PART II AND III 2 mcoa_rega.htm PART II AND III

 

 

As filed with the Securities and Exchange Commission on September 30, 2021  

File No. 024-

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 1-A

 

REGULATION A OFFERING CIRCULAR

UNDER THE SECURITIES ACT OF 1933

 

Marijuana Company of America, Inc.

(Exact name of issuer as specified in its charter)

 

Utah

(State of other jurisdiction of incorporation or organization)

 

633 West Fifth Street, Suite 2826

Los Angeles, California 90071

Phone: (888) 777-4362

(Address, including zip code, and telephone number,

including area code of issuer’s principal executive office)

 


Jesus Quintero

Chief Executive Officer

Marijuana Company of America, Inc.

633 West Fifth Street, Suite 2826

Los Angeles, California 90071

Phone: (888) 777-4362

 

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

Copies to:

 

Richard A. Friedman, Esq.

Nazia J. Khan, Esq.

Sheppard, Mullin, Richter & Hampton LLP
30 Rockefeller Plaza
New York, NY 10112
Telephone: (212) 653-8700

 

Independent Law PLLC

Alan T. Hawkins, Esq.

2106 NW 4th Place

Gainesville, FL 32603

Telephone: (352) 353-4048

 

 

2833   98-1246221

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 
 
 

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Securities and Exchange Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Offering Circular was filed may be obtained.

 

Preliminary Offering Circular

September 30, 2021

Subject to Completion

 

MARIJUANA COMPANY OF AMERICA, INC.

633 West Fifth Street, Suite 2826

Los Angeles, California 90071

Phone: (888) 777-4362

 

$10,000,000 (5,000,000,000 Shares of Common Stock)

 

MARIJUANA COMPANY OF AMERICA, INC., a Utah corporation, is offering 5,000,000,000 shares (the “Shares”) of common stock, par value $0.001 per share, on a “best efforts” basis (the “Offering”). This means that, although we are offering Shares having an aggregate purchase price of up to $10,000,000 (the “Maximum Offering Amount”), we are not required to sell a specified number of Shares in the Offering prior to accepting any subscriptions, and no assurance can be given that all or any of the Shares will be sold. The public offering price per Share is $0.002. This Offering will terminate on the earlier of (i) the date which is 90 days immediately following the date of qualification by the Securities and Exchange Commission (“SEC” or “Commission”) of the Offering Statement of which this Offering Circular is a part, subject to 90 day extensions at our sole discretion, (ii) the date on which the Maximum Offering Amount is sold and (iii) the date upon which we elect to terminate the Offering (such earliest date, the “Termination Date”). The initial 90-day offering period and any additional 90 day-incremental offering periods will, in the aggregate, not exceed 24 months from the date of this Offering Circular, pursuant to Rule 251(d)(3) of Regulation A of the Securities Act of 1933, as amended (the “Securities Act”).

 

Our affiliates, including our officers and directors, may invest in the Offering. Upon our acceptance, after the date hereof of subscriptions for the Shares, we shall have the right at any time thereafter, prior to the Termination Date, to effect an initial closing with respect to this Offering (the “Initial Closing”). Thereafter, we shall continue to accept additional subscriptions for the Shares, and continue to have closings (each an “Additional Closing” and together with the Initial Closing, a “Closing”) from time to time until the Termination Date. We will consider various factors in determining the timing of any Additional Closings, including the amount of proceeds received at the Initial Closing, any Additional Closings that have already been held, the level of additional valid subscriptions received after the Initial Closing, and the eligibility of additional investors under applicable laws. We expect to have Additional Closings on a monthly basis and expect that we will accept all funds subscribed for each month subject to our working capital and other needs consistent with the use of proceeds described in this Offering Circular.  Investors should expect to wait approximately 15 days and no longer than one month before we accept their subscriptions and they receive the Shares subscribed for. An investor’s subscription is binding and irrevocable and investors will not have the right to withdraw their subscription or receive a return of funds prior to the next Closing unless we reject the investor’s subscription. An investor will receive a confirmation of the investor’s purchase promptly following the Closing in which the investor participates.

 

 

 
 
 

 

The proceeds of this Offering will be deposited directly into our operating account for immediate use, with no obligation to refund subscriptions; however, if the Offering does not close, the proceeds from the Offering will be promptly returned to investors, without deduction and without interest.

 

After the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, investors can make payment of the purchase price by wire transfer or check in accordance with the instructions set forth in the Subscription Agreement which is included as an exhibit hereto.  

 

The minimum purchase requirement per investor is $2,000; however, we can waive the minimum purchase requirement on a case-by-case basis in our sole discretion. We expect to commence the sale of the Shares as of the date on which the Offering Statement the of which this Offering Circular is a part, is qualified by the SEC.

 

Our Common Stock is currently quoted on the OTC Pink tier of the OTC Market Group, Inc. (“OTC Markets”) under the symbol “MCOA.” On September 30, 2021, the last reported sale price of our common stock was $0.003.

 

See “Plan of Distribution” and “Securities Being Offered” for a description of our capital stock.

 

    Number of Shares  

Price to

Public

   

Underwriting

Discount and

Commissions (1)

   

Proceeds to

Company, Before Expenses (2)

   
Per Share   1   $ 0.002       N/A     $ 0.002    
Maximum Offering Amount   5,000,000,000   $ 10,000,000       N/A     $ 10,000,000    

 

(1) The Shares will be offered on a best efforts basis by the Company’s officers and directors. Accordingly, there are no underwriting fees or commissions currently associated with this Offering; however, the Company may engage sales associates after this Offering commences.

 

(2) Does not include expenses relating to this Offering, including, without limitation, fees and expenses for administrative, accounting, audit and legal services, printing fees and other miscellaneous expenses, which we estimate will be approximately $52,200.

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

An investment in our common stock is subject to certain risks and should be made only by persons or entities able to bear the risk of and to withstand the total loss of their investment. Prospective investors should carefully consider and review the RISK FACTORS beginning on page 10.  

 

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

 

THE SECURITIES OFFERED HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY STATE REGULATORY AUTHORITY NOR HAS ANY STATE REGULATORY AUTHORITY PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR THE ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

This Offering Circular is following the offering circular format described in Part II of Form 1-A.

 

The date of this Offering Circular is September 30, 2021.

 

 
 
 

ITEM 2: TABLE OF CONTENTS

 

  Page 
MARKET AND INDUSTRY DATA AND FORECASTS 1
TRADEMARKS AND COPYRIGHTS 1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 1
SUMMARY AND RISK FACTORS 2
THE OFFERING 7
RISK FACTORS 10
DETERMINATION OF OFFERING PRICE 24
DIVIDEND POLICY 24
DILUTION 24
PLAN OF DISTRIBUTION 26
USE OF PROCEEDS TO ISSUER 27
DESCRIPTION OF BUSINESS 27
DESCRIPTION OF PROPERTY 43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 43
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES 63
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS 65
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS 67
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS 68
SECURITIES BEING OFFERED 69
SHARES ELIGIBLE FOR FUTURE SALE 70
LEGAL MATTERS 71
EXPERTS 71
WHERE YOU CAN FIND MORE INFORMATION 72
FINANCIAL STATEMENTS F-1
EXHIBITS 73

 

We have not authorized anyone to provide any information other than that contained or incorporated by reference in this Offering Circular prepared by us or to which we have referred you. We do not take responsibility for and can provide no assurance as to the reliability of, any other information that others may give you. This Offering Circular is an offer to sell only the Shares offered hereby but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Offering Circular is current only as of its date, regardless of the time of delivery of this Offering Circular or any sale of the Shares.

 

For investors outside the United States: We have not done anything that would permit this Offering or possession or distribution of this Offering Circular in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to this Offering and the distribution of this Offering Circular.

 

 

 

 
 
 

MARKET AND INDUSTRY DATA AND FORECASTS

 

Certain market and industry data included in this Offering Circular is derived from information provided by third-party market research firms or third-party financial or analytics firms that we believe to be reliable. Market estimates are calculated by using independent industry publications, government publications and third-party forecasts in conjunction with our assumptions about our markets. We have not independently verified such third-party information. The market data used in this Offering Circular involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in this Offering Circular. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

Certain data are also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on market data currently available to us. While we are not aware of any misstatements regarding the industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this Offering Circular. Similarly, we believe our internal research is reliable, even though such research has not been verified by any independent sources.

 

TRADEMARKS AND COPYRIGHTS

 

We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. This Offering Circular may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Offering Circular is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, copyrights, trade names and trademarks in this Offering Circular are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Offering Circular, including the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this Offering Circular include, but are not limited to, statements about:

 

·our business strategies;

 

·management’s expectation with respect to future acquisitions;

 

·risks related to market acceptance of our products and services;

 

·risks associated with our reliance on third parties;

 

 

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·our financial performance;

 

·developments relating to our competitors and our industry, including the impact of government regulations;

 

·estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

 

·statements regarding our goals, intentions, plans and expectations, including the introduction of new products, services and markets;  and

 

·other risks and uncertainties, including those listed under the captions “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

In some cases, forward-looking statements can be identified by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “could,” “project,” “will,” “will be,” “would,” or the negative of these terms or other comparable terminology and expressions. However, this is not an exclusive way of identifying such statements. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” and elsewhere in this Offering Circular. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Offering Circular and the documents that we reference in this Offering Circular and have filed with the SEC as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

 

The forward-looking statements in this Offering Circular represent our views as of the date of this Offering Circular. We anticipate that subsequent events and developments may cause our views to change. Except as expressly required under federal securities laws and the rules and regulations of the SEC, we do not undertake any obligation to update any forward-looking statements to reflect events or circumstances arising after the date of this Offering Circular, whether as a result of new information or future events or otherwise. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Offering Circular. You should not place undue reliance on the forward-looking statements included in this Offering Circular. All forward-looking statements attributable to use are expressly qualified by these cautionary statements.

 

ITEM 3: SUMMARY AND RISK FACTORS

 

This summary of the Offering Circular highlights material information concerning our business and this Offering. This summary does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire Offering Circular, including the information presented under the section entitled “Risk Factors” and the financial data and related notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of factors such as those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

 

In this Offering Circular, unless the context indicates otherwise, “Marijuana Company of America,” “MCOA,” the “Company,” “we,” “our,” “ours” or “us” refer to Marijuana Company of America, Inc., a Utah corporation, individually, or as the context requires, collectively with its subsidiaries.

 

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SUMMARY

Overview

 

We are focused on the research and development of (i) various species of hemp; (ii) beneficial uses of hemp and hemp derivatives; (iii) indoor and outdoor cultivation methods for hemp; (iv) technology used for cultivation and harvesting of different species of hemp, including, but not limited to, lighting, venting, irrigation, hydroponics, nutrients and soil; (v) different industrial hemp derived cannabinoids (“CBD”) and the possible health benefits thereof; and (vi) new and improved methods of hemp cannabinoid extraction omitting or eliminating the delta-9 tetrahydrocannabinol “THC” molecule.

  

Specifically, we develop and sell consumer products that include industrial hemp derived, non-psychoactive CBD as an ingredient, under the brand name “hempSMART™” through our wholly-owned subsidiary, H Smart, Inc., and we distribute hemp and CBD products through our wholly-owned subsidiary, cDistro, Inc. In addition, we provide consulting services to licensed cannabis and/or hemp operators with respect to financial accounting and bookkeeping and real property management. Our business also includes making selected investments and entering into joint ventures with start-up businesses in the legalized cannabis and hemp industries.

 

Our Products

 

 

hempSMART™

 

Our consumer products containing hemp and CBD are sold through our wholly-owned subsidiary H Smart, Inc. under the brand name hempSMART™. Our current hempSMART™ products offerings include the following:

 

  • hempSMART Brain™ a proprietary patented and formulated personal care consumer product encapsulated with enriched non-psychoactive industrial hemp derived CBD. This encapsulation is combined with other high quality, proprietary natural ingredients to compliment CBD to support the brain.

  • hempSMART Pain™ capsules formulated with 10mg of full spectrum, non-psychoactive CBD per serving, derived from industrial hemp, which along with a proprietary blend of other natural ingredients, are intended to deliver an all-natural formulation for the temporary relief of minor discomfort associated with physical activity.

  • hempSMART Pain Cream™ each container is formulated with 300mg of full spectrum non-psychoactive CBD derived from industrial hemp. This product contains a synergistic combination of natural botanicals and full spectrum hemp extract featuring CBD, cannabigerol, also known as CBG, and a broad range of terpenes. Our proprietary blend of Ayurvedic herbs along with menthol, cayenne pepper extract, rosemary oil, aloe gel, white willow bark, arnica, wintergreen extract and tea tree oil, is intended to provide an immediate cooling and soothing sensation. This topical product is formulated to help reduce minor discomfort and promote muscle relaxation on the areas to which it is applied.

  • hempSMART Drops™ full spectrum hemp CBD oil tincture drops available in 250mg and 500mg bottles, enriched with non-psychoactive industrial hemp derived CBD, and available in four different flavors (lemon, mint, orange and strawberry). These drops are free of the THC isolate.

  • hempSMART Pet Drops™ for cats and dogs, formulated with 250mg of full spectrum non-psychoactive CBD derived from industrial hemp. This product contains naturally occurring CBD derived from hemp seed oil, full spectrum hemp extract, fractionated coconut oil, and a rich bacon flavor.

  • hempSMART Face™ a nourishing facial moisturizer combines full spectrum CBD from hemp with a unique blend of Ayurvedic herbs and botanicals. This facial moisturizer is designed to refresh, replenish and restore skin, providing long lasting hydration and balance.

  • hempSMART Drink Mix, an industrial hemp based powderized premium CBD drink made with organic CBD infused with honey to be mixed with any beverage of preference.

 

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cDistro, Inc. Acquisition

 

On June 30, 2021, we acquired cDistro, Inc. (“cDistro”) which is engaged in the hemp and CBD product distribution business. Specifically, through its website located at www.cdistro.com, cDistro distributes a select list of quality CBD brands along with smoke and vape shop related products to wholesalers, c-stores, specialty retailers, and dispensaries in North America. cDistro distributes a catalog of eight unique product lines that are currently being sold to over 250 customers. Through our acquisition of cDistro, we believe that we are positioned to take advantage of the developing market opportunity generated by consumers' growing demand for quality hemp products.

 

Our Consulting Services

 

In addition to selling our hempSMART™ and cDistro products, we also provide certain services to licensed cannabis and/or hemp operators. Our services include the following:

 

Financial Accounting and Bookkeeping

 

We provide financial accounting, bookkeeping and reporting protocols in order to allow licensed cannabis and/or hemp operators in those states where cannabis has been legalized for medicinal and/or recreational use, to report, collect, verify and state effective financial records and disclosure. We provide a comprehensive accounting strategy based on best accounting practices.

 

Real Property Management Consulting

 

Our property management consulting services consist of providing planning, budgeting, acquisition, accounting and management services to licensed cannabis and/or hemp operators in those states where cannabis and/or hemp has been legalized for medicinal and/or recreational use and who are searching for real property to conduct operations.

 

As of the date of this Offering Circular, we have not generated any revenue related to such services.

 

 

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Current Joint Ventures and Investments

 

Joint Ventures in Brazil and Uruguay

 

On September 30, 2020, we entered into two joint venture agreements with Marco Guerrero, our director, to form joint venture operations in Brazil and Uruguay to produce, manufacture, market and sell our hempSMART™ products in Latin America and to develop and sell hempSMART™ products globally.

 

Cannabis Global, Inc. 

 

Joint Venture

 

On May 12, 2021, we entered into a joint venture agreement with Cannabis Global, Inc. (“Cannabis Global”) pursuant to which we will invest in the joint venture (“MCOA Lynwood”) and Cannabis Global, through Natural Plant Extracts of California, Inc. (“Natural Plant”), will operate a regulated and licensed laboratory to manufacture various cannabis products in the State of California. Cannabis Global owns a controlling interest in Natural Plant which operates a licensed cannabis manufacturing operation. As of the date hereof, we have invested $158,000 in the joint venture.

 

Share Exchange

 

On September 30, 2020, we entered into a securities exchange agreement with Cannabis Global pursuant to which we issued 650,000,000 shares of our common stock to Cannabis Global in exchange for 7,222,222 shares of Cannabis Global common stock. In addition, we and Cannabis Global entered into a lock-up leak-out agreement which contains certain restrictions with respect to the sales of such securities.

 

Joint Venture Subject to Ongoing Dispute

 

Bougainville Ventures, Inc.  

 

On March 16, 2017, we entered into a joint venture agreement with Bougainville Ventures, Inc. (“Bougainville”) to, among other things, engage in the development and promotion of products in the legalized cannabis industry in Washington State. We believe that some of the funds we paid to Bougainville were misappropriated and that there was self-dealing with respect to those funds and that Bougainville misrepresented certain material facts in the joint venture agreement. As a result of the foregoing, on September 20, 2018, we filed a lawsuit against Bougainville and certain other defendants in Okanogan County Washington Superior Court. See Business – Legal Proceedings. 

 

Risk Factors

 

Our ability to execute on our business strategy is subject to a number of risks, which are discussed more fully in the section titled “Risk Factors.” Investors should carefully consider these risks before making an investment in the Shares. These risks include, among others, the following:

 

·If we fail to obtain the capital necessary to fund our operations, we may be required to cease or curtail our operations.

 

·Even if we can raise additional funding, we may be required to do so on terms that are dilutive to you.

 

·Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

 

·We are dependent on consumer acceptance of hemp products.

 

·Due to our involvement in the hemp industry, we may have a difficult time obtaining and/or maintaining insurance that is desired to operate our business, which may expose us to significant risk and financial liability.

 

·We compete for market share with other companies, which may have longer operating histories, more financial resources and more research and development, manufacturing and marketing experience than we do.

 

·The hemp industry is subject to the risks inherent in an agricultural business, including the risk of crop failure.

 

·Our products are not approved by the U.S. Food and Drug Administration or any other federal governmental authority.

 

·The presence of trace amounts of THC in our hemp products may cause adverse consequences to users of such products that will expose us to the risk of liability and other consequences.

 

·Litigation, complaints, enforcement actions and governmental inquiries could have a material adverse effect on our business, financial condition and results of operations.

 

·We may be subject to product liability claims and product recalls.

 

·Third parties with whom we do business may perceive themselves as being exposed to reputational risk because of their relationship with us due to our hemp-related business activities and may as a result, refuse to do business with us.

 

·We may become subject to liability arising from fraudulent or illegal activity by our employees, independent contractors and consultants.

 

·We are dependent on third parties for manufacturing our products. If we are not able to secure favorable arrangements with such third parties, our business and financial condition could be harmed.

 

 

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·If our joint ventures in Brazil and/or Uruguay are not successful or if we fail to realize the benefits we anticipate from such joint ventures, we may not be able to capitalize on the full market potential of our hempSMART™ products.

 

·Our current and future joint ventures may be adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and liquidity and disputes between us and our co-venturers.

 

·We have invested and may continue to invest in securities of private companies and may hold a minority interest in such companies, which may limit our ability to sell or otherwise transfer those securities and direct management decisions of such companies.

 

·Our business may be adversely affected by the ongoing Coronavirus pandemic.

 

·We may be subject to risks related to the protection and enforcement of our intellectual property rights, and third parties may enforce their intellectual property rights against us.

 

·Legislation or regulations which impose substantial new regulatory requirements on the manufacture, packaging, labeling, advertising and distribution and sale of hemp-derived products could harm our business, results of operations, financial condition and prospects.

 

·The market price of our common stock may be volatile and may not accurately reflect the long term value of our Company.

 

·We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.

 

·If investors successfully seek rescission, we would face severe financial demands that we may not be able to meet.

 

·This is a fixed price offering and the fixed offering price may not accurately represent the current value of our business or our assets at any particular time. Therefore, the purchase price you pay for the Shares may not be supported by the value of our business and assets at the time of your purchase.

 

·We may invest or spend the proceeds of this Offering in ways with which you may not agree or in ways which may not yield a return.

 

·This Offering is being conducted on a “best efforts” basis and we may not be able to execute our growth strategy if the Maximum Offering Amount is not sold.

 

Company Information

 

We were incorporated in the State of Utah on October 4, 1985, under the name of Mormon Mint, Inc. In 1999, Bekam Investments, Ltd. acquired 100% of our common stock and spun us off, changing our name to Converge Global, Inc.   On October 31, 2009, we filed Articles of Merger with the State of Utah pursuant to which Sparrowtech Resources, Inc., a Nevada corporation, was merged with and into us. On September 4, 2015, Donald Steinberg and Charles Larsen purchased 400,000,000 shares of common stock and 10,000,000 shares of Class A Preferred Stock from our then President, resulting in a change of control of our Company. In connection with our change of control, we changed our business to focus on cannabis and legalized hemp and changed our name to Marijuana Company of America, Inc. with the State of Utah on November 9, 2015, which name change became effective on the OTC Markets on December 1, 2015.

 

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THE OFFERING

 

Issuer:   Marijuana Company of America, Inc.
     
Securities Offered:   A maximum of 5,000,000,000 shares (the “Shares”) of our common stock, par value $0.001 per share  (“Offering”).
     
Offering Price:   $0.002 per Share.
     
Number of Shares Outstanding After the Offering:   11,318,157,821 shares common stock if the maximum number of Shares are sold.
     
Minimum Investment Amount:   The minimum investment amount per investor is $2,000; however, we may waive the minimum purchase requirement on a case-by-case basis in our sole discretion. The subscriptions, once received, are irrevocable.
     
Investment Amount Restrictions:   Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(c) of Regulation A of the Securities Act of 1933, as amended. For general information on investing, we encourage you to refer to www.investor.gov.

 

Payment for Offered Shares:  

After the qualification by the Securities and Exchange Commission (“SEC”) of the Offering Statement of which this Offering Circular is a part, investors can make payment of the purchase price directly into our operating account by wire transfer or check in accordance with the instructions set forth in the Subscription Agreement which is included as an exhibit hereto.

 

Upon our acceptance, after the date hereof of subscriptions for the Shares, we shall have the right at any time thereafter, prior to the Termination Date (as defined herein), to effect an initial closing with respect to this Offering (the “Initial Closing”). Thereafter, we shall continue to accept additional subscriptions for the Shares, and continue to have closings (each an “Additional Closing” and together with the Initial Closing, a “Closing”) from time to time until the Termination Date. We will consider various factors in determining the timing of any Additional Closings, including the amount of proceeds received at the Initial Closing, any Additional Closings that have already been held, the level of additional valid subscriptions received after the Initial Closing, and the eligibility of additional investors under applicable laws. We expect to have Additional Closings on a monthly basis and expect that we will accept all funds subscribed for each month subject to our working capital and other needs consistent with the use of proceeds described in this Offering Circular.  Investors should expect to wait approximately 15 days and no longer than one month before we accept their subscriptions and they receive the Shares subscribed for. An investor’s subscription is binding and irrevocable and investors will not have the right to withdraw their subscription or receive a return of funds prior to the next Closing unless we reject the investor’s subscription. An investor will receive a confirmation of the investor’s purchase promptly following the Closing in which the investor participates.

 

If the Offering does not close, the proceeds for the Offering will be promptly returned to investors, without deduction and without interest.

 

 

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Use of Proceeds:

 

 

  We expect to receive net proceeds from this Offering of approximately $9,947,800 after deducting our offering expenses, estimated to be $52,200. We intend to use the net proceeds from this Offering for the expansion of hempSMART in South America; hempSMART™ product development and marketing;  repayment of certain notes payable; and working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products or other properties; however, we have no current commitments or obligations to do so. See “Use of Proceeds.”
     
Offering:   We are offering the Shares on a “best efforts” basis. This means that, although we are offering the Shares having an aggregate purchase price of up to $10,000,000 (the “Maximum Offering Amount”), we are not required to sell a specified number of Shares in the Offering prior to accepting any subscriptions, and no assurance can be given that all or any of the Shares will be sold.   

 

Risk Factors:   See “Risk Factors” beginning on page 10 of this Offering Circular for a discussion of some of the factors you should carefully consider before deciding to invest in our common stock.
     
Trading Symbol:   Our common stock is currently quoted on the OTC Pink tier of the OTC Market Group, Inc. under the symbol “MCOA.”
     
Termination of Offering:   This offering will terminate on the earlier of (i) the date which is 90 days immediately following the date of qualification by the SEC of the Offering Statement of which this Offering Circular is a part, subject to extension for up to 90 days at our sole discretion, (ii) the date on which the Maximum Offering Amount is sold and (iii) the date upon which we elect to terminate the Offering (such earliest date, the “Termination Date”). The initial 90-day offering period and any additional 90 day-incremental offering periods will, in the aggregate, not exceed 24 months from the date of this Offering Circular, pursuant to Rule 251(d)(3) of Regulation A.
     
Transfer Agent and Registrar:   Pacific Stock Transfer Company is our transfer agent and registrar in connection with the Offering.
     

 

The number of shares of our common stock to be outstanding after this offering is based on 6,318,157,821 shares of our common stock outstanding as of September 22, 2021, and excludes as of that date:

 

·145,302,385 shares of common stock issuable upon exercise of warrants at a weighted average exercise price of $0.0033; and

 

·431,026,622 shares of common stock issuable upon conversion of outstanding convertible notes in the aggregate amount of $2,041,518 which includes principal together with interest accrued thereon;

 

·0 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan.  

 

 

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Summary Financial Data

 

The following tables set forth our summary financial data as of the dates and for the periods indicated. We have derived the summary statement of operations data for the years ended December 31, 2020 and 2019 from our audited financial statements included elsewhere in this Offering Circular. The summary statement of operations data for the six months ended June 30, 2021 and 2020 and the summary balance sheet data as of June 30, 2021 have been derived from our unaudited financial statements included elsewhere in this Offering Circular. The following summary financial data should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes and other information included elsewhere in this Offering Circular. Our historical results are not necessarily indicative of the results to be expected in the future and the results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year.

 

Statement of Operations Data:

 

(in thousands, except share and per share data)

 

   Years Ended
December 31,
  Six Months Ended
June 30,
(unaudited)
   2020  2019  2021  2020
Sales   267,584    673,919    51,810    156,474 
Related Party Sales   13,069    21,157    —      8,303 
Gross Profit   121,349    446,520    23,329    73,392 
    Operating expenses   4,976,240    6,917,338    1,832,368    1,358,777 
Net loss from operations   (4,854,891)   (6,470,818)   (1,809,039)   (1,267,392)
Interest expense, net   (2,999,291)   (4,682,247)   (1,922,745)   (1,772,096)
Legal Contingency expense   —      (1,497,674)   —      —   
Impairment Loss on Joint Ventures   (22,658)   (478,400)   —      (260,924)
Income (loss) on equity investment   106,305    (13,842)   (394,194)   (133,893)
(Loss) gain on change in fair value of derivative liabilities   (4,698,072)   (2,123,570)   (1,629,289)   1,142,272 
Unrealized Gain (loss) on trading securities   248,204    (677,584)   504,137    (13,945)
Realized loss on sale of trading securities   (2,603)   (75,545)   —      (2,603)
Loss on disposition of investment   —      (389,664)   —      —   
(Loss) Gain on settlement of debt   77,624    (3,770,974)   (164,977)   3,490 
Net loss  $(12,145,382)  $(20,180,318)  $(5,486,107)  $(2,305,121)

  

Balance Sheet Data:

 

(in thousands)

 

As of June 30, 2021  Actual 
As Adjusted(1)
Cash and cash equivalents  $179,811   $10,127,611 
Total assets   6,605,409    16,553,209 
Working capital (deficit)   (4,204,463)   5,743,337 
Accumulated deficit   (91,795,702)   (91,847,902)
Total stockholders’ equity (deficit)  $1,132,637   $11,132,637 

 

 

(1) On an as adjusted basis to give further effect to our issuance and sale of 5,000,000,000 Shares in this Offering at an offering price of $0.002 per Share, after deducting the estimated offering expenses payable by us.

 

 

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RISK FACTORS

 

The purchase of the securities offered hereby involves a high degree of risk. Each prospective investor should consult his, her or its own counsel, accountant and other advisors as to legal, tax, business, financial, and related aspects of an investment in the securities offered hereby. Prospective investors should carefully consider the following specific risk factors, in addition to the other information set forth in this Offering Circular, before purchasing the securities offered hereby.

 

RISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR CAPITAL

 

If we fail to obtain the capital necessary to fund our operations, we may be required to cease or curtail our operations.

 

Although we expect the net proceeds of this offering to be sufficient to satisfy our capital requirements for a period of 12 months from the date of this Offering Circular, we believe that we will need to raise substantial additional capital to fund our continuing operations. Our business or operations may change in a manner that may consume available funds more rapidly than anticipated and substantial additional funding may be required to maintain operations, fund expansion, develop new or enhanced products and services, acquire complementary products or businesses or otherwise respond to competitive pressures and opportunities, such as a change in the regulatory environment. In addition, we may need to accelerate the growth of our sales capabilities and distribution beyond what is currently envisioned, and this would require additional capital. However, we may not be able to secure funding when we need it or on favorable terms. If we cannot raise adequate funds to satisfy our capital requirements, we may have to cease or curtail our operations.

 

Even if we can raise additional funding, we may be required to do so on terms that are dilutive to you.

 

The capital markets have been unpredictable in the past. In addition, it is generally difficult for early stage companies to raise capital under current market conditions. The amount of capital that a company such as ours is able to raise often depends on variables that are beyond our control. As a result, we may not be able to secure financing on terms attractive to us, or at all. If adequate funds are not available on acceptable terms, or at all, our business, including our results of operations, financial condition and our continued viability will be materially adversely affected.

 

We anticipate our operating expenses will increase, and we may never achieve profitability.

 

We launched our first hempSMART™ product, hempSMART Brain™, in November 2016. Since then, we have introduced a number of other consumer products, including, but not limited to, hempSMART Pain™, hempSMART™ Pet Drops™, and hempSMART™ Drops™. As we continue to produce other hempSMART™ products, we anticipate increases in our operating expenses, without realizing significant revenues from operations. Within the next 12 months, we anticipate that these increases in expenses will be attributed to (i) general and administrative costs; (ii) new research and development costs; (iii) advertising and website development; (iv) legal and accounting fees; (v) joint venture activities; and (vi) creating and maintaining distribution and supply chain channels.

 

As a result of some or all of these factors in combination, we anticipate that we will incur significant financial losses in the foreseeable future. There is a limited history upon which to base any assumption as to the likelihood that our business will prove successful. We cannot provide investors with any assurance that our business will attract customers or investors. If we are unable to address these risks, there is a high probability that our business will fail.

 

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

 

Our financial statements as of December 31, 2020 have been prepared under the assumption that we will continue as a going concern for the next 12 months. Our independent registered public accounting firm included in its opinion for the year ended December 31, 2020 an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to develop and maintain profitable operations and to obtain additional funding sources. Our financial statements as of December 31, 2020 did not include any adjustments that might result from the outcome of this uncertainty. The reaction of investors to the inclusion of a going concern statement by our auditors and our potential inability to continue as a going concern in future years could materially adversely affect our share price and our ability to raise new capital or enter into strategic alliances.

 

 

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RISKS RELATED TO OUR BUSINESS

 

We are dependent on consumer acceptance of hemp products.

 

We believe the hemp industry is highly dependent upon consumer perception regarding the safety and quality of hemp products distributed to such consumers. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of hemp-based products. There has been limited scientific research on hemp and there can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention, or other research findings or publicity will be favorable to the hemp market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention, or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings, or publicity could have a material adverse effect on the demand for our products and services and on our business, financial condition and results of operations. Further, adverse publicity reports or other media attention regarding the safety and quality of hemp and related products in general, or our products specifically, or associating the consumption hemp or related products with illness or other negative effects or events, could also have such a material adverse effect. Such adverse publicity reports or other media attention could have a material adverse effect even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views in regard to our business and activities, whether true or not. Although we take care in protecting our image and reputation, we do not ultimately have direct control over how it is perceived by others. Reputational loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to our overall ability to advance our business, thereby having a material adverse impact on our financial performance, financial condition, cash flows and growth prospects.

 

Due to our involvement in the hemp industry, we may have a difficult time obtaining and/or maintaining insurance that is desired to operate our business, which may expose us to significant risk and financial liability.

 

Insurance that is otherwise readily available, such as general liability and officers’ and directors’ insurance, is more difficult for us to find, and more expensive for us to obtain, because we service companies in the hemp and cannabis industry. There are no guarantees that we will be able to obtain or maintain insurance desired to operate our business in the future, or that the cost will be affordable to us. If we are forced to conduct our business without having obtained insurance that we deem is essential to our business, our growth may be inhibited and we may be exposed to significant risk and financial liabilities.

 

Our products are relatively new and our industry is rapidly evolving.

 

Consideration must be given to our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies in their early stage of development, particularly companies in the rapidly evolving legal cannabis and hemp industries. To be successful we must, among other things:

 

    Develop, manufacture and introduce new attractive and successful consumer products ;

 

    Attract and maintain a large customer base and develop and grow that customer base;

 

    Increase awareness of our products and services and develop effective marketing strategies to insure consumer loyalty;

 

    Establish and maintain strategic relationships with key sales, marketing, manufacturing and distribution providers;

 

 

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    Respond to competitive developments; and

 

    Attract, retain and motivate qualified personnel.

 

There can be no assurance that our efforts will be successful or that we will ultimately be able to attain or maintain profitability.

 

We cannot guarantee that we will succeed in achieving our goals, and our failure to do so would have a material adverse effect on our business, prospects, financial condition and operating results.

 

Some of our hempSMART™ products such as hempSMART Brain and hempSMART Pain are new and are only in the developmental stages of commercialization. We are not certain that these products will generate sales as anticipated or be desirable for their intended uses in their intended markets. Failure of our current or future hempSMART™ products to achieve and sustain market acceptance could have a material adverse effect on our business, financial condition and operating results.  

 

As is typical in a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty and risk. Because the market for our products and services is evolving, it is difficult to predict with any certainty the ultimate size of the market for our services and products. We cannot guarantee that a market for our products or services will develop or that demand for our products or services will be sustainable. If the market for our products or services fails to develop, develops more slowly than expected or becomes saturated with competitors, our business, financial condition and operating results may be adversely affected.

 

We compete for market share with other companies, which may have longer operating histories, more financial resources and more research and development, manufacturing and marketing experience than we do.

 

We face and expect to continue to face competition from other companies some of which may have longer operating histories, more financial resources, more experience and greater brand recognition than us. Increased competition by larger and well-financed competitors and/or competitors that have longer operating histories, greater brand recognition and more research and development, manufacturing and marketing experience than us could have a material adverse effect on our business, financial condition and results of operations. As we operate in an early stage industry, we expect to face additional competition from new entrants which may result in downward price pressure on our products as new entrants increase production, which could have a material adverse effect on our business.

 

In addition, if the number of users of hemp derived products increases, the demand for products will increase and we expect that competition will become more intense, as current and future competitors begin to offer an increasing number of diversified products. To remain competitive, we will require a continued high level of investment in research and development together with marketing, sales and other support. We may not have sufficient resources to maintain research and development and sales efforts on a competitive basis, which could have a material adverse effect on our business, financial condition and results of operations.

 

The hemp industry is subject to the risks inherent in an agricultural business, including the risk of crop failure.

 

The growing of hemp is an agricultural process. As such, a business with operations in the hemp industry is subject to the risks inherent in the agricultural business, including risks of crop failure presented by weather, insects, plant diseases and similar agricultural risks. Accordingly, there can be no assurance that artificial or natural elements, such as insects and plant diseases, will not interrupt production activities or have an adverse effect on the production of hemp which could have a material adverse effect on our products and accordingly our operations. If our suppliers are unable to obtain sufficient hemp from which to process CBD, our ability to meet customer demand, generate sales, and maintain operations may be adversely effected.

 

Our products are not approved by the U.S. Food and Drug Administration (“FDA”) or any other federal governmental authority.

 

The FDA has not approved our products for sale. The FDA also has not permitted the marketing of certain CBD-containing products, such as foods, tinctures, gummies, and other ingestible products. Our CBD-containing products are not intended for use in the diagnosis, cure, mitigation, treatment, or prevention of a disease or condition. We can provide no assurance that our products or operations are in compliance with federal regulations, including those enforced by the FDA. Failure to comply with FDA regulations or foreign regulations may result in among other things, warning letters, injunctions, product recalls, product seizures, fines and/or criminal prosecutions.

 

 

12 
 
 

 

The presence of trace amounts of THC in our hemp products may cause adverse consequences to users of such products that will expose us to the risk of liability and other consequences.

 

Some of our products that are intended to primarily contain hemp-derived CBD may contain trace amounts of THC. THC is an illegal or controlled substance in many jurisdictions, including under the federal laws of the U.S. Whether or not ingestion of THC (at low levels or otherwise) is permitted in a particular jurisdiction, there may be adverse consequences to consumers of our hemp products who test positive for any amounts of THC, even trace amounts, because of the presence of unintentional amounts of THC in our hemp products. In addition, certain metabolic processes in the body may negatively affect the results of drug tests. As a result, we may have to recall our products from the market. Positive tests for THC may adversely affect our reputation and our ability to obtain or retain customers. A claim or regulatory action against us based on such positive test results could materially and adversely affect our business, financial condition, operating results, liquidity, cash flow and operational performance.

 

We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

 

We believe our success has depended and will continue to depend on the efforts and talents of our management team and employees. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees, including employees with sufficient experience in the hemp industry. Qualified individuals, including individuals with sufficient experience in the hemp industry, are in high demand, and we may incur significant costs to attract and retain such individuals. In addition, the loss of any of our key employees or senior management could have a material adverse effect on our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, it could have a material adverse effect on our business, financial condition and results of operations.

 

We may be subject to constraints on marketing our products.

 

There may be restrictions on sales and marketing activities imposed by government regulatory bodies that can hinder the development of our business and operating results. Restrictions may include regulations that specify what, where and to whom product information and descriptions may appear and/or be advertised. Marketing, advertising, packaging and labeling regulations also vary from state to state, potentially limiting the consistency and scale of consumer branding communication and product education efforts. The regulatory environment in the U.S. limits our ability to compete for market share in a manner similar to other industries. If we are unable to effectively market our products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be absorbed through increased selling prices for our products, our sales and operating results could be adversely affected.

 

Litigation, complaints, enforcement actions and governmental inquiries could have a material adverse effect on our business, financial condition and results of operations.

 

Our participation in the hemp industry may lead to litigation, formal or informal complaints, enforcement actions and governmental inquiries. Such litigation, complaints, enforcement actions and governmental inquiries may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation, complaints, actions, or inquiries may be significant and may require a diversion of our resources, including the attention of our management. There also may be adverse publicity associated with such litigation, complaints, actions, or inquiries that could negatively affect customer perception our business, regardless of whether the allegations are valid or whether we are ultimately found liable.

 

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We may be subject to product liability claims and product recalls.

 

As a distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused significant loss or injury. In addition, the sale of CBD products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination, which may affect consumer confidence in our CBD products. Previously unknown adverse reactions resulting from human consumption of CBD products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against us could result in increased costs, adversely affect our reputation with our clients and consumers generally and have a material adverse effect on our business, financial condition and results of operations.

 

In addition, distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If one or more of our products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. We may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin, or at all. In addition, a product recall may require significant attention from our management.

 

Additionally, if one or more of our products are subject to recall, the reputation of that product and our reputation could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for our products and could have a material adverse effect on our business, financial condition and results of operations. Additionally, product recalls may lead to increased scrutiny of our operations by regulatory agencies in the jurisdictions in which we operate, requiring further attention from our management and potential legal fees and other expenses. Furthermore, any product recall affecting the CBD industry more broadly could lead consumers to lose confidence in the safety of the products, which could have a material adverse effect on our business, financial condition and results of operations.

 

Third parties with whom we do business may perceive themselves as being exposed to reputational risk because of their relationship with us due to our hemp-related business activities and may as a result, refuse to do business with us.

 

The third parties with whom we do business may perceive that they are exposed to reputational risk because of our hemp-related business activities. Any third-party service provider could suspend or withdraw its services if it perceives that the potential risks exceed the potential benefits of providing such services to us. Our failure to establish or maintain business relationships could have a material adverse effect on our business, financial condition and results of operations.

 

We may become subject to liability arising from fraudulent or illegal activity by our employees, independent contractors and consultants.

 

We are exposed to the risk that our employees, independent contractors and consultants may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or that violates government regulations and laws. It is not always possible for us to identify and deter misconduct by our employees and other third parties. The precautions we take to detect and prevent such misconduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending such actions, such actions could have a significant impact on our business, including, but not limited to, the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, any of which could have a material adverse effect on our business, financial condition and results of operations.

 

14 
 
 

 

Conflicts of interest may arise between us and our directors and officers which may have a material adverse effect on our operations.

 

We may be subject to various potential conflicts of interest because of the fact that some of our directors and officers may be engaged in a range of business activities. In addition, our executive officers and directors may devote time to their outside business interests so long as such activities do not materially or adversely conflict with our business or interfere with their duties to us. In some cases, our directors and executive officers may have fiduciary obligations associated with those business interests that interfere with their ability to devote time to our business and affairs and that could have a material adverse effect on our business, financial condition and results of operations.

 

Security threats to our information technology infrastructure and/or our physical buildings could expose us to liability and damage our reputation and business.

 

It is essential to our business strategy that our technology and network infrastructure and our physical buildings remain secure and are perceived by our customers and corporate partners to be secure. Despite security measures, however, any network infrastructure may be vulnerable to cyber-attacks by hackers and other security threats. We may face cyber-attacks that attempt to penetrate our network security, sabotage or otherwise disable our research, products and services, misappropriate our or our customers’ and partners’ proprietary information, which may include personally identifiable information, or cause interruptions of our internal systems and services. Despite security measures, we also cannot guarantee security of our physical buildings. Physical building penetration or any cyber-attacks could negatively affect our reputation, damage our network infrastructure and our ability to deploy our products and services, harm our relationship with customers and partners that are affected, and expose us to financial liability.


Confusion between legal hemp and illegal cannabis.

 

There is risk that confusion or uncertainty surrounding our products with regulated cannabis could occur on the state or federal level and impact us. We may, among other impacts, have difficulty with establishing banking relationships which may affect our business, prospects, assets or results of operation.

 

We are dependent on third parties for manufacturing our products. If we are not able to secure favorable arrangements with such third parties, our business and financial condition could be harmed.

 

We do not manufacture any of our products for commercial sale nor do we have the resources necessary to do so. We have contracted with and intend to continue to contract with third parties to manufacture our products. If we are unable to successfully enter into agreements for the manufacturing of our products or if we are not able to secure favorable commercial terms or arrangements with third parties for the manufacturing of our products, our business and financial condition could be harmed.

 

 

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RISKS RELATED TO OUR JOINT VENTURES AND INVESTMENTS

 

If our joint ventures in Brazil and/or Uruguay are not successful or if we fail to realize the benefits we anticipate from such joint ventures, we may not be able to capitalize on the full market potential of our hempSMART™ products.

 

On September 30, 2020, we entered into two joint venture agreements with Marco Guerrero, our director, to form joint venture operations in Brazil and Uruguay to produce, manufacture, market and sell our hempSMART™ products in Latin America and to develop and sell hempSMART™ products globally. In connection with such joint ventures, we face numerous risks and uncertainties, including, but not limited to, effectively integrating our respective personnel, management controls and business relationships into an effective and cohesive operation. Further, we are subject to additional risks and uncertainties because we may be dependent upon, and subject to, liability, losses or damages relating to system controls and personnel that are not under our control. Moreover, the joint ventures may be subject to negative market conditions, economic downturns, and legal and political considerations in Brazil and Uruguay. While cannabis and hemp are legalized in Uruguay, Brazil is only considering legalization, and legalization there is not guaranteed. 

 

We will be dependent upon our strategic partners with respect to our current and future joint venture operations.

 

We will be dependent upon our strategic partners with respect to our current and future joint venture operations. Specifically, we will be dependent upon our strategic partners’ personnel, including their experience with respect to, among other things, compliance with applicable laws and regulations. If our strategic partners do not commit sufficient resources to the joint ventures’ operations or if we are unable to integrate such operations successfully and efficiently, our results of operations, financial condition and cash flows may be materially and adversely affected. In addition, conflicts or disagreements between us and our strategic partners may, among other things, delay or prevent the production, manufacturing, marketing and sales of our products, which may have a material adverse effect on our business and results of operations.

 

Our current and future joint ventures may be adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and liquidity and disputes between us and our co-venturers.

 

We have and may in the future form joint ventures with third parties in which we may not exercise sole decision-making authority regarding the operations of the joint venture. In certain cases, we may have little or no decision-making authority. Joint ventures are subject to various risks including, but not limited to, bankruptcy of the joint venture or failure of a third party to fund required capital contributions. In addition, our partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our objectives. Furthermore, disputes between us and our partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our management from focusing their time and effort on our business. The occurrence of any of the foregoing may have a material adverse effect on our business and results of operations.

 

We have invested and may continue to invest in securities of private companies and may hold a minority interest in such companies, which may limit our ability to sell or otherwise transfer those securities and direct management decisions of such companies.

 

We have invested and may continue to invest in securities of private companies and may hold a minority interest in such companies. In some cases, we may be restricted for a period by contract or applicable securities laws from selling or otherwise transferring those securities. In addition, any securities of private companies in which we invest may not have a liquid market and the inability to sell those securities on a timely basis or at acceptable prices may impair our ability to exit the investments when we consider appropriate. Further, to the extent we hold a minority interest in certain companies, we may be limited in our ability to direct management decisions of such companies.

 

Our business may be adversely affected by the Coronavirus (“COVID-19”) pandemic.

 

The outbreak of COVID-19 evolved into a global pandemic as COVID-19 spread to many regions of the world. In response to COVID-19, governmental authorities around the world implemented measures to reduce the spread of COVID-19. These measures have and may continue to adversely affect workforces, customers, supply chains, consumer sentiment, economies, and financial markets. In addition, decreased consumer spending has and may continue to lead to an economic downturn globally.

Specifically, numerous state and local jurisdictions have and may in the future impose shelter-in-place orders, quarantines, shut-downs of non-essential businesses, and similar government orders and restrictions on their residents to control the spread of COVID-19. Such orders or restrictions have resulted in temporary facility closures, work stoppages, slowdowns and travel restrictions, among other effects, thereby adversely impacting our operations. As a result of COVID-19, we have experienced a reduction in sales of our products and slower lead times with respect to the manufacturing of our products. In addition, a downturn in the United States economy may have an adverse impact on discretionary consumer spending which may have a significant impact on our business operations and/or our ability to generate revenues and profits.

The extent to which COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, including variants such as the delta variant, and the actions to contain COVID-19 or treat its impact, among others. We do not yet know the full extent of the impacts of COVID-19 on our business; however, these effects could have a material impact on our operations and financial condition.

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RISKS RELATED TO OUR INTELLECTUAL PROPERTY

 

We may be subject to risks related to the protection and enforcement of our intellectual property rights, and third parties may enforce their intellectual property rights against us.

 

The ownership and protection of our intellectual property rights is a significant aspect of our future success. We rely on patents, trade secrets, trademarks, service marks technical know-how and other proprietary information (collectively, “Intellectual Property”) to maintain our competitive position. We try to protect our Intellectual Property by seeking registered protection where possible, developing and implementing standard operating procedures to protect Intellectual Property and entering into agreements with parties that have access to our Intellectual Property, such as our employees and consultants, to protect confidentiality and ownership.

 

It is possible that we may fail to identify Intellectual Property, fail to protect or enforce our Intellectual Property, inadvertently disclose such Intellectual Property or fail to register rights in relation to such Intellectual Property.

 

In relation to our agreements with parties that have access to our Intellectual Property, any of these parties may breach those agreements, and we may not have adequate remedies for any specific breach. In relation to our security measures, such security measures may be breached, and we may not have adequate remedies for any such breach. In addition, certain of our Intellectual Property, which has not yet been applied for or registered, may otherwise become known to or be independently developed by competitors or may already be the subject of applications for intellectual property registrations filed by our competitors, which could have a material adverse effect on our business, financial condition and results of operations.

 

We cannot provide any assurance that our Intellectual Property will not be disclosed in violation of agreements or that competitors will not otherwise gain access to our Intellectual Property or independently develop and file applications for intellectual property rights that adversely affect our Intellectual Property rights. Unauthorized parties may attempt to copy, reverse engineer, or otherwise obtain and use our Intellectual Property. Identifying and policing the unauthorized use of our current or future Intellectual Property rights could be difficult, expensive, time-consuming and unpredictable, as may be enforcing these rights against unauthorized use by others. We may be unable to effectively monitor and evaluate the products being distributed by our competitors and the processes used to produce such products. Additionally, if the steps taken to identify and protect our Intellectual Property rights are deemed inadequate, we may have insufficient recourse against third parties for enforcement of our Intellectual Property rights.

 

In any infringement proceeding, some or all of our Intellectual Property rights or arrangements or agreements seeking to protect the same for our benefit may be found invalid, unenforceable, or anti-competitive. An adverse result in any litigation or defense proceedings could put one or more of our Intellectual Property rights at risk of being invalidated or interpreted narrowly and could put existing intellectual property applications at risk of not being issued. Any or all of these events could have a material adverse effect on our business, financial condition and results of operations.

 

Additionally, other parties may claim that our products or services infringe on their proprietary rights or other intellectual property rights. Parties making claims against us may obtain injunctive or other equitable relief, which may have an adverse impact on our business. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, legal fees, result in injunctions, temporary restraining orders and/or require the payment of damages. In addition, we may need to obtain licenses from third parties who allege that we have infringed on their lawful rights. However, such licenses may not be available on terms acceptable to us, if at all. In addition, we may not be able to obtain licenses on terms that are favorable to us, or at all, or other rights with respect to intellectual property that we do not own.

 

Our trade secrets may be difficult to protect.

 

Our success depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors, as well as our contractors. We rely in part on trade secrets to protect our proprietary products and processes. However, trade secrets are difficult to protect. Although we enter into agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers and other advisors which generally require that information received by such parties during the course of their relationship with us be kept confidential and include provisions with respect to the assignment of inventions to us, such agreements may be breached and may not effectively assign intellectual property rights to us. Our trade secrets also could be independently discovered by competitors, in which case we would not be able to prevent the use of such trade secrets by our competitors. Any enforcement proceedings with respect to our trade secretary may be expensive and time consuming. Any failure to obtain or maintain meaningful trade secret protection could adversely affect our business.

 

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RISKS RELATED TO GOVERNMENT REGULATIONS

 

There is uncertainty surrounding the regulatory pathway for CBD.

 

The FDA currently does not permit the marketing of CBD-containing foods or dietary supplements, and we may be subject to enforcement action taken by the FDA concerning products containing derivatives from hemp. On February 4, 2021, Representative Kurt Schrader introduced H.R. 8179, a bill seeking to amend the U.S. Federal Food, Drug, and Cosmetic Act with respect to the regulation of certain hemp-derived CBD and which, if enacted into law, would permit the marketing of hemp-derived CBD and substances containing hemp-derived CBD as dietary supplements under the U.S. Federal Food, Drug, and Cosmetic Act, resolving ambiguity and providing clear guidance to stakeholders about how to comply with applicable FDA law. However, there can be no assurance that such bill will be enacted into law, and our failure to comply with FDA requirements may result in, among other things, warning letters, injunctions, product recalls, product seizures, fines and/or criminal prosecutions.

 

Legislation or regulations which impose substantial new regulatory requirements on the manufacture, packaging, labeling, advertising and distribution and sale of hemp-derived products could harm our business, results of operations, financial condition and prospects.

 

We believe that the sale of our hemp-derived products are in compliance with applicable U.S. regulations because our hemp products contain less than 0.3% THC and are sold only in states in the United States that have not prohibited the sale of hemp products. The rapidly changing regulatory landscape regarding hemp-derived products presents a substantial risk to the success and ongoing viability of the hemp industry in general and our ability to offer and market hemp-derived products. New legislation or regulations may be introduced at either the federal or state level which, if passed, could impose substantial new regulatory requirements on the manufacture, packaging, labeling, advertising and distribution and sale of hemp-derived products. New legislation or regulations may also require the reformulation, elimination or relabeling of certain products to meet new standards and revisions to certain sales and marketing materials, and it is possible that the costs of complying with these new regulatory requirements could be material.

 

“Marijuana” is illegal under the  U.S. Controlled Substances Act  (“CSA”). The 2018 Farm Bill modified the definition of “marijuana” in the CSA so that the definition of “marijuana” no longer includes hemp. The 2018 Farm Bill defines hemp as the “plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3% on a dry weight basis.” All of our hemp-derived products contain less than 0.3% delta-9 tetrahydrocannabinol concentration content. As such, we believe that the manufacture, packaging, labeling, advertising, distribution and sale of our hemp-derived products do not violate the CSA. The FDA, however, does not permit the sale or distribution of certain products, including food and dietary supplements (such as tinctures and gummies). If federal or state regulatory authorities, however, were to determine that industrial hemp and derivatives could be treated by federal and state regulatory authorities as “marijuana,” we could no longer offer our CBD products legally and could potentially be subject to regulatory action. Violations of United States federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by the United States federal government including but not limited to disgorgement of profits, cessation of business activities or divestiture. Any such actions could have a material adverse effect on our business.

 

The FDA, Federal Trade Commission (“FTC”) and their state-level equivalents, also possess broad authority to enforce the provisions of federal and state law, respectively, applicable to consumer products and safeguards as such relate to foods and dietary supplements, including powers to issue a public warning or notice of violation letter to us, publicizing information about illegal products, detaining products intended for import or export (in conjunction with U.S. Customs and Border Protection) or otherwise deemed illegal, requesting a recall of illegal products from the market, and requesting the Department of Justice, or the state-level equivalent, to initiate a seizure action, an injunction action, or a criminal prosecution in the U.S. or respective state courts. The initiation of any regulatory action towards industrial hemp or hemp derivatives by the FDA, FTC or any other related federal or state agency, would result in greater legal cost to us, may result in substantial financial penalties and enjoinment from certain business-related activities, and if such actions were publicly reported, they may have a material adverse effect on our business and results of operations.

 

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Our hempSMART™ sales in the UK may be subject to unforeseeable events and regulation that may have a material impact on our efforts to sell our hempSMART™ products in the UK  .

 

Currently, the UK regulates wellness products containing CBD through its Medicines and Healthcare products Regulatory Agency (“MHRA”). Pursuant to the MHRA, only wellness products containing less than 0.2% THC may be sold in the UK. While we believe our hempSMART™ products are compliant with regulations in the UK, these regulations may change, and any such change may have a material effect on our ability to market and sell our hempSMART™ products in the UK. Additionally, we rely on affiliates in the UK for the administration of our business there. We do not have an effective warehousing protocol to efficiently store and deliver products there. The failure of our UK affiliates to efficiently handle the storage and distribution of our products may impact our ability to conduct business in the UK.

 

RISKS RELATED TO OUR COMMON STOCK

 

The market price of our common stock may be volatile and may not accurately reflect the long term value of our Company.

 

Securities markets have a high level of price and volume volatility, and the market price of securities of many companies has experienced substantial volatility in the past. This volatility may affect the ability of holders of our common stock to sell their securities at an advantageous price. Market price fluctuations in our common stock may be due to our operating results, failing to meet expectations of securities analysts or investors in any period, downward revision in securities analysts’ estimates, adverse changes in general market conditions or economic trends, acquisitions, dispositions, or other material public announcements by us or our competitors, along with a variety of additional factors. These broad market fluctuations may adversely affect the market price of our common stock. Financial markets have historically, at times, experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of companies and that have often been unrelated to the operating performance, underlying asset values, or prospects of such companies.

  

Accordingly, the market price of our common stock may decline even if our operating results, underlying asset values, or prospects have not changed. Additionally, these factors as well as other related factors may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in the price and volume of our common stock will not occur. If such increased levels of volatility and market turmoil continue, our operations could be adversely impacted and the trading price of our common stock may be materially adversely affected.

 

The price of our common stock may fluctuate substantially.

 

You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this Offering Circular, are:

 

·sale of our common stock by our stockholders, executives, and directors;

 

·volatility and limitations in trading volumes of our shares of common stock;

 

·our ability to obtain financings to conduct and complete research and development activities and other business activities;

 

·the timing and success of introductions of new products and services by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors;

 

·our ability to attract new and maintain existing customers;

 

 

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·unanticipated safety concerns related to the use of our products;

 

·changes in our capital structure or dividend policy and future issuances of securities;

 

·our cash position;

 

·announcements and events surrounding financing efforts, including debt and equity securities;

 

·reputational issues;

 

·announcements of acquisitions, partnerships, collaborations, joint ventures, new products and services, capital commitments, or other events by us or our competitors;

 

·changes in general economic, political and market conditions in or any of the regions in which we conduct our business;

 

·changes in industry conditions or perceptions;

 

·analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage;

 

·departures and additions of key personnel;

 

·disputes and litigations related to our Intellectual Property;

 

·changes in applicable laws, rules or regulations and other dynamics; and

 

·other events or factors, many of which may be out of our control, including, but not limited to, pandemics such as COVID-19, war, or other acts of God.

 

In addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

 

Market and economic conditions may negatively impact our business, financial condition and share price.

 

Concerns over inflation, energy costs, geopolitical issues, the U.S. mortgage market and a declining real estate market, unstable global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and share price. Additional factors that may affect the demand for products and services include, but are not limited to: changes in laws and regulations effecting the hemp industry; adverse developments with respect to the hemp industry or increased federal or foreign enforcement; the nature and extent of competition from other companies; and changes in general economic, political and market conditions in or any of the regions in which we conduct our business.

 

 

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We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.

 

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any, of our share price.

 

There is no assurance that an investment in our common stock will earn any positive return.

 

There is no assurance that an investment in our common stock will earn any positive return. An investment in our common stock involves a high degree of risk and should be undertaken only by investors whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in our common stock is appropriate only for investors who have the capacity to absorb a loss of some or all of their investment.

 

There is a limited market for our common stock.

 

Our common stock is quoted over-the-counter in the United States on the OTC Pink tier of the OTC Markets. The over-the-counter markets provide less liquidity than U.S. national securities exchanges, such as the New York Stock Exchange or Nasdaq. Accordingly, a market for our common stock may be highly illiquid and holders of our common stock may be unable to sell or otherwise dispose of their common stock at desirable prices or at all.

 

If we fail to remain current in our reporting requirements, we could be removed from the OTC Pink tier of the OTC Markets which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

 

As a company listed on the OTC Pink tier of the OTC Markets and subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we must be current with our filings pursuant to Section 13 or 15(d) of the Exchange Act in order to maintain price quotation privileges on the OTC Pink tier of the OTC Markets. If we fail to remain current in our reporting requirements, we could be removed from the OTC Pink tier of the OTC Markets. As a result, the market liquidity of our securities could be severely adversely affected by limiting the ability of broker-dealers to trade our securities and the ability of stockholders to sell their securities in the secondary market.

 

Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.

 

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

 

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Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Future sales and issuances of our securities could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.

 

We expect that significant additional capital will be needed in the future to continue our planned operations, including research and development, increased marketing, hiring new personnel, commercializing our products, and continuing activities as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

 

We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.”

 

Financial reporting obligations of being a public company in the United States are expensive and time-consuming, and our management will be required to devote substantial time to compliance matters.

 

As a publicly traded company we incur significant legal, accounting and other expenses. The obligations of being a public company in the United States require significant expenditures and places significant demands on our management and other personnel, including costs resulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules require the establishment and maintenance of effective disclosure and financial controls and procedures and internal control over financial reporting among many other complex rules that are often difficult to implement, monitor and maintain compliance with. Moreover, despite recent reforms made possible by the JOBS Act, the reporting requirements, rules, and regulations will make some activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations, otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential problems.

 

Failure to maintain effective internal control over our financial reporting in accordance with Section 404 of Sarbanes-Oxley Act could cause our financial reports to be inaccurate.

 

We are required pursuant to Section 404 of the Sarbanes-Oxley Act to maintain internal control over financial reporting and to assess and report on the effectiveness of those controls. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies which may cause us to become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.

 

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Our management has concluded that our internal controls over financial reporting were, and continue to be, ineffective, and as of the quarter ended June 30, 2021, identified a material weakness with respect to our ability to prepare our financial statements in a timely manner and inadequate segregation of duties consistent with control objectives. While we intend to remediate the material weaknesses, there is no assurance that such changes, when economically feasible and sustainable, will remediate the identified material weaknesses or that the controls will prevent or detect future material weaknesses. If we are not able to maintain effective internal control over financial reporting, our financial statements, including related disclosures, may be inaccurate, which could have a material adverse effect on our business.

 

If investors successfully seek rescission, we would face severe financial demands that we may not be able to meet.

 

The Shares have not been registered under the Securities Act and are being offered in reliance upon the exemption provided by Section 3(b) of the Securities Act and Regulation A promulgated thereunder. We represent that this Offering Circular does not contain any untrue statements of material fact or omit to state any material fact necessary to make the statements made, in light of all the circumstances under which they are made, not misleading. However, if this representation is inaccurate with respect to a material fact, if this Offering fails to qualify for exemption from registration under the federal securities laws pursuant to Regulation A, or if we fail to register the Shares or find an exemption under the securities laws of each state in which we offer the Shares, each investor may have the right to rescind his, her or its purchase of the Shares and to receive back his, her or its purchase price with interest. Such investors, however, may be unable to collect on any judgment, and the cost of obtaining such judgment may outweigh the benefits. If investors successfully seek rescission, we would face severe financial demands we may not be able to meet and it may adversely affect any non-rescinding investors.

 

This is a fixed price offering and the fixed offering price may not accurately represent the current value of our business or our assets at any particular time. Therefore, the purchase price you pay for the Shares may not be supported by the value of our business assets at the time of your purchase.

 

This is a fixed price offering, which means that the offering price for the Shares is fixed and will not vary based on the underlying value of our business or assets at any time. Our board of directors (“Board of Directors” or “Board”) has determined the offering price in its sole discretion without the input of an investment bank or other third party. The fixed offering price for the Shares has not been based on appraisals of any assets we own or may own, or of our Company as a whole, nor do we intend to obtain such appraisals. Therefore, the fixed offering price established for the Shares may not be supported by the current value of our business or our assets at any particular time.

 

We may invest or spend the proceeds of this Offering in ways with which you may not agree or in ways which may not yield a return.

 

The principal purposes of this Offering is to raise additional capital. We currently intend to use the proceeds we receive from this Offering after deducting estimated fees and expenses associated with qualification of offering under Regulation A, including legal, auditing, accounting, transfer agent, and other professional fees, primarily for the expansion of hempSMART™ in South America; hempSMART™ product development and marketing; repayment of certain notes payable; and working capital and general corporate purposes. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Investors in this Offering will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this Offering effectively, our business, financial condition, results of operations and prospects could be harmed, and the market price of our common stock could decline.

 

This Offering is being conducted on a “best efforts” basis and we may not be able to execute our growth strategy if the Maximum Offering Amount is not sold.

 

We are offering our common stock on a “best efforts” basis, and we can give no assurance that all of the Shares will be sold. If less than Maximum Offering Amount is sold, we may be unable to fund all the intended uses described in this Offering Circular from the net proceeds anticipated from this Offering without obtaining funds from alternative sources or using working capital that we may generate. Alternative sources of funding may not be available to us at a reasonable cost, if at all, and the working capital generated by us may not be sufficient to fund any uses not financed by the net proceeds from this Offering. No assurance can be given to you that any funds will be invested in this Offering other than your own.

 

 

 

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DETERMINATION OF OFFERING PRICE

 

The public offering price of the Shares was determined by our Board of Directors. The principal factors considered in determining the public offering price of the hares included:

 

  • the information in this Offering Circular, including our financial information;

  • the history and the prospects for the industry in which we compete;

  • the ability of our management;

  • the prospects for our future earnings;

  • the present state of our development and our current financial condition;

  • the general condition of the economy and the securities markets in the United States at the time of this Offering;

  • the market price of our common stock quoted on the OTC Pink tier of the OTC Markets;

  • the recent market prices of, and the demand for, publicly-traded securities of generally comparable companies; and

  • other factors as were deemed relevant.

DIVIDEND POLICY

 

We have never declared or paid any cash dividends on our capital stock. We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors our Board of Directors deems relevant.

 

ITEM 4: DILUTION

  

If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock immediately after this Offering.

 

As of June 30, 2021, our net tangible book value was approximately $(1,857,166), or $(0.0004) per share based on 5,068,524,855 shares of our common stock outstanding at June 30, 2021. Our historical net tangible book value per share is the amount of our total tangible assets less our total liabilities at June 30, 2021, divided by the number of shares of common stock outstanding at June 30, 2021.

 

Based on an offering price of $0.002 per Share, on an as adjusted basis as of June 30, 2021, after giving effect to the offering of the Shares and the application of the related net proceeds, our net tangible book value would be:

 

(i) $8,090,634, or $0.0008 per share of common stock, assuming the sale of 100% of the Shares (5,000,000,000 Shares) with net proceeds in the amount of $9,947,800 after deducting estimated Offering expenses of $52,200; 

 

(ii) $5,590,634, or $0.0006 per share of common stock, assuming the sale of 75% of the Shares (3,750,000,000 Shares) with net proceeds in the amount of $7,447,800 after deducting estimated Offering expenses of $52,200;

 

(iii) $3,090,64, or $0.0004 per share of common stock, assuming the sale of 50% of the Shares (2,500,000,000 Shares) with net proceeds in the amount of $4,947,800 after deducting estimated Offering expenses of $52,200; and

 

(iv) $(909,366), or $(0.0002) per share of common stock, assuming the sale of 10% of the Shares (500,000,000 Shares) with net proceeds in the amount of $947,800 after deducting estimated Offering expenses of $52,200.

 

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Purchasers of Shares in this Offering will experience immediate and substantial dilution in net tangible book value per share of common stock for financial accounting purposes, as illustrated in the following table on an approximate dollar per share basis, depending upon whether we sell 100%, 75%, 50%, or 10% of the Shares being offered in this Offering:

 

Percentage of Shares sold   100%     75%     50%     10%  
Offering price per Share   $ 0.002     $ 0.002     $ 0.002     $ 0.002  
Net tangible book value per share of common stock as of June 30, 2021   $ (0.0004 )   $ (0.0004 )   $ (0.0004 )   $ (0.0004 )
Increase in net tangible book value per share of common stock attributable to new investors in this Offering   $ 0.0012     $ 0.0010     $ 0.0008     $ 0.0002  
As adjusted net tangible book value per share of common stock immediately after this Offering   $ 0.0008     $ 0.0006     $ 0.0004     $ (0.0002 )
Dilution per share of common stock to new investors in this Offering   $ (0.0012 )   $ (0.0014 )   $ (0.0016 )   $ (0.0022 )

 

The following tables set forth, depending upon whether we sell 100%, 75%, 50%, or 10% of the Shares in this Offering, as of June 30, 2021, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this Offering at the offering price of $0.002 per Share, together with the total consideration paid and average price per share paid by each of these groups, before deducting estimated Offering expenses.

 

    100% of the Shares Sold  
    Shares Purchased     Total Consideration    

Average

Price

 
    Number     Percent     Amount     Percent      per Share  
Existing stockholders as of June 30, 2021     5,068,525,134       50.3 %   $ 92,916,339       90.3 %   $ 0.0183  
New investors     5,000,000,000       49.7 %   $ 10,000,000       9.7 %   $ 0.0020  
Total     10,068,525,134       100.0 %   $ 102,916,339       100.0 %   $ 0.0102  

 

 

    75% of the Shares Sold  
    Shares Purchased     Total Consideration    

Average

Price

 
    Number     Percent     Amount     Percent     per Share  
Existing stockholders as of June 30, 2021     5,068,525,134       57.5 %   $ 92,916,339       92.5 %   $ 0.0183  
New investors     3,750,000,000       42.5 %   $ 7,500,000       7.5 %   $ 0.0020  
Total     8,818,525,134       100.0 %   $ 100,416,339       100.0 %   $
0.0114
 

 

 

25 
 
 

 

    50% of the Shares Sold  
    Shares Purchased     Total Consideration    

Average

Price

 
    Number     Percent     Amount     Percent     per Share  
Existing stockholders as of June 30, 2021     5,068,525,134       67.0 %   $ 92,916,339       94.9 %   $ 0.0183  
New investors     2,500,000,000       33.0 %   $ 5,000,000       5.1 %   $ 0.0020  
Total     7,568,525,134       100.0 %   97,916,339       100.0 %   0.0129  

 

    10% of the Shares Sold  
    Shares Purchased     Total Consideration    

Average

Price

 
    Number     Percent     Amount     Percent     per Share  
Existing stockholders as of June 30, 2021     5,068,525,134       91.0 %   $ 92,916,339       98.9 %   $ 0.0183  
New investors     500,000,000       9.0 %   $ 1,000,000       1.1 %   $ 0.0020  
Total     5,568,525,134       100.0 %   $ 93,916,339       100.0 %   0.0169  

 

ITEM 5: PLAN OF DISTRIBUTION 

 

We currently plan to have our directors and executive officers sell the shares of our common stock offered pursuant to this Offering Circular. Our executive officers and directors will receive no discounts or commissions. Our executive officers and directors will deliver this Offering Circular to those persons who they believe might have an interest in purchasing all or a part of the shares of our common stock offered pursuant to this Offering Circular. We may generally solicit investors, including, but not limited to, the use of social media, newscasts, advertisements, roadshows and the like.

 

There is no minimum offering amount and no provision to escrow or return investor funds if any minimum number of shares of our common stock are not sold. The minimum investment amount established for each investor is $2,000; however, we can waive the minimum purchase requirement on a case-by-case basis in our sole discretion. All funds raised by us from this offering will be immediately available for our use.

 

As of the date of this Offering Circular, we have not entered into any arrangements with any selling agents for the sale of the shares of common stock offered pursuant to this Offering Circular; however, we may engage one or more selling agents to sell our shares of common stock in the future. If we elect to do so, we will file a supplement to this Offering Circular to identify such selling agent(s).

 

Our directors and officers will not register as broker-dealers under Section 15 of the Exchange Act in reliance upon Rule 3a4-1 which sets forth the conditions pursuant to which a person associated with an issuer may participate in the offering of the issuer’s securities and not be deemed to be a broker-dealer. The conditions are that:

 

·the person is not statutorily disqualified, as that term is defined in Section 3(a)(39) of the Exchange Act, at the time of his participation;

 

·the person is not compensated in connection with his participation by the payment of commissions or other renumeration based either directly or indirectly on transactions in securities;

 

·the person is not at the time of their participation an associated person of a broker-dealer; and

 

·the person meets the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that he (i) primarily performs, or is intended primarily to perform at the end of the offering, substantial duties for or on behalf of the issuer otherwise than in connection with transactions in securities; and (ii) was not a broker or dealer, or an associated person of a broker or dealer, within the preceding 12 months; and (iii) does not participate in selling and offering of securities for any issuer more than once every 12 months other than in reliance on paragraphs (a)(4)(i) or (a)(4)(iii) of Rule 3a4-1 of the Exchange Act.

 

26 
 
 

 

Our officers and directors are not statutorily disqualified, are not being compensated, and are not associated with a broker-dealer. They are and will continue to hold their positions as officers or directors following the completion of this offering and have not been during the past 12 months and are currently not brokers or dealers or associated with brokers or dealers. Furthermore, our officer and directors have not nor will they participate in the sale of securities of any issuer more than once every 12 months.

 

Unless sooner withdrawn or canceled by us, the offering will continue until (i) the maximum offering amount has been sold, or (ii) one year from the date this offering circular is qualified with the SEC. Notwithstanding the foregoing, the Company may terminate this offering at any time or extend this offering by ninety (90) days, in its sole discretion.

 

OTC Markets Considerations

 

The OTC Markets is separate and distinct from the Nasdaq stock market or other national exchange. Nasdaq has no business relationship with issuers of securities quoted on the OTC Markets. The SEC’s order handling rules, which apply to Nasdaq-listed securities, do not apply to securities quoted on the OTC Markets.

 

Although the Nasdaq and other national stock markets have rigorous listing standards to ensure the high quality of their issuers, and can delist issuers for not meeting those standards, the OTC Markets has no listing standards. Rather, it is the market maker who chooses to quote a security on the system, files the application, and is obligated to comply with keeping information about the issuer in its files.

 

Although we believe being listed on the OTC Markets increases liquidity for our stock, investors may have greater difficulty in getting orders filled than if we were listed on Nasdaq or another exchange. Investors’ orders may be filled at a price much different than expected when an order is placed. Trading activity in general is not conducted as efficiently and effectively on OTC Markets as with exchange-listed securities. Also, because OTC Markets stocks are usually not followed by analysts, there may be lower trading volume than for exchange-listed securities.

 

Investors must contact a broker-dealer to trade OTC Markets securities. Investors do not have direct access to the quotation service.

 

ITEM 6: USE OF PROCEEDS TO ISSUER

 

We intend to use the net proceeds for the following purposes: the fees and expenses associated with qualification of this Offering under Regulation A; the expansion of our hempSMART™ products in South America; hempSMART™ product development and marketing; repayment of certain notes payable; and working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products or other properties, however, we have no current commitments or obligations to do so. In the event that we sell less than the Maximum Offering Amount, our first priority is to pay fees associated with the qualification of this Offering under Regulation A. No proceeds will be used to compensate or otherwise make payments to officers or directors except for ordinary payments under employment agreements.

 

On July 10, 2021, we issued a convertible note (the “July Note”) in the aggregate principal amount of $268,750 (including a $26,875 original issuance discount) to an investor. The July Note accrues interest at a rate of 12% per annum, subject to adjustment, and matures on July 10, 2022. The July Note is convertible into shares of our common stock at a conversion price of $0.005 per share, subject to adjustment (the “Conversion Price”); provided, however, we are prohibited from effecting a conversion of the July Note to the extent that, as a result of such conversion, the holder together with the holder’s affiliates, would beneficially own more than 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the July Note. If, at any time while the July Note is outstanding, we, among other things, issue, sell or grant any common stock or common stock equivalents at an effective price per share that is lower than the then Conversion Price, then the Conversion Price shall be reduced to such lower amount. We may prepay the Note at any time prior to the occurrence of an event of default by paying the holder thereof the principal amount of the July Note together with interest accrued thereon plus $750. In addition, at any time prior to the full repayment or full conversion of the July Note, we receive cash proceeds including, but not limited to, pursuant to the issuance of equity or debt securities (which includes this Offering), the holder of the July Note shall have the right to require us to immediately apply 45% of such proceeds to repay the July Note. Furthermore, we are required to pay $59,125 to the holder of the July Note on or before January 10, 2022. In addition, at any time while the July Note is outstanding, if we have a financing offer from a third party, we must offer such financing opportunity to the holder of the July Note on the same terms and conditions as the third party.

 

27 
 
 

 

On June 23, 2021, we issued a convertible note (the “June Note”) in the aggregate principal amount of $537,500 (including a $53,750 original issuance discount) to an investor. The June Note accrues interest at a rate of 12% per annum, subject to adjustment, and matures on June 23, 2022. The June Note is convertible into shares of our common stock at a conversion price of $0.005 per share, subject to adjustment (the “June Conversion Price”); provided, however, we are prohibited from effecting a conversion of the June Note to the extent that, as a result of such conversion, the holder together with the holder’s affiliates, would beneficially own more than 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the June Note. If, at any time while the June Note is outstanding, we, among other things, issue, sell or grant any common stock or common stock equivalents at an effective price per share that is lower than the then June Conversion Price, then the June Conversion Price shall be reduced to such lower amount. We may prepay the June Note at any time prior to the occurrence of an event of default by paying the holder thereof the principal amount of the June Note together with interest accrued thereon plus $750. In addition, at any time prior to the full repayment or full conversion of the June Note, we receive cash proceeds including, but not limited to, pursuant to the issuance of equity or debt securities (which includes this Offering), the holder of the June Note shall have the right to require us to immediately apply 45% of such proceeds to repay the June Note. Furthermore, we are required to pay $118,250 to the holder of the June Note on or before December 23, 2021. In addition, at any time while the June Note is outstanding, if we have a financing offer from a third party, we must offer such financing opportunity to the holder of the June Note on the same terms and conditions as the third party.

 

The gross proceeds of this Offering will be $10,000,000 if all of the Shares offered hereunder are purchased. However, we cannot guarantee that we will sell all of the Shares we are offering. The following table summarizes how we anticipate using the gross proceeds of this Offering, depending upon whether we sell 10%, 50%, 75%, or 100% of the Shares in this Offering:

 

   If 100% of
the Shares are
Sold
  If 75% of
the Shares are
Sold
  If 50% of
the Shares are
Sold
  If 10% of
the Shares are
Sold
Repayment of notes payable   2,800,000    2,100,000    1,400,000    280,000 
Inventory Purchase   450,000    337,500    225,000    45,000 
Marketing/Advertising   500,000    375,000    250,000    50,000 
Acquisitions   5,000,000    3,750,000    2,500,000    500,000 
Working capital and general corporate purposes   1,197,800    898,350    598,900    119,780 
Fees for qualification of Offering under Regulation A (includes legal, auditing, accounting, transfer agent, printing and other professional fees)   52,200    52,200    52,200    52,200 
                     
 Total Use of Proceeds   10,000,000    7,513,050    5,026,100    1,046,980 

 

Pending our use of the net proceeds from this Offering, we may invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and government securities. 

 

28 
 
 

 

ITEM 7: DESCRIPTION OF BUSINESS

 

Overview

 

We are focused on the research and development of (i) various species of hemp; (ii) beneficial uses of hemp and hemp derivatives; (iii) indoor and outdoor cultivation methods for hemp; (iv) technology used for cultivation and harvesting of different species of hemp, including, but not limited to, lighting, venting, irrigation, hydroponics, nutrients and soil; (v) different industrial hemp derived CBD and the possible health benefits thereof; and (vi) new and improved methods of hemp cannabinoid extraction omitting or eliminating the delta-9 tetrahydrocannabinol “THC” molecule.

  

Specifically, we develop and sell consumer products that include industrial hemp derived, non-psychoactive CBD as an ingredient, under the brand name “hempSMART™” through our wholly-owned subsidiary, H Smart, Inc., and we distribute hemp and CBD products through our wholly-owned subsidiary, cDistro. Our industrial hemp-based products are developed with an enriched CBD molecular composition with a THC concentration of 0.3% or less by dry weight. We market and sell our hempSMART™ products directly through our website, and we market and sell our cDistro hemp-derived cannabinoid products through cDistro’s website.

 

In addition, we provide financial accounting, bookkeeping services, real property management, and reporting protocols in order to allow licensed cannabis and/or hemp operators in those states where cannabis has been legalized for medicinal and/or recreational use, to report, collect, verify and state effective financial records and disclosure. We provide a comprehensive accounting strategy based on best accounting practices. As of the date of this Offering Circular, we have not generated any revenue related to such services.

 

Furthermore, our business includes making selected investments and entering into joint ventures with start-up businesses in the legalized cannabis and hemp industries.

  

Our Products

 

 

 

hempSMART™

 

Our consumer products containing hemp and CBD are sold through our wholly-owned subsidiary H Smart, Inc. under the brand name hempSMART™. We market and sell our hempSMART™ products directly through our website, and through our affiliate marketing program, pursuant to which qualified sales affiliates use a secure multi-level-marketing sales software program that: facilitates order placement over the internet via a website; accounts for affiliate orders and sales; calculates referral benefits apportionable to specific sales associates; and calculates and accounts for loyalty and rewards benefits for returning customers. We plan on focusing our sales and marketing efforts on direct sales on our website and intend to wind down and terminate our affiliate marketing and sales program during fiscal 2021.

 

Our current hempSMART™ products offerings include the following:

 

  • hempSMART Brain™ a proprietary patented and formulated personal care consumer product encapsulated with enriched non-psychoactive industrial hemp derived CBD. This encapsulation is combined with other high quality, proprietary natural ingredients to compliment CBD to support the brain.

  • hempSMART Pain™ capsules formulated with 10mg of full spectrum, non-psychoactive CBD per serving, derived from industrial hemp, which along with a proprietary blend of other natural ingredients, are intended to deliver an all-natural formulation for the temporary relief of minor discomfort associated with physical activity.

  • hempSMART Pain Cream™ each container is formulated with 300mg of full spectrum non-psychoactive CBD derived from industrial hemp. This product contains a synergistic combination of natural botanicals and full spectrum hemp extract featuring CBD, cannabigerol, also known as CBG, and a broad range of terpenes. Our proprietary blend of Ayurvedic herbs along with menthol, cayenne pepper extract, rosemary oil, aloe gel, white willow bark, arnica, wintergreen extract and tea tree oil, is intended to provide an immediate cooling and soothing sensation. This topical product is formulated to help reduce minor discomfort and promote muscle relaxation on the areas to which it is applied.

 

 

29 
 
 

  • hempSMART Drops™ full spectrum hemp CBD oil tincture drops available in 250mg and 500mg bottles, enriched with non-psychoactive industrial hemp derived CBD, and available in four different flavors (lemon, mint, orange and strawberry). These drops are free of the THC isolate.

  • hempSMART Pet Drops™ for cats and dogs, formulated with 250mg of full spectrum non-psychoactive CBD derived from industrial hemp. This product contains naturally occurring CBD derived from hemp seed oil, full spectrum hemp extract, fractionated coconut oil, and a rich bacon flavor.

  • hempSMART Face™ a nourishing facial moisturizer combines full spectrum CBD from hemp with a unique blend of Ayurvedic herbs and botanicals. This facial moisturizer is designed to refresh, replenish and restore skin, providing long lasting hydration and balance.

  • hempSMART Drink Mix, an industrial hemp based powderized premium CBD drink made with organic CBD infused with honey to be mixed with any beverage of preference.

cDistro, Inc. Acquisition

 

On June 29, 2021 (the “Effective Date”), we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with cDistro Merger Sub, Inc., our wholly-owned subsidiary (“Merger Sub”), and cDistro, a company engaged in the hemp and CBD product distribution business. Pursuant to the terms of the Merger Agreement, on June 30, 2021 (the “Merger Effective Date”), Merger Sub merged with and into cDistro, with cDistro surviving the merger as our wholly-owned subsidiary (the “Merger”).

 

In connection with the Merger Agreement, on the Effective Date, we entered into an earnout agreement    (the “Earnout Agreement”) with the sole securityholder of cDistro (the “cDistro Stockholder”) pursuant to which we agreed to issue additional shares of our common stock to the cDistro Stockholder conditioned upon the achievement of certain revenue milestones. In addition, on the Effective Date, the cDistro Stockholder entered into a Lock-Up and Leak-Out Agreement with us pursuant to which, among other thing, the cDistro Stockholder agreed to certain restrictions regarding the resale of our shares of common stock issued and to be issued pursuant to the Merger Agreement for a period of six months from the Effective Date. In connection with the Merger Agreement, on the Effective Date, we entered into a stock purchase agreement with cDistro pursuant to which we purchased 350,000 shares of cDistro common stock at the price of $1.00 per share.

 

30 
 
 

 

At the Merger Effective Date, all outstanding shares of common stock of cDistro were exchanged for 265,164,070 shares of our common stock. In addition, we may be required to issue up to an additional 220,970,059 shares of our common stock pursuant to the Earnout Agreement.

 

cDistro is engaged in the hemp and CBD product distribution business. Specifically, through its website located at www.cdistro.com, cDistro distributes a select list of quality CBD brands along with smoke and vape shop related products to wholesalers, c-stores, specialty retailers, and dispensaries in North America. cDistro distributes a catalog of eight unique product lines that are currently being sold to over 250 customers. Through our acquisition of cDistro, we believe that we are positioned to take advantage of the developing market opportunity generated by consumers' growing demand for quality hemp products.

 

Our Consulting Services

 

In addition to selling our hempSMART™ and cDistro products, we also provide certain services to licensed cannabis and/or hemp operators.

 

Our services include the following:

 

  • Financial Accounting and Bookkeeping. We understand the challenges and complexities of financial accounting in the regulated commercial cannabis market, and we have the expertise to help client businesses report their financial operations consistent with generally accepted accounting principles in the United States. We provide financial accounting, bookkeeping and reporting protocols in order to allow licensed cannabis and/or hemp operators, in those states where cannabis has been legalized for medicinal and/or recreational use, to report, collect, verify and state effective financial records and disclosure. We provide a comprehensive accounting strategy based on best accounting practices.
  • Real Property Management Consulting. Our property management consulting services consist of providing planning, budgeting, acquisition, accounting and management services to licensed cannabis and/or hemp operators in those states where cannabis and/or hemp has been legalized for medicinal and/or recreational use, and who are searching for real property to conduct operations.

As of the date of this Offering Circular, we have not generated any revenue related to such services.

 

Joint Ventures and Investments  

 

Current Joint Ventures and Investments

 

Joint Ventures in Brazil and Uruguay

 

On September 30, 2020, we entered into two joint venture agreements with Marco Guerrero, our director, to form joint venture operations in Brazil and Uruguay to produce, manufacture, market and sell our hempSMART™ products in Latin America and to develop and sell hempSMART™ products globally. The joint venture agreements contain equal terms for the formation of joint venture entities in Uruguay and Brazil. The Brazilian joint venture, HempSmart Produtos Naturais Ltda. (“HempSmart Brazil”), will be headquartered in São Paulo, Brazil, and the Uruguayan joint venture, Hempsmart Uruguay S.A.S. (“HempSmart Uruguay”), will be headquartered in Montevideo, Uruguay. Both joint ventures are in the development stage.

 

Pursuant to the joint venture agreements, we will acquire a 70% equity interest in both HempSmart Brazil and HempSmart Uruguay, and a 30% equity interest in both HempSmart Brazil and HempSmart Uruguay will be held by entities controlled by Marco Guerrero, our director. Pursuant to the joint venture agreements, we agreed to provide $50,000 to each of HempSmart Brazil and HempSmart Uruguay.

 

Cannabis Global, Inc. 

 

Joint Venture

 

On May 12, 2021, we entered into a joint venture agreement with Cannabis Global. Pursuant to the joint venture agreement, we will invest in MCOA Lynwood and Cannabis Global, through Natural Plant, will operate a regulated and licensed laboratory to manufacture various cannabis products in the State of California. Cannabis Global owns a controlling interest in Natural Plant which operates a licensed cannabis manufacturing operation. As our contribution to the joint venture, we agreed to (i) purchase and install equipment for joint venture operations, which will then be rented to the joint venture; and (ii) provide funding relating to marketing the joint venture’s products. Pursuant to the joint venture agreement, Cannabis Global will provide (i) where permitted, use of its manufacturing and distribution licenses; (ii) access to its facility located in Lynwood, California; and (iii) management expertise required to conduct the operations of MCOA Lynwood.

 

Pursuant to the terms of the joint venture agreement, we will own 40% of MCOA Lynwood and receive 40% of the revenues generated by MCOA Lynwood and Cannabis Global will own 60% of MCOA Lynwood and receive 60% of the revenues generated by MCOA Lynwood. As of the date hereof, we have invested $158,000 in the joint venture.

 

Share Exchange

 

On September 30, 2020, we entered into a securities exchange agreement with Cannabis Global pursuant to which we issued 650,000,000 shares of our common stock to Cannabis Global in exchange for 7,222,222 shares of Cannabis Global common stock. We and Cannabis Global also entered into a lock-up leak-out agreement which prevents either party from selling the exchanged shares for a period of 12 months from September 30, 2020. Thereafter the parties may sell not more than the quantity of shares equaling an aggregate maximum sale value of $20,000 per week, or $80,000 per month until all exchange shares are sold. 

 

Edward Manolos, our director, is also a director of Cannabis Global.

 

31 
 
 

 

Joint Venture Subject to Ongoing Dispute

 

Bougainville Ventures, Inc.  

 

On March 16, 2017, we entered into a joint venture agreement with Bougainville to (i) jointly engage in the development and promotion of products in the legalized cannabis industry in Washington State; (ii) utilize Bougainville's high quality cannabis grow operations in the State of Washington, where it claimed to have an ownership interest in real property for use within the legalized cannabis industry; (iii) leverage Bougainville’s agreement with a Tier 3 I502 cannabis license holder to grow cannabis on the site; (iv) provide technical and management services and resources including, but not limited to: sales and marketing, agricultural procedures, operations, security and monitoring, processing and delivery, branding, capital resources and financial management; and (v) optimize collaborative business opportunities. We believe that some of the funds we paid to Bougainville were misappropriated and that there was self-dealing with respect to those funds and that Bougainville misrepresented certain material facts in the joint venture agreement. As a result of the foregoing, on September 20, 2018, we filed a lawsuit against Bougainville and certain other defendants in Okanogan County Washington Superior Court. See Business – Legal Proceedings. 

 

This investment remains fully impaired as of the quarter ended June 30, 2021, and we are no longer involved in this joint venture which is currently the subject of ongoing litigation.   

 

Prior Joint Ventures and Investments 

 

Conveniant Hemp Mart, LLC

 

On July 19, 2017, Conveniant Hemp Mart, LLC (“Conveniant”), a business engaged in the development, manufacture and sale of consumer products containing CBD, issued us a promissory note in the principal amount of $50,000. Pursuant to the note, instead of receiving repayment, we could convert the principal amount together with any interest accrued thereon into a 25% interest in Conveniant, subject to our payment of an additional $50,000, resulting in an aggregate purchase price of $100,000 (“Conveniant Option”). On November 20, 2017, we exercised the Conveniant Option. On May 1, 2019, we and Conveniant agreed to cancel our 25% interest in Conveniant, and Conveniant issued us a $100,000 credit to be used towards hempSMART product manufacturing. We determined that as of December 31, 2018, the total investment was impaired.

 

Natural Plant Extract of California Joint Venture. On April 15, 2019, we entered into a joint venture agreement with Natural Plant and its subsidiaries (collectively, “NPE”) to utilize NPE’s California and city cannabis licenses to jointly operate a business named “Viva Buds”  to operate a licensed cannabis distribution service in California. In exchange for 20% of NPE’s common stock, we agreed to pay $2,000,000 and issue NPE $1,000,000 of our restricted common stock, or 70,422,535 shares of our common stock. As of February 2020, we were in arrears in our payment obligations under the joint venture agreement, and we entered into a settlement agreement terminating the joint venture. Pursuant to the settlement agreement, we reduced our equity ownership in NPE from 20% to 5% and paid NPE $85,000 and the balance of approximately $56,085 was paid pursuant to the issuance of a convertible promissory note which permitted NPE to convert the note into shares of our common stock at a 50% discount to the closing price of our common stock as of the maturity date of the note. As of the date of this Offering Circular, the convertible promissory note was converted in full into an aggregate of 133,597,258 shares of our common stock. Edward Manolos, our director, is the Co-Founder of NPE.

 

Global Hemp Group Scio Oregon Joint Venture. On May 8, 2018, we entered into a joint venture with Global Hemp Group, Inc. (“Global Hemp Group”) to commercialize the cultivation of industrial hemp on property owned by us and Global Hemp Group in Scio, Oregon. Pursuant to the joint venture agreement, we contributed $600,000 to the joint venture; however, we had several disputes with Global Hemp Group, leading to the execution of a settlement agreement on September 28, 2020. Pursuant to the settlement agreement, (i) Global Hemp Group paid us $210,000 (including $10,000 to cover our legal fees relating to the settlement agreement), (ii) Global Hemp Group issued us 12,386,675 shares of its common stock (equal to $185,000 as of September 28, 2020), subject to a non-dilutive protection provision for a period of one year from the issuance date of such stock (the “Non-Dilutive Period”) which means on the last date of the Non-Dilutive Period, Global Hemp Group guarantees that the stock held by us as of such date will have a value of $185,000 or Global Hemp Group will issue us such number of additional shares of its common stock to bring the value of our holdings to $185,00 and (iii) we relinquished our ownership interest in the joint venture. In July 2021, we entered into a share purchase agreement pursuant to which we sold 12,386,675 shares of Global Hemp Group for $200,000.

 

32 
 
 

 

MoneyTrac Technology, Inc. On March 13, 2017, in exchange for $250,000, we purchased a 15% interest in MoneyTrac Technology, Inc. (“MoneyTrac”), a developer of an integrated and streamlined electronic payment processing system. On June 12, 2018, Global Trac Solutions, Inc. (formerly known as Global Payout, Inc.) (“Global”) consummated a reverse triangular merger with MoneyTrac, MoneyTrac Technology, Inc., a California corporation and MTrac Tech Corporation, a Nevada corporation and wholly-owned subsidiary of Global pursuant to which MoneyTrac merged with and into MTrac Tech Corporation, with MTrac Tech Corporation surviving the merger. Pursuant to the terms of the merger, each share of MoneyTrac stock issued and outstanding immediately prior to the effective date of the merger was canceled and converted into 10 shares of Global common stock. Upon consummation of the merger, we acquired 150,000,000 shares of common stock of Global in consideration for our 15% ownership interest in MoneyTrac. During the year ended December 31, 2019, we realized approximately $51,748 from the sale of all of our shares of Global common stock.

 

The following table indicates the amount of impairments recorded by us quarter to quarter for investment activity quarter to quarter related to our joint venture investments:

 

 

MARIJUANA COMPANY OF AMERICA, INC.

INVESTMENT ROLL-FORWARD

AS OF JUNE 30, 2021

 

 

                                          
   INVESTMENTS  SHORT-TERM INVESTMENTS
                                           
   TOTAL 

Global

Hemp

 

Cannabis

Global

        Lynwood     Bougainville Ventues,  Gate C Research  Natural Plant    

TOTAL

Short-Term

  Global Hemp   
   INVESTMENTS  Group  Inc.  ECOX  Benihemp  JV  MoneyTrac  Inc.  Inc.  Extract  Vivabuds  Investments  Group  MoneyTrac
Beginning balance @12-31-16  $   $             $        $   $   $             $        $ 
                                                                       
Investments made during 2017   3,049,275    10,775              100,000         250,000    1,188,500    1,500,000                        
                                                                       
Quarter 03-31-17 equity method Loss                                                                    
                                                                       
Quarter 06-30-17 equity method Loss                                                                    
                                                                       
Quarter 09-30-17 equity method Loss   (375,000)                                 (375,000)                             
                                                                       
Quarter 12-31-17 equity method accounting   313,702                                  313,702                              
                                                                       
Impairment of Investment in 2017   (2,292,500)                                (792,500)   (1,500,000)                       
Balances as of 12/31/17  $695,477.00   $10,775.00   $   $   $100,000.00   $   $250,000.00   $334,702.00   $   $   $   $   $   $ 

 

 

33 
 
 

 

 

 

 

   INVESTMENTS  SHORT-TERM INVESTMENTS
                                           
   TOTAL 

Global

Hemp

 

Cannabis

Global

        Lynwood     Bougainville Ventues,  Gate C Research  Natural Plant    

TOTAL

Short-Term

  Global Hemp   
   INVESTMENTS  Group  Inc.  ECOX  Benihemp  JV  MoneyTrac  Inc.  Inc.  Extract  Vivabuds  Investments  Group  MoneyTrac
Investments made during 2018   986,654    986,654                                                            
                                                                       
Quarter 03-31-18 equity method Loss   (37,673)                                 (37,673)                             
                                                                       
Quarter 06-30-18 equity method Loss   (111,043)                                 (11,043)                             
                                                                       
Quarter 09-30-18 equity method Loss   (10,422)                  (10,422)                                            
                                                                       
Quarter 12-31-18 equity method Loss   (31,721)   (31,721)                                                          
                                                                       
Moneytrac investment reclassified to Short-Term investments   (250,000)                            (250,000)                       250,000         250,000 
                                                                       
Unrealized gains on trading securities - 2018                                                         560,000         560,000 
                                                                       
Impairment of investment in 2018   (933,195)   (557,631)             (89,578)             (285,986)                             
Balance @12-31-18  $408,077   $408,077   $   $   $   $   $   $   $   $   $   $810,000   $   $ 

 

 

 

34 
 
 

 

 

 

   INVESTMENTS  SHORT-TERM INVESTMENTS
                                           
   TOTAL 

Global

Hemp

 

Cannabis

Global

        Lynwood     Bougainville Ventues,  Gate C Research  Natural Plant    

TOTAL

Short-Term

  Global Hemp   
   INVESTMENTS  Group  Inc.  ECOX  Benihemp  JV  MoneyTrac  Inc.  Inc.  Extract  Vivabuds  Investments  Group  MoneyTrac
Investments made during quarter ended 03-31-19   129,040    129,040                                                             
                                                                       
Quarter 03-31-19 equity method Loss   (59,541)   (59,541)                                                            
                                                                       
Unrealized gains on trading securities - quarter ended 03-31-19                                                          (135,000)       $(135,000)
                                                                       
Balance @03-31-19  $477,576   $477,576   $   $   $   $   $   $   $   $   $   $675,000   $   $(135,000)
                                                                       
Investments made during quarter ended 06-30-19  $3,157,234   $83,646                                      $3,000,000   $73,588                
                                                                       
Quarter 06-30-19 equity method Income (Loss)  $(171,284)  ($141,870)                                     $(6,291)  $(23,123)               
                                                                       
Unrealized gains on trading securities - quarter ended 06-30-19  $                                                      (150,000)       $(150,000)
                                                                       
Balance @06-30-19  $3,463,526   $419,352   $   $   $   $   $   $   $   $2,993,709   $50,465   $525,000   $   $(285,000)

 

 

35 
 
 

 

 

 

 

 

   INVESTMENTS  SHORT-TERM INVESTMENTS
                                           
   TOTAL 

Global

Hemp

 

Cannabis

Global

        Lynwood     Bougainville Ventues,  Gate C Research  Natural Plant    

TOTAL

Short-Term

  Global Hemp   
   INVESTMENTS  Group  Inc.  ECOX  Benihemp  JV  MoneyTrac  Inc.  Inc.  Extract  Vivabuds  Investments  Group  MoneyTrac
                                                                       
Investments made during quarter ended 09-30-19  $186,263                                                $186,263                
                                                                       
Quarter 09-30-19 equity method Income (Loss)  $122,863   $262,789                                      $(94,987)  $(44,939)               
                                                                       
Sale of trading securities during quarter ended 09-30-19                                                         $(41,667)       $(41,667)
                                                                       
Unrealized gains on trading securities - quarter ended 09-30-19  $                                                      (362,625)       $(362,625)
                                                                       
Balance @09-30-19  $3,772,652   $682,141   $   $   $   $   $   $   $   $2,898,722   $191,789   $120,708   $   $(689,292)

 

 

36 
 
 

 

 

   INVESTMENTS  SHORT-TERM INVESTMENTS
                                           
   TOTAL 

Global

Hemp

 

Cannabis

Global

        Lynwood     Bougainville Ventues,  Gate C Research  Natural Plant    

TOTAL

Short-Term

  Global Hemp   
   INVESTMENTS  Group  Inc.  ECOX  Benihemp  JV  MoneyTrac  Inc.  Inc.  Extract  Vivabuds  Investments  Group  MoneyTrac
Investments made during quarter ended 12-31-19  $392,226   $262,414                                           $129,812                
                                                                       
Quarter 12-31-19 equity method Income (Loss)  $(178,164)  $(75,220)                                     $(23,865)  $(79,079)               
Reversal of Equity method Loss for 2019  $272,285                                           $125,143   $147,142                
Impairment of investment in 2019  $(3,175,420)  $(869,335)                                     $(2,306,085)  $                
Loss on disposition of investment  $(389,664)                                               $(389,664)               
Sale of trading securities during quarter ended 12-31-19  $                                                     $(17,760)       $(17,760)
                                                                       
Unrealized gains on trading securities - quarter ended 12-31-19  $                                                      (75,545)       $(75,545)
Balance @12-31-19  $693,915   $  $   $   $   $   $   $   $   $693,915   $   $27,403   $   $(782,597)

 

 

37 
 
 

 

 

   INVESTMENTS  SHORT-TERM INVESTMENTS
                                           
   TOTAL 

Global

Hemp

 

Cannabis

Global

        Lynwood     Bougainville Ventues,  Gate C Research  Natural Plant    

TOTAL

Short-Term

  Global Hemp   
   INVESTMENTS  Group  Inc.  ECOX  Benihemp  JV  MoneyTrac  Inc.  Inc.  Extract  Vivabuds  Investments  Group  MoneyTrac
                                                                       
Equity Loss for Quarter ended 03-31-20   126,845    126,845                                                             
                                                                       
Recognize Joint venture liabilities per JV agreement @03-31-20   394,848    394,848                                                             
                                                                       
Impairment of Equity Loss for Quarter ended 03-31-20   (521,692)   (521,692)                                                            
                                                                       
Unrealized gains on trading securities - quarter ended 03-31-19                                                          (13,945)       ($13,945)
Balance @03-31-20  $693,915   $   $   $   $   $   $   $   $   $693,915   $   $13,458   $   ($796,542)

 

 

38 
 
 

 

 

   INVESTMENTS  SHORT-TERM INVESTMENTS
                                           
   TOTAL 

Global

Hemp

 

Cannabis

Global

        Lynwood     Bougainville Ventues,  Gate C Research  Natural Plant    

TOTAL

Short-Term

  Global Hemp   
   INVESTMENTS  Group  Inc.  ECOX  Benihemp  JV  MoneyTrac  Inc.  Inc.  Extract  Vivabuds  Investments  Group  MoneyTrac
Equity Loss for Quarter ended 06-30-20   (7,048)   (7,048)                                                            
                                                                       
Impairment of Equity Loss for Quarter ended 06-30-20   7,048    7,048                                                             
                                                                       
Sales of of trading securities - quarter ended 06-30-20                                                          (13,458)       ($13,458)
Balance @06-30-20  $693,915   $   $   $   $   $   $   $   $   $693,915   $   $   $0   ($810,000)
                                                                       
Global Hemp Group trading securities issued   650,000        $650,000                                           $185,000   $185,000      
                                                                       
Investment in Cannabis Global                                                                     
                                                                       
Balance @09-30-20  $1,343,915   $   $650,000   $   $   $   $   $   $   $693,915   $   $185,000   $185,000   ($810,000)
                                                                       
Unrealized gain on Global Hemp Group securities - 4th Quarter 2020                                                         $54,064   $54,064      
                                                                       
Unrealized gains on Cannabis Global Inc securities - 4th Quarter 2020   208,086        $208,086                                                        
Balance @12-31-20  $1,552,001   $   $858,086   $   $   $   $   $   $   $693,915   $   $239,064   $239,064   ($810,000)
                                                                       
Investment in ECOX   650,000             $650,000                                      $620,133   $620,133      
                                                                       
Balance @03-31-21  $2,202,001   $   $858,086   $650,000   $   $   $   $   $   $693,915   $0   $859,197   $859,197   ($810,000)
                                                                       
Investments made during quarter ended 06-30-21   30,898                       $30,898                                         
                                                                       
Unrealized gain on Global Hemp Group securities - 2nd quarter 2021                                                         ($115,997)  ($115,997)     
                                                                       
Balance @06-30-21  $2,232,899   $   $858,086   $650,000   $   $30,898   $   $   $   $693,915   $   $743,200   $743,200   ($810,000)

 

 

 

39 
 
 

 

                   
  06-30-20 03-31-20 12-31-19 09-30-19 06-30-19 03-31-19 12-31-18 12-31-17    
This includes balances for: Note (h) Note (g) Note (f) Note (e) Note (d) Note (c) Note (b) Note (a)    
      - Debt obligation of JV 478,494 394,848 - 1,633,872 1,778,872 128,522 289,742 1,500,000  
      - Convertible NP, net of discount 2,784,044 3,040,324 3,193,548 2,688,555 2,149,170 1,536,271 1,132,668 394,555  
      - Long term debt - - - - - - - 172,856  
Total Debt balance 3,262,538 3,435,172 3,193,548 4,322,427 3,928,042 1,664,793 1,422,410 2,067,411  

  

Government Regulations

 

We are subject to local, federal and foreign laws and regulations pertaining to the sale of hemp derived CBD products in our operating jurisdictions, and we continuously monitor changes in laws, regulations and treaties.

 

The Agriculture Improvement Act of 2018, known as the "2018 Farm Bill", is United States federal legislation signed into law on December 20, 2018, that provides the legal framework for hemp-based products. The 2018 Farm Bill permanently removed “hemp” from the purview of the CSA, and accordingly, the U.S. Drug Enforcement Administration (“DEA”) no longer has any claim to interfere with the interstate commerce of hemp products. Some of the immediate impact from this legislation includes the ability for hemp farmers to access crop insurance and U.S. Department of Agriculture (“USDA”) programs for competitive grants.

 

The 2018 Farm Bill officially removes the DEA from enforcement of hemp regulations; however, the FDA retains its authority to regulate ingestible and topical hemp products, including hemp extracts that contain CBD. Although no longer a controlled substance under federal law, cannabinoids derived from industrial hemp are still subject to a patchwork of state regulations.

 

A range of federal laws and regulations govern sourcing, manufacturing, distribution, sales, and marketing of hemp derived CBD products in the U.S. Products sold for oral consumption as liquids, tablets, capsules, softgels, or gummies are under the purview of The Dietary Supplement Health and Education Act of 1994 (“DSHEA”). Under DSHEA, supplement manufacturing is regulated by the FDA for current Good Manufacturing Practices (“cGMP”) under 21 CFR Part 111.

 

In conjunction with the enactment of the 2018 Farm Bill, the FDA released a statement about the regulatory status of CBD. The statement noted that the 2018 Farm Bill explicitly preserved the FDA’s authority to regulate products containing cannabis or cannabis-derived compounds under the U.S. Federal Food, Drug, and Cosmetic Act (“FDCA”) and Section 351 of the Public Health Service Act. This authority allows the FDA to continue enforcing the law to protect the public while also providing potential regulatory pathways for products containing cannabis and cannabis-derived compounds. The statement also noted the growing public interest in cannabis and cannabis-derived products, including CBD, and informed the public that the FDA will treat products containing cannabis or cannabis-derived compounds as it does any other FDA-regulated products — meaning the products will be subject to the same authorities and requirements as FDA-regulated products containing any other substance, regardless of the source of the substance, including whether the substance is derived from a plant that is classified as hemp under the 2018 Farm Bill. The FDA’s CBD enforcement discretion and regulatory actions with regards to CBD provide regulatory guidance to the CBD industry.

 

40 
 
 

 

Based upon publicly available information, to our knowledge, the FDA has not taken any enforcement actions against CBD companies that are compliant with the FDCA.  The FDA, however, has sent warning letters to companies demanding they cease and desist from the production, distribution, or advertising of CBD products when these companies have made prohibited, misleading, and unapproved drug claims. We continue to monitor the FDA’s position on CBD.

 

We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public information; the handling of customer complaints; the requirement to provide warnings about exposures to chemicals with adverse health effects; and regulations prohibiting unfair and deceptive trade practices.

 

The growth and demand for online commerce has resulted in more stringent consumer protection laws that impose additional compliance burdens on online companies. These laws cover issues such as user privacy, spyware and the tracking of consumer activities, marketing e-mails and communications, other advertising and promotional practices, money transfers, pricing, product safety, content and quality of products and services, taxation, electronic contracts and other communications and information security.

 

There is uncertainty over whether or how existing laws governing issues such as sales and other taxes, auctions, libel, and personal privacy apply to the internet and commercial online services. These issues are predicted to take years to resolve. For example, tax authorities in some states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce. Furthermore, new state tax regulations may subject us to additional state sales and income taxes. Other areas that may result in significant additional taxes or regulatory restrictions include, without limitation, new legislation or regulation; the application of laws and regulations from jurisdictions whose laws do not currently apply; or the application of existing laws and regulations to the internet and commercial online services. These taxes or restrictions could have an adverse effect on our cash flow, output, and overall financial condition. Furthermore, there is a possibility that we may be financially responsible for past failures to comply with requirements.

 

Brazilian Law Regarding Cannabis and Hemp

 

Brazilian law currently prohibits cannabis cultivation, processing, and sales. This restriction applies to both marijuana and industrial hemp. There is no distinction between hemp and marijuana. As a result, there is no specific legislation on industrial hemp. However, on August 18, 2020, draft legislation was introduced that would allow Brazilian farmers to grow cannabis for medical and industrial purposes on domestic soil for the first time has been submitted to the country’s lower house of Congress. The bill was delivered to the House of Deputies speaker by lawmakers Paulo Teixeira and Luciano Ducci, co-sponsors of the bill who sit on the chamber’s special commission for the regulation of medicinal cannabis. On June 8, 2021, the bill was approved by the Brazilian Chamber of Deputies’ Special Commission and will now be submitted to the Federal Senate, Brazil's upper house of Congress. 

 

Uruguayan Law on Cannabis

 

Cannabis is legal in Uruguay, and is one of the most widely used drugs in the nation. President Jose Mujica signed legislation to legalize recreational cannabis in December 2013, making Uruguay the first country in the modern era to legalize cannabis.

 

41 
 
 

 

Sales and Marketing

 

We market and sell our services and products throughout the United States consistent with the Farm Bill, as well as in Canada and in the United Kingdom. We intend to expand our offerings to additional countries and jurisdictions that adopt state-regulated or government programs similar to the Farm Bill. Currently, we market and sell our hempSMART™ products directly through our website, and through our affiliate marketing program pursuant to which qualified sales affiliates use a secure multi-level-marketing sales software program that: facilitates order placement over the internet via a website; accounts for affiliate orders and sales; calculates referral benefits apportionable to specific sales associates; and calculates and accounts for loyalty and rewards benefits for returning customers. We plan to focus sales and marketing efforts with respect to our hempSMART™ products on direct sales on our website and intend to wind down and terminate our affiliate marketing and sales program during fiscal 2021. Currently, we market and sell our cDistro hemp-derived cannabinoid products through cDistro’s website, www.cdistro.com.

 

Research and Development

 

Our research and development activity to date has been primarily focused on formulations of our various hempSMART™ products.

 

Intellectual Property

 

In February 2019, the U.S. Patent and Trademark Office (“USPTO”) issued patent number 10,201,553 for our hempSMART™ Brain product. In addition, in June 2021, H Smart, Inc. was issued a trademark by the USPTO for the tradename hempSMART™  .

 

Competition

 

The CBD industry is highly competitive and fragmented with numerous companies, consisting of publicly- and privately-owned companies Our competitors include sellers of hemp-based CBD products and professional services firms dedicated to the regulated hemp industry. We compete in markets where hemp has been legalized and regulated, which includes the United States, Canada and the United Kingdom. Our marketing efforts in Brazil and Uruguay are in the development stages. We expect that the quantity and composition of our competitive environment will continue to evolve as the global hemp industry develops. Additionally, increased competition worldwide is possible to the extent that new states, jurisdictions and countries enter the marketplace as a result of continued enactment of regulatory and legislative changes that de-criminalize and regulate hemp products.

 

Legal Proceedings

 

Bougainville Ventures, Inc.  On March 16, 2017, we entered into a joint venture agreement with Bougainville to (i) jointly engage in the development and promotion of products in the legalized cannabis industry in Washington State; (ii) utilize Bougainville's high quality cannabis grow operations in the State of Washington, where it claimed to have an ownership interest in real property for use within the legalized cannabis industry; (iii) leverage Bougainville’s agreement with a Tier 3 I502 cannabis license holder to grow cannabis on the site; (iv) provide technical and management services and resources including, but not limited to: sales and marketing, agricultural procedures, operations, security and monitoring, processing and delivery, branding, capital resources and financial management; and (v) optimize collaborative business opportunities. We believe that some of the funds we paid to Bougainville were misappropriated and that there was self-dealing with respect to those funds. Additionally, we believe that Bougainville misrepresented material facts in the joint venture agreement including, but not limited to, Bougainville’s representations that: (i) it had an ownership interest in real property that was to be deeded to the joint venture; (ii) it had an agreement with a Tier 3 I502 cannabis license holder to grow cannabis on the real property; and (iii) that clear title to the real property associated with the Tier 3 I502 license would be deeded to the joint venture 30 days after we made our final funding contribution. As a result of the foregoing, on September 20, 2018, we filed a lawsuit against Bougainville, Andy Jagpal, Richard Cindric, et al.   in Okanogan County Washington Superior Court seeking legal and equitable relief for breach of contract, fraud, breach of fiduciary duty, conversion, recession of the joint venture agreement, an accounting, quiet title to real property in our name, for the appointment of a receiver, the return to treasury of 15 million shares of common stock issued by us to Bougainville, and, for treble damages pursuant to the Consumer Protection Act in Washington State. We filed a lis pendens on the real property. The case is currently in litigation.   

 

42 
 
 

 

Employees

 

As of September 22, 2021, we had 4 full-time employees and no part-time employees.

 

Company Information

 

We were incorporated in the State of Utah on October 4, 1985, under the name of Mormon Mint, Inc. In January 1999, Bekam Investments, Ltd. acquired 100% of our common stock and spun us off, changing our name to Converge Global, Inc. On October 31, 2009, we filed Articles of Merger with the State of Utah pursuant to which Sparrowtech Resources, Inc., a Nevada corporation, was merged with and into us. On September 4, 2015, Donald Steinberg and Charles Larsen purchased 400,000,000 shares of common stock and 10,000,000 shares of Class A Preferred Stock from our then President, resulting in a change of control of our Company. In connection with our change of control, we changed our business to focus on cannabis and legalized hemp and changed our name to Marijuana Company of America, Inc. with the State of Utah on November 9, 2015, which name change became effective on the OTC Markets on December 1, 2015.

 

ITEM 8: DESCRIPTION OF PROPERTY

 

Our executive office is located at 633 West Fifth Street, Suite 2826, Los Angeles, CA 90071. We lease our office for $2,349 per month pursuant to a lease which terminates on May 31, 2022. We believe that our existing facilities are suitable and adequate to meet our current needs. We intend to add new facilities or expand existing facilities as we add employees, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.

  

ITEM 9: MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  

 

You should read the following discussion and analysis of our financial condition and plan of operations together with “Summary Financial Data” and our financial statements and the related notes appearing elsewhere in this Offering Circular. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Offering Circular. All amounts in this Offering Circular are in U.S. dollars, unless otherwise noted.

 

Overview  

We are focused on the research and development of (i) various species of hemp; (ii) beneficial uses of hemp and hemp derivatives; (iii) indoor and outdoor cultivation methods for hemp; (iv) technology used for cultivation and harvesting of different species of hemp, including, but not limited to, lighting, venting, irrigation, hydroponics, nutrients and soil; (v) different industrial hemp derived CBD and the possible health benefits thereof; and (vi) new and improved methods of hemp cannabinoid extraction omitting or eliminating the delta-9 tetrahydrocannabinol “THC” molecule.

  

Specifically, we develop and sell consumer products that include industrial hemp derived, non-psychoactive CBD as an ingredient, under the brand name “hempSMART™” through our wholly-owned subsidiary, H Smart, Inc. In addition, we provide consulting services to licensed cannabis and/or hemp operators with respect to financial accounting and bookkeeping and real property management. Our business also includes making selected investments and entering into joint ventures with start-up businesses in the legalized cannabis and hemp industries.

 

 

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Our Products

 

hempSMART™

 

Our consumer products containing hemp and CBD are sold through our wholly-owned subsidiary H Smart, Inc. under the brand name hempSMART™. Our current hempSMART™ products offerings include the following:

 

  • hempSMART Brain™ a proprietary patented and formulated personal care consumer product encapsulated with enriched non-psychoactive industrial hemp derived CBD. This encapsulation is combined with other high quality, proprietary natural ingredients to compliment CBD to support the brain.

  • hempSMART Pain™ capsules formulated with 10mg of full spectrum, non-psychoactive CBD per serving, derived from industrial hemp, which along with a proprietary blend of other natural ingredients, are intended to deliver an all-natural formulation for the temporary relief of minor discomfort associated with physical activity.

  • hempSMART Pain Cream™ each container is formulated with 300mg of full spectrum non-psychoactive CBD derived from industrial hemp. This product contains a synergistic combination of natural botanicals and full spectrum hemp extract featuring CBD, cannabigerol, also known as CBG, and a broad range of terpenes. Our proprietary blend of Ayurvedic herbs along with menthol, cayenne pepper extract, rosemary oil, aloe gel, white willow bark, arnica, wintergreen extract and tea tree oil, is intended to provide an immediate cooling and soothing sensation. This topical product is formulated to help reduce minor discomfort and promote muscle relaxation on the areas to which it is applied.

  • hempSMART Drops™ full spectrum hemp CBD oil tincture drops available in 250mg and 500mg bottles, enriched with non-psychoactive industrial hemp derived CBD, and available in four different flavors (lemon, mint, orange and strawberry). These drops are free of the THC isolate.

  • hempSMART Pet Drops™ for cats and dogs, formulated with 250mg of full spectrum non-psychoactive CBD derived from industrial hemp. This product contains naturally occurring CBD derived from hemp seed oil, full spectrum hemp extract, fractionated coconut oil, and a rich bacon flavor.

  • hempSMART Face™ a nourishing facial moisturizer combines full spectrum CBD from hemp with a unique blend of Ayurvedic herbs and botanicals. This facial moisturizer is designed to refresh, replenish and restore skin, providing long lasting hydration and balance.

  • hempSMART Drink Mix, an industrial hemp based powderized premium CBD drink made with organic CBD infused with honey to be mixed with any beverage of preference.

Our Consulting Services

 

In addition to selling our hempSMART™ products, we also provide certain services to licensed cannabis and/or hemp operators. Our services include the following:

 

Financial Accounting and Bookkeeping

 

We provide financial accounting, bookkeeping and reporting protocols in order to allow licensed cannabis and/or hemp operators in those states where cannabis has been legalized for medicinal and/or recreational use, to report, collect, verify and state effective financial records and disclosure. We provide a comprehensive accounting strategy based on best accounting practices.

 

Real Property Management Consulting

 

Our property management consulting services consist of providing planning, budgeting, acquisition, accounting and management services to licensed cannabis and/or hemp operators in those states where cannabis and/or hemp has been legalized for medicinal and/or recreational use and who are searching for real property to conduct operations.

 

We have not yet entered into any engagements for such services and have not generated any revenue related to such services.

 

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cDistro Acquisition

 

On June 29, 2021, we acquired cDistro which is engaged in the hemp and CBD product distribution business. Specifically, cDistro distributes high quality hemp-derived cannabinoid products on its website, www.cdistro.com. cDistro (retail services/wholesale pricing) offers the CBD brands along with smoke and vape shop related products to wholesalers, c-stores, specialty retailers, and consumers in North America. We work exclusively with select manufacturers to deliver retail service at wholesale. 

 

Current Joint Ventures and Investments

 

Joint Ventures in Brazil and Uruguay

 

On September 30, 2020, we entered into two joint venture agreements with Marco Guerrero, our director, to form joint venture operations in Brazil and Uruguay to produce, manufacture, market and sell our hempSMART™ products in Latin America and to develop and sell hempSMART™ products globally.

 

Cannabis Global, Inc. 

 

Joint Venture

 

On May 12, 2021, we entered into a joint venture agreement with Cannabis Global pursuant to which we will invest up to $250,000 into MCOA Lynwood and Cannabis Global, through Natural Plant, an entity in which Cannabis Global owns a majority interest, will operate a regulated and licensed laboratory to manufacture various cannabis products in the State of California. As of June 30, 2021, we have invested $158,000.

 

Share Exchange

 

On September 30, 2020, we entered into a securities exchange agreement with Cannabis Global pursuant to which we issued 650,000,000 shares of our common stock to Cannabis Global in exchange for 7,222,222 shares of Cannabis Global common stock. In addition, we and Cannabis Global entered into a lock-up leak-out agreement which contains certain restrictions with respect to the sales of such securities.

 

Joint Venture Subject to Ongoing Dispute

 

On March 16, 2017, we entered into a joint venture agreement with Bougainville to, among other things, engage in the development and promotion of products in the legalized cannabis industry in Washington State. We believe that some of the funds we paid to Bougainville were misappropriated and that there was self-dealing with respect to those funds and that Bougainville misrepresented certain material facts in the joint venture agreement. As a result of the foregoing, on September 20, 2018, we filed suit against Bougainville, Andy Jagpal, Richard Cindric, et al. in Okanogan County Washington Superior Court.

 

Results of Operations 

 

Comparison of the Year Ended December 31, 2020 and 2019

 

Revenues

 

Total revenues for the year end December 31, 2020 and December 31, 2019, were $280,653 and $695,076, respectively, a decrease of $414,423. This decrease is attributable to the global COVID-19 pandemic which affected the level of sales of our hempSMART products.

 

During 2020, the Company released a new industrial hemp based powderized premium CBD drink made with organic CBD infused with honey to be mixed with any  beverage of preference. The Company also offered online subscription for memberships and other marketing tools for our associates.

 

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The following table identifies our new product offerings in 2020 and the revenues produced from sales of our products in 2020 and 2019:

 

   2020  2019   
Body  $3,901   $10,503    
Brain Capsules   29,135    68,182    
Drink Mix   2,966    —     New Product for 2020
Drops   152,121    341,555    
Face Moisturizers   13,951    36,979    
Pain Capsules   8,308    53,969    
Pain Cream   55,938    126,099    
Pet Drops   14,332    57,789    
TOTAL  $280,653   $695,076    

 

Related Party Sales

 

Related party sales contributed $13,069 and $21,157 to our revenue for 2020 and 2019, respectively. Related party sales are comprised of sales of our hempSMART products to our directors, officers, and sales team members. No related party sales were for services. All sales were made at listed retail prices and were for cash consideration.

 

Costs of Sales

 

Costs of sales primarily consist of inventory cost and overhead, manufacturing, packaging, warehousing, shipping and direct labor costs directly attributable to our hempSMART products. For the years ended December 31, 2020 and December 31, 2019, our total costs of sales were $159,304 and $248,556, respectively. The decrease was primarily due to a decrease in sales volume due to the COVID-19 pandemic.

 

Gross Profit

 

For the years ended December 31, 2020 and December 31, 2019, gross profit was $121,349 and $446,520, respectively. This decrease was primarily due to the pandemic affecting the opportunity for our associates to sell higher volumes of hempSMART products, as our sales developed through direct sales efforts and through the implementation and development of our affiliate sales program. Gross margins were 43.2% and 64.2% for the years ended December 31, 2020 and December 31, 2019, respectively. The Company has incurred net losses from operations of $4,854,891 and $6,470,818 for the years ended December 31, 2020 and 2019, respectively.

 

The following is a tabular breakdown of expenses related to selling and marketing, payroll and related expenses, stock-based compensation and general and administrative expenses:

 

Expense  2020  2019  Variance
Stock-based compensation  $3,014,888   $1,417,850   $1,597,038 
Consulting fees   236,343    1,793,260    (1,556,917)
Officer's compensation   223,356    380,371    (157,015)
Legal expense   171,680    207,453    (35,773)
Marketing compensation   154,430    40,754    113,676 
Marketing /media   125,490    698,247    (572,757)
Investor relation   123,399    121,490    1,909 
Accounting   111,810    94,318    17,492 
Board of Director fees   91,010    627,166    (536,156)
Audit fee   74,475    55,032    19,443 
Website development costs   56,260    141,275    (85,015)
Rent expense   51,526    31,284    20,242 
Independent contractor   47,800    4,500    43,300 
Web sales commission   30,632    117,081    (86,449)
UK contract compensation   26,704    320,829    (294,125)
SEC Filing fees   16,668    29,182    (12,514)
Office supplies   6,741    12,898    (6,157)
Advertising and promotion   4,012    209    3,803 
Bank service charges   2,120    122,815    (120,695)
Fees/licensing   1,252    27,427    (26,175)
Wholesale commissions   994    12,512    (11,518)
Administrative compensation   —      405,533    (405,533)
Software   —      13,307    (13,307)
Special events   —      22,876    (22,876)
All other expenses, net *   404,650    219,669    184,981 
Total payroll and general and administrative expenses  $4,976,240   $6,917,338   $(1,941,098)

 

*This represents other individually immaterial general and administrative expenses in the ordinary course of business that were not compensation to any third-party vendors.

 

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Stock-based compensation increased by $1,597,038 primarily due to stock-based compensation in the form of Series B Preferred Stock issued to the Chief Executive Officer during the year ended December 31, 2020 as stock-based compensation was $1,417,850 for the year ended December 31, 2019 as compared to $3,014,888 for the year ended December 31, 2020. Administrative compensation costs decreased from $405,533 in 2019 to $0 in 2020, respectively. This $405,533 decrease was due to the elimination of unnecessary positions from the Company’s administration complemented with the hiring of new marketing staff which is reflected in the increase of $113,676 in marketing compensation as this expense increased to $154,430 in 2020 from $40,754 in 2019. Marketing/media costs decreased $572,757 from $698,247 in 2019 to $125,490 in 2020, respectively, due to the effects of the COVID-19 pandemic. We had a decrease in Board of Directors fees of $536,156 from $627,166 in 2019 to $91,010 in 2020, respectively. These decreases were due to equity compensation issued to the former Chief Executive Officer and former Executive Vice President. UK contract compensation decreased $294,125 due to the termination of the Company’s agreement with the former Global Sales Director as the expense was $26,704 in 2020 as compared to $320,829 in 2019. Bank service charges decreased $120,695 due to less wire transfers made to our Global Sales Director in the UK as the expense were $2,120 in 2020 as compared to $122,815 in 2019. In addition, web sales commissions and wholesale commissions also saw significant decreases as a direct relation to a decrease in our sales related to the COVID-19 pandemic. 

 

Overall, our total operating expenses decreased 28% from 2019 to 2020 as the decrease was $1,941,098 from $6,917,338 in 2019 to $4,976,240 in 2020.

 

The following is a tabular breakdown of our 2020 stock based bonus compensation for officers and directors as compared to 2019.

  

Officer and Director  2020  2019
Donald Steinberg  $—     $1,367,204 
Charles Larsen  $—     $40,000 
Robert Coale  $—     $266,333 
Edward Manolos  $15,600   $356,833 
Gloria Albarran-Lynch  $70,350   $—   
Themistocles Psomiadis  $19,010   $—   
Jesus Quintero  $2,502,140   $262,333 

 

The 2020 stock compensation bonuses were issued by the Board of Directors pursuant to our 2016 Equity Incentive Plan and contracts with our directors and officers. Pursuant to our 2016 Equity Incentive Plan, the Company has discretion to make stock awards to its affiliates for past services, in lieu of bonuses or other cash compensation, for directors’ compensation or for any other valid purpose. At December 31, 2020, we reviewed the performance of our staff and affiliates, and in making the 2020 awards, determined the awards justified because of the accomplishments of our staff and affiliates.

 

Our 2016 Equity Incentive Plan issuances to affiliates as of December 31, 2020 increased by $10,780. This was due to the Company’s performance during a difficult 2020 year due to the COVID-19 pandemic. The balance was in stock based compensation in 2020 as it was for 2019.

 

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The balance of our stock-based compensation in 2020, as compared to 2019 was for consulting services as follows:

 

    2020 Stock-Based   2019 Stock-Based        
Consultant   Compensation   Compensation   Variance   Nature of Consultant Services Provided
Paula Vetter   $ 19,065     $ 9,905     $ 9,160     Consulting Services - Medical Advisory Specialist for hempSMART during 2020 and 2019
Gloria Lynch     70,350       —         70,350     Bonus as part of  2016 Equity Incentive Plan during 2020 and 2019 for services in restructuring Company
Lauren Regier     41,975       10,000       31,975     Consulting Services - Web and graphic design during 2020 and 2019
Tad Mailander     43,950       —         43,950     Consulting Services - Legal services during 2020
Otto Creative Studio     31,140       —         31,140     Consulting Services - IT services during 2020
Ian Harvey     —         500       (500 )   Consulting - Marketing services during 2019
Trevor Muehlfelder     —         25,833       (25,833 )   Consulting Services – Research of international hemp regulations during 2019
Robert L. Hymers III   $ 356,730     $ 568,333     $ (211,603 )   Settlement of delinquent consulting fees owed during 2020 and 2019

 The objective outcomes resulting from the consulting services are summarized as follows:

 

·The Company lowered its expense rate by becoming more efficient, reducing head count, and making efficient and effective cashflow decisions.

 

·The Company paid off most variable priced convertible notes prior to conversion over the last quarter with funds raised from its registration statement on Form S-1.

 

·The Company successfully negotiated a full settlement of its largest senior convertible note holder at a fixed price, preserving stockholder value and minimizing the impact of the dilutive nature of the notes.

 

·The management team has helped pivot from the legacy affiliate marketing model for hempSMART to the new direct to consumer e-commerce marketing model. This required significant changes to the culture, business plan and branding of the products.

 

 

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·The Company successful fully drew down on the equity line with White Lion registered pursuant to its registration statement on Form S-1 and was able to get a second registration statement on Form S-1 for a primary offering effective to obtain funds for operations and expansion.

 

·The Company managed to not only survive during the COVID pandemic, but actually grew and thrived due to key management decisions along the way and the personal sacrifice of our Chief Executive Officer, Jesus Quintero, who paid for business expenses for several months on his personal business card to help float the Company during periods where funds were depleted.

 

·The executive management team has overseen significant efforts to expand into South America and move key parts of its supply chain to Uruguay to reduce the cost of goods sold and increase gross margins and overall profitability.

 

·The Company has successfully negotiated acquisitions and deals that resulted in the Company’s market capitalization increasing substantially during the year to enhance stockholder value.

 

·The Company successfully removed over three billion shares that were reserved with the transfer agent due to successful settlement of convertible debt, resulting in less dilution and more shares available for financing and acquisitions. 

 

We anticipate continuing to reduce our dependence on stock-based compensation in the future. However, given our present cash position, and because of possible increased operational costs including overhead, product manufacturing and development, and related costs, we may, to the extent necessary, utilize stock-based compensation in the future to compensate key product development, operations and sales and marketing personnel. 

 

Operating Losses

For the year ended December 31, 2020, operating expenses were $4,976,240 or 1,773% of total revenues, as compared to $6,917,338 or 995.2% of total revenues for the year ended December 31, 2019. This decrease of $1,941,098 was due to an overall restructuring of the Company’s operations. Such operating losses reflect the effectiveness of the Company’s new management team in 2020. We expect to reduce our losses as we continue to implement new sales strategies and cost-cutting measures in the near future until profitability is achieved, which is not certain. Our operations are subject to numerous risks associated with establishing any new business, including unforeseen expenses, delays and complications. There can be no assurance that we will achieve or sustain profitable operations. This increase was primarily related to the Company issuing less stock-based compensation for consulting services.

Other Income (Expense)

Other income (expense) for the years ended December 31, 2020 and December 31, 2019 included expense of $7,290,491 and $13,709,500, respectively. This decrease of $6,419,009, which was primarily due to a decrease of $1,682,956 in interest expense from $4,682,247 for the year ended December 31, 2019 to $2,999,291 for the year ended December 31, 2020; a $1,497,674 reduction in legal contingency expense from $1,497,674 for the year ended December 31, 2019 as compared to $0 for the year ended December 31, 2020; an increase in loss on change in fair value of derivative liabilities of $2,574,502 as the expense for the period ended December 31, 2020 was $4,698,072 as compared to $2,123,570 for the period ended December 31, 2019; an unrealized gain on trading securities of $248,204 for the year ended December 31, 2020 as compared to an unrealized loss on trading securities of $677,584 for the year ended December 31, 2019; $77,624 gain on settlement of debt for the year ended December 31, 2020 as compared to loss on settlement of $3,770,974 for the year ended December 31, 2019.

Income Tax Expense (Benefit)

We did not have any income tax expense or benefit for the years ended December 31, 2020 and December 31, 2019.

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Net Income (Loss)

As a result of the factors discussed above, net losses for the years ended December 31, 2020 and December 31, 2019 were $12,145,382 and $20,180,318, respectively. For December 31, 2020 and December 31, 2019, these net losses represented a 4,328% and 2,903% of total revenues for the respective periods.

 

hempSMART

 

Segment Information

 

Accounting Standards Codification (“ASC”) subtopic Segment Reporting 280-10 ("ASC 280-10") establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company's only material principal operating segment. The following table represents the Company’s hempSMART business, which is its sole operating segment as of December 31, 2020 and 2019: 

 

hempSMART      
STATEMENT OF OPERATIONS      
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
       
   For Years Ended December 31,
   2020  2019
Revenues  $280,653   $695,076 
Cost of Sales   159,304    248,556 
Gross profit   121,349    446,520 
           
Operating Expenses          
  Depreciation expense   5,933    7,299 
  Selling and Marketing expenses   393,799    1,090,981 
  Payroll and related expenses   165,491    —   
  Stock-based compensation   207,965    —   
  General and administrative expenses   217,288    761,128 
Total Expenses   990,477    1,859,408 
           
Net Loss from Operations  $(869,128)  $(1,412,888)

Legal Settlement Expense

Natural Plant Extract of California & Subsidiaries Joint Venture

On April 15, 2019, the Company entered into a joint venture agreement with Natural Plant Extracts of California, Inc. and subsidiaries ("NPE"). The purpose of the joint venture was to utilize NPE’s California and city cannabis licenses to jointly operate a business named “Viva Buds” to operate a licensed cannabis distribution service in California. In exchange for acquiring 20% of NPE’s common stock, the Company agree to pay $2 million and issue NPE  $1 million of the Company’s restricted common stock. As of February 3, 2020, the Company was in arrears in its payment obligations under the joint venture agreement, and the parties entered into a settlement and release of all claims terminating the joint venture. The parties agreed to reduce the Company’s equity ownership in NPE from 20% to 5%. The Company also agreed to pay NPE $85,000 and the balance of $56,085.15 paid in a convertible promissory note issued with terms allowing NPE to convert the note into the Company’s common stock at a 50% discount to the closing price of the Company’s common stock as of the maturity date. As of the date hereof, the Company satisfied its payment obligations under the settlement agreement.

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Caren Glasser

On March 2, 2020, Caren Glasser filed a request for arbitration against the Company alleging non-payment for past due compensation. The case was filed with the American Arbitration Association under Case no. 01-20-0000-6290. The Company and Ms. Glasser agreed to settle her dispute on May 7, 2020. The settlement agreement obligates the Company to pay Ms. Glasser $24,000 within 30 days of Ms. Glasser’s review and execution, consistent with the Older Workers Benefit Protection Act (29 U.S.C. § 626(f). The Company made this payment on June 12, 2020.

Comparison of the Three Months Ended June 30, 2021 and 2020

 

Revenues

 

Total revenues for the three months ended June 30, 2021 and 2020, were $16,880 and $82,958, respectively, a decrease of $66,078. This decrease is attributable to our new eCommerce sales platform as well as the slowing of the general market demand for our products and services due to the COVID-19 pandemic. Changes to our sales strategy include the rebranding of hempSMART’s products.

 

The following table identifies a comparison of our sales of products during the three months ended June 30, 2021 and 2020, respectively: 

 

Products  June 30, 2021  June 30, 2020
Body Lotion  $403   $1,297 
Brain   270    9,558 
Drink Mix   24    2,052 
Drops   10,352    38,908 
Face Moisturizer   89    6,436 
Pain Capsules & cDistro products (2021 only)   342    2,548 
Pain Cream   4,668    17,058 
Pet Drops   732    5,101 
Totals  $16,880   $82,958 

 

Related Party Sales 

 

Related party sales contributed $0 and $5,131 to revenues for the three months ended June 30, 2021 and 2020, respectively. Related party sales are comprised of sales of our hempSMART products to our directors, officers, employees, and sales team members. No related party sales were for services. All sales were made at listed retail prices and were for cash consideration.

 

Costs of Sales

 

Costs of sales primarily consist of inventory cost and overhead, manufacturing, packaging, warehousing, shipping, and direct labor costs directly attributable to our hempSMART products. For the three months ended June 30, 2021 and 2020, our total costs of sales were $3,301 and $39,187, respectively, a decrease of $35,886. The decrease in costs of sales is due to a decline in sales as a result of the COVID-19 pandemic.

 

Gross Profit

 

For the three months ended June 30, 2021 and 2020, gross profit was $13,579 and $43,771, respectively, a decrease of $30,192. This decrease was primarily attributed to new pricing and promotions associated with our sales restructuring and new sales strategies, along with the effects of the COVID-19 pandemic during the three months ended June 30, 2021. As a result, the gross margins were 80.4% and 56.2% for the three months ended June 30, 2021 and 2020, respectively.

 

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Selling and Marketing Expenses

For the three months ended June 30, 2021 and 2020, selling and marketing expenses were $155,212 and $74,212, respectively, an increase of $81,014. The increase is due primarily to the effects of the restructuring of our sales team and new sales strategies deployed during the three months ended June 30, 2021, as compared to June 30, 2020. These increases were mainly attributable to advertising/promotions of $33,769 and digital media of $47,245. The changes to the sales strategy implemented during the quarter ended June 30, 2021 included rebranding of hempSMART’s products.

Payroll and Related Expenses

For the three months ended June 30, 2021 and 2020, payroll and related expenses were $132,257 and $95,644, respectively, an increase of $36,613. This increase is attributed to an increase in headcount during the three months ended June 30, 2021, as compared to June 30, 2020.

Stock-based Compensation

For the three months ended June 30, 2021 and 2020, stock-based compensation was $139,000 and $536,452, respectively, a decrease of $397,452. This decrease was due to less shares issued to our officers and vendors during the three months ended June 30, 2021, as our cash position was higher as compared to the three-month period ended June 30, 2020.

General and Administrative Expenses

General and administrative expenses increased to $611,970 for the three months ended June 30, 2021 as compared to $211,116 for the three months ended June 30, 2020. General and administrative expenses include research and development, building rent, utilities, legal fees, office supplies, subscriptions, and office equipment. The increase of $400,854 during the three months ended June 30, 2021 is primarily attributed to increased legal fees of $162,510 related to acquisition costs and SEC filings, $87,901 for investor relations as we expanded our investor/stockholder communications, $24,750 in additional audit fees related to potential acquisition projects, $18,843 in director and officer liability insurance as rates were increased during the period due to cannabis industry risk assessments, $36,688 in travel attributed to investor and marketing events, as well as our events, $16,818 in bank fees due to wire transfers relating to payments to an investor, marketing and operation vendors, $10,000 in board fees as directors were paid in cash instead of stock, $9,527 in research and development expenses related to development of future products and $19,729 in shipping costs related to implementation and transfer of inventory to our outsourced logistics warehouse in the United States and Europe.

Gain on Change in Fair Value of Derivative Liabilities

During the three months ended June 30, 2021 and 2020, we issued convertible promissory notes and warrants with an embedded derivative, all requiring us to adjust to reflect the fair value of the derivatives each reporting period, and mark to market as a non-cash adjustment to our current period operations. This resulted in gains of $696,729 and $1,572,964 change in fair value of derivative liabilities for the three months ended June 30, 2021 and 2020, respectively.

Loss on Equity Investment

During the three months ended June 31, 2021 and 2020, we adjusted the carrying value of our investment for our pro rata share of equity investment of $394,194 and $7,048, respectively.

Loss on Settlement of Debt

During the three months ended June 30, 2021 and 2020, we realized a loss on settlement of debt of $96,750 and $0, respectively.

 

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Interest Expense

Interest expense during the three months ended June 30, 2021 was $891,783 compared to $881,945 for the three months ended June 30, 2020. Interest expense primarily consists of interest incurred on our convertible and non-convertible debt. The debt discounts amortization incurred during the three months ended June 30, 2021 and 2020 was $433,073 and $592,338, respectively.

Net Loss

Our net loss for the three months ended June 30, 2021 and 2020 was $1,828,117 and $186,819, respectively, an increase of $1,641,298. The net loss of $1,828,117 for the three months ended June 30, 2021 represents 10,830% of total revenues for the period. The net loss of $186,819 for the three months ended June 30, 2020, represents 225.2% of total revenues for the period.

Comparison of the Six Months Ended June 30, 2021 and 2020

 

Revenues

 

Total revenues for the six months ended June 30, 2021 and 2020 were $51,810 and $164,777, respectively, a decrease of $112,967. The decrease in total revenues of hempSMART™ products was due to the decrease in volume of sales as a result of the COVID-19 pandemic and our new eCommerce sales platform.

 

The following table identifies our product offerings and the revenues related to these products for the six months ended June 30, 2021 and 2020, respectively:

 

Products  June 30, 2021  June 30, 2020
Body Lotion  $1,067   $2,452 
Brain   361    19,674 
Drink Mix   167    2,052 
Drops   29,716    86,132 
Face Moisturizer   2,793    7,309 
Pain Capsules & cDistro products (2021 only)   343    3,646 
Pain Cream   16,423    31,906 
Pet Drops   940    11,606 
Totals  $51,810   $164,777 

 

Related Party Sales 

 

Related party sales contributed $0 and $8,303 to revenues for the six months ended June 30, 2021 and 2020, respectively. Related party sales are comprised of sales of our hempSMART products to our directors, officers, employees, and sales team members. No related party sales were for services. All sales were made at listed retail prices and were for cash consideration.

 

Costs of Sales

 

Costs of sales, include the costs of product development, manufacturing, testing, packaging, storage and sale. For the six months ended June 30, 2021 and 2020, costs of sales were $28,481 and $73,392, respectively, a decrease of $44,911. The decrease was a result of decreased growth in the marketing and selling of our hempSMART™ products.

 

Gross Profit

 

For the six months ended June 30, 2021 and 2020, gross profit was $23,329 and $91,385, respectively, a decrease of $68,056. This decrease was primarily attributed to our new sales platform and new   sales pricing and promotions, along with the effects of the COVID-19 pandemic during the six months ended June 30, 2021. As a result, our gross margins were 45.0% and 58.4% for the six months ended June 30, 2021 and 2020, respectively.

 

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Selling and Marketing Expenses

For the six months ended June 30, 2021 and 2020, selling and marketing expenses were $262,761 and $200,667, respectively, an increase of $62,094. This increase was attributed to our investment in social media advertising in support of our new eCommerce program promoting our rebranded hempSMART products.

Payroll and Related Expenses

 

For the six months ended June 30, 2021 and 2020, payroll and related expenses was $270,402 and $196,843, respectively, an increase of $73,559. This increase is attributed to additional head counts created during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Stock-based Compensation

For the six months ended June 30, 2021 and 2020, stock-based compensation was $158,900 and $542,767, respectively, a decrease of $383,867. This decrease is attributed to our improved cash position during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

General and Administrative Expenses

General and administrative expenses increased to $1,137,652 for the six months ended June 30, 2021 compared to $415,172 for the six months ended June 30, 2020. General and administrative expenses include research and development, building rent, utilities, legal fees, office supplies, subscriptions, and office equipment. The increase of $722,480 during six months ended June 30, 2021 were primarily attributed to $23,016 in bank fees related to wire transfer fees, $46,000 in board of director fees due to renegotiated rates during the six months ended June 30, 2021, $114,132 in consulting fees related to services for medical advisory and strategic planning, $41,550 of additional fees paid for director and officer liability insurance as rates were increased dramatically by insurance carriers due to cannabis industry risk assessments, $149,720 more in investor relations during the six months ended June 30, 2021 as we expanded our investor/stockholder communications, $297,469 of additional legal consulting fees which were related to various lawsuits, SEC filings and international work related to the formation of our new subsidiaries in Brazil and Uruguay.

Loss/Gain on Change in Fair Value of Derivative Liabilities

During the six months ended June 30, 2021 and 2020, we issued convertible promissory notes and warrants with an embedded derivative, all requiring us to adjust to the fair value of the derivatives each reporting period, and mark to market as a non-cash adjustment to our current period operations. This resulted in a loss of $1,629,289 and a gain of $1,142,272 change in fair value of derivative liabilities for the six months ended June 30, 2021 and 2020, respectively.

Loss on Equity Investment

During the six months ended June 30, 2021 and 2020, we adjusted the carrying value of our investment for our pro rata share of equity investment of $394,194 and $133,893, respectively.

Loss/Gain on Settlement of Debt

During the six months ended June 30, 2021 and 2020, we realized a loss on settlement of debt of $164,977 and a gain of $3,409, respectively. These were related to the payoffs of settlement agreements made in the ordinary course of our business during the six months ended June 30, 2021 and 2020, respectively.

Interest Expense

Interest expense during the six months ended June 30, 2021 and 2020 was $1,992,745 and $1,772,096, respectively. Interest expense primarily consists of interest incurred on our convertible and non-convertible debt. The debt discounts amortization during the six months ended June 30, 2021 and 2020 was $744,783 and $1,028,931, respectively.

Net Loss

Our net loss for the six months ended June 30, 2021 and 2020 was $5,486,107 and $2,305,121, respectively, an increase of $3,180,986. The net loss of $5,486,107 for the six months ended June 30, 2021 represents 10,589% of total revenues for the period. The net loss of $2,305,121 for the six months ended June 30, 2020, represents 1,390% of total revenues for the period.

 

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Liquidity and Capital Resources

Comparison of the Year Ended December 31, 2020 and 2019

As of December 31, 2020 and December 31, 2019, our operating activities produced negative cash and cash equivalents of $1,723,950 and $2,816,282, respectively. Our primary internal sources of liquidity were provided by an increase in proceeds from the issuance of note payables of $1,017,664 for December 31, 2020 as compared to $2,802,500 for December 31, 2019, and a decrease in proceeds from the sale of note payables to a related party of $75,000 as compared to $42,861 in repayments to a related party for December 31, 2019. We experienced an increase in proceeds from sales of our common stock of $478,685 for December 31, 2020 as compared to $90,000 for December 31, 2019. During the period ended December 31, 2020, we relied upon external financing arrangements to fund our operations. During the year ended December 31, 2019, we entered into several separate financing arrangements with St. George Investments, LLC, a Utah limited liability company, in which we borrowed an aggregate of $2,541,470, the principal of which is convertible into shares of our common stock (see Note 4, Convertible Note Payable). Our ability to rely upon external financing arrangements to fund operations is not certain, and this may limit our ability to secure future funding from external sources without changes in terms requested by counterparties, changes in the valuation of collateral, and associated risk, each of which is reasonably likely to result in our liquidity decreasing in a material way. We intend to utilize cash on hand, loans and other forms of financing such as the sale of additional equity and debt securities and other credit facilities to conduct our ongoing business, and to also conduct strategic business development and implementation of our business plans generally.

Operating Activities

For the years ended December 31, 2020 and 2019, the Company used cash in operating activities of $1,723,950 and $2,816,282, respectively. Operating activities consist of corporate overhead and product development of our hempSMART™ products. Increases are due primarily to increases in executive compensation, professional fees, and product development costs.

Investing Activities

For the years ended December 31, 2020 and December 31, 2019, net cash provided by and used in investing activities was $118,984 and $226,169, respectively. For the year ended December 31, 2020, the Company used $6,016 for the purchase of equipment, while receiving $125,000 in proceeds from the disposition of an investment. For the year ended December 31, 2019, the cash used in investing continued to be attributed to our acquisition of an interest NPE and an interest in the Global Hemp Group joint venture. 

Financing Activities

For the years ended December 31, 2020 and 2019, financing activities were a source of cash of $1,467,704 and $2,894,639, respectively. For the years ended December 31, 2020 and 2019, this was primarily from proceeds of $1,017,664 and $2,802,500, respectively, from the issuance of notes payable; and repayment to related parties of $75,000 and $42,861 for the year ended December 31, 2020 and 2019, respectively. The Company received $478,685 and $90,000 for the years ended December 31, 2020 and 2019, respectively, from the sale of common stock. For the year ended December 31, 2020, the Company received proceeds of $35,500 from a payroll payment protection loan from the Small Business Administration and also received proceeds of $10,855 from the sale of its common stock.

We currently do not have sufficient cash and liquidity to meet our anticipated working capital for the next twelve months. Historically, we have financed our operations primarily through private sales of our common stock. If our sales goals for our hempSMART™ products do not materialize as planned, and we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all.

 

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Comparison of the Six Months Ended June 30, 2021 and 2020

We have generated a net loss from continuing operations for the six months ended June 30, 2021 of $5,486,107 and used $1,841,640 cash for operations. As of June 30, 2021, we had total assets of $6,605,409, which short-term investments of $743,200, inventory of $203,898, and other current assets of $93,830. The other current assets consisted of $93,830 in advances to our new Brazilian operations, a $12,500 non-trade receivable due from a brokerage firm and advance payments to vendors.

During the six months ended June 30, 2021 and 2020, we met our capital requirements through a combination of loans, sales of equity and convertible debt instruments; however, we will need to secure additional external funding in order to continue our operations. Our primary internal sources of liquidity were provided by an increase in proceeds from the issuance of notes payable of $1,508,250 and sale of our common stock for gross proceeds of $1,358,767 for the six months ended June 30, 2021 as compared to an increase in proceeds from the issuance of note payables of $442,000 and a government loan due to COVID-19 of $35,500 for the six months ended June 30, 2020. Our ability to rely upon external financing arrangements to fund operations is not certain, and this may limit our ability to secure future funding from external sources without changes in terms requested by counterparties, changes in the valuation of collateral, and associated risk, each of which is reasonably likely to result in our liquidity decreasing in a material way. We intend to utilize cash on hand, loans and other forms of financing such as the sale of additional equity and debt securities and other credit facilities to conduct our ongoing business, and to also conduct strategic business development and implementation of our business plans generally. However, we may be unable to raise additional funds when needed on favorable terms, or at all, which may have a negative impact on our financial condition and could force us to curtail or cease our operations.

Cash Flows from Operating Activities

For the six months ended June 30, 2021, we used cash in operating activities of $1,841,640. For the six months ended June 30, 2020, we used cash in operating activities of $669,005. This decrease of $1,172,635 is due primarily to loss for the period which was offset by stock-based compensation and continued implementation of our business plans, operations, management, personnel and professional services.

Cash Flows from Investing Activities

During the six months ended June 30, 2021, we used $289,439 in investing activities related to purchase of equipment and property of $107,934, $30,898 to establish a joint venture and $150,607 in the acquisition of a new business. During the six months ended June 30, 2020, we used $1,271 related to our purchase of property and equipment.

Cash Flows from Financing Activities

During the six months ended June 30, 2021, cash provided by financing activities was $2,236,387 as a result of our receipts of funds from the issuance of notes payable of $1,508,250 and sale of our common stock of $1,358,767, along with repayments of notes payable of $610,630 and repayments of related party notes of $20,000. During the six months ended June 30, 2020, cash provided by financing activities was $477,500 as a result of our receipt of funds from the issuance of notes payable of $442,000 and a government loan due to COVID-19 of $35,500.

Our business plans have not generated significant revenues and as of the date of this filing are not sufficient to generate adequate amounts of cash to meet our needs for cash. Our primary source of operating funds in 2021 and 2020 has been proceeds from the sale of our common stock and the issuance of convertible debt and non-convertible debt. We have experienced net losses from operations since inception, but expect these conditions to improve in 2021 and beyond as we develop direct sales and marketing programs. We had stockholders' deficiencies at June 30, 2021 and require additional financing to fund future operations. As of the date of this filing, and due to the early stages of operations, we have insufficient sales data to evaluate the amounts and certainties of cash flows, as well as whether there has been material variability in historical cash flows.

 

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We currently do not have sufficient cash and liquidity to meet our anticipated working capital for the next twelve months. Historically, we have financed our operations primarily through private sales of our common stock and debt. If our sales goals for our hempSMART™ products do not materialize as planned, and we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all.

Off-Balance Sheet Arrangements; Commitments and Contractual Obligations

 

We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources nor did we have any commitments or contractual obligations for the periods presented.

 

JOBS Act

 

On April 5, 2012, the JOBS Act was enacted. 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. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen to opt out of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition periods for complying with new or revised accounting standards is irrevocable.

 

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain exemptions, including, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of Sarbanes-Oxley and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

 

Critical Accounting Policies and Estimates 

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect amounts reported in those statements. We have made our best estimates of certain amounts contained in our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. However, application of our accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties, and, as a result, actual results could differ materially from these estimates. Management believes that the estimates, assumptions, and judgments involved in the accounting policies described below have the most significant impact on our consolidated financial statements.

 

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

 

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Cash and Cash Equivalents

 

We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents are held in operating accounts at a major financial institution.

 

Inventory

 

Inventory is primarily comprised of products and equipment to be sold to end-customers. Inventory is valued at cost, based on the specific identification method, unless and until the market value for the inventory is lower than cost, in which case an allowance is established to reduce the valuation to market value. As of December 31, 2020 and December 31, 2019, market values of all of our inventory were greater than cost, and accordingly, no such valuation allowance was recognized.

 

Deposits

 

Deposits are comprised of advance payments made to third parties, primarily for inventory for which we have not yet taken title. When we take title to inventory for which deposits are made, the related amount is classified as inventory, then recognized as a cost of revenues upon sale. See “Costs of Revenues.”

 

Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets are primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.

 

Accounts Receivable

 

Accounts receivable are recorded at the net value of face amount less any allowance for doubtful accounts. On a periodic basis, we evaluate our accounts receivable and, based on a method of specific identification of any accounts receivable for which we deem the net realizable value to be less than the gross amounts of accounts receivable recorded, we establish an allowance for doubtful accounts for those balances. In determining our need for an allowance for doubtful accounts, we consider historical experience, analysis of past due amounts, client creditworthiness and any other relevant available information. However, our actual experience may vary from our estimates. If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay our fees, we may need to record additional allowances or write-offs in future periods. This risk is mitigated to the extent that we collect retainers from our clients prior to performing significant services.

 

The allowance for doubtful accounts, if any, is recorded as a reduction in revenue to the extent the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client's inability to make required payments on accounts receivables, the provision is recorded in operating expenses. As of December 31, 2020, and December 31, 2019 we had no allowance for doubtful accounts. For December 31, 2020 and December 31, 2019, we recorded bad debt expense of $0 and $9,249, respectively.

 

Property and Equipment, net

 

Property and equipment is stated at net book value, cost less depreciation. Maintenance and repairs are expensed as incurred. Depreciation of owned equipment is provided using the straight-line method over the estimated useful lives of the assets, ranging from two to seven years. Depreciation of capitalized construction in progress costs, a component of property and equipment, net, begins once the underlying asset is placed into service and is recognized over the estimated useful life. Property and equipment is reviewed for impairment as discussed below under “Accounting for the Impairment of Long-Lived Assets.” We did not capitalize any interest as of December 31, 2020 and 2019.

 

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Accounting for the Impairment of Long-Lived Assets

 

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets. We have recorded $22,658 and $478,400 in impairment charges related to our joint venture investments during the years ended December 31, 2020 and 2019, respectively.

 

Beneficial Conversion Feature

 

If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”).  We record a BCF as a debt discount pursuant to Financial Accounting Standards Board (“FASB”) ASC Topic 470-20 Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and we amortize the discount to interest expense over the life of the debt using the effective interest method. 

 

Revenue Recognition

For annual reporting periods after December 15, 2017, the FASB made effective Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers,” to supersede previous revenue recognition guidance under current U.S. GAAP. Revenue is now recognized in accordance with FASB ASC Topic 606, Revenue Recognition. The objective of the guidance is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. The core principal is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Two options were made available for implementation of the standard: the full retrospective approach or modified retrospective approach. The guidance became effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted. We adopted FASB ASC Topic 606 for our reporting period as of the year ended December 31, 2017, which made our implementation of FASB ASC Topic 606 effective in the first quarter of 2018. We decided to implement the modified retrospective transition method to implement FASB ASC Topic 606, with no restatement of the comparative periods presented. Using this transition method, we applied the new standards to all new contracts initiated on/after the effective date. We also decided to apply this method to any incomplete contracts we determine are subject to FASB ASC Topic 606 prospectively. For the years ended December 31, 2020 and 2019, there were no incomplete contracts. As is more fully discussed below, we are of the opinion that none of our contracts for services or products contain significant financing components that require revenue adjustment under FASB ASC Topic 606.

 

Identification of Our Contracts with Our Customers.

Contracts included in our application of FASB ASC Topic 606 consist completely of sales contracts between us and our customers that create enforceable rights and obligations. For the years ended December 31, 2020 and 2019, our sales contracts included the following parties: us, our sales associates and our customers. Our sales contracts were offered by us and our sales associates to our customers directly through our web site. Our sales contracts, and those formalized by our sales associates, are represented by an electronic order form, which contains the contractual elements of offer for sale, acceptance and the provision of consideration consisting of the buyer’s payment, which is concurrent with our delivery of hempSMART™ product. Since our hempSMART™ product sales contracts are consummated upon receipt of the customer’s acceptance of our offer, our concurrent receipt of our customers payment and our delivery of the agreed to hempSMART™ product, all parties are equally committed to fulfilling their respective obligations under the sales contracts. Further, the sales contracts specifically identify (1) parties, (2) quantity of hempSMART™ product ordered; (3) price and (4) subject, and so each respective party’s rights are identifiable and the payment terms are defined. Since the sales contracts are consummated concurrent with offer, acceptance, payment and delivery of the hempSMART™ product ordered, we recognize revenue and cash flows as the principal from the respective sales contract transactions as they complete. Further, because our sales contracts are offered, accepted and consummated concurrently, our ability to collect revenue is immediate. We receive no payments for agreements that do not qualify as a contract. If customers agree to multiple sales contracts when they are entered into at or near the same time, our policy is to combine those contracts if: (1) the sales contracts are negotiated as a single package, (2) the payment amount of one sales contract is dependent upon another sales contract and (3) our performance obligations of delivering multiple hempSMART™ products can be determined to be part of a single transaction. Since the nature of the entry into and consummation of our sales contracts occur concurrently, there are no changes or modifications to the terms of the sales contracts that would modify the enforceable rights and performance obligations of the parties and that would materially alter the timing of our receipt of revenue from our sales contracts.

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Identifying the Performance Obligations in Our Sales Contracts.

In analyzing our sales contracts, our policy is to identify the distinct performance obligations in a sales contract arrangement. In determining our performance obligations under our sales contracts, we consider that the terms and conditions of sales are explicitly outlined in our sales contracts and are so distinct and identifiable within the context of each sales contract, and so are not integrated with other goods, or constitute a modification or customization of other goods in our contracts, or are highly dependent or highly integrated with other goods in our sales contracts. Thus, our performance obligations are singularly related to our promise to provide the hempSMART™ products upon receipt of payment. We offer an assurance warranty on our hempSMART™ products that allows a customer to return any hempSMART™ products within 30 days if not satisfied for any reason. Assurance warranties are not identifiable performance obligations since they are electable at the whim of the customer for any reason. However, we do account for returns of purchase prices if made. 

Determination of the Price in Our Sales Contracts.

The transaction prices in our sales contract is the amount of consideration we expect to be entitled to for transferring promised hempSMART™ products. The consideration amount is fixed and not variable. The transaction price is allocated to the identified performance obligations in the contract. These allocated amounts are recognized as revenue when or as the performance obligations are fulfilled, which is concurrently upon receipt of payment. There are no future options for a contract when considering and determining the transaction price. We exclude amounts third parties will eventually collect, such as sales tax, when determining the transaction price. Since the timing between receiving consideration and transferring goods or services is immediate, our sales contract do not have a significant financing component, i.e., recognizing revenue at the amount that reflects the cash payment that the customer would have made at the time the goods or services were transferred to them (cash selling price), rather than significantly before or after the goods or services are provided.

Allocation of the Transaction Price of Our Sales Contracts.

Our sales contracts are not considered multi-element arrangements which require the fulfillment of multiple performance obligations. Rather, our sales contracts include one performance obligation in each contract. As such, from the outset, we allocate the total consideration to each performance obligation based on the fixed and determinable standalone selling price, which we believe is an accurate representation of what the price is in each transaction.

Recognition of Revenue when the Performance Obligation is Satisfied.

A performance obligation is satisfied when or as control of the good or service is transferred to the customer. The standard defines control as “the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.” (ASC 606-10-20). For performance obligations that are fulfilled at a point in time, revenue is recognized at the fulfillment of the performance obligation. As noted above, our single performance obligation sales contracts are singularly related to our promise to provide the hempSMART™ products to the customer upon receipt of payment, which occurs concurrently and when, upon completion, allows us under our revenue recognition policy to realize revenue.

Regarding our offered financial accounting, bookkeeping and/or real property management consulting services, to date no contracts have been entered into, and thus no reportable revenues have resulted for the fiscal years ended 2020 and 2019.

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Product Sales

Revenue from product sales, including delivery fees, free on board shipping point, is recognized when (1) an order is placed by the customer, (2) the price is fixed and determinable when the order is placed, (3) the customer is required to and concurrently pays for the product upon order and (4) the product is shipped. The evaluation of our recognition of revenue after the adoption of FASB ASC 606 did not include any judgments or changes to judgments that affected our reporting of revenues, since our product sales, both pre and post adoption of FASB ASC 606, were evaluated using the same standards as noted above, reflecting revenue recognition upon order, payment and shipment, which all occurs concurrently when the order is placed and paid for by the customer, and the product is shipped. Further, given the facts that (1) our customers exercise discretion in determining the timing of when they place their product order and (2) the price negotiated in our product sales is fixed and determinable at the time the customer places the order, and there is no delay in shipment, we are of the opinion that our product sales do not indicate or involve any significant customer financing that would materially change the amount of revenue recognized under the sales transaction, or would otherwise contain a significant financing component for us or the customer under FASB ASC Topic 606.

Consulting Services

We also offer professional services for financial accounting, bookkeeping or real property management consulting services based on consulting agreements. As of the date hereof, we have not entered into any contracts for any financial accounting, bookkeeping and/or real property management consulting services that have generated reportable revenues as of the fiscal years ended 2020 and 2019. We intend and expect these arrangements to be entered into on an hourly fixed fee basis.

For hourly based fixed fee service contracts, we intend to utilize and rely upon the proportional performance method, which recognizes revenue as services are performed. Under this method, in order to determine the amount of revenue to be recognized, we will calculate the amount of completed work in comparison to the total services to be provided under the arrangement or deliverable. We only recognize revenues as we incur and charge billable hours. Because our hourly fees for services are fixed and determinable and are only earned and recognized as revenue upon actual performance, we are of the opinion that such arrangements are not an indicator of a vendor or customer based significant financing, that would materially change the amount of revenue we recognize under the contract or would otherwise contain a significant financing component under FASB ASC Topic 606.

The Company determined that upon adoption of ASC 606 there were no quantitative adjustments converting from ASC 605 to ASC 606 respecting the timing of our revenue recognition because product sales revenue is recognized upon customer order, payment and shipment, which occurs concurrently, and our consulting services offered are fixed and determinable and are only earned and recognized as revenue upon actual performance.

Costs of Revenues

 

Our policy is to recognize costs of revenue in the same manner in conjunction with revenue recognition. Cost of revenues include the costs directly attributable to revenue recognition and includes compensation and fees for services, travel and other expenses for services and costs of products and equipment. Selling, general and administrative expenses are charged to expense as incurred.

 

Advertising and Promotion Costs

 

Advertising and promotion costs are included as a component of selling and marketing expense and are expensed as incurred. During the year ended December 31, 2020 and December 31, 2019, these costs were $129,504 and $540,474, respectively.

 

Shipping and Handling Costs

 

For product and equipment sales, shipping and handling costs are included as a component of cost of revenues.

 

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Stock-Based Compensation

 

Restricted shares are awarded to employees and entitle the grantee to receive shares of restricted common stock at the end of the established vesting period. The fair value of the grant is based on the stock price on the date of grant. We recognize related compensation costs on a straight-line basis over the requisite vesting period of the award, which to date has been one year from the grant date. During the years ended December 31, 2020 and December 31, 2019, stock-based compensation expense for restricted shares was $3,014,888 and $1,417,850, respectively. Compensation expense for warrants and options is based on the fair value of the instruments on the grant date, which is determined using the Black-Scholes valuation model and are expensed over the expected term of the awards.

 

Income Taxes

 

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized.  For the years ended December 31, 2020 and December 31, 2019, due to cumulative losses, we recorded a valuation allowance against our deferred tax asset that reduced our income tax benefit for the period to zero. As of December 31, 2020, and December 31, 2019, we had no liabilities related to federal or state income taxes and the carrying value of our deferred tax asset was zero.

 

Loss Contingencies

From time to time the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. On at least a quarterly basis, consistent with ASC 450-20-50-1C, if the Company determines that there is a reasonable possibility that a material loss may have been incurred, or is reasonably estimable, regardless of whether the Company accrued for such a loss (or any portion of that loss), the Company will confer with its legal counsel, consistent with ASC 450. If the material loss is determinable or reasonably estimable, the Company will record it in its accounts and as a liability on the balance sheet. If the Company determines that such an estimate cannot be made, the Company's policy is to disclose a demonstration of its attempt to estimate the loss or range of losses before concluding that an estimate cannot be made, and to disclose it in the notes to the financial statements under contingent liabilities.

 

Net Income (Loss) Per Common Share

 

We report net income (loss) per common share in accordance with FASB ASC 260, “Earnings per Share.” This statement requires dual presentation of basic and diluted earnings with a reconciliation of the numerator and denominator of the earnings per share computations. Basic net income (loss) per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period and excludes the effects of any potentially dilutive securities. Diluted net income (loss) per share gives effect to any dilutive potential common stock outstanding during the period. The computation does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.

 

Related Party Transactions

 

We follow FASB ASC subtopic 850-10, “Related Party Transactions”, for the identification of related parties and disclosure of related party transactions.

 

Pursuant to ASC 850-10-20, related parties include: (a) affiliates of the Company; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company 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; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have 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.

 

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Material related party transactions are required to be disclosed in the consolidated financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS

AND SIGNIFICANT EMPLOYEES

 

BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

 

Each director shall serve for a term ending on the date of the annual meeting of stockholders following the annual meeting of the stockholders at which such director was elected. Notwithstanding the foregoing, each director shall serve until his successor is elected and qualified or until his death, resignation, retirement, removal or disqualification. Our officers are appointed by our Board of Directors and serve until their successors are duly elected and qualified, or until the officer’s death, resignation, retirement, removal or disqualification.

 

Set forth below is certain information concerning the directors and executive officers of the Company as of September 22, 2021.

 

Name   Principal Occupation   Age  
Jesus Quintero   Chief Executive Officer, Chief Financial Officer and Chairman of the Board     60    
Edward Manolos   Director     47    
Marco Guerrero     Director     49    
Tad Mailander   Director