Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide a reader of the financial statements
with a narrative report on
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our financial condition, results of operations, and liquidity. We use United
States GAAP financial measures in the MD&A, unless otherwise noted. All the GAAP
financial measures used by us in this report relate to the inclusion of
financial information. This MD&A should be read in conjunction with the audited
Financial Statements and notes thereto for the year ended December 31, 2021 and
2020 included under Item 8 in this Report. The MD&A contains forward-looking
statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations, and intentions. Our actual results could differ
materially from those discussed in the forward-looking statements. See the
cautionary language at the beginning of this Report regarding forward-looking
statements.
Liquidity and Capital Resources
Until such time we can raise additional capital or generate positive cash flow
from operations, we will continue to be funded through short-term advances from
the Company officers, borrowings under promissory notes and sales of restricted
common stock under various offerings. We estimate we will need $2,500,000 in
capital, after satisfying our debt obligations, to cover our ongoing expenses
and to successfully market and expand our product offerings. This is only an
estimate and may change as we receive feedback from customers and have a better
feel of the demand and revenues from our new products. Both of these factors may
change and we may not be able to raise the necessary capital and if we are able
to, that it may not be at favorable rates. We intend to meet our cash
requirements for the next 12 months equity financing, debt financing, or other
sources, which may result in further dilution in the equity ownership of our
shares.
For the years ended December 31, 2021 and 2020, we generated revenues of $12,243
and $16,691, respectively, and we reported net losses of $975,579 and
$1,045,479, respectively. We had negative cash flow from operating activities of
$210,232 and $101,554, respectively. As of December 31, 2021, we had an
accumulated deficit of $5,301,917 and total shareholders' deficit of $1,571,243.
Our auditors have raised substantial doubt regarding our ability to continue as
a going concern as a result of our historical recurring losses and negative cash
flows from operations as well as our dependence on private equity and
financings. We anticipate that we will continue to report losses and negative
cash flow. To date, we have financed our activities principally from the sale of
common stock and loans from Company officers. We intend on financing our future
working capital needs from these sources until such time that funds provided by
our operations are sufficient to fund our working capital requirements. We
believe that the current cash on hand, loans from Company officers and funds
raised from the sale of our common stock allows us sufficient capital for
operations and to continue as a going concern.
In April 2021, we authorized an offering of up to 1,000,000 shares of common
stock at $0.51 per share, providing proceeds of up to $510,000, to be offered
and sold only to investors that qualify as "accredited investors" as that term
is defined in Regulation D. For the year ended December 31, 2021, we sold
246,236 shares of common stock under this offering for proceeds of $127,500.
This offering was terminated on August 31, 2021.
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Subsequent to December 31, 2021, we authorized an offering of up to 294,118
shares of common stock at $0.85 per share, providing proceeds of up to $250,000,
to be offered and sold only to investors that qualify as "accredited investors"
as that term is defined in Regulation D. Through April 22, 2022, the date of
this report, we sold 69,900 shares of common stock under this offering for
proceeds of $59,415. This offering terminates on May 1, 2022 and may be extended
for 90 days until August 1, 2022 by the board of directors.
Related party matters
The terms of any transaction determined to be with related parties are presented
to the board of directors (other than any interested director) for approval and
documented in the corporate minutes. Cash advances are commonly provided by our
officers for operating expenses and direct payment of Company expenses. For the
year ended December 31, 2021, Company officers made cash advances of $24,620 and
were repaid $14,857. We also paid our officers accrued interest of $1,937 during
the year ended December 31, 2021. For the year ended December 31, 2020, Company
officers made cash advances of $64,652 and were repaid $26,006. The cash
advances are non-interest bearing and are unsecured. Company officers own
approximately 44.7% of our Common Stock as of December 31, 2021. We have agreed
to indemnify Company officers for certain events or occurrences arising as a
result of the officer or director serving in such capacity. Other than the
foregoing, none of the directors or executive officers of the Company, nor any
person who owned of record or was known to own beneficially more than 5% of our
outstanding shares of common stock has any material interest, direct or
indirect, in any transaction that has occurred during the past fiscal year.
Litigation developments
In July 2021, we successfully enforced our subsidiary's, DTLA, contract rights
in a multi-licensed cannabis retail dispensary, grow, manufacturer and
distributor called Los Angeles Farmers, Inc. ("LAFI"). After four years of
litigation, a Final Judgment was filed into the record in the Superior Court of
California in the County of Los Angeles for case number BC681251 (the "DLTA
Judgment"). The DTLA Judgment awarded 49% of LAFI to DTLA. In addition to equity
ownership, the DTLA Judgment awarded DTLA a share of any profits of this
dispensary from November 2017 to the present and going forward along with
accrued interest on those profits and the costs of bringing litigation. The DLTA
Judgment also appointed a Monitor, to be supervised by the Arbitrator, to
determine how much in past profits and interest DTLA is entitled to be awarded
and that DTLA is treated fairly by LAFI on a going forward basis.
Between July and December 2021, the Monitor undertook a detailed process to
determine the value of the 49% of profits and proceeds from 2017 to the present
that DTLA is entitled to, in addition to the 10% prejudgment interest. The
Monitor's report was completed in January 2022. Based on the information in the
Monitor's report, DTLA has requested that the Arbitrator issue an award of back
profits and interest and order the sale of LAFI to an independent third party in
order to allow any judgment to be paid to DTLA. That request is under
submission.
Under GAAP accounting, ownership percentages over 20% would typically be
accounted for using the equity method, the Company is accounting for this
investment as an investment in
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equity securities due to the Company not having significant influence over LAFI.
The cost of this investment was expensed during the fiscal year ended December
31, 2017 and, due to uncertainties surrounding the value of LAFI and determining
any award of back profits and interest, as well as the pending litigation, no
value has been reflected in our consolidated financial statements as of December
31, 2021.
Results of Operations
Year ended December 31, 2021 compared to the year ended December 31, 2020
For the years ended December 31, 2021 and 2020, we generated revenues of $12,243
and $16,691, respectively, a decrease of approximately $4,500. We generate five
types of revenue, which generally consist of fees from subscriptions, affiliate
advertising, event sales, referrals and consulting. Our revenues for the years
ended December 31, 2021 and 2020 were as follows:
Years ended December 31,
2021 2020
Subscription fees $ 893 $ -
Affiliate advertising 8,850 2,671
Event Sales - 2,020
Referral fees 2,500 11,250
Consulting and other - 750
$ 12,243 $ 16,691Subscription fees. In June 2021, we launched a new Membership Benefits Program
under the WeedClub® Platform, where subscribers can connect to 'exclusive deals'
on essential products and services necessary to scale their business. Our
special pricing of $149 for an annual subscription makes access to our WeedClub®
Platform available to all.
Affiliate advertising. Affiliate advertising, through our advertising deal with
Twitter, generated $8,850 of revenues for the year ended December 31, 2021. In
2020, we entered into an advertising deal with Twitter which provides us a
revenue stream and growth opportunity due to our ability to post approved hemp
social media ads. The corresponding costs of revenues associated with affiliate
advertising revenues was $8,000 and zero for the years ended December 31, 2021
and 2020, respectively.
Event Sales. The negative impact of COVID-19 resulted in a decrease in our event
sales from $2,020 in the prior year to zero in the year ended December 31, 2021.
We were able to hold one virtual @420 event during the prior year with a limited
number of company presenters. We do not have any current plans to resume our
@420 networking events at this time.
Referral fees. We generate referral fees when a business transaction is
consummated between us and the potential target company. Such business
transactions generally arise from the connections with company presenters during
@420 events of which none were held during the
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year ended December 31, 2021. Accordingly, our revenues from referral fees
declined from $11,250 to $2,500 for the years ended December 31, 2021 and 2020,
respectively.
Consulting and other. Consulting fees are recognized when we assist presenting
companies with their investment deck and presentation scripts for our @420
events of which none were held during the year ended December 31, 2021.
Accordingly, such revenues declined from $750 to zero for the years ended
December 31, 2021 and 2020, respectively.
For the years ended December 31, 2021 and 2020, general and administrative
expenses were $451,012 and $370,908, respectively, an increase of approximately
$80,100. Contributing factors to this increase were:
·Labor-related expenses and consulting fees increased by approximately $44,900,
which included recognizing approximately $157,400 in stock-based fees in the
current year ended December 31, 2021 compared to approximately $113,300 in
stock-based fees in the prior year.
·Public company related costs, including OTC filing fees, press releases and
transfer agent costs increased by approximately $11,700 primarily due to
increased fees in connection with our uplisting to the OTCQB market.
·Overall general and administrative expenses, including travel, entertainment,
subscriptions and website development, increased by approximately $23,500, which
included approximately $2,700 in stock-based fees in the current year ended
December 31, 2021.
For the years ended December 31, 2021 and 2020, professional fees were $522,476
and $197,559, respectively, an increase of approximately $324,900. Our
professional fees the years ended December 31, 2021 and 2020 were comprised of
the following:
Years ended December 31,
2021 2020
Legal $ 189,985 $ 56,855
Accounting and audit 182,057 102,594
Other professional fees 150,434 38,110
$ 522,476 $ 197,559
Legal. Legal expenses increased overall by approximately $133,100 for the year
ended December 31, 2021 compared to the year ended December 31, 2020.
Contributing factors to this increase were:
·Legal fees to our current securities counsel firms increased by approximately
$12,200.
·Legal fees to our patent and trademark counsel decreased by approximately
$2,000.
·Fees incurred by Judicate West and Planet Depot related to our litigation
against LAFI increased by approximately $29,300.
·Our portion of the fees incurred by the Monitor to advance our litigation
against LAFI were approximately $132,000 for the year ended December 31, 2021.
In April 2021, the Arbitrator overseeing the arbitration hearing issued a
judgment in our favor and against
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LAFI. This judgment also appointed a Monitor, to be supervised by the
Arbitrator, to determine how much in past profits and interest we are entitled
to be awarded. The costs of the Monitor are borne equally between the Company
and LAFI. Between July and December 2021, the Monitor undertook a detailed
forensic examination of LAFI. The Monitor's report was completed in January
2022. Reference is made to Note 9, Litigation, to the Consolidated Financial
Statements included under Item 8 in this Report for further information on the
litigation.
·Legal fees incurred by our predecessor law firm in the LAFI litigation
decreased approximately $38,400. This law firm resigned in April 2021 when we
engaged a new "contingency-based" law firm.
Accounting and audit. Accounting and audit expenses increased by approximately
$79,500 for the year ended December 31, 2021, compared to the year ended
December 31, 2020. Contributing factors to this increase were:
·Audit and accounting fees to our independent public accounting firm increased
by approximately $4,000 for our annual fiscal year audit and quarterly reviews.
·Accounting fees for our contracted CFO services increased by approximately
$83,800, which included $86,300 in stock-based fees in the current year ended
December 31, 2021 compared to $14,000 of stock-based fees recognized in the
prior year.
·Accounting fees to our outside bookkeeping services decreased by approximately
$8,300 related to the costs of filing our corporate federal income tax returns
in the prior year.
Other professional fees. Other professional fees increased by approximately
$112,300 for the year ended December 31, 2021, compared to the year ended
December 31, 2020 due to an increase in fees to our contracted software
engineers and developers of our software technology platforms. All professional
fees incurred for the year ended December 31, 2021 were comprised of stock-based
fees, compared to $37,800 for the prior year ended December 31, 2020.
In accordance with generally accepted accounting principles related to
Intangible Assets, we determined that the fair market value of our intangible
assets to be zero as of December 31, 2020. Accordingly, we incurred a loss on
impairment of intangible assets of $455,000 for the prior year ended December
31, 2020. Reference is made to Note 5, Intangible Assets, to the Consolidated
Financial Statements included under Item 8 in this report.
Other (income) and expenses for the years ended December 31, 2021 and 2020 were
as follows:
Years ended December 31,
2021 2020
Recovery of expense in litigation $ (22,382) $ -
Gain on extinguishment (14,220) (26,492)
Interest expense 41,758 63,280
$ (5,156) $ 36,788
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Recovery of expense in litigation. Following the issuance of aforementioned
judgment against LAFI, we filed a motion for reimbursement of costs in the
amount of $22,382. No objection was filed by LAFI and we received reimbursement
of these costs.
Gain on extinguishment. For the year ended December 31, 2021, we settled debt
with shares of our common stock which resulted in a gain on extinguishment of
debt for the difference between the amount of debt settled and the fair value of
the shares of common stock issued based on the closing price of the Company's
common stock on the OTCQB market. For the prior year ended December 31, 2020, we
were able to write-off several old accounts payable liabilities from 2018, which
resulted in gain on extinguishment of approximately $26,500.
Interest expense. Interest expense decreased by approximately $21,500 for the
year ended December 31, 2021 compared to the year ended December 31, 2020. The
decrease in interest expense was mostly due to interest expense accrued on our
unpaid liability to our predecessor law firm in the aforementioned litigation.
This law firm resigned in April 2021 when we engaged a new "contingency-based"
law firm and started accruing interest expense on their unpaid amount. This
decrease was offset by an approximate $1,900 increase in interest expense on
borrowings on two loan obligations during the year ended December 31, 2021.
Overall, for the year ended December 31, 2021, we reported a net loss of
$975,579 compared to a net loss of $1,045,479 for the year ended December 31,
2020. Considering the $455,000 loss on impairment of our intangible assets, our
comparative net loss for the prior year ended December 31, 2020 was $590,479
which, compared to our current year loss, represented an overall increase in net
loss of approximately $385,100.
Considering stock-based fees for services rendered by consultants and
professionals for the years ended December 31, 2021 and 2020, respectively (as
discussed above), our net loss increased by approximately $153,400 from the
prior year comparable period, as shown in the following table:
Years ended December 31,
2021 2020
Net loss as reported $ 975,579 $ 1,045,479
Less: Impairment of intangible assets - 455,000
975,579 590,479
Less: Stock-based fees 396,768 165,068
$ 578,811 $ 425,411--------------------------------------------------------------------------------
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Cash Flows
The following table summarizes the sources and uses of cash for the years ended
December 31, 2021 and 2020, respectively:
Years ended December 31,
2021 2020
Net cash used in operating activities $ (210,232) $ (101,554)
Net cash used in investing activities
(250) -
Net cash provided by financing activities 210,356 98,147
Net decrease in cash and cash equivalents $ (126) $ (3,407)
Year ended December 31, 2021. Operating activities used $210,232 of cash,
primarily resulting from our net loss for the year ended December 31, 2021 of
$975,579, offset by non-cash stock-based fees issued for services rendered by
consultants and professionals of $396,768 and increases in liabilities across
all categories: accounts payable, accrued legal fees, accrued payroll and other
accrued liabilities. Financing activities provided $210,356 of cash for the year
ended December 31, 2021, consisting of $127,500 in proceeds from the sale of
common stock and $75,030 of borrowings on two loan obligations, one for $50,000
(senior) and one for $25,030, from unrelated lenders. Borrowings under the
$50,000 loan obligation shall remain senior with respect to priority lien and
right of payment to any indebtedness later acquired. As a condition of this loan
agreement, our Company's Chief Executive Officer personally and unconditionally
guaranteed the timely repayment of the loan. In addition to these cash
increases, short-term advances from Company officers, net of repayments provided
of $7,826 of cash for the year ended December 31, 2021.
Year ended December 31, 2020. Operating activities used $101,554 of cash,
primarily resulting from our net loss for the year ended December 31, 2020 of
$1,045,479, offset by non-cash stock-based fees issued for services rendered by
consultants and professionals of $165,068 and non-cash impairment of intangible
assets of $455,000. Accounts payable decreased by $20,396, otherwise there were
increases in liabilities across all categories: accrued legal fees, accrued
payroll, accrued liabilities, deferred revenue and accrued interest payable.
Financing activities provided $98,147 of cash for the year ended December 31,
2020, consisting of $59,501 in proceeds from the sale of common stock and
$38,646 of borrowings from Company officers, net after repayments of 26,006 for
the year ended December 31, 2020.
Contractual Obligations
We qualify as a smaller reporting company, as defined by Item 10 of Regulation
S-K and, thus, are not required to provide the information required by this
Item.
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
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expenses, results of operations, liquidity, capital expenditures, or capital
resources that is material to investors.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
were $3,780 and $3,906 as of December 31, 2021 and 2020, respectively.
Critical Accounting Policies and Estimates
Reference is made to Note 2, Summary of Significant Accounting Policies, to the
Consolidated Financial Statements included under Item 8 in this Report.
Recently Adopted Accounting Pronouncements
Reference is made to Note 2, Summary of Significant Accounting Policies, to the
Consolidated Financial Statements included under Item 8 in this Report.
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