

        Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of

        the lowest Closing Bid Price of the Common Stock for the 30 Trading

        Days preceding the Conversion Date – net of unamortized debt discount

        of $21,370 and $0, respectively     

 

3,630

 

-

 

 

 

 

 

Note payable to brother of Marco Alfonsi, Chief Executive Officer of the Company, interest at 10% per annum, due August 22, 2016 (now past due)

 

5,000

 

5,000

 

 

 

 

 

Loan payable to Mckenzie Webster Limited (“MWL”), an entity controlled by the former Chairman of the Board of Directors of the Company, non-interest bearing, due on demand

 

3,000

 

3,000

Total

 

$

162,604

 

$

58,315




12






The derivative liability of the convertible notes payable at September 30, 2017 consisted of:


 

 

Face Value

 

Derivative Liability

Convertible notes payable to lender dated from March 15, 2016 (as amended June 2, 2016) to September 13, 2017, due from April 6, 2017 to March 13, 2018

 

$

37,000

 

$

39,539

 

 

 

 

 

Convertible notes payable to lender dated February 1, 2016 (as amended

        December 21, 2016) and December 21, 2016, due February 1, 2017 and

        May 20, 2017

 

$

65,000

 

$

67,889

 

 

 

 

 

Convertible notes payable to Pasquale and Rosemary Ferro dated from

        May 2, 2017 to November 3, 2017, due from September 16, 2017 to

        May 7, 2018  

 

$

91,500

 

$

128,056

 

 

 

 

 

Convertible notes payable to lender dated August 8, 2017, due August 8,

        2018

 

$

25,000

 

$

44,444

 

 

 

 

 

Totals

 

$

218,500

 

$

279,928


The above convertible notes contain a variable conversion feature based on the future trading price of the Company common stock. Therefore, the number of shares of common stock issuable upon conversion of the notes is indeterminate. Accordingly, we have recorded the fair value of the embedded conversion features as a derivative liability at the respective issuance dates (or amendment dates) of the notes ($437,575 total for the nine months ended September 30, 2017) and charged the applicable amounts to debt discounts ($179,250 total for the nine months ended September 30, 2017) and the remainder to other expense ($258,325 total for the nine months ended September 30, 2017). The increase (decrease) in the fair value of the derivative liability from the respective issuance dates (or amendment dates) of the notes to the measurement date ($236,854 total decrease for the nine months ended September 30, 2017) is charged (credited) to other expense (income). The fair value of the derivative liability of the notes is measured at the respective issuance dates and quarterly thereafter using the Black Scholes option pricing model. Assumptions used for the calculations of the derivative liability of the notes at September 30, 2017 include (1) stock price of $0.0092 per share, (2) exercise price of $0.0045 per share, (3) terms ranging from 0 days to 312 days, (4) expected volatility of 281% and (5) risk free interest rates ranging from 0.00% to 1.28%.


NOTE 8 – Preferred Stock


The Company issued a total of 10 shares of CANB Series A Preferred Stock (5 shares to MWL and 5 shares to Marco Alfonsi) in exchange for the retirement of a total of 100,000,000 shares of CANB common stock (50,000,000 shares from MWL and 50,000,000 shares from Marco Alfonsi).


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.


NOTE 9 – Common Stock


On January 2, 2016, the Company issued 104,500 shares of CANB common stock to a technical consultant in satisfaction of a $12,864 account payable to that vendor.


On March 9, 2016, the Company issued 140,000 shares of CANB common stock to a technical consultant in satisfaction of a $8,693 account payable to that vendor.


On October 6, 2016, the Company issued 400,000 shares of CANB common stock to a technical consultant in satisfaction of a $25,617 account payable to that vendor.


On February 2, 2017, the Company issued 200,000 shares of CANB common stock to a financial consultant for services rendered. The $11,000 fair value of the 200,000 shares of CANB common stock was charged to consulting fees in the three months ended March 31, 2017.


On February 13, 2017, the Company issued 1,685,900 shares of CANB common stock to the brother of the Chief Executive Officer of the Company in satisfaction of notes payable of $15,000 and accrued interest payable of $1,859.


On March 22, 2017, the Company issued 6,785,316 shares of CANB common stock to a lender in satisfaction of notes payable of $50,000 and accrued interest payable of $5,979.




13






On April 17, 2017, the Company issued 5,000,000 shares of CANB common stock to a consultant for services rendered. The $103,500 fair value of the 5,000,000 shares of CANB common stock will be charged to consulting fees in the three months ended June 30, 2017.


On June 21, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,975 fair value of the 250,000 shares of CANB common stock will be charged to consulting fees in the three months ended June 30, 2017.


On June 28, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $5,000 fair value of the 250,000 shares of CANB common stock will be charged to consulting fees in the three months ended June 30, 2017.


On August 25, 2017, the Company issued 7,142,857 shares of CANB common stock to a lender in satisfaction of notes payable of $50,000 and accrued interest payable of $3,331.


On August 25, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $3,750 fair value of the 250,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended September 30, 2017.


On September 5, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $4,375 fair value of the 250,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended September 30, 2017.


On September 7, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $32,750 fair value of the 2,500,000 shares of CANB common stock will be charged to consulting fees in the three months ended September 30, 2017.


On September 11, 2017, the Company issued 250,000 and 250,000 shares of CANB common stock to two consultants for services rendered, respectively. The $3,350 fair value of each 250,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended September 30, 2017.


On September 25, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $2,525 fair value of the 2,500,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended September 30, 2017.


NOTE 10 – Stock Options and Warrants


A summary of stock options and warrants activity follows:


 

Shares of Common Stock Exercisable Into

 

Stock

 

 

 

 

 

Options

 

Warrants

 

Total

Balance, December 31, 2015

200,000 

 

307,500 

 

507,500 

Granted in 2016

 

 

Expired in 2016

(150,000)

 

(60,000)

 

(210,000)

 

 

 

 

 

 

Balance, December 31, 2016

50,000 

 

247,500 

 

297,500 

Granted in 1Q, 2Q and 3Q 2017

 

 

Cancelled in 1Q, 2Q and 3Q 2017

 

 

 

 

 

 

 

 

Balance, September 30, 2017

50,000 

 

247,500 

 

297,500 


Issued and outstanding stock options as of September 30, 2017 consist of:


Year

 

Number Outstanding

 

 

Exercise

 

Year of

Granted

 

And Exercisable

 

 

Price

 

Expiration

2009

 

50,000

 

 

1.00

 

2019

 

 

 

 

 

 

 

 

Total

 

50,000

 

 

 

 

 




14






Issued and outstanding warrants as of September 30, 2017 consist of:


Year

 

Number Outstanding

 

 

Exercise

 

Year of

Granted

 

And Exercisable

 

 

Price

 

Expiration

2010

 

247,500

 

 

1.00

 

2020

 

 

 

 

 

 

 

 

Total

 

247,500

 

 

 

 

 


NOTE 11 – Income Taxes


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


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


 

 

Nine Months Ended September 30,

 

 

2017

 

2016

Expected income tax (benefit) at 35%

$

(163,186)

 

$

(119,750)

 

 

 

 

 

Non-deductible stock-based compensation

39,703 

 

10,500 

 

 

 

 

 

Non-deductible amortization of debt discounts

76,751 

 

 

 

 

 

Non-taxable (income) from derivative liability

(76,869)

 

 

 

 

 

Increase in deferred income tax assets 

  valuation allowance

 

123,601 

 

109,250 

 

 

 

 

 

Provision for (benefit from) income taxes

 

$

 

$


Deferred income tax assets consist of:

 

 

September 30,

 2017

 

December 31, 2016

Net operating loss carryforward

 

1,344,080 

 

1,220,479 

 

 

 

 

 

Valuation allowance

 

(1,344,080)

 

(1,220,479)

 

 

 

 

 

Net

 

$

 

$


Based on management's present assessment, the Company has not yet determined it to be more likely than not that a deferred income tax asset of $1,344,080 attributable to the future utilization of the $3,829,650 net operating loss carryforward as of September 30, 2017 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred income tax asset in the consolidated financial statements at September 30, 2017. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforward expires in years 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2033, 2034, 2035, 2036, and 2037 in the amount of $1,369, $518,390, $594,905, $686,775, $159,141, $151,874, $135,096, $166,911, $311,890, $25,511, $338,345, $386,297, and $353,146, 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 2013 tax year returns expired in March 2017.

 

The Company recognizes interest and penalties associated with uncertain tax positions as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance sheets. There were no interest or penalties paid during 2017 and 2016.




15






NOTE 12 – Commitments and Contingencies


Employment Agreements


On May 14, 2015, the Company executed an Executive Employment Agreement with Marco Alfonsi (“Alfonsi”) for Alfonsi to serve as the Company's chief executive officer for cash compensation of $5,000 per month (increased to $6,000 per month in August 2015). Pursuant to the agreement, the Company issued 10,000,000 restricted shares of CANB common stock to Alfonsi on June 14, 2015. Alfonsi may terminate his employment upon 30 days written notice to the Company. The Company may terminate Alfonsi's employment upon written notice to Alfonsi by a vote of the Board of Directors.


On August 17, 2015, the Company executed an Employment Agreement with Romuald Stone ("Stone") for Stone to serve as the Company's Chief Technology Officer for cash compensation of $12,500 per month. Effective August 17, 2016, the agreement terminated.


Consulting Agreements


On 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.


Lease Agreements


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


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


Rent expense was $48,795 for each of the nine months ended September 30, 2017 and 2016.


At September 30, 2017, the future minimum lease payments under non-cancellable operating leases were:


Year ending December 31, 2017

9,391

Year ending December 31, 2018

27,900

 

 

Total

$

37,291



Major Customers


For the nine months ended September 30, 2017, two customers accounted for approximately 45% and 29%, respectively, of total service revenues.


For the nine months ended September 30, 2016, three customers accounted for approximately 36%, 30%, and 15%, respectively, of total service revenues.


Public Offering of Units


On August 2, 2016, the Company’s Registration Statement on Form S-1 was declared effective by the Securities and Exchange Commission. On a self-underwritten basis, the Company was offering up to 40,000,000 Units at a price of $0.05 per Unit or $2,000,000 maximum. Each Unit consisted of one share of Company common stock and one warrant to purchase ½ share of Company common stock of a price of $0.10 per share for a period of three years. There was no minimum offering amount or escrow required as a condition to closing. On May 5, 2017, the Company withdrew the Registration Statement; no units were sold in the offering.




16






Litigation


On November 25, 2016, the landlord under the lease agreement dated September 11, 2015 (“QPR”) served us a Notice of Default. On December 5, 2016, QPR filed a Petition to Recover Possession of Real Property seeking unpaid rent of $12,540 (as of November 21, 2016) and possession of the premises. The Company subsequently paid QPR and QPR dismissed the action.


NOTE 13 – Related Party Transactions


ProAdvanced Group, Inc. (“PAG”), an entity controlled by the Company’s chief executive officer, is a customer of CANB. At September 30, 2017, CANB had an account receivable from PAG of $1,190.


Island Stock Transfer (“IST”), an entity controlled by Carl Dilley, a Company director, is both a customer and vendor of CANB. As of June 30, 2017, CANB had an account receivable from IST of $3,500 and an account payable to IST of $2,351. For the nine months ended September 30, CANB had revenues from IST of $3,500.


Stock Market Manager, Inc. (see Note 5) is also an entity controlled by Mr. Dilley. At September 30, 2017, CANB had an account payable to Stock Market Manager Inc. of $1,676.


NOTE 14 – Subsequent Events


On October 3, 2017, the Company issued a Convertible Promissory Note of $2,000 to a lender for loan proceeds of $2,000. The note bears interest at a rate of 12% per annum, are due on May 7, 2018, and is convertible at the option of the lender into shares of the Company common stock at a Conversion Price equal to the lesser of (i) $0.01 per share or (ii) 50% of the lowest Closing Bid Price of the Common Stock for the 30 Trading Days preceding the Conversion Date.


On October 3, 2017, the Company executed an Executive Service Agreement with Marco Alfonsi (“Alfonsi”) for Alfonsi to serve as the Company's chief executive officer for cash compensation of $10,000 per month. Pursuant to the agreement, the Company issued 1 share of CANB Series A Preferred Stock to Alfonsi on October 4, 2017.


On October 4, 2017, the Company issued 2 shares of CANB Series A Preferred Stock to Alfonsi in consideration of Alfonsi’s cancellation of accrued salaries payable of $120,000 owed to Alfonsi.


On October 13, 2017, the Company executed a Securities Purchase Agreement (the “SPA”) with RedDiamond Partners LLC (“RedDiamond”). Pursuant to the Agreement, RedDiamond agreed to purchase an aggregate of $150,000 of Series B Preferred Shares (“Preferred Shares”), at $0.95 per share, for an aggregate of 157,895 Preferred Shares. The SPA provides for the purchase to be conducted through multiple closings, with the first closing occurring within ninety (90) days from the execution of the Agreement (“First Closing”). On October 13, the Company received $100,000 from RedDiamond. Additional closings are to be conducted on each monthly anniversary following the date of the First Closing (“Additional Closings”) until RedDiamond has purchased an aggregate of $150,000 of Preferred Shares. The Series B Preferred Shares (designated on November 15, 2017) have no voting rights, are entitled to dividends at a rate of 5% per annum, and are convertible into shares of common stock at a Conversion Price (as defined in the SPA), subject to a $20,000 maximum per Monthly Conversion Period.


On October 17, 2017, November 1, 2017 and November 9, 2017, the Company executed three Consulting Agreements with three consultants. Pursuant to the agreements, the Company issued or is required to issue 500,000 (not yet issued), 250,000 and 2,500,000 shares of CANB Common on October 17, 2017, November 2, 2017, and November 9, 2017, respectively.


On October 17, 2017, the Company was issued a Secured Promissory Note of $60,000 from a Borrower for loan proceeds of $60,000. The note bears interest at a rate of 12% per annum, and is due on October 17, 2018. On November 10, 2017, the Company entered into an Agreement for Sale and Purchase of Business Assets with the borrower to purchase its business assets. The consideration of $60,000 was paid via the cancellation of the Secured Promissory Note.  


In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events through November 17, 2017, 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.



17






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. (“Prosperity”), a New York corporation incorporated on April 2, 2008. We provide document, project, marketing and sales management systems to business clients through our website and proprietary software and also have a division focusing on the development and sale of products containing CBD. The Company is presently in the process of dissolving Prosperity.


The consolidated financial statements include the accounts of CANB and its wholly owned subsidiary Prosperity from the date of its acquisition on January 5, 2015.


Results of Operations


Three Months Ended September 30, 2017 compared with Three Months Ended September 30, 2016:


Revenues decreased $2,229 from $24,327 in 2016 to $22,098 in 2017.


Cost of product sales increased $10,559 from $0 in 2016 to $10,559 in 2017 due to the launch of new product sales.


Officers and directors compensation and payroll taxes decreased $19,520 from $38,897 in 2016 to $19,377 in 2017.  The 2016 expense amount ($38,897) consists of salary paid to our Chief Technology Officer ($18,750) and Chief Executive Officer ($18,000) pursuant to their respective employment agreements and related payroll taxes ($2,147). The 2017 expense amount ($19,377) consists of salaries accrued to our Chief Executive Officer ($18,000) pursuant to their respective employment agreements and related payroll taxes ($1,377).


Consulting fees increased $106,065 from $4,104 in 2016 to $110,709 in 2017. The 2016 expense amount ($4,104) includes stock-based compensation of $0. The 2017 expense amount ($110,709) includes stock-based compensation of $76,209, resulting from stock issued for the service of consultants.


Advertising expense increased $8,251 from $5,551 in 2016 to $13,802 in 2017.  


Hosting expense decreased $5,393 from $8,325 in 2016 to $2,932 in 2017.


Rent expense remained same at $16,265 in 2016 and 2017.


Professional fees decreased $12,080 from $20,050 in 2016 to $7,970 in 2017.


Depreciation of property and equipment increased $1 from $806 in 2016 to $807 in 2017.  


Amortization of intangible assets remained same at $993 in 2016 and 2017.


Other operating expenses increased $7,178 from $13,464 in 2016 to $20,642 in 2017.  The increase was due largely to higher conference expense and travel expenses in 2017 compared to 2016.


Net loss decreased $102,064 from a loss of $83,961 in 2016 to an income of $18,103 in 2017. The decrease was due to the $95,601 increase in total operating expenses and the increase of $199,894 in other income – net from $167 other income – net in 2016 to $200,061 other income– net in 2017, and the $2,229 decrease in revenues.


Nine Months Ended September 30, 2017 compared with Nine Months Ended September 30, 2016:


Revenues decreased $6,050 from $71,990 in 2016 to $65,940 in 2017.  


Cost of product sales increased $11,698 from $0 in 2016 to $11,698 in 2017 due to the launch of new product sales.



18






Officers and directors compensation and payroll taxes decreased $101,254 from $159,463 in 2016 to $58,209 in 2017.  The 2016 expense amount ($159,463) consists of salary paid to our Chief Technology Officer ($93,750,000) and Chief Executive Officer ($54,000) pursuant to their respective employment agreements and related payroll taxes ($11,713). The 2017 expense amount ($58,209) consists of salaries accrued to our Chief Executive Officer ($54,000) pursuant to their respective employment agreements and related payroll taxes ($4,209).


Consulting fees increased $84,018 from $98,473 in 2016 to $182,491 in 2017. The 2016 expense amount ($98,473) includes stock-based compensation of $30,000. The 2017 expense amount ($182,491) includes stock-based compensation of $113,438, resulting from stock issued for the service of consultants.


Advertising expense increased $25,011 from $10,301 in 2016 to $35,312 in 2017.  


Hosting expense decreased $2,846 from $20,465 in 2016 to $17,619 in 2017.


Rent expense remained same at $48,795 in 2016 and 2017.


Professional fees increased $33,919 from $36,787 in 2016 to $70,706 in 2017.


Depreciation of property and equipment decreased $38 from $2,459 in 2016 to $2,421 in 2017.  


Amortization of intangible assets decreased $1 from $2,980 in 2016 to $2,979 in 2017.


Other operating expenses increased $46,250 from $34,911 in 2016 to $81,161 in 2017.  The increase was due largely to higher office expenses and conference expenses in 2017 compared to 2016.


Net loss increased $124,103 from a loss of $342,142 in 2016 to a loss of $466,245 in 2017. The increase was due to the $96,757 increase in total operating expenses and the decrease of $21,296 in other income – net from $502 other income – net in 2016 to $20,794 other expense– net in 2017, and the $6,050 decrease in revenues.


Liquidity and Capital Resources


At September 30, 2017, we had cash and cash equivalents of 4,225 and negative working capital of $731,850.


Cash and cash equivalents decreased $25,968 from $30,193 at December 31, 2016 to $4,225 at September 30, 2017.  For the nine months ended September 30, 2017, $179,250 was provided by financing activities and $205,218 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 September 30, 2017, 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 first fiscal quarter for the period ended September 30, 2017 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.



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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 September 30, 2017 follows:


On February 2, 2017, the Company issued 200,000 shares of CANB common stock to a financial consultant as payment in full for $11,000 of services rendered for the period January 1, 2016 through March 31, 2017.


On February 13, 2017, the Company issued 1,685,900 shares of CANB common stock to the brother of the Chief Executive Officer of the Company in satisfaction of notes payable of $15,000 and accrued interest payable of $1,859.


On March 22, 2017, the Company issued 6,785,316 shares of CANB common stock to a lender in satisfaction of notes payable of $50,000 and accrued interest payable of $5,979.


On April 17, 2017, the Company issued 5,000,000 shares of CANB common stock to a consultant as payment in full for $103,500 of services rendered for the period April 1, 2016 through June 30, 2017.


On June 21, 2017, the Company issued 250,000 shares of CANB common stock to a financial consultant as payment in full for $5,975 of services rendered for the period April 1, 2016 through June 30, 2017.


On June 28, 2017, the Company issued 250,000 shares of CANB common stock to a financial consultant as payment in full for $5,000 of services rendered for the period April 1, 2016 through June 30, 2017.


On August 25, 2017, the Company issued 7,142,857 shares of CANB common stock to a lender in satisfaction of notes payable of $50,000 and accrued interest payable of $3,331.


On August 25, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $3,750 fair value of the 250,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended September 30, 2017.


On September 5, 2017, the Company issued 250,000 shares of CANB common stock to a consultant for services rendered. The $4,375 fair value of the 250,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended September 30, 2017.


On September 7, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $32,750 fair value of the 2,500,000 shares of CANB common stock will be charged to consulting fees in the three months ended September 30, 2017.


On September 11, 2017, the Company issued 250,000 and 250,000 shares of CANB common stock to two consultants for services rendered, respectively. The $3,350 fair value of each 250,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended September 30, 2017.


On September 25, 2017, the Company issued 2,500,000 shares of CANB common stock to a consultant for services rendered. The $2,525 fair value of the 2,500,000 shares of CANB common stock will be partially charged to consulting fees in the three months ended September 30, 2017.


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.




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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

 

Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer

32.1

 

Section 1350 certification of Chief Executive Officer

99.1

 

Amendment to Articles of Incorporation and Certificate of Designations for Series B Preferred Stock **

99.2

 

Certificate of Designations for Series B Preferred Stock***

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

*         filed with the Form S-1 Registration Statement filed with the SEC on December 2, 2015 and incorporated

           herein by reference.


**       filed with the Form 8-K filed with the SEC on November 15, 2017 and incorporated herein by reference.


***     filed with the Form 8-K filed with the SEC on October 18, 2017 and incorporated herein by reference.




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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.


Date: November 20, 2017 


CANBIOLA, INC.

 

 

By:

/s/ Marco Alfonsi

 

Marco Alfonsi, Chief Executive Officer




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