NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
NOTE 1 – NATURE OF OPERATIONS
AND BASIS OF PRESENTATION
Marijuana Company of America, Inc. (the
“Company”) was incorporated under the laws of the State of Utah in October 1985 under the name Mormon Mint, Inc. The corporation
was originally a startup company organized to manufacture and market commemorative medallions related to the Church of Jesus Christ of
Latter Day Saints. On January 5, 1999, Bekam Investments, Ltd. acquired one hundred percent of the common shares of the Company and spun
the Company off changing its name Converge Global, Inc. From August 13, 1999 until November 20, 2002, the Company focused on the development
and implementation of Internet web content and e-commerce applications. In October 2009, in a 30 for 1 exchange, the Company merged with
Sparrowtech, Inc. for the purpose of exploration and development of commercially viable mining properties. From 2009 to 2014, we operated
primarily in the mining exploration business.
In 2015, the Company changed its business
model to a marketing and distribution company for medical marijuana. In conjunction with the change, the Company changed its name to Marijuana
Company of America, Inc. At the time of the transition in 2015, there were no remaining assets, liabilities or operating activities of
the mining business.
On February 1, 2016, the Company formed
MCOA CA, Inc., a California corporation as a wholly owned subsidiary to facilitate mergers, acquisitions and the offering of investments
or loans to the Company.
On May 3, 2017, the Company formed Hempsmart
Limited, a United Kingdom corporation as a wholly owned subsidiary for the purpose of future expansion into the European market.
On August 8, 2017, the Company formed H
Smart, Inc., a Delaware corporation as a wholly owned subsidiary for the purpose of operating the hempSMART™ brand.
On January 11, 2021, the Company formed
Hempsmart Global, Inc., a Nevada corporation, as a wholly owned subsidiary for the purpose of facilitating the Company’s Latin American
joint ventures in Uruguay and Brazil.
On
June 29, 2021, the Company acquired 100% of the capital stock of cDistro, Inc., a Nevada corporation, which is now a wholly owned subsidiary
of the Company for the purpose of engaging in the distribution of hemp and CBD products to retail outlets in the North American market.
On
July 20, 2021, the Company formed Salinas Diversified Ventures, Inc., a California corporation, as a wholly owned subsidiary for the purpose
of consummating the asset purchase agreement with VBF Brands, Inc., see
Note 6 for additional information.
On
July 19, 2022, the Company formed H Smart, Inc., a California corporation, as a wholly owned subsidiary for the purpose of facilitating
the sale and distribution of products in California.
The condensed consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries H Smart, Inc., Hempsmart Limited, cDistro, Inc. and MCOA CA, Inc.
All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of December 31,
2021 has been derived from audited financial statements set forth in the Company’s Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (“SEC”) on April 16, 2022 (the “Annual Report”). Operating results for the
three and six months ended June 30, 2022 are not necessarily indicative of results that may be expected for the year ending December
31, 2022. These condensed consolidated financial statements should be read in conjunction with the audited financial statements for the
year ended December 31, 2021.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
The accompanying consolidated financial statements have
been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. As shown in the accompanying financial statements, during the six months ended June 30, 2022, the Company
incurred net losses from operations of $1,718,953 and used cash in operations of $1,635,541.
These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of
time.
The Company's primary source of operating funds for the six
months ended June 30, 2022 was from funds generated from the issuance of convertible and non-convertible debt, and sale of common stock. The Company has
experienced net losses from operations since inception, but expects these conditions to improve in 2022 and beyond as it continues
to develop its business; however, no assurance can be provided that the Company will
not continue to experience losses in the future. The Company has stockholders' deficiencies as of June 30, 2022 and requires
additional financing to fund future operations.
The Company’s existence is dependent
upon management’s ability to develop profitable operations and to obtain additional funding; however, there
can be no assurance that the Company will be successful in developing profitable operations or that it will be able to obtain financing
on favorable terms, if at all. The accompanying statements do not include any adjustments that might result should the Company
be unable to continue as a going concern.
NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Interim Financial Statements
The unaudited condensed consolidated interim
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Revenue Recognition
For annual reporting periods after December
15, 2017, the Financial Accounting Standards Board (“FASB”) made effective Accounting Standards Update (“ASU”)
2014-09 “Revenue from Contracts with Customers,” to supersede previous revenue recognition guidance under current GAAP. Revenue
is now recognized in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue Recognition (“ASC
Topic 606”). 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 principle 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. The Company adopted ASC Topic 606 for its reporting period as of the year ended December 31, 2017, which made
its implementation of ASC Topic 606 effective in the first quarter of 2018. The Company decided to implement the modified retrospective
transition method to implement ASC Topic 606, with no restatement of the comparative periods presented. Using this transition method,
the Company applied the new standards to all new contracts initiated on or after the effective date. The Company also decided to apply
this method to any incomplete contracts it determined are subject to ASC Topic 606 prospectively. For the quarter ended June 30, 2022,
there were no incomplete contracts. As is more fully discussed below, the Company is of the opinion that none of its contracts for services
or products contain significant financing components that require revenue adjustment under ASC Topic 606.
Identification of Our Contracts with Customers
Contracts included in the Company’s application of
ASC Topic 606 for the six months ended June 30, 2022 consisted solely of sales of the Company’s hempSMART™ and cDistro
products. With respect to the Company’s 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 December 31, 2021 or 2020, or for the six months ended June 30,
2022.
In accordance with ASC Topic 606, the Company
of the opinion that none of its hempSMART™ or cDistro product sales or offered consulting service, each of which are discussed below,
have a significant financing component. The Company’s opinion is based upon the transactional basis for its product sales, with
revenue recognized upon customer order, payment and shipment. The Company’s evaluation of the length
of time between the customer order, payment and shipping is not a significant financing component because shipment occurs the same day
as the order is placed and payment made by the customer. The Company’s evaluation of its consulting services is based upon recognizing
revenue as the services are performed for a determinable price per hour. The Company only recognizes revenues as incurred and charge billable
hours. Because the Company’s hourly fees for services are fixed and determinable and are only earned and recognized as revenue upon
actual performance, the Company is 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 the Company recognizes under the contract or would otherwise contain a significant
financing component under ASC Topic 606.
Determination of the Price in Our Sales
Contracts
The transaction prices in the Company’s
sales contract are the amount of consideration the Company expects to be entitled to for transferring promised hempSMART™ and cDistro
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. The Company
excludes 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, the Company’s 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
The Company’s sales contracts are
not considered multi-element arrangements which require the fulfillment of multiple performance obligations. Rather, the Company’s
sales contracts include one performance obligation in each contract. As such, from the outset, the Company allocates the total consideration
to each performance obligation based on the fixed and determinable standalone selling price, which the Company believes 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. ASC 606-10-20 defines control as “the ability to direct the
use of, and obtain substantially all of the remaining benefits from, the asset.” For performance obligations that are fulfilled
at a point in time, revenue is recognized at the fulfillment of the performance obligation. As noted above, the Company’s single
performance obligation sales contracts are singularly related to its promise to provide the hempSMART™ and cDistro products to the
customer upon receipt of payment, and upon completion, allows the Company to realize revenue under its revenue recognition policy.
With respect to the Company’s 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 December 31, 2021 and 2020 or for the six months ended June 30,
2022.
Identifying the Performance Obligations in Our
Sales Contracts
In analyzing the Company’s sales
contracts, the Company’s policy is to identify the distinct performance obligations in a sales contract arrangement. In determining
the Company’s performance obligations under its sales contracts, the Company considers that the terms and conditions of sales are
explicitly outlined in its 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 the Company’s contracts, or are
highly dependent or highly integrated with other goods in the Company’s sales contracts. Thus, the Company’s performance
obligations are singularly related to its promise to provide the hempSMART™ and cDistro products upon receipt of payment. The Company
offers an assurance warranty on its hempSMART™ and cDistro products that allows a customer to return any hempSMART™ and cDistro
products within 30 days if not satisfied for any reason. Assurance warranties are not identifiable performance obligations since they
may be elected at the whim of the customer for any reason. However, the Company does account for returns of purchase prices, if made.
Product Sales
Revenue from product sales, including delivery
fees, 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 the Company’s
recognition of revenue after the adoption of ASC Topic 606 did not include any judgments or changes to judgments that affected the Company’s
reporting of revenues since the Company’s product sales, both pre and post adoption of ASC Topic 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) the Company’s customers exercise
discretion in determining the timing of when they place their product order and (2) the price negotiated in the Company’s product
sales is fixed and determinable at the time the customer places the order, and there is no delay in shipment, the Company is of the opinion
that its 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 the Company or the customer under
ASC Topic 606.
Consulting Services
The Company also offers professional services for financial
accounting, bookkeeping and/or real property management consulting services based on consulting agreements. As of the date of this
filing, the Company has 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 years ended December 31, 2021 or 2020 or the six months ended
June 30, 2022. If and when the Company provides these professional services, it would intend and expect the arrangements to be
entered into on an hourly fixed fee basis.
For hourly based fixed fee service contracts,
the Company intends 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, the Company will calculate the amount of completed work
in comparison to the total services to be provided under the arrangement or deliverable. The Company only recognizes revenues as incurred
and charges billable hours. Because the Company’s hourly fees for services are fixed and determinable and are only earned and recognized
as revenue upon actual performance, the Company is 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 the Company recognizes under the contract or would otherwise
contain a significant financing component under ASC Topic 606.
The Company determined that upon adoption
of ASC Topic 606 there were no adjustments converting from ASC 605 to ASC Topic 606 because product sales revenue is recognized
upon customer order, payment and shipment, which occurs concurrently, and the Company’s consulting services offered are fixed and
determinable and are only earned and recognized as revenue upon actual performance.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include the fair value of the Company’s stock, stock-based compensation, fair
values relating to derivative liabilities, debt discounts and the valuation allowance related to deferred tax assets. Actual results may
differ from these estimates.
Cash
The Company considers cash to consist of
cash on hand and temporary investments having an original maturity of 90 days or less that are readily convertible into cash.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed
to a concentration of credit risk are cash and accounts receivable. Occasionally, the Company’s cash in interest-bearing
accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
Accounts Receivable
Trade receivables are carried at their
estimated collectible amounts. Trade credit is generally extended on a short-term basis. Thus, trade receivables do not bear interest.
Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current
financial condition.
Allowance for Doubtful Accounts
Any charges to the allowance for doubtful accounts
on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level
management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical
write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability
is determined to be permanently impaired. As of June 30, 2022 and December 31, 2021, allowance for doubtful accounts was $3,267 and $3,267,
respectively.
Inventories
Inventories are stated at the lower of
cost or market with cost being determined on a first-in, first-out (FIFO) basis. The Company writes down its inventory for estimated obsolescence
or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional
inventory write-downs may be required. During the periods presented, there were no inventory write-downs.
Cost of Sales
Cost of sales is comprised
of cost of product sold, packaging, and shipping costs. We experience substantial variations in our gross margins since our primary operating subsidiary, cDistro, obtains
significant discounts from vendors for paying invoices early.
Stock-Based Compensation
- Employees
The Company accounts
for the stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition
and measurement principles of the fair value recognition provisions of ASC 718-10-30. Pursuant to ASC 718-10-30-6, all transactions in
which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value
of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date
used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the
date on which it is probable that performance will occur.
If the Company is
a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most
recent private placement based on sales to third parties or weekly or monthly price observations would generally be more appropriate than
the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes
and lack of consistent trading in the market.
The fair value of share options and similar instruments
is estimated on the date of grant using a Binomial Option Model option-pricing valuation model. The ranges of assumptions for
inputs are as follows:
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Expected term of share options and similar instruments. The expected life of options and similar instruments represents the period of time the options and/or similar instruments are expected to be outstanding. Pursuant to ASC 718-10-50-2(f)(2)(i). the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to ASC 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term equal the quotient of the vesting term plus the original contractual term divided by two if (i) a company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) a company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) a company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
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Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC 718-10-50-2(f)(2)(ii), a thinly-traded or non-public entity that uses the calculated value method shall disclose the reasons why it is not practicable for it to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. |
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Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. |
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Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
Generally, all forms
of share-based payments, including stock options, warrants, restricted stock and stock appreciation rights are measured at their fair
value on the grant date of the award based on the estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based
payments is recorded in general and administrative expense in the statements of operations.
Stock-Based Compensation – Non
Employees
Equity Instruments Issued to Parties
Other Than Employees for Acquiring Goods or Services
In June 2018, the FASB issued
ASU No. 2018-07, Compensation – Stock Compensation: Improvement to Nonemployee Share-Based Payment Accounting (“Topic 718”s).
The ASU supersedes ASC 505-50, Equity-Based Payment to Non-Employment, and expands the scope of the Topic 718 to include stock-based payments
granted to non-employees. Under the new guidance, the measurement date and performance and vesting conditions for stock-based payments
to non-employees are aligned with those of employees, most notably aligning the award measurement date with the grant date of an award.
The new guidance is required to be adopted using the modified retrospective transition approach. The Company adopted the new guidance
effective January 1, 2019, and the adoption did not have a material impact on its financial statements and related disclosures.
The fair value of share options
and similar instruments is estimated on the date of grant using a Binomial option-pricing valuation model. The ranges of assumptions
for inputs are as follows:
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Expected term of share options and similar instruments: Pursuant to ASC 718-10-50-2(f)(2)(i), the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and the holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate the holder’s expected exercise behavior. If a company is a newly formed corporation or shares of such company are thinly traded, the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as such company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
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Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC 718-10-50-2(f)(2)(ii), a thinly-traded or non-public entity that uses the calculated value method shall disclose the reasons why it is not practicable for the company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. |
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Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. |
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Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
Earnings per Share
Basic earnings per share are calculated
by dividing net income (loss) by the weighted average number of shares of the Company’s common stock outstanding during the period.
“Diluted earnings per share” reflects the potential dilution that could occur if the Company’s share-based awards and
convertible securities were exercised or converted into common stock. The dilutive effect of the Company’s share-based awards is
computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise
are used to purchase common stock at the average market price during the period. The incremental shares (difference between shares assumed
to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted earnings per
share calculation. The dilutive effect of the Company’s convertible preferred stock and convertible debentures is computed using
the if-converted method, which assumes conversion at the beginning of the year.
Property and Equipment
Property and equipment are stated at cost.
When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and
the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and
equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 5 years.
Goodwill and Intangible Assets
Goodwill is carried at cost and is not amortized.
The Company tests goodwill for impairment on an annual basis at the end of each fiscal year, relying on a number of factors including
operating results, business plans, economic projections, anticipated future cash flows and marketplace data. Company management uses its
judgment in assessing whether goodwill has become impaired between annual impairment tests according to specifications set forth in ASC
350.
The Company recognizes an acquired intangible asset
apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided
from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract,
asset or liability. Such intangibles are amortized over their useful lives. Impairment losses are recognized if the carrying amount of
an intangible asset subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair
value. The following table summarizes the Company’s intangible assets:
| Schedule of intangible assets | |
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June 30, 2022 | | |
December 31, 2021 | |
| Trademarks (estimated 5-year life) | |
$ | 500,000 | | |
$ | 500,000 | |
| Licenses (estimated 10-year life) | |
| 600,000 | | |
| 600,000 | |
| Customer Relationships (estimated 5-year life) | |
| 100,000 | | |
| 100,000 | |
| Intangible assets, gross | |
| 1,200,000 | | |
| 1,200,000 | |
| Accumulated amortization | |
| (180,000 | ) | |
| (90,000 | ) |
| Intangible assets, net | |
$ | 1,020,000 | | |
$ | 1,110,000 | |
We evaluate long-lived assets, including intangible
assets and goodwill 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. The Company completed
an evaluation of goodwill and intangible assets at June 30, 2022 and determined that no impairment was necessary.
Investments
The Company follows ASC subtopic 321-10,
Investments-Equity Securities (“ASC 321-10”) which requires the accounting for an equity security to be measured at fair value
with changes in unrealized gains and losses are included in current period operations. Where an equity security is without a readily determinable
fair value, the Company may elect to estimate its fair value at cost minus impairment plus or minus changes resulting from observable
price changes (See Note 6).
Derivative Financial Instruments
The Company classifies as equity any contracts
that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement
in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock.
The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash
settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice
of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its
common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification
between equity and liabilities is required.
The Company’s free-standing derivatives
consisted of conversion options embedded within its issued convertible debt and warrants with anti-dilutive (reset) provisions. The Company
evaluated these derivatives to assess their proper classification in the balance sheet using the applicable classification criteria
enumerated under GAAP. The Company determined that certain conversion and exercise options do not contain fixed settlement provisions.
The convertible notes contain a conversion feature and warrants have a reset provision such that the Company could not ensure it would
have adequate authorized shares to meet all possible conversion demands. As such, the Company was required to record the conversion feature
and the reset provision which does not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair
value at the end of each reporting period.
The Company has adopted a sequencing policy
that reclassifies contracts (from equity to assets or liabilities) with the most recent inception date first. Thus, any available shares
are allocated first to contracts with the most recent inception dates.
Fair Value of Financial Instruments
Fair value estimates discussed herein are
based upon certain market assumptions and pertinent information available to management as of June 30, 2022 and December 31, 2021. The
respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments
include cash and accounts payable. Fair values were assumed to approximate carrying values for cash, accounts payables and short-term
notes because they are short term in nature.
Advertising
The Company follows the policy of charging
the costs of advertising to expense as incurred. The Company charged to operations $96,938 and $168,780 for the six months ended June
30, 2022 and 2021, respectively, as advertising costs.
Segment Information
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 principal operating segments,
hempSMART and cDistro.
The following table represents the
Company’s hempSMART business for the six months ended June 30, 2022 and 2021:
hempSMART
STATEMENT OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND
2021
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For the Three Months Ended |
|
6 Months
Ended |
|
For the Three Months Ended |
|
6 Months
Ended |
| |
|
March 31, 2022 |
|
June 30, 2022 |
|
June 30, 2022 |
|
March 31, 2021 |
|
June 30, 2021 |
|
June 30, 2021 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$ |
11,914 |
|
|
$ |
10,119 |
|
|
$ |
22,033 |
|
|
$ |
34,872 |
|
|
$ |
16,537 |
|
|
$ |
51,409 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of Goods Sold |
|
|
6,097 |
|
|
|
5,642 |
|
|
|
11,739 |
|
|
|
25,032 |
|
|
|
3,301 |
|
|
|
28,333 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Profit |
|
|
5,817 |
|
|
|
4,476 |
|
|
|
10,293 |
|
|
|
9,840 |
|
|
|
13,326 |
|
|
|
23,076 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock Based Compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
|
|
- |
|
| Selling and Marketing |
|
|
77,905 |
|
|
|
22,460 |
|
|
|
100,365 |
|
|
|
97,812 |
|
|
|
150,881 |
|
|
|
248,693 |
|
| Payroll and Related expenses |
|
|
60,274 |
|
|
|
28,531 |
|
|
|
88,805 |
|
|
|
53,947 |
|
|
|
54,864 |
|
|
|
108,811 |
|
| Depreciation Expense |
|
|
5,289 |
|
|
|
5,259 |
|
|
|
10,548 |
|
|
|
1,391 |
|
|
|
1,391 |
|
|
|
2,782 |
|
| General and Admin Expenses |
|
|
114,072 |
|
|
|
96,731 |
|
|
|
210,803 |
|
|
|
55,801 |
|
|
|
95,864 |
|
|
|
151,665 |
|
| Total Expense |
|
|
257,540 |
|
|
|
152,981 |
|
|
|
410,521 |
|
|
|
208,951 |
|
|
|
303,000 |
|
|
|
511,951 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Loss from Operations |
|
$ |
(251,723 |
) |
|
$ |
(148,505 |
) |
|
$ |
(400,228 |
) |
|
$ |
(199,111 |
) |
|
$ |
(289,764 |
) |
|
$ |
(488,875 |
) |
cDistro Inc.
STATEMENT OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND
2021
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Three Months Ended |
|
6 Months
Ended |
|
For the Three Months Ended |
|
6 Months
Ended |
| |
|
March 31, 2022 |
|
June 30, 2022 |
|
June 30, 2022 |
|
March 31, 2021 |
|
June 30, 2021 |
|
June 30, 2021 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$ |
526,908 |
|
|
$ |
226,009 |
|
|
$ |
752,917 |
|
|
$ |
- |
|
|
$ |
343 |
|
|
$ |
343 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of Goods Sold |
|
|
503,860 |
|
|
|
32,650 |
|
|
|
536,510 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Profit |
|
|
23,048 |
|
|
|
193,359 |
|
|
|
216,407 |
|
|
|
|
|
|
|
343 |
|
|
|
343 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock Based Compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
|
|
- |
|
| Selling and Marketing |
|
|
35 |
|
|
|
2,800 |
|
|
|
2,835 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Payroll and Related expenses |
|
|
54,000 |
|
|
|
70,000 |
|
|
|
124,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Depreciation and amortization Expense |
|
|
45,762 |
|
|
|
45,848 |
|
|
|
91,610 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| General and Admin Expenses |
|
|
50,824 |
|
|
|
36,308 |
|
|
|
87,132 |
|
|
|
- |
|
|
|
288 |
|
|
|
288 |
|
| Total Expense |
|
|
150,621 |
|
|
|
154,956 |
|
|
|
305,577 |
|
|
|
- |
|
|
|
288 |
|
|
|
288 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Income (Loss) from Operations |
|
$ |
(127,573 |
) |
|
$ |
38,403 |
|
|
$ |
(89,170 |
) |
|
$ |
- |
|
|
$ |
55 |
|
|
$ |
55 |
|
Income Taxes
Deferred income tax assets and liabilities
are determined based on the estimated future tax effects of net operating loss and credit carry forwards and temporary differences between
the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The
Company records an estimated valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred
income tax assets will be realized.
The Company recognizes a tax benefit from an
uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities
based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such
a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
As of June 30, 2022 and 2021, the Company has not recorded any unrecognized tax benefits.
Recent Accounting Pronouncements
Recently Issued Accounting
Pronouncements Not Yet Adopted
In August 2020, the FASB
issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging –
Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting
for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an
entity’s own equity. The ASU is part of the FASB’s simplification initiative which aims to reduce unnecessary complexity in
GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal
years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.
Recently Issued Accounting Pronouncements
Adopted
Accounting
for Income Taxes In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740).
The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC
Topic 740, Income Taxes. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC Topic 740
by clarifying and amending existing guidance. ASU 2019-12 became effective for the Company in the first quarter of fiscal year 2021.
The adoption of this standard did not have any impact on the Company’s condensed consolidated financial statements.
Equity Securities, Equity-method Investments and Certain Derivatives
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures
(Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The
guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting and forward contracts
and purchase options on certain types of securities. ASU 2020-01 became effective for the Company in the first quarter of 2021. The adoption
of this standard did not have any impact on the Company’s condensed consolidated financial statements.
NOTE 4 – OPERATING LEASE
In February 2016, the FASB
issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a lease liability, on a discounted basis, and a right-of-use
asset for substantially all leases, as well as additional disclosures regarding leasing arrangements. In July 2018, the FASB issued ASU
2018-11, Leases (Topic 842), which provides an optional transition method of applying the new lease standard. ASU 2018-11, Topic 842
can be applied using either a modified retrospective approach at the beginning of the earliest period presented, or as permitted by ASU
2018-11, at the beginning of the period in which it is adopted.
We adopted this standard
using a modified retrospective approach on January 1, 2019. The modified retrospective approach includes a number of optional practical
expedients relating to the identification and classification of leases that commenced before the adoption date; initial direct costs for
leases that commenced before the adoption date; and the ability to use hindsight in evaluating lessee options to extend or terminate a
lease or to purchase the underlying asset.
The Company elected the package
of practical expedients permitted under ASU 2018-11, Leases, allowing it to account for its existing operating lease that commenced before
the adoption date as an operating lease under the new guidance without reassessing (i) whether the contract contains a lease; (ii) the
classification of the lease; or, (iii) the accounting for indirect costs as defined in ASC 842.
On May 31, 2021, the
Company’s operating lease for its office space located at 1340 West Valley Parkway, Suite 205, Escondido, CA 92029 expired
and, at that time, the Company fully amortized its right-of-use asset for such lease. On June 1, 2021, the Company entered into an
office accommodation agreement whereby it may access a shared office space located at 633 West Fifth Street, Suite 2826, Los
Angeles, CA 90071 on a month-to-month basis over a one-year term 1 for a fee of $2,349
per month. In considering its qualitative disclosure obligations under ASC 842-20-50-3, the Company examined its office
accommodation agreement for office space that has a fixed monthly fee with no variable payments and no options to extend. The office
accommodation agreement creates no tenancy, leasehold, or other real property interest, other than a shared right-of-use. The office
accommodation agreement does not provide for terms and conditions granting residual value guarantees by the Company, or any
restrictions or covenants imposed for dividends or incurring additional financial obligations by the Company.
The Company determined under
ASC 2018-11, Leases (Topic 842), due to the short-term nature of the office accommodation agreement, that such agreement met the criteria
of ASC 842-20-25-2 and as such it is not necessary to capitalize the office accommodation agreement and fees will be recognized on a monthly
straight-line basis. The adoption of this guidance resulted in no significant impact to the Company’s results of operations
or cash flows.
NOTE 5 – PROPERTY, MACHINERY
AND EQUIPMENT
Property and equipment as of June 30, 2022
and December 31, 2021 is summarized as follows:
| Schedule of property and equipment | |
| | |
| |
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Computer equipment | |
$ | 31,855 | | |
$ | 30,155 | |
| Furniture and fixtures | |
| 14,327 | | |
| 13,278 | |
| Machinery | |
| 104,102 | | |
| 104,102 | |
| Subtotal | |
| 150,284 | | |
| 147,535 | |
| Less: accumulated depreciation | |
| (38,106 | ) | |
| (25,947 | ) |
| Property, machinery and equipment, net | |
$ | 112,178 | | |
$ | 121,588 | |
Property, machinery and equipment
are stated at cost and depreciated using the straight-line method over their estimated useful lives of 3 years. When retired or otherwise
disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less
any amount realized from disposition, is reflected in earnings. On May 20, 2021, the Company purchased a new cannabis extraction machine
which is to be leased to a cannabis distributor and manufacturer called Lynwood-MCOA joint venture. This joint venture is between Cannabis
Global Inc. and the Company and pertains to the licensed cannabis operations of Natural Plant Extract of California Inc. in the city of
Lynwood, CA. The lease payments are scheduled to commence during the third quarter of 2021.
Depreciation expense was
$12,158 and $2,653 for the six months ended June 30, 2022 and 2021, respectively.
NOTE 6 – INVESTMENTS
Bougainville
Ventures, Inc. Joint Venture
On
March 16, 2017, the Company entered into a joint venture agreement with Bougainville Ventures, Inc. (“Bougainville”), a Canadian
corporation, 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 I-502 Tier 3 license
holder to grow cannabis on the site; 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 (iv) optimize collaborative business opportunities. The Company and Bougainville agreed to operate through BV-MCOA Management,
LLC, a limited liability company organized in the State of Washington on May 17, 2017.
Pursuant
to the joint venture agreement, the Company committed to raise not less than $1,000,000 to fund joint venture operations, based upon a
funding schedule. The Company also committed to providing branding and systems for the representation of cannabis related products and
derivatives comprised of management, marketing and various proprietary methodologies directly tailored to the cannabis industry.
The
joint venture agreement provided that funding provided by the Company would contribute towards the joint venture’s ultimate purchase
of the land consisting of a one-acre parcel located in Okanogan County, Washington, for joint venture operations.
As disclosed in the Company’s
Current Report on Form 8-K filed with the SEC on December 11, 2017, the Company did not comply with the funding schedule for the joint
venture. On November 6, 2017, the Company and Bougainville amended the joint venture agreement to reduce the amount of the Company's commitment
from $1,000,000 to $800,000, and also required the Company to issue Bougainville 15 million shares of the Company's restricted common
stock. The Company completed its payments pursuant to the amended agreement on November 7, 2017, and on November 9, 2017, issued to Bougainville
15 million shares of restricted common stock. The amended agreement provided that Bougainville would deed the real property to the joint
venture within thirty days of its receipt of payment.
Thereafter,
the Company determined that Bougainville had no ownership interest in the property in Washington State, but rather was a party to a purchase
agreement for real property that was in breach of contract for non-payment. Bougainville also did not possess an agreement with a Tier
3 I-502 license holder to grow marijuana on the property. Nonetheless, as a result of funding arranged for by the Company, Bougainville
and an unrelated third party, Green Ventures Capital Corp., purchased the land, but did not deed the real property to the joint venture.
Bougainville failed to pay delinquent property taxes to Okanogan County, and as a result, as further discussed below, to date, the property
has not been deeded to the joint venture.
To
clarify the respective contributions and roles of the parties, the Company offered to enter into good faith negotiations to revise and
restate the joint venture agreement with Bougainville. The Company diligently attempted to communicate with Bougainville to enter into
an amended and restated joint venture agreement, and efforts towards satisfying the conditions to complete the subdivision of the land
by the Okanogan County Assessor. However, Bougainville failed to cooperate or communicate with the Company in good faith, and failed to
pay the delinquent taxes on the real property that would allow for sub-division and the deeding of the real property to the joint venture.
On
August 10, 2018, the Company advised its independent auditor that Bougainville did not cooperate or communicate with the Company regarding
its requests for information concerning the audit of Bougainville’s receipt and expenditures of $800,000 contributed by the Company
to the joint venture. Bougainville had a material obligation to do so under the joint venture agreement. The Company believes that some
of the funds it paid to Bougainville were misappropriated and that there was self-dealing with respect to those funds. Additionally, the
Company believes that Bougainville misrepresented material facts in the joint venture agreement, as amended, 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 I-502 cannabis license holder to grow cannabis on the real property; and (iii) that clear title
to the real property associated with the Tier 3 I-502 license would be deeded to the joint venture thirty days after the Company made
its final funding contribution. As a result, on September 20, 2018, the Company filed a lawsuit against Bougainville, BV-MCOA Management,
LLC, Andy Jagpal, Richard Cindric, et al. in Okanogan County Washington Superior Court, case number 18-2-0045324. The Company seeks legal
and equitable relief for breach of contract, fraud, breach of fiduciary duty, conversion, recession of the joint venture agreement, an
accounting, quiet title to real property in the name of the Company, the appointment of a receiver, the return to treasury of 15 million
shares of restricted common stock issued by the Company to Bougainville and treble damages pursuant to the Consumer Protection Act. The
Company has filed a lis pendens on the real property. The case is currently in litigation.
In
connection with the joint venture agreement, the Company recorded a cash investment of $1,188,500 to the joint venture during 2017. This
was comprised of a 49.5% ownership of BV-MCOA Management, LLC, and was accounted for using the equity method of accounting. The Company
recorded an annual impairment in 2017 of $792,500, reflecting the Company’s percentage of ownership of the net book value of the
investment. During 2018, the Company recorded equity losses of $37,673 and $11,043 for the quarters ended March 31, 2018 and June 30,
2018, respectively, and recorded an annual impairment of $285,986 for the year ended December 31, 2018, at which time the Company determined
the investment to be fully impaired due to Bougainville’s breach of contract and resulting litigation, as discussed above.
Natural
Plant Extract
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. The purpose of the joint venture was to utilize Natural Plant Extracts’
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 Natural Plant Extracts’ common stock, the Company agree to pay two million
dollars and issue Natural Plant Extract one million dollars’ worth 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 Natural
Plant Extracts from % to %. The Company also agreed to pay Natural Plant Extracts $ and the balance of $.15
paid in a convertible promissory note issued with terms allowing Natural Plant Extracts to convert the note into common stock at a 50%
discount to the closing price of MCOA’s common stock as of the maturity date. As of the date of this filing, the Company satisfied
its payment obligations under the settlement agreement.
Brazilian Joint Ventures
On September 30, 2020, the Company entered
into two joint venture agreements (the “Joint Venture Agreements”) with Marco Guerrero, a director of the Company (“Guerrero”)
and related party, to form joint ventures in Brazil and in Uruguay to produce, manufacture, market and sell the Company’s hempSMART™
products in Latin America and to develop and sell hempSMART™ products globally. The Joint Venture Agreements contain equal terms
for the formation of the joint venture entities in Uruguay and Brazil. The Brazilian joint venture, HempSmart Produtos Naturais Ltda.
(“HempSmart Brazil”), will be headquartered in São Paulo, Brazil. The Uruguayan joint venture, Hempsmart Uruguay S.A.S.
(“HempSmart Uruguay”), will be headquartered in Montevideo, Uruguay.
Pursuant to the Joint Venture Agreements,
the Company acquired a 70% equity interest in both HempSmart Brazil and HempSmart Uruguay, with a minority 30% equity interest in both
HempSmart Brazil and HempSmart Uruguay being held by newly formed entities controlled by Guerrero. Pursuant to the Joint Venture Agreements,
the Company agreed to provide capital in the amount of $50,000 to both HempSmart Brazil and HempSmart Uruguay, for a total capital outlay
obligation of $100,000. It is expected that the proceeds of the initial capital contribution will be used for contracting with third-party
manufacturing facilities in Brazil and Uruguay and related infrastructure and employment of key personnel. As of June 30, 2022, the Company
has not initiated the capital contribution but is pending to be done in the third quarter.
The boards of directors of
HempSmart Brazil and HempSmart Uruguay will consist of three directors, elected by the joint venture partners. Pursuant to the Joint Venture
Agreements, the Company agreed to license, on a royalty-free basis, certain of its intellectual property regarding its existing products
to HempSmart Brazil and HempSmart Uruguay to enable the joint ventures to manufacture and sell its products in Brazil, Uruguay, and for
export to other Latin American countries, the United States, and globally in accordance with the terms of the Joint Venture Agreements.
In addition, as majority
partner, in the event a joint venture is frustrated in its intent or purpose, the Company may trigger a compulsory buy-sell procedure
pursuant to which the Company could pursue a sale of all or substantially all of the joint venture. Subject to certain exceptions, the
joint venture partners may not transfer their interests in HempSmart Brazil and HempSmart Uruguay.
Cannabis Global, Inc.
Joint Venture
On May 12, 2021, the Company entered into
a joint venture agreement with Cannabis Global, Inc. (“Cannabis Global”) pursuant to which the Company will invest up to $250,000
into a newly formed entity (“MCOA Lynwood”) and Cannabis Global, through Natural Plant Extracts of California, Inc. (“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, 2022, the Company has invested $115,000.
Share Exchange
On September 30, 2020, the Company entered
into a securities exchange agreement with Cannabis Global pursuant to which the Company issued 650,000,000 shares of its common stock
to Cannabis Global in exchange for 7,222,222 shares of Cannabis Global common stock. In addition, the Company and Cannabis Global entered
into a lock-up leak-out agreement which contains certain restrictions with respect to the sales of such securities.
Eco Innovation Group Inc. – Share Exchange
On February 26, 2021, the Company entered
into a Share Exchange Agreement with Eco Innovation Group, Inc., a Nevada corporation quoted on OTC Markets Pink (“ECOX”)
dated February 26, 2021, to acquire the number of shares of ECOX’s common stock, par value $0.001, equal in value to $650,000 based
on the per-share price of $0.06, in exchange for the number of shares of Company common stock, par value $0.001, equal in value to $650,000
based on the closing price for the trading day immediately preceding the effective date (the “Share Exchange Agreement”).
For both parties, the Share Exchange Agreement contains a “true-up” provision requiring the issuance of additional common
stock in the event that a decline in the market value of either parties’ common stock should cause the aggregate value of the stock
acquired pursuant to the Share Exchange Agreement to fall below $650,000. As of June 30, 2021, the Company owed ECOX and additional 64,621,893
with an estimated value of $394,194 related to the ECOX Share Exchange Agreement. The investment balance is $650,000, with a liability
of $394,194 included in subscriptions payable related to the value of the additional shares to be issued. The Company recognized a loss
of $394,194 related to the shares to be issued.
Complementary to the Share Exchange Agreement,
the Company and ECOX entered into a Lock-Up Agreement dated February 26, 2021 (the “Lock-Up Agreement”), providing that the
shares of common stock acquired pursuant to the Share Exchange Agreement shall be subject to a lock-up period preventing its sale for
a period of 12 months following issuance and limiting the subsequent sale to aggregate maximum sale value of $20,000 per week, or $80,000
per month.
For a period of two years
following the Effective Date, at the closing of each fiscal quarter, should the per-share closing price of the common shares of the same
class as the Shares or the Exchange Shares, as quoted by the OTC Markets for the last day of the relevant fiscal quarter, decrease below
original issuance value with the effect that the aggregate value of the Shares or the Exchange Shares at the fiscal quarter close would
be lower than $650,000, then either MCOA, in the case of the Shares, or ECOX, in the case of the Exchange Shares, shall issue the other
party the number of shares of common stock necessary to cause the aggregate value of the Shares or the Exchange Shares, as applicable,
be $650,000 as of the end of the relevant fiscal quarter. The parties shall irrevocably instruct their respective transfer agents to reserve
and maintain authorized and unissued common stock in a reserve account designated for the purpose of issuing such shares pursuant to this
share exchange adjustment provision. Such share reserve accounts shall be maintained with a number of authorized and unissued common stock
not less than three (3) times the number of Shares or Exchange Shares, as the case may be, that are issued pursuant to the Share Exchange
Closing.
On February 24, 2021, the
closing price of the Company’s common stock was $0.0155, so that the number of shares of Company common stock issuable to ECOX under
the Share Exchange Agreement is 41,935,484. As a result of the transactions pursuant to the Share Exchange Agreement, the Company will
have 4,179,073,945 shares of common stock outstanding, with the shares issued to ECOX pursuant to the Share Exchange Agreement representing
1.00% of the Company’s outstanding shares.
For the quarter ended June
30, 2021, the Company recorded a Loss on Equity Investment and corresponding increase in Subscriptions Payable of $394,194 to address
the decline in the Company's stock price from the original issuance price of $.0155.
Asset Purchase Agreement with VBF Brands, Inc.
On October 6, 2021, the Company, through its wholly
owned subsidiary Salinas Diversified Ventures, Inc., a California corporation, entered into an Asset Purchase Agreement, Management Services
Agreement, Cooperation Agreement and Employment Agreement with VBF Brands, Inc., a California corporation (“VBF”), a wholly
owned subsidiary of Sunset Island Group, Inc., a Colorado corporation (“SIGO”). VBF and SIGO agreed to transfer to the Company
all of VBF’s outstanding stock to the Company and appointed our CEO and CFO Jesus Quintero as President of VBF.
VBF owns various fixed assets including machinery
and equipment, a lease for a 10,000 square foot facility located at 20420 Spence Road, Salinas, California, 93908, leasehold improvements,
good-will, inventory, tradenames including “VBF Brands,” trade secrets, intellectual property, and other tangible and intangible
properties, including licenses issued by the City of Salinas, County of Monterey, and the State of California to operate a licensed cannabis
nursery, cultivation facility, and operations for the manufacturing and distribution of cannabis and cannabis products.
VBF and SIGO agreed to sell and transfer to the Company
all of VBF’s outstanding stock, and, by virtue of the Management Services Agreement, appoint Mr. Jesus Quintero as President of
VBF, vesting management and control of VBF’s licensed cannabis operations in the Company. Concurrently, VBF and Livacich entered
into a Cooperation Agreement, whereby VBF and Livacich agreed to cooperate to facilitate the transfer of ownership of VBF, which includes
licenses issued by the City of Salinas, County of Monterey, and the State of California, to operate a cannabis nursery, cultivation facility
and manufacturing and distribution operations to the Company. The Company also agreed to retain Livacich as Chief Executive Officer for
a term of two years and agreed to compensate her with a salary including a signing cash bonus of $250,000, and a $250,000 performance
cash bonus payable after six months after the Effective Date. The bonus is conditioned upon Livacich meeting an agreed to “Net Revenue”
target of one million dollars ($1,000,000) from VBF’s operations during the six-month period after closing of the Asset Purchase
Agreement, and her compliance with the terms and conditions of this Asset Purchase Agreement, the Management Services Agreement and the
Cooperation Agreement.
As consideration for the transaction, the Company
agreed to assume two secured convertible promissory notes issued by SIGO to St. George Investments, LLC, a Utah limited liability company
(“St. George”) (the “SIGO Notes”). The first note was issued December 8, 2017, in the original face amount of
$170,000.00, and the second was issued February 13, 2018, in the original face amount of $4,245,000.00. SIGO also issued warrants to St.
George to purchase common shares in SIGO, and fifty (50) shares of SIGO’s preferred stock. St. George agreed to cancel the warrants
and preferred shares upon the Company’s assumption of the SIGO Notes.
Under the Asset Purchase Agreement, the closing is
conditioned upon certain conditions precedent, specifically (i) VBF and SIGO’s full corporate authorization, consent and execution
of this Agreement; (ii) VBF’s sale to MCOA of 100% of the issued and outstanding shares of VBF; (iii) full corporate authorization,
consent compliance with and execution of the Management Services Agreement and Cooperation Agreement; (iv) SIGO’s disclosure of
the Agreement on Form 8-K with the Securities and Exchange Commission; (v) full cooperation in MCOA’s financial auditing of VBF
in accordance with ASC 805, including providing unrestricted access to all VBF corporate and financial records and providing all necessary
cooperation with VBF financial personnel; (vi) full cooperation in aiding and assisting Buyer with its change of ownership applications
with the relevant licensing authorities; (vii) the warranty of truthful representations and execution of and compliance with the terms
and conditions of the Executive Employment Agreement, Management Services Agreement and the Cooperation Agreement.
As of the date of this filing, the conditions precedent
to the closing of the Asset Purchase Agreement remain in the process of implementation, so that the Asset Purchase Agreement closing has
not yet occurred pursuant to its terms. Legal counsel for MCOA is currently in the process of working with VBF, Salinas Diversified Ventures,
and the relevant state and local governments to effect the change of control and license transfers necessary to close the Asset Purchase
Agreement. During the three months ended June 30, 2022, based on the remote likelihood of the Company closing this acquisition, the Company
recognized a loss of $2,020,982 related to the preliminary fair value of the business that was recognized as an other current asset during
the year ended December 31, 2021 when the Company assumed the convertible promissory notes from SIGO with St. George.
MARIJUANA COMPANY OF AMERICA, INC.
INVESTMENT ROLL-FORWARD
AS OF JUNE 30, 2022
| Schedule of investment roll forward | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | | |
| | | |
| | |
INVESTMENTS |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
TOTAL | | |
Consolidated | | |
Cannabis
Global | | |
| | |
| | |
Hempsmart | | |
Lynwood | | |
Natural
Plant | | |
Salinas Ventures | | |
VBF | | |
| |
| | |
INVESTMENTS | | |
Eliminations | | |
Inc. | | |
ECOX | | |
C'Distro | | |
Brazil | | |
JV | | |
Extract | | |
Holding | | |
BRANDS | | |
Vivabuds | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Investment, Beginning balance | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Investments made during quarter ended 03-31-19 | |
| 0 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Quarter 03-31-19 equity method Loss | |
| 0 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Unrealized gains on trading securities - quarter ended 03-31-19 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Balance @03-31-19 | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investments made during quarter ended 06-30-19 | |
$ | 3,073,588 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 3,000,000 | | |
| | | |
| | | |
$ | 73,588 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Quarter 06-30-19 equity method Income (Loss) | |
($ | 29,414 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
($ | 6,291 | ) | |
| | | |
| | | |
($ | 23,123 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Unrealized gains on trading securities - quarter ended 06-30-19 | |
$ | 0 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Balance @06-30-19 | |
$ | 3,044,174 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 2,993,709 | | |
$ | 0 | | |
$ | 0 | | |
$ | 50,465 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investments made during quarter ended 09-30-19 | |
$ | 186,263 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 186,263 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Quarter 09-30-19 equity method Income (Loss) | |
($ | 139,926 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
($ | 94,987 | ) | |
| | | |
| | | |
($ | 44,939 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Sale of trading securities during quarter ended 09-30-19 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Unrealized gains on trading securities - quarter ended 09-30-19 | |
$ | 0 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance @09-30-19 | |
$ | 3,090,511 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 2,898,722 | | |
$ | 0 | | |
$ | 0 | | |
$ | 191,789 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investments made during quarter ended 12-31-19 | |
$ | 129,812 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 129,812 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Quarter 12-31-19 equity method Income (Loss) | |
$ | (102,944 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | (23,865 | ) | |
| | | |
| | | |
$ | (79,079 | ) |
| Reversal of Equity method Loss for 2019 | |
$ | 272,285 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 125,143 | | |
| | | |
| | | |
$ | 147,142 | |
| Impairment of investment in 2019 | |
$ | (2,306,085 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | (2,306,085 | ) | |
| | | |
| | | |
$ | 0 | |
| Loss on disposition of investment | |
$ | (389,664 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | (389,664 | ) |
| Sale of trading securities during quarter ended 12-31-19 | |
$ | 0 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Unrealized gains on trading securities - quarter ended 12-31-19 | |
$ | 0 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Balance @12-31-19 | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Equity Loss for Quarter ended 03-31-20 | |
| 0 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Recognize Joint venture liabilities per JV agreement @03-31-20 | |
| 0 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Impairment of Equity Loss for Quarter ended 03-31-20 | |
| 0 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Unrealized gains on trading securities - quarter ended 03-31-19 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Balance @03-31-20 | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Equity Loss for Quarter ended 06-30-20 | |
| 0 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Impairment of Equity Loss for Quarter ended 06-30-20 | |
| 0 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Sales of of trading securities - quarter ended 06-30-20 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Balance @06-30-20 | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Global Hemp Group trading securities issued | |
| 650,000 | | |
| | | |
$ | 650,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investment in Cannabis Global | |
| 0 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance @09-30-20 | |
$ | 1,343,915 | | |
$ | 0 | | |
$ | 650,000 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Unrealized gain on Global Hemp Group securities - 4th Quarter 2020 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Unrealized gains on Cannabis Global Inc securities - 4th Quarter 2020 | |
| 208,086 | | |
| | | |
$ | 208,086 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance @12-31-20 | |
$ | 1,552,001 | | |
$ | 0 | | |
$ | 858,086 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investment in ECOX | |
| 650,000 | | |
| - | | |
| - | | |
$ | 650,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance @03-31-21 | |
$ | 2,202,001 | | |
$ | 0 | | |
$ | 858,086 | | |
$ | 650,000 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investments made during quarter ended 06-30-21 | |
| 30,898 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 30,898 | | |
| | | |
| | | |
| | | |
| | |
| Unrealized gain on Global Hemp Group securities - 2nd quarter 2021 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance @06-30-21 | |
$ | 2,232,899 | | |
$ | 0 | | |
$ | 858,086 | | |
$ | 650,000 | | |
$ | 0 | | |
$ | 0 | | |
$ | 30,898 | | |
$ | 693,915 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investments made during quarter ended 09-30-21 | |
| 68,200 | | |
| | | |
$ | 68,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 200 | | |
| | | |
| | |
| Sale of short-term investments in quarter ended 09-30-21 | |
| 0 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance @09-30-21 | |
$ | 2,301,099 | | |
$ | 0 | | |
$ | 926,086 | | |
$ | 650,000 | | |
$ | 0 | | |
$ | 0 | | |
$ | 30,898 | | |
$ | 693,915 | | |
$ | 200 | | |
$ | 0 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investments made during quarter ended 12-31-21 | |
| 5,087,079 | | |
| | | |
| | | |
| | | |
$ | 2,975,174 | | |
$ | 90,923 | | |
| | | |
| | | |
| | | |
$ | 2,020,982 | | |
| | |
| Consolidated Eliminations @12/31/21 | |
| (5,060,821 | ) | |
| (5,060,821 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance @12-31-21 | |
$ | 2,327,357 | | |
($ | 5,060,821 | ) | |
$ | 926,086 | | |
$ | 650,000 | | |
$ | 2,975,174 | | |
$ | 90,923 | | |
$ | 30,898 | | |
$ | 693,915 | | |
$ | 200 | | |
$ | 2,020,982 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investments made during quarter ended 03-31-22 | |
| (26,458 | ) | |
| (26,458 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance @03-31-22 | |
$ | 2,300,899 | | |
($ | 5,087,279 | ) | |
$ | 926,086 | | |
$ | 650,000 | | |
$ | 2,975,174 | | |
$ | 90,923 | | |
$ | 30,898 | | |
$ | 693,915 | | |
$ | 200 | | |
$ | 2,020,982 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Investments made during quarter ended 06-30-22 | |
| 20,976 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 20,976 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance @06-30-22 | |
$ | 2,321,875 | | |
($ | 5,087,279 | ) | |
$ | 926,086 | | |
$ | 650,000 | | |
$ | 2,975,174 | | |
$ | 111,899 | | |
$ | 30,898 | | |
$ | 693,915 | | |
$ | 200 | | |
$ | 2,020,982 | | |
$ | 0 | |
NOTE 7 – NOTES PAYABLE, RELATED
PARTY
As of June 30, 2022 and December 31, 2021,
the Company’s officers and directors have provided advances and incurred expenses on behalf of the Company as such have been evidenced
by the issuance of notes to such officers and directors. The notes are unsecured, due on demand and accrue interest at a rate of 5% per
annum. The balance due to Notes Payable Related Party as of June 30, 2022 and December 31, 2021 was $20,000 and $20,000 respectively.
These notes are payable to the estate of Charles Larsen.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
During the six months ended June 30, 2022,
the Company issued an aggregate of 1,303,931,600 shares of its common stock in settlement of issued convertible notes payable and accrued
interest.
For the six months ended June 30, 2022
and June 30, 2021, the Company recorded amortization of debt discounts of $1,370,366 and $744,783, respectively, as a charge to interest
expense.
Convertible notes payable are comprised
of the following:
| Schedule of convertible notes payable | |
| | |
| |
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Lender | |
(Unaudited) | | |
(Audited) | |
| Convertible note payable – Labrys | |
$ | — | | |
$ | 99,975 | |
| Convertible note payable – FF Global Opportunities fund | |
| — | | |
| 243,750 | |
| Convertible note payable - Crown Bridge Partners | |
| — | | |
| 35,000 | |
| Convertible note payable – Beach Labs | |
| 458,334 | | |
| 583,333 | |
| Convertible note payable - GS Capital Partners LLC | |
| 70,000 | | |
| 82,000 | |
| Convertible note payable – Pinnacle Consulting Services, Inc. | |
| 30,000 | | |
| 30,000 | |
| Convertible note payable – Geneva Roth | |
| — | | |
| 97,939 | |
| Convertible note payable – Dutchess Capital | |
| 110,000 | | |
| 60,709 | |
| Convertible note payable – Coventry | |
| 68,572 | | |
| 100,000 | |
| Convertible note payable - GW Holdings | |
| 45,000 | | |
| 120,750 | |
| Convertible note payable – Sixth Street Lending | |
| 56,444 | | |
| 60,737 | |
| Convertible note payable – Fourth Man LLC | |
| 60,000 | | |
| — | |
| Convertible note payable – 1800 Diagonal Lending LLC | |
| 137,037 | | |
| — | |
| Convertible note payable – Mast Hill Fund | |
| 550,000 | | |
| — | |
| Convertible note payable - St. George | |
| 4,048,878 | | |
| 3,914,878 | |
| Total | |
| 5,589,265 | | |
| 5,429,071 | |
| Less debt discounts | |
| (1,055,819 | ) | |
| (1,659,622 | ) |
| Net | |
| 4,533,446 | | |
| 3,769,449 | |
| Less current portion | |
| (4,533,446 | ) | |
| (3,769,449 | ) |
| Long term portion | |
$ | — | | |
$ | — | |
Convertible Note Payable-Mast Hill Fund
In May 2022, the Company
issued a convertible promissory note in the aggregate principal amount of $550,000 to Mast Hill Fund, L.P (“Mast Hill”).
The promissory note accrues interest at 12% per annum, is due one year from the issuance date and includes an original issuance discount
in the aggregate amount of $55,000. The Company also paid $39,700 in deferred financing fees and received $455,300 of net proceeds.
In the event of default, as defined in the agreement, the note is convertible at a conversion price of $0.0004 per share. The Company
also issued a five-year warrants to purchase up to 200,000,000 shares of its common stock to Mast Hill, at an exercise price
of $0.0004 per share. The aggregate debt discount of $391,835 is being amortized to interest expense over the respective terms
of the note.
The Company is prohibited
from effecting a conversion of the note to the extent that, as a result of such conversion, the investor, together with its affiliates,
would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after
giving effect to the issuance of shares of common stock upon conversion of the note. The Company is prohibited from effecting an exercise
of the warrant to the extent that, as a result of such exercise, the investor, together with its affiliates, would beneficially own more
than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of
shares of common stock upon exercise of the note.
As of June 30, 2022 the Company owed an aggregate
of $550,000 of principal. As of June 30, 2022, the Company owed $7,486 in accrued interest.
Convertible Note Payable-Labrys
In June 2021, the Company
issued a convertible promissory note in the aggregate principal amount of $537,500 to Labrys Funds, LP (“Labrys”). The
promissory note accrues interest at 12% per annum, is due one year from the issuance date and includes an original issuance discount
in the aggregate amount of $53,750. The Company also paid $33,750 in deferred financing fees and received $450,000 of net proceeds.
The note is convertible at any time at a conversion price of $0.005 per share. The Company also issued a five-year warrants to purchase
up to 76,349,431 shares of its common stock to Labrys, at an exercise price of $0.00704 per share. In addition, the Company
issued five-year warrants to purchase up to 76,349,431 shares of its common stock to an investment banker for services, which warrants
have an exercise price of $0.008448 per share. The aggregate debt discount of $533,526 is being amortized to interest expense over
the respective terms of the note.
The Company is prohibited
from effecting a conversion of the note to the extent that, as a result of such conversion, the investor, together with its affiliates,
would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after
giving effect to the issuance of shares of common stock upon conversion of the note. The Company is prohibited from effecting an exercise
of the warrant to the extent that, as a result of such exercise, the investor, together with its affiliates, would beneficially own more
than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of
shares of common stock upon exercise of the note.
As of June 30, 2022 and December 31, 2021, the
Company owed an aggregate of $0
and $99,975
of principal after the note was converted into common stock in full. As of June 30, 2022, the Company owed $0
in accrued interest.
Convertible Notes Payable-Crown Bridge
Partners
From October 1 through December 31, 2019,
the Company issued convertible promissory notes in the aggregate principal amount of $225,000 to Crown Bridge Partners LLC (“Crown
Bridge”). The promissory notes accrue interest at a rate of 10% per annum, were due one year from the respective issuance date and
include an original issuance discount in aggregate amount of $22,500. Interest accrues from the issuance date, but interest shall not
become payable until the notes becomes payable. The notes are convertible at any time at a conversion price equal to 60% of the market
price of the Company’s common stock, defined as the lowest trading price during the 15-trading-day period prior to the conversion
date. Upon the issuance of these convertible notes, the Company determined that the features associated with the embedded conversion option
embedded in the debentures should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient
number of shares of common stock would be available to settle all potential future conversion transactions. As of the funding date of
each note, the Company determined the fair value of the embedded derivative associated with the convertibility of each note. The fair
value of the embedded derivative has been added to the debt discount (total debt discount is limited to the face value of the debt) with
any excess of the derivative liability recognized as interest expense. The aggregate debt discount of $88,674 was being amortized to interest
expense over the respective terms of the notes. The Company also issued a warrants to purchase up to 519,230 shares of the Company’s
common stock with an initial exercise price of $0.26, with reset provisions based on issuances of common stock subsequent to the issuance
date. Due to the reset provision, the exercise option of these warrants is also accounted for as a derivative liability. See Note 10.
The Company has the right to prepay the
notes for an amount ranging from 125% to 140% multiplied by the outstanding balance (all principal and accrued interest) depending on
the prepayment period (ranging from 1 to 180 days following the issuance date). The Company is prohibited from effecting a conversion
of any note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially own more
than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of
shares of common stock upon conversion of the note.
During the three months ended June 30, 2022, the Company repaid Crown
Bridge $50,000 in full settlement of the outstanding note. As of June 30, 2022 and December 31, 2021,
the Company owed an aggregate of $0 and $35,000 of principal, respectively, on the notes.
Convertible Notes Payable-GS Capital
Partners LLC
In August 2021, the Company issued convertible promissory
notes in the aggregate principal amount of $82,000 to GS Capital. The promissory notes bear interest at 10% per annum and is due one year
from the respective issuance date and include an original issuance discount in aggregate of $7,000. In connection with the Note, the Company
issued 5,000,000 warrants to purchase common stock with a fair value of $18,086, which was recorded as a debt discount. During the three
months ended March 31, 2022, the Company issued 216,820,755 shares of common stock for the full settlement of the note along with the
accrued interest on the note.
The Holder of this Note is entitled, at its option,
at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of
the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal
to 62% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the
Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for
the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer. To the extent
the Conversion Price of the Company’s Common Stock closes below the par value per share, the Company will take all steps necessary
to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Company agrees to honor
all conversions submitted pending this increase. In the event the Company experiences a DTC “Chill” on its shares, the Conversion
Price shall be decreased to 52% instead of 62% while that “Chill” is in effect. In no event shall the Holder be allowed to
effect a conversion if such conversion, along with all other shares of Company Common Stock beneficially owned by the Holder and its affiliates
would exceed 4.99% of the outstanding shares of the Common Stock of the Company (which may be increased up to 9.9% upon 60 days’
prior written notice by the Investor).
As of the funding date of
each note, the Company determined the fair value of the embedded derivative associated with the convertibility of each note. The fair
value of the embedded derivative has been added to the debt discount (total debt discount is limited to the face value of the debt) with
any excess of the derivative liability recognized as interest expense. The aggregate debt discount of $25,086 is being amortized to interest
expense over the respective terms of the notes.
In January 2022, the Company issued convertible promissory
notes in the aggregate principal amount of $105,000 to GS Capital. The promissory notes bear interest at 10% per annum and is due one
year from the respective issuance date and includes an original issuance discount in aggregate of $10,000.
The Holder of this Note is entitled, at its option,
at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of
the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal
to $0.001. To the extent the Company’s Common Stock closes below $0.001 for three consecutive days, the conversion price will be
reset to $0.005.
In February 2022, the Company issued a convertible
promissory note in the aggregate principal amount of $70,000 to GS Capital. The promissory notes bear interest at 8% per annum and is
due one year from the respective issuance date and includes an original issuance discount in aggregate of $20,000.
The Holder of this Note is entitled, at its option,
at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of
the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal
to $0.0008.
As of June 30, 2022 and December 31, 2021, the Company
owed an aggregate of $70,000 and $82,000 of principal, respectively. As of June 30, 2022, the Company owed accrued interest of $2,302
on these convertible promissory notes. During the six months ended June 30, 2022, the lender converted $82,000 of principal and $46,112 of accrued interest
into common stock, and the Company repaid $105,000 of principal with cash.
Convertible Notes Payable-St. George
Investments
In January and March 2021, the Company entered into
three convertible promissory notes in the aggregate amount of $567,500 of principal with Bucktown Capital LLC, entity controlled by the
owners of St. George. The Company received net proceeds of $535,000. The notes mature in January and March 2022 and bear interest at 8%
or 22% in the event of default. The notes are convertible at the lender’s option at any time at a fixed price of $0.002 per common
share, subject to normal adjustment for common stock splits. As a result of default, the company recorded and additional $135,000 of principal
on the note as interest expense during the three months ended March 31, 2022.
Effective October 6, 2021, the Company issued a secured
convertible promissory note in the amount of $3,492,378 with Chicago Ventures. The Company received cash proceeds of $1,100,000 and included
an original issue discount of $574,916 and paid legal fees of $10,000. This note agreement was assumed by the Company as part of the VBF
Acquisition discussed in Note 13 and includes $1,770,982 which reflects the initial consideration towards the future closing of the VBF
Acquisition. The note bears interest at 8% and is due upon maturity on October 6, 2023. The note is convertible at a fixed price of $0.002
per share. In the event of default as defined in the agreement, the lender has the right to convertible principal and accrued interest
at 70% of the lowest closing trading price over the 10 days preceding the conversion notice.
In March 2022, the Company issued a convertible promissory
note in the amount of $266,500 of principal with Bucktown, Capital LLC. The Company received net proceeds of $240,000 after and original
issue discount of $24,000 and fees of $2,500. The note matures in March 2023 and bear interest at 8% or 22% in the event of default. The
note is convertible at the lender’s option at any time at a fixed price of $0.001 per common share, subject to normal adjustment
for common stock splits.
In May 2022, the Company issued a convertible promissory
note in the amount of $57,500 of principal with Bucktown, Capital LLC. The Company received net proceeds of $50,000 after and original
issue discount and fees of $7,500. The note matures in February 2023 and bear interest at 8% or 22% in the event of default. The note
is convertible at the lender’s option at any time at a fixed price of $0.001 per common share, subject to normal adjustment for
common stock splits.
As of June 30, 2022 and December 31, 2021, the Company
owed $4,048,878 and $3,914,878 of principal, respectively. As of June 30, 2022, the Company owed accrued interest of $248,341 on these
convertible promissory notes. During the six months ended June 30, 2022, the lender converted $325,000 of principal into common stock.
Convertible Notes Payable - Robert L.
Hymers III
On December 27, 2021, the Company issued convertible
promissory notes in the aggregate principal amount of $30,000 to Pinnacle Consulting Services, Inc. (“Pinnacle”). The promissory
note bears interest at 12.5% per annum, and is due one year from the respective issuance date of the note along with accrued and unpaid
interest and includes an original issue discount (“OID”) of $5,000. Principal and interest to be payable as provided below
on that date which is one year from the date of issuance (the “Maturity Date”).
For so long as there remains any amount due hereunder,
the Holder shall have the option to convert all or any portion of the unpaid principal amount of this Note, plus accrued interest (together
with the unpaid principal amount, the “Converted Amount”), into shares of the Company’s common stock. The conversion
price (the “Conversion Price”) shall be equal to a $0.006. The Conversion price, and any other economic terms will be adjusted
on a ratchet basis if the Company offers a more favorable conversion or stock issuance price, prepayment rate, interest rate, additional
securities, look back period or more favorable terms to another party for any financings while this note is in effect.
The aggregate debt discount of $5,000 is being amortized
to interest expense over the respective term of the note.
As of June 30, 2022, and December 31, 2021, the Company
owed an aggregate of $30,000 and $30,000 respectively. As of June 30, 2022, the Company owed accrued interest of $948 on this convertible
promissory note.
Convertible Note Payable – GW
Holdings Group
On January 6, 2020,
the Company entered into a convertible promissory note in the principal amount of $57,750 with GW Holdings Group, LLC, a New York limited
liability company (“GW”). GW has the option, beginning on the six month anniversary of the issuance date of, to convert all
or any amount of the principal amount of the note then outstanding
together with any accrued interest thereon into shares of the Company's common stock at a conversion price equal to a 40% discount of
the lowest trading price for fifteen trading days prior to the date of conversion. The note bears interest at a rate of 10% per annum
and include a $5,250 such that the price of the note was $57,750. During the three months ended March 31, 2022, $75,750 of principal and
$4,449 of accrued interest on the notes was converted into 100,248,801 shares of common stock.
As of June 30, 2022 and December 31, 2021, the
Company owed principal of $0
and $120,750,
respectively. As of June 30, 2022, the Company owed $0
in accrued interest. During the six months ended June 30, 2022, the lender converted $75,750 of principal and $4,449 of accrued interest
into common stock, and the Company repaid $45,000 of principal and $27,068 of accrued interest with cash.
Convertible
Note Payable- Beach Labs
On November 24, 2021, the Company issued a convertible
promissory note in the aggregate principal amount of $625,000 to Beach Labs in connection with the modification of the cDistro acquisition
agreement discussion in Note 13. The promissory note accrues interest at 10% per annum and is due four years from the issuance date.
The holder of this Note is entitled, at its option,
at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of
the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal
to 70% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the
Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for
the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer.
The Company determined the
fair value of the embedded derivative associated with the convertibility of each note. The fair value of the embedded derivative has been
added to the debt discount (total debt discount is limited to the face value of the debt) with any excess of the derivative liability
recognized as interest expense. The aggregate debt discount of $625,000 is being amortized to interest expense over the respective terms
of the notes.
As of June 30, 2022, and December 31, 2021, the
Company owed principal of $458,334
and $583,333,
respectively. As of June 30, 2022, the Company owed $43,502
in accrued interest. During the six months ended June 30, 2022, the Company repaid $125,000 of this convertible note payable in cash.
Convertible Note
Payable- Sixth Street Lending
On November 16, 2021, the Company issued a promissory
note in the aggregate principal amount of $60,737 to Sixth Street Lending (“SSL”). The promissory note has a one-time interest
charge of 7,896 and is due one year from the issuance date. The Company paid $10,738 in deferred financing fees and received $50,000 of
net proceeds. Upon default, the note is convertible at a price ("Conversion Price") for each share of Common Stock equal to
73% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s
shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the five prior trading
days including the day upon which a Notice of Conversion is received by the Company or its transfer.
On January 10, 2022, the Company issued a promissory
note in the aggregate principal amount of $43,750 to SSL. The promissory note bears interest at a rate of 8% and is due one year from
the issuance date. The Company paid $3,750 in deferred financing fees and received $40,000 of net proceeds. The note is convertible
at a price ("Conversion Price") for each share of Common Stock equal to $.0055 for the first 180 days and then at 65% of the
average of the two lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which
the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"),
for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer.
As of June 30, 2022, and December 31, 2021, the
Company owed principal of $56,444
and $60,737,
respectively. As of June 30, 2022, the Company owed $9,558
in accrued interest. During the six months ended June 30, 2022, the Company repaid $48,043 of principal with cash.
Convertible Note
Payable- Coventry
On December 29, 2021, the Company issued a promissory
note in the aggregate principal amount of $100,000 to Coventry (“Coventry”). The promissory note has a one-time interest charge
of 10,000 and is due one year from the issuance date. The Company paid $20,000 in deferred financing fees and received $80,000 of
net proceeds. The note is convertible at a price ("Conversion Price") for each share of Common Stock equal to 90% of the lowest
trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares
are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the five prior trading
days including the day upon which a Notice of Conversion is received by the Company or its transfer. In January 2022, the Company issued
10,000,000 shares of common stock for deferred financing fees with a value of $13,000 which was recorded as a debt discount to be amortized
over the remaining term of the note.
As of June 30, 2022 and December 31, 2021, the
Company owed an aggregate of $68,572
and $100,000
of principal. As of June 30, 2022, the Company owed $10,000
in accrued interest. During the six months ended June 30, 2022, the Company repaid $31,428 of principal with cash.
Convertible
Note Payable-Firstfire
In July 2021, the Company
issued a convertible promissory note in the aggregate principal amount of $268,750 to Firstfire Global Opportunities Fund LLC (“Firstfire”).
The promissory note accrues interest at 12% per annum, is due one year from the issuance date and includes an original issuance discount
and financing fees in the aggregate amount of $44,888 and received $200,963 of net proceeds. The note is convertible at any
time at a conversion price of $0.005 per share. The Company also issued a five-year warrants to purchase up to 38,174,715 shares
of its common stock to Firstfire, at an exercise price of $0.00704 per share. The aggregate debt discount of $245,851 is being
amortized to interest expense over the respective terms of the note.
The Company is prohibited
from effecting a conversion of the note to the extent that, as a result of such conversion, the investor, together with its affiliates,
would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after
giving effect to the issuance of shares of common stock upon conversion of the note. The Company is prohibited from effecting an exercise
of the warrant to the extent that, as a result of such exercise, the investor, together with its affiliates, would beneficially own more
than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of
shares of common stock upon exercise of the note.
As of June 30, 2022 and December 31, 2021, the
Company owed an aggregate of $0
and $243,750
of principal. As of June 30, 2022, the Company owed $0
in accrued interest. During the six months ended June 30, 2022, the lender converted $183,750 of principal and $32,250 of accrued interest
into common stock, and the Company repaid $60,000 of principal with cash.
Convertible
Note Payable- Dutchess Capital Growth Fund LP
On May 25, 2021, the Company issued a convertible
promissory note in the aggregate principal amount of $135,000 to Dutchess Capital Growth Fund LP (“Dutchess”). The promissory
note accrues interest at 8% per annum, is due one year from the issuance date. The Company paid $13,750 in deferred financing
fees and received $121,250 of net proceeds.
Beginning six months after date of issue, the holder
of this Note is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of
this Note then outstanding into shares of the Company's common stock (the "Common Stock") at a price ("Conversion Price")
for each share of Common Stock equal to 55% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau
OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the
future ("Exchange"), for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the
Company or its transfer.
The Company determined the
fair value of the embedded derivative associated with the convertibility of each note. The fair value of the embedded derivative has been
added to the debt discount (total debt discount is limited to the face value of the debt) with any excess of the derivative liability
recognized as interest expense. The aggregate debt discount of $135,000 is being amortized to interest expense over the respective terms
of the notes.
On May 5, 2022, the
Company issued a convertible promissory note in the aggregate amount of $110,000
to Dutchess. The promissory note accrues interest at 10%
per annum, is due one year from the issuance date. The Company paid $10,000 in
deferred financing fees and received $100,000 of
net proceeds. The Company also issued 87,500,00
shares of common stock to the lender as a deferred finance cost, with a fair value of $61,250.
The shares and deferred financing fees are being amortized through the maturity date of the note.
In the event of default on the note by the Company,
the holder of this Note is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face
amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") at a price ("Conversion
Price") for each share of Common Stock equal to 80% of the lowest trading price of the Common Stock as reported on the National Quotations
Bureau OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded
in the future ("Exchange"), for the 25 prior trading days including the day upon which a Notice of Conversion is received by
the Company or its transfer.
As of June 30, 2022 and December
31, 2021, the Company owed an aggregate of $110,000 and $60,709 of principal. As of June 30, 2022, the Company owed $11,000 in accrued
interest. During the six months ended June 30, 2022, the lender converted $14,302 of principal and $815 into common stock,
and the Company repaid $46,407 of principal and $28,594 of accrued interest with cash.
Convertible
Note Payable- Geneva Roth Holdings
On July 28, 2021, the Company
issued a promissory note in the aggregate principal amount of $169,125 to Geneva Roth Holdings (“Geneva”). The promissory
note accrues interest at 10% per annum, is due one year from the issuance date. The Company paid $13,750 in deferred financing
fees and received $153,750 of net proceeds. The Company also issued five-year warrants to purchase up to 10,147,500 shares
of its common stock to Geneva, at an exercise price of $0.001 per share. The aggregate debt discount of $67,253 is being amortized
to interest expense over the respective terms of the note.
As of June 30, 2022 and December 31, 2021, the
Company owed an aggregate of $0
and $97,939
of principal. As of June 30, 2022, the Company owed $0
in accrued interest. The principal of $97,939 and accrued interest of $52,639 during the six months ended June 30, 2022.
Convertible Note Payable
- Fourth Man LLC
In January 2022, the Company
issued a convertible promissory note in the aggregate principal amount of $60,000 to Fourth Man, LLC (“Fourth Man”).
The promissory note accrues interest at 12% per annum, is due one year from the issuance date and includes an original issuance discount
in the aggregate amount of $6,000. The Company also paid $6,240 in deferred financing fees and received $47,760 of net proceeds.
The note is convertible at any time at a conversion price of $0.0006 per share. The Company also issued 25,000,000 shares of
its common stock for deferred financing fee. The aggregate debt discount of $42,240 is being amortized to interest expense over the
respective terms of the note.
As of June 30, 2022, the Company owed an aggregate
of $60,000 of principal. As of June 30, 2022, the Company owed $9,020 in accrued interest.
Convertible Note
Payable- 1800 Diagonal Lending LLC
On May 18, 2022, the Company issued a promissory note
in the aggregate principal amount of $137,037 to 1800 Diagonal Lending LLC (“DLL”). The promissory note has a one-time interest
charge of $16,444 and is due one year from the issuance date, and had an original issue discount of $18,433. The Company paid $3,750 in
deferred financing fees and received $100,000 of net proceeds. Upon default, the note is convertible at a price ("Conversion
Price") for each share of Common Stock equal to 73% of the lowest trading price of the Common Stock as reported on the National Quotations
Bureau OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded
in the future ("Exchange"), for the five prior trading days including the day upon which a Notice of Conversion is received
by the Company or its transfer.
As of June 30, 2022, and December 31, 2021, the Company
owed principal of $56,444 and $60,738, respectively. As of June 30, 2022, the Company owed $9,558 in accrued interest.
Revenue share agreement
– Money Well Group
In March 2022, the Company
entered into a revenue share in the aggregate principal amount of $89,940 to Money Well Group (“Money Well”). The agreement
requires daily payments in the amount of $1,285 and includes an original issuance discount in the aggregate amount of $35,940 and received
$54,000 of net proceeds. The aggregate debt discount of $35,940 is being amortized to interest expense over the respective terms
of the note. The note was fully repaid in cash by June 30, 2022.
Summary:
The Company has identified the embedded derivatives
related to the above described notes and warrants. These embedded derivatives included certain conversion and reset features. The accounting
treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date
of the note and to fair value as of each subsequent reporting date. See Note 10.
Subscriptions Payable
On September 30, 2020, the Company entered
into a share exchange agreement (“Share Exchange Agreement”) with Cannabis Global, Inc. (“CBGL”) dated September
30, 2020, to acquire the number of shares of CBGL’s common stock equal in value to $650,000 based on the closing price for the trading
day immediately preceding the effective date of the Share Exchange Agreement, in exchange for the number of shares of Company common stock
equal in value to $650,000 based on the closing price for the trading day immediately preceding the effective date of the Share Exchange
Agreement. For both parties, the Share Exchange Agreement contains a “true-up” provision requiring the issuance of additional
common stock in the event that a decline in the market value of either parties’ common stock should cause the aggregate value of
the stock acquired pursuant to the Share Exchange Agreement to fall below $650,000.
On February 26, 2021, the Company entered into a share
exchange agreement (“ECOX Share Exchange Agreement”) with Eco Innovation Group, Inc. (“ECOX”) dated February
26, 2021, to acquire the number of shares of ECOX’s common stock, equal in value to $650,000
based on the per-share price of $0.06,
in exchange for the number of shares of Company common stock equal in value to $650,000 based on the closing price for the trading
day immediately preceding the effective date of the ECOX Share Exchange Agreement. For both parties, the ECOX Share Exchange
Agreement contains a “true-up” provision requiring the issuance of additional common stock in the event that a decline
in the market value of either parties’ common stock should cause the aggregate value of the stock acquired pursuant to the
ECOX Share Exchange Agreement to fall below $650,000. Based on the value of ECOX shares in the market as of June 30, 2021, the
Company recorded a value for additional shares owed to ECOX pursuant to the ECOX Share Exchange Agreement of $329,572
as a subscription agreement along with a loss from equity investment of $391,194.
As of June 30, 2022 41,935,484
shares of the Company’s common stock have been issued. As a result, the balance of subscriptions payable as of June 30, 2022
and December 31, 2021 was $772,961
and $989,594,
respectively. 752,961
NOTE 9 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company is authorized to issue 50,000,000
shares of $0.001 par value preferred stock (“Series A Preferred Stock”) as of June 30, 2022 and December 31, 2021 of which
10,000,000 shares are outstanding as of June 30, 2021. As of June 30, 2022 and December 31, 2021, the Company is authorized to issue 5,000,000
shares of Class B Preferred Stock of which 2,000,000 shares are issued and outstanding as of June 30, 2021.
Each share of Class A Preferred Stock is
entitled to 100 votes on all matters submitted to a vote to the stockholders of the Company and does not have conversion, dividend or
distribution upon liquidation rights.
Each share of Class B Preferred Stock is
entitled to 1,000 votes on all matters submitted to a vote to the stockholders of the Company and does not have conversion, dividend or
distribution upon liquidation rights.
Common stock
The
Company is authorized to issue 32,000,000,000
shares of no
par value common stock as of June 30, 2022. As
of December 31, 2021, the Company was authorized to issue 10,000,000,000
shares of $0.001
par value common stock. As of June 30, 2022,
and December 31, 2021, the Company had 12,380,532,543
and 7,122,806,264
shares of common stock issued and outstanding,
respectively. As of August 22, 2022, there were 13,316,028,930 shares
of the Company’s common stock issued and outstanding.
During the six months ended June 30, 2022,
the Company issued an aggregate of 122,256,410 shares of its common stock for services with an estimated fair value of $152,000.
During the six months ended June 30, 2022, the Company
issued an aggregate of 1,303,931,600
shares of its common stock, including shares related to warrants accounted for as liabilities, in settlement of $780,777
of principal on convertible notes payable, accrued interest of $108,777
and reclassified derivative liabilities of $233,069
to common stock in connection with the conversions.
During the six months ended June 30, 2022,
the Company sold 2,660,000,000 of its common stock for an aggregate value of $1,066,010.
During the six months ended June 30, 2022,
the Company issued 303,185,000 of its common stock for an aggregate value of $248,796 for deferred finance costs.
During the six months ended June 30, 2022,
the Company reacquired its common stock of $60,000 returned as Treasury stock.
During the six months ended June 30, 2022,
the Company’s officer cancelled 30,000,000 in commons stock.
During the six months ended June 30, 2022,
the Company had Debt discount from warrants issued with convertible notes payable with an aggregate value of $152,587.
During the six months ended June 30, 2022,
the Company issued 717,866,439 of its Common stock for contingent consideration for an aggregate value of $500,000.
During the six months ended June 30, 2022, the Company issued
180,486,830 of its common stock for subscriptions payable for an aggregate value of $234,633.
Options
As of June 30, 2022, the Company has no
outstanding stock options.
Warrants
The following table summarizes the stock
warrant activity for the six months ended June 30, 2022:
| Schedule of stock warrant activity | |
| | |
| | |
| | |
| |
| | |
Shares | | |
Weighted-Average Exercise Price | | |
Weighted Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
| Outstanding at December 31, 2021 | |
| 145,302,385 | | |
$ | 0.0033 | | |
| 2.80 | | |
$ | 70,200 | |
| Granted | |
| 200,000,000 | | |
| 0.0004 | | |
| 5.00 | | |
| — | |
| Cancelled/Expired | |
| (87,516,667 | ) | |
| 0.0004 | | |
| 1.65 | | |
| — | |
| Increase due to reset provision | |
| — | | |
| — | | |
| — | | |
| — | |
| Exercised | |
| — | | |
| — | | |
| — | | |
| — | |
| Outstanding at June 30, 2022 | |
| 257,785,718 | | |
$ | 0.002 | | |
| 4.68 | | |
$ | — | |
| Exercisable at June 30, 2022 | |
| 257,785,718 | | |
$ | 0.002 | | |
| 4.68 | | |
$ | — | |
Certain warrants issued to debt holders
have reset provisions whereby upon subsequent issuances of common stock at a price below the current exercise price, the number of warrants
increase and the exercise price is reduced to the new price. The aggregate intrinsic value in the preceding tables represents the total
pretax intrinsic value, based on options with an exercise price less than the Company’s stock price of $0.0004 as of June 30, 2022,
which would have been received by the option holders had those option holders exercised their options as of that date.
NOTE 10 — FAIR VALUE MEASUREMENT
ASC 825-10 defines fair value as the price
that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that
market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active
markets for identical assets or liabilities.
Level 2 – Observable inputs other
than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally
from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs to
the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
All items required to be recorded or measured
on a recurring basis are based upon level 3 inputs.
To the extent that valuation is based on
models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain
cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest
level input that is significant to the fair value measurement.
Upon adoption of ASC 825-10, there was
no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.
The carrying value of the Company’s
cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other
current assets and liabilities approximate fair value because of their short-term maturity.
As of June 30, 2022 and December 31, 2021,
the Company did not have any items that would be classified as level 1 or 2 disclosures.
The Company recognizes its derivative liabilities
as level 3 and values its derivatives using the methods discussed in Note 3. While the Company believes that its valuation methods are
appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine
the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary
assumptions that would significantly affect the fair values using the methods discussed in Note 3 are that of volatility and market price
of the underlying common stock of the Company.
As of June 30, 2022 and December 31, 2021,
the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of June 30,
2022 and December 31, 2021, in the amount of $688,264 and $749,756, respectively, have a level 3 classification.
The fair values were determined using the Binomial
Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 171.74% to 199.29%, (3)
weighted average risk-free interest rate of 2.51% to 2.99%, (4) expected life of 0.5 to 4.0 years, (5) conversion prices of $0.00033 to
$0.006 and (6) the Company's common stock price of $0.0004 per share as of June 30, 2022.
For the six-month period ended June 30, 2022, the
Company recorded a loss on the change in fair value of derivative liabilities of $69,067, which included a loss of $157,001 related to
convertible notes payable, a gain of $87,934 related to the settlement of the fair value of derivatives as a result of repayments on the
convertible notes, and also recognized a loss of $22,558 related to the excess of the fair value of derivatives at issuance above convertible
note principle as a charge to interest expense. During the six months ended June 30, 2022, derivative liabilities of $233,069 were reclassified
to common stock as a result of conversions of the underlying notes payable into common stock.
The following table provides a summary
of changes in fair value of the Company’s Level 3 financial liabilities for the three months ended June 30, 2022:
| Schedule of summary of changes in fair value of
derivative liabilities |
| |
| | |
| |
| |
Debt Derivative | | |
| Balance, January 1, 2022 | |
$ | 749,756 | |
| Increase resulting from initial issuance of additional convertible notes payable recorded as debt discount | |
| 79,952 | |
| Increase resulting from initial issuances of additional convertible notes payable recorded as day one loss | |
| 22,558 | |
| Decreases resulting from conversion or payoff of convertible notes payable | |
| (233,069 | ) |
| Decreases resulting from payoff of convertible notes payable | |
| (87,934 | ) |
| Loss due to change in fair value included in earnings | |
| 157,001 | |
| Balance, June 30, 2022 | |
$ | 688,264 | |
Fluctuations in the Company’s stock
price are a primary driver for the changes in the derivative valuations during each reporting period. During the period ended June 30,
2022, the Company’s stock price decreased significantly from initial valuations. As the stock price decreases for each of the related
derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant unobservable
inputs used in the fair value measurement of each of the Company’s derivative instruments.
NOTE 11 — RELATED PARTY TRANSACTIONS
The Company’s current officers and
stockholders advanced funds to the Company for travel related to business meetings and due diligence with respect to acquisition
targets and working capital purposes. As of June 30, 2022 and December 31, 2021, the balance due to officers for travel and working capital
purposes was $0 and $0, respectively.
As of June 30, 2022 and December 31, 2021,
accrued compensation due to officers and executives included as accrued compensation was $121,111 and $42,925, respectively.
Related party sales contributed
$0 and $0 to revenues for the three months ended June 30, 2022 and 2021, respectively, while related party sales contributed $0 and $0
to revenues for the six months ended June 30, 2022 and 2021, respectively. Related party sales were comprised of sales of the Company’s
hempSMART products to the Company’s 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.
NOTE 12 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance
sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized
or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed.
ITEM 2. 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 results of operations together with and our consolidated financial statements and the related notes appearing
elsewhere in this Quarterly Report on Form 10-Q. 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 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,
as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report
are in U.S. dollars, unless otherwise noted.
Background
History and Development of the Company
We were incorporated in the State of Utah on October
4, 1985, under the name of Mormon Mint, Inc., and our business focused on the manufacture and marketing of commemorative medallions related
to the Church of Jesus Christ of Latter-Day Saints. On January 5, 1999, the Company changed its name to Converge Global, Inc., and subsequently
focused on the development and implementation of Internet web content and e-commerce applications. In the period from 2009 to 2014, we
operated primarily in the mining exploration business, and in 2015, we left the mining business and began an internet-based marketing
business focused on online marketing of service items to the hospitality and food service industry, selling retail product directly to
consumers from food distributors via credit card and commercial accounts.
On September 4, 2015, Donald Steinberg and Charles
Larsen acquired control of the Company through the purchase of 400,000,000 shares of restricted common stock and 10,000,000 shares of
Preferred Class A stock for $105,000.00, in equal amounts. On September 9, 2015, Donald Steinberg was appointed Chairman of the Board,
Chief Executive Officer and Secretary of the Company. Mr. Larsen was appointed to the Board of Directors. The new management changed the
Company’s business plans and operations to focus on emerging opportunities in the cannabis and hemp industries. On December 1, 2015,
the Company changed its name to Marijuana Company of America, Inc. and its stock trading symbol to MCOA. On December 6, 2019, a change
of control occurred, where Donald Steinberg and Charles Larsen transferred their control shares to directors Robert Coale, Edward Manolos
and Jesus Quintero. Also on December 6, 2019, Jesus Quintero, who was appointed as Chief Financial Officer in 2018, was appointed as our
Chief Executive Officer. Mr. Quintero is currently our Chief Executive Officer and Chief Financial Officer, and a member of the Board
of Directors.
Marijuana Company of America is a Utah corporation
quoted on OTC Markets Pink Tier under the symbol “MCOA”. We are based in Los Angeles, California.
We are an owner and operator of licensed cannabis
cultivation, processing and dispensary facilities and a developer, producer and distributor of innovative branded cannabis and cannabidiol
(“CBD”) products in the United States. We are committed to creating a national distributorship and retail brand portfolio
of branded cannabis and CBD products, although as of the date of this filing, marijuana (defined as cannabis containing delta-9 tetrahydrocannabinol
concentration of more than 0.3 percent on a dry weight basis) currently remains illegal under U.S. federal law.
Through our wholly-owned subsidiary cDistro, Inc.,
a Nevada corporation, our wholly-owned CBD product distribution business, we distribute hemp and CBD products throughout the United States.
Through cDistro, we distribute high quality hemp-derived cannabinoid products, as detailed on our cDistro website, www.cdistro.com. cDistro
offers CBD brands along with smoke and vape shop related products to wholesalers, c-stores, specialty retailers, and consumers in North
America. Through cDistro, we work exclusively with select manufacturers to deliver retail service and products at wholesale prices
Through our wholly owned subsidiary H Smart, Inc.,
a Delaware corporation, we develop and sell CBD products under the brand name hempSMART™. Our business also includes making selected
investments and entering into joint ventures with start-up businesses in the legalized cannabis and hemp industries.
Readers are directed to review our detailed disclosures
in Item 1, Business; Principal Products and their Markets; Joint Ventures and Investments above. A summary of our investment and joint
venture activity follows:
Joint Ventures
Bougainville Ventures, Inc. Our joint venture
with Bougainville Ventures, Inc. is currently in litigation (See Legal Proceedings, Item 3). We recorded an annual impairment in 2017
of $792,500, reflecting the Company’s percentage of ownership of the net book value of the investment. During 2018, the Company
recorded equity losses of $37,673 and $11,043 for the first and second quarters respectively, and recorded an annual impairment of $285,986
for the year ended December 31, 2018, at which time we determined the investment to be fully impaired due to Bougainville’s breach
of contract and resulting litigation.
Global Hemp Group Scio Oregon Joint Venture.
On May 8, 2018, we entered into a joint venture with Global Hemp Group, Inc., develop a project to commercialize the cultivation of industrial
hemp on a 109-acre parcel of real property owned by the Company and Global Hemp Group in Scio, Oregon, and operating under the Oregon
corporation Covered Bridges, Ltd. The joint venture agreement commits the Company to a cash contribution of $600,000 payable on the following
funding schedule: $200,000 upon execution of the joint venture agreement; $238,780 by July 31, 2018; $126,445 by October 31, 2018; and,
$34,775 by January 31, 2019. The Company has complied with its payments. The 2018 crop of hemp grown on the joint venture’s real
property consisted of 33 acres of high yielding CBD hemp grown in an orchard style cultivation on the property. The 2018 harvest consisted
of approximately 37,000 high yielding CBD hemp plants producing 24 tons of biomass that produced 48,000 pounds of dried biomass. However,
there were delays with Global Hemp Group’s management and maintenance of the business and the biomass that caused degradation to
the harvested crop affecting marketability. Additional issues and disputes arose between the Company and Global Hemp Group. These disputes
led to the parties entering into a settlement agreement on September 28, 2020, whereby Global Hemp Group agreed to pay the Company $200,000
and issue common stock to the Company equal in value to $185,000 as of September 28, 2020, subject to a non-dilutive protection provision.
Additionally, Global Hemp Group agreed to pay the Company $10,000 to cover the Company’s legal fees relating to the Agreement. In
exchange for the settlement consideration, the Company agreed to relinquish its ownership interest in the joint venture.
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 two million dollars and issue NPE one million dollars’ worth
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 common stock at a 50% discount
to the closing price of MCOA’s common stock as of the maturity date. As of the date of this filing, the Company satisfied its payment
obligations under the settlement agreement. Our continuing 5% equity ownership in NPE involves related parties, since Edward Manolos,
our director, is also a director and shareholder of Cannabis Global, Inc., which is the controlling shareholder holding 55% of Natural
Plant Extract of California Inc. Joint Ventures in Brazil and Uruguay; On October 1, 2020, we entered into two Joint Venture Agreements
with Marco Guerrero, a director of the Company, dated September 30, 2020, to form joint venture operations in Brazil and in Uruguay to
produce, manufacture, market and sell the Company’s hempSMART™ products in Latin America, and will also work 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 will be headquartered in São Paulo, Brazil, and will be named HempSmart Produtos
Naturais Ltda. (“HempSmart Brazil”). The Uruguayan joint venture will be headquartered in Montevideo, Uruguay and will be
named Hempsmart Uruguay S.A.S. (“HempSmart Uruguay”). Both are in the development stage.
Investments
Share Exchange with Cannabis Global,
Inc. On September 30, 2020, the Company entered into a securities exchange agreement with Cannabis Global, Inc. (OTC: CBGL), a Nevada
corporation. By virtue of the agreement, the Company issued 650,000,000 shares of its unregistered common stock to Cannabis Global in
exchange for 7,222,222 shares of Cannabis Global unregistered common stock. The Company and Cannabis Global also entered into a lock up
leak out agreement, which prevents either party from sales of the exchanged shares for a period of 12 months. 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
Shares and Exchange Shares are sold. Our transaction with Cannabis Global, Inc. is material and involves related parties, since Edward
Manolos, our director and holder of Preferred Class A stock, is also a director and officer of Cannabis Global, Inc.
Share Exchange with Eco Innovation Group, Inc.
On February 26, 2021, we entered into a Share Exchange Agreement with Eco Innovation Group, Inc., a Nevada corporation quoted on OTC Markets
Pink (“ECOX”) to acquire the number of shares of ECOX’s common stock, equal in value to $650,000 based on the per-share
price of $0.06, in exchange for the number of shares of MCOA common stock equal in value to $650,000 based on the closing price for the
trading day immediately preceding the effective date (the “Share Exchange Agreement”). For both parties, the Share Exchange
Agreement contains a “true-up” provision requiring the issuance of additional common stock in the event that a decline in
the market value of either parties’ common stock should cause the aggregate value of the stock acquired pursuant to the Share Exchange
Agreement to fall below $650,000. Complementary to the Share Exchange Agreement, the Company and ECOX entered into a Lock-Up Agreement
dated February 26, 2021 (the “Lock-Up Agreement”), providing that the shares of common stock acquired pursuant to the Share
Exchange Agreement shall be subject to a lock-up period preventing its sale for a period of 12 months following issuance and limiting
the subsequent sale to aggregate maximum sale value of $20,000 per week, or $80,000 per month. On October 1, 2021, we entered into a First
Amendment to Lock-Up Agreement between the Company and Eco Innovation Group, Inc., dated and effective October 1, 2021 (the “Amended
Lock-Up Agreement”), which amends that certain Lock-Up Agreement entered into between the Company and Eco Innovation Group, Inc.
on February 26, 2021 (the “Original Lock-Up Agreement”). The Amended Lock-Up Agreement amends the Original Lock-Up Agreement
in one respect, by amending the initial lock-up period from 12 months following its effective date to 6 months following its effective
date. All other terms and conditions of the Original Lock-Up Agreement remain unaffected.
Asset Purchase Agreement with VBF Brands, Inc.
On October 6, 2021, the Company, through its wholly owned subsidiary Salinas Diversified Ventures, Inc., a California corporation,
entered into an Asset Purchase Agreement, Management Services Agreement, Cooperation Agreement and Employment Agreement with VBF Brands,
Inc., a California corporation (“VBF”), a wholly owned subsidiary of Sunset Island Group, Inc., a Colorado corporation (“SIGO”).
VBF and SIGO agreed to transfer to the Company all of VBF’s outstanding stock to the Company, and appointed our CEO and CFO Jesus
Quintero as President of VBF.
VBF owns various fixed assets including machinery
and equipment, a lease for a 10,000 square foot facility located at 20420 Spence Road, Salinas, California, 93908, leasehold improvements,
good-will, inventory, tradenames including “VBF Brands,” trade secrets, intellectual property, and other tangible and intangible
properties, including licenses issued by the City of Salinas, County of Monterey, and the State of California to operate a licensed cannabis
nursery, cultivation facility, and operations for the manufacturing and distribution of cannabis and cannabis products.
VBF and SIGO agreed to sell and transfer to the Company
all of VBF’s outstanding stock, and, by virtue of the Management Services Agreement, appoint Mr. Jesus Quintero as President of
VBF, vesting management and control of VBF’s licensed cannabis operations in the Company. Concurrently, VBF and Livacich entered
into a Cooperation Agreement, whereby VBF and Livacich agreed to cooperate to facilitate the transfer of ownership of VBF, which includes
licenses issued by the City of Salinas, County of Monterey, and the State of California, to operate a cannabis nursery, cultivation facility
and manufacturing and distribution operations to the Company. The Company also agreed to retain Livacich as Chief Executive Officer for
a term of two years and agreed to compensate her with a salary including a signing cash bonus of $250,000, and a $250,000 performance
cash bonus payable after six months after the Effective Date. The bonus is conditioned upon Livacich meeting an agreed to “Net Revenue”
target of one million dollars ($1,000,000) from VBF’s operations during the six-month period after closing of the Asset Purchase
Agreement, and her compliance with the terms and conditions of this Asset Purchase Agreement, the Management Services Agreement and the
Cooperation Agreement.
As consideration for the transaction, the Company
agreed to assume two secured convertible promissory notes issued by SIGO to St. George Investments, LLC, a Utah limited liability company
(“St. George”) (the “SIGO Notes”). The first note was issued December 8, 2017, in the original face amount of
$170,000.00, and the second was issued February 13, 2018, in the original face amount of $4,245,000.00. SIGO also issued warrants to St.
George to purchase common shares in SIGO, and fifty (50) shares of SIGO’s preferred stock. St. George agreed to cancel the warrants
and preferred shares upon the Company’s assumption of the SIGO Notes.
Under the Asset Purchase Agreement, the closing is
conditioned upon certain conditions precedent, specifically (i) VBF and SIGO’s full corporate authorization, consent and execution
of this Agreement; (ii) VBF’s sale to MCOA of 100% of the issued and outstanding shares of VBF; (iii) full corporate authorization,
consent compliance with and execution of the Management Services Agreement and Cooperation Agreement; (iv) SIGO’s disclosure of
the Agreement on Form 8-K with the Securities and Exchange Commission; (v) full cooperation in MCOA’s financial auditing of VBF
in accordance with ASC 805, including providing unrestricted access to all VBF corporate and financial records and providing all necessary
cooperation with VBF financial personnel; (vi) full cooperation in aiding and assisting Buyer with its change of ownership applications
with the relevant licensing authorities; (vii) the warranty of truthful representations and execution of and compliance with the terms
and conditions of the Executive Employment Agreement, Management Services Agreement and the Cooperation Agreement.
As of the date of this filing, the conditions precedent
to the closing of the Asset Purchase Agreement remain in the process of implementation, so that the Asset Purchase Agreement closing has
not yet occurred pursuant to its terms. Legal counsel for MCOA is currently in the process of working with VBF, Salinas Diversified Ventures,
and the relevant state and local governments to effect the change of control and license transfers necessary to close the Asset Purchase
Agreement.
Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
For the three
months ended June 30, 2022 and 2021, we had net losses from continuing operations of $883,159 and $1,026,122, respectively, an decrease
of $142,963. This decrease is due primarily to the effects of a company-wide effort for overall reduction of General and Administrative
expenses, as well as an increase in gross revenue.
Revenues
The Company
generated revenues of $258,628 and $16,880 for the three months ended June 30, 2022 and 2021, respectively. The increase of $241,784 and
is primarily attributed to the Company’s new acquisition cDistro that distributes CBD and hemp products throughout the USA.
The following
table identifies products and equipment lease revenues during the three months ended June 30, 2022 and 2021, respectively:
| | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Body Lotion | |
$ | — | | |
$ | 403 | |
| Brain | |
$ | 1,200 | | |
$ | 270 | |
| Drink Mix | |
$ | — | | |
$ | 24 | |
| Drops | |
$ | 4,965 | | |
$ | 10,352 | |
| Face Moisturizer | |
$ | — | | |
$ | 89 | |
| Pain Cream | |
$ | 2,669 | | |
$ | 4,668 | |
| Pet Drops | |
$ | 1,124 | | |
$ | 732 | |
| Bottles – Nic | |
$ | 33 | | |
$ | — | |
| Bottles – Salt Nic | |
$ | 288 | | |
$ | — | |
| CBD Hempettes | |
$ | 52,293 | | |
| | |
| Disposables–Tobacco – Free Nicotine | |
$ | 22 | | |
$ | — | |
| Kratom | |
$ | 26,257 | | |
$ | — | |
| Other cDistro products | |
$ | 24,239 | | |
$ | 342 | |
| Vape products | |
$ | 123,166 | | |
$ | — | |
| MCOA Equipment Lease rental | |
$ | 22,500 | | |
$ | — | |
| | |
$ | 258,628 | | |
$ | 16,880 | |
| | |
| | | |
| | |
Cost of sales
For the three months ended June 30, 2022 and
2021, selling and marketing expenses were $96,094 and $155,212, respectively. This decrease of $59,118 is due to more cost efficiencies
in our selling and marketing program as we focused more of our efforts on social media, for the three months ended June 30, 2022.
Gross profit
For three months ended June 30, 2022 and
2021, gross profit was $220,029 and $13,579, respectively. This increase of $206,450 was primarily attributed to the Company’s new
acquisition cDistro that sells CBD and hemp products throughout the USA. We anticipate an increase in sales from our cDistro company as
well as an increase in our hempsmart products as we continue the deployment our new e-commerce program during the rest of 2022; however,
no assurance can be provided that sales will increase. As a percentage of total revenues,
gross profit was 85.1% and 80.4% for the three months ended June 30, 2022 and 2021, respectively.
Selling and marketing expenses
For the three months ended June 30, 2022 and 2021,
selling and marketing expenses were $56,094 and $155,212, respectively. This decrease of $19,118 is due to more cost efficiencies in our
selling and marketing program as we focused more of our efforts on social media, for the three months ended June 30, 2022.
Payroll and related expenses
For the three months ended June 30, 2022
and 2021, payroll and related expenses were $260,211 and $132,257, respectively. This increase of $127,954, is mainly attributable to
an increase in the CEO compensation and benefits of $27,000, new employee health insurance of $7,100, along with an increase in staffing
during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, plus salaries from our new acquisition
cDistro for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.
Stock-based compensation
We measure the cost of services received in exchange
for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured
on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting
dates until the service period is complete. The fair value amount is then recognized over the period during which services are required
to be provided in exchange for the award, usually the vesting period. We record stock-based compensation expense in the same expense classifications
in the statements of operations, as if such amounts were paid in cash. For the three months ended June 30, 2022 and 2021, stock-based
compensation was $161,000 and $139,000, respectively. This increase of $22,000 is due primarily to a single issuance for consulting services
during the three months ended June 30, 2022.
General and administrative expenses
Other general
and administrative expenses increased to $686,774 for the three months ended June 30, 2022 compared to $574,970 for the three months ended
June 30, 2021. General and administrative expenses include research and development, building rent, utilities, legal fees, office supplies,
subscriptions, and office equipment. The decrease of $37,196 is attributed to an increase of $72,642 related to the Company’s acquisition
of cDistro at $36,308 and our new subsidiary Hempsmart Brazil at $40,701. For the three months ended June 30, 2022, this was offset by
a decrease in legal expenses of $147,000, a decrease in meals and entertainment $30,000, $29,000 decrease in meals and entertainment,
a decrease in travel expenses of approximately $22,000 and a total of $32,000 in decreases related to stock broker fees, shipping costs
and other outside services for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. In addition,
for the three months ended June 30, 2022, consulting increased by $64,641 and investor relations increased by $9,100, all as compared
to June 30, 2021.
Loss on change in fair value of derivative liabilities
For
the three months ended June 30, 2022 and 2021, we issued convertible promissory notes and warrants with an embedded derivative, all requiring
us to calculate 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 gain on changes in fair value of derivative liabilities of $957,862 and $696,729for the three months ended
June 30, 2022 and 2021, respectively.
Gain (loss) on settlement of debt
During
the three months ended June 30, 2022 and 2021, we realized a loss on settlement of debt of $0 and $96,750, respectively. The loss was
related primarily to the settlement in shares to a lenders during the three months ended June 30, 2021.
Interest expense
Interest
expense during the three months ended June 30, 2022 was $852,319 as compared to $891,783 for the three months ended June 30, 2021 a decrease
of $39,464. Interest expense primarily consists of interest incurred on our convertible debt and other debt. The debt discounts amortization
and non-cash interest incurred during the three months ended June 30, 2022 and 2021 was $608,654 and $433,073, respectively. In addition,
as of June 30, 2022 and 2021, we incurred a non-cash interest of $852,319 and $891,783, respectively, in connection with convertible notes.
Impairment (Loss) on Acquisition
During the three months ended
June 30, 2022, the Company incurred a $2,020,982 impairment loss on an other current asset associated with the acquisition of VBF Brands
Inc. which is currently under litigation.
Results of Operations
Comparison of the Six Months Ended June 30, 2022 and 2021
For the six
months ended June 30, 2022 and 2021, we had net losses from continuing operations of $1,718,953 and $1,809,039, respectively, a decrease
of $90,086. This decrease is due primarily to the effects of the restructuring of our sales team and strategies for 2022 as we work towards
building stronger sales levels and invest in our operations for future efficiencies and to meet market demands as we continue to grow.
Revenues
The Company
generated revenues of $819,949 and $51,810 for the six months ended June 30, 2022 and 2021, respectively. The increase of $768,139 and
is primarily attributed to the Company’s new acquisition cDistro that distributes CBD and hemp products throughout the USA.
The
following table identifies products and equipment lease revenues during the six months ended June 30, 2022 and 2021, respectively
| | |
June
30, 2022 | | |
June
30, 2021 | |
| | |
| | |
| |
| Body
Lotion | |
$ | — | | |
$ | 1,068 | |
| Brain | |
$ | 2,124 | | |
$ | 361 | |
| Drink
Mix | |
$ | — | | |
$ | 167 | |
| Drops | |
$ | 11,930 | | |
$ | 29,716 | |
| Face
Moisturizer | |
$ | — | | |
$ | 2,793 | |
| Pain
Cream | |
$ | 5,570 | | |
$ | 16,423 | |
| Pet
Drops | |
$ | 2,408 | | |
$ | 940 | |
| Bottles
– Nic | |
$ | 246 | | |
$ | — | |
| Bottles
– Salt Nic | |
$ | 288 | | |
$ | — | |
| CBD Hempettes
| |
$ | 52,293 | | |
$ | — | |
| Disposables–Tobacco
– Free Nicotine | |
$ | 303,936 | | |
$ | — | |
| Kratom | |
$ | 235,702 | | |
$ | — | |
| Other
cDistro products | |
$ | 36,998 | | |
$ | 342 | |
| Vape
products | |
$ | 123,455 | | |
$ | — | |
| MCOA
Equipment Lease rental | |
$ | 45,000 | | |
$ | — | |
| | |
$ | 819,949 | | |
$ | 51,810 | |
Cost of sales
Costs of sales primarily consist of inventory
cost and overhead, manufacturing, packaging, warehousing, shipping and direct labor costs attributable to our hempSMART products. For
the six months ended June 30, 2022 and 2021, our total costs of sales were $548,861 and $28,481, respectively. The increase of $520,380
was primarily attributed to our new distributor acquisition cDistro purchases products from various CBD and hemp manufactures for resale.
Gross profit
For six months ended June 30, 2022 and
2021, gross profit was $271,088 and $23,329, respectively. This increase of $247,759 was primarily attributed to the Company’s new
acquisition cDistro that sells CBD and hemp products throughout the USA. We anticipate an increase in sales from our cDistro company as
well as an increase in our hempsmart products as we continue the deployment our new e-commerce program during the rest of 2022; however,
no assurance can be provided that sales will increase. As a percentage of total revenues,
gross profit was 33.1% and 45.0% for the six months ended June 30, 2022 and 2021, respectively.
Selling and marketing expenses
For the six months ended June 30, 2022 and 2021, selling
and marketing expenses were $137,467 and $262,761, respectively. This decrease of $125,294 is due to more cost efficiencies in our selling
and marketing program as we focused more of our efforts on social media, for the six months ended June 30, 2022.
Payroll and related expenses
For the six months ended June 30, 2022 and 2021,
payroll and related expenses were $537,124 and $270,402, respectively. This increase of $266,722, is mainly attributable to an increase
in the CEO compensation and benefits of $27,000, new employee health insurance of $16,346, $80,000 attributed to our new subsidiary Salinas
Diversified Ventures, along with other payroll processing costs of approximately $20,000 plus salaries from our new acquisition cDistro
of $124,000 for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021
Stock-based compensation
We measure the cost of services received in exchange
for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured
on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting
dates until the service period is complete. The fair value amount is then recognized over the period during which services are required
to be provided in exchange for the award, usually the vesting period. We record stock-based compensation expense in the same expense classifications
in the statements of operations, as if such amounts were paid in cash. For the six months ended June 30, 2022 and 2021, stock-based compensation
was $170,000 and $158,900, respectively. This increase of $11,100 is primarily to a single issuance for consulting during the three months
ended June 30, 2022.
General and administrative expenses
Other general and administrative
expenses remained relatively stable as it increased to $1,043,291 for the six months ended June 30, 2022 compared to $1,137,652 for the
six months ended June 30, 2021. General and administrative expenses include research and development, building rent, utilities, legal
fees, office supplies, subscriptions, and office equipment.
Loss on change in fair value of derivative liabilities
For
the six months ended June 30, 2022 and 2021, we issued convertible promissory notes and warrants with an embedded derivative, all requiring
us to calculate 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 on changes in fair value of derivative liabilities of $69,067 and $1,629,289 for the six months ended
June 30, 2022 and 2021, respectively.
Gain (loss) on settlement of debt
During
the six months ended June 30, 2022 and 2021, we realized a loss on settlement of debt of $187,500 and $164,977, respectively. The loss
was related primarily to the settlement in shares to lenders during the six months ended June 30, 2022 and 2021.
Interest expense
Interest
expense during the six months ended June 30, 2022 was $2,098,474 as compared to $1,992,745 for the six months ended June 30, 2021 an increase
of $105,729. Interest expense primarily consists of interest incurred on our convertible debt and other debt. The debt discounts amortization
and non-cash interest incurred during the six months ended June 30, 2022 and 2021 was $1,370,366 and $744,783, respectively. In addition,
as of June 30, 2022 and 2021, we incurred a non-cash interest of $2,098,474 and $1,992,745, respectively, in connection with convertible
notes.
Impairment (Loss) on Acquisition
During the
six months ended June 30, 2022, the Company incurred a $2,020,982 impairment loss on other current asset associated with the
acquisition of VBF Brands Inc. which is currently under litigation.
Liquidity and Capital Resources
We have generated
a net loss from continuing operations for the six months ended June 30, 2022 of $1,718,953 and used $1,635,541 of cash for operations.
As of June 30, 2022, we had total assets of $5,691,114, which included cash of $43,064, Accounts receivable trade of $287,373, inventory
of $144,954 and other current assets of $123,572. On October 6, 2021, the Company entered into an Asset Purchase Agreement, Management
Services Agreement, Cooperation Agreement and Employment Agreement with VBF Brands, Inc. As consideration for the transaction, the Company
agreed to assume two secured convertible promissory notes issued by SIGO to St. George Investments, LLC with a net balance of $4,091,378.
Since the conditions of the acquisition of VBF haven’t been consummated, this assumed debt was recorded as an Other Current Asset.
Based on the current conditions and at the suggestion of legal counsel, the company has determined a risk in the collectability of this
asset and accordingly, has calculated an impairment loss of $2,020,982 as the acquisition continues to not be consummated as of June 30,
2022.
During
the three months ended June 30, 2022 and 2021, we met our capital requirements through a combination the sale of securities and convertible
debt instruments. We will need to secure additional external funding in order to continue our operations. For the six months ended June
30, 2022, our primary internal sources of liquidity were provided by an increase in proceeds from the issuance of note payables of $1,250,664
and proceeds from the sale of common stock of $1,066,010, as compared to proceeds from issuance of notes payable of $1,508,250 for the
six months ended June 30, 2021 and proceeds from sale of common stock of $1,358,767 for six months ended June 30, 2021.
Cash Flows from Operating Activities
For the
six months ended June 30, 2022 and 2021, we used cash in operating activities of $1,635,541 and $1,841,640, respectively. This
decrease of $206,099 is due primarily to an increase in net loss for the six months ended June 30, 2022 of $6,096,397 as compared to
$5,486,107 for the six months ended June 30, 2021. This was offset by the increase in cash flows from the impairment loss of the VBF
acquisition asset of $2,020,982 and a decrease in accounts payable $124,185 and a decrease in accounts receivable of $76,085 for the
six months for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.
Cash Flows from Investing Activities
During the three
months ended June 30, 2022 and 2021, we used cash of $2,749 and 289,439, respectively, in investing activities related to our purchase
of property and equipment for the six months ended June 30, 2022. In addition, we invested in joint ventures and acquisition of new business
during the six months ended June 30, 2021.
Cash Flows from Financing Activities
During the six
months ended June 30, 2022, net cash provided by financing activities was $1,572,917 which was primarily attributable to $1,250,664 from
the issuance of notes and $1,066,010 from the sale of our common stock, this was offset by $683,757 of repayments of notes payable and
a $60,000 repurchase of the company’s common stock. During the six months ended June 30, 2021, net cash provided by financing activities
was $2,236,387 which was attributable to $1,508,250 from the issuance of notes and $1,358,767 which was from the sale of our common stock.
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 2022 and 2021 has been proceeds from the sale of our common stock and the
issuance of convertible debt and other debt. We have experienced net losses from operations since inception, but expect these conditions
to improve in the second half of 2022 and beyond as we develop direct sales and marketing programs. We had stockholders' deficiencies
at June 30, 2022 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.
We currently do not have sufficient cash and liquidity to meet our anticipated working
capital for the next twelve months. Historically, we have financed our operations primarily through private sales of our common stock
and. If our sales goals for our hempSMART™ products do not materialize as planned, and we are not able to achieve profitable operations
at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them
or to fund our expansion, marketing, and product development plans. There can be no assurance that we will be able to obtain such financing
on acceptable terms, or at all.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
As of June 30, 2022, we did not have any off-balance
sheet arrangements and did not have any commitments or contractual obligations.
JOBS Act
On April 5, 2012, the Jumpstart Our Business
Startups Act of 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 the Sarbanes-Oxley Act of 2002, as amended, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The Company is not required to provide the information
required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure
Controls and Procedures
We are required to maintain “disclosure controls
and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that as of June 30, 2022, our disclosure controls and procedures were not effective due to material weaknesses.
Management has identified the following material weaknesses: our ability to prepare our financial statements in a timely manner and inadequate
segregation of duties consistent with control objectives. In an effort to remediate the identified material weaknesses and other deficiencies
and enhance our internal controls, we plan to create a new controller position and hire a controller in order to segregate duties within
the accounting department consistent with control objectives. In addition, we also intend to increase our personnel resources and technical
accounting expertise within the accounting function when funds are available to us and we are able to find a qualified person to fill
such role.
Changes in Internal Control
There have been no changes in our internal control
over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures
must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits
of possible controls and procedures relative to their costs. In addition, the design of disclosure controls and procedures must reflect
the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible
controls and procedures relative to their costs.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various
lawsuits and legal proceedings. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise
from time to time that may harm our business. Except as set forth herein, we are currently not aware of any such legal proceedings or
claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
On September 20, 2018, we filed suit against Bougainville
Ventures, Inc. (“Bougainville”), BV-MCOA Management, LLC, Andy Jagpal, Richard Cindric, et al. in Okanogan County Washington
Superior Court. We previously entered into a joint venture agreement with Bougainville on March 16, 2017, as amended on November 6, 2017.
We and Bougainville originally agreed to a joint venture
with the goal of participating in the legalized cannabis business in Washington State. We intended to organize and operate a cannabis
growth and cultivation business on land owned by Bougainville in Oroville, Washington. Furthermore, we agreed to finance the joint venture
with a cash payment of $800,000 and issued Bougainville 15 million shares of our common stock. Bougainville represented that it would
provide the real property for the joint venture, computer-controlled greenhouses and agricultural facilities and, as landlord, oversight
of the operations of a cannabis licensee holding a I-502 cannabis license. Bougainville represented that the property was I-502 compliant,
and that it had a lease payment arrangement with an I-502 license holder to operate on the land. Bougainville agreed to vend clear title
to the real property associated with the I-502 licensee to the joint venture within 30 days of the final payment by us. Despite our compliance,
in full with our financial obligations, Bougainville did not and has not transferred the real property to the joint venture. We determined
that Bougainville did not own the real property, misappropriated funds paid into the joint venture for its own purposes and did not have
an agreement with a licensed I-502 operator.
Pursuant to our complaint, we are 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 the name of the registrant, for the appointment of a receiver, the return to treasury of the 15 million
shares of common stock issued to Bougainville, and, for treble damages pursuant to the Consumer Protection Act in Washington State. We
have filed a lis pendens on the real property.
We recently served process on the defendants and the
case is currently in litigation.
ITEM 1A. RISK FACTORS.
Risk factors that affect our business and financial
results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31,
2021 (“Annual Report”). There have been no material changes in our risk factors from those previously disclosed in our Annual
Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial
condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition,
and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be
negatively affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Subsequent to December 31, 2021, the Company has sold
a total of 90,000,000 shares of common stock at a fixed price of $0.001 per share for a total of $90,000 in cash to accredited investors
under the Company’s active Regulation A offering.
Subsequent to December 31, 2021, the Company has sold
a total of 706,250,000 shares of common stock at a fixed price of $0.0008 per share for a total of $565,000 in cash to accredited investors
under the Company’s active Regulation A offering.
Subsequent to December 31, 2021, the Company has sold
a total of 2,020,000,000 shares of common stock at a fixed price of $0.0002 per share for a total of $404,000 in cash to accredited investors
under the Company’s active Regulation A offering.
The foregoing issuances were exempt from registration
under Section 4(a)(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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MARIJUANA COMPANY OF AMERICA, INC. |
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| Date: August 22, 2022 |
By: |
/s/ Jesus Quintero |
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Jesus Quintero,
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial and Accounting Officer) |
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