THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
AND 2021
Schedule of Operation statement | |
| | | |
| | | |
| | | |
| | |
* The Company has begun the phase-out of this business in the USA during 2022 | |
| | |
| |
| |
| | |
| |
| |
For the three months ended | | |
For the nine months ended | |
| |
September 30, | | |
September 30, | | |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Revenues | |
$ | — | | |
$ | 22,351 | | |
$ | 15,537 | | |
$ | 73,760 | |
Cost of Sales | |
| 482 | | |
| 19,435 | | |
| 5,725 | | |
| 47,769 | |
Gross profit | |
| (482 | ) | |
| 2,916 | | |
| 9,812 | | |
| 25,991 | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | |
Depreciation expense | |
| 5,259 | | |
| 3,100 | | |
| 15,808 | | |
| 5,881 | |
Selling and Marketing expenses | |
| 66,024 | | |
| 105,757 | | |
| 157,576 | | |
| 363,796 | |
Payroll and related | |
| 19,860 | | |
| 56,988 | | |
| 108,665 | | |
| 165,800 | |
Stock-based Compensation | |
| — | | |
| 104,685 | | |
| — | | |
| 104,685 | |
General and administrative expenses | |
| 132,612 | | |
| 87,517 | | |
| 306,715 | | |
| 284,182 | |
Total Expenses | |
| 233,755 | | |
| 358,047 | | |
| 588,764 | | |
| 924,344 | |
| |
| | | |
| | | |
| | | |
| | |
Net Loss from Operations | |
$ | (234,237 | ) | |
$ | (355,131 | ) | |
$ | (578,952 | ) | |
$ | (898,353 | ) |
The following table represents the
Company’s cDistro business for the nine months ended September 30, 2022 and 2021:
cDistro Inc.
STATEMENT OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
AND 2021
| |
| | | |
| | | |
| | | |
| | |
| |
For the three months ended | | |
For the nine months ended | |
| |
September 30, | | |
September 30, | | |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Revenues | |
$ | 111,908 | | |
$ | 407,246 | | |
$ | 864,825 | | |
$ | 407,589 | |
Cost of Sales | |
| 51,324 | | |
| 359,056 | | |
| 587,834 | | |
| 359,056 | |
Gross profit | |
| 60,584 | | |
| 48,190 | | |
| 276,991 | | |
| 48,533 | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | |
Depreciation expense | |
| 45,849 | | |
| 597 | | |
| 137,459 | | |
| 597 | |
Selling and Marketing expenses | |
| 259 | | |
| 3,696 | | |
| 6,122 | | |
| 3,696 | |
Payroll and related | |
| 75,053 | | |
| 45,000 | | |
| 199,053 | | |
| 45,000 | |
General and administrative expenses | |
| 0 | | |
| 94,650 | | |
| 138,289 | | |
| 94,938 | |
Total Expenses | |
| 121,161 | | |
| 143,943 | | |
| 480,923 | | |
| 144,231 | |
| |
| | | |
| | | |
| | | |
| | |
Net Loss from Operations | |
$ | (60,577 | ) | |
$ | (95,753 | ) | |
$ | (203,932 | ) | |
$ | (95,698 | ) |
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 September
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.
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 September 30,
2022 and December 31, 2021 is summarized as follows:
Schedule of property and equipment | |
| | | |
| | |
| |
September
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 | |
| (44,214 | ) | |
| (25,947 | ) |
Property, machinery and
equipment, net | |
$ | 106,069 | | |
$ | 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
$18,267 and $5,753 for the nine months ended September 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.
During the nine months ended September
30, 2022, the Company recorded an impairment on the investment in the amount of $142,567.
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 September
30, 2022, the Company has not initiated the capital contribution.
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 September 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.
During
the nine months ended September 30, 2022, the Company recorded an impairment on the investment in the amount of $852,597.
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 September 30, 2022, the Company owed ECOX an 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 September 30, 2022, 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 was 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 September
30, 2022, 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.
BF 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 nine months ended September 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 SEPTEMBER 30, 2022
Schedule of investment roll forward | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | | |
| | | |
| | |
INVESTMENTS AS OF SEPTEMBER
30, 2022 |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
| 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 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Investments made during quarter ended 06-30-22 | |
| (26,888 | ) | |
| (26,888 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Investment
write off during quarter ended 09-30-22 | |
| (2,009,254 | ) | |
| | | |
| (852,597 | ) | |
| (605,309 | ) | |
| | | |
| | | |
| | | |
| (551,348 | ) | |
| | | |
| | | |
| | |
Balance @09-30-22 | |
| 285,733 | | |
$ | (5,114,167 | ) | |
$ | 73,489 | | |
$ | 44,691 | | |
$ | 2,975,174 | | |
$ | 111,899 | | |
$ | 30,898 | | |
$ | 142,567 | | |
$ | 200 | | |
$ | 2,020,982 | | |
$ | 0 | |
NOTE 7 – NOTES PAYABLE, RELATED
PARTY
As of September 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 September 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 nine months ended September 30,
2022, the Company issued an aggregate of 2,109,530,915 shares of its common stock in settlement of issued convertible notes payable and
accrued interest.
For the nine months ended September 30, 2022
and September 30, 2021, the Company recorded amortization of debt discounts of $2,010,783 and $1,232,641, respectively, as a charge to
interest expense.
Convertible notes payable are comprised of
the following:
Schedule of convertible notes payable | |
| | | |
| | |
| |
September
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 | |
| 416,668 | | |
| 583,333 | |
Convertible note payable - GS Capital Partners LLC | |
| 153,185 | | |
| 82,000 | |
Convertible note payable – Pinnacle Consulting Services, Inc. | |
| 79,500 | | |
| 30,000 | |
Convertible note payable – Geneva Roth | |
| — | | |
| 97,939 | |
Convertible note payable – Dutchess Capital | |
| 96,556 | | |
| 60,709 | |
Convertible note payable – Coventry | |
| 37,144 | | |
| 100,000 | |
Convertible note payable - GW Holdings | |
| — | | |
| 120,750 | |
Convertible note payable – Sixth Street Lending | |
| — | | |
| 60,737 | |
Convertible note payable – Fourth Man LLC | |
| — | | |
| — | |
Convertible note payable – 1800 Diagonal Lending LLC | |
| 194,795 | | |
| — | |
Convertible note payable – Mast Hill Fund | |
| 550,000 | | |
| — | |
Convertible note payable – Powerup Lending | |
| 13,054 | | |
| — | |
Convertible note payable – Vista Point Services LLC | |
| 29,980 | | |
| — | |
Convertible note payable – EBF Holdings, LLC | |
| 7,464 | | |
| — | |
Convertible note payable – Fundamental Capital, LLC | |
| 5,055 | | |
| — | |
Convertible note payable – Kingdom Kapital, LLC | |
| 5,608 | | |
| — | |
Convertible note payable – Speedy Funding, LLC | |
| 2,516 | | |
| — | |
Convertible note payable - St. George | |
| 3,994,878 | | |
| 3,914,878 | |
Total | |
| 5,586,403 | | |
| 5,429,071 | |
Less debt discounts | |
| (756,068 | ) | |
| (1,659,622 | ) |
Net | |
| 4,830,335 | | |
| 3,769,449 | |
Less current portion | |
| (4,830,335 | ) | |
| (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 September 30, 2022 the Company owed an aggregate
of $550,000 of principal. As of September 30, 2022, the Company owed $21,542 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 September 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 September 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 nine months ended September 30, 2022, the
Company repaid Crown Bridge $50,000 in full settlement of the outstanding note. As of September 30, 2022 and December 31, 2021, the Company
owed an aggregate of $0 and $35,000 of principal, respectively, on the notes. As of September 30, 2022, the Company owed $0 in accrued
interest.
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 nine
months ended September 30, 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 September 30, 2022 and December 31, 2021, the
Company owed an aggregate of $153,185 and $82,000 of principal, respectively. As of September 30, 2022, the Company owed accrued interest
of $2,520 on these convertible promissory notes. During the nine months ended September 30, 2022, the lender converted $82,000 of principal
and $5,013 of accrued interest into common stock, and the Company repaid $175,000 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 nine months ended September 30, 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 September 30, 2022 and December
31, 2021, the Company owed $3,994,878 and $3,914,878 of principal, respectively. As of September 30, 2022, the Company owed accrued interest
of $311,118 on these convertible promissory notes. During the nine months ended September 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.
On August 6, 2022, the Company issued convertible
promissory notes in the aggregate principal amount of $79,500 to Pinnacle Consulting Services, Inc. (“Pinnacle”). The promissory
note has a one time interest charge of $7,950, and is due April 1, 2023 (the “Maturity Date”) and includes an original issue
discount (“OID”) of $16,250.
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 80% of the lowest trad price in the 25 prior trading days.
As of September 30, 2022, and December 31, 2021, the
Company owed an aggregate of $79,500 and $30,000 respectively. As of September 30, 2022, the Company owed accrued interest of $7,950 on
this convertible promissory note. During the nine months ended September 30, 2022, the lender converted $30,000 of principal and $1,870
of accrued interest into common stock.
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 nine months ended September 30, 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 September 30, 2022 and December 31, 2021, the
Company owed principal of $0 and $120,750, respectively. As of September 30, 2022, the Company owed $0 in accrued interest. During the
nine months ended September 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 September 30, 2022, and December 31, 2021, the
Company owed principal of $416,668 and $583,333, respectively. As of September 30, 2022, the Company owed $55,215 in accrued interest.
During the nine months ended September 30, 2022, the Company repaid $166,665 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 September 30, 2022, and December 31, 2021, the
Company owed principal of $0 and $60,737, respectively. As of September 30, 2022, the Company owed $9,420 in accrued interest. During
the nine months ended September 30, 2022, the Company repaid $60,737 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 September 30, 2022 and December 31, 2021, the
Company owed an aggregate of $37,144 and $100,000 of principal. As of September 30, 2022, the Company owed $10,000 in accrued interest.
During the nine months ended September 30, 2022, the Company repaid $62,856 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 September 30, 2022 and December 31, 2021, the
Company owed an aggregate of $0 and $243,750 of principal. As of September 30, 2022, the Company owed $0 in accrued interest. During the
nine months ended September 30, 2022, the lender converted $183,750 of principal and $34,000 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 September 30, 2022
and December 31, 2021, the Company owed an aggregate of $96,556 and $60,709 of principal. As of September 30, 2022, the Company owed $11,000
in accrued interest. During the nine months ended September 30, 2022, the lender converted $14,302 of principal and $815 of accrued interest
into common stock, and the Company repaid $59,851 of principal and $14,302 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 September 30, 2022 and December 31, 2021, the
Company owed an aggregate of $0 and $97,939 of principal. As of September 30, 2022, the Company owed $0 in accrued interest. During the
nine months ended September 30, 2022, the Company repaid $97,938 of principal and $40,898 in interest in cash.
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 September 30, 2022, the Company owed an aggregate
of $0 of principal. As of September 30, 2022, the Company owed $0 in accrued interest. During the nine months ended September 30, 2022,
the lender added $15,000 of principal as a result of default and converted $75,000 of principal and $14,250 of accrued interest into common
stock
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.
On July 29, 2022, the Company issued a promissory
note in the aggregate principal amount of $57,758 to 1800 Diagonal Lending LLC (“DLL”). The promissory note has a one-time
interest charge of $7,509 and is due one year from the issuance date, and had an original issue discount of $9,645. The Company paid $4,250 in
deferred financing fees and received $46,863 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 September 30, 2022, and December 31, 2021, the
Company owed principal of $194,795 and $0, respectively. As of September 30, 2022, the Company owed $23,953 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 September 30, 2022.
Revenue share agreement
– Vista Point Services LLC
On August 5, 2022, the Company
entered into a revenue share in the aggregate principal amount of $37,475 to Vista Point Services LLC. The agreement requires daily
payments in the amount of $341 and includes an original issuance discount in the aggregate amount of $14,975 and received $22,500 of
net proceeds. The aggregate debt discount of $14,975 is being amortized to interest expense over the respective terms of the note.
As of September 30, 2022, the note balance was as $29,980.
Revenue share agreement
– Everest Business Funding LLC
On August 9 2022, the Company
entered into a revenue share in the aggregate principal amount of $35,000 to EBF Holdings LLC. The agreement requires daily payments
in the amount of $280 and includes an original issuance discount in the aggregate amount of $10,725 and received $24,275 of net proceeds.
The aggregate debt discount of $10,725 is being amortized to interest expense over the respective terms of the note. As of September
30, 2022, the note balance was as $7,464.
Revenue share agreement
– Fundamental Capital, LLC
On September 13, 2022, the
Company entered into a revenue share in the aggregate principal amount of $91,994 to Fundamental Capital LLC. The agreement requires
weekly payment in the amount of $920 and includes an original issuance discount in the aggregate amount of $26,284 and received $65,710
of net proceeds. The aggregate debt discount of $26,284 is being amortized to interest expense over the respective terms of the note.
As of September 30, 2022, the note balance was as $5,055.
Revenue share agreement
– Kingdom Kapital LLC
On July 7, 2022, the Company
entered into a revenue share in the aggregate principal amount of $44,970 to Kingdom Kapital LLC. The agreement requires daily payments
in the amount of $600 and includes an original issuance discount in the aggregate amount of $14,970 and received $30,000 of net proceeds.
The aggregate debt discount of $14,970 is being amortized to interest expense over the respective terms of the note. As of September
30, 2022, the note balance was as $5,608.
Revenue share agreement
– Speedy Funding LLC
On August 29, 2022, the Company
entered into a revenue share in the aggregate principal amount of $55,965 to Speedy Funding LLC. The agreement requires daily payments
in the amount of $499 and includes an original issuance discount in the aggregate amount of $20,965 and received $35,000 of net proceeds.
The aggregate debt discount of $20,965 is being amortized to interest expense over the respective terms of the note. As of September
30, 2022, the note balance was as $2,516.
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 September 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 September 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 September 30, 2022 and December 31, 2021 was $752,961 and $989,594, respectively.
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 September 30, 2022 and December 31, 2021 of which 10,000,000
shares are outstanding as of September 30, 2022. As of September 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 September 30, 2022.
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 September 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 September 30, 2022, and December 31, 2021, the Company had 1,518,463,309 and 7,122,806,264
shares of common stock issued and outstanding, respectively. As of November 14, 2022, there were xx,xxx,xxx, shares of the Company’s
common stock issued and outstanding.
During the nine months ended September 30,
2022, the Company issued an aggregate of 122,256,410 shares of its common stock for services with an estimated fair value of $170,000.
During the nine months ended September 30,
2022, the Company issued an aggregate of 2,109,530,915 shares of its common stock, including shares related to warrants accounted for
as liabilities, in settlement of $1,214,277 of principal on convertible notes payable, accrued interest of $128,397, and reclassified
derivative liabilities of $233,069 to common stock in connection with the conversions.
During the nine months ended September 30,
2022, the Company sold 3,458,888,889 of its common stock for an aggregate value of $1,218,315.
During the nine months ended September 30,
2022, the Company issued 387,821,466 of its common stock for an aggregate value of $276,687 for deferred finance costs.
During the nine months ended September 30,
2022, the Company reacquired its common stock of $60,000 returned as Treasury stock.
During the nine months ended September 30,
2022, the Company’s officer cancelled 30,000,000 in commons stock.
During the nine months ended September 30,
2022, the Company had Debt discount from warrants issued with convertible notes payable with an aggregate value of $152,587.
During the nine months ended September 30,
2022, the Company issued 717,866,439 of its Common stock for contingent consideration for an aggregate value of $500,000.
During the nine months ended September 30,
2022, the Company issued 180,486,830 of its common stock for subscriptions payable for an aggregate value of $234,633.
During the nine months ended September 30,
2022, the Company issued 1,333,508,170 of its common stock for the settlement of accounts payable for an aggregate value of $273,403.
During the nine months ended September
30, 2022, the Company had 218,532,087
of its common stock cancelled and returned to treasury as a result of the settlement of a legal case between the Securities and Exchange Commission and the holder of the shares, whereby the holder was required to forfeit
and cancel all outstanding shares its held of the Company’s Common Stock
Options
As of September 30, 2022, the Company has
no outstanding stock options.
Warrants
The following table summarizes the stock
warrant activity for the nine months ended September 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 | |
| (87,544,445 | ) | |
| 0.0011 | | |
| — | | |
| — | |
Increase due to reset provision | |
| — | | |
| — | | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | | |
| — | | |
| — | |
Outstanding at September 30, 2022 | |
| 257,757,940 | | |
$ | 0.002 | | |
| 4.43 | | |
$ | — | |
Exercisable at September 30, 2022 | |
| 2,577,577,940 | | |
$ | 0.002 | | |
| 4.43 | | |
$ | — | |
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 $0.0003 as of September 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 September 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 September 30, 2022 and December 31,
2021, the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of September
30, 2022 and December 31, 2021, in the amount of $956,795 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 312.54%, (3)
weighted average risk-free interest rate of 2.51% to 4.25%, (4) expected life of 0.5 to 4.0 years, (5) conversion prices of $0.00013 to
$0.006 and (6) the Company's common stock price of $0.0004 per share as of September 30, 2022.
For the nine-month period ended September 30, 2022,
the Company recorded a loss on the change in fair value of derivative liabilities of $440108, which included a loss of $244,905 related
to convertible notes payable, a gain of $165,175 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 $360,378 related to the excess of the fair value of derivatives at issuance above
convertible note principle as a charge to interest expense. During the nine months ended September 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 nine months ended September 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 | |
| 184,921 | |
Increase resulting from initial issuances of additional convertible notes payable recorded as day one loss | |
| 59,984 | |
Decreases resulting from conversion or payoff of convertible notes payable | |
| (233,069 | ) |
Decreases resulting from payoff of convertible notes payable | |
| (165,175 | ) |
Loss due to change in fair value included in earnings | |
| 360,378 | |
Balance, September 30, 2022 | |
$ | 956,795 | |
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 September
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 September 30, 2022 and December 31, 2021, the balance due to officers for travel and working
capital purposes was $13,114 and $0, respectively.
As of September 30, 2022 and December 31,
2021, accrued compensation due to officers and executives included as accrued compensation was $333,951 and $42,925, respectively.
Related party
sales contributed $0 and $0 to revenues for the nine months ended September 30, 2022 and 2021, respectively, while related party sales
contributed $0 and $0 to revenues for the nine months ended September 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 September 30, 2022 and 2021
For the three
months ended September 30, 2022 and 2021, we had net losses from continuing operations of $722,115 and $1,419,664, respectively, an decrease
of $697,549. This decrease is due primarily to the effects of a company-wide effort for overall reduction of General and Administrative
expenses, as well as a decrease in gross revenues.
Revenues
The Company
generated revenues of $142,394 and $442,178 for the three months ended September 30, 2022 and 2021, respectively. The decrease of $299,784
and is primarily attributed to the Company’s phase-out of its hempsmart operations during the quarter and due to effects of Hurricane
Ian which affected CDistro sales in South Florida.
The following
table identifies products and equipment lease revenues during the three months ended September 30, 2022 and 2021, respectively:
| |
September
30, 2022 | | |
September
30, 2021 | |
| |
| | |
| |
Body Lotion | |
$ | — | | |
$ | 184 | |
Brain | |
$ | 470 | | |
$ | 1,153 | |
Drink Mix | |
$ | — | | |
$ | — | |
Drops | |
$ | 4,250 | | |
$ | 11,533 | |
Face Moisturizer | |
$ | — | | |
$ | — | |
Pain Cream | |
$ | 3,266 | | |
$ | 8,379 | |
Pet Drops | |
$ | — | | |
$ | 2,939 | |
Bottles – Nic | |
$ | — | | |
$ | 75,531 | |
Bottles – Salt Nic | |
$ | — | | |
$ | — | |
CBD Hempettes | |
$ | 1,911 | | |
| 485 | |
Disposables–Tobacco – Free Nicotine | |
$ | — | | |
$ | — | |
Kratom | |
$ | 14,304 | | |
$ | 306,256 | |
Other cDistro products | |
$ | 6,731 | | |
$ | 23,137 | |
| |
| | | |
| | |
Vape products | |
$ | 31,670 | | |
$ | — | |
Marketing fees | |
$ | 57,292 | | |
| — | |
MCOA Equipment Lease rental | |
$ | 22,500 | | |
$ | 12,581 | |
| |
$ | 142,394 | | |
$ | 442,178 | |
Cost of sales
Costs
of sales primarily consist of inventory cost and overhead, manufacturing, packaging, warehousing, shipping, and direct labor costs
directly attributable to all of our products. For the three months ended September 30, 2022 and 2021, our total costs of sales were
$58,200 and $378,491, respectively, an decrease of $320,291.The decrease in costs of sales is attributed to low volumes from our
hempsmart business as we began to phase-out product sales during the quarter and also due to low purchases from our CDistro business
which was impacted by Hurricane Ian. .
Gross profit
For the three months ended September 30,
2022 and 2021, gross profit was $84,194 and $63,687, respectively. This increase of $20,507 was primarily attributed to the cDistro business
which sold CBD and hemp products throughout the USA during the period. We anticipate an increase in sales from our cDistro company as
the company ramping up business after Hurricane Ian.. As a percentage of total revenues,
gross profit was 59.1% and 14.4% for the three months ended September 30, 2022 and 2021, respectively.
Selling and marketing expenses
For the three months ended September 30, 2022 and
2021, selling and marketing expenses were $43,835 and $167,664, respectively. This decrease of $123,829 is due to the phase-out of the
Company’s hempsmart business in the USA as well as a decrease from our CDistro business due to the impact of Hurricane Ian. .
Payroll and related expenses
For the three months ended September 30, 2022 and
2021, payroll and related expenses were $241,504 and $142,830, respectively. This increase of $98,674, is mainly attributable to an increase
in wages for operation staff and the Company CEO compensation and benefits as well as the Company’s new employee health insurance.
during the three months ended eptember 30, 2022 as compared to the three months ended September 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 September 30, 2022 and 2021, stock-based
compensation was $9,000 and $529,393, respectively. This decrease of $520,393is due primarily to less issuance of equity to consultants
and employees during the three months ended ended September 30, 2022 as compared to September 30, 2021.
General and administrative expenses
Other general and administrative
expenses decreased to $631,514 for the three months ended September 30, 2022 compared to $639,767 for the three months ended September
30, 2021. General and administrative expenses include research and development, building rent, utilities, legal fees, office supplies,
subscriptions, and office equipment. The decrease of $8,253 is attributed consistent cost cutting measures implemented during the quarter
as compared to the three months ended September 30, 2021
Loss on change in fair value of derivative liabilities
For the three
months ended September 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 in changes in fair value of derivative liabilities of $126,136 and a gain of 1,177,610 for the three
months ended September 30, 2022 and 2021, respectively.
Loss on equity investments
During the three
months ended September 30, 2022 and 2021, we realized a loss on equity investments of $2,009,254 and $0, respectively. The loss was related
primarily to the writeoff of the Company’s investments in Cannabis Global Inc. and ECO Innovation Group Inc. during the three
months ended September 30, 2022.
Gain (loss) on settlement of debt
During the three
months ended September 30, 2022 and 2021, we realized a loss on settlement of debt of $148,324 and $88,990, respectively. The loss was
related primarily to the settlement in shares to lenders during the three months ended September 30, 2022 and September 30, 2021.
Interest expense
Interest expense
during the three months ended September 30, 2022 was $761,060 as compared to $549,363 for the three months ended September 30, 2021 an
increase of $211,697. 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 September 30, 2022 and 2021 was $640,417 and $487,858, respectively.
.
Results of Operations
Comparison of the nine months Ended September 30, 2022 and 2021
For the nine
months ended September 30, 2022 and 2021, we had net losses from continuing operations of $2,481,068 and $3,228,703, respectively, a decrease
of $747,635. This decrease is primarily attributed to the Company’s phase-out of its hempsmart operations during the quarter and
due to effects of Hurricane Ian which affected CDistro sales in South Florida.
Revenues
The Company
generated revenues of $962,343 and $493,988 for the nine months ended September 30, 2022 and 2021, respectively. The increase of $468,355
and is primarily attributed to the Company’s cDistro business which distributes CBD and hemp products throughout the USA.
The following
table identifies products and equipment lease revenues during the nine months ended September 30, 2022 and 2021, respectively
| |
September
30, 2022 | | |
September
30, 2021 | |
| |
| | |
| |
Body Lotion | |
$ | — | | |
$ | 1,251 | |
Brain | |
$ | 2,594 | | |
$ | 1,514 | |
Drink Mix | |
$ | — | | |
$ | 167 | |
Drops | |
$ | 16,180 | | |
$ | 41,249 | |
Face Moisturizer | |
$ | — | | |
$ | 2,793 | |
Pain Cream | |
$ | 8,836 | | |
$ | 24,802 | |
Pet Drops | |
$ | 2,408 | | |
$ | 3,879 | |
Bottles – Nic | |
$ | 246 | | |
$ | 75,531 | |
Bottles – Salt Nic | |
$ | 288 | | |
$ | — | |
CBD Hempettes | |
$ | 52,293 | | |
$ | — | |
Disposables–Tobacco – Free Nicotine | |
$ | 303,936 | | |
$ | — | |
Kratom | |
$ | 250,006 | | |
$ | 306,256 | |
Other cDistro products | |
$ | 45,639 | | |
$ | 23,965 | |
Vape products | |
$ | 155,125 | | |
$ | — | |
Marketing fees | |
$ | 57,292 | | |
| — | |
MCOA Equipment Lease rental | |
$ | 67,500 | | |
$ | 12,581 | |
| |
$ | 962,343 | | |
$ | 493,988 | |
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 nine
months ended September 30, 2022 and 2021, our total costs of sales were $607,061 and $406,972, respectively. The increase of $200,089
was primarily attributed to our distributor cDistro purchases products from various CBD and hemp manufactures for resale during the nine
month period ended September 30, 2022 as compared to the nine months ended September 30, 2021..
Gross profit
For the nine months ended September 30, 2022 and 2021,
gross profit was $355,282 and $87,016, respectively. This increase of $268,266 was primarily attributed to the Company’s cDistro
distribution business which sells CBD and hemp products throughout the USA. We anticipate an increase in sales from our cDistro company
as we continue the deployment our new distribution strategies during the rest of 2022; however, no
assurance can be provided that sales will increase. As a percentage of total revenues, gross profit was 37.0% and 18.0% for the
nine months ended September 30, 2022 and 2021, respectively.
Selling and marketing expenses
For the nine months ended September 30, 2022 and 2021,
selling and marketing expenses were $221,302 and $430,425, respectively. This decrease of $209,123 is due to the phase-out of the Company’s
hempsmart business in the USA as well as a decrease from our CDistro business due to the impact of Hurricane Ian.
Payroll and related expenses
For the nine months ended September 30, 2022 and 2021,
payroll and related expenses were $778,682 and $413,232, respectively. This increase of $365,396, is mainly attributable to wages for
operation staff, the Company CEO compensation and benefits, compensation from the Company’s cDistro business, $80,000 attributed
to our new subsidiary Salinas Diversified Ventures, as well as the Company’s new employee health insurance, which was implemented
during the nine months ended September 30, 2022 as compared to the nine months ended September 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 nine months ended September 30, 2022 and 2021, stock-based
compensation was $179,000 and $688,293, respectively. This decrease of $509,293 is primarily to less issuance of equity to consultants
and employees during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
General and administrative expenses
Other general
and administrative expenses decreased to $1,674,805 for the nine months ended September 30, 2022 compared to $1,777,419for the nine months
ended September 30, 2021. General and administrative expenses include research and development, building rent, utilities, legal fees,
office supplies, subscriptions, and office equipment. The decrease of $102,614 is principally attributed to a $298,460 decrease in lawsuits
engaged by the Company which was offset by an increase in overall accounting fees over $45,000,an increase in consulting and audit fees
of over $125,000 and a $35,000 reduction in meals and entertainment. for the nine months ended September 30, 2022 as compared to the nine
months ended September 30, 2021.
Loss on change in fair value of derivative liabilities
For the
nine months ended September 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 $1,177,610 and a loss
of $451,679 for the nine months ended September 30, 2022 and 2021, respectively.
Loss on equity investments
During the
nine months ended September 30, 2022 and 2021, we realized a loss on equity investments of $2,009,254 and $0, respectively. The loss
was related primarily to the writeoff of the Company’s investments in Cannabis Global Inc. and ECO Innovation Group Inc. during
the nine months ended September 30, 2022.
Gain (loss) on settlement of debt
During the nine
months ended September 30, 2022 and 2021, we realized a loss on settlement of debt of $335,824 and $253,967, respectively. The loss was
related primarily to the settlement in shares to lenders during the nine months ended September 30, 2022 and 2021.
Interest expense
Interest expense
during the nine months ended September 30, 2022 was $2,859,534 as compared to $2,542,108 for the nine months ended September 30, 2021
an increase of $317,426. 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 nine months ended September 30, 2022 and 2021 was $1,370,366 and $744,783, respectively.
In addition, as of September 30, 2022 and 2021, we incurred a non-cash interest of $2,010,783 and $1,232,641, respectively, in connection
with convertible notes.
Impairment (Loss) on Intangible Asset
During the nine
months ended September 30, 2022, the Company incurred a $2,020,982 impairment loss on an intangible 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 nine months ended September 30, 2022 of $2,651,720 and used $1,757,153 of cash for operations. As of September
30, 2022, we had total assets of $3,468,297, which included cash of $831. Accounts receivable trade of $240,351, inventory of $180,580
and other current assets of $36,937. 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 September 30, 2022.
During the nine
months ended September 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 nine months ended September
30, 2022, our primary internal sources of liquidity were provided by an increase in proceeds from the issuance of note payables of $1,649,980
and proceeds from the sale of common stock of $1218,315, as compared to proceeds from issuance of notes payable of $2,065,863 for the
nine months ended September 30, 2021 and proceeds from sale of common stock of $1,492,851 for the nine months ended September 30, 2021.
Cash Flows from Operating Activities
For the nine
months ended September 30, 2022 and 2021, we used cash in operating activities of $1,757,153 and $2,693,632, respectively. This decrease
of $936,479 is due primarily to an increase in net loss for the nine months ended September 30, 2022 of $10,066,431 as compared to $7,250,698
for the nine months ended September 30, 2021. This was offset by the increase in cashflows from the impairment loss of the VBF acquisition
asset of $2,020,982 and a increase in accounts payable $735,480 and a decrease in accounts receivable of $101,644 for the nine months
for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Cash Flows from Investing Activities
During the nine
months ended September 30, 2022 and 2021, we used cash of $2,748 and 185,850, respectively, in investing activities related to our purchase
of property and equipment for the nine months ended September 30, 2022. In addition, we invested in joint ventures and acquisition of
new business during the nine months ended September 30, 2021.
Cash Flows from Financing Activities
During the nine
months ended September 30, 2022, net cash provided by financing activities was $1,676,649 which was primarily attributable to $1,649,980
from the issuance of notes and $1,218,315 from the sale of our common stock, this was offset by $1,144,760 of repayments of notes payable
and a $60,000 repurchase of the company’s common stock. During the nine months ended September 30, 2021, net cash provided by financing
activities was $2,912,709 which was attributable to $2,065,863 from the issuance of notes and $1,492,851 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 cDistroproducts 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 September 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.