On May 14, 2019, the Company issued 15,151,515
shares of common stock to St. George Investments, LLC, pursuant to a convertible note payable.
The following table indicates the amount of
impairments recorded by the Company quarter to quarter for investment activity quarter to quarter related to its joint venture
investments:
The following table indicates the amount of
debt the Company recorded quarter to quarter as a result of its joint venture investments:
Loan
Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
|
|
|
Bougainville
|
|
|
|
Gate
C
|
|
|
|
General
|
|
|
|
|
Total
JV
Debt
|
|
|
|
Hemp
Group
|
|
|
|
Benihemp
|
|
|
|
MoneyTrac
|
|
|
|
Ventues,
Inc.
|
|
|
|
Research
Inc.
|
|
|
|
Operating
Expense
|
|
Beginning
balance @12-31-16
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
03-31-17 loan borrowings
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
06-30-17 loan activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
09-30-17 loan borrowings
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
12-31-17 loan repayments
|
|
|
(330,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
operational expense
|
|
|
172,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,856
|
|
Balances
as of 12/31/17
(a)
|
|
|
2,067,411
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
394,555
|
|
|
|
1,500,000
|
|
|
|
172,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
03-31-18 loan borrowings (payments)
|
|
|
376,472
|
|
|
|
447,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
06-30-18 cancellation of JV debt obligation
|
|
|
(1,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
06-30-18 loan repayments
|
|
|
(101,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
09-30-18 loan activity
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
12-31-18 loan borrowings
|
|
|
580,425
|
|
|
|
580,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
@12-31-18
(b)
|
|
$
|
1,422,410
|
|
|
$
|
1,027,855
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
394,555
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
03-31-19 loan borrowings
|
|
|
649,575
|
|
|
|
649,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
03-31-19 debt conversion to equity
|
|
|
(407,192
|
)
|
|
($
|
407,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
@03-31-19
|
|
$
|
1,664,793
|
|
|
$
|
1,270,238
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
394,555
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
03-31-19
|
12-31-18
|
12-31-17
|
This
includes balances for:
|
Note
(c)
|
Note
(b)
|
Note
(a)
|
-
Debt obligation of JV
|
128,522
|
289,742
|
1,500,000
|
-
Convertible NP, net of discount
|
1,536,271
|
1,132,668
|
394,555
|
-
Longterm debt
|
0
|
0
|
172,856
|
Total Debt balance
|
1,664,793
|
1,422,410
|
2,067,411
|
Results
of Operations
We anticipate
that our results of operations will fluctuate for the foreseeable future due to several factors, such as the progress of our hempSMART
™
product sales and research and development efforts. Due to these uncertainties, accurate predictions of future operations are difficult
or impossible to make.
Three
Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
Results
of Operations
- The Company generated revenue of $114,810 and $19,010 for the three months ended March 31, 2019 and 2018, respectively.
The increase of $95,800 is due to the Company’s deployment of its hempSMART marketing and sales efforts and expansion into
the UK in Q1 2019. Since the Company’s sales efforts were launched approximately two years ago, no currently known or previous
matters are expected to have a material impact on current or future operations, with the exception of the Company’s need
for additional funding (See Note 2 to the Financial Statements). For the three months ended March 31, 2019 and 2018, the Company
had net losses from continuing operations of $914,105 and $294,308, respectively. This change is due primarily to the operational
growth related to the deployment of sales and marketing efforts.
Revenues/Cost
of sales
Total
Revenues - Total revenues were $114,810 for the three months ended March 31, 2019 as compared to $19,010 for the three ended March
31, 2018. The reported revenues for each period reflect the Company’s growth in marketing and selling its hempSMART™
products. Management plans to continue to expand its marketing and selling efforts in 2019 and expects revenues to increase in
the coming months.
Costs
and Expenses - Costs of sales, include the costs of product development, manufacturing, testing, packaging, storage and sale. For
the three months ended March 31, 2019, costs of sales were $39,878 as compared to $10,446 for the three months ended March 31,
2018. The reported costs of sales for each period reflect the Company’s increased effort and growth in the marketing and
selling its hempSMART™ products.
General
and administrative expenses
Other
general and administrative expenses increased to $987,341 for the three months ended March 31, 2019 compared to $301,479 the three
months ended March 31, 2018. General and administrative expenses include selling and marketing, research and development, building
rent, utilities, legal fees, office supplies, subscriptions, and office equipment. The increase of $685,862 is attributed is attributed
primarily to the growth in sales of its hempSMART™ products on a global basis.
Gain
on change in fair value of derivative liabilities
During
2017 and 2018, we issued convertible promissory notes and warrants with an embedded derivative, all requiring us to fair value
the derivatives each reporting period, and mark to market as a non-cash adjustment to our current period operations. This resulted
in a loss of $2,687,449 and a gain of $5,056,686 change in fair value of derivative liabilities for the three months ended March
31, 2019 and 2018, respectively.
Loss
on equity investment
During
the three months ended March 31, 2019 and 2018, we adjusted the carry value of our investment for our pro rata share of equity
investment of $ 59 ,541 and $37,673, respectively.
Gain
on settlement of debt
During
the three months ended March 31, 2019 and 2018, the company realized a gain on settlement of debt of $0 and $156,839,
respectively. This was related to the termination of a material definitive agreement not made in the ordinary
course
of its business during the three months ended March 31, 2018. The parties to the agreement are the Company and GateC.
Interest
Expense
Interest
expense during the three months ended March 31, 2019 was $436,282 compared to $730,746 for the three months ended March 31, 2018.
Interest expense primarily consists of interest incurred on our convertible and other debt. The debt discounts amortization and
non-cash interest incurred during the three months ended March 31, 2019 and 2018 was $495,438 and $502,682, respectively. In addition,
we incurred a non-cash interest of $436,282 and $187,861 non-cash interest in connection with convertible notes for the three months
ended March 31, 2019 and 2018, respectively.
Liquidity
and Capital Resources –
The Company has generated a net loss from continuing operations for the three months ended March
31, 2019 of $4,232,377 and used $207,098 cash for operations. As of March 31, 2019, the Company had total assets of $2,143,188,
which included inventory of $231,666 and accounts receivable of $77,494.
During
the three months ended March 31, 2019 and 2018, the Company has met its capital requirements through a combination of loans and
convertible debt instruments. The Company will need to secure additional external funding in order to continue its operations.
Our primary internal sources of liquidity were provided by an increase in proceeds from the issuance of note payables of $649,575
for March 31, 2019, as compared to $400,000 for March 31, 2018, and an increase proceeds from the sale of note payables to a related
party of $0 for March 31, 2019 as compared to $21,706 for March 31, 2018. We have during the period ended March 31, 2018, relied
upon external financing arrangements to fund our operations. During the three months ended March 31, 2019 and 2018, we entered
into several separate financing arrangements with St. George Investments, LLC, a Utah limited liability company, in which we borrowed
an aggregate of $1,536,271, the principal of which is convertible into shares of our common stock (see Note 6, Convertible Note
Payable). Our ability to rely upon external financing arrangements to fund operations is not certain, and this may limit our ability
to secure future funding from external sources without changes in terms requested by counterparties, changes in the valuation of
collateral, and associated risk, each of which is reasonably likely to result in our liquidity decreasing in a material way. We
intend to utilize cash on hand, loans and other forms of financing such as the sale of additional equity and debt securities and
other credit facilities to conduct our ongoing business, and to also conduct strategic business development and implementation
of our business plans generally.
Operating
Activities - For the three months ended March 31, 2019, the Company used cash in operating activities of $207,098. For the three
months ended March 31, 2018, the Company used cash in operating activities of $497,250. This decrease is due primarily to loss
on change in fair value of derivative liabilities (non-cash) and continued implementation of our new business plan, operations,
management, personnel and professional services.
Investing
Activities - During the three months ended March 31, 2019, the Company spent cash of $292,592 in investing activities related to
its purchase of investment and equipment. During the three months ended March 31, 2018, we spent $4,202 on equipment purchases.
Financing
Activities - During the three months ended March 31, 2019, the Company, primarily through its receipt of funds from the issuance
of notes payable resulted in financing activity of $649,575. For the three months ended March 31, 2018 the Company received proceeds
of $400,000 from issuance of notes payable and $21,706 from proceeds of notes payable due to related party.
The Company’s
business plans have not generated significant revenues and as of the date of this filing are not sufficient to generate adequate
amounts of cash to meet its needs for cash. The Company's primary source of operating funds in 2019 and 2018 have been from revenue
generated from proceeds from the sale of common stock and the issuance of convertible and other debt. The Company has experienced
net losses from operations since inception, but expects these conditions to improve in the second half of 2019 and beyond as it
develops its affiliate marketing program and other direct sales and marketing programs. The Company has stockholders' deficiencies
at March 31, 2019 and requires additional financing to fund future operations. As of the date of this filing, and due to the early
stages of operations, the Company has insufficient sales data to evaluate the amounts and certainties of cash flows, as well as
whether there has been material variability in historical cash flows.
We
currently do not have sufficient cash and liquidity to meet our anticipated working capital for the next twelve months.
Historically, we have financed our operations primarily through private sales of our common stock and. If our sales goals for
our hempSMART
™
products do not materialize as planned,
and we are not able to achieve
profitable operations at some point in the future, we may have insufficient working
capital to maintain our operations
as we presently intend to conduct them or to fund our
expansion, marketing, and product development plans. There can be no assurance that we will be able to obtain such financing
on acceptable terms, or at all.
Off
Balance Sheet Arrangements
As of
March 31, 2019, and December 31, 2018,
we did not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital resources.
Government
Regulations of Cannabis
Federal
Law
Our business
includes the research and development of (1) varieties of various species of hemp; (2) beneficial uses of hemp and hemp derivatives;
(3) indoor and outdoor cultivation methods for hemp; (4) technology used for cultivation and harvesting of different species of
hemp, including but not limited to lighting, venting, irrigation, hydroponics, nutrients and soil; (5) different industrial hemp
derived CBD, and the possible health benefits thereof; and, (6) new and improved methods of hemp CBD extraction omitting or eliminating
the delta-9 tetrahydrocannabinol “THC” molecule.
On April
15, 2019, the Company entered into a material definitive agreement with Natural Plant Extract of California, Inc., a California
corporation to form a joint venture incorporated in California under the name “Viva Buds, Inc.” for the purpose of
operating a California based licensed cannabis distribution business pursuant to California law legalizing cannabis for recreational
and medicinal use.
Hemp
is a member of the cannabis family. Industrial hemp derived CBD, like cannabis, is illegal under federal law and is a “Schedule
1” drug under the Controlled Substances Act (21 U.S.C. § 811). As a Schedule 1 drug, cannabis, and hemp derived CBD
is viewed as being highly addictive and having no medical value. The United States Drug Enforcement Agency enforces the Controlled
Substances Act, and persons violating it are subject to federal criminal prosecution. The criminal penalty structure in the Controlled
Substances Act is determined based on the specific predicate violations, including but not limited to: simple possession, drug
trafficking, attempt and conspiracy, distribution to minors, trafficking in drug paraphernalia, money laundering, racketeering,
environmental damage from illegal manufacturing, continuing criminal enterprise, and smuggling. A first conviction under the Controlled
Substances Act can generally result in possible fines from $250,000 to $50 million dollars, and incarceration for periods generally
from five and up to forty years. For a second conviction, fines increase generally from $500,000 to $75 million dollars, and incarceration
for periods generally from ten years to twenty years to life.
As federal
law is controlling, the enforcement of the Controlled Substances Act would pre-empt those state laws legalizing cannabis and hemp
for medicinal and recreational use.
Recent
Events
On March
23, 2018, President Donald J. Trump signed into law a $1.3 trillion-dollar spending bill that included an amendment known as “Rohrabacher-Blumenauer,”
which prohibits the Justice Department from using federal funds to prevent certain states “from implementing their own State
laws that authorize the use, distribution, possession or cultivation of medical marijuana.”
On December
20, 2018, President Donald J. Trump signed into law the Agriculture Improvement Act of 2018, otherwise known as the “Farm
Bill”. Prior to its passage, hemp, a member of the cannabis family, and hemp derived CBD were classified as Schedule 1 controlled
substances, and so illegal under the Controlled Substances Act, 21 U.S.C. § 811 (hereafter referred to as the “CSA”).
With
the passage of the Farm Bill, hemp cultivation is broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived
products across state lines for commercial or other purposes. It also puts no restrictions on the sale, transport, or possession
of hemp-derived products, so long as those items are produced in a manner consistent with the law.
Under
Section 10113 of the Farm Bill, hemp cannot contain more than 0.3 percent THC. THC refers to the chemical compound found in cannabis
that produces the psychoactive “high” associated with cannabis. Any cannabis plant that contains more than 0.3 percent
THC would be considered non-hemp cannabis—or marijuana—under federal law and would thus face no legal protection under
this new legislation and would be an illegal Schedule 1 drug under the CSA.
Additionally,
there will be significant, shared state-federal regulatory power over hemp cultivation and production. Under Section 10113 of the
Farm Bill, state departments of agriculture must consult with the state’s governor and chief law enforcement officer to devise
a plan that must be submitted to the Secretary of the United States Department of Agriculture (hereafter referred to as the “USDA”).
A state’s plan to license and regulate hemp can only commence once the Secretary of USDA approves that state’s plan.
In states opting not to devise a hemp regulatory program, USDA will construct a regulatory program under which hemp cultivators
in those states must apply for licenses and comply with a federally-run program. This system of shared regulatory programming is
similar to options states had in other policy areas such as health insurance marketplaces under Affordable Care Act, or workplace
safety plans under Occupational Health and Safety Act—both of which had federally-run systems for states opting not to set
up their own systems.
The Farm
Bill outlines actions that are considered violations of federal hemp law (including such activities as cultivating without a license
or producing cannabis with more than 0.3 percent THC). The Farm Bill details possible punishments for such violations, pathways
for violators to become compliant, and even which activities qualify as felonies under the law, such as repeated offenses.
One
of the goals of the previous 2014 Farm Bill was to generate and protect research into hemp. The 2018 Farm Bill continues this effort.
Section 7605 re-extends the protections for hemp research and the conditions under which such research can and should be conducted.
Further, section 7501 of the Farm Bill extends hemp research by including hemp under the Critical Agricultural Materials Act. This
provision recognizes the importance, diversity, and opportunity of the plant and the products that can be derived from it, but
also recognizes that there is a still a lot to learn about hemp and its products from commercial and market perspectives.
The United
States Food & Drug Administration (“FDA”) is generally responsible for protecting the public health by ensuring
the safety, efficacy, and security of (1) prescription and over the counter drugs; (2) biologics including vaccines, blood &
blood products, and cellular and gene therapies; (3) foodstuffs including dietary supplements, bottled water, and baby formula;
and, (4) medical devices including heart pacemakers, surgical implants, prosthetics, and dental devices.
Regarding
its regulation of drugs, the FDA process requires a review that begins with the filing of an “Investigational New Drug”
(IND) application, with follow on clinical studies and clinical trials that the FDA uses to determine whether a drug is safe and
effective, and therefore subject to approval for human use by the FDA.
Aside
from the FDA’s mandate to regulate drugs, the FDA also regulates dietary supplement products and dietary ingredients under
the Dietary Supplement Health and Education Act of 1994. This law prohibits manufacturers and distributors of dietary supplements
and dietary ingredients from marketing products that are adulterated or misbranded. This means that these firms are responsible
for evaluating the safety and labeling of their products before marketing to ensure that they meet all the requirements of the
law and FDA regulations, including, but not limited to the following labeling requirements: (1) identifying the supplement; (2)
nutrition labeling; (3) ingredient labeling; (4) claims; and, (5) daily use information.
The FDA
has not approved cannabis, hemp or CBD derived from industrial hemp as a safe and effective drug for any indication. As of the
date of this filing, we have not, and do not intend to file an IND with the FDA, concerning any of our consumer products that contain
CBD derived from industrial hemp.
The
FDA has concluded that products containing industrial hemp derived CBD are excluded from the dietary supplement definition
under sections 201(ff)(3)(B)(i) and (ii) of the U.S. Food, Drug & Cosmetic Act, respectively. The FDA’s position is
that products containing industrial hemp derived CBD are Schedule 1 drugs under the Controlled Substances Act, and so are
illegal drugs that are under the purview of the U.S. Drug Enforcement Agency
and U.S. Justice Dept., who are charged
with enforcing the Controlled Substances Act. However, at some indeterminate future time, the FDA may choose to change its
position concerning cannabis generally, and specifically products containing industrial hemp derived CBD, and may choose to
enact regulations that are applicable to such products as either drugs or supplements. In this event, our industrial
hemp-based products containing CBD may be subject to regulation (See Risk Factors, Item IA).
In addition
to strict compliance with state laws and regulations in those jurisdictions where cannabis is legal for recreational or medical
use, the Company’s research and development activities intend to comply with the parameters of a recent 9th Cir. Federal
Appellate Court decision, United States v. McIntosh, 2016 DJDAR 8484 (Aug. 16, 2016), which held: “the U.S. Department of
Justice cannot spend money to prosecute federal marijuana cases if the defendants comply with state guidelines that permit the
drug's sale for medical purposes”. The Court reasoned that “if the DOJ punishes individuals for engaging in activities
permitted under state law (such as the use, cultivation, distribution and possession of medical marijuana), then the DOJ is preventing
state law from being implemented as a practical matter.” “By officially permitting certain conduct, state law provides
for non-prosecution of individuals who engage in such conduct. If the federal government prosecutes such individuals, it has prevented
the state from giving practical effect to its law providing for non-prosecution of individuals who engage in the permitted conduct."
This ruling is consistent with Congress’s passing of its current budget law, that included an amendment known as “Rohrabacher-Blumenauer,”
which prohibits the Justice Department from using federal funds to prevent certain states “from implementing their own State
laws that authorize the use, distribution, possession or cultivation of medical marijuana.”
Critical
Accounting Policies
- The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Note 1 to the Consolidated Financial Statements describes the significant
accounting policies and methods used in the preparation of the Consolidated Financial Statements. Estimates are used for, but not
limited to, contingencies and taxes. Actual results could differ materially from those estimates. The following critical accounting
policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial
Statements.
Stock-Based
Compensation
- The Company also issues restricted shares of its common stock for share-based compensation programs to employees
and non-employees. The Company measures the compensation cost with respect to restricted shares to employees based upon the estimated
fair value at the date of the grant, and is recognized as expense over the period which an employee is required to provide services
in exchange for the award. For non-employees, the Company measures the compensation cost with respect to restricted shares based
upon the estimated fair value at measurement date which is either a) the date at which a performance commitment is reached, or
b) at the date at which the necessary performance to earn the equity instruments is complete.
Recent
Accounting Pronouncements
- See Note 3 of the condensed consolidated financial statements for discussion of recent accounting
pronouncements.
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Not applicable
to Smaller Reporting Companies.
ITEM 4.
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CONTROLS AND PROCEDURES
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Management
is responsible for establishing and maintaining adequate disclosure controls and procedures that are designed to ensure that information
required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate, to allow for timely and reliable financial
reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United
States of America.
As of the quarter ended March 31, 2019,
our principal executive officer and principal financial officer completed an assessment of the effectiveness of our disclosure
controls and procedures, to determine the existence of any material weaknesses or significant deficiencies. A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or
detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over
financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible
for oversight of the registrant's financial reporting.
Management identified the following material weakness which has caused management
to conclude that, as of March 31, 2019, our disclosure controls and procedures were not effective:
(1) a lack of organizational
controls designed to allow us to gather and provide our auditor timely documentation concerning our joint ventures’ financial
records. This material weakness causes us to not be able to provide reasonable assurances that transactions are recorded as necessary
to permit preparation of financial statements in accordance with US GAAP, and effectively close our books in a timely fashion and
report to the Commission consistent with its rules and forms.
Management also identified
the following significant deficiency:
(2) a procedural failure
to update our disclosures to include relevant accounting standards updates.
Changes in Internal
Control over Financial Reporting.
In order to address the material weakness
and significant deficiency, we made the following changes to our internal control over financial reporting:
(1) After
our year ended December 31, 2018, we considered and approved on May 28, 2019, an internal audit sub-committee, led by
independent director Robert Coale, to obtain timely information on a weekly basis on the status of our joint ventures, the
respective budgets and expenses and variances on balances. Mr. Jesus Quintero, our Chief Financial Officer, has monitored,
reviewed and to the extent he deemed prudent, tested Mr. Coale’s work since inception of the internal audit
sub-committee. Mr. Coale has reported to the Board of Directors on the status of each joint venture on a weekly basis, along
with a discussion of the ability to sell and liquidate inventory and to also advised concerning funding. Although we believe
our implementation of this framework will provide an effective preventative control that will allow us to provide our auditor
timely information about our joint ventures so that we can close our books in a timely fashion and file our reports to the
Commission consistent with its rules and forms, our internal sub-committee has been operational for approximately one month,
and so our evaluation of its effectiveness is not complete and will require further review, assessment and disclosure.
This material weakness remains unremedied.
(2) We included
as part of our closing process a checklist to review and update accounting standard updates to be reviewed and approved by
our Chief Financial Officer and auditor for inclusion in our Commission filings. We expect that this measure will insure that
our disclosures include the appropriate accounting standards updates and remedy the significant deficiency. Therefore, we
believe this significant deficiency to be remedied.
PART
II - OTHER INFORMATION
ITEM 1.
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LEGAL PROCEEDINGS
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On
September 20, 2018, the Company filed suit against Bougainville Ventures, Inc., BV-MCOA Management, LLC, Andy Jagpal, Richard
Cindric, et al. in Okanogan County Washington Superior Court, case number 18-2- 0045324.
The
Company previously entered into a joint venture agreement with Bougainville Ventures, Inc. on March 16, 2017, as amended on November
6, 2017.
The
Company and Bougainville originally agreed to a joint venture with the goal of participating in the legalized cannabis business
in Washington State. The parties intended to organize and operate a cannabis growth and cultivation business on land owned by Bougainville
in Oroville, Washington. The Company agreed to finance the joint venture with a cash payment of $800,000. The Company also issued
Bougainville 15 million shares of its common stock. Bougainville represented that it would provide the real property for the joint
venture, computer controlled greenhouses and agricultural facilities and, as landlord, oversight of the operations of a cannabis
licensee holding a I-502 cannabis license. Bougainville represented that the property was I-502 compliant, and that Bougainville
had a lease payment arrangement with an I-502 license holder to operate on the land. Bougainville agreed to vend clear title to
the real property associated with the I502 licensee to the joint venture within 30 days of the final payment by the registrant.
Despite the Company complying with its full financial obligations, Bougainville did not and has not transferred the real property
to the joint venture. The Company determined that Bougainville did not own the real property; misappropriated funds paid into the
joint venture for its own purposes; and, did not possess an agreement with a licensed I-502 operator.
The
Company’s complaint seeks legal and equitable relief for breach of contract, fraud, breach of fiduciary duty, conversion,
recession of the joint venture agreement, an accounting, quiet title to real property in the name of the registrant, for the appointment
of a receiver, the return to treasury of 15 million shares issued to Bougainville, and, for treble damages pursuant to the Consumer
Protection Act in Washington State. The registrant has filed a lis pendens on the real property.
The
Company recently served process on the defendants and the case is currently in litigation. No trial date has been set.
ITEM
1A. RISK FACTORS
An
investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and
uncertainties in addition to other information in this prospectus in evaluating our company and our business before purchasing
our securities. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence
of any of the following risks. You could lose all or part of your investment due to any of these risks. You should invest in our
common stock only if you can afford to lose your entire investment.
Risks
Related to Our Business
The
Farm Bill recently passed, and undeveloped shared state-federal regulations over hemp cultivation and production may impact our
business.
The
Farm Bill was signed into law on December 20, 2018. Under Section 10113 of the Farm Bill, state departments of agriculture must
consult with the state’s governor and chief law enforcement officer to devise a plan that must be submitted to the Secretary
of USDA. A state’s plan to license and regulate hemp can only commence once the Secretary of USDA approves that state’s
plan. In states opting not to devise a hemp regulatory program, USDA will need to construct a regulatory program under which hemp
cultivators in those states must apply for licenses and comply with a federally-run program. The details and scopes of each state’s
plans are not known at this time and may contain varying regulations that may impact our business. Even if a state creates a plan
in conjunction with its governor and chief law enforcement officer, the Secretary of the USDA must approve it. There can be no
guarantee that any state plan will be approved. Review times may be extensive. There may be amendments and the ultimate plans,
if approved by states and the USDA, may materially limit our business depending upon the scope of the regulations.
Laws
and regulations affecting the hemp industry to be developed under the Farm Bill are in development.
As
a result of the Farm Bill’s recent passage, there will be a constant evolution of laws and regulations affecting the hemp
industry could detrimentally affect our operations. Local, state and federal hemp laws and regulations may be broad in scope and
subject to changing interpretations. These changes may require us to incur substantial costs associated with legal and compliance
fees and ultimately require us to alter our business plan. Furthermore, violations of these laws, or alleged violations, could
disrupt our business and result in a material adverse effect on our operations. In addition, we cannot predict the nature of any
future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that
will be directly applicable to our business.
Risk
of government action.
While
we will use our best efforts to comply with all laws, including all applicable state and local laws and regulations, there is a
possibility that federal governmental action to enforce any alleged violations of the Controlled Substances Act may result in legal
fees and damage awards that would adversely affect us. Cannabis and hemp remain Schedule 1 drugs and are illegal under the Controlled
Substances Act (see Government Regulation of Cannabis above).
Because
we have only recently begun our hempSMART™ operations, and our other ventures are all in the development stage or not of
yet capitalized, we anticipate our operating expenses will increase prior to earning revenue, and we may never achieve profitability.
We
launched our first hempSMART™ product, hempSMART Brain™, in November 2016. Since then, we have introduced a
number of other consumer products, including hempSMART Pain™, hempSMART™ Full Spectrum Pet Drops™, and
hempSMART™ Full Spectrum Drops™. As we continue to conduct the research and development and release of other
hempSMART™ products and continue to pursue our business interests in Conveniant Hemp Mart, LLC, MoneyTrac Technology,
Inc., and our joint ventures with Global Hemp Group, Inc. in Scio, Oregon and New Brunswick, Canada, we anticipate increases
in our operating expenses, without realizing significant revenues from
operations. Within the next 12 months, these
increases in expenses will be attributed to the cost of (i) administration and start-up costs, (ii) research and development,
(iii) advertising and website development, (iv) legal and accounting
fees at various stages of
operation, (v) joint venture activities, (vi) creating and maintaining distribution and supply chain channels.
As
a result of some or all of these factors in combination, we will incur significant financial losses in the foreseeable future.
There is no history upon which to base any assumption as to the likelihood that our Company will prove successful. We cannot provide
investors with any assurance that our business will attract customers and investors. If we are unable to address these risks, there
is a high probability that our business will fail.
Because
our business is dependent upon continued market acceptance by consumers, any negative trends will adversely affect our business
operations.
We
are substantially dependent on continued market acceptance and proliferation of consumers of hemp and hemp-derived CBD. We believe
that as hemp and hemp-derived CBD becomes more accepted as a result of the passage of the Farm Bill, the stigma associated with
hemp and CBD will diminish and as a result consumer demand will continue to grow. While we believe that the market and opportunity
in the hemp space continues to grow, we cannot predict the future growth rate and size of the market. Any negative outlook on the
hemp industry will adversely affect our business operations.
The
possible FDA Regulation of hemp and industrial hemp derived CBD, and the possible registration of facilities where hemp is grown
and CBD products are produced, if implemented, could negatively affect the cannabis industry generally, which could directly affect
our financial condition.
The
Farm Bill established that hemp containing less the .03% THC was no longer a Schedule 1 drug under the CSA. Previously, the U.S.
Food and Drug Administration (“FDA”) did not approve hemp or CBD derived from hemp as a safe and effective drug for
any indication. The FDA considered hemp and hemp-derived CBD as illegal Schedule 1 drugs. Further, the FDA has concluded that products
containing hemp or CBD derived from hemp are excluded from the dietary supplement definition under sections 201(ff)(3)(B)(i) and
(ii) of the U.S. Food, Drug & Cosmetic Act, respectively. However, as a result of the passage of the Farm Bill, at some indeterminate
future time, the FDA may choose to change its position concerning products containing hemp, or CBD derived from hemp, and may choose
to enact regulations that are applicable to such products, including, but not limited to: the growth, cultivation, harvesting and
processing of hemp; regulations covering the physical facilities where hemp is grown; and possible testing to determine efficacy
and safety of hemp derived CBD. In this hypothetical event, our hemp-based hempSMART™ products containing CBD may be subject
to regulation. In the hypothetical event that some or all of these regulations are imposed, we do not know what the impact would
be on the hemp industry in general, and what costs, requirements and possible prohibitions may be enforced. If we are unable to
comply with the conditions and possible costs of possible regulations and/or registration as may be prescribed by the FDA, we may
be unable to continue to operate our business.
Laws
governing our access to banking services are uncertain and are in a state of flux.
On
February 14, 2014, the U.S. government issued rules allowing banks to legally provide financial services to state-licensed cannabis
businesses. A memorandum issued by the Justice Department to federal prosecutors re-iterated guidance previously given, this time
to the financial industry, that banks can do business with legal cannabis businesses and “may not” be prosecuted. We
assume this applies to hemp. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued guidelines to
banks that “it is possible to provide financial services” to state-licensed cannabis (and hemp) businesses and still
be in compliance with federal anti-money laundering laws. These provisions created barriers to our banking operations. With the
passage of the Farm Bill, we expect that the banking industry will be more open to doing business with compliant hemp businesses.
Currently, the U.S. Congress is considering the Secure and Fair Enforcement Banking Act sponsored by Reps. Ed Perlmutter (D-CO)
Denny Heck (D-WA), Steve Stivers (R-OH) and Warren Davidson (R-OH) filed in March, 2019 designed to protect banks that service
the marijuana industry from being penalized by federal regulators. The act currently has 138 cosponsors—more than a quarter
of the House. However, this may take time and may not result in a more open banking climate. We expect that banks will be more
open to serving cannabis and hemp businesses, but there is no guarantee – even with the passage of the Farm Bill.
Banking
regulations in our business are costly and time consuming.
In
assessing the prospective risk of providing services to a hemp-related business, a financial institutions may conduct customer
due diligence that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered;
(ii) reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate
its cannabis-related business; (iii) requesting from state licensing and enforcement authorities available information about the
business and related parties; (iv) developing an understanding of the normal and expected activity for the business, including
the types of products to be sold; (v) ongoing monitoring of publicly available sources for adverse information about the business
and related parties; (vi) ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance;
and (vii) refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.
With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution
may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information
available. These regulatory reviews may be time consuming and costly.
Due
to our involvement in the hemp industry, and our prospective business with Natural Plant Extract of California, Inc., we may have
a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk
and financial liability.
Insurance
that is otherwise readily available, such as general liability, and directors and officer’s insurance, is more difficult
for us to find, and more expensive, because we are service providers to companies in the cannabis industry. There are no guarantees
that we will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without
such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional
risk and financial liabilities.
The
Company’s industry is highly competitive, and we have less capital and resources than many of our competitors which may give
them and advantage in developing and marketing products similar to ours or make our products obsolete.
We
are involved in a highly competitive industry where we may compete with numerous other companies who offer alternative methods
or approaches, who may have far greater resources, more experience, and personnel perhaps more qualified than we do. Such resources
may give our competitors an advantage in developing and marketing products similar to ours or products that make our products less
desirable to consumers or obsolete. There can be no assurance that we will be able to successfully compete against these other
entities.
We
may be unable to respond to the rapid technological change in the industry and such change may increase costs and competition that
may adversely affect our business.
Rapidly
changing technologies, frequent new product and service introductions and evolving industry standards characterize our market.
The continued growth of the Internet and intense competition in our industry exacerbates these market characteristics. Our future
success will depend on our ability to adapt to rapidly changing technologies by continually improving the performance features
and reliability of our hempSMART™ products. We may experience difficulties that could delay or prevent the successful development,
introduction or marketing of our hempSMART™ products. In addition, any new enhancements must meet the requirements of our
current and prospective customers and must achieve significant market acceptance. We could also incur substantial costs if we need
to modify our hempSMART™ products and services or infrastructures to adapt to these changes.
We
also expect that new competitors may introduce products or services that are directly or indirectly competitive with us. These
competitors may succeed in developing, products and services that have greater functionality or are less costly than our products
and services and may be more successful in marketing such products and services. Technological changes have lowered the cost of
operating communications and computer systems and purchasing software. These changes reduce our cost of selling products and providing
services, but also facilitate increased competition by reducing competitors’ costs in providing similar services. This competition
could increase price competition and reduce anticipated profit margins.
Our
hempSMART™ products are new and our industry is rapidly evolving.
Due
consideration must be given to our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies
in their early stage of development, particularly companies in the rapidly evolving legal
cannabis and hemp industries.
To be successful we must, among other things: Develop, manufacture and introduce new attractive and successful consumer products
in our hempSMART™ brand; Attract and maintain a large customer base and develop and grow that customer base; Increase awareness
of our hempSMART™ brand and develop effective marketing strategies to insure consumer loyalty; Establish and maintain strategic
relationships with key sales, marketing, manufacturing and distribution providers; and, Respond to competitive and technological
developments.
Attract,
retain and motivate qualified personnel. We cannot guarantee that we will succeed in achieving our goals, and our failure to do
so would have a material adverse effect on our business, prospects, financial condition and operating results.
Some
of our hempSMART™ products are new and are only in early stages of commercialization. We are not certain that these products
will function as anticipated or be desirable to their intended markets. Also, some of our products may have limited functionalities,
which may limit their appeal to consumers and put us at a competitive disadvantage.
If
our current or future hempSMART™ products fail to function properly or if we do not achieve or sustain market acceptance,
we could lose customers or could be subject to claims which could have a material adverse effect on our business, financial condition
and operating results.
As
is typical in a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty and risk. Because the market for our Company is new and evolving, it is difficult to predict
with any certainty the size of this market and its growth rate, if any. We cannot guarantee that a market for our Company will
develop or that demand for our products will emerge or be sustainable. If the market fails to develop, develops more slowly than
expected or becomes saturated with competitors, our business, financial condition and operating results would be materially adversely
affected.
The
Company’s failure to continue to attract, train, or retain highly qualified personnel could harm the Company’s business.
The
Company’s success also depends on the Company’s ability to attract, train, and retain qualified personnel, specifically
those with management and product development skills. In particular, the Company must hire additional skilled personnel to further
the Company’s research and development efforts. Competition for such personnel is intense. If the Company does not succeed
in attracting new personnel or retaining and motivating the Company’s current personnel, the Company’s business could
be harmed.
If
we are unable to attract and retain independent associates, our business may suffer.
Our
future success depends largely upon our ability to attract and retain a large active base of independent direct sales associates
and members who purchase our hempSMART™ products. We cannot give any assurances that the number of our independent associates
will be established or increase in the future. Several factors affect our ability to attract and retain independent associates
and members, including: on-going motivation of our independent associates; general economic conditions; significant changes in
the amount of commissions paid; public perception and acceptance of our industry; public perception and acceptance of multi-level
marketing; public perception and acceptance of our business and our products, including any negative publicity; the limited number
of people interested in pursuing multi-level marketing as a business; our ability to provide proprietary quality-driven products
that the market demands; and, competition in recruiting and retaining independent associates.
The
loss of key management personnel could adversely affect our business.
We
depend on the continued services of our executive officers and senior management team as they work closely with independent
associate leaders and are responsible for our day-to-day operations. Our success depends in part on our ability to retain our
executive officers, to compensate our executive officers at attractive levels, and to continue to attract additional
qualified individuals to our management team. Although we have entered into employment agreements with our senior management
team, and do not believe that any of them are planning to leave or retire in the near term, we cannot assure you that our
senior managers will remain with us. The loss or limitation of the services of any of our executive officers or members of
our senior management team, or the inability to attract additional
qualified management personnel, could have a
material adverse effect on our business, financial condition, results of operations, or independent associate relations.
The
lack of available and cost-effective directors and officer’s insurance coverage in our industry may cause us to be unable
to attract and retain qualified executives, and this may result in our inability to further develop our business.
Our
business depends on attracting independent directors, executives and senior management to advance our business plans. We currently
do not have directors and officer’s insurance to protect our directors, officers and the company against to possible third-party
claims. This is due to the significant lack availability of such policies in the cannabis industry at reasonably competitive prices.
As a result, the Company and our executive directors and officers are susceptible to liability claims arising by third parties,
and as a result, we may be unable to attract and retain qualified independent directors and executive management causing the development
of our business plans to be impeded as a result.
If
government regulations regarding multi-level marketing change or are interpreted or enforced in a manner adverse to our business,
we may be subject to new enforcement actions and material limitations regarding our overall business model.
Multi-level
marketing is subject to foreign, federal, and state regulations. Any change in legislation and regulations could affect our business.
Furthermore, significant penalties could be imposed on us for failure to comply with various statutes or regulations resulting
from: ambiguity in statutes; regulations and related court decisions; the discretion afforded to regulatory authorities and courts
interpreting and enforcing laws; and new regulations or interpretations of regulations affecting our business.
If
our network marketing activities do not comply with government regulations, our business could suffer.
Many
governmental agencies regulate our multi-level marketing activities. A government agency’s determination that our business
or our independent associates have significantly violated a law or regulation could adversely affect our business. The laws and
regulations for multi-level marketing intend to prevent fraudulent or deceptive schemes. Our business faces constant regulatory
scrutiny due to the interpretive and enforcement discretion given to regulators, periodic misconduct by our independent associates,
adoption of new laws or regulations, and changes in the interpretation of new or existing laws or regulations.
Independent
associates could fail to comply with our policies and procedures or make improper product, compensation, marketing or advertising
claims that violate laws or regulations, which could result in claims against us that could harm our financial condition and operating
results.
In
part, we sell our products through a sales force of independent associates. The independent associates are independent contractors
and, accordingly, we are not in a position to provide the same direction, motivation, and oversight as we would if associates were
our own employees. As a result, there can be no assurance that our associates will participate in our marketing strategies or plans,
accept our introduction of new products, or comply with our associate policies and procedures. All independent associates will
be required to sign a written contract and agree to adhere to our policies and procedures, which prohibit associates from making
false, misleading or other improper claims regarding our hempSMART™ products or income potential from the distribution of
the products. However, independent associates may from time to time, without our knowledge and in violation of our policies, create
promotional materials or otherwise provide information that does not accurately describe our marketing program. There is a possibility
that some jurisdictions could seek to hold us responsible for independent associate activities that violate applicable laws or
regulations, which could result in government or third-party actions or fines against us, which could harm our financial condition
and operating results.
We
may be held responsible for certain taxes or assessments relating to the activities of our independent associates, which could
harm our financial condition and operating results.
Our
independent associates are subject to taxation and, in some instances, legislation or governmental agencies impose an
obligation on us to collect taxes, such as value added taxes, and to maintain appropriate tax records. In addition, we are
subject to the risk in some jurisdictions of being responsible for social security and similar taxes with respect to our
distributors. In the event that local laws and regulations require us to treat our independent distributors as
employees,
or if our distributors are deemed by local regulatory authorities to be our employees, rather than
independent
contractors, we may be held responsible for social security and related taxes in those jurisdictions, plus any related
assessments and penalties, which could harm our financial condition and operating results.
Our
Investments in MoneyTrac Technology, Inc. and Conveniant Hemp Mart, LLC, Inc. are each subject to significant risks due to their
development stage status, lack of liquidity, lack of operating history, dilution, lack of profits and the typical risks associated
with start-up enterprises.
We
made investments during 2017 in MoneyTrac Technology, Inc. and Conveniant Hemp Mart, LLC. Both of these ventures are in the development
stage. The success of their respective business plans is uncertain, and each may fail, causing us to lose our complete investment.
The investments carry with them significant risks. Each company is still in an early phase and is just beginning to implement its
respective business plans. There can be no assurance that either will ever operate profitably. As an equity purchaser in MoneyTrac
and Conveniant Hemp Mart, we will not receive a return on our investment unless and until they distribute a dividend. Development
stage companies may take a long time or never distribute dividends. As such, there can be no assurance that we will receive any
returns from our investments. The timing of profit realization, if any, is highly uncertain. The likelihood of their respective
success should be considered in light of the problems, expenses, difficulties, complications and delays usually encountered by
companies in their early stages of development. Either company may not be successful in attaining the objectives necessary for
them to overcome these risks and uncertainties. Further, each company may need additional funding and it is possible that they
will be unable to obtain additional funding as and when they need it. If either company is unable to obtain capital it may be on
unfavorable terms or terms which excessively dilute us as an existing equity holder. If either company is unable to obtain additional
funding, they may not be able to repay debts when they are due and payable and they could be forced to delay their development,
marketing and expansion efforts and could experience material losses and potentially cease operations. As of December 31, 2018,
we determined our investment in Convenant Hemp Mart, LLC to be fully impaired.
We
may be unable to fully capture the expected value from our Scio, Oregon and New Brunswick joint ventures with Global Hemp Group,
Inc.
In
connection with our entry into joint ventures with Global Hemp Group, Inc. in Scio, Oregon and New Brunswick, Canada, we face numerous
risks and uncertainties, including effectively integrating our respective personnel, management controls and business relationships
into an effective and cohesive operation. Further, we are subject to additional risks and uncertainties because we may be dependent
upon, and subject to, liability losses or damages relating to system controls and personnel that are not under our control.
Our
joint ventures Global Hemp Group, Inc. rely significantly upon the activities of Global Hemp Group, Inc. in Oregon and Canada.
These joint ventures are subject to conformity with Oregon and Canadian law. We will not be directly involved with the operations,
and will rely upon Global Hemp Group' personnel, business acumen, experience and involvement to insure compliance with the parameters
of the research project and its compliance with applicable law.
If
we are unable to integrate and monitor our joint ventures successfully and efficiently, there is a risk that our results of operations,
financial condition and cash flows may be materially and adversely affected. In addition, conflicts or disagreements between us
and any of our joint venture partners may negatively impact the benefits to be achieved by the relevant joint venture. There is
no assurance that any of our joint ventures will be successfully integrated or yield all of the positive benefits anticipated.
There
could be unidentified risks involved with an investment in our securities.
The
foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities. Additional
risks will likely be experienced that are not presently foreseen by the Company. Prospective investors must not construe this the
information provided herein as constituting investment, legal, tax or other professional advice. Before making any decision to
invest in our securities, you should read this entire prospectus and consult with your own investment, legal, tax and other professional
advisors. An investment in our securities is suitable only for investors who can assume the financial risks of an investment in
the Company for an indefinite period of time and who can afford to lose their entire investment. The Company makes no representations
or warranties of any kind with respect to the likelihood of the success or the business of the Company, the value of our securities,
any financial returns that may be generated or any tax benefits or consequences that may result from an investment in the Company.
Risks
Related to the Company
Uncertainty
of profitability
Our
business strategy may result in increased volatility of revenues and earnings. As we will only develop a limited number of products
at a time, our overall success will depend on a limited number of products, which may cause variability and unsteady profits and
losses depending on the products and/or services offered and their market acceptance.
Our
revenues and our profitability may be adversely affected by economic conditions and changes in the market for our products. Our
business is also subject to general economic risks that could adversely impact the results of operations and financial condition.
Because
of the anticipated nature of the products that we offer and attempt to develop, it is difficult to accurately forecast revenues
and operating results and these items could fluctuate in the future due to a number of factors. These factors may include, among
other things, the following:
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Our ability to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses.
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Our ability to source strong opportunities with sufficient risk adjusted returns.
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Our ability to manage our capital and liquidity requirements based on changing market conditions generally and changes in the developing legal medical marijuana and recreational marijuana industries.
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The acceptance of the terms and conditions of our multi-level sales agreements.
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The amount and timing of operating and other costs and expenses.
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The nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment return expectations.
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Adverse changes in the national and regional economies in which we will participate, including, but not limited to, changes in our performance, capital availability, and market demand.
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Adverse changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a change in circumstances, capacity and economic impacts.
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Adverse developments in the efforts to legalize cannabis or increased federal enforcement.
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Changes in laws, regulations, accounting, taxation, and other requirements affecting our operations and business.
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Our operating results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations may be significant.
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Management
of growth will be necessary for us to be competitive.
Successful
expansion of our business will depend on our ability to effectively attract and manage staff, strategic business
relationships, and shareholders. Specifically, we will need to hire skilled management and technical personnel as well as
manage partnerships to navigate shifts in the general economic environment. Expansion has the
potential to place
significant strains on financial, management, and operational resources, yet failure to expand will inhibit our profitability
goals.
We
are entering a potentially highly competitive market.
The
markets for businesses in the cannabis and hemp industries are competitive and evolving. In particular, we face strong competition
from larger companies that may be in the process of offering similar products and services to ours. Many of our current and potential
competitors have longer operating histories, significantly greater financial, marketing and other resources and larger client bases
than we have (or may be expected to have).
Given
the rapid changes affecting the global, national, and regional economies generally and the cannabis and hemp industries, in particular,
we may not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on our ability to
keep pace with any changes in its markets, especially with legal and regulatory changes. Our success will depend on our ability
to respond to, among other things, changes in the economy, market conditions, and competitive pressures. Any failure by us to anticipate
or respond adequately to such changes could
have a material adverse effect on our financial condition, operating results,
liquidity, cash flow and our operational performance.
It
is unknown whether the passage of the Farm Bill will provide us trademark protection for our hempSMART™ brand and products.
We
have applied for a trademark for our hempSMART™ brand name. Before passage of the Farm Bill, we were uncertain that we could
obtain patent or trademark protection for our products Because hemp derived CBD was considered an illegal Schedule 1 drug under
federal law. With the passage of the Farm Bill, we may be able to overcome these uncertainties, since hemp containing less than
.03% THC is no longer a Schedule 1 drug under the CSA. However, we cannot guarantee more favorable treatment and the failure to
obtain trademark protection may materially impact our brand establishment, sales and good will.
If
we fail to protect our intellectual property, our business could be adversely affected.
Our
viability will depend, in part, on our ability to develop and maintain the proprietary aspects of our hempSMART™ products
and brand to distinguish our hempSMART™ products and services from our competitors' products and services. We rely on patents,
copyrights, trademarks, trade secrets, and confidentiality provisions to establish and protect our intellectual property.
Any
infringement or misappropriation of our intellectual property could damage its value and limit our ability to compete. We may have
to engage in litigation to protect the rights to our intellectual property, which could result in significant litigation costs
and require a significant amount of our time.
Competitors
may also harm our sales by designing products that mirror the capabilities of our products or technology without infringing on
our intellectual property rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable
to effectively enforce our intellectual property rights, our competitiveness could be impaired, which would limit our growth and
future revenue.
We
may also find it necessary to bring infringement or other actions against third parties to seek to protect our intellectual property
rights. Litigation of this nature, even if successful, is often expensive and time-consuming to prosecute, and there can be no
assurance that we will have the financial or other resources to enforce our rights or be able to enforce our rights or prevent
other parties from developing similar technology or designing around our intellectual property.
Our
trade secrets may be difficult to protect.
Our
success depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors,
as well as our contractors. Because we operate in a highly competitive industry, we rely in part on trade secrets to protect our
proprietary hempSMART™ products and processes. However, trade secrets are difficult to protect. We enter into confidentiality
or non-disclosure agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers
and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third party’s
confidential information developed by the receiving party or made known to the receiving party by us during the course of the receiving
party's relationship with us. These agreements also generally provide that inventions conceived by the receiving party in the course
of rendering services to us will be our exclusive property, and we enter into assignment agreements to perfect our rights.
These
confidentiality, inventions and assignment agreements may be breached and may not effectively assign intellectual property rights
to us. Our trade secrets also could be independently discovered by competitors, in which case we would not be able to prevent the
use of such trade secrets by our competitors. The enforcement of a claim alleging that a party illegally obtained and was using
our trade secrets could be difficult, expensive and time consuming and the outcome would be unpredictable. The failure to obtain
or maintain meaningful trade secret protection could adversely affect our competitive position.
Our
Business Can be Affected by Unusual Weather Patterns.
The
production of some of our hempSMART™ products relies on the availability and use of live plant material. Growing
periods can be impacted by weather patterns and these unpredictable weather patterns may impact our ability
to harvest
hemp. In addition, severe weather, including drought and hail, can destroy a hemp crop, which could result in our having no
hemp to harvest, process and sell. If our suppliers are unable to obtain sufficient hemp from which to process CBD, our
ability to meet customer demand, generate sales, and maintain operations will be impacted.
Our
hempSMART™ sales in the UK may be subject to unforeseeable regulation that may have a material impact on our efforts to sell
our hempSMART™ products in the UK.
Currently,
the UK regulates wellness products containing CBD through its Medicines and Healthcare products Regulatory Agency (“MHRA”).
Pursuant to the MHRA, only wellness products containing less than 0.2% THC may be sold in the UK. Our latest laboratory results
from testing the THC content of our hempSMART™ products containing CBD derived from industrial hemp show that our products
approach 0% THC. While we are confident that our hempSMART™ products are compliant with regulations in the UK, these regulations
may change unforeseeably, and any such changes may have a material effect on our ability to market and sell our hempSMART™
products in the UK.
Risks
Related to Our Common Stock
Because
we may issue additional shares of our common stock, investment in our company could be subject to substantial dilution.
Investors’
interests in our Company will be diluted and investors may suffer dilution in their net book value per share when we issue additional
shares. We are authorized to issue 5,000,000,000 shares of common stock, $0.001 par value per share. As of May 17, 2019, there
were 2,810,345,150 shares of our common stock issued and outstanding. We anticipate that all or at least some of our future funding,
if any, will be in the form of equity financing from the sale of our common stock from our recently filed Form S-1 registration
statement with K&J Funds, LLC. If we do sell more common stock, investors’ investment in our company will be diluted.
Dilution is the difference between what investors pay for their stock and the net tangible book value per share immediately after
the additional shares are sold by us. If dilution occurs, any investment in our company’s common stock could seriously decline
in value.
Our
variably priced convertible notes may result in dilution.
As
a result of our having entered into variably priced convertible promissory notes with Chicago Ventures Partners, that also include
cashless warrants, we may be required to issue additional shares of our common stock which will cause dilution. As a result, such
issuances will reduce the value of existing investors' shares and their proportional ownership of our company.
Trading
in our common stock on the OTCQB Exchange has been subject to wide fluctuations.
Our
common stock is currently quoted for public trading on the OTCQB Market Tier. Our common stock was previously traded on the OTC
Markets Pink Tier. The trading price of our common stock has been subject to wide fluctuations. Trading prices of our common stock
may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced
extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies
with limited business operation. There can be no assurance that trading prices and price earnings ratios previously experienced
by our common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price
of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price
of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted,
could result in substantial costs for us and a diversion of management’s attention and resources.
Utah
law, our Certificate of Incorporation and our by-laws provides for the indemnification of our officers and directors at our expense,
and correspondingly limits their liability, which may result in a major cost to us and hurt the interests of our shareholders because
corporate resources may be expended for the benefit of officers and/or directors.
Our
Certificate of Incorporation and By-Laws include provisions that eliminate the personal liability of our directors for
monetary damages to the fullest extent possible under the laws of the State of Utah or other applicable law. These provisions
eliminate the liability of our directors and our shareholders for monetary damages arising out of any
violation of a
director of his fiduciary duty of due care. Under Utah law, however, such provisions do not eliminate the personal liability
of a director for (i) breach of the director's duty of loyalty, (ii) acts or omissions not in good faith or involving
intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from
lawfully available funds, or (iv) any transaction from which the director derived an improper benefit.
These
provisions do not affect a director's liabilities under the federal securities laws or the recovery of damages by third parties.
We
do not intend to pay cash dividends on any investment in the shares of stock of our Company and any gain on an investment in our
Company will need to come through an increase in our stock’s price, which may never happen.
We
have never paid any cash dividends and currently do not intend to pay any cash dividends for the foreseeable future. To the extent
that we require additional funding currently not provided for, our funding sources may prohibit the payment of a dividend. Because
we do not currently intend to declare dividends, any gain on an investment in our company will need to come through an increase
in the stock’s price. This may never happen, and investors may lose all of their investment in our company.
Because
our securities are subject to penny stock rules, you may have difficulty reselling your shares.
Our
shares as penny stocks, are covered by Section 15(g) of the Securities Exchange Act of 1934 which imposes additional sales practice
requirements on broker/dealers who sell our company’s securities including the delivery of a standardized disclosure document;
disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and, furnishing monthly
account statements. These rules apply to companies whose shares are not traded on a national stock exchange, trade at less than
$5.00 per share, or who do not meet certain other financial requirements specified by the Securities and Exchange Commission. These
rules require brokers who sell “penny stocks” to persons other than established customers and “accredited investors”
to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning
the risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell our shares of
common stock and may affect the secondary market for our shares of common stock. These rules could also hamper our ability to raise
funds in the primary market for our shares of common stock.
FINRA
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”)
has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status,
investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability
that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult
for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock
and have an adverse effect on the market for our shares.
Costs
and expenses of being a reporting company under the 1934 Securities and Exchange Act may be burdensome and prevent us from achieving
profitability.
As
a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and parts of
the Sarbanes-Oxley Act. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting
and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on
our personnel, systems and resources.
There
could be unidentified risks involved with an investment in our securities.
The
foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities.
Additional risks will likely be experienced that are not presently foreseen by the Company. Prospective investors must not
construe this the information provided herein as constituting investment, legal, tax or other professional advice. Before
making any decision to invest in our securities, you should read this entire prospectus and
consult with your own
investment, legal, tax and other professional advisors. An investment in our securities is suitable only for investors who
can assume the financial risks of an investment in the Company for an indefinite period of time and who can afford to lose
their entire investment. The Company makes no representations or warranties of any kind with respect to the likelihood of the
success or the business of the Company, the value of our securities, any financial returns that may be generated or any tax
benefits or consequences that may result from an investment in the Company.
ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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During
the quarter ended March 31, 2019, the Company made the following sales of unregistered equity securities
:
On January
9, 2019, the Company issued five million common shares to Caren Glasser for services. The issuance to Ms. Glasser was made in reliance
upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and Rule 506 of Regulation D promulgated
thereunder, with respect to the issuance of the restricted stock. Ms. Glasser was an “accredited investor” and/or “sophisticated
investor” pursuant to Section 501(a)(b) of the Securities Act, who provided the Company with representations, warranties
and information concerning her qualifications as a “sophisticated investor” and/or “accredited investor.”
The Company provided and made available to Ms. Glasser full information regarding its business and operations. There was no general
solicitation in connection with the offer or sale of the restricted securities. Ms. Glasser acquired the restricted common stock
for her own account, for investment purposes and not with a view to public resale or distribution thereof within the meaning of
the Securities Act. The restricted shares cannot be sold unless pursuant to an effective registration statement by the Company,
or by an exemption from registration requirements of Section 5 of the Securities Act—the existence of any such exemption
subject to legal review and approval by the Company.
On January
9, 2019, the Company issued 5,333,332 shares of common stock to Paladin Advisors, in exchange for $40,000. The issuance to the
entity was made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and Rule
506 of Regulation D promulgated thereunder, with respect to the issuance of the restricted stock. The entity was an “accredited
investor” and/or “sophisticated investor” pursuant to Section 501(a)(b) of the Securities Act, who provided the
Company with representations, warranties and information concerning its qualifications as a “sophisticated investor”
and/or “accredited investor.” The Company provided and made available to the entity full information regarding its
business and operations. There was no general solicitation in connection with the offer or sale of the restricted securities. The
entity acquired the restricted common stock for its own account, for investment purposes and not with a view to public resale or
distribution thereof within the meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective
registration statement by the Company, or by an exemption from registration requirements of Section 5 of the Securities Act—the
existence of any such exemption subject to legal review and approval by the Company.
On January
22, 2019, the Company issued five million shares of common stock to Joel Tolchin in exchange for $50,000. The issuance to Mr. Tolchin
was made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and Rule 506
of Regulation D promulgated thereunder, with respect to the issuance of the restricted stock. Mr. Tolchin was an “accredited
investor” and/or “sophisticated investor” pursuant to Section 501(a)(b) of the Securities Act, who provided the
Company with representations, warranties and information concerning his qualifications as a “sophisticated investor”
and/or “accredited investor.” The Company provided and made available to Mr. Tolchin full information regarding its
business and operations. There was no general solicitation in connection with the offer or sale of the restricted securities. Mr.
Tolchin acquired the restricted common stock for his own account, for investment purposes and not with a view to public resale
or distribution thereof within the meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective
registration statement by the Company, or by an exemption from registration requirements of Section 5 of the Securities Act—the
existence of any such exemption subject to legal review and approval by the Company.
On
January 22, 2019, the Company issued five million shares of common stock to Oran Fine in exchange for $50,000. The issuance
to Mr. Fine was made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933,
and Rule 506 of Regulation D promulgated thereunder, with respect to the issuance of the restricted stock. Mr. Fine was an
“accredited investor” and/or “sophisticated investor” pursuant to Section 501(a)(b) of the Securities
Act, who provided the Company with representations, warranties and information concerning his qualifications as a
“sophisticated investor” and/or “accredited investor.” The Company provided and made available to Mr.
Fine full information regarding its business and operations. There was no general solicitation in connection
with the
offer or sale of the restricted securities. Mr. Fine acquired the restricted common stock for his own account, for investment
purposes and not with a view to public resale or distribution thereof within the meaning of the Securities Act. The
restricted shares cannot be sold unless pursuant to an effective registration statement by the Company, or by an exemption
from registration requirements of Section 5 of the Securities Act—the existence of any such exemption subject to legal
review and approval by the Company.
On January
28, 2019, the Company issued five hundred thousand shares of common stock to Paula Vetter for services rendered. The issuance to
Ms. Vetter was made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and
Rule 506 of Regulation D promulgated thereunder, with respect to the issuance of the restricted stock. Ms. Vetter was an “accredited
investor” and/or “sophisticated investor” pursuant to Section 501(a)(b) of the Securities Act, who provided the
Company with representations, warranties and information concerning her qualifications as a “sophisticated investor”
and/or “accredited investor.” The Company provided and made available to Ms. Vetter full information regarding its
business and operations. There was no general solicitation in connection with the offer or sale of the restricted securities. Ms.
Vetter acquired the restricted common stock for her own account, for investment purposes and not with a view to public resale or
distribution thereof within the meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective
registration statement by the Company, or by an exemption from registration requirements of Section 5 of the Securities Act—the
existence of any such exemption subject to legal review and approval by the Company.
On February
18, 2019, the Company issued 540,273 shares of common stock to Chaleur Breezes Beef, Ltd. for services rendered. The issuance to
the entity was made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and
Rule 506 of Regulation D promulgated thereunder, with respect to the issuance of the restricted stock. The entity was an “accredited
investor” and/or “sophisticated investor” pursuant to Section 501(a)(b) of the Securities Act, who provided the
Company with representations, warranties and information concerning his qualifications as a “sophisticated investor”
and/or “accredited investor.” The Company provided and made available to the entity full information regarding its
business and operations. There was no general solicitation in connection with the offer or sale of the restricted securities. The
entity acquired the restricted common stock for its own account, for investment purposes and not with a view to public resale or
distribution thereof within the meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective
registration statement by the Company, or by an exemption from registration requirements of Section 5 of the Securities Act—the
existence of any such exemption subject to legal review and approval by the Company.
On February
18, 2019, the Company issued 4,400,000 common shares to Matthew Calkins for services rendered. The issuance to Mr. Calkins was
made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and Rule 506 of Regulation
D promulgated thereunder, with respect to the issuance of the restricted stock. Mr. Calkins was an “accredited investor”
and/or “sophisticated investor” pursuant to Section 501(a)(b) of the Securities Act, who provided the Company with
representations, warranties and information concerning his qualifications as a “sophisticated investor” and/or “accredited
investor.” The Company provided and made available to Mr. Calkins full information regarding its business and operations.
There was no general solicitation in connection with the offer or sale of the restricted securities. Mr. Calkins acquired the restricted
common stock for his own account, for investment purposes and not with a view to public resale or distribution thereof within the
meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective registration statement by the
Company, or by an exemption from registration requirements of Section 5 of the Securities Act—the existence of any such exemption
subject to legal review and approval by the Company.
On February
18, 2019, the Company issued 1,320,000 common shares to Leo Mulkey and Molly M. Mulkey for services rendered. The issuance to the
Mulkeys was made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and Rule
506 of Regulation D promulgated thereunder, with respect to the issuance of the restricted stock. The Mulkeys were “accredited
investors” and/or “sophisticated investors” pursuant to Section 501(a)(b) of the Securities Act, who provided
the Company with representations, warranties and information concerning his qualifications as a “sophisticated investor”
and/or “accredited investor.” The Company provided and made available to the Mulkeys full information regarding its
business and operations. There was no general solicitation in connection with the offer or sale of the restricted securities. The
Mulkeys acquired the restricted common stock for their own account, for investment purposes and not with a view to public resale
or distribution thereof within the meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective
registration statement by the Company, or by an exemption from registration requirements of Section 5 of the Securities
Act—the existence of any such exemption subject to legal review and approval by the Company.
On February
18, 2019, the Company issued 1,320,000 common shares to Paul Mulkey, Jr. and Kim M. Mulkey for services rendered. The issuance
to the Mulkeys was made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933,
and Rule 506 of Regulation D promulgated thereunder, with respect to the issuance of the restricted stock. The Mulkeys were “accredited
investors” and/or “sophisticated investors” pursuant to Section 501(a)(b) of the Securities Act, who provided
the Company with representations, warranties and information concerning his qualifications as a “sophisticated investor”
and/or “accredited investor.” The Company provided and made available to the Mulkeys full information regarding its
business and operations. There was no general solicitation in connection with the offer or sale of the restricted securities. The
Mulkeys acquired the restricted common stock for their own account, for investment purposes and not with a view to public resale
or distribution thereof within the meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective
registration statement by the Company, or by an exemption from registration requirements of Section 5 of the Securities Act—the
existence of any such exemption subject to legal review and approval by the Company.
On February
18, 2019, the Company issued 1,320,000 shares of common stock to DBF Displays LLC for services rendered. The issuance to the entity
was made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and Rule 506
of Regulation D promulgated thereunder, with respect to the issuance of the restricted stock. The entity was an “accredited
investor” and/or “sophisticated investor” pursuant to Section 501(a)(b) of the Securities Act, who provided the
Company with representations, warranties and information concerning his qualifications as a “sophisticated investor”
and/or “accredited investor.” The Company provided and made available to the entity full information regarding its
business and operations. There was no general solicitation in connection with the offer or sale of the restricted securities. The
entity acquired the restricted common stock for its own account, for investment purposes and not with a view to public resale or
distribution thereof within the meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective
registration statement by the Company, or by an exemption from registration requirements of Section 5 of the Securities Act—the
existence of any such exemption subject to legal review and approval by the Company.
On February
28, 2019, the Company issued five hundred thousand common shares to Ian Harvey for services. The issuance to Mr. Harvey was made
in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and Rule 506 of Regulation
D promulgated thereunder, with respect to the issuance of the restricted stock. Mr. Harvey was an “accredited investor”
and/or “sophisticated investor” pursuant to Section 501(a)(b) of the Securities Act, who provided the Company with
representations, warranties and information concerning his qualifications as a “sophisticated investor” and/or “accredited
investor.” The Company provided and made available to Mr. Harvey full information regarding its business and operations.
There was no general solicitation in connection with the offer or sale of the restricted securities. Mr. Harvey acquired the restricted
common stock for his own account, for investment purposes and not with a view to public resale or distribution thereof within the
meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective registration statement by the
Company, or by an exemption from registration requirements of Section 5 of the Securities Act—the existence of any such exemption
subject to legal review and approval by the Company.
On March
29, 2019, the Company issued five hundred thousand common shares to Casey Eberhart for services. The issuance to Mr. Eberhart was
made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and Rule 506 of Regulation
D promulgated thereunder, with respect to the issuance of the restricted stock. Mr. Eberhart was an “accredited investor”
and/or “sophisticated investor” pursuant to Section 501(a)(b) of the Securities Act, who provided the Company with
representations, warranties and information concerning his qualifications as a “sophisticated investor” and/or “accredited
investor.” The Company provided and made available to Mr. Eberhart full information regarding its business and operations.
There was no general solicitation in connection with the offer or sale of the restricted securities. Mr. Eberhart acquired the
restricted common stock for his own account, for investment purposes and not with a view to public resale or distribution thereof
within the meaning of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective registration statement
by the Company, or by an exemption from registration requirements of Section 5 of the Securities Act—the existence of any
such exemption subject to legal review and approval by the Company.
On
May 14, 2019, the Company issued 15,151,515 common shares to St. George Investments, LLC upon conversion of a convertible
note payable. The issuance to St. George was made in reliance upon the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, and Rule 506 of Regulation D promulgated thereunder, with respect to the issuance of the restricted
stock. St. George was an “accredited investor” and/or “sophisticated investor” pursuant to Section
501(a)(b) of the Securities Act, who provided the Company with representations, warranties and information concerning
its qualifications as a “sophisticated investor” and/or “accredited investor.” The Company provided
and made available to St. George full information regarding its business and operations. There was no general solicitation
in connection with the offer or sale of the restricted securities. St. George acquired the restricted common stock for its
own account, for investment purposes and not with a view to public resale or distribution thereof within the meaning of the Securities
Act. The restricted shares cannot be sold unless pursuant to an effective registration statement by the Company, or by an
exemption from registration requirements of Section 5 of the Securities Act—the existence of any such exemption subject
to legal review and approval by the Company.
ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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None.
ITEM 4.
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MINE SAFETY DISCLOSURES
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Not applicable
ITEM 5.
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OTHER INFORMATION
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None.
The following
exhibits are included as part of this report:
** Filed
herewith
*** Furnished
Herewith
(1) Incorporated
by reference
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated:
August 2 , 2019
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MARIJUANA COMPANY OF AMERICA, INC.
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By:
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/S/ Donald Steinberg
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Donald Steinberg
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President & Chief Executive Officer
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(Principal Executive Officer)
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By:
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/S/ Jesus M. Quintero
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Jesus M. Quintero
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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