UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT |
For the quarterly period ended July 31, 2017
For the quarterly period ended January 31, 2018 | |
or | |
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________ |
For the transition period from __________ to ____________
Commission File Number: Number 333-214643
SUNSET ISLAND GROUP, INC. |
(Exact |
|
| |
(State or other jurisdiction of incorporation or organization) | ( Identification No.) |
555 N. El Camino Real #A418, San Clemente, CA | 92672 | |
(Address of principal executive offices) | (Zip Code) |
San Clemente, CA 92672(424) 239-6230
(Address of Principal Executive Offices) (Zip Code)
Registrant'sRegistrant’s telephone number, including area code: code)
(424) 396-6230N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Trading Symbol(s) | Name of each exchange on which registered |
| None | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes¨ YES xNo ¨ NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xNo YES ¨ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer |
|
|
|
|
|
Non-accelerated filer |
|
|
| x |
|
|
| Smaller reporting company | x |
|
|
| Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No YES x NO
AsAPPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of September 14, 2017, there were 4,671,771the Exchange Act after the distribution of securities under a plan confirmed by a court. ¨ YES ¨ NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, $0.0001 par value per share, outstanding.as of the latest practicable date.
5,386,771 shares of common stock as of July 1, 2019
Sunset Island Group, Inc. Condensed Consolidated Balance Sheet July 31, 2017 October 31, 2016 (unaudited) ASSETS: Current assets: Cash Total current assets Other assets: Security deposit Total other assets Total assets LIABILITIES AND STOCKHOLDERS’ DEFICIT Liabilities: Bank indebtedness Accrued liabilities Total current liabilities Notes payable (Related Party) Notes payable (Officer) Total liabilities Stockholders’ Equity (Deficit): Preferred Stock, par value $0.0001, 30,000,000 shares authorized: Series A Convertible Preferred Stock, 4,600,000 shares designated, no shares issued and outstanding Series B Preferred Stock, 8,000,000 shares designated, no shares issued and outstanding Common Stock, par value $.0001, 100,000,000 shares authorized, 50,031,771 issued and outstanding Additional paid in capital Accumulated deficit Total stockholders’ equity (deficit) Total liabilities and stockholders’ equity (deficit) TABLE OF CONTENTS$ - $ 970 - 970 14,000 - 14,000 - $ 14,000 $ 970 $ 734 $ - 16,227 - 16,961 - 281,700 3,333 301,994 - - - - - 5,003 5,003 5,997 5,997 (298,994 ) (10,030 ) (287,994 ) 970 $ 14,000 $ 970
The accompanying notes are an integral part of these condensed consolidated financial statements
3 | |||||
3 | |||||
Management's Discussion and Analysis of Financial Condition or Plan of Operation | 16 | ||||
19 | |||||
19 | |||||
21 | |||||
21 | |||||
21 | |||||
21 | |||||
21 | |||||
21 | |||||
21 | |||||
21 | |||||
22 |
2 |
Table of Contents |
Sunset Island Group, Inc. Condensed Consolidated Statement of Operations (unaudited) Nine Months ending Three Months ending July 31, 2017 July 31, 2016 July 31, 2017 July 31, 2016 Revenue Operating Expenses: General and administrative Total operating expenses Loss from operations Income tax provision Net Loss Net loss per share, basic and diluted Weighted average number of shares outstanding, basic and diluted PART I - FINANCIAL INFORMATION$ - $ - $ - $ - 288,964 - 174,562 - 288,964 - 174,562 - (288,964 ) - (174,562 ) - - - - - $ (288,964 ) $ - $ (174,562 ) $ - $ (0.0058 ) $ - $ (0.0035 ) $ - 50,031,771 - 50,031,771 -
Sunset Island Group, Inc.
Condensed Consolidated Balance Sheet
|
| January 31, |
|
| October 31, |
| ||
|
| 2018 |
|
| 2017 |
| ||
Assets |
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 2,740 |
|
| $ | 24,656 |
|
Total Current Assets |
|
| 2,740 |
|
|
| 24,656 |
|
|
|
|
|
|
|
|
|
|
Deposit |
|
| 14,000 |
|
|
| 14,000 |
|
Total Assets |
| $ | 16,740 |
|
| $ | 38,656 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 18,240 |
|
| $ | 25,817 |
|
Accrued interest - related party |
|
| 497 |
|
|
| - |
|
Dividend payable |
|
| 46,029 |
|
|
| 46,029 |
|
Due to related party |
|
| 2,885 |
|
|
| 2,885 |
|
Convertible note, net of unamortized discount of $33,123 |
|
| 136,877 |
|
|
| - |
|
Current portion of notes payable - related party |
|
| 157,200 |
|
|
| - |
|
Total Current Liabilities |
|
| 361,728 |
|
|
| 74,731 |
|
|
|
|
|
|
|
|
|
|
Notes payable - related party |
|
| 272,200 |
|
|
| 330,200 |
|
Total Liabilities |
|
| 633,928 |
|
|
| 404,931 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 15,000,000 shares authorized; |
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock, 4,600,000 shares designated, 4,600,000 shares issued and outstanding |
|
| 460 |
|
|
| 460 |
|
Series B Preferred Stock, 8,000,000 shares designated, no shares issued and outstanding |
|
| - |
|
|
| - |
|
Series C Convertible Preferred Stock, 500,000 shares designated, no shares issued and outstanding |
|
| - |
|
|
| - |
|
Common Stock, par value $0.0001, 27,000,000 shares authorized, 5,371,771 and 4,871,771 shares issued and outstanding, respectively |
|
| 537 |
|
|
| 487 |
|
Additional paid in capital |
|
| 463,403 |
|
|
| 334,168 |
|
Subscriptions received - shares to be issued |
|
| - |
|
|
| 50,000 |
|
Accumulated deficit |
|
| (1,081,588 | ) |
|
| (751,390 | ) |
Total Stockholders’ Deficit |
|
| (617,188 | ) |
|
| (366,275 | ) |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit |
| $ | 16,740 |
|
| $ | 38,656 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
3 |
Table of Contents |
Sunset Island Group, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Nine Months Ending Nine Months Ending July 31, 2017 July 31, 2016 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Security Deposit Bank indebtedness Accrued liabilities Net cash used in operating activities Cash flows from financing activities: Proceeds from note payable (related party) Proceeds from note payable (officers) Repayments of note payable (officers) (1,650 ) Net cash provided by financing activities Net decrease in cash during the period Cash balance, beginning of period Cash balance, end of period Supplementary information Cash paid for: Interest Income taxes Sunset Island Group, Inc.$ (288,964 ) $ - (14,000 ) - 734 16,227 - (286,003 ) - 281,700 4,983 - 285,033 - (970 ) - 970 - $ - $ - $ - $ - $ - $ -
Condensed Consolidated Statement of Operations
(Unaudited)
|
| Three Months Ended |
| |||||
|
| January 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
Labor |
|
| 184,978 |
|
|
| - |
|
Supplies |
|
| 27,575 |
|
|
| - |
|
General and administrative expenses |
|
| 42,547 |
|
|
| 980 |
|
Lease |
|
| 54,930 |
|
|
| - |
|
Lab testing |
|
| 250 |
|
|
| - |
|
Utilities |
|
| 3,467 |
|
|
| - |
|
Professional fees |
|
| 2,036 |
|
|
| - |
|
Total Operating Expenses |
|
| 315,783 |
|
|
| 980 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (315,783 | ) |
|
| (980 | ) |
|
|
|
|
|
|
|
|
|
Other Expenses |
|
|
|
|
|
|
|
|
Interest expense |
|
| (14,415 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
Net Loss |
| $ | (330,198 | ) |
| $ | (980 | ) |
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted |
| $ | (0.06 | ) |
| $ | (0.00 | ) |
Weighted average number of common shares outstanding |
|
| 5,371,771 |
|
|
| 50,031,771 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
4 |
Table of Contents |
Sunset Island Group, Inc.
Condensed Consolidated Statement of Stockholders’ Equity (Deficit)
For the three months ended January 31, 2018 and 2017
(Unaudited)
Additional Common Stock Series A Preferred Stock Common Stock Paid-In Subscription Accumulated Shares Amount Shares Amount Capital Received Deficit Total Balance - October 31, 2017 Common stock issued for cash Beneficial conversion feature Contribution Net loss for the period Balance - January 31, 2018 4,600,000 460 4,871,771 487 334,168 50,000 (751,390 ) (366,275 ) - - 500,000 50 49,950 (50,000 ) - - - - - - 9,444 - - 9,444 - - - - 69,841 - - 69,841 - - - - - - (330,198 ) (330,198 ) 4,600,000 $ 460 5,371,771 $ 537 $ 463,403 $ - $ (1,081,588 ) $ (617,188 )
Additional Common Stock Series A Preferred Stock Common Stock Paid-In Subscription Accumulated Shares Amount Shares Amount Capital Received Deficit Total Balance - October 31, 2016 Net loss for the period Balance - January 31, 2017 - $ - 50,031,771 $ 5,003 $ 5,997 $ - $ (10,030 ) $ 970 - - - - - - (980 ) (980 ) - $ - 50,031,771 $ 5,003 $ 5,997 $ - $ (11,010 ) $ (10 )
The accompanying notes are an integral part of these condensed consolidated financial statements
Table of Contents |
Sunset Island Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| Three Months Ended |
| |||||
|
| January 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
|
|
|
|
|
| ||
Cash Flows From Operating Activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (330,198 | ) |
| $ | (980 | ) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
| 11,321 |
|
|
| - |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
| (7,577 | ) |
|
| - |
|
Accrued interest - related party |
|
| 497 |
|
|
| - |
|
Net Cash Used in Operating Activities |
|
| (325,957 | ) |
|
| (980 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Bank overdraft |
|
| - |
|
|
| 10 |
|
Repayment of promissory notes - related party |
|
| 99,200 |
|
|
| - |
|
Contribution |
|
| 69,841 |
|
|
| - |
|
Proceeds from convertible note |
|
| 135,000 |
|
|
| - |
|
Net Cash Provided by Financing Activities |
|
| 304,041 |
|
|
| 10 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
| (21,916 | ) |
|
| (970 | ) |
Cash and cash equivalents, beginning of period |
|
| 24,656 |
|
|
| 970 |
|
Cash and cash equivalents, end of period |
| $ | 2,740 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | - |
|
| $ | - |
|
Cash paid for taxes |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Non-cash financing transactions: |
|
|
|
|
|
|
|
|
Common stock issued |
| $ | 50,000 |
|
| $ | - |
|
Beneficial conversion feature |
| $ | 9,444 |
|
| $ | - |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
6 |
Table of Contents |
Sunset Island Group, Inc.
(formerly Battle Mountain Genetics, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
Our Company
Sunset Island Group, Inc. is awas originally incorporated in the State of Colorado corporation. The Company’s principal lineon September 29, 2005 under the name of business is the cultivation of medical cannabis. The Company has leased green house space in Northern California that has been approved for cannabis cultivation. The greenhouse is 12,000 square feet; however,Titan Global Entertainment, Inc. On May 7, 2008, the Company changed its name to Sunset Island Group.
Our business and corporate address is currently operating on approximately 22,000 square feet. This includes555 N. El Camino Real #A418, San Clemente CA 82672, our phone number is (424) 239-6230. Our corporate website is www.sunsetislandgroup.com.
We have one subsidiary, VBF Brands, Inc. (“VBF Brands”), a California, corporation.
Our Business
The State of California requires company engaged in the 12,000 square feetcannabis operations to be licensed by the State of greenhouse space which 10,000 square feet is used for cultivation and 2,000 us used as staging area for planting and harvesting.California. The Company is currently lookingregulated by the following entities in California
The Bureau of Cannabis Control (Bureau) is the lead agency in regulating commercial cannabis licenses for medical and adult-use cannabis in California. The Bureau is responsible for licensing retailers, distributors, testing labs, microbusinesses, and temporary cannabis events.
CalCannabis Cultivation Licensing, a division of the California Department of Food and Agriculture (CDFA), ensures public safety and environmental protection by licensing and regulating commercial cannabis cultivators in California.
Manufactured Cannabis Safety Branch, a division of the California Department of Public Health, (CDPH). MCSB is responsible for regulation of all commercial cannabis manufacturing in California. MCSB strives to expandprotect public health and safety by ensuring commercial cannabis manufacturers operate safe, sanitary workplaces and follow good manufacturing practices to approximately 154,000produce products that are free of contaminants, meet product guidelines and has been in discussions with or current landlord about expanding to 154,000. Our landlord has over 750,000 square feet of space becoming available shortly. However,are properly packaged and labeled.
These three divisions require the company has recently begun to look at other locations that are nearby the current operations.license packages and be compliant with all local, state and environmental regulations. The Company has agreed to acquire 6,000 square feet of a neighbor’s greenhouse and expectsestimates that the agreementcost of licensing each year will be approximately $50,000 - $100,000 per year. The amount will vary year to year depending on what changes have been made to regulations and if any upgrades would be required to be in place October 1, 2017. made on the property.
The Company currently is currently in discussions to acquirelicensed by the neighbors entire 34,000 and is looking an additional 100,000 square feet that is close toState of California for the current operations.following activities:
License Type | License Number | ||
Cannabis Cultivation | PAL18-0000119 (Provisional) | ||
Cannabis Cultivation Nursery | TAL18-0008563 | ||
Medical Use Manufacturing License | CDPH-T00000243 | ||
Adult Use Manufacturing License | CDPH-T00000244 | ||
Adult Use and Medicinal Distribution | C11-0000102-LIC |
The Company operates through its wholly owned subsidiary VBF Brands. VBF Brands operated as a Nonprofit Mutual Benefit entity until December 21, 2017 when it was converted to a For Profit entity. Prior to December 21, 2017, VBF Brands operated as a collective under the greenhouses in Monterrey County which allows permits for cannabis cultivation in greenhouses that where existing prior to January 1, 2016. The Company is working on filing its permit with the County. Originally, the County required all permits to be filed prior to August 12,Compassionate Use Act. Since VBF Brands was operating as a Nonprofit until December 21, 2017, for operations to continue to operate. However, the county revised the deadline to January 1, 2018. The Company’s landlord has filed its land use permit with the county which covers the Company’s operations and includes our CEO on the permit application. The company has begun its permit process with the County. Until the permit is approved, the Company operatesdetermined that it cannot book any revenue from the activities associated while it operated as collective under the medical cannabis laws of the State of California.
Additionally,Compassionate Use Act and as a non-profit. However, the Company will be consulting and advising clients that operate inbook the medical marijuana businessrevenue generated by providing clients a licensed manufacturing facility to produce products such as oils and edibles. However, the company is waiting for the State of California to finalize the licensing process and requirements for licensed manufacturing facilities before implementing this segment.VBF Brands since December 21, 2017. The Company previously was operating Battle Mountain Genetics; however, upon the conversion of VBF Brands to a for profit entity the Company has no current timetable since licenses may not be applied for until January 1, 2018.been operating all of its cannabis actives through VBF Brands and Battle Mountain Genetics ceased operations.
Reverse Merger
On October 17, 2016, the Company executed a reverse merger with Battle Mountain Genetics, Inc. On October 17, 2016, the Company entered into an Agreement whereby the Company acquired 100% of Battle Mountain Genetics, Inc, in exchange for 50,000,000 shares of Sunset Island Group common stock. Immediately prior to the reverse merger, there were 30,894 common shares outstanding and no shares of Preferred shares outstanding. After the reverse merger, the Company had 50,031,771 Common shares outstanding and 0no shares of Preferred shares outstanding.
Battle Mountain Genetics was incorporated in the State of California on September 29, 2016. Battle Mountain Genetics, Inc. was the surviving Company and became a wholly owned subsidiary of Sunset Island Group. Sunset Island Group had no operations, assets or liabilities prior to the reverse merger. The financial statements reflected in this 10-Q as of October 31, 2016 represents the period September 29, 2016 (date of inception) to October 31, 2016.
7 |
Table of Contents |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation of Interim Financial Statements
The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended JulyJanuary 31, 20172018 are not necessarily indicative of the results that may be expected for the year ending October 31, 2017.2018. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 20162017 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended October 31, 20162017 included in the Company’s S-1/A10-K as filed with the Securities and Exchange Commission on July 28, 2017.
Consolidation Policy
The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Battle Mountain Genetics,VBF Brands, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less, at the date acquired. As of JulyJanuary 31, 2017,2018 and October 31, 2016,2017, cash primarily consists of cash on hand and in bank. As of JulyJanuary 31, 20172018 and October 31, 2016,2017, cash held in bank was $0$2,740 and $970,$24,656, respectively. As of July 31, 2017, bank indebtedness was $734.
Basic and Diluted Net Loss Per Share of Common Stock
The Company has adopted ASC Topic 260, “Earnings per Share,” (“EPS”) which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
TheAs at January 31, 2018, the Company has no potentially 46,000,000 in dilutive securities, suchfrom outstanding Series A convertible preferred stock, which were excluded from the computation of diluted net loss per common share as options or warrants, currently issued and outstanding.the result of the computation was anti-dilutive.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents and related party payables that it will likely incur in the near future. The Company places its cash and cash equivalents with financial institutions of high credit worthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
8 |
Table of Contents |
Financial Instruments
The Company follows ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of JulyJanuary 31, 2017.2018. The carrying values of our financial instruments, including, cash and cash equivalents, accounts payable and accrued expenses; and loansdividend payable and notes payabledue to related party approximate their fair values due to the short-term maturities of these financial instruments.
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. See notes 54.
Income Taxes
We account for income taxes under ASC 740 “Income Taxes.” Under the asset and 6.liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements 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 be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
9 |
Table of Contents |
Revenue recognitionRecognition
The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, “Revenue Recognition,”“Revenue from Contracts with Customers” (“ASC 605-10”606”) which. ASC 606 requires that four basicthe criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) services have been rendered; (iii) the fee is fixed or is determinable; and (iv) collectability is reasonably assured. Determination of criteria (iii) and (iv) are based on management’s judgments regarding the fixed nature of the selling prices of the services delivered and the collectability of those amounts.
1. | The parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations. |
2. | The Company can identify each party’s rights regarding the goods or services to be transferred. |
3. | The Company can identify the payment terms for the goods or services to be transferred. |
4. | The contract has commercial substance (that is, the risk, timing, or amount of the entity’s future cash flows is expected to change as a result of the contract). |
5. | It is probable that the Company will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, an entity shall consider only the customer’s ability and intention to pay that amount of consideration when it is due. The amount of consideration to which the entity will be entitled may be less than the price stated in the contract if the consideration is variable because the entity may offer the customer a price concession. |
Research and Development Expenses
We follow ASC 730-10,730, “Research and Development,” and expense research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development.
Capitalization
Expenditures for repairs and maintenance are charged to operating expense as incurred. Additions and betterments are capitalized.
Recently Issued Accounting Standards
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-based Payments (“ASU 2018-07”). This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The effective date for the standard is for interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, but no earlier than the Company's adoption date of Topic 606. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. The Company is currently evaluating the effect ASU 2018-07 will have on the consolidated financial statements.
10 |
Table of Contents |
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.
In September 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.
In May 2014, the FASB issued some accounting standards update which modifies the requirements for identifying, allocating, and recognizing revenue related to the achievement of performance conditions under contracts with customers. This update also requires additional disclosure related to the nature, amount, timing, and uncertainty of revenue that is recognized under contracts with customers. This guidance is effective for fiscal and interim periods beginning after December 15, 2017 and is required to be applied retrospectively to all revenue arrangements. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
In February 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”The amendments clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. Effective at the same time as the amendments in Update 2014-09, Revenue from Contracts with Customers (Topic 606). Therefore, public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the amendments in this Update to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the amendments in this Update to annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. All other entities may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance. An entity is required to apply the amendments in this Update at the same time that it applies the amendments in Update 2014-09. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations.
In January 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Effective for public business entities that are SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements.
Table of Contents |
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This new standard will be effective for the Company on January 1, 2018, however, early adoption is permitted with prospective application to any business development transaction.
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
NOTE 3 – GOING CONCERN
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not established any source of revenue to cover its operating costs, and it does not have sufficient cash flow to maintain its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company expects to develop its business and thereby increase its revenue. However, the Company would require sufficient capital to be invested into the Company to acquire the properties to begin generating sufficient revenue to cover the monthly expenses of the Company. Until the Company is able to generate revenue, the Company would be required to raise capital through the sale of its stock or through debt financing. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
To this date the Company has relied on the sale of securities to finance its operations and growth. The Company expects to continue to fund the Company through debt and securities sales and issuances until the Company generates enough revenues through the operations. These transactions will initially be through related parties, such as the Company’s officers and directors.
NOTE 4 – COMMITMENTS AND CONTINGENCIESRELATED PARTY TRANSACTIONS
On March 1, 2017, the Company executed a lease for 12,000 square feet green house space and 1,000 square of warehouse space expiring March 31, 2020. The monthly lease is $7,000 per month.
The Company has aggregate future minimum lease commitments as of July 31, 2017 is as follows:
Years ended April 30, Amount 2018 2019 2020 Total $ 84,000 84,000 77,000 $ 245,000
NOTE 5– NOTE PAYABLE (Related Party)Note Payable
During the Ninethree months ended JulyJanuary 31, 2017,2018, the Company issued various 5% notes to a 5% Note to shareholderrelated party, for gross proceeds of the Company for $281,700.$99,200. The note isnotes are due on December 31, 2018.2019. The note accruednotes accrue interest at 0% for the initial nine months and then 5% on annual rate thereafter. As of July 31, 2017 and October 31, 2016, the notes payable to the related party was $281,700 and $0, respectfully. During the periods ended July 31, 2017 and October 31, 2016, the note payable incurred no interest expense.
NOTE 6– NOTE PAYABLE (Officer)
12 |
Table of Contents |
During the Nine monthsyear ended JulyOctober 31, 2017, the Company received advances from an officerissued various 5% notes to Novus Group, for gross proceeds of the Company at the amount of $4,983 and repaid to her at $1,650.$363,200. The note isnotes are due on December 31, 2018.2018 or December 31, 2019. The notes accruedaccrue interest at 0% for the initial 9nine months and then 5% on annual rate thereafter.
As of JulyJanuary 31, 20172018 and October 31, 2016,2017, the notenotes payable were $272,200 and $330,200 and current portion of notes payable were $157,200 and $0, respectfully. During the three months ended January 31, 2018, the notes payable incurred interest expense of $497.
Due to Related Party
The loans are due on demand and non-interest bearing. As of January 31, 2018 and October 31, 2017, due to the officer was $3,333 and $0, respectively. During$2,885.
NOTE 5 – DIVIDEND PAYABLE
On August 30, 2017, the periods ended JulyCompany filed with FINRA its corporate notice for the cash dividend.
As of January 31, 20172018 and October 31, 2016,2017, the notedividend payable incurredwas $46,029.
NOTE 6 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has authorized 15,000,000 preferred shares with a par value of $0.0001 per share. The Board of Directors is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes.
Series A Preferred Stock
The Company has designated 4,600,000 shares of Series A Convertible Preferred Stock. The Series A Preferred Stock may convert into Common Stock at a rate equal to 10 shares of common stock for each share of Series A Preferred stock. In the event that any cash dividend on the Common Stock is declared by the Board, the Board shall simultaneously declare a dividend for each share of Series A Preferred Stock in an amount equal to the product of (i) the per share dividend declared and to be paid in respect of each share of Common Stock and (ii) the amount of common stock the Series A Preferred Stock is convertible into under the designation.
As at January 31, 2018 and October 31, 2017, the Company had 4,600,000 shares of Series A Preferred Stock issued and outstanding.
Series B Preferred Stock
The Company has designated 8,000,000 shares of Series B Preferred Stock, with a face value of $1.00 per share. The Series B Preferred Stock has no interest expense.conversion right or no voting rights. The shareholders of the Series B Preferred will be entitled to $200 per pound that the Company harvested from its cultivation operations, which is divided by the outstanding shares of the Series B preferred shares.
As at January 31, 2018 and October 31, 2017, the Company had no shares of Series B Preferred Stock issued and outstanding.
Table of Contents |
Series C Preferred Stock
The Company has designated 500,000 shares of Series C Convertible Preferred Stock. The Series C Preferred Stock has no voting rights. The Series C Preferred Stock may convert into Common Stock at a rate equal to 10 shares of common stock for each share of Series C Preferred stock. In the event that any cash dividend on the Common Stock is declared by the Board, the Board shall simultaneously declare a dividend for each share of Series C Preferred Stock in an amount equal to the product of (i) the per share dividend declared and to be paid in respect of each share of Common Stock and (ii) the amount of common stock the Series C Preferred Stock is convertible into under the designation.
As at January 31, 2018 and October 31, 2017, the Company had no shares of Series C Preferred Stock issued and outstanding.
Common Stock
The Company has authorized 27,000,000 common shares with a par value of $0.0001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
During the three months ended January 31, 2018, the Company issued 500,000 shares of common stock for $50,000 recorded as subscription received at October 31, 2017.
As at January 31, 2018 and October 31, 2017, the Company had 5,371,771 and 4,871,771 shares of common stock issued and outstanding, respectively.
Additional paid in capital
During the three months ended January 31, 2018, the Company’s officer contributed additional paid in capital in the amount of $69,841.
NOTE 7 – STOCKHOLDERS’ EQUITYCOMMITMENTS AND CONTINGENCIES
On March 1, 2017, the Company executed a lease for 12,000 square feet green house space and 1,000 square of warehouse space expiring March 31, 2020. The Company filed Amended and Restated Articlesmonthly lease is $7,000 per month. During the three months ended January 31, 2018, we incurred total lease expenses of Incorporation with the Secretary of State of the State of Colorado, as follows:
| ||
Preferred Stock$54,930.
The Company has authorized 30,000,000 preferred shares with a par valueaggregate future minimum lease commitments as of $0.0001 per share. The Board of Directors is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designatedOctober 31, 2017, as to distinguish the shares thereof from the shares of all other series and classes.follows:
Series A Convertible Preferred Stock
The Company has designated 4,600,000 shares of Series A Convertible Preferred Stock. The Series A Preferred Stock may convert into Common Stock at a rate equal to 10 shares of common stock for each share of Series A Preferred stock. In the event that any cash dividend on the Common Stock is declared by the Board, the Board shall simultaneously declare a dividend for each share of Series A Preferred Stock in an amount equal to the product of (i) the per share dividend declared and to be paid in respect of each share of Common Stock and (ii) the amount of common stock the Series A Preferred Stock is convertible into under the designation.
Series B Preferred Stock
The Company has designated 8,000,000 shares of Series B Preferred Stock. The Series B Preferred Stock has no conversion right or no voting rights. The shareholders of the Series B Preferred will be entitled to $200 per pound that is sold by the Company which is divided by the outstanding shares of the Series B Preferred.
As of July 31, 2017, the Company had no shares of preferred stock issued and outstanding.
Common Stock
The Company has authorized 100,000,000 common shares with a par value of $0.0001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
As at July 31, 2017 and October 31, 2016, the Company had 50,031,771 shares of common stock issued and outstanding.
Year ending October 31, |
|
|
| |
2018 |
| $ | 84,000 |
|
2019 |
|
| 84,000 |
|
2020 |
|
| 35,000 |
|
Total |
| $ | 203,000 |
|
NOTE 8 – SUBSEQUENT EVENTS
Dividend – On August 30, 2017,February 1, 2018, the Company filedissued a convertible promissory note for $220,000. The note is repayable in six months and bears interest at 12% per annum. The note is convertible into common shares at the option of the holder at issuance based on the discounted (50% discount) lowest trading prices of the Company’s shares during 25 days prior to the conversion. On February 20, 2018, Auctus Fund was repaid for the loan and as such it is no longer outstanding and has been retired. The Company had the right to prepay the note at 135% or negotiated the rate down to 125% plus 15,000 shares of restricted stock. The repayment amount was $276,627 plus 15,000 shares of restricted stock.
14 |
Table of Contents |
On February 13, 2018, the Company has executed an agreement with FINRA its corporate noticeSt George Investments for $4,245,000 with the initial tranche being $850,000. This note carries an original issuance discount of $385,000 and the Company agreed to pay financing fees of $10,000. The note is repayable in one year and bears interest at 10% per annum. The note is convertible into common shares after six months from the issuance based on the discounted (50% discount) lowest trading prices of the Company’s shares during 25 days prior to the conversion. This Note shall be comprised of thirteen (13) tranches (each, a “Tranche”), consisting of (i) an initial Tranche in an amount equal to $945,000 and any interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note and the other Transaction Documents (as defined in the Purchase Agreement) (the “Initial Tranche”), and (ii) twelve (12) additional Tranches, each in the amount of $275,000.00, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note and the other Transaction Documents (each, a “Subsequent Tranche”). The Initial Tranche shall correspond to the Initial Cash Purchase Price, $85,000.00 of the OID and the Transaction Expense Amount, and may be converted into shares of Common Stock (as defined below) any time subsequent to the Purchase Price Date.
On February 20, 2018, the Company received the first tranche from St. George Investments, for net proceeds of $850,000. As part of the initial tranche, the Company repaid Auctus Fund. On February 20, 2018, the Company issued 15,000 shares of common stock to Auctus Funds, LLC as partial repayment for the convertible note issued on February 13, 2018. The total repayment amount was $276,627 and 15,000 shares of common stock.
On February 26, 2018, the Company’s Board of Directors approved a cash dividend. The record date for the dividend is September 15, 2017March 31, 2018 at a rate of $.001$0.001 per share with payment date of September 25, 2017. FINRA requires 10-day notice before the record date of the dividend.share.
Cancelation of common stock - On August 31, 2017,February 28, 2018, the Company finalized the cancelation of the 46,000,000issued 360,006 shares of common stock to Greg Tucker for consulting services. The shares were cancelled on July 18, 2018.
On March 2, 2018. the Company has agreed to terms with REI Extracts regarding an extraction and distribution joint venture. Equipment has been ordered and is being shipped to the Company’s location in Salinas, California. The operations of the joint venture will be conducted under the Company’s licenses. Additionally, the Company has retained REI Extracts to provide consulting services related to cultivation and to provide a master grower. The new master grower has been working with the Company since January 2018. The grower will be paid based on the yield of sellable flower per bay. The incentive pay shall be paid as follows:
Harvested pounds per bay of sellable flower | Incentive Bonus | ||
0-40 | $0 | ||
40-60 | $40 per pound in excess of 40 pounds | ||
60-80 | $70 per pound in excess of 40 pounds | ||
80-100 | $100 per pound in excess of 40 pounds | ||
100+ | $120 per pound in excess of 40 pounds |
On November 30, 2018, the Company issued 4,600,000333,000 shares of its Series AC Preferred Stock, valued at $1,000,000, to its officers.Job Growing Inc. (“Job Growing”), for 50% of the profits of Job Growing. In the event that Job Growing either: (i) files a Registration Statement to become a reporting company under the Securities Exchange Act of 1934 which becomes effective, or (ii) is acquired by an unrelated third party, then Sunset Island Group has the right to buy a Fifty Percent (50%) equity interest in the Job Growing for One Dollar ($1.00).
Issuance of common stock – Subsequent to July 31, 2017,On February 11, 2019, the Company sold 640,000issued 333,000 shares of Series C Preferred Stock, valued at $1,000,000, to Cicero Travel Group Inc. (“Cicero Travel”) for 33% interest in the net profits of Cicero Travel, 19% equity interest in the common stock at $0.10 per share for proceeds of $64,000, under its Registration statement.
IssuanceCicero Travel and the right to purchase an additional 14% equity interest in the common stock of preferred stock for debt: On September 8, 2017, the Company converted its note payable into its new Series B Preferred Stock. The Preferred Stock has no conversion right or no voting rights. The shareholders of the Series B Preferred will be entitled to $200 per pound that is sold by the Company. The Company issued 305,700 shares for the $305,700 note payable.Cicero Travel.
Table of Contents |
The discussionFORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and analysisinvolve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of our financial condition andactivity, performance or achievements to be materially different from any future results, levels of operationsactivity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are based on ourreasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our interim unaudited consolidated financial statements which we haveare prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As used in this "Management's Discussion and Analysis of Financial Condition and Results of Operation," except where the context otherwise requires, the term "we," "us," or "our," refers to the business of Sunset Island Group.
Safe Harbor Statement
This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.
Generally Accepted Accounting Principles (“GAAP”). The following discussion should be read in conjunction with our condensed consolidated financial statements includingand the related notes thereto, appearingthat appear elsewhere in this Form 10-Q.quarterly report. The discussions offollowing discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results causescould differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.elsewhere in this quarterly report.
Critical Accounting PoliciesIn this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and Estimatesall references to “common shares” refer to the common shares in our capital stock.
As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean Sunset Island Group, Inc. and our wholly owned subsidiary, VBF Brands, Inc., a California corporation, unless otherwise indicated.
General Overview
Sunset Island Group, Inc. was originally incorporated in the State of Colorado on September 29, 2005 under the name of Titan Global Entertainment, Inc. On May 7, 2008, the Company changed its name to Sunset Island Group.
Our significant accounting policies are described in the notes tobusiness and corporate address is 555 N. El Camino Real #A418, San Clemente CA 82672, our accompanying financial statements.phone number is (424) 239-6230. Our corporate website is www.sunsetislandgroup.com/.
PursuantUntil December 31, 2017, we operated under our subsidiary, Battle Mountain Genetics, Inc., a California corporation. The Company operates through its wholly owned subsidiary VBF Brands, Inc. ("VBF Brands"). VBF Brands operated as a Nonprofit Mutual Benefit entity until December 21, 2017 when it was converted to a For Profit entity. Prior to December 21, 2017, VBF Brands operated as a collective under the JOBS ActCompassionate Use Act. Upon the conversion of 2012, as an emerging growth company, we can electVBF Brands to opt outa for profit entity the Company has been operating all of its cannabis actives through VBF Brands and the extended transition period for any new or revised accounting standards that may be issued by the PCAOB or the SEC.business under Battle Mountain Genetics, Inc. was wound down.
We have elected not to opt out of such extended transition period which means that whenone subsidiary, VBF Brands, Inc., a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the standard for the private company. This may make comparison of our financial statements with any other public company which is not either an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible as possible different or revised standards may be used.California, corporation.
Although we are still evaluating the JOBS Act, it currently intends to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to it so long as it qualifies as an "emerging growth company". We have elected not to opt outnever declared bankruptcy, been in receivership, or involved in any kind of legal proceeding.
Our Current Business
Our principal line of business is the extensioncultivation of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as it qualifies as an emerging growth company, which may increase the risk that weaknesses or deficiencies in the internal control over financial reporting go undetected. Likewise, so long as it qualifies as an emerging growth company, we may elect not to provide certain information, including certain financial information and certain information regarding compensation of executive officers that would otherwise have been required to provide in filings with the SEC, which may make it more difficult for investors and securities analysts to evaluate us. As a result, investor confidence in us and the market price of our common stock may be adversely affected.medical cannabis.
Table of Contents |
UseThe Company has leased green house space in Northern California. The Company currently leases the following: greenhouse space of Estimatesapproximately 12,000 square feet; bare land of approximately 10,000 square feet that can rebuilt for greenhouse use; approximately 2,000 square feet of nursery greenhouse space; 1,200 square feet for drying and curing approximately 400 square feet used for manufacturing operations; approximately 500 square feet for its trimming activities; and approximately 300 square feet for its distribution.
Financial statements preparedThe State of California requires company engaged in accordancethe cannabis operations to be licensed by the State of California. The Company is regulated by the following entities in California
· | The Bureau of Cannabis Control (Bureau) is the lead agency in regulating commercial cannabis licenses for medical and adult-use cannabis in California. The Bureau is responsible for licensing retailers, distributors, testing labs, microbusinesses, and temporary cannabis events. | |
· | CalCannabis Cultivation Licensing, a division of the California Department of Food and Agriculture (CDFA), ensures public safety and environmental protection by licensing and regulating commercial cannabis cultivators in California. | |
· | Manufactured Cannabis Safety Branch, a division of the California Department of Public Health, (CDPH). MCSB is responsible for regulation of all commercial cannabis manufacturing in California. MCSB strives to protect public health and safety by ensuring commercial cannabis manufacturers operate safe, sanitary workplaces and follow good manufacturing practices to produce products that are free of contaminants, meet product guidelines and are properly packaged and labeled. |
These 3 divisions require the Company to licensing packages and be compliant with U.S. GAAP require managementall local, state and environmental regulations. The Company estimates that the cost of licensing each year will be approximately $50,000 - $100,000 per year. The amount will vary year to make estimatesyear depending on what changes have been made to regulations and assumptions that affectif any upgrades would be required to be made on the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management makes estimates relating to the fair value of financial instruments and the valuation allowance related to deferred income tax assets. Actual results could differ from those estimates.property.
Recent accounting pronouncementsThe Company currently is licensed by the State of California for the following activities:
For discussion
License Type | License Number | ||
Cannabis Cultivation | PAL18-0000119 (Provisional) | ||
Cannabis Cultivation Nursery | TAL18-0008563 | ||
Medical Use Manufacturing License | CDPH-T00000243 | ||
Adult Use Manufacturing License | CDPH-T00000244 | ||
Adult Use and Medicinal Distribution | C11-18-0000257-Temp |
The Company grows its own cannabis plants through its Cannabis Cultivation License. The material grown and harvested from its cultivation operations are either packaged and sold through the Company’s Distribution license or processed through its Manufacturing license which is later sold through its Distribution license. This allows the Company to sell its own manufactured or other products with a reduced cost to produce since it grew its own raw materials.
On January 29, 2018, the Company received its Distributor licenses from the State of recently issuedCalifornia for Adult Use and adopted accounting pronouncements, please see Note 2 toMedicinal Use.
On April 11, 2019, VBF Brands received its Annual Manufacturing License from the consolidated financial statements included herein.State of California. The Company also received its Provisional Cannabis Cultivation License.
Results of Operations and Financial Condition for the Nine Months ending July 31, 2017 and 2016
Nine Months ending July 31, 2017 Nine Months ending July 31, 2016 Three Months ending July 31, 2017 Three Months ending July 31, 2016 Revenue Operating Expenses SG&A Total operating expenses $ - $ - $ - $ - 288,964 - 174,562 - 288,964 - 174,562 -
We have generated $0not earned any revenues from our inception on September 29, 2016 (inception) through January 31, 2018.
17 |
Table of Contents |
Three Months Ended January 31, 2018 Compared to Three Months Ended January 31, 2017
Three Months Ended January 31, Statement of Operations Data: 2018 2017 Changes Revenue Operating expenses Other expenses Net loss $ - $ - $ - 315,783 980 314,803 14,415 - 14,415 $ 330,198 $ 980 $ 329,218
Our interim consolidated financial statements report a net loss of $330,198 for the three months ended January 31, 2018 compared to a net loss of $980 for the three months ended January 31, 2017. Our losses have increased by $329,218, primarily as a result of an increase in revenueslabor, supplies and greenhouse lease related to the cultivation of medical cannabis with the operations commenced in March 2017.
Liquidity and Capital Resources
Working Capital
January 31, October 31, Balance Sheet Data: 2018 2017 Changes Cash and cash equivalents Total current assets Total current liabilities Working capital (deficiency) $ 2,740 $ 24,656 $ (21,916 ) $ 2,740 $ 24,656 $ (21,916 ) $ 361,728 $ 74,731 $ 286,997 $ (358,988 ) $ (50,075 ) $ (308,913 )
Cash Flows
Three Months Ended January 31, Cash Flow Data: 2018 2017 Changes Cash Flows used in Operating Activities Cash Flows provided by Financing Activities Net Change in Cash During Period $ (325,957 ) $ (980 ) $ (324,977 ) 304,041 10 304,031 $ (21,916 ) $ (970 ) $ (20,946 )
Our total current assets as of JulyJanuary 31, 2018 were $2,740 as compared to total current assets of $24,656 as of October 31, 2017. The decrease was primarily due to a use of cash for operating activities.
Our total current liabilities as of January 31, 2018 were $361,728 as compared to total current liabilities of $74,731 as of October 31, 2017. The increase was primarily due to an increase in convertible note and notes payable – related party.
The report of our auditors on our audited condensed consolidated financial statements for the fiscal year ended October 31, 2017, contains a going concern qualification as we have suffered losses since our inception. We have minimal assets and have achieved no operating revenues since our inception. We have been dependent on sales of equity securities to conduct operations. Unless and until we commence material operations and achieve material revenues, we will remain dependent on financings to continue our operations.
18 |
Table of Contents |
Operating Activities
Net cash used in operating activities during the three months ended January 31, 2018 was $325,957, compared to $980 net cash used in operating activities during the three months period ended January 31, 2017.
Operating expense increaseInvesting Activities
During the three months ended January 31, 2018 and 2017, our Company did not have any investing activities.
Financing Activities
Cash provided by financing activities during the three months ended January 31, 2018 was $304,041 as compared to $288,964$10 in cash provided by financing activities during the three months ended January 31, 2017. During the three months ended January 31, 2018, our Company received $135,000 from $0 forconvertible note, $99,200 from notes payable – related party and $69,841 from capital contribution. During the Nine Months Ending Julythree months ended January 31, 2017, and 2016, respectively. The increase in operating expenses is primarily due to increase in labor and expenses related to preparing the Company’s greenhouse space for planting.our Company received $10 from bank overdraft.
Operating expense increase to $174,562 from $0 for the Three Months Ending July 31, 2017 and 2016, respectively. The increase in operating expenses is primarily due to increase in labor and expenses related to preparing Company’s greenhouse space.Cash Requirements
We will require additional cash as we expand our business. Initially, to carry out our business plan, we will need to raise additional capital. There can be no assurance that we will be able to raise additional capital or, if we are able to raise additional capital, the terms we be acceptable to us. Currently we do not have any inventory.
These conditions indicate a material uncertainty that casts significant doubt about our ability to continue as a going concern. We require additional debt or equity financing to have the necessary funding to continue operations and meet our obligations. We have continued to adopt the going concern basis of accounting in preparing our financial statements.
Future Financings
We anticipate continuing to rely on equity sales of our common stock in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will ever be profitable. The financial statements do not includeachieve any adjustments to reflect the possible future effects on the recoverability and classificationadditional sales of assetsour equity securities or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.
Liquidity and Capital Resources
As of July 31, 2017 and we had $0 in cash and $14,000 in security deposit. The Company also had $7,389 in liabilities that reflect accrued labor expenses and $8,838 in liabilities that reflect accrued utilities expenses. Our cash position is insufficient and as such we plan to raise additionalarrange for debt and equityor other financing to meetfund our obligations as they become due.
Cash flow
At July 31, 2017, we had cash and cash equivalents of $0. We currently expect that our cash on hand, and our cash flow from operations will not be sufficient to meet our anticipated cash requirements. As such, the Company will need to raise additional capital through equity or debt transactions.
Nine months ended July 31, 2017 2016 Cash flows provided by: Operating activities – cash flows used in Financing activities – cash flows provided by Increase (decrease) in cash $ (286,003 ) $ - 285,033 - $ (970 ) $ -
Cash Flows Provided by Operating Activities
Net cash used in operating activities is primarily made up of net loss from operations of $288,964, $16,227 in accrued liabilities, and security deposit for lease of $14,000 for the nine months ended July 31, 2017.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities was primarily from related party notes payable, of $285,033 for the nine months ended July 31, 2017.
Contractual Obligations
Long-term Debt: The Company entered into borrowing arrangements with Novus Group. The notes are due on December 31, 2018. The notes accrued interest at 0% for the initial 9 months and then 5% on annual rate thereafter.
During the Nine Months ending July 31, 2017, Valerie Baugher lent the Company $4,983 and was repaid $1,650 leaving a balance owed of $3,333. Ms. Baugher is a related party and affiliate of the company based on here status as an officer, director and 10% shareholder. The notes are due on December 31, 2018. The notes accrued interest at 0% for the initial 9 months and then 5% on annual rate thereafter.
On March 1, 2017, the Company executed a lease for 12,000 square feet green house space and 1,000 square of warehouse space expiring March 31, 2020. The monthly lease is $7,000 per month.
The Company has aggregate future minimum lease commitments as of July 31, 2017 is as follows:
Years ended July 31, Amount 2018 2019 2020 Total planned business activities.$ 84,000 84,000 77,000 $ 245,000
Off-Balance Sheet Arrangements
We did not have any off balance sheet arrangements as of July 31, 2017.
Dividend Policy
The Company has not paid dividends on its Common Stock in the past. On August 30, 2017, the Company filed with FINRA its corporate notice for the cash dividend. The record date for the dividend is September 15, 2017 at a rate of $.001 per share with payment date of September 25, 2017. FINRA requires 10-day notice before the record date of the dividend. The Company will be announcing monthly cash dividends to its shareholders.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive exploration activities. For these reasons our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern.
Accounting and Audit Plan
In the next twelve months, we anticipate spending approximately $20,000 - $30,000 to pay for our accounting and audit requirements.
Off-balance sheet arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
JOBS Act
We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
Subject to certain conditions set forth in the JOBS Act, we are also eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We may take advantage of these exemptions until we are no longer an emerging growth company. We will continue to be an emerging growth company until the earliest to occur of (i) the date on which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, (ii) the last day of the fiscal year in which we had total annual gross revenue of $1 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering, which is December 31, 2019.
Item 3 –3. Quantitative and Qualitative Disclosures About Market Risk
The Company, asAs a smaller“smaller reporting company, as defined by Rule 229.10(f)(1)company”, iswe are not required to provide the information required by this Item.
Item 4. Controls and Procedures.Procedures
Internal Control over Financial Reporting
Evaluation of Disclosure Controls and Procedures.Procedures
Our company’s management with the participationis responsible for establishing and maintaining a system of our company’s Chief Executive and Chief Financial Officer, evaluated the effectiveness of our company’s disclosure controls and procedures (as that term is defined in RulesRule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based onAct) that evaluation, management, with the participation of the Chief Executive and Chief Financial Officer, concludedis designed to ensure that our company’s disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, are not functioning effectively to provide reasonable assurance that the information required to be disclosed by our companyus in the reports filedthat we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s Securities and Exchange Commission’s rules and formsforms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our company’sthe issuer’s management, including our company’s Chief Executiveits principal executive officer or officers and Chief Financial Officer,principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. A controls system, no matter how well designed
19 |
Table of Contents |
An evaluation was conducted under the supervision and operated, cannot provide absolute assurance thatwith the objectivesparticipation of our management of the effectiveness of the design and operation of our disclosure controls system are met, and noprocedures as of January 31, 2018. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of controls can provide absolute assurancesuch date to ensure that all control issuesinformation required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and instancesreported within the time periods specified in SEC rules and forms as a result of fraud, if any, within a company have been detected.the following material weaknesses:
The matters involving internal controls and procedures thatspecific material weakness identified by our management considered to be material weaknesses under the standardswas ineffective controls over certain aspects of the Public Company Accounting Oversight Board were: (1)financial reporting process because of a lack of a functioning audit committee, (2) lacksufficient complement of personnel with a majoritylevel of outside directors onaccounting expertise and an adequate supervisory review structure that is commensurate with our board of directors, resulting in ineffective oversight in the establishmentfinancial reporting requirements and monitoring of required internal controls and procedures; (3) inadequate segregation of duties consistentduties. A "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements would not be prevented or detected on a timely basis.
We expect to be materially dependent upon a third party to provide us with control objectives; and (4) management is dominated by one individual without adequate compensating controls. The aforementioned material weaknesses were identified by our Chief Executive and Financial Officer in connectionaccounting consulting services for the foreseeable future. Until such time as we have a chief financial officer with the review of our financial statements as of July 31, 2017.
Management believesrequisite expertise in U.S. GAAP, there are no assurances that the material weaknesses set forth above did not have an effect onin our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internaldisclosure controls and procedures which couldand internal control over financial reporting will not result in a material misstatementerrors in our financial statements in future periods.which could lead to a restatement of those financial statements.
Changes in Internal Control over Financial Reporting.Controls
There werehave been no changes in our internal controlcontrols over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred duringin the quarter ended JulyJanuary 31, 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Table of Contents |
ITEMItem 1. LEGAL PROCEEDINGSLegal Proceedings
None.From time to time, we may become involved in litigation relating to claims arising out of its operations in the normal course of business. We are not involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we area party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on us.
ITEMItem 1A. RISK FACTORSRisk Factors
We areAs a smaller“smaller reporting company as defined by Rule 12b-2 of the Exchange Act andcompany”, we are not required to provide the information required underby this item.Item.
The above statement notwithstanding, shareholders and prospective investors should be aware that certain risks exist with respect to the Company and its business, including those risk factors contained in our most recent Registration Statements on Form S-1 and Form 10, as amended. These risks include, among others: limited assets, lack of significant revenues and only losses since inception, industry risks, dependence on third party manufacturers/suppliers and the need for additional capital. The Company's management is aware of these risks and has established the minimum controls and procedures to insure adequate risk assessment and execution to reduce loss exposure.
None.
ITEMItem 3. DEFAULTS UPON SENIOR SECURITIESDefaults Upon Senior Securities
None.
ITEMItem 4. MINE SAFETY DISCLOSURESMine Safety Disclosures
Not Applicable.
ITEMItem 5. OTHER INFORMATIONOther Information
There was no other information during the quarter ended July 31, 2017 that was not previously disclosed in our filings during that period.None.
Exhibit | Description | ||
(31) | Rule 13a-14 (d)/15d-14d) Certifications | ||
(32) | Section 1350 Certifications | ||
101* | Interactive Data File | ||
|
| ||
101.SCH | XBRL Taxonomy Extension Schema Document | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
______
* Filed herewith.
Table of Contents |
Pursuant to the requirementsIn accordance with Section 13 or 15(d) of the Securities Exchange Act, of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUNSET ISLAND GROUP, INC. | |||
(Registrant) | |||
|
| /s/ Valerie Baugher | |
Valerie Baugher | |||
| |||
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |||
|