Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act. (Check one):
State the aggregate market value
of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant's most
recently completed fiscal quarter.
As of March 19, 2019, there were 30,496,000
shares of Common Stock, $.001 par value issued and outstanding. Based on the average bid and asked price of the common equity as
of March 19, 2019, the aggregate market value of the voting common equity held by non- affiliates at March 19, 2019, was $13,194,060.
There was no non-voting common equity issued at March 19, 2019.
There are statements in this annual report that are not historical
facts. These "forward-looking statements" can be identified by use of terminology such as "believe," "hope,"
"may," "anticipate," "should," "intend," "plan," "will," "expect,"
"estimate," "project," "positioned," "strategy" and similar expressions. You should be
aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. For a discussion
of these risks, you should read this entire Registration Statement carefully, especially the risks discussed under "Risk Factors."
Although management believes that the assumptions underlying the forward- looking statements included in this Registration Statement
are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these
forward- looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information
represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry,
and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing
and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed
events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is
expressed on the achievability of those forward-looking statements. In the light of these risks and uncertainties, there can be
no assurance that the results and events contemplated by the forward-looking statements contained in this Registration Statement
will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as
of their dates. We do not undertake any obligation to update or revise any forward-looking statements.
PART I
ITEM 1. BUSINESS
Overview
We are an emerging growth company as defined
in Section 2(a)(19) of the Securities Act. We will continue to be an emerging growth company until: (i) the last day of our fiscal
year during which we had total annual gross revenues of $1,000,000,000 or more; (ii) the last day of our fiscal year following
the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the
Securities Act; (iii) the date on which we have, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible
debt; or (iv) the date on which we are deemed to be a large accelerated filer, as defined in Section 12b-2 of the Exchange Act.
As an emerging growth company, we are
exempt from:
Section 14A (a) and (b) of the Exchange
Act, which requires companies to hold stockholder advisory votes on executive compensation and golden parachute compensation;
The requirement to provide in any registration
statement periodic report or other report to be filed with the Securities and Exchange Commission, certain modified executive compensation
disclosure under Item 402 of Regulation S-K or selected financial data under Item 301 of Regulation S-K for any period before the
earliest audited period presented in our initial registration statement;
Compliance with new or revised accounting
standards until those standards are applicable to private companies;
The requirement under Section 404(b) of
the Sarbanes-Oxley Act of 2002 to provide auditor attestation of our internal controls and procedures; and
Any Public Company Accounting Oversight
Board ("PCAOB") rules regarding mandatory audit firm rotation, or an expanded auditor report and any other PCAOB rules
subsequently adopted, unless the Securities and Exchange Commission determines the new rules are necessary for protecting the public.
We have elected to use the extended transition
period for complying with new or revised accounting standards under Section 102(b)(1) of the Jumpstart Our Business Startups Act.
Vitalibis,
Inc. (the “Company”) was formed on April 11, 2014, as a Nevada corporation, under the name Crowd 4 Seeds, Inc. On January
9, 2017, the Company filed a certificate of amendment to its Certificate of Incorporation with the Secretary of State of the State
of Nevada in order to change its name to "Sheng Ying Entertainment Corp." On December 16, 2017, new management took over
control of the Company and, on February 5, 2018, the Company filed a certificate of amendment to its Certificate of Incorporation
with the Secretary of State of the State of Nevada in order to change its name to “Vitalibis, Inc”.
As
of December 31, 2017, and through current date, most of our resources and work have been devoted to adopting and integrating our
new business plan, research and development, seeking capital to finance our operations and complying with our obligations under
applicable securities laws, rules and regulations.
We
are a public company and, as such, we have incurred and will continue to incur significant expenses for legal, accounting and related
services. As a public entity, subject to the reporting requirements of the Exchange Act of 1934, we incur ongoing expenses associated
with professional fees for accounting, legal and a host of other expenses including annual reports and proxy statements, if required.
We estimate that these costs will range up to $80,000 per year over the next few years and may be significantly higher if our business
volume and transactional activity increases, based on our overall business volume (and financial transactions), and we will not
yet be subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until we exceed $75 million in market capitalization
(if ever). These obligations will certainly reduce our ability and resources to expand our business plan and activities. We hope
to be able to use our status as a public company to increase our ability to use non-cash means of settling outstanding obligations
(i.e. issuance of restricted shares of our common stock) and compensate independent contractors who provide professional services
to us, although there can be no assurances that we will be successful in any of these efforts. We will also reduce compensation
levels paid to management (if we attract or retain outside personnel to perform this function) if there is insufficient cash generated
from operations to satisfy these costs.
We
hope to be able to use our status as a public company to enable us to use non-cash means of settling obligations and compensate
persons and/or firms providing services to us, although there can be no assurances that we will be successful in any of those efforts.
However, these actions, if successful, will result in dilution of the ownership interests of existing shareholders, may further
dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s
ability to maintain control of the Company because the shares may be issued to parties or entities committed to supporting existing
management. The Company may offer shares of its common stock to settle a portion of the professional fees incurred in connection
with its registration statement. No negotiations have taken place with any professional and no assurances can be made as to the
likelihood that any professional will accept shares in settlement of obligations due to them.
Other
than as set out herein, we have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party
to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary
course of our business.
We
do not have any subsidiaries.
Going Concern
Our
auditor has issued a “going concern” qualification as part of its opinion in the Audit Reports for the years ending
December 31, 2018 and 2017, disclosing that our ability to continue as a going concern is contingent on us being able to raise
working capital to grow our operations and generate revenue. There can be no assurance we will be able to do so.
Previous Business
The
Company initially, under the management of Itzhak Ostashinsky, planned to operate in the field of crowd funding and to run an online
platform for investments in Israeli startup companies. Those plans never materialized, and there were no operations by the Company
during the tenure of Mr. Ostashinsky.
On
December 30, 2016, in a change-of-control transaction (“2106 Change of Control”), Tycoon Luck Global Limited acquired
65.72% of the equity interest of the Company from Itzhak Ostashinsky, the major shareholder and sole officer of the Company at
the time, for $220,152 in cash, and both parties agreed all the net liabilities of the Company as of the acquisition date would
be assumed by Itzhak Ostashinsky. On the same day, the new management team was appointed. The new management then decided to transition
the Company’s business plan to provide sub-junket services to main junkets based in Cambodia.
In
furtherance of that new plan, the Company was intending to acquire Sheng Ying Investments Limited, a BVI company incorporated on
January 5, 2017, and wholly-owned by Kok Chee LEE, the then-CEO of the Company; however, that plan never materialized and was abandoned
due to the change in control and management in October 2017. There were no operations by the Company during the tenure of Kok Chee
LEE.
On
October 24, 2017, in furtherance of a change-of-control transaction (“2017 Change of Control”), Kok Chee LEE resigned
from his positions as CEO and director of the Company, and the Board of Directors of the Company appointed Thomas Raack as a director
of the Company. On October 25, 2017, Siew Heok Ong resigned from his positions as director and CFO of the Company, and Sreyneang
Jin resigned from her positions as director and COO of the Company. On October 26, 2017, Thomas Raack, the sole remaining director
of the Company, appointed himself as the CEO, president and treasurer of the Company, and also terminated David E. Price as secretary
and appointed himself as secretary of the Company.
Current Business
Commencing
in December 2017, the Company changed its business to focus on the development of technologies and products related to hemp-based
personal care and nutritional products.
The Hemp Market
Our
current business plan, which is in the early stages of operations, marketing and sales of our products, is focused exclusively
on the non-medicinal hemp-based product market which includes full spectrum oils with naturally occurring cannabidiol ("CBD")
along with other elements of the hemp plant including cannabinoids, terpenes, chlorophyll, flavonoids, etc.
Full
spectrum oil can be produced from hemp, which is a legal crop in the United States. Scientific research is now bringing to light
the many health benefits of full spectrum hemp-based products.
Asset Purchase Agreement
On
December 16, 2017, Sheng Ying Entertainment, Inc. (the “Registrant”), as Buyer, entered into an Asset Purchase Agreement
with Steven Raack, an individual; Thomas A. Raack, an individual; and Larry McNabb, an individual, as Sellers, whereby the Registrant
acquired certain intangible assets from Sellers relating to non-medicinal hemp-based personal care and nutritional products that
include: (a) certain proprietary technology and intellectual property; (b) certain proprietary ideas, know-how, proposed business
plans and concepts; and (c) a proposed marketing plan combined with related experiential marketing strategies (the “Technology”),
together, the “Assets”. The Assets consist of plans and intellectual property, only, and do not include fixed assets
or tangible property or products, and constitute the intangible personal property developed solely by Sellers. Each of the Sellers
own 33.33% of the Assets and Sellers together own 100%of all rights, titles and interests in and to the Assets.
As
full consideration for the Assets, the Registrant issued 22,500,000 restricted shares of the Company’s Common Stock, par
value $.001, with each Seller receiving 7,500,000 shares. Due to the change of control and related party nature of the transaction
a carry-over basis of $0 was assigned.
Steven
Raack and Thomas A. Raack are brothers, and Thomas A. Raack was, on the date of the Agreement, a Director, CEO, President, Secretary
and Treasurer of the Company. Subsequent to the acquisition, Steven Raack was appointed as a Director, Thomas A. Raack resigned
as CEO and President, and Steven Raack was appointed as the CEO and President.
The Company
Vitalibis is a socially
conscious brand focused on people, products and the planet. We are a technology-based formulator of premium, full spectrum phytocannabinoid
rich hemp products with naturally occurring cannabidiol (CBD), along with safe personal care and nutritional products. Our
Ambassador program combines critical elements of social selling, ecommerce and affiliate marketing into one highly focused business
system which empowers our people and social mission-driven ecosystem.
Operations
Consumer
Products and Technology SaaS
We market and sell consumer products containing
full
spectrum phytocannabinoid rich hemp oil with naturally occurring CBD
under our Vitalibis™ brand in a range
of market sectors including wellness, and personal care. We currently distribute 3 Vitalibis™ branded products and we expect
to continue to add new products to our Vitalibis™ portfolio to enhance our line of
full
spectrum phytocannabinoid rich hemp products with naturally occurring cannabidiol (CBD)
and hemp-related consumer products.
We also expect to develop and launch new brands under the Vitalibis™ product development umbrella to more effectively market
and sell certain products. We also sell water soluble
full spectrum phytocannabinoid rich
hemp powder with naturally occurring cannabidiol (CBD)
acquired through our supply relationships in the United States to
various customers that produce products for resale into the market. We also began offering non-exclusive leases of our proprietary
Vitalibis technology back-end, which is being offered as a Software as a Service (SaaS) platform.
We seek to take
advantage of an emerging worldwide trend to re-energize the production of industrial hemp and to foster its many uses for consumers.
Historically cultivated for industrial and practical purposes, hemp is used today for textiles, paper, auto parts, biofuel, cosmetics,
animal feed, nutritional supplements, and much more. The market for hemp-derived products is expected to increase substantially
over the next five years, and we believe Vitalibis™ is well positioned to have a demonstrable impact on the rapidly emerging
hemp industry.
Hemp-derived CBD
is one of at least 80 cannabinoids found in hemp, and is non-psychoactive. Our U.S. based supplier oversees our raw material supply
chain and raw material processing. Our internal team manages product development and manufacturing, and sales and marketing. We
will continue to scale-up our processing capability to accommodate new products in our pipeline.
We expect to realize
revenue to fund our working capital needs through the sale of finished products and raw materials to third parties. However, in
order to fund our product development efforts, we will need to raise additional capital either through the issuance of equity and/or
the issuance of debt. In the event we are unable to raise sufficient additional capital to fund our product development efforts,
we may need to curtail or delay such activity.
Inventory and
Sales
Based on expected
increasing demand, we have invested significant capital to develop and maintain our relationship with a proprietary oil extraction
supplier to ensure access to raw materials to support anticipated revenue growth. We have historically sourced our raw materials
from this well-established hemp oil supplier in the United States. We have maintained access to this supplier for their raw material
supply, and continue to explore and develop the relationship to ensure that we can meet the expected demand for hemp oil products
well into the future. However, our current inventory levels are not sufficient to support sales through 2019
Changes in
the Law and Development Programs
For the first
time since 1937, industrial hemp has been decriminalized at the federal level and can be grown legally in the United States, but
on a limited basis. A landmark provision passed in the Agricultural Act of 2014 recognizes hemp as distinct from its genetic cousin,
marijuana. Federal law now exempts industrial hemp from U.S. drug laws to allow for crop research by universities, colleges and
state agriculture departments. The new Federal law allows for agricultural pilot programs for industrial hemp “in states
that permit the growth or cultivation of hemp.”
Market, Customers
and Distribution Methods
The market, customers
and distribution methods for hemp-based products are large and diverse. These markets range from hemp-based bio-plastics to textiles.
This is an ever-evolving distribution system that, today, includes early adopter retailers and ecommerce entities, and product
development companies that use hemp oil to develop consumer products for distribution. We believe that as consumer and market awareness
increases, products derived from hemp/cannabis and the consumer market will evolve and grow into a new commercial industry
Our target customers
for our consumer product segment are, first and foremost, hemp-related consumers who we seek to attract to our products via internet
sales, direct-to-consumer, affiliate sales and Ambassador distributors. Secondarily, we are targeting manufacturers of products
that can, and will, readily replace their existing raw base materials for our base materials, making their respective products
more environmentally friendly and sustainable. In the future, we may pursue national and regional broker networks and major distribution
companies who have pre-existing relationships with major retail chain stores. To date, we have taken no steps, nor do we have any
plans to take any steps to identify or contact any such broker networks or major distribution companies In addition, we are may
pursue distribution opportunities with national retailers. To date, we have taken no steps, nor do we have any plans to take any
steps to identify or contact any such distribution opportunities. As we continue to develop our business, these markets may change,
be re-prioritized or eliminated as management responds to consumer and regulatory developments.
Competition
There are
several companies developing and utilizing cannabinoid for a range of products. The cannabinoid area currently includes
formulated extracts of the
Cannabis
plant and synthetic formulations. These formulations include CBD and
THC,
or a combination of CBD/THC, as the active pharmaceutical ingredient. Certain companies, such as GW Pharmaceuticals, PLC,
have focused on plant-based CBD formulations; while other companies, such as Zynerba Pharmaceuticals Inc. and Insys
Therapeutics Inc., have focused on synthetic CBD formulations.
The CBD-based consumer
product industry is currently highly fragmented with numerous companies, many of which may be under-capitalized. We plan to routinely
evaluate internal and external opportunities in an effort to enhance our business operations and financial results, as well as
provide value for shareholders through new product development, asset acquisitions and/or sales. Another source of competition
may come from large, well-funded companies that currently do not offer hemp-based consumer products.
We may also compete with
other CBD-related technology and product companies for financing from a limited number of investors that may be prepared to invest
in such companies. The presence of competing companies in our field of endeavor may impact our ability to raise initial, needed
capital in order to fund our business plan and operations. If investors perceive that investments in our competitors are more attractive,
based on the merit of their technologies, their products, the advanced stage of their marketing or development, or the price of
the investment opportunity, we may not obtain our needed financing.
Many of our competitors have substantially greater resources,
experience in conducting research, experience in developing and manufacturing their products, operating experience, research and
development and marketing capabilities, name recognition and production capabilities. We will face competition from companies marketing
existing products or developing new products which may render our technologies (and proposed products) obsolete.
These companies may have numerous competitive advantages, including:
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significantly greater name recognition;
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established distribution networks;
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more advanced technologies and product development;
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additional lines of products, and the ability to offer rebates, higher discounts or incentives
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greater experience in conducting research and development, manufacturing, obtaining regulatory approval for products, and marketing approved products; and
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greater financial and human resources for product development, sales and marketing, and patent litigation.
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Intellectual Property
We have filed
trademark applications on our brands, logos and marks including, but not limited to
Vitalibis™
.
We built a proprietary robust technology platform utilizing
highly scalable peer-to-peer sales technology. The technology includes: Administrative back-end module Customer Data Management
Reporting and Metrics Customer Support Customer Relationship Management (CRM). We also intend to develop payment processing, engagement
campaigns, (using patent-pending newkleus technology) mobile application tools, Artificial Intelligence and Machine Learning. We
intend to explore patents related to this technology in the future.
We review our
intellectual property portfolio on a periodic basis and we will continue in our efforts to broaden our portfolio in a fiscally
prudent manner. We may also file for patent protection on our products based on proprietary formulations, processes and technology.
Research and
Development
Our research and
development costs have consisted primarily of stock-based compensation to pay for related personnel expense, facilities and other
costs related to both our consumer product and our technology. We charge all research and development expenses to operations, as
incurred, in the ongoing development of new consumer products.
Environmental
Matters
Compliance with
federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the
protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings
or competitive position of the Company.
Reports to Security Holders
We are subject
to the reporting and other requirements of the Exchange Act and we intend to furnish our shareholders annual reports containing
financial statements audited by our independent registered public accounting firm and to make available quarterly reports containing
unaudited financial statements for each of the first three quarters of each year. After the effectiveness of this Registration
Statement we will begin filing Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K with
the Securities and Exchange Commission in order to meet our timely and continuous disclosure requirements. We may also file additional
documents with the Commission if they become necessary in the course of our company’s operations.
The public may
read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC. The address of that site is www.sec.gov.
Environmental Regulations
We expect to comply
with all applicable laws, rules and regulations relating to our business, and at this time, we do not anticipate incurring any
material capital expenditures to comply with any environmental regulations or other requirements. While our proposed business activities
do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements on us or on our anticipated
potential customers could adversely affect us by increasing our operating costs or decreasing demand for our proposed products,
which could have a material adverse effect on our results of operations.
Employees
As of December 31, 2018, we did not have any employees. Steve
Raack and Tom Raack each intend to devote about 40 hours per week on our proposed operations. The Company will consider employing
staff in the future, but only if our business is growing and cash flow will support such staff.
Litigation
We are not party to any pending, or to our knowledge, threatened
litigation of any type.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2
of the Exchange Act and are not required to provide the information under this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
None.
DESCRIPTION
OF PROPERTY
Our principal
office is located at 3960 Howard Hughes Parkway Suite 500 Las Vegas, NV 89169, as part of a group of executive suites. Our telephone
number is (310) 982-1331. We pay $130.00 per month for our offices, on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
We are not party to any legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information.
The Company's common stock trades in the OTC Market under the
symbol "VCBD". Trading in our Company's common stock on the OTC Market has been very sparse, both over the past calendar
year, as well as through the date of this annual report.
Description of Securities
The Company is authorized by its Certificate of Incorporation
to issue an aggregate of 117,500,000 shares of capital stock, of which 112,500,000 are shares of common stock, par value $0.001
per share (the "Common Stock") and 5,000,000 are shares of preferred stock, par value $0.001 per share (the "Preferred
Stock"). As of December 31, 2018, a total of 29,638,900 shares of Common Stock were issued and outstanding, and no Preferred
Stock has been issued.
Preferred Stock
Our certificate of incorporation authorizes the issuance of
5,000,000 shares of preferred stock with designations, rights and preferences determined from time to time by our board of directors.
No shares of preferred stock have been designated, issued or were outstanding as of December 31, 2018. However, our board of directors
is empowered, without stockholder approval, to issue up to 5,000,000 shares of preferred stock with voting, liquidation, conversion,
or other rights that could adversely affect the rights of the holders of the common stock. As of December 31, 2018, we had no intention
to issue any shares of preferred stock, but there can be no assurance that we will not do so in the future.
Among other rights, our board of directors may determine, without
further vote or action by our stockholders:
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the number of shares and the designation of the series;
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whether to pay dividends on the series and, if so, the dividend rate, whether dividends will be cumulative and, if so, from which date or dates, and the relative rights of priority of payment of dividends on shares of the series;
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whether the series will have voting rights in addition to the voting rights provided by law and, if so, the terms of the voting rights;
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whether the series will be convertible into or exchangeable for shares of any other class or series of stock and, if so, the terms and conditions of conversion or exchange;
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whether or not the shares of the series will be redeemable and, if so, the dates, terms and conditions of redemption and whether there will be a sinking fund for the redemption of that series and, if so, the terms and amount of the sinking fund; and
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the rights of the shares of the series in the event of our voluntary or involuntary liquidation, dissolution or winding up and the relative rights or priority, if any, of payment of shares of the series.
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In addition, preferred stock could be used to dilute a potential
hostile acquirer. Accordingly, any future issuance of preferred stock or any rights to purchase preferred shares may have the effect
of making it more difficult for a third party to acquire control of us. This may delay, defer or prevent a change of control in
our Company or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings
attributable to, and assets available for distribution to, the holders of our common stock and could adversely affect the rights
and powers, including voting rights, of the holders of our common stock.
Common Stock
Our certificate of incorporation authorizes the issuance of
112,500,000 shares of common stock. There are 29,638,900 shares of our common stock issued and outstanding at December 31, 2018.
The holders of our common stock:
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have equal ratable rights to dividends from funds legally available for payment of dividends when, as and if declared by the board of directors;
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are entitled to share ratably in all of the assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs;
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do not have preemptive, subscription or conversion rights, or redemption or access to any sinking fund; and
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are entitled to one non-cumulative vote per share on all matters submitted to stockholders for a vote at any meeting of stockholders
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Pursuant to
an Amendment to the Articles of Incorporation, effected under NRS 78.207 and .209, the Company effected a
2.5 for 1
forward stock split
of our
number of authorized shares of the Common
Stock and a corresponding increase in the number of issued and outstanding shares of Common Stock held by each stockholder of
record as of February 8, 2018, the “Effective Date” of the forward split, as set by
FINRA.
All shares referenced
in this Report have been retroactively adjusted to reflect this stock split.
Authorized but Unissued Capital Stock
Nevada law does not require stockholder approval for any issuance
of authorized shares. These additional shares may be used for a variety of corporate purposes, including future public offerings
to raise additional capital or to facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved
common stock (and/or preferred stock) may be to enable our board of directors to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain control of our board by means of a merger, tender
offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the stockholders of
opportunities to sell their shares of our common stock at prices higher than prevailing market prices.
The description of certain matters relating to the securities
of the Company is a summary and is qualified in its entirety by the provisions of the Company's Certificate of Incorporation and
By-Laws.
(b) Holders
As of December 31, 2018, there were 1,083 qualified holders
of record of our common stock.
(c) Dividends
The Registrant has not paid any cash dividends to date and does
not anticipate or contemplate paying dividends in the foreseeable future. It is the present intention of management to utilize
all available funds for the development of the Registrant's business.
(d) Securities Authorized for Issuance under Equity Compensation
Plans
None.
(e) Recent Sale of Unregistered Securities
The Company's Board of Directors has the power to issue any
or all of the authorized but unissued Common Stock without stockholder approval. As of December 31, 2018, the Company had commitments
to issue 1,882,500 shares of common stock if certain performance-based milestones are met under the terms of the agreements.
Subsequent to December 31, 2018, the Company issued 680,000
shares under the commitments from 2018 agreements. Additionally, the Company issued 177,500 shares related to new consulting and
advisory agreements entered into in 2019, and is committed to issuing an additional 375,000 shares if certain performance-based
milestones are met under the terms of those agreements.
The Company has recently sold unregistered securities, as follows:
The Company sold 912,400 shares of restricted common stock to
39 Accredited Investors during the year ended December 31, 2018 for cash proceeds of $912,400.
(b) Related Stockholder Matters
Not required.
(c) Issuer Purchases of Equity Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 we are not required to provide the information under this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes the significant factors affecting
the operating results, financial condition, liquidity and cash flows of the Company for the fiscal years ended December 31, 2018
and 2017 The discussion and analysis that follows should be read together with the section entitled "Forward Looking Statements"
and our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual
report on Form 10-K.
Except for historical information, the matters discussed
in this section are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various
factors that are beyond the Company's control. Consequently, and because forward-looking statements are inherently subject to risks
and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking
statements. You are urged to carefully review and consider the various disclosures made by us in this report.
Company Overview
We market and sell consumer products
containing
full spectrum phytocannabinoid rich hemp oil with naturally
occurring CBD
under our
Vitalibis™
brand in a range of market sectors including wellness, and beauty
care. We currently distribute 3 products and we expect to continue to add new products to our
Vitalibis™
portfolio
to enhance our line of
full spectrum phytocannabinoid rich hemp products with naturally
occurring cannabidiol (CBD)
and hemp-related consumer products. We also expect to develop and launch new brands under
the
Vitalibis™
product development umbrella to more effectively market and sell certain products. We also sell
water soluble
full spectrum phytocannabinoid rich hemp powder with naturally occurring
cannabidiol (CBD), which we acquire
through our supply relationships in the United States to various customers that
produce products for resale into the market. We also began offering non-exclusiveleases of our proprietary technology
back-end, which is being offered as a Software as a Service (SaaS) platform.
We seek to take
advantage of an emerging worldwide trend to re-energize the production of industrial hemp and to foster its many uses for consumers.
Historically cultivated for industrial and practical purposes, hemp is used today for textiles, paper, auto parts, biofuel, cosmetics,
animal feed, nutritional supplements, and much more. The market for hemp-derived products is expected to increase substantially
over the next five years, and we believe Vitalibis™ is well positioned to be have a demonstrable impact on the rapidly emerging
hemp industry.
Hemp-derived CBD
is one of at least 80 cannabinoids found in hemp, and is non-psychoactive. Our U.S. based supplier oversees our raw material supply
chain and raw material processing. Our internal team manages product development and manufacturing, and sales and marketing.
We will continue
our efforts to scale-up our processing capability to accommodate new products in our pipeline.
We expect to realize
revenue to fund our working capital needs through the sale of finished products and raw materials to third parties. However, in
order to fund our product development efforts, we will need to raise additional capital, either through the issuance of equity
and/or the issuance of debt. In the event we are unable to raise sufficient additional capital to fund our product development
efforts, we may need to curtail or delay such activity.
Results of Operations
For the years ended December 31, 2018 and 2017
Revenue and Gross Profit
During the year ended December 31, 2018, the Company began selling
its products, and generated $51,331 in revenue and $28,330 in gross profit. There were no sales during the year ended December
31, 2017.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the period
ending December 31, 2018, were $2,095,787 compared to $32,328 for the year ending December 31, 2017. The expenses consisted primarily
of stock-based compensation, and services rendered by our executive officers.
Professional fees
Professional fees for the period ending December 31, 2018, were
$160,463 compared to $70,537 for the year ending December 31, 2017. The increase was due to increased legal, accounting and audit
fees associated with the increased operations of the Company.
Liquidity and Capital Resources
The following is a summary of the Company's cash flows provided
by (used in) operating, investing, and financing activities for the year ended December 31, 2018 and for the year ending December
31, 2017:
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
|
Operating Activities
|
|
|
(543,204
|
)
|
|
|
(1,130
|
)
|
|
Investing Activities
|
|
|
(176,177
|
)
|
|
|
–
|
|
|
Financing Activities
|
|
|
891,360
|
|
|
|
–
|
|
|
Net Effect on Cash
|
|
|
171,979
|
|
|
|
(1,130
|
)
|
Operating Activities
The cash used in operating activities of $543,204 for the year
ended December 31, 2018 was primarily due to increased selling, general and administrative costs as the Company increased its operations
during the year.
Investing Activities
The cash used in investing activities of $176,177 during the
year ended December 31, 2018 was due to costs incurred to build our website.
Financing Activities
The cash provided by financing activities of $891,360 during
the year ended December 31, 2018 was primarily from sales of common stock for cash of $912,400.
We are a public company and as such we have incurred and will
continue to incur significant expenses for legal, accounting and related services. As a public entity, subject to the reporting
requirements of the Exchange Act of 1934, we incur ongoing expenses associated with professional fees for accounting, legal and
a host of other expenses including annual reports and proxy statements, if required. We estimate that these costs will range up
to $50,000 per year over the next few years and may be significantly higher if our business volume and transactional activity increases
but should be lower during our first year of being public because our overall business volume (and financial transactions) will
be lower, and we will not yet be subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until we exceed $75
million in market capitalization (if ever). These obligations will certainly reduce our ability and resources to expand our business
plan and activities. We hope to be able to use our status as a public company to increase our ability to use noncash means of settling
outstanding obligations (i.e. issuance of restricted shares of our common stock) and compensate independent contractors who provide
professional services to us, although there can be no assurances that we will be successful in any of these efforts. We will also
reduce compensation levels paid to management (if we attract or retain outside personnel to perform this function) if there is
insufficient cash generated from operations to satisfy these costs.
We hope to be able to use our status as a public company to
enable us to use non-cash means of settling obligations and compensate persons and/or firms providing services to us, although
there can be no assurances that we will be successful in any of those efforts. However, these actions, if successful, will result
in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution
may be material. Such issuances may also serve to enhance existing management's ability to maintain control of the Company because
the shares may be issued to parties or entities committed to supporting existing management. The Company may offer shares of its
common stock to settle a portion of the professional fees incurred in connection with its registration statement. No negotiations
have taken place with any professional and no assurances can be made as to the likelihood that any professional will accept shares
in settlement of obligations due to them.
As of December 31, 2018, total liabilities increased to $180,389
from $6,169 as of December 31, 2017, due to increases in trade accounts payable, deferred revenue and unsecured notes payable at
the end of the year.
Critical Accounting Policies
The preparation
of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the 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. On an ongoing basis management evaluates its critical
accounting policies and estimates.
A “critical
accounting policy” is one which is both important to the understanding of the financial condition and results of operations
of the Company and requires management’s most difficult, subjective, or complex judgments, and often requires management
to make estimates about the effect of matters that are inherently uncertain. Management believes the following accounting policies
fit this definition:
Revenue Recognition
-
The Company recognizes
revenue in accordance with ASC Topic 606, Revenue From Contracts With Customers, which was adopted on January 1, 2018 using
the modified retrospective method, with no impact to the Company’s comparative financial statements. Revenues are
recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the
consideration the Company expects to be entitled to in exchange for transferring those goods or services. Revenue is
recognized based on the following five step model:
|
•-
|
Identification of the contract with a customer
|
|
•
|
Identification of the performance obligations in the contract
|
|
•
|
Determination of the transaction price
|
|
•
|
Allocation of the transaction price to the performance obligations in the contract
|
|
•-
|
Recognition of revenue when, or as, the Company satisfies a performance obligation
|
Product sales are recognized all of the
following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the
Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby
the end user has obtained control of the product. A contract with commercial substance exists once the Company receives and accepts
a purchase order or once it enters into a contract with an end user. If collectibility is not probable, the sale is deferred and
not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk
of ownership of the product has transferred to the customer. Payment is received before shipment of the product. Net revenues comprise
gross revenues less customer discounts and allowances, actual and expected returns. Shipping charges billed to customers are included
in net sales. Various taxes on the sale of products and enrollment packages to customers are collected by the Company as an agent
and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability until remitted
to the respective taxing authority. The Company allows for customers to return unopened products within 45 days. During the year
ended December 31, 2018, there were a trivial amount of refunds processed for returned product.
Inventory
-
Inventory is manufactured at third party facilities. Inventories are stated at the lower of cost or net realizable value, using
the first-in, first-out method. The Company reviews its inventory for obsolescence and any inventory identified as obsolete is
reserved or written off. The Company’s determination of obsolescence is based on assumptions about the demand for its products,
product expiration dates, estimated future sales, and management’s future plans.
Website Development Cost -
The
Company capitalizes certain development costs associated with internal use software incurred during the application development
stage. The Company expenses costs associated with preliminary project phase activities, training, maintenance and any post-implementation
period costs as incurred. Capitalization of qualifying application development cost begins when management authorized and commits
to funding the project and it is probable that the project will be completed for the function intended. Capitalized internal use
software costs are normally amortized over estimated useful lives ranging from 2 to 5 years once the related project has been completed
and deployed for customer use. At time the software is considered to have be an indefinite lived asset in which case it is evaluated
for impairment at least annually. For the year ending December 31, 2018, the Company capitalized $176,177 related to software under
the criteria discussed in this paragraph. These costs are related to the development of our website and customer portal. The Company
amortizes capitalized costs over an estimated useful life of three years.
Stock-Based
Compensation
- The Company measures the total amount of employee stock-based compensation expense for a grant based
on the grant date fair value of each award and recognizes the stock-based compensation expense on a straight-line basis over the
requisite service period for each separately vesting tranche of an award. Stock-based compensation is based on unvested outstanding
awards. The Company has elected to recognize forfeitures when realized.
Recently Issued Accounting Pronouncements
Refer to the notes to the financial statements for a complete
description of recent accounting standards which we have not yet been required to implement and may be applicable to our operation,
as well as those significant accounting standards that have been adopted during the current year.
Going Concern
Our auditor has issued a "going concern" qualification
as part of their opinion for the fiscal year ended December 31, 2018.
Off-Balance Sheet Arrangements
We have no outstanding off-balance sheet guarantees, interest
rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Contractual Obligations
As a "smaller reporting company" as defined by Item
10 of Regulation S-K, the Company is not required to provide this information.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are a smaller reporting company as defined by Rule 12b-2
of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and the Report of Independent
Registered Public Accounting Firm thereon are filed pursuant to this Item 8 and are included in this report beginning on page
F-1
.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the
Company and its accountants on any matter of accounting principles, practices or financial statement disclosure.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. The term "disclosure controls and procedures", as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), means controls
and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports
it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SEC`s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed
to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act
is accumulated and communicated to the company's management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded as of December 31, 2018, that our disclosure controls and procedures are not effective at a reasonable
assurance level and are designed to provide reasonable assurance that the controls and procedures will meet their objectives due
to the material weaknesses described below. However, it should be noted that the design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions, regardless of how remote.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal
control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The
internal controls for the Company are provided by executive management's review and approval of all transactions. Our internal
control over financial reporting also includes those policies and procedures that:
|
(1)
|
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
|
|
|
|
|
(2)
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management; and
|
|
|
|
|
(3)
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal
control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission in Internal Control-Integrated Framework.
Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the
operational effectiveness of these controls.
Based on this assessment, management has concluded that, as
of December 31, 2018, our internal control over financial reporting was not effective to provide 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 principles due to the existence of the following material weaknesses:
|
|
·
|
Lack of segregation of duties
|
|
|
|
|
|
|
·
|
Lack of audit committee and independent directors
|
|
|
|
|
|
|
·
|
Lack of well established procedures to authorize and approve related party transactions
|
Although we are unable to meet the standards under COSO because
of the limited resources available to a company of our size, we are committed to improving our financial organization. As funds
become available, we will undertake to: (1) create a position to segregate duties consistent with control objectives, (2) increase
our personnel resources and technical accounting expertise within the accounting function (3) appoint one or more independent directors
to our board of directors who shall be appointed to a Company audit committee resulting in a fully functioning audit committee
who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; and (4) prepare
and implement sufficient written policies and checklists which will set forth procedures for accounting and financial reporting
with respect to the requirements and application of US GAAP and SEC disclosure requirements.
We will continue to monitor and evaluate the effectiveness of
our disclosure controls and procedures and our internal control over financial reporting on an ongoing basis and are committed
to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
This annual report does not include an attestation report of
the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not
subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the
Company to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over
financial reporting that occurred during the last fiscal quarter that have materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our Articles state that
our authorized number of directors shall be not less than one and shall be set by resolution of our Board of Directors. Our Board
of Directors has fixed the number of directors at three, and we currently have two directors but are evaluating candidates to fill
the current vacancy.
The following table contains information as of December 31,
2018, as to each Director and Executive Officer of the Company:
|
Name
|
|
Age
|
|
Title
|
|
Steve Raack
3960 Howard Hughes Parkway Suite 500 Las Vegas, NV 89169
|
|
47
|
Director, President, and Chief Executive Officer
|
|
|
|
|
|
|
Thomas Raack
3960 Howard Hughes Parkway Suite 500 Las Vegas, NV 89169
|
|
48
|
Director, Secretary, Chief Financial Officer & Treasurer
|
Our
Directors will serve in that capacity until our next annual shareholder meeting or until their successors are elected and qualified.
Officers hold their positions at the will of our Board of Directors.
Steven
P. Raack
, 47, has over 24 years of strategy, operations, technology, product development and business management experience.
He’s worked for industry leading companies, from global corporations to start-ups, including NASA, Andersen Consulting, Electronic
Data Systems, Sony Pictures Entertainment, Herbalife International, Arbonne International, Beautycounter and newkleus.
In
2012, Mr. Raack joined Beautycounter as their Chief Operating Officer, and helped launch a progressive brand focused on selling
safe skin care, body care and cosmetics products. He was integral in developing the strategies and execution programs related
to their innovative eCommerce, social selling and affiliate marketing business model, which attracted top-tier investors such as
TPG Growth.
After
3½ years with Beautycounter, in 2016, Mr. Raack left to become the Chief Executive Officer of newkleus – a patent-pending
customer engagement platform. The newkleus technology platform was strategically designed to maximize social media activities for
sports teams, musicians, radio stations, consumer brands and social selling companies. Mr. Raack is currently the Chief Executive
Officer of newkleus. Mr. Raack commenced his business relationship with the Company in 2017, serving as the CEO, President and
as a Director, and currently holds such positions.
There is no arrangement
or understanding between him and any other person(s) (including Thomas Raack) pursuant to which he was or is to be selected as
a director or nominee.
In
addition to serving as a Director and officer of the Company, Mr. Raack, as time permits, also currently assists several start-up
and growth companies as an Executive Advisor. Mr. Raack earned a B.S. in Electrical Engineering from the University of Southern
California and an MBA from Pepperdine University.
Thomas
Raack
, 48, has over 20 years of financial, executive and strategic management experience with a diverse group of private and
publicly-held companies specializing in the development of technology, medical product distribution, biotechnology, and e-commerce.
Mr. Raack has a broad base of business consulting experience and has assisted in structuring and completing, acquisitions, debt
and equity financing, reorganizations, as well as designing and implementing business development and financial communications
programs.
From
1998 to 2002, Mr. Raack was a managing partner at Alliance Capital Resources, with offices in Newport Beach, CA. While at Alliance,
Mr. Raack consulted for publicly-traded companies handling domestic mergers and acquisitions, venture capital transactions, public
offerings and other financings, joint ventures, strategic alliances and distribution agreements. His experience at Alliance
also included managing financial communications for a NASDAQ-listed medical products distribution company.
From
2002 to 2017, Mr. Raack was an independent consultant with a focus on assisting private companies with business development and
operational systems.
Mr. Raack commenced his business relationship with the Company in 2017, serving as the CEO,
President and as a Director, then as Secretary, Treasurer, Chief Financial Officer and as a Director, and currently holds such
positions.
There
is no arrangement or understanding between him and any other person(s) (including Steven Raack) pursuant to which he was or is
to be selected as a director or nominee.
Conflicts
of Interest
Our
directors are not obligated to commit their full time and attention to our business and, accordingly, they may encounter a conflict
of interest in allocating their time between our operations and those of other businesses. In the course of their other business
activities, they may become aware of investment and business opportunities which may be appropriate for presentation to us as well
as other entities to which they owe a fiduciary duty. As a result, they may have conflicts of interest in determining to which
entity a particular business opportunity should be presented. They may also in the future become affiliated with entities that
are engaged in business activities similar to those we intend to conduct.
In
general, officers and directors of a corporation are required to present business opportunities to the Company if: we have adopted
a code of ethics that obligates our directors, officers and employees to disclose potential conflicts of interest and prohibits
those persons from engaging in such transactions without our consent. In such event, the criteria for determining whether the Company
should be offered an opportunity are as follows:
|
|
*
|
the Company could financially undertake the opportunity;
|
|
|
*
|
the opportunity is within the Company’s line of business; and
|
|
|
*
|
it would be unfair to the Company and its stockholders not to bring the opportunity to the attention of the Company.
|
Family Relationships.
The following family
relationships exist among our officers, directors, or persons nominated for such positions: Steven Raack is the brother of Thomas
A. Raack.
Involvement in Certain Legal Proceedings
No executive officer or director has been involved in the last
ten years in any of the following:
|
|
•
|
Any bankruptcy petition filed by or against any business or property of such person, or of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
|
|
|
•
|
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
|
•
|
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
|
|
|
•
|
Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
|
|
•
|
Being the subject of or a party to any judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated relating to an alleged violation of any federal or state securities or commodities law or regulation, or any law or regulation respecting financial institutions or insurance companies, including but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail, fraud, wire fraud or fraud in connection with any business entity; or
|
|
|
•
|
Being the subject of or a party to any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
Board Committees and Audit Committee Financial Expert
We do not currently have a standing audit, nominating or compensation
committee of the board of directors, or any committee performing similar functions. Our board of directors performs the functions
of audit, nominating and compensation committees. As of the date of this annual report, no member of our board of directors qualifies
as an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities
Act.
Director Nominations
As of December 31, 2018, we did not affect any material changes
to the procedures by which our shareholders may recommend nominees to our board of directors. We have not established formal procedures
by which security holders may recommend nominees to the Company's board of directors.
Advisory Board
The Company has established an
Advisory Board
to
provide
the Company’s Board of Directors
with
provide fresh perspectives on (a)
strategy, economic trends, or specific geographic markets and regulatory regimes, and (b)
vision,
innovation, risk management, and profitability. Although they are intended to provide management with advice, they do not
possess the authority to vote on corporate matters. Advisor compensation will be determined by the Directors on a
case-by-case basis, depending on a variety of factors, and may consist of cash, equity in the Company, or a blend
thereof.
Our Advisory
Board
currently consisting of the following Advisors:
Dave Wentz
Dave helped found publicly traded USANA Health Sciences, Inc.
in 1992, and was instrumental in leading it to $1 billion in sales while serving over 1/2 million families. At USANA, Dave played
many roles, including: VP of Strategic Development, Executive Vice President, President and CEO. USANA Health Sciences, Inc. develops
and manufactures nutritional, personal care and weight-management products. In January 2009, Dave was named by Forbes.com as one
of "America's Powerful CEOs 40 and Under". His focus on providing an exceptional workplace for employees worldwide led
to
Outside
magazine naming USANA to its "Best Places to Work" list seven times.
Oran Arazi-Gamliel
With over 20 years in general management and C-suite positions
in the global wellness and direct selling arenas, Arazi-Gamliel has operated in the North America, Australia, Japan, UK, Russia
and Israel markets. During his tenure Arazi-Gamliel was responsible for building from scratch, as well as restructuring, numerous
direct selling operations. In his latest executive position, Arazi-Gamliel served as Chief Global Officer and Head of M&A of
Rodan + Fields, a prestige dermatology-inspired skincare brand that grew to over $1.5B in 2017 and became the number 1 skin-care
brand in North America. In this position, Arazi-Gamliel was instrumental in creating key field behavioural programs and the global
market entry strategies.
Stacy Brovitz
Stacy started his career at JP Morgan Chase where he was one
of the leaders in the development of the bank's asset securitization business in the late 1980's. Stacy served as Chief Operating
Officer for Dormont Manufacturing Company, the leading manufacturer of stainless steel gas appliance connectors, for 16 years where
he successfully managed the company through a period of rapid growth and eventual sale to a strategic buyer. He then served as
SVP Global Operations for Herbalife Nutrition where he led the development of the company's manufacturing and supply chain strategic
plan. Stacy then served as CEO of Bacharach, Inc., a manufacturer of gas leak detection instruments, where he managed the successful
turnaround of the company. Most recently, Stacy has been an investor in and advisor to several startups, an active trader in the
capital markets and serves on the boards of several charities.
Code of Ethics
We have adopted a code of ethics that applies to our principal
executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
A copy of our code of ethics may be obtained free of charge by contacting us at the address or telephone number listed on the cover
page hereof.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The
following summary compensation table sets forth the total annual compensation paid or accrued by us to or for the account of our
principal executive officer during the last completed fiscal year and each other executive officer whose total compensation exceeded
$100,000 in either of the last two fiscal years:
|
Name
and
Principal
Position
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
|
|
Non-Equity
Incentive
Compensation
($)
|
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation
($)
|
|
Totals
($)
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
Steve Raack
President, CEO and Director (1)
|
|
2018
|
|
|
90,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
90,000
|
|
|
Thomas Raack
Director,
Secretary, Treasurer and Chief Financial Officer (1)
|
|
2018
|
|
|
115,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
115,000
|
|
|
|
(1)
|
Steve Raack and Thomas Raack each own 7,500,000 shares of the Company’s restricted Common Stock.
|
The
following table provides information concerning equity awards as of our fiscal year end, December 31, 2018, held by each of our
named executive officers.
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number
of
Shares
of
Stock
That
Have
Not
Vested
(#)
|
|
Market
Value
of
Shares
of
Stock
That
Have
Not
Vested
(#)
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Shares
or
Other
Rights That
Have
Not
Vested
(#)
|
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Shares
or
Other
Rights That
Have
Not
Vested
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Raack
President, CEO and Director (1)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
0
|
|
0
|
|
Thomas Raack Director, Secretary, Treasurer and
Chief Financial Officer (1)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
0
|
|
0
|
____________________
|
|
(1)
|
Steve Raack and Thomas Raack each own 7,500,000 shares of the Company’s restricted Common Stock.
|
We
have omitted certain columns in the summary compensation table pursuant to Item 402(a)(5) of Regulation S-K as no compensation
was awarded to, earned by, or paid to any of the executive officers or directors required to be reported in that table or column
in any fiscal year covered by that table.
Option Grants
As
of the date of this report we had not granted any options or stock appreciation rights to our named executive officers or directors,
or to any other party.
Warrants
As of the date
of this report we had not stock warrants to our named executive officers or directors. The Company issued 1,500,000 warrants in
January 2019 to a third party for services rendered pursuant to an agreement signed during the year ended December 31, 2018.
Management Agreements
As
of the date of this report we have no management agreement with any of our named executive officers or directors, or with any other
party.
Compensation of Directors
Our
directors did not receive any compensation for their services as directors from our inception to the date of this report. We have
no formal plan for compensating our directors for their services in the future in their capacity as directors, although such directors
may receive compensation as determined by our Board of Directors or by any compensation committee that may be established.
Pension, Retirement or Similar Benefit
Plans
There
are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers.
We have no bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or
executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.
Compensation Committee
We
do not currently have a compensation committee of the Board of Directors or a committee performing similar functions. The Board
of Directors as a whole participates in the consideration of executive officer and director compensation.
|
Name & Principal Position
|
|
|
Salary ($)
|
|
|
|
Bonus ($)
|
|
|
|
Stock Awards ($)
|
|
|
|
Option Awards ($)
|
|
|
|
Non-equity incentive plan compensation ($)
|
|
|
|
Non-qualified deferred compensation earnings ($)
|
|
|
|
All other compensation ($)
|
|
|
|
Total ($)
|
|
|
NONE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Grants of Plan-Based Awards Table
None of our named executive officers received any grants of
stock, option awards or other plan-based awards during the period ended December 31, 2018. The Company has no activity with respect
to these awards.
Options Exercised and Stock Vested Table
None of our named executive officers exercised any stock options,
and no restricted stock units, if any, held by our named executive officers vested during the period ended December 31, 2018. The
Company has no activity with respect to these awards.
Outstanding Equity Awards at Fiscal Year-End Table
None of our named executive officers had any outstanding stock
or option awards as of December 31, 2018 that would be compensatory to the officer. The Company has not issued any awards to its
named executive officers. The Company and its Board of Directors may grant awards as it sees fit to its employees as well as key
consultants.
Compensation of Directors
During our fiscal year ended December 31, 2018, we did not provide
compensation to any of our directors for serving as a director. We currently have no formal plan for compensating our directors
for their services in their capacity as directors, although we may elect to issue stock options to such persons from time to time.
Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance
at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special
services on our behalf other than services ordinarily required of a director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of December 31, 2018, certain
information with regard to the record and beneficial ownership of the Company's common stock by (i) each person known to the Company
to be the record or beneficial owner of 5% or more of the Company's common stock, (ii) each director of the Company, (iii) each
of the named executive officers, and (iv) all executive officers and directors of the Company as a group:
|
Name of Beneficial Owner
|
|
Number of Shares Owned (1)
|
|
|
Percentage of Outstanding Shares of Common
Stock (2)
|
|
|
|
|
|
|
|
|
|
|
Steve Raack
|
|
|
7,500,000
|
|
|
|
25.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Raack
|
|
|
7,500,000
|
|
|
|
25.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry McNabb (3)
|
|
|
7,500,000
|
|
|
|
25.3%
|
|
|
|
|
|
|
|
|
|
|
|
____________________
|
(1)
|
Unless otherwise indicated, all shares are owned directly by the beneficial owner.
|
|
(2)
|
Based on 29,638,900 shares of common stock issued and outstanding.
|
|
(3)
|
Larry McNabb is the beneficial owner of these shares, held in the name of B.L.U.E. Stone, Ltd.
|
Changes in Control
As of December
31, 2018, there are no existing arrangements that may result in a change in control of our Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
In March 2018, the Company issued 200,000
shares of common stock valued at $200,000 to acquire a license from VOTOCAST, INC. as discussed in Note 8. It was determined to
be a transaction with an entity under common control and the share issuance was determined to be a deemed distribution to the related
party for the value of the shares in excess of the historical carry over basis of the asset.
During the year ended December 31, 2018,
$200 of cash was contributed to the Company by the Chief Financial Officer to open the Company’s bank account.
During the year ended December 31, 2017,
$2,754 of services were paid for and contributed to the Company by the current officers.
The Company makes borrowings from its related
parties from time to time for working capital purposes.
During the year ended December 31, 2017,
the Company incurred operating expenses in the amount of $102,865, $92,851 of which was directly paid by Mr. Kok Chee LEE, the
Chief Executive Officer of the Company at the time. On October 25, 2017 Mr. Kok Chee Lee forgave amounts owed to him which were
recorded as a contribution to capital. As of December 31, 2018 and 2017, the Company owed $0 to Mr. Kok Chee LEE, respectively.
Corporate Governance and Director Independence.
The Company has not:
|
|
•
|
Established its own definition for determining whether its directors and nominees for directors are "independent". We currently use NASDAQ's general definition for determining director independence, which states that "independent director" means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, that, in the opinion of the company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director.
|
Nor:
|
|
•
|
Established any committee of the board of directors.
|
Given the nature of the Company's business, its limited stockholder
base and the current composition of management, the board of directors does not believe that the Company requires any corporate
governance committees at this time.
As of the date hereof, the entire board serves as the Company's
audit committee.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Public Accountants
On February 8, 2016, we engaged MaloneBailey, LLP ("MB")
as our new independent registered public accounting firm. The appointment of MB was approved by our Board of Directors. During
the fiscal year ended December 31, 2018, we did not consult with MB on (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that may be rendered on the Company's financial statements,
and MB did not provide either a written report or oral advice to the Company that was an important factor considered by the Company
in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as
defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth
in Item 304(a)(1)(v) of Regulation S-K.
Audit Fees
The fees involved with the audit by MB of the financial statements
for the year ended December 31, 2018 are $36,000. The audit fees were $17,000 for the audit for the year ended December 31, 2017.
Tax Fees
During the year ended December 31, 2018, our principal accountant
did not render services to us for tax compliance, tax advice or tax planning.
All Other Fees
During the year ended December 31, 2018, there were no fees
billed for products and services provided by the principal accountant other than those set forth above.
Currently, we have no independent audit committee. Our full
board of directors functions as our audit committee and is comprised of one director who is not considered to be "independent"
in accordance with the requirements of Rule 10A-3 under the Exchange Act. Our audit committee's pre-approval policies and procedures
described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related
activities prior to the performance of any services by any accountant or auditor.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND GOING
CONCERN:
Vitalibis (the “Company”) was
formed on April 11, 2014 as a Nevada corporation, under the name of Crowd 4 Seeds, Inc. We plan to focus on the development, sale
and distribution of hemp oil-based products that contain naturally occurring cannabinoids, including cannabidiol ("CBD")
and other products containing CBD-rich hemp oil (“Legal Hemp”). We leverage our proprietary technology platform to
maximize our innovative micro-influencer sales model, which fosters engaged customer connections.
During 2014 the Company issued 9,054,000
shares of its common stock, for a total consideration of $20,000. On December 30, 2016, Tycoon Luck Global Limited acquired 65.72%
of the equity interest of the Company from Itzhak Ostashinsky, the major shareholder and sole officer, at a consideration of $220,152
in cash and both parties agreed all the net liabilities of the Company as of the acquisition date are assumed by Itzhak Ostashinsky.
On the same day, the new management team was appointed.
On January 9, 2017, the Company filed with
Secretary of State of Nevada to change its name to Sheng Ying Entertainment Corp. On April 24, 2017, the Financial Industry Regulatory
Authority (“FINRA”) approved the name change. The Company’s common stock symbol was also changed from CWWD to
SALL, effective April 25, 2017.
On October 24, 2017, Kok Chee LEE resigned
from his positions as CEO and director of the Company, and the Board of Directors of the Company appointed Thomas Raack as a director
of the Company. On October 25, 2017, Siew Heok Ong resigned from his positions as director and CFO of the Company, and Sreyneang
Jin resigned from her positions as director and COO of the Company. On October 26, 2017, Thomas Raack, the sole remaining director
of the Company, appointed himself as the CEO, president and treasurer of the Company, and also terminated David E. Price as secretary
and appointed himself as secretary of the Company.
On January 18, 2018, our Board of Directors
approved an agreement and plan of merger to merge with and into our wholly-owned subsidiary, Vitalibis, Inc., a Nevada corporation,
and our name changed from Sheng Ying Entertainment Corp. to Vitalibis, Inc. Vitalibis, Inc. was formed solely to effect the change
of name and conducted no operations.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses and generated
negative cash flows from operations since inception. Due to these conditions, it raised substantial doubt about its ability to
continue as a going concern. Management intends to finance operating costs over the next twelve months with existing cash on hand,
loans, loans from directors and, or, the sale of common stock. The financial statements do not include any adjustments that may
result should the Company be unable to continue as a going concern.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The significant accounting policies followed
in the preparation of the financial statements are as follows:
Basis of Presentation
:
The financial statements are prepared in accordance with accounting
principles generally accepted ("GAAP") in the United States of America.
Use of Estimates
The preparation of the financial statements
in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) 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 expenses during the reporting periods.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include short-term
investments with original maturities of 90 days or less. The recorded value of our cash and cash equivalents approximates their
fair value.
Inventories
Inventory is manufactured at third party
facilities. Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out method. The Company
reviews its inventory for obsolescence and any inventory identified as obsolete is reserved or written off. The Company’s
determination of obsolescence is based on assumptions about the demand for its products, product expiration dates, estimated future
sales, and management’s future plans.
As of December 31, 2018 and 2017, inventory consists of the
following components:
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
Raw materials and supplies
|
|
$
|
1,836
|
|
|
$
|
–
|
|
|
Finished products
|
|
|
186,881
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
188,717
|
|
|
$
|
–
|
|
The Company recognized a prepaid expense of $30,431 related
to purchases of inventory that had not yet transferred into the control of the Company as of December 31, 2018.
Revenue Recognition
The Company recognizes revenue in
accordance with ASC Topic 606, Revenue From Contracts With Customers, which was adopted on January 1, 2018 using the modified
retrospective method, with no impact to the Company’s comparative financial statements. Revenues are recognized when
control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the
Company expects to be entitled to in exchange for transferring those goods or services. Revenue is recognized based on the
following five step model:
|
•
|
Identification of the contract with a customer
|
|
•
|
Identification of the performance obligations in the contract
|
|
•
|
Determination of the transaction price
|
|
•
|
Allocation of the transaction price to the performance obligations in the contract
|
|
•
|
Recognition of revenue when, or as, the Company satisfies a performance obligation
|
All of the Company’s revenue is currently
generated from the sales of similar products. As such no further disaggregation of revenue information is provided.
Performance Obligations
Product sales are recognized all of the
following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the
Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby
the end user has obtained control of the product. A contract with commercial substance exists once the Company receives and accepts
a purchase order or once it enters into a contract with an end user. If collectibility is not probable, the sale is deferred and
not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk
of ownership of the product has transferred to the customer. Payment is received before shipment of the product. Net revenues comprise
gross revenues less customer discounts and allowances, actual and expected returns. Shipping charges billed to customers are included
in net sales. Various taxes on the sale of products and enrollment packages to customers are collected by the Company as an agent
and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability until remitted
to the respective taxing authority. The Company allows for customers to return unopened products within 45 days. During the year
ended December 31, 2018, there were a trivial amount of refunds processed for returned product.
Contract Costs
Costs incurred to obtain a customer contract
are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain
contracts with a duration of one year or less, which are expensed and included within cost of goods and services.
Contract Liabilities
The Company may at times receive payment by credit card at the time customer places an order. Amounts received for undelivered
product are considered a contract liability and are recorded as deferred revenue. As of December 31, 2018 and 2017, the Company
had deferred revenue of $105,159 and $0, respectively, related to unsatisfied performance obligations. These performance obligations
were satisfied during the first quarter of 2019.
Cost of Sales
Cost of sales includes all of the costs
to purchase and assemble the Company’s products. Products are manufactured for the Company by third-party contractors, such
costs represent the amounts invoiced by the contractors. Additionally, shipping costs are included in Cost of Sales in the Statements
of Operations.
Selling, General and Administrative
Expenses
Selling, general and administrative expenses
include advertising and promotional costs and research and development costs. Also included in Selling, general and administrative
expenses are stock-based compensation, certain warehousing fees, non-manufacturing overhead, personnel and related expenses, rent
on operating leases, and professional fees.
Advertising and promotional costs are expensed
as incurred and totaled $66,563 and $0 in the years ended December 31, 2018 and 2017, respectively. Research and
development costs are expensed as incurred and totaled $1,698 and $0 for the years ended December 31, 2018 and 2017, respectively.
Website Development Cost
The Company capitalizes certain development
costs associated with internal use software incurred during the application development stage. The Company expenses costs associated
with preliminary project phase activities, training, maintenance and any post-implementation period costs as incurred. Capitalization
of qualifying application development cost begins when management authorized and commits to funding the project and it is probable
that the project will be completed for the function intended. Capitalized internal use software costs are normally amortized over
estimated useful lives ranging from 2 to 5 years once the related project has been completed and deployed for customer use. At
time the software is considered to have be an indefinite lived asset in which case it is evaluated for impairment at least annually.
For the year ending December 31, 2018, the Company capitalized $176,177 related to software under the criteria discussed in this
paragraph. These costs are related to the development of our website and customer portal. The Company amortizes capitalized costs
over an estimated useful life of three years. Amortization expense for the year ended December 31, 2018 was $27,074. There were
no such costs related to the software during the year ended December 31, 2017.
Income Taxes
Deferred taxes are determined utilizing
the "asset and liability" method, whereby deferred tax asset and liability account balances are determined based on differences
between financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, when it's more likely
than not that deferred tax assets will not be realized in the foreseeable future. Deferred tax liabilities and assets are classified
as current or non-current based on the underlying asset or liability or if not directly related to and asset or liability based
on the expected reversal dates of the specific temporary differences.
Fair value of financial instruments
The Company discloses fair value measurements
for financial and non-financial assets and liabilities measured at fair value. Fair value is based on the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The accounting standard establishes a fair
value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are
described below:
Level 1: Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.
Level 2: Observable prices that are based
on inputs not quoted on active markets, but are corroborated by market data.
Level 3: Unobservable inputs are used when
little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Stock-based Compensation
The Company measures the total amount of
employee stock-based compensation expense for a grant based on the grant date fair value of each award and recognizes the stock-based
compensation expense on a straight-line basis over the requisite service period for each separately vesting tranche of an award.
Stock-based compensation is based on unvested outstanding awards. The Company has elected to recognize forfeitures when realized.
In the second quarter of 2018 the Company
elected to adopt ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services.
Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments
granted to employees. ASU 2018-07 requires an entity to use a modified retrospective transition approach, with a cumulative-effect
adjustment to retained earnings as of the beginning of the fiscal year. Upon adoption the Company recorded an adjustment to the
first quarter of 2018 of $188,165.
Related Parties
The Company follows ASC 850,
Related
Party Disclosures,
for the identification of related parties and disclosure of related party transactions.
Reclassifications
Certain prior period amounts have been
reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial
position.
Recently Issued Accounting Pronouncements
In January 2016, the FASB issued ASU
2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial
Liabilities. ASU 2016-01 affects the accounting for equity investments, financial liabilities under the fair value
option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted this
standard as of January 1, 2018. The adoption of this standard did not have a significant impact on the Company’s
financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its
balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for
a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative
information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty
of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after
December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with
early adoption permitted. The Company adopted this standard on January 1, 2019, with no material impact to the Company’s
consolidated financial statements, due to its current rental agreements having a month to month term and therefore are treated
as short-term leases under ASC 842.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230). This ASU applies to all entities that are required to present a statement of cash flows under
Topic 230. The amendments provide guidance on eight specific cash flow issues and includes clarification on how these items should
be classified in the statement of cash flows and is designed to help eliminate diversity in practice as to where items are classified
in the cash flow statement. Furthermore, in November 2016, the FASB issued additional guidance on this Topic that requires amounts
generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling
the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within
those fiscal years, with earlier application permitted for all entities. The Company adopted this standard as of January 1, 2018.
The adoption of this standard did not have a significant impact on the Company’s financial statements.
The Company does not believe that any other
recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect
on the accompanying financial statements.
NOTE 3 – UNSECURED NOTE PAYABLE
During the year ended December 31, 2018,
the Company entered into two insurance financing arrangements. The first agreement was for a value of $6,676, bearing an interest
rate of 12.6%. The Company made a down payment of $1,988 and makes monthly payments of $549 through March 2019. The second agreement
was for a value of $25,954, bearing an interest rate of 7.75%. The Company made a down payment of $6,676 and makes monthly payments
of $1,997 through May 2019. These agreements resulted in prepaid expenses being recognized totaling $32,629.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Our principal office is part of a group
of executive suites. We pay $130 per month for our offices, on a month-to-month basis. In July 2018, the Company also began renting
a shared office space for $175 per month on a month to month basis.
In April 2018, the Company entered into
an agreement with a third party for a subscription to its e-commerce platform. The Company paid $3,000 for implementation and pays
$2,000 per month, with an initial term of one year. After the initial term, the monthly fee may increase depending on the Company’s
level of sales through the platform.
NOTE 5 – STOCKHOLDERS’ DEFICIT
Common Stock
The Company effected a 2.5 for 1 forward
stock split of our
number of authorized shares of the Common Stock and a corresponding
increase in the number of issued and outstanding shares of Common Stock held by each stockholder of record as of February 8, 2018,
the “Effective Date” of the forward split, as set by
the Financial Industry Regulatory Authority (
“FINRA”
).
All shares referenced have been respectively adjusted to reflect this stock split.
On the Effective Date, our total authorized
shares of Common Stock increased from 45,000,000 to 112,500,000 shares, and our total issued and outstanding shares of Common Stock
increased from 10,804,000 to 27,010,000 shares; the par value of $0.001 will remain the same. Any fractional shares resulting from
the split will be rounded up to the next whole number. The total authorized shares of our Preferred Shares will not be affected
and will remain at 5,000,000.
Pursuant to the Asset Purchase Agreement, on
December 18, 2017, we issued 22,500,000 shares of our restricted common stock as consideration for the purchase of assets, pursuant
to the closing of an Asset Purchase Agreement. No cash was involved in the transaction. The asset transferred consisted of various
intangible assets such as plans and know-how related to the proposed CBD-related products the Company plans to develop. Due to
the change of control and related party nature of the transaction a carry-over basis was applied. There is no historical book value
for the asset purchased so the Company assigned a value of $0 to the assets.
The 22,500,000 shares were the sole consideration
paid by the Company for the purchase of assets from the three (3) individual owners, on the basis of 7,500,000 shares each. Prior
to issuance, Mr. Larry McNabb assigned all his rights, titles and interest in and to his 7,500,000 shares to B.L.U.E. Stone Ltd.
The remaining 15,000,000 shares were issued equally to Steve Raack and Thomas Raack who serve as officers and directors of the
Company. At this point, the 22,500,000 shares represented control of 83.3% of the total issued and outstanding shares of the Company
and constituted control of the C
ompany.
Related to the issuance above, on December
18, 2017, the following four (4) separate shareholders of the Company, in furtherance of a change-of-control transaction, discussed
above, voluntarily surrendered to the transfer agent a total of 18,125,000 restricted shares for cancellation:
|
Shareholder
|
Number of Shares
|
|
Tycoon – Luck Global Ltd.
|
14,875,000 shares
|
|
LWH Biomass Sdn Bhd
|
1,000,000 shares
|
|
Yuping Wang
|
1,125,000 shares
|
|
Yujie Wang
|
1,125,000 shares
|
In March 2018, the Company issued 200,000
shares of common stock valued at $200,000 to acquire a license from VOTOCAST, INC. as discussed in Note 8. It was determined to
be a transaction with an entity under common control and the share issuance was determined to be a deemed distribution to the related
party for the value of the shares in excess of the historical carry over basis of the asset.
During the year ended December 31, 2018,
the Company sold 912,400 shares of its restricted common stock at a price of $1.00 per share, for total net proceeds of $912,400.
During the year ended December 31, 2018,
the Company issued a total of 1,366,500 shares of common stock to consultants, and recorded $1,463,207 of compensation cost. In
addition, the Company committed to issue an additional 532,500 of shares that will vest at various dates through June 2019. Certain
of these shares vest upon completion of certain milestones, including sales targets. For those shares that are based on performance
targets, no expense was recognized as of December 31, 2018, as the targets being met is not considered probable. Unrecognized compensation
cost related to the share issuances (assuming all shares will vest) was $644,199 as of December 31, 2018.
On December 31, 2018, the Company entered
into a business alliance agreement with Bruce Lee Beverage, LLC. (“BLB”). Under the terms of the agreement, the parties
will develop a new product utilizing the intellectual property of BLB, with an initial term of five years and automatic five-year
renewals thereafter unless terminated by either party with 120 days’ prior written notice. The Company issued 150,000 shares
of common stock to BLB on December 31, 2018, and an additional 350,000 shares in January 2019. The Company recognized expense of
$249,000 for the shares issued in December 2018.
The Company also issued 1,500,000 warrants
in January 2019, with an exercise price of $1.01 per share, with 500,000 vesting upon issuance. BLB can receive up to an additional
1,000,000 shares of common stock, and vest in the remaining 1,000,000 warrants as follows:
|
|
·
|
500,000 shares of common stock and 500,000 warrants will vest upon
approval of co branded product formula, packaging and marketing strategy; execution of licensing agreement between the two parties;
and commencement of a mutually agreed upon marketing campaign.
|
|
|
·
|
250,000 shares of common stock and 250,000 warrants will vest upon
sale of 10,000 units of the new product.
|
|
|
·
|
250,000 shares of common stock and 250,000 warrants will vest upon
sale of 30,000 units of the new product.
|
Under this agreement, the Company expects
to recognize expense of $2,241,000 related to the 1,350,000 shares which have not yet been issued as of December 31, 2018.
NOTE 6 – LOSS PER COMMON SHARE
The basic net loss per common share is
calculated by dividing the Company's net loss available to common shareholders by the weighted average number of common shares
during the year. The diluted net loss per common share is calculated by dividing the Company's net loss available to common shareholders
by the diluted weighted average number of common shares outstanding during the year. The diluted weighted average number of common
shares outstanding is the basic weighted number of common shares adjusted for any potentially dilutive debt or equity. Diluted
net earnings (loss) per common share are the same as basic earnings (loss) per common share due to the lack of dilutive items in
the Company.
|
|
|
Year ended
December 31,
|
|
|
Year ended
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,228,620
|
)
|
|
$
|
(102,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per common share - weighted average of common shares
|
|
|
28,643,855
|
|
|
|
24,398,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share attributed to stockholders
|
|
$
|
(0.08
|
)
|
|
$
|
(0.00
|
)
|
NOTE 7 – INCOME TAXES
Deferred taxes are determined by applying
the provisions of enacted tax laws and rates for the jurisdictions in which the Company operates to the estimated future tax effects
of the differences between the tax basis of assets and liabilities and their reported amounts in the Company's financial statements.
A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits
will not be realized. Significant components of the Company's deferred tax assets are as follows:
|
|
|
Year ended
December 31,
|
|
|
Year ended
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
(2,228,000
|
)
|
|
$
|
(264,000
|
)
|
|
Non-deductible expenses
|
|
|
1,712,000
|
|
|
|
256,000
|
|
|
Net operation loss carry forward
|
|
|
(516,000
|
)
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2018
|
|
|
|
As of
December 31, 2017
|
|
|
Deferred tax asset before valuation allowance
|
|
|
110,000
|
|
|
|
1,500
|
|
|
Valuation allowance
|
|
|
(110,000
|
)
|
|
|
(1,500
|
)
|
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
Management currently believes that since
the Company has a history of losses it is more likely than not that the deferred tax regarding the loss carry forwards and other
temporary differences will not be realized in the foreseeable future. The Company believes that carryforward limitations will be
applied to the historical net operating losses due to the recent change of control transition. The Company's cumulative net operating
loss carry forward of approximately $524,000 will begin to expire in the year 2038.
The Company has recorded no liability for
income taxes associated with unrecognized tax benefits at the date of adoption and has not recorded any liability associated with
unrecognized tax benefits during 2018 and 2017. Accordingly, the Company has not recorded any interest or penalty in regard to
any unrecognized benefit.
The main reconciling items between the
statutory tax rate of the Company and the effective tax rate are the non-recognition of the benefits from accumulated net operating
losses carryforward due to the uncertainty of the realization of such tax benefits.
On December 22, 2017, the Tax Act was signed
into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate
decrease from 35% to 21%, effective for tax years beginning after December 31, 2017, the transition of U.S international taxation
from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative
foreign earnings as of December 31, 2017. We use the asset and liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Act, we revalued
our ending net deferred tax assets at December 31, 2018 and 2017, which were fully offset by a valuation allowance.
NOTE 8 – TRANSACTION WITH RELATED
PARTIES
In March 2018, the Company entered into
an Agreement with VOTOCAST, INC. dba newkleus, a California corporation formed and owned by Steven Raack, the President, CEO and
a Director of the Company. The Company received an exclusive license in the cannabis industry for the state-of-the-art newkleus™
technology to (1) facilitate Vitalibis’ micro-influencer sales model, and (2) enhance and compliment Vitalibis’ social
media strategy.
The Agreement grants Vitalibis™ an
exclusive license for the newkleus patent-pending, user-generated content (UGC) technology for all applications in the cannabis
industry. The integration of the newkleus technology allows Vitalibis to create an interactive digital community, while concurrently
acquiring valuable user data and content, all of which Vitalibis anticipates will (1) increase customer acquisition and retention
and (2) build direct, meaningful and loyal customer relationships.
The Company paid 200,000 shares upon execution
of the agreement and a monthly fee ranging from $0 to $2,000 depending on volume of usage. In addition, newkleus provides operational
and business development consulting services.
During the year ended December 31, 2018,
$200 of cash was contributed to the Company by the Chief Financial Officer to open the Company’s bank account.
During the year ended December 31, 2017,
$2,754 of services were paid for and contributed to the Company by the current officers.
The Company makes borrowings from its related
parties from time to time for working capital purposes. As of December 31, 2016, the Company owed $1,130 to Ms. Siew Heok ONG,
the former Chief Financial Officer at the time. The amount was due on demand without any interest, but was forgiven on October
25, 2017 and was recorded as a contribution to capital.
During the year ended December 31, 2017
$92,851 of expenses were paid directly by Mr. Kok Chee LEE, the Chief Executive Officer of the Company at the time. On October
25, 2017 Mr. Kok Chee Lee forgave amounts owed to him which were recorded as a contribution to capital. As of December 31, 2018
and 2017, the Company owed $0 to Mr. Kok Chee LEE.
NOTE 9 – SUBSEQUENT EVENTS
On January 10,
2019, the Company entered into a convertible promissory note, with a principal amount of $126,000. The Company received net cash
proceeds of $102,000 after an original issue discount of $21,000 and fees of $3,000. The convertible note bears interest at 8%
and matures on January 10, 2020, with interest accruing at a rate of 22% if the Company is in default. Beginning six months after
the issuance of the note, the holder may convert the note at any time through the maturity date into shares of common stock, to
the extent and provided that no holder of these notes was or will be permitted to convert such notes to the extent that the holder
or any of its affiliates would beneficially own in excess of 4.99% of the Company’s common stock after such conversion. The
conversion price is determined based on 85% of the lowest trading price during the 15 trading days prior to the conversion date.
On February 7,
2019, the Company entered into a convertible promissory note, with a principal amount of $83,000. The Company received net cash
proceeds of $80,000 after payment fees of $3,000. The convertible note bears interest at 8% and matures on February 7, 2020, with
interest accruing at a rate of 22% if the Company is in default. Beginning six months after the issuance of the note, the holder
may convert the note at any time through the maturity date into shares of common stock, to the extent and provided that no holder
of these notes was or will be permitted to convert such notes to the extent that the holder or any of its affiliates would beneficially
own in excess of 4.99% of the Company’s common stock after such conversion. The conversion price is determined based on 65%
of the lowest trading price during the 15 trading days prior to the conversion date.
In January 2019,
the Company entered into three agreements with contractors for services. The contractors may earn up to 377,500 shares depending
on the completion of certain milestones and sales targets, through August 2019. Two contractors will also each receive $5,000 per
month of cash compensation for a term of one year. The Company issued 2,500 shares related to one of these agreements in January
2019.
In February 2019,
the Company entered into an agreement for advisory services, and issued 40,000 shares of common stock related to this agreement
that vest equally over 12 months.
In February 2019,
the Company entered into an agreement for marketing services, and issued 10,000 shares of common stock as compensation under the
agreement.
In March 2019,
the Company entered into an agreement for consulting services, and issued 125,000 shares of common stock under the agreement.
The Company issued
a total of 330,000 shares of common stock for quarterly issuances related to advisory agreements entered into during the year ended
December 31, 2018.
