NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020
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 Companys 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. No work is being conducted now until further funds
are available.
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, 2019, has been derived from audited consolidated financial statements
and the unaudited condensed consolidated financial statements as of September 30, 2020 and 2019 ( 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, 2019 (the 2019 Annual Report), filed with the Securities and Exchange Commission (the
SEC). It is managements 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.
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.
|
Note
1 – Nature of Business and Significant Accounting Policies (continued)
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 Companys 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.
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 Companys 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 Companys has no historical revenue. The impact
of the adoption of the new standard was not material to the Companys condensed consolidated financial statements for the
three and nine months ended September 30, 2020. 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.
Note
1 – Nature of Business and Significant Accounting Policies (continued)
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 $0 and $3,450 for the nine
months ended September 30, 2020 and 2019.
Recently
Issued Accounting Pronouncements
In
August 2018, the FASB issued ASU 2018-15 Accounting for Implementation Costs Related to Cloud Computing or Hosting Arrangements.
This standard provides authoritative guidance intended to address a customers accounting for implementation costs incurred
in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software. The guidance also requires presentation of the capitalized implementation
costs in the statement of financial position and in the statement of cash flows in the same line item that a prepayment for the
fees of the associated hosting arrangement would be presented, and the expense related to the capitalized implementation costs
to be presented in the same line item in the statement of operations as the fees associated with the hosting element (service)
of the arrangement. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods
within those annual periods, with early adoption permitted. We are currently evaluating the potential impact on our financial
position, results of operations and statement of cash flows upon adoption of this guidance. We do not expect this guidance to
have a significant impact, or potential significant impact, to our unaudited condensed consolidated interim financial statements.
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 adopted the standard, effective
January 1, 2019, and the new standard has no material impact on our consolidated financial statements. 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 September 30, 2020, 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 became effective beginning
January 1, 2019, and it does not 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 $79,781,455 and negative working capital of $599,974 at September 30, 2020. These factors raise substantial
doubt about the Companys 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 Companys
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.
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 $287,200 and $224,100 of note payable on the consolidated balance sheet as of September 30, 2020 and December 31,
2019, respectively. On October 28, 2019, the Company transferred the ownership of the 2017 Audi Q7 and Audi A4, valued at $46,609,
to Nicole Breen as a repayment for her loans. $93,000 was recorded as a forgiveness on notes payable, and $46,391 recorded to
additional paid-in capital. In March 2020, the Company received $22,000 loan from Nicole Breen, and from April 1, 2020 to June
30, 2020, the Company received an additional $37,500 loan from Nicole Breen. From August 1, 2020 to September 30, 2020, the Company
received $3,600 loan from Nicole Breen.
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 nine months ended September 30, 2020 and 2019, 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. On October 28, 2019, the Company transferred the ownership of the two Audi vehicles,
valued at $46,609, to Nicole Breen as a repayment for her loans. $93,000 was recorded as a forgiveness on notes payable, and $46,391
recorded to additional paid-in capital.
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 Companys 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 Companys common stock
on the date of grant.
A
total of $238,750 and $122,250 of officer compensation was unpaid and outstanding at September 30, 2020 and 2019, respectively.
Stock
Options Issued for Services – related party
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 Companys 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, $2,015,911 relating to these options during the nine months ended September 30, 2020.
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.
Note 4 – Fair Value of Financial
Instruments (continued)
The
Company has certain financial instruments that must be measured under the new fair value standard. The Companys 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.
The
following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets
as of September 30, 2020 and 2019, respectively:
Fair
Value Measurements at December 31, 2019
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,509
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total assets
|
|
$
|
2,509
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, related parties
|
|
|
|
|
|
$
|
224,100
|
|
|
|
|
|
Notes payable
|
|
$
|
-
|
|
|
$
|
167,263
|
|
|
$
|
-
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
391,363
|
|
|
$
|
-
|
|
|
|
$
|
2,509
|
|
|
$
|
391,363
|
|
|
$
|
-
|
|
Fair
Value Measurements at September 30, 2020
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
166,463
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total assets
|
|
|
166,463
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, related parties
|
|
|
|
|
|
$
|
287,200
|
|
|
|
|
|
Notes payable
|
|
$
|
-
|
|
|
$
|
149,187
|
|
|
$
|
-
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
436,387
|
|
|
$
|
-
|
|
|
|
$
|
166,463
|
|
|
$
|
436,387
|
|
|
$
|
-
|
|
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 nine months ended September
30, 2020 and the year ended December 31, 2019.
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:
|
|
July 26, 2017
|
|
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 Companys common stock valued at $30,000 based on the closing price
of the Companys common stock on the July 18, 2017 date of grant.
|
|
(2)
|
Purchasers
shares of closing costs, including the sellers 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.
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.
On
September 25, 2019, the Company received $20,000 from Lex Seabre in exchange for 100,000 shares of common stock of the Company.
The $20,000 was paid as a deposit for the additional 60-day extension for the Sugar Hill golf course property purchase.
Note
5 – Investment in Land and Property (continued)
The
Company entered into Memorandum of Sale agreement for the Sugar Hill property with M&T Bank and the Referee to make payment
of $10,000 per month commencing on February 1, 2020 and continuing on the 1st of each month until January 1, 2021 with
a balloon payment of $272,167.73 on February 1, 2021.
The property located on 169 Valley Vista was
sold for $175,000 on September 25, 2020, and $46,948 was recorded as gain on the sale. The Company received a check in the amount
of $153,809.03 for the sale on September 25, 2020, and the check was deposited into a new bank account set up under Sangre AT,
LLC. Due to the check was not deposited until October 2, 2020, $153,809 was recorded to Undeposited Funds as of September 30, 2020.
Note
6 – Property and Equipment
Property
and equipment consist of the following at September 30, 2020 and December 31, 2019, respectively:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Property improvements
|
|
$
|
5,000
|
|
|
$
|
5,000
|
|
Automobiles
|
|
|
0
|
|
|
|
0
|
|
Office equipment
|
|
|
4,933
|
|
|
|
4,933
|
|
Furniture & Fixtures
|
|
|
2,979
|
|
|
|
2,979
|
|
Lab equipment
|
|
|
65,769
|
|
|
|
65,769
|
|
Construction in progress
|
|
|
0
|
|
|
|
0
|
|
Property (1)
|
|
|
1,759,292
|
|
|
|
1,887,802
|
|
Property and equipment, gross
|
|
|
1,837,973
|
|
|
|
1,966,483
|
|
Less accumulated depreciation
|
|
|
(403,486
|
)
|
|
|
(322,498
|
)
|
Property and equipment, net
|
|
$
|
1,434,487
|
|
|
$
|
1,643,985
|
|
|
(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). The property located on 169 Valley
Vista was sold for $175,000 on September 25, 2020 and $46,948 was recorded as gain on the sale.
|
Depreciation
and amortization expense totaled $106,498 and $122,172 for the years ended September 30, 2020 and 2019, respectively.
On
October 28, 2019, the Company transferred the ownership of the 2017 Audi Q7 and Audi A4, valued at $46,609, to Nicole Breen as
a repayment for her loans. $93,000 was recorded as a forgiveness on notes payable, and $46,391 recorded to additional paid-in
capital.
Construction
in progress in the amount of $499,695 was fully impaired due to the Company may not receive funds to complete the research facility
center project. There was no work performed in 2019 and 2020.
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 assets 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 $50,000, 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 $1,950 and $1,950 for the nine months ended September 30, 2020 and 2019, respectively.
Note
8 – Notes Payable, Related Parties
Notes
payable, related parties consist of the following at September 30, 2020 and December 31, 2019, respectively:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
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 Companys estimated borrowing rate, or 10% per annum. The largest aggregate amount outstanding was $2,000 during the periods ended December 31, 2019 and December 31, 2018. Mr. Leitzman owns less than 1% of the Companys 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 December 31, 2019 and December 31, 2018. Mrs. Orman owns less than 1% of the Companys 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 2019 to September 2020, the company received a total of $368,200 of advances, bearing interest at 5%, from Nicole Breen. A detailed list of advances and repayments follows. On October 28, 2019, the companys vehicles valued at $93,000 were used as a repayment.
|
|
|
275,200
|
|
|
|
212,100
|
|
|
|
|
|
|
|
|
|
|
Notes payable, related parties
|
|
$
|
287,200
|
|
|
$
|
224,100
|
|
The
Company recorded interest expense in the amount of $19,530 and $5,614 for the nine months ended September 30, 2020 and 2019, respectively,
including imputed interest expense in the amount of $0 and $0 during such periods related to notes payable, related parties.
Note
9 – Notes Payable
Note
payable consist of the following at September 30, 2020 and December 31, 2019, respectively:
|
|
September 30, 2020
|
|
|
December
31, 2019
|
|
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.
On August 5, 2019, the Company entered into a promissory note, whereby the Company promises to pay Snell & Wilmer L.L.P the principal amount of $250,000, bearing interest at 2.5% per annum. The note is to be paid in consecutive monthly installments in the amount of $25,000, including accrued interest commencing on August 30, 2019, until the final balloon payment is paid on January 30, 2020. The promissory note is secured by the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing with respect to the real property owned by Sangre located on 1390 Mountain Valley Road, La Veta, Colorado 81055. As of September 30, 2020, $111,864 has been paid to Snell & Wilmer.
|
|
$
|
138,136
|
|
|
|
166,412
|
|
|
|
|
|
|
|
|
|
|
On various dates, the Company received advances from consultant, Patrick Brodnik, bearing 5% interest.
|
|
$
|
11,051
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
149,187
|
|
|
$
|
167,263
|
|
The
Company recognized interest expense of $11,429 and $494.95 related to the note payables for the nine months ended September 30,
2020 and 2019, respectively.
Note
10 – Commitments and Contingencies
On
November 8, 2016, the Company entered into an agreement with Gregory DiPaolos 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 Companys 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 Companys 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 had planned to use this property as our inroads to the
New York hemp and infused beverage markets in the future. 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
was credited towards the purchase price, and the remaining $477,000, was finally due on November 30, 2019, after several extensions
(which cost us total of $40,000 to obtain). At the end of September 30, 2020, a total of $182,000 was issued as a deposit for
the property. We were not able to meet that deadline, but in January 2020 we worked out an additional extension with the bank.
Under the terms of the new agreement, we still owe approximately $392,000 to acquire the property. We have agreed to pay that
amount in installment payments of $10,000 per month for six months beginning February 2020, with a balloon payment of approximately
$332,000 due on or before August 3, 2020. We were not able to pay the balloon payment by the August 3, 2020 deadline, but on July
31, 2020 we worked out an additional extension with the bank. Under the terms of that agreement, we paid $10,000 in exchange for
an additional extension and we owed approximately $332,000 to acquire the property. We agreed to pay that amount in installment
payments of $10,000 per month for six months beginning September 2020, with a balloon payment of approximately $272,000 due on
or before February 1, 2021. These payments are in addition to the approximately $480,000 in payments we have already made.
Note
10 – 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. Martins 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 Companys Motion to Dismiss thereby dismissing the Plaintiffs claims for
breach of the covenant of good faith and fair dealing and the claim for conversion, (b) denying William Martins 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 Companys 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 Plaintiffs 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.
Travis
Nelson v. Sangre AgroTech, LLC, et al. (Huerfeno County Colorado District Court, Case No. 2018CV30003, filed on February 5, 2018).
Mr. Travis Nelson, formerly a member of the subsidiary Sangre AgroTech, LLC, filed this action alleging wrongful discharge in
retaliation for whistleblower activity purportedly related to insider trading, fraud and unlawful interstate transportation of
plant genetics. After a motion to dismiss was granted in part, Mr. Nelson filed a second amended complaint asserting revised claims
for breach of fiduciary duty, wrongful discharge, and violation of the Colorado organized crime control act. Mr. Nelson has alleged
lost wages in the amount of $600,000, unspecified losses related to whistleblower allegations, plus costs and attorneys
fees. In his initial disclosures, Mr. Nelson alleges damages of $10,000,000. On January 31, 2019, Mr. Nelson submitted an offer
of judgement in the amount of $100,000. That offer was rejected by the Corporation. Court-ordered mediation was conducted on April
24, 2019, but the matter was not resolved. By order dated February 4, 2020, the court scheduled trial for October 5, 2020. The
Corporation denies liability as to all claims. Inasmuch as an unfavorable outcome is neither probable nor remote within the meaning
of the ABA Statement of Policy referred to in the last paragraph of this letter, we decline to express an opinion concerning the
likely outcome of this matter or the liability of the Corporation, if any, associated therewith.
Material
Definitive Agreements
On
May 1, 2018, we entered into a Fourth Addendum and a Fifth Addendum to agreement amending the Closing Date under
the Agreement to August 1, 2018, in exchange for our payment of $50,000 as a non-refundable deposit to be applied against the
purchase price when 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. The property is approximately 43 acres and has unlimited water extraction rights
from the State of New York. We had planned to use this property as our inroads to the New York hemp and infused beverage markets
in the future. 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 was credited towards the purchase price,
and the remaining $477,000, was finally due on November 30, 2019, after several extensions (which cost us total of $40,000 to
obtain). We were not able to meet that deadline, but in January 2020 we worked out an additional extension with the bank. Under
the terms of that agreement, we owed approximately $392,000 to acquire the property. We agreed to pay that amount in installment
payments of $10,000 per month for six months beginning February 2020, with a balloon payment of approximately $332,000 due on
or before August 3, 2020. We were not able to pay the balloon payment by the August 3, 2020 deadline, but on July 31, 2020 we
worked out an additional extension with the bank. Under the terms of that agreement, we paid $10,000 in exchange for an additional
extension and we owed approximately $332,000 to acquire the property. We agreed to pay that amount in installment payments of
$10,000 per month for six months beginning September 2020, with a balloon payment of approximately $272,000 due on or before February
1, 2021. These payments are in addition to the approximately $480,000 in payments we have already made.
Note
10 – Commitments and Contingencies (continued)
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.
Note
11 – 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.
2020
Common Stock Activity
Common
Stock Sales (2020)
During
the quarter ended September 30, 2020, the Company issued 850,000 shares of common stock for proceeds of $235,000. 200,000 shares
valued at $40,000 were not issued at September 30, 2020, and such amount has been included in subscriptions payable.
Common
Stock Issued for Services (2020)
During
the nine months ended September 30, 2020, the Company agreed to issue an aggregate of 2,560,000 shares of common stock to
consultants for services performed. The total fair value of common stock was $1,365,200 based on the closing price of the
Companys common stock earned on the measurement date. 100,000 shares valued at $29,000 were not issued at
September 30, 2020, and such amount has been included in subscriptions payable.
Common
Stock Cancellations
No
common stocks were cancelled during the quarter ended September 30, 2020.
2019
Common Stock Activity
Common
Stock Sales (2019)
During the year ended December 31, 2019, the Company issued 1,065,000 shares of common stock for proceeds of $573,000
Common
Stock Issued for Services (2019)
During
the year ended December 31, 2019, the Company agreed to issue an aggregate of 2,467,000 shares of common stock to consultants
for services performed. The total fair value of common stock was $2,578,250 based on the closing price of the Companys
common stock earned on the measurement date. Shares valued at $121,650 were issued at December 31, 2019 and services will be performed
in 2020 and has been included in unamortized stock-based compensation.
Common
Stock Cancellations (2019)
During
the year ended December 31, 2019, the Company cancelled a total of 220,000 shares of common stock valued at $0 previously granted
to consultants, David Johnson, and Avigor Gordon, for non-performance of services. The cancellation was accounted as a repurchase
for no consideration.
Note
12 – Common Stock Warrants and Options
Common
Stock Warrants Granted (2020)
No
common stock warrants were granted during the nine months ended September 30, 2020 and December 31, 2019.
Note 12 – Common Stock Warrants
and Options (continued)
Common
Stock Warrants Expired (2020)
A
total of 200,000 warrants expired during the nine months ended September 30, 2020.
Warrants
Exercised (2020)
No
warrants were exercised during the nine months ended September 30, 2020.
2019
Common Stock Warrant Activity
Common
Stock Warrants Granted (2019)
No
common stock warrants were granted during the year ended December 31, 2019.
Common
Stock Warrants Exercised (2019)
No
warrants were exercised during the year ended December 31, 2019.
Common
Stock Warrants Expired (2019)
A
total of 3,078,833 warrants expired during the year ended December 31, 2019.
Common
Stock Options (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 Companys 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 expire ten years from the date of grant. The options were valued at $45,753,000 using the
Black-Scholes option pricing model. The Company recognized expense of approximately $22,770,662 relating to these options during
the year ended December 31, 2019.
The
assumptions used in the Black-Scholes model are as follows:
|
|
For the period
ended
September 30,
2020
|
Risk-free interest rate
|
|
1.75%
|
|
|
|
Expected dividend yield
|
|
0%
|
|
|
|
Expected lives
|
|
10.0 years
|
|
|
|
Expected volatility
|
|
200%
|
A
summary of the Companys stock option activity and related information is as follows:
|
|
For the Nine months ended September 30,
2020
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Price
|
|
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
13 – Subsequent Events
On
October 8, 2020, the Company issued 100,000 shares of common stock to Michael Kirk Wines in exchange for total proceeds of
$20,000.
On
October 8, 2020, the Company issued 100,000 shares of common stock to Wendy Seabre in exchange for total proceeds of
$20,000.
On October 8, 2020, the Company issued 100,000
shares of common stock to Michael Peskin for services performed.