UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021March 31, 2022
orOR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number:File Number: 000-27039
MARIJUANA COMPANY OF AMERICA, INC.INC.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Charter)
| Utah | 98-1246221 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 633 | ||
| Los Angeles, CA | ||
| (Address of principal executive offices) | (Zip Code) |
(888) 777-4362
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: 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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||
| Non-accelerated | ☒ | Smaller reporting company | ☒ | ||||
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
The number of shares of the issuer’s common stock, $0.001no par value per share, outstanding at NovemberMay 16, 20212022 was ***. .
| |
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, and markets for our common stockshares and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement.
Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout our most recent Annual Report on Form 10-K and any updates described in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as may be amended, supplemented or superseded from time to time by other reports we file with the U.S. Securities and Exchange Commission (the “SEC”). You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits to the reports we file with the SEC completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this Quarterly Report on Form 10-Q is accurate as of the date hereof. Because the risk factors in our SEC reports could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.
3 |
PART I –— FINANCIAL INFORMATION
MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIESITEM 1. FINANCIAL STATEMENTS.
CONDENSED CONSOLIDATED BALANCE SHEETS
| MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| Unaudited | Audited | |||||||
| Mar 31, 2022 | Dec 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 243,712 | $ | 104,024 | ||||
| Accounts receivable, net | 410,448 | 211,288 | ||||||
| Inventory | 206,194 | 252,199 | ||||||
| Prepaid Insurance | 29,769 | 61,705 | ||||||
| Other current assets | 2,094,342 | 2,133,640 | ||||||
| Total current assets | 2,984,465 | 2,762,856 | ||||||
| Property and equipment, net | 117,237 | 121,588 | ||||||
| Other assets: | ||||||||
| Long-term Investments | 2,300,899 | 2,327,357 | ||||||
| Goodwill | 1,633,557 | 1,633,557 | ||||||
| Intangible assets, net | 1,065,000 | 1,110,000 | ||||||
| Security deposit | 4,541 | 4,541 | ||||||
| Total assets | 8,105,699 | 7,959,899 | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | 1,183,694 | 932,760 | ||||||
| Accrued compensation | 57,556 | 42,925 | ||||||
| Accrued liabilities | 304,744 | 270,689 | ||||||
| Notes payable, related parties | 20,000 | 20,000 | ||||||
| Convertible notes payable, net of debt discount of $3,459,479 and $1,659,622, respectively | 4,155,625 | 3,769,449 | ||||||
| Contingent Liability - Acquisition | 703,837 | 953,837 | ||||||
| Subscriptions payable | 754,961 | 989,594 | ||||||
| Derivative liability | 1,646,127 | 749,756 | ||||||
| Total current liabilities | 8,826,544 | 7,729,010 | ||||||
| Total liabilities | 8,826,544 | 7,729,010 | ||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $ par value, shares authorized | ||||||||
| Class A preferred stock, $ par value, shares designated, shares issued and outstanding as of March 31, 2022 and December 31, 2021 | 10,000 | 10,000 | ||||||
| Class B preferred stock, $ par value, shares designated, shares issued and outstanding as of March 31, 2022 and December 31, 2021 | 2,000 | 2,000 | ||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 9,439,551 | 7,122,806 | ||||||
| Common stock to be issued, 1,000,000 and 1,000,000 shares, respectively | 1,000 | 1,000 | ||||||
| Additional paid in capital | 89,632,214 | 89,607,853 | ||||||
| Accumulated other Comprehensive Income (loss) | (14,273 | ) | (11,725 | ) | ||||
| Accumulated deficit | (99,791,337 | ) | (96,501,045 | ) | ||||
| Total stockholders' deficit | (720,845 | ) | 230,889 | |||||
| Total liabilities and stockholders' deficit | $ | 8,105,699 | $ | 7,959,899 | ||||
| September 30, 2021 | December 31, 2020 | |||||||
| Unaudited | Audited | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 107,730 | $ | 74,503 | ||||
| Short-term Investments | — | 239,063 | ||||||
| Accounts receivable, net | 151,927 | 8,640 | ||||||
| Inventory | 201,860 | 103,483 | ||||||
| Prepaid Insurance | 86,250 | 55,783 | ||||||
| Other current assets | 187,200 | 56,121 | ||||||
| Total current assets | 734,967 | 537,593 | ||||||
| Property and equipment, net | 122,467 | 6,542 | ||||||
| Other assets: | ||||||||
| Long-term Investments | 2,301,099 | 1,552,001 | ||||||
| Right- of- use- assets | — | 7,858 | ||||||
| Goodwill | 2,925,884 | — | ||||||
| Security deposit | 2,750 | 2,500 | ||||||
| Total assets | 6,087,167 | 2,106,494 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | 927,260 | 480,877 | ||||||
| Accrued compensation | — | 79,214 | ||||||
| Accrued liabilities | 175,901 | 401,461 | ||||||
| Notes payable, related parties | 20,000 | 40,000 | ||||||
| Loans payable PPP Stimulus | — | 35,500 | ||||||
| Convertible notes payable, net of debt discount of $950,807 and $808,980, respectively | 1,059,443 | 1,426,894 | ||||||
| Contingent Liability - Acquisition | 1,000,000 | — | ||||||
| Right-of-use liabilities - current portion | — | 7,858 | ||||||
| Subscriptions payable | 754,961 | 670,000 | ||||||
| Derivative liability | 432,024 | 4,426,057 | ||||||
| Total current liabilities | 4,369,589 | 7,567,861 | ||||||
| Total liabilities | 4,369,589 | 7,567,861 | ||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, $ par value, shares authorized | ||||||||
| Class A preferred stock, $ par value, shares designated, shares issued and outstanding as of September 30, 2021 and December 31, 2020 | 10,000 | 10,000 | ||||||
| Class B preferred stock, $ par value, shares designated, shares issued and outstanding as of September 30, 2021 and December 31, 2020 | 2,000 | 2,000 | ||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 6,373,158 | 3,136,775 | ||||||
| Common stock to be issued, 30,226,275 and 11,892,411 shares, respectively | 30,226 | 11,892 | ||||||
| Additional paid in capital | 88,862,487 | 77,687,561 | ||||||
| Accumulated deficit | (93,560,293 | ) | (86,309,595 | ) | ||||
| Total stockholders' equity (deficit) | 1,717,578 | (5,461,367 | ) | |||||
| Total liabilities and stockholders' equity (deficit) | $ | 6,087,167 | $ | 2,106,494 |
See the accompanying notes to these unaudited condensed consolidated financial statements
MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
UNAUDITED
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| REVENUES: | ||||||||||||||||
| Sales | $ | 442,178 | $ | 49,933 | $ | 493,988 | $ | 206,407 | ||||||||
| Related party Sales | 0 | 3,262 | 0 | 11,565 | ||||||||||||
| Total Revenues | 442,178 | 53,195 | 493,988 | 217,972 | ||||||||||||
| Cost of sales | 378,491 | 37,170 | 406,972 | 110,563 | ||||||||||||
| Gross Profit | 63,687 | 16,025 | 87,016 | 107,409 | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Depreciation | 3,697 | 1,374 | 6,350 | 4,702 | ||||||||||||
| Selling and marketing | 167,664 | 125,942 | 430,425 | 326,608 | ||||||||||||
| Payroll and related | 142,830 | 62,000 | 413,232 | 258,842 | ||||||||||||
| Stock-based compensation | 529,393 | 123,000 | 688,293 | 665,767 | ||||||||||||
| General and administrative | 639,767 | 294,821 | 1,777,419 | 710,094 | ||||||||||||
| Total operating expenses | 1,483,352 | 607,137 | 3,315,719 | 1,966,013 | ||||||||||||
| Net loss from operations | (1,419,664 | ) | (591,112 | ) | (3,228,703 | ) | (1,858,604 | ) | ||||||||
| OTHER INCOME (EXPENSES): | ||||||||||||||||
| Interest expense, net | (549,363 | ) | (688,090 | ) | (2,542,108 | ) | (2,460,185 | ) | ||||||||
| Impairment gain (Loss) on Joint Ventures | — | 238,296 | — | (22,658 | ) | |||||||||||
| Income (Loss) on equity investment | — | 240,198 | — | 106,305 | ||||||||||||
| Loss on share exchange agreement | (340,984 | ) | — | (735,178 | ) | — | ||||||||||
| Gain (Loss) on change in fair value of derivative liabilities | 1,177,610 | (1,454,903 | ) | (451,679 | ) | (312,631 | ) | |||||||||
| Unrealized Gain (loss) on trading securities | — | — | 504,137 | (13,945 | ) | |||||||||||
| Loss on sale of trading securities | (543,200 | ) | — | (543,200 | ) | (2,603 | ) | |||||||||
| (Loss) Gain on settlement of debt | (88,990 | ) | 383,440 | (253,967 | ) | 386,930 | ||||||||||
| Total other income (expense) | (344,927 | ) | (1,281,059 | ) | (4,021,995 | ) | (2,318,787 | ) | ||||||||
| Net loss before income taxes | (1,764,591 | ) | (1,872,171 | ) | (7,250,698 | ) | (4,177,391 | ) | ||||||||
| Income taxes (benefit) | — | — | — | — | ||||||||||||
| NET INCOME (LOSS) | $ | (1,764,591 | ) | $ | (1,872,171 | ) | $ | (7,250,698 | ) | $ | (4,177,391 | ) | ||||
| Loss per common share, basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||
| Weighted average number of common shares outstanding, basic and diluted (after stock-split) | 5,266,505,915 | 1,178,860,134 | 4,867,533,020 | 518,261,567 | ||||||||||||
See the accompanying notes to these unaudited condensed consolidated financial statements
| 4 |
MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
UNAUDITED
| Class A Preferred Stock | Class B Preferred Stock | Common Stock | Common Stock to be issued | Stock | Paid In | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Subscriptions | Capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 10,000,000 | $ | 10,000 | — | $ | — | 77,958,081 | $ | 77,958 | — | $ | — | $ | — | $ | 63,467,054 | $ | (74,164,213 | ) | $ | (10,609,201 | ) | ||||||||||||||||||||||||||
| Common stock issued to settle amounts previously accrued | — | — | — | — | 8,333 | 8 | — | — | — | $ | 6,692 | — | 6,700 | |||||||||||||||||||||||||||||||||||
| Common stock issued for services rendered | — | — | — | — | 156,444,047 | 156,444 | — | — | — | 509,323 | — | 665,767 | ||||||||||||||||||||||||||||||||||||
| Common stock issued in settlement of convertible notes payable and accrued interest | — | — | — | — | 1,469,725,298 | 1,469,725 | — | — | — | 1,165,922 | — | 2,635,647 | ||||||||||||||||||||||||||||||||||||
| Conversion of related party notes payable | — | — | — | — | 21,384,103 | 21,384 | — | — | — | 29,229 | — | 50,613 | ||||||||||||||||||||||||||||||||||||
| Common stock issued in exchange for exercise of warrants on a cashless basis | — | — | — | — | 51,054,214 | 51,054 | 1,000,000 | 1,000 | — | 375,446 | — | 427,500 | ||||||||||||||||||||||||||||||||||||
| Sale of common stock | — | — | — | — | 127,012,847 | 127,013 | — | — | — | 26,673 | — | 153,686 | ||||||||||||||||||||||||||||||||||||
| Common shares issued in settlement of legal case | — | — | — | — | 10,293,843 | 10,294 | — | — | — | 1,273,338 | — | 1,283,632 | ||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to additional paid in capital | — | — | — | — | — | — | — | — | — | 3,886,972 | — | 3,886,972 | ||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | — | — | (4,177,391 | ) | (4,177,391 | ) | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | 10,000,000 | $ | 10,000 | — | $ | — | 1,913,880,766 | $ | 1,913,880 | 1,000,000 | $ | 1,000 | $ | — | $ | 70,740,649 | $ | (78,341,604 | ) | $ | (5,676,075 | ) | ||||||||||||||||||||||||||
| MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 | ||||||||
| UNAUDITED | ||||||||
| For the 3 months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| REVENUES: | ||||||||
| Sales | $ | 561,321 | $ | 34,930 | ||||
| Total Revenues | 561,321 | 34,930 | ||||||
| Cost of sales | 510,262 | 25,180 | ||||||
| Gross Profit | 51,059 | 9,750 | ||||||
| OPERATING EXPENSES: | ||||||||
| Depreciation and amortization | 51,050 | 1,391 | ||||||
| Selling and marketing | 81,373 | 107,549 | ||||||
| Payroll and related | 276,913 | 138,145 | ||||||
| Stock-based compensation | 9,000 | 19,900 | ||||||
| General and administrative | 468,517 | 525,682 | ||||||
| Total operating expenses | 886,853 | 792,667 | ||||||
| Net loss from operations | (835,794 | ) | (782,917 | ) | ||||
| OTHER INCOME (EXPENSES): | ||||||||
| Interest expense, net | (1,246,155 | ) | (1,100,962 | ) | ||||
| Gain (loss) on change in fair value of derivative liabilities | (1,026,929 | ) | (2,326,018 | ) | ||||
| Unrealized Gain (loss) on trading securities | — | 620,134 | ||||||
| Realized Gain (loss) on trading securities | 6,086 | — | ||||||
| (Loss) Gain on settlement of debt | (187,500 | ) | (68,227 | ) | ||||
| Total other income (expense) | (2,454,498 | ) | (2,875,073 | ) | ||||
| Net loss before income taxes | (3,290,292 | ) | (3,657,990 | ) | ||||
| Income taxes (benefit) | — | — | ||||||
| NET INCOME (LOSS) | $ | (3,290,292 | ) | $ | (3,657,990 | ) | ||
| Foreign currency Translation Adjustment | (2,548 | ) | — | |||||
| Comprehensive Income | $ | (3,292,840 | ) | $ | (3,657,990 | ) | ||
| Loss per common share, basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Weighted average number of common shares outstanding, basic and diluted (after stock-split) | 8,162,150,740 | 4,028,293,332 | ||||||
| Class A Preferred Stock | Class B Preferred Stock | Common Stock | Common Stock to be issued | Stock | Paid In | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Subscriptions | Capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 10,000,000 | $ | 10,000 | 2,000,000 | $ | 2,000 | 3,136,774,841 | $ | 3,136,775 | 11,892,411 | $ | 11,892 | $ | — | $ | 77,687,561 | $ | (86,309,595 | ) | $ | (5,461,367 | ) | ||||||||||||||||||||||||||
| Common stock issued to settle amounts previously accrued | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of Preferred stock to officer | — | — | — | $ | — | — | — | — | — | — | — | $ | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued for services rendered | — | — | — | — | 142,946,860 | 142,947 | — | — | — | 518,345 | — | 661,292 | ||||||||||||||||||||||||||||||||||||
| Common stock issued in settlement of convertible notes payable and accrued interest | — | — | — | — | 905,667,530 | 905,668 | 29,226,275 | 29,226 | — | 1,054,388 | — | 1,989,282 | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for settlement of liabilities | — | — | — | — | 3,027,031 | 3,027 | (10,892,411 | ) | (10,892 | ) | — | 16,488 | — | 8,623 | ||||||||||||||||||||||||||||||||||
| Conversion of related party notes payable and accounts payable | — | — | — | — | 22,500,000 | 22,500 | — | — | — | 119,250 | — | 141,750 | ||||||||||||||||||||||||||||||||||||
| Common stock issued in exchange for exercise of warrants on a cashless basis | — | — | — | — | 462,844,406 | 462,844 | — | — | — | (462,844 | ) | — | — | |||||||||||||||||||||||||||||||||||
| Sale of common stock | — | — | — | — | 742,297,599 | 742,298 | — | — | — | 895,828 | — | 1,638,126 | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for investments | — | — | — | — | 691,935,484 | 691,935 | 691,935 | — | �� | 608,065 | — | 1,300,000 | ||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to additional paid in capital | — | — | — | — | — | — | — | — | — | 6,270,052 | — | 6,270,052 | ||||||||||||||||||||||||||||||||||||
| Debt discount from warrants issued with convertible notes payable | — | — | — | — | — | — | — | — | — | 716,953 | — | 716,953 | ||||||||||||||||||||||||||||||||||||
| Common stock issued for acquisition of business | — | — | — | — | 265,164,070 | 265,164 | — | — | — | 1,352,337 | — | 1,617,501 | ||||||||||||||||||||||||||||||||||||
| Modification of Notes Payable | — | — | — | — | — | — | — | — | — | 86,064 | — | 86,064 | ||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | — | — | (7,250,698 | ) | (7,250,698 | ) | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 10,000,000 | $ | 10,000 | 2,000,000 | $ | 2,000 | 6,373,157,821 | $ | 6,373,158 | 30,918,210 | $ | 30,226 | $ | — | $ | 88,862,487 | $ | (93,560,293 | ) | $ | 1,717,578 | |||||||||||||||||||||||||||
See the accompanying notes to these unaudited condensed consolidated financial statements
MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
UNAUDITED
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (Loss) | $ | (7,250,698 | ) | $ | (4,177,391 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of debt discount | 1,232,641 | 1,373,575 | ||||||
| Depreciation and amortization | 5,753 | 4,702 | ||||||
| Bad debt expense | 34,359 | — | ||||||
| Impairment loss on equity investment | — | 22,658 | ||||||
| Loss on equity investment | 735,178 | (106,305 | ) | |||||
| Loss (Gain) on change in fair value of derivative liability | 451,679 | 312,631 | ||||||
| Interest expense recognized for the excess of fair value of derivative liability over net book value of notes payable at issuance | 1,035,115 | — | ||||||
| Loss on share inducement and settlement of warrant liability | — | 427,500 | ||||||
| Stock-based compensation | 661,292 | 665,767 | ||||||
| Unrealized (Gain) Loss on trading securities | 39,063 | 13,945 | ||||||
| Gain on Settlement of joint venture | — | (386,930 | ) | |||||
| Loss on settlement of liabilities | 256,336 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (5,496 | ) | 9,754 | |||||
| Inventories | (90,561 | ) | 3,652 | |||||
| Prepaid expenses and other current assets | (161,352 | ) | (77,605 | ) | ||||
| Accounts payable | 386,122 | 205,061 | ||||||
| Accrued expenses and other current liabilities | (23,063 | ) | 446,746 | |||||
| Right-of-use assets | 7,858 | 10,459 | ||||||
| Right-of-use liabilities | (7,858 | ) | (10,577 | ) | ||||
| Net cash provided by (used in) operating activities | (2,693,632 | ) | (1,262,358 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (121,603 | ) | (1,271 | ) | ||||
| Payment to establish joint venture | (99,098 | ) | — | |||||
| Proceeds from sale of investments | 190,401 | — | ||||||
| Investment in joint venture | — | 125,000 | ||||||
| Acquisition of business | (155,550 | ) | — | |||||
| Net cash provided by (used in) investing activities | (185,850 | ) | 123,729 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of notes payable | 2,065,863 | 876,302 | ||||||
| Proceeds from PPP loan payable | 0 | 35,500 | ||||||
| Proceeds from sales of trading securities | — | 10,854 | ||||||
| Repayments of notes payable | (626,005 | ) | — | |||||
| Repayments to related parties | (20,000 | ) | — | |||||
| Proceeds from sale of common stock | 1,492,851 | 153,685 | ||||||
| Net cash provided by (used in) financing activities | 2,912,709 | 1,076,341 | ||||||
| Net increase (decrease) in cash | 33,227 | (62,288 | ) | |||||
| Cash at beginning of period | 74,503 | 211,765 | ||||||
| Cash at end of period | $ | 107,730 | $ | 149,477 | ||||
| — | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | — | — | ||||||
| Cash paid for taxes | — | — | ||||||
| Non cash financing activities: | ||||||||
| Common stock issued in settlement of convertible notes payable | $ | 1,989,282 | $ | 2,635,647 | ||||
| Common stock issued in settlement of related party notes payable and accrued compensation | — | $ | 50,613 | |||||
| Reclassification of derivative liabilities to additional paid-in capital | $ | 6,270,052 | $ | 3,886,971 | ||||
| Gains on settlement of JV investment | $ | — | $ | 386,930 | ||||
| Common stock issued for investment | $ | 1,300,000 | $ | — | ||||
| Common stock issued to settle liabilities | $ | 8,623 | $ | — | ||||
| Common stock issued for acquisition of business | $ | 1,617,501 | $ | — | ||||
| Common shares issued in settlement of legal case | $ | — | $ | 1,283,632 | ||||
See the accompanying notes to these unaudited condensed consolidated financial statements
| 5 |
MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
UNAUDITED
| Class A Preferred Stock | Class B Preferred Stock | Common Stock | Common Stock to be issued | Stock | Paid In | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Subscriptions | Capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 10,000,000 | $ | 10,000 | 2,000,000 | $ | 2,000 | 3,136,774,841 | $ | 3,136,775 | 11,892,411 | $ | 11,892 | $ | — | $ | 77,687,561 | $ | (86,309,595 | ) | — | $ | (5,461,367 | ) | |||||||||||||||||||||||||||||
| Common stock issued for services rendered | — | — | — | 1,000,020 | 1,000 | — | — | — | 9,900 | — | 10,900 | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued in settlement of convertible notes payable and accrued interest | — | — | — | — | 621,622,284 | 621,622 | — | — | — | 952,534 | — | — | 1,574,156 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for settlement of liabilities | — | — | — | — | 3,027,031 | 3,027 | (10,892,411 | ) | (10,892 | ) | — | 16,488 | — | 8,623 | ||||||||||||||||||||||||||||||||||||||
| Common stock issued in exchange for exercise of warrants on a cashless basis | — | — | — | — | 400,000,000 | 400,000 | — | — | — | (400,000 | ) | — | — | |||||||||||||||||||||||||||||||||||||||
| Sale of common stock | — | — | — | — | 575,714,285 | 575,714 | — | — | 669,286 | — | 1,245,000 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for investments | — | — | — | — | 41,935,484 | 41,935 | — | — | 608,065 | — | 650,000 | |||||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to additional paid in capital | — | — | — | — | — | — | — | — | — | 4,475,916 | — | 4,475,916 | ||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | — | — | (3,657,990 | ) | (3,657,990 | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 10,000,000 | $ | 10,000 | 2,000,000 | $ | 2,000 | 4,780,073,945 | $ | 4,780,073 | 1,000,000 | $ | 1,000 | $ | — | $ | 84,019,750 | $ | (89,967,585 | ) | — | $ | (1,154,762 | ) | |||||||||||||||||||||||||||||
| Class A Preferred Stock | Class B Preferred Stock | Common Stock | Common Stock to be issued | Stock | Paid In | Accumulated | Other Comprehensive | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Subscriptions | Capital | Deficit | Loss | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 10,000,000 | $ | 10,000 | 2,000,000 | $ | 2,000 | 7,122,806,264 | $ | 7,122,805 | 1,000,000 | $ | 1,000 | $ | — | $ | 89,607,853 | $ | (96,501,045 | ) | $ | (11,725 | ) | $ | 230,889 | ||||||||||||||||||||||||||||
| Common stock issued in settlement of convertible notes payable and accrued interest | — | — | — | — | 1,166,431,600 | 1,166,433 | — | — | — | (114,878 | ) | — | — | 1,051,555 | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for deferred finance costs | — | — | — | — | 35,000,000 | 35,000 | — | — | — | 8,000 | — | — | 43,000 | |||||||||||||||||||||||||||||||||||||||
| Sale of common stock | — | — | — | — | 652,500,000 | 652,500 | — | — | (123,650 | ) | — | — | 528,850 | |||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to additional paid in capital | — | — | — | — | — | — | — | — | — | 233,069 | — | — | 233,069 | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for contingent consideration | — | — | — | — | 282,326,369 | 282,326 | — | — | — | (32,326 | ) | — | — | 250,000 | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for amendment to acquisition consideration | — | — | — | — | 180,486,830 | 180,486 | — | — | — | 54,146 | — | — | 234,632 | |||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | — | — | (3,290,292 | ) | (2,548 | ) | (3,292,840 | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 10,000,000 | $ | 10,000 | 2,000,000 | $ | 2,000 | 9,439,551,063 | $ | 9,439,550 | 1,000,000 | $ | 1,000 | $ | — | $ | 89,632,214 | $ | (99,791,337 | ) | $ | (14,273 | ) | $ | (720,845 | ) | |||||||||||||||||||||||||||
See the accompanying notes to these unaudited condensed consolidated financial statements
| 7 |
MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
UNAUDITED
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (Loss) | $ | (3,290,292 | ) | $ | (3,657,990 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of debt discount | 761,712 | 311,710 | ||||||
| Depreciation and amortization | 51,050 | 1,391 | ||||||
| Loss on equity investment | 735,178 | — | ||||||
| Loss (Gain) on change in fair value of derivative liability | 1,026,929 | 2,326,018 | ||||||
| Interest expense recognized for the excess of fair value of derivative liability over net book value of notes payable at issuance | 157,558 | 694,755 | ||||||
| Stock-based compensation | 234,633 | 10,900 | ||||||
| Unrealized (Gain) Loss on trading securities | — | (620,134 | ) | |||||
| Loss on settlement of liabilities | 187,500 | 71,647 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (199,160 | ) | 1,833 | |||||
| Inventories | 46,005 | 12,212 | ||||||
| Prepaid expenses and other current assets | 71,234 | (29,816 | ) | |||||
| Accounts payable | (692,418 | ) | 74,178 | |||||
| Accrued expenses and other current liabilities | 231,963 | (159,063 | ) | |||||
| Right-of-use assets | — | 3,880 | ||||||
| Right-of-use liabilities | — | (3,880 | ) | |||||
| Net cash provided by (used in) operating activities | (678,108 | ) | (962,359 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (1,699 | ) | (2,031 | ) | ||||
| Net cash provided by (used in) investing activities | (1,699 | ) | (2,031 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of notes payable | 526,760 | 535,000 | ||||||
| Repayments of notes payable | (233,567 | ) | (230,130 | ) | ||||
| Repayments to related parties | — | (20,000 | ) | |||||
| Proceeds from sale of common stock | 528,850 | 1,245,000 | ||||||
| Net cash provided by (used in) financing activities | 822,043 | 1,529,870 | ||||||
| Foreign exchange impact on cash | (2,548 | ) | — | |||||
| Net increase (decrease) in cash | 139,688 | 565,480 | ||||||
| Cash at beginning of period | 104,024 | 74,503 | ||||||
| Cash at end of period | $ | 243,712 | $ | 639,983 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | — | — | ||||||
| Cash paid for taxes | — | — | ||||||
| Non-cash financing activities: | ||||||||
| Common stock issued in settlement of convertible notes payable | $ | 639,054 | $ | 1,574,156 | ||||
| Reclassification of derivative liabilities to additional paid-in capital | $ | 233,069 | $ | 4,475,915 | ||||
| Common stock issued for investment | $ | 234,633 | $ | 650,000 | ||||
| Common stock issued to settle liabilities | $ | — | $ | 8,622 | ||||
| Common stock issued for acquisition of business | $ | 250,000 | $ | — | ||||
| Common stock issued for deferred finance costs | $ | 43,000 | $ | — |
See the accompanying notes to these unaudited condensed consolidated financial statements
| 8 |
MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021MARCH 31, 2022
(unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Marijuana Company of America, Inc. (the “Company”) was incorporated under the laws of the State of Utah in October 1985 under the name Mormon Mint, Inc. The corporation was originally a startup company organized to manufacture and market commemorative medallions related to the Church of Jesus Christ of Latter Day Saints. On January 5, 1999, Bekam Investments, Ltd. acquired 100% of the common shares of the Company and spun the Company off changing its name Converge Global, Inc. From August 13, 1999 until November 20, 2002, the Company focused on the development and implementation of Internet web content and e-commerce applications. In October 2009, in a 30 for 1 exchange, the Company merged with Sparrowtech, Inc.Inc. for the purpose of exploration and development of commercially viable mining properties. From 2009 to 2014, wethe Company operated primarily in the mining exploration business.
In 2015, the Company changed its business model to a marketing and distribution company for medical marijuana. In conjunction with the change, the Companymarijuana, and changed its name to Marijuana Company of America, Inc. At the time of the transition in 2015, there were no remaining assets, liabilities, or operating activities of the mining business.
On September 21, 2015, the Company formed H Smart, Inc., a in the State of Delaware corporation as a wholly owned subsidiary of the Company for the purpose of operating the hempSMART™ brand.
On February 1, 2016, the Company formed MCOA CA, Inc., a in the State of California corporation as a wholly owned subsidiary of the Company to facilitate mergers, acquisitions and the offering of investments or loans to the Company.
On May 3, 2017, the Company formed Hempsmart Limited ain the United Kingdom corporation as a wholly owned subsidiary of the Company for the purpose of future expansion into the European market.
On June 29, 2021, the Company acquired 100% of the capital stock of cDistro, Inc., a Nevada corporation, which is now a wholly owned subsidiary of the Company for the purpose of engaging in the distribution of hemp and CBD products to retail outlets in the North American market.
The condensed consolidated financial statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries, H Smart, Inc., cDistro, Hempsmart Limited, and MCOA CA, Inc. and cDistro, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of December 31, 20202021 has been derived from audited financial statements set forth in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 14, 2021 and amended on September 27, 202115, 2022 (the “Annual Report”).
Operating results for the three and nine months ended September 30, 2021March 31, 2022 are not necessarily indicative of results that may be expected for the year ending December 31, 2021. These condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020.2021.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, duringfor the ninethree months ended September 30, 2021,March 31, 2022, the Company incurred net losses from operations of $7,250,699$7,250,698835,794 and used cash in operations of $2,693,632678,108$2,838,907.. These factors among others may indicate that the Company maywill be unable to continue as a going concern for a reasonable period of time.
The Company's primary source of operating funds for the ninethree months ended September 30, 2021 wasMarch 31, 2022 has been from revenue generated from the proceeds related to the issuance of common stock, convertible and non-convertibleother debt. The Company has experienced net losses from operations since inception but expects these conditions to improve in 20212022 and beyond as it continues to develop its direct sales and marketing programs; however, no assurance can be provided that the Company will not continue to experience losses in the future.future. The Company has stockholders' deficiencies as of September 30, 2021at March 31, 2022 and requires additional financing to fund future operations.
The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding; however, therefunding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. There can be no assurance that the Company will be successful in developing profitable operations or that it will be able to obtain financing on favorable terms, if at all. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Revenue Recognition
For annual reporting periods after December 15, 2017, the Financial Accounting Standards Board (“FASB”) made effective Accounting Standards UpdateUpdates (“ASU”) 2014-09 “Revenue from Contracts with Customers,” to supersede previous revenue recognition guidance under current GAAP. Revenue is now recognized in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue Recognition (“ASC Topic 606”).Recognition. The objective of the guidance is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. The core principle is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Two options were made available for implementation of the standard: the full retrospective approach or modified retrospective approach. The guidance became effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted. The Company adopted FASB ASC Topic 606 for its reporting period as of the year ended December 31, 2017, which made its implementation of FASB ASC Topic 606 effective in the first quarter of 2018. The Company decided to implement the modified retrospective transition method to implement FASB ASC Topic 606, with no restatement of the comparative periods presented. Using this transition method, the Company applied the new standards to all new contracts initiated on or after the effective date. The Company also decided to apply this method to any incomplete contracts that it determineddetermines are subject to FASB ASC Topic 606 prospectively. For the quarter ended September 30,March 31, 2021, there were no incomplete contracts. As is more fully discussed below, the Company is of the opinion that none of its contracts for services or products contain significant financing components that require revenue adjustment under FASB ASC Topic 606.
Identification of Our Contracts with Customers
Contracts included in the Company’sits application of FASB ASC Topic 606, for the quarter ended September 30,March 31, 2021, consisted solely of sales of the Company’s hempSMART™ products as well as products frommade by its new subsidiary cDistro. With respect tosales associates and by the Company’sCompany directly through its website. Regarding its offered financial accounting, bookkeeping and/or real property management consulting services, to date no contracts have been entered into, and thus 0 reportable revenues have resulted for the fiscal years ended December 31, 2020 orand, 2019, or for the quarter ended September 30,March 31, 2021.
In accordance with FASB ASC Topic 606, Revenue Recognition, the Company is of the opinion that somenone of its hempSMART™ product sales or offered consulting service, each of which are discussed below, have a significant financing component. The Company’s opinion is based upon the transactional basis for its product sales, with revenue recognized upon customer order, payment and/or shipment.and shipment, which occurs concurrently. The Company’s evaluation of the length of time between some of the customer orders,order, payment and shipping is not a significant financing component, while other shipmentsbecause shipment occurs the same day as the order is placed and payment made by the customer. The Company’s evaluation of its consulting services is based upon recognizing revenue as the services are performed for a determinable price per hour. The Company only recognizes revenues as incurredit incurs and chargecharges billable hours. Because the Company’s hourly fees for services are fixed and determinable and are only earned and recognized as revenue upon actual performance, the Company is of the opinion that such arrangements are not an indicator of a vendor or customer based significant financing, that would materially change the amount of revenue the Company recognizes under the contract or would otherwise contain a significant financing component under FASB ASC Topic 606.
Determination of the Price in Our Sales Contracts
The transaction prices in the Company’s sales contract are the amount of consideration the Company expects to be entitled to for transferring promised products. The consideration amount is fixed and not variable. The transaction price is allocated to the identified performance obligations in the contract. These allocated amounts are recognized as revenue when or as the performance obligations are fulfilled, which is concurrently upon receipt of shipment and or/payment. There are no future options for a contract when considering and determining the transaction price. The Company excludes amounts third parties will eventually collect, such as sales tax, when determining the transaction price. Since the timing between receiving consideration and transferring goods or services for some of the products are not immediate, the Company’s sales contract have a significant financing component, i.e., recognizing revenue at the amount that reflects the invoice and/or cash payment that the customer would have made at the time the goods or services were transferred to them (cash or invoice selling price).
Allocation of the Transaction Price of Our Sales Contracts
The Company’s sales contracts are not considered multi-element arrangements which require the fulfillment of multiple performance obligations. Rather, the Company’s sales contracts include one performance obligation in each contract. As such, from the outset, the Company allocates the total consideration to each performance obligation based on the fixed and determinable standalone selling price, which the Company believes is an accurate representation of what the price is in each transaction.
Recognition of Revenue when the Performance Obligation is Satisfied
A performance obligation is satisfied when or as control of the good or service is transferred to the customer. ASC 606-10-20 defines control as “the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.” For performance obligations that are fulfilled at a point in time, revenue is recognized at the fulfillment of the performance obligation. As noted above, the Company’s performance obligation sales contracts are related to its promise to provide products to the customers upon delivery and/or receipt of payment, and upon completion, allows the Company to realize revenue under its revenue recognition policy.
With respect to the Company’s offered financial accounting, bookkeeping and/or real property management consulting services, to date no contracts have been entered into, and thus no reportable revenues have resulted for the fiscal years ended December 31, 2020 and 2019 or for the quarter ended September 30, 2021.
Identifying the Performance Obligations in Our Sales Contracts
In analyzing the Company’s sales contracts, the Company’s policy is to identify the distinct performance obligations in a sales contract arrangement. In determining the Company’s performance obligations under its sales contracts, the Company considers that the terms and conditions of sales are explicitly outlined in its sales contracts and are so distinct and identifiable within the context of each sales contract, and so are not integrated with other goods, or constitute a modification or customization of other goods in the Company’s contracts, or are highly dependent or highly integrated with other goods in the Company’s sales contracts. Thus, the Company’s performance obligations are singularly related to its promise to provide the products upon delivery and/or receipt of payment. The Company offers an assurance warranty on its products that allows a customer to return any products within 30 days if not satisfied for any reason. Assurance warranties are not identifiable performance obligations since they may be elected at the whim of the customer for any reason. However, the Company does account for returns of purchase prices, if made.
Income From Lease
On May 20, 2021, the Company purchased a new cannabis extraction machine which is to be leased to a cannabis distributor and manufacturer called Lynwood-MCOA joint venture. This joint venture is between Cannabis Global Inc. and the Company and pertains to the licensed cannabis operations of Natural Plant Extract of California Inc. in the city of Lynwood, CA. The Company has retained control of title of the machine. The Equipment was leased to Lynwood- MCOA joint venture for a monthly fee of $7,500, beginning ninety (90) days after the Effective Date of May 20, 2021, for a period of two (2) years. After this two-year period, title to all such equipment shall revert to the joint venture at the agreed upon residual value of the equipment. The Company recorded $12,581 and $0 in equipment lease revenues for the three and nine months ended September 30, 2021 and 2020, respectively pursuant to ASC 842.
Product Sales
Revenue from product sales, including delivery fees, is recognized when (1) an order is placed by the customer; (2) the price is fixed and determinable when the order is placed; (3) the customer is required to and concurrently pays for the product upon order; and, (4) the product is shipped. The evaluation of the Company’s recognition of revenue after the adoption of FASB ASC Topic 606 did not include any judgments or changes to judgments that affected the Company’s reporting of revenues, since the Company’sits product sales, both pre and post adoption of FASB ASC Topic 606, were evaluated using the same standards as noted above, reflecting revenue recognition upon order, payment and shipment, which all occurs concurrently when the order is placed and paid for by the customer, and the product is shipped. Further, given the facts that (1) the Company’s customers exercise discretion in determining the timing of when they place their product orderorder; and, (2) the price negotiated in the Company’s product sales is fixed and determinable at the time the customer places the order, and there is no delay in shipment, the Company is of the opinion that its product sales do not indicate or involve any significant customer financing that would materially change the amount of revenue recognized under the sales transaction, or would otherwise contain a significant financing component for the Company or the customer under FASB ASC Topic 606.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Significant estimates include the fair value of the Company’s stock, stock-based compensation, fair values relating to derivative liabilities, debt discounts and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Cash
The Company considers cash to consist of cash on hand and temporary investments having an original maturity of 90 days or less that are readily convertible into cash.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Occasionally, the Company’s cash in interest-bearing accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
Accounts Receivable
Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis. Thus, trade receivables do not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition.
Allowance for Doubtful Accounts
Any charges to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, allowance for doubtful accounts was $37,6323,267 and $0, respectively.
Inventories
Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-out (FIFO) basis. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. During the periods presented, there were no inventory write-downs.
Cost of Sales
Cost of sales is comprised of cost of product sold, packaging, and shipping costs.
The Company accountsmeasures the cost of services received in exchange for the stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of ASC 718-10-30. Pursuant to ASC 718-10-30-6, all transactions in which goods or services are the consideration received for the issuancean award of equity instruments are accounted for based on the fair value of the consideration received oraward. For employees and directors, the fair value of the equity instrument issued, whicheveraward is more reliably measurable.
The measurementmeasured on the grant date used to determineand for non-employees, the fair value of the equity instrument issuedaward is generally re-measured on vesting dates and interim financial reporting dates until the earlier of the date on which the performanceservice period is complete or the date on which it is probable that performance will occur.
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement based on sales to third parties or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
complete. The fair value of share options and similar instrumentsamount is estimated onthen recognized over the date of grant using a Binomial Option Model option-pricing valuation model. The ranges of assumptionsperiod during which services are required to be provided in exchange for inputs are as follows:
Generally, all forms of share-based payments, including stock options, warrants, restricted stock and stock appreciation rights are measured at their fair value on the grant date of the award, based onusually the estimated number of awards that are ultimately expected to vest.
Thevesting period. Stock-based compensation expense resulting from share-based payments is recorded by the Company in general and administrativethe same expense classifications in the statements of operations.
Stock-Based Compensation – Non Employees
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation: Improvement to Nonemployee Share-Based Payment Accounting (“Topic 718”).The ASU supersedes ASC 505-50, Equity-Based Payment to Non-Employment, and expands the scope of the Topic 718 to include stock-based payments granted to non-employees. Under the new guidance, the measurement date and performance and vesting conditions for stock-based payments to non-employees are aligned with those of employees, most notably aligning the award measurement date with the grant date of an award. The new guidance is required to be adopted using the modified retrospective transition approach. The Company adopted the new guidance effective January 1, 2019, and the adoption did not have a material impact on its financial statements and related disclosures.
The fair value of share options and similar instruments is estimated on the date of grant using a Binomial option-pricing valuation model. The ranges of assumptions for inputs areoperations, as follows:if such amounts were paid in cash.
Basic earnings per share are calculated by dividing net income (loss) by the weighted average number of shares of the Company’s common stock outstanding during the period. “DilutedDiluted earnings per share”share reflects the potential dilution that could occur if the Company’s share-based awards and convertible securities were exercised or converted into common stock. The dilutive effect of the Company’s share-based awards is computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted earnings per share calculation. The dilutive effect of the Company’s convertible preferred stock and convertible debentures is computed using the if-converted method, which assumes conversion at the beginning of the year.
Property and Equipment
Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 5 years.
Investments
Investments
The Company follows ASC subtopic 321-10, Investments-Equity Securities (“ASC 321-10”) which requires the accounting for an equity security to be measured at fair value with changes in unrealized gains and losses are included in current period operations. Where an equity security is without a readily determinable fair value, the Company may elect to estimate its fair value at cost minus impairment plus or minus changes resulting from observable price changes (See Note 6).
Derivative Financial Instruments
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.
The Company’s free-standing derivatives consisted of conversion options embedded within its issued convertible debt and warrants with anti-dilutive (reset) provisions. The Company evaluated these derivatives to assess their proper classification in the balance sheet using the applicable classification criteria enumerated under GAAP. The Company determined that certain conversion and exercise options do not contain fixed settlement provisions. The convertible notes contain a conversion feature and warrants have a reset provision such that the Company could not ensure it would have adequate authorized shares to meet all possible conversion demands.
As such, the Company was required to record the conversion feature and the reset provision which does not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at the end of each reporting period.
The Company has adopted a sequencing policy that reclassifies contracts (from equity to assets or liabilities) with the most recent inception date first. Thus, any available shares are allocated first to contracts with the most recent inception dates.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2021March 31, 2022 and December 31, 2020.2021. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash, accounts payables and short termshort-term notes because they are short term in nature.
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $183,491 42,565and $159,42869,868 as advertising costs for the ninethree months ended September 30,March 31, 2022 and 2021, respectively.
Income Taxes
Deferred income tax assets and 2020, respectively, as advertising costs.liabilities are determined based on the estimated future tax effects of net operating loss and credit carry forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of March 31, 2022, and 2021, the Company has 0t recorded any unrecognized tax benefits.
Segment Information
ASC subtopic Segment Reporting 280-10 ("(“ASC 280-10"280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company's principal operating segments, cDistrohempSMART and hempSMART.cDistro.
The following table represents the Company’s hempSMART business for the three months ended March 31, 2022 and 2021:
| Schedule of Operation statement | ||||||||
| hempSMART | ||||||||
| STATEMENT OF OPERATIONS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 | ||||||||
| For the Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 11,914 | $ | 34,930 | ||||
| Cost of Sales | 6,097 | 25,180 | ||||||
| Gross profit | 5,817 | 9,750 | ||||||
| Operating Expenses | ||||||||
| Depreciation expense | 5,289 | 1,391 | ||||||
| Payroll and related | 60,274 | 53,947 | ||||||
| Selling and Marketing expenses | 77,905 | 107,549 | ||||||
| General and administrative expenses | 114,072 | 55,801 | ||||||
| Total Expenses | 257,540 | 218,688 | ||||||
| Net Loss from Operations | $ | (251,723 | ) | $ | (208,938 | ) | ||
13 |
The following table represents the Company's hempSMART' business segment as of September 30, 2021 and 2020:
hempSMART
STATEMENT OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
| Segment Information | ||||||||||||||||
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Revenues | $ | 22,351 | $ | 53,195 | $ | 73,760 | $ | 217,972 | ||||||||
| Cost of Goods Sold | 19,435 | 37,170 | 47,769 | 110,563 | ||||||||||||
| Gross Profit | 2,916 | 16,025 | 25,991 | 107,409 | ||||||||||||
| Expense | ||||||||||||||||
| Depreciation Expense | 3,100 | 1,374 | 5,881 | 4,702 | ||||||||||||
| Selling and Marketing | 105,757 | 117,978 | 363,796 | 294,231 | ||||||||||||
| Payroll and Related expenses | 56,988 | 26,394 | 165,800 | 77,256 | ||||||||||||
| Stock Based Compensation | 104,685 | — | 104,685 | 29,325 | ||||||||||||
| General and Admin Expenses | 87,517 | 55,672 | 284,182 | 169,707 | ||||||||||||
| Total Expense | 358,047 | 201,418 | 924,344 | 575,221 | ||||||||||||
| Net Loss from Operations | $ | (355,131 | ) | $ | (185,393 | ) | $ | (898,353 | ) | $ | (467,812 | ) | ||||
The following table represents the Company's cDistro business segment as of September 30,for the three months ended March 31, 2022 and 2021 (business acquired on June 29, 2021):
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Revenues | $ | 407,246 | $ | — | $ | 407,589 | $ | — | ||||||||
| Cost of Goods Sold | 359,056 | — | 359,056 | — | ||||||||||||
| Gross Profit | 48,190 | — | 48,533 | — | ||||||||||||
| Expense | ||||||||||||||||
| Depreciation Expense | 597 | — | 597 | — | ||||||||||||
| Selling and Marketing | 3,696 | — | 3,696 | — | ||||||||||||
| Payroll and Related expenses | 45,000 | — | 45,000 | — | ||||||||||||
| Stock Based Compensation | — | — | — | — | ||||||||||||
| General and Admin Expenses | 94,650 | — | 94,938 | — | ||||||||||||
| Total Expense | 143,943 | — | 144,231 | — | ||||||||||||
| Net Loss from Operations | $ | (95,753 | ) | $ | — | $ | (95,698 | ) | $ | — | ||||||
Income Taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of September 30, 2021 and 2020, the Company has not0 recorded any unrecognized tax benefits.
| cDistro | ||||||||
| STATEMENT OF OPERATIONS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 | ||||||||
| For the Three Months ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Revenues | $ | 526,908 | $ | — | ||||
| Cost of Goods Sold | 503,860 | — | ||||||
| Gross Profit | 23,048 | — | ||||||
| Expense | ||||||||
| Depreciation and amortization expense | 45,762 | — | ||||||
| Selling and Marketing | 35 | — | ||||||
| Payroll and Related expenses | 54,000 | — | ||||||
| General and Admin Expenses | 50,824 | — | ||||||
| Total Expense | 150,621 | — | ||||||
| Net Loss from Operations | $ | (127,573 | ) | $ | — | |||
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative which aims to reduce unnecessary complexity in GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.
Recently Issued Accounting Pronouncements Adopted
Accounting for Income Taxes In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. ASU 2019-12 became effective for the Company in the first quarter of fiscal year 2021. The adoption of this standard did not have any impact on the Company’s condensed consolidated financial statements.
Equity Securities, Equity-method Investments and Certain Derivatives In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting and forward contracts and purchase options on certain types of securities. ASU 2020-01 became effective for the Company in the first quarter of 2021. The adoption of this standard did not have any impact on the Company’s condensed consolidated financial statements.
NOTE 4 – OPERATING LEASE
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a lease liability, on a discounted basis, and a right-of-use asset for substantially all leases, as well as additional disclosures regarding leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), which provides an optional transition method of applying the new lease standard. ASU 2018-11, Topic 842can be applied using either a modified retrospective approach at the beginning of the earliest period presented, or as permitted by ASU 2018-11, at the beginning of the period in which it is adopted.
The CompanyWe adopted this standard using a modified retrospective approach on January 1, 2019. The modified retrospective approach includes a number of optional practical expedients relating to the identification and classification of leases that commenced before the adoption date; initial direct costs for leases that commenced before the adoption date; and, the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset.
The Company elected the package of practical expedients permitted under ASU 2018-11, Leases,ASC 842 allowing it to account for its existing operating lease that commenced before the adoption date as an operating lease under the new guidance without reassessing (i) whether the contract contains a lease; (ii) the classification of the lease; or, (iii) the accounting for indirect costs as defined in ASC 842.
On May 31, 2021, the Company’s operating lease for its office space located at 1340 West Valley Parkway, Suite 205, Escondido, CA 92029 expired and, at that time, the Company fully amortized its right-of-use asset for such lease. On June 1, 2021, the Company entered into an office accommodation agreement whereby it may access a shared office space located at 633 West Fifth Street, Suite 2826, Los Angeles, CA 90071 on a month-to-month basis over a one-year term for a fee of $2,349 per month. In considering its qualitative disclosure obligations under ASC 842-20-50-3, the Company examined its office accommodation agreementone lease for office space that has a fixed monthly feerent with no variable lease payments and no options to extend. The lease is for an office accommodation agreement createsspace with no tenancy, leasehold, or other real property interest, other than a shared right-of-use.right of use assets. The office accommodation agreementlease does not provide for terms and conditions granting residual value guarantees by the Company, or any restrictions or covenants imposed by the lease for dividends or incurring additional financial obligations by the Company.
The Company determined underalso elected a short-term lease exception policy and an accounting policy to not separate non-lease components from lease components for its facility lease.
Consistent with ASC 2018-11, Leases (Topic 842)842-20-50-4, for the Company's quarterly financial statements for the period ended March 31, 2022 , duethe Company calculated its total lease cost based solely on its monthly rent obligation. The Company had no cash flows arising from its lease, no finance lease cost, short term lease cost, or variable lease costs. The Company’s office lease does not produce any sublease income or any net gain or loss recognized from sale and leaseback transactions. As a result, the Company did not need to segregate amounts between finance and operating leases for cash paid for amounts included in the short-term naturemeasurement of lease liabilities, segregated between operating and financing cash flows; supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets; weighted-average calculations for the office accommodation agreement, that such agreement metremaining lease term; or the criteria of ASC 842-20-25-2 and as such it is not necessary to capitalize the office accommodation agreement and fees will be recognized on a monthly straight-line basis. weighted-average discount rate.
The adoption of this guidance resulted in no significant impact to the Company’s results of operations or cash flows.
COVID-19 – Going Concern
In March 2020, the World Health Organization declared the global emergence of the COVID-19 pandemic. The impact of COVID-19 on the Company’s business is currently unknown. The Company will continue to monitor guidance and orders issued by federal, state, and local authorities with respect to COVID-19. As a result, the Company may take actions that alter its business operations as may be required by such guidance and orders or take other steps that the Company determines are in the best interest of its employees, customers, partners, suppliers and stockholders.
Any such alterations or modifications could cause substantial interruption to the Company’s business and could have a material adverse effect on the Company’s business, operating results, financial condition, and the trading price of the Company’s common stock, and could include temporary closures of one or more of the Company’s facilities; temporary or long-term labor shortages; temporary or long-term adverse impacts on the Company’s supply chain and distribution channels; and the potential of increased network vulnerability and risk of data loss resulting from increased use of remote access and removal of data from the Company’s facilities. In addition, COVID-19 could negatively impact capital expenditures and overall economic activity in the impacted regions or depending on the severity, globally, which could impact the demand for the Company’s products and services.
It is unknown whether and how the Company may be impacted if the COVID-19 pandemic persists for an extended period of time or if there are increases in its breadth or in its severity, including as a result of the waiver of regulatory requirements or the implementation of emergency regulations to which the Company is subject. The COVID-19 pandemic poses a risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period.
The Company may incur expenses or delays relating to such events outside of its control, which could have a material adverse impact on its business, operating results, financial condition and the trading price of its common stock. The COVID-19 pandemic made our hempSMART products, which are considered a supplement, not as attractive to clients struggling to survive financially with less disposable income. Additionally, our staff were unable to work from our office. This created a less efficient environment for the sales team and our ability to fulfill orders.
NOTE 4 – OPERATING LEASE
Effective June 1, 2021, the Registrant’s address for its principal executive offices changed to 633 W 5th Street, Suite 2826 Los Angeles, CA 90071. Concurrent with the change of address, the Registrant entered into an accommodation for access to its offices for one year, beginning on June 1, 2021, and terminating on May 31, 2022. As consideration for the accommodation, the Registrant agreed to pay a monthly fee of $2,349. The Registrant’s former office lease for its 1340 West Valley Parkway, Ste. 205, Escondido, CA terminated May 31, 2021.
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NOTE 5 – PROPERTY MACHINERY AND EQUIPMENT
Property and equipment as of September 30, 2021March 31, 2022 and December 31, 20202021 is summarized as follows:
| Schedule of Property and Equipment | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
| Computer equipment | $ | 25,194 | $ | 20,143 | ||||
| Furniture and fixtures | 13,278 | 5,140 | ||||||
| Machinery | 104,102 | — | ||||||
| Subtotal | 142,574 | 25,283 | ||||||
| Less accumulated depreciation | (20,107 | ) | (18,741 | ) | ||||
| Property, machinery and equipment, net | $ | 122,467 | $ | 6,542 | ||||
| Schedule of Property and Equipment | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
| Computer equipment | $ | 31,855 | $ | 30,155 | ||||
| Machinery | 104,102 | 104,102 | ||||||
| Furniture and fixtures | 13,278 | 13,278 | ||||||
| Subtotal | 149,235 | 147,535 | ||||||
| Less accumulated depreciation | (31,998 | ) | (25,947 | ) | ||||
| Property and equipment, net | $ | 117,237 | $ | 121,588 | ||||
Property machinery and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives of 3 years. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. On May 20, 2021, the Company purchased a new cannabis extraction machine which is to be leased to a cannabis distributor and manufacturer called Lynwood-MCOA joint venture. This joint venture is between Cannabis Global Inc. and the Company and pertains to the licensed cannabis operations of Natural Plant Extract of California Inc. in the city of Lynwood, CA. The Company recorded
Depreciation expense was $12,5816,051 and $01,391 in equipment lease revenues for the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, respectively.
Depreciation expense was $5,7536,350 and $4,702 for the nine months ended September 30, 2021 and 2020, respectively.
NOTE 6 – INVESTMENTS
Bougainville Ventures, Inc. Joint Venture
On March 16, 2017, the Companywe entered into a joint venture agreement with Bougainville Ventures, Inc. (“Bougainville”), a Canadian corporation,corporation. The purpose of the joint venture was for the Company and Bougainville to (i) jointly engage in the development and promotion of products in the legalized cannabis industry in Washington State; (ii) utilize Bougainville'sBougainville’s high quality cannabis grow operations in the State of Washington, where it claimed to have an ownership interest in real property for use within the legalized cannabis industry; (iii) leverage Bougainville’s agreement with a I-502I502 Tier 3 license holder to grow cannabis on the site; provide technical and management services and resources including, but not limited to,to: sales and marketing, agricultural procedures, operations, security and monitoring, processing and delivery, branding, capital resources and financial management; and, (iv) optimize collaborative business opportunities. The Company and Bougainville agreed to operate through a Washington State Limited Liability Company, and BV-MCOA Management, LLC a limited liability companywas organized in the State of Washington on May 17,16, 2017.
PursuantAs our contribution to the joint venture, agreement, the Company committed to raise not less than $1,000,000 to fund joint venture operations, based upon a funding schedule. The Company also committed to providing branding and systems for the representation of cannabis related products and derivatives comprised of management, marketing and various proprietary methodologies directly tailored to the cannabis industry.
The joint ventureCompany and Bougainville’s agreement provided that funding provided by the Company would contribute towards the joint venture’s ultimate purchase of the land consisting of a one-acre parcel located in Okanogan County, Washington, for joint venture operations.
As disclosed in the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2017, the Company did not comply with the funding schedule for the joint venture. On November 6, 2017, the Company and Bougainville amended the joint venture agreement to reduce the amount of the Company'sCompany’s commitment from $1,000,000 to $800,000, and also required the Company to issue Bougainville million shares of the Company'sCompany’s restricted common stock. The Company completed its payments pursuant to the amended agreement on November 7, 2017, and on November 9, 2017, issued to Bougainville million shares of restricted common stock. The amended agreement provided that Bougainville would deed the real property to the joint venture within thirty days of its receipt of payment.
Thereafter, the Company determined that Bougainville had no ownership interest in the property in Washington State, but rather was a party to a purchase agreement for real property that was in breach of contract for non-payment. Bougainville also did not possess an agreement with a Tier 3 I-502I502 license holder to grow marijuanaMarijuana on the property. Nonetheless, as a result of funding arranged for by the Company, Bougainville and an unrelated third party, Green Ventures Capital Corp., purchased the land, but did not deed the real property to the joint venture. Bougainville failed to pay delinquent property taxes to Okanogan County and as a result, as further discussed below, to date, the property has not been deeded to the joint venture.
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To clarify the respective contributions and roles of the parties, the Company offered to enter into good faith negotiations to revise and restate the joint venture agreement with Bougainville. The Company diligently attempted to communicate with Bougainville to enter into an amendedaccomplish a revised and restated joint venture agreement, and efforts towards satisfying the conditions to complete the subdivision of the land by the Okanogan County Assessor. However, Bougainville failed to cooperate or communicate with the Company in good faith, and failed to pay the delinquent taxes on the real property that would allow for sub-division and the deeding of the real property to the joint venture.
On August 10, 2018, the Company advised its independent auditor that Bougainville did not cooperate or communicate with the Company regarding its requests for information concerning the audit of Bougainville’s receipt and expenditures of $800,000$800,000 contributed by the Company toin the joint venture.venture agreement. Bougainville had a material obligation to do so under the joint venture agreement. The Company believes that some of the funds it paid to Bougainville were misappropriated and that there was self-dealing with respect to those funds. Additionally, the Company believes that Bougainville misrepresented material facts in the joint venture agreement, as amended, including, but not limited to, Bougainville’s representations that: (i) it had an ownership interest in real property that was to be deeded to the joint venture; (ii) it had an agreement with a Tier 3 I-502# I502 cannabis license holder to grow cannabis on the real property; and, (iii) that clear title to the real property associated with the Tier 3 I-502# I502 license would be deeded to the joint venture thirty days after the Company made its final funding contribution. As a result, on September 20, 2018, the Company filed a lawsuitsuit against Bougainville Ventures, Inc., BV-MCOA Management, LLC, Andy Jagpal, Richard Cindric, et al. in Okanogan County Washington Superior Court, case number 18-2-0045324.18-2- 0045324. The CompanyCompany’s complaint seeks legal and equitable relief for breach of contract, fraud, breach of fiduciary duty, conversion, recession of the joint venture agreement, an accounting, quiet title to real property in the name of the Company, for the appointment of a receiver, the return to treasury of 15 million shares of restricted common stock issued by the Company to Bougainville, and, for treble damages pursuant to the Consumer Protection Act.Act in Washington State. The Companyregistrant has filed a lis pendens on the real property. The case is currently in litigation.
In connection with the joint venture agreement, the Company recorded a cash investment of $1,188,500 to the joint ventureJoint Venture during 2017. This was comprised of a 49.5% ownership of BV-MCOA Management LLC and was accounted for using the equity method of accounting. The Company recorded an annual impairment in 2017 of $792,500, reflecting the Company’s percentage of ownership of the net book value of the investment. During 2018, the Company recorded equity losses of $37,673 and $11,043 for the quarters ended March 31, 2018first and June 30, 2018,second quarters respectively and recorded an annual impairment of $285,986 for the year ended December 31, 2018, at which time the Company determined the investment to be fully impaired due to Bougainville’s breach of contract and resulting litigation, as discussed above.
Natural Plant Extract of California
Natural Plant Extract of California & Subsidiaries Joint Venture; On April 15, 2019, the Company entered into a joint venture agreement with Natural Plant ExtractExtracts of California, Inc. and itssubsidiaries (collectively, “NPE”),subsidiaries. The purpose of the joint venture was to utilize Natural Plant Extracts’ California and City cannabis licenses to jointly operate a business named “Viva Buds” to operate a licensed psychoactive cannabis distribution service in California. California legalized THC psychoactive cannabisIn exchange for medicinalacquiring 20% of Natural Plant Extracts’ common stock, the Company agree to pay two million dollars and recreational use on January 1, 2018. Onissue Natural Plant Extract one million dollars’ worth of the Company’s restricted common stock. As of February 3, 2020, the parties terminatedCompany was in arrears in its payment obligations under the joint venture agreement, and the parties entered into a settlement and release agreement (the “Settlement Agreement”). In exchange for a complete release of all claims terminating the Company and NPE (1)joint venture. The parties agreed thatto reduce the Company would reduce its interestCompany’s equity ownership in NPENatural Plant Extracts from 20% to 5%; (2) the. The Company also agreed to pay NPE a total ofNatural Plant Extracts $85,000 as follows: $35,000 concurrent with the execution of the Settlement Agreement, and $25,000 no later than the fifth calendar day for each of the two months following execution of Settlement Agreement; and, (3) to retire the balance of the Company’s original valuation obligation from the material definitive agreement, representing a shortfall of $56,085,.15 paid in a convertible promissory note issued with terms allowing NPENatural Plant Extracts to convert the note into shares of the Company’s common stock of at a 50%50% discount to the closing price of the Company’sMCOA’s common stock as of the maturity date. The note was satisfied in full during the year ended December 31, 2020.
As of the date of this filing, the Company does not owe any amount and is in compliance withsatisfied its payment obligations under the terms of the Settlement Agreementsettlement agreement.
. On February 3, 2020, the Company issued NPE a convertible promissory note in the principal amount of $56,085. Additionally, as a result of the Settlement Agreement, the Company became liable to pay NPE its 5% portionequal to $25,902 of the regulatory charges to the City of Lynwood and the State of California to transfer the cannabis licenses back to NPE.Cannabis Global Share Exchange
Of the total amount due and payable by the Company with regards to the NPE joint venture agreement as of the date of this filing, the Company owes $75,000 and is in breach of the Settlement and Release of All Claims Agreement with NPE. On February 3, 2020, the Company issued a convertible promissory note in the principal amount of $56,085.15 to NPE. Additionally, as a result of the Company’s settlement agreement with NPE, the Company became liable to pay NPE its 5% portion equal to $25,902 of the regulatory charges to the City of Lynwood and the State of California to transfer the cannabis licenses back to NPE. To date, the Company has not paid this amount and it is due and owing.
Brazilian Joint Ventures
On September 30, 2020, the Company entered into two joint venture agreements (the “Joint Venture Agreements”) with Marco Guerrero, a director of the Company (“Guerrero”) and related party, to form joint ventures in Brazil and in Uruguay to produce, manufacture, market and sell the Company’s hempSMART™ products in Latin America and to develop and sell hempSMART™ products globally. The Joint Venture Agreements contain equal terms for the formation of the joint venture entities in Uruguay and Brazil. The Brazilian joint venture, HempSmart Produtos Naturais Ltda. (“HempSmart Brazil”), will be headquartered in São Paulo, Brazil. The Uruguayan joint venture, Hempsmart Uruguay S.A.S. (“HempSmart Uruguay”), will be headquartered in Montevideo, Uruguay.
Pursuant to the Joint Venture Agreements, the Company acquired a 70% equity interest in both HempSmart Brazil and HempSmart Uruguay, with a minority 30% equity interest in both HempSmart Brazil and HempSmart Uruguay being held by newly formed entities controlled by Guerrero. Pursuant to the Joint Venture Agreements, the Company agreed to provide capital in the amount of $50,000 to both HempSmart Brazil and HempSmart Uruguay, for a total capital outlay obligation of $100,000. It is expected that the proceeds of the initial capital contribution will be used for contracting with third-party manufacturing facilities in Brazil and Uruguay and related infrastructure and employment of key personnel. As of September 30, 2021, the Company has not initiated the capital contribution; however, it intends to make the payment during the first quarter of 2022.
The boards of directors of HempSmart Brazil and HempSmart Uruguay will consist of three directors elected by the joint venture partners. Pursuant to the Joint Venture Agreements, the Company agreed to license, on a royalty-free basis, certain of its intellectual property regarding its existing products to HempSmart Brazil and HempSmart Uruguay to enable the joint ventures to manufacture and sell its products in Brazil, Uruguay, and for export to other Latin American countries, the United States, and globally in accordance with the terms of the Joint Venture Agreements.
In addition, as majority partner, in the event a joint venture is frustrated in its intent or purpose, the Company may trigger a compulsory buy-sell procedure pursuant to which the Company could pursue a sale of all or substantially all of the joint venture. Subject to certain exceptions, the joint venture partners may not transfer their interests in HempSmart Brazil and HempSmart Uruguay.
CannabisGlobal, Inc.
Joint Venture
On May 12, 2021, the Company entered into a joint venture agreementShare Exchange with Cannabis Global, Inc. (“Cannabis Global”) pursuant to which the Company will invest up to $250,000 into a newly formed entity (“MCOA Lynwood”) and Cannabis Global, through Natural Plant Extracts of California, Inc. (“Natural Plant”), an entity in which Cannabis Global owns a majority interest, will operate a regulated and licensed laboratory to manufacture various cannabis products in the State of California. As of September 30, 2021, the Company has invested $115,000.
Share Exchange
On September 30, 2020, the Company entered into a securities exchange agreement with Cannabis Global, pursuant to whichInc., a Nevada corporation. By virtue of the agreement, the Company issued shares of its unregistered common stock to Cannabis Global in exchange for 7,222,222 shares of Cannabis Global unregistered common stock, subject to true-up provisions. In addition, thestock. The Company and Cannabis Global also entered into a lock-up leak-outlock up leak out agreement which contains certain restrictions with respect to theprevents either party from sales of such securities. During the three months ended September 30, 2021,exchanged shares for a period of 12 months. Thereafter the Company issuedparties may sell not more than the quantity of shares equaling an aggregate maximum sale value of $650,000,00020,000 shares of stock to Cannabis Global pursuant to the true-up provision.per week, or $80,000 per month until all Shares and Exchange Shares are sold.
Eco Innovation Group Inc. – Share Exchange
On February 26, 2021, the Companywe entered into a Share Exchange Agreement with Eco Innovation Group, Inc., a Nevada corporation quoted on OTC Markets Pink (“ECOX”) dated February 26, 2021, to acquire the number of shares of ECOX’s common stock, par value $, equal in value to $650,000 based on the per-share price of $, in exchange for the number of shares of CompanyMCOA common stock equal in value to $650,000 based on the closing price for the trading day immediately preceding the effective date (the “Share Exchange Agreement”). For both parties, the Share Exchange Agreement contains a “true-up” provision requiring the issuance of additional common stock in the event that a decline in the market value of either parties’party’s common stock should cause the aggregate value of the stock acquired pursuant to the Share Exchange Agreement to fall below $650,000. As of September 30, 2021, the Company owed ECOX an additional 64,621,893 shares of common stock with an estimated value of $754,961 related to the ECOX Share Exchange Agreement. The investment balance is $650,000, with a liability of $754,961 included in subscriptions payable related to the value of the additional shares to be issued. The Company recognized a loss of $394,194 related to the shares to be issued.
Complementary to the Share Exchange Agreement, the Company and ECOX entered into a Lock-Up Agreement dated February 26, 2021 (the “Lock-Up Agreement”), providing that the shares of common stock acquired pursuant to the Share Exchange Agreement shall be subject to a lock-up period preventing its sale for a period of 12 months following issuance and limiting the subsequent sale to aggregate maximum sale value of $20,000 per week, or $80,000 per month. On October 1, 2021, the Companywe entered into a First Amendment to Lock-Up Agreement between the Company and ECOX,Eco Innovation Group, Inc., dated and effective October 1, 2021 (the “Amended Lock-Up Agreement”), which amends thethat certain Lock-Up Agreement entered into between the Company and Eco Innovation Group, Inc. on February 26, 2021 (the “Original Lock-Up Agreement”). The Amended Lock-Up Agreement amends the Original Lock-Up Agreement in one respect, by amending the initial lock-up period from 12 months following its effective date to 6 months following its effective date. All other terms and conditions of the Original Lock-Up Agreement remain unaffected.
For a period of two years following the Effective Date, at the closing of each fiscal quarter, should the per-share closing price of the common shares of the same class as the Shares or the Exchange Shares,as quoted by the OTC Markets for the last day of the relevant fiscal quarter, decrease below original issuance value with the effect that the aggregate value of the Shares or the Exchange Shares at the fiscal quarter close would be lower than $650,000, then either the Company,Joint Ventures in the case of the Shares, or ECOX, in the case of the Exchange Shares, shall issue the other party the number of shares of common stock necessary to cause the aggregate value of the Shares or the Exchange Shares, as applicable, be $650,000 as of the end of the relevant fiscal quarter. The parties shall irrevocably instruct their respective transfer agents to reserveBrazil and maintain authorized and unissued common stock in a reserve account designated for the purpose of issuing such shares pursuant to this share exchange adjustment provision. Such share reserve accounts shall be maintained with a number of authorized and unissued common stock not less than three times the number of Shares or Exchange Shares, as the case may be, that are issued pursuant to the Share Exchange Closing.Uruguay – Development Stage
On February 24,October 1, 2020, we entered into two Joint Venture Agreements with Marco Guerrero, a director of the Company, dated September 30, 2020, to form joint venture operations in Brazil and in Uruguay to produce, manufacture, market and sell the Company’s hempSMART™ products in Latin America, and will also work to develop and sell hempSMART™ products globally. The Joint Venture Agreements contain equal terms for the formation of joint venture entities in Uruguay and Brazil. The Brazilian joint venture will be headquartered in São Paulo, Brazil, and will be named HempSmart Produtos Naturais Ltda. (“HempSmart Brazil”). The Uruguayan joint venture will be headquartered in Montevideo, Uruguay and will be named Hempsmart Uruguay S.A.S. (“HempSmart Uruguay”). Both are in the development stage. Under the Joint Venture Agreements, the Company will acquire a 70% equity interest in both HempSmart Brazil and HempSmart Uruguay. A minority 30% equity interest in both HempSmart Brazil and HempSmart Uruguay will be held by newly formed entities controlled by Mr. Guerrero, our director and a successful Brazilian entrepreneur. The Company will provide capital in the amount of $50,000 to both HempSmart Brazil and HempSmart Uruguay under the Joint Venture Agreements, for a total capital obligation of $100,000. As of December 31, 2020, this amount has not been disbursed. It is expected that the proceeds of the initial capital contribution will be used for contracting with third-party manufacturing facilities in Brazil and Uruguay, and related infrastructure and employment of key personnel. The boards of directors of HempSmart Brazil and HempSmart Uruguay will consist of three directors, elected by the joint venture partners. As part of the Joint Venture Agreements, the Company will license, on a royalty-free basis, certain of its intellectual property regarding the Company’s existing products to HempSmart Brazil and HempSmart Uruguay to enable the joint ventures to manufacture and sell the Company’s products in Brazil, Uruguay, and for export to other Latin American countries, the United States, and globally in accordance with the terms of the Joint Venture Agreements. The Joint Venture Agreements provide the partners with a right of first offer. Under this right, each partner may trigger an “interest sale” right of first offer process at any time pursuant to which the other partners may either acquire the triggering partner’s interest in the joint ventures, or permit the triggering partner to sell its interest to a third party. In addition, the Company, as majority partner, may trigger a compulsory buy-sell procedure in the event a joint venture is frustrated in its intent or purpose, pursuant to which the Company could pursue a sale of all or substantially all of the joint venture. Subject to certain exceptions, the joint venture partners may not transfer their interests in HempSmart Brazil and HempSmart Uruguay. The Joint Venture Agreements contain customary terms, conditions, representations, warranties and covenants of the parties for like transactions.
Acquisition of cDistro, Inc.
On June 29, 2021, we acquired 100% of the capital stock of cDistro, Inc., a Florida-based hemp and CBD product distribution business incorporated in the State of Nevada (“cDistro”) by a statutory merger and share exchange. After the acquisition, cDistro’s founding partner and Chief Executive Officer, Ronald Russo, remains its Chief Executive Officer, and our Chief Financial Officer Jesus Quintero serves as cDistro’s Chief Financial Officer.
Asset Purchase Agreement with VBF Brands, Inc.
On October 6, 2021, the closing priceCompany, through its wholly owned subsidiary Salinas Diversified Ventures, Inc., a California corporation, entered into an Asset Purchase Agreement, Management Services Agreement, Cooperation Agreement and Employment Agreement with VBF Brands, Inc., a California corporation (“VBF”), a wholly owned subsidiary of Sunset Island Group, Inc., a Colorado corporation (“SIGO”). VBF and SIGO agreed to transfer to the Company all of VBF’s outstanding stock to the Company and appointed our CEO and CFO Jesus Quintero as President of VBF.
VBF owns various fixed assets including machinery and equipment, a lease for a 10,000 square foot facility located at 20420 Spence Road, Salinas, California, 93908, leasehold improvements, good-will, inventory, tradenames including “VBF Brands,” trade secrets, intellectual property, and other tangible and intangible properties, including licenses issued by the City of Salinas, County of Monterey, and the State of California to operate a licensed cannabis nursery, cultivation facility, and operations for the manufacturing and distribution of cannabis and cannabis products.
VBF and SIGO agreed to sell and transfer to the Company all of VBF’s outstanding stock, and, by virtue of the Management Services Agreement, appoint Mr. Jesus Quintero as President of VBF, vesting management and control of VBF’s licensed cannabis operations in the Company. Concurrently, VBF and Livacich entered into a Cooperation Agreement, whereby VBF and Livacich agreed to cooperate to facilitate the transfer of ownership of VBF, which includes licenses issued by the City of Salinas, County of Monterey, and the State of California, to operate a cannabis nursery, cultivation facility and manufacturing and distribution operations to the Company. The Company also agreed to retain Livacich as Chief Executive Officer for a term of two years and agreed to compensate her with a salary including a signing cash bonus of $250,000, and a $250,000 performance cash bonus payable after six months after the Effective Date. The bonus is conditioned upon Livacich meeting an agreed to “Net Revenue” target of one million dollars ($1,000,000) from VBF’s operations during the six-month period after closing of the Asset Purchase Agreement, and her compliance with the terms and conditions of this Asset Purchase Agreement, the Management Services Agreement and the Cooperation Agreement.
As consideration for the transaction, the Company agreed to assume two secured convertible promissory notes issued by SIGO to St. George Investments, LLC, a Utah limited liability company (“St. George”) (the “SIGO Notes”). The first note was issued December 8, 2017, in the original face amount of $170,000.00, and the second was issued February 13, 2018, in the original face amount of $4,245,000.00. SIGO also issued warrants to St. George to purchase common shares in SIGO, and fifty (50) shares of SIGO’s preferred stock. St. George agreed to cancel the warrants and preferred shares upon the Company’s common stock was $,assumption of the SIGO Notes.
Under the Asset Purchase Agreement, the closing is conditioned upon certain conditions precedent, specifically (i) VBF and SIGO’s full corporate authorization, consent and execution of this Agreement; (ii) VBF’s sale to MCOA of 100% of the issued and outstanding shares of VBF; (iii) full corporate authorization, consent compliance with and execution of the Management Services Agreement and Cooperation Agreement; (iv) SIGO’s disclosure of the Agreement on Form 8-K with the Securities and Exchange Commission; (v) full cooperation in MCOA’s financial auditing of VBF in accordance with ASC 805, including providing unrestricted access to all VBF corporate and financial records and providing all necessary cooperation with VBF financial personnel; (vi) full cooperation in aiding and assisting Buyer with its change of ownership applications with the relevant licensing authorities; (vii) the warranty of truthful representations and execution of and compliance with the terms and conditions of the Executive Employment Agreement, Management Services Agreement and the Cooperation Agreement.
As of the date of this filing, the conditions precedent to the closing of the Asset Purchase Agreement remain in the process of implementation, so that the number of shares of Company common stock issuable to ECOX under the Share ExchangeAsset Purchase Agreement was . As a result of the transactionsclosing has not yet occurred pursuant to its terms. Legal counsel for MCOA is currently in the Share Exchange Agreement,process of working with VBF, Salinas Diversified Ventures, and the Company had sharesrelevant state and local governments to effect the change of common stock outstanding, withcontrol and license transfers necessary to close the shares issued to ECOX pursuant to the Share Exchange Agreement representing 1.00% of the Company’s outstanding shares.Asset Purchase Agreement.
For the quarter ended September 30, 2021, the Company recorded a loss on equity investment and corresponding increase in subscriptions payable of $735,178 to address the decline in the Company's stock price from the original issuance price of $0.0155.
MARIJUANA COMPANY OF AMERICA, INC.
INVESTMENT ROLL-FORWARD
AS OF MARCH 31, 2022
| Schedule of Investment Roll Forward | ||||||||||||||||||||||||||||||||||||||||||||
| INVESTMENTS | ||||||||||||||||||||||||||||||||||||||||||||
TOTAL INVESTMENTS | Consolidated Eliminations | Cannabis Global Inc. | ECOX | C'Distro | Hempsmart Brazil | Lynwood JV | Natural Plant Extract | Salinas Ventures Holding | VBF BRANDS | Vivabuds | ||||||||||||||||||||||||||||||||||
| Investment, Beginning balance | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||
| Investments made during quarter ended 03-31-19 | 0 | |||||||||||||||||||||||||||||||||||||||||||
| Quarter 03-31-19 equity method Loss | 0 | |||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains on trading securities - quarter ended 03-31-19 | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Balance @03-31-19 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
| Investments made during quarter ended 06-30-19 | $ | 3,073,588 | - | - | - | - | - | - | $ | 3,000,000 | - | - | $ | 73,588 | ||||||||||||||||||||||||||||||
| Quarter 06-30-19 equity method Income (Loss) | $ | (29,414 | ) | $ | (6,291 | ) | $ | (23,123 | ) | |||||||||||||||||||||||||||||||||||
| Unrealized gains on trading securities - quarter ended 06-30-19 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||
| Balance @06-30-19 | $ | 3,044,174 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,993,709 | $ | 0 | $ | 0 | $ | 50,465 | ||||||||||||||||||||||
TOTAL INVESTMENTS | Consolidated Eliminations | Cannabis Global Inc. | ECOX | C'Distro | Hempsmart Brazil | Lynwood JV | Natural Plant Extract | Salinas Ventures Holding | VBF BRANDS | Vivabuds | ||||||||||||||||||||||||||||||||||
| Investments made during quarter ended 09-30-19 | $ | 186,263 | $ | 186,263 | ||||||||||||||||||||||||||||||||||||||||
| Quarter 09-30-19 equity method Income (Loss) | $ | (139,926 | ) | $ | (94,987 | ) | $ | (44,939 | ) | |||||||||||||||||||||||||||||||||||
| Sale of trading securities during quarter ended 09-30-19 | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Unrealized gains on trading securities - quarter ended 09-30-19 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||
| Balance @09-30-19 | $ | 3,090,511 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,898,722 | $ | 0 | $ | 0 | $ | 191,789 | ||||||||||||||||||||||
| Investments made during quarter ended 12-31-19 | $ | 129,812 | $ | 129,812 | ||||||||||||||||||||||||||||||||||||||||
| Quarter 12-31-19 equity method Income (Loss) | $ | (102,944 | ) | $ | (23,865 | ) | $ | (79,079 | ) | |||||||||||||||||||||||||||||||||||
| Reversal of Equity method Loss for 2019 | $ | 272,285 | $ | 125,143 | $ | 147,142 | ||||||||||||||||||||||||||||||||||||||
| Impairment of investment in 2019 | $ | (2,306,085 | ) | $ | (2,306,085 | ) | $ | 0 | ||||||||||||||||||||||||||||||||||||
| Loss on disposition of investment | $ | (389,664 | ) | $ | (389,664 | ) | ||||||||||||||||||||||||||||||||||||||
| Sale of trading securities during quarter ended 12-31-19 | $ | 0 | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Unrealized gains on trading securities - quarter ended 12-31-19 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||
| Balance @12-31-19 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
TOTAL INVESTMENTS | Consolidated Eliminations | Cannabis Global Inc. | ECOX | C'Distro | Hempsmart Brazil | Lynwood JV | Natural Plant Extract | Salinas Ventures Holding | VBF BRANDS | Vivabuds | ||||||||||||||||||||||||||||||||||
| Equity Loss for Quarter ended 03-31-20 | 0 | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Recognize Joint venture liabilities per JV agreement @03-31-20 | 0 | |||||||||||||||||||||||||||||||||||||||||||
| Impairment of Equity Loss for Quarter ended 03-31-20 | 0 | |||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains on trading securities - quarter ended 03-31-19 | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Balance @03-31-20 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
| Equity Loss for Quarter ended 06-30-20 | 0 | |||||||||||||||||||||||||||||||||||||||||||
| Impairment of Equity Loss for Quarter ended 06-30-20 | 0 | |||||||||||||||||||||||||||||||||||||||||||
| Sales of of trading securities - quarter ended 06-30-20 | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Balance @06-30-20 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
TOTAL INVESTMENTS | Consolidated Eliminations | Cannabis Global Inc. | ECOX | C'Distro | Hempsmart Brazil | Lynwood JV | Natural Plant Extract | Salinas Ventures Holding | VBF BRANDS | Vivabuds | ||||||||||||||||||||||||||||||||||
| Global Hemp Group trading securities issued | 650,000 | $ | 650,000 | |||||||||||||||||||||||||||||||||||||||||
| Investment in Cannabis Global | 0 | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Balance @09-30-20 | $ | 1,343,915 | $ | 0 | $ | 650,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
| Unrealized gain on Global Hemp Group securities - 4th Quarter 2020 | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Unrealized gains on Cannabis Global Inc securities - 4th Quarter 2020 | 208,086 | $ | 208,086 | |||||||||||||||||||||||||||||||||||||||||
| Balance @12-31-20 | $ | 1,552,001 | $ | 0 | $ | 858,086 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
| Investment in ECOX | 650,000 | - | - | $ | 650,000 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Balance @03-31-21 | $ | 2,202,001 | $ | 0 | $ | 858,086 | $ | 650,000 | $ | 0 | $ | 0 | $ | 0 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
| Investments made during quarter ended 06-30-21 | 30,898 | $ | 30,898 | |||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on Global Hemp Group securities - 2nd quarter 2021 | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Balance @06-30-21 | $ | 2,232,899 | $ | 0 | $ | 858,086 | $ | 650,000 | $ | 0 | $ | 0 | $ | 30,898 | $ | 693,915 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
TOTAL INVESTMENTS | Consolidated Eliminations | Cannabis Global Inc. | ECOX | C'Distro | Hempsmart Brazil | Lynwood JV | Natural Plant Extract | Salinas Ventures Holding | VBF BRANDS | Vivabuds | ||||||||||||||||||||||||||||||||||
| Investments made during quarter ended 09-30-21 | 68,200 | $ | 68,000 | $ | 200 | |||||||||||||||||||||||||||||||||||||||
| Sale of short-term investments in quarter ended 09-30-21 | 0 | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Balance @09-30-21 | $ | 2,301,099 | $ | 0 | $ | 926,086 | $ | 650,000 | $ | 0 | $ | 0 | $ | 30,898 | $ | 693,915 | $ | 200 | $ | 0 | $ | 0 | ||||||||||||||||||||||
| Investments made during quarter ended 12-31-21 | 5,087,079 | $ | 2,975,174 | $ | 90,923 | $ | 2,020,982 | |||||||||||||||||||||||||||||||||||||
| Consolidated Eliminations @12/31/21 | (5,060,821 | ) | (5,060,821 | ) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Balance @12-31-21 | $ | 2,327,357 | $ | (5,060,821 | ) | $ | 926,086 | $ | 650,000 | $ | 2,975,174 | $ | 90,923 | $ | 30,898 | $ | 693,915 | $ | 200 | $ | 2,020,982 | $ | 0 | |||||||||||||||||||||
| Investments made during quarter ended 03-31-22 | (26,458 | ) | (26,458 | ) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Balance @03-31-22 | $ | 2,300,899 | $ | (5,087,279 | ) | $ | 926,086 | $ | 650,000 | $ | 2,975,174 | $ | 90,923 | $ | 30,898 | $ | 693,915 | $ | 200 | $ | 2,020,982 | $ | 0 | |||||||||||||||||||||
| Schedule of Debts Amounts Related to Joint Venture Investments | ||||||||||||||||||||||||
| Loan Payable | ||||||||||||||||||||||||
TOTAL Debt | Natural Plant Extract | Robert L Hymers III | VBF BRANDS | Vivabuds | General Operating Expense | |||||||||||||||||||
| Balance @03-31-19 | - | - | - | - | - | - | ||||||||||||||||||
| Quarter 03-31-19 loan borrowings | ||||||||||||||||||||||||
| Quarter 03-31-19 debt conversion to equity | - | - | - | - | - | - | ||||||||||||||||||
| Balance @03-31-19 © | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Quarter 03-31-19 loan borrowings | 3,675,000 | $ | 2,000,000 | - | - | $ | 0 | $ | 1,675,000 | |||||||||||||||
| Quarter 03-31-19 debt conversion to equity | (1,411,751 | ) | $ | (349,650 | ) | $ | (1,062,101 | ) | ||||||||||||||||
| Balance @06-30-19 (d) | 2,263,249 | 1,650,350 | 0 | 0 | 0 | 612,899 | ||||||||||||||||||
| Quarter 09-30-19 loan borrowings | 582,000 | - | - | - | - | $ | 582,000 | |||||||||||||||||
| Quarter 09-30-19 debt conversion to equity | (187,615 | ) | $ | (187,615 | ) | |||||||||||||||||||
| Balance @09-30-19 (e) | 2,657,634 | 1,650,350 | 0 | 0 | 0 | 1,007,284 | ||||||||||||||||||
| Quarter 12-31-19 loan borrowings | 2,726,964 | $ | 596,784 | $ | 4,221 | $ | 2,125,959 | |||||||||||||||||
| Impairment of investment in 2019 | (2,156,142 | ) | $ | (2,156,142 | ) | |||||||||||||||||||
| Loss on settlement of debt in 2019 | 50,093 | $ | 50,093 | |||||||||||||||||||||
| Adjustment to reclassify amount to accrued liabilities | (85,000 | ) | ($ | 85,000 | ) | - | - | - | - | |||||||||||||||
| Balance @12-31-19 (f) | $ | 3,193,549 | $ | 56,085 | $ | 4,221 | $ | 0 | $ | 0 | $ | 3,133,243 | ||||||||||||
| Quarter 03-31-20 loan borrowings | $ | 441,638 | - | - | - | - | $ | 441,638 | ||||||||||||||||
| Quarter 03-31-20 debt conversion to equity | $ | (619,000 | ) | $ | (619,000 | ) | ||||||||||||||||||
| Recognize Joint venture liabilities per JV agreement @03-31-20 | $ | 0 | ||||||||||||||||||||||
| Quarter 03-31-20 Debt Discount adjustments | $ | 24,138 | $ | 24,138 | ||||||||||||||||||||
| Balance @03-31-20 (g) | $ | 3,040,325 | $ | 56,085 | $ | 28,359 | $ | 0 | $ | 0 | $ | 2,955,881 | ||||||||||||
| Quarter 06-30-20 loan borrowings, net | $ | 65,091 | $ | 65,091 | ||||||||||||||||||||
| Quarter 06-30-20 debt conversion to equity | $ | (727,118 | ) | $ | (727,118 | ) | ||||||||||||||||||
| Quarter 06-30-20 reclass of liability | $ | 0 | - | - | - | - | - | |||||||||||||||||
| Quarter 06-30-20 Debt Discount adjustments | $ | 405,746 | $ | (27,715 | ) | $ | 433,461 | |||||||||||||||||
| Balance @06-30-20 (h) | $ | 2,784,044 | $ | 56,085 | $ | 65,735 | $ | 0 | $ | 0 | $ | 2,662,224 | ||||||||||||
| Loan Payable | ||||||||||||||||||||||||
TOTAL Debt | Natural Plant Extract | Robert L Hymers III | VBF BRANDS | Vivabuds | General Operating Expense | |||||||||||||||||||
| Quarter 09-30-20 debt conversion to equity | $ | (606,472 | ) | $ | (56,085 | ) | $ | (65,735 | ) | $ | (484,652 | ) | ||||||||||||
| Debt Settlement during Q3 2020 | $ | 0 | - | - | - | - | - | |||||||||||||||||
| Balance @09-30-20 (i) | $ | 2,177,572 | $ | (0 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 2,177,572 | |||||||||||
| Quarter 12-31-20 loan borrowings, net | $ | 309,675 | $ | 309,675 | ||||||||||||||||||||
| Quarter 12-31-20 Debt Discount adjustments | $ | (71,271 | ) | $ | (71,271 | ) | ||||||||||||||||||
| Quarter 12-31-20 debt conversion to equity | $ | (993,081 | ) | - | - | - | - | $ | (993,081 | ) | ||||||||||||||
| Balance @12-31-20 (j) | $ | 1,422,895 | $ | (0 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 1,422,895 | |||||||||||
| Quarter 03-31-21 debt conversion to equity | $ | (1,309,016 | ) | - | - | - | - | $ | (1,309,016 | ) | ||||||||||||||
| Quarter 03-31-21 loan borrowings, net | $ | 145,000 | $ | 145,000 | ||||||||||||||||||||
| Balance @03-31-21 (k) | $ | 258,879 | $ | (0 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 258,879 | |||||||||||
| Quarter 06-30-21 loan borrowings, net | $ | 1,251,779 | - | $ | 185,000 | - | - | $ | 1,066,779 | |||||||||||||||
| Balance @06-30-21 (l) | $ | 1,510,658 | $ | (0 | ) | $ | 185,000 | $ | 0 | $ | 0 | $ | 1,325,658 | |||||||||||
| Quarter 09-30-21 loan borrowings, net | $ | 626,250 | $ | 626,250 | ||||||||||||||||||||
| Quarter 09-30-21 loan repayments, net | $ | (1,077,464 | ) | - | $ | (75,000 | ) | - | - | $ | (1,002,464 | ) | ||||||||||||
| Balance @09-30-21 (m) | $ | 1,059,444 | $ | (0 | ) | $ | 110,000 | $ | 0 | $ | 0 | $ | 949,444 | |||||||||||
| Quarter 12-31-21 loan borrowings, net | $ | 2,710,006 | - | - | $ | 1,643,387 | - | $ | 1,066,619 | |||||||||||||||
| Balance @12-31-21 (n) | $ | 3,769,449 | $ | (0 | ) | $ | 110,000 | $ | 1,643,387 | $ | 0 | $ | 2,016,063 | |||||||||||
| Quarter 03-31-22 loan borrowings, net | $ | 386,176 | - | - | $ | 386,176 | - | - | ||||||||||||||||
| Balance @03-31-22 (O) | $ | 4,155,625 | $ | (0 | ) | $ | 110,000 | $ | 2,029,563 | $ | 0 | $ | 2,016,063 | |||||||||||
NOTE 7 – NOTES PAYABLE, RELATED PARTY
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company’s officers and directors have provided advances and incurred expenses on behalf of the Company as such have been evidenced byCompany. The notes issued to certain of the issuance of notes to suchCompany’s officers and directors. The notesdirectors are unsecured, due on demand and accrue interest at a rate of 5% per annum. The balance due to notes payable, related partyparties as of September 30, 2021March 31, 2022 and December 31, 20202021 was $20,000 and $40,00020,000, respectively. These notes are payable to the estate of Charles Larsen.Larsen, the Company's former co-founder, Chief Operating Officer and Director. Mr. Larsen passed away on May 15, 2020.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
During the nine monthsquarter ended September 30, 2021,March 31, 2022, the Company issued an aggregate of shares of its common stock inwith respect to the settlement of issued convertible notes payable andinterest accrued interest.thereon.
For the nine monthsquarter ended SeptemberMarch 31, 2022 and the year ended December 30, 2021, and September 30, 2020, the Company recorded amortization of debt discounts of $1,232,641761,712 and $1,373,5751,993,373, respectively, as a charge to interest expense.
Convertible notes payable are comprised of the following:
| Schedule of Convertible Notes Payable | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Lender | (Unaudited) | (Audited) | ||||||
| Convertible note payable - Power Up Lending Group | $ | — | $ | 35,000 | ||||
| Convertible note payable - Crown Bridge Partners | $ | 35,000 | $ | 172,500 | ||||
| Convertible note payable – Labrys | $ | 537,500 | $ | — | ||||
| Convertible note payable - GS Capital Partners LLC | $ | 82,000 | $ | 143,500 | ||||
| Convertible note payable – Geneva Roth | $ | 153,750 | $ | 33,500 | ||||
| Convertible note payable - Robert L. Hymers III | $ | 110,000 | $ | 70,000 | ||||
| Convertible note payable – Dutchess Capital | $ | 135,000 | $ | 10,000 | ||||
| Convertible note payable – Redstart Holdings | $ | — | $ | 109,000 | ||||
| Convertible note payable - GW Holdings | $ | 120,750 | $ | 98,175 | ||||
| Convertible note payable – FF Global Opportunities funds | 268,750 | |||||||
| Convertible note payable - St. George/Bucktown | $ | 567,500 | $ | 1,160,726 | ||||
| Total | $ | 2,010,250 | $ | 1,832,401 | ||||
| Less debt discounts | $ | (950,807 | ) | $ | (405,507 | ) | ||
| Net | $ | 1,059,443 | $ | 1,426,894 | ||||
| Less current portion | $ | (1,059,443 | ) | $ | (1,426,894 | ) | ||
| Long term portion | $ | — | $ | — | ||||
| Schedule of Convertible Notes Payable | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Lender | (Unaudited) | (Audited) | ||||||
| Convertible note payable – Labrys | $ | — | $ | 99,975 | ||||
| Convertible note payable – FF Global Opportunities fund | $ | — | $ | 243,750 | ||||
| Convertible note payable - Crown Bridge Partners | $ | 35,000 | $ | 35,000 | ||||
| Convertible note payable – Beach Labs | $ | 520,833 | $ | 583,333 | ||||
| Convertible note payable - GS Capital Partners LLC | $ | 175,000 | $ | 82,000 | ||||
| Convertible note payable – Pinnacle Consulting Services, Inc. | $ | 30,000 | $ | 30,000 | ||||
| Convertible note payable – Geneva Roth | $ | 33,278 | $ | 97,939 | ||||
| Convertible note payable – Dutchess Capital | $ | — | $ | 60,709 | ||||
| Convertible note payable – Coventry | $ | 100,000 | $ | 100,000 | ||||
| Convertible note payable - GW Holdings | $ | 45,000 | $ | 120,750 | ||||
| Convertible note payable – Sixth Street Lending | $ | 104,488 | $ | 60,738 | ||||
| Convertible note payable – Fourth Man LLC | $ | 60,000 | $ | — | ||||
| Convertible note payable – Moneywell Group | $ | 89,940 | $ | — | ||||
| Convertible note payable - St. George | $ | 4,091,378 | $ | 3,914,878 | ||||
| Total | $ | 5,284,917 | $ | 5,429,072 | ||||
| Less debt discounts | $ | (1,129,292 | ) | (1,59,622 | ) | |||
| Net | $ | 4,155,625 | $ | 3,769,450 | ||||
| Less current portion | $ | (4,155,625 | ) | (3,769,450 | ) | |||
| Long term portion | $ | — | $ | — | ||||
Convertible notes payable - Crown Bridge Partners LLC
From October 1 through December 31, 2019, the Company issued convertible promissory notes in the aggregate principal amount of $225,000 to Crown Bridge Partners LLC (“Crown Bridge”). The promissory notes bear interest at 10% per annum, were due one year from the respective issuance date and include an original issuance discount in the aggregate principal amount of $22,500. Interest shall accrue from the issuance date, but interest shall not become payable until the notes becomes payable. The notes are convertible into shares of the Company’s common stock at any time at a conversion price that is equal to 60% of the lowest trading price during the 15-trading-day period prior to the conversion date. Upon the issuance of the convertible notes, the Company determined that the features associated with the embedded conversion option embedded in the notes, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares of common stock would be available to settle all potential future conversion transactions. As of the funding date of each note, the Company determined the fair value of the embedded derivative associated with the convertibility of each note. The fair value of the embedded derivative has been added to the debt discount (total debt discount is limited to the face value of the debt) with any excess of the derivative liability recognized as interest expense. The aggregate debt discount of $88,674 is being amortized to interest expense over the respective terms of the notes.
The Company shall have the right to prepay the notes for an amount ranging from 125% to 140% multiplied by the outstanding balance (all principal and accrued interest) depending on the prepayment period which ranges from 1 to 180 days following the issuance date of the notes. The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially own more than % of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note.
As of March 31, 2022 and December 31, 2021, the Company owed an aggregate of $35,000 and $35,000 of principal, respectively. As of March 31, 2022, the Company owed accrued interest of $0 on the convertible promissory notes.
Convertible notes payable - GS Capital Partners LLC
In August 2021, the Company issued convertible promissory notes in the aggregate principal amount of $82,000 to GS Capital. The promissory notes bear interest at 10% per annum and is due one year from the respective issuance date and include an original issuance discount in aggregate of $7,000. In connection with the Note, the Company issued 5,000,000 warrants to purchase common stock with a fair value of $18,086, which was recorded as a debt discount. During the three months ended March 31, 2022, the Company issued shares of common stock for the full settlement of the note along with the accrued interest on the note.
The Holder of this Note is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal to 62% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer. To the extent the Conversion Price of the Company’s Common Stock closes below the par value per share, the Company will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Company agrees to honor all conversions submitted pending this increase. In the event the Company experiences a DTC “Chill” on its shares, the Conversion Price shall be decreased to 52% instead of 62% while that “Chill” is in effect. In no event shall the Holder be allowed to effect a conversion if such conversion, along with all other shares of Company Common Stock beneficially owned by the Holder and its affiliates would exceed 4.99% of the outstanding shares of the Common Stock of the Company (which may be increased up to 9.9% upon 60 days’ prior written notice by the Investor).
As of the funding date of each note, the Company determined the fair value of the embedded derivative associated with the convertibility of each note. The fair value of the embedded derivative has been added to the debt discount (total debt discount is limited to the face value of the debt) with any excess of the derivative liability recognized as interest expense. The aggregate debt discount of $25,086 is being amortized to interest expense over the respective terms of the notes.
In January 2022, the Company issued convertible promissory notes in the aggregate principal amount of $105,000 to GS Capital. The promissory notes bear interest at 10% per annum and is due one year from the respective issuance date and includes an original issuance discount in aggregate of $10,000.
The Holder of this Note is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal to $0.001. To the extent the Company’s Common Stock closes below $0.001 for three consecutive days, the conversion price will be reset to $0.005.
| 28 |
In February 2022, the Company issued a convertible promissory note in the aggregate principal amount of $70,000 to GS Capital. The promissory notes bear interest at 8% per annum and is due one year from the respective issuance date and includes an original issuance discount in aggregate of $20,000.
The Holder of this Note is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal to $0.0008.
As of March 31, 2022 and December 31, 2021, the Company owed an aggregate of $175,000 and $82,000 of principal, respectively. As of March 31, 2022, the Company owed accrued interest of $3,103 on these convertible promissory notes.
Convertible notes payable - St George Investments
In January and March 2021, the Company entered into three convertible promissory notes in the aggregate amount of $567,500 of principal with Bucktown Capital LLC, entity controlled by the owners of St. George. The Company received net proceeds of $535,000. The notes mature in January and March 2022 and bear interest at 8% or 22% in the event of default. The notes are convertible at the lender’s option at any time at a fixed price of $0.002 per common share, subject to normal adjustment for common stock splits. As a result of default, the company recorded and additional $135,000 of principal on the note as interest expense during the three months ended March 31, 2022.
Effective October 6, 2021, the Company issued a secured convertible promissory note in the amount of $3,492,378 with Chicago Ventures. The Company received cash proceeds of $1,100,000 and included an original issue discount of $574,916 and paid legal fees of $10,000. This note agreement was assumed by the Company as part of the VBF Acquisition discussed in Note 13 and includes $1,770,982 which reflects the initial consideration towards the future closing of the VBF Acquisition. The note bears interest at 8% and is due upon maturity on October 6, 2023. The note is convertible at a fixed price of $0.002 per share. In the event of default as defined in the agreement, the lender has the right to convertible principal and accrued interest at 70% of the lowest closing trading price over the 10 days preceding the conversion notice.
In March 2022, the Company issued a convertible promissory note in the amount of $266,500 of principal with Bucktown, Capital LLC. The Company received net proceeds of $240,000 after and original issue discount of $24,000 and fees of $2,500. The note matures in March 2023 and bear interest at 8% or 22% in the event of default. The note is convertible at the lender’s option at any time at a fixed price of $0.001 per common share, subject to normal adjustment for common stock splits. As of March 31, 2022 and December 31, 2021, the Company owed $4,091,378 and $3,914,878 of principal, respectively. As of March 31, 2022, the Company owed accrued interest of $164,978 on these convertible promissory notes.
Convertible notes payable - Robert L. Hymers III
On December 27, 2021, the Company issued convertible promissory notes in the aggregate principal amount of $30,000 to Pinnacle Consulting Services, Inc. (“Pinnacle”). The promissory note bears interest at 12.5% per annum and is due one year from the respective issuance date of the note along with accrued and unpaid interest and includes an original issue discount (“OID”) of $5,000. Principal and interest to be payable as provided below on that date which is one year from the date of issuance (the “Maturity Date”).
For so long as there remains any amount due hereunder, the Holder shall have the option to convert all or any portion of the unpaid principal amount of this Note, plus accrued interest (together with the unpaid principal amount, the “Converted Amount”), into shares of the Company’s common stock. The conversion price (the “Conversion Price”) shall be equal to a $0.006. The Conversion price, and any other economic terms will be adjusted on a ratchet basis if the Company offers a more favorable conversion or stock issuance price, prepayment rate, interest rate, additional securities, look back period or more favorable terms to another party for any financings while this note is in effect.
The aggregate debt discount of $5,000 is being amortized to interest expense over the respective term of the note.
As of March 31, 2022, and December 31, 2021, the Company owed an aggregate of $30,000 and $30,000 respectively. As of March 31, 2022, the Company owed accrued interest of $0 on this convertible promissory note.
Convertible Note payable – GW Holding Group
On January 6, 2020, the Company entered into a convertible promissory note in the principal amount of $57,750 with GW Holdings Group, LLC, a New York limited liability company (“GW”). GW has the option, beginning on the six-month anniversary of the issuance date of, to convert all or any amount of the principal amount of the note then outstanding together with any accrued interest thereon into shares of the Company's common stock at a conversion price equal to a 40% discount of the lowest trading price for fifteen trading days prior to the date of conversion. The note bears interest at a rate of 10% per annum and include a $5,250 such that the price of the note was $57,750. During the three months ended March 31, 2022, $75,750 of principal and $4,449 of accrued interest on the notes was converted into shares of common stock.
As of March 31, 2022 and December 31, 2021, the Company owed principal of $45,000 and $120,750, respectively. As of March 31, 2022, the Company owed $2,573 in accrued interest.
Convertible Note Payable- Beach Labs
On November 24, 2021, the Company issued a convertible promissory note in the aggregate principal amount of $625,000 to Beach Labs in connection with the modification of the cDistro acquisition agreement discussion in Note 13. The promissory note accrues interest at 10% per annum and is due four years from the issuance date.
The holder of this Note is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal to 70% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer.
The Company determined the fair value of the embedded derivative associated with the convertibility of each note. The fair value of the embedded derivative has been added to the debt discount (total debt discount is limited to the face value of the debt) with any excess of the derivative liability recognized as interest expense. The aggregate debt discount of $625,000 is being amortized to interest expense over the respective terms of the notes.
As of March 31, 2022, and December 31, 2021, the Company owed principal of $520,833 and $583,333, respectively. As of March 31, 2022, the Company owed $30,337 in accrued interest.
Convertible Note Payable- Sixth Street Lending
On November 16, 2021, the Company issued a promissory note in the aggregate principal amount of $60,738 to Sixth Street Lending (“SSL”). The promissory note has a one-time interest charge of 7,896 and is due one year from the issuance date. The Company paid $10,738 in deferred financing fees and received $50,000 of net proceeds. Upon default, the note is convertible at a price ("Conversion Price") for each share of Common Stock equal to 73% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the five prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer.
On January 10, 2022, the Company issued a promissory note in the aggregate principal amount of $43,750 to SSL. The promissory note bears interest at a rate of 8% and is due one year from the issuance date. The Company paid $3,750 in deferred financing fees and received $40,000 of net proceeds. The note is convertible at a price ("Conversion Price") for each share of Common Stock equal to $.0055 for the first 180 days and then at 65% of the average of the two lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer.
As of March 31, 2022, and December 31, 2021, the Company owed principal of $104,488 and $60,738, respectively. As of March 31, 2022, the Company owed $8,674 in accrued interest.
Convertible Note Payable- Coventry
On December 29, 2021, the Company issued a promissory note in the aggregate principal amount of $100,000 to Coventry (“Coventry”). The promissory note has a one-time interest charge of 10,000 and is due one year from the issuance date. The Company paid $20,000 in deferred financing fees and received $80,000 of net proceeds. The note is convertible at a price ("Conversion Price") for each share of Common Stock equal to 90% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the five prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer. In January 2022, the Company issued 10,000,000 shares of common stock for deferred financing fees with a value of $13,000 which was recorded as a debt discount to be amortized over the remaining term of the note.
As of March 31, 2022 and December 31, 2021, the Company owed an aggregate of $100,000 and $100,000 of principal. As of March 31, 2022, the Company owed $10,000 in accrued interest.
Convertible Note Payable-Firstfire
In July 2021, the Company issued a convertible promissory note in the aggregate principal amount of $268,750 to Firstfire Global Opportunities Fund LLC (“Firstfire”). The promissory note accrues interest at 12% per annum, is due one year from the issuance date and includes an original issuance discount and financing fees in the aggregate amount of $44,888$44,888 and received $200,963 of net proceeds. The note is convertible at any time at a conversion price of $0.005 per share. The Company also issued a five-year warrantswarrant to purchase up to 38,174,715 shares of its common stock to Firstfire, at an exercise price of $0.00704$0.00704 per share. The aggregate debt discount of $245,851 is being amortized to interest expense over the respective terms of the note.
The Company is prohibited from effecting a conversion of the note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially own more than % of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note. The Company is prohibited from effecting an exercise of the warrant to the extent that, as a result of such exercise, the investor, together with its affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of the note. Accrued interest on
As of March 31, 2022 and December 31, 2021, the note wasCompany owed an aggregate of $6,5380 asand $243,750 of September 30, 2021.principal. As of March 31, 2022, the Company owed $0 in accrued interest.
Convertible Note Payable-Labrys
In June 2021, the Company issued a convertible promissory note in the aggregate principal amount of $537,500 to Labrys Funds, LP (“Labrys”). The promissory note accrues interest at 12% per annum, is due one year from the issuance date and includes an original issuance discount in the aggregate amount of $53,750. The Company also paid $33,750$33,750 in deferred financing fees and received $450,000 of net proceeds. The note is convertible at any time at a conversion price of $0.005 per share. The Company also issued a five-year warrantswarrant to purchase up to 76,349,431 shares of its common stock to Labrys, at an exercise price of $0.00704$0.00704 per share. In addition, the Company issued five-year warrants to purchase up to 76,349,431 shares of its common stock to an investment banker for services, which warrants have an exercise price of $0.008448 per share. The aggregate debt discount of $533,526 is being amortized to interest expense over the respective terms of the note.
The Company is prohibited from effecting a conversion of the note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially own more than % of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note. The Company is prohibited from effecting an exercise of the warrant to the extent that, as a result of such exercise, the investor, together with its affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of the note. Accrued interest on the note was $20,219 as of September 30, 2021.
Convertible Notes Payable-Power Up Lending
On June 25, 2020, the Company entered into a convertible promissory note with Power Up Lending Group Ltd. (“Power Up”). The promissory notes accrue interest at a rate of 10% per annum, were due one year from the respective issuance date The note was convertible at a conversion price equal to 61% of the market price of the Company’s common stock, defined as the lowest trading price during the 15-trading-day period prior to the date of conversion. During the nine months ended September 30, 2021, the principal and accrued interest of $1,750 were converted into shares of common stock resulting in the settlement of $48,107 of derivative liabilities.
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company owed an aggregate of $0 and $35,00099,975 of principal, respectively, on the notes.principal. As of September 30, 2021 and DecemberMarch 31, 2020,2022, the Company owed $0 and $1,167, respectively, ofin accrued interest on the notes.interest.
Convertible Notes Payable-Redstart HoldingsNote Payable- Dutchess Capital Growth Fund LP
During the year ended December 31, 2020, the Company entered into various convertible promissory notes with Redstart Holdings (“Redstart Holdings”) totaling a principal amount of $109,000. The promissory notes accrue interest at a rate of 10% per annum, were due one year from the respective issuance date. The notes were convertible at a conversion price equal to 61% of the market price of the Company’s common stock, defined as the lowest trading price during the 15-trading-day period prior to the date of conversion. Upon the issuance of these convertible notes, the Company determined that the features associated with the embedded conversion option embedded in the notes should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares of common stock would be available to settle all potential future conversion transactions. As of the funding date of each note, the Company determined the fair value of the embedded derivative associated with the convertibility of each note. The fair value of the embedded derivative has been added to the debt discount (total debt discount is limited to the face value of the debt) with any excess of the derivative liability recognized as interest expense.
The Company has the right to prepay the notes for an amount ranging from 125% to 140% multiplied by the outstanding balance (all principal and accrued interest) depending on the prepayment period (ranging from 1 to 180 days following the issuance date). The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note. During the three months ended March 31,On May 25, 2021, the Company repaid $109,000 of principal and $43,204 of total interest and penalties.
During the nine months ended September 30, 2021, the Company entered into an additional threeissued a convertible promissory notes with principal value of $226,250, which accrued interest at 8% per annum and were convertible at 65% of the average of the two lowest trading prices during the previous 15 day trading period. These notes along with accrued interest and early repayment penalties of $40,857 were paid in full prior to September 30, 2021. As of September 30, 2021, the Company owes 0 amount to Redstart Holdings.
Convertible Notes Payable-Crown Bridge Partners
From October 1 through December 31, 2019, the Company issued convertible promissory notesnote in the aggregate principal amount of $225,000135,000 to Crown Bridge Partners LLCDutchess Capital Growth Fund LP (“Crown Bridge”Dutchess”). The promissory notes accruenote accrues interest at a rate of 108% per annum, wereis due one year from the respective issuance date. The Company paid $13,750 in deferred financing fees and received $121,250 of net proceeds.
Beginning six months after date and include an original issuance discount in aggregate amount of $22,500. Interest accrues fromissue, the issuance date, but interest shall not become payable until the notes becomes payable. The notes are convertibleholder of this Note is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") at a conversion price ("Conversion Price") for each share of Common Stock equal to 60%55% of the market price of the Company’s common stock, defined as the lowest trading price duringof the 15-trading-day periodCommon Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the fifteen prior totrading days including the conversion date. Upon the issuanceday upon which a Notice of these convertible notes,Conversion is received by the Company determined that the features associated with the embedded conversion option embedded in the debentures should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares of common stock would be available to settle all potential future conversion transactions. As of the funding date of each note, theor its transfer.
The Company determined the fair value of the embedded derivative associated with the convertibility of each note. The fair value of the embedded derivative has been added to the debt discount (total debt discount is limited to the face value of the debt) with any excess of the derivative liability recognized as interest expense. The aggregate debt discount of $88,674 was being amortized to interest expense over the respective terms of the notes. The Company also issued a warrants to purchase up to 519,230 shares of the Company’s common stock with an initial exercise price of $0.26, with reset provisions based on issuances of common stock subsequent to the issuance date. Due to the reset provision, the exercise option of these warrants is also accounted for as a derivative liability. See Note 10.
The Company has the right to prepay the notes for an amount ranging from 125% to 140% multiplied by the outstanding balance (all principal and accrued interest) depending on the prepayment period (ranging from 1 to 180 days following the issuance date). The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially own more than % of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note.
As of September 30, 2021 and December 31, 2020, the Company owed an aggregate of $35,000 and $172,500 of principal, respectively, on the notes. As of September 30, 2021 and December 31, 2020, the Company owed accrued interest of $0 and $6,500 on the notes, respectively.
Convertible Notes Payable-GS Capital Partners LLC
On December 19, 2019, the Company issued convertible promissory notes in the aggregate principal amount of $173,000 to GS Capital Partners LLC (“GS Capital”). The promissory notes accrue interest at a rate of 10% per annum, were due one year from the respective issuance date, and include an original issuance discount in an aggregate amount of $15,000. Pursuant to the notes, GS Capital is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of the notes into shares of the Company's common stock at a conversion price equal to 62% of the lowest trading price of the Company's common stock as reported on the OTC Markets or such other exchange on which the Company’s shares are then traded, for the 20 trading days prior to the date of conversion. During the nine months ended September 30, 2021, the Company repaid $96,130 of principal and $4,622 of accrued interest, and an additional $47,370 of principal and $2,628 of accrued interest were converted into shares of common stock, resulting in the settlement of $129,285 of derivative liabilities.
As of the funding date of each note, the Company determined the fair value of the embedded derivative associated with the convertibility of each note. The fair value of the embedded derivative has been added to the debt discount (total debt discount is limited to the face value of the debt) with any excess of the derivative liability recognized as interest expense. The aggregate debt discount of $166,193 was being amortized to interest expense over the respective terms of the notes. As of September 30, 2021 and December 31, 2020, the Company owed $0 and $143,500 of principal, respectively, on the notes. As of September 30, 2021 and December 31, 2020, the Company owed $0 and $2,789 in accrued interest on the notes, respectively.
Convertible Notes Payable-St. George Investments
On November 1, 2017, the Company issued a secured convertible promissory note in the principal amount of $601,420 to St. George Investments LLC (“St. George”). The promissory note accrues interest at a rate of 10% per annum compounded daily, was due upon maturity on September 10, 2018 and includes an original issue discount of $59,220. The promissory note was funded on November 11, 2017 for $542,200, net of the original issue discount and transaction costs. During the nine months ended September 30, 2021, $420,726 of principal and $125,090 of accrued interest, along with $1,297,664 of derivative liabilities valued as of the respective conversion date were converted into an aggregate of shares of the Company’s common stock. As of September 30, 2021, the Company owed 0 principal or accrued interest on this convertible promissory note.
On March 25, 2019, the Company issued a secured convertible promissory note in the principal amount of $580,000 to St. George. The promissory note accrues interest at a rate of 10% per annum compounded daily, was due upon maturity on January 24, 2020 and includes an original issue discount of $75,000. In addition, the Company agreed to pay $5,000 for legal, accounting and other transaction costs of the lender. During the nine months ended September 30, 2019, the promissory note was funded in the amount of $580,000 resulting in net proceeds of $500,000. During the three months ended March 31, 2021, the principal balance of $580,000 and accrued interest of $93,755 were converted into shares of common stock and resulted in the settlement of $1,207,773 of derivative liabilities. As of September 30, 2021, the Company owed 0 principal or accrued interest on this convertible promissory note.
The Company entered into five convertible note agreements with Bucktown Capital, LLC, an affiliated entity of St. George in fiscal year 2020 and during the nine months ended September 30, 2021. The notes have total principal due of $727,500 and bear interest at 8% per annum. The notes mature between December 2021 and March 2022. The notes are convertible at fixed prices, with $225,000 of principal convertible at $0.002 per share, $80,000 convertible at $0.003 per share, and $422,500 convertible at $0.005 per share.
As of September 30, 2021 and December 31, 2020, the Company owed $727,500 of principal on these notes. As of September 30, 2021 and December 31, 2020, the Company owed $27,031 of accrued interest on the above notes, respectively.
Convertible Notes Payable - Robert L. Hymers III
On September 8, 2020, the Company issued convertible promissory notes in the aggregate principal amount of $70,000 to Robert L. Hymers III (“Hymers”). The promissory note accrues interest at a rate of 10% per annum and matured on September 8, 2021.Hymers has the option to convert all or any portion of the unpaid principal amount of the notes, plus accrued interest, into shares of the Company’s common stock at a conversion price equal to a 50% discount to the lowest closing bid price of the Company’s common stock during the 15 day trading period prior to the date of conversion. The aggregate debt discount of $70,000 is being amortized to interest expense over the respective terms of the notes.
On February 4, 2021, $70,000 of principal and $4,286 of accrued interest, along with $385,688 of derivative liabilities valued as of the respective conversion date were converted into an aggregate of shares of the Company’s common stock.
On February 4, 2021, the Company issued convertible promissory notes in the aggregate principal amount of $75,000 to Hymers. The promissory notes accrue interest at a rate of 10% per annum and mature on February 4, 2022. Hymers has the option to convert all or any portion of the unpaid principal amount of the notes, plus accrued interest, into shares of the Company’s common stock at a conversion price of $0.07. The aggregate debt discount of $75,000135,000 is being amortized to interest expense over the respective terms of the notes.
On August 11, 2021 the Company and Hymers modified the February 4, 2021 note so that the conversion price was equal to $0.002. As a result of the modification, the Company recorded a loss on the extinguishment of the old debt of $123,564. Also on August 11, 2021, $75,000 of principal and $3,884 of accrued interest, along with $102,324 of derivative liabilities valued as of the respective conversion date were converted into an aggregate of shares of the Company’s common stock.
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company owed an aggregate of $0 and $70,00060,709 of principal, respectively, to Hymers.principal. As of September 30, 2021 and DecemberMarch 31, 2020,2022, the Company owed $0 and $1,005in accrued interest on the notes, respectively.interest.
Convertible Note Payable – GWPayable- Geneva Roth Holdings Group
As of December 31, 2020, the Company owed $98,175 of principal on convertible promissory notes issued to GW Holdings Group, LLC (“GW”). GW has the option, beginning on the six month anniversary of the date of issuance, to convert all or any amount of the principal face amount of the notes then outstanding into shares of the Company's common stock at a conversion price equal to 40% discount of the lowest trading price for the 15 trading days prior to the date of the conversion. The notes accrue interest at a rate of 10% per annum. During the nine months ended September 30, 2021, GW converted all principal and $5,045 of accrued interest into shares of the Company’s common stock, resulting in the settlement of $170,358 of derivative liabilities.
On June 3,July 28, 2021, the Company entered issued a convertible promissory note in the aggregate principal amount of $120,750169,125 to.to Geneva Roth Holdings (“Geneva”). The holder has the option to convert all or any amount of the principal face amount of the note then outstanding into shares of the Company's common stock at a conversion price equal to $0.005 for the first 90 days and $0.002 thereafter. Thepromissory note accrues interest at a rate of 10% per annum, and includedis due one year from the issuance date. The Company paid $15,75013,750 ofin deferred financing fees and original issuereceived $153,750 of net proceeds. The Company also issued five-year warrants to purchase up to 10,147,500 shares of its common stock to Geneva, at an exercise price of $0.001 per share. The aggregate debt discount whichof $67,253 is being amortized to interest expense over the termrespective terms of the note. This note was repaid in full during the nine months ended September 30, 2021.
On August 24,
As of March 31, 2022 and December 31, 2021, the Company enteredowed an aggregate of $97,939 and $33,278 of principal. As of March 31, 2022, the Company owed $13,684 in accrued interest.
Convertible Note Payable - Fourth Man LLC
In January 2022, the Company issued a convertible promissory note in the aggregate principal amount of $120,75060,000 to GW. GW hasFourth Man, LLC (“Fourth Man”). The promissory note accrues interest at 12% per annum, is due one year from the option to convert all or anyissuance date and includes an original issuance discount in the aggregate amount of the principal face amount$6,000. The Company also paid $6,240 in deferred financing fees and received $47,760 of thenet proceeds. The note then outstanding into shares of the Company's common stockis convertible at any time at a conversion price equal toof $0.00250.0006 per share. The Company also issued 25,000,000 shares of its common stock for the first 90 days anddeferred financing fee. The aggregate debt discount of $0.00142,240 thereafter. The note accrues interest at a rate of 10% per annum and includes a $15,750 original issue discount which is being amortized to interest expense over the termrespective terms of the notenote.
As of September 30, 2021 and DecemberMarch 31, 2020,2022, the Company owed an aggregate of $60,000 of principal. As of March 31, 2022, the Company owed $120,7507,200 in accrued interest.
Revenue share agreement – Money Well Group
In March 2022, the Company entered into a revenue share in the aggregate principal amount of $89,940 to Money Well Group (“Money Well”). The agreement requires daily payments in the amount of $1,285 and includes an original issuance discount in the aggregate amount of $98,17535,940 and received $54,000 of principal, respectively, onnet proceeds. The aggregate debt discount of $35,940 is being amortized to interest expense over the respective terms of the note.
As of September 30, 2021 and DecemberMarch 31, 2020,2022, the Company owed an aggregate of $89,940 of principal. As of March 31, 2022, the Company owed $959 and $8180 in accrued interest on the note, respectively.interest.
Summary:
Convertible Debt Summary:
The Company has identified the embedded derivatives related to the above-described notes and warrants. These embedded derivatives included certain conversion and reset features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the note and to fair value as of each subsequent reporting date.
At September 30, 2021,March 31, 2022, the Company determined the aggregate fair value of embedded derivatives to be $432,0241,646,127. The fair values were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of %; (2) expected volatility of % to %, (3) weighted average risk-free interest rate of % to %, (4) expected life of to years, (5) conversion prices of $0.00040.00033 to $0.0070.005 and (6) the Company's common stock price of $0.0029$0.001 per share as of September 30, 2021.March 31, 2022.
For the ninethree-month period ended March 31, 2022, the Company recorded a loss on the change in fair value of derivative liabilities of $1,026,929, which included a gain of $1,077,624 related to convertible notes payable, a gain of $50,695 related to the settlement of the fair value of derivatives as a result of repayments on the convertible notes, and also recognized a loss of $22,558 related to the excess of the fair value of derivatives at issuance above convertible note principle as a charge to interest expense. During the three months ended September 30,March 31, 2022, derivative liabilities of $233,069 were reclassified to additional paid in capital as a result of conversions of the underlying notes payable into common stock. For the period ended March 31, 2021 the Company recorded a loss on the change in fair value of derivative liabilities of $1,101,6402,326,018, which included a gain of $649,961 related to convertible notes payable and an a loss of $1,035,115694,754 related to the excess of the fair value of derivatives at issuance above convertible note principal as a charge to interest expense. For the nine months ended September 30, 2020, the Company recorded a gain on change in fair value of derivative liabilities of $1,142,272, a loss of $395,607 related to the excess of the fair value of derivatives at issuance above convertible note principalprinciple as a charge to interest expense and amortization of debt discounts of $1,028,931 as a charge to interest expense.
NOTE 9. OTHER DEBT
Paycheck Protection Program Loan
During the quarter ended June 30, 2020, the Company's wholly-owned subsidiary, H Smart Inc., received a $35,500 loan as part of the Paycheck Protection Program (“PPP”) offered by the Small Business Administration.
The Company has elected to account for the PPP loan pursuant to FASB ASC 470, Debt, or as a government grant by analogy to International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance.
Following the guidance in ASC 470, the Company has recognized the entire loan amount as a liability on the balance sheet, with interest accrued and expensed over the term of the loan. The Company will not impute additional interest at a market rate because transactions where interest rates are prescribed by governmental agencies are excluded from the scope of ASC 835-30.
For purposes of derecognizing the liability, ASC 470 refers to the extinguishment guidance in ASC 405, Liabilities.
Based on that guidance, the loan would remain recorded as a liability until either of the following criteria are met:
Because the Company will not be legally released from being the primary obligor of the PPP loan until forgiveness is actually granted, income from the extinguishment of the loan would only be recognized once the Company's application for forgiveness is approved. If the forgiveness application is approved, any resulting amount forgiven would be recognized and separately disclosed in the income statement as a gain on extinguishment. As of September 30, 2021 the balance of the PPP loan was $0 as the loan was formally forgiven by the Small Business Administration.
NOTE 10. SUBSCRIPTIONS PAYABLE
Subscriptions Payable
On September 30, 2020, the Company entered into a shareexchange agreement (“Cannabis Global Exchange Agreement”) with Cannabis Global to acquire the number of shares of Cannabis Global’s common stock equal in value to $650,000 based on the closing price for the trading day immediately preceding the effective date of the Cannabis Global Exchange Agreement, in exchange for the number of shares of Company common stock equal in value to $650,000 based on the closing price for the trading day immediately preceding the effective date of the Cannabis Global Exchange Agreement. For both parties, the Cannabis Exchange Agreement contains a “true-up” provision requiring the issuance of additional common stock in the event that a decline in the market value of either parties’ common stock should cause the aggregate value of the stock acquired pursuant to the Cannabis Global Exchange Agreement to fall below $650,000.
On February 26, 2021, the Company entered into the Share Exchange Agreement with ECOX dated February 26, 2021, to acquire the number of shares of ECOX’s common stock, equal in value to $650,000 based on the per-share price of $, in exchange for the number of shares of Company common stock equal in value to $650,000 based on the closing price for the trading day immediately preceding the effective date of the Share Exchange Agreement. For both parties, the Share Exchange Agreement contains a “true-up” provision requiring the issuance of additional common stock in the event that a decline in the market value of either parties’ common stock should cause the aggregate value of the stock acquired pursuant to the Share Exchange Agreement to fall below $650,000. Based on the value of ECOX shares in the market as of September 30, 2021, the Company recorded a value for additional shares owed to ECOX pursuant to the Share Exchange Agreement of $754,961 as a subscription agreement along with a loss from equity investment of $735,178. As of September 30, 2021, shares of the Company’s common stock have been issued. As a result, the balance of subscriptions payable as of September 30, 2021 and December 31, 2020 was $754,961 and $670,000, respectively.
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NOTE 119 – STOCKHOLDERSSTOCKHOLDERS’ DEFICIT
Preferred Stockstock
The Company is authorized to issue shares of $ par value preferred stock (“Series A Preferred Stock”) as of September 30, 2021March 31, 2022 and December 31, 20202021. As of whichMarch 31, 2022 and December 31, 2021, the Company has designated and issued shares are outstanding as of September 30, 2021. Class A Preferred Stock, and 2,000,000 of Class B Preferred Stock.
Each share of Class A Preferred Stock is entitled to 100 votes on all matters submitted to a vote to the stockholders of the Company, and does not have conversion, dividend or distribution upon liquidation rights.
As of September 30, 2021 and December 31, 2020, the Company is authorized to issue shares of Class B Preferred Stock of which shares are issued and outstanding as of September 30, 2021. Each share of Class B Preferred Stock is entitled to 1,000 votes on all matters submitted to a vote to the stockholders of the Company, and does not have conversion, dividend or distribution upon liquidation rights.
Common stock
AsThe Company is authorized to issue shares of September 30, 2021, the Company0 par value common stock as of March 31, 2022 and was authorized to issue shares of $ par value common stock. On October 21, 2021, the Company increased its authorized common shares to 22,000,000,000. As of September 30, 2021, and December 31, 2020, the Company had and shares of common stock issued and outstanding, respectively. As of November 15, 2021, there were shares of the Company’s common stock issued and outstanding.
During the nine months ended September 30, 2021, the Company issued an aggregate of shares of its common stock for services with an estimated fair value of $661,292.
During the nine months ended September 30, 2021, the Company issued an aggregate of shares of its common stock, including 153,227,150 related to warrants accounted for as liabilities, in settlement of convertible notes payable, accrued interest of $343,011, and reclassified derivative liabilities of $6,270,052 to additional paid in capital in connection with the conversions.
During the nine months ended September 30, 2021, the Company issued a net amount of shares of its common stock in settlement of liabilities with an estimated fair value of $8,623, which included 10,892,411 related to shares to be issued as of December 31, 2020, the cancellation of shares for previous settlements, and 890,334 new shares issued for settlement of accounts payable.
During the nine months ended September 30, 2021, the Company issued of its common stock upon the settlement of related party notes payable and accounts payable with an estimated fair value of $141,750.
During the nine months ended September 30, 2021, the Company issued of its common stock upon the exercise of warrants on a cash basis, including warrant liabilities with an estimated value of $63,500.
During the nine months ended September 30, 2021, the Company sold of its common stock for an aggregate value of $1,638,126.
During the nine months ended September 30, 2021, the Company issued of its common stock with a value of $650,000 and will issue an additional shares for investments with an estimated value of $735,178 related to the Share Exchange Agreement. The investment balance is $650,000, with a liability of $754,961 included in subscriptions payable related to the value of the additional shares to be issued. The Company recognized a loss of $735,178 related to these additional shares during the nine months ended September 30, 2021.
During the nine months ended September 30, 2021, the Company issued shares of its common stock with a value of $650,000 for investments with an estimated value of $650,000 related to the Cannabis Global Exchange Agreement.
The Company was authorized to issue shares of $ par value common stock as of September 30, 2021, and as of October 21, 2021, is authorized to issue shares of common stock.December 31, 2021. As of December 31, 2020,February 4, 2022, we reduced the Company was authorized to issue shares of $ par value of our common stock.stock from $0.001 per share to zero par value ($0.00) per share. As of September 30, 2020March 31, 2022, and December 31, 2019,2021, the Company had and shares of common stock issued and outstanding, respectively.
During the ninethree months ended September 30, 2020,March 31, 2022, the Company issued an aggregate of shares of its common stock with respect to settle amounts previouslythe settlement of convertible notes and interest accrued with an estimated fair valuethereon of $6,7001,051,555.
During the ninethree months ended September 30, 2020,March 31, 2022, the Company issued a total net amount of shares of its common stock with respect to deferred finance costs with an estimated value of $43,000.
During the three months ended March 31, 2022, the Company sold an aggregate of shares of its common stock for services with an estimated fair value of $665,767528,850.
During the ninethree months ended September 30, 2020,March 31, 2022, the Company reclassified derivative liabilities to additional paid-in Capital with an estimated value of $233,069.
During the three months ended March 31, 2022, the Company issued an aggregate of shares of its common stock in settlementrespect to the Company’s acquisition of convertible notes payable, accrued interest and embedded derivative liabilitiescDistro in fiscal year 2021. Of this total, shares were issued as part of an aggregatethe contingent consideration earn out agreement with the former owners of cDistro, whereby the owners earned $.
During the nine months ended September 30, 2020, the Company issued of its common stock upon the conversion of related party notes payabletotal $1,000,000 payout. The remaining shares with an estimateda fair value if $234,632 were issued as part of $50,613.the amendment to the consideration issued to the former owners in June 2021 due to the decrease in the Company’s stock price since the acquisition.
During the nine months ended September 30, 2020, the Company issued shares of its common stock upon the exercise of warrants on a cashless basis.
During the nine months ended September 30, 2020, the Company issued 10,293,843 shares of its common stock in settlement of a legal case with an estimated fair value of $1,283,632.
On January 17, 2020, the Company entered into an amendment of an existingto a convertible promissory note issued to Paladin. The Paladin Advisors, LLC. In connection with such amendment, theCompany authorized the issuance ofissued a warrant to purchase up to shares of the Company’s common stock of the Company to Paladin Advisors, LLC, which warrant couldmay, under certain circumstances, be exercised on a cashless basis. This warrant was exercised during the three months ended June 30, 2020.
Options
As of September 30, 2021, the Company hasMarch 31, 2022, there are no outstanding stock options.options outstanding.
Warrants
The following table summarizes the stock warrant activity for the ninethree months ended September 30, 2021:March 31, 2022:
| Summarizes the Stock Warrant Activity | ||||||||||||||||
| Shares | Weighted-Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2020 | 293,054,702 | $ | 0.0011 | $ | 1,023,306 | |||||||||||
| Granted | 133,107,371 | 0.0084 | — | |||||||||||||
| Increase due to reset provision | (9,722,222 | ) | 0.0004 | — | ||||||||||||
| Exercised | (271,137,466 | ) | 0.01 | 1,427,826 | ||||||||||||
| Outstanding at September 30, 2021 | 145,302,385 | $ | 0.0033 | $ | 220,650 | |||||||||||
| Exercisable at September 30, 2021 | 145,302,385 | $ | 0.0033 | $ | 220,650 | |||||||||||
| Summarizes the Stock Warrant Activity | ||||||||||||||||||
| Shares | Weighted-Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||||
| Outstanding at December 31, 2021 | 145,302,385 | $ | 0.0033 | $ | 70,200 | |||||||||||||
| Granted | — | |||||||||||||||||
| Exercised | — | |||||||||||||||||
| Outstanding at March 31, 2022 | 145,302,385 | $ | 0.0033 | $ | 52,500 | |||||||||||||
| Exercisable at March 31, 2022 | 145,302,385 | $ | 0.0033 | $ | 52,500 | |||||||||||||
Certain warrants issued to debt holders have reset provisions whereby upon subsequent issuances of common stock at a price below the current exercise price, the number of warrants increase and the exercise price is reduced to the new price. The aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on optionswarrants with an exercise price less than the Company’s stock price of $ as of September 30, 2021,March 31, 2022, which would have been received by the option holders had those option holders exercised their options as of that date.
NOTE 1210 — FAIR VALUE MEASUREMENT
The Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Levellevel 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
All items required to be recorded or measured on a recurring basis are based upon level 3 inputs.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.
The carrying value of the Company’s cash, and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company did not have any items that would be classified as level 1 or 2 disclosures.
The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed in Note 3.6. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Note 36 are that of volatility and market price of the underlying common stock of the Company.
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company did not 0t have any derivative instruments that were designated as hedges.
The derivative liability as of September 30, 2021March 31, 2022 and December 31, 2020,2021, in the amount of $432,0241,646,127 and $4,426,057749,756, respectively, have a level 3 classification.
| 34 |
The following table provides a summary of changes in fair value of the Company’s Levellevel 3 financial liabilities for the ninethree months ended September 30, 2021:March 31, 2022:
| Summary of Changes in Fair Value of Derivative Liabilities | |||||
| Debt Derivative | |||||
| Balance, January 1, 2021 | $ | 4,426,057 | |||
| Increase resulting from initial issuance of additional convertible notes payable | 1,824,340 | ||||
| Decreases resulting from conversion of convertible notes payable | (6,270,052 | ) | |||
| Decreases resulting from payoff of convertible notes payable | (649,961 | ) | |||
| Loss from change in fair value included in earnings | 1,101,640 | ||||
| Balance, September 30, 2021 | $ | 432,024 | |||
| Summary of Changes in Fair Value of Derivative Liabilities | |||||
| Debt Derivative | |||||
| Balance, January 1, 2022 | $ | 749,756 | |||
| Increase resulting from initial issuance of additional convertible notes payable recorded as debt discount | 79,952 | ||||
| Increase resulting from initial issuances of additional convertible notes payable recorded as day one loss | 22,558 | ||||
| Decreases resulting from conversion or payoff of convertible notes payable | (233,069 | ) | |||
| Decreases resulting from payoff of convertible notes payable | (50,695 | ) | |||
| Loss due to change in fair value included in earnings | 1,077,624 | ||||
| Balance, March 31, 2022 | $ | 1,646,127 |
The total impact to net loss during the nine months ended September 30, 2021 was a loss of $451,679 from the net impact of the change in fair value and decreases from payoffs of convertible notes payable. Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. During the period ended September 30, 2021,March 31, 2022, the Company’s stock price decreased significantly from initial valuations. Additionally, issuances at prices below the original issuance amounts for certain convertible notes resulted in resets of the exercise price on certain conversion options that are accounted for as derivative liabilities, resulting in an increase in the derivative liability and additional loss on change in the fair value. As the stock price decreases for each of the related derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.
NOTE 1311 — RELATED PARTY TRANSACTIONS
As of March 31, 2022 and December 31, 2021, there were no related party advances outstanding. The Company’s current officers and stockholdersofficer, who is also a stockholder of the Company, advanced funds to the Company for travel related to business meetings and due diligence with respect to acquisition targets and working capital purposes. On April 7, 2022, the Company made a promissory note in the principal amount of $59,743.96 to the Company’s officer and stockholder in compensation for those advanced expenses.
As of September 30, 2021March 31, 2022, and December 31, 2020, respectively, there were 0 balances due to officers for travel and working capital purposes.
As of September 30, 2021, and December 31, 2020, accrued compensation due to officers and executives included as accrued compensation was $057,556 and $79,21442,925, respectively.
Related party sales contributed $0 and $3,262 to revenues for the three months ended September 30, 2021 and 2020, respectively, while related party sales contributed $0 and $11,565 to revenues for the nine months ended September 30, 2021 and 2020, respectively. Related party sales are comprised of sales of the Company’s hempSMART products to the Company’s directors, officers, employees, and sales team members. No related party sales were for services. All sales were made at listed retail prices and were for cash consideration.
NOTE 14 – ACQUISITION
On June 29,At March 31, 2022 and December 31, 2021, the Company, cDistro Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), and cDistro, Inc., a privately-held Nevada corporation engaged in the hemp and CBD product distribution business (“cDistro”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuantthere were 0 outstanding notes payable due to which, among other things, Merger Sub merged with and into cDistro on September 30, 2021, with cDistro becoming a wholly-owned subsidiary of the Company and the surviving corporation in the merger (the “Merger”). The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Contingent Consideration - Earnout Agreement
In connection to the Merger, the Company and the securityholder of cDistro (the “cDistro Stockholder”) entered into an earnout agreement dated June 29, 2021 (the “Earnout Agreement”), whereby the Company agreed to issue additional shares of its common stock to the cDistro Stockholder as compensation for the Merger conditioned upon the achievement of certain gross revenue milestones. If cDistro meets revenue targets of $600,000 per quarter, up to a total of $2,400,000 of revenue, the Company will issue shares worth $250,000 upon the achievement each quarterly revenue target, with the number of shares to be issued at each payout date calculated based on the lessor of shares of common stock or a 30% discount to the average close price of the Company’s common stock for the 20-day period immediately preceding the payout date of the earnout. In accordance with ASC 805, the Company accounts for this earnout agreement as contingent consideration based on the number of shares calculated as owed as of each quarter end, with changes in value to be recorded in earnings each reporting period.
Leak-Out Agreement
On June 29, 2021, in connection with the Merger and the Earnout Agreement, the cDistro Stockholder entered into a Lock-Up and Leak-Out Agreement with the Company pursuant to which, among other thing, such stockholder agreed to certain restrictions regarding the resale of the common stock issued pursuant to the Merger for a period of six months from the date of the Merger.
Employment Agreement
On June 29, 2021, in connection with the Merger, the Company and the Chief Executive Officer of cDistro entered into an employment agreement, pursuant to which that employee will serve as cDistro’s Chief Executive Officer for a three-year term.
The acquisition of cDistro is being accounted for as a business combination under ASC 805. The Company is continuing to gather evidence to evaluate what identifiable intangible assets were acquired, such as a customer list, and the fair value of each, and expects to finalize the fair value of the acquired assets within one year of the acquisition date. officers.
The aggregate preliminary fair value of consideration for the cDistro acquisition was as follows:
| Schedule of aggregate preliminary fair value | ||||
| Amount | ||||
| Cash, net of cash acquired of $94,450 | $ | 155,550 | ||
| Contingent Consideration - Earnout Agreement | 1,000,000 | |||
| 265,164,070 shares of common stock | 1,617,501 | |||
| Total preliminary consideration transferred | $ | 2,773,051 | ||
During the nine months ended September 30, 2021, the Company has paid $250,000 of the cash consideration.
The following information summarizes the preliminary allocation of the fair values assigned to the assets acquired and liabilities assumed at the acquisition date:
| Schedule summarizes the preliminary allocation of the fair values | ||||
| Accounts Receivable | $ | 26,875 | ||
| Inventory | 7,816 | |||
| Other Assets | 518 | |||
| Goodwill | 2,925,884 | |||
| Accounts payable | (181,042 | ) | ||
| Other accrued liabilities | (7,000 | ) | ||
| Net assets acquired | $ | 2,773,051 | ||
Unaudited Pro Forma Financial Information
The following table sets forth the pro-forma consolidated results of operations for the three and nine months ended September 30, 2021 and 2020 as if the cDistro acquisition occurred on January 1, 2020. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisitions had taken place on the dates noted above, or of results that may occur in the future.
| Schedule of pro-forma consolidated results of operations | ||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | 442,178 | $ | 62,816 | $ | 886,417 | $ | 297,037 | ||||||||
| Operating loss | (1,419,665 | ) | (580,152 | ) | (3,275,525 | ) | (1,928,929 | ) | ||||||||
| Net loss | (1,764,592 | ) | (1,861,211 | ) | (7,297,520 | ) | (4,247,716 | ) | ||||||||
| Net loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||
| Weighted Average common shares outstanding | 5,266,505,915 | 1,444,024,204 | 5,057,632,261 | 783,425,637 | ||||||||||||
NOTE 1512 – SUBSEQUENT EVENTS
Amendment to Lock-Up Agreement.
On OctoberApril 1, 2021,2022, the Company entered intoissued shares of restricted common stock to North Equities USA Ltd., valued at $100,000, or $0.0013 per share, in compensation pursuant to a First Amendmentconsulting agreement dated December 24, 2021.
On April 5, 2022, the Company issued shares of common stock to Lock-Up Agreementan accredited investor in partial conversion of a promissory note dated May 25, 2021, at a per-share conversion price of $0.00039.
On April 6, 2022, the Company issued shares of restricted common stock to Beach Labs, Inc., pursuant to the earnout agreement between the Company and ECOX, dated and effective October 1, 2021which amends that certain Lock-Up Agreement entered into betweenBeach Labs executed in relation to the acquisition of cDistro, Inc.
On April 7, 2022, the Company and ECOX on February 26, 2021.
The Lock-Up Agreement was ancillary to the share exchange agreement dated February 26, 2021 between the Company and ECOX, whereby the parties exchanged common stock equal in value to $650,000, subject to the restrictions of the Lock-Up Agreement. The Lock-Up Agreement provided for an initial lock-up period of 12 months following its effective date, andmade a subsequent sell volume limitation of the quantity of shares equaling an aggregate maximum sale value of $20,000 per week, or $80,000 per month until all shares are sold.
The Amended Lock-Up Agreement amends the Lock-Up Agreement by amending the initial lock-up period from 12 months following its effective date to 6 months following its effective date. All other terms and conditions of the Lock-Up Agreement remain unaffected.
Salinas Diversified Ventures
On October 6, 2021, the Company, through its wholly owned subsidiary Salinas Diversified Ventures, Inc., a California corporation, entered into an Asset Purchase Agreement, Management Services Agreement, Cooperation Agreement and Employment Agreement with VBF Brands, Inc., a California corporation (“VBF”), a wholly owned subsidiary of Sunset Island Group, Inc., a Colorado corporation (“SIGO”), and Ms. Lori Livacich, individually, and as an affiliate of both VBF and SIGO (“Livacich”). No material relationship exists between the parties, other than with respect to the material definitive agreements.
VBF and SIGO agreed to sell and transfer to the Company all of VBF’s outstanding stock, and, by virtue of the Management Services Agreement, appoint Mr. Jesus Quintero as President of VBF, vesting management and control of VBF’s licensed cannabis operations in the Company. Concurrently, VBF and Livacich entered into a Cooperation Agreement, whereby VBF and Livacich agreed to cooperate to facilitate the transfer of ownership of VBF, which includes licenses issued by the City of Salinas, County of Monterey, and the State of California, to operate a cannabis nursery, cultivation facility and manufacturing and distribution operations to the Company. The Company also agreed to retain Livacich as Chief Executive Officer for a term of two years and agreed to compensate her with a salary including a signing cash bonus of $250,000, and a $250,000 performance cash bonus payable after six months after the Effective Date.The bonus is conditioned upon Livacich meeting an agreed to “Net Revenue” target of $1,000,000 from VBF’s operations during the six month period after closing of the Asset Purchase Agreement, and her compliance with the terms and conditions of this Asset Purchase Agreement, the Management Services Agreement and the Cooperation Agreement.
As consideration for the transaction, the Company agreed to assume two secured convertible promissory notes issued by SIGO with St. George. The first note was issued December 8, 2017, in the original principal amount of $170,000 (“Note 1”); and the second note was issued February 13, 2018, in the original principal amount of $4,245,000 (“Note 2”). As part of Note 2, SIGO also issued warrants to St. George to purchase shares in SIGO, and shares of Series A Preferred Stock in SIGO. St. George agreed to cancel the warrants and preferred shares upon the Company’s assumption of Notes 1 and 2 (collectively, the “SIGO Notes”). On October 6, 2021, the Company issued and sold a convertible promissory note to St. George in the principal amount of $3,455,17859,743. As partial consideration for the purchase of the securities, St. George assigned and transferred.96 to the Company, who agreed to receive and accept, the SIGO Notes, valued at $1,770,982. The Company agreed to pay an original issue discount of $574,196 and $10,000 in legal fees. St. George paid a cash purchase price of $1,100,000 to the Company.related party.
Increase in Authorized Common Stock
On October 21, 2021, the Company filed an amendment to its articles of incorporation to increase the Company’s authorized common stock from to shares.
Regulation A Offering
On October 1, 2021, the Company filed an Offering Statement on Form 1-A (File No. 024-11668) (the “Regulation A Offering”) with the Securities and Exchange Commission with respect to shares of common stock that was qualified by the SEC on October 20, 2021.
Common Stock Issued for Cash
In October 2021, the Company sold a total of shares of its common stock for a total of $260,000, or $ per share, under its Regulation A Offering.
On October 6, 2021 the Company issued shares of common stock upon the full conversion of $58,453 of principal and interest on the December 2020 convertible note payable to Bucktown Capital, LLC.
On October 22, 2021 the Company issued shares of common stock upon the conversion of $69,111 of principle and accrued interest on the January 2021 convertible note payable to Bucktown Capital, LLC.
In October 2021, the Company sold a total of shares of common stock for cash proceeds of $370,000.
Subsequent to September 30, 2021, the Company repaid approximately $435,000 on the convertible note payable with Labrys.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations together with and our consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 2021, as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Overview
Background
History and Development of the Company
We were incorporated in the State of Utah on October 4, 1985, under the name of Mormon Mint, Inc., and our business focused on the manufacture and marketing of commemorative medallions related to the Church of Jesus Christ of Latter-Day Saints. On January 5, 1999, the Company changed its name to Converge Global, Inc., and subsequently focused on the development and implementation of Internet web content and e-commerce applications. In the period from 2009 to 2014, we operated primarily in the mining exploration business, and in 2015, we left the mining business and began an internet-based marketing business focused on online marketing of service items to the hospitality and food service industry, selling retail product directly to consumers from food distributors via credit card and commercial accounts.
On September 4, 2015, Donald Steinberg and Charles Larsen acquired control of the Company through the purchase of 400,000,000 shares of restricted common stock and 10,000,000 shares of Preferred Class A stock for $105,000.00, in equal amounts. On September 9, 2015, Donald Steinberg was appointed Chairman of the Board, Chief Executive Officer and Secretary of the Company. Mr. Larsen was appointed to the Board of Directors. The new management changed the Company’s business plans and operations to focus on emerging opportunities in the cannabis and hemp industries. On December 1, 2015, the Company changed its name to Marijuana Company of America, Inc. and its stock trading symbol to MCOA. On December 6, 2019, a change of control occurred, where Donald Steinberg and Charles Larsen transferred their control shares to directors Robert Coale, Edward Manolos and Jesus Quintero. Also on December 6, 2019, Jesus Quintero, who was appointed as Chief Financial Officer in 2018, was appointed as our Chief Executive Officer. Mr. Quintero is currently our Chief Executive Officer and Chief Financial Officer, and a member of the Board of Directors.
Marijuana Company of America is a Utah corporation quoted on OTC Markets Pink Tier under the symbol “MCOA”. We are based in Los Angeles, California.
We are an owner and operator of licensed cannabis cultivation, processing and dispensary facilities and a developer, producer and distributor of innovative branded cannabis and cannabidiol (“CBD”) products in the United States. We are committed to creating a national distributorship and retail brand portfolio of branded cannabis and CBD products, although as of the date of this filing, marijuana (defined as cannabis containing delta-9 tetrahydrocannabinol concentration of more than 0.3 percent on a dry weight basis) currently remains illegal under U.S. federal law.
Through hempSMART™, our retail CBD product division, we develop and sell consumer products that include industrial hemp derived, non-psychoactive CBD as an ingredient, under the brand name “hempSMART™” through our wholly-owned subsidiary H Smart,cDistro, Inc. In addition, we provide consulting services to licensed cannabis and/or hemp operators with respect to financial accounting and bookkeeping and real property management. Our business also includes making selected investments and entering into joint ventures with start-up businesses in the legalized cannabis and hemp industries.
Through cDistro,, a Nevada corporation, our wholly-owned CBD product distribution business, we distribute hemp and CBD products throughout the United States. Through cDistro, we distribute high quality hemp-derived cannabinoid products, as detailed on our cDistro website, www.cdistro.com.www.cdistro.com. cDistro offers CBD brands along with smoke and vape shop related products to wholesalers, c-stores, specialty retailers, and consumers in North America. Through cDistro, we work exclusively with select manufacturers to deliver retail service and products at wholesale prices
Our Products
hempSMART™
Our consumer products containing hemp and CBD are sold throughThrough our wholly-ownedwholly owned subsidiary H Smart, Inc., a Delaware corporation, we develop and sell CBD products under the brand name hempSMART™. Our current hempSMART™ products offerings includebusiness also includes making selected investments and entering into joint ventures with start-up businesses in the following:
Our Consulting Servicesindustries.
In additionReaders are directed to sellingreview our hempSMART™ products, we also provide certain services to licensed cannabis and/or hemp operators. Our services include the following:detailed disclosures in Item 1, Business; Principal Products and their Markets; Joint Ventures and Investments above. A summary of our investment and joint venture activity follows:
Financial Accounting and BookkeepingJoint Ventures
Bougainville Ventures, Inc. Our joint venture with Bougainville Ventures, Inc. is currently in litigation (See Legal Proceedings, Item 3). We provide financial accounting, bookkeepingrecorded an annual impairment in 2017 of $792,500, reflecting the Company’s percentage of ownership of the net book value of the investment. During 2018, the Company recorded equity losses of $37,673 and reporting protocols in order$11,043 for the first and second quarters respectively, and recorded an annual impairment of $285,986 for the year ended December 31, 2018, at which time we determined the investment to allow licensed cannabis and/or hemp operators in those states where cannabis has been legalized for medicinal and/or recreational use,be fully impaired due to report, collect, verifyBougainville’s breach of contract and state effective financial records and disclosure. We provide a comprehensive accounting strategy based on best accounting practices.resulting litigation.
Real Property Management ConsultingGlobal Hemp Group Scio Oregon Joint Venture.
Our property management consulting services consist On May 8, 2018, we entered into a joint venture with Global Hemp Group, Inc., develop a project to commercialize the cultivation of providing planning, budgeting, acquisition, accounting and management services to licensed cannabis and/orindustrial hemp operators in those states where cannabis and/or hemp has been legalized for medicinal and/or recreational use and who are searching foron a 109-acre parcel of real property owned by the Company and Global Hemp Group in Scio, Oregon, and operating under the Oregon corporation Covered Bridges, Ltd. The joint venture agreement commits the Company to conduct operations.
We have not yet entereda cash contribution of $600,000 payable on the following funding schedule: $200,000 upon execution of the joint venture agreement; $238,780 by July 31, 2018; $126,445 by October 31, 2018; and, $34,775 by January 31, 2019. The Company has complied with its payments. The 2018 crop of hemp grown on the joint venture’s real property consisted of 33 acres of high yielding CBD hemp grown in an orchard style cultivation on the property. The 2018 harvest consisted of approximately 37,000 high yielding CBD hemp plants producing 24 tons of biomass that produced 48,000 pounds of dried biomass. However, there were delays with Global Hemp Group’s management and maintenance of the business and the biomass that caused degradation to the harvested crop affecting marketability. Additional issues and disputes arose between the Company and Global Hemp Group. These disputes led to the parties entering into any engagementsa settlement agreement on September 28, 2020, whereby Global Hemp Group agreed to pay the Company $200,000 and issue common stock to the Company equal in value to $185,000 as of September 28, 2020, subject to a non-dilutive protection provision. Additionally, Global Hemp Group agreed to pay the Company $10,000 to cover the Company’s legal fees relating to the Agreement. In exchange for such services and have not generated any revenue relatedthe settlement consideration, the Company agreed to such services.
cDistro
On June 29, 2021, we acquired cDistro, Inc. which is engagedrelinquish its ownership interest in the hemp and CBD product distribution business. Specifically, cDistro distributes high quality hemp-derived cannabinoid products on its website, www.cdistro.com. cDistro offers CBD brands along with smoke and vape shop related products to wholesalers, c-stores, specialty retailers, and consumers in North America. Through cDistro, we work exclusively with select manufacturers to deliver retail products at wholesale prices.
Current Joint Ventures and Investmentsjoint venture.
Natural Plant Extract of California & Subsidiaries Joint Venture; On April 15, 2019, the Company entered into a joint venture agreement with Natural Plant Extracts of California, Inc. and subsidiaries (“NPE”). The purpose of the joint venture was to utilize NPE’s California and City cannabis licenses to jointly operate a business named “Viva Buds” to operate a licensed cannabis distribution service in California. In exchange for acquiring 20% of NPE’s common stock, the Company agree to pay two million dollars and issue NPE one million dollars’ worth of the Company’s restricted common stock. As of February 3, 2020, the Company was in arrears in its payment obligations under the joint venture agreement, and the parties entered into a settlement and release of all claims terminating the joint venture. The parties agreed to reduce the Company’s equity ownership in NPE from 20% to 5%. The Company also agreed to pay NPE $85,000 and the balance of $56,085.15 paid in a convertible promissory note issued with terms allowing NPE to convert the note into common stock at a 50% discount to the closing price of MCOA’s common stock as of the maturity date. As of the date of this filing, the Company satisfied its payment obligations under the settlement agreement. Our continuing 5% equity ownership in NPE involves related parties, since Edward Manolos, our director, is also a director and beneficial owner of 18.8% of the common stock in NPE.
Joint Ventures in Brazil and Uruguay
; On September 30,October 1, 2020, we entered into two joint venture agreementsJoint Venture Agreements with Marco Guerrero, oura director of the Company, dated September 30, 2020, to form joint venture operations in Brazil and in Uruguay to produce, manufacture, market and sell ourthe Company’s hempSMART™ products in Latin America, and will also work to develop and sell hempSMART™ products globally.
The Joint Venture Agreements contain equal terms for the formation of joint venture entities in Uruguay and Brazil. The Brazilian joint venture will be headquartered in São Paulo, Brazil, and will be named HempSmart Produtos Naturais Ltda. (“HempSmart Brazil”). The Uruguayan joint venture will be headquartered in Montevideo, Uruguay and will be named Hempsmart Uruguay S.A.S. (“HempSmart Uruguay”). Both are in the development stage.
CannabisInvestments
Share Exchange with Cannabis Global, Inc.
Joint Venture
On May 12, 2021, we entered into a joint venture agreement with Cannabis Global, Inc. (“Cannabis Global”) pursuant to which we will invest up to $250,000 into a newly formed entity (“MCOA Lynwood”) and Cannabis Global, through Natural Plant Extracts of California, Inc., an entity in which Cannabis Global owns a majority interest, will operate a regulated and licensed laboratory to manufacture various cannabis products in the State of California. As of September 30, 2021, we have invested $158,000.
Share Exchange
On September 30, 2020, wethe Company entered into a securities exchange agreement with Cannabis Global, pursuant to which weInc. (OTC: CBGL), a Nevada corporation. By virtue of the agreement, the Company issued 650,000,000 shares of ourits unregistered common stock to Cannabis Global in exchange for 7,222,222 shares of Cannabis Global unregistered common stock. In addition, weThe Company and Cannabis Global also entered into a lock-up leak-outlock up leak out agreement, which contains certain restrictions with respect to theprevents either party from sales of such securities. During the three months ended September 30, 2021,exchanged shares for a period of 12 months. Thereafter the Company issuedparties may sell not more than the 650,000,000quantity of shares equaling an aggregate maximum sale value of stock to$20,000 per week, or $80,000 per month until all Shares and Exchange Shares are sold. Our transaction with Cannabis Global, pursuant to the true-up value provisionInc. is material and involves related parties, since Edward Manolos, our director and holder of the securities exchange agreement.Preferred Class A stock, is also a director of Cannabis Global, Inc.
Joint Venture Subject to Ongoing Dispute
Share Exchange with Eco Innovation Group, Inc.On March 16, 2017,February 26, 2021, we entered into a joint venture agreementShare Exchange Agreement with Bougainville Ventures,Eco Innovation Group, Inc., a Nevada corporation quoted on OTC Markets Pink (“Bougainville”ECOX”) to among other things, engageacquire the number of shares of ECOX’s common stock, equal in value to $650,000 based on the per-share price of $0.06, in exchange for the number of shares of MCOA common stock equal in value to $650,000 based on the closing price for the trading day immediately preceding the effective date (the “Share Exchange Agreement”). For both parties, the Share Exchange Agreement contains a “true-up” provision requiring the issuance of additional common stock in the development and promotion of productsevent that a decline in the legalized cannabis industry in Washington State. We believe that somemarket value of either parties’ common stock should cause the aggregate value of the fundsstock acquired pursuant to the Share Exchange Agreement to fall below $650,000. Complementary to the Share Exchange Agreement, the Company and ECOX entered into a Lock-Up Agreement dated February 26, 2021 (the “Lock-Up Agreement”), providing that the shares of common stock acquired pursuant to the Share Exchange Agreement shall be subject to a lock-up period preventing its sale for a period of 12 months following issuance and limiting the subsequent sale to aggregate maximum sale value of $20,000 per week, or $80,000 per month. On October 1, 2021, we paidentered into a First Amendment to Bougainville were misappropriatedLock-Up Agreement between the Company and Eco Innovation Group, Inc., dated and effective October 1, 2021 (the “Amended Lock-Up Agreement”), which amends that there was self-dealing withcertain Lock-Up Agreement entered into between the Company and Eco Innovation Group, Inc. on February 26, 2021 (the “Original Lock-Up Agreement”). The Amended Lock-Up Agreement amends the Original Lock-Up Agreement in one respect, by amending the initial lock-up period from 12 months following its effective date to those funds6 months following its effective date. All other terms and that Bougainville misrepresented certain material facts in the joint venture agreement. As a resultconditions of the foregoing, on September 20, 2018, we filed suit against Bougainville, Andy Jagpal, Richard Cindric, et al. in Okanogan County Washington Superior Court. See Part II, Item 1 - Legal Proceedings. Original Lock-Up Agreement remain unaffected.
Recent Developments
Salinas Diversified VenturesAsset Purchase Agreement with VBF Brands, Inc.
On October 6, 2021, the Company, through its wholly owned subsidiary Salinas Diversified Ventures, Inc., a California corporation, entered into an Asset Purchase Agreement, Management Services Agreement, Cooperation Agreement and Employment Agreement with VBF Brands, Inc., a California corporation (“VBF”), a wholly owned subsidiary of Sunset Island Group, Inc., a Colorado corporation (“SIGO”), and Ms. Lori Livacich, individually, and as an affiliate of both. VBF and SIGO (“Livacich”). No material relationship exists between the parties, other than with respectagreed to transfer to the material definitive agreements.Company all of VBF’s outstanding stock to the Company, and appointed our CEO and CFO Jesus Quintero as President of VBF.
VBF owns various fixed assets including machinery and equipment, a lease for a 10,000 square foot facility located at 20420 Spence Road, Salinas, California, 93908, leasehold improvements, good-will, inventory, tradenames including “VBF Brands,” trade secrets, intellectual property, and other tangible and intangible properties, including licenses issued by the City of Salinas, County of Monterey, and the State of California to operate a licensed cannabis nursery, cultivation facility, and operations for the manufacturing and distribution of cannabis and cannabis products.
VBF and SIGO agreed to sell and transfer to the Company all of VBF’s outstanding stock, and, by virtue of the Management Services Agreement, appoint Mr. Jesus Quintero as President of VBF, vesting management and control of VBF’s licensed cannabis operations in the Company. Concurrently, VBF and Livacich entered into a Cooperation Agreement, whereby VBF and Livacich agreed to cooperate to facilitate the transfer of ownership of VBF, which includes licenses issued by the City of Salinas, County of Monterey, and the State of California, to operate a cannabis nursery, cultivation facility and manufacturing and distribution operations to the Company. The Company also agreed to retain Livacich as Chief Executive Officer for a term of two years and agreed to compensate her with a salary including a signing cash bonus of $250,000, and a $250,000 performance cash bonus payable after six months after the Effective Date.The bonus is conditioned upon Livacich meeting an agreed to “Net Revenue” target of $1,000,000one million dollars ($1,000,000) from VBF’s operations during the six monthsix-month period after closing of the Asset Purchase Agreement, and her compliance with the terms and conditions of this Asset Purchase Agreement, the Management Services Agreement and the Cooperation Agreement.
As consideration for the transaction, the Company agreed to assume two secured convertible promissory notes issued by SIGO withto St. George.George Investments, LLC, a Utah limited liability company (“St. George”) (the “SIGO Notes”). The first note was issued December 8, 2017, in the original principalface amount of $170,000 (“Note 1”);$170,000.00, and the second note was issued February 13, 2018, in the original principalface amount of $4,245,000 (“Note 2”). As part of Note 2,$4,245,000.00. SIGO also issued warrants to St. George to purchase common shares in SIGO, and 50fifty (50) shares of Series A Preferred Stock in SIGO.SIGO’s preferred stock. St. George agreed to cancel the warrants and preferred shares upon the Company’s assumption of Notes 1the SIGO Notes.
Under the Asset Purchase Agreement, the closing is conditioned upon certain conditions precedent, specifically (i) VBF and 2 (collectively,SIGO’s full corporate authorization, consent and execution of this Agreement; (ii) VBF’s sale to MCOA of 100% of the “SIGO Notes”). On October 6, 2021, the Company issued and sold a convertible promissory noteoutstanding shares of VBF; (iii) full corporate authorization, consent compliance with and execution of the Management Services Agreement and Cooperation Agreement; (iv) SIGO’s disclosure of the Agreement on Form 8-K with the Securities and Exchange Commission; (v) full cooperation in MCOA’s financial auditing of VBF in accordance with ASC 805, including providing unrestricted access to St. Georgeall VBF corporate and financial records and providing all necessary cooperation with VBF financial personnel; (vi) full cooperation in aiding and assisting Buyer with its change of ownership applications with the relevant licensing authorities; (vii) the warranty of truthful representations and execution of and compliance with the terms and conditions of the Executive Employment Agreement, Management Services Agreement and the Cooperation Agreement.
As of the date of this filing, the conditions precedent to the closing of the Asset Purchase Agreement remain in the principal amountprocess of $3,455,178. As partial considerationimplementation, so that the Asset Purchase Agreement closing has not yet occurred pursuant to its terms. Legal counsel for MCOA is currently in the purchaseprocess of working with VBF, Salinas Diversified Ventures, and the securities, St. George assignedrelevant state and transferredlocal governments to effect the Company, who agreedchange of control and license transfers necessary to receive and accept,close the SIGO Notes, valued at $1,770,982. The Company agreed to pay an original issue discount of $574,196 and $10,000 in legal fees. St. George paid a cash purchase price of $1,100,000 to the Company.Asset Purchase Agreement.
Results of Operations
Comparison of the Three Months Ended September 30,March 31, 2022 and 2021 Compared
For the three months ended March 31, 2022 and 2021, we had net losses from continuing operations of $835,792 and $782,917, respectively, an increase of $52,875. This increase is due primarily to Three Months Ended September 30, 2020the effects of the restructuring of our sales team and strategies for 2022 as we work towards building stronger sales levels and invest in our operations for future efficiencies and to meet market demands as we continue to grow.
Revenues
Revenues
TotalThe Company generated revenues of $561,321 and $34,930 for the three months ended September 30,March 31, 2022 and 2021, and 2020, were $442,178 and $53,195, respectively, anrespectively. The increase of $388,983. This increase$526,391 is mainly attributableprimarily attributed to $407,246 of product sales from ourthe Company’s new acquisition of cDistro which was began full operations duringthat distributes CBD and hemp products throughout the quarter ended September 30, 2021. In addition, we also recorded $12,581 inUSA.
The following table identifies products and equipment lease revenues to a cannabis distributor and manufacturer, the Lynwood-MCOA joint venture. This joint venture is between us and Cannabis Global Inc. and pertains to the licensed cannabis operations of Natural Plant Extract of California Inc. in the city of Lynwood, CA. We also sold $22,351 of hempSMART products during the three months ended September 30,March 31, 2022 and 2021, due to our new sales platform as well as changes to our sales strategy including the rebranding of hempSMART products.respectively:
| March 31, 2022 | March 31, 2021 | |||||||
| Body Lotion | $ | — | $ | 665 | ||||
| Brain | $ | 924 | $ | 91 | ||||
| Drink Mix | $ | — | $ | 143 | ||||
| Drops | $ | 6,965 | $ | 19,364 | ||||
| Face Moisturizer | $ | — | $ | 2,704 | ||||
| Pain Cream | $ | 2,901 | $ | 11,755 | ||||
| Pet Drops | $ | 1,124 | $ | 208 | ||||
| Bottles – Nic | $ | 213 | $ | — | ||||
| Bottles – Salt Nic | $ | 288 | $ | — | ||||
| Disposables–Tobacco – Free Nicotine | $ | 303,914 | $ | — | ||||
| Kratom | $ | 209,445 | $ | — | ||||
| Other cDistro products | $ | 12,759 | $ | — | ||||
| Vape products | $ | 290 | $ | — | ||||
| MCOA Equipment Lease rental | $ | 22,500 | $ | — | ||||
| $ | 561,321 | $ | 34,930 | |||||
The following table identifiesCost of sales of products and services during the three months ended September 30, 2021 and 2020:
| Products | September 30, 2021 | September 30, 2020 | ||||||
| Body Lotion - hempSMART | $ | 184 | $ | 679 | ||||
| Brain - hempSMART | 1,153 | 4,610 | ||||||
| Drink Mix - hempSMART | — | 563 | ||||||
| Drops - hempSMART | 11,533 | 25,541 | ||||||
| Face Moisturizer - hempSMART | — | 1,606 | ||||||
| Pain Capsules - hempSMART | — | 2,714 | ||||||
| Pain Cream - hempSMART | 8,379 | 14,911 | ||||||
| Pet Drops - hempSMART | 2,939 | 2,571 | ||||||
| Accessories and hardware - cDistro products | 21,844 | — | ||||||
| CBD Products – cDistro product | 485 | — | ||||||
| E-Liquids - cDistro | 75,531 | — | ||||||
| Kratom - cDistro | 306,256 | — | ||||||
| Nutraceutical products - cDistro | 441 | — | ||||||
| Other products – cDistro | 852 | — | ||||||
| Leased equipment revenues – Marijuana Company of America | 12,581 | — | ||||||
| Totals | $ | 442,178 | $ | 82,958 | ||||
Related Party Sales
Related party sales contributed $0 and $3,262 to revenues for the three months ended September 30, 2021 and 2020, respectively. Related party sales are comprised of sales of our hempSMART products to our directors, officers, employees, and sales team members. No related party sales were for services. All sales were made at listed retail prices and were for cash consideration.
Costs of Sales
Costs of sales primarily consist of inventory cost and overhead, manufacturing, packaging, warehousing, shipping and direct labor costs directly attributable to all of our hempSMART products. For the three months ended September 30,March 31, 2022 and 2021, and 2020, our total costs of sales were $378,491$510,262 and $37,170, respectively, an$25,180, respectively. The increase of $341,321. The increase in costs of sales is$485,082 was primarily attributed to volumeour new distributor acquisition cDistro purchases products from our acquisition of cDistro which began full operations with us duringvarious CBD and hemp manufactures for resale.
Gross profit
For the three months ended September 30, 2021.March 31, 2022 and 2021, gross profit was $51,059 and $9,750, respectively. This increase of $41,309 was primarily attributed to our hempSMART product rebranding and the Company’s new acquisition cDistro that sells CBD and hemp products throughout the USA. We anticipate an increase in sales as we continue the deployment our new e-commerce program during the rest of 2022; however, no assurance can be provided that sales will increase. As a percentage of total revenues, gross profit was 9.1% and 27.9% for the three months ended March 31, 2022 and 2021, respectively.
| 39 |
Gross Profit
Selling and marketing expenses
For the three months ended September 30,March 31, 2022 and 2021, selling and 2020, gross profit was $63,687marketing expenses were $81,373 and $16,025, respectively, an increase$107,549, respectively. This decrease of $47,662. This increase$26,176 is mainly attributed to gross profits from our acquisition of cDistro which began full operations with us during the three months ended September 30, 2021. In addition, our hempSMART business improved gross profits due to new pricing and promotions associated withmore cost efficiencies in our sales restructuring and new sales strategies, along with the effectsmarketing program as we focused more of the COVID-19 pandemic during the three months ended September 30, 2021. As a result, the combined gross margin was 14.4% and 30.1%our efforts on social media, for the three months ended September 30, 2021 and 2020, respectively.
March 31, 2022.
SellingPayroll and Marketing Expensesrelated expenses
For the three months ended September 30,March 31, 2022 and 2021, payroll and 2020, selling and marketingrelated expenses were $167,664$276,913 and $125,942, respectively,$138,145, respectively. This increase of $138,768, is mainly attributable to a $54,000 of salaries from our new acquisition cDistro as well as $65,577 from our new cannabis operations manager. In addition, $157,336 relates to an increase of $41,722. The increase is due primarily to the sellingin CEO compensation and marketing expenses from our acquisition of cDistro which began operations with usadditional staffing during the three months ended September 30, 2021. These expenses included expenses for advertisement, promotions and digital media during the period. In addition, hempSMART added marketing staff for promotional opportunities along with new market analyst to assist market trends.March 31, 2022.
Payroll and Related ExpensesStock-based compensation
We measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. We record tock-based compensation expense in the same expense classifications in the statements of operations, as if such amounts were paid in cash. For the three months ended September 30,March 31, 2022 and 2021, stock-based compensation was $9,000 and 2020, payroll and related expenses were $142,830 and $62,000, respectively, an increase$19,900, respectively. This decrease of $80,830. Of this increase, $45,000$10,900 is attributed to payroll with regards to our acquisition of cDistro which began operations with us during the period. and in addition, an increases in our Chief Executive Officer’s compensation and an increase in our staffdue less equity issuances during the three months ended September 30, 2021 as compared to September 30, 2020.
Stock-based Compensation
For the three months ended September 30, 2021 and 2020, stock-based compensation was $529,393 and $123,000 respectively, an increase of $406,393. This increase was due to the issuance of equity pursuant to a stock incentive plan to officers, employees, and vendors during the three months ended September 30, 2021 as compared to September 30, 2020.March 31, 2022.
General and Administrative Expensesadministrative expenses
General
Other general and administrative expenses increaseddecreased to $639,767$468,515 for the three months ended September 30, 2021 asMarch 31, 2022 compared to $294,821$525,682 for the three months ended September 30, 2020.March 31, 2021. General and administrative expenses include research and development, building rent, utilities, legal fees, office supplies, subscriptions, and office equipment. The decrease of $57,167 is attributed to an increase of $344,946 during$72,642 related to the Company’s acquisition of cDistro at $50,824 and our new subsidiary Hempsmart Brazil at $20,512. This was offset by a decrease for the three months ended September 30, 2021 is primarily attributedMarch 31, 2022 in legal and consulting of $58,835 due to an increase in the followingless legal expenses - legal fees of approximately $88,000 related to acquisition costs and SEC filings, approximately $67,000 in travel related expenses, $67,000 for investor relations as we expanded our investor/stockholder communications, $34,000 in bad debt expenses and the remaining expenses were attributed to operating expenses from our acquisition of cDistro which began operations with us during the three months ended September 30, 2021.
period as compared to March 31, 2021; a reduction of $20,000 in board of director fees as less equity was issued as compensation to the board of directors as compared to March 31, 2021; and a $44,410 reduction in consulting fees due to cost reduction measures.
GainLoss on Changechange in Fair Valuefair value of Derivative Liabilitiesderivative liabilities
During the three months ended September 30,2022 and 2021, and 2020, we issued convertible promissory notes and warrants with an embedded derivative, all requiring us to adjust to reflect the fair value of the derivatives each reporting period, and mark to market as a non-cash adjustment to our current period operations. This resulted in a gain of $1,177,610 and a loss of $1,454,903 change in fair value of derivative liabilities for the three months ended September 30, 2021 and 2020, respectively.
Loss/Income on Equity Investment and Loss on Share Exchange Agreement
During the three months ended September 30, 2021 and 2020, we adjusted the carrying value of our investment for our pro rata share of equity investment loss of $0 and an equity investment income of $240,198, respectively. The Company also recognized a loss on its share exchange agreement with Eco Innovation Group of $340,984 during the nine months ended September 30, 2021.
Loss/Gain on Settlement of Debt
During the three months ended September 30, 2021 and 2020, we realized a loss on settlement of debt of $88,990 and a gain of $383,440, respectively.
Loss on Sale of Trading Securities
During the three months ended September 30, 2021 and 2020, we realized a loss on sale of trading securities of $543,200 and $0, respectively.
Interest Expense
Interest expense during the three months ended September 30, 2021 was $549,363 compared to $688,090 for the three months ended September 30, 2020. Interest expense primarily consists of interest incurred on our convertible and non-convertible debt. The debt discounts amortization incurred during the three months ended September 30, 2021 and 2020 was $525,358 and $344,644, respectively.
Net Loss
Our net loss for the three months ended September 30, 2021 and 2020 was $1,764,591 and $1,872,171, respectively, a decrease of $107,580. The net loss of $1,764,591 for the three months ended September 30, 2021 represents 399.1% of total revenues for the period. The net loss of $1,872,171 for the three months ended September 30, 2020 represents 3,519.4% of total revenues for the period.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Revenues
Total revenues for the nine months ended September 30, 2021 and 2020, were $493,988 and $217,972, respectively, an increase of $276,016. This increase is mainly attributable to $407,589 of product sales from our acquisition of cDistro, which was effective on June 30, 2021 and accordingly, began to contribute revenue during the period ended September 30, 2021. In addition, we also recorded $12,581 in equipment lease revenues to a cannabis distributor and manufacturer, under the Lynwood joint venture. This joint venture is between us and Cannabis Global Inc. and pertains to the licensed cannabis operations of Natural Plant Extract of California Inc. in the city of Lynwood, CA. We also sold $73,818 of hempSMART products during the nine months ended September 30, 2021, due to our new sales platform as well as changes to our sales strategy, including the rebranding of our hempSMART product line.
The following table identifies sales of products and services during the nine months ended September 30, 2021 and 2020:
| Products | September 30, 2021 | September 30, 2020 | ||||||
| Body Lotion - hempSMART | $ | 1,251 | $ | 3,131 | ||||
| Brain - hempSMART | 1,514 | 24,284 | ||||||
| Drink Mix - hempSMART | 167 | 2,615 | ||||||
| Drops - hempSMART | 41,249 | 111,673 | ||||||
| Face Moisturizer - hempSMART | 2,793 | 8,915 | ||||||
| Pain Capsules - hempSMART | — | 6,360 | ||||||
| Pain Cream - hempSMART | 24,802 | 46,817 | ||||||
| Pet Drops - hempSMART | 3,879 | 14,177 | ||||||
| Accessories and hardware - cDistro products | 22,187 | — | ||||||
| CBD Products – cDistro product | 485 | — | ||||||
| E-Liquids - cDistro | 75,531 | — | ||||||
| Kratom - cDistro | 306,256 | — | ||||||
| Nutraceutical products - cDistro | 441 | — | ||||||
| Other products – cDistro | 852 | — | ||||||
| Leased equipment revenues – Marijuana Company of America | 12,581 | — | ||||||
| Totals | $ | 493,988 | $ | 217,972 | ||||
Related Party Sales
Related party sales contributed $0 and 11,565 to revenues for the nine months ended September 30, 2021 and 2020, respectively. Related party sales are comprised of sales of our hempSMART products to our directors, officers, employees, and sales team members. No related party sales were for services. All sales were made at listed retail prices and were for cash consideration.
Costs of Sales
Costs of sales primarily consist of inventory cost and overhead, manufacturing, packaging, warehousing, shipping, and direct labor costs directly attributable to all of our products. For the nine months ended September 2021 and 2020, our total costs of sales were $406,972 and $110,563, respectively, an increase of $296,409. The increase in costs of sales is mainly attributed to the cost of goods sold from our acquisition of cDistro which we acquired on June 30, 2021 and began operating as a wholly-owned subsidiary of the Company at the beginning of the three months ended September 30, 2021.
Gross Profit
For the nine months ended September 30, 2021 and 2020, gross profit was $87,016 and $107,409, respectively, a decrease of $20,393. This decrease is mainly attributed to gross profits from our new acquisition cDistro which began full operations with the Company during the three months ended September 30, 2021 as their margins reflect wholesale margins as compared to hempSMART retail margins. In addition, gross profits from hempSMART products decreased due to continued new pricing and promotions associated with our sales restructuring and new sales strategies, along with the continued effects of the COVID-19 pandemic during the nine months ended September 30, 2021. As a result, the combined gross margin was 17.6% and 49.3% for the nine months ended September 30, 2021 and 2020, respectively.
Selling and Marketing Expenses
For the nine months ended September 30, 2021 and 2020, selling and marketing expenses were $430,425 and $326,608, respectively, an increase of $103,817. This increase was attributed to our investment in product marketing and social media advertising in support of our new e-commerce program promoting our rebranded hempSMART products and the marketing expenses from our acquisition of cDistro which began operations with us after June 30, 2021.
Payroll and Related Expenses
For the nine months ended September 30, 2021 and 2020, payroll and related expenses were $413,232 and $258,842, respectively, an increase of $154,390. The increase is primarily due to an increase in our Chief Executive Officer’s compensation and the payroll expenses from our acquisition of cDistro, which began operations with us during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
Stock-based Compensation
For the nine months ended September 30, 2021 and 2020, stock-based compensation was $688,293 and $665,767 respectively, an increase of $22,526. This 3.4% increase during the nine months ended September 30, 2021 is considered reasonable as compared to the nine months ended September 30, 2020 as these expenses are related to issuances of equity pursuant to our stock incentive plan to officers, employees and vendors.
General and Administrative Expenses
General and administrative expenses increased to $1,777,419 for the nine months ended September 30, 2021 as compared to $710,094 for the nine months ended September 30, 2020. General and administrative expenses include research and development, building rent, utilities, legal fees, office supplies, subscriptions, and office equipment. The increase of $1,067,326 during the nine months ended September 30, 2021 is primarily attributed to an increase in the following expenses - legal fees of approximately $360,000 related to acquisition costs, lawsuits, public offerings and SEC filings, approximately $48,000 increase in insurance premiums in director and officer’s liability insurance due to cannabis industry risk assessments, $135,000 in travel expenses related to acquisition visits, various business and company events as well as trade show participations, $215,000 for investor relations as we expanded our investor/stockholder communications, $34,000 in bad debt expenses, $95,000 in operational expenses related to our acquisition of cDistro which began operations at the end of June 30, 2021, $72,000 in operating expenses of our new hempSMART Brazil subsidiary which began operations during the nine month period ended September 30, 2021, $38,000 in fees to the our medical advisory board, $30,000 in board of director fees based on new agreements established during 2021, $17,000 in truck rental fees incurred as part of a discontinued operation, $63,000 in consulting fees related to services related to the establishment of a new subsidiary in the country of Uruguay for the purpose of selling hempSMART products and $56,000 in other operational and administrative expenses incurred during the nine period ended September 30, 2021 as compared to September 30, 2020.
Gain on Change in Fair Value of Derivative Liabilities
During the nine months ended September 30, 2021 and 2020, we issued convertible promissory notes and warrants with an embedded derivative, all requiring us to adjust to reflectcalculate the fair value of the derivatives each reporting period, and mark to market as a non-cash adjustment to our current period operations. This resulted in a loss of $451,679 and $312,631 changeon changes in fair value of derivative liabilities of $1,026,929 and $2,326,018 for the ninethree months ended September 30,March 31, 2022 and 2021, and 2020, respectively.
Loss / IncomeGain (loss) on Equity Investment and Loss on Share Exchange Agreementsettlement of debt
During the ninethree months ended September 30,March 31, 2022 and 2021, and 2020, we adjusted the carrying value of our investment for our pro rata share of equity investment loss of $0 and an equity investment income of $106,305, respectively. The Company also recognized a loss on its share exchange agreement with Eco Innovation Group of $735,178 during the nine months ended September 30, 2021.
Loss /Gain on Settlement of Debt
During the nine months ended September 30, 2021 and 2020, we realized a loss on settlement of debt of $253,967$187,500 and $68,227, respectively. The loss was related primarily to the settlement in shares to a gain of $386,930, respectively.
Unrealized Gain/Loss on Sale of Trading Securities
Duringlender during the ninethree months ended September 30, 2021, we recorded an unrealized gain on trading securities of $504,137, while recording an unrealized loss on trading securities of $13,945 for the nine months ended September 30, 2020.
Loss on Sale of Trading Securities
During the nine months ended September 30, 2021 and 2020, we realized a loss on sale of trading securities of $543,200 and $2,603, respectively.March 31, 2022.
Interest Expenseexpense
Interest expense during the ninethree months ended September 30, 2021March 31, 2022 was $2,542,108$1,246,155 as compared to $2,460,185$1,100,962 for the ninethree months ended September 30, 2020.March 31, 2021, an increase of $145,193. Interest expense primarily consists of interest incurred on our convertible debt and non-convertibleother debt. The debt discounts amortization and non-cash interest incurred during the ninethree months ended September 30,March 31, 2022 and 2021 was $761,712 and 2020 was $1,232,641$311,710, respectively. In addition, as of March 31, 2022 and $1,373,575, respectively.
Net Loss
Our net loss for the nine months ended September 30, 2021, we incurred a non-cash interest of $1,246,155 and 2020 was $7,250,698 and $4,177,391,$1,100,962, respectively, an increase of $3,073,307. The net loss of $7,250,698 for the nine months ended September 30, 2021 represents 1,468% of total revenues for the period. The net loss of $4,177,391 for the nine months ended September 30, 2020, represents 1,917% of total revenues for the period.in connection with convertible notes.
Liquidity and Capital Resources
We have generated a net loss from continuing operations for the ninethree months ended September 30, 2021March 31, 2022 of $7,250,699$835,794 and used $2,693,632$678,108 of cash for operations and we had a working capital deficit of $3,634,622.operations. As of September 30, 2021,March 31, 2022, we had total assets of $6,087,167,$8,105,699, which includes accountsincluded cash of $243,712, Accounts receivable trade of $151,927,$410,448, inventory of $201,860,$206,194, prepaid insurance of $86,250$29,769. On October 6, 2021, the Company entered into an Asset Purchase Agreement, Management Services Agreement, Cooperation Agreement and other current assetsEmployment Agreement with VBF Brands, Inc. As consideration for the transaction, the Company agreed to assume two secured convertible promissory notes issued by SIGO to St. George Investments, LLC with a net balance of $187,200.$4,091,378. Since the conditions of the acquisition of VBF haven’t been consummated, this assumed debt is recorded as an Other Current Asset. The other current assets consistedcompany will determining the collectability of $157,775this assumed debt or allocation towards its investment in non-trade receivable due from a brokerage and investment firm and advance payments to vendors.VBF during the second quarter of 2022.
During the ninethree months ended September 30,March 31, 2022 and 2021, and 2020, we met our capital requirements through a combination the sale of loans, sales of equitysecurities and convertible debt instruments; however, weinstruments. We will need to secure additional external funding in order to continue our operations. OurFor the three months ended March 31, 2022, our primary internal sources of liquidity were provided by an increase in proceeds from the issuance of note payables of $526,760 and proceeds from the sale of common stock of $528,850, as compared to proceeds from issuance of notes payable of $2,065,863$535,000 for the three months ended March 31, 2021 and proceeds from sale of our common stock of $1,245,000 for gross proceeds of $1,638,126 for the ninethree months ended September 30, 2021 as compared to an increase in proceeds from the issuance of note payables of $876,302, sale of our common stock for gross proceeds of $153,685, a government loan due to COVID-19 of $35,500 and gross proceeds for the sales of trading securities of $10,854 for the nine months ended September 30, 2020. Our ability to rely upon external financing arrangements to fund operations is not certain, and this may limit our ability to secure future funding from external sources without changes in terms requested by counterparties, changes in the valuation of collateral, and associated risk, each of which is reasonably likely to result in our liquidity decreasing in a material way. We intend to utilize cash on hand, loans and other forms of financing such as the sale of additional equity and debt securities and other credit facilities to conduct our ongoing business, and to also conduct strategic business development and implementation of our business plans generally. However, we may be unable to raise additional funds when needed on favorable terms, or at all, which may have a negative impact on our financial condition and could force us to curtail or cease our operations.March 31, 2021..
Cash Flows from Operating Activities
For the ninethree months ended September 30,March 31, 2022 and 2021, we used cash in operating activities of $2,693,632. For the nine months ended September 30, 2020, we used cash in operating activities of $1,262,358.$678,108 and $962,359, respectively. This decrease of $1,431,274$284,251 is due primarily to a decrease in net loss for the period, whichthree months ended March 31, 2022 of $3,290,292 as compared to $3,657,990 for the three months ended March 31, 2021. This was offset by loss on equity investment, interest expense recognized for the excess ofincrease in cashflows from the change in the fair value of derivative liability over net book value of notes payable at issuance and continued implementation of our business plans, operations, management, personnel and professional services.liabilities as the balance was $1,026,929 for the three months ended March 31, 2022 as compared with $2,326,018 for the three months ended March 31, 2021.
Cash Flows from Investing Activities
During the ninethree months ended September 30,March 31, 2022 and 2021, we used $185,850cash of $1,699 and $2,031, respectively, in investing activities related to purchase of equipment and property of $121,603, $99,098 to establish a joint venture and $155,550 in the acquisition of a new business, and these amounts were offset by proceeds from the sale of investments of $190,401. During the nine months ended September 30, 2020, cash provided by investing activities was $123,729 which was primarily from proceeds attributed to an investment in a joint venture of $125,000, which was offset by $1,271 related to our purchase of property and equipment.
Cash Flows from Financing Activities
During the ninethree months ended September 30, 2021,March 31, 2022, net cash provided by financing activities was $2,912,709 as a result of our receipts of funds$822,043 which was primarily attributable to $526,760 from the issuance of notes payable of $2,065,863 and $528,850 from the sale of our common stock of $1,492,851, along with repayments of notes payable of $626,005 and repayments of related party notes of $20,000.stock. During the ninethree months ended September 30, 2020,March 31, 2021, net cash provided by financing activities was $1,076,341 as a result of our receipt of funds$1,529,870 which was attributable to $535,000 from the issuance of notes payable of $876,302,and $1,245,000 which was from the sale of our common stock with gross proceeds of $153,685, a government loan due to COVID-19 of $35,500 and proceeds from the sales of trading securities of $10,854.stock.
Our business plans have not generated significant revenues and as of the date of this filing are not sufficient to generate adequate amounts of cash to meet our needs for cash. Our primary source of operating funds in 20212022 and 20202021 has been proceeds from the sale of our common stock and the issuance of convertible debt and non-convertibleother debt. We have experienced net losses from operations since inception, but expect these conditions to improve in the second half of 2021 and beyond as we develop direct sales and marketing programs. We had stockholders' deficiencies at September 30, 2021March 31, 2022 and require additional financing to fund future operations. As of the date of this filing, and due to the early stages of operations, we have insufficient sales data to evaluate the amounts and certainties of cash flows, as well as whether there has been material variability in historical cash flows.
We currently do not have sufficient cash and liquidity to meet our anticipated working capital for the next twelve months. Historically, we have financed our operations primarily through private sales of our common stock and debt.and. If our sales goals for our hempSMART™ products do not materialize as planned, and we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all.
Off BalanceOff-Balance Sheet Arrangements; Commitments and Contractual Obligations
As of September 30, 2021,March 31, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources norand did wenot have any commitments or contractual obligations.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 to the condensed consolidated financial statements describes the significant accounting policies and methods used in the preparation of the condensed consolidated financial statements. Estimates are used for, among other things, contingencies and taxes. Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the condensed consolidated financial statements.
Stock-Based Compensation
We account for employee and non-employee compensation in accordance with Accounting Standards Codification 718-10-30 of the Financial Accounting Standards Board. See Note 3 - “Summary of Significant Accounting Policies” set forth in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. 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 chosen to opt out of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition periods for complying with new or revised accounting standards is irrevocable.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain exemptions, including, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
COVID-19:
The COVID-19 global pandemic has been unprecedented and unpredictable and is likely to continue to result in significant national and global economic disruption, which may adversely affect our business. Based on the Company’s current assessment, however, the Company does not expect any material impact on its long-term strategic plans, its operations, or its liquidity due to the worldwide spread of COVID-19. However, the Company is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, and industry.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We are required to maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer hashave concluded that as of September 30, 2021,March 31, 2022, our disclosure controls and procedures were not effective due to material weaknesses described below.weaknesses. Management has identified the following material weaknesses: our ability to prepare our financial statements in a timely manner and inadequate segregation of duties consistent with control objectives. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to create a new controller position and hire a controller in order to segregate duties within the accounting department consistent with control objectives. In addition, we also intend to increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us and we are able to find a qualified person to fill such roll. This includes hiring a competent director of corporate reporting to help ensure that the Company meets its filing deadlines in a more timely manner.role.
Changes in Internal Control
There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART II -— OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth herein, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
On September 20, 2018, we filed suit against Bougainville Ventures, Inc. (“Bougainville”), BV-MCOA Management, LLC, Andy Jagpal, Richard Cindric, et al. in Okanogan County Washington Superior Court. We previously entered into a joint venture agreement with Bougainville on March 16, 2017, as amended on November 6, 2017.
We and Bougainville originally agreed to a joint venture with the goal of participating in the legalized cannabis business in Washington State. We intended to organize and operate a cannabis growth and cultivation business on land owned by Bougainville in Oroville, Washington. Furthermore, we agreed to finance the joint venture with a cash payment of $800,000 and issued Bougainville 15 million shares of our common stock. Bougainville represented that it would provide the real property for the joint venture, computer-controlledcomputer controlled greenhouses and agricultural facilities and, as landlord, oversight of the operations of a cannabis licensee holding a I-502 cannabis license. Bougainville represented that the property was I-502 compliant, and that it had a lease payment arrangement with an I-502 license holder to operate on the land. Bougainville agreed to vend clear title to the real property associated with the I-502 licensee to the joint venture within 30 days of the final payment by us. Despite our compliance, in full with our financial obligations, Bougainville did not and has not transferred the real property to the joint venture. We determined that Bougainville did not own the real property, misappropriated funds paid into the joint venture for its own purposes and did not have an agreement with a licensed I-502 operator.
Pursuant to our complaint, we are seeking legal and equitable relief for breach of contract, fraud, breach of fiduciary duty, conversion, recession of the joint venture agreement, an accounting, quiet title to real property in the name of the registrant, for the appointment of a receiver, the return to treasury of the 15 million shares of common stock issued to Bougainville, and, for treble damages pursuant to the Consumer Protection Act in Washington State. We have filed a lis pendens on the real property.
We recently served process on the defendants and the case is currently in litigation. The case is currently set for trial on January 22, 2022.
ITEM 1A. RISK FACTORS.
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 20202021 (“Annual Report”). There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
During the three months ended September 30,ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Subsequent to December 31, 2021, the Company issued the following securities:
The Company issued 54,700,000has sold a total of 90,000,000 shares on September 14, 2021of common stock at $0.0025a fixed price of $0.001 per share for a total of $90,000 in cash proceedsto accredited investors under the Company’s active Regulation A offering.
Subsequent to December 31, 2021, the Company has sold a total of $134,084.706,250,000 shares of common stock at a fixed price of $0.0008 per share for a total of $565,000 in cash to accredited investors under the Company’s active Regulation A offering.
Subsequent to December 31, 2021, the Company has sold a total of 500,000,000 shares of common stock at a fixed price of $0.0002 per share for a total of $100,000 in cash to accredited investors under the Company’s active Regulation A offering.
On January 7, 2022, the Company issued 50,000,000 unrestricted shares of common stock to Power Up at a per-share conversion price of $0.001.
On January 10, 2022, the Company issued 166,224,700 unrestricted shares of common stock to Labrys at a per-share conversion price of $0.001.
On January 12, 2022, the Company issued 10,000,000 shares of restricted common stock to Coventry Enterprises at a per-share purchase price of $0.01.
On January 18, 2022, the Company issued 40,000,000 shares of common stock to GS Capital at a per-share conversion price of $0.001.
On January 20, 2022, the Company issued 25,000,000 shares of restricted common stock to Fourth Man at a per-share purchase price of $0.0024.
On January 26, 2022, the Company issued 180,486,830 shares of restricted common stock to Beach Labs in compensation under an earnout agreement at a per-share price of $0.0045.
On January 26, 2022, the Company issued 282,326,369 shares of restricted common stock to Beach Labs in compensation under a merger agreement at a per-share price of $0.0009.
On February 15, 2022, the Company issued 93,750,000 unrestricted shares of common stock to Bucktown at a per-share conversion price of $0.001.
On February 15, 2022, the Company issued 75,000,000 unrestricted shares of common stock to White Lion at a per-share conversion price of $0.001.
On March 1, 2022, the Company issued 31,850,737 shares of unrestricted common stock to GS Capital in conversion of a promissory note at a per-share conversion price of $0.0004.
On March 4, 2022, the Company issued 70,591,981 shares of unrestricted common stock to GS Capital in conversion of a promissory note at a per-share conversion price of $0.0004.
On March 18, 2022, the Company issued 71,320,322 shares of unrestricted common stock to GS Capital at a per-share conversion price of $0.0004.
On March 29, 2022, the Company issued 43,057,715 shares of unrestricted common stock to GS Capital at a per-share conversion price of $0.0004.
On March 29, 2022, the Company issued 40,670,034 shares of unrestricted common stock to GW Holdings at a per-share price of $0.0008.
On March 30, 2022, the Company issued 187,500,000 shares of unrestricted common stock to Bucktown Capital at a per-share price of $0.0008.
On March 30, 2022, the Company issued 38,762,344 shares of common stock to Dutchess Capital in partial conversion of a promissory note dated May 25, 2021, at a per-share conversion price of $0.00039.
On March 31, 2022, the Company issued 59,578,767 shares of unrestricted common stock to GW Holdings at a per-share price of $0.0008.
On April 1, 2022, the Company issued 76,923,077 shares of restricted common stock to North Equities USA Ltd., valued at $100,000, or $0.0013 per share, in compensation pursuant to a consulting agreement dated December 24, 2021.
On April 6, 2022, the Company issued 435,540,070 shares of restricted common stock to Beach Labs, Inc., pursuant to the earnout agreement between the Company and Beach Labs executed in relation to the acquisition of cDistro, Inc.
On April 11, 2022, the Company issued 12,500,000 shares of common stock to SRAX, Inc. at a per-share conversion price of $0.0016.
On May 5, 2022, the Company made a convertible promissory note in the principal amount of $110,000.00 pursuant to a securities purchase agreement with Dutchess Capital, which included the issuance of 37,500,000 commitment shares in common stock and 50,000,000 default shares in common stock, for total consideration of $100,000. The 50,000,000 default shares will be returned to the Company at the expiration of the promissory note, unless the Company defaults under the note.
The Company issued 55,000,000 shares on September 28, 2021 at $0.0026 per share for total proceedsforegoing issuances were exempt from registration under Section 4(a)(2) of $145,275. The Company reflected a receivable for the total purchase price as of September 30, 2021, and the cash proceeds were received on October 7, 2021.Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| * | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MARIJUANA COMPANY OF AMERICA, INC. | ||
| Date: | By: | /s/ Jesus Quintero |
| Jesus Quintero, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
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