NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations
The
Greater Cannabis Company, Inc. (the “Company”) was formed in March 2014 as a limited liability company under the name,
The Greater Cannabis Company, LLC. The Company was a wholly owned subsidiary of Sylios Corp (“Sylios”) until March
10, 2017.
On July 31, 2018, the Company acquired 100% of the issued and outstanding
shares of Class A common stock of Green C Corporation (“Green C”) in exchange for 9,411,998 newly issued shares of
the Company’s Series A Convertible Preferred Stock (the “Exchange”). Each share of Series A Convertible Preferred
Stock is convertible into 50 shares of common stock and is entitled to vote 50 votes per share on all matters as a class with holders
of common stock. Since after the Exchange was consummated, the former shareholders of Green C and their designees owned approximately
94% of the issued and outstanding voting shares of the Company, Green C is the acquirer for accounting purposes. Prior to the Exchange,
the Company had no assets and nominal business operations. Accordingly, the Exchange has been treated for accounting purposes as
a recapitalization by the accounting acquirer, Green C, and the accompanying consolidated financial statements of the Company reflect
the assets, liabilities and operations of Green C from its inception on December 21, 2017 to July 31, 2018 and combined with the
Company thereafter.
Green C was incorporated on December 21,
2017 under the laws of the Province of Ontario Canada with its principal place of business in North York, Ontario.
Green C is the owner of an exclusive,
worldwide license for an eluting transmucosal patch platform (“ETP”) for non-invasive drug delivery in the cannabis
field as further described in the exclusive license agreement dated June 21, 2018 with Pharmedica Ltd. (see Note I).
The
Company’s business plan is to (i) commercialize its ETP technology and (ii) concentrate on cannabis related investment and
development opportunities through direct equity investments, joint ventures, licensing agreements or acquisitions.
Principles
of Consolidation
The consolidated financial statements
include the accounts of The Greater Cannabis Company, Inc., and its wholly owned subsidiaries Green C Corporation and
Biocanrx Inc.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Interim
Financial Statements
The
interim financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 are unaudited and have
been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. These statements
reflect all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the
information contained herein. Operating results for the three months ended March 31, 2020 are not necessarily indicative of results
that may be expected for the year ending December 31, 2020.
Certain
information and finance disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s
rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements
and notes for the year ended December 31, 2019 as included in our report on Form 10-K.
Cash
and Cash Equivalents
Investments
having an original maturity of 90 days or less that are readily convertible into cash are considered to be cash equivalents. For
the periods presented, the Company had no in cash equivalents.
Income
Taxes
In
accordance with Accounting Standards Codification (ASC) 740 - Income Taxes, the provision for income taxes is computed using the
asset and liability method. The asset and liability method measures deferred income taxes by applying enacted statutory rates
in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts
on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they
occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
We
expect to recognize the financial statement benefit of an uncertain tax position only after considering the probability that a
tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not” threshold,
the amount to be recognized in the financial statements will be the benefit expected to be realized upon settlement with the tax
authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of March 31, 2020, we
had no uncertain tax positions. We recognize interest and penalties, if any, related to uncertain tax positions as general and
administrative expenses. We currently have no foreign federal or state tax examinations nor have we had any foreign federal or
state examinations since our inception. To date, we have not incurred any interest or tax penalties.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Financial
Instruments and Fair Value of Financial Instruments
We
follow ASC Topic 820, Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring
basis. ASC Topic 820 establishes a common definition for fair value to be applied to existing US GAAP that requires the use of
fair value measurements that establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
ASC
820 defines fair value 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. Additionally, ASC Topic 820 requires the use of valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Level
1:
|
Observable
inputs such as quoted market prices in active markets for identical assets or liabilities
|
Level
2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market data
|
Level
3:
|
Unobservable
inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The
carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial
assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement
is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when
a significant event occurs. Except for derivative liabilities, we had no financial assets or liabilities carried and measured
on a recurring or nonrecurring basis during the reporting periods.
Derivative
Liabilities
We
evaluate convertible notes payable, stock options, stock warrants or other contracts to determine if those contracts or embedded
components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40,
Derivative Instruments and Hedging: Contracts in Entity’s Own Equity.
The
result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument
and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as
a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion
or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value
is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification
under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.
Long-lived
Assets
Long-lived
assets such as property and equipment and intangible assets are periodically reviewed for impairment. We test for impairment losses
on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an
asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment
evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows
could be different from those estimated by management which could have a material effect on our reporting results and financial
positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market
values and third-party independent appraisals, as considered necessary.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Equity
Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances
of our common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value
of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment
for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty
considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance
is complete.
Although
situations may arise in which counter performance may be required over a period of time, the equity award granted to the party
performing the service may be fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in
which vesting periods do not exist if the instruments are fully vested on the date of agreement, we determine such date to be
the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize
such amount to expense over the contract period. When it is appropriate for us to recognize the cost of a transaction during financial
reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument
is measured at the then-current fair values.
Related
Parties
A
party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is
controlled by, or is under common control with us. Related parties also include our principal owners, our management, members
of the immediate families of our principal owners and our management and other parties with which we may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or
operating policies of the transacting parties, or if it has an ownership interest in one of the transacting parties and can significantly
influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate
interests, is also a related party.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition
Revenue
from product sales will be recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists,
(2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred.
Advertising
Costs
Advertising
costs are expensed as incurred. For the periods presented, we had no advertising costs.
Loss
per Share
We
compute net loss per share in accordance with FASB ASC 260. The ASC specifies the computation, presentation and disclosure requirements
for loss per share for entities with publicly held common stock.
Basic
loss per share amounts is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted
net loss per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such
as stock options, warrants and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted
net loss per share are excluded from the calculation. For the periods presented, the Company excluded 470,599,900 shares relating
to the Series A Convertible Preferred Stock (see Note G), shares relating to convertible notes payable to third parties (Please
see NOTE E - NOTES PAYABLE TO THIRD PARTIES for further information) and shares relating to outstanding warrants
(Please see NOTE G - CAPITAL STOCK AND WARRANTS for further information) from the calculation of diluted shares
outstanding as the effect of their inclusion would be anti-dilutive.
Recently
Enacted Accounting Standards
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts
with Customers, which supersedes nearly all prior revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09
is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration
to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this
core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required
under prior U.S. GAAP. As amended by the FASB in July 2015, the standard became effective for annual periods beginning after December
15, 2017, and interim periods therein. ASU 2014-09 has had no impact on our Financial statements for the periods presented.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Enacted Accounting Standards
In
March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations,
to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether
it is the principal or the agent in contracts that include three or more parties. The effective date and transition requirements
for these amendments are the same as the effective date and transition requirements of ASU 2014-09 (discussed above). ASU 2016-08
has had no impact on our Financial statements for the periods presentd.
In
April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing, to clarify the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing
implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date
and transition requirements of ASU 2014-09 (discussed above). ASU 2016-10 has had no impact on our financial statements for the
periods presented.
On July 13, 2017, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2017-11. Among other things, ASU 2017-11 provides
guidance that eliminates the requirement to consider “down round” features when determining whether certain financial
instruments or embedded features are indexed to an entity’s stock and need to be classified as liabilities. ASU 2017-11
provides for entities to recognize the effect of a down round feature only when it is triggered and then as a dividend and a reduction
to income available to common stockholders in basic earnings per share. The guidance became effective for annual periods
beginning after December 15, 2018.
Accordingly, effective January 1, 2019,
the Company reduced the derivative liability of warrants with “down round” features (and do not contain variable conversion
features) of $108,427 at December 31, 2018 to $0 and recognized a $108,427 cumulative affect adjustment
reduction of accumulated deficit.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
B - GOING CONCERN
Under
ASC 205-40, we have the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability
to meet our future obligations as they become due within one year after the date the financial statements are issued. As required
by this standard, our evaluation shall initially not take into consideration the potential mitigating effects of our plans that
have not been fully implemented as of the date the financial statements are issued.
In performing the first step of this assessment,
we concluded that the following conditions raise substantial doubt about our ability to meet our financial obligations as they
become due. As of March 31, 2020, the Company had cash of $295,314, total current liabilities of $2,699,591 and negative
working capital of $2,376,277. For the three months ended March 31, 2020, we incurred a net loss of $1,211,569
and used $131,015 cash from operating activities. We expect to continue to incur negative cash flows until such time
as our business generates sufficient cash inflows to finance our operations and debt service requirements.
In
performing the second step of this assessment, we are required to evaluate whether our plans to mitigate the conditions above
alleviate the substantial doubt about our ability to meet our obligations as they become due within one year after the date that
the financial statements are issued. Our future plans include securing additional funding sources.
There
is no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds
will be available through external sources. The lack of additional capital resulting from the inability to generate cash flow
from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations
and would, therefore, have a material effect on the business. Furthermore, there can be no assurance that any such required funds,
if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s
existing shareholders. We have therefore concluded there is substantial doubt about our ability to continue as a going concern
through May 2021.
The
accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of the uncertainty related to our ability to continue
as a going concern.
NOTE
C – RIGHT OF FIRST REFUSAL AGREEMENT
On January 30, 2020, the Company executed
a Right of First Refusal Agreement with an entity engaged in the business of cosmetics, health, and well-being (“KTV”).
The Agreement provided for the Company to pay KTV $25,000 on January 30, 2020 (which was paid January 30,2020) and to make other
investments in opportunities to be pursued by KTV and/or payments to KTV to enable KTV to pursue and secure Cannabidiol (“CBD”)
opportunities. The Agreement provides the Company an exclusive right of first refusal to participate in all CBD opportunities
to be pursued by KTV for a term of five years. The $25,000
cost for this Agreement is being amortized over the five year term of the Agreement.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
D - LOANS PAYABLE TO RELATED PARTIES
Loans
payable to related parties consist of:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Loans from Elisha Kalfa and Yonah Kalfa, holders of a total of 2,966,666 shares of Series A Convertible Preferred stock
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
|
|
|
|
|
|
|
|
|
Loan from Fernando Bisker and Sigalush, LLC, holders of a total of 2,966,666 shares of Series A Convertible Preferred stock
|
|
|
80,000
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
260,000
|
|
|
$
|
260,000
|
|
Pursuant
to loan and contribution agreements dated July 31, 2018, the above loans are non-interest bearing and are to be repaid after the
Company raises from investors no less than $1,500,000 or generates sufficient revenue to make repayments (each, a “Replacement
Event”). If the First Replacement Event does not occur within 18 months from July 31, 2018, the loans are to be repaid immediately.
In the event there is insufficient capital to repay the loan, the lenders have the option to convert all or part of the loans
into shares at the Company common stock at the average trading price of the 10 days prior to the date of the conversion request.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
E - NOTES PAYABLE TO THIRD PARTIES
Notes
payable to third parties consist of:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Allonge to the Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018
|
|
$
|
2,420
|
|
|
$
|
2,420
|
|
Allonge 2 to the Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018
|
|
|
1,100
|
|
|
|
1,100
|
|
Promissory Note dated March 28, 2017 payable to John T. Root, Jr., interest at 4%, due September 28, 2017, convertible into shares of common stock at a conversion price of $.001 per share.
|
|
|
375
|
|
|
|
375
|
|
Convertible Promissory Note dated February 12, 2019 payable to Eagle Equities, LLC (“Eagle”),
interest at 6% (default interest at 24%), due February 12, 2020-less unamortized debt discount of $0 and $ 33,396,
respectively (i)
|
|
|
196,428
|
|
|
|
250,082
|
|
Convertible Promissory Note dated January 27, 2020 payable to Eagle Equities,
LLC (“Eagle”), interest at 6%, due January 27, 2021-less unamortized debt discount
of $137,385 and $ 0, respectively (i)
|
|
|
29,115
|
|
|
|
-
|
|
Convertible Promissory Note dated February 12, 2020 payable to Eagle
Equities, LLC (“Eagle”), interest at 6%, due February 12, 2021-less unamortized debt
discount of $81,382 and $ 0, respectively (i)
|
|
|
12,284
|
|
|
|
-
|
|
Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”),
interest at 2%, due October 18, 2020-less unamortized debt discount of $165,303 and $294,234, respectively (ii)
|
|
|
135,697
|
|
|
|
74,566
|
|
Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”),
interest at 2%, due October 18, 2020-less unamortized debt discount of $61,989 and $90,054, respectively (ii)
|
|
|
50,887
|
|
|
|
22,823
|
|
Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”),
interest at 2%, due October 18, 2020-less unamortized debt discount of $54,551 and $79,248, respectively (ii)
|
|
|
44,780
|
|
|
|
20,084
|
|
Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”),
interest at 2%, due October 18, 2020-less unamortized debt discount of $6,199 and $9,005 respectively (ii)
|
|
|
5,089
|
|
|
|
2,281
|
|
Convertible Promissory Note dated October 18, 2019 payable to Emet Capital
Partners, LLC (“EMET”), interest at 6%, due February 12, 2020-less unamortized debt discount of $0 and $0, respectively
(ii)
|
|
|
25,587
|
|
|
|
25,587
|
|
Convertible Promissory Note dated January 27, 2020 payable to GW Holdings
Group, LLC (“GWH”), interest at 6%, due January 27, 2021-less unamortized debt discount of $ 128,721 and $ 0 respectively
(iii)
|
|
|
27,279
|
|
|
|
-
|
|
Total
|
|
$
|
531,041
|
|
|
$
|
399,318
|
|
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE E - NOTES PAYABLE TO THIRD PARTIES (continued)
(i) On February 12, 2019, (the
“Issue Date”) the Company issued a 6% Convertible Redeemable Note to Eagle Equities, LLC (“Eagle”), having
a principal amount of $1,200,000 of which $96,000 constituted an original issue discount (the “Eagle Note”). In connection
with the Eagle Note, the Company and Eagle entered into a Securities Purchase Agreement. Eagle is to fund the $ 1,104,000 purchase
price of the Eagle Note in tranches. The first tranche of $ 250,000 was received by the Company on February 13, 2019. The second
tranche of $166,500 was received by the Company on January 17, 2020 and the third tranche of $ 93,666 was received by the Company
on February 12, 2020. The loans are repayable one year from their respective funding dates and are convertible at the option of
Eagle at a conversion price equal to 65% of the lowest closing price of the Company’s common stock for the preceding 15
trading days prior to the conversion date. Please see Note F-DERIVATIVE LIABILITY for further information.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE E - NOTES PAYABLE TO THIRD PARTIES (continued)
(ii)
On October 18, 2019, the Company entered into two Exchange Agreements
with Emet Capital Partners, LLC (“Emet”). The first Exchange Agreement provided for the exchange of three outstanding
convertible notes payable to Emet with a total remaining principal balance of $20,399 and a total accrued interest balance of
$5,189 for three new convertible notes payable to Emet in the total amount of $25,587. The new notes bear interest at 6%, were
due on February 12, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price
during the 15 Trading Day Period prior to the Conversion Date. The second Exchange Agreement provided for the reversal of the
February 14, 2019 exchange agreement pursuant to which certain warrants then held by Emet were exchanged for 9,000,000 shares
of Series B Convertible Preferred Stock (see Note G) and the exchange of such warrants for four new convertible notes payable
to Emet in the total amount of $675,000. These new notes bear interest at 2%, are due on October 18, 2020 and are convertible
into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the
Conversion Date. Please see NOTE F - DERIVATIVE LIABILITY for further information.
(iii) On January 27, 2020, the
Company executed a Convertible Note (the “Convertible Note”) payable to GW Holdings Group, LLC, a New York limited
liability company and its authorized successors and permitted assigns (“Holder”), in the aggregate principal
face amount of $166,500. The new note bears interest at 6%, is due on January 27, 2021 and is convertible into common stock at
a conversion price equal to 55% of the lowest closing Price during the 15 Trading Day Period prior to the Conversion Date.
Please see NOTE F - DERIVATIVE LIABILITY for further information.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
F - DERIVATIVE LIABILITY
The
derivative liability consists of:
|
|
March
31,
2020
|
|
|
December
31,
2019
|
|
Convertible Promissory Note dated February 12, 2019 payable to Eagle Equities, LLC. Please see
NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information (i):
|
|
|
|
|
|
|
|
|
Due February 12, 2020
|
|
$
|
256,867
|
|
|
$
|
182,625
|
|
Due January 17, 2021
|
|
|
262,558
|
|
|
|
-
|
|
Due February 12, 2021
|
|
|
151,307
|
|
|
|
-
|
|
Convertible Promissory
Note dated January 27, 2020 payable to GW Holdings Group, LLC. Please see NOTE E – NOTES PAYABLE TO THIRD
PARTIES for further information (iii)
|
|
|
304,909
|
|
|
|
-
|
|
Convertible Promissory Notes dated October 18, 2019 payable to Emet. Please see NOTE
E – NOTES PAYABLE TO THIRD PARTIES for further information (ii):
|
|
|
|
|
|
|
|
|
$451,505 note due October 18,
2021
|
|
|
401,333
|
|
|
|
328,953
|
|
$112,876 note due October 18,
2021
|
|
|
150,502
|
|
|
|
100,680
|
|
$99,331 note due October 18,
2021
|
|
|
132,441
|
|
|
|
88,599
|
|
$11,288 note due October 18,
2021
|
|
|
15,050
|
|
|
|
10,068
|
|
$25,587 note due October 18,
2021
|
|
|
29,505
|
|
|
|
14,940
|
|
Total derivative liability
|
|
$
|
1,704,472
|
|
|
$
|
725,865
|
|
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
F - DERIVATIVE LIABILITY (continued)
The Convertible Promissory Notes (the
“Notes”) contain a variable conversion feature based on the future trading price of the Company’s common stock.
Therefore, the number of shares of common stock issuable upon conversion of the Note is indeterminate.
The fair value of the derivative liability
was measured at the respective issuance dates and quarterly thereafter using the Black Scholes option pricing model. Assumptions
used for the calculation of the derivative liability of the Notes at March 31, 2020 were (1) stock price of $.006 per share, (2)
conversion prices ranging from $.0026 to $.0028 per share, (3) terms ranging from 30 days to 318 days,
(4) expected volatility of 142.94%, and (5) risk free interest rates ranging from .10% to .20%.
Assumptions
used for the calculations of the derivative liability of the Notes at December 31, 2019 were (1) stock price of $ .0330 per share,
(2) conversion prices ranging from $ .01885 to $ .02175 per share, (3) terms ranging from 43 days to 293 days, (4) expected volatility
of 142,94%, and (5) risk free interest rates ranging from 1.50% to 1.60%.
NOTE
G - CAPITAL STOCK AND WARRANTS
Preferred
Stock
On
July 31, 2018, The Greater Cannabis Company, Inc. (the “Company”) acquired 100% of the issued and outstanding shares
of Class A common stock of Green C Corporation (“Green C”) in exchange for 9,411,998 newly issued shares of the Company’s
Series A Convertible Preferred Stock (the Exchange”). Each share of Series A Convertible Preferred Stock is convertible
into 50 shares of common stock and is entitled to 50 votes on all matters as a class with the holders of common stock.
On February 14, 2019, the Company issued
9,000,000 shares of Series B Convertible Preferred Stock to Emet Capital Partners, LLC (“Emet”) in exchange for the
surrender of all outstanding warrants held by Emet. Each share of Series B Convertible Preferred Stock was convertible
into one share of Company common stock subject to adjustment in case, at the time of conversion, the market price per share of
the Company common stock was less than $ 0.075 per share. On October 18, 2019, this exchange agreement was reversed.
On
October 18, 2019, the Company entered into two Exchange Agreements with Emet Capital Partners, LLC (“Emet”). The first
Exchange Agreement provided for the exchange of three outstanding convertible notes payable to Emet with a total remaining principal
balance of $20,399 and a total accrued interest balance of $5,189 for three new convertible notes payable to Emet in the total
amount of $25,587. The new notes bear interest at 6%, are due on February 12, 2020 and are convertible into common stock at a
conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the Conversion Date. The second
Exchange Agreement provided for the reversal of the February 14, 2019 exchange agreement pursuant to which certain warrants then
held by Emet were exchanged for 9,000,000 shares of Series B Convertible Preferred Stock and the exchange of such warrants for
four new convertible notes payable to Emet in the total amount of $675,000. These new notes bear interest at 2%, are due on October
18, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading
Day Period prior to the Conversion Date.
Common
Stock
Effective
March 10, 2017, in connection with a partial spin-off of the Company from Sylios Corp, the Company issued a total of 26,905,969
shares of its common stock. 5,378,476 shares were issued to Sylios Corp (representing 19.99% of the issued and outstanding shares
of Company common stock after the spin-off) and 21,527,493 shares were issued to the stockholders of record of Sylios Corp on
February 3, 2017 on the basis of one share of Company common stock for each 500 shares of Sylios Corp common stock held (representing
80.01% of the issued and outstanding shares of Company common stock after the spin-off).
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE G - CAPITAL STOCK AND WARRANTS
(continued)
On
September 19, 2018, the Company issued 1,465,523 shares of its common stock pursuant to a conversion of $32,000 principal and
$ 4,638 accrued interest of its convertible note dated May 25, 2017 by Emet Capital Partners, LLC. The $510,149 excess of the
$ 546,787 fair value of the 1,465,523 shares over the $36,638 liability reduction was charged to Loss on Conversion of Debt.
On
October 26, 2018, the Company issued 1,034,477 shares of its common stock pursuant to a conversion of $30,531 principal and $
503 accrued interest of its convertible note dated May 25, 2017 by Emet Capital Partners, LLC. The $ 82,758 excess of the $ 113,792
fair value of the 1,034,479 shares over the $ 31,034 liability reduction was charged to Loss on Conversion of Debt.
On
January 4, 2019, the Company issued 769,785 shares of its common stock pursuant to a conversion of $ 670 principal and $ 100 accrued
interest of its convertible note dated May 25, 2018 by Emet Capital Partners, LLC (“Emet”). This conversion was based
on a conversion price of $ 0.001 per share (rather than the Variable Conversion Price provided in the related note) submitted
by Emet in its Conversion Notice. Emet asserted that the Company had committed a dilutive issuance, which triggered the “ratchet-down”
provision of the related note which provides for a reduction of the conversion price. The Company has notified Emet that it disagrees
with Emet’s assertion that a ratch-down dilutive issuance occurred. The $ 99,302 excess of the $ 100,072 fair value of the
769,785 shares over the $ 770 liability reduction was charged to Loss on Conversion of Debt in the three months ended March 31,
2019.
On
January 4, 2019, the Company issued 695,129 shares of its common stock pursuant to an exercise of the equivalent of 1,400 warrants
(of the 440,000 warrants issued to Emet Capital Partners, LLC on May 25, 2017) in a cashless exercise transaction based on a ratchet-down
exercise price of $ 0.001 per share.
On
April 16, 2019, the Company issued 1,384,600 shares of its common stock pursuant to conversions of $ 40,500 principal and $ 7,961
accrued interest of two convertible notes issued to by Emet Capital Partners, LLC (“Emet”). The $131,537 excess of
the $179,998 fair value of the 1,384,600 shares over the $47,961 liability reduction was charged to Loss on Conversion of Debt
in the three months ended June 30, 2019.
On
May 29, 2019, the Company issued a total of 542,000 shares of its common stock to two consulting firm entities for certain specified
investor relations and advisory services. The $75,880 fair value of the 542,000 shares was charged to Other Operating Expenses
in the three months ended June 30, 2019.
On
August 15, 2019, the Company issued 175,000 shares of its common stock to an entity consultant for accounting services rendered.
The $12,250 fair value of the 175,000 shares was charged to Other Operating Expenses.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE
G - CAPITAL STOCK AND WARRANTS (continued)
On
November 11, 2019, the Company issued 1,748,363 shares of its common stock pursuant to a conversion of $53,705 principal and $2,680
accrued interest and fees of its convertible note dated October 18, 2019 by Emet.
On
December 20, 2019, the Company issued 1,468,204 shares of its common stock pursuant to a conversion of $29,000 principal and $4,015
accrued interest and fees of its convertible note dated October 18, 2019 by Emet.
On
December 24, 2019, the Company issued 637,273 shares of its common stock pursuant to a conversion of $10,000 principal and $515
accrued interest and fees of its convertible note dated October 18, 2019 by Emet.
During the three months ended March
31, 2020, the Company issued a total of 21,484,688 shares of common stock pursuant to conversions of an aggregate of
$165,350 in principal and $ 11,793 in interest under our outstanding convertible notes. The $ 228,949 excess of the $406,093
fair value of the 21,484,688 shares of common stock at the respective dates of issuance over the $177,143 liability reduction
was charged to Loss on Conversions of Notes Payable.
Warrants
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE G - CAPITAL STOCK AND WARRANTS
(continued)
On February 14, 2019, the Company entered
into an exchange agreement with Emet Capital Partners, LLC (“Emet”) pursuant to which the Company issued Emet 9,000,000
shares of its Series B Convertible Preferred Stock (the “Series B Preferred Shares”) in exchange for the surrender
of all outstanding warrants held by Emet. Each Series B Preferred Share was convertible into one share of the Company’s
common stock subject to adjustment in case, at the time of conversion, the market price per share of the Company’s common
stock was less than $0.075. In such case, Emet was to receive an additional number of shares of common stock equal to the number
of shares being converted divided by the applicable market price. On October 18, 2019, this exchange agreement was reversed and
the warrants were exchanged for four new convertible notes payable to Emet in the total amount of $ 675,000. See Preferred Stock
above.
At
the date hereof, the Company has no outstanding warrants.
NOTE
H - INCOME TAXES
The
Company and its United States subsidiaries expect to file consolidated Federal income tax returns. Green C Corporation, its Ontario
Canada subsidiary, will file Canada and Ontario income tax returns.
At
March 31, 2020 the Company has available for federal income tax purposes a net operating loss carry forward that may be used to
offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit,
since in the opinion of management based upon the earnings history of the Company; it is not more likely than not that the benefits
will be realized. Due to significant changes in the Company’s ownership, the future use of its existing net operating losses
will be limited.
All
tax years of the Company and its United States subsidiaries remain subject to examination by the Internal Revenue Service.
NOTE
I - COMMITMENTS AND CONTINGENCIES
Pharmedica
Exclusive License Agreement
On
June 21, 2018, Green C executed an Exclusive License Agreement with Pharmedica, Ltd. (“Pharmedica”), an Israeli company,
to exploit certain Pharmedica intellectual property for the development and distribution of a certain Licensed Product involved
in the transmucosal delivery of medicinal or recreational cannabis. The agreement provides for Green C payments to Pharmedica
of a $100,000 license fee (which was paid by 2591028 Ontario Limited, an entity affiliated with Green C’s Chief Executive
Officer, on June 26, 2018) and annual royalties at a rate of 5% of the Net Sales of the Licensed Product subject to a Minimum
Annual Royalty of $50,000. The agreement also provides for certain milestones to be accomplished by Green C in order for Green
C to retain the license. Green C and Pharmedica each may terminate the agreement upon the occurrence of a material breach by the
other party of its obligations under the agreement and such other party’s failure to remedy such breach to the reasonable
satisfaction of the other party within thirty (30) days after being requested in writing to do so.
The Company has generated only minimal
revenues from this asset to date and has not paid the Year 1 Minimum Annual Royalty of $50,000 due Pharmedica. Accordingly,
we recorded an impairment charge of $69,749 at December 31, 2019 and reduced the $69,749 remaining carrying value of this
intangible asset to $0.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
Sub-License
Agreement with Symtomax Unipessoal Lda
On
July 15, 2019, the Company executed a Sub-License Agreement with Symtomax Unipessoal Lda (“Symtomax”).
The
agreement provides for the Company’s grant to Symtomax of a non-exclusive right and sub-license to use certain Company technology
and intellectual property to develop and commercialize products for sale in Europe, the Middle East, and Africa. The agreement
provides for Symtomax payments of royalties to the Company (payable monthly) ranging from 10% to 17% of Symtomax sales of eluting
patches developed from Company technology.
The
term of the agreement ends the earlier of (i) July 15, 2020 and (ii) the date that Symtomax is no longer commercializing any of
the products. The term is extended for an additional year on each anniversary of the agreement for any country where the royalty
payment in respect of such country was equal to or greater than $1,000,000 for the previous year.
To date, Symtomax has not made any
sales requiring the payment of royalties to the Company.
Service
Agreements
On
July 31, 2018, the Company executed Services Agreements with its newly appointed Chief Executive Officer (the “CEO”)
and its newly appointed Chief Legal Officer (the “CLO”), for terms of five years. The Agreements provide for a monthly
base salary of $10,000 for the CEO and a monthly base salary of $7,000 for the CLO. For the three months ended March 31, 2020
and 2019, the Company expensed a total of $51,000 and $51,000, respectively, as officer compensation pursuant to these agreements.
NOTE
J – SUBSEQUENT EVENTS
From April 1, 2020 to May 6, 2020,
the Company issued a total of 15,096,831 shares of its common stock to 3 lenders pursuant to conversions totaling $30,050 principal
and $ 7,101 accrued interest. The $52,470 excess of the $89,621 fair value of the 15,096,831 shares of our common stock at the
respective dates of issuance over the $ 37,151 debt satisfied will be recognized as a loss in the three months ended June 30,
2020.