Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019 and December 31, 2018
NOTE 1- Summary of History and Significant Accounting Policies
Nature of Operations
High Sierra Technologies, Inc., (“the Company”) was incorporated in the State of Nevada on August 6, 2018. It was formed with the intention that it would become the assignee, owner and licensor of certain Intellectual Property that was, prior to assignment, the property of Vincent C. Lombardi, Ph.D. (the “Intellectual Property”) who is an officer, director and co-founder of the Company. The Company was further formed with the goal that it would continue to develop and expand its intellectual property portfolio with an emphasis on the recreational cannabis industry as well as the industrial hemp industry.
The Company is a start-up that develops patents and other products used in the processing of cannabis, including industrial hemp, and currently are licensing these technologies to companies in the industry. The Company will likely incur research and development expenses in the future, and intends to develop a policy regarding the same. The Company is also growing industrial hemp on a 200 acre property it leases in McDermitt, Nevada and will incur ongoing expenses in relation to this project (see Notes 9, 10 and 11).
Gulf & Orient Steamship Company, LTD (“Gulf”) was incorporated in the State of Colorado on May 9, 1996. Gulf originally intended to engage in the business of marine transportation.
On November 1, 2017, Gulf incorporated Gulf Acquisition, Inc., a Utah corporation for the sole purpose of completing an Agreement and Plan of Merger.
On December 31, 2018, Gulf entered into a Share Exchange Agreement with the Company and all the shareholders of the Company. The shareholders of the Company were issued shares of the Gulf’s common stock on a one for one share basis in exchange for their shares of the Company’s common stock. The Share Exchange was treated as a recapitalization, and as a result, the consolidated financial statements are presented under successor entity reporting.
Basis of presentation
These consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with our audited financial statements for the year ended December 31, 2018, included in our Annual Report on Form 10-K for the year ended December 31, 2018.
The Company consolidates its subsidiaries (High Sierra Technologies, Inc., a Nevada corporation, and Gulf Acquisition, Inc., a Utah corporation) in accordance with ASC 810. All inter-company transactions have been eliminated during consolidation.
Concentration of Risk
The Company places its cash and temporary cash investments with established financial institutions. At times, such cash and investments may be in excess of the FDIC insurance limit.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
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HIGH SIERRA TECNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019 and December 31, 2018
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation - Stock Based Compensation and ASC 505, Equity Based Payments to Non-Employees, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based awards made to third parties, employees and directors, including stock options. Effective January 1, 2019, the Company adopted ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
ASC 718 requires companies to estimate the fair value of share-based awards to employees and directors on the date of grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model as its method of determining fair value. This model is affected by the Company's stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company's expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of operations over the requisite service period.
All transactions in which goods or third-party services are the consideration received for the issuance of equity instruments are accounted for under ASC 505, until January 1, 2019 and are based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable on the earlier of the commitment date or completion date.
Upon the adoption of ASU 2018-07, the Company measured the fair value of equity instruments for nonemployee based payment awards on the grant date.
Investment in Growing Crops
The Company’s Investment in Growing Crops represents the total cost of the crop inputs in the ground. These are recorded at cost and will be expensed to cost of goods sold once the crops are harvested and sold.
Long-lived Assets
Long-lived assets are stated at cost. Maintenance and repairs are expensed as incurred. Depreciation is determined using the straight-line method over the estimated useful lives of the assets, which is five years.
Where an impairment of a property’s value is determined to be other than temporary, an impairment for the estimated potential loss is recorded to adjust the property to its net realizable value.
When items of building or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. The Company does not have any long-lived tangible assets, which are considered to be impaired as of September 30, 2019 or December 31, 2018.
The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment, where applicable to all long lived assets. FASB ASC 360-10 addresses accounting and reporting for impairment and disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with FASB ASC 360-10. FASB ASC 360-10 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
Intangible Assets
Goodwill and intangible assets are reviewed for potential impairment in accordance with ASC 350, Intangibles - Goodwill and Other, whenever events or circumstances indicate that their carrying amounts may not be recoverable. The Company had no such intangibles at September 30, 2019 or December 31, 2018, and recorded no impairment losses during the nine months ended September 30, 2019 and $7,683 of impairment losses during the period ended September 30, 2018.
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HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019 and December 31, 2018
Revenue Recognition
The Company applies ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Advertising
Advertising costs are expensed as incurred. Advertising expenses for the periods ended September 30, 2019 and 2018 were $0.
Fair Value of Financial Instruments
The Company adopted FASB ASC 820, Fair Value Measurements and Disclosures, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices for identical assets and liabilities in active markets;
Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.
Emerging Growth Company Critical Accounting Policy Disclosure
The Company qualifies as an “emerging growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging grown company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has chosen to “opt out” of such extended transition period, and as a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.
Income Taxes
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
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HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019 and December 31, 2018
Income Taxes - continued
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.
Segments
The Company operates in several business segments, namely the businesses of (1) Product development, (2) Patent development, (3) Technology licensing and (4) Other services in the cannabis segment which includes industrial hemp.
Loss Per Share
Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period, unless their effect is anti-dilutive due to continuing losses. There were no potentially dilutive shares outstanding as of September 30, 2019 and December 31, 2018.
Recent Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations or financial position.
NOTE 2 – Financial Condition and Going Concern
The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has sustained operating losses during the current year-to-date and may not achieve the level of profitable operations to sustain its activities. These factors raise substantial doubt as to its ability to obtain debt and/or equity financing and achieve profitable operations.
Management intends to raise additional operating funds through equity and/or debt offerings. However, there can be no assurance management will be successful in its endeavors. Ultimately, the Company will need to achieve profitable operations in order to continue as a going concern.
There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available to the Company it may be required to curtail its operations.
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HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019 and December 31, 2018
NOTE 3 – Investment in Growing Crops
Investment in growing crops consists of the cost of the crop inputs in the ground at September 30, 2019 and are recorded at cost and will be expensed to cost of goods sold once the crops are harvested and sold.
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September 30,
2019
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December 31,
2018
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Raw materials
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$230,000,000
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$ - -
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NOTE 4 – Property and Equipment
At September 30, 2019 and December 31, 2018, property and equipment consisted of the following:
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Useful Lives
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September 30,
2019
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December 31, 2018
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Equipment
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5
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$176,750
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$ -
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Less: accumulated depreciation
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(6,250)
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-
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$170,500
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$ -
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Depreciation expense was $6,250 and $4,750 for the nine and three months ended September 30, 2019.
NOTE 5 – Intangibles
During the period from inception to September 30, 2018, the Company acquired certain provisional patents and other rights for common stock in the Company for a value of $7,683. The Company has impaired the value of these patents at September 30, 2018, as their value was deemed to not be recoverable.
NOTE 6 – Notes Payable
The Company’s debt consists of the following:
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September 30, 2019
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Notes payable, 9% interest, interest and principal due December 6, 2019 through March 11, 2020, unsecured(1)
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$325,000
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Total due
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325,000
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Current Portion
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325,000
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Long-term portion
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$ -
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(1)
One note for $50,000 includes as an additional return on the debt a 3% interest in the Gross Crop Yield from the Company’s hemp crop in McDermitt, NV. No accrual has been made for this interest.
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HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019 and December 31, 2018
NOTE 7 – Notes Payable-Related Party
The Company’s debt consists of the following:
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September 30, 2019
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Notes payable, 1.69-9% interest, interest and principal due November 30, 2019 through January 17, 2020, unsecured
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$30,557
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Total due
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30,557
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Current Portion
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30,557
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Long-term portion
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$ -
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NOTE 8 – Capital Changes
Common Stock
On December 31, 2018 we entered into a Share Exchange Agreement (the “Agreement”) with High Sierra Technologies, Inc., a Nevada corporation (“High Sierra”) and all of the shareholders of High Sierra, pursuant to which we acquired 100% of the issued and outstanding shares of common stock of High Sierra (the “Share Exchange” or “Acquisition”). The Acquisition of High Sierra was consummated on the same date, and High Sierra is now a wholly-owned subsidiary of the Company. As consideration for the Share Exchange, we issued a total of 15,433,025 shares of our common stock to the High Sierra shareholders.
The Company issued 15,433,025 shares of its common stock at $.001 per share for a total of $25,083 during the period ended December 31, 2018 of which $12,250 was paid for in cash, $7,683 was paid by the contribution of certain intangibles, and $5,150 was for services.
The Company issued 100,000 shares of its common stock for consulting services on May 26, 2019 valued at $100,000, which was the fair market value of the stock.
The Company issued 100,000 shares of its common stock for product (seeds) on May 26, 2019 valued at $100,000, which was the fair market value of the stock.
NOTE 9 – Contingencies and Commitments and Legal Matters Agreement and Plan of Merger
Management of the Company has conducted a diligent search and concluded that there were no commitments, contingencies, or legal matters pending at the balance sheet dates, other than what has been disclosed below.
The Company on May 13, 2019 entered into an Agricultural Lease for approximately 200 acres in Northern Nevada to plant its Hemp Grow for 2019.
The term of the lease is for five years commencing May 18, 2019 through May 17, 2024.
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HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019 and December 31, 2018
There are no minimum fixed monthly payments due on this lease, but an annual participation bonus in an amount equal to fifteen percent of the gross crop yield from the leasehold properties. The Gross Crop Yield is defined by the actual amount received from the crop harvest less all expenses derived from the growing, processing and sale of the crop harvested from the Property.
The Company is solely responsible for all crop care, labor, irrigation, insurance, taxes, repairs and maintenance of the crop, equipment and other costs of planting, raising and harvesting of crops. The Company is responsible for all other miscellaneous cost to grow and take it to market.
Due to the lease payments being variable, the Company has not recorded a right of use asset or lease liability on the balance sheet and will recognize the variable lease payments in the period when the obligation for those payments has occurred in accordance with ASC 842, Leases.
NOTE 10 - 2019 Hemp Crop
On September 5, 2019, the Company submitted its Harvest Report to the State of Nevada Department of Agriculture for approval to commence harvesting. On September 16, 2019, the State of Nevada Department of Agriculture inspected the 2019 hemp crop. On September 30, 2019, the State of Nevada Department of Agriculture issued a certificate of compliance for a portion of the 2019 hemp crop so that the Company could commence harvesting operations on this portion of the crop.
NOTE 11 – Subsequent Events
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2019 through the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described immediately below.
On October 18, 2019 the Company borrowed $4,000 from our current President and director, Vincent C. Lombardi, and entered into an unsecured promissory note which bears interest at nine percent (1.69%) per annum and is due November 18, 2019.
On November 1, 2019 the Company borrowed $25,000 from Michael Vardakis, and entered into an unsecured promissory note which bears interest at nine percent (9%) per annum and is due May 1, 2020.
During the first week of October 2019, the Company began harvesting a portion of the 2019 hemp crop. The harvesting is not yet completed and no plant mass has been processed or offered for sale as of the date hereof.
On October 22, 2019, the Company received a notice from the State of Nevada Department of Agriculture that a portion of its 2019 hemp crop did not meet the criteria for hemp promulgated by the State of Nevada and, thus, this portion of the 2019 hemp crop would have to be disposed of.
On October 30, 2019 the Company submitted its Disposal Plan to State of Nevada Department of Agriculture but it has not yet received a formal approval of the Disposal Plan.
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Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Plan of Operation
Our plan of operation for the next 12 months is to: (i) market the licensing of the Company’s technology in states in the U.S. where cannabis and/or hemp has been legalized for medicinal and/or recreational use, and in the Canadian provinces; and (ii) grow industrial hemp on a 200 acre parcel of undeveloped land located in McDermitt, Nevada which is leased to us, and to harvest, process and sell the industrial hemp; and (iii) seek to raise additional equity funding. During the next 12 months, our cash requirements include expenses to market our technology; payment of lease payments, and related farming expenses for planting, harvesting, processing and marketing industrial hemp; repayment of various loans that become due in the next 12 months; and the payment of our SEC reporting filing expenses, including associated legal and accounting fees; and costs incident to maintaining our good standing as a corporation in our state of organization. We anticipate that we will need to raise additional equity funds to successfully operate our industrial hemp farming operation. We have no commitments to raise any additional funds at the present time, and we can offer to assurances that we will be able to raise additional funds on terms acceptable to the Company.
On September 5, 2019, the Company submitted its Harvest Report to the State of Nevada Department of Agriculture for approval to commence harvesting. On September 16, 2019, the State of Nevada Department of Agriculture inspected the 2019 hemp crop. On September 30, 2019, the State of Nevada Department of Agriculture issued a certificate of compliance for approximately two-thirds (2/3) of the 2019 hemp crop so that the Company could commence harvesting operations on this portion of the crop.
During the first week of October 2019, the Company began harvesting a portion of the 2019 hemp crop. The harvesting is not yet completed and no plant mass has been processed or offered for sale as of the date hereof.
On October 22, 2019, the Company received a notice from the State of Nevada Department of Agriculture that approximately one-third (1/3) of its 2019 hemp crop did not meet the criteria for hemp promulgated by the State of Nevada and, thus, this portion of the 2019 hemp crop would have to be disposed of. On October 30, 2019 the Company submitted its Disposal Plan to State of Nevada Department of Agriculture but it has not yet received a formal approval of the Disposal Plan.
The Company is currently evaluating how soon it should be able to complete the harvesting and processing of the hemp crop and begin to make sales.
The Company entered into a Consulting Agreement effective as of August 1, 2019 with Richard Thompson and David Graves to provide services as independent contractors associated with the Company’s industrial hemp farming operations.
Results of Operations – Three Months Ended September 30, 2019 and Period from Inception through September 30, 2018
We have generated no revenues since inception.
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We had $4,750 in depreciation in the three months ended September 30, 2019, compared to $0 in the period from inception (August 6, 2018) through September 30, 2018. General and administrative expenses were $167,497 for the three months ended September 30, 2019, as compared to only $6,095 incurred in the period from inception (August 6, 2018) through September 30, 2018. We had no impairment loss in the three months ended September 30, 2019, compared to an impairment loss of $7,683 incurred in the period from inception (August 6, 2018) through September 30, 2018. We incurred interest expense of $4,888 in the three months ended September 30, 2019, compared to $0 in the period from inception (August 6, 2018) through September 30, 2018. This is due to the Company borrowing money in the second and third quarters of 2019. We incurred interest expense-related party of $88 in the three months ended September 30, 2019, compared to $0 in the period from inception (August 6, 2018) through September 30, 2018.
We incurred a net loss of $177,223 for the three months ended September 30, 2019, as compared to a net loss of $13,958 incurred in the period from inception (August 6, 2018) through September 30, 2018.
Results of Operations – Nine Months Ended September 30, 2019 and Period from Inception through September 30, 2018
We have generated no revenues since inception.
We had $6,250 in depreciation in the nine months ended September 30, 2019, compared to $0 in the period from inception (August 6, 2018) through September 30, 2018. General and administrative expenses were $499,325 for the nine months ended September 30, 2019, as compared to only $6,095 incurred in the period from inception (August 6, 2018) through September 30, 2018. We had no impairment loss in the nine months ended September 30, 2019, compared to an impairment loss of $7,683 incurred in the period from inception (August 6, 2018) through September 30, 2018. We incurred interest expense of $5,184 in the nine months ended September 30, 2019, compared to $0 in the period from inception (August 6, 2018) through September 30, 2018. This is due to the Company borrowing money in the second and third quarters of 2019. We incurred interest expense-related party of $88 in the nine months ended September 30, 2019, compared to $0 in the period from inception (August 6, 2018) through September 30, 2018.
We incurred a net loss of $510,847 for the nine months ended September 30, 2019, as compared to a net loss of $13,958 incurred in the period from inception (August 6, 2018) through September 30, 2018.
Liquidity and Capital Resources
We had total current assets of $248,796, consisting of $18,796 in cash and $230,000 investment in growing crops as of September 30, 2019, as compared to $220,253 in cash as our only asset at December 31, 2018. We had total current liabilities of $535,314, consisting of notes payable $325,000, notes payable-related party of $30,557, accounts payable and accrued expenses of $179,668 and accounts payable and accrued expenses-related party of $89 as of September 30, 2019. See our Plan of Operation above for information about our cash requirements for the next 12 months.
The cash flows from operating activities consisted of the following: During the nine months ended September 30, 2019, we had an increase in accounts payable and accrued expenses of $154,333, we invested $130,000 in growing crops and we issued common stock for services of $100,000. We also had depreciation of $6,250. When considered in light of our net loss of $510,847 for the nine months ended September 30, 2019, it results in net cash used in operating activities of $380,264.
We purchased $176,750 of property, plant and equipment in the nine months ended September 30, 2019 which resulted in net cash used in investing activities of $176,750.
In the nine months ended September 30, 2019, we had an increase of cash from financing activities of $325,000 from proceeds received from notes payable and $30,557 from notes payable - related party, which resulted in cash on hand of $18,796 as of September 30, 2019.
During the three months ended September 30, 2019, the Company borrowed funds from several lenders in order to cover expenses being incurred in connection with the Company’s commercial hemp farming operations. Information concerning these loans and other loans entered into since July 1, 2019 include the following: (a) On July 10, 2019, the Company borrowed $50,000 from Or Crown Auto and entered into an unsecured promissory note which bears interest at nine percent (9.0%) per annum and is due six (6) months later; (b) On July 17, 2019, the Company borrowed $2,500 from our current President and director, Vincent C. Lombardi, and entered into an unsecured promissory note which bears interest at nine percent (9.0%) per annum and is due six (6) months later; (c) On July 31, 2019, the Company borrowed $50,000 from Leland A. and Terri L. Martineau and entered into an unsecured promissory note which bears interest at nine percent (9.0%) per annum and is due six (6) months later. The promissory note to the Martineaus also contains an assignment of a 3.0% interest in the Gross Crop Yield from the Company’s 2019 hemp crop in McDermitt, Nevada; (d) On July 30, 2019, the Company
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borrowed $50,000 from Biored N.V., a Belgian corporation, and entered into an unsecured promissory note which bears interest at nine percent (9.0%) per annum and is due six (6) months later; (e) On August 8, 2019, the Company borrowed $50,000 from Michael Vardakis, and entered into an unsecured promissory note which bears interest at nine percent (9.0%) per annum and is due six (6) months later; (f) On August 24, 2019, the Company borrowed $50,000 from Michael Vardakis and entered into an unsecured promissory note which bears interest at nine percent (9.0%) per annum and is due six (6) months later; (g) On August 30, 2019, the Company borrowed $18,900 from our current President and director, Vincent C. Lombardi and entered into an unsecured promissory note which bears interest at one and 91/100 percent (1.91%) per annum and is due one (1) month later. This loan was extended for an additional two (2) months; (h) On September 5, 2019, the Company borrowed $9,156.83 from our current President and director, Vincent C. Lombardi and entered into an unsecured promissory note which bears interest at one and 85/100 percent (1.85%) per annum and is due one (1) month later. This loan was extended for an additional two (2) months; (i) On September 11, 2019, the Company borrowed $50,000 from Michael Vardakis and entered into an unsecured promissory note which bears interest at nine percent (9.0%) per annum and is due six (6) months later; (j) On October 18, 2019, the Company borrowed $4,000 from our current President and director, Vincent C. Lombardi and entered into an unsecured promissory note which bears interest at one and 69/100 percent (1.69%) per annum and is due one (1) month later; (k) On November 1, 2019, the Company borrowed $25,000 from Michael Vardakis and entered into an unsecured promissory note which bears interest at nine percent (9.0%) per annum and is due six (6) months later; Copies of these promissory notes have been attached as exhibits to this Quarterly Report or to other documents previously filed with the U.S. Securities and Exchange Commission. See the Exhibit Index below. The Company may seek additional loans from third parties on the same or similar terms in the near future on an as needed basis. But the Company can offer no assurance that additional funds will be available to the Company.
As reflected in the unaudited consolidated financial statements, the Company has incurred current period losses and has had negative cash flows from operating activities. The Company also incurred losses in prior periods. Our currently available cash resources as of September 30, 2019 are not sufficient to sustain operations for the next 90 days. As a result the Company’s footnotes to its financial statements contain a going concern note.
The Company has sustained operating losses during the current year-to-date and may not achieve the level of profitable operations to sustain its activities. These factors raise substantial doubt as to its ability to obtain debt and/or equity financing and achieve profitable operations.
Management intends to raise additional operating funds through equity and/or debt offerings, and through operations. However, there can be no assurance management will be successful in its endeavors. Ultimately, the Company will need to achieve profitable operations in order to continue as a going concern. . Currently, we cannot provide assurance that such financing will be available to us on favorable terms, or at all. If, after utilizing the existing sources of capital available to us, further capital needs are identified and if we are not successful in obtaining the required financing, we may be forced to curtail our existing or planned future operations. We believe our plans will enable us to continue our current operations for at least the next twelve months. However, those plans are dependent upon obtaining additional capital until cash flows from operations generated are sufficient to fund operations
There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available to the Company it may be required to curtail its operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
Our management, with the participation of our chief executive officer and acting chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment
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in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on that evaluation, our chief executive officer and acting chief financial officer concluded that, as of September 30, 2019, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and acting chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
Our management, with the participation of the chief executive officer and acting chief financial officer, has concluded there were no significant changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.