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Can B Corp - Quarter Report: 2019 June (Form 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 June 30, 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: 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 [X] 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 August 14, 2019 was 671,319,774 shares.

 

 

 

   
 

 

CANBIOLA, INC.

FORM 10-Q

June 30, 2019

 

TABLE OF CONTENTS

 

    Page No.
PART I. - FINANCIAL INFORMATION  
   
Item 1. Financial Statements  
  Consolidated Balance Sheets June 30, 2019 and December 31, 2018 3
  Consolidated Statements of Operations – Six Months Ended June 30, 2019 and 2018 4
  Consolidated Statements of Cash Flows – Six Months Ended June 30, 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. 25
Item 4 Controls and Procedures. 25
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 25
Item 1A. Risk Factors 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 26
Item 4. Mine Safety Disclosures 26
Item 5. Other Information 26
Item 6. Exhibits 26

 

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PART 1 - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Canbiola, Inc. and Subsidiary

Consolidated Balance Sheets

 

   June 30, 2019   December 31, 2018 
   (Unaudited)     
Assets        
Current assets:          
Cash and cash equivalents  $413,098   $807,747 
Accounts receivable, less allowance for doubtful accounts of $0 and $0, respectively   588,560    39,172 
Inventory   87,854    87,104 
Prepaid expenses - current   310,747    210,351 
Other receivable - current   5,000    - 
Total current assets   1,405,259    1,144,374 
           
Property and equipment, at cost less accumulated depreciation of $48,512 and $20,248, respectively   991,811    59,619 
           
Other assets:          
Deposit - noncurrent   19,786    48,726 
Prepaid expenses - noncurrent   2,688,565    2,365,719 
Note receivable - noncurrent   19,390    19,389 
Other receivable – noncurrent   15,225    - 
Intangible assets, net of accumulated amortization of $7,160 and $0, respectively   191,495    - 
Goodwill   55,849    55,849 
Right-of-Use Asset, net of accumulated depreciation of $8,767 and $0, respectively   81,824    - 
Total other assets   3,072,134    2,489,683 
           
Total assets  $5,469,204   $3,693,675 
           
Liabilities and Stockholders’ Deficiency          
Current liabilities:          
Notes and loans payable  $15,841   $19,205 
Accounts payable   91,135    73,059 
Accrued officers’ compensation   68,750    68,750 
Other accrued expenses payable   33,177    43,778 
Current portion of lease liability   32,552    - 
Total current liabilities   241,455    204,792 
           
Non-current portion of lease liability   50,582    - 
           
Total liabilities   292,037    204,792 
           
Commitments and contingencies (Notes 14)          
           
Stockholders’ equity:          
Preferred stock, authorized 5,000,000 shares:          
Series A Preferred stock, no par value: authorized 20 shares, issued and outstanding 20 and 18 shares, respectively   5,539,174    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 1,500,000,000 shares, issued and outstanding 595,171,059 and 440,566,325 shares, respectively   19,941,253    16,624,557 
Additional Paid-in capital   872,976    872,976 
Additional Paid-in capital – Stock Options (Note 11)   202,200    202,200 
Accumulated deficit   (21,378,758)   (18,768,753)
Total stockholders’ equity   5,177,167    3,488,883 
           
Total liabilities and stockholders’ equity  $5,469,204   $3,693,675 

 

See notes to consolidated financial statements.

 

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Canbiola, Inc. and Subsidiary

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

   Six Months Ended June 30,   Three Months Ended June 30, 
   2019   2018   2019   2018 
Revenues                    
Product Sales  $1,147,139   $211,203   $631,779   $148,234 
Service Revenue   3,600    12,757    1,800    5,957 
Total Revenues   1,150,739    223,960    633,579    154,191 
Cost of product sales   561,757    91,439    299,204    46,852 
Gross Profit   588,982    132,521    334,375    107,339 
                     
Operating costs and expenses:                    
Officers and director’s compensation (including stock- based compensation of $834,230, $185,400, $336,882, and $0, respectively)   1,274,688    321,650    829,138    58,850 
Consulting fees (including stock-based compensation of $953,914, $572,777, $388,138 and $344,869 respectively)   1,091,086    643,676    427,335    367,769 
Advertising expense   153,762    37,008    127,374    14,675 
Hosting expense   7,917    7,478    7,467    3,810 
Rent expense   12,344    33,065    484    16,800 
Professional fees   112,016    70,339    74,180    56,956 
Depreciation of property and equipment   14,297    1,604    11,532    801 
Amortization of intangible assets   7,160    -    4,966    - 
Other   523,069    120,827    287,188    56,113 
                     
Total operating expenses   3,196,339    1,235,647    1,769,664    575,774 
                     
Loss from operations   (2,607,357)   (1,103,126)   (1,435,289)   (468,435)
                     
Other income (expense):                    
Interest income   317    5,024    317    2,512 
Income from derivative liability   -    844,051    -    (231,655)
Loss on stock issuance        (185,104)        (185,104)
Loss on debt conversion        (57,738)        (57,738)
Interest expense (including amortization of debt discounts of $0 and $54,165, respectively)   (2,965)   (70,425)   (2,519)   (34,456)
                     
Other income (expense) - net   (2,648)   535,808    (2,202)   (506,441)
                     
Loss before provision for income taxes   (2,610,005)   (567,318)   (1,437,491)   (974,876)
                     
Provision for income taxes   -    -    -    - 
                     
Loss and comprehensive loss  $(2,610,005)  $(567,318)   (1,437,491)   (974,876)
                     
Net income (loss) per common share - basic and diluted  $0.00   $0.00    0.00    0.00 
                     
Weighted average common shares outstanding –                    
Basic   532,985,996    232,957,482    564,041,249    236,270,276 
Diluted   781,082,928    371,751,524    715,286,813    377,833,277 

 

See notes to consolidated financial statements.

 

 4 
 

 

Canbiola, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

 

   Six Months Ended June 30, 
   2019   2018 
Operating Activities:          
Net loss  $(2,610,005)  $(567,318)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock based compensation, net of prepaid stock-
based consulting fees
   1,553,216    758,177 
Loss on stock issuance   -    185,104 
Loss on debt conversion   -    57,738 
Debt issuance expense   -    14,000 
Expense from derivative liability   -    (844,051)
Depreciation of property and equipment - General   14,296    1,604 
Depreciation of property and equipment - COGS   24,973    - 
Amortization of intangible assets   7,160    - 
Amortization of debt discounts   -    54,165 
Changes in operating assets and liabilities:          
Accounts receivable   (549,388)   (8,057)
Inventory   (750)   2,712 
Prepaid expenses   (7,850)   - 
Other receivable   (20,225)   - 
Security deposit   28,940    - 
Accounts payable   18,076    (10,906)
Accrued officers’ compensation   -    72,500 
Other accrued expenses payable   (10,601)   10,607 
           
Net cash used in operating activities   (1,317,230)   (273,725)
           
Investing Activities:          
Intangible assets additions   (50,000)   - 
Fixed assets additions   (962,698)   (38,355)
           
Net cash used in investing activities   (1,012,698)   (38,355)
           
Financing Activities:          
Repayments of notes and loans payable   (3,364)   - 
Repayments of lease liability   (7,457)   - 
Proceeds received from notes and loans payable   -    135,000 
Proceeds from sale of common stock   1,946,100    - 
Proceeds from sale of Series B preferred stock   -    249,000 
           
Net cash provided by financing activities   1,935,279    384,000 
           
Increase (decrease) in cash and cash equivalents   (394,649)   71,920 
           
Cash and cash equivalents, beginning of period   807,747    1,652 
           
Cash and cash equivalents, end of period  $413,098   $73,572 
           
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 debt  $-   $15,000 
           
Issuance of common stock in satisfaction of directors’ fees  $-   $202,800 
           
Issuance of common stock in satisfaction of Accrued interest  $-    4,246 
           
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

Six Months Ended June 30, 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’s durable equipment products, such as sam® units with CBD infused pads, are marketed and sold through its wholly owned subsidiaries, Duramed Inc. (incorporated in or around November 2018) and DuramedNJ LLC (incorporated in or around May 2019) (collectively, “Duramed”). The Company’s wholly owned subsidiary, Radical Tactical LLC (“Radical Tactical”), formed May, 2019 provides the marketplace with millennium targeted product lines such as vapes, gums, and kratom. The Company’s hemp aggregation business is run through NY Hemp Depot LLC (the “Hemp Depot”), which was formed in or around July, 2019.

 

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, spa products, and concentrates. 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 owns document management and email marketing platforms which it is seeking to sell or repurpose.

 

For the periods presented, the assets, liabilities, revenues, and expenses are those of CANB. Prosperity and Radical Tactical had no activity for the periods presented. Financial information for PHP, Radical Tactical 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 June 30, 2019, the Company had cash and cash equivalents of $413,098 and a working capital of $1,158,217. For the six months ended June 30, 2019 and 2018, the Company had net loss of $2,610,005 and $567,318, 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, Prosperity and Radical Tactical. All intercompany balances and transactions have been eliminated in consolidation.

 

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(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.

 

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(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.

 

(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.”

 

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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.

 

(m) Advertising

 

Advertising costs are expensed as incurred and amounted to $153,762 and $37,008 for the period ended June 30, 2019 and 2018, respectively.

 

(n) Research and Development

 

Research and development costs are expensed as incurred. In the period ended June 30, 2019 and 2018, the Company spent $70,000 and $12,500 in research and development which was expenses as spent, respectively.

 

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(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 9, 10 and 11).

 

(q) Recent Accounting Pronouncements

 

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 14) 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.

 

NOTE 4 – Inventories

 

Inventories consist of:        
         
   June 30, 2019   December 31, 2018 
Raw materials  $86,454   $79,652 
           
Finished goods   1,400    7,452 
Total  $87,854   $87,104 

 

 10 
 

 

NOTE 5 – Notes Receivable

 

Notes receivable consist of:        
         
   June 30, 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.

 

NOTE 6 – Property and Equipment, Net

 

Property and Equipment, net, consist of:

 

   June 30, 2019   December 31, 2018 
         
Furniture & Fixtures  $19,018   $19,018 
           
Office Equipment   12,378    20,992 
           
Manufacturing Equipment   243,825    46,384 
           
Medical Equipment   773,869    - 
           
Total   1,049,090    86,394 
           
Accumulated depreciation   (57,279)   (26,775)
           
Net  $991,811   $59,619 

 

NOTE 7 – Intangible Assets, Net

 

Intangible assets, net, consist of:

 

   June 30, 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   (67,588)   (60,428)
           
Net  $191,495   $0 

 

 11 
 

 

The CBD related technology were purchased from Hudilab, Inc. (“HUDI”) and Seven Chakras, LLC (“Seven Chakras”) during 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.

 

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 8 – Notes and Loans Payable

 

Notes and loans payable consist of:        
         
   June 30, 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   7,841    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  $15,841   $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.

 

 12 
 

 

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.

 

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.

 

 13 
 

 

On May 28, 2019, the Company issued 3 shares of CANB Series A Preferred Stock to Stanley L. Teeple pursuant to the employment agreement with him. The fair value of the issuance totaled at $1,203,000 and will be amortized over the vesting period of four years.

 

On April 26, 2019, the Company issued 1,930,693 shares of CANB common stock to RedDiamond in exchange for the retirement of 15,000 shares of CANB Series B Preferred Stock.

 

On May 1, 2019, the Company issued 2,574,257 shares of CANB common stock to RedDiamond in exchange for the retirement of 20,000 shares of CANB Series B Preferred Stock.

 

On May 9, 2019, the Company issued 7,113,059 shares of CANB common stock to RedDiamond in exchange for the retirement of 55,263 shares of CANB Series B Preferred Stock.

 

On June 7, 2019, the Company issued 3,217,822 shares of CANB common stock to RedDiamond in exchange for the retirement of 25,000 shares of CANB Series B Preferred Stock.

 

NOTE 10 – 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 11).

 

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.

 

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.

 

 14 
 

 

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.

 

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.

 

 15 
 

 

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.

 

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.

 

 16 
 

 

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.

 

From April 1, 2019 through June 30, 2019 the company issued an aggregate of 15,511,767 shares of CANB Common Stock to multiple consultants for services rendered.

 

From April 1, 2019 through June 30, 2019, the Company issued an aggregate of 4,174,886 shares of CANB Common Stock to members of the Advisory Board, Medical Advisory Board, and Sports Advisory Board for services rendered.

 

From April 1, 2019 through June 30, 2019, the Company issued an aggregate of 1,384,621 shares of Common Stock under the terms of executive employment agreements.

 

From April 1, 2019 through June 30, 2019, the Company issued an aggregate of 25,862,071 shares of CANB shares under the terms of the Stock Purchase Agreements for total proceeds of $750,000.

 

 17 
 

 

NOTE 11 – 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 & Q2 2019   -    -    - 
Cancelled in Q1& Q2 2019   (50,000)   -    (50,000)
Exercised in Q1 & Q2 2019   -    -    - 
                
Balance, June 30, 2019   6,000,000    2,247,500    8,247,500 

 

Issued and outstanding stock options as of June 30, 2019 consist of:

 

Year  Number Outstanding   Exercise   Year of 
Granted  And Exercisable   Price   Expiration 
                
2018   6,000,000   $0.001    2023 

 

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 June 30, 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.

 

 18 
 

 

NOTE 12 – 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 21% and 35% to pretax income (loss) as follows:

 

   Six Months June 30, 
   2019   2018 
         
Expected income tax (benefit) at 21%  $(548,101)  $85,587 
           
Non-deductible stock-based compensation   375,510    90,449 
           
Non-deductible amortization of debt discounts   -    5,977 
           
Non-deductible amortization of intangible assets   -    - 
           
Non-deductible expense from derivative liability   -    (225,898)
           
Increase in deferred income tax assets valuation allowance   172,591    43,885 
           
Provision for (benefit from) income taxes  $-   $- 

 

Deferred income tax assets consist of:

 

   June 30, 2019   December 31, 2018 
         
Net operating loss carryforward   1,817,184    1,644,593 
           
Valuation allowance   (1,817,184)   (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 $1,817,184 attributable to the future utilization of the $5,608,796 net operating loss carryforward as of June 30, 2019 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred income tax asset in the financial statements at June 30, 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 $821,862, 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.

 

 19 
 

 

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.

 

NOTE 13 – Segment Information

 

The Company has one reportable segment: Durable Equipment Products.

 

The accounting policies of the segment described above are the same as those described in Summary of Significant Accounting Policies in Note 3. The Company evaluates the performance of the Durable Equipment Products segment based on income (loss) before income taxes, which includes interest income.

 

  

Durable

Equipment

Products

 
Three months ended March 31, 2019     
Revenue from external customers   297,513 
Revenue from other segments   - 
Segment profit   190,627 
Segment assets   517,899 
      
Six months ended June 30, 2019     
Revenue from external customers   604,792 
Revenue from other segments   - 
Segment profit   284,101 
Segment assets   773,869 

 

  

Three Months

Ended

June 30, 2019

  

Six Months

Ended

June 30, 2019

 
         
Total profit for reportable segment  $93,500   $284,101 
Other income   26    26 
           
Income before income taxes  $93,526   $284,127 

 

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 9). 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.

 

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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 9). 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 proportionately vesting over four years beginning December 31, 2018 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. In May 2019 Mr. Teeple was granted an additional 3 shares of Series A Preferred.

 

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.

 

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.

 

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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 six months ended June 30, 2019 and 2018 was $12,344 and $33,065, respectively.

 

At June 30, 2019, the future minimum lease payments under non-cancellable operating leases were:

 

Year ended December 31, 2019   19,353 
Year ended December 31, 2020   39,666 
Year ended December 31, 2021   33,880 
      
Total  $92,899 

 

The lease liability of $83,134 at June 30, 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 92,899 at June 30, 2019.

 

Major Customers

 

For the six months ended June 30, 2019, there were no customers that accounted for more than 10% of total revenues.

 

For the six months ended June 30, 2018, one customer accounted for approximately 14% 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 June 30, 2019, CANB had an account receivable from PAG of $7,240. For the six months ended June 30, 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 June 30, 2019, CANB had an account receivable from IST of $7,035. For the six months ended June 30, 2019, CANB had revenues from IST of $0.

 

Stock Market Manager, Inc. is also an entity controlled by Mr. Dilley. For the six months ended June 30, 2019, CANB had an account payable to Stock Market Manager Inc. of $1,676.

 

During the six months ended June 30, 2019, we had products and service sales to related parties totaling $0.

 

NOTE 17 – Subsequent Events

 

On July 11, 2019 the company formed a wholly owned subsidiary NY Hemp Depot LLC, a NV Corporation in accordance with the requirements of the July 3, 2019 Joint Venture with NY-Shi. LLC and EWSD I LLC for the purpose of cultivation and amalgamation of hemp biomass for processing in a Pueblo, CO facility.

 

On July 15, 2019, the Company amended its Articles of Incorporation to increase its authorized common stock to 1,500,000,000 shares.

 

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events through August 14, 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.

 

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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. The Company’s durable equipment products, such as sam® units with CBD infused pads, are marketed and sold through its wholly owned subsidiaries, Duramed Inc. (incorporated in or around November 2018) and DuramedNJ LLC (incorporated in or around May 2019) (collectively, “Duramed”). The Company’s wholly owned subsidiary, Radical Tactical LLC (“Radical Tactical”), formed May, 2019 provides the marketplace with millennium targeted product lines such as vapes, gums, and kratom. The Company’s hemp aggregation business is run through NY Hemp Depot LLC (the “Hemp Depot”), which was formed in or around July, 2019. 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 subsidiaries for the three months ended June 30, 2019.

 

Results of Operations

 

Three Months Ended June 30, 2019 compared with Three Months Ended June 30, 2018:

 

Revenues increased $479,388 from $154,191 in 2018 to $633,579 in 2019.

 

Cost of product sales increased $252,352 from $46,852 in 2018 to $299,204 in 2019 due to the expansion of current product sales and launch of new product sales in Duramed.

 

Officers and director’s compensation increased $770,288 from $58,850 in 2018 to $829,138 in 2019. The 2019 expense amount ($829,138) includes stock-based compensation $571,810 paid to officers and employees. The 2018 expense amount ($58,850) includes stock-based compensation $0 paid to the advisory board members.

 

Consulting fees increased $59,566 from $367,769 in 2018 to $427,335 in 2019. The 2019 expense amount ($427,335) includes stock-based compensation of $388,138, resulting from stock issued for the service of consultants. The 2018 expense amount ($367,769) includes stock-based compensation of $344,869, resulting from stock issued for the service of consultants.

 

Advertising expense increased $112,699 from $14,675 in 2018 to $127,374 in 2019.

 

Hosting expense increased $3,657 from $3,810 in 2018 to $7,467 in 2019.

 

Rent expense decreased $16,316 from $16,800 in 2018 to $484 in 2019.

 

Professional fees increased $17,224 from $56,956 in 2018 to $74,180 in 2019.

 

Depreciation of property and equipment increased $10,731 from $801 in 2018 to $11,532 in 2019.

 

Amortization of intangible assets increased $4,966 from $0 in 2018 to $4,966 in 2019.

 

Other operating expenses increased $231,075 from $56,113 in 2018 to $287,188 in 2019. The increase was due largely to higher referral fees, travel expense, and news announcement fees in 2019 compared to 2018.

 

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Net loss increased $462,615 from loss of $974,876 in 2018 to a loss of $1,437,491 in 2019. The increase was due to the $1,193,890 increase in total operating expenses and the decrease of $504,239 in other expense – net from $506,441 other expense – net in 2018 to $2,202 other expense– net in 2019, offset by the $227,036 increase in gross profit.

 

Six Months Ended June 30, 2019 compared with Six Months Ended June 30, 2018:

 

Revenues increased $926,779 from $223,960 in 2018 to $1,150,739 in 2019.

 

Cost of product sales increased $470,318 from $91,439 in 2018 to $561,757 in 2019 due to the expansion of current product sales and launch of new product sales in Duramed.

 

Officers and director’s compensation increased $718,110953,038 from $321,650 in 2018 to $1,274,688 in 2019. The 2019 expense amount ($1,274,688) includes stock-based compensation ($834,230) paid to officers and employees. The 2018 expense amount ($321,650) includes stock-based compensation ($185,400) paid to the advisory board members.

 

Consulting fees increased $447,410 from $643,676 in 2018 to $1,091,086 in 2019. The 2019 expense amount ($1,091,086) includes stock-based compensation of $953,914, resulting from stock issued for the service of consultants. The 2018 expense amount ($643,676) includes stock-based compensation of $572,777, resulting from stock issued for the service of consultants.

 

Advertising expense increased $116,754 from $37,008 in 2018 to $153,762 in 2019.

 

Hosting expense increased $439 from $7,478 in 2018 to $7,917 in 2019.

 

Rent expense decreased $20,721 from $33,065 in 2018 to $12,344 in 2019.

 

Professional fees increased $41,677 from $70,339 in 2018 to $112,016 in 2019.

 

Depreciation of property and equipment increased $12,693 from $1,604 in 2018 to $14,297 in 2019.

 

Amortization of intangible assets increased $7,160 from $0 in 2018 to $7,160 in 2019.

 

Other operating expenses increased $402,242 from $120,827 in 2018 to $523,069 in 2019. The increase was due largely to higher referral fees, travel expense, and news announcement fees in 2019 compared to 2018.

 

Net loss increased $2,042,687 from loss of $567,318 in 2018 to a loss of $2,610,005 in 2019. The decrease was due to the $1,960,692 increase in total operating expenses and the decrease of $538,456 in other income – net from $535,808 other income – net in 2018 to $2,648 other expense– net in 2019, offset by the $456,461 increase in gross profit.

 

Liquidity and Capital Resources

 

At June 30, 2019, we had cash and cash equivalents of $413,098 and working capital of $1,158,217.

 

Cash and cash equivalents decreased $394,649 from $807,747 at December 31, 2018 to $413,098 at June 30, 2019. For the six months ended June 30, 2019, $1,935,279 was provided by financing activities, $1,012,698 was used in investing activities, and $1,317,230 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 a commitment with Shanghi Ipanda Corporation for approximately $60,000 for the final payment on the automatic bottling equipment for Pure Health products.

 

We have no off-balance sheet arrangements.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

None.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

As of June 30, 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 June 30, 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 six months ended June 30, 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.

 

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.

From April 1, 2019 through June 30, 2019 the company issued an aggregate of 15,511,767 shares of CANB Common Stock to multiple consultants for services rendered.

 

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From April 1, 2019 through June 30, 2019, the Company issued an aggregate of 4,174,886 shares of CANB Common Stock to members of the Advisory Board, Medical Advisory Board, and Sports Advisory Board for services rendered.

 

From April 1, 2019 through June 30, 2019, the Company issued an aggregate of 1,384,621 shares of Common Stock under the terms of executive employment agreements.

 

From April 1, 2019 through June 30, 2019, the Company issued an aggregate of 25,862,071 shares of CANB shares under the terms of the Stock Purchase Agreements for total proceeds of $750,000.

 

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.

 

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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.

 

  CANBIOLA, INC.
     
Date: August 19, 2019 By: /s/ Marco Alfonsi
    Marco Alfonsi, Chief Executive Officer
     
Date: August 19, 2019 By: /s/ Stanley L. Teeple
    Stanley L. Teeple, Chief Financial Officer

 

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