NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 1 – Nature of Business and Significant Accounting
Policies
Nature of Business
WEED,
Inc. (the “Company”), (formerly United Mines, Inc.) was
incorporated under the laws of the State of Arizona on August 20,
1999 (“Inception Date”) as Plae, Inc. to engage in the
exploration of gold and silver mining properties. On November 26,
2014, the Company was renamed from United Mines, Inc. to WEED, Inc.
and was repurposed to pursue a business involving the purchase of
land, and building Commercial Grade “Cultivation
Centers” to consult, assist, manage & lease to Licensed
Dispensary owners and organic grow operators on a contract basis,
with a concentration on the legal and medical marijuana sector. The
Company’s plan is to become a True “Seed-to-Sale”
company providing infrastructure, financial solutions and real
estate options in this new emerging market. The Company, under
United Mines, was formerly in the process of acquiring mineral
properties or claims located in the State of Arizona, USA. The name
was previously changed on February 18, 2005 to King Mines, Inc. and
then subsequently changed to United Mines, Inc. on March 30, 2005.
The Company trades on the OTC Pink Sheets under the stock symbol:
BUDZ.
On
April 20, 2017, the Company acquired Sangre AT, LLC, a Wyoming
company doing business as Sangre AgroTech. (“Sangre”).
Sangre is a plant genomic research and breeding company comprised
of top-echelon scientists with extensive expertise in genomic
sequencing, genetics-based breeding, plant tissue culture, and
plant biochemistry, utilizing the most advanced sequencing and
analytical technologies and proprietary bioinformatics data systems
available. Sangre is working on a cannabis genomic study to
complete a global genomic classification of the cannabis plant
genus.
The
accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States
of America. These statements reflect all adjustments, consisting of
normal recurring adjustments, which in the opinion of management
are necessary for fair presentation of the information contained
therein.
The
Company has a calendar year end for reporting
purposes.
Basis of Presentation:
The
accompanying condensed consolidated balance sheet at December 31,
2018, has been derived from audited consolidated financial
statements and the unaudited condensed consolidated financial
statements as of June 30, 2019 and 2018 ( the “financial
statements”), have been prepared in accordance with
accounting principles generally accepted in the United States of
America (“GAAP”) for interim financial information and
with the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements and
should be read in conjunction with the audited consolidated
financial statements and related footnotes included in our
Registration Statement on Form S-1 for the year ended December 31,
2018 (the “2018 Annual Report”), filed with the
Securities and Exchange Commission (the “SEC”). It is
management’s opinion, however, that all material adjustments
(consisting of normal recurring adjustments), have been made which
are necessary for a fair financial statements presentation. The
condensed consolidated financial statements include all material
adjustments (consisting of normal recurring accruals) necessary to
make the condensed consolidated financial statements not misleading
as required by Regulation S-X, Rule 10-01. Operating results for
the six months ended June 30, 2019, are not necessarily indicative
of the results of operations expected for the year ending December
31, 2019.
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts
of the following entities, all of which are under common control
and ownership:
|
|
|
State
of
|
|
|
|
Abbreviated
|
|
Name of
Entity
|
|
Incorporation
|
|
Relationship
(1)
|
|
Reference
|
|
WEED,
Inc.
|
|
Nevada
|
|
Parent
|
|
WEED
|
|
Sangre
AT, LLC (2)
|
|
Wyoming
|
|
Subsidiary
|
|
Sangre
|
(1)
Sangre is a wholly-owned subsidiary of WEED, Inc.
(2)
Sangre AT, LLC is doing business as Sangre AgroTech.
The
consolidated financial statements herein contain the operations of
the wholly-owned subsidiary listed above. All significant
inter-company transactions have been eliminated in the preparation
of these financial statements. The parent company, WEED and
subsidiary, Sangre will be collectively referred to herein as the
“Company”, or “WEED”. The Company's
headquarters are located in Tucson, Arizona and its operations are
primarily within the United States, with minimal operations in
Australia.
These
statements reflect all adjustments, consisting of normal recurring
adjustments, which in the opinion of management are necessary for
fair presentation of the information contained
therein.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 1 – Nature of Business and Significant Accounting
Policies (Continued)
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and the 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. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
Under
FASB ASC 820-10-05, the Financial Accounting Standards Board
establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosures about fair
value measurements. This Statement reaffirms that fair value is the
relevant measurement attribute. The adoption of this standard did
not have a material effect on the Company’s financial
statements as reflected herein. The carrying amounts of cash,
prepaid expenses and accrued expenses reported on the balance sheet
are estimated by management to approximate fair value primarily due
to the short term nature of the instruments.
Impairment of Long-Lived Assets
Long-lived
assets held and used by the Company are reviewed for possible
impairment whenever events or circumstances indicate the carrying
amount of an asset may not be recoverable or is impaired.
Recoverability is assessed using undiscounted cash flows based upon
historical results and current projections of earnings before
interest and taxes. Impairment is measured using discounted cash
flows of future operating results based upon a rate that
corresponds to the cost of capital. Impairments are recognized in
operating results to the extent that carrying value exceeds
discounted cash flows of future operations.
Basic and Diluted Loss Per Share
The
basic net loss per common share is computed by dividing the net
loss by the weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net
loss adjusted on an “as if converted” basis, by the
weighted average number of common shares outstanding plus potential
dilutive securities. For the periods presented, potential dilutive
securities had an anti-dilutive effect and were not included in the
calculation of diluted net loss per common share.
Stock-Based Compensation
Under
FASB ASC 718-10-30-2, all share-based payments to employees,
including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure
is no longer an alternative.
Revenue Recognition
On
January 1, 2018, the Company adopted the new revenue recognition
standard ASU 2014-09, “Revenue from Contracts with Customers
(Topic 606)”, using the cumulative effect (modified
retrospective) approach. Modified retrospective adoption requires
entities to apply the standard retrospectively to the most current
period presented in the financial statements, requiring the
cumulative effect of the retrospective application as an adjustment
to the opening balance of retained earnings at the date of initial
application. No cumulative-effect adjustment in retained earnings
was recorded as the Company’s has no historical revenue. The
impact of the adoption of the new standard was not material to the
Company’s condensed consolidated financial statements for the
three and six months ended June 30, 2019. The Company expects the
impact to be immaterial on an ongoing basis.
The
primary change under the new guidance is the requirement to report
the allowance for uncollectible accounts as a reduction in net
revenue as opposed to bad debt expense, a component of operating
expenses. The adoption of this guidance did not have an impact on
our condensed consolidated financial statements, other than
additional financial statement disclosures. The guidance requires
increased disclosures, including qualitative and quantitative
disclosures about the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with
customers.
The
Company operates as one reportable segment.
Sales
on fixed price contracts are recorded when services are earned, the
earnings process is complete or substantially complete, and the
revenue is measurable and collectability is reasonably assured.
Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in
the same period the related sales are recorded. The Company will
defer any revenue from sales in which payment has been received,
but the earnings process has not occurred. Sales have not yet
commenced.
Advertising and Promotion
All
costs associated with advertising and promoting products are
expensed as incurred. These expenses were $3,441 and $800 for the
six months ended June 30, 2019 and 2018, respectively.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 1 – Nature of Business and Significant Accounting
Policies (Continued)
Recently Issued Accounting Pronouncements
In May
2014, the FASB issued Accounting Standards Update ASU 2014-09,
“Revenue from Contracts with Customers (Topic 606),”
which supersedes nearly all existing revenue recognition guidance,
including industry-specific guidance. Subsequent to the issuance of
ASU No. 2014-09, the FASB clarified the guidance through several
Accounting Standards Updates; hereinafter the collection of revenue
guidance is referred to as “Topic 606.” Topic 606 is
based on the principle that an entity should recognize revenue to
depict the transfer of goods or services to customers in an amount
that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Topic 606 also
requires additional disclosures about the nature, amount, timing
and uncertainty of revenue and cash flows arising from customer
contracts, including significant judgments and changes in judgments
and assets recognized from costs incurred to fulfill a contract.
The Company adopted Topic 606 on January 1, 2018 using the modified
retrospective transition method; accordingly, Topic 606 has been
applied to the fiscal 2018 financial statements and disclosures
going forward, but the comparative information has not been
restated and continues to be reported under the accounting
standards in effect for those periods. We expect the impact of the
adoption of Topic 606 to be immaterial to our operating results on
an ongoing basis.
In
February 2016, the FASB issued ASU 2016-02, Leases. The standard
requires lessees to recognize lease assets and lease liabilities on
the consolidated balance sheet and requires expanded disclosures
about leasing arrangements. We plan to adopt the standard on
January 1, 2019. We are currently assessing the impact that the new
standard will have on our consolidated financial statements, which
will consist primarily of a balance sheet gross up of our operating
leases to show equal and offsetting lease assets and lease
liabilities.
The Company adopted the new lease guidance effective January 1,
2019 using the modified retrospective transition approach,
applying the new standard to all of its leases existing at the date
of initial application which is the effective date of
adoption. Consequently, financial information will not be
updated and the disclosures required under the new standard will
not be provided for dates and periods before January 1,
2019. We elected the package of practical expedients which
permits us to not reassess (1) whether any expired or existing
contracts are or contain leases, (2) the lease classification for
any expired or existing leases, and (3) any initial direct costs
for any existing leases as of the effective date. We did not elect
the hindsight practical expedient which permits entities to use
hindsight in determining the lease term and assessing impairment.
The adoption of the lease standard did not change our previously
reported consolidated statements of operations and did not result
in a cumulative catch-up adjustment to opening equity. As of
June 30, 2019, the adoption of the standard had no impact on the
Company, as there were no leases in place longer than 12
months.
In June 2018, the FASB issued Accounting Standards Update
(“ASU”) 2018-07,
Compensation – Stock
Compensation (Topic 718) Improvements to Nonemployee Share-Based
Payment Accounting
. This ASU
expands the scope of Topic 718 to include share-based payment
transactions for acquiring goods and services from nonemployees.
The amendments in this ASU will become effective for us beginning
January 1, 2019, and early adoption is permitted. We do not
anticipate that this ASU will have a material effect on our
consolidated financial statements.
Note 2 – Going Concern
As
shown in the accompanying financial statements, the Company has no
revenues, incurred net losses from operations resulting in an
accumulated deficit of $66,705,429 and had limited working capital
at June 30, 2019. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. Management
is actively pursuing new products and services to begin generating
revenues. In addition, the Company is currently seeking additional
sources of capital to fund short term operations. The Company,
however, is dependent upon its ability to secure equity and/or debt
financing and there are no assurances that the Company will be
successful; therefore, without sufficient financing it would be
unlikely for the Company to continue as a going
concern.
The
financial statements do not include any adjustments that might
result from the outcome of any uncertainty as to the
Company’s ability to continue as a going concern. The
financial statements also do not include any adjustments relating
to the recoverability and classification of recorded asset amounts
or amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going
concern.
As of
December 31, 2018, the non-refundable deposit amount of $110,000
for the property located in Westfield, New York was recorded as a
loss on deposit due to the uncertainty of the acquisition. As of
March 31, 2019, the refundable deposit amount of $350,000 related
to the purchase of the Sugar Hill golf course property was returned
by the Law Office of Biltekoff.
As of
June 28, 2019, a total deposit amount of $72,000 was transferred to
Law Office of Biltekoff for the Sugar Hill golf course
auction.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 3 – Related Party
Notes Payable
From
time to time, the Company has received short term loans from
officers and directors as disclosed in Note 7 below. The Company
has a total of $246,000 and $12,000 of note payable on the
consolidated balance sheet as of June 30, 2019 and 2018,
respectively.
Services
Nicole
M. Breen receives $1,500 a week in cash compensation for her
services rendered to the Company.
Glenn
E. Martin receives $8,000 a month in cash compensation for his
services rendered to the Company.
Capital Contributions
The
Company imputed interest on non-interest bearing, related party
loans, resulting in a total of $0 and $0 of contributed capital
during the six months ended June 30, 2019 and 2018,
respectively.
Common Stock Issued for Bartered Assets
On
January 18, 2017, the Company exchanged 66,000 units, consisting of
66,000 shares of common stock and warrants to purchase 66,000
shares of common stock at an exercise price of $3.00 per share,
exercisable until January 18, 2018, in exchange for a 2017 Audi Q7
and a 2017 Audi A4 driven by the Officers. The total fair value
received, based on the market price of the stock at $4.02 per
share, was allocated to the $105,132 purchase price of the vehicles
and the $160,188 excess value of the common stock and warrants was
expensed as stock-based compensation.
Common Stock
On
August 1, 2017, the Company granted 150,000 shares of common stock
to Mary Williams, a principal of Sangre AT, LLC, for services
performed. The fair value of the common stock was $154,500 based on
the closing price of the Company’s common stock on the date
of grant.
On
January 7, 2017, the Company granted 50,000 shares of common stock
to Pat Williams. PhD, a principal of Sangre AT, LLC, for services
performed. The total fair value of the common stock was $210,250
based on the closing price of the Company’s common stock on
the date of grant.
A total
of $39,500 and $0 of officer compensation was unpaid and
outstanding at June 30, 2019 and 2018, respectively.
Stock Options Issued for Services – related party
(2019)
On
February 1, 2018, in connection with executive employment
agreements, the Company granted non-qualified options to purchase
an aggregate of 6,000,000 shares of the Company’s common
stock at the exercise price of $10.55 per share. The options shall
become exercisable at the rate of 1/3 upon the six-month
anniversary, 1/3 upon the one-year anniversary and 1/3 upon the
second anniversary of the grant. The options were valued at
$45,987,970 using the Black-Scholes option pricing model. The
Company recognized expense of approximately, $15,413,319 relating
to these options during the six months ended June 30,
2019.
Note 4 – Fair Value of Financial Instruments
Under
FASB ASC 820-10-5, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date (an exit price). The standard outlines a valuation framework
and creates a fair value hierarchy in order to increase the
consistency and comparability of fair value measurements and the
related disclosures. Under GAAP, certain assets and liabilities
must be measured at fair value, and FASB ASC 820-10-50 details the
disclosures that are required for items measured at fair
value.
The
Company has certain financial instruments that must be measured
under the new fair value standard. The Company’s financial
assets and liabilities are measured using inputs from the three
levels of the fair value hierarchy. The three levels are as
follows:
Level 1
- Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to
access at the measurement date.
Level 2
- Inputs include quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than
quoted prices that are observable for the asset or liability (e.g.,
interest rates, yield curves, etc.), and inputs that are derived
principally from or corroborated by observable market data by
correlation or other means (market corroborated
inputs).
Level 3
- Unobservable inputs that reflect our assumptions about the
assumptions that market participants would use in pricing the asset
or liability.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 4 – Fair Value of Financial Instruments
(Continued)
The
following schedule summarizes the valuation of financial
instruments at fair value on a recurring basis in the balance
sheets as of June 30, 2019 and 2018, respectively:
Fair Value Measurements at December 31, 2018
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
$
70,608
|
$
-
|
$
-
|
|
Total
assets
|
$
70,608
|
$
-
|
$
-
|
|
Liabilities
|
|
|
|
|
Notes payable,
related parties
|
|
|
|
|
Notes
payable
|
$
-
|
$
12,000
|
$
-
|
|
Total
liabilities
|
$
-
|
$
12,000
|
$
-
|
|
|
$
70,608
|
$
12,000
|
$
-
|
Fair Value Measurements at June 30, 2019
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
$
3,664
|
$
-
|
$
-
|
|
Total
assets
|
$
3,664
|
$
-
|
$
-
|
|
Liabilities
|
|
|
|
|
Notes payable,
related parties
|
|
|
|
|
Notes
payable
|
$
-
|
$
246,000
|
$
-
|
|
Total
liabilities
|
$
-
|
$
246,000
|
$
-
|
|
|
$
3,664
|
$
246,000
|
$
-
|
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 4 – Fair Value of Financial Instruments
(Continued)
The
fair values of our related party debts are deemed to approximate
book value and are considered Level 2 inputs as defined by ASC
Topic 820-10-35.
There
were no transfers of financial assets or liabilities between Level
1, Level 2 and Level 3 inputs for the six months ended June 30,
2019 and the year ended December 31, 2018.
Note 5 – Investment in Land and Property
On July
26, 2017, the Company closed on the purchase of property,
consisting of a home, recreational facility and RV park located at
5535 State Highway 12 in La Veta, Colorado to be developed into a
bioscience center. The home has 4 Bedrooms and 2 Baths, and the
recreational facility has showers, laundry, and reception area with
an additional equipment barn attached, in addition to another
facility with 9,500 square feet. The RV Park has 24 sites with full
hook-ups including water, sewer, and electric, which the Company
plans to convert into a series of small research pods. Under the
terms of the purchase agreement, the Company paid $525,000 down,
including 25,000 shares of our common stock, and Sangre took
immediate possession of the property. Under the terms of the
original purchase agreement, the Company was obligated to pay an
additional $400,000 in cash and issue an additional 75,000 shares
of our common stock over the next two years in order to pay the
entire purchase price. On January 12, 2018, the Company entered
into an Amendment No. 1 to the $475,000 principal amount promissory
note issued by the Company to the seller of the property, under
which both parties agreed to amend the purchase and the promissory
note to allow the Company to pay off the note in full if it paid
$100,000 in cash on or before January 15, 2018 and issued the
seller 125,000 shares of common stock, restricted in accordance
with Rule 144, on before January 20, 2018. Through an escrow
process, the Company paid the seller $100,000 in cash and issued
him 125,000 shares of common stock in accordance with the Amendment
No. 1, in exchange for a full release of the deed of trust that was
securing the promissory note, on January 17, 2018. As a result, the
$475,000 principal promissory note issued to the seller was deemed
paid-in-full and fully satisfied and the Company owned the property
without encumbrances as of that date. The Company recorded a loss
on extinguishment of debt of approximately $1,065,000 based on the
fair value of the consideration paid and the carrying value of the
note payable on the settlement date. The total purchase price was
as follows:
|
|
|
|
Consideration:
|
|
|
Common stock
payment of 25,000 shares (1)
|
$
30,000
|
|
Cash payment of
down payment
|
50,000
|
|
Cash paid at
closing
|
44,640
|
|
Short term
liabilities assumed and paid at closing (2)
|
5,360
|
|
Note payable
(3)
|
475,000
|
|
Total
purchase price
|
$
1,005,000
|
(1)Consideration
consisted of an advance payment of 25,000 shares of the
Company’s common stock valued at $30,000 based on the closing
price of the Company’s common stock on the July 18, 2017 date
of grant.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 5 – Investment in Land and Property
(Continued)
(2)
Purchaser’s shares of closing costs, including the
seller’s prepaid property taxes.
(3) As
noted above, the note was settled with a payment of $100,000 and
the issuance of 125,000 shares of common stock.
In
January 2018, the Company closed on the purchase of property,
consisting of a condominium in La Veta, Colorado to house Company
personnel and consultants for total consideration approximating
$140,000, which was paid in cash at the time of closing. The home
has 3 bedrooms and 2.5 baths.
Sangre took immediate possession
of the property. La Veta, Colorado is a small town and rental or
short-term housing is very difficult to obtain. The Company
personnel and consultants are no longer residing at the property,
and it is
currently
vacant.
In
February 2018, the Company closed on the purchase of property,
consisting of a home in La Veta, Colorado to house Company
personnel and consultants for total consideration approximating
$1,200,000. The home has 5 Bedrooms and 3 Baths. Under the terms of
the purchase agreement, the Company paid $150,000 down, entered
into a note payable in the amount of approximately $1,041,000 (see
Note 8). The Company secured a below-market interest rate of 1.81%
based on the short-term nature of the term (due on August 15,
2018). Sangre took immediate possession of the property. La Veta,
Colorado is a small town and rental or short-term housing is very
difficult to obtain. The Company personnel and consultants are no
longer residing at the property, and it is currently vacant. On
October 10, 2018, a payment of $750,000 was made to Craig W. Clark
to pay off the note payable, and a loan discount of $125,475 was
given to the Company which was recorded as a gain.
A
settlement payment of $155,000 was received from an insurance
company related to a fire near one of our properties in La Veta,
Colorado.
On June
25, 2019, the Company received $60,000 from Lex Seabre in exchange
for 120,000 shares of common stock of the Company. The $60,000 was
paid as a deposit for the Sugar Hill golf course property
auction.
On June
28, 2019, the Company received a loan of $12,000 from Nicole Breen.
The $12,000 was paid as a deposit for the Sugar Hill golf course
property auction.
Note 6 – Property and Equipment
Property
and equipment consist of the following at June 30, 2019 and
December 31, 2018, respectively:
|
|
|
|
|
|
|
|
|
Property
improvements
|
$
5,000
|
$
5,000
|
|
Automobiles
|
105,132
|
105,132
|
|
Office
equipment
|
4,933
|
4,933
|
|
Furniture &
Fixtures
|
2,979
|
0
|
|
Lab
equipment
|
65,769
|
65,769
|
|
Construction in
progress (2)
|
499,695
|
499,695
|
|
Property
(1)
|
1,887,802
|
1,887,802
|
|
Property and
equipment, gross
|
2,571,310
|
2,568,331
|
|
Less accumulated
depreciation
|
(304,314
)
|
(224,198
)
|
|
Property and
equipment, net
|
$
2,266,996
|
2,344,133
|
|
(1)
|
In
2018, the Company purchased two properties in La Veta, Colorado.
The property located on 169 Valley Vista was purchased for
$140,000, and the property located on 1390 Mountain Valley Road was
purchased for $1,200,000 (see Note 8).
|
|
(2)
|
HVAC/furnace system and research facility center are under
construction.
|
Depreciation
and amortization expense totaled $81,416 and $85,329 for the six
months ended June 30, 2019 and 2018, respectively.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 7 – Intangible Assets
In
accordance with FASB ASC 350, “Intangibles-Goodwill and
Other”, the Company evaluates the recoverability of
identifiable intangible assets whenever events or changes in
circumstances indicate that an intangible asset’s carrying
amount may not be recoverable. The impairment loss would be
calculated as the amount by which the carrying value of the asset
exceeds its fair value. The US and Europe trademarks were acquired
for $40,000 and $10,000, respectively, for the year ended December
31, 2018. Trademarks are initially measured based on their fair
value and amortized by 10 and 25 years.
Amortization
expense totaled $1,300 and $267 for the six months ended June 30,
2019 and 2018, respectively.
Note 7 – Notes Payable, Related Parties
Notes
payable, related parties consist of the following at June 30, 2019
and December 31, 2018, respectively:
|
|
|
|
|
On various dates,
the Company received advances from the Company’s CEO, Glenn
Martin. Mr. Martin owns approximately 56.2% of the Company’s
common stock at March 31, 2018. Over various dates in 2017, the
Company received a total of $9,000 of advances from Mr. Martin, and
they were repaid by July 3, 2017. On January 19, 2018, the Company
received an unsecured loan, bearing interest at 2%, in the amount
of $25,000 from Mr. Martin, and the loan was paid off in full on
February 2, 2018. The Company also repaid an advance of $7,000 on
July 6, 2018 received from Mr. Martin on January 16, 2018.The
unsecured non-interest-bearing loans were due on demand. A detailed
list of advances and repayments follows:
|
$
-
|
$
-
|
|
On December 29,
2017, the Company received an unsecured loan, bearing interest at
2% in the amount of $37,000, due on demand from Dr. Pat Williams,
PhD. The amount outstanding was $0 during the periods ended June
30, 2019 and December 31, 2018. Mr. Williams is a founding member
and principal of our wholly-owned subsidiary, Sangre AT,
LLC
|
-
|
-
|
|
|
|
|
|
On April 12, 2010,
the Company received an unsecured, non-interest-bearing loan in the
amount of $2,000, due on demand from Robert Leitzman. Interest is
being imputed at the Company’s estimated borrowing rate, or
10% per annum. The largest aggregate amount outstanding was $2,000
during the periods ended June 30, 2019 and December 31, 2018. Mr.
Leitzman owns less than 1% of the Company’s common stock,
however, the Mr. Leitzman is deemed to be a related party given the
non-interest-bearing nature of the loan and the materiality of the
debt at the time of origination.
|
2,000
|
2,000
|
|
|
|
|
|
Over various dates
in 2011 and 2012, the Company received unsecured loans in the
aggregate amount of $10,000, due on demand, bearing interest at
10%, from Sandra Orman. The largest aggregate amount outstanding
was $10,000 during the periods ended June 30, 2019 and December 31,
2018. Mrs. Orman owns less than 1% of the Company’s common
stock, however, Mrs. Orman is deemed to be a related party given
the nature of the loan and the materiality of the debt at the time
of origination.
|
10,000
|
10,000
|
|
|
|
|
|
Over various dates
from April to June 2019, the company received a total of $234,000
of advances, bearing interest at 5%, from Nicole Breen.
A detailed list of advances and
repayments follows. To date, no repayments have been
made.
|
234,000
|
0
|
|
|
|
|
|
Notes payable,
related parties
|
$
246,000
|
$
12,000
|
The
Company recorded interest expense in the amount of $2,389 and
$7,807 for the six months ended June 30, 2019 and 2018,
respectively, including imputed interest expense in the amount of
$2,489 and $0 during such periods related to notes payable, related
parties.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 8 – Notes Payable
Note
payable consist of the following at June 30, 2019 and December 31,
2018, respectively:
|
|
|
|
|
On July 26, 2017,
the Company issued a $475,000 note payable, bearing interest at 5%
per annum, to A.R. Miller (“Miller Note”) pursuant to
the purchase of land and property in La Veta, Colorado. The note is
to be paid in four consecutive semi-annual installments in the
amount of $118,750 plus accrued interest commencing on January 26,
2018 and continuing on the 26th day of July and the 26th day of
January each year until the debt is repaid on July 26, 2019. The
note carries a late fee of $5,937.50 in the event any installment
payment is more than 30 days late, and upon default the interest
rate shall increase to 12% per annum. During the three months ended
March 31, 2018, the Company issued 125,000 shares of common stock,
valued at $1,450,000 based on the closing price on the measurement
date. Accordingly, the Company recorded a loss on extinguishment of
$1,064,719.
|
$
-
|
$
-
|
|
|
|
|
|
On February 16,
2018, the Company issued a $1,040,662 note payable, bearing
interest at 1.81% per annum (the low interest rate was due to the
short-term nature of the note – six months. See Note 6), to
Craig and Carol Clark (“Clark Note”) pursuant to the
purchase of land and property in La Veta, Colorado. The note is to
be paid in consecutive monthly installments in the amount of
$5,000, including accrued interest commencing on March 15, 2018 and
continuing through August 15, 2018. The note carries a late fee of
3% in the event any installment payment is more than 10 days late,
and upon default the interest rate shall increase to 10% per annum.
As of September 12, 2018, a total of $171,300 was paid to the note
holder. On October 9, 2018, the Company entered into a settlement
agreement with the note holder to pay the settlement payment of
$750,000. The Company had already paid $650,000 by September 27,
2018 and made the remaining payment of $100,000 on October 10,
2018. The Company recorded a gain on extinguishment of
$121,475.
|
-
|
-
|
|
|
|
|
|
|
$
-
|
$
-
|
The
Company recognized interest expense of $0 and $7,807 related to the
note payables for the six months ended June 30, 2019 and 2018,
respectively.
Note 9 – Commitments and Contingencies
On
November 8, 2016, the Company entered into an agreement with
Gregory DiPaolo’s Pro Am Golf, LLC to acquire improved
property located in Westfield, New York. The total purchase price
of $1,600,000 is to be paid with a deposit of 50,000 shares of
common stock, followed by cash of $1,250,000 and 300,000 shares of
the Company’s common stock to be delivered at closing. The
deposit of 50,000 shares issued as a deposit was $42,500 based on
the closing price of the Company’s common stock on the date
of grant. Subsequently, we entered into an amended Purchase and
Sale Agreement on October 24, 2017, under which we amended the
total purchase price to Eight Hundred Thousand Dollars ($800,000)
and forfeited our previous deposit of stock. Under the terms of the
amended agreement, we paid an additional Ten Thousand Dollar
($10,000) deposit on October 26, 2017, with the remaining purchase
price to be paid on or before the date closing date, which was
scheduled on May 1, 2018. The property is approximately 43 acres
and has unlimited water extraction rights from the State of New
York. We plan to use this property as our inroads to the New York
hemp and infused beverage markets in the future. There are no
current plans or budget to proceed with operations in New York, and
there will not be until proper funding is secured after acquiring
this property. Currently, there will be an open bid for the
property, and there is no guarantee the Company will win the bid to
complete the acquisition. As a result, the $110,000 non-refundable
deposit for the property was recorded as a loss on deposit at the
end of December 31, 2018. On June 28, 2019, a total of $72,000 was
issued as a deposit for the Sugar Hill golf course
auction.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 9 – Commitments and Contingencies
(Continued)
On
January 19, 2018, the Company was sued in the United States
District Court for the District of Arizona (
William Martin v. WEED, Inc..
, Case
No. 4:18-cv-00027-RM) by the listed Plaintiff. The Company was
served with the Verified Complaint on January 26, 2018. The
Complaint alleges claims for breach of contract-specific
performance, breach of contract-damages, breach of the covenant of
good faith and fair dealing, conversion, and injunctive relief. In
addition to the Verified Complaint, the Company was served with an
application to show cause for a temporary restraining order. The
Verified Complaint alleges the Company entered into a contract with
the Plaintiff on October 1, 2014 for the Plaintiff to perform
certain consulting services for the Company in exchange for 500,000
shares of its common stock up front and an additional 700,000
shares of common stock to be issued on May 31, 2015. The Plaintiff
alleges he completed the requested services under the agreement and
received the initial 500,000 shares of common stock, but not the
additional 700,000 shares. The request for injunctive relief asks
the Court to Order the Company to issue the Plaintiff 700,000
shares of its common stock, and possibly include them in its
Registration Statement on Form S-1, or, in the alternative, issue
the shares and have them held by the Court pending resolution of
the litigation, or, alternatively, sell the shares and deposit the
sale proceeds in an account that the Court will control. The
hearing on the Temporary Restraining Order occurred on January 29,
2018. On January 30, 2018, the Court issued its ruling denying the
application for a Temporary Restraining Order. Currently, there is
no further hearing scheduled in this matter
.
On February 13, 2018, the Company filed
an Answer to the Verified Complaint and Counterclaim. On February
15, 2018, the Company filed a Motion to Dismiss the Verified
Complaint. On February 23, 2018, the Company filed a Motion to
Amend Counterclaim to add W. Martin’s wife, Joanna Martin as
a counterdefendant. On March 9, 2018, William Martin filed a Motion
to Dismiss the Counterclaim. On March 12, 2018, William Martin
filed a Motion to Amend the Verified Complaint to, among other
things, add claims against Glenn Martin and Nicole and Ryan Breen.
On March 27, 2018, the Court granted both William Martin and WEED,
Inc.’s Motions to Amend. On March 27, 2018, the Company filed
an Amended Counterclaim adding Joanna Martin. On April 2, 2018, the
Company filed a Motion to Amend our Counterclaim to add a breach of
contract claim. On April 10, 2018, the Company filed an Answer to
First Amended Verified Complaint. On April 23, 2018, Glenn Martin
and Nicole and Ryan Breen filed their Answer to the First Amended
Complaint. On May 31, 2018, the Court issued an Order: (a) granting
the Company’s Motion to Dismiss thereby dismissing the
Plaintiff’s claims for breach of the covenant of good faith
and fair dealing and the claim for conversion, (b) denying William
Martin’s Motion to Dismiss the counterclaim as to the claims
for fraudulent concealment and fraudulent misrepresentation, but
granting the Motion to Dismiss only as to the claim for fraudulent
nondisclosure, and (c) granting the Company’s Motion to Amend
its Counterclaim to add a breach of contract claim. On June 1,
2018, William Martin and his wife filed their Answer to the First
Amended Counterclaim. On June 1, 2018, William Martin and his wife
filed their Answer to the Second Amended Counterclaim. In addition
to the above pleadings and motions, the parties have exchanged
disclosure statements and served and responded to written
discovery. The Company denies the Plaintiff’s allegations in
the Verified Complaint in their entirety and plan to vigorously
defend against this lawsuit. Due to the loss not being probable, no
accrual has been recorded for the 700,000 shares of common stock
the Plaintiff alleges he is owed under his agreement with the
Company.
Material Definitive Agreements
On May
1, 2018, the Company entered into a Fourth Addendum and Fifth
Addendum to that certain Purchase and Sale Agreement between the
Company and Greg DiPaolo’s Pro Am Golf, LLC, amending the
“Closing Date” under the Agreement to August 1, 2018,
in exchange for the Company paying $50,000 as a non-refundable
deposit to be applied against the purchase price once the property
sale is completed and $10,000 for maintenance, tree removal and
other grounds keeping in order to prepare the golf course for the
2018 season.
On July
23, 2018, the Company entered into a Sixth Addendum, extending the
“Closing Date” to November 1, 2018, in exchange for the
Company paying an additional $50,000 as a non-refundable deposit to
be applied against the purchase price.
On May
21, 2018, the Company entered into a Trademark Purchase Agreement
with Copalix Pty Ltd., a private South African company, to acquire
U.S. Trademark Registration No. 4,927,872 for the WEED TM mark, in
exchange for USD$40,000.
On July
27, 2018, the Company entered into a Trademark Purchase Agreement
with Copalix Pty Ltd., to acquire European Community Trademark
Registration No. 11953387 for WEED Registered Mark in exchange for
USD$10,000.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 10 – Stockholders’ Equity
Preferred Stock
On
December 5, 2014, the Company amended the Articles of
Incorporation, pursuant to which 20,000,000 shares of “blank
check” preferred stock with a par value of $0.001 were
authorized. No series of preferred stock has been designated to
date.
Common Stock
On
December 5, 2014, the Company amended the Articles of
Incorporation, and increased the authorized shares to 200,000,000
shares of $0.001 par value common stock.
2019 Common Stock Activity
Common Stock Sales (2019)
During
the quarter ended March 31, 2019, the Company issued 250,000 shares
of common stock for proceeds of $200,000. 300,000 shares valued at
$150,000 were not issued at March 31, 2019 and such amount has been
included in subscriptions payable.
During
the three months ended June 30, 2019, the Company issued 300,000
shares of common stock for proceeds of $150,000. 120,000 shares
valued at $60,000 were not issued at June 30, 2019 and such amount
has been included in subscriptions payable.
Common Stock Issued for Services (2019)
During
the three months ended March 31, 2019, the Company agreed to issue
an aggregate of 410,000 shares of common stock to consultants for
services performed. 400,000 shares valued at $668,000 were based on
the closing price of the agreement date, and 10,000 shares valued
at $12,400 were based on the closing price of the Company’s
common stock earned on the measurement date.
During
the three months ended June 30, 2019, the Company agreed to issue
an aggregate of 957,000 shares of common stock to consultants for
services performed. The total fair value of the common stock was
$907,480 based on the closing price of the Company’s common
stock earned on the agreement date. 70,000 shares valued at $47,600
were not issued at June 30, 2019, and such amount has been included
in subscriptions payable.
Common Stock Cancellations
On
January 31, 2019, the Company cancelled a total of 200,000 shares
of common stock valued at $0 previously granted to a consultant,
David Johnson, for non-performance of services. The cancellation
was accounted as a repurchase for no consideration.
2018 Common Stock Activity
Common Stock Sales (2018)
During
the year ended December 31, 2018, the Company issued 3,899,450
shares of common stock for proceeds of $4,798,550. In connection
with certain of the share issuances, the Company issued warrants to
purchase an aggregate of $1,927,500 shares of the Company’s
common stock. The warrants to purchase 462,500 shares have an
exercise price of $5.00 per share, exercisable on various dates
through March 2019. Warrants to purchase 215,000 shares have an
exercise price of $12.50 per share and are exercisable on various
dates through January 2020. The warrants to purchase $1,250,000
shares have an exercise price of $6.00 per share, exercisable on
various dates through June 2019. The proceeds received were
allocated $3,361,832 to common stock and $1,436,718 to warrants on
a relative fair value basis. On January 12, 2018, a warrant holder
exercised warrants to purchase 150,000 shares of common stock at a
price of $1.50 in exchange for proceeds of $225,000.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 10 – Stockholders’ Equity
(Continued)
Common Stock Issued for Services (2018)
During
the year ended December 31, 2018, the Company agreed to issue an
aggregate of 915,000 shares of common stock to consultants for
services performed. The total fair value of common stock was
$3,042,940 based on the closing price of the Company’s common
stock earned on the measurement date. Shares valued at $200,400
were issued at December 31, 2018 and services will be performed in
2019 and has been included in unamortized stock-based
compensation.
Note 11 – Common Stock Warrants and Options
Common Stock Warrants Granted (2019)
No
common stock warrants were granted during the six months ended June
30, 2019.
Common
stock warrants granted consist of the following at June 30, 2019
and December 31, 2018, respectively:
|
June 30, 2019
|
|
December 31, 2018
|
|
Issuance
|
Warrant
|
Name
|
# of Common
|
|
Issuance
|
Warrant
|
Name
|
# of Common
|
|
Date
|
#
|
Stock Warrants
|
|
Date
|
#
|
Stock Warrants
|
|
|
|
|
|
|
1/5/2018
|
1029
|
Lex Seabre
|
100,000.00
|
|
Total
|
|
|
-
|
|
1/21/2018
|
1031
|
Roger Forsyth
|
100,000.00
|
|
|
|
|
|
|
1/23/2018
|
1032
|
Roger Forsyth
|
100,000.00
|
|
|
|
|
|
|
2/9/2018
|
1033
|
Lawrence Wesigal
|
15,000.00
|
|
|
|
|
|
|
3/19/2018
|
1034
|
Donald Steinberg
|
150,000.00
|
|
|
|
|
|
|
3/15/2018
|
1035
|
Donald Harrington
|
12,500.00
|
|
|
|
|
|
|
4/26/2018
|
1036
|
Roger Seabre
|
100,000.00
|
|
|
|
|
|
|
4/26/2018
|
1037
|
Michael Kirk Wines
|
100,000.00
|
|
|
|
|
|
|
5/7/2018
|
1038
|
Donald Steinberg
|
400,000.00
|
|
|
|
|
|
|
5/15/2018
|
1039
|
Roger Seabre
|
200,000.00
|
|
|
|
|
|
|
6/13/2018
|
1040
|
Blue Ridge Enterprises
|
450,000.00
|
|
|
|
|
|
|
6/26/2018
|
1041
|
Dianna Steinberg
|
200,000.00
|
|
|
|
|
|
|
Total
|
|
|
1,927,500.00
|
A
summary of the Company’s outstanding common stock warrants is
as follows as of June 30, 2019:
|
Issuance
|
Warrant
|
|
|
# of Common
|
Strike
|
Term
|
|
Date
|
#
|
Name
|
Document
|
Stock Warrants
|
Price
|
In Mos.
|
|
|
|
|
|
|
|
|
|
12/31/17
|
|
|
|
1,973,333
|
|
|
|
|
|
|
|
|
|
|
|
01/02/18
|
1009
|
Exercise
- Edward Matkoff
|
Subscription
Agreement
|
(50,000)
|
$
3.00
|
12
|
|
01/05/18
|
1029
|
Lex
Seabre
|
Subscription
Agreement
|
100,000
|
$
5.00
|
12
|
|
01/21/18
|
1031
|
Roger
Forsyth
|
Subscription
Agreement
|
100,000
|
$
12.50
|
24
|
|
01/23/18
|
1010
|
Expired
- Sandra Hogan
|
Subscription
Agreement
|
(2,000)
|
$
3.00
|
12
|
|
01/23/18
|
1032
|
Roger
Forsyth
|
Subscription
Agreement
|
100,000
|
$
12.50
|
24
|
|
02/09/18
|
1033
|
Lawrence
Wesigal
|
Subscription
Agreement
|
15,000
|
$
12.50
|
12
|
|
03/19/18
|
1034
|
Donald
Steinberg
|
Subscription
Agreement
|
150,000
|
$
5.00
|
12
|
|
03/15/18
|
1035
|
Donald
Harrington
|
Subscription
Agreement
|
12,500
|
$
5.00
|
12
|
|
04/20/17
|
1015
|
Expired
- Lex Seabre
|
Subscription
Agreement
|
(375,000)
|
$
3.00
|
12
|
|
04/20/17
|
1020
|
Expired
- Lex Seabre
|
Subscription
Agreement
|
(125,000)
|
$
3.00
|
12
|
|
04/26/18
|
1036
|
Roger
Seabre
|
Subscription
Agreement
|
100,000
|
$
5.00
|
12
|
|
04/26/18
|
1037
|
Michael
Kirk Wines
|
Subscription
Agreement
|
100,000
|
$
5.00
|
12
|
|
05/07/18
|
1038
|
Donald
Steinberg
|
Subscription
Agreement
|
400,000
|
$
6.00
|
12
|
|
05/15/18
|
1039
|
Roger
Seabre
|
Subscription
Agreement
|
200,000
|
$
6.00
|
12
|
|
06/13/18
|
1040
|
Blue
Ridge Enterprises
|
Subscription
Agreement
|
450,000
|
$
6.00
|
12
|
|
06/16/17
|
1019
|
Expired
- Black Mountain Equities
|
Debt
Exchange Agreement
|
(70,000)
|
$
3.00
|
12
|
|
06/26/18
|
1041
|
Dianna
Steinberg
|
Subscription
Agreement
|
200,000
|
$
6.00
|
12
|
|
12/31/18
|
|
|
|
3,278,833
|
|
|
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 11 – Common Stock Warrants and Options
(Continued)
|
01/05/18
|
1029
|
Expired
- Lex Seabre
|
Subscription
Agreement
|
(100,000)
|
$
5.00
|
12
|
|
02/09/18
|
1033
|
Expired
- Lawrence Wesigal
|
Subscription
Agreement
|
(15,000)
|
$
12.50
|
12
|
|
03/19/18
|
1034
|
Expired
- Donald Steinberg
|
Subscription
Agreement
|
(150,000)
|
$
5.00
|
12
|
|
03/15/18
|
1035
|
Expired
- Donald Harrington
|
Subscription
Agreement
|
(12,500)
|
$
5.00
|
12
|
|
03/31/19
|
|
|
|
3,001,333
|
|
|
|
4/26/2018
|
1036
|
Expired
-Roger Seabre
|
Subscription
Agreement
|
(100,000)
|
$
5.00
|
12
|
|
4/26/2018
|
1037
|
Expired
-Michael Kirk Wines
|
Subscription
Agreement
|
(100,000)
|
$
5.00
|
12
|
|
5/7/2018
|
1038
|
Expired
-Donald Steinberg
|
Subscription
Agreement
|
(400,000)
|
$
6.00
|
12
|
|
5/15/2018
|
1039
|
Expired
-Roger Seabre
|
Subscription
Agreement
|
(200,000)
|
$
6.00
|
12
|
|
6/13/2018
|
1040
|
Expired
-Blue Ridge Enterprises
|
Subscription
Agreement
|
(450,000)
|
$
6.00
|
12
|
|
6/26/2018
|
1041
|
Expired
-Dianna Steinberg
|
Subscription
Agreement
|
(200,000)
|
$
6.00
|
12
|
|
5/25/2017
|
1016
|
Expired
-Russ Karlen
|
Subscription
Agreement
|
(100,000)
|
$
3.00
|
24
|
|
5/25/2017
|
1017
|
Expired
-Eric Karlen
|
Subscription
Agreement
|
(20,000)
|
$
3.00
|
24
|
|
5/31/2017
|
1018
|
Expired
-Matt Turner
|
Subscription
Agreement
|
(20,000)
|
$
3.00
|
24
|
|
5/31/2017
|
1022
|
Expired
-Rodger Seabre
|
Subscription
Agreement
|
(300,000)
|
$
3.00
|
24
|
|
|
|
|
|
|
|
|
|
6/30/2019
|
|
|
|
1,111,333
|
|
|
Common Stock Warrants Expired (2019)
A total
of 2,167,500 warrants expired during the six months ended June 30,
2019.
Warrants Exercised (2019)
No warrants were exercised
during the six months ended June
30, 2019.
2018 Common Stock Warrant Activity
Common Stock Warrants Granted (2018)
See
Note 10 for details on warrants issued during the year ended
December 31, 2018.
Common Stock Warrants Exercised (2018)
On
January 12, 2018, a warrant holder exercised warrants to purchase
150,000 shares of common stock at a price of $1.50 in exchange for
proceeds of $225,000.
Common Stock Warrants Expired (2018)
A total
of 572,000 warrants expired during the year ended December 31,
2018.
Common Stock Options (2018)
On
February 1, 2018, in connection with executive employment
agreements, the Company granted non-qualified options to purchase
an aggregate of 6,000,000 shares of the Company’s common
stock at the exercise price of $10.55 per share. The options shall
become exercisable at the rate of 1/3 upon the six-month
anniversary, 1/3 upon the one-year anniversary and 1/3 upon the
second anniversary of the grant. The options were valued at
$45,753,000 using the Black-Scholes option pricing model. The
Company recognized expense of approximately $21,201,397 relating to
these options during the year ended December 31, 2018.
WEED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019
(UNAUDITED)
Note 11 – Common Stock Warrants and Options
(Continued)
The
assumptions used in the Black-Scholes model are as
follows:
|
|
For the period ended June 30, 2019
|
|
Risk-free
interest rate
|
1.75%
|
|
Expected
dividend yield
|
0%
|
|
Expected
lives
|
6.0
years
|
|
Expected
volatility
|
200%
|
A
summary of the Company’s stock option activity and related
information is as follows:
|
|
For the Six Months Ended June 30,
2019
|
|
|
|
|
|
|
|
|
|
Outstanding at the
beginning of period
|
-
|
$
-
|
|
Granted
|
6,000,000
|
10.55
|
|
Exercised/Expired/Cancelled
|
-
|
-
|
|
Outstanding at the
end of period
|
6,000,000
|
$
10.55
|
|
Exercisable at the
end of period
|
1,250,000
|
$
10.55
|
Note 12 – Subsequent Events
On July
14, 2019, the Company terminated the exclusive license and
assignment agreement between Yissum Research Development Company
and WEED, Inc. The second installment of the license fee of
$400,000, due on May 1, 2019, was not paid, and the first
installment of $100,000 will be recorded as a loss on
deposit.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Disclaimer Regarding Forward Looking Statements
Our
Management’s Discussion and Analysis or Plan of Operations
contains not only statements that are historical facts, but also
statements that are forward-looking. Forward-looking statements
are, by their very nature, uncertain and risky. These risks and
uncertainties include international, national and local general
economic and market conditions; demographic changes; our ability to
sustain, manage, or forecast growth; our ability to successfully
make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing
government regulations and changes in, or the failure to comply
with, government regulations; adverse publicity; competition; the
loss of significant customers or suppliers; fluctuations and
difficulty in forecasting operating results; changes in business
strategy or development plans; business disruptions; the ability to
attract and retain qualified personnel; the ability to protect
technology; and other risks that might be detailed from time to
time in our filings with the Securities and Exchange
Commission.
Although the
forward-looking statements in this Quarterly Report reflect the
good faith judgment of our management, such statements can only be
based on facts and factors currently known by them. Consequently,
and because forward-looking statements are inherently subject to
risks and uncertainties, the actual results and outcomes may differ
materially from the results and outcomes discussed in the
forward-looking statements. You are urged to carefully review and
consider the various disclosures made by us in this report and in
our other reports as we attempt to advise interested parties of the
risks and factors that may affect our business, financial
condition, and results of operations and prospects.
Overview
We
are an early stage holding company currently focused on the
development and application of cannabis-derived compounds for the
treatment of human disease. Our wholly-owned subsidiary, Sangre AT,
LLC (“Sangre”), has begun a planned five-year Cannabis
Genomic Study to complete a genetic blueprint of the Cannabis plant
genus, by creating a global genomic classification of the entire
plant. By targeting cannabis-derived molecules that stimulate the
endocannabinoid system, Sangre’s research team plans to
develop scientifically-valid and evidence-based cannabis strains
for the production of disease-specific medicines. The goal of the
research is to identify, collect, patent, and archive a collection
of highly-active medicinal strains. We plan to conduct this study
only in states where cannabis has been legalized for medicinal
purposes.
Using
annotated genomic data and newly generated phenotypic data, Sangre
plans to identify and isolate regions of the plant genome which are
related to growth, synthesis of desired molecules, and drought and
pest resistance. This complex data set would then be utilized in a
breeding program to generate and establish new hybrid cultivars
which exemplify the traits that are desired by the medical and
patient community. This breeding program would produce new seed
stocks and clones, which we plan on patenting. If successful this
intellectual property should generate immense value for the
Company. After developing a comprehensive understanding of the
annotated genome of a variety of cannabis strains, and obtaining
intellectual property protection over the most promising strains,
we plan move forward either independently or with strategic
partners to develop medicinal products for the treatment of a
multitude of human diseases.
Our
current, short-term goals relate to the Cannabis Genomic Study and
the resulting development of a variety of new cannabis strains,
and, over the next 5 years, we plan to process those results in
order to become an international cannabis research and product
development company, with a globally-recognized brand focusing on
building and purchasing labs, land and building commercial grade
“Cultivation Centers” to consult, assist, manage &
lease to universities, state governments, licensed dispensary
owners and organic grow operators on a contract basis with a
concentration on the legal and medical cannabis
sector..
Our
long-term plan is to become a true “Seed-to-Sale”
global holding company providing infrastructure, financial
solutions, product development, and real estate options in this new
emerging market. Our long term growth may also come from the
acquisition of synergistic businesses, such as distilleries, to
make anything from infused beverages to super oxygenated water with
CBD and THC. Currently, we have formed WEED Australia Ltd.,
registered as an unlisted public company in Australia to address
this Global demand. We have also formed WEED Australia Ltd.,
registered as an unlisted public company in Australia, to address
future global demand, however the entity has been dormant since its
inception. We will look to conduct future research, marketing,
import/exporting, and manufacturing of our proprietary products on
an international level.
In
furtherance of our current, short terms goals, Sangre initiated the
cannabis genome project in April 2017, by extracting DNA from seven
cannabis strains in Tucson, Arizona. Sangre followed the initial
extraction with a second round of extractions in July 2017. The
extracted DNA is currently being sequenced by the Sangre team using
a binary sequencing approach based on the use of two distinct
sequencing technologies and a proprietary bioinformatics database.
Following the generation of genomic data, the sequences will be
annotated (compared) against over 300,000 plant genes to elucidate
specific de novo pathways responsible for the synthesis of specific
compounds and classes of compounds.
Under
the genome project directives, additional strains are slated for
sequencing and annotation as part of the overall expansion of this
research project. An integral part of this expansion is the
acquisition of additional DNA extraction, amplification, and
sequencing technologies. The expansion also includes the
installation of high-level IT networks for data acquisition,
analysis, and storage.
On
July 26, 2017, we acquired a property located in La Veta, Colorado
in order for Sangre to complete its 5-Year, $15+ million Cannabis
Genomic Study. The site includes a 10,000+ sq. ft. building that
will house Sangre’s genomic research facility, a 4,000+
square foot building for plant product analytics and plant product
extraction, a 3,500 sq. ft. corporate office center, and 25 RV
slots with full water and electric, which we plan to convert into a
series of small research pods. Under the terms of the purchase
agreement, we paid $525,000 down, along with 25,000 shares of our
common stock, and Sangre took immediate possession of the property.
We were obligated to pay an additional $400,000 in cash and issue
an additional 75,000 shares of our common stock over the two next
years in order to pay the entire purchase price. To date we have
spent $354,000 renovating the property and an additional $400,000
on extraction and analytical lab equipment. We plan to complete the
property renovations by Q3 of 2019, at an estimated cost of
$300,000. We will need additional extraction equipment and
analytical lab equipment, totaling approximately $700,000. We will
need to raise additional funds in order to complete the planned
renovations and pay the purchase price for the
equipment.
WEED
Inc. acquired the property in La Veta, Colorado in order to
facilitate the expansion of the genomic studies and the development
of new hybrid strains. The facility is currently under re-design
and renovation to convert the existing structures into a
world-class genetics research center.
A
gene-based breeding program will allow us to root out inferior
cultivars and replace them with fully-validated and patentable
cultivars which produce consistent plant products for the medicinal
markets. The gene-based breeding program will improve cultivars and
introduce integrity, stability, and quality to the market in the
following ways:
●
accelerated
and optimized growth rates; modern genomic resources will enhance
traditional breeding methods
●
generate new
cultivars, accelerating and perfecting the art of selective
breeding
●
provide the ability
to assay for specific genes within the crop, establish strain
tracking, and promote market quality assurance
●
improved disease,
pest, and drought resistance of the Cannabis plant
We
believe the gene-based breeding program will facilitate and
accelerate:
●
improved
therapeutic properties, i.e., increased THC/CBD concentration and
the production of specific classes of oils and
terpenses
●
enhanced
opportunities for new drug discovery
●
accelerated
breeding of super-cultivars: drought, pest, and mold resistant,
increased %THC
●
revenue generation
through our unique ability to breed and genetically fingerprint
new, super-cultivars: establish strong patent protection; and
provide these cultivars to the market on a favorable cost and
royalty basis.
Our
goal with this program is to develop a translational breeding
program to establish a new collection of Cannabis cultivars for the
Colorado, national, and international markets. Through the use of
genetic screening technology, cultivars can be up-selected for
specific traits and grown to address the needs of consumers in the
medicinal market.
Corporate Overview
We
were originally incorporated under the name Plae, Inc., in the
State of Arizona on August 20, 1999. At the time we operated under
the name Plae, Inc., no business was conducted. No books or records
were maintained and no meetings were held. In essence, nothing was
done after incorporation until Glenn E. Martin took possession of
Plae, Inc. in January 2005. On February 18, 2005, the corporate
name was changed to King Mines, Inc. and then subsequently changed
to its current name, United Mines, Inc., on March 30, 2005. No
shares were issued until the Company became United Mines, Inc. From
2005 until 2015, we were an exploration stage mineral exploration
company that owned a number of unpatented mining claims and Arizona
State Land Department claims.
On
November 26, 2014, our Board of Directors approved the
redomestication of our company from Arizona to Nevada (the
“Articles of Domestication”), and approved Articles of
Incorporation in Nevada, which differed from then-Articles of
Incorporation in Arizona, primarily by (a) changing our name from
United Mines, Inc. to WEED, Inc., (b) authorizing Twenty Million
(20,000,000) shares of preferred stock, with blank check rights
granted to our Board of Directors, and (c) authorizing Two Hundred
Million (200,000,000) shares of common stock (the “Nevada
Articles of Incorporation”). On December 19, 2014, the
holders of a majority of our outstanding common stock approved the
Articles of Domestication and the Nevada Articles of Incorporation
at a Special Meeting of Shareholders. On January 16, 2015, the
Articles of Domestication and the Nevada Articles of Incorporation
went effective with the Secretary of State of the State of Nevada.
On February 2, 2015, our name change to WEED, Inc., and a
corresponding ticker symbol change to “BUDZ” went
effective with FINRA and was reflected on the quotation of our
common stock on OTC Markets.
These
changes were affected in order to make our corporate name and
ticker symbol better align with our short-term and long-term
business focus. Our current, short-term goals relate to the
Cannabis Genomic Study and the resulting development of a variety
of new cannabis strains, and, over the next 5 years, we plan to
process those results in order to become an international cannabis
research and product development company, with a
globally-recognized brand focusing on building and purchasing labs,
land and building commercial grade “Cultivation
Centers” to consult, assist, manage & lease to
universities, state governments, licensed dispensary owners and
organic grow operators on a contract basis with a concentration on
the legal and medical cannabis sector.
Our
long-term plan is to become a true “Seed-to-Sale”
global holding company providing infrastructure, financial
solutions, product development, and real estate options in this new
emerging market. Our long term growth may also come from the
acquisition of synergistic businesses, such as distilleries, to
make anything from infused beverages to super oxygenated water with
CBD and THC. Currently, we have formed WEED Australia Ltd.,
registered as an unlisted public company in Australia to address
this Global demand. We have also formed WEED Israel Cannabis Ltd.,
an Israeli corporation, to address future global demand. We will
look to conduct future research, marketing, import/exporting, and
manufacturing of our proprietary products on an international
level.
On
April 20, 2017, we entered into a Share Exchange Agreement with
Sangre AT, LLC, a Wyoming limited liability company, under which we
acquired all of the issued and outstanding limited liability
company membership units of Sangre in exchange for Five Hundred
Thousand (500,000) shares of our common stock, restricted in
accordance with Rule 144. As a result of this agreement, Sangre is
a wholly-owned subsidiary of WEED, Inc.
This
discussion and analysis should be read in conjunction with our
financial statements included as part of this Quarterly
Report.
Three Months Ended June 30, 2019 compared to Three Months Ended
June 30, 2018
Results of Operations
|
|
Three
Months Ended
June
30,
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
General and
administrative
|
124,928
|
405,666
|
|
Professional
fees
|
7,004,377
|
8,930,451
|
|
Depreciation and
amortization
|
40,756
|
44,171
|
|
Total operating
expenses
|
7,170,061
|
9,380,288
|
|
|
|
|
|
Net operating
loss
|
(7,170,061
)
|
(9,380,288
)
|
|
|
|
|
|
Other
Expense
|
|
|
|
Interest
expense
|
(2,140
)
|
(5,148
)
|
|
Other
income
|
17
|
-
|
|
Loss on
extinguishment of debt
|
-
|
(1,976
)
|
|
Other
expense
|
(476
)
|
-
|
|
|
|
|
|
Net
loss
|
$
(7,172,660
)
|
$
(9,387,412
)
|
Operating Loss; Net Loss
Our net loss decreased by $2,214,752, from ($9,387,412) to
($7,172,660), from the three months ended June 30, 2018 compared to
the three months ended June 30, 2019. Our operating loss decreased
by $2,210,227, from ($9,380,288) to ($7,170,061) for the same
period. The decrease in operating loss and net loss compared to the
same period of the prior year is primarily a result of decreases in
professional fees and general and administrative expenses. These
changes are detailed below.
Revenue
We have not had any revenues since our inception. We are company
focused on the medical cannabis sector. In the short-term we plan
to conduct Sangre’s Cannabis Genomic Study over the next 5
years and process those result, and in the long-term is to be a
company focused on purchasing land and building commercial grade
“Cultivation Centers” to consult, assist, manage &
lease to licensed dispensary owners and organic grow operators on a
contract basis, with a concentration on the legal and medical
marijuana (Cannabis) sector. Our long-term plan is to become a True
“Seed-to-Sale” company providing infrastructure,
financial solutions and real estate options in this new emerging
market, worldwide. We plan to make our brand global and therefore
we will look for opportunities to conduct future research,
marketing, import and exporting, and manufacturing of any
proprietary products on an international level.
General and Administrative Expenses
General and administrative expenses decreased by $280,738, from
$405,666 for the three months ended June 30, 2018 to $124,928 for
the three months ended June 30, 2019, primarily due to decreases in
lab supplies and construction labor for the research
facilities.
Professional Fees
Our professional fees decreased by $1,926,074 during the three
months ended June 30, 2019 compared to the three months ended June
30, 2018. Our professional fees were $8,930,451 for the three
months ended June 30, 2019 and $7,004,377 for the three months
ended June 30, 2018. These fees are largely related to fees paid
for legal and accounting services, along with compensation to
independent contractors, and decreased primarily as a result of a
decrease in the value of stock-based compensation awards due to our
lower stock price. We expect these fees to grow steadily as our
business expands if we continue to use stock-based compensation. In
the event we undertake an unusual transaction, such as an
acquisition, securities offering, or file a registration statement,
we would expect these fees to substantially increase during that
period.
Depreciation and Amortization
During the three months ended June 30, 2019 we had depreciation and
amortization expense of $40,756, compared to $44,171 in the three
months ended June 30, 2018. Our depreciation and amortization
expense primarily relates to our property and trademark
acquisitions.
Interest Expense
Interest expense decreased from $5,148 to $2,140 for the three
months ended June 30, 2018 compared to the same period in 2019. Our
interest expense primarily relates to the mortgages maintained on
our acquired properties.
Other Expense
Other expense increased from $0 to $476 for the three months ended
June 30, 2018 compared to the same period in 2019. Our other
expense for the three months ended June 30, 2019, relates to bank
service charges.
Six Months Ended June 30, 2019 compared to Six Months Ended June
30, 2018
Results of Operations
|
|
Six
Months Ended
June 30,
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
General and
administrative
|
310,688
|
777,643
|
|
Professional
fees
|
17,913,703
|
12,892,210
|
|
Depreciation and
amortization
|
81,416
|
85,329
|
|
Total operating
expenses
|
18,305,807
|
13,755,182
|
|
|
|
|
|
Net operating
loss
|
(18,305,807
)
|
(13,755,182
)
|
|
|
|
|
|
Other
Expense
|
|
|
|
Interest
income
|
-
|
9,338
|
|
Interest
expense
|
(2,389
)
|
(7,807
)
|
|
Other
income
|
1,017
|
-
|
|
Loss on
extinguishment of debt
|
-
|
(1,064,720
)
|
|
Other
expense
|
(1,956
)
|
(4,731
)
|
|
|
|
|
|
Net
loss
|
$
(18,309,656
)
|
$
(14,823,102
)
|
Operating Loss; Net Loss
Our net loss increased by $3,486,554, from ($14,823,102) to
($18,309,656), from the six months ended June 30, 2018 compared to
the six months ended June 30, 2019. Our operating loss increased by
$4,550,625, from ($13,755,182) to ($18,305,807) for the same
period. The increase in operating loss and compared to the same
period of the prior year is primarily a result of an increase in
professional fees, partially offset by slight decreases in general
and administrative expenses and depreciation and amortization. The
increase in net loss and compared to the same period of the prior
year is primarily a result of the changes in our operating
expenses, as well as decreases in our interest income, loss on
extinguishment of debt, and a slight increase in our other
expenses. These changes are detailed below.
Revenue
We have not had any revenues since our inception. We are company
focused on the medical cannabis sector. In the short-term we plan
to conduct Sangre’s Cannabis Genomic Study over the next 5
years and process those result, and in the long-term is to be a
company focused on purchasing land and building commercial grade
“Cultivation Centers” to consult, assist, manage &
lease to licensed dispensary owners and organic grow operators on a
contract basis, with a concentration on the legal and medical
marijuana (Cannabis) sector. Our long-term plan is to become a True
“Seed-to-Sale” company providing infrastructure,
financial solutions and real estate options in this new emerging
market, worldwide. We plan to make our brand global and therefore
we will look for opportunities to conduct future research,
marketing, import and exporting, and manufacturing of any
proprietary products on an international level.
General and Administrative Expenses
General and administrative expenses decreased by $466,955, from
$777,643 for the six months ended June 30, 2018 to $310,688 for the
six months ended June 30, 2019, primarily due to decreases in lab
supplies and construction labor for the research
facilities.
Professional Fees
Our professional fees increased by $5,021,493 during the six months
ended June 30, 2019 compared to the six months ended June 30, 2018.
Our professional fees were $17,913,703 for the six months ended
June 30, 2019 and $12,892,210 for the six months ended June 30,
2018. These fees are largely related to fees paid for legal and
accounting services, along with compensation to independent
contractors, and increased primarily as a result of a increases in
the value of stock-based compensation awards due to our higher
stock price for part of 2019. We expect these fees to grow steadily
as our business expands if we continue to use stock-based
compensation. In the event we undertake an unusual transaction,
such as an acquisition, securities offering, or file a registration
statement, we would expect these fees to substantially increase
during that period.
Depreciation and Amortization
During the six months ended June 30, 2019 we had depreciation and
amortization expense of $81,416, compared to $85,329 in the six
months ended June 30, 2018. Our depreciation and amortization
expense primarily relates to our property and trademark
acquisitions.
Loss on Extinguishment of Debt
During
the six months ended June 30, 2019, we incurred a loss on
extinguishment of debt of $0, compared to $1,064,720 for the six
months ended June 30, 2018. The loss on extinguishment of debt for
the six months ended June 30, 2018, related to the settlement of
the Miller Note in March 2018 with common stock with a fair value
in excess of the indebtedness.
Interest Income
Interest income decreased from $9,338 to $0 for the six months
ended June 30, 2018 compared to the same period in 2019. Our
interest income in the 2018 primarily related to amounts earned in
connection with our cash balances.
Interest Expense
Interest expense decreased from $7,807 to $2,389 for the six months
ended June 30, 2018 compared to the same period in 2019. Our
interest expense primarily relates to the mortgages maintained on
our acquired properties.
Other Expense
Other expense decreased from $4,731 to $1,956 for the six months
ended June 30, 2018 compared to the same period in 2019. Our other
expense for the six months ended June 30, 2019, relates to bank
service charges.
Liquidity and Capital Resources
Introduction
During the six months ended June 30, 2019, because of our operating
losses, we did not generate positive operating cash flows. Our cash
on hand as of June 30, 2019 was $3,664 and our monthly cash flow
burn rate was approximately $45,000. Our cash on hand was primarily
proceeds from the sales of our securities. We currently do not
believe we will be able to satisfy our cash needs from our revenues
for many years to come.
Our cash, current assets, total assets, current liabilities, and
total liabilities as of June 30, 2019 and December 31, 2018,
respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
3,664
|
$
70,608
|
$
(66,944
)
|
|
Total Current
Assets
|
200,739
|
491,939
|
(291,200
)
|
|
Total
Assets
|
2,651,352
|
3,020,989
|
(369,637
)
|
|
Total Current
Liabilities
|
618,931
|
259,362
|
359,569
|
|
Total
Liabilities
|
$
618,931
|
$
259,362
|
$
359,569
|
Our total assets decreased by $369,637 as of June 30, 2019 as
compared to December 31, 2018. The decrease in our total assets
between the two periods was primarily attributed to decreases in
our deposits, prepaid expenses and cash at June 30, 2019 compared
to December 31, 2018.
Our current liabilities and total liabilities increased by
$359,569, as of June 30, 2019 as compared to December 31, 2018.
This increase was due to increases in accounts payable, accrued
officer compensation, notes payable, related party, accrued
expenses, and accrued interest.
In order to pay our obligations in full or in part when due, we
will be required to raise capital from other sources. There is no
assurance, however, that we will be successful in these
efforts.
Cash Requirements
We had cash available as of June 30, 2019 of $3,664 and $70,608 as
of December 31, 2018. Based on our revenues, cash on hand and
current monthly burn rate of approximately $45,000, we will need to
continue borrowing from our shareholders and other related parties,
and/or raise money from the sales of our securities, to fund
operations.
Sources and Uses of Cash
Operations
We had net cash used in operating activities of $755,044 for the
six months ended June 30, 2019, as compared to $1,892,607 for the
six months ended June 30, 2018. For the period in 2019, the net
cash used in operating activities consisted primarily of our net
loss of ($18,309,135), offset by estimated fair value of
stock-based compensation of $15,413,319, estimated value of shares
issued for services of $1,709,530, and depreciation and
amortization of $81,416, and adjusted by an increase in prepaid
expenses and other assets of $225,057, a decrease in accrued
expenses of $46,612, and a decrease in accounts payable of $78,958.
For the period in 2018, the net cash used in operating activities
consisted primarily of our net loss of ($14,823,102), offset by
loss on extinguishment of debt of $1,064,720, shares issued for
services of $2,737,900, stock options issued of $9,387,000,
depreciation of $85,329, and adjusted by an increase in prepaid
expenses of $112,358, a decrease in accrued expenses of $165,405,
and a decrease in accounts payable of $66,691.
Investments
For the six months ended June 30, 2019, we had net cash used in
investing activities of $2,979, consisting entirely of purchases of
property and equipment. For the period in 2018, the net cash used
in investing activities of $390,720, consisting of $350,720 in
purchases of property and equipment, and $40,000 in purchases of
intangible assets.
Financing
Our net cash provided by financing activities for the six months
ended June 30, 2019 was $691,600, compared to $2,916,762 for the
six months ended June 30, 2018. For the period in 2019, our
financing activities related to proceeds from the sale of common
stock of $350,000, proceeds from notes payable of $234,000, and
stock payable of $107,600. For the period in 2018, our financing
activities related to proceeds from the sale of common stock of
$3,023,550, proceeds from notes payable of $7,000, offset by
repayments on notes payable of ($113,788).
Off Balance Sheet Arrangements
We have
no off balance sheet arrangements.
Quantitative
and Qualitative Disclosures About Market Risk
As a
smaller reporting company, we are not required to provide the
information required by this Item.
Evaluation
of Disclosure Controls Procedures
Disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) are designed to ensure that information required
to be disclosed in reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms. Disclosure and control
procedures are also designed to ensure that such information is
accumulated and communicated to management, including the chief
executive officer and chief financial officer, to allow timely
decisions regarding required disclosures.
As of
June 30, 2019, we carried out an evaluation, under the supervision
and with the participation of management, including our chief
executive officer (our Principal Executive Officer) and chief
financial officer (our Principal Financial Officer), of the
effectiveness of the design and operation of our disclosure
controls and procedures. In designing and evaluating the disclosure
controls and procedures, management recognizes that there are
inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their
desired control objectives. Additionally, in evaluating and
implementing possible controls and procedures, management is
required to apply its reasonable judgment. We also do not have an
audit committee. Based on the evaluation described above, and as a
result, in part, of not having an audit committee and having one
individual serve as our chief executive officer and chief financial
officer has concluded that, as of the end of the period covered by
this report, our disclosure controls and procedures were not
effective as of June 30, 2019 to the same extent they were not
effective as of December 31, 2018.
In
addition to the deficiencies previously reported, we do not have
formal processes related to the identification and approval of
related party transactions.
As
funds become available to us, we expect to implement additional
measures to improve disclosure controls and
procedures.
(b)
Changes
in Internal Controls over Financial Reporting
There
was no change in our internal controls over financial reporting
that occurred during the period covered by this report, which has
materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.
(c)
Officer’s
Certifications
Appearing as an
exhibit to this quarterly report on Form 10-Q are
“Certifications” of our Chief Executive and Financial
Officer. The Certifications are required pursuant to Sections 302
of the Sarbanes-Oxley Act of 2002 (the “Section 302
Certifications”). This section of the quarterly report on
Form 10-Q contains information concerning the Controls Evaluation
referred to in the Section 302 Certifications. This information
should be read in conjunction with the Section 302 Certifications
for a more complete understanding of the topics
presented.
PART II – OTHER INFORMATION
William Martin v. WEED, Inc. et al
On
January 19, 2018, we were sued in the United States District Court
for the District of Arizona (
William Martin v. WEED, Inc.
.,
Case No. 4:18-cv-00027-RM) by the listed Plaintiff. We were served
with the Verified Complaint on January 26, 2018. The Complaint
alleges claims for breach of contract-specific performance, breach
of contract-damages, breach of the covenant of good faith and fair
dealing, conversion, and injunctive relief. In addition to the
Verified Complaint, we were served with an application to show
cause for a temporary restraining order. The Verified Complaint
alleges we entered into a contract with the Plaintiff on October 1,
2014 for the Plaintiff to perform certain consulting services for
the company in exchange for 500,000 shares of our common stock up
front and an additional 700,000 shares of common stock to be issued
on May 31, 2015. The Plaintiff alleges he completed the requested
services under the agreement and received the initial 500,000
shares of common stock, but not the additional 700,000 shares. The
request for injunctive relief asks the Court to Order us to issue
the Plaintiff 700,000 shares of our common stock, and possibly
include them in our previously-filed Registration Statement on Form
S-1, or, in the alternative, issue the shares and have them held by
the Court pending resolution of the litigation, or, alternatively,
sell the shares and deposit the sale proceeds in an account that
the Court will control. The hearing on the Temporary Restraining
Order occurred on January 29, 2018. On January 30, 2018, the Court
issued its ruling denying the application for a Temporary
Restraining Order. Currently, there is no further hearing scheduled
in this matter.
On
February 13, 2018, we filed an Answer to the Verified Complaint and
a Counterclaim. In the original Counterclaim we named William
Martin as the sole counter-defendant, and alleged, that based upon
William Martin’s representations and recommendation, WEED,
Inc. hired Michael Ryan as a consultant. We allege that William
Martin misrepresented, failed to disclose, and concealed facts from
us concerning the relationship between him and Michael Ryan. We are
seeking compensatory damages caused by William Martin’s
misrepresentation, failure to disclose, and
concealment.
On
February 15, 2018, we filed a Motion to Dismiss the Verified
Complaint. On February 23, 2018, we filed a Motion to Amend
Counterclaim to add W. Martin’s wife, Joanna Martin as a
counterdefendant. On March 9, 2018, William Martin filed a Motion
to Dismiss the Counterclaim. On March 12, 2018, William Martin
filed a Motion to Amend the Verified Complaint to, among other
things, add claims against Glenn Martin and Nicole and Ryan Breen.
On March 27, 2018, the Court granted both William Martin and WEED,
Inc.’s Motions to Amend. On March 27, 2018, we filed an
Amended Counterclaim adding Joanna Martin. On April 2, 2018, we
filed a Motion to Amend our Counterclaim to add a breach of
contract claim. On April 10, 2018, we filed an Answer to First
Amended Verified Complaint. On April 23, 2018, Glenn Martin and
Nicole and Ryan Breen filed their Answer to the First Amended
Complaint. On May 31, 2018, the Court issued an Order: (a) granting
our Motion to Dismiss thereby dismissing the claims for breach of
the covenant of good faith and fair dealing and the claim for
conversion, (b) denying William Martin’s Motion to Dismiss
the counterclaim as to the claims for fraudulent concealment and
fraudulent misrepresentation, but granting the Motion to Dismiss
only as to the claim for fraudulent nondisclosure, and (c) granting
our Motion to Amend our Counterclaim to add a breach of contract
claim. In our breach of contract claim, we allege William Martin
breached his Consulting Agreement with us by failing to perform
consulting services to us in a professional and timely manner using
the highest degree of skill, diligence, and expertise pursuant to
the Consulting Agreement. We are seeking an award of compensatory
damages caused by the breach of the Consulting Agreement, together
with attorney’s fees and costs. On June 1, 2018, William
Martin and his wife filed their Answer to the First Amended
Counterclaim. On June 1, 2018, William Martin and his wife filed
their Answer to the Second Amended Counterclaim.
The
parties have conducted discovery and disclosure, including the
production by WEED, Inc. of voluminous electronically stored
information and the depositions of William, Martin, Glenn E.
Martin, Michael Ryan, and Chris Richardson. No other depositions
are presently anticipated.
On
September 14, 2018, WEED, Inc. filed a Motion for Partial Summary
Judgment (MPSJ) seeking the dismissal of all remaining claims in
the First Amended Complaint. On November 26, 2018, plaintiff filed
an opposition to the motion for partial summary judgment, together
with a cross-motion for summary judgment on both plaintiff’s
claims and the Corporation’s counterclaims. Those motions
have been fully briefed. Originally, the Court set oral argument on
the motions for May 16, 2019, but that hearing has been postponed
by the Court due to health issues with Plaintiff’s counsel.
The hearing has not been rescheduled.
Subsequently,
Plaintiff’s counsel
withdrew and consequently, William Martin and his wife are
unrepresented. By order of the Court, the Parties are required to
participate in a judicial settlement conference scheduled for
August 21, 2019 with Magistrate Judge Thomas Ferraro.
No
trial date has been set. We deny the Plaintiff’s allegations
in the Amended Complaint in their entirety and plan to vigorously
defend against this lawsuit. Due to the loss not being probable, no
accrual has been recorded for the 700,000 shares of common stock
the Plaintiff alleges he was owed under his agreement with
us.
Travis Nelson v. WEED, Inc.
On
February 5, 2018, we were sued in Huerfano County, Colorado
District Court (
Travis
Nelson v. WEED, Inc.
, et al., Case No. 18CV30003) by the
listed Plaintiff. After we successfully pursued motions to dismiss
Plaintiff’s two initial Complaints, the Court issued an Order
on October 1, 2018 granting Plaintiff permission to file a Second
Amended Complaint, which was then filed on October 22, 2018. The
Second Amended Complaint includes three claims: 1) breach of
fiduciary duty/shareholder derivative action; 2) a claim under
Colorado’s Organized Crime Control Act; and 3) a wrongful
discharge claim. We have answered the Second Amended Complaint,
denying all allegations and alleging that the decision not to offer
employment to Nelson, the core factual dispute in this case, was
the result of pre-employment background checks that showed Nelson
had an extensive, violent criminal history. The parties exchanged
Initial Disclosures on November 11, 2018. We still have a motion
pending with the Court that seeks attorneys’ fees in the
amount of $53,000 for the expense of defending the first two
Complaints. On January 31, 2019, Plaintiff submitted an Offer of
Judgment under Colorado Statute §13-17-202 offering to dismiss
the case in exchange for payment of $100,000. The Company has
rejected this offer. Plaintiff served us with written discovery
that we responded to in March 2019. The current Case Management
Order requires the parties to arrange mediation by April 1, 2019.
The parties are currently looking for available mediators and dates
in April 2019. We believe that the Plaintiff’s allegations
are baseless and plan to vigorously defend against this lawsuit. We
not accrued any expenses related to this lawsuit due to the loss
not being probable.
In the
ordinary course of business, we are from time to time involved in
various pending or threatened legal actions. The litigation process
is inherently uncertain and it is possible that the resolution of
such matters might have a material adverse effect upon our
financial condition and/or results of operations. However, in the
opinion of our management, other than as set forth herein, matters
currently pending or threatened against us are not expected to have
a material adverse effect on our financial position or results of
operations.
As a
smaller reporting company, we are not required to provide the
information required by this Item.
Unregistered
Sales of Equity Securities and Use of Proceeds
During
the three months ended June 30, 2019, we issued the following
unregistered securities:
Common Stock Sales
During the three months ended June 30, 2019, we sold an aggregate
of 300,000 shares of our common stock to three unrelated investors
for an aggregate of $150,000. The issuances were made in reliance
on Section 4(a)(2) of the Securities Act of 1933, as amended. To
make this determination we relied on the representations of the
purchaser contained in the securities purchase agreements signed by
the purchasers, which indicated the purchasers were knowledgeable
about our management and our operations, were sophisticated
investors, and understood the purchase was part of a private
placement.
Common Stock Issued to Consultants
During the three months ended June 30, 2019, we issued an aggregate
of 957,000 shares of our common stock to two unrelated consultants
for services rendered. The shares were valued at an average of
$0.95 per share. The issuances were made in reliance on Section
4(a)(2) of the Securities Act of 1933, as amended. To make that
determination we relied on the representations of the purchasers
contained in the agreements signed by the purchasers and the fact
the consultants did work for the company and was familiar with the
company, its operations and its management.
Defaults
Upon Senior Securities
There
have been no events which are required to be reported under this
Item.
There
have been no events which are required to be reported under this
Item.
Termination of License and Merger Agreement with
Yissum
As
previously disclosed, on March 1, 2019, we entered into an
Exclusive License and Assignment Agreement (the “Technology
Agreement”) with Yissum Research Development Company of the
Hebrew University of Jerusalam, Ltd., an entity organized in Israel
(“Yissum”). Under the terms of the Technology
Agreement, Yissum agreed to grant an exclusive license, and
eventually assign, to us certain platform technologies relating to
different formulations for administration and delivery of
lipophilic compositions, (including cannabinoids) (collectively,
the “Technology”) invented and/or developed by Prof.
Elka Touitou at The Hebrew University of Jerusalem, which
technologies are more fully described in the patent applications
and/or patents listed in Appendix A to the Technology
Agreement.
Under
the Agreement, in exchange for an exclusive license to use the
Existing Technologies, we were to pay Yissum a total of
USD$1,000,000 as follows: (i) $100,000 within three (3) business
days of signing the Technology Agreement (which amount has been
paid), (ii) $400,000 on or before May 1, 2019, and (iii) $500,000
on or before December 31, 2019 (together, the “License
Payments”). The grant of the exclusive license and the
transfer to us of the responsibility for the administration and
control of patent activities and patent expenses related to the
Existing Technologies occurs after the USD$400,000 payment due May
1, 2019.
On July 9, 2019, we
sent a letter to Yissum informing them of our decision not to pay
the USD$400,000 installment payment referenced in the Technology
Agreement that was originally due on May 1, 2019, and that we were
electing to allow the Technology Agreement to automatically
terminate on July 14, 2019. As a result, we do not believe any
further payments are due to Yissum under the Technology Agreement
and we do not any right to use the Technology. To date we have not
received a response from Yissum regarding our letter. We elected to
allow the Technology Agreement to terminate primarily due the
difficulties in obtaining certain, necessary information regarding
the Technology, as well as a decision by our management to
concentrate our focus and resources on the Greg DiPaolo’s Pro
Am Golf, LLC property located in Westfield, New
York.
The
description of the Technology Agreement set forth in this report is
qualified in its entirety by reference to the full text of that
document, which is attached hereto as Exhibit 10.14 and is
incorporated herein by reference.
New York Property
As
announced previously in our filings with the Securities and
Exchange Commission, the Greg DiPaolo’s Pro Am Golf, LLC
(“DiPaolo”) property located in Westfield, New York was
put into foreclosure by the first position mortgage holder on the
property. Under an agreement with DiPaolo, and in accordance with
the process for the auction, we had a $120,000 non-refundable
deposit down to acquire the property. Since the property was in
foreclosure it was put up for auction, which occurred on July 1,
2019. At the auction, we were the winning bidder with a bid of
$597,000. Our prior deposit payment of $120,000 is being credited
towards the purchase price, with the remaining $477,000, due on
July 31, 2019. On July 31, 2019, we received a two-month extension
to pay the final purchase price, until September 30, 2019, in
exchange for a one-time payment of $20,000. We paid the $20,000 for
the extension on July 31, 2019. Under the terms of our extension we
are required to provide an update towards our financing on August
30, 2019. In the event it is determined by the bank that the sale
to us is not likely based on our update on August 30, 2019, the
bank may cancel the sale. We currently need to raise additional
funds to pay the remaining purchase price by September 30,
2019.
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101.SCH **
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XBRL
Taxonomy Extension Schema Document
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101.CAL **
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XBRL
Taxonomy Extension Calculation Linkbase Document
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XBRL
Taxonomy Extension Definition Linkbase Document
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XBRL
Taxonomy Extension Label Linkbase Document
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101.PRE **
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XBRL
Taxonomy Extension Presentation Linkbase Document
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*Filed herewith.
** XBRL (Extensible Business Reporting Language) information is
furnished and not filed or a part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities
Act of 1933, as amended, is deemed not filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended,
and otherwise is not subject to liability under these
sections.
(1)
Incorporated by reference from our Registration Statement on Form
S-1 filed with the Commission on August 11, 2017.
(2)
Incorporated by reference from the Amendment No. 1 to our
Registration Statement on Form S-1 filed with the Commission on
November 16, 2017.
(3)
Incorporated by reference from the Amendment No. 2 to our
Registration Statement on Form S-1 filed with the Commission on
February 1, 2018.
(4)
Incorporated by reference from the Amendment No. 3 to our
Registration Statement on Form S-1 filed with the Commission on
April 30, 2018.
(5)
Incorporated by reference from the Current Report on Form 8-K filed
with the Commission on March 7, 2019.
(6)
Incorporated by reference from the Annual Report on Form 10-K filed
with the Commission on April 16, 2019.
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.
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WEED,
Inc.
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Dated:
August 14, 2019
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/s/
Glenn E. Martin
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By:
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Glenn E. Martin
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Its:
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President,
Chief Executive Officer (Principal Executive Officer), Chief
Financial Officer (Principal Accounting Officer) (Principal
Financial Officer)
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