Trafalgar International, Inc S-1, filed Jul 8, 2020
Trafalgar International, Inc. (TRFA)
As filed with the Securities and Exchange Commission on July 8, 2020
Registration No. 333-______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE GREATER CANNABIS COMPANY, INC.
(Exact name of registrant as specified in its charter)
| Florida | 7370 | 30-0842570 | ||
| (State
or other jurisdiction of incorporation or organization) |
(Primary
Standard Industrial Classification Code Number) |
(I.R.S.
Employer Identification No.) |
15 Walker Avenue, Suite 101
Baltimore, Maryland 21208
(443) 738-4051
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Aitan Zacharin
Chief Executive Officer
15 Walker Avenue, Suite 101
Baltimore, Maryland 21208
(443) 738-4051
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Dale S. Bergman, P.A.
901 Ponce De Leon Blvd., Suite 303
Coral Gables, Florida 33134
(305) 358-5100
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [ ] | Smaller reporting company [X] | |
| Emerging growth company [X] |
CALCULATION OF ADDITIONAL REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Aggregate Offering Price per Share(3) | Proposed Maximum Aggregate Offering Price(3) | Amount of Registration Fee(3) | ||||||||||||
| Common Stock, par value $0.001 per share | 25,000,000 | (1) | $ | 0.0073 | (2) | $ | 182,500 | (2) | $ | 23.69 | ||||||
| Common Stock, par value $0.001 per share | 25,000,000 | (2) | $ | 0.0073 | (2) | $ | 182,500 | (2) | $ | 23.69 | ||||||
| TOTAL | 50,000,000 | $ | $ | 47.38 | ||||||||||||
| (1) | These shares of common stock may be issued upon conversion of $42,500 and $1,200,000 principal amount 6% senior convertible notes held by Eagle Equities, LLC or as payment of interest under the notes. In accordance with Rule 416(a) under the Securities Act of 1933, the registrant is also registering hereunder an indeterminate number of additional shares that may be issued and resold as a result of stock splits, stock dividends, recapitalizations or similar transactions. |
| (2) | These shares of common stock may be issued upon conversion of $40,500 and $166,500 6% convertible redeemable notes held by GW Holdings Group, LLC or as payment of interest under the Notes. In accordance with Rule 416(a) under the Securities Act of 1933, the registrant is also registering hereunder an indeterminate number of additional shares that may be issued and resold as a result of stock splits, stock dividends, recapitalizations or similar transactions. |
| (3) | Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the “Securities Act”), based on the price of $0.0073, which was the average of the high and low prices for the Company’s common stock on July 2, 2020, as reported by OTC Markets, Inc. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Registration Statement on Form S-1 also serves as Post-Effective Amendment No. 1 to the registrant’s Registration Statement on Form S-1 (File No. 333-235938), which was declared effective by the Securities and Exchange Commission on February 12, 2020.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities nor may offers to buy these securities be accepted until the registration statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 8, 2020
PROSPECTUS
THE GREATER CANNABIS COMPANY, INC.
65,000,000 Shares of Common Stock
We have registered 65,000,000 shares of our common stock, par value $0.001 per share, for sale by the Selling Shareholders named herein. Of the 40,000,000 shares offered hereby, (a) 25,000,000 shares may be issued upon conversion of (i) a $1,200,000 principal amount 6% senior convertible note (the “2019 Eagle Note”) held by Eagle Equities, LLC (“Eagle”) and (ii) a $42,500 principal amount 6% senior convertible note (the “2020 Eagle Note,” and together with the 2019 Eagle Note, the “Eagle Notes”) held by Eagle: and (b) 25,000,000 shares may be issued upon conversion of (i) a $166,500 principal amount 6% convertible redeemable note (the “January 2020 GW Note”) held by GW Holdings Group, LLC (“GW,” and together with Eagle, the “Selling Shareholders”)and (ii) a $40,500 principal amount 6% senior convertible note (the “May 2020 Note,” and together with the January 2020, the “GW Notes”) The shares registered hereby may also be issued in payment of interest on the Eagle Notes and the GW Notes (the “Notes”). The registration statement of which this prospectus forms a part, also covers such additional shares as may be issued pursuant to the Notes as a result of adjustments to the conversion price of the Notes resulting from stock splits, stock dividends, recapitalizations and certain other events.
The Selling Shareholders and any of their respective pledgees, donees, transferees or other successors-in-interest, may offer and sell the shares from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the sale of the shares of common stock. The Selling Shareholders will offer and sell the shares of common stock in accordance with the “Plan of Distribution” set forth in this prospectus.
The Selling Shareholders will bear all commissions and discounts, if any, attributable to the sales of shares of common stock. We will bear all costs, expenses and fees in connection with the registration of the shares of common stock.
Our common stock is currently quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. under the symbol “GCAN.” On July 7, 2020, the closing price for our common stock was $0.0065.
The Company is an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “Jobs Act”) and as such, may elect to comply with certain reduced public company reporting requirements for future filings.
The purchase of the shares of common stock offered through this prospectus involves a high degree of risk. See the section of this prospectus entitled “Risk Factors” beginning at page 11.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
The date of this prospectus is July __, 2020
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TABLE OF CONTENTS
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This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission (the “SEC”) using the SEC’s registration rules for a delayed or continuous offering and sale of securities. Under the registration rules, using this prospectus and, if required, one or more prospectus supplements, the Selling Shareholder named herein may distribute the shares of common stock covered by this prospectus. A prospectus supplement may add, update or change information contained in this prospectus.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this prospectus contains “forward-looking statements.” These forward-looking statements are contained principally in the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.
The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to: our future financial performance; our future operations; our competitive advantages; our brand image; our ability to meet market demands; the sufficiency of our resources in funding our operations; and our liquidity and capital needs.
Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.
Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
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This summary highlights certain information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider prior to investing. After you read this summary, you should read and consider carefully the more detailed information and financial statements and related notes that we include in this prospectus, especially the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If you invest in our common stock, you are assuming a high degree of risk.
Unless we have indicated otherwise or the context otherwise requires, references in the prospectus to “The Greater Cannabis Company,” the “Company,” “we,” “us” and “our” or similar terms are to The Greater Cannabis Company, Inc. and its subsidiary.
Company Overview
The Company is engaged in identifying and consummating legal cannabis, cannabinoid and related investment and development opportunities through direct equity investments, joint ventures, licensing agreements or acquisitions.
Our initial focus is on commercializing technology developed by Pharmedica, Ltd. an Israel biopharmaceutical company (“Pharmedica”) and exclusively licensed to us worldwide for transmucosal delivery of legal medical or recreational cannabis (other than in the field of oral care) and cannabinoids (“CBD”) (the “Technology”). While part of the cannabis family, CBD, which contains less than 0.3% tetrahydrocannabinol (“THC”), the psychoactive compound that produces the “high” in marijuana, is distinguished from cannabis by its use, physical appearance and lower THC concentration (cannabis generally has a THC level of 10% or more). The Technology is centered around an eluting patch platform (“ETP”), which is a bio adhesive, transmucosal orally dissolving thin film system. The platform allows for actives loaded onto the ETP to be absorbed by the buccal mucosa into the body.
The Company intends to commercialize the Technology by sublicensing or partnering with companies in the legal cannabis and CBD industries to bring the product to market. Potential partners include licensed producers, distributors, processors, consumer product and pharmaceutical companies. The Company intends to focus on the North American market in legal medical and recreational cannabis and CBD segments.
On December 5, 2019, the Company received its first purchase order for 125,000 oral patches employing the Technology, which was filled in the second quarter of 2020. The Company has subsequently received and is negotiating additional orders for the oral patches. The full commercialization of the Technology is expected to require an investment of up to $1,500,000 and up to one year to finalize.
The Company is actively seeking (but has not as yet identified) additional licensing and other development opportunities in the legal cannabis and CBD sectors.
Effects of the Covid-19 Pandemic on Our Business
Since March 2020 there has been and there continues to be a significant and growing volatility and uncertainty in the global economy due to the worldwide Covid-19 pandemic affecting all business sectors and industries. ,The fulfillment of our first order of patches was delayed from the first quarter to the second quarter of 2020 due to the Covid-19 shutdowns in the United States. Moreover, our customers and suppliers could be further adversely affected as a result of additional or future quarantines, facility closures and logistics restrictions imposed or which otherwise occur in connection with the pandemic. More broadly, the high degree unemployment resulting from the pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and harm our business, results of operations and financial condition. At this time, we cannot accurately predict the effects the Covid-19 pandemic will have on our business.
Corporate Information
The Company was organized as a limited liability company in the State of Florida, effective March 13, 2014 and was converted to a Florida corporation effective January 13, 2017. Our executive offices are located at 15 Walker Avenue, Suite 101, Baltimore, Maryland 21208 and our telephone number is (443) 738-4051.
Corporate History
The Company’s initial business plan was to concentrate on cannabis related investment and development opportunities by direct e-commerce sales and advertising through its online retail store, direct equity investments, joint ventures, licensing agreements and/or acquisitions.
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On July 31, 2018, the Company entered into and consummated a voluntary share exchange transaction with Green C Corporation, a company incorporated under the laws of the Province of Ontario (“Green C”) and the shareholders of Green C (the “Green C Shareholders”) pursuant to a Share Exchange Agreement by and among the Company, Green C and the Green C Shareholders (the “Exchange Agreement”). Green C had entered into the license agreement with Pharmedica for the commercialization of the Technology.
In accordance with the terms of the Exchange Agreement, the Company issued 9,411,998 shares of its preferred stock, par value $0.001 (the “Series A Preferred Shares”) to the Green C Shareholders in exchange for 100% of the issued and outstanding capital stock of Green C (the “Exchange Transaction”). As a result of the Exchange Transaction, the Green C Shareholders acquired Series A Preferred Shares holding 79.05% of the voting power of the Company’s issued and outstanding shares of capital stock, Green C became the Company’s wholly-owned subsidiary and the Company acquired 100% of the business and operations of Green C.
After the consummation of the transactions contemplated by the Exchange Agreement, we modified our business model to eliminate online retail sales and advertising and instead to focus on commercializing the Technology and seeking other complementary investment and development opportunities in the legal cannabis, CBD and related fields.
Going Concern
The Company is a development stage company. The Company has had no revenues and has incurred losses of $1,648,595, $1,211,569, $839,070 and $138,349 the year ended December 31, 2019, the year ended December 31, 2018 and the three months ended March 31, 2020 and the three months ended March 31, 2019, respectively. We had accumulated deficits of $2,379,238 and $3,590,807 at December 31, 2019 and March 31, 2020, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing shareholders.
The Company intends to overcome the circumstances that impact its ability to remain a going concern through a combination of the commencement of revenues, with interim cash flow deficiencies being addressed through additional equity and debt financing. The Company anticipates raising additional funds through public or private financing, strategic relationships or other arrangements in the near future to support its business operations; however, the Company may not have commitments from third parties for a sufficient amount of additional capital. The Company cannot be certain that any such financing will be available on acceptable terms, or at all, and its failure to raise capital when needed could limit its ability to continue its operations. The Company’s ability to obtain additional funding will determine its ability to continue as a going concern. Failure to secure additional financing in a timely manner and on favorable terms would have a material adverse effect on the Company’s financial performance, results of operations and stock price and require it to curtail or cease operations, sell off its assets, seek protection from its creditors through bankruptcy proceedings, or otherwise. Furthermore, additional equity financing may be dilutive to the holders of the Company’s common stock, and debt financing, if available, may involve restrictive covenants, and strategic relationships, if necessary to raise additional funds, and may require that the Company relinquish valuable rights.
Emerging Growth Company
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies.
Section 107(b) 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 irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues are $1 billion, as adjusted, or more; (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; and (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
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The Selling Shareholders
Eagle
On February 12, 2019, the Company issued a 6% senior convertible note (the “2019 Eagle Note”) to Eagle Equities, LLC (“Eagle”), having a principal amount of $1,200,000 of which $96,000 constituted an original issue discount. Effective May 27, 2020, the Company issued a second 6% senior convertible note (the “2020 Eagle Note,” and together with the 2019 Eagle Note, the “Eagle Notes”) to Eagle, having a principal amount of $42,500 of which $3,000 constituted an original issue discount.
In connection with each Eagle Note, the Company and Eagle entered into a securities purchase agreement (each, an “Eagle SPA”). The maturity date of the Eagle Notes was one year from the date of issuance. On January 27, 2020, the Company entered into an amendment to the Eagle SPA for the 2019 Eagle Note. to provide an additional funding of $320,000 under the 2019 Eagle Note and to extend its maturity extend its maturity date to February 12, 2021.
The Company agreed to reserve with its transfer agent, shares having a value of at least 400% of the discount value of the funded balance of the Eagle Notes at each closing.
The Eagle Notes provide for prepayment in whole or in part, by paying Eagle the following premiums:
| PREPAY DATE | PREPAY AMOUNT | |
| ≤ 30 days | 105% * (Principal + Interest (“P+I”) | |
| 31- 60 days | 110% * (P+I) | |
| 61-90 days | 115% * (P+I) | |
| 91-120 days | 120% * (P+I) | |
| 121-150 days | 125% * (P+I) | |
| 151-180 days | 130% * (P+I) |
Any amount of principal or interest on the Eagle Notes, which is not paid when due shall bear interest at the rate of twenty four (24%) per annum from the due date thereof until the same is paid.
Eagle has the right beginning on the date which is one hundred eighty (180) days following the issue date to convert all or any part of the outstanding and unpaid principal amount of each Eagle Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Eagle Conversion Price”). The Eagle Conversion Price shall be, equal to 65% of the lowest closing price of the Company’s common stock on the OTCQB tier of the over-the-counter market, as reported by OTC Markets, Inc. or any other national securities exchange which the Company’s shares are traded at the time of conversion, for the fifteen (15) prior trading days including the day upon which a Notice of Conversion is received by the Company. The Eagle Notes contain other customary terms found in like instruments for conversion price adjustments.
As of the date of this prospectus, $145,137 in principal and interest under the 2019 Eagle Note has been converted into 31,730,806 shares of our common stock, leaving a balance of approximately $423,919 in principal and accrued interest.
In the case of an Event of Default (as defined in the Eagle Notes), the Eagle Note in default shall become immediately due and payable and interest shall accrue at the default rate. Certain Events of Default will result in further penalties.
GW
On January 27, 2020, the Company issued a 6% convertible redeemable note ( the “January 2020 GW Note,”) to GW Holdings Group, LLC (“GW,” and together with Eagle, the “Selling Shareholders”), having a principal amount of $166,500 of which $13,500 constituted an original issue discount. On May 27, 2020, the Company issued a second 6% senior convertible note (the “May 2020 GW Note,” and together with the January 2020 GW Note, the “GW Notes”) to Eagle, having a principal amount of $40,500 of which $3,000 constituted an original issue discount. In connection with each GW Note, the Company and GW entered into a securities purchase agreement (each, a “GW SPA”). The maturity date of the GW Notes is one year from the date of issuance.
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The GW Notes provide for prepayment, in whole or in part, by paying GW the following premiums:
| PREPAY DATE | PREPAY AMOUNT | |
| ≤ 30 days | 105% * (Principal + Interest (“P+I”) | |
| 31- 60 days | 110% * (P+I) | |
| 61-90 days | 115% * (P+I) | |
| 91-120 days | 120% * (P+I) | |
| 121-150 days | 125% * (P+I) | |
| 151-180 days | 130% * (P+I) |
Any amount of principal or interest on the GW Notes, which is not paid when due shall bear interest at the rate of twenty-four (24%) per annum from the due date thereof until the same is paid.
GW has the right beginning on the date which is one hundred eighty (180) days following issuance of each GW Note to convert all or any part of the outstanding and unpaid principal amount of such GW Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “GW Conversion Price”). The GW Conversion Price shall be, equal to 55% of the lowest closing price of the Company’s common stock as reported on the OTCQB tier of the over-the-counter market, as reported by OTC Markets, Inc. or any other national securities on exchange on which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the fifteen (25) prior trading days including the day upon which a Notice of Conversion is received by the Company. The GW Notes contain other customary terms found in like instruments for conversion price adjustments.
As of the date of this prospectus, $15,553 in principal and interest under the January 2020 GW Note has been converted into 4,998,892 shares of our common stock, leaving a balance of approximately $155,125 in principal and accrued interest.
In the case of an Event of Default (as defined in the GW Notes), the GW Note in default shall become immediately due and payable and interest shall accrue at the default rate. Certain Events of Default will result in further penalties.
The registration statement of which this prospectus forms a part, is filed in connection with the Notes to cover resale by the Selling Shareholders of up to 40,000,0000 shares of common stock which may be issued to Eagle upon conversion of the Eagle Notes and/or payment of interest thereunder and up to 25,000,000 shares of common stock which may be issued to GW upon conversion of the GW Notes and/or the payment of interest thereunder.
Recent Development - Note Satisfaction
On May 26, 2020, we entered into a surrender agreement with Emet Capital Partners, LLC (“Emet”) pursuant to which Emet agreed to surrender its interests in the following convertible notes issued on October 18, 2019 free and clear of any liens, mortgages, adverse claims, charges, security interests, encumbrances, and any interest of any third party and waive any rights or claims it may have in respect of such notes in exchange for a payment of $70,000:
| 1. | Convertible Redeemable Note in the amount of $3,128.79 | |
| 2. | Convertible Redeemable Note in the amount of $15,439.93 | |
| 3. | Convertible Redeemable Note in the amount of $7,018.15 | |
| 4. | Convertible Note in the amount of $451,504.95 | |
| 5. | Convertible Note in the amount of $112,876.28 | |
| 6. | Convertible Note in the amount of $99,331.13 | |
| 7. | Convertible Note in the amount of $11,287.65 |
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THE OFFERING
| Common stock offered by the Selling Shareholder | 65,000,000 shares of common stock(1) | |
| Common stock outstanding as of the date of this prospectus | 88,349,536 shares of common stock. (2) | |
| Terms of the Offering | Each Selling Shareholder will determine when and how it will sell the common stock offered in this prospectus. | |
| Use of Proceeds | We will not receive any proceeds from the sale of common stock offered by the Selling Shareholders under this prospectus. | |
| Risk Factors | The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. Risk Factors relating to our business and prospects include: |
| ● | the effects of the Covid-19 pandemic on our business; | |
| ● | the limited operating history with our current business; | |
| ● | significant losses incurred to date and “going concern” explanatory paragraph in our auditor’s report; | |
| ● | the need for substantial additional financing to become commercially viable; | |
| ● | dependence upon the successful development, commercial launch and acceptance of our planned products and in the successful license of our technology; | |
| ● | effectiveness of the Company’s marketing strategy; | |
| ● | the scope of intellectual property protection we can achieve; | |
| ● | our dependence on third party manufacturing; | |
| ● | competition; and | |
| ● | our reliance on key members of management. |
| (1) | The shares registered hereunder shares are issuable upon conversion of the Notes or in payment of interest on the Notes. |
| (2) | The number of shares of our common stock outstanding excludes (i) 470,599,900 shares issuable upon conversion of Series A Convertible Preferred Stock; and (ii) additional shares of common stock which may be issued upon conversion of the Notes or other outstanding notes payable. |
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The following summary selected condensed consolidated financial information as of and for the years ended December 31, 2019 and 2018, have been derived from our audited financial statements. The financial information as of and for the three months ended March 31, 2020 and 2019, is derived from our unaudited condensed consolidated financial statements. The condensed consolidated financial information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included elsewhere in this prospectus.
For the Year Ended December 31, | For the Three Months Ended March 31, | |||||||||||||||
| 2019 | 2018 | 2020 | 2019 | |||||||||||||
| (audited) | (audited) | (unaudited) | (unaudited) | |||||||||||||
| Consolidated Statement of Operations Data: | ||||||||||||||||
| Revenues | $ | 7,120 | $ | 95,375 | $ | - | $ | - | ||||||||
| Loss from operations | $ | (525,323 | ) | $ | (190,919 | ) | $ | (88,097 | ) | $ | (89,077 | ) | ||||
| Other income (expense) | (1,123,272 | ) | $ | (648,151 | ) | $ | (1,123,472 | ) | $ | (49,272 | ) | |||||
| Net loss | $ | (1,648,595 | ) | $ | (839,070 | ) | (1,211,569 | ) | (138,349 | ) | ||||||
| Loss per share, basic and diluted | $ | (.05 | ) | $ | (.03 | ) | $ | (.03 | ) | $ | (.00 | ) | ||||
| Weighted average shares outstanding, basic and diluted | 34,980,133 | 29,964,950 | 46,959,776 | 33,280,775 | ||||||||||||
Balance Sheet Data:
| December 31, 2019 | December 31, 2018 | March 31, 2020 | ||||||||||
| (audited) | (audited) | (unaudited) | ||||||||||
| Cash And Cash Equivalents | $ | 24,662 | $ | 59,891- | $ | 295,314 | ||||||
| Total Assets | $ | 52,662 | $ | 149,640- | $ | 347,481 | ||||||
| Convertible Notes | $ | 399,318 | $ | 64,914 | $ | 531,041 | ||||||
| Total Liabilities | $ | 1,599,296 | $ | 713,426- | $ | 2,699,591 | ||||||
| Total Stockholders’ Deficit | $ | (1,546,634 | ) | $ | (563,786 | ) | $ | (2,352,110 | ) | |||
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You should carefully consider the risks described below and other information in this prospectus, including the financial statements and related notes that appear at the end of this prospectus, before deciding to invest in our securities. These risks should be considered in conjunction with any other information included herein, including in conjunction with forward-looking statements made herein. If any of the following risks actually occur, they could materially adversely affect our business, financial condition, operating results or prospects. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also impair our business, financial condition, operating results and prospects.
Risks Related to the Company’s Business
At this time, we cannot accurately predict the effects of the Covid-19 pandemic on our business.
Since March 2020 there has been and there continues to be a significant and growing volatility and uncertainty in the global economy due to the worldwide Covid-19 pandemic affecting all business sectors and industries. ,The fulfillment of our first order of patches was delayed from the first quarter to the second quarter of 2020 due to the Covid-19 shutdowns in the United States. Moreover, our customers and suppliers could be further adversely affected as a result of additional or future quarantines, facility closures and logistics restrictions imposed or which otherwise occur in connection with the pandemic. More broadly, the high degree unemployment resulting from the pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and harm our business, results of operations and financial condition. At this time, we cannot accurately predict the effect the Covid-19 pandemic will have on our business.
We are a development stage company with a limited operating history.
The Company is a development stage company, with a limited operating history. The Company has generated only minimal revenues to date and has incurred losses of $1,648,595, $839,070, $1,211,569 and $138,349 for the years ended December 31, 2019 and 2018 and the three months ended March 31, 2020 and 2019 respectively. We had accumulated deficits of $3,590,807 and $2,379,238 at March 31, 2020 and December 31, 2019, respectively. We are subject to all the problems, expenses, difficulties, complications and delays encountered in establishing a new business. The Company does not know if it will become commercially viable and ever generate significant revenues or operate at a profit.
Our independent registered public accounting firm has issued a going concern opinion; there is substantial uncertainty that we will continue operations in which case you could lose your investment.
In their report dated April 14, 2019, our independent registered public accounting firm, Michael T. Studer CPA P.C., stated that our audited consolidated financial statements have been prepared assuming that the Company will continue as a going concern and that the Company’s present financial situation raises substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our generating profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Our management intends to finance operating costs over the next twelve months with existing cash on hand and public issuance of common stock. Although we may be successful in obtaining financing and/or generating revenue to fund our operations, meet regulatory requirements and achieve commercial goals, there are no assurances that such funding will be achieved at a sufficient level or that we will succeed in our future operations.
The Company’s ultimate success will be dependent in large part on our ability to successfully commercialize the Technology licensed from Pharmedica.
Our success in large part will be dependent on our ability to successfully commercialize the Technology licensed from Pharmedica. We estimate that it will take up to $1,500,000 and a year to do so. There can be no assurance given that the Company will have the financial or technical resources to do so, or even if we do, that it can be successfully commercialized. Failure to do so would substantially harm the Company’s business, results of operations and financial condition.
There can be no assurance that even if the Technology and the ETP are successfully commercialized, that it will be accepted by participants in the legal cannabis and CBD industries.
Even if we are able to successfully commercialize the Technology licensed from Pharmedica and the ETP it uses, our success will be dependent in part on acceptance of the Technology and the ETP by participants in the legal cannabis and CBD industries. There can be no assurance given that such will be the case and if industry participants do not accept the Technology and the ETP our business prospects will be significantly harmed.
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We intend to rely on third party partners and sublicensees to market the Technology.
We have no internal marketing experience and accordingly, we intend to market the Technology once commercialized by sublicensing or partnering with companies in the legal cannabis and CBD industries. We have no agreements with any potential sublicensee or partner and there can be no assurance that we can enter into such an agreement on commercially reasonable terms. Failure to do so could seriously harm our business, financial condition and results of operations.
In the event we breach or default under our license agreement with Pharmedica, Pharmedica may terminate the license of the Technology, in which case our business, financial condition and results of operations would be significantly harmed.
Our success for the foreseeable future will be dependent upon our ability to commercialize the Technology under the license agreement with Pharmedica. In the event we breach or default under the license agreement, Pharmedica will have the right to terminate the license of the Technology, in which case our business, financial condition and results of operations would be significantly harmed and we may need to cease operations.
We will need to raise additional capital to continue operations over the coming year and otherwise fund commercialization of the Technology.
We anticipate the need to raise approximately $1,500,000 in capital to fund our operations through December 31, 2020. We expect to use these cash proceeds primarily for business development, testing, licensing and operations. Moreover, we will likely need additional funding beyond December 31, 2020 to become commercially viable and ultimately achieve profitable operations. We cannot guarantee that we will be able to raise these required funds on commercially reasonable term or generate sufficient revenue to remain operational. Failure to secure needed financing at any stage would seriously harm our business, financial condition and results of operations.
Our proposed business is dependent on laws pertaining to the marijuana industry.
Continued development of the marijuana industry is dependent upon continued legislative authorization and/or voter approved referenda of marijuana at the state level. Any number of factors could slow or halt progress in this area. Further, progress for the industry, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt use of marijuana, which would negatively impact our proposed business.
As of the date of this prospectus, 33 states and the District of Columbia allow its citizens to use medical marijuana Voters in the states of Colorado, Washington, Alaska, Oregon, California, Maine, Nevada, Massachusetts and the District of Columbia have approved ballot measures to legalize cannabis for adult use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use, cultivation and/or possession illegal on a national level. As discussed in the “Cole Memo” the former Obama administration has effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. Any change in the federal government’s enforcement of current federal laws could cause significant financial damage to us and our shareholders.
All strains of cannabis other than hemp remain illegal under Federal law.
Despite the development of a legal cannabis industry under the laws of certain states and the legalization of hemp under the Agriculture Improvement Act of 2018, the state laws legalizing medical and adult cannabis use are in conflict with the Federal Controlled Substances Act, which classifies cannabis as a “Schedule-I” controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that the Federal government has the right to regulate and criminalize cannabis, even for medical purposes, and thus Federal law criminalizing the use of cannabis preempts state laws that legalize its use. However, the Obama Administration determined that it is not an efficient use of resources to direct Federal law enforcement agencies to prosecute those lawfully abiding by state laws allowing the use and distribution of medical and recreational cannabis. There is no guarantee that the Trump Administration will not change the Federal government’s stated policy regarding the low-priority enforcement of Federal laws in states where cannabis has been legalized. Any such change in the Federal government’s enforcement of Federal laws could cause significant financial damage to us and our shareholders.
Laws and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our proposed operations.
Local, state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
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As the possession and use of strains of cannabis that are not hemp is illegal under the Federal Controlled Substances Act, we may be deemed to be aiding and abetting illegal activities through the services that we provide to users and advertisers. As a result, we may be subject to enforcement actions by law enforcement authorities, which would materially and adversely affect our business.
Under Federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of non-hemp cannabis is illegal. Our business provides services to customers that are engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another’s criminal activities. The Federal aiding and abetting statute provides that anyone who “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.” 18 U.S.C. §2(a). As a result of such an action, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.
Our potential customers, clients and companies which we may elect to invest directly with may have difficulty accessing the service of banks, which may make it difficult for them to operate.
On February 14, 2014, the U.S. government issued rules allowing banks to legally provide financial services to state-licensed cannabis businesses. A memorandum issued by the Justice Department to federal prosecutors reiterated guidance previously given, this time to the financial industry that banks can do business with legal marijuana businesses and “may not” be prosecuted. FinCEN issued guidelines to banks noting that it is possible to provide financial services to state-licensed cannabis businesses and still be in compliance with federal anti-money laundering laws. The guidance, however, falls short of the explicit legal authorization that banking industry officials had requested the government provide, and, to date, it is not clear if any banks have relied on the guidance to take on legal cannabis companies as clients. The aforementioned policy can be changed, including in connection with a change in presidential administration, and any policy reversal and or retraction could result in legal cannabis businesses losing access to the banking industry.
Because the use, sale and distribution of cannabis remains illegal under federal law, many banks will not accept deposits from or provide other bank services to businesses involved with cannabis. The inability to open bank accounts may make it difficult for our existing and potential customers, clients and tenants to operate and may make it difficult for them to contract with us.
We are highly dependent on the services of key executives, the loss of whom could materially harm our business and our strategic direction. If we lose key management or significant personnel, cannot recruit qualified employees, directors, officers, or other personnel or experience increases in our compensation costs, our business may materially suffer.
We are highly dependent on our management team, specifically Aitan Zacharin. If we lose key employees, our business may suffer. Furthermore, our future success will also depend in part on the continued service of our management personnel and our ability to identify, hire, and retain additional key personnel. We do not carry “key-man” life insurance on the lives of any of our executives, employees or advisors. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel necessary for the development of our business. Because of this competition, our compensation costs may increase significantly.
Government actions or digital distribution platform restrictions could result in our products and services being unavailable in certain geographic regions, harming future growth.
Due to our connections to the cannabis industry, governments and government agencies could ban or cause our ETP technology to become unavailable in certain regions and jurisdictions. This could greatly impair or prevent us from entering the market and commercializing our technology.
We may not be able to compete successfully with other established companies offering the same or similar services and, as a result, we may not achieve our projected revenue and user targets.
If we are unable to compete successfully with other businesses in our existing market, we may not achieve our projected revenue and/or customer targets. We compete with both start-up and established retail and technology companies. Compared to our business, some of our competitors may have greater financial and other resources, have been in business longer, have greater name recognition and be better established in the technological or cannabis markets.
Due to our involvement in the cannabis industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liabilities.
Insurance that is otherwise readily available, such as workers’ compensation, general liability, and directors and officer’s insurance, is more difficult for us to find and more expensive, because we are a service provider to companies in the cannabis industry. There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities. The Greater Cannabis Company, Inc. carries general liability insurance. We do not currently hold any other forms of insurance, including directors’ and officers’ insurance. Because we do not have any other types of insurance, if we are made a party of a legal action, we may not have sufficient funds to defend the litigation. If that occurs a judgment could be rendered against us that could cause us to cease operations.
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Participants in the cannabis industry may have difficulty accessing the service of banks, which may make it difficult for us to operate.
Despite recent rules issued by the United States Department of the Treasury mitigating the risk to banks who do business with cannabis companies operating in compliance with applicable state laws, as well as recent guidance from the United States Department of Justice, banks remain wary of accepting funds from businesses in the cannabis industry. Since the use of cannabis remains illegal under Federal law, there remains a compelling argument that banks may be in violation of Federal law when accepting for deposit funds derived from the sale or distribution of cannabis and/or related products. Consequently, businesses involved in the cannabis industry continue to have trouble establishing banking relationships. Our inability to open a bank account may make it difficult (and potentially impossible) for us, or some of our advertisers, to do business with us.
Our success will depend in large part upon the validity of the patent and other intellectual property we license from Pharmedica and any failure to protect our intellectual property rights or any claims that we are infringing upon the rights of others may adversely affect our competitive position.
Our success will depend in large part upon the validity of the patent and other intellectual property we license from Pharmedica as part of the Technology and on our ability to protect and defend our intellectual property rights. We cannot be sure that our existing and potential competitors will not challenge, invalidate or circumvent any of our existing or future patent and other intellectual property rights.
Our ETP Technology may require FDA approval.
The use of our ETP technology may be subject to pre-approval by the U.S. Food and Drug Administration (the “FDA”) for certain applications, or equivalent regulatory body approval in other jurisdictions. If so, obtaining FDA and other approvals will require a substantial investment of funds and may take years. There is no assurance that we will be able to successfully obtain any such required regulatory approvals needed to enter certain markets.
Risks Related to our Status as a Public Company
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934(the “Exchange Act”) that requires us to incur audit fees and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate our ability to earn a profit.
We are required to file periodic reports with the Securities and Exchange Commission (the “SEC”) under the Exchange Act and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm has to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel has to review and assist in the preparation of such reports. The incurrence of such costs is an expense to our operations, may increase as the Company grows and therefore have a negative effect on our ability to meet our overhead requirements and earn a profit. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
Our internal controls are inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and | |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
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Our Chief Executive Officer has concluded that as of March 31, 2020, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level. We are taking additional steps to remedy these material weaknesses. However, we expect to incur additional expenses and diversion of management’s time in order to do so, which may adversely affect our business, results of operations and financial condition. Further, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
The Jobs Act has reduced the information that the Company is required to disclose, which could adversely affect the price of our common stock.
Under the Jobs Act, the information that the Company is required to disclose has been reduced in a number of ways.
Before the adoption of the Jobs Act, the Company was required to register the common stock under the Exchange Act within 120 days after the last day of the first fiscal year in which the Company had total assets exceeding $1,000,000 and 500 record holders of the common stock; the Jobs Act has changed this requirement such that the Company must register the common stock under the Exchange Act within 120 days after the last day of the first fiscal year in which the Company has total assets exceeding $10,000,000 and 2,000 record holders or 500 record holders who are not “accredited investors.” As a result, the Company is now required to register the common stock under the Exchange Act substantially later than previously.
As a company that had gross revenues of less than $1 billion during the Company’s last fiscal year, the Company is an “emerging growth company,” as defined in the Jobs Act (an “EGC”). The Company will retain that status until the earliest of (a) the last day of the fiscal year which the Company has total annual gross revenues of $1,000,000,000 (as indexed for inflation in the manner set forth in the Jobs Act) or more; (b) the last day of the fiscal year of following the fifth anniversary of the date of the first sale of the common stock pursuant to an effective registration statement under the Securities Act; (c) the date on which the Company has, during the previous three year period, issued more than $1,000,000,000 in non-convertible debt; or (d) the date on which the Company is deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act or any successor thereto. As an EGC, the Company is relieved from the following:
| ● | The Company is excluded from Section 404(b) of the Sarbanes-Oxley of 2002 (“Sarbanes-Oxley”), which otherwise would have required the Company’s auditors to attest to and report on the Company’s internal control over financial reporting. The Jobs Act also amended Section 103(a)(3) of Sarbanes-Oxley to provide that (i) any new rules that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) requiring mandatory audit firm rotation or changes to the auditor’s report to include auditor discussion and analysis (each of which is currently under consideration by the PCAOB) shall not apply to an audit of an EGC; and (ii) any other future rules adopted by the PCAOB will not apply to the Company’s audits unless the SEC determines otherwise. | |
| ● | The Jobs Act amended Section 7(a) of the Securities Act to provide that the Company need not present more than two years of audited financial statements in an initial public offering registration statement and in any other registration statement, need not present selected financial data pursuant to Item 301 of Regulation S-K for any period prior to the earliest audited period presented in connection with such initial public offering. In addition, the Company is not required to comply with any new or revised financial accounting standard until such date as a private company (i.e., a company that is not an “issuer” as defined by Section 2(a) of Sarbanes-Oxley) is required to comply with such new or revised accounting standard. Corresponding changes have been made to the Exchange Act, which relates to periodic reporting requirements, which would be applicable if the Company were required to comply with them. | |
| ● | As long as the Company is an EGC, the Company may comply with Item 402 of Regulation S-K, which requires extensive quantitative and qualitative disclosure regarding executive compensation, by disclosing the more limited information required of a “smaller reporting company.” | |
| ● | In the event that the Company registers the common stock under the Exchange Act as it intends to do, the Jobs Act will also exempt the Company from the following additional compensation-related disclosure provisions that were imposed on U.S. public companies pursuant to the Dodd-Frank Act: (i) the advisory vote on executive compensation required by Section 14A(a) of the Exchange Act; (ii) the requirements of Section 14A(b) of the Exchange Act relating to shareholder advisory votes on “golden parachute” compensation; (iii) the requirements of Section 14(i) of the Exchange Act as to disclosure relating to the relationship between executive compensation and our financial performance; and (iv) the requirement of Section 953(b)(1)of the Dodd-Frank Act, which requires disclosure as to the relationship between the compensation of the Company’s chief executive officer and median employee pay. |
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Since the Company is not required, among other things, to file reports under Section 13 of the Exchange Act or to comply with the proxy requirements of Section 14 of the Exchange Act until such registration occurs or to comply with certain provisions of Sarbanes-Oxley and the Dodd-Frank Act and certain provisions and reporting requirements of or under the Securities Act and the Exchange Act or to comply with new or revised financial accounting standards as long as the Company is an EGC, and the Company’s officers, directors and 10% shareholders are not required to file reports under Section 16(a) of the Exchange Act until such registration occurs, the Jobs Act has had the effect of reducing the amount of information that the Company and its officers, directors and 10% shareholders are required to provide for the foreseeable future.
As a result of such reduced disclosure, the price for the common stock may be adversely affected, if a market ever develops.
Public companies are subject to risks relating to securities fraud and derivative lawsuits, which may have a material adverse effect on our business, operations, and financial results.
As a publicly-traded company, we are subject to state and federal securities laws. There is a risk that we may be subject to lawsuits that allege that we have violated such laws. Such a lawsuit would cause us to incur significant legal fees and could take up significant time of our executive officers and directors. We may be unable to defend or settle such an action, causing a material adverse effect on our business, operations, and financial results.
Such allegations could materially harm our reputation among investors and damage our ability to raise funds, issue securities, or remain liquid. It may reduce trading volume and cause a significant decline in the market price of our shares, damaging your ability to sell your shares. We do not currently have directors’ and officers’ insurance.
Risks Relating to our Common Stock
There is currently limited liquidity of shares of our common stock.
Our common stock was first quoted for trading on the OTCQB tier of the over-the-counter market in the quarter ended September 30, 2018. The trading market for our common stock is limited and sporadic. Failure to develop or maintain a trading market could negatively affect its value and make it difficult or impossible for you to sell your shares. Even if a market for common stock does develop, the market price of common stock may be highly volatile. In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.
We do not expect to pay dividends in the future; any return on investment may be limited to the value of our common stock.
We do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts. There can be no assurance that the Company will ever have sufficient earnings to declare and pay dividends to the holders of our common stock, and in any event, a decision to declare and pay dividends is at the sole discretion of our board of directors. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if its stock price appreciates.
The market price for our common stock may be particularly volatile given our status as a relatively unknown company, with a limited operating history and lack of profits which could lead to wide fluctuations in our share price. You may be unable to sell your common stock at or above your purchase price, which may result in substantial losses to you.
Our stock price may be particularly volatile when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats. The volatility in our share price will be attributable to a number of factors. First, our common stock will be compared to the shares of such larger, more established companies, sporadically and thinly traded. As a consequence of this limited liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could decline precipitously in the event that a large number of shares of our common stock are sold on the market without commensurate demand. Second, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-averse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades on a national securities exchange and has a large public float. Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time. Moreover, the OTCQB is not a liquid market in contrast to the major stock exchanges. We cannot assure you as to the liquidity or the future market prices of our common stock if a market does develop. If an active market for our common stock does not develop, the fair market value of our common stock could be materially adversely affected.
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Our shares are subject to the “Penny Stock” Rules and investors who purchase our shares may have difficulty re-selling their shares as the liquidity of the market for our shares may be adversely affected by the impact of the “Penny Stock” Rules.
Our stock is subject to the “Penny Stock” rules, which may make the stock more difficult to trade on the open market. A “penny stock” is generally defined by regulations of the SEC as an equity security with a market price of less than $5.00 per share. However, an equity security with a market price under $5.00 will not be considered a penny stock if it fits within any of the following exceptions:
| (i) the equity security is listed on NASDAQ or a national securities exchange; | |
| (ii) the issuer of the equity security has been in continuous operation for less than three years, and either has (a) net tangible assets of at least $5,000,000, or (b) average annual revenue of at least $6,000,000; or | |
| (iii) the issuer of the equity security has been in continuous operation for more than three years and has net tangible assets of at least $2,000,000. |
Our common stock does not currently fit into any of the above exceptions.
If an investor buys or sells a penny stock, SEC regulations require that the investor receive, prior to the transaction, a disclosure explaining the penny stock market and associated risks. Furthermore, trading in our common stock will be subject to Rule 15g-9 of the Exchange Act, which relates to non-NASDAQ and non-exchange listed securities. Under this rule, broker/dealers who recommend our securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to a transaction prior to sale. Securities are exempt from this rule if their market price is at least $5.00 per share. Since our common stock is currently deemed penny stock regulations, it may tend to reduce market liquidity of our common stock, because they limit the broker/dealers’ ability to trade, and a purchaser’s ability to sell, the stock in the secondary market.
The low price of our common stock has a negative effect on the amount and percentage of transaction costs paid by individual shareholders. The low price of our common stock also limits our ability to raise additional capital by issuing additional shares. There are several reasons for these effects. First, the internal policies of certain institutional investors prohibit the purchase of low-priced stocks. Second, many brokerage houses do not permit low-priced stocks to be used as collateral for margin accounts or to be purchased on margin. Third, some brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced stocks. Finally, broker’s commissions on low-priced stocks usually represent a higher percentage of the stock price than commissions on higher priced stocks. As a result, the Company’s shareholders may pay transaction costs that are a higher percentage of their total share value than if our share price were substantially higher.
Authorization of preferred stock.
Our Certificate of Incorporation authorizes the issuance of up to 19,000,000 shares of preferred stock with designations, rights and preferences determined from time to time by its Board of Directors. Accordingly, our Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the common stock.
Because we can issue additional shares of common stock without shareholder approval, purchasers of our common stock may incur immediate dilution and experience further dilution.
We are authorized to issue up to 500,000,000 shares of common stock, of which 88,349,536 shares are issued and outstanding as of the date of this prospectus. We are in the process of increasing the number of our authorized shares of common stock from 500,000,000 shares to 1,000,000,000 shares. Our Board of Directors has the authority to cause us to issue additional shares of common stock without consent of any of our shareholders. Consequently, our shareholders may experience more dilution in their ownership of our stock in the future.
Dilution from Convertible Note Financings
The Company has done a number of convertible note financings, including the issuance of the Notes to Eagle and GW. As a result of these transactions, shareholders of the Company may experience additional substantial dilution.
A reverse stock split may decrease the liquidity of the shares of our common stock.
The liquidity of the shares of our common stock may be affected adversely by a reverse stock split given the reduced number of shares that will be outstanding following a reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split.
Cautionary Note
We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.
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This prospectus relates to shares of our common stock that may be offered and sold from time to time by the Selling Shareholders. We will not receive any proceeds from the sale of shares of common stock in this offering. We have agreed to bear the expenses (other than any underwriting discounts or commissions or broker’s commissions) in connection with the registration of the common stock being offered hereby by the Selling Shareholder.
The shares of common stock being offered by the Selling Shareholders are the shares issuable to the Selling Shareholders upon conversion of the Notes or in payment of interest on the Notes. We are registering the shares of common stock in order to permit the Selling Shareholders to offer the shares for resale from time to time. Except for the issuance of the Notes to the Selling Shareholders, neither Selling Shareholder has had any material relationship with us within the past three years.
The table below lists the Selling Shareholders and other information regarding the beneficial ownership (as determined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) of the shares of common stock held by the Selling Shareholders.
This prospectus covers the resale of up to 40,000,000 shares of common stock issuable to Eagle upon conversion of or in payment of interest on the Eagle Notes and up to 25,000,000 shares of common stock issuable to GW upon conversion of or in payment of interest on the GW Notes. Because the conversion price of the Notes may be adjusted, the number of shares that will actually be issued may be more or less than the number of shares being offered by this prospectus.
| Shareholder | Beneficial Ownership Before Offering (1) | Percentage of Common Stock Owned Before Offering (1)(2) | Shares of Common Stock Included in Prospectus(2) | Beneficial Ownership After the Offering (3) | Percentage of Common Stock Owned After the Offering(3) | |||||||||||||||
| Eagle Equities, LLC | 78,853,593 | 47.2 | % | 25,000,000 | 53,853,593 | 32.2 | % | |||||||||||||
| GW Holdings Group, LLC | 39,485,514 | 30.9 | % | 25,000,000 | 14,485,514 | 8.7 | % | |||||||||||||
(1) The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the Selling Shareholder has sole or shared voting power or investment power and also any shares, which the Selling Shareholder has the right to acquire within sixty (60) days of the date of this prospectus. The percentage of shares beneficially owned by the Selling Shareholder is based on 88,349,536 shares of common stock outstanding as of the date of this prospectus.
(2) Does not take account of the limitation on conversion of the Note to the extent (but only to the extent) the Selling Shareholder or any of its affiliates would, after giving effect to of such conversion, beneficially own a number of shares of our common stock which would exceed 9.99% of the outstanding shares of the Company.
(3) Assumes that all shares registered will be sold.
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Each Selling Shareholder and any of its pledgees, donees, transferees, assignees and successors-in-interest, may from time to time, offer and sell any or all of the shares of common stock through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the sale of the shares of common stock.
The Selling Shareholders will bear all commissions and discounts, if any, attributable to the sales of shares of common stock. We will bear all costs, expenses and fees in connection with the registration of the shares of common stock.
Our common stock is currently quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. under the symbol “GCAN.” On July 7, 2020 the closing price for our common stock was $0.0065 per share, as reported by OTC Markets Group, Inc.
The Selling Shareholders may use any one or more of the following methods when selling shares:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits investors; | |
| ● | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; | |
| ● | privately negotiated transactions; | |
| ● | to cover short sales made after the date that this registration statement is declared effective by the SEC; | |
| ● | broker-dealers may agree with the Selling Shareholders to sell a specified number of such shares at a stipulated price per share; | |
| ● | through the distribution of common stock by a Selling Shareholder to its members; | |
| ● | any other method permitted pursuant to applicable law; and | |
| ● | a combination of any such methods of sale. |
Broker-dealers engaged by the Selling Shareholders may arrange for broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Shareholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
The Selling Shareholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, as subsequently further supplemented or amended, if required.
Upon a Selling Shareholder’s notification to us that any material arrangement has been entered into with a broker-dealer for the sale of such Selling Shareholder’s common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act disclosing (a) the name of the Selling Shareholder and the participating broker-dealer(s); (b) the number of shares involved; (c) the price at which such shares of common stock were sold; (d) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable; (e) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus; and (f) other facts material to the transaction.
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Company Overview
The Company is engaged in identifying and consummating legal cannabis, cannabinoid and related investment and development opportunities through direct equity investments, joint ventures, licensing agreements or acquisitions.
Our initial focus is on commercializing technology developed by Pharmedica, Ltd. an Israel biopharmaceutical company (“Pharmedica”) and exclusively licensed to us worldwide for transmucosal delivery of legal medical or recreational cannabis (other than in the field of oral care) and cannabinoids (“CBD”) (the “Technology”). While part of the cannabis family, CBD, which contains less than 0.3% tetrahydrocannabinol (“THC”), the psychoactive compound that produces the “high” in marijuana, is distinguished from cannabis by its use, physical appearance and lower THC concentration (cannabis generally has a THC level of 10% or more). The Technology is centered around an eluting patch platform (“ETP”), which is a bio adhesive, transmucosal orally dissolving thin film system. The platform allows for actives loaded onto the ETP to be absorbed by the buccal mucosa into the body.
The Company intends to commercialize the Technology by sublicensing or partnering with companies in the legal cannabis and CBD industries to bring the product to market. Potential partners include licensed producers, distributors, processors, consumer product and pharmaceutical companies. The Company intends to focus on the North American market in legal medical and recreational cannabis and CBD segments.
On December 5, 2019, the Company received its first purchase order for 125,000 oral patches employing the Technology, which was filled in the second quarter of 2020. The Company has subsequently received and is negotiating additional orders for the oral patches. The full commercialization of the Technology is expected to require an investment of up to $1,500,000 and up to one year to finalize.
The Company is actively seeking (but has not as yet identified) additional licensing and other development opportunities in the legal cannabis and CBD sectors.
Effects of the Covid-19 Pandemic on Our Business
Since March 2020 there has been and there continues to be a significant and growing volatility and uncertainty in the global economy due to the worldwide Covid-19 pandemic affecting all business sectors and industries. ,The fulfillment of our first order of patches was delayed from the first quarter to the second quarter of 2020 due to the Covid-19 shutdowns in the United States. Moreover, our customers and suppliers could be further adversely affected as a result of additional or future quarantines, facility closures and logistics restrictions imposed or which otherwise occur in connection with the pandemic. More broadly, the high degree unemployment resulting from the pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and harm our business, results of operations and financial condition. At this time, we cannot accurately predict the effects the Covid-19 pandemic will have on our business.
Corporate Information
The Company was organized as a limited liability company in the State of Florida, effective and was converted to a Florida corporation effective January 13, 2017. Our executive offices are located at 15 Walker Avenue, Suite 101, Baltimore, Maryland 21208 and our telephone number is (443) 738-4051.
Corporate History
The Company’s initial business plan was to concentrate on cannabis related investment and development opportunities by direct e-commerce sales and advertising through its online retail store, direct equity investments, joint ventures, licensing agreements and/or acquisitions.
On July 31, 2018, the Company entered into and consummated a voluntary share exchange transaction with Green C Corporation, a company incorporated under the laws of the Province of Ontario (“Green C”) and the shareholders of Green C (the “Green C Shareholders”) pursuant to a Share Exchange Agreement by and among the Company, Green C and the Green C Shareholders (the “Exchange Agreement”). Green C had entered into the license agreement with Pharmedica for the commercialization of the Technology.
In accordance with the terms of the Exchange Agreement, the Company issued 9,411,998 shares of its preferred stock, par value $0.001 (the “Series A Preferred Shares”) to the Green C Shareholders in exchange for 100% of the issued and outstanding capital stock of Green C (the “Exchange Transaction”). As a result of the Exchange Transaction, the Green C Shareholders acquired Series A Preferred Shares holding 79.05% of the voting power of the Company’s issued and outstanding shares of capital stock, Green C became the Company’s wholly-owned subsidiary and the Company acquired 100% of the business and operations of Green C.
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After the consummation of the transactions contemplated by the Exchange Agreement, we modified our business model to eliminate online retail sales and advertising and instead to focus on commercializing the Technology and seeking other complementary investment and development opportunities in the legal cannabis, CBD and related fields.
The License Agreement with Pharmedica
The license agreement with Pharmedica, entered into on June 21, 2018, grants the Company an exclusive worldwide license to commercialize the Technology for transmucosal delivery through the ETP of legal medical or recreational cannabis (other than in the field of oral care) and CBD. The license covers an existing patent issued to Pharmedica by the U.S. Patent and Trademark Office (the “PTO”) an additional patent filed by Pharmedica with the PTO, and all other related know-how and intellectual property rights, whether existing or hereinafter developed by Pharmedica. The license agreements grants Pharmedica the exclusive right to maintain and protect the licensed intellectual property.
The license agreement provides for initial up front royalty payments of $100,000 (which have been paid) and annual royalty payments commencing one year from the date of the license agreement equal to five percent (5%) of net sales generated from the Technology and seven and one-half percent (7-1/2%) of sublicense revenues, with a minimum annual royalty of $50,000. The license agreement also provides for certain milestones in development, commercialization and product launch to be met by the Company, as well as long-term sales goals. The failure of the Company to make any of the foregoing payments or meet any of the milestones gives Pharmedica the right to terminate the license agreement.
Commercialization and Marketing Strategy
Given its small size and limited financial and personnel resources, the Company intends to commercialize the Technology by sublicensing or partnering with companies in the legal cannabis and CBD industries to bring the product to market and market and sell the product on an ongoing basis. Potential partners include licensed producers, distributors, processors, consumer product and pharmaceutical companies. The Company intends to focus on the North American market in legal medical and recreational cannabis and CBD segments. The Company also intends to undertake certain research and development efforts directly through experienced firms in the field which it will retain as independent contractors.
The commercialization of the Technology is expected to require an investment of up to $1,500,000 and up to one year to finalize.
Government Regulation
General
Cannabis is currently a Schedule I controlled substance under the Controlled Substances Act (“CSA”) and is, therefore, illegal under federal law. Even in those states in which the use of cannabis has been legalized pursuant to state law, its use, possession or cultivation remains a violation of federal law. A Schedule I controlled substance is defined as one that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The U.S. Department of Justice (the “DOJ”) defines Schedule I controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” If the federal government decides to enforce the CSA in those states which have legalized medicinal and/or recreational use of cannabis, persons that are charged with distributing, possessing with intent to distribute or growing cannabis could be subject to fines and/or terms of imprisonment, the maximum being life imprisonment and a $50 million fine.
Notwithstanding the CSA, as of the date of this prospectus, thirty-three states and the District of Columbia have legalized medical marijuana in some capacity. Additionally, ten states (Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington State) and the District of Colombia have approved the implementation of legal recreational marijuana use. Such state and territorial laws are in conflict with the federal CSA, which makes cannabis use and possession illegal at the federal level.
In light of such conflict between federal laws and state laws regarding cannabis, the previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. For example, the prior DOJ Deputy Attorney General of the Obama administration, James M. Cole, issued a memorandum (the “Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning cannabis enforcement under the CSA. In addition, the Financial Crimes Enforcement Network (“FinCEN”) provided guidelines (the “FinCEN Guidelines”) on February 14, 2014, regarding how financial institutions can provide services to cannabis-related businesses consistent with their Bank Secrecy Act obligations (.
With the onset of the Trump administration, there have been indications of potential change in cannabis-related policies, including a memo issued by then Attorney General Jeff Sessions in January 2018, although nor formal action has been taken. Accordingly, until there are formal changes in Federal cannabis-related enforcement policies, we intend to remain within the guidelines outlined in the Cole Memo and the FinCEN Guidelines where applicable; however, we cannot provide assurance that we are in full compliance with the Cole Memo, the FinCEN Guidelines or any applicable federal laws or regulations.
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Cole Memo
Because of the discrepancy between the laws in some states, which permit the distribution and sale of medical and recreational cannabis, from federal law that prohibits any such activities, DOJ Deputy Attorney General James M. Cole issued the Cole Memo concerning cannabis enforcement under the CSA. The Cole Memo guidance applies to all of the DOJ’s federal enforcement activity, including civil enforcement and criminal investigations and prosecutions, concerning cannabis in all states.
The Cole Memo reiterates Congress’s determination that cannabis is a dangerous drug and that the illegal distribution and sale of cannabis is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels. The Cole Memo notes that the DOJ is committed to enforcement of the CSA consistent with those determinations. It also notes that the DOJ is committed to using its investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way. In furtherance of those objectives, the Cole Memo provides guidance to DOJ attorneys and law enforcement to focus their enforcement resources on persons or organizations whose conduct interferes with any one or more of the following important priorities (the “Enforcement Priorities”) in preventing:
| ● | the distribution of cannabis to minors; | |
| ● | revenue from the sale of cannabis from going to criminal enterprises, gangs, and cartels; | |
| ● | the diversion of cannabis from states where it is legal under state law in some form to other states; | |
| ● | state-authorized cannabis activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; | |
| ● | violence and the use of firearms in the cultivation and distribution of cannabis; | |
| ● | drugged driving and the exacerbation of other adverse public health consequences associated with cannabis use; | |
| ● | the growing of cannabis on public lands and the attendant public safety and environmental dangers posed by cannabis production on public lands; and | |
| ● | cannabis possession or use on federal property. |
We intend to conduct rigorous due diligence to verify the legality of all activities that we engage in and ensure that our activities do not interfere with any of the Enforcement Priorities set forth in the Cole Memo.
The Cole Memo is meant only as a guide for United States Attorneys and does not alter in any way the Department of Justice’s authority to enforce Federal law, including Federal laws relating to cannabis, regardless of state law.
Agriculture Improvement Act of 2018
The federal Agricultural Improvement Act of 2018, signed into law on December 20, 2018, along with the Agricultural Act of 2014, the corresponding Consolidated Appropriations Act of 2016 provisions (as extended by resolution into 2018) and related state law, provide for the cultivation, processing, manufacturing and sale of hemp-derived products, as part of agricultural pilot programs and/or state plans adopted by individual states, including Colorado. However, there can be no assurance that new legislation or regulations may be introduced at either the federal and/or state level which, if passed, would impose substantial new regulatory requirements on the manufacture, packaging, labeling, advertising and distribution and sale of hemp-derived products. New legislation or regulations may require the reformulation, elimination or relabeling of certain products to meet new standards and revisions to certain sales and marketing materials and it is possible that the costs of complying with these new regulatory requirements could be material.
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FDA
The use of our ETP technology may be subject to pre-approval by the FDA for certain applications, or equivalent regulatory body approval in other jurisdictions. If so, obtaining FDA and other approvals will require a substantial investment of funds and may take years. In such case, we intend to rely on our sublicensees or strategic partners to fund and undertake any required approval process. There is no assurance that we will be able to successfully obtain any such required regulatory approvals needed to enter certain markets or market our technology for certain applications.
We also may be required to comply with FDA and other federal, state and foreign regulations regarding safety, dosing and other similar matters.
Competition
There are a number of other delivery technology companies operating in the cannabis and CBD sectors, many of which have longer operating histories and far greater financial and personnel resources than we do. Known competitors in our space include Intelex Technologies (IGXT), CTT Pharmaceuticals (CTTH) and Cure Pharmaceuticals (CURR).
Employees
We have two persons providing us services on a full-time basis – our chief executive officer and our general counsel.
Properties
We currently lease space in Baltimore, Maryland for our executive offices.
Legal Proceedings
Currently there are no legal proceedings pending or threatened against us. However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in any such matter may harm our business
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MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our shares of common stock have been quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. under the symbol “GCAM” since August 2018. Such market is extremely limited. We can provide no assurance that our shares of common stock will be continued to be traded on the OTCQB or another exchange, or if traded, that the current public market will be sustainable. On July 7, 2020, the closing price for our common stock was $0.0065, as reported by OTC Markets Group, Inc.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities’ laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (c) contains a toll-free telephone number for inquiries on disciplinary actions; (d) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and; (f) contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer’s account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock if it becomes subject to these penny stock rules. Therefore, because our common stock is subject to the penny stock rules, shareholders may have difficulty selling those securities.
Outstanding Shares and Holders of Our Common Stock
As of the date of this prospectus, we have 88,349,536 shares of common stock issued and outstanding and approximately 330 holders of record.
Rule 144 Shares
Rule 144 provides that a person who is not an affiliate and has held restricted securities for a prescribed period of at least six months (if the issuer is a reporting company) or 12 months (if the issuer is a non-reporting company, as is the case herein), may, under certain conditions, sell all or any of his shares without volume limitation. Affiliates, however, may not sell shares in excess of 1% of the Company’s outstanding common stock in any three-month period. There is no limit on the amount of restricted securities that may be sold by a non-affiliate (i.e., a stockholder who has not been an officer, director or control person for the three months prior to sale) after the restricted securities have been held by the owner for the aforementioned prescribed period of time.
However, Rule 144 is unavailable for the resale of restricted securities initially issued by a blank-check or shell company, both before and after a business combination, despite technical compliance with the requirements of Rule 144. As we were a blank check company, such restricted securities can be resold only through a registered offering or pursuant to another exemption from registration. Notwithstanding the foregoing, a person who beneficially owns restricted securities of a company which:
| (a) | has ceased to qualify as a blank-check or shell company; | |
| (b) | is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; | |
| (c) | has filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or such shorter period that the company was required to file such reports and materials); and | |
| (d) | has filed certain information with the SEC, reflecting that it is no longer a blank-check or shell company; |
may, after one year has elapsed from the date the required information was filed with the SEC, sell such shares subject to the above limitations.
Dividends on Common Stock
We have not previously declared a cash dividend on our common stock and we do not anticipate the payment of dividends in the near future.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Please read the following discussion of our financial condition and results of operations in conjunction with financial statements and notes thereto, as well as the “Risk Factors” and “Business” sections included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”
Results of Operations
Year ended December 31, 2019, as compared to year ended December 31, 2018
For the year ended December 31, 2019, the Company generated $7,120 in annual revenue compared to $95,375 in 2018. During the year ended December 31, 2019, the Company’s revenue was negatively impacted due to the fact that it took all of fiscal 2019 to finalize, market and sell our products with our first sale completed on October 10, 2019.
Cost of sales was $0 for the year ended December 31, 2019 and $0 for the year ended December 31, 2018. Our operating expenses in the year ended December 31, 2019 amounted to $532,443 as compared to $286,294 for the year ended December 31, 2018.
Our net loss in the year ended December 31, 2019 was $1,648,490 as compared to the net loss of $839,070 during the year ended December 31, 2018.
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or our financial position. Amounts shown for costs and expenses reflect historical cost and do not necessarily represent replacement cost. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Three months ended March 31, 2020, as compared to three months ended March 31, 2019
For the three months ended March 31, 2020, the Company generated $0 revenue compared to $0 in the same period of 2019.
Our operating expenses in the three months ended March 31, 2020 amounted to $88,097 as compared to $89,077 for the three months ended March 31, 2019.
Our net loss in the three months ended March 31, 2020, was $1,211,569 as compared to the net loss of $138,349 during the same period of 2019.
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or our financial position. Amounts shown for costs and expenses reflect historical cost and do not necessarily represent replacement cost. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Liquidity and Capital Resources
We had $295,314 cash on hand at March 31, 2020, compared to $24,662 at December 31, 2019.
At March 31, 2020, we had $1,166,571 in principal amount of outstanding notes to third parties, compared to $905,255 at December 31, 2019.
The proceeds from loans and convertible debentures as well as cash on hand is being used to fund the operations of our current operations.
The following table provides detailed information about our net cash flows for the three months ended March 31, 2020 and 2019.
March 31, 2020 | March 31, 2019 | |||||||
| Net cash used in operating activities | $ | (131,015 | ) | $ | (144,962 | ) | ||
| Net cash used in investing activities | (25,000 | ) | - | |||||
| Net cash provided by financing activities | 426,667 | 250,000 | ||||||
| Net increase in cash | $ | 270,652 | 105,038 | |||||
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Trends
The factors that will most significantly affect our future operating results, liquidity and capital resources will be:
| ● | Government regulation of the marijuana and CBD industries; | |
| ● | Revision of Federal banking regulations for the marijuana and CBD industries; and | |
| ● | Legalization of the use of marijuana for medical or recreational use in other states and countries. |
Other than the foregoing, we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on:
| ● | revenues or expenses; | |
| ● | any material increase or decrease in liquidity; or | |
| ● | expected sources and uses of cash. |
Critical Accounting Policies and Estimates
The SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” suggesting that companies provide additional disclosure and commentary on their most critical accounting policies. In Financial Reporting Release No. 60, the SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the following significant policies as critical to the understanding of our financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make a variety of estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and (ii) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements. Our management expects to make judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increase, these judgments become even more subjective and complex. Although we believe that our estimates and assumptions are reasonable, actual results may differ significantly from these estimates. Changes in estimates and assumptions based upon actual results may have a material impact on our results.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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Directors and Executive Officers
Our directors and executive officers and their respective ages as at the date hereof are as follows:
| Name | Age | Positions and Offices | ||
| Aitan Zacharin | 36 | President, Chief Executive Officer, Treasurer and Director | ||
| Mark Radom | 51 | General Counsel | ||
| David Tavor | 69 | Director |
The directors named above will serve until the next annual meeting of the shareholders or until his resignation or removal from office. Thereafter, directors are anticipated to be elected for one-year terms at the annual shareholders’ meeting. Officers will hold their positions pursuant to their respective service agreements.
Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.
Professional History of Aitan Zacharin
Mr. Zacharin has served as President, Chief Executive Officer, Treasurer and a Director since July 2018, Mr. Zacharin is an experienced executive with a broad knowledge in building and managing technology and consumer products businesses. In 2012, he co-founded Fuse Science, an innovative biotechnology company headquartered in Miami, Florida and Oxnard, California. Mr. Zacharin was responsible for the development and growth of the business from a seed stage R&D company to a publicly traded CPG and biotech business with multiple subsidiaries. During his tenure he was tasked with expanding the biotechnology IP portfolio, spearheading multiple in vitro studies, and growing the consumer products business. In scaling the company, Mr. Zacharin identified and hired executive talent to lead the commercialization strategy including the past President of SC Johnson Company and previous CEO of Champs and Footlocker Sports. He successfully led the company to raise over $10M in three over-subscribed rounds, as well as negotiated contracts with 26 world renowned athlete and celebrity brand ambassadors, which included top ranked pro golfer Tiger Woods. Under Mr. Zacharin’ s leadership the company developed and commercialized multi-category consumer products through a retail footprint of 15,000 doors. Since his exit from Fuse Science, he has been advising and investing in mid to late stage technology startups, and assisting them with capitalization, business strategy and development, and accelerating growth. Mr. Zacharin holds dual degrees from the University of South Florida in Tampa Bay. He resides in Baltimore, Maryland, and maintains various board appointments both professionally and philanthropically.
Professional History of Mark Radom
Mr. Radom joined the Company as its General Counsel in July 2018. From August 2015 to July 2018, Mr. Radom served as chief executive officer of Graphite Corp. From February 2010 through July 2015, Mr. Radom served as the chief carbon officer and general counsel of Blue Sphere Corporation. From 2009 through 2010, Mr. Radom was managing director of Carbon MPV Limited, a Cyprus company focused on developing renewable energy and carbon credit projects. From 2007 to 2009, Mr. Radom was general counsel and chief operating officer of Carbon Markets Global Limited, a London-based carbon credit and renewable energy project developer. Mr. Radom has extensive experience in business development in the renewable energy and carbon credit sectors. He has sourced over U.S. $100,000,000 in renewable energy, industrial gas and carbon credit projects and managed many complex aspects of their implementation. He was legal counsel for a number of carbon and ecological project developers and was responsible for structuring joint ventures and advising on developing projects through the CDM/JI registration cycle and emission reduction purchase agreements under the auspices of the Kyoto Protocol. Prior to this, he worked on Wall Street and in the City of London as a US securities and capital markets lawyer where he represented sovereigns, global investment banks and fortune 500 companies across a broad range of capital raising and corporate transactions. He is a graduate of Duke University and Brooklyn Law School. Mr. Radom is admitted to practice law in New York and New Jersey and speaks fluent Russian.
Professional History of David Tavor
Mr. Tavor joined the Board of Directors on September 24, 2018. He has more than 18 years’ experience serving as General Manager and founder of companies in different areas: Pharmaceutical (Cure Medical; manufacturing and marketing of Intra-Venus solutions including for dialysis), Biotech (Minapro; cultivation and marketing of Micro Algae for Anti-aging; Anti-oxidants, Cosmetics and fish and shrimps industries), Clean-tech (Jet; treating industrial and cowsheds waste waters), Natural products (Hadas Natural Products; production and marketing of natural food additives and vitamins), and Medical Device companies (Fluorinex Active; manufacturing and marketing of Oral Care products for Anti-carries, Desensitizing, Teeth Fluoridation and Whitening).
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Mr. Tavor has extensive experience in conducting negotiations abroad and preparing and implementing business plans. He is experienced in business development, sales and marketing, fundraising, senior management, patent registration and regulation, and managed companies “from idea to market”. Prior to that, Mr. Tavor served as the representative of the United Israel Appeal in Melbourne, Australia for four years. For the first 23 years of his career, Mr. Tavor served as a fighter pilot and a commander in the Israeli Air Force and retired with the rank of Colonel.
Mr. Tavor holds an MBA and MA in Political Science and National Defense studies from Haifa University, Israel. Given his experience, we believe he is suited to serve on the Board of Directors. Mr. Tabor is an “independent” director within the meaning of applicable SEC rules.
Audit Committee and Financial Expert
We do not have an audit committee or an audit committee financial expert. Our corporate financial affairs are simple at this stage of development and each financial transaction can be viewed by any officer or Director at will. We will form an audit committee if it becomes necessary as a result of growth of the Company or as mandated by public policy.
Code of Ethics
We do currently have a Code of Ethics applicable to our principal executive, financial and accounting officers.
Potential Conflicts of Interest
Since we do not have an audit or compensation committee comprised of independent Directors, the functions that would have been performed by such committees are performed by our Board of Directors. Thus, there is a potential conflict of interest, in that our Directors who are also our officers have the authority to determine issues concerning management compensation, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our Directors or officers.
Summary Compensation Table
The following table sets forth information concerning the compensation of our principal executive officer, our principal financial officer and each of our other executive officers during the years ended December 31, 2019, 2018 and 2017.
| Non-Equity | |||||||||||||||||||||||||||
| Stock | Incentive Plan | All Other | |||||||||||||||||||||||||
| Name and Principal | Salary | Bonus | Awards | Compensation | Compensation | Total | |||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||
| Wayne Anderson, | 2019 | - | - | - | - | - | - | ||||||||||||||||||||
| Principal Executive Officer(1) | 2018 | - | - | 500,000 | - | 50,000 | 550,000 | ||||||||||||||||||||
| 2017 | - | - | - | - | - | - | |||||||||||||||||||||
| Aitan Zacharin(2) | 2019 | 120,000 | - | - | - | - | 120,000 | ||||||||||||||||||||
| 2018 | 50,000 | - | - | - | - | 50,000 | |||||||||||||||||||||
Mark Radom(3) | 2019 | 84,000 | - | - | - | - | |||||||||||||||||||||
| 2018 | 35,000 | - | - | - | - | 35,000 | |||||||||||||||||||||
| (1) | Mr. Anderson served as the Company’s principal executive officer, principal financial officer and as Chairman of the Board of Directors until July 31, 2018. |
| (2) | Mr. Zacharin became the Company’s principal executive officer, principal financial officer and Chairman of the Board of Directors on July 31, 2018. Mr. Zacharin has a monthly salary of $10,000. |
| (3) | Mr. Radom became the Company’s chief legal officer on July 31, 2018. Mr. Radom has a monthly salary of $7,000. |
Employment Agreements
We are party to employment agreements with Aitan Zacharin and Mark Radom, our executive officers that, in each case, are terminable at will. Under those agreements, Messrs. Zacharin and Radom receive monthly base salaries of $10,000 and $7,000, respectively.
Compensation of Directors
No compensation was paid to any non-employee director earned during the year ended December 31, 2019.
| 28 |
The following table sets forth certain information, as of the date of this prospectus, with respect to any person (including any “group,” as that term is used in Section 13(d)(3) of the Exchange Act) who is known to us to be the beneficial owner of more than five percent (5%) of any class of our voting securities, and as to those shares of our equity securities beneficially owned by each of our directors and executive officers and all of our directors and executive officers as a group. Unless otherwise specified in the table below, such information, other than information with respect to our directors and executive officers, is based on a review of statements filed with the SEC pursuant to Sections 13(d), 13(f), and 13(g) of the Exchange Act with respect to our common stock. As of the date of the prospectus, there were 88,349,536 shares of our common stock outstanding.
The number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within sixty (60) days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
The following table lists, as at the date hereof, the number of shares of common stock of our Company that are beneficially owned by (a) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (b) each officer and director of our Company; and (c) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
| Name of Beneficial Owner or Identity of Group | Common Stock Beneficially Owned(1) | Percentage of Class(1) | ||||||
| Executive Officers and Directors | ||||||||
| Aitan Zacharin | 74,166,650 | 45.6 | % | |||||
| Mark Radom | 74,166,650 | 45.6 | % | |||||
| David Tavor | 15,000,000 | 14.5 | % | |||||
| All executive officers and directors as a group (three persons) | 163,333,300 | 64.9 | % | |||||
| Other 5% or Greater Shareholders | ||||||||
| Fernando Bisker | 74,166,650 | 45.6 | % | |||||
| Jona Kalfa | 74,166,650 | 45.6 | % | |||||
| Elisha Kalfa | 74,166,650 | 45.6 | % | |||||
| Sigalush Ventures LLC(2) | 74,166,650 | 45.6 | % | |||||
| Rakefet LLC(3) | 74,166,650 | 45.6 | % | |||||
| Jimmy Wayne Anderson(4) | 5,647,058 | 6.4 | % | |||||
(1) Except for shares owned by Jimmy Wayne Anderson, represents shares of common stock issuable upon conversion of Series A Preferred Shares issued to the shareholders in connection with the Exchange Transaction. The address for each of the shareholders named in the above table, except for Jimmy Wayne Anderson, is c/o the Company, 15 Walker Avenue, Suite 101, Baltimore, Maryland 21208. Mr. Anderson’s address is 244 2nd Ave N., Suite 9, St. Petersburg, FL 33701. Does not give effect to the limitation on conversion of the Series A Preferred Shares to the extent (but only to the extent) the holder would, after giving effect to of such conversion, beneficially own a number of shares of our common stock which would exceed 4.99% (or 9.99% if increased at the option of the holder) of the outstanding shares of the Company.
(2) David Sencianes has voting and dispositive control over the shares held of record by Sigalush Ventures LLC.
(3) Elana Zacharin has voting and dispositive control over the shares held of record by Rakefet LLC.
| 29 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
General
The following description summarizes the most important terms of our capital stock, as they will be in effect upon the closing of this offering. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in this “Description of Capital Stock,” you should refer to our Articles of Incorporation, as amended, and Bylaws each of which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Florida law. Our authorized capital stock consists of 500,000,000 shares of common stock, $0.001 par value per share, and 19,000,000 shares of preferred stock, $0.001 par value per share. Subject to compliance with applicable SEC rules and regulations, the Company is in the process of amending its Articles of Incorporation to increase the number of shares of common stock authorized thereunder from 500,000,000 shares to 2,000,000,000 shares.
As of the date of this prospectus, 88,349,536 shares of our common stock and 9,411,998 shares of our Series A Convertible Preferred Stock were issued and outstanding.
Common Stock
Holders of the Company’s common stock are entitled to one vote for each share on all matters submitted to a shareholder vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of the Company’s common stock representing a majority of the voting power of the Company’s capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of shareholders. A vote by the holders of a majority of the Company’s outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to the Company’s articles of incorporation.
Holders of the Company’s common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of a liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. The Company’s common stock has no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to the Company’s common stock.
Preferred Stock
Our Articles of Incorporation authorize the issuance of up to 19,000,000 shares of preferred stock with designations, rights and preferences determined from time to time by its Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.
Our Articles of Incorporation also authorize our Board of Director(s) to authorize the issuance from time to time of additional shares of its stock of any class, whether now or hereinafter authorized, or securities convertible into shares of its stock of any class, whether now or hereafter authorized, for such consideration as the Board of Director(s) may deem advisable, subject to such restrictions or limitation, if any, as may be set forth in the bylaws of the Corporation.
Series A Preferred Shares
The Board of Directors has designated 9,411,998 shares of our preferred stock as the Series A Preferred Shares issued in connection with the Exchange Transaction, having the following rights, features, privileges and limitations (in pertinent part):
Fractional Shares. Series A Preferred Shares may be issued in fractional shares.
Dividends. The Series A Preferred Shares shall be treated pari passu with the Company’s shares of common stock, except that the dividend on each Series A Preferred Share shall be equal to the amount of the dividend declared and paid on each share of common stock multiplied by the Conversion Rate (as hereinafter defined)
| 30 |
Liquidation, Dissolution, or Winding Up. Series A Preferred Shares shall be treated pari passu with common stock except that the payment on each Series A Preferred Share shall be equal to the amount of the payment on each share of common stock multiplied by the Conversion Rate.
Voting. The Series A Preferred Shares shall vote on all matters as a class with the holders of common stock and each Series A Preferred Share shall be entitled to the number of votes per share equal to the Conversion Rate.
Conversion Rate and Adjustments.
Conversion Rate. The Conversion Rate shall be 50 shares of common stock (as adjusted as provided for below) for each Series A Preferred Share.
Adjustment for Stock Splits and Combinations. If the Company shall at any time or from time to time after the issuance of the Series A Preferred Shares effect a subdivision of the outstanding common stock, the Conversion Rate then in effect immediately before that subdivision shall be proportionately increased. If the Company shall at any time or from time to time after the issuance of the Series A Preferred Shares combine the outstanding shares of common Stock, the Conversion Rate then in effect immediately before the combination shall be proportionately decreased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective.
Adjustment for Merger or Reorganization, etc. If there shall occur any reorganization, recapitalization, reclassification, consolidation, or merger involving the Company in which the common stock (but not the Series A Preferred Shares) is converted into or exchanged for securities, cash, or other property, then, following any such reorganization, recapitalization, reclassification, consolidation, or merger, each Series A Preferred Share shall thereafter be convertible in lieu of the common stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property that a holder of the number of shares of common stock of the Company issuable upon conversion of one Series A Preferred Share immediately prior to such reorganization, recapitalization, reclassification, consolidation, or merger would have been entitled to receive pursuant to such transaction.
Conversion.
(a) Series A Preferred Shares are convertible at the option of their holder in whole or in part at any time except that they shall not be convertible at any time that there are not a sufficient number of authorized shares of common stock not reserved for other purposes so that all outstanding Series A Preferred Shares can be converted.
(b) If so required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or by his, her, or its attorney duly authorized in writing. As soon as practicable after a conversion and the surrender of the certificate or certificates for Series A Preferred Shares, the Company shall cause to be issued and delivered to such holder, or on his, her, or its written order, a certificate or certificates for the number of full shares of common stock issuable on such conversion and cash b) in respect of any fraction of a share of common stock otherwise issuable upon such conversion.
(c) All certificates or other form of ownership evidencing shares of Series A Preferred Shares (if any) that are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the date on which such preferred shares were converted, be deemed to have been retired and cancelled and the shares of Series A Preferred Shares represented thereby converted into common stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates or other form of ownership on or prior to such date. Such converted Series A Preferred Shares may not be reissued as shares of such Series, and the Company may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of Series A Preferred Shares accordingly.
Limitations on Beneficial Ownership. The Series A Preferred Shares held by a holder shall not be convertible by such holder, and the Company shall not effect any conversion of any Series A Preferred Shares held by such holder, to the extent (but only to the extent) that such holder or any of its affiliates would beneficially own in excess of 4.99% (the “Maximum Percentage”) of our common stock. To the extent the above limitation applies, the determination of whether the Series A Preferred Shares held by such holder shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by such holder or any of his, her or its affiliates) and of which such securities shall be convertible, exercisable or exchangeable (as among all such securities owned by such holder and its affiliates) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability of a holder to convert Series A Preferred Shares, or of the Company to issue shares of common stock to such holder, shall have any effect with respect to any subsequent determination of convertibility or issuance (as the case may be). For purposes of determining the Maximum Percentage, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. By written notice to the Company, any holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (a) any such increase will not be effective until the 61st day after such notice is delivered to the Company; and (b) any such increase or decrease will apply only to such holder sending such notice and not to any other holder.
| 31 |
The validity of the common stock being offered hereby has been passed upon by Dale S. Bergman, P.A., Coral Gables, Florida.
The audited financial statements included in this prospectus and elsewhere in the registration statement have so been included in reliance upon the report of Michael T. Studer CPA P.C., independent registered public accountants, upon the authority of said firm as experts in accounting and auditing in giving said report.
We have filed a registration statement on Form S-1 under the Securities Act with the SEC with respect to the shares of our common stock offered through this prospectus. This prospectus is filed as a part of that registration statement but does not contain all of the information contained in the registration statement and exhibits. Statements made in the registration statement are summaries of the material terms of the referenced contracts, agreements or documents of the company. We refer you to our registration statement and each exhibit attached to it for a more detailed description of matters involving the company. You may inspect the registration statement and exhibits, as well as periodic reports, proxy statements and other documents that we file electronically with the SEC, on the SEC’s website at http://www.sec.gov.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation provides to the fullest extent permitted by Florida Law that our directors or officers shall not be personally liable to us or our shareholders for damages for breach of such director’s or officer’s fiduciary duty. The effect of this provision of our Articles of Incorporation is to eliminate our rights and our shareholders (through shareholders’ derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the indemnification provisions in our Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers.
Our ByLaws also provide that the Board of Directors may also authorize us to indemnify our employees or agents, and to advance the reasonable expenses of such persons, to the same extent, following the same determinations and upon the same conditions as are required for the indemnification of and advancement of expenses to our directors and officers. As of the date of this Registration Statement, the Board of Directors has not extended indemnification rights to persons other than directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
| 32 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of The Greater Cannabis Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Greater Cannabis Company, Inc. (the “Company”) as of December 31, 2019 and 2018 and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of The Greater Cannabis Company, Inc. as of December 31, 2019 and 2018 and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Going Concern Uncertainty
The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company’s present financial situation raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ Michael T. Studer CPA P.C. | |
| Michael T. Studer CPA P.C. | |
| Freeport, New York | |
| April 14, 2020 |
We have served as the Company’s auditor since 2017.
| F-2 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 24,662 | $ | 59,891 | ||||
| Advance to supplier | 28,000 | - | ||||||
| Total current assets | 52,662 | 59,891 | ||||||
| OTHER ASSETS | ||||||||
| Pharmedica Exclusive License Agreement (less accumulated amortization and impairment of $100,000 and $10,251, respectively) | - | 89,749 | ||||||
| Total assets | $ | 52,662 | $ | 149,640 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 17,517 | $ | 17,890 | ||||
| Accrued interest | 20,619 | 5,312 | ||||||
| Accrued salaries | 98,000 | 85,000 | ||||||
| Accrued royalties | 50,000 | - | ||||||
| Advance from customer | 27,977 | - | ||||||
| Loans payable to related parties | 260,000 | 260,000 | ||||||
| Notes payable to third parties (less debt discounts of $505,937 and $550, respectively) | 399,318 | 64,914 | ||||||
| Derivative liability | 725,865 | 280,310 | ||||||
| Total current liabilities and total liabilities | 1,599,296 | 713,426 | ||||||
| STOCKHOLDERS’ (DEFICIENCY) | ||||||||
| Preferred stock; 19,000,000 shares authorized, $.001 par value: | ||||||||
| Series A Convertible Preferred-issued and outstanding 9,411,998 and 9,411,998 shares, respectively | 9,412 | 9,412 | ||||||
| Series B Convertible Preferred-issued and outstanding 0 and 0 shares, respectively | - | - | ||||||
| Common stock; 500,000,000 shares authorized, $.001 par value, as of December 31, 2019 and 2018, there are 39,301,323 and 31,880,969 shares outstanding, respectively | 39,301 | 31,881 | ||||||
| Additional paid-in capital | 783,891 | 233,991 | ||||||
| Accumulated deficit | (2,379,238 | ) | (839,070 | ) | ||||
| Total stockholders’ (deficiency) | (1,546,634 | ) | (563,786 | ) | ||||
| Total liabilities and stockholders’ (deficiency) | $ | 52,662 | $ | 149,640 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 2019 and 2018
| December 31, 2019 | December 31, 2018 | |||||||
| Revenue: | ||||||||
| Product sales | $ | 4,500 | $ | - | ||||
| Gross profit on product transactions (Note I) | - | 86,898 | ||||||
| Consulting fees (related party $0 and $8,477, respectively) | 2,620 | 8,477 | ||||||
| Total revenue | 7,120 | 95,375 | ||||||
| Operating Expenses: | ||||||||
| Cost of product sales | 3,125 | - | ||||||
| Minimum royalties expense | 50,000 | - | ||||||
| Officers compensation | 204,000 | 185,593 | ||||||
| Consulting fees paid to former Chief Executive Officer | - | 50,000 | ||||||
| Amortization of Pharmedica Exclusive License Agreement cost | 20,000 | 10,251 | ||||||
| Impairment charge-Pharmedica Exclusive License Agreement cost | 69,749 | - | ||||||
| Other operating expenses (including stock-based professional fees of $88,130 and $0, respectively) | 185,569 | 40,450 | ||||||
| Total operating expenses | 532,443 | 286,294 | ||||||
| Income (loss) from operations | (525,323 | ) | (190,919 | ) | ||||
| Other income (expenses): | ||||||||
| Income (expense) from derivative liability | (303,981 | ) | (9,808 | ) | ||||
| Loss on conversion of notes payable | (320,025 | ) | (592,907 | ) | ||||
| Interest income | - | 5,903 | ||||||
| Interest expense | (35,776 | ) | (28,487 | ) | ||||
| Amortization of debt discounts | (463,490 | ) | (22,852 | ) | ||||
| Total other income (expenses) | (1,123,272 | ) | (648,151 | ) | ||||
| Income (loss) before provision for income taxes | (1,648,595 | ) | (839,070 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net income (loss) | $ | (1,648,595 | ) | $ | (839,070 | ) | ||
| Basic and diluted income (loss) per common share | $ | (.05 | ) | $ | (.03 | ) | ||
| Weighted average common shares outstanding-basic and diluted | 34,980,133 | 29,964,950 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
For The Years Ended December 31, 2019 and 2018
| Series A Preferred | Series B Preferred | Additional | ||||||||||||||||||||||||||||||||||
| stock | stock | Common Stock | Paid in | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Year Ended December 31, 2019 | ||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 9,411,998 | $ | 9,412 | - | $ | - | 31,880,969 | $ | 31,881 | $ | 233,991 | $ | (839,070 | ) | $ | (563,786 | ) | |||||||||||||||||||
| Cumulative effect adjustment to reduce derivative liability of warrants with “down round” features effective January 1, 2019 | 108,427 | 108,427 | ||||||||||||||||||||||||||||||||||
| Conversion of note payable ($670) and accrued interest ($100) into 769,785 shares of common stock (Fair Value of $100,072) on January 4, 2019 | 769,785 | 770 | 99,302 | - | 100,072 | |||||||||||||||||||||||||||||||
| Exercise of 1400 warrants into 645,129 shares of common stock in a cashless exercise transaction on January 4, 2019 | 695,129 | 695 | (695 | ) | - | |||||||||||||||||||||||||||||||
| Exchange of 438,600 warrants into 9,000,000 shares of Class B Convertible Preferred Stock on February 14, 2019 | - | - | 9,000,000 | 9,000 | (9,000 | ) | - | |||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2019 | (138,349 | ) | (138,349 | ) | ||||||||||||||||||||||||||||||||
| Balances at March 31, 2019 | 9411,998 | $ | 9,412 | 9,000,000 | $ | 9,000 | 33,345,883 | $ | 33,346 | $ | 323,598 | $ | (868,992 | ) | $ | (493,636 | ) | |||||||||||||||||||
| Conversion of note payables ($40,500) and accrued interest ($7,961) into 1,384,600 shares of common stock (Fair Value of $100,072) on April 16, 2019 | - | - | - | - | 1,384,600 | 1,384 | 178,614 | - | 179,998 | |||||||||||||||||||||||||||
| Issuance of 542,000 common shares for professional services rendered | - | - | - | - | 542,000 | 542 | 75,338 | - | 75,880 | |||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2019 | (287,779 | ) | (287,779 | ) | ||||||||||||||||||||||||||||||||
| Balances at June 30, 2019 | 9411,998 | $ | 9,412 | 9,000,000 | $ | 9,000 | 35,272,483 | $ | 35,272 | $ | 577,550 | $ | (1,156,771 | ) | $ | (525,537 | ) | |||||||||||||||||||
| Issuance of 175,000 common shares for professional services rendered | 175,000 | 175 | 12,075 | 12,250 | ||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2019 | (126,430 | ) | (126,430 | ) | ||||||||||||||||||||||||||||||||
| Balances at September 30, 2019 | 9,411,998 | $ | 9,412 | 9,000,000 | $ | 9,000 | 35,447,483 | $ | 35,447 | $ | 589,625 | $ | (1,283,201 | ) | $ | (639,717 | ) | |||||||||||||||||||
| Exchange Agreement dated October 18, 2019, provided for the reversal of the February 14, 2019 agreement to which certain warrants then held by Emet were exchanged for 9,000,000 shares of Series B Convertible Preferred Stock | (9,000,000 | ) | (9,000 | ) | 9,000 | - | ||||||||||||||||||||||||||||||
| Conversion of note payables ($53,705) and accrued interest ($2,680) into 1,748,363 shares of common stock (Fair Value of $104,901) on November 11, 2019 | 1,748,363 | 1,749 | 103,152 | 104,901 | ||||||||||||||||||||||||||||||||
| Conversion of note payable ($29,000) and accrued interest ($4,035) into 1,468,204 shares of common stock (Fair Value of $58,728) on December 20, 2019 | 1,468,204 | 1,468 | 57,260 | 58,728 | ||||||||||||||||||||||||||||||||
| Conversion of note payables ($10,000) and accrued interest ($515) into 637,273 shares of common stock (Fair Value of $58,728) on December 24, 2019 | 637,273 | 637 | 24,854 | 25,491 | ||||||||||||||||||||||||||||||||
| Net loss for the three months ended December 31, 2019 | (1,096,037 | ) | (1,096,037 | ) | ||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 9,411,998 | $ | 9,412 | - | $ | - | 39,301,323 | $ | 39,301 | $ | 783,891 | $ | (2,379,238 | ) | $ | (1,546,634 | ) | |||||||||||||||||||
Year Ended December 31, 2018
| Series A Preferred | Series B Preferred | Additional | ||||||||||||||||||||||||||||||||||
| stock | stock | Common Stock | Paid in | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balances at December 31, 2017 | - | $ | - | - | $ | - | 100 | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||||
| Net income for the three months ended March 31, 2018 | 78,465 | 78,465 | ||||||||||||||||||||||||||||||||||
| Balances at March 31, 2018 | - | $ | - | - | $ | - | 100 | $ | - | $ | - | $ | 78,465 | $ | 78,465 | |||||||||||||||||||||
| Net income for the three months ended June 30, 2018 | 22,314 | 22,314 | ||||||||||||||||||||||||||||||||||
| Balances at June 30, 2018 | - | - | - | - | 100 | $ | - | $ | - | $ | 100,779 | $ | 100,779 | |||||||||||||||||||||||
| Issuance of 9,411,988 shares of Series A convertible preferred stock in exchange for 100 shares of Green C Corporation common stock on July 31, 2018 | 9,411,998 | 9,412 | - | - | (100 | ) | - | (9,412 | ) | - | - | |||||||||||||||||||||||||
| Shares of The Greater Cannabis Company, Inc. (“GCAN”) common stock retained by GCAN stockholders in connection with reverse acquisition of GCAN on July 31, 2018 | - | - | - | - | 29,380,969 | 29,381 | (414,676 | ) | - | (385,295 | ) | |||||||||||||||||||||||||
| Issuance of 1,465,523 shares of common stock from conversion of notes payable and accrued interest on September 19, 2018 | - | - | - | - | 1,465,523 | 1,465 | 545,322 | - | 546,787 | |||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2018 | (964,322 | ) | (964,322 | ) | ||||||||||||||||||||||||||||||||
| Balances at September 30, 2018 | 9,411,998 | $ | 9,412 | - | $ | - | 30,846,492 | $ | 30,846 | $ | 121,234 | $ | (863,543 | ) | $ | (702,051 | ) | |||||||||||||||||||
| Issuance of 1,034,477 shares of common stock from conversion of notes payable and accrued interest on October 26, 2018 | 1,034,477 | 1,035 | 112,757 | 113,792 | ||||||||||||||||||||||||||||||||
| Net income for the three months ended December 31, 2018 | 24,473 | 24,473 | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 9,411,998 | $ | 9,412 | - | $ | - | 31,880,969 | $ | 31,881 | $ | 233,991 | $ | (839,070 | ) | $ | (563,786 | ) | |||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-5 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2019 and 2018
| December 31, 2019 | December 31, 2018 | |||||||
| (Unaudited) | ||||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (1,648,595 | ) | $ | (839,070 | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities: | ||||||||
| Loss on conversion of note payable and accrued interest to common stock | 320,025 | 592,907 | ||||||
| Issuance of stock-based professional fees | 88,130 | - | ||||||
| (Income) expense from derivative liability | 303,981 | 9,808 | ||||||
| Amortization of Pharmedica Exclusive License Agreement cost | 20,000 | 10,251 | ||||||
| Impairment charge- Pharmedica Exclusive License Agreement cost | 69,749 | - | ||||||
| Interest expense for default added to note payable balance | 21,270 | |||||||
| Amortization of debt discounts | 463,490 | 22,852 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Advance to supplier | (28,000 | ) | - | |||||
| Accounts payable | (383 | ) | 74,676 | |||||
| Accrued interest | 35,397 | 7,197 | ||||||
| Accrued salaries | 13,000 | - | ||||||
| Accrued royalties | 50,000 | - | ||||||
| Advance from customer | 27,977 | - | ||||||
| Net cash used in operating activities | (285,229 | ) | (100,109 | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Loan to third party | - | (296,043 | ) | |||||
| Repayment of loan to third party | - | 296,043 | ||||||
| Net cash used in investing activities | - | - | ||||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from loan payable to related party | - | 783 | ||||||
| Repayment of loan payable to related party | - | (783 | ) | |||||
| Proceeds from loans payable to related parties | - | 160,000 | ||||||
| Proceeds from notes payable to third parties | 250,000 | - | ||||||
| Net cash provided by financing activities | 250,000 | 160,000 | ||||||
| NET INCREASE (DECREASE) IN CASH | (35,229 | ) | 59,891 | |||||
| CASH BALANCE, BEGINNING OF PERIOD | 59,891 | - | ||||||
| CASH BALANCE, END OF PERIOD | $ | 24,662 | $ | 59,891 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income tax paid | $ | - | $ | - | ||||
| Non-cash Investing and Financing Activities: | ||||||||
| Conversion of note payable ($670) and accrued interest ($100) into 769,785 shares of common stock (Fair Value of $100,072) on January 4, 2019 | $ | 100,072 | $ | - | ||||
| Exercise of 1400 warrants into 695,129 shares of common stock in a cashless exercise transaction on January 4, 2019 | $ | 695 | $ | - | ||||
| Exchange of 438,600 warrants into 9,000,000 shares of Class B Convertible Preferred Stock on February 14, 2019. Exchange Agreement reversed on October 18, 2019 | $ | - | $ | - | ||||
| Initial derivative liability charged to debt discount | $ | 250,000 | $ | - | ||||
| Conversion of note payable ($40,500) and accrued interest ($7,961) into 1,384,600 shares of common stock (fair value of $179,998) on April 16, 2019 | $ | 179,998 | $ | |||||
| Payment from related party to licensor of Pharmedica Exclusive License Agreement on June 26, 2018 | $ | - | $ | 100,000 | ||||
| Liabilities of The Greater Cannabis Company, Inc. at July 31, 2018 added pursuant to reverse acquisition: | ||||||||
| Accounts payable and accrued expenses | $ | - | $ | 28,214 | ||||
| Accrued interest | - | 2,123 | ||||||
| Notes payable to third parties | - | 83,323 | ||||||
| Derivative liability | - | 270,502 | ||||||
| Total | $ | - | $ | 385,295 | ||||
| Conversion of notes payable and accrued interest to 2,500,000 shares of common stock | ||||||||
| Accrued interest | $ | - | $ | 5,141 | ||||
| Notes payable to third parties | - | 62,531 | ||||||
| Total | $ | - | $ | 67,672 | ||||
| Conversion of note payables ($53,705) and accrued interest ($2,680) into 1,748,363 shares of common stock (Fair Value of $104,901) on November 11, 2019 | $ | 104,901 | $ | - | ||||
| Conversion of note payables ($29,000) and accrued interest ($4,035) into 1,468,204 shares of common stock (Fair Value of $58,728) on December 20, 2019 | $ | 58,728 | $ | - | ||||
| Conversion of note payables ($10,000) and accrued interest ($515) into 637,273 shares of common stock (Fair Value of $25,491) on December 24, 2019 | $ | 25,491 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements
| F-6 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Greater Cannabis Company, Inc. (the “Company”) was formed in March 2014 as a limited liability company under the name, The Greater Cannabis Company, LLC. The Company was a wholly owned subsidiary of Sylios Corp (“Sylios”) until March 10, 2017.
On July 31, 2018, the Company acquired 100% of the issued and outstanding shares of Class A common stock of Green C Corporation (“Green C”) in exchange for 9,411,998 newly issued shares of the Company’s Series A Convertible Preferred Stock (the “Exchange”). Each share of Series A Convertible Preferred Stock is convertible into 50 shares of common stock and is entitled to vote 50 votes per share on all matters as a class with holders of common stock. Since after the Exchange was consummated, the former shareholders of Green C and their designees owned approximately 94% of the issued and outstanding voting shares of the Company, Green C is the acquirer for accounting purposes. Prior to the Exchange, the Company had no assets and nominal business operations. Accordingly, the Exchange has been treated for accounting purposes as a recapitalization by the accounting acquirer, Green C, and the accompanying consolidated financial statements of the Company reflect the assets, liabilities and operations of Green C from its inception on December 21, 2017 to July 31, 2018 and combined with the Company thereafter. See Note C (Acquisition of Green C Corporation).
Green C was incorporated on December 21, 2017 under the laws of the Province of Ontario Canada with the principle place of business in North York, Ontario.
Green C is the owner of an exclusive, worldwide license for an eluting transmucosal patch platform (“ETP”) for non-invasive drug delivery in the cannabis field as further described in the exclusive license agreement dated June 21, 2018 with Pharmedica Ltd. (see Note J).
The Company’s business plan is to (i) commercialize its ETP technology and (ii) concentrate on cannabis related investment and development opportunities through direct equity investments, joint ventures, licensing agreements or acquisitions.
The Company is actively seeking licensing opportunities in the cannabis sector for intellectual property and products. At present, the Company’s sole active, exclusive, worldwide licensing agreement is with Pharmedica Limited for its ETP technology.
Principles of Consolidation
The consolidated financial statements include the accounts of The Greater Cannabis Company, Inc., and its wholly owned subsidiary Green C Corporation.
| F-7 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
Investments having an original maturity of 90 days or less that are readily convertible into cash are considered to be cash equivalents. For the periods presented, the Company had no in cash equivalents.
Income Taxes
In accordance with Accounting Standards Codification (ASC) 740 - Income Taxes, the provision for income taxes is computed using the asset and liability method. The asset and liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
We expect to recognize the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not” threshold, the amount to be recognized in the financial statements will be the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of December 31, 2019, we had no uncertain tax positions. We recognize interest and penalties, if any, related to uncertain tax positions as general and administrative expenses. We currently have no foreign federal or state tax examinations nor have we had any foreign federal or state examinations since our inception. To date, we have not incurred any interest or tax penalties.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Financial Instruments and Fair Value of Financial Instruments
We follow ASC Topic 820, Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring basis. ASC Topic 820 establishes a common definition for fair value to be applied to existing US GAAP that requires the use of fair value measurements that establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC Topic 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
| F-8 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| Level 1: | Observable inputs such as quoted market prices in active markets for identical assets or liabilities | |
| Level 2: | Observable market-based inputs or unobservable inputs that are corroborated by market data | |
| Level 3: | Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. |
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. Except for derivative liabilities, we had no financial assets or liabilities carried and measured on a recurring or nonrecurring basis during the reporting periods.
Derivative Liabilities
We evaluate convertible notes payable, stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity.
The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.
Long-lived Assets
Long-lived assets such as property and equipment and intangible assets are periodically reviewed for impairment. We test for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
Pharmedica Exclusive License Agreement cost
The Pharmedica Exclusive License Agreement is carried at cost less accumulated amortization. Amortization is calculated using the straight line method over the license’s estimated economic life of five years. (see Note J)
| F-9 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances of our common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete.
Although situations may arise in which counter performance may be required over a period of time, the equity award granted to the party performing the service may be fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist if the instruments are fully vested on the date of agreement, we determine such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to expense over the contract period. When it is appropriate for us to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values.
Related Parties
A party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with us. Related parties also include our principal owners, our management, members of the immediate families of our principal owners and our management and other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties, or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests, is also a related party.
| F-10 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Revenue from product sales will be recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred.
Advertising Costs
Advertising costs are expensed as incurred. For the periods presented, we had no advertising costs.
Loss per Share
We compute net loss per share in accordance with FASB ASC 260. The ASC specifies the computation, presentation and disclosure requirements for loss per share for entities with publicly held common stock.
Basic loss per share amounts is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options, warrants and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net loss per share are excluded from the calculation. For the periods presented, the Company excluded 470,599,900 shares relating to the Series A Convertible Preferred Stock (see Note G), shares relating to convertible notes payable to third parties (Please see NOTE E - NOTES PAYABLE TO THIRD PARTIES for further information) and shares relating to outstanding warrants (Please see NOTE G - CAPITAL STOCK AND WARRANTS for further information) from the calculation of diluted shares outstanding as the effect of their inclusion would be anti-dilutive.
Recently Enacted Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all prior revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under prior U.S. GAAP. As amended by the FASB in July 2015, the standard became effective for annual periods beginning after December 15, 2017, and interim periods therein. ASU 2014-09 has had no impact on our Financial statements for the periods presented.
| F-11 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently Enacted Accounting Standards
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09 (discussed above). ASU 2016-08 has had no impact on our Financial statements for the periods presented.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09 (discussed above). ASU 2016-10 has had no impact on our financial statements for the periods presented.
On July 13, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2017-11. Among other things, ASU 2017-11 provides guidance that eliminates the requirement to consider “down round” features when determining whether certain financial instruments or embedded features are indexed to an entity’s stock and need to be classified as liabilities. ASU 2017-11 provides for entities to recognize the effect of a down round feature only when it is triggered and then as a dividend and a reduction to income available to common stockholders in basic earnings per share. The guidance is effective for annual periods beginning after December 15, 2018.
Accordingly, effective January 1, 2019, the Company reduced the derivative liability of warrants with “down round” features (and do not contain variable conversion features) of $108,427 at December 31, 2018 to $0 and recognized a $108,427 cumulative effect adjustment reduction of accumulated deficit. See Note F.
| F-12 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE B - GOING CONCERN
Under ASC 205-40, we have the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability to meet our future obligations as they become due within one year after the date the financial statements are issued. As required by this standard, our evaluation shall initially not take into consideration the potential mitigating effects of our plans that have not been fully implemented as of the date the financial statements are issued.
In performing the first step of this assessment, we concluded that the following conditions raise substantial doubt about our ability to meet our financial obligations as they become due. As of December 31, 2019, the Company had cash of $24,662, total current liabilities of $1,599,296, and negative working capital of $1,546,634. For the year ended December 31, 2019, we incurred a net loss of $1,648,490 and used $285,229 cash from operating activities. We expect to continue to incur negative cash flows until such time as our business generates sufficient cash inflows to finance our operations and debt service requirements.
In performing the second step of this assessment, we are required to evaluate whether our plans to mitigate the conditions above alleviate the substantial doubt about our ability to meet our obligations as they become due within one year after the date that the financial statements are issued. Our future plans include securing additional funding sources.
There is no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available through external sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material effect on the business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing shareholders. We have therefore concluded there is substantial doubt about our ability to continue as a going concern through March 2021.
The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the uncertainty related to our ability to continue as a going concern.
NOTE C - ACQUISITION OF GREEN C CORPORATION
As discussed in Note A above, the Company acquired 100% ownership of Green C Corporation on July 31, 2018. The acquisition has been accounted for in the accompanying consolidated financial statements as a “reverse acquisition” transaction. Accordingly, the financial position and results of operations of the Company prior to July 31, 2018 has been excluded from the accompanying consolidated financial statements.
| F-13 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE C - ACQUISITION OF GREEN C CORPORATION (continued)
The carrying values of the net assets (liabilities) of the Company (The Greater Cannabis Company, Inc., and subsidiaries) at July 31, 2018 prior to the acquisition consisted of:
| Total Assets | $ | - | ||
| Accounts payable and accrued expenses | $ | 90,724 | ||
| Accrued interest | 15,813 | |||
| Loans payable to related parties | 89,774 | |||
| Notes payable to third parties | 83,323 | |||
| Derivative liability | 270,502 | |||
| Total current liabilities and total liabilities | $ | 550,136 |
Pursuant to terms of the acquisition agreements, $164,841 (accounts payable and accrued expenses - $62,500, accrued interest - $12,567, and loans payable to related parties - $89,774) of the $550,136 total liabilities was forgiven.
NOTE D - LOANS PAYABLE TO RELATED PARTIES
Loans payable to related parties consist of:
| December 31, 2019 | December 31, 2018 | |||||||
| Loans from Elisha Kalfa and Yonah Kalfa, holders of a total of 2,966,666 shares of Series A Convertible Preferred stock | $ | 180,000 | $ | 180,000 | ||||
| Loan from Fernando Bisker and Sigalush, LLC, holders of a total of 2,966,666 shares of Series A Convertible Preferred stock | 80,000 | 80,000 | ||||||
| Total | $ | 260,000 | $ | 260,000 | ||||
Pursuant to loan and contribution agreements dated July 31, 2018, the above loans are non-interest bearing and are to be repaid after the Company raises from investors no less than $1,500,000 or generates sufficient revenue to make repayments (each, a “Replacement Event”). If the First Replacement Event does not occur within 18 months from July 31, 2018, the loans are to be repaid immediately. In the event there is insufficient capital to repay the loan, the lenders have the option to convert all or part of the loans into shares at the Company common stock at the average trading price of the 10 days prior to the date of the conversion request.
| F-14 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE E - NOTES PAYABLE TO THIRD PARTIES
Notes payable to third parties consist of:
| December 31, 2019 | December 31, 2018 | |||||||
| Convertible Promissory Note dated May 25, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due May 25, 2018 (i) | $ | - | $ | 3,469 | ||||
| Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018 (ii) | - | 16,500 | ||||||
| Convertible Promissory Note dated January 9, 2018 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due January 9, 2019-less unamortized debt discount of $0 and $550, respectively (iii) | - | 23,450 | ||||||
| Allonge to the Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018 (iv) | 2,420 | 14,520 | ||||||
| Allonge 2 to the Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018 (v) | 1,100 | 6,600 | ||||||
| Promissory Note dated March 28, 2017 payable to John T. Root, Jr., interest at 4%, due September 28, 2017, convertible into shares of common stock at a conversion price of $.001 per share. | 375 | 375 | ||||||
| Convertible Note dated February 12, 2019 payable to Eagle Equities, LLC (“Eagle”), interest at 6%, due February 12, 2020-less unamortized debt discount of $33,396 and $0, respectively (vi) | 250,082 | - | ||||||
| Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 2%, due October 18, 2020-less unamortized debt discount of $294,234 and $0, respectively (vi) | 74,566 | - | ||||||
| Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 2%, due October 18, 2020-less unamortized debt discount of $90,054 and $0, respectively (vii) | 22,823 | - | ||||||
| Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 2%, due October 18, 2020-less unamortized debt discount of $79,248 and $0, respectively (vii) | 20,084 | - | ||||||
| Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 2%, due October 18, 2020-less unamortized debt discount of $9,005 and $0, respectively (vii) | 2,281 | - | ||||||
| Convertible Promissory Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 6%, due February 12, 2020-less unamortized debt discount of $0 and $0, respectively (vii) | 25,587 | |||||||
| Total | $ | 399,318 | $ | 64,914 | ||||
(i) On May 25, 2017, the Company executed a Convertible Note (the “Convertible Note”) payable to Emet Capital Partners, LLC, (“EMET”) in the principal amount of $55,000 in exchange for $50,000 cash. The Convertible Note is convertible, in whole or in part, at any time and from time to time before maturity (May 25, 2018) at the option of the holder at the Variable Conversion Price, which shall mean the lesser of (i) $0.25 (the “Fixed Conversion Price”); or (ii) 50% multiplied by the Market Price (as defined). “Market Price” means the lowest Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. The Convertible Note has a term of one (1) year and bears interest at 5% annually. As part of the transaction, EMET was also issued a warrant granting the holder the right to purchase up to 440,000 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. As part of the Convertible Note, the Company executed a Registration Rights Agreement (the “RRA”) dated May 25, 2017. Among other things, the RRA provided for the Company to file a Registration Statement with the SEC covering the resale of shares underlying the Convertible Note and the warrant and to have declared effective such Registration Statement. The Registration Statement was declared effective by the Securities and Exchange Commission on August 31, 2017. On September 19, 2018, $32,000 principal of the Convertible Note (and $4,638 accrued interest) was converted into 1,465,523 shares of Company common stock. On October 26, 2018, $30,531 principal of the Convertible Note (and $503 accrued interest) was converted into 1,034,477 shares of Company common stock. On January 4, 2019, $670 principal of the Convertible Note (and $100 accrued interest) was converted into 769,785 shares of Company common stock. Please see NOTE F - DERIVATIVE LIABILITY for further information.
| F-15 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
(ii) On September 14, 2017, the Company executed a Convertible Note (the “Convertible Note”) payable to Emet Capital Partners, LLC, (“EMET”) in the principal amount of $13,750 in exchange for $12,500 cash. The Convertible Note is convertible, in whole or in part, at any time and from time to time before maturity (September 14, 2018) at the option of the holder at the Variable Conversion Price, which shall mean the lesser of (i) $0.25 (the “Fixed Conversion Price”); or (ii) 50% multiplied by the Market Price (as defined). “Market Price” means the lowest Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. The Convertible Note has a term of one (1) year and bears interest at 5% annually (default interest rate 15%). As part of the transaction, EMET was also issued a warrant granting the holder the right to purchase up to 110,000 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. Please see NOTE F - DERIVATIVE LIABILITY for further information.
(iii) On January 9, 2018, the Company executed a Convertible Note (the “Convertible Note”) payable to Emet Capital Partners, LLC, (“EMET”) in the principal amount of $20,000 in exchange for entry into a Waiver Agreement pertaining to the Securities Purchase Agreements entered into between the Parties dated May 25, 2017 and September 14, 2017 along with a Convertible Note issued by the Company on each of the same dates. The Company received $0 cash from issuance of the Convertible Note. The Convertible Note is convertible, in whole or in part, at any time and from time to time before maturity (January 9, 2019) at the option of the holder at the Variable Conversion Price, which shall mean the lesser of (i) $0.25 (the “Fixed Conversion Price”); or (ii) 50% multiplied by the Market Price (as defined). “Market Price” means the lowest Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. The Convertible Note has a term of one (1) year and bears interest at 5% annually (default interest rate 15%). Please see NOTE F - DERIVATIVE LIABILITY for further information.
(iv) On March 28, 2018, the Company made an Allonge to the Convertible Debenture due September 14, 2018 (hereinafter the “Allonge”) to Emet Capital Partners, LLC. The Principal Amount as stated on the face of the Debenture shall be increased to $25,850 ($13,750 – original Principal Amount of the Debenture + $12,100 Allonge). The amendment to the Principal Amount due and owing on the Debenture described herein notwithstanding, the Holder does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Debenture through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable. As part of the transaction, EMET was also issued a warrant granting the holder the right to purchase up to 98,600 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. Please see NOTE F - DERIVATIVE LIABILITY for further information.
(v) On September 13, 2018, the Company made a second Allonge to the Convertible Debenture due September 14, 2018 (hereinafter the “Allonge”) to Emet Capital Partners, LLC. The Principal Amount as stated on the face of the Debenture shall be increased to $31,350 ($13,750 – original Principal Amount of the Debenture + $12,100 1st Allonge + $5,500 2nd Allonge). The amendment to the Principal Amount due and owing on the Debenture described herein notwithstanding, the Holder does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Debenture through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable. As part of the transaction, EMET was also issued a warrant granting the holder the right to purchase up to 11,000 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. Please see NOTE F - DERIVATIVE LIABILITY for further information.
(vi) On February 12, 2019, (the “Issue Date”) the Company issued a 6% Convertible Redeemable Note to Eagle Equities, LLC (“Eagle”), having a principal amount of $1,200,000 of which $96,000 constituted an original issue discount (the “Eagle Note”). In connection with the Eagle Note, the Company and Eagle entered into a Securities Purchase Agreement. The Eagle Note will mature on one year from the Issue Date. Eagle is to fund the $1,104,000 purchase price of the Eagle Note in tranches. The first tranche of $250,000 was received by the Company on February 13, 2019.
| F-16 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
(vii) On October 18, 2019, the Company entered into two Exchange Agreements with Emet Capital Partners, LLC (“Emet”). The first Exchange Agreement provided for the exchange of three outstanding convertible notes payable to Emet with a total remaining principal balance of $20,399 and a total accrued interest balance of $5,189 for three new convertible notes payable to Emet in the total amount of $25,587. The new notes bear interest at 6%, are due on February 12, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the Conversion Date. The second Exchange Agreement provided for the reversal of the February 14, 2019 exchange agreement pursuant to which certain warrants then held by Emet were exchanged for 9,000,000 shares of Series B Convertible Preferred Stock (see Note G) and the exchange of such warrants for four new convertible notes payable to Emet in the total amount of $675,000. These new note bear interest at 2%, are due on October 18, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the Conversion Date. Please see NOTE F - DERIVATIVE LIABILITY for further information.
The Eagle Note may be pre-paid in whole or in part by paying Eagle the following premiums:
| PREPAY DATE | PREPAY AMOUNT | |
| ≤ 30 days | 105% * (Principal + Interest (“P+I”) | |
| 31- 60 days | 110% * (P+I) | |
| 61-90 days | 115% * (P+I) | |
| 91-120 days | 120% * (P+I) | |
| 121-150 days | 125% * (P+I) | |
| 151-180 days | 130% * (P+I) |
Any amount of principal or interest on the Eagle Note, which is not paid when due shall bear interest at the rate of twenty four (24%) per annum from the due date thereof until the same is paid (“Default Interest”).
Eagle has the right beginning on the date which is one hundred eighty (180) days following the Issue Date to convert all or any part of the outstanding and unpaid principal amount of the Eagle Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price shall be, equal to 65% of the lowest closing price of the Company’s common stock as reported on the National Quotations Bureau OTC Market 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. The Eagle Note contains other customary terms found in like instruments for conversion price adjustments.
In the case of an Event of Default (as defined in the Eagle Note), the Eagle Note shall become immediately due and payable and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties.
| F-17 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE F - DERIVATIVE LIABILITY
The derivative liability consists of:
| December 31, 2019 | December 31, 2018 | |||||||
| Convertible Promissory Note dated May 25, 2017 payable to EMET Capital Partners, LLC Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information | $ | - | $ | 8,385 | ||||
| Warrants issued to EMET in connection with the above Convertible Promissory Note dated May 25, 2017. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information (i) | - | 72,468 | ||||||
| Convertible Promissory Note dated September 14, 2017 payable to EMET Capital Partners, LLC Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information | - | 43,780 | ||||||
| Warrants issued to EMET in connection with the above Convertible Promissory Note dated September 14, 2017. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information (i) | - | 18,150 | ||||||
| Convertible Promissory Note dated January 9, 2018 payable to EMET Capital Partners, LLC Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information | - | 63,680 | ||||||
| Allonge dated March 28, 2018 to the Convertible Promissory Note dated September 14, 2017 Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information | - | 38,526 | ||||||
| Warrants issued to EMET in connection with the above Allonge dated March 28, 2018 to the Convertible Promissory Note dated September 14, 2017. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information (i) | - | 15,991 | ||||||
| Allonge 2 dated September 13, 2018 to the Convertible Promissory Note dated September 14, 2017 Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information | - | 17,512 | ||||||
| Warrants issued to EMET in connection with the above Allonge 2 dated September 13, 2018 to the Convertible Promissory Note dated September 14, 2017. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information (i) | - | 1,818 | ||||||
| Convertible Promissory Note dated February 12, 2019 payable to Eagle Equities, LLC Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information | 182,625 | - | ||||||
| Convertible Promissory Notes dated October 18, 2019, payable to EMET. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information | 543,240 | - | ||||||
| Total derivative liability | $ | 725,865 | $ | 280,310 | ||||
(i)As discussed in Note A above, warrants with “down round” features (and do not contain variable conversion features) are not subject to derivative liability treatment effective January 1, 2019.
The Convertible Promissory Notes (the “Notes”) and the warrants contain obligations to reduce the conversion price of the Notes and the exercise price of the Warrants in the event that the Company sells, grants or issues any non-excluded shares, options, warrants or any convertible instrument at a price below the conversion price of the Notes and the exercise price of the Warrants (“ratchet-down” provisions). The Notes also contain a variable conversion feature based on the future trading price of the Company’s common stock. Therefore, the number of shares of common stock issuable upon conversion of the Notes and exercise of the Warrants is indeterminate.
The fair value of the derivative liability was measured at the respective issuance dates and quarterly thereafter using the Black Scholes option pricing model. Assumptions used for the calculation of the derivative liability of the Notes at September 30, 2019 were (1) stock price of $0.1007 per share, (2) conversion prices ranging from $0.045 to $.0655 per share, (3) terms ranging from 135 days to 6 months, (4) expected volatility of 130.68%, and (5) risk free interest rates ranging from 1.83% to 1.85%. Assumptions used for the calculation of the derivative liability of the notes at December 31, 2018 were (1) stock price of $0.1655 per share, (2) conversion price of $0.0525 per share, (3) terms ranging from 3 months to 6 months, (4) expected volatility of 286.71%, and (5) risk free interest rates ranging from 2.47% to 2.50%.
| F-18 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE G - CAPITAL STOCK AND WARRANTS
Preferred Stock
On July 31, 2018, The Greater Cannabis Company, Inc. (the “Company”) acquired 100% of the issued and outstanding shares of Class A common stock of Green C Corporation (“Green C”) in exchange for 9,411,998 newly issued shares of the Company’s Series A Convertible Preferred Stock (the Exchange”). Each share of Series A Convertible Preferred Stock is convertible into 50 shares of common stock and is entitled to 50 votes on all matters as a class with the holders of common stock.
On February 14, 2019, the Company issued 9,000,000 shares of Series B Convertible Preferred Stock to Emet Capital Partners, LLC (“Emet”) in exchange for the surrender of all outstanding warrants held by Emet. Each share of Series B Convertible Preferred Stock is convertible into one share of Company common stock subject to adjustment in case, at the time of conversion, the market price per share of the Company common stock is less than $0.075 per share. On October 18, 2019, this exchange agreement was reversed.
Common Stock
Effective March 10, 2017, in connection with a partial spin-off of the Company from Sylios Corp, the Company issued a total of 26,905,969 shares of its common stock. 5,378,476 shares were issued to Sylios Corp (representing 19.99% of the issued and outstanding shares of Company common stock after the spin-off) and 21,527,493 shares were issued to the stockholders of record of Sylios Corp on February 3, 2017 on the basis of one share of Company common stock for each 500 shares of Sylios Corp common stock held (representing 80.01% of the issued and outstanding shares of Company common stock after the spin-off).
Effective March 22, 2017, the Company issued 100,000 shares of its common stock to a consulting firm entity for service rendered. The $25,000 estimated fair value of the 100,000 shares was expensed as consulting fees in the three months ended March 31, 2017.
Effective March 31, 2017, the Company issued 2,000,000 shares of its common stock to our Chief Executive Officer, Wayne Anderson, for services rendered. The $500,000 estimated fair value of the 2,000,000 shares was expensed as officer compensation in the three months ended March 31, 2017.
Effective September 15, 2017, the Company issued 375,000 shares of its common stock to retire a Note Payable to a Third Party.
On September 19, 2018, the Company issued 1,465,523 shares of its common stock pursuant to a conversion of $32,000 principal and $4,638 accrued interest of its convertible note dated May 25, 2017 by Emet Capital Partners, LLC. The $510,149 excess of the $546,787 fair value of the 1,465,523 shares over the $36,638 liability reduction was charged to Loss on Conversion of Debt.
On October 26, 2018, the Company issued 1,034,477 shares of its common stock pursuant to a conversion of $30,531 principal and $503 accrued interest of its convertible note dated May 25, 2017 by Emet Capital Partners, LLC. The $82,758 excess of the $113,792 fair value of the 1,034,479 shares over the $31,034 liability reduction was charged to Loss on Conversion of Debt.
On January 4, 2019, the Company issued 769,785 shares of its common stock pursuant to a conversion of $670 principal and $100 accrued interest of its convertible note dated May 25, 2018 by Emet Capital Partners, LLC (“Emet”). This conversion was based on a conversion price of $0.001 per share (rather than the Variable Conversion Price provided in the related note) submitted by Emet in its Conversion Notice. Emet asserted that the Company had committed a dilutive issuance, which triggered the “ratchet-down” provision of the related note which provides for a reduction of the conversion price. The Company has notified Emet that it disagrees with Emet’s assertion that a ratch-down dilutive issuance occurred. The $99,302 excess of the $100,072 fair value of the 769,785 shares over the $770 liability reduction was charged to Loss on Conversion of Debt in the three months ended March 31, 2019.
| F-19 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
On January 4, 2019, the Company issued 695,129 shares of its common stock pursuant to an exercise of the equivalent of 1,400 warrants (of the 440,000 warrants issued to Emet Capital Partners, LLC on May 25, 2017) in a cashless exercise transaction based on a ratchet-down exercise price of $0.001 per share.
On April 16, 2019, the Company issued 1,384,600 shares of its common stock pursuant to conversions of $40,500 principal and $7,961 accrued interest of two convertible notes issued to by Emet Capital Partners, LLC (“Emet”). The $131,537 excess of the $179,998 fair value of the 1,384,600 shares over the $47,961 liability reduction was charged to Loss on Conversion of Debt in the three months ended June 30, 2019.
On May 29, 2019, the Company issued a total of 542,000 shares of its common stock to two consulting firm entities for certain specified investor relations and advisory services. The $75,880 fair value of the 542,000 shares was charged to Other Operating Expenses in the three months ended June 30, 2019.
On August 15, 2019, the Company issued 175,000 shares of its common stock to an entity consultant for accounting services rendered. The $12,250 fair value of the 175,000 shares was charged to Other Operating Expenses.
On October 18, 2019, the Company entered into two Exchange Agreements with Emet Capital Partners, LLC (“Emet”). The first Exchange Agreement provided for the exchange of three outstanding convertible notes payable to Emet with a total remaining principal balance of $20,399 and a total accrued interest balance of $5,189 for three new convertible notes payable to Emet in the total amount of $25,587. The new notes bear interest at 6%, are due on February 12, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the Conversion Date. The second Exchange Agreement provided for the reversal of the February 14, 2019 exchange agreement pursuant to which certain warrants then held by Emet were exchanged for 9,000,000 shares of Series B Convertible Preferred Stock (see Note G) and the exchange of such warrants for four new convertible notes payable to Emet in the total amount of $675,000. These new note bear interest at 2%, are due on October 18, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the Conversion Date.
On November 11, 2019, the Company issued 1,748,363 shares of its common stock pursuant to a conversion of $53,705 principal and $2,680 accrued interest and fees of its convertible note dated October 18, 2019 by Emet.
On December 20, 2019, the Company issued 1,468,204 shares of its common stock pursuant to a conversion of $29,000 principal and $4,015 accrued interest and fees of its convertible note dated October 18, 2019 by Emet.
On December 24, 2019, the Company issued 637,273 shares of its common stock pursuant to a conversion of $10,000 principal and $515 accrued interest and fees of its convertible note dated October 18, 2019 by Emet.
Warrants
On May 25, 2017, the Company issued Emet Capital Partners, LLC a warrant granting the holder the right to purchase 440,000 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. If at any time after the Initial Exercise Date, there is no effective registration statement registering the Warrant Shares, or no current prospectus available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or in part, at such time by means of a “cashless exercise”. The Holder of the warrant did not require that the Company register the common shares to be issued under the warrant in the Registration Statement declared effective August 31, 2017. (Please see NOTE E - NOTES PAYABLE TO THIRD PARTIES for further information).
On September 14, 2017, the Company issued Emet Capital Partners, LLC a warrant granting the holder the right to purchase 110,000 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. If at any time after the Initial Exercise Date, there is no effective registration statement registering the Warrant Shares, or no current prospectus available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or in part, at such time by means of a “cashless exercise”. The Holder of the warrant did not require that the Company register the common shares to be issued under the warrant in the Registration Statement declared effective August 31, 2017. (Please see NOTE E - NOTES PAYABLE TO THIRD PARTIES for further information).
| F-20 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
On March 28, 2018, the Company issued Emet Capital Partners, LLC a warrant granting the holder the right to purchase 96,800 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. If at any time after the Initial Exercise Date, there is no effective registration statement registering the Warrant Shares, or no current prospectus available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or in part, at such time by means of a “cashless exercise”. The Holder of the warrant has not requested that the Company register the common shares to be issued under the warrant. (Please see NOTE E - NOTES PAYABLE TO THIRD PARTIES for further information).
On June 13, 2018, the Company issued Emet Capital Partners, LLC a warrant granting the holder the right to purchase 11,000 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. If at any time after the Initial Exercise Date, there is no effective registration statement registering the Warrant Shares, or no current prospectus available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or in part, at such time by means of a “cashless exercise”. The Holder of the warrant has not requested that the Company register the common shares to be issued under the warrant. (Please see NOTE E - NOTES PAYABLE TO THIRD PARTIES for further information).
Emet Warrant Restructuring
On February 14, 2019, the Company entered into an exchange agreement with Emet Capital Partners, LLC (“Emet”) pursuant to which the Company issued Emet 9,000,000 shares of its Series B Convertible Preferred Stock (the “Series B Preferred Shares”) in exchange for the surrender of all outstanding warrants held by Emet. Each Series B Preferred Share was convertible into one share of the Company’s common stock subject to adjustment in case, at the time of conversion, the market price per share of the Company’s common stock was less than $0.075. In such case, Emet was to receive an additional number of shares of common stock equal to the number of shares being converted divided by the applicable market price. On October 18, 2019, this exchange agreement was reversed.
At December 31, 2019, the Company has no outstanding warrants.
NOTE H - INCOME TAXES
The Company and its United States subsidiaries expect to file consolidated Federal income tax returns. Green C Corporation, its Ontario Canada subsidiary, will file Canada and Ontario income tax returns.
At December 31, 2019 the Company has available for federal income tax purposes a net operating loss carry forward that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is not more likely than not that the benefits will be realized. Due to significant changes in the Company’s ownership, the future use of its existing net operating losses will be limited.
All tax years of the Company and its United States subsidiaries remain subject to examination by the Internal Revenue Service.
NOTE I- GROSS PROFIT ON PRODUCT TRANSACTIONS
In February 2018, Green C sold certain bitcoin mining rig machines to a North Carolina based third party entity for $2,929,000. Also in February 2018, Green C sold additional bitcoin mining rig machines to another North Carolina based third party entity for $1,720,000. The Company’s supplier of the products in these two transactions was Focus Global Supply (“FGS”), a business entity controlled by Elisha Kalfa, Green C’s Chief Executive Officer.
Green C paid FGS total of $4,517,000 for these machines. Net of a total of $59,000 commission paid to a third party finder, Green C recognized a gross profit of $72,912 from these two sales.
In June 2018, Green C sold certain telecommunications parts to a China based third party entity for a total of $111,147. Green C’s supplier of the products in these transactions was an Italy based third part entity which was paid $111,127 for these products. Including $13,965 commissions received from NFW Marketing, Inc., an entity affiliated with Elisha Kalfa, Green C’s Chief Executive Officer. Green C recognized a gross profit of $13,986 from this transaction.
| F-21 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2019 and 2018
NOTE J - COMMITMENTS AND CONTINGENCIES
Pharmedica Exclusive License Agreement
On June 21, 2018, Green C executed an Exclusive License Agreement with Pharmedica, Ltd. (“Pharmedica”), an Israeli company, to exploit certain Pharmedica intellectual property for the development and distribution of a certain Licensed Product involved in the transmucosal delivery of medicinal or recreational cannabis. The agreement provides for Green C payments to Pharmedica of a $100,000 license fee (which was paid by 2591028 Ontario Limited, an entity affiliated with Green C’s Chief Executive Officer, on June 26, 2018) and annual royalties at a rate of 5% of the Net Sales of the Licensed Product subject to a Minimum Annual Royalty of $50,000. The agreement also provides for certain milestones to be accomplished by Green C in order for Green C to retain the license. Green C and Pharmedica each may terminate the agreement upon the occurrence of a material breach by the other party of its obligations under the agreement and such other party’s failure to remedy such breach to the reasonable satisfaction of the other party within thirty (30) days after being requested in writing to do so.
The Company has generated only minimal revenues from this asset to date and has not paid the Year 1 Minimum Annual Royalty of $50,000 due Pharmedica. Acridly, we recorded an impairment charge of $69,749 at December 31, 2019 and reduced the $69,749 remaining carrying value of this intangible asset to $0.
Sub-License Agreement with Symtomax Unipessoal Lda
On July 15, 2019, the Company executed a Sub-License Agreement with Symtomax Unipessoal Lda (“Symtomax”).
The agreement provides for the Company’s grant to Symtomax of a non-exclusive right and sub-license to use certain Company technology and intellectual property to develop and commercialize products for sale in Europe, the Middle East, and Africa. The agreement provides for Symtomax payments of royalties to the Company (payable monthly) ranging from 10% to 17% of Symtomax sales of eluting patches developed from Company technology.
The term of the agreement ends the earlier of (i) July 15, 2020 and (ii) the date that Symtomax is no longer commercializing any of the products. The term is extended for an additional year on each anniversary of the agreement for any country where the royalty payment in respect of such country was equal to or greater than $1,000,000 for the previous year.
Service Agreements
On July 31, 2018, the Company executed Services Agreements with its newly appointed Chief Executive Officer (the “CEO”) and its newly appointed Chief Legal Officer (the “CLO”), for terms of five years. The Agreements provide for a monthly base salary of $10,000 for the CEO and a monthly base salary of $7,000 for the CLO. For the years ended December 31, 2019 and 2018, the Company expensed a total of $204,000 and $134,593, respectively, as officers compensation pursuant to these agreements.
NOTE K – SUBSEQUENT EVENTS
During the first calendar quarter of 2020, we issued 21,484,688 shares of our common stock pursuant to conversions of an aggregate of $165,350 in principal and $11,793 in interest under our outstanding convertible notes.
The fair value of the shares issued aggregate $406,093 and has a conversion loss of $ 228,949.
On January 27, 2020, the Company executed a Securities Purchase Agreement with GW Holdings, LLC, a New York limited liability company with its address at 137 Montague Street, Suite 291, Brooklyn, NY 11201. For value received, the Company issued a 6% convertible redeemable promissory note in the amount of $ 166,500 with a maturity date of January 27, 2021. This note was issued with a $13,500 original issue discount such that the issuance price was $153,000.
An amendment to a Securities Purchase Agreement entered into between the Company and Eagle Equities, LLC on February 12, 2019, was executed on January 27, 2020.
A subsequent closing of an additional $150,000 in net proceeds to the Company note occurred on the filing of the Company’s resale registration statement covering the $1,200,000 note being purchased. An additional closing of $85,000 in net proceeds to the Company occurred on the effectiveness of such registration statement, provided that the shares registered under the registration statement are sufficient to allow for the full conversion of the funded portion of the Note into registered shares. The Buyer retains the right to purchase the unfunded balance of the $1,200,000 Note (the “Unfunded Balance”) until February 12, 2021, provided that each purchase must be in an amount of not less than $100,000. Any rights to purchase a portion of the Unfunded Balance outstanding after 12 months shall be terminated and the Buyer shall have no rights to purchase the Unfunded Balance. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties. In addition, the Company agrees to reserve with its transfer agent, 400% of the discount value of the funded balance of the Note at each closing.
All other terms and conditions of the SPA shall remain in full force and effect, unless modified by this Amendment. This amendment shall be governed and construed under the laws of the State of New York, without regard to its conflict of laws provision.
| F-22 |
THE GREATER CANNABIS COMPANY, INC.
| March 31, 2020 | December 31, 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 295,314 | $ | 24,662 | ||||
| Advance to supplier | 28,000 | 28,000 | ||||||
| Total current assets | 323,314 | 52,662 | ||||||
| OTHER ASSETS | ||||||||
| Right of first refusal agreement cost (less accumulated amortization of $ 833 and $ 0) | 24,167 | - | ||||||
| Total assets | $ | 347,481 | $ | 52,662 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 4,767 | $ | 17,517 | ||||
| Accrued interest | 27,334 | 20,619 | ||||||
| Accrued salaries | 94,000 | 98,000 | ||||||
| Accrued royalties | 50,000 | 50,000 | ||||||
| Advance from customer | 27,977 | 27,977 | ||||||
| Loans payable to related parties | 260,000 | 260,000 | ||||||
| Notes payable to third parties (less debt discounts of $635,530 and $505,937 respectively) | 531,041 | 399,318 | ||||||
| Derivative liability | 1,704,472 | 725,865 | ||||||
| Total current liabilities and total liabilities | 2,699,591 | 1,599,296 | ||||||
| STOCKHOLDERS’ (DEFICIENCY) | ||||||||
| Preferred stock; 19,000,000 shares authorized, $.001 par value: Series A Convertible Preferred-issued and outstanding 9,411,998 and 9,411,998 shares, respectively | 9,412 | 9,412 | ||||||
| Series B Convertible Preferred-issued and outstanding 0 and 0 shares, respectively | - | - | ||||||
| Common stock; 500,000,000 shares authorized, $.001 par value, as of March 31, 2020 and December 31, 2019, there are 60,786,011 and 39,301,323 shares outstanding, respectively | 60,786 | 39,301 | ||||||
| Additional paid-in capital | 1,168,499 | 783,891 | ||||||
| Accumulated deficit | (3,590,807 | ) | (2,379,238 | ) | ||||
| Total stockholders’ (deficiency) | (2,352,110 | ) | (1,546,634 | ) | ||||
| Total liabilities and stockholders’ (deficiency) | $ | 347,481 | $ | 52,662 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-23 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2020 and 2019 (Unaudited)
| March 31, 2020 | March 31, 2019 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue: | ||||||||
| Revenue | $ | - | $ | - | ||||
| Total revenue | - | - | ||||||
| Operating Expenses: | ||||||||
| Officers compensation | 51,000 | 51,000 | ||||||
| Amortization of Pharmedica Exclusive License Agreement cost | - | 5,000 | ||||||
| Amortization of Right of First Refusal Agreement cost | 833 | - | ||||||
| Other operating expenses | 36,264 | 33,077 | ||||||
| Total operating expenses | 88,097 | 89,077 | ||||||
| Income (loss) from operations | (88,097 | ) | (89,077 | ) | ||||
| Other income (expenses): | ||||||||
| Income (expense) from derivative liability | (551,941 | ) | 88,451 | |||||
| Loss on conversions of notes payable | (228,949 | ) | (99,302 | ) | ||||
| Interest expense | (45,509 | ) | (2,704 | ) | ||||
| Amortization of debt discounts | (297,073 | ) | (35,717 | ) | ||||
| Total other income (expenses) | (1,123,472 | ) | (49,272 | ) | ||||
| Income (loss) before provision for income taxes | (1,211,569 | ) | (138,349 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net income (loss) | $ | (1,211,569 | ) | $ | (138,349 | ) | ||
| Basic and diluted income (loss) per common share | $ | (.03 | ) | $ | (.00 | ) | ||
| Weighted average common shares outstanding-basic and diluted | 46,959,776 | 33,280,775 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-24 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
For the Three Months Ended March 31, 2020 and 2019
Series A Preferred | Series B Preferred | Additional | ||||||||||||||||||||||||||||||||||
| stock | stock | Common Stock | Paid in | Accumulated | ||||||||||||||||||||||||||||||||
| For the three months ended | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||||||||
| March 31, 2019: | ||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 9,411,998 | $ | 9,412 | - | $ | - | 31,880,969 | $ | 31,881 | $ | 233,991 | $ | (839,070 | ) | $ | (563,786 | ) | |||||||||||||||||||
| Unaudited: | ||||||||||||||||||||||||||||||||||||
| Cumulative effect adjustment to reduce derivative liability of warrants with “down round” features effective January 1, 2019 | 108,427 | 108,427 | ||||||||||||||||||||||||||||||||||
| Conversion of note payable ($670) and accrued interest ($100) into 769,785 shares of common stock (Fair Value of $ 100,072) on January 4, 2019 | 769,785 | 770 | 99,302 | - | 100,072 | |||||||||||||||||||||||||||||||
| Exercise of 1400 warrants into 695,129 shares of common stock in a cashless exercise transaction on January 4, 2019 | 695,129 | 695 | (695 | ) | - | |||||||||||||||||||||||||||||||
| Exchange of 438,600 warrants into 9,000,000 shares of Class B Convertible Preferred Stock on February 14, 2019 | - | - | 9,000,000 | 9,000 | (9,000) | - | ||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2019 | (138,349 | ) | (138,349 | ) | ||||||||||||||||||||||||||||||||
| Balances at March 31, 2019 | 9,411,998 | $ | 9,412 | 9,000,000 | $ | 9,000 | 33,345,883 | $ | 33,346 | $ | 323,598 | $ | (868,992 | ) | $ | (493,636 | ) | |||||||||||||||||||
| For the three months ended March 31, 2020: | ||||||||||||||||||||||||||||||||||||
Unaudited | ||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 9,411,998 | $ | 9,412 | - | $ | - | 39,301,323 | $ | 39,301 | $ | 783,891 | $ | (2,379,238 | ) | $ | (1,546,634 | ) | |||||||||||||||||||
| Conversions of notes payable ($165,350) and accrued interest ($11,793) into 21,484,688 shares of common stock (Fair Value of $ 406,093) for the three months ended March 31, 2020 | 21,484,688 | 21,485 | 384,608 | 406,093 | ||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2020 | (1,211,569 | ) | (1,211,569 | ) | ||||||||||||||||||||||||||||||||
| Balances at March 31, 2020 | 9,411,998 | $ | 9,412 | - | $ | - | 60,786,011 | $ | 60,786 | $ | 1,168,499 | $ | (3,590,807 | ) | $ | (2,352,110 | ) | |||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-25 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2020 and 2019 (Unaudited)
| March 31, 2020 | March 31, 2019 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (1,211,569 | ) | $ | (138,349 | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities: | ||||||||
| Loss on conversions of note payable and accrued interest to common stock | 228,949 | 99,302 | ||||||
| (Income) expense from derivative liability | 551,941 | (88,451 | ) | |||||
| Amortization of Pharmedica Exclusive License Agreement cost | - | 5,000 | ||||||
| Amortization of Right of First Refusal Agreement cost | 833 | - | ||||||
| Amortization of debt discounts | 297,073 | 35,717 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable | (12,750 | ) | (5,885 | ) | ||||
| Accrued interest | 18,508 | 2,704 | ||||||
| Accrued salaries | (4,000 | ) | (55,000 | ) | ||||
| Net cash used in operating activities | (131,015 | ) | (144,962 | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of Right of First Refusal Agreement | (25,000 | ) | - | |||||
| Net cash used in investing activities | (25,000 | ) | - | |||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable to third parties | 426,667 | 250,000 | ||||||
| Net cash provided by financing activities | 426,667 | 250,000 | ||||||
| NET INCREASE (DECREASE) IN CASH | 270,652 | 105,038 | ||||||
| CASH BALANCE, BEGINNING OF PERIOD | 24,662 | 59,891 | ||||||
| CASH BALANCE, END OF PERIOD | $ | 295,314 | $ | 164,929 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income tax paid | $ | - | $ | - | ||||
| Non-cash Investing and Financing Activities: | ||||||||
| Conversion of note payable ($670) and accrued interest ($100) into 769,785 shares of common stock (Fair Value of $ 100,072) on January 4, 2019 | $ | - | $ | 100,072 | ||||
| Exercise of 1400 warrants into 695,129 shares of common stock in a cashless exercise transaction on January 4, 2019 | $ | - | $ | 695 | ||||
| Exchange of 438,600 warrants into 9,000,000 shares of Class B Convertible Preferred Stock on February 14, 2019 | $ | - | $ | 9,000 | ||||
| Initial derivative liability charged to debt discount | $ | 426,667 | $ | 250,000 | ||||
| Conversions of notes payable ($165,350) and accrued interest ($11,793) into 21,484,688 shares of common stock (Fair Value of $ 406,093) for the three months ended March 31, 2020 | $ | 406,093 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements
| F-26 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Greater Cannabis Company, Inc. (the “Company”) was formed in March 2014 as a limited liability company under the name, The Greater Cannabis Company, LLC. The Company was a wholly owned subsidiary of Sylios Corp (“Sylios”) until March 10, 2017.
On July 31, 2018, the Company acquired 100% of the issued and outstanding shares of Class A common stock of Green C Corporation (“Green C”) in exchange for 9,411,998 newly issued shares of the Company’s Series A Convertible Preferred Stock (the “Exchange”). Each share of Series A Convertible Preferred Stock is convertible into 50 shares of common stock and is entitled to vote 50 votes per share on all matters as a class with holders of common stock. Since after the Exchange was consummated, the former shareholders of Green C and their designees owned approximately 94% of the issued and outstanding voting shares of the Company, Green C is the acquirer for accounting purposes. Prior to the Exchange, the Company had no assets and nominal business operations. Accordingly, the Exchange has been treated for accounting purposes as a recapitalization by the accounting acquirer, Green C, and the accompanying consolidated financial statements of the Company reflect the assets, liabilities and operations of Green C from its inception on December 21, 2017 to July 31, 2018 and combined with the Company thereafter.
Green C was incorporated on December 21, 2017 under the laws of the Province of Ontario Canada with its principal place of business in North York, Ontario.
Green C is the owner of an exclusive, worldwide license for an eluting transmucosal patch platform (“ETP”) for non-invasive drug delivery in the cannabis field as further described in the exclusive license agreement dated June 21, 2018 with Pharmedica Ltd. (see Note I).
The Company’s business plan is to (i) commercialize its ETP technology and (ii) concentrate on cannabis related investment and development opportunities through direct equity investments, joint ventures, licensing agreements or acquisitions.
Principles of Consolidation
The consolidated financial statements include the accounts of The Greater Cannabis Company, Inc., and its wholly owned subsidiaries Green C Corporation and BioCare Inc.
| F-27 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Interim Financial Statements
The interim financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. These statements reflect all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the information contained herein. Operating results for the three months ended March 31, 2020 are not necessarily indicative of results that may be expected for the year ending December 31, 2020.
Certain information and finance disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes for the year ended December 31, 2019 as included in our report on Form 10-K.
Cash and Cash Equivalents
Investments having an original maturity of 90 days or less that are readily convertible into cash are considered to be cash equivalents. For the periods presented, the Company had no in cash equivalents.
Income Taxes
In accordance with Accounting Standards Codification (ASC) 740 - Income Taxes, the provision for income taxes is computed using the asset and liability method. The asset and liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
We expect to recognize the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not” threshold, the amount to be recognized in the financial statements will be the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of March 31, 2020, we had no uncertain tax positions. We recognize interest and penalties, if any, related to uncertain tax positions as general and administrative expenses. We currently have no foreign federal or state tax examinations nor have we had any foreign federal or state examinations since our inception. To date, we have not incurred any interest or tax penalties.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Financial Instruments and Fair Value of Financial Instruments
We follow ASC Topic 820, Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring basis. ASC Topic 820 establishes a common definition for fair value to be applied to existing US GAAP that requires the use of fair value measurements that establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC Topic 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
| F-28 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| Level 1: | Observable inputs such as quoted market prices in active markets for identical assets or liabilities |
| Level 2: | Observable market-based inputs or unobservable inputs that are corroborated by market data |
| Level 3: | Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. |
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. Except for derivative liabilities, we had no financial assets or liabilities carried and measured on a recurring or nonrecurring basis during the reporting periods.
Derivative Liabilities
We evaluate convertible notes payable, stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity.
The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.
Long-lived Assets
Long-lived assets such as property and equipment and intangible assets are periodically reviewed for impairment. We test for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
| F-29 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances of our common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete.
Although situations may arise in which counter performance may be required over a period of time, the equity award granted to the party performing the service may be fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist if the instruments are fully vested on the date of agreement, we determine such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to expense over the contract period. When it is appropriate for us to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values.
Related Parties
A party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with us. Related parties also include our principal owners, our management, members of the immediate families of our principal owners and our management and other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties, or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests, is also a related party.
| F-30 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Revenue from product sales will be recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred.
Advertising Costs
Advertising costs are expensed as incurred. For the periods presented, we had no advertising costs.
Loss per Share
We compute net loss per share in accordance with FASB ASC 260. The ASC specifies the computation, presentation and disclosure requirements for loss per share for entities with publicly held common stock.
Basic loss per share amounts is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options, warrants and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net loss per share are excluded from the calculation. For the periods presented, the Company excluded 470,599,900 shares relating to the Series A Convertible Preferred Stock (see Note G), shares relating to convertible notes payable to third parties (Please see NOTE E - NOTES PAYABLE TO THIRD PARTIES for further information) and shares relating to outstanding warrants (Please see NOTE G - CAPITAL STOCK AND WARRANTS for further information) from the calculation of diluted shares outstanding as the effect of their inclusion would be anti-dilutive.
Recently Enacted Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all prior revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under prior U.S. GAAP. As amended by the FASB in July 2015, the standard became effective for annual periods beginning after December 15, 2017, and interim periods therein. ASU 2014-09 has had no impact on our Financial statements for the periods presented.
| F-31 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently Enacted Accounting Standards
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09 (discussed above). ASU 2016-08 has had no impact on our Financial statements for the periods presented.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09 (discussed above). ASU 2016-10 has had no impact on our financial statements for the periods presented.
On July 13, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2017-11. Among other things, ASU 2017-11 provides guidance that eliminates the requirement to consider “down round” features when determining whether certain financial instruments or embedded features are indexed to an entity’s stock and need to be classified as liabilities. ASU 2017-11 provides for entities to recognize the effect of a down round feature only when it is triggered and then as a dividend and a reduction to income available to common stockholders in basic earnings per share. The guidance became effective for annual periods beginning after December 15, 2018.
Accordingly, effective January 1, 2019, the Company reduced the derivative liability of warrants with “down round” features (and do not contain variable conversion features) of $108,427 at December 31, 2018 to $0 and recognized a $108,427 cumulative affect adjustment reduction of accumulated deficit.
| F-32 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE B - GOING CONCERN
Under ASC 205-40, we have the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability to meet our future obligations as they become due within one year after the date the financial statements are issued. As required by this standard, our evaluation shall initially not take into consideration the potential mitigating effects of our plans that have not been fully implemented as of the date the financial statements are issued.
In performing the first step of this assessment, we concluded that the following conditions raise substantial doubt about our ability to meet our financial obligations as they become due. As of March 31, 2020, the Company had cash of $295,314, total current liabilities of $2,699,591 and negative working capital of $2,376,277. For the three months ended March 31, 2020, we incurred a net loss of $1,211,569 and used $131,015 cash from operating activities. We expect to continue to incur negative cash flows until such time as our business generates sufficient cash inflows to finance our operations and debt service requirements.
In performing the second step of this assessment, we are required to evaluate whether our plans to mitigate the conditions above alleviate the substantial doubt about our ability to meet our obligations as they become due within one year after the date that the financial statements are issued. Our future plans include securing additional funding sources.
There is no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available through external sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material effect on the business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing shareholders. We have therefore concluded there is substantial doubt about our ability to continue as a going concern through May 2021.
The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the uncertainty related to our ability to continue as a going concern.
NOTE C – RIGHT OF FIRST REFUSAL AGREEMENT
On January 30, 2020, the Company executed a Right of First Refusal Agreement with an entity engaged in the business of cosmetics, health, and well-being (“KTV”). The Agreement provided for the Company to pay KTV $25,000 on January 30, 2020 (which was paid January 30,2020) and to make other investments in opportunities to be pursued by KTV and/or payments to KTV to enable KTV to pursue and secure Cannabidiol (“CBD”) opportunities. The Agreement provides the Company an exclusive right of first refusal to participate in all CBD opportunities to be pursued by KTV for a term of five years. The $25,000 cost for this Agreement is being amortized over the five year term of the Agreement.
| F-33 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE D - LOANS PAYABLE TO RELATED PARTIES
Loans payable to related parties consist of:
| March 31, 2020 | December 31, 2019 | |||||||
| Loans from Elisha Kalfa and Yonah Kalfa, holders of a total of 2,966,666 shares of Series A Convertible Preferred stock | $ | 180,000 | $ | 180,000 | ||||
| Loan from Fernando Bisker and Sigalush, LLC, holders of a total of 2,966,666 shares of Series A Convertible Preferred stock | 80,000 | 80,000 | ||||||
| Total | $ | 260,000 | $ | 260,000 | ||||
Pursuant to loan and contribution agreements dated July 31, 2018, the above loans are non-interest bearing and are to be repaid after the Company raises from investors no less than $1,500,000 or generates sufficient revenue to make repayments (each, a “Replacement Event”). If the First Replacement Event does not occur within 18 months from July 31, 2018, the loans are to be repaid immediately. In the event there is insufficient capital to repay the loan, the lenders have the option to convert all or part of the loans into shares at the Company common stock at the average trading price of the 10 days prior to the date of the conversion request.
| F-34 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE E - NOTES PAYABLE TO THIRD PARTIES
Notes payable to third parties consist of:
March 31, 2020 | December 31, 2019 | |||||||
| Allonge to the Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018 | $ | 2,420 | $ | 2,420 | ||||
| Allonge 2 to the Convertible Promissory Note dated September 14, 2017 payable to Emet Capital Partners, LLC (“EMET”), interest at 5%, due September 14, 2018 | 1,100 | 1,100 | ||||||
| Promissory Note dated March 28, 2017 payable to John T. Root, Jr., interest at 4%, due September 28, 2017, convertible into shares of common stock at a conversion price of $.001 per share. | 375 | 375 | ||||||
| Convertible Promissory Note dated February 12, 2019 payable to Eagle Equities, LLC (“Eagle”), interest at 6% (default interest at 24%), due February 12, 2020-less unamortized debt discount of $0 and $ 33,396, respectively (i) | 196,428 | 250,082 | ||||||
Convertible Promissory Note dated January 27, 2020 payable to Eagle Equities, LLC (“Eagle”), interest at 6%, due January 27, 2021-less unamortized debt discount of $137,385 and $ 0, respectively (i) | 29,115 | - | ||||||
Convertible Promissory Note dated February 12, 2020 payable to Eagle Equities, LLC (“Eagle”), interest at 6%, due February 12, 2021-less unamortized debt discount of $81,382 and $ 0, respectively (i) | 12,284 | - | ||||||
| Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 2%, due October 18, 2020-less unamortized debt discount of $165,303 and $294,234, respectively (ii) | 135,697 | 74,566 | ||||||
| Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 2%, due October 18, 2020-less unamortized debt discount of $61,989 and $90,054, respectively (ii) | 50,887 | 22,823 | ||||||
| Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 2%, due October 18, 2020-less unamortized debt discount of $54,551 and $79,248, respectively (ii) | 44,780 | 20,084 | ||||||
| Convertible Warrant Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 2%, due October 18, 2020-less unamortized debt discount of $6,199 and $9,005 respectively (ii) | 5,089 | 2,281 | ||||||
| Convertible Promissory Note dated October 18, 2019 payable to Emet Capital Partners, LLC (“EMET”), interest at 6%, due February 12, 2020-less unamortized debt discount of $0 and $0, respectively (ii) | 25,587 | 25,587 | ||||||
| Convertible Promissory Note dated January 27, 2020 payable to GW Holdings Group, LLC (“GWH”), interest at 6%, due January 27, 2021-less unamortized debt discount of $ 128,721 and $ 0 respectively (iii) | 27,279 | - | ||||||
| Total | $ | 531,041 | $ | 399,318 | ||||
| F-35 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE E - NOTES PAYABLE TO THIRD PARTIES (continued)
(i) On February 12, 2019, (the “Issue Date”) the Company issued a 6% Convertible Redeemable Note to Eagle Equities, LLC (“Eagle”), having a principal amount of $1,200,000 of which $96,000 constituted an original issue discount (the “Eagle Note”). In connection with the Eagle Note, the Company and Eagle entered into a Securities Purchase Agreement. Eagle is to fund the $ 1,104,000 purchase price of the Eagle Note in tranches. The first tranche of $ 250,000 was received by the Company on February 13, 2019. The second tranche of $166,500 was received by the Company on January 17, 2020 and the third tranche of $ 93,666 was received by the Company on February 12, 2020. The loans are repayable one year from their respective funding dates and are convertible at the option of Eagle at a conversion price equal to 65% of the lowest closing price of the Company’s common stock for the preceding 15 trading days prior to the conversion date. Please see Note F-DERIVATIVE LIABILITY for further information.
| F-36 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE E - NOTES PAYABLE TO THIRD PARTIES (continued)
(ii) On October 18, 2019, the Company entered into two Exchange Agreements with Emet Capital Partners, LLC (“Emet”). The first Exchange Agreement provided for the exchange of three outstanding convertible notes payable to Emet with a total remaining principal balance of $20,399 and a total accrued interest balance of $5,189 for three new convertible notes payable to Emet in the total amount of $25,587. The new notes bear interest at 6%, were due on February 12, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the Conversion Date. The second Exchange Agreement provided for the reversal of the February 14, 2019 exchange agreement pursuant to which certain warrants then held by Emet were exchanged for 9,000,000 shares of Series B Convertible Preferred Stock (see Note G) and the exchange of such warrants for four new convertible notes payable to Emet in the total amount of $675,000. These new notes bear interest at 2%, are due on October 18, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the Conversion Date. Please see NOTE F - DERIVATIVE LIABILITY for further information.
(iii) On January 27, 2020, the Company executed a Convertible Note (the “Convertible Note”) payable to GW Holdings Group, LLC, a New York limited liability company and its authorized successors and permitted assigns (“Holder”), in the aggregate principal face amount of $166,500. The new note bears interest at 6%, is due on January 27, 2021 and is convertible into common stock at a conversion price equal to 55% of the lowest closing Price during the 15 Trading Day Period prior to the Conversion Date. Please see NOTE F - DERIVATIVE LIABILITY for further information.
| F-37 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE F - DERIVATIVE LIABILITY
The derivative liability consists of:
March 31, 2020 | December 31, 2019 | |||||||
| Convertible Promissory Note dated February 12, 2019 payable to Eagle Equities, LLC. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information (i): | ||||||||
| Due February 12, 2020 | $ | 256,867 | $ | 182,625 | ||||
| Due January 17, 2021 | 262,558 | - | ||||||
| Due February 12, 2021 | 151,307 | - | ||||||
| Convertible Promissory Note dated January 27, 2020 payable to GW Holdings Group, LLC. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information (iii) | 304,909 | - | ||||||
| Convertible Promissory Notes dated October 18, 2019 payable to Emet. Please see NOTE E – NOTES PAYABLE TO THIRD PARTIES for further information (ii): | ||||||||
| $451,505 note due October 18, 2021 | 401,333 | 328,953 | ||||||
| $112,876 note due October 18, 2021 | 150,502 | 100,680 | ||||||
| $99,331 note due October 18, 2021 | 132,441 | 88,599 | ||||||
| $11,288 note due October 18, 2021 | 15,050 | 10,068 | ||||||
| $25,587 note due October 18, 2021 | 29,505 | 14,940 | ||||||
| Total derivative liability | $ | 1,704,472 | $ | 725,865 | ||||
| F-38 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE F - DERIVATIVE LIABILITY (continued)
The Convertible Promissory Notes (the “Notes”) contain a variable conversion feature based on the future trading price of the Company’s common stock. Therefore, the number of shares of common stock issuable upon conversion of the Note is indeterminate.
The fair value of the derivative liability was measured at the respective issuance dates and quarterly thereafter using the Black Scholes option pricing model. Assumptions used for the calculation of the derivative liability of the Notes at March 31, 2020 were (1) stock price of $.006 per share, (2) conversion prices ranging from $.0026 to $.0028 per share, (3) terms ranging from 30 days to 318 days, (4) expected volatility of 142.94%, and (5) risk free interest rates ranging from .10% to .20%.
Assumptions used for the calculations of the derivative liability of the Notes at December 31, 2019 were (1) stock price of $ .0330 per share, (2) conversion prices ranging from $ .01885 to $ .02175 per share, (3) terms ranging from 43 days to 293 days, (4) expected volatility of 142,94%, and (5) risk free interest rates ranging from 1.50% to 1.60%.
NOTE G - CAPITAL STOCK AND WARRANTS
Preferred Stock
On July 31, 2018, The Greater Cannabis Company, Inc. (the “Company”) acquired 100% of the issued and outstanding shares of Class A common stock of Green C Corporation (“Green C”) in exchange for 9,411,998 newly issued shares of the Company’s Series A Convertible Preferred Stock (the Exchange”). Each share of Series A Convertible Preferred Stock is convertible into 50 shares of common stock and is entitled to 50 votes on all matters as a class with the holders of common stock.
On February 14, 2019, the Company issued 9,000,000 shares of Series B Convertible Preferred Stock to Emet Capital Partners, LLC (“Emet”) in exchange for the surrender of all outstanding warrants held by Emet. Each share of Series B Convertible Preferred Stock was convertible into one share of Company common stock subject to adjustment in case, at the time of conversion, the market price per share of the Company common stock was less than $ 0.075 per share. On October 18, 2019, this exchange agreement was reversed.
On October 18, 2019, the Company entered into two Exchange Agreements with Emet Capital Partners, LLC (“Emet”). The first Exchange Agreement provided for the exchange of three outstanding convertible notes payable to Emet with a total remaining principal balance of $20,399 and a total accrued interest balance of $5,189 for three new convertible notes payable to Emet in the total amount of $25,587. The new notes bear interest at 6%, are due on February 12, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the Conversion Date. The second Exchange Agreement provided for the reversal of the February 14, 2019 exchange agreement pursuant to which certain warrants then held by Emet were exchanged for 9,000,000 shares of Series B Convertible Preferred Stock and the exchange of such warrants for four new convertible notes payable to Emet in the total amount of $675,000. These new notes bear interest at 2%, are due on October 18, 2020 and are convertible into common stock at a conversion price equal to 75% of the lowest Trading Price during the 15 Trading Day Period prior to the Conversion Date.
Common Stock
Effective March 10, 2017, in connection with a partial spin-off of the Company from Sylios Corp, the Company issued a total of 26,905,969 shares of its common stock. 5,378,476 shares were issued to Sylios Corp (representing 19.99% of the issued and outstanding shares of Company common stock after the spin-off) and 21,527,493 shares were issued to the stockholders of record of Sylios Corp on February 3, 2017 on the basis of one share of Company common stock for each 500 shares of Sylios Corp common stock held (representing 80.01% of the issued and outstanding shares of Company common stock after the spin-off).
| F-39 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE G - CAPITAL STOCK AND WARRANTS (continued)
On September 19, 2018, the Company issued 1,465,523 shares of its common stock pursuant to a conversion of $32,000 principal and $ 4,638 accrued interest of its convertible note dated May 25, 2017 by Emet Capital Partners, LLC. The $510,149 excess of the $ 546,787 fair value of the 1,465,523 shares over the $36,638 liability reduction was charged to Loss on Conversion of Debt.
On October 26, 2018, the Company issued 1,034,477 shares of its common stock pursuant to a conversion of $30,531 principal and $ 503 accrued interest of its convertible note dated May 25, 2017 by Emet Capital Partners, LLC. The $ 82,758 excess of the $ 113,792 fair value of the 1,034,479 shares over the $ 31,034 liability reduction was charged to Loss on Conversion of Debt.
On January 4, 2019, the Company issued 769,785 shares of its common stock pursuant to a conversion of $ 670 principal and $ 100 accrued interest of its convertible note dated May 25, 2018 by Emet Capital Partners, LLC (“Emet”). This conversion was based on a conversion price of $ 0.001 per share (rather than the Variable Conversion Price provided in the related note) submitted by Emet in its Conversion Notice. Emet asserted that the Company had committed a dilutive issuance, which triggered the “ratchet-down” provision of the related note which provides for a reduction of the conversion price. The Company has notified Emet that it disagrees with Emet’s assertion that a ratch-down dilutive issuance occurred. The $ 99,302 excess of the $ 100,072 fair value of the 769,785 shares over the $ 770 liability reduction was charged to Loss on Conversion of Debt in the three months ended March 31, 2019.
On January 4, 2019, the Company issued 695,129 shares of its common stock pursuant to an exercise of the equivalent of 1,400 warrants (of the 440,000 warrants issued to Emet Capital Partners, LLC on May 25, 2017) in a cashless exercise transaction based on a ratchet-down exercise price of $ 0.001 per share.
On April 16, 2019, the Company issued 1,384,600 shares of its common stock pursuant to conversions of $ 40,500 principal and $ 7,961 accrued interest of two convertible notes issued to by Emet Capital Partners, LLC (“Emet”). The $131,537 excess of the $179,998 fair value of the 1,384,600 shares over the $47,961 liability reduction was charged to Loss on Conversion of Debt in the three months ended June 30, 2019.
On May 29, 2019, the Company issued a total of 542,000 shares of its common stock to two consulting firm entities for certain specified investor relations and advisory services. The $75,880 fair value of the 542,000 shares was charged to Other Operating Expenses in the three months ended June 30, 2019.
On August 15, 2019, the Company issued 175,000 shares of its common stock to an entity consultant for accounting services rendered. The $12,250 fair value of the 175,000 shares was charged to Other Operating Expenses.
| F-40 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE G - CAPITAL STOCK AND WARRANTS (continued)
On November 11, 2019, the Company issued 1,748,363 shares of its common stock pursuant to a conversion of $53,705 principal and $2,680 accrued interest and fees of its convertible note dated October 18, 2019 by Emet.
On December 20, 2019, the Company issued 1,468,204 shares of its common stock pursuant to a conversion of $29,000 principal and $4,015 accrued interest and fees of its convertible note dated October 18, 2019 by Emet.
On December 24, 2019, the Company issued 637,273 shares of its common stock pursuant to a conversion of $10,000 principal and $515 accrued interest and fees of its convertible note dated October 18, 2019 by Emet.
During the three months ended March 31, 2020, the Company issued a total of 21,484,688 shares of common stock pursuant to conversions of an aggregate of $165,350 in principal and $ 11,793 in interest under our outstanding convertible notes. The $ 228,949 excess of the $406,093 fair value of the 21,484,688 shares of common stock at the respective dates of issuance over the $177,143 liability reduction was charged to Loss on Conversions of Notes Payable.
| F-41 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE G - CAPITAL STOCK AND WARRANTS (continued)
Warrants
On February 14, 2019, the Company entered into an exchange agreement with Emet Capital Partners, LLC (“Emet”) pursuant to which the Company issued Emet 9,000,000 shares of its Series B Convertible Preferred Stock (the “Series B Preferred Shares”) in exchange for the surrender of all outstanding warrants held by Emet. Each Series B Preferred Share was convertible into one share of the Company’s common stock subject to adjustment in case, at the time of conversion, the market price per share of the Company’s common stock was less than $0.075. In such case, Emet was to receive an additional number of shares of common stock equal to the number of shares being converted divided by the applicable market price. On October 18, 2019, this exchange agreement was reversed and the warrants were exchanged for four new convertible notes payable to Emet in the total amount of $ 675,000. See Preferred Stock above.
At the date hereof, the Company has no outstanding warrants.
NOTE H - INCOME TAXES
The Company and its United States subsidiaries expect to file consolidated Federal income tax returns. Green C Corporation, its Ontario Canada subsidiary, will file Canada and Ontario income tax returns.
At March 31, 2020 the Company has available for federal income tax purposes a net operating loss carry forward that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is not more likely than not that the benefits will be realized. Due to significant changes in the Company’s ownership, the future use of its existing net operating losses will be limited.
All tax years of the Company and its United States subsidiaries remain subject to examination by the Internal Revenue Service.
NOTE I - COMMITMENTS AND CONTINGENCIES
Pharmedica Exclusive License Agreement
On June 21, 2018, Green C executed an Exclusive License Agreement with Pharmedica, Ltd. (“Pharmedica”), an Israeli company, to exploit certain Pharmedica intellectual property for the development and distribution of a certain Licensed Product involved in the transmucosal delivery of medicinal or recreational cannabis. The agreement provides for Green C payments to Pharmedica of a $100,000 license fee (which was paid by 2591028 Ontario Limited, an entity affiliated with Green C’s Chief Executive Officer, on June 26, 2018) and annual royalties at a rate of 5% of the Net Sales of the Licensed Product subject to a Minimum Annual Royalty of $50,000. The agreement also provides for certain milestones to be accomplished by Green C in order for Green C to retain the license. Green C and Pharmedica each may terminate the agreement upon the occurrence of a material breach by the other party of its obligations under the agreement and such other party’s failure to remedy such breach to the reasonable satisfaction of the other party within thirty (30) days after being requested in writing to do so.
The Company has generated only minimal revenues from this asset to date and has not paid the Year 1 Minimum Annual Royalty of $50,000 due Pharmedica. Accordingly, we recorded an impairment charge of $69,749 at December 31, 2019 and reduced the $69,749 remaining carrying value of this intangible asset to $0.
| F-42 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
Sub-License Agreement with Symtomax Unipessoal Lda
On July 15, 2019, the Company executed a Sub-License Agreement with Symtomax Unipessoal Lda (“Symtomax”).
The agreement provides for the Company’s grant to Symtomax of a non-exclusive right and sub-license to use certain Company technology and intellectual property to develop and commercialize products for sale in Europe, the Middle East, and Africa. The agreement provides for Symtomax payments of royalties to the Company (payable monthly) ranging from 10% to 17% of Symtomax sales of eluting patches developed from Company technology.
The term of the agreement ends the earlier of (i) July 15, 2020 and (ii) the date that Symtomax is no longer commercializing any of the products. The term is extended for an additional year on each anniversary of the agreement for any country where the royalty payment in respect of such country was equal to or greater than $1,000,000 for the previous year.
To date, Symtomax has not made any sales requiring the payment of royalties to the Company.
Service Agreements
On July 31, 2018, the Company executed Services Agreements with its newly appointed Chief Executive Officer (the “CEO”) and its newly appointed Chief Legal Officer (the “CLO”), for terms of five years. The Agreements provide for a monthly base salary of $10,000 for the CEO and a monthly base salary of $7,000 for the CLO. For the three months ended March 31, 2020 and 2019, the Company expensed a total of $51,000 and $51,000, respectively, as officer compensation pursuant to these agreements.
NOTE J – SUBSEQUENT EVENTS
From April 1, 2020 to June 24, 2020, the Company issued a total of 27,563,525 shares of its common stock to 3 lenders pursuant to conversions totaling $67,082 principal and $10,613 accrued interest. The $77,695 excess of the $132,838 fair value of the 27,563,525 shares of our common stock at the respective dates of issuance over the $77,695 debt satisfied will be recognized as a loss in the three months ended June 30, 2020.
On May 26, 2020, the Company entered into a Surrender Agreement with Emet Capital Partners, LLC (“Emet”), whereby the Company paid $70,000 cash to Emet in exchange for Emet’s surrender of its interests in convertible notes payable totaling $538,650. The $468,650 excess of the $538,650 debt satisfied over the $70,000 cash payment will be recognized as a gain in the three months ended June 30, 2020.
On May 27, 2020, the Company entered into a Securities Purchase Agreement with GW Holdings Group, LLC (“GW”), whereby the Company received $37,500 cash in exchange for the issuance of a $40,500 6% Convertible Redeemable Promissory Note to GW due May 27, 2021 and convertible at a conversion price equal to 55% of the lowest closing price of the Company’s common stock for the 15 prior trading days.
Effective as of May 27, 2020, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle”), whereby the Company received $37,500 cash in exchange for the issuance of a $42,500 6% Convertible Redeemable Promissory Note to Eagle due May 27, 2021 and convertible at a conversion price equal to 65% of the lowest closing price of the Company’s common stock for the 15 prior trading days.
On June 10, 2020, the Company entered into a Bob Ross Bridge Loan Agreement with Kol Tov Ventures, LLC (“Kol Tov”), the entity which the Company paid $25,000 cash to in connection with a right of First Refusal Agreement dated January 30, 2020 (see Note C). Pursuant to the Bridge Loan Agreement, the Company paid $23,575 cash to Kol Tov on June 10, 2020, as a partial payment against the Company’s obligation to lend a total of $50,000 to Kol Tov. The remaining $26,425 of the $50,000 loan is expected to be paid to Kol Tov on or about August 10. 2020. The loan does not bear interest and is due and payable no later than December 10, 2021.
| F-43 |
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
| ITEM 13. | OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION |
| Registration Fees | $ | 47.38 | ||
| Transfer Agent Fees | $ | * | ||
| Accounting Fees and Expenses | $ | * | ||
| Legal Fees and Expenses | $ | * | ||
| Miscellaneous Fees and Expenses | $ | * | ||
| Total | $ | * | ||
*To be filed by amendment.
All amounts are estimates other than the SEC’s registration fee. We are paying all expenses of the offering listed above. No portion of these expenses will be borne by the Selling Shareholders. The Selling Shareholders, however, will pay any other expenses incurred in selling their common stock, including any brokerage commissions or costs of sale.
| ITEM 14. | INDEMNIFICATION OF DIRECTORS AND OFFICERS |
Our Articles of Incorporation and bylaws provide for indemnification of our officers and directors to the fullest extent permitted by Florida law.
| ITEM 15. | RECENT SALES OF UNREGISTERED SECURITIES |
During the past three years, we effected the following transactions in reliance upon exemptions from registration under the Securities Act, as amended
| 1. | The Company issued 175,000 shares of its common stock in the fiscal quarter ended September 30, 2017 to one individual for accounting services valued at $12,250. | |
| 2. | On September 14, 2017, the Company entered into a Securities Purchase Agreement (the “ Purchase Agreement ”) and Common Stock Purchase Warrant (the “Stock Warrant ) with Emet Capital Partners, LLC, a New York limited liability company (“Emet”), in the principal amount of Thirteen Thousand Seven Hundred Fifty and NO/100 Dollars ($13,750). The Stock Warrant can be exercised upon the date of issuance (the “Initial Exercise Date”) and on or prior to the close of business on the sixty-month anniversary of the Initial Exercise Date. The purchase price of one share of Common Stock under the Stock Warrant is be equal to the Exercise Price which is $0.50, subject to adjustment. | |
| Simultaneous with entry into the Purchase Agreement and Stock Warrant, the Company issued a Convertible Note (the “Convertible Note”) dated September 14, 2017 (the “Original Issue Date”) in the amount of Thirteen Thousand Seven Hundred Fifty and NO/100 Dollars ($13,750) to Emet. The Note had a maturity date of September 14, 2018, an original conversion price of $0.25 and bore interest annually at five percent (5%). At any time after the Original Issue Date until the Note is no longer outstanding, this Note is convertible, in whole or in part, into shares of Common Stock at the option of the Holder. The conversion price for the principal and interest in connection with voluntary conversions by the Holder shall be the lesser of (i) $0.25 (the “Fixed Conversion Price”); or (ii) 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the lowest one (1) Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. The Note was fully funded on September 15, 2017. | ||
| 3. | On January 9, 2018, the Company executed a convertible note (the “Convertible Note 2”) payable to Emet in the principal amount of $20,000 in exchange for entry into a Waiver Agreement pertaining to the Securities Purchase Agreements entered into between the Parties dated May 25, 2017 and September 14, 2017 along with a Convertible Note issued by the Company on each of the same dates. The Company received $0 cash from issuance of the Convertible Note. The Convertible Note is convertible, in whole or in part, at any time and from time to time before maturity (January 9, 2019) at the option of the holder at the Variable Conversion Price, which shall mean the lesser of (i) $0.25 (the “Fixed Conversion Price”); or (ii) 50% multiplied by the Market Price (as defined). “Market Price” means the lowest Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. The Convertible Note has a term of one (1) year and bears interest at 5% annually. | |
| 4. | On March 28, 2018, the Company made an Allonge to the Convertible Note (hereinafter the “Allonge”) to Emet. The Principal Amount as stated on the face of the Debenture shall be increased to $25,850.00 ($13,750.00 – original Principal Amount of the Debenture + $12,100.00 Allonge thereto the “New Principal”). The amendment to the Principal Amount due and owing on the Debenture described herein notwithstanding, the Holder does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Debenture through the date of the Allonge, which default interest and liquidated damages, if any, remain outstanding and payable. As part of the transaction, Emet was also issued a warrant granting the holder the right to purchase up to 98,600 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. | |
| 5. | On June 13, 2018, the Company made an Allonge to the Convertible Note due September 14, 2018 (hereinafter the “Allonge”) to Emet. The Principal Amount as stated on the face of the Debenture was increased to $31,350.00 ($13,750.00 original Principal Amount of the Debenture + $12,100.00 Allonge dated March 28, 2018 + $5,500 Allonge hereto the “New Principal”). The amendment to the Principal Amount due and owing on the Debenture described therein notwithstanding, the Holder did not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Convertible Note through the date of the Allonge, which default interest and liquidated damages, if any, remain outstanding and payable. As part of the transaction, EMET was also issued a warrant granting the holder the right to purchase up to 11,000 shares of the Company’s common stock at an exercise price of $.50 for a term of 5-years. |
| II-1 |
| 6. | On July 31, 2018, the Company entered into and consummated a voluntary share exchange transaction with Green C Corporation, a company incorporated under the laws of the Province of Ontario (“Green C”) and the shareholders of Green C (the “Selling Shareholders”) pursuant to a Share Exchange Agreement by and among the Company, Green C and the Selling Shareholders (the “Exchange Agreement”). | |
| In accordance with the terms of the Exchange Agreement, the Company issued 9,411,998 shares of its preferred stock, par value $0.001 (the “Shares”) to the Selling Shareholders in exchange for 100% of the issued and outstanding capital stock of Green C. | ||
| 7. | On January 4, 2019, the Company issued 695,129 shares of its common stock pursuant to an exercise of the equivalent of 1,400 warrants (of the 440,000 warrants issued to Emet) on May 25, 2017) in a cashless exercise transaction based on a ratchet-down exercise price of $ 0.001 per share. | |
| 8. | On February 12, 2019 (the “Issue Date”), the Company issued a 6% Convertible Redeemable Note to Eagle Equities, LLC (“Eagle”), having a principal amount of $1,200,000 of which $96,000 constituted an original issue discount (the “2019 Eagle Note”). In connection with the 2019 Eagle Note, the Company and Eagle entered into a Securities Purchase Agreement. The Eagle Note, as extended, matures on February 12, 2021. | |
| Eagle has the right beginning on the date which is one hundred eighty (180) days following the Issue Date to convert all or any part of the outstanding and unpaid principal amount of the 2019 Eagle Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price shall be, equal to 65% of the lowest closing price of the Company’s common stock as reported on the tier of the OTC Market on which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. 2019 The Eagle Note contains other customary terms found in like instruments for conversion price adjustments. | ||
| 9. | On October 18, 2019 (the “Exchange Date”), the Company entered into a note exchange agreement with Emet pursuant to which Emet exchanged the following notes: |
| 1. | A note dated May 25, 2017 in the original principal amount of $55,000.00, of which $2,798.70 remained outstanding and $330.09 of interest accrued as of 10/18/19 (“ON1”); | |
| 2. | An allonge to the September 14, 2018 Note dated March 28, 2018, in the original principal amount of $12,100.00, of which $12,100.00 remained outstanding and $3.339.93 of interest and default damages accrued as of 10/18/19 (“ON2”); and | |
| 3. | An allonge to the September 14, 2018 Note dated June 13, 2018, in the original principal amount of $5,500.00, of which $5,500.00 remained outstanding and $1.518.93 of interest and default damages accrued as of 10/18/19 (“ON3”) |
for the following new notes: one for $3,128.79 (“NN1”), one for $15,439.93 (“NN2”), and one for $7,018.15 (“NN3”). NN1 is being exchanged for ON1, NN2 is being exchanged for ON2, and NN3 is being exchanged for ON3. NN1, NN2 and NN3 are collectively referred to as the “Exchange Notes”.
Emet has the right beginning on the date which is one hundred eighty (180) days following the Exchange Date to convert all or any part of the outstanding and unpaid principal amount of the Exchange Notes into fully paid and non-assessable shares of common stock of the Company at a conversion price equal to 65% of the lowest closing price of the Company’s common stock as reported on the tier of the OTC Market on which the Company’s shares are traded or any exchange upon which the Company’s common stock may be traded in the future for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company.
| 10. | On January 27, 2020, the Company received $150,000 pursuant to a securities purchase agreement with GW Holdings Group, LLC and the issuance of a 6% Cumulative Redeemable Promissory Note thereunder in the principal amount of $166,500 (the “January 2020 GW Note”). The January 2020 GW Note bears interest at the rate of 6% (24% following an event of default), is due January 27, 2021, and is convertible in shares of common stock at a conversion price equal to 55% of the lowest closing price of the common stock for the 15 preceding trading days. |
| 11. | Effective May 27, 2020, the Company issued a 6% senior convertible note (the “2020 Eagle Note”) to Eagle Equities, LLC (“Eagle”), having a principal amount of having a principal amount of $42,500 of which $3,000 constituted an original issue discount. The 2020 Eagle Note bears interest at the rate of 6% (24% following an event of default), is due May 27, 2021, and is convertible commencing 180 days from issuance into shares of our common stock at a conversion price equal to 65% of the lowest closing price of the common stock for the 15 preceding trading days. | |
| 12. | On May 27, 2020, the Company issued a second 6% senior convertible note (the “May 2020 GW Note,” and together with the January 2020 GW Note, the “GW Notes”) to Eagle, having a principal amount of $40,500 of which $3,000 constituted an original issue discount. The May 2020 GW Note bears interest at the rate of 6% (24% following an event of default), is due May 27, 2021, and is convertible commencing 180 days from issuance into shares of our common stock at a conversion price equal to 55% of the lowest closing price of the common stock for the 15 preceding trading days. |
All of the securities offered and sold in several private transactions described above, were offered and sold pursuant to the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D thereunder and no compensation was paid for the offering and sale of those securities..
| ITEM 16. | EXHIBITS |
| II-2 |
*Management compensation plan or arrangement
| II-3 |
| ITEM 17. | UNDERTAKINGS |
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
(a) to include any prospectus required by Section 10(a) (3) of the Securities Act of 1933;
(b) to reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation From the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.; and
(c) to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities being registered hereby which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act of 1933, and we will be governed by the final adjudication of such issue.
Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B of the Securities Act or other than prospectuses filed in reliance on Rule 430A of the Securities Act, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
| II-4 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Baltimore, State of Maryland, on July 8, 2020.
THE GREATER CANNABIS COMPANY, INC.
| By: | /s/ Aitan Zacharin | |
| Aitan Zacharin. President | ||
| (Principal Executive, Financial and Accounting Officer) |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Aitan Zacharin and Mark Radon, and each of them, as a true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for each of them and in each name, place and stead, in any and all capacities, to sign any and all pre- or post-effective amendments to this registration statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as each might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, as amended, this registration statement was signed by the following person in the capacities and on the dates stated.
| Signatures | Title(s) | Date | ||
| /s/ Aitan Zacharin | Chief Executive Officer and Acting Chief Financial Officer | July 8, 2020 | ||
| Aitan Zacharin | (Principal Executive, Financial and Accounting Officer) | |||
| /s/ David Tavor | Director | July 8, 2020 | ||
| David Tavor |
| II-5 |
Exhibit 5.1
DALE S. BERGMAN, P.A.
901 PONCE DE LEON BLVD., SUITE 303
CORAL GABLES, FL 33134
July 8, 2020
The Greater Cannabis Company, Inc.
15 Walker Avenue, Suite 101
Baltimore, Maryland 21208
Ladies and Gentlemen:
You have requested our opinion with respect to the 50,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Shares”) of The Greater Cannabis Company, a Florida corporation (the “Company”) offered by certain of the Company’s shareholders and included in the Registration Statement filed with the Securities and Exchange Commission on July 8, 2020 (the “Registration Statement”), pursuant to the Securities Act of 1933, as amended (the “Securities Act”). As set forth in the Registration Statement on Form S-1, filed contemporaneously herewith and the accompanying prospectus included therein, the Shares consist of consisting of (a) 25,000,000 Shares issuable upon conversion of $42,050 and $1,200,000 principal amount 6% senior convertible notes held by Eagle Equities, LLC (the “Eagle Notes”) and 50,000,000 Shares issuable upon conversion of $40,050 and $166,500 principal amount 6% convertible redeemable notes held by GW Holdings Group, LLC (the “GW Notes,” and together with the Eagle Notes, individually, a “Note,” and collectively, the “Notes”) or in payment of interest on the Notes..
As counsel to the Company, we have examined the original or certified copies of such records of the Company, and such agreements, certificates of public officials, certificates of officers or representatives of the Company and others, and such other documents as we deem relevant and necessary for the opinion expressed in this letter. In such examination, we have assumed the genuineness of all signatures on original documents, and the conformity to original documents of all copies submitted to us as conformed or photostatic copies. As to various questions of fact material to such opinions, we have relied upon statements or certificates of officials and representatives of the Company and others.
Based on, and subject to the foregoing, we are of the opinion that the Shares, when issued upon conversion of the Eagle Notes or the GW Notes, as the case may be, or in payment of interest on the Notes, are duly authorized validly issued, fully paid and non-assessable shares of common stock of the Company.
In rendering this opinion, we advise you that the principal of this Firm is a member of the Bar of the State of Florida. We express no opinion herein concerning the applicability or effect of any laws of any jurisdiction other than the laws of the State of Florida and the Federal laws of the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference of our Firm under the heading “Legal Matters” in the prospectus constituting part of the Registration Statement. In giving such consent, we do not thereby admit that we are included within the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations promulgated thereunder.
| Very truly yours, | |
| /s/ DALE S. BERGMAN, P.A. |
Exhibit 10.49
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)
US $42,500.00
GREATER CANNABIS COMPANY, INC.
6% CONVERTIBLE REDEEMABLE NOTE
DUE JUNE 2, 2021
FOR VALUE RECEIVED, Greater Cannabis Company, Inc. (the “Company”) promises to pay to the order of EAGLE EQUITIES, LLC and its authorized successors and Permitted Assigns, defined below, (“Holder”), the aggregate principal face amount of Forty Thousand Five Hundred Sixty Dollars exactly (U.S. $42,500.00) on June 2, 2021 (“Maturity Date”) and to pay interest on the principal amount outstanding hereunder at the rate of 6% per annum commencing on June 2, 2020 (“Issuance Date”). The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. This Note contains a $3,000.00 original issue discount such that purchase price shall be $39,500.00. The principal of, and interest on, this Note are payable at 390 Whalley Ave., New Haven, CT 06511, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. Permitted Assigns means any Holder assignment, transfer or sale of all or a portion of this Note accompanied by an Opinion of Counsel as provided for in Section 2(f) of the Securities Purchase Agreement.
This Note is subject to the following additional provisions:
1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith. To the extent that Holder subsequently transfers, assigns, sells or exchanges any of the multiple lesser denomination notes, Holder acknowledges that it will provide the Company with Opinions of Counsel as provided for in Section 2(f) of the Securities Purchase Agreement.
2. The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.
3. This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (“Act”), applicable state securities laws and Sections 2(f) and 5(f) of the Securities Purchase Agreement. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company’s records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prequalified prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted (“Notice of Conversion”) in the form annexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date. All notices of conversion will be accompanied by an Opinion of Counsel.
4. (a) The Holder of this Note is entitled, at its option, at any time, 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 65% of the lowest closing price of the Common Stock as reported on the National Quotations Bureau OTC Market 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 (provided such Notice of Conversion is delivered together with an Opinion of Counsel, by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price). For purposes of the above calculations, a day shall not be considered a trading day if there was no trading volume for the Company’s Common Stock for that particular day. If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Accrued, but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. 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 55% instead of 65% 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 Holder). The Conversion Discount may be decreased by 10% from 55% to 65% (resulting in an increased conversion discount from 35% to 45%) as set forth in Section 4(h) of the Securities Purchase Agreement.
| 2 |
(b) Interest on any unpaid principal balance of this Note shall be paid at the rate of 6% per annum. Interest shall be paid by the Company in Common Stock (“Interest Shares”). Holder may, at any time commencing six months after the date of funding to the Company by the Holder, send in a Notice of Conversion to the Company for Interest Shares based on the formula provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid principal balance of this Note to the date of such notice.
(c) The Notes may be prepaid or assigned with the following penalties/premiums:
| PREPAY DATE | PREPAY AMOUNT | |
| ≤ 30 days | 105% * (P+I) | |
| 31- 60 days | 110% * (P+I) | |
| 61-90 days | 115% * (P+I) | |
| 91-120 days | 120% * (P+I) | |
| 121-150 days | 125% * (P+I) | |
| 151-180 days | 130% * (P+I) |
This Note may not be prepaid after the 180th day. Such redemption must be closed and funded within 3 days of giving notice of redemption of the right to redeem shall be null and void. Any partial prepayments will be made in accordance with the formula set forth in the chart above with respect to principal, premium and interest.
(d) Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization (excluding an increase in authorized capital) or other change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a “Sale Event”), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.
| 3 |
(e) In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.
5. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
6. The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.
7. The Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.
8. If one or more of the following described “Events of Default” shall occur:
(a) The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or
(b) Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or
(c) The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note or any other note issued to the Holder; or
(d) The Company shall (1) become insolvent (which does not include a “going concern opinion); (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or
| 4 |
(e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or
(g) One or more money judgments, writs or warrants of attachment, or similar process, in excess of one hundred thousand dollars ($100,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or
(h) Defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or
(i) The Company shall have its Common Stock delisted from an exchange (including the OTC Markets exchange) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days or ceases to file its 1934 act reports with the SEC;
(j) If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the Board;
(k) The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business days of its receipt of a Notice of Conversion which includes an Opinion of Counsel expressing an opinion which supports the removal of a restrictive legend; or
(l) The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder.
(m) The Company shall be delinquent in its periodic report filings with the Securities and Exchange Commission; or
(n) The Company shall cause to lose the “bid” price for its stock in a market (including the OTC marketplace or other exchange); or
| 5 |
Then, or at any time thereafter, unless cured within 5 days of receipt of written notice thereof from the Holder, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10th day. The penalty for a breach of Section 8(n) shall be an increase of the outstanding principal amounts by 20%. Further, if a breach of Section 8(m) occurs or is continuing after the 6 month anniversary of the Note, then the Holder shall be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. For example, if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion discount is 50% the Holder may elect to convert future conversions at $0.005 per share
If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
Make-Whole for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder the conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows:
Failure to Deliver Loss = [(Highest VWAP for the 30 trading days on or after the day of exercise) x (Number of conversion shares)]
The Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.
9. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.
10. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.
11. The Company represents that it is not a “shell” issuer and that if it previously has been a “shell” issuer that the Company has reported Form 10 type information indicating it is no longer a “shell” issuer.
| 6 |
12. The Company shall issue irrevocable transfer agent instructions reserving 20,322,000 shares of its Common Stock for conversions under this Note (the “Share Reserve”). Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. The Company shall pay all transfer agent costs associated with issuing and delivering the share certificates to Holder. If such amounts are to be paid by the Holder, it may deduct such amounts from the principal amount being converted. The company should at all times reserve a minimum of four times the amount of shares required if the note would be fully converted. The Holder may reasonably request increases from time to time to reserve such amounts. The Company will instruct its transfer agent to provide the outstanding share information to the Holder in connection with its conversions.
13. The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable provision shall automatically be revised to equal the maximum rate of interest or other amount deemed interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it will not seek to claim or take advantage of any law that would prohibit or forgive the Company from paying all or a portion of the principal or interest on this Note.
15. This Note shall be governed by and construed in accordance with the laws of Nevada applicable to contracts made and wholly to be performed within the State of Nevada and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York or in the Federal courts sitting in the county or city of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.
| 7 |
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
| Dated: | May 27, 2020 | ||
| GREATER CANNABIS COMPANY, INC. | |||
| By: | /s/ Aitan Zacharin | ||
| Title: | Chief Executive Officer | ||
| 8 |
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ Shares of Common Stock of Greater Cannabis Company, Inc. (“Shares”) according to the conditions set forth in such Note, as of the date written below.
If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.
| Date of Conversion: | ||
| Applicable Conversion Price: | ||
| Signature: | ||
| [Print Name of Holder and Title of Signer] |
| Address: | ||
SSN or EIN: ______________________________
Shares are to be registered in the following name: ____________________________________________
| Name: | |||
| Address: | |||
| Tel: | |||
| Fax: | |||
| SSN or EIN: | |||
Shares are to be sent or delivered to the following account:
| Account Name: | ||
| Address: |
| 9 |
Exhibit 10.50
SECURITIES
PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of May 27, 2020, by and between Greater Cannabis Company, Inc., a Florida corporation, with headquarters located at 15 Walker Avenue Suite 101, Baltimore, MD 21208 (the “Company”) and EAGLE EQUITIES, LLC, with its address at 390 Whalley Ave., New Haven, CT 06511 (the “Buyer”).
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);
B. Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement a 6% convertible note of the Company, in the form attached hereto as Exhibit A in the aggregate principal amount of $40,500.00 (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “Note”), convertible into shares of common stock, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note. The Note shall contain a $3,000.00 original issue discount such that the purchase price of the Note shall be $37,500.00.
C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth immediately below its name on the signature pages hereto; and
NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:
1. Purchase and Sale of Note.
a. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company such principal amount of Note as is set forth immediately below the Buyer’s name on the signature pages hereto.
Company Initials
b. Form of Payment. On each Closing Date (as defined below), (i) the Buyer shall pay the purchase price for the Note to be issued and sold to it at each Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note in the principal amount equal to the Purchase Price as is set forth immediately below the Buyer’s name on the signature pages hereto, and (ii) the Company shall deliver such duly executed Note on behalf of the Company, to the Buyer, against delivery of such Purchase Price.
c. Closing Date. The date and time of the first issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be on or about May 27, 2020, or such other mutually agreed upon time. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.
2. Buyer’s Representations and Warranties. The Buyer represents and warrants to the Company that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note, such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).
c. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, afforded the opportunity to ask questions of the Company. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any of the Company’s representations and warranties made herein.
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e. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
g. Legends. The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):
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“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, within 2 business days, it will be considered an Event of Default under the Note.
h. Authorization; Enforcement. This Agreement has been duly and validly authorized. This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto.
j. No Short Sales. Buyer/Holder, its successors and assigns, agree that so long as the Note remains outstanding, the Buyer/Holder shall not enter into or effect “short sales” of the Common Stock or hedging transaction which establishes a short position with respect to the Common Stock of the Company. The Company acknowledges and agrees that upon delivery of a Conversion Notice by the Buyer/Holder, the Buyer/Holder immediately owns the shares of Common Stock described in the Conversion Notice and any sale of those shares issuable under such Conversion Notice would not be considered short sales.
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3. Representations and Warranties of the Company. The Company represents and warrants to the Buyer that:
a. Organization and Qualification. The Company and each of its subsidiaries, if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.
b. Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.
c. Issuance of Shares. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
d. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of the Note. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
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e. No Conflicts. The execution, delivery and performance of this Agreement, the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a material adverse effect). All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the OTC marketplace (the “OTC MARKETS”) and does not reasonably anticipate that the Common Stock will be delisted by the OTC Markets in the foreseeable future, nor are the Company’s securities “chilled” by DTC. The Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
f. Absence of Litigation. Except as disclosed in the Company’s public filings, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries, or their officers or directors in their capacity as such, that could have a material adverse effect. Schedule 3(f) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its subsidiaries, without regard to whether it would have a material adverse effect. The Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
g. Acknowledgment Regarding Buyer’ Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’ purchase of the Securities. The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
h. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
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i. Title to Property. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(i) or such as would not have a material adverse effect. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a material adverse effect.
j. Bad Actor. No officer or director of the Company would be disqualified under Rule 506(d) of the Securities Act as amended on the basis of being a “bad actor” as that term is established in the September 19, 2013 Small Entity Compliance Guide published by the Securities and Exchange Commission.
k. Breach of Representations and Warranties by the Company. If the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of default under the Note.
4. COVENANTS.
a. Expenses. At the Closing, the Company shall reimburse Buyer for expenses incurred by them in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith (“Documents”), including, without limitation, reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Documents, but subject to a maximum of $5,000 for every $255,000 of Note purchase (and proportional amounts for smaller purchases). When possible, the Company must pay these fees directly, otherwise the Company must make immediate payment for reimbursement to the Buyer for all fees and expenses immediately upon written notice by the Buyer or the submission of an invoice by the Buyer. Notwithstanding the foregoing, it is agreed that the Buyer may deduct such fees from the relevant Purchase Price. In addition, the Buyer will be responsible for transfer agent fees directly resulting from issuing the shares to the Buyer upon conversion of the Note.
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b. Listing. The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as the Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note. The Company will obtain and, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the OTC MARKETS or any equivalent replacement market, the Nasdaq stock market (“Nasdaq”) or the New York Stock Exchange (“NYSE”) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any notices it receives from the OTC MARKETS and any other markets on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such markets.
c. Corporate Existence. So long as the Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on the OTC MARKETS, Nasdaq or NYSE.
d. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
e. Filings. The Company shall include all of the Notes in its next scheduled SEC filing whether that shall be a 10Q or a10K.
f. Registration Rights. The Company and the Buyer agree that the Company shall undertake the registration of all the shares of Common Stock issuable upon conversion of the Note under Form S-3 (the “Registration Statement”). Additionally, subject to force majeure events, including a government shutdown (and only allowing for the extra time resulting from the force majeure event. For example, if there is a federal government shutdown for 30 days, the period of time by which the Registration Statement must be declared effective is extended by 30 days), if the Registration Statement is not declared “effective”, within 6 months of the issuance date of the funding of the Note, then the conversion discount shall increase by 10% from 35% to 45%. The Registration Statement shall be in an amount of shares not less than 30% of the outstanding public float at the time of filing.
g. Breach of Covenants. If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an event of default under the Note.
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5. Governing Law; Miscellaneous.
a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of the county or city of New York, NY or in the federal courts located in the state and county of New York, NY. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Company and Buyer waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
e. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of the Buyer.
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f. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, (iv) via electronic mail or (v) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received) or delivery via electronic mail, or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company, to:
Greater Cannabis Company, Inc.
15 Walker Avenue, Suite 101
Baltimore, MD 21208
Attn: Aitan Zacharin, CEO
If to the Buyer:
EAGLE EQUITIES, LLC
390 Whalley Ave.
New Haven, CT 06511
Attn: Yakov Borenstein
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, the Buyer may assign its rights hereunder to any “qualified person”, any “permitted assigns”, or “prospective transferee” that acquires or purchases Note Securities in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, with the prior written consent of the Company, which consent shall not be unreasonably withheld, and with Buyer’s Opinion of Counsel. A qualified person is an “accredited investor” transferee, assignee, or purchaser of the Note who succeeds to the Holder’s right, title and interest to all or a portion of the Note accompanied with an Opinion of Counsel as provided for in Section 2(f).
h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
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i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
j. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
k. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
l. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.
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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
Greater Cannabis Company, Inc.
| By: | /s/ Aitan Zacharin | |
| Name: | Aitan Zacharin | |
| Title: | CEO |
EAGLE EQUITIES, LLC.
| By: | /s/ Yakov Borenstein | |
| Name: | Yakov Borenstein | |
| Title: | Manager |
| AGGREGATE SUBSCRIPTION AMOUNT: | ||||
| Aggregate Principal Amount of Note: | $ | 40,500.00 | ||
| Aggregate Purchase Price: |
Note: $40,500 less $3,000.00 in original issue discount, less $2,000.00 in legal fees
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EXHIBIT A
144 NOTE - $40,500.00
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Exhibit 10.51
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”).
THE GREATER CANNABIS COMPANY, INC.
6% CONVERTIBLE REDEEMABLE PROMISSORY NOTE
| $38,000.00 | Issue Date: | May 27, 2020 |
| Maturity Date: | May 27, 2021 |
FOR VALUE RECEIVED, The Greater Cannabis Company, Inc., a Florida corporation (the “Company”), hereby promises to pay to the order of GW Holdings Group, LLC, a New York limited liability company and its authorized successors and permitted assigns (“Holder”), the aggregate principal face amount of Thirty-Eight Thousand, U.S. Dollars and Zero Cents ($38,000.00) (the “Principal Amount”) on May 27, 2021 (“Maturity Date”). The Company will pay interest on the Principal Amount outstanding at the rate of six percent (6%) per annum, which will commence on May 21, 2020 (the “Issue Date”). The Company acknowledges that this Note was issued with a Three Thousand, U.S. Dollars and Zero Cents ($3,000.00) original issue discount (“OID”) such that the issuance price was Thirty-Five Thousand U.S. Dollars and Zero Cents ($35,000.00). The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note are payable at 137 Montague Street, Suite 291, Brooklyn, NY 11201, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company shall pay the aggregate unpaid Principal Amount and accrued and payable interest under this Note on or before the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding Principal Amount and accrued and payable interest under this Note and shall satisfy and discharge the liability for amounts owing under this Note to the extent of the sum represented by such check or wire transfer.
This Note is subject to the following additional provisions:
1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.
2. Under all applicable laws, the Company shall be entitled to withhold any amounts from all payments it is entitled to.
3. This Note may only be transferred or exchanged in compliance with the Securities Act of 1933, as amended (“Securities Act”) and any applicable state securities laws. All attempts transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company’s records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted (“Notice of Conversion”) in the form annexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.
4. (a) The Holder of this Note has the option, beginning on the issuance date of this Note, to convert all or any amount of the unpaid Principal Amount and accrued and unpaid interest under this Note then outstanding into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Company at a price (“Conversion Price”) for each share of Common Stock equal to a fifty-five percent (55%) of the lowest closing price of the Common Stock as reported on the interdealer quotation system or exchange on 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 (15) prior trading days, including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price). Subject to payment by the Holder of all required fees to the Company’s transfer agent, the Company shall deliver the shares of Common Stock to the Holder within three (3) business days of receipt by the Company of the Notice of Conversion and the Holder may rescind such Notice of Conversion if such shares of Common Stock have not been delivered within three (3) business days. The Holder shall surrender this Note to the Company upon receipt of the shares of Common Stock, executed by the Holder. This will make clear the Holder’s intention to convert this Note or a specified portion hereof, and accompanied by proper assignment hereof in blank. Accrued but unpaid interest shall be subject to conversion. The number of issuable shares of Common Stock will be rounded up to the nearest whole share, and no fractional shares or scrip representing fractions of shares will be issued on conversion. In the event the Company experiences a DTC “Chill” on its shares, the Conversion Price discount shall be increased to 60% while that “Chill” is in effect. Notwithstanding anything to the contrary contained in the Note (except as set forth below in this Section), the Note shall not be convertible by Holder, and Company shall not affect any conversion of the Note or otherwise issue any shares of Common Stock to the extent (but only to the extent) that Holder together with any of its affiliates would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the outstanding shares of Common Stock (which maybe increased up to 9.99% upon 60 days’ prior written notice by the Holder to the Company). To the extent the foregoing limitation applies, the determination of whether a Note shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by Holder or any of its affiliates) and of which such securities shall be convertible, exercisable or exchangeable (as among all such securities owned by Holder and its affiliates) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to Company for conversion, exercise or exchange (as the case may be). No prior inability to convert a Note, or to issue shares of Common Stock, pursuant to this Section shall have any effect on the applicability of the provisions of this Section with respect to any subsequent determination of convertibility. For purposes of this Section, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations promulgated thereunder. The provisions of this Section shall be implemented in a manner otherwise than in strict conformity with the terms of this Section to correct this Section (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this Section shall apply to a successor holder of this Note and shall be unconditional, irrevocable and non-waivable. For any reason at any time, upon the written or oral request of Holder, Company shall within one (1) business day confirm orally and in writing to Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Note.
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(b) During the first six (6) months after the Issue Date, the Company may redeem this Note by paying to the Holder an amount as follows:
|
Redemption Date from Issue Date |
Redemption Price | |
| ≤ 30 days | 105% * (P + I) | |
| 31- 60 days | 110% * (P + I) | |
| 61-90 days | 115% * (P + I) | |
| 91-120 days | 120% * (P + I) | |
| 121-150 days | 125% * (P + I) | |
| 151-180 days | 130% * (P + I) |
This Note may not be redeemed after 180 days of the Issue Date. The redemption must be closed and paid for within three (3) business days of the Company sending the redemption demand or the redemption will be invalid and the Company may not redeem this Note. All payments made hereunder shall be applied first to the payment of any fees or charges outstanding hereunder, second to accrued interest, and third to the payment of the principal amount outstanding under the Note.
(c) Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a “Sale Event”), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.
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(d) In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.
5. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
6. The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.
7. The Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.
8. While this Note is outstanding and to the extent the Company grants any other party more favorable investment terms, which will include but not be limited to, interest rate, original issue discount, conversion discount or look-back period. The terms of the Note shall automatically adjust to match those more favorable terms.
9. If one or more of the following described “Events of Default” shall occur:
(a) The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or
(b) Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or
(c) The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note or any other note issued to the Holder; or
(d) The Company shall (i) become insolvent; (ii) admit in writing its inability to pay its debts generally as they mature; (iii) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (iv) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (v) file a petition for relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or
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(e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or
(g) One or more money judgments, writs or warrants of attachment, or similar process, in excess of one hundred thousand dollars ($100,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or
(h) The Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or
(i) The Company shall have its Common Stock delisted from an exchange (including the OTC Markets’ interdealer quotation system) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than ten (10) consecutive days; or
(k) If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the Board; or
(l) The Company shall not deliver to the Holder the Common Stock pursuant to Section 4 herein without restrictive legend within three (3) business days of its receipt of a Notice of Conversion; or
(m) The Company shall not be “current” in its filings with the Securities and Exchange Commission; or
(n)The Company shall lost the “bid” price for its stock in a market (including the OTCQB marketplace or other exchange); or
(o) The Company is in arrears for more than 30 days with its Transfer Agent, the 45% conversion discount shall be increased to 55%; or
(p) The Company shall (1) not replenish the reserve set forth in Section 13, within 3 business days of the request of the Holder, (2) change Transfer Agents without providing notice and an updated and signed Transfer Agent Letter within 5 business days of the change; or
(q) Following any Event of Default, the Conversion Price discount shall be permanently increased an additional five percent (5%).
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Then, or at any time thereafter, unless cured within five (5) days, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of Section 9(l) the penalty shall be $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10th day. The penalty for a breach of Section 9(n) shall be an increase of the outstanding principal amounts by 20%. In case of a breach of Section 9(j), (k), (l) or (m) the outstanding Principal Amount under this Note shall increase by 50%. If this Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%.
If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
At the Holder’s election, if the Company fails for any reason (other than a failure by the Holder to pay any applicable transfer agent fees or otherwise comply with any lawful requirements of the Company’s transfer agent) to deliver to the Holder the Conversion Shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows:
Failure to Deliver Loss = [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]
The Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.
10. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.
11. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.
12. The Company represents that it is not a “shell company” (as defined in Rule 405 of the Securities Act and Rule 12b-2 under the Exchange Act) and has never been a “shell company” (including its predecessors) or that if it or its predecessors(s) previously has been a “shell company” that at least twelve (12) months have passed since the Company has reported “Form 10” type information indicating it is no longer a “shell company.” Further, the Company will instruct its counsel to either (i) write a Rule 144 opinion to allow for salability of the conversion shares or (ii) accept such opinion from Holder’s counsel.
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13. The Company shall reserve 57.7 million (57,700,000) shares of Common Stock for conversions under this Note (the “Reserved Shares”). The Holder shall have the right to periodically request that the number of Reserved Shares be increased so that the number of Reserved Shares equals no fewer than 400% of the number of shares of Company Common Stock issuable upon conversion of the Note. The Company shall pay all costs associated with issuing and delivering the shares. At all times, the reserve shall be maintained with the Transfer Agent at four times the amount of shares required if the Note would be fully converted.
14. The Company hereby agrees to indemnify and hold the Holder harmless on an on demand basis against all actions, proceedings and claims brought or threatened against the Holder and all loss (including, but not limited to, loss of profits), damage, cost, expense (including costs of counsel and other costs of enforcement) of any nature to be incurred or suffered by the Holder in any way arising out of or in connection with an event of default under this note that takes place after a Change of Control. The Company furthermore waives any right it has or may have to contest or challenge any action for enforcement of such indemnity, injunction or other specific performance sought by the Holder in connection with such indemnity. “Change of Control” shall mean any change in the ownership of fifty percent (50%) of the voting capital stock of the Company in one or more related transactions.
The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits, recapitalizations, etc. This notice shall be given to the Holder as soon as possible under law.
15. This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
| Dated: May 27, 2020 | /s/ Aitan Zacharin | |
| Name: | Aitan Zacharin | |
| Title: | Chief Executive Officer | |
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EXHIBIT A
NOTICE OF CONVERSION
$38,000 6% Convertible Promissory Note due May 21, 2020
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ shares of Common Stock (the “Shares”) of The Greater Cannabis Company, Inc. according to the conditions set forth in such Note, as of the date written below.
If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.
| Date of Conversion: | ||
| Applicable Conversion Price: | ||
| Signature: | ||
| [Print Name of Holder and Title of Signer] |
| Address: | ||
SSN or EIN: ___________________________________
Shares are to be registered in the following name: ___________________________________
| Name: | |||
| Address: | |||
| Tel: | |||
| Fax: | |||
| SSN or EIN: | |||
Shares are to be sent or delivered to the following account:
| Account Name: | ||
| Address: |
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Exhibit 10.52
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, dated as of May 27, 2020 (the “Agreement”), by and between The Greater Cannabis Company Inc., a Florida corporation with headquarters located at 15 Walter Avenue, Suite 101, Baltimore, MD 21208 (the “Company”), and GW Holdings Group, LLC, a New York limited liability company with its address at 137 Montague Street, Suite 291, Brooklyn, NY 11201 (the “Investor”).
WHEREAS:
A. The Company and the Investor are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”);
B. Investor desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, a 6% convertible promissory note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of Forty Thousand Five Hundred, U.S. Dollars and Zero Cents ($40,500.00) (the “Principal Amount”) due and payable on May 27, 2021, together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof (the “Note”) which shall contain a Three Thousand U.S. Dollars and Zero Cents ($3,000.00) Original Issue Discount (“OID”) such that the purchase price of the Note shall be Thirty-Seven Thousand Five Hundred U.S. Dollars and Zero Cents ($37,500.00) (the “Purchase Price”), convertible into shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note; and
C. The Investor wishes to purchase, upon the terms and conditions stated in this Agreement, the Note.
NOW THEREFORE, the Company and the Investor severally (and not jointly) hereby agree as follows:
1. Purchase and Sale of Note.
2. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Investor and the Investor agrees to purchase from the Company the Note
Company Initials: _____
a. Form of Payment. On the Closing Date (as defined below), the Investor shall pay the Purchase Price for the Note to be issued and sold to it at the Closing (as defined below) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note in the Principal Amount, and the Company shall deliver such duly executed Note on behalf of the Company, to the Investor, against delivery of such Purchase Price.
b. Closing Date. The date and time of the first issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be on or about May 27, 2020, or such other mutually agreed upon time. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.
3. Investor’s Representations and Warranties. The Investor represents and warrants to the Company that:
a. Investment Purpose. As of the date hereof, the Investor is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act; provided, however, that by making the representations herein, the Investor does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.
b. Accredited Investor Status. The Investor is an “accredited investor” as that term is defined under the Securities Act (an “Accredited Investor”).
c. Reliance on Exemptions. The Investor understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Investor’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Investor set forth herein in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Securities.
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d. Information. The Investor and its advisors, if any, have been, and for so long as the Note remain outstanding will, subject to applicable law and regulation, continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Investor or its advisors. The Investor and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, afforded the opportunity to ask questions of the Company. Notwithstanding the foregoing, the Company has not disclosed to the Investor any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Investor. Neither such inquiries nor any other due diligence investigation conducted by Investor or any of its advisors or representatives shall modify, amend or affect Investor’s right to rely on the Company’s representations and warranties contained in Section 3 below. The Investor understands that its investment in the Securities involves a significant degree of risk. The Investor is not aware of any facts that may constitute a breach of any of the Company’s representations and warranties made herein.
e. Governmental Review. The Investor understands that neither the SEC nor any state securities agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Investor understands that the sale or re-sale of the Securities has not been and is not being registered under the Securities Act or any applicable state securities laws, and the Securities may not be transferred unless the Securities are sold pursuant to an effective registration statement under the Securities Act, the Investor shall have delivered to the Company, at the cost of the Investor, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the Securities Act (or a successor rule) (“Rule 144”)) of the Investor who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, the Securities are sold pursuant to Rule 144 or other available exemption from the registration requirements of the Securities Act, or the Securities are sold pursuant to Regulation S under the Securities Act (or a successor rule) (“Regulation S”), and the Investor shall have delivered to the Company, at the cost of the Investor, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an “underwriter” (as that term is defined by Section 2(a)(11) of the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
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g. Legends. The Investor understands that the Note and, until such time as the Conversion Shares have been registered under the Securities Act or may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall direct its transfer agent to issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for resale under an effective registration statement filed under the Securities Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold and (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public resale or transfer of such Security may be made without registration under the Securities Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Investor agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Investor with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, within 2 business days, it will be considered an Event of Default under the Note. Notwithstanding the foregoing, the Investor acknowledges and agrees that it will be required to agree any opinion of counsel with the Company’s transfer agent and that so long as the Company does not instruct the transfer agent not to accept the opinion of counsel, the Company shall not be responsible or liable for any delays caused by the transfer agent.
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h. Authorization; Enforcement. This Agreement has been duly and validly authorized. This Agreement has been duly executed and delivered on behalf of the Investor, and this Agreement constitutes a valid and binding agreement of the Investor enforceable in accordance with its terms.
i. Residency. The Investor is a resident of or domiciled in the jurisdiction set forth immediately below the Investor’s name on the signature pages hereto.
4. Representations and Warranties of the Company. The Company represents and warrants to the Investor that:
a. Organization and Qualification. The Company and each of its subsidiaries, if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.
b. Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) and the performance of its obligations thereunder have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.
c. Issuance of Shares. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
d. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect to the outstanding Common Stock upon the issuance of the Conversion Shares upon conversion of the Note. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
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e. No Conflicts. The execution, delivery and performance of this Agreement, the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a material adverse effect). All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the Over-the-Counter Quotations Bureau (the “OTCQB”) and does not reasonably anticipate that the Common Stock will be delisted by the OTCQB in the foreseeable future, nor are the Company’s securities “chilled” by DTC. The Company and its subsidiaries are unaware of any facts or circumstances, which might give rise to any of the foregoing.
f. Absence of Litigation. Except as disclosed in the Company’s public filings, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries, or their officers or directors in their capacity as such, that could have a material adverse effect. Schedule 3(f) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its subsidiaries, without regard to whether it would have a material adverse effect. The Company and its subsidiaries are unaware of any facts or circumstances, which might give rise to any of the foregoing. As used herein, “knowledge” or any other similar knowledge qualification, means the actual or constructive knowledge of any director or officer of the Company, after due inquiry.
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g. Acknowledgment Regarding Investor’ Purchase of Securities. The Company acknowledges and agrees that the Investor is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Investor or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Investor’ purchase of the Securities. The Company further represents to the Investor that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
h. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the issuance of the Securities to the Investor. The issuance of the Securities to the Investor will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
i. Title to Property. Except as disclosed in the Company’s public filings, the Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(i) or such as would not have a material adverse effect. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a material adverse effect.
j. Bad Actor. None of the Company, or any its predecessors or any affiliate issuer, any director, executive officer or other officer of the Company, any beneficial owner (as that term is defined in Rule 13d-3 under the Exchange Act) of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale of any securities (each, an “Covered Person” and, collectively, “Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3) under the Securities Act. The Company has exercised reasonable care to determine (i) the identity of each person that is a Covered Person; and (ii) whether any Covered Person is subject to a Disqualification Event.
k. Breach of Representations and Warranties by the Company. If the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to the Investor pursuant to this Agreement, it will be considered an Event of default under the Note.
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5. Covenants.
a. Expenses. At the Closing, the Company shall reimburse Investor for expenses incurred by them in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith (“Documents”), including, without limitation, reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Documents. When possible, the Company must pay these fees directly, otherwise the Company must make immediate payment for reimbursement to the Investor for all fees and expenses immediately upon written notice by the Investor or the submission of an invoice by the Investor. The Company’s obligation with respect to this transaction is to reimburse Investor’s expenses shall be $2,000 in legal fees, which shall be deducted from the Note when funded.
b. Listing. The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as the Investor owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note. The Company will obtain and, so long as the Investor owns any of the Securities, maintain the listing and trading of its Common Stock on the OTCQB or any equivalent replacement exchange, the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock Exchange (“NYSE”), or the American Stock Exchange (“AMEX”) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Investor copies of any notices it receives from the OTCQB and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
c. Corporate Existence. So long as the Investor beneficially owns any Note, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on the OTCQB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
d. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the Securities Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
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e. Registration Rights. The Company shall file a registration statement on Form S-1 (333-235938) filed with the SEC as soon as reasonably possible to include and register an aggregate 15 million (15,000,000) shares of Common Stock issuable upon the conversion of the Note by the Investor.
f. Breach of Covenants. If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Investor pursuant to this Agreement, it will be considered an event of default under the Note.
6. Governing Law; Miscellaneous.
a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of New York. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Company and Investor waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision, which may prove invalid or unenforceable under any law, shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
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c. Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
e. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of the Investor.
f. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company, to:
The Greater Cannabis Company, Inc.
15 Walter Avenue, Suite 101
Baltimore, MD 21208
Attn: Aitan Zacharin, CEO
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If to the Investor:
GW Holdings Group, LLC
137 Montague Street, Suite 291
Brooklyn, NY 11201
Attn: Noah Weinstein, Manager
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor the Investor shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, the Investor may assign its rights hereunder to any person that purchases Securities in a private transaction from the Investor or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Investor. The Company agrees to indemnify and hold harmless the Investor and all their officers, directors, employees and agents for direct loss or damage arising as a direct result of or directly related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, in each case, as proven in a final, non-appealable decision of a court of competent jurisdiction.
j. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
k. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
l. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Investor by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Investor shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned Investor and the Company have caused this Agreement to be duly executed as of the date first above written.
| Company: | THE GREATER CANNABIS COMPANY, INC. | |
| By: | /s/ Aitan Zacharin | |
| Name: | Aitan Zacharin | |
| Title: | Chief Executive Officer | |
| Investor: | GW HOLDINGS GROUP, LLC | |
| By: | /s/ Noah Weinstein | |
| Name: | Noah Weinstein | |
| Title: | Manager | |
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EXHIBIT A
[$40,500 6% Convertible Promissory Note, less $3,000 OID]
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion in this Form S-1 Registration Statement of The Greater Cannabis Company, Inc. (the “Company”) of our report dated April 14, 2020 relating to the consolidated financial statements of the Company for the years ended December 31, 2019 and 2018 included in this Registration Statement.
We also consent to the reference to the Firm under the heading “Experts” in such Registration Statement
| /s/ Michael T. Studer CPA P.C. | |
| Michael T. Studer CPA P.C. | |
| Freeport, New York | |
| July 8, 2020 |