Trafalgar International, Inc S-1/A, filed Jun 14, 2021
Trafalgar International, Inc. (TRFA)
As filed with the Securities and Exchange Commission on June 14, 2021
Registration No. 333-255872
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
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] |
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.
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 JUNE 14, 2021
PROSPECTUS
THE GREATER CANNABIS COMPANY, INC.
250,000,000 Shares of Common Stock
We have registered 250,000,000 shares of our common stock, par value $0.001 per share, for sale by FirstFire Global Opportunities Fund, LLC (“FFG” or the “Selling Shareholder”). Of the 250,000,000 shares offered hereby, (a) 200,000,000 shares may be issued upon conversion of a $545,000 in principal amount of 6% convertible notes (the “FFG Notes”) held by FFG; and (b) 50,000,000 shares may be issued upon exercise of common stock purchase warrants acquired (the “Warrants”) acquired by FFG together with the FFG Notes. The registration statement of which this prospectus forms a part, also covers such additional shares as may be issued pursuant to the FFG Notes and the Warrants as a result of adjustments to the conversion price of the Note and exercise price of the Warrants resulting from stock splits, stock dividends, recapitalizations and certain other events.
The Selling Shareholder and any of its 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. However, we may receive proceeds in connection with the exercise of the Warrants. The Selling Shareholder will offer and sell the shares of common stock in accordance with the “Plan of Distribution” set forth in this prospectus.
The Selling Shareholder 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 June 11, 2021, the closing price for our common stock was $0.0074.
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 10.
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 June __, 2021
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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 within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934. As amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by any forward-looking statements.
Important factors that may cause the actual results to differ from the forward-looking statements, projections or other expectations include, but are not limited to, the following:
| ● | the long-term 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. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.
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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 “Greater Cannabis,” the “Company,” “we,” “us” and “our” or similar terms are to The Greater Cannabis Company, Inc. and its subsidiary, unless otherwise indicated.
Company Overview
Our current business focus is on commercializing our own and licensed technologies worldwide for transmucosal and transdermal delivery of legal medical or recreational cannabis (other than in the field of oral care) and cannabinoids (“CBD”) (collectively, 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 Company’s initial product is an oral transmucosal patch platform which for provides for loaded actives to be absorbed by the buccal mucosa into the body.
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 Company intends continue 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.
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 pursuing additional business opportunities in the CBD space, including in cosmetic, beauty, and health and wellness products. The Company is also seeking to license cannabinoid therapeutic technologies from medical and academic institutions with the intention of advancing those technologies through clinical studies, product development, and commercialization.
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 long-term effects the COVID-19 pandemic will have on our business.
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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.
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 commenced commercialization efforts with respect to 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 $951,170 and $1,648,595 for the years ended December 31, 2020 and December 31, 2019, respectively. We had accumulated deficits of $3,330,408 and $2,379,238 at December 31, 2020 and December 31, 2019, 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.
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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.
The Selling Shareholder
On March 15, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which it issued an initial FFG Note to FFG in the principal amount of $272,500, of which $22,500 constituted an original issue discount. On the date of this prospectus, the Company issued a second FFG Note to FFG in the principal amount of $272,500, of which $22,500 constituted an original issue discount..
The FFG Notes bear interest at the rate of six percent (6%) per annum, which accrues from the date of funding of and will mature on March 11, 2021. The FFG Notes may be pre-paid in whole or in part by paying FFG 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 FFG 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 (“Default Interest”).
FFG has the right beginning on September 15, 2021 (one hundred eighty (180) days following the issuance of the first FFG Note) to convert all or any part of the outstanding and unpaid principal amount of the FFG Notes and accrued but unpaid interest thereon into shares of our common stock at a conversion price equal to seventy percent (70%) of the average closing price of the Company’s common stock for the five prior (5) trading days prior to the date that the registration statement of which this prospectus forms a part is declared effective by the SEC (the “Conversion Price”). The Conversion Price of the FFG Notes is subject to adjustment for stock splits, stock dividends, recapitalizations or other customary events. In the case of an Event of Default (as defined in the FFG Notes), the FFG Notes shall become immediately due and payable in an amount (the “Default Amount”) equal to the principal amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment, multiplied by one hundred twenty-five percent (125%). and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties.
Pursuant to the Securities Agreement, on March 15, 2021, the Company also issued three warrants to FFG (the “Warrants”) to purchase 25,000,000, 15,000,000 and 10,000,000 shares of our common stock, respectively. The Warrants are exercisable for a period of eighteen (18) months from issuance, at exercise prices of $0.025, $0.05 and $0.075, respectively. The exercise prices are subject to adjustment for stock splits, stock dividends, recapitalizations or other customary events.
On March 15, 2021, the Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with FFG, pursuant to which it agreed to prepare and file with the SEC a registration statement or registration statements (as is necessary) covering the resale of all of the shares of common stock into which the FFG Notes are convertible and the shares issuable upon exercise of the Warrants.
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THE OFFERING
| Common stock offered by the Selling Shareholder | 250,000,000 shares of common stock(1) | |
| Common stock outstanding as of the date of this prospectus | 478,638,436 shares of common stock. (2) | |
| Terms of the Offering | The 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 Shareholder under this prospectus. However, we may receive proceeds in connection with the exercise of the Warrants | |
| 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: |
| ● | long-term 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) | 250,000,000 of the shares registered hereunder shares are issuable upon conversion of the FFG Notes or in payment of interest thereon and 50,000,000 of the shares registered hereunder are issuable upon exercise of the Warrants. |
| (2) | The number of shares of our common stock outstanding excludes (a) 470,599,900 shares issuable upon conversion of Series A Convertible Preferred Stock; and (b) additional shares of common stock which may be issued upon conversion of the FFG Note 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, 2020 and 2019, have been derived from our audited 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, | ||||||||
| 2020 | 2019 | |||||||
| (audited) | (audited) | |||||||
| Consolidated Statement of Operations Data: | ||||||||
| Revenues | $ | 48,044 | $ | 7,120 | ||||
| Loss from operations | $ | (294,457 | ) | $ | (525,323 | ) | ||
| Other income (expense) | $ | (656,713 | ) | $ | (1,123,272 | ) | ||
| Net loss | $ | (951,170 | ) | $ | (1,648,595 | ) | ||
| Loss per share, basic and diluted | $ | (.01 | ) | $ | (.05 | ) | ||
| Weighted average shares outstanding, basic and diluted | 145,332,999 | 34,980,133 | ||||||
Balance Sheet Data:
| December 31, 2020 | December 31, 2019 | |||||||
| (audited) | (audited) | |||||||
| Cash And Cash Equivalents | $ | 112,953 | $ | 24,662 | ||||
| Total Assets | $ | 180,120 | $ | 52,662 | ||||
| Convertible Notes | $ | 22,875 | $ | 399,318 | ||||
| Total Liabilities | $ | 459,908 | $ | 1,599,296 | ||||
| Total Stockholders’ Deficiency | $ | (279,788 | ) | $ | (1,546,634 | ) | ||
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For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (audited) | (audited) | |||||||
| Consolidated Statement of Operations Data: | ||||||||
| Revenues | $ | - | $ | - | ||||
| Loss from operations | $ | (86,232 | ) | $ | (88,097 | ) | ||
| Other income (expense) | $ | (28,421 | ) | $ | (1,123,472 | |||
| Net loss | $ | (114,653 | ) | $ | (1,211,569 | ) | ||
| Loss per share, basic and diluted | $ | (.00 | ) | $ | (.03 | ) | ||
| Weighted average shares outstanding, basic and diluted | 477,746,352 | 46,959,776 | ||||||
Balance Sheet Data:
| March 31, 2021 | March 31, 2020 | |||||||
| (audited) | (audited) | |||||||
| Cash And Cash Equivalents | $ | 316,722 | $ | 112,953 | ||||
| Total Assets | $ | 377,639 | $ | 180,120 | ||||
| Convertible Notes | $ | 12,453 | $ | 22,875 | ||||
| Total Liabilities | $ | 721,556 | $ | 459,908 | ||||
| Total Stockholders’ Deficiency | $ | (348,917 | ) | $ | (279,788 | ) | ||
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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 COVID19 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 long-term effects 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 $951,170 and $1,648,595 for the years ended December 31, 2020 and 2019, respectively and $114,653 and $1,211,569 for the three months ended March 31, 2021 and March 31, 2020, respectively. We had accumulated deficits of $3,330,408 and $3,445,061 at December 31, 2020 and March 31, 2021, 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 March 25, 2021, 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.
Our success in large part will be dependent on our ability to successfully commercialize the Technology. We estimate that it will take up to $1,500,000 and a year to fully commercialize the Technology. 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.
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There can be no assurance that even if the Technology is 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, our success will be dependent in part on acceptance of the Technology 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 our business prospects will be significantly harmed.
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.
We are dependent on a single customer for sales of our initial oral delivery patch.
All of our revenues to date have been generated by sales of our initial oral delivery patch to a single customer. If we do not maintain good relations with that customer or if that customer decides not to make further purchases of our oral delivery patch (we have no written agreement therefor), our business, financial condition and results of operations may be harmed.
We will need to raise additional capital to continue operations over the coming year and otherwise fund full commercialization of the Technology.
We anticipate the need to raise approximately $1,500,000 in capital to fund our operations through December 31, 2021. 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, 2021 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, 36 states and the District of Columbia allow the use of medical marijuana and 17 states and the District of Columbia allow the use of recreational cannabis. These 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. This policy continued on a de facto basis through the Trump administration and is expected to continue in the Biden administration. However, any change in the federal government’s enforcement of current federal laws could cause significant financial damage to us and our shareholders.
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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. While this policy continued on a de facto basis during the Trump administration and is expected to continue under the Biden administration, there can be no assurance that the current 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.
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.
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, our Chief Executive Officer. 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 the Technology to become unavailable in certain regions and jurisdictions. This could greatly impair or prevent us from entering the market and commercializing our technology.
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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.
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 are able to obtain 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 are able to obtain for the Technology and on our ability to protect and defend our intellectual property rights. We cannot be sure as to the scope of protection that we may be able to secure or that our existing and potential competitors will not challenge, invalidate or circumvent any patent and other intellectual property rights we do obtain.
The Technology may require FDA approval.
The use of the Technology in certain circumstances 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.
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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. |
Our Chief Executive Officer has concluded that as of March 31, 2021, 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.
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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. |
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.
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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.
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 2,000,000,000 shares of common stock, of which 478,638,436 shares are issued and outstanding as of the date of this prospectus. 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 FFG Notes to FFG As a result of these transactions, shareholders of the Company may experience additional substantial dilution.
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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.
This prospectus relates to shares of our common stock that may be offered and sold from time to time by the Selling Shareholder. We will not receive any proceeds from the sale of shares of common stock in this offering. We may receive proceeds in connection with the exercise of the Warrants. We intend to use any such proceeds for working capital and other general corporate purposes. There is no assurance that any of the Warrants will ever be exercised. 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 Shareholder upon conversion of the FFG Notes, in payment of interest on the FFG Notes or upon exercise of the Warrants. We are registering the shares of common stock in order to permit the Selling Shareholder to offer the shares for resale from time to time. Except for the issuance of the FFG Notes and the Warrants to the Selling Shareholder, the Selling Shareholder has not had any material relationship with us within the past three years.
The table below sets forth 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 Shareholder.
This prospectus covers the resale of up to 200,000,000 shares of common stock issuable to FFG upon conversion of or in payment of interest on the FFG Notes and up to 50,000,000 shares of common stock issuable to FFG upon exercise of the Warrants. Because the conversion price of the FFG Notes may and the exercise price of the Warrants 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) | |||||||||||||||
| FirstFire Global Opportunities Fund, LLC | 250,000,000 | 34.3 | % | 250,000,000 | 0 | 0 | % | |||||||||||||
(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 478,638,436 shares of common stock outstanding as of the date of this prospectus.
(2) Does not take account of the limitation on conversion of the FFG Notes 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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The 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. We may receive proceeds in connection with the exercise of the Warrants. However, there is no assurance that any of the Warrants will ever be exercised.
The Selling Shareholder 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 June 11, 2021 the closing price for our common stock was $0.0074 per share, as reported by OTC Markets Group, Inc.
The Selling Shareholder 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 Shareholder to sell a specified number of such shares at a stipulated price per share; | |
| ● | through the distribution of common stock by the 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 Shareholder may arrange for broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts the Selling Shareholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Shareholder does not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
The Selling Shareholder may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by it 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 the Selling Shareholder’s notification to us that any material arrangement has been entered into with a broker-dealer for the sale of the 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
Our current business focus is on commercializing our own and licensed technologies worldwide for transmucosal and transdermal delivery of legal medical or recreational cannabis (other than in the field of oral care) and cannabinoids (“CBD”) (collectively, 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 Company’s initial product is am oral transmucosal patch platform which for provides for loaded actives to be absorbed by the buccal mucosa into the body.
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 Company intends continue 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.
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 pursuing additional business opportunities in the CBD space, including in cosmetic, beauty, and health and wellness products. The Company is also seeking to license cannabinoid therapeutic technologies from medical and academic institutions with the intention of advancing those technologies through clinical studies, product development, and commercialization.
Effects of the COVD-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 long-term 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”).
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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. Green C had commenced commercialization efforts with respect to the Technology.
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.
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 full 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, 36 states and the District of Columbia have legalized medical marijuana in some capacity. Additionally, 17 states 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 (.
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During the Trump administration, there had been indications of potential change in cannabis-related policies, including a memo issued by then Attorney General Jeff Sessions in January 2018, although no formal action was ever taken. Although we expect this policy to continue under the Biden administration, there can be no assurance that will be the case. 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.
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.
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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.
FDA
The use of our 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 occupy space in Baltimore, Maryland for our executive offices. The space is provided by Aitan Zacharin, our Chief Executive Officer, at no cost.
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 “GCAN” 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 June 11, 2020, the closing price for our common stock was $0.0074 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 478,638,436 shares of common stock issued and outstanding and approximately 331 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 OPERATIONS
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
Three months ended March 31, 2021, as compared to three months ended March 31, 2020
For the three months ended March 31, 2021, the Company generated $0 sales compared to $0 in the same period of 2020.
For the three months ended March 31, 2021, our cost of sales was $0 compared to $0 in the same period of 2020.
Our operating expenses in the three months ended March 31, 2021 amounted to $86,232 as compared to $88,097 for the same period of 2020.
Our net loss for the three months ended March 31, 2021, was $114,653 as compared to the net loss of $1,211,569 during the same period of 2020.
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.
Year ended December 31, 2020, as compared to year ended December 31, 2019
For the year ended December 31, 2020, the Company generated $48,044 in annual revenue compared to $7,120 in 2019. During the year ended December 31, 2020, the Company’s revenue was positively impacted due to the sale of our ETP patches to Symtomax.
Cost of sales was $48,090 for the year ended December 31, 2020 and $3,125 for the year ended December 31, 2019. Our operating expenses in the year ended December 31, 2020 amounted to $294,411 as compared to $529,318 for the year ended December 31, 2019.
Our net loss in the year ended December 31, 2020 was $951,170 as compared to the net loss of $1,648,595 during the year ended December 31, 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 $316,722 cash at March 31, 2021, compared to $112,953 at December 31, 2020.
At March 31, 2021, we had $272,875 in principal amount of outstanding notes to third parties compared to $22,875 at December 31, 2020.
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, 2021 and 2020.
March 31, 2021 | March 31, 2020 | |||||||
| Net cash used in operating activities | $ | (46,231 | ) | $ | (131,015 | ) | ||
| Net cash used in investing activities | - | (25,000 | ) | |||||
| Net cash provided by financing activities | 250,000 | 426,667 | ||||||
| Net increase in cash | $ | 203,769 | 270,652 | |||||
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Critical Accounting Policies and Estimates
Trends
The factors that will most significantly affect our future operating results, liquidity and capital resources will be:
| ● | Government regulation of the marijuana industry; | |
| ● | Revision of Federal banking regulations for the marijuana industry; and | |
| ● | Legalization of the use of marijuana for medical or recreational use in other states. |
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 | 37 | President, Chief Executive Officer, Treasurer and Director | ||
| Mark Radom | 52 | General Counsel | ||
| David Tavor | 70 | 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.
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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).
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.
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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, 2020 and December 31, 2019.
| Non-Equity | ||||||||||||||||||||||||||||
| Stock | Incentive Plan | All Other | ||||||||||||||||||||||||||
| Name and Principal | Salary | Bonus | Awards | Compensation | Compensation | Total | ||||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Aitan Zacharin(1) | 2020 | 120,000 | - | - | - | - | 120,000 | |||||||||||||||||||||
| 2019 | 120,000 | - | - | - | - | 120,000 | ||||||||||||||||||||||
| Mark Radom(2) | 2019 | 84,000 | - | - | - | - | 84,000 | |||||||||||||||||||||
| 2018 | 84,000 | - | - | - | - | 84,000 | ||||||||||||||||||||||
| (1) | 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. |
| (2) | 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, 2020.
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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 478,638,436 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 | 84,766,650 | 15.05 | % | |||||
| Mark Radom | 74,166,650 | 13.42 | % | |||||
| David Tavor | 15,000,000 | 3.04 | % | |||||
| All executive officers and directors as a group (three persons) | 173,333,300 | 26.65 | % | |||||
| Other 5% or Greater Shareholders | ||||||||
| Fernando Bisker | 74,166,650 | 13.42 | % | |||||
| Jona Kalfa | 74,166,650 | 13.42 | % | |||||
| Elisha Kalfa | 74,166,650 | 13.42 | % | |||||
| Sigalush Ventures LLC(2) | 74,166,650 | 13.42 | % | |||||
| Rakefet LLC(3) | 10,600,000 | 2.14 | % | |||||
(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.
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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 2,000,000,000 shares of common stock, $0.001 par value per share, and 19,000,000 shares of preferred stock, $0.001 par value per share.
As of the date of this prospectus, 478,638,436 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.
| 32 |
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)
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.
| 33 |
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.
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.
| 34 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Financial Statements:
Unaudited 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, 2020 and 2019 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, 2020 and 2019 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Loss on conversions of notes payable and accrued interest to common stock – Refer to Note H to the consolidated financial statements
Critical Audit Matter Description
The Company has had outstanding notes payable to lenders which are convertible into Company common stock at conversion prices which are based on the future trading price of the Company’s common stock. In 2020, the Company issued a total of 425,541,995 shares of its common stock pursuant to conversions of an aggregate of $866,694 in principal and $57,717 in accrued in interest. The $1,291,604 excess of the $2,218,016 fair value of the 425,541,995 shares of common stock at the respective dates of issuance over the $924,412 liability reduction was charged to Loss on Conversions of Notes Payable.
How the Critical Audit Matter was Addressed in the Audit
Our principal audit procedures related to the Company’s loss on conversions of notes payable and accrued interest to common stock expense included:
| (1) | We obtained Company prepared quarterly schedules of all conversions of notes payable and accrued interest to common stock in 2020. | |
| (2) | For the fair value measurements, we agreed the prices used to independent third party sources of closing trading prices of GCAN common stock on the respective issuance dates. We then verified the calculation by multiplying the number of shares issued times the respective closing trading prices for each conversion. | |
| (3) | For the liability reduction amounts, we agreed the principal and accrued interest amounts to Notices of Conversions for each conversion. |
| /s/ Michael T. Studer CPA P.C. | |
| Michael T. Studer CPA P.C. | |
| Freeport, New York | |
| March 25, 2021 |
We have served as the Company’s auditor since 2017.
| F-2 |
THE GREATER CANNABIS COMPANY, INC.
| December 31, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 112,953 | $ | 24,662 | ||||
| Advance to supplier | - | 28,000 | ||||||
| Note receivable | 36,750 | - | ||||||
| Prepaid officer compensation | 10,000 | - | ||||||
| Total current assets | 159,703 | 52,662 | ||||||
| OTHER ASSETS | ||||||||
| Right of first refusal agreement (less accumulated amortization of $ 4,583 and $ 0, respectively) | 20,417 | - | ||||||
| Total assets | $ | 180,120 | $ | 52,662 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 6,743 | $ | 17,517 | ||||
| Accrued interest | 849 | 20,619 | ||||||
| Accrued officer compensation | 152,000 | 98,000 | ||||||
| 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 $0 and $505,937, respectively) | 22,875 | 399,318 | ||||||
| Derivative liability | 17,441 | 725,865 | ||||||
| Total current liabilities and total liabilities | 459,908 | 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; 2,000,000,000 shares authorized, $.001 par value, as of December 31, 2020 and 2019, there are 464,843,318 and 39,301,323 shares outstanding, respectively | 464,843 | 39,301 | ||||||
| Additional paid-in capital | 2,576,365 | 783,891 | ||||||
| Accumulated deficit | (3,330,408 | ) | (2,379,238 | ) | ||||
| Total stockholders’ (deficiency) | (279,788 | ) | (1,546,634 | ) | ||||
| Total liabilities and stockholders’ (deficiency) | $ | 180,120 | $ | 52,662 | ||||
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, 2020 and 2019
| December 31, 2020 | December 31, 2019 | |||||||
| Revenue: | ||||||||
| Product sales | $ | 48,044 | $ | 4,500 | ||||
| Consulting fees | - | 2,620 | ||||||
| Total revenue | 48,044 | 7,120 | ||||||
| Cost of product sales | 48,090 | 3,125 | ||||||
| Gross profit (loss) | (46 | ) | 3,995 | |||||
| Operating Expenses: | ||||||||
| Minimum royalties expense | - | 50,000 | ||||||
| Officers compensation | 204,000 | 204,000 | ||||||
| Amortization of right of first refusal agreement | 4,583 | - | ||||||
| Amortization of Pharmedica Exclusive License Agreement cost | - | 20,000 | ||||||
| Impairment charge-Pharmedica Exclusive License Agreement cost | - | 69,749 | ||||||
| Other operating expenses (including stock-based professional fees of $0 and $88,130, respectively) | 85,828 | 185,569 | ||||||
| Total operating expenses | 294,411 | 529,318 | ||||||
| Income (loss) from operations | (294,457 | ) | (525,323 | ) | ||||
| Other income (expenses): | ||||||||
| Income (expense) from derivative liability | 1,218,090 | (303,981 | ) | |||||
| Loss on conversions of notes payable and accrued interest to common stock | (1,291,604 | ) | (320,025 | ) | ||||
| Gain from Surrender Agreement with Emet Capital Partners, LLC | 472,170 | - | ||||||
| Interest expense | (89,766 | ) | (35,776 | ) | ||||
| Forgiveness of royalty payable | 50,000 | - | ||||||
| Amortization of debt discounts | (1,015,603 | ) | (463,490 | ) | ||||
| Total other income (expenses) | (656,713 | ) | (1,123,272 | ) | ||||
| Income (loss) before provision for income taxes | (951,170 | ) | (1,648,595 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net income (loss) | $ | (951,170 | ) | $ | (1,648,595 | ) | ||
| Basic and diluted income (loss) per common share | $ | (.01 | ) | $ | (.05 | ) | ||
| Weighted average common shares outstanding-basic and diluted | 145,332,999 | 34,980,133 | ||||||
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, 2020 and 2019
| 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 | 9,411,998 | $ | 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 | 9,411,998 | $ | 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 | ||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||
| 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 | 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 | ) | |||||||||||||||||||
| 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, 2020 | ||||||||||||||||||||||||||||||||||||
| 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 | ) | |||||||||||||||||||
| Conversions of notes payable ($67,082) and accrued interest ($10,613) into 27,563,525 shares of common stock (Fair Value of $ 210,532) for the three months ended June 30, 2020 | 27,563,525 | 27,564 | 182,968 | 210,532 | ||||||||||||||||||||||||||||||||
| Net income for the three months ended June 30, 2020 | 1,102,449 | 1,102,449 | ||||||||||||||||||||||||||||||||||
| Balances at June 30, 2020 | 9,411,998 | $ | 9,412 | - | $ | - | 88,349,536 | $ | 88,350 | $ | 1,351,467 | $ | (2,488,358 | ) | $ | (1,039,129 | ) | |||||||||||||||||||
| Conversions of notes payable ($311,050) and accrued interest ($18,462) into 115,277,834 shares of common stock (Fair Value of $797,067) for the three months ended September 30, 2020 | 115,277,834 | 115,277 | 681,790 | 797,067 | ||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2020 | (459,260 | ) | (459,260 | ) | ||||||||||||||||||||||||||||||||
| Balances at September 30, 2020 | 9,411,998 | $ | 9,412 | - | $ | - | 203,627,370 | $ | 203,627 | $ | 2,033,257 | $ | (2,947,618 | ) | $ | (701,322 | ) | |||||||||||||||||||
| Conversions of notes payable ($325,212) and accrued interest ($16,849) into 261,215,948 shares of common stock (Fair Value of $804,324) for the three months ended December 31, 2020 | 261,215,948 | 261,216 | 543,108 | 804,324 | ||||||||||||||||||||||||||||||||
| Net loss for the three months ended December 31, 2020 | (382,790 | ) | (382,790 | ) | ||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 9,411,998 | $ | 9,412 | - | $ | - | 464,843,318 | $ | 464,843 | $ | 2,576,365 | $ | (3,330,408 | ) | $ | (279,788 | ) | |||||||||||||||||||
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, 2020 and 2019
| December 31, 2020 | December 31, 2019 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (951,170 | ) | $ | (1,648,595 | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities: | ||||||||
| Loss on conversions of notes payable and accrued interest to common stock | 1,291,604 | 320,025 | ||||||
| Gain from Surrender Agreement with Emet Capital Partners, LLC | (472,170 | ) | - | |||||
| Issuance of stock-based professional fees | - | 88,130 | ||||||
| Forgiveness of royalty payable | (50,000 | ) | - | |||||
| (Income) expense from derivative liability | (1,218,090 | ) | 303,981 | |||||
| Amortization of right of first refusal agreement | 4,583 | - | ||||||
| Amortization of Pharmedica Exclusive License Agreement cost | - | 20,000 | ||||||
| Impairment charge- Pharmedica Exclusive License Agreement cost | - | 69,749 | ||||||
| Interest expense for default added to note payable balance | ||||||||
| Amortization of debt discounts | 1,015,603 | 463,490 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Advance to supplier | 28,000 | (28,000 | ) | |||||
| Prepaid officer compensation | (10,000 | ) | - | |||||
| Accounts payable | (10,774 | ) | (383 | ) | ||||
| Accrued interest | 56,764 | 35,397 | ||||||
| Accrued officer compensation | 54,000 | 13,000 | ||||||
| Accrued royalties | - | 50,000 | ||||||
| Advance from customer | (27,977 | ) | 27,977 | |||||
| Net cash used in operating activities | (289,627 | ) | (285,229 | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Note receivable | (36,750 | ) | ||||||
| Purchase of Right of First Refusal Agreement | (25,000 | ) | - | |||||
| Net cash used in investing activities | (61,750 | ) | - | |||||
| FINANCING ACTIVITIES | ||||||||
| Amount paid in connection with Surrender Agreement with Emet Capital Partners, LLC | (70,000 | ) | - | |||||
| Proceeds from notes payable to third parties | 509,668 | 250,000 | ||||||
| Net cash provided by financing activities | 439,668 | 250,000 | ||||||
| NET INCREASE (DECREASE) IN CASH | 88,291 | (35,229 | ) | |||||
| CASH BALANCE, BEGINNING OF PERIOD | 24,662 | 59,891 | ||||||
| CASH BALANCE, END OF PERIOD | $ | 112,953 | $ | 24,662 | ||||
| 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 | $ | 509,667 | $ | 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 | ||||
| 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 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 | $ | - | $ | 58,728 | ||||
| Conversion of note payable ($10,000) and accrued interest ($515) into 637,273 shares of common stock (Fair Value of $25,491) on December 24, 2019 | $ | - | $ | 25,491 | ||||
| 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 | $ | - | ||||
| Conversions of notes payable ($67,082) and accrued interest ($10,613) into 27,563,525 shares of common stock (Fair Value of $ 210,532) for the three months ended June 30, 2020 | $ | 210,532 | $ | - | ||||
| Conversions of notes payable ($311,050) and accrued interest ($18,462) into 115,277,834 shares of common stock (Fair Value of $797,067) for the three months ended September 30, 2020 | $ | 797,067 | $ | - | ||||
| Conversions of notes payable ($325,212) and accrued interest ($16,849) into 261,215,948 shares of common stock (Fair Value of $804,324) for the three months ended December 31, 2020 | $ | 804,324 | $ | - | ||||
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, 2020 and 2019
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 was 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 the 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-7 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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, 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-8 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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-9 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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, 2020 and 2019
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Revenue from product sales is 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 H), shares relating to convertible notes payable to third parties (Please see NOTE F - NOTES PAYABLE TO THIRD PARTIES for further information) and shares relating to outstanding warrants (Please see NOTE H - 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, 2020 and 2019
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
| F-12 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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, 2020, the Company had cash of $112,953, total current liabilities of $459,908, and negative working capital of $300,205. For the year ended December 31, 2020, we incurred a net loss of $951,170 and used $289,627 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 2022.
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- NOTE RECEIVABLE
On June 10, 2020, in anticipation of developing a CBD business with Kol Tuv Ventures, LLC (the “Borrower”) (see Note D), the Company agreed to lend the Borrower USD $50,000 to be repaid either (a) out of available cash as soon as practicable, including from sales of Bob Ross cosmetic products, or (b) on the date that is 18 months from the date thereof, whichever is earlier (the “Maturity Date”). The Loan shall not bear interest except to the extent that any part of the Loan remains outstanding as at the Maturity Date, in which case the following sentence applies. From the date after the Maturity Date and onward, the outstanding principal amount of the Loan shall bear interest at a rate of 2% per annum. Any payment of cash to be made by Borrower to Lender shall be applied first to outstanding principal and second to any accrued, but unpaid, interest. As of December 31, 2020, the balance of the note was $ 36,750.
| F-13 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
NOTE D – 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. The Agreement provided for the Company to pay Kol Tuv Ventures, LLC (“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.
NOTE E - LOANS PAYABLE TO RELATED PARTIES
Loans payable to related parties consist of:
| December 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 loans, 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, 2020 and 2019
NOTE F - NOTES PAYABLE TO THIRD PARTIES
Notes payable to third parties consist of:
| December 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 | ||||||
| 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 | ||||||
| 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 $0 and $33,396, respectively (i) | 22,500 | 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 $0 and $294,234, respectively (ii) | - | 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 $0 and $90,054, respectively (ii) | - | 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 $0 and $79,248, respectively (ii) | - | 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 $0 and $9,005, respectively (ii) | - | 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 | ||||||
| Total | $ | 22,875 | $ | 399,318 | ||||
(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 was 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, the third tranche of $ 93,666 was received by the Company on February 12, 2020, and the fourth tranche of $ 42,500 was received by the Company on June 3, 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 G-DERIVATIVE LIABILITY for further information.
(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 bore interest at 6%, were due on February 12, 2020 and were 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 H) and the exchange of such warrants for four new convertible notes payable to Emet in the total amount of $675,000. These new notes bore interest at 2%, were due on October 18, 2020 and were 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 May 26, 2020, the Company 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 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 issued on 10/18/19 in the amount of $3,128.79 | |
| 2. | Convertible Redeemable Note issued on 10/18/19 in the amount of $15,439.93 | |
| 3. | Convertible Redeemable Note issued on 10/18/19 in the amount of $7,018.15 | |
| 4. | Convertible Note issued on 10/18/19 in the amount of $451,504.95 | |
| 5. | Convertible Note issued on 10/18/19 in the amount of $112,876.28 | |
| 6. | Convertible Note issued on 10/18/19 in the amount of $99,331.13 | |
| 7. | Convertible Note issued on 10/18/19 in the amount of $11,287.65 |
The $472,170 excess of the $ 542,170 remaining amount of debt satisfied over the $ 70,000 cash payment was recognized as a gain in the three months ended June 30, 2020.
| F-15 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
NOTE G - DERIVATIVE LIABILITY
The derivative liability consists of:
December 31, 2020 | December 31, 2019 | |||||||
| Convertible Promissory Note dated February 12, 2019 payable to Eagle Equities, LLC. Please see NOTE F – NOTES PAYABLE TO THIRD PARTIES for further information (i): | ||||||||
| Due February 12, 2020 | $ | 17,441 | $ | 182,625 | ||||
Convertible Promissory Notes dated October 18, 2019 payable to Emet. Please see NOTE F – NOTES PAYABLE TO THIRD PARTIES for further information (ii): | ||||||||
| $451,505 note due October 18, 2021 | - | 328,953 | ||||||
| $112,876 note due October 18, 2021 | - | 100,680 | ||||||
| $ 99,331 note due October 18, 2021 | - | 88,599 | ||||||
| $ 11,288 note due October 18, 2021 | - | 10,068 | ||||||
| $ 25,587 note due October 18, 2021 | - | 14,940 | ||||||
| Total derivative liability | $ | 17,441 | $ | 725,865 | ||||
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 Notes is indeterminate.
The fair value of the derivative liability is 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 December 31, 2020 were (1) stock price of $.003 per share, (2) conversion price of $.00169 per share, (3) term of 0 days, (4) expected volatility of 142.94%, and (5) risk free interest rate of 0%.
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%.
(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.
| F-16 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
NOTE H - 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. (See Note F)
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).
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 $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.
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.
| F-17 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
NOTE H - 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.
During the three months ended June 30, 2020, the Company issued a total of 27,563,525 shares of common stock pursuant to conversions of an aggregate of $67,082 in principal and $10,613 in interest under our outstanding convertible notes. The $132,838 excess of the $210,532 fair value of the 27,563,525 shares of common stock at the respective dates of issuance over the $77,695 liability reduction was charged to Loss on Conversions of Notes Payable.
During the three months ended September 30, 2020, the Company issued a total of 115,277,834 shares of common stock pursuant to conversions of an aggregate of $311,050 in principal and $18,462 in interest under our outstanding convertible notes. The $467,554 excess of the $797,067 fair value of the 115,277,834 shares of common stock at the respective dates of issuance over the $329,512 liability reduction was charged to Loss on Conversions of Notes Payable.
During the three months ended December 31, 2020, the Company issued a total of 261,215,948 shares of common stock pursuant to conversions of an aggregate of $325,212 in principal and $16,849 in interest under our outstanding convertible notes. The $462,263 excess of the $804,324 fair value of the 261,215,948 shares of common stock at the respective dates of issuance over the $342,061 liability reduction was charged to Loss on Conversions of Notes Payable.
| F-18 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
NOTE H - CAPITAL STOCK AND WARRANTS (continued)
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 and the warrants were exchanged for four new convertible notes payable to Emet in the total amount of $ 675,000. See Note F above.
At December 31, 2020 and 2019, the Company had no outstanding warrants.
NOTE I - 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, 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 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 generated only minimal revenues from this asset through December 31, 2019 and did not pay 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.
On September 2, 2020, Green C notified Pharmedica of Green C’s termination of the Exclusive License Agreement and Green C’s intention to wind up Green C.
On September 17, 2020, Pharmedica notified Green C of Pharmedica’s acceptance of Green C’s proposal to terminate the license agreement and Pharmedica’s intention not to burden Green C further. Accordingly, we recorded “Forgiveness of Royalty Payable” other income of $50,000 in the three months ended September 30, 2020 and reduced the $50,000 “Accrued Royalties” liability balance 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.
| F-19 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
On May 27, 2020, the Company executed an amended and restated sub-license agreement with Symtomax (the “Amended License Agreement”). The term of the Amended License Agreement ends the earlier of (i) August 31, 2021 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 years ended December 31, 2020 and 2019, the Company expensed a total of $204,000 and $204,000, respectively, as officers compensation pursuant to these agreements.
Sales Concentration
One customer accounted for 100% of sales in the year ended December 31, 2020.
NOTE K – SUBSEQUENT EVENTS
On January 6, 2021, we issued 13,795,118 shares of our common stock pursuant to a conversion of $22,500 in principal and $814 in interest under an outstanding convertible note.
On March 15, 2021, we issued a 6% Convertible Promissory Note to FirstFire Global Opportunities Fund, LLC (“FF”), having a principal amount of $545,000 and an initial tranche principal amount of 272,500 of which $22,500 constituted an original issue discount (the “FF Note”). In connection with the FF Note, we and FF entered into a registration rights agreement, three warrant agreements and a securities purchase agreement.
We have also agreed to file a registration statement on Form S-1 to register the shares of common stock issuable upon the conversion of the FF Note by FF. Upon effectiveness of the registration statement, FF will lend us the lesser of (i) $272,500.00 of principal; or (ii) the amount that FF can purchase and include in the registration statement.
FF Note
The FF Note will mature on March 11, 2022. The FF Note may be pre-paid in whole or in part by paying FF 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 FF 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”).
| F-20 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
NOTE K – SUBSEQUENT EVENTS (continued)
FF 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 FF Note into fully paid and non-assessable shares of our common stock at the conversion price (the “Conversion Price”). The Conversion Price shall be, equal to 70% of the average closing price of our common stock for the five prior trading days prior to the date that a registration statement in respect of the shares into which is the FF Note is convertible is declared effective. The FF 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 Note), the FF Note shall become immediately due and payable in an amount (the “Default Amount”) equal to the principal amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment multiplied by one hundred twenty-five percent (125%) and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties.
A copy of the FF Note was attached as Exhibit 10.1 to our current report on Form 8-K dated March 16, 2021 and the above summary of the FF Note terms is subject to full terms of the FF Note.
Registration Rights Agreement
On March 11, 2021, we entered into a registration rights agreement pursuant to which we agreed to prepare and file with the SEC a registration statement or registration statements (as is necessary) covering the resale of all of the shares of common stock into which the FF Note is convertible and the shares to be received upon the exercise of the warrants. The registration statement also covers such indeterminate number of additional shares of securities as may become issuable upon stock splits, stock dividends or similar transactions. We agreed to use its best efforts to have the registration statement filed with the SEC within thirty (30) days following the closing date.
A copy of the registration rights agreement is attached as Exhibit 10.2 to our current report on Form 8-K dated March 16, 2021 and the above summary of the registration rights agreement terms is subject to full terms of the registration rights agreement.
FF Warrants
On March 11, 2021, we also issued three warrants (Warrant A, Warrant B and Warrant C) to purchase shares of our common stock, as follows:
Warrant A permits FF to purchase 25,000,000 shares of common stock at an exercise price of $0.025 per share.
Warrant B permits FF to purchase 15,000,000 shares of common stock at an exercise price of $0.05 per share.
Warrant C permits FF to purchase 10,000,000 shares of common stock at an exercise price of $0.075 per share.
Each warrant has other customary terms found in like instruments, including, but not limited to, events of default.
In any event of default, the exercise price for each warrant automatically becomes $0.005 per share.
Copies of Warrant A, Warrant B and Warrant C are attached as Exhibits 10.4, 10.5 and 10.6 to our current report on Form 8-K dated March 16, 2021 and the above summary of the warrant terms are subject to full terms of the applicable warrants.
| F-21 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 316,722 | $ | 112,953 | ||||
| Note receivable | 36,750 | 36,750 | ||||||
| Prepaid officer compensation | - | 10,000 | ||||||
| Total current assets | 353,472 | 159,703 | ||||||
| OTHER ASSETS | ||||||||
| Right of first refusal agreement cost (less accumulated amortization of $5,833 and $4,583) | 19,167 | 20,417 | ||||||
| Total assets | $ | 372,639 | $ | 180,120 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 4,493 | $ | 6,743 | ||||
| Accrued interest | 705 | 849 | ||||||
| Accrued officers’ compensation | 183,000 | 152,000 | ||||||
| Loans payable to related parties | 260,000 | 260,000 | ||||||
| Notes payable to third parties (less debt discounts of $260,422 and $0, respectively) | 12,453 | 22,875 | ||||||
| Derivative liability | 260,905 | 17,441 | ||||||
| Total current liabilities and total liabilities | 721,556 | 459,908 | ||||||
| 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 | ||||||
| Common stock; 2,000,000,000 shares authorized, $.001 par value, as of March 31, 2021 and December 31, 2020, there are 478,638,436 and 464,843,318 shares outstanding, respectively | 478,639 | 464,843 | ||||||
| Additional paid-in capital | 2,608,093 | 2,576,365 | ||||||
| Accumulated deficit | (3,445,061 | ) | (3,330,408 | ) | ||||
| Total stockholders’ (deficiency) | (348,917 | ) | (279,788 | ) | ||||
| Total liabilities and stockholders’ (deficiency) | $ | 372,639 | $ | 180,120 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-22 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2021 and 2020
(Unaudited)
March 31, 2021 | March 31, 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue: | ||||||||
| Product sales | $ | - | $ | - | ||||
| Consulting fees | - | - | ||||||
| Total revenue | - | - | ||||||
| Cost of product sales | - | - | ||||||
| Gross profit (loss) | - | - | ||||||
| Operating Expenses: | ||||||||
| Officers compensation | 51,000 | 51,000 | ||||||
| Amortization of Right of First Refusal Agreement cost | 1,250 | 833 | ||||||
| Other operating expenses | 33,982 | 36,264 | ||||||
| Total operating expenses | 86,232 | 88,097 | ||||||
| Income (loss) from operations | (86,232 | ) | (88,097 | ) | ||||
| Other income (expenses): | ||||||||
| Income (expense) from derivative liability | 6,536 | (551,941 | ) | |||||
| Loss on conversions of notes payable | (22,210 | ) | (228,949 | ) | ||||
| Interest expense | (669 | ) | (45,509 | ) | ||||
| Amortization of debt discounts | (12,078 | ) | (297,073 | ) | ||||
| Total other income (expenses) | (28,421 | ) | (1,123,472 | ) | ||||
| Income (loss) before provision for income taxes | (114,653 | ) | (1,211,569 | ) | ||||
| Provision for income taxes | - | |||||||
| Net loss | $ | (114,653 | ) | $ | (1,211,569 | ) | ||
| Basic and diluted income (loss) per common share | $ | (.00 | ) | $ | (.03 | ) | ||
| Weighted average common shares outstanding-basic and diluted | 477,746,352 | 46,959,776 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-23 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
For the Three Months Ended March 31, 2021 and 2020
Unaudited
Series A Preferred | Additional | |||||||||||||||||||||||||||
| stock | Common Stock | Paid in | Accumulated | |||||||||||||||||||||||||
| For the three months ended | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||
| March 31, 2020: | ||||||||||||||||||||||||||||
| 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 | ) | ||||||||||||||
| For the three months ended March 31, 2021: | ||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 9,411,998 | $ | 9,412 | 464,843,318 | $ | 464,843 | $ | 2,576,365 | $ | (3,330,408 | ) | $ | (279,788 | ) | ||||||||||||||
| Conversion of note payable ($22,500) and accrued interest ($814) into 13,795,118 shares of common stock (Fair Value of $ 45,524) for the three months ended March 31, 2021 | 13,795,118 | 13,796 | 31,728 | 45,524 | ||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2021 | (114,653 | ) | (114,653 | ) | ||||||||||||||||||||||||
| Balances at March 31, 2021 | 9,411,998 | $ | 9,412 | 478,638,436 | $ | 478,639 | $ | 2,608,093 | $ | (3,445,061 | ) | $ | (348,917 | ) | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-24 |
THE GREATER CANNABIS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2021 and 2020
(Unaudited)
March 31, 2021 | March 31, 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (114,653 | ) | $ | (1,211,569 | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities: | ||||||||
| Loss on conversions of notes payable and accrued interest to common stock | 22,210 | 228,949 | ||||||
| (Income) expense from derivative liability | (6,536 | ) | 551,941 | |||||
| Amortization of Right of First Refusal Agreement cost | 1,250 | 833 | ||||||
| Amortization of debt discounts | 12,078 | 297,073 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid officer compensation | 10,000 | |||||||
| Accounts payable | (2,250 | ) | (12,750 | ) | ||||
| Accrued interest | 670 | 18,508 | ||||||
| Accrued officers’ compensation | 31,000 | (4,000 | ) | |||||
| Net cash used in operating activities | (46,231 | ) | (131,015 | ) | ||||
| 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 | 250,000 | 426,667 | ||||||
| Net cash provided by financing activities | 250,000 | 426,667 | ||||||
| NET INCREASE (DECREASE) IN CASH | 203,769 | 270,652 | ||||||
| CASH BALANCE, BEGINNING OF PERIOD | 112,953 | 24,662 | ||||||
| CASH BALANCE, END OF PERIOD | $ | 316,722 | $ | 295,314 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income tax paid | $ | - | $ | - | ||||
| Non-cash Investing and Financing Activities: | ||||||||
| Initial derivative liability charged to debt discounts | $ | 250,000 | $ | 426,667 | ||||
| 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 | ||||
| Conversion of note payable ($22,500) and accrued interest ($814) into 13,795,118 shares of common stock (Fair Value of $45,524) for the three months ended March 31, 2021 | $ | 45,524 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements
| F-25 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(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 was 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.
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 Biocanrx Inc.
| F-26 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Interim Financial Statements
The interim financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 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 ended March 31, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021.
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, 2020 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 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, 2021, 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-27 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(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-28 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(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-29 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(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 F - NOTES PAYABLE TO THIRD PARTIES for further information) and shares relating to outstanding warrants (Please see NOTE H - 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-30 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
NOTE A – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
| F-31 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(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, 2021, the Company had cash of $316,722, total current liabilities of $721,556 and negative working capital of $368,084. For the three months ended March 31, 2021, we incurred a net loss of $114,653 and used $46,231 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 2022.
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 – NOTE RECEIVABLE
On June 10, 2020, in anticipation of developing a CBD business with Koltuv Ventures, LLC (the “Borrower”) (see Note D), the Company agreed to lend the Borrower USD $50,000 to be repaid either (a) out of available cash as soon as practicable, including from sales of Bob Ross cosmetic products, or (b) on the date that is 18 months from the date thereof, whichever is earlier (the “Maturity Date”). The Loan shall not bear interest except to the extent that any part of the Loan remains outstanding as at the Maturity Date, in which case the following sentence applies. From the date after the Maturity Date and onward, the outstanding principal amount of the Loan shall bear interest at a rate of 2% per annum. Any payment of cash to be made by Borrower to Lender shall be applied first to outstanding principal and second to any accrued, but unpaid, interest. As of March 31, 2021, the balance of the note was $36,750.
NOTE D – 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-32 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
NOTE E - LOANS PAYABLE TO RELATED PARTIES
Loans payable to related parties consist of:
March 31, 2021 | December 31, 2020 | |||||||
| 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-33 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
NOTE F - NOTES PAYABLE TO THIRD PARTIES
Notes payable to third parties consist of:
March 31, 2021 | December 31, 2020 | |||||||
| 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%, due February 12, 2020 (i) | - | 22,500 | ||||||
| Convertible Promissory Note dated March 15, 2021 payable to FirstFire Global Opportunities Fund, LLC (“FF”), interest at 6%, due March 11, 2022-less unamortized debt discount of $ 260,422 and $ 0, respectively. (ii) | 12,078 | - | ||||||
| Total | $ | 12,453 | $ | 22,875 | ||||
| (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 was 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, the third tranche of $ 93,666 was received by the Company on February 12, 2020, and the fourth tranche of $ 42,500 was received by the Company on June 3, 2020. The loans were repayable one year from their respective funding dates and were 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. On January 6, 2021, the balance of the Eagle Note was reduced to $ 0. |
| (ii) | On March 15, 2021, we issued a 6% Convertible Promissory Note to FirstFire Global Opportunities Fund, LLC (“FF”), having a principal amount of $545,000 and an initial tranche principal amount of $272,500 of which $22,500 constituted an original issue discount (the “FF Note”). In connection with the FF Note, we and FF entered into a registration rights agreement, three warrant agreements and a securities purchase agreement. The FF Note will mature on March 11, 2022. The FF Note may be pre-paid in whole or in part by paying FF 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) |
| F-34 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
NOTE F - NOTES PAYABLE TO THIRD PARTIES (continued)
Any amount of principal or interest on the FF 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”). FF 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 FF Note into fully paid and non-assessable shares of our common stock at the conversion price (the “Conversion Price”). The Conversion Price shall be, equal to 70% of the average closing price of our common stock for the five prior trading days prior to the date that a registration statement in respect of the shares into which is the FF Note is convertible is declared effective. The FF 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 Note), the FF Note shall become immediately due and payable in an amount (the “Default Amount”) equal to the principal amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment multiplied by one hundred twenty-five percent (125%) and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties.
| F-35 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
NOTE G - DERIVATIVE LIABILITY
The derivative liability consists of:
March 31, 2021 | December 31, 2020 | |||||||
Convertible Promissory Note dated February 12, 2019 payable to Eagle Equities, LLC. Please see NOTE F – NOTES PAYABLE TO THIRD PARTIES for further information (i): Due February 12, 2020 | $ | - | $ | 17,441 | ||||
| Convertible Promissory Note dated March 15, 2021 payable to FirstFire Global Opportunities Fund, LLC, See Note F (ii) | ||||||||
| Due March 11, 2022 | 260,905 | - | ||||||
| Total derivative liability | $ | 260,905 | $ | 17,441 | ||||
| F-36 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
NOTE G - 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 Notes is indeterminate.
The fair value of the derivative liability is 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 December 31, 2020 were (1) stock price of $.003 per share, (2) conversion price of $.00169 per share, (3) term of 0 days, (4) expected volatility of 142.94%, and (5) risk free interest rate of 0%.
Assumptions used for the calculation of the derivative liability of the Notes at March 31, 2021 were (1) stock price of $.011 per share, (2) conversion price of $.0071 per share, (3) term of 345 days, (4) expected volatility of 142.94%, and (5) risk free interest rate of .07%.
NOTE H - 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 bore interest at 6%, were due on February 12, 2020 and were 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 bore interest at 2%, were due on October 18, 2020 and were 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 May 26, 2020, the Company satisfied the 7 convertible notes payable to Emet in connection with a Surrender Agreement.
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-37 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
NOTE H - CAPITAL STOCK AND WARRANTS (continued)
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.
During the three months ended June 30, 2020, the Company issued a total of 27,563,525 shares of common stock pursuant to conversions of an aggregate of $67,082 in principal and $10,613 in interest under our outstanding convertible notes. The $132,838 excess of the $210,532 fair value of the 27,563,525 shares of common stock at the respective dates of issuance over the $77,695 liability reduction was charged to Loss on Conversions of Notes Payable.
During the three months ended September 30, 2020, the Company issued a total of 115,277,834 shares of common stock pursuant to conversions of an aggregate of $311,050 in principal and $18,462 in interest under our outstanding convertible notes. The $467,554 excess of the $797,067 fair value of the 115,277,834 shares of common stock at the respective dates of issuance over the $329,512 liability reduction was charged to Loss on Conversions of Notes Payable.
During the three months ended December 31, 2020, the Company issued a total of 261,215,948 shares of common stock pursuant to conversions of an aggregate of $325,212 in principal and $16,849 in interest under our outstanding convertible notes. The $462,263 excess of the $804,324 fair value of the 261,215,948 shares of common stock at the respective dates of issuance over the $342,061 liability reduction was charged to Loss on Conversions of Notes Payable.
On January 6, 2021, we issued 13,795,118 shares of our common stock pursuant to a conversion of $22,500 in principal and $814 in interest under an outstanding convertible note. The $ 22,210 excess of the $ 45,524 fair value of the 13,795,118 shares of common stock over the $23,314 liability reduction was charged to Loss on Conversions of Notes payable.
| F-38 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
NOTE H - CAPITAL STOCK AND WARRANTS (continued)
Warrants
On March 11, 2021, in connection with the issuance of a Convertible Promissory Note to FirstFire Global Opportunities Fund, LLC (“FF”) (see Note F), we issued three warrants (Warrant A, Warrant B and Warrant C) to purchase shares of our common stock, as follows:
Warrant A permits FF to purchase 25,000,000 shares of common stock at an exercise price of $0.025 per share through September 11, 2022.
Warrant B permits FF to purchase 15,000,000 shares of common stock at an exercise price of $0.05 per share through September 11, 2022.
Warrant C permits FF to purchase 10,000,000 shares of common stock at an exercise price of $0.075 per share. through September 11, 2022.
Each warrant has other customary terms found in like instruments, including, but not limited to, events of default.
In any event of default, the exercise price for each warrant automatically becomes $0.005 per share.
Copies of Warrant A, Warrant B and Warrant C are attached as Exhibits 10.4, 10.5 and 10.6 to our current report on Form 8-K dated March 16, 2021 and the above summary of the warrant terms are subject to full terms of the applicable warrants.
NOTE I - INCOME TAXES
The Company and its United States subsidiaries file consolidated Federal income tax returns. Green C Corporation, its Ontario Canada subsidiary, files Canada and Ontario income tax returns.
At March 31, 2021 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. If there are 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 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 provided 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 provided for certain milestones to be accomplished by Green C in order for Green C to retain the license.
The Company generated only minimal revenues from this asset through December 31, 2019 and did not pay 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.
On September 2, 2020, Green C notified Pharmedica of Green C’s termination of the Exclusive License Agreement and Green C’s intention to wind up Green C.
On September 17, 2020, Pharmedica notified Green C of Pharmedica’s acceptance of Green C’s proposal to terminate the license agreement and Pharmedica’s intention not to burden Green C further. Accordingly, we recorded “Forgiveness of Royalty Payable” other income of $50,000 in the three months ended September 30, 2020 and reduced the $50,000 “Accrued Royalties” liability balance to $0.
| F-39 |
THE GREATER CANNABIS COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(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.
On May 27, 2020, the Company executed an amended and restated sub-license agreement with Symtomax (the “Amended License Agreement”). The term of the Amended License Agreement ends the earlier of (i) August 31, 2021 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, 2021 and 2020, the Company expensed a total of $51,000 and $51,000, respectively, as officer compensation pursuant to these agreements.
Registration Rights Agreement
On March 11, 2021, we entered into a registration rights agreement pursuant to which we agreed to prepare and file with the SEC a registration statement or registration statements (as is necessary) covering the resale of all of the shares of common stock into which the FF Note is convertible and the shares to be received upon the exercise of the warrants. The registration statement also covers such indeterminate number of additional shares of securities as may become issuable upon stock splits, stock dividends or similar transactions. We agreed to use our best efforts to have the registration statement filed with the SEC within thirty (30) days following the closing date. The registration statement on Form S-1 was filed with the SEC on May 7, 2021 but has not yet been declared effective by the SEC.
A copy of the registration rights agreement is attached as Exhibit 10.2 to our current report on Form 8-K dated March 16, 2021 and the above summary of the registration rights agreement terms is subject to full terms of the registration rights agreement.
| F-40 |
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
| ITEM 13. | OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION |
| Registration Fees | $ | 218.20 | ||
| Transfer Agent Fees | $ | 1,000.00 | ||
| Accounting Fees and Expenses | $ | 2,500.00 | ||
| Legal Fees and Expenses | $ | 4,000.00 | ||
| Miscellaneous Fees and Expenses | $ | 781.80 | ||
| Total | $ | 8,500.00 |
*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. | 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. | |
| 2. | 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. | ||
| 3. | 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. |
| II-1 |
| 4. | 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. | ||
| 5. | 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: |
| A. | 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”); | |
| B. | 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 | |
| C. | 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.
| 6. | 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. | |
| 7. | 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. | |
| 8. | 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. |
| II-2 |
| 9. | On March 15, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which it issued an initial FFG Note to FFG in the principal amount of $272,500, of which $22,500 constituted an original issue discount. On the date of this prospectus, the Company issued a second FFG Note to FFG in the principal amount of $272,500, of which $22,500 constituted an original issue discount. |
The FFG Notes bear interest at the rate of six percent (6%) per annum, which accrues from the date of funding of and will mature on March 11, 2021. The FFG Notes may be pre-paid in whole or in part by paying FFG 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 FFG 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 (“Default Interest”).
FFG has the right beginning on September 15, 2021 (one hundred eighty (180) days following the issuance of the first FFG Note) to convert all or any part of the outstanding and unpaid principal amount of the FFG Notes and accrued but unpaid interest thereon into shares of our common stock at a conversion price equal to seventy percent (70%) of the average closing price of the Company’s common stock for the five prior (5) trading days prior to the date that the registration statement of which this prospectus forms a part is declared effective by the SEC (the “Conversion Price”). The Conversion Price of the FFG Notes is subject to adjustment for stock splits, stock dividends, recapitalizations or other customary events. In the case of an Event of Default (as defined in the FFG Notes), the FFG Notes shall become immediately due and payable in an amount (the “Default Amount”) equal to the principal amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment, multiplied by one hundred twenty-five percent (125%). and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties.
Pursuant to the Securities Agreement, on March 15, 2021, the Company issued three warrants to FFG (the “Warrants”) to purchase 25,000,000, 15,000,000 and 10,000,000 shares of our common stock, respectively. The Warrants are exercisable for a period of eighteen (18) months from the Issuance Date, at exercise prices of $0.025, $0.05 and $0.075, respectively. The exercise prices are subject to adjustment for stock splits, stock dividends, recapitalizations or other customary events.
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..
| II-3 |
| ITEM 16. | EXHIBITS |
| II-4 |
*Management compensation plan or arrangement
| II-5 |
| 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-6 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 to 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 June 14, 2021.
THE GREATER CANNABIS COMPANY, INC.
| By: | /s/ Aitan Zacharin | |
| Aitan Zacharin, President and Chief Executive Officer | ||
| (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 Radom, 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 | President, Chief Executive Officer and Acting Chief Financial Officer | June 14, 2021 | ||
| Aitan Zacharin | (Principal Executive, Financial and Accounting Officer) | |||
| /s/ David Tavor | Director | June 14, 2021 | ||
| David Tavor |
| II-7 |
Exhibit 5.1
901 PONCE DE LEON BLVD., SUITE 303
CORAL GABLES, FL 33134
June 14, 2021
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 250,000,000 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 a shareholder of the Company and included in the Registration Statement filed with the Securities and Exchange Commission on May 7, 2021 and amended on the date hereof, Registration Number 333-255872 (the “Registration Statement”), pursuant to the Securities Act of 1933, as amended (the “Securities Act”). As set forth in the Registration Statement and the accompanying prospectus included therein, the Shares consist of consisting of (a) 200,000,000 Shares issuable upon conversion of a $545,000 in principal amount of 6% convertible notes (the “FFG Notes”) held by FirstFire Global Opportunities Fund, LLC (“FFG”); and (b) 50,000,000 Shares issuable upon exercise of common stock purchase warrants (the “Warrants”) acquired by FFG together with the FFG 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 FFG Notes or exercise of the Warrants, will be 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 10.51
AMENDED SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), originally dated as of March 5, 2021 and amended as of June 7, 2021, by and between GREATER CANNABIS COMPANY INC., a Florida corporation, with headquarters located at 15 Walker Avenue, Suite 101, Baltimore, Maryland 21208 (the “Company”), and FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company, with its address at 1040 First Avenue, Suite 190, New York, NY 10022 (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 Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act; and
B. Buyer desires to purchase from the Company, and the Company desires to issue and sell to the Buyer, upon the terms and conditions set forth in this Agreement, Convertible Promissory Notes of the Company, in the aggregate principal amount of $545,000.00 ((together with any note(s) issued in replacement thereof, in the form attached hereto as Exhibit A (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; and
C. Warrants in the Company in accordance with the terms thereof, in the form attached hereto as Exhibit B (each a “Warrant”) exercisable into shares of Common Stock upon the terms and subject to the limitations and conditions set forth in such Warrant.
D. Whereas the Company and the Buyer originally entered into this Agreement as of March 11, 2021 and now wish to amend this Agreement in order to clarify the provisions thereof.
NOW THEREFORE, in consideration of the foregoing and of the agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Buyer hereby agree as follows:
1. Purchase and Sale of Notes.
a. Purchase of Initial 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 an initial Note, subject to the express terms of the Note and this Agreement as the case may be.
b. Form of Payment. On the Closing Date, the Buyer shall pay the purchase price for the initial Note of $272,500.00 (the “Purchase Price”), by wire transfer of immediately available funds, in accordance with the Company’s written wiring instructions, against delivery of the Note, the Warrants, and the Company shall deliver such duly executed Note and the Warrants on behalf of the Company, to the Buyer.
c. Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be 4:00 PM, Eastern Time on the date first written above, or such other mutually agreed upon time.
d. Closing. 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 (including via exchange of electronic signatures). The closing of each subsequent tranche shall be a Closing, and such date of each subsequent Closing, a Closing Date as defined herein.
e. Subsequent Tranches. If the Company has a Registration Statement declared effective within seventy-five (75) days of the Initial Closing or such subsequent date as may be agreed to by the Company and the Buyer, immediately prior to such Registration Statement being declared effective by the SEC, the Buyer shall purchase an additional Note in the principal amount of $272,500.00.
2. Buyer’s Representations and Warranties. The Buyer represents and warrants to the Company as of the Closing Date that:
a. Investment Purpose. As of the Closing Date, the Buyer is purchasing the Note and the Warrants and the shares of Common Stock issuable upon conversion or exercise thereof, or otherwise pursuant to the Note and Warrants and such additional shares of Common Stock, if any, as are issuable on account of interest on the Note pursuant to this Agreement, such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note and Warrants, 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 any of the Securities 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 remains outstanding will continue to be, afforded the opportunity to ask questions of the Company regarding its business and affairs. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information regarding the Company or otherwise, 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.
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 Resale. The Buyer understands that (i) the sale or resale of the Securities have not been, and as of the Issue Date, are currently 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 Company, an opinion of counsel (which may be the Legal Counsel Opinion (as defined below)) 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 other applicable exemption and the Buyer shall have delivered to the Company, at the cost of the Company, 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 resale 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).
g. Legends. The Buyer understands that until such time as the Note, and, upon conversion of the Note in accordance with its respective terms, the Conversion Shares, have been registered under the 1933 Act or may be sold pursuant to any applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities 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):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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 AN APPLICABLE EXEMPTION 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 for the applicable shares of Common Stock without such legend to the holder of any Security upon which it is stamped or (as requested by such holder) issue the applicable shares of Common Stock to such holder by electronic delivery by crediting the account of such holder’s broker with The Depository Trust Company (“DTC”), 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 an applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold; or (b) the Company or the Buyer provides the Legal Counsel Opinion (as contemplated by and in accordance herewith) 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 Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. 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, under any applicable exemption at the Deadline (as defined in the Note), it will be considered an Event of Default pursuant to Section 3 of the Note.
h. Authorization; Enforcement. This Agreement has been duly and validly authorized by the Buyer and 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, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and except as may be limited by the exercise of judicial discretion in applying principles of equity.
i. Manipulation of Price. The Buyer has not, and to its knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of the Company; (ii) paid any compensation for soliciting purchases of, any Common Stock of the Company in the open market; or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
j. No Shorting. Buyer and its affiliates shall be prohibited from engaging directly or indirectly in any short selling or hedging transactions with respect to any securities of the Company while this Note is outstanding.
3. Representations and Warranties of the Company. The Company represents and warrants to the Buyer as of the Closing Date that:
a. Organization and Qualification. The Company and each of its Subsidiaries (as defined below), 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. Schedule 3(a), if attached hereto, sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.
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 and 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, as well as the issuance and reservation for issuance of the Conversion Shares issuable upon conversion of the Note) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, its shareholders, or its debt holders is required; (iii) this Agreement and the Note (together with any other instruments executed in connection herewith or therewith) have 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, the Note and the other instruments documents executed in connection herewith or therewith and bind the Company accordingly; and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note and each of such instruments will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms.
c. Capitalization; Governing Documents. As of March 1, 2021, the authorized capital stock of the Company consists of: 2,000,000,000 authorized shares of Common Stock, of which and 478,638,436 shares were outstanding. All of such outstanding shares of capital stock of the Company and the Conversion Shares, are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the effective date of this Agreement, other than as publicly announced prior to such date and reflected in the SEC Documents (as defined in this Agreement) of the Company (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries; (ii) other than provided herein, there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act; and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of any of the Securities. The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s Bylaws, as in effect on the date hereof (the “Bylaws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto.
d. Issuance of Conversion Shares. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its 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.
e. No Broker-Dealer Acknowledgement. Absent a final adjudication from a court of competent jurisdiction stating otherwise, so long as any amount on the Note remains outstanding, the Company shall not to any person, institution, governmental or other entity, state, claim, allege, or in any way assert, that Holder is currently, or ever has been a broker-dealer under the Securities Exchange Act of 1934.
f. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect of the Conversion Shares to the Common Stock upon the conversion of the Note. The Company further acknowledges that its obligation to issue, upon conversion of the Note, the Conversion Shares, in accordance with this Agreement, the Note are absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
g. Ranking; No Conflicts. The Note shall be a subordinate debt obligation of the Company. The execution, delivery and performance of this Agreement and 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 Bylaws; 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, note, evidence of indebtedness, 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 is 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); or (iv) trigger any anti-dilution or ratchet provision contained in any other contract in which the Company is a party thereto or any security issued by the Company. Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, Bylaws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement and the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and, upon conversion of the Note, issue Conversion Shares. 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 and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
h. SEC Documents; Financial Statements. The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to November 16, 2020, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act. The Company has never been a “shell company” as described in Rule 144(i)(1)(i).
i. Absence of Certain Changes. Since November 16, 2020, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.
j. Absence of Litigation. 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. The SEC Documents contain 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. Notwithstanding the foregoing, the Buyer acknowledges the existence of all litigations disclosed and outstanding the SEC Documents.
k. Intellectual Property. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.
l. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.
m. Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
n. Transactions with Affiliates. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options described in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
o. Disclosure. All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).
p. Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchaser 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’s 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.
q. 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.
r. No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.
s. Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since November 16, 2020, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.
t. Environmental Matters.
(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.
(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.
u. 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(u), if attached hereto, 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.
v. Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. Upon written request the Company will provide to the Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.
w. Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
y. Solvency. The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company’s financial statements for its most recent fiscal year end and interim financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
z. No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.
aa. No Off-Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off-balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.
bb. No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of twenty percent (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 1933 Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
cc. Manipulation of Price. The Company has not, and to its knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities; (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities; or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
dd. Bank Holding Company Act. Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
ee. Illegal or Unauthorized Payments; Political Contributions. Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of the officers, directors, employees, agents or other representatives of the Company or any of its Subsidiaries or any other business entity or enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe to any person; or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company or any of its Subsidiaries.
ff. Breach of Representations and Warranties by the Company. The Company agrees that 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 Section 3 of the Note.
4. ADDITIONAL COVENANTS, AGREEMENTS AND ACKNOWLEDGEMENTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Use of Proceeds. The Company shall use the proceeds for working capital by the Company; provided further that none of the proceeds shall be used in violation or contravention of any applicable law, rule or regulation.
c. Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Buyer in order to enforce any right or remedy under this Agreement, the Note and any document, agreement or instrument contemplated thereby. Notwithstanding any provision to the contrary contained in this Agreement, the Note and any document, agreement or instrument contemplated thereby, it is expressly agreed and provided that the total liability of the Company under this Agreement, the Note or any document, agreement or instrument contemplated thereby for payments which under applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under applicable law in the nature of interest that the Company may be obligated to pay under this Agreement, the Note and any document, agreement or instrument contemplated thereby exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Buyer with respect to indebtedness evidenced by this Agreement, the Note and any document, agreement or instrument contemplated thereby, such excess shall be applied by the Buyer to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Buyer’s election.
d. Restriction on Activities. Commencing as of the date first above written, and until the earlier of payment of the Note in full or full conversion of the Note, the Company shall not, directly or indirectly, without the Buyer’s prior written consent, which consent shall not be unreasonably withheld or delayed: (a) change the nature of its business in any material respect; or (b) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business.
e. Listing. The Company, for so long as the Buyer owns any of the Securities, will maintain the listing and trading of its Common Stock on the Principal Market or any equivalent replacement exchange or electronic quotation system (including but not limited to the Pink Sheets electronic quotation system) 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 Principal Market and any other exchanges or electronic quotation systems on which the Common Stock is then traded regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
f. Corporate Existence. The Company will, so long as the Buyer beneficially owns any of the Securities, 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 or quotation on the Principal Market, any tier of the NASDAQ Stock Market, the New York Stock Exchange or the NYSE MKT.
g. 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.
h. Breach of Covenants. The Company acknowledges and agrees that if the Company breaches any of the covenants set forth in this Section 4, in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3 of the Note.
i. Compliance with 1934 Act; Public Information Failures. For so long as the Buyer beneficially owns the Note or any Conversion Shares, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act. During the period that the Buyer beneficially owns the Note, if the Company shall (i) fail for any reason to satisfy the requirements of Rule 144(c)(1), including, without limitation, the failure to satisfy the current public information requirements under Rule 144(c) or (ii) if the Company has ever been an issuer described in Rule 144(i)(1)(i) or becomes such an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (each, a “Public Information Failure”) then, as partial relief for the damages to the Buyer by reason of any such delay in or reduction of its ability to sell the Securities (which remedy shall not be exclusive of any other remedies available pursuant to this Agreement, the Note, or at law or in equity), the Company shall pay to the Buyer an amount in cash equal to three percent (3%) of the Purchase Price on each of the day of a Public Information Failure and on every thirtieth day (pro-rated for periods totaling less than thirty days) thereafter until the date such Public Information Failure is cured. The payments to which a holder shall be entitled pursuant to this Section 4(k) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred; and (ii) the third business day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of eight percent (8%) per month (prorated for partial months) until paid in full. As used in this Agreement, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
j. Disclosure of Transactions and Other Material Information. By 9:00 a.m., New York time, three (3) Business Days following the date this Agreement has been fully executed and funded, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by this Agreement in the form required by the 1934 Act and attaching this Agreement, the form of Note (the “8-K Filing”). From and after the filing of the 8-K Filing with the SEC, the Buyer shall not be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents that is not disclosed in the 8-K Filing. In addition, effective upon the filing of the 8-K Filing, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and the Buyer or any of its affiliates, on the other hand, shall terminate.
k. Legal Counsel Opinions. Upon the request of the Buyer from to time to time, the Company shall be responsible, at its cost, for promptly supplying to the Company’s transfer agent and the Buyer a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the resale of the Conversion Shares by the Buyer or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144, provided the requirements of Rule 144 are satisfied and provided the Conversion Shares are not then registered under the 1933 Act for resale pursuant to an effective registration statement, or other applicable exemption, provided the requirements of such other applicable exemption are satisfied. Buyer will take no action or inaction that would invalidate the proposed opinion. Buyer will provide the customary representations to counsel in order to provide such an opinion. Should the Company’s legal counsel fail for any reason other than that the requirements of said exemption are unavailable in the reasonable opinion of counsel to issue the Legal Counsel Opinion, the Buyer may, at the Company’s cost, secure another legal counsel to issue the Legal Counsel Opinion, and the Company will instruct its transfer agent to accept such opinion. The Company hereby agrees that it may never take the position that it is a “shell company” in connection with its obligations under this Agreement or otherwise.
l. Most-Favored Nation. So long as the Note is outstanding, upon any issuance by the Company or any of its subsidiaries of any new security other than a security issued in an Exempt Issuance (as defined in the Note), with any term that the Holder reasonably believes is more favorable to the holder of such security or with a term in favor of the holder of such security that the Buyer reasonably believes was not similarly provided to the Buyer in the Note or under this Agreement, then (i) the Company shall notify the Buyer of such additional or more favorable term within one (1) business day of the issuance or amendment (as applicable) of the respective security, and (ii) such term, at Buyer’s option, shall become a part of the transaction documents with the Buyer (regardless of whether the Company complied with the notification provision of this Section). The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, and original issue discounts. If Buyer elects to have the term become a part of the transaction documents with the Buyer, then the Company shall immediately deliver acknowledgment of such adjustment in form and substance reasonably satisfactory to the Holder (the “Acknowledgment”) within one (1) business day of Company’s receipt of request from Buyer (the “Adjustment Deadline”), provided that Company’s failure to timely provide the Acknowledgement shall not affect the automatic amendments contemplated hereby.
m. Non-Public Information. The Company covenants and agrees that neither it, nor any other person acting on its behalf will provide the Buyer or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto the Buyer shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that the Buyer shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public information to the Buyer without such Buyer’s consent, the Company hereby covenants and agrees that such Buyer shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or affiliates, not to trade on the basis of, such material, non-public information, provided that the Buyer shall remain subject to applicable law. To the extent that any notice provided, information provided, or any other communications made by the Company, to the Buyer, constitutes or contains material non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice or other material information with the SEC pursuant to a Current Report on Form 8-K. In addition to any other remedies provided by this Agreement or the related transaction documents, if the Company provides any material non-public information to the Buyer without their prior written consent, and it fails to immediately (no later than that business day) file a Form 8-K disclosing this material non-public information, it shall pay the Buyer as partial liquidated damages and not as a penalty a sum equal to $3,000 per day beginning with the day the information is disclosed to the Buyer and ending and including the day the Form 8-K disclosing this information is filed.
n. Right of Participation/Refusal in Subsequent Offerings.
i. From the date first written above until the period ending 90 days from the date hereof (the “RoFR Period”), the Company will not, (i) directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or its Subsidiaries’ debt, equity or equity equivalent securities, including without limitation any debt, preferred shares or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for Common Stock (any such offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”); or (ii) enter into any definitive agreement with regard to the foregoing, in each case unless the Company shall have first complied with this Section 4.
ii. During the RoFR Period, the Company shall deliver to the Buyer an irrevocable written notice (the “Offer Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the persons or entities (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with the Buyer the greater of (i) at least one hundred percent (100%) of the Offered Securities (the “Subscription Amount”); or (ii) the principal amount of the Note issued hereunder.
iii. To accept an Offer, in whole or in part, the Buyer must deliver a written notice to the Company prior to the end of the next business day after the Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of the Subscription Amount that the Buyer elects to purchase (the “Notice of Acceptance”). The Company shall have ten (10) business days from the expiration of the Offer Period to complete the Subsequent Placement and in connection therewith to issue and sell the Subscription Amount to the Buyer but only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the Buyer or less favorable to the Company than those set forth in the Offer Notice. Following such ten (10) business day period, the Company shall publicly announce either (A) the consummation of the Subsequent Placement or (B) the termination of the Subsequent Placement.
iv. Notwithstanding anything to the contrary contained herein, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company shall deliver to the Buyer a new Offer Notice and the Offer Period shall expire on the next business day after the Buyer’s receipt of such new Offer Notice.
v. If by the fifteenth (15th) business day following delivery of the Offer Notice no public disclosure regarding a transaction with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by the Buyer, such transaction shall be deemed to have been abandoned and the Buyer shall not be deemed to be in possession of any material, non-public information with respect to the Company.
o. Registration Rights. Buyer shall have the registration rights contained in Exhibit C attached hereto.
As used in this Agreement, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
5. Transfer Agent Instructions. The Company shall issue irrevocable instructions to the Company’s transfer agent to issue certificates, registered in the name of the Buyer or its nominee, upon conversion of the Note, the Conversion Shares, in such amounts as specified from time to time by the Buyer to the Company in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that the Company proposes to replace its transfer agent, the Company shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserved shares of Common Stock in the Reserved Amount (as defined in the Note)) signed by the successor transfer agent to the Company and the Company. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to any applicable exemption without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5 will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Securities to be issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Securities issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; and (iv) it will provide any required corporate resolutions and issuance approvals to its transfer agent within six (6) hours of each conversion of the Note. Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Buyer provides the Company, at the cost of the Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected, or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to any applicable exemption, the Company shall permit the transfer, and, in the case of the Securities, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer. 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 transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
6. Conditions to the Company’s Obligation to Sell. The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and delivered the same to the Company.
b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.
c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
7. Conditions to The Buyer’s Obligation to Purchase. The obligation of the Buyer hereunder to purchase the Note, on the Closing Date, is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and delivered the same to the Buyer.
b. The Company shall have delivered to the Buyer the duly executed Note in such denominations as the Buyer shall request and in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.
d. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of Closing Date, as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.
e. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
f. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.
g. The Company shall have delivered to the Buyer (i) a certificate evidencing the formation and good standing of the Company and each of its Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) days of the Closing Date, and (ii) resolutions adopted by the Company’s Board of Directors at a duly called meeting or by unanimous written consent authorizing this Agreement and all other documents, instruments and transactions contemplated hereby.
8. Governing Law; Miscellaneous.
a. Governing Law; Venue. 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, the Note, or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts of New York or in the federal courts located in the state 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. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. 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, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby 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. 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. A facsimile or .pdf signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile or .pdf signature. Delivery of a counterpart signature hereto by facsimile or email/.pdf transmission shall be deemed validly delivery thereof.
c. Construction; Headings. This Agreement shall be deemed to be jointly drafted by the Company and the Buyer and shall not be construed against any person as the drafter hereof. 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, the Note, or any other agreement or instrument 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 this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby.
e. Entire Agreement; Amendments. This Agreement, the Note, 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 or any agreement or instrument contemplated hereby may be waived or amended other than by an instrument in writing signed by the Buyer.
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, e-mail 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 e-mail or 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:
GREATER CANNABIS COMPANY, INC.
15 Walker Avenue, Suite 101
Baltimore, Maryland 21208
Attention: Aitan Zacharin
e-mail:
If to the Buyer:
FIRSTFIRE GLOBAL OPPORTUNITIES FUND LLC
1040 First Avenue, Suite 190 New York, NY 10022 Attention: Eli Fireman
e-mail: eli@firstfirecapital.com
With a copy by e-mail only to (which copy shall not constitute notice):
FABIAN VANCOTT
Attn: Anthony Michael Panek
e-mail: apanek@fabianvancott.com
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, subject to the provisions hereof, the Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from the Buyer 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 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. Publicity. The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, Principal Market or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, Principal Market (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).
k. Expense Reimbursement; Further Assurances. At the Closing to occur as of the Closing Date, the Company shall pay on behalf of the Buyer or reimburse the Buyer for its legal fees and expenses incurred in connection with this Agreement, pursuant to the disbursement authorization signed by the Company of even date. 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.
l. 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.
m. Indemnification. In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement or the Note, the Company shall defend, protect, indemnify and hold harmless the Buyer and its stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all third party actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby; (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities; or (iii) the status of the Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by this Agreement. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law.
n. 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 or the Note will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement or the Note, 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 or the Note 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.
o. Payment Set Aside. To the extent that the Company makes a payment or payments to the Buyer hereunder or pursuant to the Note, or the Buyer enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
p. Failure or Indulgence Not Waiver. No failure or delay on the part of the Buyer in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Buyer existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
[Signature Page Follows]
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: | CHIEF EXECUTIVE OFFICER | |
| FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC | ||
| By: | FirstFire Capital Management, LLC | |
| By: | /s/ Eli Fireman | |
| ELI FIREMAN, Manager | ||
EXHIBIT A
FORM OF NOTE
[attached hereto]
EXHIBIT B
WARRANTS A, B, AND C
[attached hereto]
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
[attached hereto]
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion in this Amendment No. 1 to Form S-1 Registration Statement of The Greater Cannabis Company, Inc. (the “Company”), Registration Number 333- of our report dated March 26, 2020 relating to the consolidated financial statements of the Company for the years ended December 31, 2020 and 2019 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 | |
| June 14, 2021 |