SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
For the Transition Period From ____________ to ____________
Commission File Number: 333-208293
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
960 South Broadway, Suite 120, Hicksville NY 11801 ,
(Address of principal executive offices)
Registrant’s telephone number, including area code:
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, par value $0.001 per share
Securities Registered Pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter time that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|Large accelerated filer||[ ]||Accelerated filer||[ ]|
|Non-accelerated filer||[ ] (Do not check if a smaller reporting company)||Smaller reporting company||[X]|
|Emerging Growth Company [X]|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of voting stock held by non-affiliates of the registrant on June 30, 2018, was $4,466,469, based on the last reported sale price of the registrant’s Common Stock on the OTC Markets on that date.
As of April 12, 2019, the registrant had outstanding 548,487,714 shares of common stock, $0.00 par value per share.
2017 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
|Cautionary Note Regarding Forward-Looking Statements||3|
|Item 1A.||Risk Factors.||8|
|Item 1B.||Unresolved Staff Comments.||8|
|Item 3.||Legal Proceedings.||8|
|Item 4.||Mine Safety Disclosures.||8|
|Item 5.||Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.||8|
|Item 6.||Selected Financial Data.||10|
|Item 7.||Management’s Discussion and Analysis of Financial Condition and Results of Operations.||11|
|Item 7A.||Quantitative and Qualitative Disclosures About Market Risk.||12|
|Item 8.||Financial Statements and Supplementary Data.||12|
|Item 9.||Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.||12|
|Item 9A.||Controls and Procedures.||12|
|Item 9B.||Other Information.||13|
|Item 10.||Directors, Executive Officers and Corporate Governance.||13|
|Item 11.||Executive Compensation.||15|
|Item 12.||Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.||16|
|Item 13.||Certain Relationships and Related Transactions, and Director Independence.||18|
|Item 14.||Principal Accounting Fees and Services.||18|
|Item 15.||Exhibits, Financial Statement Schedules.||19|
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this Annual Report on Form 10-K are considered forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) concerning our business, results of operations, economic performance and/or financial condition, based on management’s current expectations, plans, estimates, assumptions and projections. Forward-looking statements are included, for example, in the discussions about:
|●||new product discovery and development;|
|●||current or pending clinical trials;|
|●||our products’ ability to demonstrate efficacy or an acceptable safety profile;|
|●||actions by regulatory authorities;|
|●||product manufacturing, including our arrangements with third-party suppliers;|
|●||product introduction and sales;|
|●||royalties and contract revenues;|
|●||expenses and net income;|
|●||credit and foreign exchange risk management;|
|●||asset and liability risk management;|
|●||the outcome of litigation and other proceedings;|
|●||intellectual property rights and protection;|
Any statements contained in this report that are not statements of historical fact may be deemed forward-looking statements. Forward-looking statements generally are identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates,” “aims,” “plans,” “may,” “could,” “will,” “will continue,” “seeks,” “should,” “predict,” “potential,” “outlook,” “guidance,” “target,” “forecast,” “probable,” “possible” or the negative of such terms and similar expressions. Forward-looking statements are subject to change and may be affected by risks and uncertainties, most of which are difficult to predict and are generally beyond our control. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events, except as required by law, although we intend to continue to meet our ongoing disclosure obligations under the U.S. securities laws and other applicable laws.
We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements, and therefore you should not place too much reliance on them. These factors include, among others, those described herein, under “Risk Factors” and elsewhere in this Annual Report and in our other public reports filed with the Securities and Exchange Commission. It is not possible to predict or identify all such factors, and therefore the factors that are noted are not intended to be a complete discussion of all potential risks or uncertainties that may affect forward-looking statements. If these or other risks and uncertainties materialize, or if the assumptions underlying any of the forward-looking statements prove incorrect, our actual performance and future actions may be materially different from those expressed in, or implied by, such forward-looking statements. We can offer no assurance that our estimates or expectations will prove accurate or that we will be able to achieve our strategic and operational goals.
Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.
Moreover, new risks regularly emerge and it is not possible for our management to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this prospectus are based on information available to us on the date of this Annual Report. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this Annual Report.
JUMPSTART OUR BUSINESS STARTUPS ACT
We qualify as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2018, the last day of our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.
As an emerging growth company, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
|●||being permitted to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report;|
|●||not being requested to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”);|
|●||reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and|
|●||exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.|
We will remain an emerging growth company until the earliest to occur of: (i) our reporting $1 billion or more in annual gross revenues; (ii) the end of fiscal year 2019; (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million on the last business day of our second fiscal quarter.
Canbiola, Inc. was originally incorporated as WrapMail, Inc. (“WRAP”) in Florida on October 11, 2005 in order to tap into a largely un-serviced segment of the web-based advertising industry. 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.
Effective January 5, 2015, WRAP acquired 100% ownership of Prosperity Systems, Inc. (“Prosperity”), a New York corporation incorporated on April 2, 2008, in order to acquire Prosperity’s office productivity software suite as a complement to WRAP’s existing intellectual property. After its acquisition, 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 the Company. Prosperity had no activity for the periods presented.
Around the first quarter of 2017, the Company began to transition into the Hemp CBD industry and now primarily offers health and beauty products and supplements containing CBD. On May 15, 2017, WRAP changed its name to Canbiola, Inc. (the “Company” or “CANB” or “Canbiola”) to reflect its transition.
The Company’s primary business is the development, production and sale of products and delivery devices containing CBD. The Company’s products contain CBD derived from Hemp and include products such as oils, creams, moisturizers, isolate, and gel caps. In addition to offering white labeled products, Canbiola has developed its own line of proprietary products, as well as seeking synergistic value through acquisitions of products and brands in the Hemp industry. Canbiola aims to be the premier provider of the highest quality natural 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.
Cannabidiol (“CBD”) is one of nearly 85 naturally occurring compounds (cannabinoids) found in industrial hemp (it is also contained in marijuana, but the Company’s products are derived only from hemp). CBD is non-psychoactive and is thought to have numerous uses, including, but not limited to, for pain, insomnia, epilepsy, anxiety, inflammation, and nausea. Unlike CBD derived from marijuana, CBD derived from the seeds and stalks of industrial hemp is generally considered “legal” in the U.S. so long as it contains less than 0.3% of “THC,” another, but psychoactive, cannabinoid found in cannabis. This purported “legal status” is because the 2018 Farm Bill removed hemp as a Schedule I drug under the Controlled Substances Act and hemp may now be grown as a commodity crop, with restrictions; however, the 2018 Farm Bill did not specifically legalize CBD. Until Congress promulgates rules and regulations relating to hemp derived CBD under the 2018 Farm Bill, the “legal” status of CBD from hemp, or the processes the Company may have to implement (and at what expense), are still unknowns. A similar paradigm exists under various state laws with which the Company will have to comply. In any case, CBD derived from marijuana, marijuana and other marijuana derivatives are federally illegal in the U.S. under the Controlled Substances Act, despite being medically or recreationally legal in numerous states, which is why the Company has established procedures to ensure that its CBD is derived from hemp in compliance with the Farm Bill.The Company has all of its hemp based raw materials (isolate) tested by a 3tf party independent laboratory and those results are posted on the Company web site.
In order to facilitate its operations, the Company has (and will) form or acquire a number of subsidiaries. Its goal is to eventually operate a vertically integrated hemp conglomerate that has operations spanning from seed to sale. Currently, the Company’s primary focus is the development, sale and manufacture of CBD products. The Company’s products are marketed under the tradename “Canbiola.,” and sold via its website and through doctors and other medical professionals with which the Company enters into distribution agreements. The Company also manufactures and/or sells separately branded CBD products through its subsidiaries and websites for “Pure Leaf Oil” brand and “Seven Chakras” brand.
In December, 2018, the Company acquired 100% of the membership interests in Pure Health Products, LLC, a New York limited liability company (“PHP” or “Pure Health Products”), with which it had had and has an exclusive production agreement, pursuant to an Acquisition Agreement (“PHP Acquisition Agreement”). PHP manufactures and packages the Company’s CBD infused products. PHP may also white label / rebrand or relabel the Company’s products pursuant to “white label agreements” entered into between the Company and/or PHP and third-party customers. Through PHP, the Company is able to control the manufacturing process of its products while reducing its production costs. In January, 2019, PHP acquired certain assets from Seven Chakras, LLC (“Seven Chakras”), a former competitor, which assets included the rights and title to (i) Seven Chakras’ proprietary formulas, methods, trade secrets, and know-how related to the production of Seven Chakras’ CBD products, (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. The Company believes the acquisition of Seven Chakra’s assets will bring accretive value and expand the Company’s market base. The Severn Chakras has a customer following in the northwest and compliments the Canbiola and Pure Leaf Oil brands with additional new products such as bath bombs, stress relief products, and lotions. Seven Chakras has its own internet website and continues in its direct marketing to its customer base.
In November 2018, the Company formed Duramed, Inc., a Nevada corporation (“Duramed”) to facilitate the manufacture and sale of durable medical equipment incorporating CBD. On January 14, 2019, Duramed entered into a Memorandum of Understanding (the “Sam MOU”) with Sam International (“Sam”) and ZetrOZ Systems LLC (“ZetrOZ” and, collectively with Sam, the “Manufacturers”). Pursuant to the Sam MOU, the Manufacturers granted Duramed the exclusive right to distribute sam® Pro 2.0 (SA271) and sam® Gel Coupling Patches (UB-14-72) within the United States for the Personal Injury Protection/No Fault Market during the term of the MOU. Duramed has agreed to purchase monthly minimums from the Manufacturers at a price per Unit of $2,447. The exclusivity of the Distribution License granted to Duramed under the MOU is dependent upon meeting the monthly minimum. In addition, Duramed was granted the right to distribute sam® Gel Capture Patches (UB-14-24). Duramed will get rebates of 2%-3% based on the volume of Products sold by it. The initial term of the Sam MOU expires December 31, 2019 (the “Initial Term”). The agreement contemplated by the MOU will automatically renew for additional one-year terms at the end of each calendar year, provided the monthly minimums have been met. The primary thrust of the Duramed Division is to market to patients via doctors via a device rental program reimbursable by insurance carriers to help patient with pain reductions and faster healing.
The CBD and cannabis markets are flooded with competition ranging from mom and pop operations to multi-million-dollar conglomerates, many with longer operating histories, more capital and/or more industry knowledge than the Company. The Company hopes to partner with or engage industry specialists to help set it apart from its numerous competitors. One of those points of differentiation is its 3 rd party independent testing “Certificate of Analysis” conducted on all of the CBD isolate products it purchases and posting of those lab results on its website.
The statements found herein have not been evaluated by the Food and Drug Administration (FDA) and the Company’s products are not intended to diagnose, treat, cure or prevent any disease or medical condition.
The Company owns a patented technology that combines custom marketing content with organization e-mail to provide a next generation marketing platform for organizations and personal use. WRAPMail had provided software solutions for marketing and is no longer being sold or serviced.
We are not aware of any competitors developing a similar solution to WRAPmail, possibly giving us first mover advantage. Nonetheless, we may face competition from stationary letterhead, bulk e-mail and similar product providers.
Currently the Company is not pursuing additional customers for WRAPmail but does continue to service current customers using the software.
The Bullseye Productivity Suite is a cloud-based system that consolidates all necessary office productivity tools into one online experience, accessible everywhere when you need it with full disaster recovery mechanisms built in. All functions and features are audited to help users with corporate governance and compliance issues.
The Company is not presently seeking additional customers for Bullseye but continues to service the existing customer base.
We own the following patents for our WRAPmail technology: US patent no. 8572275 issued on October 29, 2013. This patent expires in October 2033. On July 20, 2015, WRAPmail filed for a new patent under the title: Method, System and Software for Dynamically Extracting Content for Integration with Instant Messages, which application is still pending and not being actively pursued by the Company.
The above patents relate to the document management and email marketing divisions. Due to diminishing revenue from these divisions, the Company’s accountant determined to reduce the fair value of these patents to $0.
The Company employes through its Pure Health Products LLC Division, two full time product researchers and CBD technology experts who, on a daily basis, set the quality standards and new product development status and time-line agendas under the direct supervision of the company’s management team.
The Company currently has four full-time employee and seven under services agreements.
Reports to Security Holders
Our common stock is registered under the Securities Exchange Act of 1934 and we are required to file current, quarterly and annual reports and other information with the SEC. You may read and copy any document that we file at the SEC’s public reference facilities at 100 F. Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for more information about its public reference facilities. Our SEC filings are available to you free of charge at the SEC’s web site at www.sec.gov. We are an electronic filer with the SEC and, as such, our information is available through the Internet site maintained by the SEC that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. This information may be found at www.sec.gov and posted on our website at www.canbiola.com.
Research and Development
In fiscal year 2017 and 2018 we spent respectively $37,000 and $75,000 in research and development which was expenses as spent.
The cultivation and sale of hemp and hemp products is federally regulated under the United States Farm Bill. The 2018 Farm Bill removed hemp as a Schedule 1 Substance under the Controlled Substances Act; however, rules and regulations relating to manufacture and sale of CBD products under the Farm Bill must still be promulgated and are expected to impact the Company’s operations. As the legal CBD industry and our product lines expand, it is uncertain what other statutory schemes and agencies will start to regulate our CBD products. The FDA currently still considers the addition of CBD to food products or supplements to be illegal and prohibits the advertisement of CBD products with health claims. The Company must also comply with each state’s laws relating to the sale of hemp based CBD products. These regulations may affect, among others, the way the Company manufactures and distributes its products, the way the Company is taxed, the way the Company banks, the location of the Company’s facilities, the content and testing of the Company’s products, and the quality of the Company’s services.
Through our document management and email marketing platforms, we are also subject to general business regulations and laws as well as Federal and state regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of the Internet, e-commerce or other online services, and increase the cost of providing online services. These regulations and laws may cover sweepstakes, taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership, sales, use and other taxes, libel and personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may harm our business and results of operations.
We had engaged Island Stock Transfer, located at 15500 Roosevelt Blvd, Suite 301, Clearwater, FL 33760, as our stock transfer agent. Phone: 727.289.0010. Our former director, Carl Dilley, is a principal of Island Stock Transfer.
On April 1 st , 2019 we changed Transfer Agents to Transhare Corporation located at 15500 Roosevelt Blvd, Suite 302, Clearwater FL 33760.
|Item 1A.||Risk Factors|
We are a smaller reporting company and not required to provide the information in this Item.
|Item 1B.||Unresolved Staff Comments|
The Company does not currently own any real property. We do however lease office space in Hicksville, New York. The Company’s wholly-owned subsidiary, Pure Health Products, operates its manufacturing facility in the state of Washington.
|Item 3.||Legal Proceedings|
We are not aware of any pending or threatened legal proceedings in which we are involved, except as disclosed herein. On or around May 11, 2018, the Company initiated arbitration proceedings against T8 Partners, Inc., a New York Corporation (“T8”), pursuant to the American Arbitration Association (“AAA”) rules, for breach of contract and return of 2.5M shares of the Company’s common stock for non-performance by T8 under a services contract. The case, Case No. 01-18-0001-8823, is being heard in AAA’s Los Angeles Regional Office.
|Item 4.||Mine Safety Disclosures|
|Item 5.||Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities|
Our common stock is listed for quotation on OTCQB Market’s under the symbol “CANB.” Our common stock began trading in April 2011. Trading in our common stock has historically lacked consistent volume, and the market price has been volatile.
The following table presents, for the periods indicated, the high and low bid prices of the Company’s common stock and is based upon information provided by OTC Market. These quotations below reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions.
The last reported sale price of the Company’s common stock as of April 12, 2019 was $0.039 per share.
As April 12, 2019, there were 548,487,714 shares of common stock issued and outstanding to approximately 163 shareholders of record.
The Company paid $13,779 in in-kind dividends on its Class B Preferred Stock by the issuance of common stock to the Class B holders in 2018 and $0 in 2017. 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 Series B Preferred Stock have no voting rights.
We do not anticipate paying any cash dividends in the foreseeable future. Except for its Class B Preferred Stock, the payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit our ability to pay dividends on our common stock other than those generally imposed by applicable state law.
Securities Authorized for Issuance under Equity Compensation Plans
We do not now have, or plan to have in the near future, an equity incentive plan.
Recent Sales of Unregistered Securities
The following is a summary of transactions since our previous disclosure on our Form 10-Q filed with the Securities and Exchange Commission on November 14, 2018 involving sales of our securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”). Each offer and sale were exempt from registration under either Section 4(a)(2) of the Securities Act or Rule 506(b) under Regulation D of the Securities Act.
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.
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 and key executives 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 a key executive of the Company pursuant to the Employment Agreement dated December 29, 2018 with Andrew Holtmeyer. The $14,207 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.
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 return 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.
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 the owner of Hudilab, Inc., pursuant to a License and Acquisition Agreement dated January 14, 2019.
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 key employees 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 dated January 31, 2019.
|Item 6.||Selected Financial Data|
Not required for smaller reporting companies.
|Item 7.||Management’s Discussion and Analysis of Financial Condition and Results of Operation|
Canbiola, Inc. was originally formed as a Florida corporation on October 11, 2005, under the name of WrapMail, Inc. Effective January 5, 2015, we acquired 100% ownership of Prosperity Systems, Inc., which the Company is in the process of dissolving. Effective December 28, 2018, we acquired 100% ownership of Pure Health Products. In November 2018, we formed Duramed as a wholly-owned subsidiary. The Company is presently in the process of dissolving Prosperity.
We manufacture and sell products containing CBD. We also provide document, project, marketing and sales management systems to our residual business clients through our website and proprietary software, which divisions are being wound-down. The consolidated financial statements include the accounts of CANB and its wholly owned subsidiary Pure Health Products from the date of its acquisition on December 28, 2018.
Results of Operations
Year Ended December 31, 2018 compared with Year Ended December 31, 2017:
Revenues increased $545,857 from $122,746 in 2017 to $668,603 in 2018. The increase was due to the growth of CBD product sales.
Cost of product sales increased $361,068 from $44,466 in 2017 to $405,434 in 2018 due to the growth of product sales and outreach into additional market segments such as wholesale and private label opportunities.
Officers and director’s compensation and payroll taxes increased $1,324,581 from to $154,406 in 2017 to $1,478,987 in 2018. The 2017 expense amount ($154,406) consists of salaries accrued to our Chief Executive Officer ($84,000) and stock based compensation of ($63,902) pursuant to their respective employment agreements and related payroll taxes ($6,504). The 2018 expense amount ($1,478,987) includes additional stock-based compensation of ($1,255,193) pursuant to their respective employment agreements and related payroll taxes ($2,559).
Consulting fees increased $1,384,902 from $284,741 in 2017 to $1,669,443 in 2018. The 2017 expense amount ($284,741) includes stock-based compensation of ($167,688), resulting from stock issued for the service of consultants. The 2018 expense amount ($1,669,443) includes stock-based compensation of ($1,527,107), resulting from stock issued for the service of consultants.
Advertising expense increased $55,994 from $28,322 in 2017 to $84,316 in 2018.
Hosting expense decreased $7,266 from $21,963 in 2017 to $14,697 in 2018.
Rent expense increased $2,105 from $65,060 in 2017 to $67,165 in 2018.
Professional fees increased $22,172 from $95,546 in 2017 to $117,718 in 2018.
Depreciation of property and equipment increased $2,246 from $3,227 in 2017 to $5,473 in 2018.
Amortization of intangible assets decreased $3,972 from $3,972 in 2017 to $0 in 2018.
Other operating expenses increased $107,215 from $133,829 in 2017 to $241,044 in 2018. The increase was due largely to higher commission fees, supplies expense and shipping expenses in 2018 compared to 2017.
Net loss increased $1,972,558 from $2,139,719 in 2017 to $4,112,277 in 2018. The increase was due to the $2,877,777 increase in total operating expenses offset by the $730,430 decrease in other expense - net, and by the $184,989 increase in gross profit.
Liquidity and Capital Resources
At December 31, 2018, the Company had cash and cash equivalents of $807,747 and a working capital of $939,582. Cash and cash equivalents increased $806,095 from $1,652 at December 31, 2017 to $807,747 at December 31, 2018. For the year ended December 31, 2018, $1,605,644 was provided by financing activities, $753,569 was used in operating activities, and $45,980 was used in investing activities.
The Company currently has 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 7A.||Quantitative and Qualitative Disclosure About Market Risk|
|Item 8.||Financial Statements and Supplementary Data|
Our Consolidated Financial Statements and Notes thereto, for the fiscal years ended December 31, 2018 and 2017 and the report of BMKR, LLP, our independent registered public accounting firm, are set forth on pages F-1 through F-27 of this Annual Report.
|Item 9.||Changes in and Disagreements with Accountants on Accounting and Financial Disclosure|
|Item 9A.||Controls and Procedures|
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer (CEO), as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the CEO has concluded that our disclosure controls and procedures are ineffective to ensure that information disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. This determination was based on the small size of our accounting staff, the lack of segregation of duties and the lack of an audit committee.
To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Any internal control system, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management, with the participation of our Chief Executive Officer, has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2018 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, because of the Company’s limited resources and limited number of employees, and the absence of an audit committee, management concluded that, as of December 31, 2018, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principle, which creates a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness means there is a risk that our financial reports or other filings may contain an error or inaccuracy or not submitted timely.
There was a material weakness in the Company’s internal control over financial reporting due to the fact that the Company did not have an adequate process established to ensure appropriate levels of review of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments and disclosures in a timely fashion. We expect that the Company will need to hire accounting personnel with the requisite knowledge to improve the levels of review of accounting and financial reporting matters. The Company may experience delays in doing so and any such additional employees would require time and training to learn the Company’s business and operating processes and procedures. For the near-term future, until such personnel are in place, this will continue to constitute a material weakness in the Company’s internal control over financial reporting that could result in material misstatements in the Company’s financial statements not being prevented or detected.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934) during the year ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|Item 9B.||Other Information|
|Item 10.||Directors, Executive Officers and Corporate Governance|
Our board of directors is elected annually by our shareholders. The board of directors elects our executive officers annually. Our directors and executive officers as of April __, 2019 are as follows:
|Marco Alfonsi||57||CEO, Director, Chairman|
|Stanley L. Teeple||70||CFO, Secretary, Director|
|Andrew Holtmeyer||57||VP of Business Development|
Marco Alfonsi, CEO and Chairman Director has been a financial service professional for the past 20 years. Mr. Alfonsi was appointed director and CEO of the Company in or around January 2015. Immediately prior to that, he spent eight years serving as the CEO of Prosperity Systems, Inc.
Throughout his career, Mr. Alfonsi was directly and indirectly involved in raising over $100 million dollars for small and medium sized business. Prior to his involvement in the financial services industry, Mr. Alfonsi has owned, operated, financed and sold several businesses. Mr. Alfonsi successfully started and managed two companies (ExecuteDirect.com, and Bakers Express of New York, Inc.), and held senior management positions with a number of financial institutions, including: Global American Investments, Clark Street Capital and Basic Investors.
Stanley L. Teeple –Mr. Teeple was engaged from 2017-2018 with Solis Tek, Inc. (OTCQB:SLTK) a California based publicly traded corporation as Senior Vice President, Corporate Secretary, and Chief Compliance Officer. Solis Tek, Inc. a NV Corporation, is a developer of lighting and nutrient products, and most recently in cultivation and processing for the cannabis industry. Previously, from 2015-2016 Mr. Teeple was Chief Financial Officer and Secretary for Zonzia Media, Inc. (OTC:ZONX), a provider of streaming video and content to cable subscribers and hotel networks throughout the eastern US. From 2008 to 2014 Mr. Teeple was Chief Financial Officer and Secretary of Indigo-Energy, Inc. (OTC:IDGG) a publicly traded company in the oil and gas exploration business. Over the prior three plus decades Mr. Teeple through his turnaround consulting business, Stan Teeple, Inc., has held numerous senior management positions in several public and private companies across a broad spectrum of industries. Additionally, he has operated and worked for various court appointed trustees and principals as CEO, COO, and CFO in the entertainment, pharmaceuticals, food, travel, and tech industries. He operated his consulting business on a project-to-project basis and holds various other directorships. His businesses operational strengths include knowing how to manage and maximize the resources and preserve the integrity of a company from start-up through to maturity and corporate compliance in a regulatory environment.
Andrew Holtmeyer – Mr. Holtmeyer started his business career in the financial services sector. During his 20 year career on wall street, Mr. Holtmeyer worked at and built several investment firms that employed hundreds of salesmen. During the last 5 years of his career, he concentrated mostly on investment banking. After leaving the financial sector, Mr. Holtmeyer started a highly successful consulting firm, which concentrated on raising capital for small to mid-sized companies that were both private and public. After selling his consulting business, Mr. Holtmeyer started a very successful real estates business which is now run by his family.
Carl Dilley, 63, served on our Board of Directors until he resigned for personal reasons on February 21, 2019.
David Posel, 39, served as the Company’s COO during 2018, when the Company’s operations were limited to its contractual arrangement with Pure Health Products. After acquiring PHP directly, Mr. Posel was transitioned to COO of PHP.
We have not yet established an audit committee, compensation committee, or nominating committee. During 2018, the functions ordinarily handled by these committees were handled by our entire Board.
There are no familial relationships between any of our officers and directors.
Director or Officer Involvement in Certain Legal Proceedings
Our current directors and executive officers have not been involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.
The Company is not currently listed on any national securities exchange that has a requirement that the board of directors be independent. None of the Company’s directors are independent.
Code of Ethics
We have not adopted a Code of Ethics that applies to all of our employees and officers, and the members of our Board of Directors due to the financial constraints of doing so.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on our review of the reports filed by Reporting Persons, we believe that, during the year ended December 31, 2018, the following Reporting Persons did not meet all applicable Section 16(a) filing requirements: (i) Stanley Teeple, (ii) David Posel, and (iii) Carl Dilley. Otherwise, we believe that the Reporting Persons met such filing requirements.
|Item 11.||Executive Compensation|
The table below summarizes all compensation awarded to, earned by, or paid to our executive officers and directors for all services rendered in all capacities to us during the previous two fiscal years, as of December 31, 2018.
|Executive Summary Compensation Table|
|Name and principal position||Year||Salary||Bonus||Stock awards||Option awards||Non-equity incentive plan compensation||Non-qualified deferred compensation earnings||All other compensation||Total|
|CEO and Director||2018||$||104,500||$||0||$||0||$||0||$||0||$||0||$||0||$||104,500|
|Stanley L. Teeple(2)||2018||$||45,000||$||0||$||144,500||$||118,200||$||0||$||0||$||0||$||307,700|
|David Posel (4)||2018||$||60,000||$||0||$||58,720||$||0||$||0||$||0||$||0||$||118,720|
(1) Pursuant to an employment agreement entered on or around May 14, 2015, Marco Alfonsi was entitled to receive compensation of $6,000 per month through September 31, 2017 when the contract expired. On or around October 3, 2017, the Company entered into a new employment agreement with Mr. Alfonsi whereby he was entitled to receive $10,000 per month for a period of three years. Mr. Alfonsi also received one share of Class A Preferred Stock upon his execution of the new agreement. In addition, on or around October 4, 2017, the Company authorized the issuance of an additional two shares of Class A Preferred Stock to Mr. Alfonsi in consideration for cancellation of approximately $120,000 of deferred income owed to Mr. Alfonsi. The Company entered into a new employment agreement dated October 21, 2018 Mr. Alfonsi, pursuant to which Mr. Alfonsi agreed to continue to serve as the Company’s Chief Executive Officer (“CEO”) and accept appointment as Chairman of the Board of Directors (“Chairman”) for an initial term of four (4) years. He is entitled to receive $15,000 per month and other compensation under the new agreement.
(2) Pursuant to an employment agreement entered on or around October 15, 2018, Mr. Teeple services as the Company’s Chief Financial Officer and Secretary for a term of 4 years. The Agreement also provides for compensation to Mr. Teeple of $15,000 cash per month and the issuance of 1 share of Series A Preferred Stock upon execution of the Agreement. The fair value of the Series A preferred Stock is $578,000 and has a vesting period of four years. In 2018, the amortized portion of Series A preferred Stock is $144,500.
(3) 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. On 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. In 2018, the Company issued 5 shares of Series A preferred shares valued at $3,910,000 and the amortization in 2018 is $1,169,658.
(4) 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. In the fourth quarter, this Agreement was terminated due to the execution of a new Employment Agreement between Pure Health Products, LLC and David Posel. The fair value of the Series A preferred Stock is $373,000 and has a vesting period of four years. In 2018, the amortized portion of Series A preferred Stock related to Mr. Posel’s service as an executive is $58,720.
We do not have an equity incentive plan and no named executive officer has unexercised outstanding equity awards.
The table below summarizes all compensation awarded to, earned by, or paid to our non-interested directors for all services rendered in all capacities to us during the previous two fiscal years, as of December 31, 2018.
|Non-Interested Director Summary Compensation Table|
|Name and principal position||Year||Fees Earned or Paid in Cash||Stock awards||Option awards||Non-equity incentive plan compensation||Non-qualified deferred compensation earnings||All other compensation||Total|
|(1)||Mr. Dilley resigned from the Company on February 21, 2019.|
No director has received cash compensation for their directorship. We do not have a compensation committee and compensation for our directors and officers is determined by our board of directors.
We reimburse Non-Employee Directors for actual out-of-pocket costs incurred to attend board meetings. No additional compensation is paid for attendance in person or by telephone at board meetings.
|Item 12.||Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters|
The following tables set forth the ownership, as of April 12, 2019, of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding voting stock, our directors, and our executive officers and directors as a group. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control. The Company’s principal office is the business address for each of the named shareholders.
There are 548,487,714 shares of common stock outstanding as of April 12, 2019, and 17 shares of Series A preferred stock issued and outstanding, which in aggregate are convertible into 170,000,000 shares of common stock at any time and represent 340,000,000 votes. There is a total of approximately 888,487,714 votes eligible to be cast in any Company vote as of April 15, 2019.
On April 12, 2019, Red Diamond Partners LLC (“Red Diamond”) owned 342,853 shares of Series B Preferred Stock, which is convertible into approximately 44,129,594 shares of common stock, subject to ownership percentage limitations; however, Series B Preferred Stock is non-voting.
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities.
Except as otherwise indicated and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. Unless stated otherwise, the business address for these shareholders is 960 South Broadway, Suite 120, Hicksville NY 11801.
|Name||Title||Number of Common Shares||% of Common Shares||Number of Series A Preferred Shares||% of Series A Preferred Shares||% of Eligible Votes||Number of Warrants currently exercisable or exercisable in the next 60 days|
|Marco Alfonsi||CEO, Director||59,398,915||10.83||%||5||29.41||%||17.94||%||0|
|Stanley L. Teeple||CFO, Director||980,752||0.18||%||1||5.88||%||2.36||%||0|
|Andrew Holtmeyer||Vice President||1,107,769||0.20||%||5||29.41||%||11.38||%||0|
|All officers and directors as a group [3 persons]||61,487,436||11.21||%||11||64.70||%||31.68||%||0|
(1) As of April 12, 2019, Marco Alfonsi owns approximately 59,398,915 shares of common stock and 5 shares of Series A preferred stock, which are convertible into 50,000,000 shares and equal 100,000,000 votes. Prior to October 29, 2015, Mr. Alfonsi owned 81,000,000 shares of the Company’s common stock, at which time it was agreed that he would retire 50,000,000 shares of common stock for 5 shares of Series A Preferred Stock. In addition to the listed shares, four members of Mr. Alfonsi’s family hold an aggregate of 10,000,000 shares of common stock, which shares have not been included in the above calculations.
(2) As of April 12, 2019, Stanley L. Teeple owns approximately 980,752 shares of common stock and 1 shares of Series A preferred stock, which are convertible into 10,000,000 shares and equal 20,000,000 votes.
(3) As of April 12, 2019, Andrew Holtmeyer owns approximately 1,107,769 shares of common stock and 5 shares of Series A preferred stock, which are convertible into 50,000,000 shares and equal 100,000,000 votes.
The following tables set forth the ownership of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding voting stock, excluding our directors and our executive officers
|Name||Number of Common Shares||% of Common Shares||Number of Preferred A Shares||% of Shares||% of Eligible Votes||Number of Warrants currently exercisable or exercisable in the next 60 days|
|McKenzie Webster Limited||64,879,916||11.83||%||0||0||%||7.30||%||0|
|Pasquale Ferro ||22,172,159||4.04||%||5||29.41||%||13.75||%||0|
|(1)||McKenzie Webster Limited is controlled by the Company’s former director and CFO, Rolv Heggenhougen. The business address for this shareholder is 445 NE 12 th Ave., Fort Lauderdale, Florida 33301.|
|(2)||Pasquale Ferro is the President of Pure Health Products, LLC, a wholly owned subsidiary of the Company.|
The above tables are based upon information derived from our stock records. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown.
|Item 13.||Certain Relationships and Related Party Transactions|
Except as described herein (or within the section entitled Executive Compensation of this prospectus), none of the following parties (each a “Related Party”) has, in our fiscal years ended 2017 and 2018, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
|●||any of our directors or officers;|
|●||any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock; or|
|●||any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the above persons.|
ProAdvanced Group, Inc. (“PAG”), an entity controlled by the Company’s chief executive officer, is a customer of CANB. At December 31, 2018, CANB had an account receivable from PAG of $7,240. For the year ended December 31, 2018, CANB had revenues from PAG of $5,000.
Island Stock Transfer (“IST”), an entity controlled by Carl Dilley, a Company director, is both a customer and vendor of CANB. At December 31, 2018, CANB had an account receivable from IST of $7,035 and an account payable to IST of $1,454. For the year ended December 31, 2018, CANB had revenues from IST of $4,000.
Stock Market Manager, Inc. is also an entity controlled by Mr. Dilley. For the year ended December 31, 2018, CANB had an account payable to Stock Market Manager Inc. of $1,676.
In order to facilitate its operations, the Company has entered into a Production Agreement with Pure Health Products, LLC (“PHP”), a New York limited liability company. Pursuant to the Production Agreement, PHP will manufacture, package, and sell the Company’s CBD infused products on an exclusive basis. PHP will not produce or manufacture any product containing any cannabis or hemp derivative for any person or entity other than the Company, and the Company controls the ingredients, recipe, manufacturing processes and procedures and quality and taste parameters for all Products produced at the PHP facility. PHP may also white label / rebrand or relabel the products on the Company’s behalf pursuant to “white label agreements” entered into between the Company and third-party customers. Credit card sales are processed through PHP as well. Through its contractual relationship with PHP, the Company is able to control the manufacturing process of its products while reducing its production costs. In addition, the Company has the option to acquire certain assets of PHP should it elect to take over direct manufacture of its Products. For the year ended December 31, 2018, purchase of CBD infused products from PHP totaled $274,556.50. Effective December 28, 2018, the Company acquired Pure Health Products, LLC.
During the year ended December 31, 2018, we had products and service sales to related parties totaling $5,000.
|Item 14.||Principal Accounting Fees and Services|
The following table sets forth fees billed to us by BMKR, LLP, our independent registered public accounting firm, during the fiscal years ended December 31, 2018 and December 31, 2017 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements; (ii) services by our independent registered public accounting firms that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as audit fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning; and (iv) all other fees for services rendered.
|December 31, 2018||December 31, 2017|
|Audited Related Fees||$||$|
|All Other Fees||$||$|
|Item 15.||Exhibits, Financial Statement Schedules.|
The following exhibits are filed with this Annual Report:
|2.1||Share Exchange Agreement with Prosperity*|
|3.1||Articles of Incorporation, as amended*|
|10.1||Agreement with RedDiamond Partners LLC|
|10.2||Amended Agreement with RedDiamond Partners LLC|
|10.3||Agreement with Pure Health Products, LLC|
|10.4||Employment Agreement with Marco Alfonsi|
|10.5||Employment Agreement with Stanley L. Teeple|
|10.6||Employment Agreement with Andrew Holtmeyer|
|10.7||Employment Agreement with Pasquale Ferro|
|10.8||Agreement with Hudilab, Inc.|
|10.9||Agreement with TZ Wholesale LLC|
|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.|
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|Date: April 16, 2019||By:||/s/ Marco Alfonsi|
|Title:||Chief Executive Officer|
|(Principal Executive Officer and Principal Accounting Officer)|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|/s/ Marco Alfonsi||Director||April 16, 2019|
|/s/ Stanley L. Teeple||Director||April 16, 2019|
|Stanley L. Teeple|
CANBIOLA, INC. AND SUBSIDIARY
Index to Financial Statements
|Years Ended December 31, 2018 and 2017||Pages|
|Report of Independent Registered Public Accounting Firm||F-2|
|Consolidated Balance Sheets||F-3|
|Consolidated Statements of Operations and Comprehensive Loss||F-4|
|Consolidated Statements of Stockholders’ Equity||F-5|
|Consolidated Statements of Cash Flows||F-6|
|Notes to Consolidated Financial Statements||F-7|
|Certified Public Accountants|
|T 631 293-5000|
Veterans Memorial Hwy., Suite 350
|F 631 234-4272|
|Hauppauge, New York 11788||
|Thomas G. Kober, CPA||
Charles W. Blanchfield, CPA (Retired)
Alfred M. Rizzo, CPA
|Bruce A. Meyer, CPA (Retired)|
|Joseph Mortimer. CPA|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Canbiola, Inc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Canbiola Inc. (the Company) as of December 31. 2018 and 2017, and the related consolidated statements of operations, consolidated stockholders’ equity. and cash flows for each of the years in the two year period ended December 3!, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opm1on on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are tree of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its intemal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $4,112,277 during the year ended December 31, 2018, and as of that date, had an accumulated deficit of $18,768,753 The company is in arears with certain vendor creditors which, among other things, cause the balances to become due on demand. The Company is not aware of any alternate sources of capital to meet such demands, if made.
As discussed in note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
We have served as the Company’s auditor since 2014. Hauppauge,
April 15, 2019
Member American Institute of Certified Public Accounts
Member Public Company Accounting Oversight Board
Canbiola, Inc. and Subsidiary
Consolidated Balance Sheets
|December 31, 2018||December 31, 2017|
|Cash and cash equivalents||$||807,747||$||1,652|
|Accounts receivable, less allowance for doubtful accounts of $0 and $0, respectively||39,172||6,075|
|Note receivable - current||-||75,000|
|Prepaid expenses - current||210,351||64,911|
|Total current assets||1,144,374||157,472|
|Property and equipment, at cost less accumulated depreciation of $26,775 and $20,248, respectively||59,619||11,148|
|Prepaid expenses - noncurrent||2,365,719||-|
|Note receivable - noncurrent||19,389||39,000|
|Goodwill (Note 4)||55,849||-|
|Total other assets||2,489,683||50,687|
|Liabilities and Stockholders’ Deficiency|
|Notes and loans payable||$||19,205||$||193,504|
|Accrued officers compensation||68,750||98,750|
|Other accrued expenses payable||43,778||62,539|
|Total current liabilities and total liabilities||204,792||1,949,204|
|Commitments and contingencies (Notes 14)|
|Preferred stock, authorized 5,000,000 shares:|
|Series A Preferred stock, no par value: authorized 20 shares, issued and outstanding 18 and 8 shares, respectively||4,557,424||243,537|
|Series B Preferred stock, $0.001 par value: authorized 500,000 shares, issued and outstanding 499,958 and 157,985 shares, respectively||479||150|
|Common stock, no par value; authorized 750,000,000 shares, issued and outstanding 440,566,325 and 225,572,323 shares, respectively||16,624,557||12,524,042|
|Additional Paid-in capital||872,976||149,850|
|Additional Paid-in capital – Stock Options (Note 12)||202,200||-|
|Total stockholders’ deficiency||3,488,883||(1,729,897||)|
|Total liabilities and stockholders’ deficiency||$||3,693,675||$||219,307|
See notes to consolidated financial statements.
Canbiola, Inc. and Subsidiary
Consolidated Statements of Operations and Comprehensive Loss
Years Ended December 31, 2018 and 2017
|Cost of product sales||405,534||44,466|
|Operating costs and expenses:|
|Officers and directors compensation (including stock-based compensation of $1,255,193 and $63,902 respectively)||1,478,987||154,406|
|Consulting fees (including stock-based compensation of $1,524,107 and $167,688, respectively)||1,669,443||284,741|
|Depreciation of property and equipment||5,473||3,227|
|Amortization of intangible assets||-||3,972|
|Total operating expenses||3,678,843||791,066|
|Loss from operations||(3,415,774||)||(712,786||)|
|Other income (expense):|
|Cancellation of Debt||-||10,589|
|Loss on Forgiveness of receivable from Pure Health Products||(85,827||)||-|
|Loss on debt conversion||(1,299,369||)||(32,383||)|
|Loss on stock issuance||(649,259||)||(191,553||)|
|Impairment of intangible assets||-||(21,507||)|
|Income (expense) from derivative liability||1,591,137||(915,700||)|
|Interest expense (including amortization of debt discounts of $176,497 and $50,315, respectively)||(263,510||)||(279,221||)|
|Other income (expense) - net||(696,503||)||(1,426,933||)|
|Loss before provision for income taxes||(4,112,277||)||(2,139,719||)|
|Provision for income taxes||-||-|
|Net loss and comprehensive loss||$||(4,112,277||)||$||(2,139,719||)|
|Net loss per common share - basic and diluted||$||(.01||)||$||(.00||)|
|Weighted average common shares outstanding –|
Canbiola, Inc. and Subsidiary
Consolidated Statements of Stockholders’ Deficiency
Years Ended December 31, 2017 and 2018
|Preferred Stock A,||Preferred Stock B ,||Common Stock,||Additional|
|no par value||$0.001 par value||no par value||Paid-in||Accumulated|
|Balance, December 31, 2016||10||$||103,664||-||-||146,008,250||$||11,889,505||$||-||$||( 12,507,757||)||$||( 514,588||)|
|Issuance of common stock on February 2, 2017 for services rendered||200,000||11,000||11,000|
|Issuance of common stock on February 13, 2017 in satisfaction of debt and accrued interest||1,685,900||67,436||67,436|
|Issuance of common stock on March 22, 2017 in satisfaction of debt and accrued interest||6,785,316||154,027||154,027|
|Issuance of common stock on April 17, 2017 for services rendered||5,000,000||125,000||125,000|
|Issuance of common stock on June 21, 2017 for services rendered||250,000||5,975||5,975|
|Issuance of common stock on June 28, 2017 for services rendered||250,000||5,000||5,000|
|Issuance of common stock on August 25, 2017 in satisfaction of debt and accrued interest||7,142,857||107,142||107,142|
|Issuance of common stock on August 25, 2017 for services rendered||250,000||3,750||3,750|
|Issuance of common stock on September 5, 2017 for services rendered||250,000||4,375||4,375|
|Issuance of common stock on September 7, 2017 for services rendered||2,500,000||32,750||32,750|
|Issuance of common stock on September 11, 2017 for services rendered||500,000||6,700||6,700|
|Issuance of common stock on September 25, 2017 for services rendered||250,000||2,525||2,525|
|Issuance of Series A Preferred Stock on October 4, 2017 in satisfaction of accrued officer compensation||3||191,705||191,705|
|Sale of Series B Preferred Stock on October 13, 2017 at $0.95 per share||157,985||150||149,850||150,000|
|Issuance of common stock on November 2, 2017 for services rendered||250,000||1,725||1,725|
|Issuance of common stock on November 9, 2017 for services rendered||2,500,000||21,250||21,250|
|Issuance of common stock and retirement of Series A preferred stock on November 30, 2017||(5||)||(51,832||)||50,000,000||51,832||-|
|Issuance of common stock on December 5, 2017 for services rendered||500,000||6,000||6,000|
|Issuance of common stock on December 7, 2017 for services rendered||250,000||4,500||4,500|
|Issuance of common stock on December 18, 2017 for services rendered||500,000||9,050||9,050|
|Issuance of common stock on December 25, 2017 for services rendered||500,000||14,500||14,500|
|Balance, December 31, 2017||8||$||243,537||157,985||$||150||225,572,323||$||12,524,042||$||149,850||$||(14,647,476||)||$||(1,729,897||)|
of Series A Preferred Stock in
2018 pursuant to employment and
|Sale of Series B Preferred Stock in 2018||761,972||749||723,126||723,875|
|Issuance of common stock in 2018 for services rendered||19,345,789||656,306||656,306|
|Issuance of common stock in 2018 for Preferred B dividends||891,089||38,379||(9,000||)||29,379|
|Issuance of common stock in 2018 in Satisfaction of debt and accrued interest||45,263,513||1,604,412||,||1,604,412|
|Issuance of common stock in 2018 for Warrant exercise||8,500,000||619,880||619,880|
|Issuance of common stock in 2018 in Satisfaction of accrued compensation||4,370,629||192,300||192,300|
|Issuance of common stock in 2018 for Acquisition of PureHealth, LLC||3,096,827||112,415||112,415|
|Issuance of stock options for retirement Of common shares||(3,000,000||)||(101,400||)||84,000||(17,400||)|
|Issuance of stock options||118,200||118,200|
|Sale of common stocks in 2018||29,821,201||850,000||850,000|
|Issuance of common stock and retirement of Series A preferred stock In 2018||(3||)||(127,803||)||30,000,000||127,803||-|
|Issuance of common stock and retirement of Series B preferred stock In 2018||(419,999||)||(420||)||76,704,954||420||-||-|
|Balance, December 31, 2018||18||$||4,557,424||499,958||$||479||440,566,325||$||16,624,557||$||1,075,176||($||18,768,753||)||3,488,883|
Canbiola, Inc. and Subsidiary
Consolidated Statements of Cash Flows
|Year Ended December 31,|
|Adjustments to reconcile net loss to net cash used in operating activities:|
|Stock-based compensation, net of prepaid stock- based consulting fees||2,779,300||231,590|
|Loss on Forgiveness of receivable from Pure Health Products||85,827|| |