REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of Cannonau Corp
937 Old Seneca Turnpike Road
Skaneateles, NY 13252-9318
Opinion on the Financial Statements
We have audited the accompanying consolidated balance
sheets of Cannonau Corp (the Company) as of December 31, 2022 and December 31, 2021, and the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the two years ended December 31, 2022, and the related notes (collectively referred
to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of year ended December 31, 2022 and December 31, 2021, and the results of its operations and its cash flows for each
of the two years ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Substantial doubt about the Company's ability
to continue as a going concern
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered
recurring losses since inception, has a shareholder deficit, and the Company and has not generated sufficient revenues to date to cover
its operating costs – these factors raise substantial doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
| www.vmcpafirm.com | Ph: 713.588.6622 | Fax: 1.833.694.1494 | ask@vmcpafirm.com |
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VICTOR MOKUOLU, CPA PLLC
Accounting | Advisory | Assurance
& Audit | Tax |
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Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
A critical audit matter is a matter arising from the
current period audit of the financial statements that were communicated or required to be communicated to the audit committee or the
Company’s governance and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating a critical audit, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate. We determined that there are no critical audit
matters communicated or required to be communicated to the audit committee.
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| We have served as the Company’s auditor since 2022. |
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| Houston, Texas |
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March 3, 2023
PCAOB ID: 6771 |
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| www.vmcpafirm.com | Ph: 713.588.6622 | Fax: 1.833.694.1494 | ask@vmcpafirm.com |
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NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
1. Nature
of Operations and Continuance of Business
Cannonau Corp. (the “Company”)
was incorporated under the laws of the State of Nevada on April 3, 2007 as Pacific Blue Energy
Corp. On April 5, 2010, the Company acquired a 100% interest of Ship Ahoy LLC, a limited liability company in Arizona, in
exchange for $300,000 and 1,000,000 common shares of the Company. This investment was subsequently abandoned by the Company and
therefore no longer reflecting in these financial statements. The Company is currently developing
CBD based products. On August 22, 2019, the Company changed its' name to Cannonau Corp. to reflect its' focus on its new CBD based products.
Going Concern
These financial statements have been prepared
on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal
course of business. The Company has not generated sufficient revenues to date to cover its operating cost and has never paid any dividends
and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. As of December 31, 2022, the
Company had minimal revenues and an accumulated deficit of $3,788,168 and a working capital of deficit of $238,336. As of December 31,
2021, the Company had minimal revenues and an accumulated deficit of $3,788,168 and a working capital of deficit of $238,336. The continuation
of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity
or debt financing, and the attainment of profitable operations from the Company's future business. These factors raise substantial doubt
regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.
These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
2.
Summary of Significant Accounting Policies
a)
Basis of Presentation and Principles of Consolidation
These financial statements and related notes
are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and are
expressed in US dollars. The Company’s fiscal year-end is December 31.
b)
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and
assumptions related to the recoverability of its long-lived assets, stock-based compensation, and deferred income tax asset valuation
allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it
believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced
by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between
the estimates and the actual results, future results of operations will be affected.
c)
Cash and Cash Equivalents
The Company considers all highly liquid
instruments with maturity of three months or less at the time of issuance to be cash equivalents.
d)
Revenue Recognition
Management uses the 5 steps framework of
ASC 606 to recognize revenue, as follows:
| 1. | Identify contract with customer |
| a. | Approval (in writing, orally, or in accordance with other customary business
practices) and commitment of the parties; |
| b. | Identification of the rights of the parties; |
| c. | Identification of the payment terms; |
| d. | Contract has commercial substance; and |
| e. | Probable that the entity will collect the consideration to which it will
be entitled in exchange for the product that will be transferred to the customer. |
17
CANNONAU CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
2. Summary of Significant Accounting Policies (continued)
| d) | Revenue Recognition (continued) |
| 2. | Identify performance obligations |
| a. | At contract inception, management assesses the product promised in a contract
with a customer and identifies each promise as a performance obligation to transfer to the customer either: a) A product (or a bundle
of products) that is distinct b) A series of distinct products that are substantially the same and that have the same pattern of transfer
to the customer |
| 3. | Determined expected transaction price |
| a. | The transaction price is the amount of consideration to which an entity
expects to be entitled in exchange for transferring promised goods to a customer |
| 4. | Allocate to performance obligations |
| a. | Once the separate performance obligations are identified and the transaction
price has been determined, management allocates the transaction price to the performance obligations in proportion to their standalone
selling prices |
| 5. | Recognize revenue upon transfer of control over goods |
| a. | management recognizes revenue only when it satisfies a performance obligation
by transferring a promised good to a customer. A good or service is considered to be transferred when the customer obtains control. |
| b. | The standard defines control as an entity’s ability to direct the
use of, and obtain substantially all of the remaining benefits from, an asset. |
| c. | Control is assessed primarily from the customer’s perspective. |
e)
Cost of Sales
Amounts that will be recorded as cost of
sales relate to direct expenses incurred in order to fulfill orders of our customers. Such costs are recorded and allocated as incurred.
Our cost of sales will consist primarily of the cost of material consumed to make that product.
f)
Basic and Diluted Net Loss Per Share
The Company computes net loss per share
in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share
(EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by
the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method.
In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
g) Financial
Instruments
ASC 820, “Fair Value Measurements”, requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes
a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair
value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
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.
18
CANNONAU CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
2. Summary of Significant Accounting Policies (continued)
| g) | Financial Instruments (continued) |
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.
The
Company’s financial instruments consist principally of cash, accounts payable, and amounts due to related parties. Pursuant to
ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets
for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values
because of their nature and respective maturity dates or durations.
h) Inventory
Inventories
are stated at the lower of cost and net realizable value. Cost is determined using the first in first out method and net realizable value
is the estimated selling price less costs of disposal in the ordinary course of business. The cost of inventories includes direct costs
plus shipping and packaging materials.
i) Stock-based
compensation
In
accordance with ASC No. 718, Compensation – Stock Compensation (“ASC 718”), the Company measures the compensation costs
of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the
period during which employees are required to provide services.
During
the year ended December 31, 2022, and 2021, there were no stock based awards issued or outstanding.
j)
Income taxes
Income taxes are determined in accordance
with the provisions of ASC 740, “Income Taxes” (“ASC 740”). 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 income
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
ASC 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected
to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely
than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be
measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the
tax authority assuming full knowledge of the position and relevant facts.
For the years ended December 31, 2022 and
2021, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2022, the Company did not
have any significant unrecognized uncertain tax positions.
k) Commitments
and contingencies
The Company follows ASC 440 & ASC 450,
subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies and commitments respectively. Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only
be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the
Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings
or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability
would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency
is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and
an estimate of the range of possible losses, if determinable and material, would be disclosed.
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CANNONAU CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
2. Summary of Significant Accounting Policies (continued)
| k) | Commitments and contingencies (continued) |
Loss contingencies considered remote are
generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe,
based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial
position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect
the Company’s business, financial position, and results of operations or cash flows.
l) Reclassification
Certain prior period amounts have
been reclassified to conform to current presentation.
m)
Recently Issued Accounting Guidance
The Company has evaluated all the recent
accounting pronouncements through the date the financial statements were issued and filed with the Securities and Exchange Commission
and believe that none of them will have a material effect on the company’s financial statements.
3.
Share Capital
Preferred stock
The Company is authorized to
issue 10,000,000 shares of Preferred
Stock, par value $.001 per
share. As of September 30, 2022 and December 31, 2021, no
shares of Preferred Stock were issued and outstanding.
Common stock
The
company is authorized to issue 290,000,000 shares at par value of $.001 per share.
On
May 21, 2019, the Company issued 100,000,000 shares of common stock to settle $5,000 in debt with a related party.
On
November 5, 2019, the Company purchased and retired into treasury 15,000,000 Common Shares from Luniel De Beer for $2,000.
On
January 23, 2020, the Company executed a 2,000 to 1 reverse stock split. All shares and per share information has been retroactively
adjusted to reflect this reverse stock split.
On
February 25, 2020, convertible notes to related parties of $3,260 were converted into 9,055,556 shares of common stock.
On
March 20, 2020, convertible notes of $4,370 were converted into 12,138,888 shares of common stock.
On
May 29, 2020, convertible notes to related parties of $1,142 were converted into 30,000,000 shares of common stock.
On
July 6, 2020, convertible notes to related parties of $6,858 were converted into 180,473,684 shares of common stock.
On
July 21, 2020, convertible notes to related parties of $362 were converted into 9,526,316 shares of common stock.
On October 2020, the
Company issued 10,597,222 to the legal custodian in a private placement for $5,299.
During the year 2021, the Company issued
438,454 shares of common stock to its consultants against the consulting services rendered during the year.
As of December 31, 2022 & 2021,
the Company had 241,815,632 shares of common stock issued and outstanding.
20
CANNONAU CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
4. Income Taxes
The Company has a net operating loss carried
forward of approximately $3,788,168 available to offset taxable income in future years which commence expiring in fiscal 2027. The
Company is subject to United States federal and state income taxes at an approximate rate of 21%.
There was no income tax expense for the
years ended December 31, 2022 and 2021. The reconciliation and the tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets at the U.S. statutory rate of 21% at December 31, 2022& 2021 are as follows:
| | |
December 31, 2022 | |
December 31, 2021 |
| Deferred tax assets | |
| |
|
| Net operating losses | |
| (3,788,168 | ) | |
$ | (3,702,218 | ) |
| Deferred tax liability | |
| | | |
| | |
| Net deferred tax assets | |
| 795,515 | | |
| 777,466 | |
| Less valuation allowance | |
| (795,515 | ) | |
| (777,466 | ) |
| Deferred tax asset - net valuation allowance | |
| — | | |
$ | — | |
| | |
| | | |
| | |
5.
Related Party Transaction
In support of the Company’s efforts
and cash requirements, it may rely on advances from related parties until such time that the Company can support its operations or attains
adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support
by officers, directors, or shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities and related parties
consist of officers, shareholders and associated entities.
During the year ended December 31,
2022, related parties loaned the company $
87,462 to pay for operating expenses. As at December 31, 2022 and 2021, the company owed its related parties $329,824 and
$242,362 respectively. The loan is non-interest bearing, due upon demand and unsecured.
6. Commitments and Contingencies
In response to the COVID-19 pandemic, the
Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain
deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback
net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax
Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards
to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income
plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum
tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period
of years, as originally enacted by the 2017 Tax Act.
In addition, the CARES Act raises the corporate
charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery
and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision.
7.
Subsequent Events
The company has evaluated subsequent events
for recognition and disclosure through February25, 2023 which is the date the financial statements were available to be issued and has
determined that there are no items to disclose.
21