NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations
The
Greater Cannabis Company, Inc. (the “Company”) was formed in March 2014 as a limited liability company under the name,
The Greater Cannabis Company, LLC. The Company remained a wholly owned subsidiary of Sylios Corp (“Sylios”) until
March 2017.
On
July 31, 2018, the Company acquired 100% of the issued and outstanding shares of Class A common stock of Green C Corporation
(“Green C”) in exchange for 9,411,998 newly issued shares of the Company’s Series A Convertible Preferred
Stock (the “Exchange”). Each share of Series A Convertible Preferred Stock is convertible into 50 shares of
common stock and is entitled to vote 50 votes per share on all matters as a class with holders of common stock. Since after
the Exchange was consummated, the former shareholders of Green C and their designees own approximately 94% of the issued and
outstanding voting shares of the Company, Green C is the acquirer for accounting purposes. Prior to the Exchange, the Company
had no assets and nominal business operations. Accordingly, the Exchange has been treated for accounting purposes as a
recapitalization by the accounting acquirer, Green C, and the accompanying consolidated financial statements of the Company
reflect the assets, liabilities and operations of Green C from its inception on December 21, 2017 to July 31, 2018 and
combined with the Company thereafter. See Note C (Acquisition of Green C Corporation).
Green
C was incorporated on December 21, 2017 under the laws of the Province of Ontario Canada with the principal place of business
in North York, Ontario.
Green
C is the owner of an exclusive, worldwide license for an eluting transmucosal patch platform (“ETP”) for non-invasive
drug delivery in the cannabis field as further described in the exclusive license agreement dated June 21, 2018 with Pharmedica
Ltd. (see Note J).
The
Company’s business plan is to (i) commercialize its ETP technology and (ii) concentrate on cannabis related investment and
development opportunities through direct equity investments, joint ventures, licensing agreements or acquisitions.
The
Company is actively seeking licensing opportunities in the cannabis sector for intellectual property and products. At present,
the Company’s sole active, exclusive, worldwide licensing agreement is with Pharmedica Limited for its ETP technology.
Principles
of Consolidation
The
consolidated financial statements include the accounts of The Greater Cannabis Company, Inc., and its wholly owned subsidiaries
Bud Bank, Inc.; GCC Superstore, LLC; GCC Investment Holdings, LLC; and Green C Corporation.
Basis
of Presentation
The
accompanying interim unaudited financial statements have been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission (the “SEC”) for interim financial statements and in the opinion of management contain all
adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, the Company’s
consolidated financial position as at September 30, 2018, and the results of its operations for the three and nine months ended
September 30, 2018 and 2017 and cash flows for the nine months ended September 30, 2018 and 2017. These statements reflect all
normal and recurring adjustments
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
that,
in the opinion of management, are necessary for a fair presentation of the information contained herein. The results of operations
for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for
the full year ending December 31, 2018
Cash
and Cash Equivalents
Investments
having an original maturity of 90 days or less that are readily convertible into cash are considered to be cash equivalents. For
the periods presented, the Company had no cash equivalents.
Income
Taxes
In
accordance with Accounting Standards Codification (ASC) 740 - Income Taxes, the provision for income taxes is computed using the
asset and liability method. The asset and liability method measures deferred income taxes by applying enacted statutory rates
in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts
on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they
occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
We
expect to recognize the financial statement benefit of an uncertain tax position only after considering the probability that a
tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not” threshold,
the amount to be recognized in the financial statements will be the benefit expected to be realized upon settlement with the tax
authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of September 30, 2018,
we had no uncertain tax positions. We recognize interest and penalties, if any, related to uncertain tax positions as general
and administrative expenses. We currently have no foreign federal or state tax examinations nor have we had any foreign federal
or state examinations since our inception. To date, we have not incurred any interest or tax penalties.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Financial
Instruments and Fair Value of Financial Instruments
We
follow ASC Topic 820,
Fair Value Measurements and Disclosures
, for assets and liabilities measured at fair value on a recurring
basis. ASC Topic 820 establishes a common definition for fair value to be applied to existing US GAAP that requires the use of
fair value measurements that establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC Topic 820 requires the
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
use
of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are
prioritized below:
Level
1:
|
|
Observable
inputs such as quoted market prices in active markets for identical assets or liabilities
|
Level
2:
|
|
Observable
market-based inputs or unobservable inputs that are corroborated by market data
|
Level
3:
|
|
Unobservable
inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The
carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial
assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement
is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when
a significant event occurs. Except for derivative liabilities, we had no financial assets or liabilities carried and measured
on a recurring or nonrecurring basis during the reporting periods.
Derivative
Liabilities
We
evaluate stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts
qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40,
Derivative Instruments
and Hedging: Contracts in Entity’s Own Equity
.
The
result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument
and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as
a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion
or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value
is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification
under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.
Long-lived
Assets
Long-lived
assets such as property and equipment and intangible assets are periodically reviewed for impairment. We test for impairment losses
on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an
asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment
evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows
could be different from those estimated by management which could have a material effect on our reporting results and financial
positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market
values and third-party independent appraisals, as considered necessary.
Pharmedica
Exclusive License Agreement cost
The
Pharmedica Exclusive License Agreement is carried at cost less accumulated amortization. Amortization is calculated using the
straight line method over the license’s estimated economic life of five years.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Website
Costs
Website
costs are expensed as incurred. For the nine months ended September 30, 2018 and 2017, website expense was $2,455 and $0, respectively.
Deferred
Financing Costs
Deferred
financing costs represent costs incurred in connection with obtaining debt financing. These costs are amortized ratably and charged
to financing expenses over the term of the related debt.
Equity
Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances
of our common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value
of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment
for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty
considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance
is complete.
Although
situations may arise in which counter performance may be required over a period of time, the equity award granted to the party
performing the service may be fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in
which vesting periods do not exist if the instruments are fully vested on the date of agreement, we determine such date to be
the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize
such amount to expense over the contract period. When it is appropriate for us to recognize the cost of a transaction during financial
reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument
is measured at the then-current fair values.
Related
Parties
A
party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is
controlled by, or is under common control with us. Related parties also include our principal owners, our management, members
of the immediate families of our principal owners and our management and other parties with which we may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or
operating policies of the transacting parties, or if it has an ownership interest in one of the transacting parties and can significantly
influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate
interests, is also a related party.
Revenue
Recognition
Revenue
from product sales is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists,
(2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising
Costs
Advertising
costs are expensed as incurred. For the period presented, we had no advertising costs.
Loss
per Share
We
compute net loss per share in accordance with FASB ASC 260. The ASC specifies the computation, presentation and disclosure requirements
for loss per share for entities with publicly held common stock.
Basic
loss per share amounts is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted
net loss per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such
as stock options, warrants and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted
net loss per share are excluded from the calculation. For the periods ended September 30, 2018, the Company excluded 470,599,900
shares relating to the Series A Convertible Preferred Stock (see Note G), 3,429,000 shares relating to convertible notes payable
to third parties (Please
see
NOTE E - NOTES PAYABLE TO THIRD PARTIES
for further information) and 657,800 shares
relating to outstanding warrants (Please
see
NOTE G - CAPITAL STOCK AND WARRANTS
for further information) from the
calculation of diluted shares outstanding as the effect of their inclusion would be anti-dilutive.
Recently
Enacted Accounting Standards
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts
with Customers, which supersedes nearly all prior revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09
is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration
to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this
core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required
under prior U.S. GAAP. As amended by the FASB in July 2015, the standard became effective for annual periods beginning after December
15, 2017, and interim periods therein. ASU 2014-09 has had no impact on our Financial statements for the nine months ended September
30, 2018.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to provide guidance on recognizing lease assets and lease
liabilities on the balance sheet and disclosing key information about leasing arrangements, specifically differentiating between
different types of leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise
from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have
not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases.
However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating
leases should be recognized in the balance sheet. The accounting applied by a lessor is largely unchanged from that applied under
previous GAAP. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years, and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure
leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach
includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the
identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced
before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to
purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for
leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees
are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on
the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. The Company does
not expect the impact of ASU 2016-02 on its future financial statements to be significant.
In
March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations,
to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether
it is the principal or the agent in contracts that include three or more parties. The effective date and transition requirements
for these amendments are the same as the effective date and transition requirements of ASU 2014-09 (discussed above). ASU 2016-08
has had no impact on our Financial statements for the nine months ended September 30, 2018.
In
April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing, to clarify the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing
implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date
and transition requirements of ASU 2014-09 (discussed above). ASU 2016-10 has had no impact on our Financial statements for the
nine months ended September 30, 2018.
On
July 13, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2017-11.
Among other things, ASU 2017-11 provides guidance that eliminates the requirement to consider “down round” features
when determining whether certain financial instruments or embedded features are indexed to an entity’s stock and need to
be classified as liabilities. ASU 2017-11 provides for entities to recognize the effect of a down round feature only when it is
triggered and then as a dividend and a reduction to income available to common stockholders in basic earnings per share. The guidance
is effective for annual periods beginning after December 15, 2018. The Company expects to adopt ASU 2017-11 commencing in the
quarterly period ended March 31, 2019. The effect of adoption will be to eliminate derivative liability classification for warrants
outstanding that contain “down round” (or “ratchet-down) provisions but do not contain variable conversion features
based on the future trading price of the Company’s common stock. At September 30, 2018, the derivative liability of such
warrants was $87,982.
NOTE
B - GOING CONCERN
Under
ASC 205-40, we have the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability
to meet our future obligations as they become due within one year after the date the financial statements are issued. As required
by this standard, our evaluation shall initially not take into consideration the potential mitigating effects of our plans that
have not been fully implemented as of the date the financial statements
are issued.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
B - GOING CONCERN (continued)
In
performing the first step of this assessment, we concluded that the following conditions raise substantial doubt about our ability
to meet our financial obligations as they become due. As of September 30, 2018, the Company had cash of $ 87,741, total current
liabilities of $ 884,541, and negative working capital of $ 796,800. For the nine months ended September 30, 2018, we incurred
a net loss of $863,543 and used $72,259 cash from operating activities. We expect to continue to incur negative
cash flows until such time as our business generates sufficient cash inflows to finance our operations and debt service requirements.
In
performing the second step of this assessment, we are required to evaluate whether our plans to mitigate the conditions above
alleviate the substantial doubt about our ability to meet our obligations as they become due within one year after the date that
the financial statements are issued. Our future plans include securing additional funding sources.
There
is no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds
will be available through external sources. The lack of additional capital resulting from the inability to generate cash flow
from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations
and would, therefore, have a material effect on the business. Furthermore, there can be no assurance that any such required funds,
if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s
existing shareholders. We have therefore concluded there is substantial doubt about our ability to continue as a going concern
through November 2019.
The
accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of the uncertainty related to our ability to continue
as a going concern.
NOTE
C - ACQUISITION OF GREEN C CORPORATION
As
discussed in Note A above, the Company acquired 100% ownership of Green C Corporation on July 31, 2018. The acquisition has been
accounted for in the accompanying consolidated financial statements as a “reverse acquisition” transaction. Accordingly,
the financial position and results of operations of the Company prior to July 31, 2018 has been excluded from the accompanying
consolidated financial statements.
The
carrying values of the net assets (liabilities) of the Company (The Greater Cannabis Company, Inc. and subsidiaries) at July
31, 2018 prior to the acquisition consisted of:
Total Assets
|
|
$
|
-
|
|
Accounts payable and accrued expenses
|
|
|
90,724
|
|
Accrued interest
|
|
|
15,813
|
|
Loans payable to related parties
|
|
|
89,774
|
|
Notes payable to third parties
|
|
|
83,323
|
|
Derivative lability
|
|
|
270,502
|
|
Total current liabilities and total liabilities
|
|
|
550,136
|
|
Total assets (liabilities)
|
|
$
|
(550,136
|
)
|
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
C - ACQUISITION OF GREEN C CORPORATION (continued)
Pursuant
to terms of the acquisition agreements, $164,841 (accounts payable and accrued expenses - $62,500, accrued interests - $12,567,
and loans payable to related parties - $89,774) of the $550,136 total liabilities was forgiven.
The
following pro forma information summarizes the results of operations for the nine months ended September 30, 2018 and 2017 as
if the acquisition occurred at December 31, 2016:
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Website sales
|
|
$
|
136
|
|
|
$
|
209
|
|
Website cost of sales
|
|
|
(72
|
)
|
|
|
(109
|
)
|
Website gross profit
|
|
|
64
|
|
|
|
100
|
|
Gross profit on product transactions
|
|
|
86,898
|
|
|
|
-
|
|
Consulting fees from related party
|
|
|
8,477
|
|
|
|
-
|
|
Total operating revenues
|
|
|
95,439
|
|
|
|
100
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Officers compensation
|
|
|
134,593
|
|
|
|
500,000
|
|
Director compensation
|
|
|
25,000
|
|
|
|
25,000
|
|
Consulting fees
|
|
|
50,000
|
|
|
|
42,500
|
|
Amortization of Pharmedica Exclusive
|
|
|
|
|
|
|
|
|
License Agreement cost
|
|
|
5,251
|
|
|
|
-
|
|
Other
|
|
|
52,286
|
|
|
|
33,271
|
|
Total operating expenses
|
|
|
267,130
|
|
|
|
600,771
|
|
Loss from operations
|
|
|
(171,691
|
)
|
|
|
(600,671
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
5,903
|
|
|
|
-
|
|
Interest expense
|
|
|
(38,298
|
)
|
|
|
(2,529
|
)
|
Amortization of debt discounts
|
|
|
(63,615
|
)
|
|
|
(19,870
|
)
|
Expense from derivative liability
|
|
|
(239,663
|
)
|
|
|
(152,352
|
)
|
Total other income (expenses) – net
|
|
|
(335,673
|
)
|
|
|
(174,751
|
)
|
Net Loss
|
|
$
|
(507,364
|
)
|
|
$
|
(775,422
|
)
|
Basic and diluted loss per common share
|
|
$
|
(.02
|
)
|
|
$
|
(.03
|
)
|
Weighted average common shares outstanding – basic and diluted
|
|
|
29,439,590
|
|
|
|
27,978,345
|
|
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
D - LOANS PAYABLE TO RELATED PARTIES
Loans
payable to related parties consist of:
|
|
September 30, 2018
|
|
Loans from Elisha Kalfa and Yonah Kalfa, holders of a total of 2,966,666 shares of Series A Convertible Preferred stock
|
|
$
|
180,000
|
|
Loan from Fernando Bisker and Sigalush, LLC, holders of a total of 2,966,666 shares of Series A Convertible Preferred stock
|
|
|
80,000
|
|
Total
|
|
$
|
260,000
|
|
Pursuant
to loan and contribution agreements dated July 31, 2018, the above loans are non-interest bearing and are to be repaid after the
Company raises from investors no less than $1,500,000 or generates sufficient revenue to make repayments (each, a “Replacement
Event”). If the First Replacement Event does not occur within 18 months from July 31, 2018, the loans are to be repaid immediately.
In the event there is insufficient capital to repay the loan, the lenders have the option to convert all or part of the
loans into shares of the Company common stock at the average trading price of the 10 day prior to the date of the conversion
request.
NOTE
E - NOTES PAYABLE TO THIRD PARTIES
Notes
payable to third parties consist of:
|
|
September 30, 2018
|
|
Convertible Promissory Note dated May 25, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due May 25, 2018 (i)
|
|
|
34,000
|
|
Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018 (ii)
|
|
|
13,750
|
|
Convertible Promissory Note dated January 9, 2018 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due January 9, 2019-less unamortized debt discount of $5,536 at September 30, 2018 (iii)
|
|
|
14,464
|
|
Allonge to the Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018 (iv)
|
|
|
12,100
|
|
Allonge 2 to the Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018 (v)
|
|
|
5,500
|
|
Promissory Note dated March 28, 2017 payable to John T. Root, Jr., interest at 4%, due September 28, 2017, convertible into shares of common stock at a conversion price of $.001 per share.
|
|
|
375
|
|
Total
|
|
$
|
80,189
|
|
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
E - NOTES PAYABLE TO THIRD PARTIES (continued)
(i)On
May 25, 2017, the Company executed a Convertible Note (the “Convertible Note”) payable to Emet Capital Partners,
LLC, (“EMET”) in the principal amount of $55,000 in exchange for $50,000 cash. The Convertible Note is
convertible, in whole or in part, at any time and from time to time before maturity (May 25, 2018) at the option of the
holder at the Variable Conversion Price, which shall mean the lesser of (i) $0.25 (the “Fixed Conversion Price”);
or (ii) 50% multiplied by the Market Price (as defined). “Market Price” means the lowest Trading Prices (as
defined below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior
to the Conversion Date. The Convertible Note has a term of one (1) year and bears interest at 5% annually. As part of the
transaction, EMET was also issued a warrant granting the holder the right to purchase up to 440,000 shares of the
Company’s common stock at an exercise price of $.50 for a term of 5-years. As part of the Convertible Note, the Company
executed a Registration Rights Agreement (the “RRA”) dated May 25, 2017. Among other things, the RRA provided for
the Company to file a Registration Statement with the SEC covering the resale of shares underlying the Convertible Note and
the warrant and to have declared effective such Registration Statement. The Registration Statement was declared effective by
the Securities and Exchange Commission on August 31, 2017. On September 19, 2018, $32,000 principal of the Convertible Note
(and $4,638 accrued interest) was converted into 1,465,523 shares of Company common stock. Please
see
NOTE F -
DERIVATIVE LIABILITY
for further information.
(ii)
On September 14, 2017, the Company executed a Convertible Note (the “Convertible Note”) payable to Emet Capital Partners,
LLC, (“EMET”) in the principal amount of $13,750 in exchange for $12,500 cash. The Convertible Note is convertible,
in whole or in part, at any time and from time to time before maturity (September 14, 2018) at the option of the holder at the
Variable Conversion Price, which shall mean the lesser of (i) $0.25 (the “Fixed Conversion Price”); or (ii) 50% multiplied
by the Market Price (as defined). “Market Price” means the lowest Trading Prices (as defined below) for the Common
Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. The Convertible
Note has a term of one (1) year and bears interest at 5% annually. As part of the transaction, EMET was also issued a warrant
granting the holder the right to purchase up to 110,000 shares of the Company’s common stock at an exercise price of $.50
for a term of 5-years. Please
see
NOTE F - DERIVATIVE LIABILITY
for further information.
(iii)
On January 9, 2018, the Company executed a Convertible Note (the “Convertible Note”) payable to Emet Capital Partners,
LLC, (“EMET”) in the principal amount of $20,000 in exchange for entry into a Waiver Agreement pertaining to the Securities
Purchase Agreements entered into between the Parties dated May 25, 2017 and September 14, 2017 along with a Convertible Note issued
by the Company on each of the same dates. The Company received $0 cash from issuance of the Convertible Note. The Convertible
Note is convertible, in whole or in part, at any time and from time to time before maturity (January 9, 2019) at the option of
the holder at the Variable Conversion Price, which shall mean the lesser of (i) $0.25 (the “Fixed Conversion Price”);
or (ii) 50% multiplied by the Market Price (as defined). “Market Price” means the lowest Trading Prices (as defined
below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion
Date. The Convertible Note has a term of one (1) year and bears interest at 5% annually. Please
see
NOTE F - DERIVATIVE
LIABILITY
for further information.
(iv)
On March 28, 2018, the Company made an Allonge to the Convertible Debenture due September 14, 2018 (hereinafter the “Allonge”)
to Emet Capital Partners, LLC. The Principal Amount as stated on the face of the Debenture shall be increased to $25,850 ($13,750
– original Principal Amount of the Debenture + $12,100 Allonge). The amendment to the Principal Amount due and owing on
the Debenture described herein notwithstanding, the Holder does not waive interest that may have accrued at a default rate of
interest and liquidated damages, if any, that may have accrued on the Debenture through the date of this Allonge, which default
interest and liquidated damages, if any, remain outstanding and payable. As part of the transaction, EMET was also issued a warrant
granting the holder the right to purchase up to 98,600 shares of the Company’s common stock at an exercise price of $.50
for a term of 5-years. Please
see
NOTE F - DERIVATIVE LIABILITY
for further information.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
E - NOTES PAYABLE TO THIRD PARTIES (continued)
(v)
On September 13, 2018, the Company made a second Allonge to the Convertible Debenture due September 14, 2018 (hereinafter the
“Allonge”) to Emet Capital Partners, LLC. The Principal Amount as stated on the face of the Debenture shall be increased
to $31,350 ($13,750 – original Principal Amount of the Debenture + $12,100 1
st
Allonge + $5,500 2
nd
Allonge). The amendment to the Principal Amount due and owing on the Debenture described herein notwithstanding, the Holder does
not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on
the Debenture through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and
payable. As part of the transaction, EMET was also issued a warrant granting the holder the right to purchase up to 11,000 shares
of the Company’s common stock at an exercise price of $.50 for a term of 5-years. Please
see
NOTE F - DERIVATIVE
LIABILITY
for further information.
NOTE
F - DERIVATIVE LIABILITY
The
derivative liability at September 30, 2018 consisted of:
|
|
September 30, 2018
|
|
Convertible Promissory Note dated May 25, 2017 payable to EMET Capital Partners, LLC Please
see
NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information
|
|
$
|
154,088
|
|
Warrants issued to EMET in connection with the above Convertible Promissory Note dated May 25, 2017. Please
see
NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information
|
|
|
58,828
|
|
Convertible Promissory Note dated September 14, 2017 payable to EMET Capital Partners, LLC Please
see
NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information
|
|
|
65,560
|
|
Warrants issued to EMET in connection with the above Convertible Promissory Note dated September 14, 2017. Please
see
NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information
|
|
|
14,718
|
|
Convertible Promissory Note dated January 9, 2018 payable to EMET Capital Partners, LLC Please
see
NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information
|
|
|
91,120
|
|
Allonge dated March 28, 2018 to the Convertible Promissory Note dated September 14, 2017 Please
see
NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information
|
|
|
57,693
|
|
Warrants issued to EMET in connection with the above Allonge dated March 28, 2018 to the Convertible Promissory Note dated
September 14, 2017. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information
|
|
|
12,962
|
|
Allonge 2 dated September 13, 2018 to the Convertible Promissory Note dated September 14, 2017 Please
see
NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information
|
|
|
26,224
|
|
Warrants issued to EMET in connection with the above Allonge 2 dated September 13, 2018 to the Convertible Promissory Note dated
September 14, 2017. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information
|
|
|
1,474
|
|
Total derivative liability
|
|
$
|
482,667
|
|
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
E - NOTES PAYABLE TO THIRD PARTIES (continued)
The
Convertible Promissory Notes (the “Notes”) and the warrants contain obligations to reduce the conversion price of
the Notes and the exercise price of the Warrants in the event that the Company sells, grants or issues any non-excluded shares,
options, warrants or any convertible instrument at a price below the conversion price of the Notes and the exercise price of the
Warrants (“ratchet-down” provisions). The Notes also contain a variable conversion feature based on the future trading
price of the Company’s common stock. Therefore, the number of shares of common stock issuable upon conversion of the Notes
and exercise of the Warrants is indeterminate.
The
fair value of the derivative liability was measured at the respective issuance dates and at September 30, 2018 using the Black
Scholes option pricing model. Assumptions used for the calculation of the derivative liability of the Notes at September 30, 2018
were (1) stock price of $0.1341 per share, (2) conversion price of $0.025 per share, (3) terms ranging from 3 months to 6 months,
(4) expected volatility of 286.71%, and (5) risk free interest rates ranging from 2.19% to 2.36%. Assumptions used for the calculation
of the derivative liability of the warrants at September 30, 2018 were (1) stock price of $0.1341 per share, (2) exercise price
of $0.50 per share, (3) terms ranging from 44 months to 57 months, (4) expected volatility of 286.71%, and (5) risk free interest
rates ranging from 2.90% to 2.93%.
NOTE
G - CAPITAL STOCK AND WARRANTS
Preferred
Stock
On
July 31, 2018, The Greater Cannabis Company, Inc. (the “Company”) acquired 100% of the issued and outstanding shares
of Class A common stock of Green C Corporation (“Green C”) in exchange for 9,411,998 newly issued shares of the Company’s
Series A Convertible Preferred Stock (the Exchange”). Each share of Series A Convertible Preferred Stock is convertible
into 50 shares of common stock and is entitled to 50 votes on all matters as a class with the holders of common stock.
Common
Stock
Effective
March 10, 2017, in connection with a partial spin-off of the Company from Sylios Corp, the Company issued a total of 26,905,969
shares of its common stock. 5,378,476 shares were issued to Sylios Corp (representing 19.99% of the issued and outstanding shares
of Company common stock after the spin-off) and 21,527,493 shares were issued to the stockholders of record of Sylios Corp on
February 3, 2017 on the basis of one share of Company common stock for each 500 shares of Sylios Corp common stock held (representing
80.01% of the issued and outstanding shares of Company common stock after the spin-off).
Effective
March 22, 2017, the Company issued 100,000 shares of its common stock to a consulting firm entity for service rendered. The $25,000
estimated fair value of the 100,000 shares was expensed as consulting fees in the three months ended March 31, 2017.
Effective
March 31, 2017, the Company issued 2,000,000 shares of its common stock to our Chief Executive Officer, Wayne Anderson, for services
rendered. The $500,000 estimated fair value of the 2,000,000 shares was expensed as officer compensation in the three months ended
March 31, 2017.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
G - CAPITAL STOCK AND WARRANTS (continued)
Effective
September 15, 2017, the Company issued 375,000 shares of its common stock to retire a Note Payable to a Third Party.
On
September 19, 2018, the Company issued 1,465,523 shares of its common stock pursuant to a conversion of $36,638 principal and
interest of its convertible note dated May 25, 2017 by Emet Capital Partners, LLC.
Warrants
On
May 25, 2017, the Company issued Emet Capital Partners, LLC a warrant granting the holder the right to purchase 440,000 shares
of the Company’s common stock at an exercise price of $.50 for a term of 5-years. If at any time after the Initial Exercise
Date, there is no effective registration statement registering the Warrant Shares, or no current prospectus available for the
resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or
in part, at such time by means of a “cashless exercise”. The Holder of the warrant did not require that the Company
register the common shares to be issued under the warrant in the Registration Statement declared effective August 31, 2017. (Please
see
NOTE E - NOTES PAYABLE TO THIRD PARTIES
for further information).
On
September 14, 2017, the Company issued Emet Capital Partners, LLC a warrant granting the holder the right to purchase 110,000
shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. If at any time after the Initial
Exercise Date, there is no effective registration statement registering the Warrant Shares, or no current prospectus available
for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in
whole or in part, at such time by means of a “cashless exercise”. The Holder of the warrant did not require that the
Company register the common shares to be issued under the warrant in the Registration Statement declared effective August 31,
2017. (Please
see
NOTE E - NOTES PAYABLE TO THIRD PARTIES
for further information).
On
March 28, 2018, the Company issued Emet Capital Partners, LLC a warrant granting the holder the right to purchase 96,800 shares
of the Company’s common stock at an exercise price of $.50 for a term of 5-years. If at any time after the Initial Exercise
Date, there is no effective registration statement registering the Warrant Shares, or no current prospectus available for the
resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or
in part, at such time by means of a “cashless exercise”. The Holder of the warrant has not requested that the Company
register the common shares to be issued under the warrant. (Please
see
NOTE E - NOTES PAYABLE TO THIRD PARTIES
for
further information).
On
June 13, 2018, the Company issued Emet Capital Partners, LLC a warrant granting the holder the right to purchase 11,000 shares
of the Company’s common stock at an exercise price of $.50 for a term of 5-years. If at any time after the Initial Exercise
Date, there is no effective registration statement registering the Warrant Shares, or no current prospectus available for the
resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or
in part, at such time by means of a “cashless exercise”. The Holder of the warrant has not requested that the Company
register the common shares to be issued under the warrant. (Please
see
NOTE E - NOTES PAYABLE TO THIRD PARTIES
for
further information).
As
of September 30, 2018, the Company has four warrants issued and outstanding granting the holders the right to purchase up to a
total of 657,800 shares of its common stock.
The
following table summarizes information about warrants outstanding as of September 30, 2018:
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
G - CAPITAL STOCK AND WARRANTS (continued)
Range of
|
|
|
Number Outstanding
|
|
|
Average Remaining
|
Exercise Prices
|
|
|
at September 30, 2018
|
|
|
Contractual Life
|
$
|
0.50
|
|
|
|
440,000
|
|
|
44 Months
|
$
|
0.50
|
|
|
|
110,000
|
|
|
48 Months
|
$
|
0.50
|
|
|
|
96,800
|
|
|
54 Months
|
$
|
0.50
|
|
|
|
11,000
|
|
|
57 Months
|
|
Total
|
|
|
|
657,800
|
|
|
|
NOTE
H - INCOME TAXES
The
Company and its United States subsidiaries expect to file consolidated Federal income tax returns. Green C Corporation, its Ontario
Canada subsidiary, will file Canada and Ontario income tax returns.
At
September 30, 2018 the Company has available for federal income tax purposes a net operating loss carry forward of approximately
$ 179,489 that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount
of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more
likely than not that the benefits will not be realized. Due to significant changes in the Company’s ownership, the future
use of its existing net operating losses will be limited.
All
tax years of the Company and its United States subsidiaries remain subject to examination by the Internal Revenue Service.
NOTE
I- GROSS PROFIT ON PRODUCT TRANSACTIONS
In
February 2018, Green C sold certain bitcoin mining rig machines to a North Carolina based third party entity for $2,929,000.
Also in February 2018, Green C sold additional bitcoin mining rig machines to another North Carolina based third party entity
for $ 1,720,000. The Company’s supplier of the products in these two transactions was Focus Global Supply
(“FGS”), a business entity controlled by Elisha Kalfa, Green C’s Chief Executive Officer.
Green C
paid FGS a total of $ 4,517,000 for these machines. Net of a total of $ 59,000 commission paid to a third party
finder, Green C recognized a gross profit of $72,912 from these two sales.
In
June 2018, Green C sold certain telecommunications parts to a China based third party entity for a total of $111,147. Green
C’s supplier of the products in these transactions was an Italy based third party entity which was paid $111,127 for
these products. Including $13,965 commissions received from NFW Marketing, Inc., an entity affiliated with Elisha Kalfa, Green
C’s Chief Executive Officer, Green C recognized a gross profit of $13,986 from this transaction.
THE
GREATER CANNABIS COMPANY, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2018 and 2017 (Unaudited)
NOTE
J - COMMITMENTS AND CONTINGENCIES
Pharmedica
Exclusive License Agreement
On
June 21, 2018, Green C executed an Exclusive License Agreement with Pharmedica, Ltd. (“Pharmedica”),
an Israeli
company, to exploit certain Pharmedica intellectual property for the development and distribution of a certain Licensed Product
involved in the transmucosal delivery of medicinal or recreational cannabis. The agreement provides for Green C payments to Pharmedica
of a $100,000 license fee (which was paid by 2591028 Ontario Limited, an entity affiliated with Green C’s Chief Executive
Officer, on June 26, 2018) and annual royalties at a rate of 5% of the Net Sales of the Licensed Product subject to a Mininum
Annual Royalty of $50,000. The agreement also provides for certain milestones to be accomplished by Green C in order for Green
C to retain the license. Green C and Pharmedica each may terminate the agreement upon the occurrence of a material breach by the
other party of its obligations under the agreement and such other party’s failure to remedy such breach to the reasonable
satisfaction of the other party within thirty (30) days after being requested in writing to do so.
Service
Agreements
On
July 31, 2018, the Company executed Service Agreements with its newly appointed Chief Executive Officer (the “CEO”)
and its newly appointed Chief Legal Officer (the “CLO”), for terms of five years. The Agreements provide for a monthly
base salary of $10,000 for the CEO and a monthly base salary of $7,000 for the CLO. For the nine months ended September 30, 2018,
the Company expensed a total of $34,000 as officers compensation pursuant to these agreements. At September 30, 2018, accounts
payable and accrued expenses include $34,000 due the CEO and CLO pursuant to these agreements.
The
remaining $100,593 officers compensation in the nine months ended September 30, 2018 represents payments to the chief executive
officer of Green C Corporation.
NOTE
K – SUBSEQUENT EVENTS
On
October 26, 2018, the Company issued 1,034,477 shares of its common stock pursuant to a conversion of $31,034 principal and interest
of its convertible note dated May 25, 2017 by Emet Capital Partners, LLC.