UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

 

 

MARIJUANA COMPANY OF AMERICA, INC.

(Exact Name of registrant as specified in its charter)

 

Utah   98-1246221
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

5256 S. Mission Road, 703 #314    
Bonsall, CA   92003
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: ( 888) 777-4362

 

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

Title of Class

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [   ] Accelerated filer [   ]
       

Non-accelerated filer

(Do not check if a smaller reporting company)

[   ] Smaller reporting company [X]

 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [  ] No [X]

 

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MARIJUANA COMPANY OF AMERICA, INC.

FORM 10

  

TABLE OF CONTENTS

 

  Page
 
Item 1. Business 3
     
Item 1A. Risk Factors 8
     
Item 2. Financial Information 15
     
Item 3. Properties 18
     
Item 4. Security Ownership of Certain Beneficial Owners and Management 18
     
Item 5. Directors and Officers 18
     
Item 6. Executive Compensation 20
     
Item 7. Certain Relationships and Related Transactions, and Director Independence 21
     
Item 8. Legal Proceedings 21
     
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters 21
     
Item 10. Recent Sales of Unregistered Securities 23
     
Item 11. Description of Registrant’s Securities to be Registered 25
     
Item 12. Indemnification of Directors and Officers 27
     
Item 13. Financial Statements and Supplementary Data 28
     
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 28
     
Item 15. Exhibits, Financial Statement Schedules 29

 

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ITEM 1. BUSINESS

 

General

 

Marijuana Company of America, Inc. and its two wholly owned subsidiary companies: MCOA CA Inc., and H Smart, Inc. (collectively “the “Company”, “we”, “us”, or “our”) are based in Bonsall, California. Our business involves the marketing, sales and delivery of: (i) hemp derived products that are legal to distribute nationally and internationally; and, (ii) marijuana in states and countries where marijuana is regulated and/or has been legalized for medical and/or recreational use. As used in this Form 10, our references to the term “cannabis” shall be meant to include the term “marijuana.”

 

The Company provides product sourcing, branding, payment, distribution, and knowledge through a direct sales structure to maintain customer loyalty and capture market share. The Company’s business plan is twofold: (i) the Company is currently developing, under its wholly owned subsidiary, MCOA CA, Inc., a unique member-only state-by-state club operation under the tradename Club Harmoneous, for the purposes of better serving individuals desiring to get all the medical benefits of marijuana without the need to travel to a legal dispensary. Club Harmoneous is in its developmental stage and is not operational as of the date of this filing, pending the drafting and implementation of various state regulations for the production, marketing and sale of medicinal cannabis, and further development activity by the Company; and, (ii) the Company, through its wholly owned subsidiary, H Smart, Inc., launched its hempSMART™ division in 2016, focused on the development and sale of legal hemp based products under the tradename hempSMART, designed to improve health utilizing non-psychoactive legal hemp containing less than 0.3% THC, typically incorporating products with hemp oil that contains Cannabidiol, also known as “CBD.”

 

We are currently a publicly listed company whose common stock is quoted on the OTC Markets (PINK) Exchange under the symbol “MCOA.”

 

The Company has never been the subject of any bankruptcy, receivership or similar proceeding.

 

History

 

We were incorporated in the State of Utah on October 4, 1985, under the name of Mormon Mint, Inc. The corporation was originally a startup company organized to manufacture and market commemorative medallions related to the Church of Jesus Christ of Latter Day Saints, the "Mormons." On January 5, 1999, Bekam Investments, Ltd. acquired one hundred percent of the common shares of the Company and spun the Company off changing its name Converge Global, Inc.

 

From August 13, 1999 until November 20, 2002, the Company focused on the development and implementation of Internet web content and e-commerce applications, offering both convenience and value to consumers, as well as unique marketing opportunities and reduced operating costs to businesses. The Company’s strategy focused on the following:

 

•       Creation and development of Internet niche portals, with an emphasis on special Internet web sites. The Company developed audio and video delivery software over the Internet, with the goal of designing and implementing each portal to meet the tastes, interests and demands of its target audiences;

 

•       Creation and development of content and design for the Internet web site: “Digitalmen.com.” Digitalmen.com was a web site that was targeted at men between the ages of 18 and 45. The website featured products and services in the areas of cars, bars, men's fashion, restaurants, finance, dating, greeting cards, community chat and message boards;

 

•       Creation and development of “LiquidationBid.com,” a business-to-business "e-marketplace" for liquidating businesses inventories. The portal was designed to match buyers and sellers of excess goods and services in a virtual marketplace;

 

•       Creation and development of “Desitv.com.” DesiTV.com was intended to be the first digital entertainment network targeted to South Asians (including, Pakistan, India, Bangladesh, Sri Lanka, Nepal), and was believed to be the first South Asian channel to broadcast rich media content over the Internet;

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•       Creation and development of “Machmail.com.” The Company’s concept was to develop a communication portal which integrated a number of different functionalities in an easy to use graphical user interface including: the ability to translate emails into French, German, Spanish, and Chinese, initially, in route to its destination; and, the ability to have a homepage which could display data from multiple user accounts that a user might access by inputting one password as opposed to going to different locations and inputting different passwords;

 

•       Essential Tec, Inc. ("Essential Tec"), a wholly-owned subsidiary of the Company, was formed as an information technology services Company with a technical labor force in Pakistan. Essential Tec utilized an offshore infrastructure to provide managed software solutions with a specific focus on web related technologies and solutions. Essential Tec's software engineers provided high quality, cost-effective services to clients in a resource-constrained environment. Essential Tec's services included E-Commerce Solutions, e-Procurement applications, auctioning engines, and several other web based solutions. Essential Tec sold and marketed its services and products from its offices based in Santa Monica, California; and,

 

•       The Company filed for trademark protection for the trade term “Webfomercials.” It also applied to trademark its slogans "solutions for the e-conomy" as well as "man's final destination."

 

On March 25, 2002, the Company acquired all of the issued and outstanding shares of TeleWrx, Inc., a Florida corporation, and development stage entity specializing in the sale and marketing of telecommunications products and services through the utilization of network marketing.

 

In 2009, the Company changed its business plan and began business operations as a mining exploration company, taking the following actions:

 

•       The Company organized a wholly owned subsidiary, Elmswba Investment Corporation, as a development company implementing the Company’s mining initiatives in Canada;

 

•       On February 27, 2009, the Company acquired six mining claims (named "Golden Tea Cup Project") located in Cairo and Alma Townships, in the Province of Ontario, Canada, through Elmswba Investment Corporation. The Company further agreed to grant the vendor a 3% net smelter return, with a buy back right for one third at any time for $4,000,000;

 

•       On March 24, 2009, the Company entered into an agreement to purchase 100% interest in certain unpatented mining claims located in La Paz County, in the State of Arizona collectively referred to as the "Eagle Nest" property claims. The vendor was entitled to a net smelter return of 3% of the revenues received from the claims;

 

•       On June 16, 2009, the Company acquired five mining claims (named the “Golden Twist Property Claims" located in Powell Township, in the Province of Ontario, Canada through Elmswba Investment Corporation. The Company further agreed to grant the vendor a 3% net smelter return, with a buy back right for one half at any time for $1,500,000.

 

•       On June 16, 2009, the Company acquired two additional claims adjacent to the Golden Twist Property Claims in Powell Township from through its Ontario, Canada through Elmswba Investment Corporation;

 

By 2012, the Company had spent approximately $225,000 in exploration costs to exploit its mining claims, but could not pay for the environmental remediation costs associated with the business, and changed its business plan to focus on providing wholesale food services. The Company’s business focused on the marketing of its “Majestic Menu” of food service items to the hospitality and food service industry via an on-line internet site, where individuals could purchase retail direct from food distributors via credit cards and commercial accounts. The Company owned the software and intellectual property related to the “Majestic Menu” by license, and by virtue of its license agreement agreed to pay a 3% royalty on sales to the licensor.

 

The Company changed its business plan again in 2013, cancelling its license agreement with “Majestic Menu” in favor of again conducting business in the mining exploration sector. The Company entered into a Stock Purchase Agreement with CJSC Sintek, Inc., a mining and exploration company, to acquire 100% of Sintek’s shares for an aggregate price of $4,300,000 paid by the issuance of 200,000,000 shares of common stock with a one year restriction at a value of $.02 per share, and the balance of the purchase price of $300,000 paid in three installments of $100,000 each commencing on or before March 15, 2014, the second installment by May 15, 2014, and the last installment by June 15, 2014. However, on November 14, 2014 the Company terminated its agreement with Sintek Inc., and as a result, the transaction was reversed due to lack of financing. The stock issued in the amount of 200,000,000 restricted common shares was cancelled.

 

On June 26, 2014, the Company announced the signing of a Purchase Agreement with Grant Ltd. for the acquisition and licensing of facilities subsoil for Mine “Duet” Ltd., a producing property of lode gold in the Ust-Maya District, Republic of Sakha (Yakutia) in the Russian Federation. Subject to the terms and conditions of the Agreement, the Company agreed to acquire 100% of the rights, licenses and claims of Mine “Duet” Ltd. from Grant Ltd., for the aggregate consideration of $2,500,000 paid by 50,000,000 shares of restricted Common Stock of the Company at a value of US $.05 per share. The Closing of the proposed acquisition was scheduled for August 15, 2014. However, the Company did not close this transaction and the agreement was terminated as a result.

 

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On July 2, 2014, the Company announced the signing of a Letter of Intent with Grant Ltd. for the acquisition and licensing of facilities subsoil for Mine "Drazhnik" Ltd., a producing property of lode gold in the Ust-Maya District, Republic of Sakha (Yakutia) in the Russian Federation. The Company's initial due diligence was significant to support the signing a second letter of intent to enter a purchase agreement with Grant Ltd. on or before August 30, 2014. Based upon further due diligence conducted by the Company and negotiations with Grant, Ltd., the Company ultimately determined not to close this transaction.

 

On June 30, 2015, the Company announced the re-acquisition of the “Majestic Menu” license focused on the marketing of its “Majestic Menu” of food service items to the hospitality and food service industry via an on-line internet site, where individuals could purchase retail direct from food distributors via credit cards and commercial accounts. The Company owned the software and intellectual property related to the “Majestic Menu” by license, and by virtue of its license agreement agreed to pay a 3% royalty on sales from the licensor.

 

On September 4, 2015, Donald Steinberg and Charles Larsen purchased 400,000,000 shares of restricted common stock and 10,000,000 shares of the Preferred Class A stock from the Company’s President, Cornelia Volino, in exchange for $105,000.00. The purchases by Messrs. Steinberg and Larsen were in equal amounts . On September 9, 2015, Donald Steinberg was appointed Chairman of the Board, Chief Executive Officer and Secretary of the Company. Mr. Larsen was appointed to the Board of Directors. The former officers and directors of the Company resigned concurrent with the new appointments. By virtue of Messrs. Steinberg and Larsen’s stock purchase and appointment to the Company’s Board of Directors, a purchase or sale of a significant amount of assets not in the ordinary course of business and a corresponding change of control occurred. The Company reported the change of control in its September 30, 2015 quarterly report filed with the OTC Markets. Thereafter, the Company’s business plans and operations changed to focus on the legalized hemp and marijuana business more fully discussed in this filing. The Company changed its name and trading symbol on December 1, 2015.

 

Principal Products and Services & Their Markets.

 

The Company offers its products and services through its two wholly owned subsidiaries:

 

•       MCOA CA, Inc., “Club Harmoneous”; and,

•       H Smart, Inc., “hempSMART”.

 

Club Harmoneous

 

On March 29, 2016, the Company announced a development stage business, Club Harmoneous. Club Harmoneous and its related intellectual property is owned by MCOA CA Inc., a California corporation, which is a wholly owned subsidiary of the Company. Club Harmoneous is in its developmental stage and is not operational as of the date of this filing, pending the drafting and implementation of various state regulations for the production, marketing and sale of medicinal cannabis, and further development activity by the Company. The developmental plan for Club Harmoneous is to provide a means for patients possessing a valid doctor’s recommendation for medicinal cannabis, to conveniently and discreetly receive home deliveries of medical marijuana. The Company believes that Club Harmoneous will offer member patients tremendous benefits including: consistent high quality, aggressive pricing as well as discounts, loyalty and rewards, unique products and strains, lab testing, and discrete and prompt delivery. The Company’s plans are to only service persons possessing a valid medical marijuana doctor’s recommendation who can then become a member of Club Harmoneous by signing up on the Company’s web site, and providing information to the Company including a verified valid doctor’s recommendation. Once qualified as a Club Harmoneous member by the Company, the member can choose to purchase medicinal cannabis for home delivery, subject to compliance with all local and state regulations governing the medical cannabis space. By referring other qualified patients with verified valid doctor’s recommendations, Club Harmoneous members will be eligible to earn loyalty and rewards points for discounts on Club Harmoneous products and orders, and will accumulate referral fees for members and patients whom they successfully refer to Club Harmoneous. Ultimately, the Company is investigating the feasibility of offering and implementing an affiliate program to members including training, support, buying power, and affiliate commissions for entrepreneurs interested in seeking business opportunities or employment in the rapidly emerging medical cannabis industry expands in those states that have legalized or decriminalized the use of cannabis for recreational purposes. Club Harmoneous is currently non-operational and in the development stage.

 

 

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hempSMART

 

In 2016 the Company also launched its hempSMART division, acquiring H Smart, Inc. as a wholly owned subsidiary of the Company. H Smart, Inc. was formed on September 21, 2015 as a Delaware corporation and its sole asset and operation was the ownership of the hempSMART brand and related research and development into hemp derived products. The focus of the hempSMART division is the development of products designed to improve health utilizing non-psychoactive hemp-derived Cannabinoid Oil. Hemp refers to parts of the cannabis sativa L plant that are grown to be specifically used for fiber, oil, and seeds. This variety is then refined into numerous products including wax, resin, cloth, pulp, paper, rope, fuel, and Cannabinoid Oil. Cannabinoid oil is a natural substance that is extracted and separated from specific varieties of cannabis sativa L . Chemically, CBD is one of 85 chemical substances known as cannabinoids, which are all found in the cannabis plant. CBD is the second most abundant compound in hemp, typically representing up to 40% of its extracts. CBD contains less than 0.3% THC. Thus, use of hempSMART products do not induce the “high” normally associated with cannabis. The U.S. Food and Drug Administration has not approved any product containing or derived from CBD for any indication or as a dietary supplement. However, a large body of anecdotal medical and scientific research exists to support claims that CBD is helpful in treating a number of physical conditions and diseases, including chronic pain, rheumatoid arthritis, anxiety, and post-traumatic stress disorder (“PTSD”).

 

Customers can order hempSMART products directly through the hempSMART web site (https://www.hempsmart.com) or through any hempSMART “Affiliate.” The Company actively encourages individuals to become hempSMART Affiliates by signing up on its web site. Once qualified, Affiliates earn discounts on hempSMART products, and can earn commission and discounts on future hempSMART products and orders, providing entrepreneur Affiliates a means of maximizing business opportunities in the rapidly emerging cannabis industry.

 

In anticipation of establishing and expanding its hempSMART sales affiliate program, the Company acquired a license from MultiSoft Corporation, a Florida corporation (“MultiSoft”), to use its MarketPowerPro system software (“MarketPowerPro”). MarketPowerPro is a secure multi-level-marketing sales software program that facilitates order placement over the internet via a web site, and accounts for affiliate orders and sales; calculates referral benefits apportionable to specific sales associates, and calculates and accounts for loyalty and rewards benefits for returning customers. MarketPowerPro is compliant with Payment Card Industry financial standards for maintaining security regarding payment transactions conducted over the internet using credit cards. MultiSoft also independently monitors licensee websites hosting MarketPowerPro to ensure that licensee websites are compliant and are invulnerable to being compromised.

 

hempSMART Supply Chain

 

The Company established contractual relationships with key suppliers and service providers to manufacture, package, warehouse and deliver hempSMART products to customers.

 

On March 17, 2017, the Company signed a binding joint venture agreement with GateC Research Inc. (“GCR”), a California corporation. GCR maintains a permit to grow Marijuana legally within an approved zone in Adelanto County, California. The Company and GCR intend to optimize collaborative business opportunities in the development and sales of cannabis products in the legalized Marijuana industry in California, utilizing GCR’s high quality grow operations to provide sales and marketing, agricultural procedures, operations security and monitoring, processing and delivery, branding, capital resources and financial management.

 

On March 16, 2017, the Company entered into a binding joint venture agreement with Bougainville Ventures, Inc., a Canadian corporation (“BV”). BV holds assignable cannabis licenses and a lease for real property located in the State of Washington to legally grow cannabis. The Company intends to sublease the land to the joint venture, and provide capital and other management services to support the grow operation and develop cannabis products for sale through in legalized medicinal and adult use states.

 

On July 12, 2016, the Company contracted with CBD Global, Inc., a Colorado corporation (“CBD Global”), and licensed supplier of CBD, to provide the Company with the necessary CBD for its product development, manufacture and sale.

 

The Company’s manufacturing is conducted by Equinox Nutraceutical in Lindon, Utah in a plant that is certified as compliant with “Good Manufacturing Practices” (“GMP”). Being “GMP” certified means Equinox conforms to the guidelines recommended by agencies that control authorization and licensing for manufacture and sale of food, drug products, and active pharmaceutical products. These guidelines provide minimum requirements that a pharmaceutical or a food product manufacturer must meet to assure that the products are of high quality and do not pose any risk to the consumer or public. Equinox provides manufacturing of hempSMART products. Equinox then provides verified product testing of components and finished products through a third-party lab to ensure quality control.

 

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On November 1, 2016, the Company contracted with Big Monkey 3PL Logistics (“Big Monkey”) to provide for warehousing, packaging, and order fulfillment of its hempSMART products.

 

The Company’s first product under its hempSMART division is hempSMART Brain, a formulated product encapsulated with CBD as the core ingredient, and combined with high quality, proprietary ingredients to compliment the CBD to support brain health and function. On July 18, 2016, the Company filed a patent application for its proprietary formulation for hempSMART Brain. The Company has a number of other hempSMART products in research and development, and intends to broaden hempSMART’s product offerings to include products targeting , sleep, body care, cosmetics and a line of branded merchandise using the hempSMART name. In order to grow and develop the hempSMART brand name, the Company intends to use the trade name hempSMART in conjunction with each of its new products. Thus, for example, the Company’s sleep product would be called “hempSMART Sleep.” On October 3, 2016, Company filed an application for the issuance of a registered trademark for hempSMART. As of the date of this filing, the U.S. Patent and Trademark Office is processing the Company’s application for a registered trademark. The Company assembled an advisory board consisting of product developers, scientists and doctors to design and evaluate new hempSMART products as each is developed and tested prior to launch.

 

All administrative activities of the Company have been conducted by corporate officers from either their own offices or homes and at the Company’s mail collection office located at 5256 S. Mission Road, 703 #314, Bonsall, CA.

 

Government Regulation of Cannabis

 

The United States federal government regulates drugs through the Controlled Substances Act (21 U.S.C. § 811), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug, which is viewed as highly addictive and having no medical value. The United States Federal Drug Administration has not approved the sale of marijuana for any medical application. Doctors may not prescribe cannabis for medical use under federal law, however, they can recommend its use under the First Amendment. In 2010, the United States Veterans Affairs Department clarified that veterans using medicinal cannabis will not be denied services or other medications that are denied to those using illegal drugs.

 

Twenty-eight states and the District of Columbia currently have laws legalizing marijuana in some form. Three other states will soon join them after recently passing measures permitting use of medical marijuana.

 

Recently, California, Massachusetts, Maine and Nevada all passed measures in November, 2016 legalizing recreational marijuana. California’s Prop. 64 measure allows adults 21 and older to possess up to one ounce of marijuana and grow up to six plants in their homes. Other tax and licensing provisions of the law will not take effect until January 2018.

 

Additionally, there are active efforts by many advocacy groups seeking to expand the legalization of cannabis, including, but not limited to the Marijuana Policy Project, a leading advocate for major state-level marijuana policy reforms that have resulted in successful efforts to pass 10 of the 15 most recent state medical marijuana laws (in Arizona, Delaware, Illinois, Maryland, Michigan, Minnesota, Montana, New Hampshire, Rhode Island, and Vermont) and five of the seven most recent decriminalization laws (in Delaware, Maryland, Massachusetts, Rhode Island, and Vermont).

 

These noted state laws, both proposed and enacted, are in conflict with the federal Controlled Substances Act, which makes cannabis use and possession illegal on a national level. However, on August 29, 2013, the U.S. Department of Justice issued a memorandum providing that where states and local governments enact laws authorizing cannabis-related use, and implement strong and effective regulatory and enforcement systems, the federal government will rely upon states and local enforcement agencies to address cannabis activity through the enforcement of their own state and local narcotics laws. The memorandum further stated that the U.S Justice Department’s limited investigative and prosecutorial resources will be focused on eight priorities to prevent unintended consequences of the state laws, including distribution of cannabis to minors, preventing the distribution of cannabis from states where it is legal to states where it is not, and preventing money laundering, violence and drugged driving.

 

However, with the election of 2016, the new Trump administration has not taken a position on enforcement of federal laws relating to cannabis, in light of the foregoing administrative position of the U.S. Department of Justice (see Risk Factors).

 

 

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COMPETITION

 

Our competitors in both the hemp and cannabis spaces, include professional growers and sellers of products and services dedicated to the regulated cannabis industry, including the cultivation, processing, or retail sale of hemp and cannabis products. We compete in markets where cannabis has been legalized and regulated, which includes various states within the United States, it’s territories and Indian Country therein and Canada. We expect that the quantity and composition of our competitive environment will continue to evolve as the industry matures. Additionally, increased competition is possible to the extent that new states and geographies enter the marketplace as a result of continued enactment of regulatory and legislative changes that de-criminalize and regulate cannabis products. We believe that by diligently establishing and expanding our brands, product offerings and services in new and existing locations, we will become established in the industry. Additionally, we expect that establishing our product offerings in new and existing locations are factors that mitigate the risk associated with operating in a developing competitive environment. Additionally, the contemporaneous growth of the industry as a whole will result in new customers entering the marketplace, thereby further mitigating the impact of competition on our operations and results.

 

EMPLOYEES

 

As of December 31, 2016, the Company has three employees.

 

ITEM 1A. RISK FACTORS

 

Our business involves a number of very significant risks. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks. You should invest in our common stock only if you can afford to lose your entire investment.

 

Risks Related to Our Business

 

Because we have only recently begun our hempSMART operations, and our Club Harmoneous operations are in the development stage, we anticipate our operating expenses will increase prior to earning revenue, and we may never achieve profitability.

 

The Company launched its first product, hempSMART Brain, in November, 2016. As we continue to conduct research and development of other hempSMART products, and develop our Club Harmoneous business, we anticipate increases in our operating expenses, without realizing significant revenues from operations. Within the next 12 months, these increases in expenses will be attributed to the cost of (i) administration and start-up costs, (ii) research and development, (iii) advertising and website development, (iv) legal and accounting fees at various stages of operation, (v) joint venture activities, (vi) creating and maintaining distribution and supply chain channels.

 

As a result of some or all of these factors in combination, the Company will incur significant financial losses in the foreseeable future. There is no history upon which to base any assumption as to the likelihood that the Company will prove successful. We cannot provide investors with any assurance that our business will attract customers and investors. If we are unable to address these risks, there is a high probability that our business will fail .

 

Failure to raise additional capital to fund operations could harm our business and results of operations.

 

Our primary source of operating funds in 2016 and 2015 has been from revenue generated from proceeds from the sale of our common stock and the issuance of convertible and other debt. The Company has experienced net losses from operations since inception, but expects these conditions to improve in 2017 and beyond as it develops its business model. The Company has stockholders' deficiencies at December 31, 2016 and requires additional financing to fund future operations. Currently, we do not have any arrangements for financing and can provide no assurance to investors that we will be able to obtain financing when required. No assurance can be given that the Company will obtain access to capital markets in the future or that financing, adequate to satisfy the cash requirements of implementing our business strategies, will be available on acceptable terms. The inability of the Company to gain access to capital markets or obtain acceptable financing could have an adverse effect upon the results of its operations and upon its financial conditions.

 

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Marijuana and CBD remains illegal under federal law

 

Marijuana and CBD are Schedule I controlled substances and are illegal under federal law. Even in states that have legalized the use of marijuana and/or CBD, its sale and use remain violations of federal law. The illegality of marijuana and/or CBD under federal law preempts state laws that legalize its use. Therefore, strict enforcement of federal law regarding marijuana and/or CBD would likely result in our inability to proceed with our business plan.

 

Our business is dependent on laws pertaining to the marijuana industry

 

The United States federal government regulates drugs through the Controlled Substances Act (21 U.S.C. § 811), which places controlled substances, including cannabis, in a schedule. Currently, cannabis and CBD are classified as Schedule I drugs, which are viewed as highly addictive and having no medical value and is illegal to distribute and use. The United States Federal Drug Administration has not approved the sale of marijuana or CBD for any medical application. Doctors may not prescribe cannabis or CBD for medical use under federal law, however they can recommend its use under the First Amendment. In 2010, the United States Veterans Affairs Department clarified that veterans using medicinal cannabis or CBD will not be denied services or other medications that are denied to those using illegal drugs.

 

Currently, twenty-eight states and the District of Columbia currently have laws legalizing marijuana and CBD in some form. In November, 2016, California, Massachusetts, Maine and Nevada all passed measures legalizing recreational marijuana. California’s Prop. 64 measure allows adults 21 and older to possess up to one ounce of marijuana and grow up to six plants in their homes. Other tax and licensing provisions of the law will not take effect until January 2018.

 

These noted state laws, both proposed and enacted, are in direct conflict with the federal Controlled Substances Act, which makes cannabis use and possession illegal on a national level. However, on August 29, 2013, the U.S. Department of Justice issued a memorandum providing that where states and local governments enact laws authorizing cannabis-related use, and implement strong and effective regulatory and enforcement systems, the federal government will rely upon states and local enforcement agencies to address cannabis activity through the enforcement of their own state and local narcotics laws. The memorandum further stated that the U.S Justice Department’s limited investigative and prosecutorial resources will be focused on eight priorities to prevent unintended consequences of the state laws, including distribution of cannabis to minors, preventing the distribution of cannabis from states where it is legal to states where it is not, and preventing money laundering, violence and drugged driving.

 

On December 11, 2014, the U.S. Department of Justice issued another memorandum with regard to its position and enforcement protocol with regard to Indian Country, stating that the eight priorities in the previous federal memo would guide the United States Attorneys' cannabis enforcement efforts in Indian Country. On December 16, 2014, as a component of the federal spending bill, the Obama administration enacted regulations that prohibit the Department of Justice from using funds to prosecute state-based legal medical cannabis programs.

 

As a result of the election in 2016, the Trump administration has not indicated whether the U.S. Department of Justice would maintain the aforementioned policies, and there is a material risk that if the Obama era policies regarding cannabis are not followed, our business could end and investors could lose their total investment in our Company.

 

Laws and regulations affecting our industry are constantly changing

 

The constant evolution of laws and regulations affecting the marijuana industry could detrimentally affect our operations. Local, state and federal medical marijuana laws and regulations are broad in scope and subject to changing interpretations. These changes may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our business plan. Furthermore, violations of these laws, or alleged violations, could disrupt our business and result in a material adverse effect on our operations. In addition, we cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be directly applicable to our business.

 

Our business is subject to risk of government action

 

While we will use our best efforts to comply with all laws, including federal, state and local laws and regulations, there is a possibility that governmental action to enforce any alleged violations may result in legal fees and damage awards that would adversely affect us.

 

Because our business is dependent upon continued market acceptance by consumers, any negative trends will adversely affect our business operations

 

We are substantially dependent on continued market acceptance and proliferation of consumers of cannabis, medical marijuana and recreational marijuana. We believe that as marijuana becomes more accepted the stigma associated with marijuana use will diminish and as a result consumer demand will continue to grow. While we believe that the market and opportunity in the marijuana space continues to grow, we cannot predict the future growth rate and size of the market. Any negative outlook on the marijuana industry will adversely affect our business operations.

 

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In addition, it is believed by many that large well-funded businesses may have a strong economic opposition to the cannabis industry. We believe that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant revenue. For example, medical marijuana will likely adversely encroach, impact or displace the existing market for the current "marijuana pill" Marinol, sold by the mainstream pharmaceutical industry. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical marijuana movement. Any inroads the pharmaceutical industry could make in halting the impending cannabis industry could have a detrimental impact on our business.

 

FDA Regulation of marijuana and the possible registration of facilities where medical marijuana is grown could negatively affect the cannabis industry which would directly affect our financial condition

 

Should the federal government legalize marijuana for medical use, it is possible that the U.S. Food and Drug Administration ("FDA") would seek to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations concerning the growth, cultivation, harvesting and processing of medical marijuana. Clinical trials may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities where medical marijuana is grown be registered with the FDA and comply with certain federally prescribed regulations. In the event that some or all of these regulations are imposed, we do not know what the impact would be on the medical marijuana industry and what costs, requirements and possible prohibitions may be enforced. If we are unable to comply with the regulations and/or registration as prescribed by the FDA, we may be unable to continue to operate our business.

 

We may have difficulty accessing the service of banks

 

On February 14, 2014, the U.S. government issued rules allowing banks to legally provide financial services to state-licensed marijuana businesses. A memorandum issued by the Justice Department to federal prosecutors re-iterated guidance previously given, this time to the financial industry that banks can do business with legal marijuana businesses and "may not" be prosecuted. The Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued guidelines to banks that "it is possible to provide financial services"" to state-licensed marijuana businesses and still be in compliance with federal anti-money laundering laws. The guidance falls short of the explicit legal authorization that banking industry officials had pushed the government to provide and to date, it is not clear if any banks have relied on the guidance and taken on legal marijuana companies as clients. The aforementioned policy may be administration dependent and a change in presidential administrations may cause a policy reversal and retraction of current policies, wherein legal marijuana businesses may not have access to the banking industry. Also, the inability of potential customers in our target market to open accounts and otherwise use the service of banks may make it difficult for them to purchase our products.

 

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 liability

 

Insurance that is otherwise readily available, such as general liability, and directors and officer’s insurance, is more difficult for us to find, and more expensive, because we are service providers 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 Company’s industry is highly competitive and we have less capital and resources than many of our competitors which may give them an advantage in developing and marketing products similar to ours or make our products obsolete

 

We are involved in a highly competitive industry where we may compete with numerous other companies who offer alternative methods or approaches, who may have far greater resources, more experience, and personnel perhaps more qualified than we do. Such resources may give our competitors an advantage in developing and marketing products similar to ours or products that make our products obsolete. There can be no assurance that we will be able to successfully compete against these other entities.

 

10  
 

We may be unable to respond to the rapid technological change in the industry and such change may increase costs and competition that may adversely affect our business

 

Rapidly changing technologies, frequent new product and service introductions and evolving industry standards characterize our market. The continued growth of the Internet and intense competition in our industry exacerbates these market characteristics. Our future success will depend on our ability to adapt to rapidly changing technologies by continually improving the performance features and reliability of our products and services. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of our products and services. In addition, any new enhancements must meet the requirements of our current and prospective customers and must achieve significant market acceptance. We could also incur substantial costs if we need to modify our products and services or infrastructures to adapt to these changes.

 

We also expect that new competitors may introduce products, systems or services that are directly or indirectly competitive with us. These competitors may succeed in developing, products and services that have greater functionality or are less costly than our products and services, and may be more successful in marketing such products and services. Technological changes have lowered the cost of operating communications and computer systems and purchasing software. These changes reduce our cost of selling products and providing services, but also facilitate increased competition by reducing competitors’ costs in providing similar services. This competition could increase price competition and reduce anticipated profit margins.

 

Our products and services are new and our industry is rapidly evolving

 

Due consideration must be given to our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies in their early stage of development, particularly companies in the rapidly evolving legal cannabis industry. To be successful in this industry, we must, among other things:

 

· develop and introduce functional and attractive service offerings;
     
· attract and maintain a large base of consumers;
     
· increase awareness of our brands and develop consumer loyalty;
     
· establish and maintain strategic relationships with distribution partners and service providers;
     
· respond to competitive and technological developments;
     
· attract, retain and motivate qualified personnel.

We cannot guarantee that we will succeed in achieving these goals, and our failure to do so would have a material adverse effect on our business, prospects, financial condition and operating results.

 

Some of our products and services are new and are only in early stages of commercialization. We are not certain that these products and services will function as anticipated or be desirable to its intended market. Also, some of our products and services may have limited functionalities, which may limit their appeal to consumers and put us at a competitive disadvantage. If our current or future products and services fail to function properly or if we do not achieve or sustain market acceptance, we could lose customers or could be subject to claims which could have a material adverse effect on our business, financial condition and operating results.

 

As is typical in a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty and risk. Because the market for the Company is new and evolving, it is difficult to predict with any certainty the size of this market and its growth rate, if any. We cannot guarantee that a market for the Company will develop or that demand for Company’s products and services will emerge or be sustainable. If the market fails to develop, develops more slowly than expected or becomes saturated with competitors, our business, financial condition and operating results would be materially adversely affected.

 

The Company’s failure to continue to attract, train, or retain highly qualified personnel could harm the Company’s business

 

The Company’s success also depends on the Company’s ability to attract, train, and retain qualified personnel, specifically those with management and product development skills. In particular, the Company must hire additional skilled personnel to further the Company’s research and development efforts. Competition for such personnel is intense. If the Company does not succeed in attracting new personnel or retaining and motivating the Company’s current personnel, the Company’s business could be harmed.

 

11  
 

 

Risks Related to the Company

 

Uncertainty of profitability

 

Our business strategy may result in increased volatility of revenues and earnings. As we will only develop a limited number of products and services at a time, our overall success will depend on a limited number of products and services, which may cause variability and unsteady profits and losses depending on the products and services offered and their market acceptance.

 

Our revenues and our profitability may be adversely affected by economic conditions and changes in the market for medical and recreational marijuana. Our business is also subject to general economic risks that could adversely impact the results of operations and financial condition. 

 

Because of the anticipated nature of the products and services that we offer and attempt to develop, it is difficult to accurately forecast revenues and operating results and these items could fluctuate in the future due to a number of factors. These factors may include, among other things, the following:

 

· Our ability to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses.
     
· Our ability to source strong opportunities with sufficient risk adjusted returns.
     
· Our ability to manage our capital and liquidity requirements based on changing market conditions generally and changes in the developing legal medical marijuana and recreational marijuana industries.
     
· The acceptance of the terms and conditions of our services.
     
· The amount and timing of operating and other costs and expenses.
     
· The nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment return expectations.
     
· Adverse changes in the national and regional economies in which we will participate, including, but not limited to, changes in our performance, capital availability, and market demand.
     
· Adverse changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a change in circumstances, capacity and economic impacts.
     
· Adverse developments in the efforts to legalize marijuana or increased federal enforcement.
     
· Changes in laws, regulations, accounting, taxation, and other requirements affecting our operations and business.
     
· Our operating results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations may be significant.

Management of growth will be necessary for us to be competitive

 

Successful expansion of our business will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders. Specifically, we will need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the general economic environment. Expansion has the potential to place significant strains on financial, management, and operational resources, yet failure to expand will inhibit our profitability goals.

 

We are entering a potentially highly competitive market.

 

The markets for businesses in the medical marijuana and recreational marijuana industries are competitive and evolving. In particular, we face strong competition from larger companies that may be in the process of offering similar products and services to ours. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources and larger client bases than we have (or may be expected to have).

 

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Given the rapid changes affecting the global, national, and regional economies generally and the medical marijuana and recreational marijuana industries, in particular, we may not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on our ability to keep pace with any changes in its markets, especially with legal and regulatory changes. Our success will depend on our ability to respond to, among other things, changes in the economy, market conditions, and competitive pressures. Any failure by us to anticipate or respond adequately to such changes could have a material adverse effect on our financial condition, operating results, liquidity, cash flow and our operational performance.

 

If we fail to protect our intellectual property, our business could be adversely affected

 

Our viability will depend, in part, on our ability to develop and maintain the proprietary aspects of our products and brands to distinguish our products and services from our competitors' products and services. We rely on patents, copyrights, trademarks, trade secrets, and confidentiality provisions to establish and protect our intellectual property. 

 

Any infringement or misappropriation of our intellectual property could damage its value and limit our ability to compete. We may have to engage in litigation to protect the rights to our intellectual property, which could result in significant litigation costs and require a significant amount of our time.

 

Competitors may also harm our sales by designing products that mirror the capabilities of our products or technology without infringing on our intellectual property rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce our intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue.

 

We may also find it necessary to bring infringement or other actions against third parties to seek to protect our intellectual property rights. Litigation of this nature, even if successful, is often expensive and time-consuming to prosecute, and there can be no assurance that we will have the financial or other resources to enforce our rights or be able to enforce our rights, or prevent other parties from developing similar technology or designing around our intellectual property.

 

Our trade secrets may be difficult to protect

 

Our success depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors, as well as our contractors. Because we operate in a highly competitive industry, we rely in part on trade secrets to protect our proprietary products and processes. However, trade secrets are difficult to protect. We enter into confidentiality or non-disclosure agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third parties confidential information developed by the receiving party or made known to the receiving party by us during the course of the receiving party's relationship with us. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services to us will be our exclusive property, and we enter into assignment agreements to perfect our rights.

 

These confidentiality, inventions and assignment agreements may be breached and may not effectively assign intellectual property rights to us. Our trade secrets also could be independently discovered by competitors, in which case we would not be able to prevent the use of such trade secrets by our competitors. The enforcement of a claim alleging that a party illegally obtained and was using our trade secrets could be difficult, expensive and time consuming and the outcome would be unpredictable. The failure to obtain or maintain meaningful trade secret protection could adversely affect our competitive position.

 

Our lack of sufficient patent and/or trademark or copyright protection and any unauthorized use of our proprietary information and technology may affect our business

 

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We currently rely on a combination of protections by patents, trademarks, contracts, including confidentiality and nondisclosure agreements, and common law rights, such as trade secrets, to protect our intellectual property. However, we cannot assure you that we will be able to adequately protect our technology or other intellectual property from misappropriation in the U.S. and abroad. This risk may be increased due to the lack of certain patent and/or copyright protection. Any patent issued to us could be challenged, invalidated or circumvented or rights granted thereunder may not provide a competitive advantage to us. Furthermore, patent applications that we file may not result in issuance of a patent, or, if a patent is issued, the patent may not be issued in a form that is advantageous to us. Despite our efforts to protect our intellectual property rights, others may independently develop similar products, duplicate our products or design around our patents and other rights. In addition, it is difficult to monitor compliance with, and enforce, our intellectual property rights on a worldwide basis in a cost-effective manner. In jurisdictions where foreign laws provide less intellectual property protection than afforded in the U.S., our technology or other intellectual property may be compromised, and our business could be materially adversely affected. If any of our proprietary rights are misappropriated or we are forced to defend our intellectual property rights, we will have to incur substantial costs. Such litigation could result in substantial costs and diversion of our resources, including diverting the time and effort of our senior management, and could disrupt our business, as well as have a material adverse effect on our business, prospects, financial condition and results of operations. We can provide no assurance that we will have the financial resources to oppose any actual or threatened infringement by any third party. Furthermore, any patent or copyrights that we may be granted may be held by a court to infringe on the intellectual property rights of others and subject us to the payment of damage awards.

 

Our Business Can be Effected by Unusual Weather Patterns

 

The production of some of our products relies on the availability and use of live plant material, which will be grown in California and Washington State. Growing periods can be impacted by weather patterns and these unpredictable weather patterns may impact our ability to harvest cannabis and produce products. In addition, severe weather, including drought and hail, can destroy a crop, which could result in our having no cannabis to process. If we are unable to harvest cannabis through our joint ventures, our ability to meet customer demand, generate sales, and maintain operations will be impacted. Our joint ventures do not presently have insurance against any loss of operations due to weather.

 

Ordinary and necessary business deduction other than the cost of goods sold are disallowed by the Internal Revenue Services for Cannabis companies under IRC Section 280E

 

IRC 280E prohibits our businesses from deducting ordinary and necessary business expenses pertaining to cannabis sale, forcing the Company to contend with higher effective federal tax rates than similar companies in other industries. This onerous tax burden significantly impacts the profitability of the Company and may make the pricing of its products less competitive.

 

Risks Related to Our Common Stock

 

Because we may issue additional shares of our common stock, investment in our company could be subject to substantial dilution.

 

Investors’ interests in our Company will be diluted and investors may suffer dilution in their net book value per share when we issue additional shares. We are authorized to issue 5,000,000,000 shares of common stock, $0.001 par value per share. As of December 31, 2016, there were 1,620,996,998 shares of our common stock issued and outstanding. We anticipate that all or at least some of our future funding, if any, will be in the form of equity financing from the sale of our common stock. If we do sell more common stock, investors’ investment in our company will likely be diluted. Dilution is the difference between what investors pay for their stock and the net tangible book value per share immediately after the additional shares are sold by us. If dilution occurs, any investment in our company’s common stock could seriously decline in value.

 

Trading in our common stock on the OTC Pink Exchange has been subject to wide fluctuations.

 

Our common stock is currently quoted for public trading on the OTC Pink Exchange. The trading price of our common stock has been subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with limited business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management’s attention and resources.

 

14  
 

Utah law, our Certificate of Incorporation and our by-laws provides for the indemnification of our officers and directors at our expense, and correspondingly limits their liability, which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.

 

Our Certificate of Incorporation and By-Laws include provisions that eliminate the personal liability of our directors for monetary damages to the fullest extent possible under the laws of the State of Utah or other applicable law. These provisions eliminate the liability of our directors and our shareholders for monetary damages arising out of any violation of a director of his fiduciary duty of due care. Under Utah law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the director's duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director's liabilities under the federal securities laws or the recovery of damages by third parties.

 

We do not intend to pay cash dividends on any investment in the shares of stock of our Company and any gain on an investment in our Company will need to come through an increase in our stock’s price, which may never happen.

 

We have never paid any cash dividends and currently do not intend to pay any cash dividends for the foreseeable future. To the extent that we require additional funding currently not provided for, our funding sources may prohibit the payment of a dividend. Because we do not currently intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen and investors may lose all of their investment in our company.

 

Because our securities are subject to penny stock rules, you may have difficulty reselling your shares.

 

Our shares as penny stocks, are covered by Section 15(g) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on broker/dealers who sell our company’s securities including the delivery of a standardized disclosure document; disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and, furnishing monthly account statements. These rules apply to companies whose shares are not traded on a national stock exchange, trade at less than $5.00 per share, or who do not meet certain other financial requirements specified by the Securities and Exchange Commission. These rules require brokers who sell “penny stocks” to persons other than established customers and “accredited investors” to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell our shares of common stock and may affect the secondary market for our shares of common stock. These rules could also hamper our ability to raise funds in the primary market for our shares of common stock.

 

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

ITEM 2. FINANCIAL INFORMATION

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations for 2016 and 2015.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and supplementary data referred to in this Form 10.

 

This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning revenue sources and concentration, selling, general and administrative expenses and capital resources, are subject to risks and uncertainties, including, but not limited to, those discussed elsewhere in this Form 10 that could cause actual results to differ materially from those projected. Unless otherwise expressly indicated, the information set forth in this Form 10 is as of December 31, 2016, and we undertake no duty to update this information.

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Plan of Operation

 

The Company and its two wholly owned subsidiary companies: MCOA CA, Inc. (Club Harmoneous) and H Smart, Inc. (hempSMART) are based in Bonsall, California. Our business involves the marketing, sales and delivery of: (i) hemp derived products that are legal to distribute nationally and internationally; and, (ii) marijuana in states where marijuana is regulated and/or has been legalized for medical use and/or recreational use.

 

The Company provides product development, sourcing, branding, and knowledge through a direct sales structure to maintain customer loyalty and capture market share. The Company is developing Club Harmoneous, as a unique member-only state-by-state club operation for the purposes of better serving individuals desiring to get all the medicinal benefits of marijuana without the need to travel to a legal medical dispensary. Club members and associates in legal medicinal states, will use our app or website to place their order.

 

The Company has also launched its hempSMART division. The focus of the hempSMART division is the development of products designed to improve health utilizing non-psychoactive legal hemp containing less than 0.3% THC, typically utilizing Cannabinoid oil, also known as “CBD.” The Company’s first product in the hempSMART division is hempSMART Brain, a formulated product encapsulated with CBD as the core ingredient, and combined with high quality, proprietary ingredients to compliment the CBD to support brain health and function. We intend to conduct research and development and release additional hempSMART products targeting general health, sleep, body care, cosmetics and a line of merchandise using the hempSMART name.

 

We have established a supply chain for our business. We recently entered into two joint venture agreements with licensed cannabis growers in Washington State and California, who will legally cultivate marijuana and provide the basis for our cannabis and related products that we expect to develop and sell in our hempSMART and potentially, once development is complete, to our Club Harmoneous division. Our hempSMART division contracted with a provider of high grade CBD oil that we use to manufacture (through a third party) our hempSMART products including our hempSMART Brain product for distribution through a third-party order fulfillment specialist for orders placed over the internet at the hempSMART web site, or though Affiliate sellers of hempSMART products through the Company’s sales affiliate program, provided by license from MultiSoft Corporation, a Florida corporation (“MultiSoft”), and its MarketPowerPro system software.

 

COMPARISON OF 2016 TO 2015

 

Results of Operations - For the year ended December 31, 2016 the Company had a loss from continuing operations before income taxes of approximately $5,402,456 compared to a loss from continuing operations before income taxes of approximately $653,418 for the year ended December 31, 2015. This change is due primarily to increased operating expenses of $4,259,143.

 

Total Revenues - For the years ended December 31, 2016 and 2015, the Company had total sales of $8,729 and $0, respectively. For the year ended December 31, 2016, revenues included $8,729 in revenues from our hempSMART division and sales of hempSMART Brain. Management plans to expand both its sales efforts for hempSMART Brain and its research and development efforts for additional hempSMART products in 2017. Additionally, the Company intends to proceed with its development stage activities regarding its Club Harmoneous operations, and expects increased revenues in 2017.

 

Costs and Expenses - Costs of sales, include the costs of manufacturing, packaging, warehousing and shipping our hempSMART Brain product. As we develop and release addition hempSMART products, we expect our costs of sales to increase.

 

Other general and administrative expenses increased approximately $4,465,056 for the year ended December 31, 2016 compared to the year ended December 31, 2015. The increase can be attributed primarily to common stock issued for stock based compensation, and various other general and administrative cost increases.

 

We are a smaller reporting company, as defined by 17 CFR § 229.10(f)(1). As our sales efforts have only recently begun in November, 2016, we do not consider the impact of inflation and changing prices as having a material effect on our net sales and revenues and on income from our operations for the previous two years or from continuing operations going forward.

 

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Liquidity and Capital Resources

 

The Company has generated a net loss from continuing operations for the year ended December 31, 2016 of approximately $5,402,456. As of December 31, 2016, the Company had current assets of $240,085, which included cash and cash equivalents of approximately $147,486; inventory of $83,475; and accounts receivable of $9,124. While the Company believes it has sufficient cash and cash equivalents to carry out its operating plans for the next twelve months, there can be no assurance the Company will be able to successfully execute its plans at the anticipated level or that additional debt or equity financing will not be needed, or will be available on terms acceptable to the Company.

 

During the years ended December 31, 2016, the Company has met its capital requirements through external financing and the sale of its restricted common stock.

 

Operating Activities - For the year ended December 31, 2016, the Company used cash for operating activities of $242,014. This is due primarily to our costs of inventory, accounts payable and accrued compensation. For the year ended December 31, 2015, the Company used cash for operating activities of $0. This is due primarily to marketing and promotional fees for a company awareness campaign.

 

Investing Activities - During the year ended December 31, 2016, the Company did not engage in any investing activities.

 

Financing Activities - During the year ended December 31, 2016, the Company received $349,500 in cash proceeds from sales of restricted common stock, and $40,000 from the issuance of notes payable.

 

Critical Accounting Policies - 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 the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Notes to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Estimates are used for, but not limited to, contingencies and taxes. Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements.

 

Loss Contingencies

 

The Company is subject to various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company regularly evaluates current information available to us to determine whether such accruals should be adjusted.

 

Income Taxes

 

The Company recognizes deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities represent the expected future tax return consequences of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled.

 

Investments

 

The Company’s securities investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the year included in earnings. Gains from the sales of such marketable securities are utilized to fund our ongoing business, and to also conduct strategic business development, marketing analysis, due diligence investigations into possible acquisitions, and research and development and implementation of our business plans generally.

 

Recent Accounting Pronouncements

 

See Note 1 of the consolidated financial statements for discussion of recent accounting pronouncements.

 

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ITEM 3. PROPERTIES

 

We maintain an address for the delivery and receipt of mail at 5256 S. Mission Road, 703 #314, Bonsall, CA. For the time being, our officers and directors engage in Company business from their respective offices and homes. We do not currently own or lease any properties. We intend to open an office for marketing staff in the second quarter of 2017 in North San Diego County, as well as an administrative office in the Los Angeles area soon thereafter.

 

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

 

The following table sets forth information known to us regarding the beneficial ownership of our common stock as of December 31, 2016 by (1) each stockholder who is known by us to beneficially own more than 5% of our common stock, (2) each of our directors, (3) each of our executive officers, and (4) all of our directors and executive officers as a group.

 

Beneficial Owner (1)  

Number of  

Beneficially Beneficial Owner (1) Owned (2)

  Percent (3)
5% Stockholders:                
Caledonian Bank Ltd.     103,500,000       6.38  
                 
Named Executive Officers and Directors:                
Donald Steinberg, Chief Executive Officer, Director, Treasurer, Secretary     478,803,604       29.5  
Charles Larsen, Director     397,727,842       24.5  
Robert Hymers, Chief Financial Officer, Director     55,500,000       3.42  
Timothy Altvater, Chief Marketing Officer     10,000,000       .06  
All executive officers and directors as a group (4 persons)     942,031,446       58.11  

 

 (1)

Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table.

 

 (2)

Under SEC rules, a person is deemed to be the beneficial owner of shares that can be acquired by such person within 60 days upon the exercise of options or the settlement of other equity awards.

 

 (3)

Calculated on the basis of 1,620,996,998 shares of common stock outstanding as of December 31, 2016, plus any additional shares of common stock that a stockholder has the right to acquire within 60 days after December 31, 2016.

 

 

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.

 

Our Board of Directors

 

The following table sets forth information regarding our current directors and each director nominee, as of December 31, 2016.

 

Name   Principal Occupation   Age   Director Since
Donald Steinberg   Director, Chairman of the Board   67   2015
Charles Larsen   Director   57   2015
Robert Hymers   Director   33   2016

 

Donald Steinberg has been at the forefront of new business concepts many times, and now brings a lifetime of experience to his role as Chairman of the Board of Directors, President, Treasurer and Secretary of the Company. In the 1980’s, Mr. Steinberg developed stock option analysis and trading programs. This led to his management of floor traders on multiple options exchanges, and gave him the knowledge and insight he needed to successfully take other companies public. In the early 90’s, Mr. Steinberg co-founded Globalcom 2000 and entered into the prepaid phone card business, which at that time was an almost unknown market. Globalcom 2000 became one of the largest and fastest growing phone card companies in the United States. Among the many firsts accomplished in that business was an account with 7-11, which Mr. Steinberg personally closed, and which made Globalcom 2000 the first phone card in the country with a corporate logo.

 

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In 1994, Mr. Steinberg developed an interest in the telecom “Callback” business, and co-founded “One World Communications.” Mr. Steinberg subsequently traveled the world, opening up 187 training centers in only 9 months, and created an international multi-level-marketing (“MLM”) global sales force selling telecom services. In 2006, Mr. Steinberg formed Club Vivanet as an International MLM, selling a variety of services. In 2009, he merged Club Vivanet with a publicly traded company. In 2008, Mr. Steinberg recognized the emerging opportunities in the medical marijuana industry, and changed the name of Club Vivanet to Medical Marijuana Inc. (OTC: MJNA), which became America’s first publicly traded company in the medical marijuana industry. Mr. Steinberg left Medical Marijuana, Inc. in 2011 and in 2012, Mr. Steinberg launched Global Hemp Group, Inc. (OTC: GBHPF) with Mr. Charles Larsen, as they recognized the momentum building in the emerging global hemp industry.

 

Charles Larsen is the co-founder, President and Chief Executive Officer of Global Hemp Group, Inc., and has more than 30 years of experience working in government, public, private, and start-up companies as an executive manager, and consultant including Associated Consulting, Peskin Associates, Integrated Decision Systems, Tower Asset Management, Financial Management Advisors, Polaris Technology, Blues Productions, and Medical Marijuana, Inc., BG Medtech and Bud Genius. Mr. Larsen has experience in high volume securities trading, corporate and public debt, equities, options and futures, as well as being an experienced portfolio manager, securities trader, and C level executive. Mr. Larsen has experience in strategic planning, mergers and acquisitions, financial and operational restructuring, public and private corporate finance, governance and compliance. Mr. Larsen's experience in the cannabis and hemp industries is important to our Company. He has been deeply involved in the industry for over 6 years, and has consulted some of the top companies and management teams. Mr. Larsen is also currently the President and CEO of Global Hemp Group, Inc. (OTC: GBHPF). He has disclosed his involvement with the Company and is allocating sufficient time and energy to satisfy his duties and obligations with both companies.

 

Robert Hymers was the past president and CEO of Everlert, Inc. (OTC: EVLI). Mr. Hymers is a licensed CPA in the state of California. During his career as a tax professional at Ernst & Young, LLP, Mr. Hymers provided tax services to several prominent entertainment and real estate companies. His extensive experience with Entertainment and Private Equity industries together with his prolonged involvement with public companies in different roles makes him a key asset to the Company. Mr. Hymers has also served as the CFO of Global Hemp Group (OTC: GBHPF) and is the Managing Partner of Pinnacle Tax Services, LLC. Mr. Hymers holds a Master of Science in Taxation degree and a Bachelor's of Science degree in Accountancy from California State University, Northridge. He is the founding managing editor of the University's: "Tax Development Journal."

 

Our Executive Officers

 

We designate persons serving in the following positions as our named executive officers: our chief executive officer, chief financial officer. The following table sets forth information regarding our executive officers as of December 31, 2016.

 

Name   Principal Occupation   Age   Director Since
Donald Steinberg   Principal Executive Officer   67   2015
Robert Hymers   Chief Financial Officer   33   2015
Timothy Altvater   Chief Marketing Officer   46   2016

 

Donald Steinberg’s, Robert Hymers’, and Charles Larsen’s biographical summaries are included under “Our Board of Directors.”

 

Timothy Altvater, Chief Marketing Officer, has more than two decades of experience actively building networks and helping companies launch and manage growth strategies. After 16 years of building marketing teams Tim launched the "MLM Prosperity Project," a complete roadmap on how to develop and execute a MLM plan step-by-step for success. The MLM Prosperity Project helped and inspired hundreds of entrepreneurs to grow, in many cases, hundreds of percent in a very short period of time. Tim’s approach is relevant and successful as their personal sales organizations have achieved more than $400 Million Dollars in sales. Companies that Mr. Altvater operates or are currently consults with have achieved in excess of $1 billion in gross sales. Mr. Altvater also has developed "sales language" courses that help companies and entrepreneurs implement sales systems and training that simplifies and increase sales and profit.

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ITEM 6          EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

Our primary objective for of our senior officer compensation is to attract, motivate and retain qualified officers to lead the Company in the pursuit of its business goals and combine strategic thinking, creative talent, and strict corporate governance in order to position the Company to capitalize on a wide variety of business opportunities without being limited by any single industry or platform.

 

Compensation for executive officers is based upon their individual employment contracts with such base salary and annual bonuses as may be determined by the Compensation Committee administering out Equity Incentive Plan from time to time, payable in accordance with the regular practices of the Company.

 

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 2016 and 2015.

 

Name and Principal Position   Year   Salary ($)   Bonus ($)   Stock Awards ($)   Non-Equity Incentive Plan Compensation ($)   All Other Compensation ($)   Total ($)
Donald Steinberg,     2016       180,000 (1)             789,000 2                 969,000
Chief Executive Officer,     2015                                  
Treasurer, Secretary                                                    
                                                     
Robert Hymers     2016       90,000 (3)             394,500 (4)                 484,500
Chief Financial Officer     2015         16,500 (5)             18,000 (6)                   34,500
                                                     
Charles Larsen     2016       120,000 (7)             789,000 (8)                 909,000
Director     2015                                  
                                                     
Timothy Altvater     2016                   55,100 (9)                 55,100
Chief Marketing Officer     2015                                  
                                                     
(1) Donald Steinberg agreed to convert $180,000 in accrued compensation from January 1, 2016, through December 31, 2016, into 163,636,364 shares of restricted common stock at a price of $0.0011 per share.

 

(2) Donald Steinberg was awarded a compensation bonus of 10,000,000 shares of restricted common stock valued at 0.0789 per share for services rendered as of December 31, 2016.

 

(3) Robert Hymers agreed to convert $90,000 in accrued compensation from January 1, 2016 through December 31, 2016 into 99,000,000 shares restricted common stock at a price of $0.0011 per share.

 

(4) Robert Hymers was awarded a compensation bonus of 5,000,000 shares of restricted common stock valued at 0.0789 per share for services rendered as of December 31, 2016.

 

(5) Prior to being appointed Chief Financial Officer, the Company paid Mr. Hymers a fee of $16,500 on September 3, 2015 for accounting services rendered.

 

(6) On October 15, 2015, the Company issued Mr. Hymers 10,000,000 shares of restricted common stock in exchange for Chief Financial Officer services, valued at $0.0018 per share.

 

(7) On June 30, 2016, Charles Larsen agreed to convert $120,000 in accrued compensation from January 1, 2016 through December 31, 2016 into 54,545,455 shares of restricted common stock at a price of $0.0011 per share.

 

(8) Charles Larsen was awarded a compensation bonus of 10,000,000 shares of restricted common stock valued at 0.0789 per share for services rendered as of December 31, 2016.

 

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(9) This sum represents issuances of 1,000,000 shares of restricted common stock to Mr. Altvater on February 8, 2016, for services related to his appointment to the Company’s Advisory Board; and 9,000,000 shares of restricted common stock issued to Mr. Altvater on July 29, 2016 for consulting services rendered.

 

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Since the beginning of the Company's last fiscal year, it has not been a participant in any transaction or proposed transaction in which any related person will had or will have a direct or indirect material interest in an amount exceeding $120,000.00. None of our directors are independent directors qualified under Item 407 of Reg. SK.

 

ITEM 8. LEGAL PROCEEDINGS

 

There are no material pending legal proceedings involving the Company to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

 

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

 

MARKET INFORMATION

 

Our common stock trades on the OTC PINK Exchange under the ticker symbol “MCOA”. As of December 31, 2016, there were 334 holders of record of our common stock. The following table sets forth, for the periods indicated, the high and low closing sales prices of our common stock:

 

2016   High   Low
Quarter Ended December 31 $ 0.0134 $ 0.01
Quarter Ended September 30 $ 0.0079 $ 0.004
Quarter Ended June 30 $ 0.012 $ 0.0055
Quarter Ended March 31 $ 0.021 $ 0.0037
         
2015   High     Low 
Quarter Ended December 31 $ 0.0283 $ 0.0087
Quarter Ended September 30 $ 0.0016 $ 0.0002
Quarter Ended June 30 $ 0.0006 $ 0.0002
Quarter Ended March 31 $ 0.0008 $ 0.0002

 

DIVIDENDS

 

The Company has never declared or paid any cash dividends. It is the present policy of the Company to retain earnings to finance the growth and development of the business and, therefore, the Company does not anticipate paying dividends on its Common Stock in the foreseeable future.

 

There were 334 shareholders of record of the Company’s Common Stock as of December 31, 2016.

 

 

EQUITY COMPENSATION PLAN INFORMATION

 

On October 5, 2015, the Company established an Equity Incentive Plan under the direction and control of the Company’s Board of Directors acting as the Compensation Committee. The purpose of the Plan is to attract and retain the services of (i) selected employees, officers and directors of the Company or any parent or subsidiary of the Company and (ii) selected nonemployee agents, consultants, advisors and independent contractors of the Company or any parent or subsidiary of the Company. The Compensation Committee has discretion to issue stock options, stock awards, restricted stock awards or cash.

 

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Plan Category   Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)  

 

 

 

Weighted-average exercise price of outstanding options, warrants and rights (2)

 

Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a) (3)

Equity compensation plans approved by security holders              —         —    
                         
Equity compensation plans not approved by security holders     1,000,000,000     $ 0.005       —    
                         
     Total     1,000,000,000     $ 0.005       —    

 

(1)   Historically, the Company has granted restricted shares that are subject to forfeiture. Pursuant to SEC guidance, these RSUs are not reportable in the table above.

 

(2)   Historically, the Company has granted restricted shares that are subject to forfeiture. Pursuant to SEC guidance, these RSUs are not reportable in the table above. Restricted shares subject to forfeiture have a weighted average exercise price of $0.00.

 

(3)   The Company equity compensation grants to date have been approved on a grant-by-grant basis, as opposed to under an umbrella equity compensation plan establishing a total number of grants available.

 

The following table summarizes the Company’s restricted share award activity for executives during 2015 and 2016:

 

    Restricted Shares   Weighted Average
    Common Stock   Grant Date Fair Value
  Outstanding unvested at December 31, 2015       —       $ —    
  Granted       —         —    
  Vested restricted shares       —         —    
  Forfeited       —         —    
  Outstanding unvested at December 31, 2016                                                   —          —   
  Granted       275,000,000       0.05  
  Vested restricted shares                                       275,000,000       0.05  
  Forfeited       —         —    
  Outstanding unvested at December 31, 2016       —       $ —    

  

Compensation for executive officers is based upon their individual employment contracts with such base salary and annual bonuses as may be determined by the Board of Directors from time to time, payable in accordance with the regular practices of the Company.

 

Employment Agreements

 

Effective January 1, 2016, the Company entered into an Employment Agreement with Donald Steinberg under which Mr. Steinberg serves as chairman of the board, Chief Executive Officer, Treasurer and Director of the Company. Pursuant to the Employment Agreement, Mr. Steinberg is to be paid an annual rate of base salary of one hundred and eighty thousand dollars ($180,000.00) in monthly installments of fifteen thousand dollars ($15,000.00) per month in accordance with the Company’s customary payroll practices and applicable wage payment laws. Mr. Steinberg’s base salary shall be reviewed at least annually by the Board and the Board may, but shall not be required to, increase the base salary during the Employment Term.

 

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Effective January 1, 2016, the Company entered into an Employment Agreement with Charles Larsen under which Mr. Larsen serves as Director and consultant of the Company, reporting to the Board of Directors. In such position, Mr. Larsen shall have such duties, authority, and responsibility as shall be determined from time to time by the Board of Directors, which duties, authority, and responsibility are consistent with the Executive’s position. The Company shall pay the Executive an annual rate of base salary of one hundred and twenty thousand dollars ($120,000.00) in monthly installments of ten thousand dollars ($10,000.00) per month in accordance with the Company’s customary payroll practices and applicable wage payment laws. Mr. Larsen’s base salary shall be reviewed at least annually by the Board and the Board may, but shall not be required to, increase the base salary during the Employment Term.

 

Effective January 1, 2016, the Company entered into an Employment Agreement with Robert Hymers under which Mr. Hymers serves as Chief Financial Officer and Director of the Company, reporting to the Board of Directors. In such position, Mr. Hymers shall have such duties, authority, and responsibility as shall be determined from time to time by the Board of Directors, which duties, authority, and responsibility are consistent with Mr. Hymers’ position. The Company agreed to pay Mr. Hymers a base salary of ninety thousand dollars ($90,000.00) in monthly installments of seven thousand five hundred dollars ($7,500.00) per month in accordance with the Company’s customary payroll practices and applicable wage payment laws. Mr. Hymers’ base salary shall be reviewed at least annually by the Board and the Board may, but shall not be required to, increase the base salary during the Employment Term.

   

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

 

The following information represents securities sold by the Company within the past three years which were not registered under the Securities Act. Included are sales of reacquired securities, as well as new issues, securities issued in exchange for property, services, or other securities, and new securities resulting from the modification of outstanding securities.

 

On December 15, 2013, the Company issued 200,000,000 shares of restricted common stock in exchange for all the stock in Sintek, Inc., a California corporation. On November 14, 2014, the Company terminated its agreement of September 2013 with Sintek Inc. and as result the transaction was reversed due to lack of financing and the stock issued in the amount of 200,000,000 restricted common shares were cancelled.

 

On December 23, 2014, the Company issued 400,000,000 shares of restricted common stock at $.005 for a value of $200,000 to Cornelia Volino to reacquire the Majestic Menu license.

 

On October 5, 2015, the Company issued 10,000,000 restricted common shares to Robert Hymers for contracted accounting services to the Company.

 

On October 8, 2015, Donald Steinberg was issued 217,457,143 in restricted Common stock upon the conversion of a convertible note payable in the amount of $76,110.

 

On January 12, 2016, the Company issued to Robert Peak 10,000,000 shares of restricted common stock for services rendered. On November 15, 2016, the Company and Mr. Peak agreed to retire 7,500,000 of the shares previously issued. The Company issued 2,500,000 restricted shares to Mr. Peak as consideration for services rendered.

 

On January 12, 2016, the Company issued to Robert Cronin 10,000,000 shares of restricted common stock for services rendered. On November 15, 2016, the Company and Mr. Cronin agreed to retire 7,500,000 of the shares previously issued. The Company issued 2,500,000 restricted shares to Mr. Cronin as consideration for services rendered.

 

On February 1, 2016, the Company issued to Edward Manolos 1,000,000 of restricted common stock for services rendered to the Company’s Advisory Board.

 

On February 8, 2016, the Company issued 1,000,000 shares of restricted common stock to Timothy Altvater for services rendered to the Company’s Advisory Board.

 

On February 22, 2016, the Company issued 1,000,000 shares of restricted common stock to Robert Calkin for services rendered to the Company’s Advisory Board.

 

On February 22, 2016, the Company issued 1,000,000 shares of restricted common stock to Gerry Lee Bedore, Jr. for services rendered to the Company’s Advisory Board.

 

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On February 23, 2016, the Company issued 1,000,000 shares of restricted common stock to Peninacoop LLC for services rendered to the Company’s Advisory Board.

 

On June 7, 2016, the Company issued 1,000,000 shares of restricted common stock to Robert Calkin for consulting services rendered.

 

On June 7, 2016, the Company issued 1,000,000 shares of restricted common stock to Timothy Altvater for consulting services rendered.

 

On June 7, 2016, the Company issued 1,000,000 shares of restricted common stock to Lucretia Smith for consulting services rendered.

 

On June 7, 2016, the Company issued 1,000,000 shares of restricted common stock to David Cook for consulting services rendered.

 

On June 7, 2016, the Company issued 1,000,000 shares of restricted common stock to Magnet Marketing, Inc. for consulting services rendered.

 

On June 7, 2016, the Company issued 10,000,000 shares of restricted common stock to Apogee Design, Inc. for consulting services rendered.

 

On June 30, 2016, the Company issued 81,818,182 shares of restricted common stock to Donald Steinberg as consideration for salary owed to Mr. Steinberg from January 1, 2016 to June 30, 2016.

 

On June 30, 2016, the Company issued 54,545,455 shares of restricted common stock to Charles Larsen as consideration for salary owed to Mr. Larsen from January 1, 2016 to June 30, 2016.

 

On June 30, 2016, the Company issued 40,909,091 shares of restricted common stock to Robert Hymers as consideration for salary owed to Mr. Hymers from January 1, 2016 to June 30, 2016.

 

On July 29, 2016, the Company issued 2,000,000 shares of restricted common stock to David Cook for consulting services rendered.

 

On July 29, 2016, the Company issued 1,000,000 shares of restricted common stock to Paula Vetter for consulting services rendered.

 

On July 29, 2016, the Company issued 9,000,000 shares of restricted common stock to Timothy Altvater for consulting services rendered.

 

On July 29, 2016, the Company issued 20,000,000 shares of restricted common stock to AGORACOM, Inc. for services rendered.

 

On October 6, 2016, the Company issued 40,909,091 shares of restricted common stock to Donald Steinberg as consideration for the conversion of a note payable.

 

On October 6, 2016, the Company issued 27,272,727 shares of restricted common stock to Charles Larsen as consideration for the conversion of a note payable.

 

On October 6, 2016, the Company issued 20,454,545 shares of restricted common stock to Robert Hymers as consideration for the conversion of a note payable.

 

On October 13, 2016, the Company sold and issued 10,000,000 shares of restricted common stock to an investor in reliance upon the Section 4.2 exemption from registration.

 

On October 18, 2016, the Company sold and issued 5,000,000 shares of restricted common stock to an investor in reliance upon the Section 4.2 exemption from registration.

 

On October 28, 2016, the Company issued 1,000,000 shares of restricted common stock for services rendered.

 

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On November 1, 2016, the Company issued 84,674,302 to Donald Steinberg and Charles Larsen as consideration for the conversion of a note payable.

 

On November 4, 2016, the Company issued 13,636,364 shares of restricted common stock to Donald Steinberg as consideration for the conversion of a note payable.

 

On November 4, 2016, the Company issued 9,090,909 shares of restricted common stock to Charles Larsen as consideration for the conversion of a note payable.

 

On November 4, 2016, the Company issued 6,818,182 shares of restricted common stock to Robert Hymers as consideration for the conversion of a note payable.

 

On November 8, 2016, the Company issued 5,000,000 shares of restricted common stock to a shareholder as a replacement for a settlement agreement.

 

On November 8, 2016, the Company sold and issued 500,000 shares of restricted common stock to an investor in reliance upon the Section 4.2 exemption from registration.

 

On November 16, 2016, the Company sold and issued 1,666,667 shares of restricted common stock to an investor in reliance upon the Section 4.2 exemption from registration.

 

On November 16, 2016, the Company sold and issued 2,000,000 shares of restricted common stock to an investor in reliance upon the Section 4.2 exemption from registration.

 

On November 18, 2016, the Company sold and issued 1,333,333 shares of restricted common stock to an investor in reliance upon the Section 4.2 exemption from registration.

 

On November 23, 2016, the Company issued 3,500,000 shares of restricted common stock to Stock Vest for services rendered.

 

On December 1, 2016, the Company issued 5,000,000 shares of restricted common stock to a shareholder as a replacement for a settlement agreement.

 

On December 6, 2016, the Company issued 1,125,000 shares of restricted common stock to an investor as consideration for the conversion of a note payable.

 

On December 14, 2016, the Company issued 5,000,000 shares of restricted common stock to a shareholder as a replacement for a lost certificate.

 

On December 21, 2016, the Company issued 500,000 shares of restricted common stock for services rendered.

 

On December 29, 2016, the Company sold and issued 16,666,667 shares of restricted common stock to an investor in reliance upon the Section 4.2 exemption from registration.

 

On December 29, 2016, the Company sold and issued 8,333,333 shares of restricted common stock to an investor in reliance upon the Section 4.2 exemption from registration.

 

On December 30, 2016, the Company issued 3,440,860 shares of restricted common stock to an investor as consideration for the conversion of a note payable.

 

On December 31, 2016, the Company issued 3,333,333 shares of restricted common stock for services rendered.

 

Item 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.

 

Capital Stock

 

We are authorized to issue 50,000,000 shares of preferred stock, $0.001 par value, and 5,000,000,000 shares of Common stock, $0.001 par value.

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Preferred Stock

 

As of December 31, 2016, we designated 10,000,000 shares of our preferred stock as “Class A Preferred Stock,” par value $0.001, and had 10,000,000 shares of Class A Preferred Stock, preferred stock issued and outstanding as of December 31, 2016.

 

The Class A Preferred Stock carries the following rights and preferences;

 

Dividends

 

Class A Preferred Stock is not eligible for receipt of dividends.

 

Voting Rights

 

The holders of the Class A Preferred Stock shall vote for the election of directors, and shall have full voting rights, except that each Class A Preferred share shall entitle the holder to exercise one hundred (100) votes for each one (1) Class A Preferred Share held.

 

Redemptive Rights

 

The Class A Preferred Stock shall not be redeemable.

 

Conversion Rights

 

Class A Preferred Stock is not convertible into any other class of preferred stock or common stock.

 

Other Provisions

 

The shares of Class A Preferred Stock shall be duly and validly issued, fully paid and non-assessable. The holders of the Class A Preferred Stock shall not have pre-emptive rights with respect to any shares of capital stock of the Company or any other securities of the Company convertible into Common Stock or rights or options to purchase any such shares.

 

Common Stock

 

As of December 31, 2016, 1,620,996,998 shares of our common stock are issued and outstanding. Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock have no cumulative voting rights. Accordingly, the holders of in excess of 50% of the aggregate number of shares of Common Stock outstanding will be able to elect all of the directors of the Company and to approve or disapprove any other matter submitted to a vote of all shareholders.

 

Holders of shares of common stock are entitled to share ratably in dividends, if any, as may be declared, from time to time, by the Board of Directors in its discretion, from funds legally available therefore. The Company does not currently anticipate paying any dividends on its Common Stock. In the event of a liquidation, dissolution or winding up of the Company, the holders of shares of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. Holders of common stock have no preemptive rights to purchase the Company's common stock. There are no conversion rights or redemption or sinking fund provisions with respect to the common stock. All of the outstanding shares of common stock are fully paid and non-assessable.

 

Shares of Common Stock are registered at the office of the Company and are transferable at such office by the registered holder (or duly authorized attorney) upon surrender of the Common Stock certificate, properly endorsed. No transfer shall be registered unless the Company is satisfied that such transfer will not result in a violation of any applicable federal or state securities laws. The Company's transfer agent is Pacific Stock Transfer Company, 6725 Via Austi Pkwy, Suite 300, Las Vegas NV 89119.

 

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Item 12. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

 

Utah Statutes.

 

Except as otherwise provided in the Utah Revised Business Corporation Act (URBCA), a corporation may indemnify an individual made a party to a proceeding because the individual is or was a director of the corporation against liability incurred in the proceeding if:

 

•            His conduct was in good faith.

•            He reasonably believed that his conduct was in, or not opposed to, the corporation’s best interests.

•            In the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful.

 

However, a corporation may not indemnify a director in connection with either:

 

A proceeding by or in the right of the corporation in which the director was determined to be liable to the corporation.
Any other proceeding charging that the director derived an improper personal benefit (whether or not the proceeding involved action in the director’s official capacity), in which proceeding the director was determined to be liable on the basis that the director derived an improper personal benefit.

 

A corporation may pay for or reimburse reasonable expenses incurred by a director who is a party to a proceeding in advance of a final disposition if:

 

The director furnishes the corporation a written affirmation of his good faith belief that he has met the applicable standard of conduct described in Section 16-10a-902 of the Utah Code.
The director furnishes to the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct.
A determination is made that the facts then known to those making the determination would not preclude indemnification.

 

A corporation must indemnify a director who was successful in the defense of any proceeding or claim to which the director was a party because of the director’s status as a director of the corporation against reasonable expenses incurred in defending the proceeding or claim for which the director was successful

 

Unless a corporation’s articles of incorporation provide otherwise:

 

An officer of a corporation is entitled to mandatory indemnification to the same extent as a director of the corporation.
  •  A corporation may indemnify and advance expenses to an officer, employee, fiduciary, or agent of the corporation to the same extent as to a director.
A corporation may indemnify and advance expenses to an officer, employee, fiduciary, or agent who is not a director to a greater extent than to a director. However, this must be consistent with public policy and provided for in the corporation’s articles of incorporation, bylaws, action of its board of directors, or contract.

 

Company Articles and By Laws.

 

Article III, Section 6 of the Company’s By Laws provides that The Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

 

27  
 

The Corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

Any indemnification under the provisions of subsection (a) or (b) of this section (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth above. Such determination shall be made: (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceedings; (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (3) by the shareholders.

Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized by the provisions of this section. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate.

For purposes of this indemnity, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation, including any constituent of a constituent, absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was sewing at the request of such constituent corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

Item 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

This information is not required to be disclosed by smaller reporting companies.

 

 

Item 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

During the Company’s two most recent fiscal years, or any subsequent interim period, no independent accountant who was previously engaged as our principal accountant to audit our financial statements, or an independent accountant who was previously engaged to audit a significant subsidiary, and on whom the principal accountant expressed reliance in its report, resigned (or indicated it has declined to stand for re-election after the completion of the current audit) or was dismissed.

 

28  
 

 

Item 15. FINANCIAL STATEMENTS AND EXHIBITS.

 

(a) Financial Statements.

 

The financial statements and related notes are included as part of this Form 10 registration statement as indexed in the appendix on page F-1 through F-19.

 

(b) Exhibits required by Item 601 of Regulation S-K

 

EXHIBIT NUMBER EXHIBIT NAME
3(i) Articles of Incorporation
3(ii) By Laws
3(iii) Amendment to Articles – February 2009
3(iv) Amendment to Articles – July 2013
3(v) Amendment to Articles – August 2015
3(vi) Amendment to Articles – September 2015
10(i) Material Contract – Bougainville Ventures, Inc.
10(ii) Material Contract – Gate C Research, Inc.
10(iii) Material Contract – MultiSoft Corporation
21 Subsidiaries of the Registrant

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized .

 

 

MARIJUANA COMPANY OF AMERICA, INC.

 

 

 

By: /s/ Donald Steinberg

Donald Steinberg

Principal Executive Officer

 

29  
 

 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES


INDEX TO FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of December 31, 2016 and 2015 F-3
   
Consolidated Statements of Operations for the years ended December 31, 2016 and 2015 F-4
   
Consolidated Statement of Shareholders’ Deficit for the two years ended December 31, 2016 F-5
   
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015 F-6
   
Notes to Consolidated Financial Statements F-7

 

 

 

 

  

 

 

 

F- 1  
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Marijuana Company of America, Inc. ( Converge Global, Inc .)

 

We have audited the accompanying balance sheets of Marijuana Company of America, Inc. and its subsidiaries (“the Company”) as of December 31, 2015 and 2016 and the related statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 2015 and 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and December 31, 2016, and the results of its operations, changes in stockholders’ deficit and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring operating losses, has an accumulated stockholders’ deficit, has negative working capital, has had no revenues from operations, and has yet to generate an internal cash flow that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ L&L CPAS, PA

L&L CPAS, PA

Certified Public Accountants

Cornelius, NC

The United States of America

March 27, 2017

www.llcpas.net

F- 2  
 

 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2016 AND 2015
         
      2016       2015  
ASSETS                
Current assets:                
Cash   $ 147,486     $ —    
Accounts receivable, net     9,124       —    
Inventory     83,475       —    
  Total current assets     240,085       —    
                 
Total assets   $ 240,085     $ —    
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
Accounts payable   $ 324,889     $ 347,875  
Accrued compensation     32,710       —    
Accrued interest     4,800       —    
Notes payable, related party     7,487       33,898  
  Total current liabilities     369,886       381,773  
                 
Commitments and contingencies     —         —    
                 
Stockholders' deficit:                
Preferred stock, $0.001 par value, 50,000,000 shares authorized                
Class A preferred stock, $0.001 par value, 10,000,000 shares designated, 10,000,000 shares issued and outstanding as of December 31, 2016 and 2015     10,000       10,000  
Common stock, $0.001 par value; 5,000,000,000 shares authorized; 1,620,996,998 and 1,111,299,628 shares issued and outstanding as of December 31, 2016 and 2015, respectively     1,620,996       1,111,299  
Additional paid in capital     7,685,387       2,540,656  
Accumulated deficit     (9,446,184 )     (4,043,728 )
  Total stockholders' deficit     (129,801 )     (381,773 )
                 
Total liabilities and stockholders' deficit   $ 240,085     $ —    
                 
See the accompanying notes to these consolidated financial statements

 

 

F- 3  
 

 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
         
    Year ended December 31,
    2016   2015
REVENUES:        
Sales   $ 8,729     $ —    
Cost of sales     2,815       —    
                 
Gross Profit     5,914       —    
                 
OPERATING EXPENSES:                
Selling, general and administrative expenses     4,744,382       279,325  
Impairment of intellectual property     —         200,000  
  Total operating expenses     4,744,382       479,325  
                 
Net loss from operations     (4,738,468 )     (479,325 )
                 
OTHER INCOME (EXPENSES):                
Interest expense, net     (530,411 )     —    
Gain on change in fair value of derivative liabilities     14,208       —    
Loss on settlement of debt     (147,785 )     (174,093 )
  Total other income (expense)     (663,988 )     (174,093 )
                 
Net loss before income taxes     (5,402,456 )     (653,418 )
                 
Income taxes (benefit)     —         —    
                 
NET LOSS   $ (5,402,456 )   $ (653,418 )
                 
Loss per common share, basic and diluted   $                    *     $                          *  
                 
Weighted average number of common shares outstanding, basic and diluted     1,286,547,260       943,887,417  
  “*” Less than (0.00)                
See the accompanying notes to these consolidated financial statements

 

 

 

F- 4  
 

 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE TWO YEARS ENDED DECEMBER 31, 2016
                             
                    Additional        
    Class A Preferred Stock   Common Stock   Paid In   Accumulated    
    Shares   Amount   Shares   Amount   Capital   Deficit   Total
Balance, January 1, 2015     10,000,000     $ 10,000       893,842,485     $ 893,842     $ 2,288,548     $ (3,390,310 )   $ (197,920 )
Common stock issued in settlement of notes payable     —         —         217,457,143       217,457       (141,347 )     —         76,110  
Loss on settlement of notes payable     —         —         —         —         243,455       —         243,455  
Stock based compensation     —         —         —         —         150,000       —         150,000  
Net loss     —         —         —         —         —         (653,418 )     (653,418 )
Balance, December 31, 2015     10,000,000       10,000       1,111,299,628       1,111,299       2,540,656       (4,043,728 )     (381,773 )
Common stock issued for services rendered     —         —         91,333,333       91,333       1,127,546       —         1,218,879  
Sale of common stock     —         —         69,623,874       69,624       279,876       —         349,500  
Common stock issued in settlement of notes payable     —         —         414,240,163       414,240       381,921       —         796,161  
Cancellation of previously issued common stock     —         —         (65,500,000 )     (65,500 )     65,500       —         —    
Beneficial conversion feature in connection with convertible notes payable     —         —         —         —         361,138       —         361,138  
Stock based compensation     —         —         —         —         2,928,750       —         2,928,750  
Net loss     —         —         —         —         —         (5,402,456 )     (5,402,456 )
Balance, December 31, 2016     10,000,000     $ 10,000       1,620,996,998     $ 1,620,996     $ 7,685,387     $ (9,446,184 )   $ (129,801 )
                                                         
See the accompanying notes to these consolidated financial statements

 

F- 5  
 

 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
         
    Year ended December 31,
    2016   2015
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (5,402,456 )   $ (653,418 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Amortization of debt discount     401,138       —    
Non cash interest     114,911       —    
Loss on disposal of equipment     —         10,000  
Impairment of intellectual property     —         200,000  
Gain on change in fair value of derivative liabilities     (14,208 )     —    
Loss on settlement of debt     147,785       174,093  
Stock based compensation     4,147,629       150,000  
Notes payable issued in settlement of accrued compensation     357,500       —    
Changes in operating assets and liabilities:                
  Accounts receivable     (9,124 )     —    
  Inventory     (83,475 )     —    
  Accounts payable     65,576       119,325  
  Accrued compensation     32,710       —    
    Net cash used in operating activities     (242,014 )     —    
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of notes payable     40,000       —    
Proceeds from sale of common stock     349,500       —    
    Net cash provided by operating activities     389,500       —    
                 
Net increase in cash     147,486       —    
                 
Cash-beginning of year     —         —    
Cash-end of year   $ 147,486     $ —    
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                
Interest paid   $ —       $ —    
Taxes paid   $ —       $ —    
                 
Non cash financing activities:                
Beneficial conversion feature related to convertible debt   $ 361,138     $ —    
Common stock issued in settlement of notes payable   $ 796,161     $ 76,110  
                 
See the accompanying notes to these consolidated financial statements

 

 

F- 6  
 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

 

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

 

A summary of the significant accounting policies applied in the presentation of the accompanying financial statements follows:

 

Basis and business presentation

 

Marijuana Company of America, Inc. (The “Company”) was incorporated under the laws of the State of Utah in October 1985 under the name Converge Global, Inc. In October 2009, in a 30 for 1 exchange, the Company merged with Sparrowtech, Inc. for the purpose of exploration and development of commercially viable mining properties.

 

In 2015, the Company changed its business model to a marketing and distribution company for medical marijuana. In conjunction with the change, the Company changed its name to Marijuana Company of America, Inc.

 

On September 21, 2015, the Company formed H Smart, Inc, a Delaware corporation as a wholly owned subsidiary for the purpose of operating the hempSMART brand.

 

On February 1, 2016, the Company formed MCOA, Inc., a California corporation as a wholly owned subsidiary to facilitate mergers, acquisitions and the offering of investments or loans to the Company.

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: H Smart, Inc. and MCOA, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the fair value of the Company’s stock, stock-based compensation, fair values relating to derivative liabilities, debt discounts and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.

 

Cash

 

The Company considers cash to consist of cash on hand and temporary investments having an original maturity of 90 days or less that are readily convertible into cash. 

 

F- 7  
 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

Concentrations of credit risk

 

The Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Occasionally, the Company’s cash and cash equivalents in interest-bearing accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.

 

Accounts Receivable

 

Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition.

 

Allowance for Doubtful Accounts

 

Any charges to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of December 31, 2016 and 2015, allowance for doubtful accounts was $-0-.

 

Inventories

 

Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-out (FIFO) basis. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. During the periods presented, there were no inventory write-downs.

 

Cost of sales

 

Cost of sales is comprised of cost of product sold, packaging, and shipping costs.

 

Stock Based Compensation

 

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based compensation expense is recorded by the Company in the same expense classifications in the statements of operations, as if such amounts were paid in cash. As of December 31, 2016, there were outstanding stock options to purchase 1,000,000,000 shares of common stock, 416,666,667 shares of which were vested. (See Note 7)

 

Net Loss per Common Share, basic and diluted

 

The Company computes earnings (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year.  Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable.

 

F- 8  
 

 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

The computation of basic and diluted income (loss) per share as of December 31, 2016 and 2015 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.

 

Potentially dilutive securities excluded from the computation of basic and diluted net loss per share are as follows:

 

    2016   2015
Options to purchase common stock     1,000,000,000       1,000,000,000  
Restricted stock units     10,000,000       —    
  Total     1,010,000,000       1,000,000,000  

 

Fair Value of Financial Instruments

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2016 and 2015. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash, accounts payables and short term notes because they are short term in nature.

 

Convertible Instruments

GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional.

The Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

Derivative Financial Instruments

The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.

The Company’s free-standing derivatives consisted of conversion options embedded within its issued convertible debt. The Company evaluated these derivatives to assess their proper classification in the balance sheet using the applicable classification criteria enumerated under GAAP.  The Company determined that certain conversion options do not contain fixed settlement provisions.  The convertible notes contained a conversion feature such that the Company could not ensure it would have adequate authorized shares to meet all possible conversion demands.

 

F- 9  
 

  MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

As such, the Company was required to record the conversion feature which does not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at the end of each reporting period.   

 

The Company has adopted a sequencing policy that reclassifies contracts (from equity to assets or liabilities) with the most recent inception date first. Thus any available shares are allocated first to contracts with the most recent inception dates.

 

Advertising

 

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $44,688 and $222 as advertising costs for the year ended December 31, 2016 and 2015, respectively.

 

Income Taxes

 

Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized.

 

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of December 31, 2016 and 2015, the Company has not recorded any unrecognized tax benefits.

 

Segment Information

 

Accounting Standards Codification subtopic Segment Reporting 280-10 ("ASC 280-10") establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company's only material principal operating segment.

 

Recent Accounting Pronouncements

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued.  Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed.

F- 10  
 

  MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

 

NOTE 2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements during year ended December 31, 2016, the Company incurred net losses of $5,402,456 and used cash in operations of $242,014. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.

 

The Company's primary source of operating funds in 2016 and 2015 has been from revenue generated from proceeds from the sale of common stock and the issuance of convertible and other debt. The Company has experienced net losses from operations since inception, but expects these conditions to improve in 2017 and beyond as it develops its business model. The Company has stockholders' deficiencies at December 31, 2016 and requires additional financing to fund future operations.

 

The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 

NOTE 3 – ACCOUNTS PAYABLE

 

During the years ended December 31, 2016 and 2015, the Company settled outstanding payables with vendors. In connection with the settlement, the Company recorded a gain of $7,442 and $69,362 for the years ended December 31, 2016 and 2015, respectively.

 

NOTE 4 – NOTES PAYABLE

 

2015:

 

Note payable-T. Patterson

 

On January 1, 2014, the Company issued a 5% convertible note for $76,110, initially due January 1, 2015, bearing interest at 5% per annum due at conversion and unsecured.

 

The convertible note is convertible upon maturity for any unpaid principal or interest at $0.001 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note.

 

On September 28, 2015, the Company issued 217,457,143 shares of its common stock in settlement of the above described note. In connection with the settlement, the Company recorded a loss on settlement of debt of $243,455 representing the fair value of common shares issued at conversion in excess of the terms of the note.

 

2016:

 

Purchase agreement CBD Global, Inc.

 

On July 12, 2016, the Company entered into a payment agreement with CBD Global, Inc. for the supply of raw materials used in the sale of the Company’s product for an aggregate amount of $15,000.

 

Under the terms of the payment agreement, the Company and the vendor agreed to payments, net 30 days from delivery, 75% cash and 25% of the Company’s common stock at a fixed conversion rate of $0.00335.

 

F- 11  
 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

In accordance ASC 470-20, Debt (“ASC 470-20”), the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $3,638 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature was charged to current period operations as interest expense.

 

Convertible debenture-Guillermo Haro

 

On October 13, 2016, the Company issued a convertible debenture for $40,000, due January 13, 2017, bearing interest of 12% per annum due upon conversion and is unsecured.

 

The debenture is convertible, at any time, into shares of the Company’s common stock at the published last three closing prices for the Company prior to the date of conversion.

 

The Company has identified the embedded derivatives related to the above described debenture. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date. 

 

At the funding dates of the debenture, the Company determined the aggregate fair value of $154,910 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 482.68%, (3) weighted average risk-free interest rate of 0.30%, (4) expected life of 0.25 years, and (5) estimated fair value of the Company's common stock from $0.0155 per share. 

 

The determined fair value of the debt derivatives of $154,910 was charged as a debt discount up to the net proceeds of the note with the remainder of $114,910 charged to 2016 operations as non-cash interest expense. 

 

On December 30, 2016, the Company issued 3,440,860 shares of its common stock in settlement of the outstanding debenture and accrued interest. In connection with the settlement, the Company recorded a loss on settlement of debt of $95,955 representing the fair value of common shares issued at conversion in excess of the terms of the note.

 

NOTE 5 – NOTES PAYABLE-RELATED PARTY

 

At December 31, 2016 and 2015, the Company had outstanding $7,487 and $33,898 outstanding notes payable to related parties, respectively. The notes are non-interest bearing and are due on demand.

 

During the year ended December 31, 2016, the Company issued an aggregate of $357,500 convertible notes payable in payment for accrued compensation. The notes were unsecured, non-interest bearing, due upon demand and were convertible into shares of the Company’s common stock at $0.0011 per share.

 

In accordance with ASC 470-20, Debt (“ASC 470-20”), the Company recognized an embedded beneficial conversion feature present in certain of these notes. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $357,500 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature was charged to current period operations as interest expense.

 

In 2016, the Company issued an aggregate of 325,000,001 shares of its common stock in full settlement of its issued convertible notes.

F- 12  
 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

On October 9, 2016, the Company issued two convertible notes to officers for incurred expenses for an aggregate of $93,142, due on demand, non-interest bearing and unsecured.

 

The notes were convertible, at any time, into shares of the Company’s common stock at 75% of the average closing price for the last 30 days prior to the date of conversion. Immediately upon issuance, effective October 9, 2016, the Company issued an aggregate of 84,674,302 shares of its common stock in full settlement of the outstanding notes. In connection with the settlement, the Company incurred a loss on settlement of debt of $59,272 representing the fair value of the common stock in excess of the carrying value of the notes.

 

NOTE 6 – DERIVATIVE LIABILITIES

 

As described in Note 4, the Company issued a convertible note that contained conversion features and a reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting date. At December 31, 2016 and 2015, there were no outstanding convertible notes with embedded derivatives.

 

NOTE 7 – STOCKHOLDERS’ DEFICIT

 

Preferred stock

 

The Company is authorized to issue 50,000,000 shares of $0.001 par value preferred stock as of December 31, 2016 and 2015. As of December 31, 2016 and 2015, the Company has designated and issued 10,000,000 shares of Class A Preferred Stock.

 

Each share of Class A Preferred Stock is entitled to 100 votes on all matters submitted to a vote to the stockholders of the Company, does not have conversion, dividend or distribution upon liquidation rights.

 

Common stock

 

The Company is authorized to issue 5,000,000,000 shares of $0.001 par value common stock as of December 31, 2016 and 2015. As of December 31, 2016 and 2015, the Company had 1,620,996,998 and 1,111,299,628 common shares issued and outstanding.

 

In 2015, the Company issued 217,457,143 shares of its common stock in settlement of notes payable and accrued interest with a principal amount of $76,110.

 

In 2016, the Company issued an aggregate of 91,333,333 shares of its common stock for services rendered with an estimated fair value of $1,218,879.

 

In 2016, the Company issued an aggregate of 409,674,303 shares of its common stock in settlement of related party notes payable in aggregate of $450,642.

 

In 2016, the Company issued an aggregate of 4,565,860 shares of its common stock in settlement of notes payable and purchase agreements of $43,750.

 

In 2016, the Company canceled and returned to treasury an aggregate of 65,500,000 shares of previously issued common stock.

 

In 2016, the Company sold an aggregate of 69,623,874 shares of its common stock for net proceeds of $349,500.

 

In December 2016, the Company’s board of directors approved bonuses to the officers of the Company of an aggregate of 25,000,000 shares. As such, the Company recorded stock based compensation of $2,025,000 based on the fair value at the date of grant.

 

F- 13  
 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

Options

 

Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from using the Company’s historical stock prices. Management determined this assumption to be a more accurate indicator of value. The Company accounts for the expected life of options based on the contractual life of options for non-employees. For employees, the Company accounts for the expected life of options in accordance with the “simplified” method, which is used for “plain-vanilla" options, as defined in the accounting standards codification.

 

The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. 

 

In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.

 

The Company estimated forfeitures related to option grants at a weighted average annual rate of 0% per year, as the Company does not yet have adequate historical data, for options granted during the years ended December 31, 2016 and 2015.

 

The following assumptions were used in determining the fair value of employee options during the year ended December 31, 2015 (none issued in 2016):

 

   

 

2015

Risk-free interest rate     2.06 %
Dividend yield     0 %
Stock price volatility     510.08 %
Expected life     6 years  
Weighted average grant date fair value   $ 0.018  

 

 

On October 5, 2015, the Company awarded options to purchase an aggregate of 1,000,000,000 shares of common stock to the Company’s officers.  These options vested over three years, have a term of 10 year before expiring and have an exercise price of $0.005 per share.  The options had an aggregate grant date fair value of $1,800,000.

 

The following table summarizes the stock option activity for the years ended December 31, 2016 and 2015:

 

 

F- 14  
 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

    Shares    

Weighted-Average

Exercise Price

   

Weighted Average

Remaining

Contractual Term

   

Aggregate

Intrinsic Value

 
Outstanding at January 1, 2015     -                        
Granted     1,000,000,000     $ 0.005       10.0   $ 3,200,000  
Exercised     -                        
Forfeitures or expirations     -                        
Outstanding at December 31, 2015     1,000,000,000     $ 0.005       9.77   $ 23,300,000  
Granted     -                        
Forfeitures or expirations     -                        
Outstanding at December 31, 2016     1,000,000,000     $ 0.005       8.76   $   76,000,000  
                                 
Exercisable at December 31, 2016     416,666,667     $ 0.005       8.76   $ 31,666,667  

 

The following table presents information related to stock options at December 31, 2016:

   

Options Outstanding     Options Exercisable  

      Exercise

     Price

   

Number of

Options

   

Weighted Average

Remaining Life

In Years

   

Exercisable

Number of

Options

 
$ 0.005       1,000,000,000     8.76       416,666,667  

 

As of December 31, 2016, stock-based compensation of $1,050,000 remains unamortized and is expected to be amortized over the weighted average remaining period of 1.75 years.

 

The stock-based compensation expense related to option grants was $150,000 and $600,000 during the years ended December 31, 2016 and 2015, respectively.

 

Restricted Stock Units (“RSU”)

 

The following table summarizes the restricted stock activity for the year ended December 31, 2016:

 

 

Restricted share units as of December 31, 2014      
Granted      
Forfeited      
Restricted shares units issued as of December 31, 2015      
Granted     10,000,000  
Forfeited      
Total Restricted Shares Issued at December 31, 2016     10,000,000  
Vested at December 31, 2016      
Unvested restricted shares as of December 31, 2016     660,000  

 

In April 2016, the Company granted 10,000,000 restricted stock units vesting over two years to previous officers of the Company for past services. The fair value of the granted restricted stock units vested in 2016 of $303,750 was recognized in 2016 operations as stock based compensation.

 

As of December 31, 2016, stock-based compensation related to restricted stock awards of $506,250 remains unamortized and is expected to be amortized over the weighted average remaining period of 1.25 years.

 

F- 15  
 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

NOTE 8 — FAIR VALUE MEASUREMENT

 

The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

All items required to be recorded or measured on a recurring basis are based upon level 3 inputs.

 

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

 

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.

 

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.

 

As of December 31, 2016 and 2015, the Company did not have any items that would be classified as level 1 or 2 disclosures.

 

The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed in notes 4 and 5. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Notes 4 and 5 are that of volatility and market price of the underlying common stock of the Company.

 

As of December 31, 2016 and 2015, the Company did not have any derivative instruments that were designated as hedges.

 

The derivative liability as of December 31, 2016, in the amount of $-0- has a level 3 classification.

 

F- 16  
 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December 31, 2016:

 

 

 

Debt

Derivative

   
Balance, December 31, 2014   $ —    
Total (gains) losses        
Initial fair value of debt derivative at note issuance     —    
Mark-to-market at December 31, 2015:     —    
Transfers out of Level 3 upon conversion and settlement of notes     —    
Balance, December 31, 2015     —    
Total (gains) losses        
Initial fair value of debt derivative at note issuance     154,911  
Mark-to-market at December 31, 2016:     (14,208 )
Transfers out of Level 3 upon conversion or payoff of notes payable     (140,703 )
Balance, December 31, 2016   $ —    
Net gain for the period included in earnings relating to the liabilities held during the year ended December 31, 2016   $ 14,208  

 

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. During the year ended December 31, 2016, the Company’s stock price increased 186.2% from December 31, 2015. As the stock price increase for each of the related derivative instruments, the value to the holder of the instrument generally increases. Stock price is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.

 

NOTE 9 — RELATED PARTY TRANSACTIONS

 

The Company’s current officers and stockholders advanced funds to the Company for travel related and working capital purposes. As of December 31, 2016 and 2015, there were no related party advances outstanding.

 

As of December 31, 2016 and 2015, accrued compensation due officers and executives included as accrued compensation was $32,710 and $-0-, respectively.

 

In 2016, the Company issued for accrued compensation and subsequently converted to common stock an aggregate of $357,500 convertible notes payable.

 

In 2016, the Company issued for incurred expenses and subsequently converted to common stock an aggregate of $93,142 convertible notes payable. In connection with the settlement, the Company incurred a $59,272 loss on settlement of debt

 

At December 31, 2016 and 2015, there were an aggregate of $7,487 and $33,898 notes payable due to officers. The notes are non-interest bearing and are due on demand.

 

 

F- 17  
 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

 

NOTE 10 — COMMITMENTS AND CONTINGENCIES

 

Employment contracts

 

Effective January 1, 2016, the Company entered into employment contracts with Donald Steinberg (Chief Executive Officer), Charles Larsen (Director) and Robert Hymers (Chief Financial Officer) for annual compensation of $180,000, $120,000 and $90,000, respectively. The contracts are for a one year term with automatic renewal. For each fiscal year, the officers are eligible to receive an annual bonus based on the sole and absolute discretion of the board of directors. In addition, during the employment term, the officers are eligible to participate in the Marijuana Company of America, Inc. Equity Incentive Plan, as determined by the board of board of directors and any fringe benefits and perquisites consistent with the practices of the Company and to the extent the Company provides similar benefits or perquisites (or both) to similarly situated executives of the Company during employment term.

 

The employment contracts can be terminated by either the Company or the officer at any time for any reason with at least a 30 day notice. Should termination occur by the Company without cause and subject to certain limitations (as defined); the officer is entitled to one year base pay and target bonus for the year in which termination occurs, as a lump sum payment 30 days following termination. In addition, subject to the Marijuana Company of America, Inc. Equity Incentive Plan or any successor Plan, all previously granted and outstanding equity based compensation awards shall become fully vested and exercisable for their remaining terms (subject to limitations).

 

Litigation

 

The Company is subject at times to other legal proceedings and claims, which arise in the ordinary course of its business.  Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.  There was no outstanding litigation as of December 31, 2016 or 2015.

 

NOTE 11 – INCOME TAXES

 

At December 31, 2016, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $350,000, expiring in the year 2036, 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 more likely than not that the benefits will not be realized. Due to possible significant changes in the Company's ownership, the future use of its existing net operating losses may be limited. All or portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.  During the year ended December 31, 2016, the Company has increased the valuation allowance from $112,000 to $121,000.


We have adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns.  ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities.  

 

Tax position that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement.  The Company had no tax positions relating to open income tax returns that were considered to be uncertain.

 

 

 

F- 18  
 

 

MARIJUANA COMPANY OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

The Company is required to file income tax returns in the U.S. Federal jurisdiction and in California. The Company is no longer subject to income tax examinations by tax authorities for tax years ending before December 31, 2012.

 

The effective rate differs from the statutory rate of 34% for due to the following:

 

    2016   2015
Statutory rate on pre-tax book loss     (34.00 )%     (34.00 )%
Gain on change in fair value of derivatives     (1.0 )%     —    
Stock based compensation     27.6 %     16.0 %
Financing costs     6.5 %     —    
Valuation allowance     0.09 %     18.0 %
      0.00 %     0.00 %

 

The Company’s deferred taxes as of December 31, 2016 and 2015 consist of the following:

 

    2016   2015
Non-Current deferred tax asset:                
 Net operating loss carry-forwards   $ 28,000     $ 330,000  
 Valuation allowance     (28,000 )     (330,000 )
 Net non-current deferred tax asset   $ —       $ —    

 

NOTE 12 – SUBSEQUENT EVENTS

 

In January 2017, the Company issued an aggregate of 25,000,000 shares of its common stock as officer compensation. The shares were previously recorded as stock based compensation of $2,025,000 during the year ended December 31, 2016.

 

 

 

F- 19  

 

 

 

 

 

 

 

 

 

 

JOINT VENTURE AGREEMENT

PREAMBLE

This Joint Venture Agreement (" Agreement "), dated and effective as of March 16, 2017, (the " Effective Date "), is by and between Marijuana Company of America, Inc., a corporation organized and operating in good standing under the laws of the State of Utah, with a business address of 5256 South Mission Road, 703, #314, Bonsall, CA 92003; (“MCOA" ) ; and, Bougainville Ventures, Inc., a corporation organized and operating under the laws of Canada, with a business address of 204 - 2383 King George Blvd Surrey BC V4A 5A4 Canada (" BV "). Each of the foregoing may be individually referred to as a “Party,” or collectively as the “Parties.”

RECITALS

WHEREAS, MCOA has developed and established brands and systems for the representation of Marijuana related products and derivatives comprised of management, marketing and various proprietary methodologies, including but not limited to its affiliate marketing program, directly tailored to the Marijuana industry;

WHEREAS, BV has developed management services and systems specifically related to the management and control of Marijuana grow operations that are presently conducted in Washington State, and is a lessee to a parcel of real property in the State of Washington utilized for growing Marijuana;

WHEREAS, the Parties wish to participate in a joint venture project that includes the organization of a limited liability company (for the purposes of this Agreement referred to as “NEWCO”), organized in the State of Washington to: (i) jointly engage in the development and promotion of products in the legalized Marijuana industry in Washington State; (ii) utilize BV’s high quality grow operations in the State of Washington on real property currently leased by BV for use within the legalized Marijuana industry; (iii) provide technical and management services and resources including but not limited to: sales and marketing, agricultural procedures, operations security and monitoring, processing and delivery, branding, capital resources and financial management; and, (iv) optimize collaborative business opportunities.

WHEREAS, in furtherance of the Agreement, the Parties are willing to contribute their respective Information, services and expertise and other valuable consideration as is more fully detailed below, in order to permit NEWCO to organize as a legal entity in the State of Washington, establish its operations, and to generally undertake the business goals outlined in these Recitals and elsewhere in this Agreement.

Page 1  of 24
 

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.       Definitions . For purposes of this Agreement, the following terms have the following meanings:

" Affiliate " of a Person (as defined below) means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition only, the term "control" means the power to direct or cause the direction or the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise/direct or indirect ownership of more than fifty percent (50%) of the voting securities of a Person, and "controlled by" and "under common control with" have correlative meanings.

" Agreement " has the meaning set forth in the preamble.

" Bankruptcy Code " has the meaning set forth in Section 11.3.

" Business Day " means a day other than a Saturday, Sunday or other day on which commercial banks in Seattle, Washington are authorized or required by Law to be closed for business.

"BV Background Property " means: (i) that real property currently leased by BV in Washington State, and as is more fully described in that certain written lease agreement attached hereto as Schedule 1, that is used for Marijuana propagation, growth and harvesting for use in the legalized Marijuana industry; and, (ii) Information controlled by BV that (a) was made, invented, developed, created, conceived, reduced to practice or having a filing date before the Effective Date, and relate primarily to the growth of Marijuana, management services, and systems specifically related to the management and control of Marijuana grow operations that are presently conducted in Washington State, and relate primarily to BV’S research, development and know-how in the marijuana industry. BV’S Background Property includes items listed in Schedules 2, 3, 4 and 8 as they may be amended by the parties from time to time.

For purposes of this definition only, "controlled by" means, with respect to any BV Background Property, the possession of (whether by ownership, lease or license, other than pursuant to this Agreement) or the ability of BV and/or its Affiliates to grant NEWCO access, a sub-lease, an assignment, license or a sublicense to such properties, Materials or Information on the terms and conditions set forth in this Agreement without requiring a third Party's consent, or violating the terms of any agreement or other arrangement with, or obligation to, a third Party existing at the time such Party and/or its Affiliates would be required under this Agreement to grant the other Party such access, license or sublicense.

Page 2  of 24
 

" Commercially Reasonable Efforts " means the carrying out of a Party's obligations under this Agreement with the exercise of prudent scientific and/or good faith business judgment, and a level of effort consistent with the judgment and efforts that a comparable third Party in the marijuana agricultural and business development, branding, marketing and distribution industry would employ for products of similar strategic importance and commercial value. Commercially Reasonable Efforts includes: (a) promptly assigning responsibility for development activities to specific employees who are held accountable for progress and monitoring such progress on an on-going basis; (b) setting and consistently seeking to achieve specific and meaningful objectives and timelines for carrying out such development activities; (c) consistently making and implementing decisions and allocating resources designed to advance the progress of such objectives and timelines; and (d) employing compensation systems for its employees that are no less favorable than the compensation systems the Party applies with respect to its other programs with technology and/or products of similar potential.

" Competing Product " means any product, method, process or other subject matter that (a) has the substantially same marketing, branding or ingredients as a Joint Venture Product, or (b) otherwise is, or readily can be, applied, used or adapted for any application or use in substitution for or competition with any Joint Venture Product.

" Confidential Information " means any Information that is treated as confidential by a Party, or its Affiliates or Representatives, whether in oral, written, electronic or other form or media, whether or not such Information is marked, designated or otherwise identified as "confidential," and includes any Information that due to the nature of its subject matter or circumstances surrounding its disclosure, would reasonably be understood to be non-public, confidential or proprietary, including, without limitation: (a) the existence, terms and conditions of this Agreement; (b) all Information concerning the Joint Venture Project, the Joint Venture Products, Growth protocols, plans & procedures, and jointly developed intellectual property; and (c) all Information concerning past, present and future business affairs including finances, customer information, supplier information, products, services, organizational structure and internal practices, forecasts, sales and other financial results, records and budgets, and business, marketing, research, development, sales and other commercial strategies; and (d) all Information concerning unpatented inventions, ideas, methods and discoveries, know-how, trade secrets, unpublished patent applications and invention disclosures, invention summaries and other confidential intellectual property; and (e) all designs, specifications, documentation, components, source code, object code, images, icons, audiovisual components and objects, schematics, drawings, protocols, processes, and other visual depictions, in whole or in part, of any of the foregoing; and (f) all notes, analyses, compilations, reports, forecasts, studies, samples, data, statistics, summaries, interpretations and other materials that contain, are based on, or otherwise reflect or are derived from, any of the foregoing in whole or in part.

Page 3  of 24
 

Confidential Information does not include Information that: (w) was already known by or in the possession of the receiving Party or its Affiliates or their Representatives without restriction on use or disclosure before the receipt of such Information directly or indirectly from or on behalf of the disclosing Party; (x) was or is independently developed by the receiving Party, as established by documentary evidence, without reference to or use of any of the disclosing Party's Confidential Information; (y) was or becomes generally known by the public other than as a result of any breach of this Agreement, or other wrongful act, of the receiving Party or its Affiliates, or its Representatives; or (z) was or becomes available to the receiving Party, or its Affiliates, or its Representatives received by the receiving Party from a third Party who was not, at the time, under an obligation to the disclosing Party or its Affiliates or its Representatives or any other Person to maintain the confidentiality of such Information.

" Contract Year " means each successive twelve (12) month period during the Term, with the first Contract Year beginning on the Effective Date (a) the First Contract Year; and (b) the twelve (12) month period beginning on the day immediately following the end of the First Contract Year and each succeeding twelve (12) month period.

" Developed Intellectual Property " means all Intellectual Property covering the Joint Venture Project made, invented, developed, created, conceived or reduced to practice after the Effective Date (a) as a result of work conducted pursuant to this Agreement and the Joint Venture Project, or by a Party in its evaluation, use or implementation of the other Party's Background Intellectual Property, or (b) by a receiving Party directly resulting from, or necessarily using or derived from, or based on the other Party's Confidential Information, in each case, including all rights in any patents or patent applications, copyrights, trademarks, trade secrets and other Intellectual Property rights relating thereto.

" Dispute " means any disagreement between the Parties concerning or in any way arising out of or relating to this Agreement whether or not the disagreement gives rise to a right to terminate this Agreement, and includes any disagreement concerning (a) the parties' entry into this Agreement and any terms or subject matter hereof; or, (b) the conduct of, or any action to be taken concerning, any aspect of this Agreement or the Joint Venture Project.

" Effective Date " has the meaning set forth in the preamble.

" Force Majeure " has the meaning set forth in Section 12.1.

" Information " means any and all ideas, concepts, data, know-how, discoveries, improvements, methods, techniques, technologies, systems, specifications, analyses, products, practices, processes, procedures, protocols, research, tests, trials, assays, controls, prototypes, formulas, descriptions, formulations, submissions, communications, skills, experience, knowledge, plans, objectives, algorithms, reports, results, conclusions

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and other information and materials, irrespective of whether or not copyrightable or patentable and in any form or medium (tangible, intangible, oral, written, electronic, observational or other) in which such Information may be communicated or subsist. Without limiting the foregoing sentence, Information includes any technological, scientific, business, legal, patent, organizational, commercial, operational or financial materials or information.

" Intellectual Property " means all patentable and unpatentable inventions, works of authorship or expression, including computer programs, data collections and databases, and trade secrets, and other Information.

" Joint Venture Products " means any new product devised, developed or created as a result of this Agreement and the Joint Venture Plan and Project.

" Joint Venture Project " means the Parties organization of a limited liability company in the State of Washington, and the undertaking of collaborative efforts to combine their respective Background Property and Information to allow NEWCO to develop, market, distribute and improve its business as a going concern.

" Joint Venture Project Plan " means the essential elements of the Joint Venture Project as set out in Schedule 6, including the details concerning the scope of work, protocols, specifications, schedule of activities, timeline, milestones and other Joint Venture Project requirements.

" Joint Venture Team Leader " has the meaning set forth in Section 2.2(a)(ii).

" Law " means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any federal, state, local or foreign government or political subdivision thereof, or any arbitrator, court or tribunal of competent jurisdiction.

" Losses " means all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys' fees and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers.

" Materials " means biological materials, chemical or plant compounds, devices, equipment, or other research materials owned or controlled by the Parties as are required and reasonably necessary for the Parties to perform their respective obligations under this Agreement.

"MCOA Background Property " means (i) MCOA’s commitment to raise funds for the Joint Venture Project in the amount of not less than one million dollars ($1,000,000) USD based upon the Funding Schedule included as Schedule 5 and, (ii) Information controlled by MCOA that (a) was made, invented, developed, created, conceived,

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reduced to practice or have a filing date before the Effective Date and relate primarily to MCOA’S established brands and systems for the representation of Marijuana related products and derivatives comprised of management, marketing and various proprietary methodologies, including but not limited to its affiliate marketing program, directly tailored to the Marijuana industry. MCOA’S Background Property is listed in Schedule 7 as it may be amended by the parties from time to time.

For purposes of this definition only, "controlled by" means, with respect to any Materials, Information or Intellectual Property, the possession of, whether by ownership or license, other than pursuant to this Agreement, or the ability of a Party and/or its Affiliates to grant the other Party access, a license or a sublicense to such Materials, Information, or Intellectual Property on the terms and conditions set forth in this Agreement without requiring a third Party's consent, or violating the terms of any agreement or other arrangement with or obligation to a third Party existing at the time such Party and/or its Affiliates would be required under this Agreement to grant the other Party such access, license or sublicense.

" New Business " means all new products or business in the legal marijuana industry resulting from this Agreement and the Joint Venture Project.

"Participant Invention" has the meaning set forth in Section 2.2(d).

"Participating Individual" has the meaning set forth in Section 2.2(d).

" Person " means an individual, corporation, partnership, joint venture, limited liability entity, governmental authority, unincorporated organization, trust, association or other entity.

" Regulatory Approval " means any and all approvals (including any applicable supplements, amendments, pre- and post-approvals, governmental price and reimbursement approvals and approvals of applications for regulatory exclusivity), licenses, registrations, or authorizations of any Regulatory Authority necessary for any development, manufacture or commercialization of the Joint Venture Product.

" Regulatory Authority " means any governmental regulatory authority, agency or entity involved in granting regulatory approval of, or otherwise regulating any aspect of the conduct, development, manufacture, market approval, sale, distribution, packaging or use of, the Joint Venture Product.

" Representative " means a Party's and its Affiliates' employees, officers, directors, consultants and legal, technical and business advisors.

" Term " has the meaning set forth in Section 10.

2.       Joint Venture Project .

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2.1        Joint Venture Project Activities . The parties have entered into this Agreement to jointly and collaboratively organize NEWCO in the State of Washington for the purposes of exploiting and commercializing MCOA’s Background Property in conjunction with BV’s Background Property; and to develop and conduct business and products by and through NEWCO in the legal Marijuana business in Washington State.

(a)        Within thirty (30) days from the Effective Date, legal counsel shall be retained by the Parties for the purpose of organizing NEWCO as a Washington limited liability company. BV, MCOA and Ron Ryan shall be the only members of NEWCO. There shall be two classes of membership: “Class A” membership and “Class B” Membership.

(b)        BV and MCOA shall each own one “Class A” Membership and shall each be issued a 49.5% interest in NEWCO. Only “Class A” Members are eligible to equal portions of profits under the Joint Venture, and have full voting rights pro rata to their “Class A” Membership Interests in NEWCO.

(c)        Ron Ryan shall own one Class “B” Membership and shall be issued a 1% interest with full voting rights. No “Class B” Membership Interest entitles the “Class B” Member to any interest in the profits of the Joint Venture, which shall be shared equally between the “Class A” Members only. “Class B” membership interests shall be designated a “preferred interest” in NEWCO, with a 1% voting preference lasting until such time as MCOA: (i) recoups its committed investment of one million dollars in operating profits in the Joint Venture; and, (ii) receives a not less than a Five Million ($5,000,000.00) Dollar Return on Investment from NEWCO. After MCOA recoups its one-million-dollar investment, and a Five Million Dollar ($5,000,000.00) Return on Investment, the Class B preferred membership interest shall terminate, and the one percent former (1%) Class B membership shall be returned to treasury, then divided equally between BV and MCOA, leaving both BV and MCOA with an equal 50-50 voting interest in NEWCO. BV and MCOA agree to establish in NEWCO’s operating agreement an effective mechanism to resolve operational disputes in NEWCO’s business when, by virtue of the Parties 50-50 voting interests, a stalemate occurs between them on any matter requiring a vote of the members under Washington law. The failure of the Parties to reach an agreement on handling a stalemate shall not terminate this Agreement, and all respective rights of the Parties under Washington law shall be reserved. The Parties intend that neither Member shall transfer all or any portion of its Membership Interest in NEWCO, without the written consent of the other Member (which consent may be granted or withheld in the sole discretion of the other Member), and that Members shall have rights of first refusal to purchase all or any portion of a Membership Interest as is provided for in Section 10.2. No transfer of membership interests to a Person not already a Member of NEWCO shall be deemed completed until the prospective transferee is admitted as a Member of NEWCO.

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(d)       The Parties agree, after NEWCO is organized, to meet and approve the adoption of a written Operating Agreement concerning NEWCO, including provisions for the selection of Managers. consisting of three persons. BV will appoint one Manager and MCOA will appoint one Manager. The third Manager shall be selected by majority vote of the Class “A” and Class “B” Members. The Parties shall then open bank account with an insured FDIC established bank. The Parties agree that there shall be two (2) signatories on the NEWCO bank account, each a Manager represented by BV and MCOA. NEWCO shall retain an accountant to maintain the financial books and records of NEWCO. The Parties agree that the Managers shall establish accounting and financial policies and protocols for NEWCO, and agree that profits and/or dividends shall be divided equally between MCOA and BV.

(e)        After NEWCO is organized, the Parties agree to work together to develop Joint Venture Products in accordance with the Joint Venture Project Plan set out in Schedule 6. All New Business and Joint Venture Products will be owned by NEWCO. The Day to Day cultivation operations shall be left to the Master Grower, who shall be selected and appointed by NEWCO Managers. NEWCO and the Master Grower shall enter into a separate written agreement describing the duties and obligations of the Master Grower. The Master Grower will be responsible for communicating at least monthly with NEWCO concerning the Joint Venture Project and Joint Venture Project Plan.

(f)         NEWCO and the Master Grower shall use Commercially Reasonable Efforts to:

(i) Perform its responsibilities in accordance with this Agreement and the Joint Venture Project Plan and perform all Joint Venture Project Plan requirements, including by meeting all Joint Venture Project Plan timelines and milestones;
(ii) Co-operate with and provide reasonable support to each other in connection with the other Party's performance of its obligations under this Agreement including the Joint Venture Project Plan;
(iii) Meet, confer and communicate amongst themselves at least on a monthly basis at a convenient time and by a convenient method to assess the Joint Venture Project Plan, progress on achieving milestones, and determine appropriate actions, including any and all relevant costs and accounting functions. The Master Grower shall provide any and all relevant information and documentation.

(g)        The Joint Venture Project is contingent on a number of factors and success is not assured. As long as the Parties, NEWCO and the Master Grower use good faith and Commercially Reasonable Efforts to perform their obligations under this Agreement, including the Joint Venture Project Plan, that Party shall not be in default under this

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Agreement for any failure to achieve any particular result or milestone. In the event that MCOA is unable to meet the Funding Schedule in Schedule 5, the Parties agree to meet in good faith and allow for a thirty (30) day cure period providing MCOA an ability to meet the Funding timelines set out in Schedule 5, and

(h)        Within thirty (30) Business Days after the end of each quarter, each Party shall provide the other Party a reasonably detailed written report describing the then-current status of all activities for which that Party was allocated responsibility under the Joint Venture Project Plan. Each Party shall provide written notice to the other Party within thirty (30) Business Days after each quarter identifying any milestone set out in the Joint Venture Project Plan it was unable to meet during that quarter.

2.2        Conduct of Joint Venture Project/Joint Project Team .  

(a)        Within thirty (30) Business Days of the Effective Date, each Party shall:

(i) Appoint two (2) Representatives who shall have expertise to perform its respective activities set out in the Joint Venture Project Plan (each Party's set of Representatives together, the " Joint Project Team ");
(ii) Appoint one of its Representatives on the Joint Project Team to act as the primary contact for that Party (each, a " Joint Venture Team Leader "). The Joint Venture Team Leaders shall jointly oversee, manage and coordinate the day-to-day implementation of the Joint Venture Project Plan; and
(iii) Provide written notice identifying its Joint Project Team members and Joint Venture Team Leader to the other Party.

(b)        Each Party may appoint, at its discretion, substitute or successor Representatives to the Joint Project Team, including substitute or successor Joint Venture Team Leaders, on at least ten (10) Business Days written notice to the other Party before such substitute or successor Representatives begin work on the Joint Venture Project.

(c)        The Joint Project Team's responsibilities shall include:

(i) Meeting at least once per month with NEWCO at mutually agreed times and places to discuss the status, progress and activities necessary to meet the Joint Venture Project objectives;
(ii) Exchanging between the parties all Information relating to the Joint Venture Project;
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(iii) Performing all activities required by the Joint Venture Project Plan and ensuring that the parties meet the timelines, milestones and other requirements required by the Joint Venture Project Plan; and
(iv) Performing any other functions allocated to it under this Agreement or as appropriate to further the purposes of this Agreement as determined by the parties.

(d)       Each Representative of a Party who is not an employee of a Party that works on the Joint Project Team, attends any meeting concerning the Joint Venture Project, or is given access to any of the other Party's Confidential Information (a " Participating Individual "), shall be bound by a written agreement requiring such Participating Individual to:

(i) follow that Party's policies and procedures for reporting any inventions, discoveries or other Intellectual Property or Information invented, conceived, developed, derived, discovered, generated, identified or otherwise made by the Participating Individual in the course of his employment or retention by the Party or that arises from access to Confidential Information of either Party that relates to the Joint Venture Project (each a " Participant Invention ");
(ii) assign to the Party all of his right, title and interest in and to the Participant Inventions, including all Intellectual Property rights relating thereto;
(iii) cooperate in the preparation, filing, prosecution, maintenance, defense and enforcement of any patent or other rights in any Participant Invention;
(iv) perform all acts and sign, execute, acknowledge and deliver any and all papers, documents and instruments required to fulfill the obligations and purposes of that agreement; and
(v) be bound by obligations of confidentiality and non-use no less restrictive than those set out in this Agreement.

It is understood and agreed that any agreement required by this Section does not need to be specific to this Agreement as long as the agreement provides for the binding obligations of the Participating Individuals as described in this Section.

(e)        All day-to-day decisions concerning matters and functions allocated or delegated to a Party pursuant to the Joint Venture Project Plan, unless expressly reserved in this Agreement for determination or approval by the Joint Project Team, shall be deemed to be within the decision-making authority of the Master Grower; provided that

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all such decisions shall be consistent with the Joint Venture Project, the scope of the allocation or delegation to that Party under the Joint Venture Project Plan, and the terms and conditions of this Agreement.

(f)         Each Party shall retain the rights, powers and discretion granted to it under this Agreement, and no such rights, powers, or discretion shall be delegated to or vested in the Joint Project Team unless this Agreement, including the Joint Venture Project Plan, expressly provides for that delegation or vesting of rights, or the parties otherwise expressly agree in writing in accordance with this Agreement.

2.3        Patent Rights .  

(a)        Any and all intellectual property or inventions of any kind created as a result of the Joint Venture Project, including but not limited to the Joint Venture Product, Developed Intellectual Property, and any and all patent rights related to such intellectual property or inventions, shall be the sole property of NEWCO, or its designee, who shall be responsible for the filing and prosecution of all relevant United States and international patent applications.

2.4        Information Exchange .  

(a)        During the Term, each Party shall provide to the other Party reasonable access to its Representatives, facilities, books and records, and such other Information that the providing Party believes to be necessary or useful (i) to support the other Party's efforts to conduct its Joint Venture Project Plan activities or (ii) for the other Party to exercise its rights or meet its obligations under this Agreement, and any other Information that the other Party reasonably requests for any of the purposes set forth in this Agreement. These required disclosures include all disclosures required this Agreement and any design, development, manufacturing, clinical, pre-clinical or non-clinical, testing, financial, marketing, sales, quality, and regulatory approval and compliance Information described in the preceding sentence.

(b)        Within ninety (90) Business Days after the Effective Date, each Party shall provide to the other Party:

(i) a copy of each U.S. and foreign patent and patent application filed by or on behalf of the providing Party relating to any Background Intellectual Property that it has not already provided or made available to the other Party and such other patent information as the other Party reasonably requests to support its efforts to conduct its activities pursuant to this Agreement.

(c)        Each Party may use Information relating to the Joint Venture Project, including all tests, studies, data and reports conducted as part of or concerning the Joint

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Venture Project, for all purposes permitted by this Agreement. The Joint Venture Team shall ensure that all data, database information and reports of or concerning the Joint Venture Project is centralized and held at a location to be chosen by NEWCO, with a duplicate set available to each Party for deposit at a site of its own selection.

(d)       Neither Party is required to provide to the other Party, or any other Person, any Information that is not required or useful for the other Party to perform its obligations or exercise its rights under this Agreement in a cost-effective and efficient manner.

(e)        Neither Party may use the other Party's Information for any purpose other than solely to exercise its rights under this Agreement or to perform its obligations under the Joint Venture Project Plan in compliance with all applicable Laws. Neither Party may sell, transfer, disclose or otherwise provide access to the providing Party's Information, without the prior express written consent of the providing Party. Notwithstanding the foregoing or any other provision of this Agreement, the receiving Party may allow access, on a need-to-know basis, to the providing Party's Information by the receiving Party's Representatives pursuant to this Section 2.6 (e) provided that the Representatives are made aware of and agree in writing to be bound by the restrictions on the Information's use set forth in this Agreement.

(f)         On expiration or termination of this Agreement, the receiving Party shall, as directed by the providing Party (i) return to the providing Party the providing Party's Information and any remaining quantities of the Materials provided to the receiving Party by the providing Party, or (ii) otherwise dispose of such Information and Materials.

(g)        Any Materials provided to a receiving Party are provided "as is" without any warranties, express or implied. Materials provided by or on behalf of a providing Party to the receiving Party may have biological and/or chemical properties that are unpredictable and unknown at the time of transfer. The receiving Party shall use the providing Party's Materials with caution and prudence, and shall not use the providing Party's Materials for testing in or treatment of humans.

(h)        All right, title and interest in and to any Information or Materials a providing Party provides to the receiving Party, including any replication, copy, derivative or progeny thereof, including all Intellectual Property rights relating to any of the foregoing, shall be, and remain, vested in the providing Party.

3.       Cost Allocation .  

3.1        NEWCO Project Costs .  MCOA’s Background Property includes a commitment to raise not less than one million dollars ($1,000,000) USD for NEWCO, and the Parties intend to use this financing for all operational costs, licensing, experimental studies and plans, commercialization, marketing and sales related to NEWCO and the Project Venture Plan. (See Funding Schedule Attached)

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3.2        Property Title . It is understood that the clear Title for the JV property comprised of the one acre parcel associated with the Tier 3 License shall be vended into the JV (NEWCO), within 30 days after the third installment payment, as per the payment schedule attached.

4.       Developed Intellectual Property .  

4.1        Invention Disclosure and Record-keeping .  

(a)        Each Party shall disclose to the other Party all Developed Intellectual Property, including copies of all invention disclosures and other similar documents created in the normal course of its business that disclose any conception or reduction to practice of any Intellectual Property constituting Developed Intellectual Property.

(b)        Each Party shall maintain contemporaneous, complete and accurate written records of its Representatives' activities concerning Developed Intellectual Property that provide proof of the conception date and reduction to practice date of any Developed Intellectual Property for which the Party's Representative claims inventorship status.

4.2        Ownership of Developed Intellectual Property .  

(a)        Regardless of inventorship, as between the parties, NEWCO shall own all right, title and interest in and to Developed Intellectual Property and any and all Developed Intellectual Property relating to the First Technology and the Project Venture Products or New Business.

(b)        Except as otherwise expressly provided in this Agreement, under no circumstances shall a Party, as a result of this Agreement, obtain any ownership interest or other right, title or interest in or to any other Intellectual Property or Confidential Information of the other Party, whether by implication, estoppel or otherwise, including any items controlled or developed by the other Party, or delivered by the other Party, at any time pursuant to this Agreement.

(c)        For purposes of this definition only, "controlled" means, with respect to any Intellectual Property or Confidential Information, the possession of (whether by ownership or license, other than pursuant to this Agreement) or the ability of a Party [and/or its Affiliates] to grant the other Party access, a license or a sublicense to Intellectual Property or Confidential Information on the terms and conditions set forth in this Agreement without requiring a third Party's consent, or violating the terms of any agreement or other arrangement with or obligation to a third Party existing at the time such Party [and/or its Affiliates] would be required under this Agreement to grant the other Party such access, license or sublicense.

5.       Confidentiality .

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5.1        Confidentiality Obligations . Each Party (the " Receiving Party ") acknowledges that in connection with this Agreement it will gain access to Confidential Information of the other Party (the " Disclosing Party "). As a condition to being provided with Confidential Information, the Receiving Party shall, during the Term and for three (3) years thereafter]:

(a)        not use the Disclosing Party's Confidential Information other than as strictly necessary to exercise its rights and perform its obligations under this Agreement; and

(b)        maintain the Disclosing Party's Confidential Information in strict confidence and, subject to Section 5.2, not disclose the Disclosing Party's Confidential Information without the Disclosing Party's prior written consent, provided, however, the Receiving Party may disclose the Confidential Information to its Representatives who:

(i) have a need to know the Confidential Information for purposes of the Receiving Party's performance, or exercise of its rights concerning the Confidential Information, under this Agreement;
(ii) have been apprised of this restriction; and
(iii) are themselves bound by written nondisclosure agreements at least as restrictive as those set forth in Section 5.1, provided further that the Receiving Party shall be responsible for ensuring its Representatives' compliance with, and shall be liable for any breach by its Representatives of, Section 5.1.

The Receiving Party shall use reasonable care, at least as protective as the efforts it uses for its own confidential information, to safeguard the Disclosing Party's Confidential Information from use or disclosure other than as permitted hereby.

5.2        Exceptions . If the Receiving Party becomes legally compelled to disclose any Confidential Information, the Receiving Party shall:

(a)        provide prompt written notice to the Disclosing Party so that the Disclosing Party may seek a protective order or other appropriate remedy or waive its rights under Section 5; and

(b)        disclose only the portion of Confidential Information that it is legally required to furnish.

If a protective order or other remedy is not obtained, or the Disclosing Party waives compliance under Section 5, the Receiving Party shall, at the Disclosing Party's expense, use reasonable efforts to obtain assurance that confidential treatment will be afforded the Confidential Information.

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6.       Publication .

6.1        Publication Approval . MCOA and BV shall jointly determine the strategy for, and coordinate, the publication and presentation of any results or other data generated by the Joint Venture Project pursuant to this Agreement. A publishing Party shall provide, and shall cause its Affiliates to provide, to the non-publishing Party copies of any press intended for publication or any presentation intended for public disclosure by or on behalf of the publishing Party or its Affiliates that incorporates any Information generated under this Agreement or includes Confidential Information of the non-publishing Party, at least ten (10) Business Days before the submission of any press for publication or for other public presentation. No later than fifteen (15) Business Days after the non-publishing Party receives the publishing Party's proposed press or presentation, the non-publishing Party shall return to the publishing Party the press or presentation with any proposed changes aimed at ensuring the Information is fairly stated, the confidentiality of any Confidential Information is maintained and the opportunity to obtain patent protection for Developed Intellectual Property is preserved. The publishing Party shall, to the extent consistent with applicable Law and professional standards, incorporate the non-publishing Party's proposed changes to the manuscript or presentation and (i) delete references to the non-publishing Party's Confidential Information; and (ii) withhold all publication and presentation of the manuscript or presentation for an additional ten (10) Business Days to permit NEWCO or its designee to file patent applications for Developed Intellectual Property disclosed by the manuscript or presentation.

6.2        Attribution . The parties shall ensure that any manuscript or presentation incorporating any Information concerning any aspect of the Joint Venture Project includes recognition of the contributions of the non-publishing Party according to standard practice for assigning scientific credit, either through authorship or acknowledgement, as may be appropriate.

6.3        Third Party Obligations . Each Party shall use Commercially Reasonable Efforts to cause investigators and institutions that participate in any trials or studies (including any clinical, pre-clinical, non-clinical or post-approval studies) under the Joint Venture Project to agree in writing to terms substantially similar to those set forth in this Section 6.

7.       Mutual Representations and Warranties . Each Party represents and warrants to the other Party that:

(a)        it is duly organized, validly existing and in good standing as a corporation or other entity as represented herein under the laws and regulations of its jurisdiction of incorporation, organization or chartering;

(b)        (i) it has the full right, power and authority to enter into this Agreement and to perform its obligations hereunder, and (ii) the execution of this Agreement by a

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Representative whose signature is set forth at the end hereof has been duly authorized by all necessary corporate action of the Party;

(c)        when executed and delivered by the Party, this Agreement shall constitute the legal, valid and binding obligation of that Party, enforceable against that Party in accordance with its terms;

(d)       it is the sole and exclusive legal and beneficial owner and has sole and exclusive control (by ownership, license or otherwise) of the entire right, title, and interest in and to its Background Property, and specifically are able to assign or contribute to the Joint Venture Project its Background Property without legal hindrance or other third-Party approval. With respect to MCOA’s commitment to raise one million dollars ($1,000,000.00) as part of its Background Property, MCOA commits to using all good faith and Commercially Reasonable Efforts to timely raise and comply with the Funding Schedule set forward in Schedule 5. In the event the Parties need to adjust the Funding Schedule, the Parties represent that they will act in good faith consistent with the Parties agreement under Section 2.1(g);

(e)        it has, and throughout the Term, will retain the unconditional and irrevocable right, power and authority to grant the rights hereunder to its Background Property pursuant to the terms of this Agreement;

(f)         it has not granted and will not grant any licenses or other contingent or non-contingent right, title or interest under or relating to the Background Property, or will not be under any obligation, that does or will conflict with or otherwise affect this Agreement, including any Party's representations, warranties or obligations or rights or licenses hereunder;

(g)        it is under no obligation to any third Party that would interfere with its representations, warranties or obligations under this Agreement; and

(h)        there neither are nor at any time during the Term will be any encumbrances, liens or security interests involving its Background Intellectual Property.

8.       Warranty Disclaimer . EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT, EACH PARTY DISCLAIMS ALL WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, SAFETY, NON-TOXICITY, ABSENCE OF ERRORS, ACCURACY, COMPLETENESS OF RESULTS, THE PROSPECTS OR LIKELIHOOD OF SUCCESS FINANCIAL, REGULATORY OR OTHERWISE OF THE JOINT VENTURE PROJECT OR THE JOINT VENTURE PRODUCT OR THE VALIDITY, SCOPE OR NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY.

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9.       Indemnification .

9.1        Indemnification Obligations . Each Party shall indemnify, defend and hold harmless the other Party and its officers, directors, employees, agents, successors and assigns against all Losses arising out of or resulting from any third Party claim, suit, action or proceeding related to or arising out of or resulting from (a) the other Party's breach of any representation, warranty, covenant or obligation under this Agreement; or (b) use by a Party of the other Party's Background Intellectual Property in connection with any activities performed pursuant to the Joint Venture Project Plan. After organizing, NEWCO shall obtain appropriate and sufficient insurance to cover its Joint Venture operations and Joint Venture Project Plan.

9.2        Indemnification Procedure . The indemnitee shall promptly notify indemnitor in writing of any Action and cooperate with the indemnitee at the indemnitor's sole cost and expense. The indemnitor shall immediately take control of the defense and investigation of the Action and shall employ counsel of its choice/reasonably acceptable to the indemnitee to handle and defend the Action, at the indemnitor's sole cost and expense. The indemnitor shall not settle any Action in a manner that adversely affects the indemnitee's rights without the indemnitee's prior written consent, which shall not be unreasonably withheld or delayed. The indemnitee's failure to perform any obligations under this Section shall not relieve the indemnitor of its obligation under this Section except to the extent that the indemnitor can demonstrate that it has been materially prejudiced as a result of the failure. The indemnitee may participate in and observe the proceedings at its own cost and expense with counsel of its own choosing.

10.   Term and Termination .

10.1    Term . This Agreement shall commence on the Effective Date and, unless terminated earlier, shall remain in force perpetually until the completion of the Joint Venture Project, or by operation of law.

10.2    Buy-Out Provisions/Right of First Refusal .  

(a)        In the event that either Party believes that a material breach of this Agreement (“Dispute”) has occurred, is occurring or is about to occur, the Parties agree to communicate with each other over the issue or issues before submitting the matter to the legal process agreed to in Section 11. The Parties shall act in good faith to resolve any issues immediately, and to act consistent with their fiduciary capacities and obligations in favor of NEWCO. In the event that BV or MCOA cannot resolve the Dispute and such disagreement continues for ten [10] days despite good faith deliberations by the Parties, then either Party shall be entitled to exercise a right of first refusal for the buy-sell rights in this Section. No Party shall transfer any Membership Interest to any third Party until the other Party has refused first rights to purchase same in writing.

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(b)        If a Party wishes to exercise the right of first refusal and buy-sell right provided in this Section, such Party (the "Initiating Party") shall deliver to the other Party (the "Responding Party") written notice (the "Buy-Sell Offer Notice") of such election, which notice shall include (i) a description of the circumstances that triggered the buy-sell right, and (ii) the purchase price at which the Initiating Party shall purchase all of the Membership Interests owned by the Responding Party (the "Buy-out Price").

(c)        Within fifteen (15) days after the Buy-Sell Offer Notice is received (the "Buy-Sell Election Date"), the Responding Member shall deliver to the Initiating Member a written notice (the "Response Notice") stating whether it elects to sell all its Membership interests to the Initiating Member for the Buy-out Price. The failure of the Responding Member to deliver the Response Notice by the Buy-Sell Election Date shall be deemed to be an election to sell all of its Membership Interests to the Initiating Member at the Buy-out Price.

(d)       The closing of any purchase and sale of Membership Interests pursuant to this Section shall take place thirty [30] days after the Response Notice is delivered or deemed to have been delivered or some other date mutually agreed upon by the Parties. The Buy-out Price shall be paid at closing by wire transfer of immediately available funds to an account designated in writing by the selling Party (the "Selling Party"). At the closing, the Selling Party shall deliver to the purchasing Party (the "Purchasing Party") good and marketable title to its Membership Interests, free and clear of all liens and encumbrances. Each Party agrees to cooperate and take all actions and execute all documents reasonably necessary or appropriate to reflect the purchase of the Selling Party’s Membership Interest by the Purchasing Party.

(e)        If the Parties cannot agree on a Buy-Out Price, then an independent third Party arbitrator shall be selected by the Parties to determine the Buy-Out Price and order the sale thereon. The Parties agree to submit Disputes in this Section to the provisions in this Agreement governing law in Section 11. The Court has the authority to award attorney fees and costs against a Party whose Buy-Sell Notice or Response Notice is not made in good faith or whose Buy-Sell Notice or Response Notice is made in bad faith and grossly inconsistent with the value of the Membership Interests to be sold.

10.3    Effect of Termination .  

(a)        Termination of this Agreement shall not relieve the parties of any obligations accruing prior to the effective date of termination. Any termination of this Agreement shall not preclude either Party from pursuing all rights and remedies it may have hereunder at Law or in equity with respect to any breach of this Agreement nor prejudice either Party's right to obtain performance of any obligation. Upon the termination of this Agreement, each Party shall, subject to this Section immediately cease all activities concerning the Joint Venture Project.

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(b)        On expiration or termination of this Agreement all licenses to Background Intellectual Property and Developed Intellectual Property granted under this Agreement shall automatically terminate as of the effective date of such expiration or termination.

10.4    Survival . The rights and obligations of the parties set forth in this Section and Section 1 (Definitions), Section 4 (Developed Intellectual Property), Section 5 (Confidentiality), Section 7 (Mutual Representations and Warranties), Section 9 (Indemnification), Section 10 (Effect of Termination), Section 11 (Dispute Resolution and Governing Law), and Section 12 (Miscellaneous), and any right, obligation or required performance of the parties in this Agreement which, by its express terms or nature and context is intended to survive termination or expiration of this Agreement, shall survive any such termination or expiration.

11.   Dispute Resolution / Governing Law. This agreement shall be deemed to have been entered into in Washington State and shall be governed by and construed under the laws of Washington without giving effect to the principles of conflicts of law. Any Dispute for which a Party is permitted to bring a court proceeding shall be instituted in the courts of Washington, and each Party irrevocably submits to the jurisdiction of such courts in any such suit, action, or proceeding. Service of process, summons, notice, or other document by mail to such Party's address set forth herein shall be effective service of process for any suit, action, or other proceeding brought in any such court.

11.1    In any claim for equitable relief, each Party acknowledges that a breach by the other Party of this Agreement may cause the non-breaching Party irreparable harm, for which an award of damages would not be adequate compensation and, in the event of such a breach or threatened breach, the non-breaching Party shall be entitled to seek equitable relief, including in the form of a restraining order, orders for preliminary or permanent injunction, specific performance and any other relief that may be available from any court, and the parties hereby waive any requirement for the securing or posting of any bond or the showing of actual monetary damages in connection with such relief. These remedies shall not be deemed to be exclusive but shall be in addition to all other remedies available under this Agreement at law or in equity, subject to any express exclusions or limitations in this Agreement to the contrary.

(a)        In any Dispute for which a Party is permitted to bring a court proceeding, the prevailing Party shall be entitled to recover its actual attorneys' fees and court costs from the non-prevailing Party.

12.   Miscellaneous .  

12.1    Force Majeure . Neither Party shall be liable or responsible to the other Party, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay in fulfilling or performing any term of this Agreement, when and to the extent such failure or delay is caused by:

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(a)        acts of God;

(b)        flood, fire or explosion;

(c)        war, terrorism, invasion, riot or other civil unrest;

(d)       embargoes or blockades in effect on or after the date of this Agreement;

(e)        national or regional emergency;

(f)         strikes, labor stoppages or slowdowns or other industrial disturbances;

(g)        any passage of law or governmental order, rule, regulation or direction, or any action taken by a governmental or public authority, including imposing an embargo, export or import restriction, quota or other restriction or prohibition; or

(h)        national or regional shortage of adequate power or telecommunications or transportation facilities.

each of the foregoing, a " Force Majeure "), in each case, provided that (i) such event is outside the reasonable control of the affected Party; (ii) the affected Party provides prompt notice to the other Party, stating the period of time the occurrence is expected to continue; and (iii) the affected Party uses diligent efforts to end the failure or delay and minimize the effects of such Force Majeure event. A Party may terminate this Agreement if a Force Majeure event affecting the other Party continues substantially uninterrupted for a period of one hundred and twenty (120) Business Days or more. Unless the Party terminates this Agreement pursuant to the preceding sentence, all timelines in the Joint Venture Project Plan shall automatically be extended for a period up to the duration of the Force Majeure event.

12.2    Further Assurances . Each Party shall, upon reasonable request, and at the request of the other Party, promptly execute such documents and perform such acts as may be necessary to give full effect to the terms of this Agreement.

12.3    Independent Contractors . The relationship between the parties is that of independent contractors. Nothing contained in this Agreement shall be construed as creating any agency, partnership, joint venture or other form of joint enterprise, employment or fiduciary relationship between the parties, and neither Party shall have authority to contract for or bind the other Party in any manner whatsoever.

12.4    No Public Statements or Use of Trademarks . Neither Party shall issue or release any announcement, statement, press release or other publicity or marketing materials relating to this Agreement, or, unless expressly permitted under this Agreement, otherwise use the other Party's trademarks, service marks, trade names, logos, domain names or other indicia of source, association or sponsorship, in each case, without the

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prior written consent of the other Party, which shall not be unreasonably withheld or delayed.

12.5    Notices . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given in accordance with this Section:

 

 

If to MCOA

5256 South Mission Road, 703, #314, Bonsall, CA 92003

Facsimile: 888-777-4362

Email: don@donaldsteinberg.com

Attention: DONALD STEINBERG

 If to BV:

204 - 2383 King George Blvd Surrey BC V4A 5A4 Canada

Facsimile: [N.A.]

EMAIL: andyjagpal@hotmail.com

Attention: ANDY JAGPAL

Notices sent in accordance with this Section shall be deemed effectively given: (a) when received, if delivered by hand (with written confirmation of receipt); (b) when received, if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail (in each case, with confirmation of transmission), if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the five (5) Business Day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid.

12.6    Interpretation . For purposes of this Agreement, (a) the words "include," "includes" and "including" shall be deemed to be followed by the words "without limitation"; (b) the word "or" is not exclusive; and (c) the words "herein," "hereof," "hereby," "hereto" and "hereunder" refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Sections and Schedules refer to the Sections of and Schedules attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof; and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This

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Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting an instrument or causing any instrument to be drafted. Any Schedules referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

12.7    Privileged Communications . It is expected that, in furtherance of this Agreement, the Parties will, from time to time, disclose to one another privileged communications with counsel, including opinions, memoranda, letters and other written, electronic and verbal communications. Such disclosures are made with the understanding that they shall remain confidential and that they are made in connection with the shared community of legal interests existing between the parties, including the community of legal interests in avoiding infringement of any valid, enforceable third Party patents and in obtaining patent protection for Developed Intellectual Property.

12.8    Headings . The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

(a)        Entire Agreement . This Agreement, together with all Schedules and any other documents incorporated herein by reference, constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any conflict between the terms and provisions of this Agreement and those of any Schedule or other document, the following order of precedence shall govern: (a) first, this Agreement, excluding its Schedules; (b) second, the Schedules to this Agreement as of the Effective Date; and (c) third, any other documents incorporated herein by reference.

(b)        Assignment . Neither Party shall assign or otherwise transfer any of its rights, or delegate or otherwise transfer any of its obligations or performance, under this Agreement, in each case whether voluntarily, involuntarily, by operation of law or otherwise, without the other Party's prior written consent. No delegation or other transfer will relieve the other Party of any of its obligations or performance under this Agreement. Any purported assignment, delegation or transfer in violation of this Section is void. This Agreement is binding upon and inures to the benefit of the parties hereto and their respective permitted successors and assigns.

(c)        No Third-Party Beneficiaries . This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement.

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12.9    Amendment; Modification; Waiver . This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each Party hereto. No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the waiving Party. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

12.10                   Severability . If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to affect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

12.11                   Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission (to which a PDF copy is attached) shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the Effective Date.

 

  MARIJUANA COMPANY OF AMERICA, INC.
 

 

By /s/ Donald Steinberg

Name: DONALD STEINBERG

Title: President, Chief Executive Officer

 

 

BOUGAINVILLE VENTURES INC.

 

By /s/ Andy Jagpal

Name: ANDY JAGPAL

Title: President

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Schedules :

1-BV Real property lease; (Legal Land Description)

2-BV Agreement with I502 Tier 3 license holder

3-I502 Tier 3 marijuana cultivation license

4-i502 tier 3 license holder – all business licensee and municiple permits to cultivate marijuana

5-FUNDING SCHEDULE

6-Joint Venture Project Plan

7-MCOA Background property

8-BV Background property

 

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JOINT VENTURE AGREEMENT

PREAMBLE

This Joint Venture Agreement (" Agreement "), dated and effective as of March 17, 2017, (the " Effective Date "), is by and between Marijuana Company of America, Inc., a corporation organized and operating in good standing under the laws of the State of Utah, with a business address of 5256 South Mission Road, 703, #314, Bonsall, CA 92003; (“MCOA" ) ; and, GateC Research Inc. (“GCR”), a corporation organized and operating under the laws of California, with a business address 520 S. Grand Ave., Ste 665, Los Angeles, CA 90071). Each of the foregoing may be individually referred to as a “Party,” or collectively as the “Parties.”

RECITALS

WHEREAS, MCOA has developed and established brands and systems for the representation of Marijuana related products and derivatives comprised of management, marketing and various proprietary methodologies, including but not limited to its affiliate marketing program, directly tailored to the Marijuana industry;

WHEREAS, GCR has developed management services and systems specifically related to the management and control of Marijuana grow operations that are presently conducted in Adelanto County, California, and is the holder of a permit to grow Marijuana legally within an approved zone in Adelanto County;

WHEREAS, the permit held by GCR does not contain a conditional use permit (CUP), nor has a location been identified or secured,

WHEREAS, the Parties wish to participate in a joint venture project that includes the organization of a limited liability company (for the purposes of this Agreement referred to as “NEWCO”), organized in the State of California to: (i) jointly engage in the development and promotion of products in the legalized Marijuana industry in California State; (ii) utilize GCR’s high quality grow operations in the State of California on real property to be leased by GCR for use within the legalized Marijuana industry; (iii) provide technical and management services and resources including but not limited to: sales and marketing, agricultural procedures, operations security and monitoring, processing and delivery, branding, capital resources and financial management; and, (iv) optimize collaborative business opportunities.

WHEREAS, in furtherance of the Agreement, the Parties are willing to contribute their respective Information, services and expertise and other valuable consideration as is more fully detailed below, in order to permit NEWCO to organize as a legal entity in the State of California, establish its operations, and to generally undertake the business goals outlined in these Recitals and elsewhere in this Agreement.

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NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.       Definitions . For purposes of this Agreement, the following terms have the following meanings:

" Affiliate " of a Person (as defined below) means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition only, the term "control" means the power to direct or cause the direction or the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise/direct or indirect ownership of more than fifty percent (50%) of the voting securities of a Person, and "controlled by" and "under common control with" have correlative meanings.

" Agreement " has the meaning set forth in the preamble.

" Bankruptcy Code " has the meaning set forth in Section 11.3.

" Business Day " means a day other than a Saturday, Sunday or other day on which commercial banks in Seattle, California are authorized or required by Law to be closed for business.

"GCR Background Property " means: (i) that permit currently controlled by GCR in Adelanto, California, and as is more fully described in that certain written permit agreement attached hereto as Schedule 1, that is used for Marijuana propagation, growth and harvesting for use in the legalized Marijuana industry; and, (ii) Information controlled by GCR that (a) was made, invented, developed, created, conceived, reduced to practice or having a filing date before the Effective Date, and relate primarily to the growth of Marijuana, management services, and systems specifically related to the management and control of Marijuana grow operations that are presently conducted in California State, and relate primarily to GCR’S research, development and know-how in the marijuana industry. GCR’S Background Property.

For purposes of this definition only, "controlled by" means, with respect to any GCR Background Property, the possession of (whether by ownership, lease or permit, other than pursuant to this Agreement) or the ability of GCR and/or its Affiliates to grant NEWCO access, a sub-lease, an assignment, permit or a sublicense to such property, Materials or Information on the terms and conditions set forth in this Agreement without requiring a third party's consent, or violating the terms of any agreement or other arrangement with or obligation to a third party existing at the time such party and/or its Affiliates would be required under this Agreement to grant the other party such access, permit or subpermit.

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" Commercially Reasonable Efforts " means the carrying out of a Party's obligations under this Agreement with the exercise of prudent scientific and/or business judgment, and a level of effort consistent with the judgment and efforts that a comparable third Party in the marijuana agricultural and business development, branding, marketing and distribution industry would employ for products of similar strategic importance and commercial value. Commercially Reasonable Efforts includes: (a) promptly assigning responsibility for development activities to specific employees who are held accountable for progress and monitoring such progress on an on-going basis; (b) setting and consistently seeking to achieve specific and meaningful objectives and timelines for carrying out such development activities; (c) consistently making and implementing decisions and allocating resources designed to advance the progress of such objectives and timelines; and (d) employing compensation systems for its employees that are no less favorable than the compensation systems the party applies with respect to its other programs with technology and/or products of similar potential.

" Competing Product " means any product, method, process or other subject matter that (a) has the substantially same marketing, branding or ingredients as a Joint Venture Product, or (b) otherwise is, or readily can be, applied, used or adapted for any application or use in substitution for or competition with any Joint Venture Product.

" Confidential Information " means any Information that is treated as confidential by a Party, or its Affiliates or Representatives, whether in oral, written, electronic or other form or media, whether or not such Information is marked, designated or otherwise identified as "confidential," and includes any Information that due to the nature of its subject matter or circumstances surrounding its disclosure, would reasonably be understood to be non-public, confidential or proprietary, including, without limitation: (a) the existence, terms and conditions of this Agreement; (b) all Information concerning the Joint Venture Project, the Joint Venture Products, Growth protocols, plans & procedures, and jointly developed intellectual property; and (c) all Information concerning past, present and future business affairs including finances, customer information, supplier information, products, services, organizational structure and internal practices, forecasts, sales and other financial results, records and budgets, and business, marketing, research, development, sales and other commercial strategies; and (d) all Information concerning unpatented inventions, ideas, methods and discoveries, know-how, trade secrets, unpublished patent applications and invention disclosures, invention summaries and other confidential intellectual property; and (e) all designs, specifications, documentation, components, source code, object code, images, icons, audiovisual components and objects, schematics, drawings, protocols, processes, and other visual depictions, in whole or in part, of any of the foregoing; and (f) all notes, analyses, compilations, reports, forecasts, studies, samples, data, statistics, summaries, interpretations and other materials that contain, are based on, or otherwise reflect or are derived from, any of the foregoing in whole or in part.

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Confidential Information does not include Information that: (w) was already known by or in the possession of the receiving party or its Affiliates or their Representatives without restriction on use or disclosure before the receipt of such Information directly or indirectly from or on behalf of the disclosing party; (x) was or is independently developed by the receiving party, as established by documentary evidence, without reference to or use of any of the disclosing party's Confidential Information; (y) was or becomes generally known by the public other than as a result of any breach of this Agreement, or other wrongful act, of the receiving party or its Affiliates, or its Representatives; or (z) was or becomes available to the receiving party, or its Affiliates, or its Representatives received by the receiving party from a third party who was not, at the time, under an obligation to the disclosing party or its Affiliates or its Representatives or any other Person to maintain the confidentiality of such Information.

" Contract Year " means each successive twelve (12) month period during the Term, with the first Contract Year beginning on the Effective Date (a) the First Contract Year; and (b) the twelve (12) month period beginning on the day immediately following the end of the First Contract Year and each succeeding twelve (12) month period.

" Developed Intellectual Property " means all Intellectual Property covering the Joint Venture Project made, invented, developed, created, conceived or reduced to practice after the Effective Date (a) as a result of work conducted pursuant to this Agreement and the Joint Venture Project, or by a party in its evaluation, use or implementation of the other party's Background Intellectual Property, or (b) by a receiving party directly resulting from, or necessarily using or derived from, or based on the other party's Confidential Information, in each case, including all rights in any patents or patent applications, copyrights, trade secrets and other Intellectual Property rights relating thereto.

" Dispute " means any disagreement between the parties concerning or in any way arising out of or relating to this Agreement whether or not the disagreement gives rise to a right to terminate this Agreement, and includes any disagreement concerning (a) the parties' entry into this Agreement and any terms or subject matter hereof; or, (b) the conduct of, or any action to be taken concerning, any aspect of this Agreement or the Joint Venture Project.

" Effective Date " has the meaning set forth in the preamble.

" Force Majeure " has the meaning set forth in Section 13.1.

" Information " means any and all ideas, concepts, data, know-how, discoveries, improvements, methods, techniques, technologies, systems, specifications, analyses, products, practices, processes, procedures, protocols, research, tests, trials, assays, controls, prototypes, formulas, descriptions, formulations, submissions, communications, skills, experience, knowledge, plans, objectives, algorithms, reports, results, conclusions

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and other information and materials, irrespective of whether or not copyrightable or patentable and in any form or medium (tangible, intangible, oral, written, electronic, observational or other) in which such Information may be communicated or subsist. Without limiting the foregoing sentence, Information includes any technological, scientific, business, legal, patent, organizational, commercial, operational or financial materials or information.

" Intellectual Property " means all patentable and unpatentable inventions, works of authorship or expression, including computer programs, data collections and databases, and trade secrets, and other Information.

" Joint Venture Products " means any new product devised, developed or created as a result of this Agreement and the Joint Venture Plan and Project.

" Joint Venture Project " means the Parties organization of an appropriate business entity in the State of California, and the undertaking of collaborative efforts to combine their respective Background Property and Information to allow NEWCO to develop, market, distribute and improve its business as a going concern.

" Joint Venture Project Plan " means the essential elements of the Joint Venture Project as set out in Schedule 2, including the details concerning the scope of work, protocols, specifications, schedule of activities, timeline, milestones and other Joint Venture Project requirements.

" Joint Venture Team Leader " has the meaning set forth in Section 2.2.

" Law " means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any federal, state, local or foreign government or political subdivision thereof, or any arbitrator, court or tribunal of competent jurisdiction.

" Losses " means all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys' fees and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers.

" Materials " means biological materials, chemical or plant compounds, devices, equipment, or other research materials owned or controlled by the Parties as are required and reasonably necessary for the Parties to perform their respective obligations under this Agreement.

"MCOA Background Property " means (i) MCOA’s best efforts commitment to raise funds for the Joint Venture Project in the amount of up to one and one-half million dollars ($1,500,000) USD over a six month period, with a minimum commitment of five hundred thousand ($500,000 USD) within a three (3) month period and, (ii) Information

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controlled by MCOA that (a) was made, invented, developed, created, conceived, reduced to practice or have a filing date before the Effective Date and relate primarily to MCOA’S established brands and systems for the representation of Marijuana related products and derivatives comprised of management, marketing and various proprietary methodologies, including but not limited to its affiliate marketing program, directly tailored to the Marijuana industry. MCOA’S Background Property is listed in Schedule 3 as it may be amended by the parties from time to time.

For purposes of this definition only, "controlled by" means, with respect to any Materials, Information or Intellectual Property, the possession of, whether by ownership or permit, other than pursuant to this Agreement, or the ability of a party and/or its Affiliates to grant the other party access, a permit or a subpermit to such Materials, Information, or Intellectual Property on the terms and conditions set forth in this Agreement without requiring a third party's consent, or violating the terms of any agreement or other arrangement with or obligation to a third party existing at the time such party and/or its Affiliates would be required under this Agreement to grant the other party such access, permit or subpermit.

" New Business " means all new products or business in the legal marijuana industry resulting from this Agreement and the Joint Venture Project.

"Participant Invention" has the meaning set forth in Section 2.2(d).

"Participating Individual" has the meaning set forth in Section 2.2(d).

" Person " means an individual, corporation, partnership, joint venture, limited liability entity, governmental authority, unincorporated organization, trust, association or other entity.

" Regulatory Approval " means any and all approvals (including any applicable supplements, amendments, pre- and post-approvals, governmental price and reimbursement approvals and approvals of applications for regulatory exclusivity), permits, licenses, registrations, or authorizations of any Regulatory Authority necessary for any development, manufacture or commercialization of the Joint Venture Product.

" Regulatory Authority " means any governmental regulatory authority, agency or entity involved in granting regulatory approval of, or otherwise regulating any aspect of the conduct, development, manufacture, market approval, sale, distribution, packaging or use of, the Joint Venture Product.

" Representative " means a party's and its Affiliates' employees, officers, directors, consultants and legal, technical and business advisors.

" Term " has the meaning set forth in Section 11.

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2.       Joint Venture Project .

2.1        Joint Venture Project Activities . The parties have entered into this Agreement to jointly and collaboratively organize NEWCO in the State of California for the purposes of exploiting and commercializing MCOA’s Background Property in conjunction with GCR’s Background Property; and to develop and conduct business and products by and through NEWCO in the legal Marijuana business in California State.

(a)        Within thirty (30) days from the Effective Date, legal counsel shall be retained by the Parties for the purpose of organizing NEWCO as a California limited liability company. GCR and MCOA shall be the only members of NEWCO. There shall be two classes of membership: Class “A” membership in which both GCR and MCOA are each issued a 49.5% interest in NEWCO; and Class “B” membership in which MCOA is issued a 1% interest in NEWCO. Both Class “A” and Class “B” membership have full voting rights pro rata to their respective percentage interests on any matter concerning NEWCO’s operation under California law. Class B membership interests shall be designated a “preferred interest” in NEWCO, with a 1% voting preference lasting until such time as MCOA recoups its investment of up to one and one half million dollars in operating profits from NEWCO. After MCOA recoups its investment, its Class B preferred membership interest shall terminate, and the one percent (1%) former Class B membership shall be returned to treasury, then divided equally between GCR and MCOA, leaving both GCR and MCOA with an equal 50-50 voting interest in NEWCO. GCR and MCOA agree to establish in NEWCO’s operating agreement an effective mechanism to resolve operational disputes in NEWCO’s business when, by virtue of the Parties 50-50 voting interests, a stalemate occurs between them on any matter requiring a vote of the members under California law. The Parties intend that neither Member shall transfer all or any portion of its Membership Interest in NEWCO, without the written consent of the other Member (which consent may be granted or withheld in the sole discretion of the other Member), and that Members rights of first refusal to purchase all or any portion of a Membership Interest. No transfer of membership interests to a Person not already a Member of NEWCO shall be deemed completed until the prospective transferee is admitted as a Member of NEWCO.

(b)        The Parties agree, after NEWCO is organized, to meet and approve the adoption of a written Operating Agreement concerning NEWCO, including provisions for the selection of Managers consisting of three persons. GCR will appoint one Manager and MCOA will appoint one Manager. The third Manager shall be selected by majority vote of the Class “A” and Class “B” Members. The Parties shall then open bank account with an insured FDIC established bank. The Parties agree that there shall be two (2) signatories on the NEWCO bank account, each a Manager represented by GCR and MCOA. NEWCO shall retain an accountant to maintain the financial books and records of NEWCO. The Parties agree that the Managers shall establish accounting and financial

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policies and protocols for NEWCO, and agree that profits and/or dividends shall be divided equally between MCOA and GCR.

(c)        After NEWCO is organized, the Parties agree to work together to develop Joint Venture Products in accordance with the Joint Venture Project Plan set out in Schedule 2. All New Business and Joint Venture Products will be owned by NEWCO. The Day to Day cultivation operations shall be left to the Master Grower, who shall be selected and appointed by NEWCO. NEWCO and the Master Grower shall enter into a separate written agreement describing the duties and obligations of the Master Grower. The Master Grower will be responsible for communicating at least monthly with NEWCO concerning the Joint Venture Project and Joint Venture Project Plan.

(d)       NEWCO and the Master Grower shall use Commercially Reasonable Efforts to:

(i) Perform its responsibilities in accordance with this Agreement and the Joint Venture Project Plan and perform all Joint Venture Project Plan requirements, including by meeting all Joint Venture Project Plan timelines and milestones;
(ii) Co-operate with and provide reasonable support to each other in connection with the other party's performance of its obligations under this Agreement including the Joint Venture Project Plan;
(iii) Meet, confer and communicate amongst themselves at least on a monthly basis at a convenient time and by a convenient method to assess the Joint Venture Project Plan, progress on achieving milestones, and determine appropriate actions, including any and all relevant costs and accounting functions. The Master Grower shall provide any and all relevant information and documentation.

(e)        The Joint Venture Project is contingent on a number of factors and success is not assured. As long as the Parties, NEWCO including the Master Grower use its Commercially Reasonable Efforts to perform their obligations under this Agreement, including the Joint Venture Project Plan, that party shall not be in default under this Agreement for any failure to achieve any particular result or milestone; and

(f)         Within thirty (30) Business Days after the end of each quarter, each party shall provide the other party a reasonably detailed written report describing the then-current status of all activities for which that party was allocated responsibility under the Joint Venture Project Plan. Each party shall provide written notice to the other party within thirty (30) Business Days after each quarter identifying any milestone set out in the Joint Venture Project Plan it was unable to meet during that quarter.

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2.2        Conduct of Joint Venture Project/Joint Project Team .  

(a)        Within thirty (30) Business Days of the Effective Date, each party shall:

(i) Appoint two (2) Representatives who shall have expertise to perform its respective activities set out in the Joint Venture Project Plan (each party's set of Representatives together, the " Joint Project Team ");
(ii) Appoint one of its Representatives on the Joint Project Team to act as the primary contact for that party (each, a " Joint Venture Team Leader "). The Joint Venture Team Leaders shall jointly oversee, manage and coordinate the day-to-day implementation of the Joint Venture Project Plan; and
(iii) Provide written notice identifying its Joint Project Team members and Joint Venture Team Leader to the other party.

(b)        Each party may appoint, at its discretion, substitute or successor Representatives to the Joint Project Team, including substitute or successor Joint Venture Team Leaders, on at least ten (10) Business Days written notice to the other party before such substitute or successor Representatives begin work on the Joint Venture Project.

(c)        The Joint Project Team's responsibilities shall include:

(i) Meeting at least once per month with NEWCO at mutually agreed times and places to discuss the status, progress and activities necessary to meet the Joint Venture Project objectives;
(ii) Exchanging between the parties all Information relating to the Joint Venture Project;
(iii) Performing all activities required by the Joint Venture Project Plan and ensuring that the parties meet the timelines, milestones and other requirements required by the Joint Venture Project Plan; and
(iv) Performing any other functions allocated to it under this Agreement or as appropriate to further the purposes of this Agreement as determined by the parties.

(d)       Each Representative of a party who is not an employee of a party that works on the Joint Project Team, attends any meeting concerning the Joint Venture Project, or is given access to any of the other party's Confidential Information (a " Participating Individual "), shall be bound by a written agreement requiring such Participating Individual to:

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(i) follow that party's policies and procedures for reporting any inventions, discoveries or other Intellectual Property or Information invented, conceived, developed, derived, discovered, generated, identified or otherwise made by the Participating Individual in the course of his employment or retention by the party or that arises from access to Confidential Information of either party that relates to the Joint Venture Project (each a " Participant Invention ");
(ii) assign to the party all of his right, title and interest in and to the Participant Inventions, including all Intellectual Property rights relating thereto;
(iii) cooperate in the preparation, filing, prosecution, maintenance, defense and enforcement of any patent or other rights in any Participant Invention;
(iv) perform all acts and sign, execute, acknowledge and deliver any and all papers, documents and instruments required to fulfill the obligations and purposes of that agreement; and
(v) be bound by obligations of confidentiality and non-use no less restrictive than those set out in this Agreement.

It is understood and agreed that any agreement required by this Section does not need to be specific to this Agreement as long as the agreement provides for the binding obligations of the Participating Individuals as described in this Section.

(e)        All day-to-day decisions concerning matters and functions allocated or delegated to a party pursuant to the Joint Venture Project Plan, unless expressly reserved in this Agreement for determination or approval by the Joint Project Team, shall be deemed to be within the decision-making authority of the Master Grower; provided that all such decisions shall be consistent with the Joint Venture Project, the scope of the allocation or delegation to that party under the Joint Venture Project Plan, and the terms and conditions of this Agreement.

(f)         Each party shall retain the rights, powers and discretion granted to it under this Agreement, and no such rights, powers, or discretion shall be delegated to or vested in the Joint Project Team unless this Agreement, including the Joint Venture Project Plan, expressly provides for that delegation or vesting of rights, or the parties otherwise expressly agree in writing in accordance with this Agreement.

2.3        Patent Rights .  

(a)        Any and all intellectual property or inventions of any kind created as a result of the Joint Venture Project, including but not limited to the Joint Venture Product,

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Developed Intellectual Property, and any and all patent rights related to such intellectual property or inventions, shall be the sole property of NEWCO, or its designee, who shall be responsible for the filing and prosecution of all relevant United States and international patent applications.

2.4        Information Exchange .  

(a)        During the Term, each party shall provide to the other party reasonable access to its Representatives, facilities, books and records, and such other Information that the providing party believes to be necessary or useful (i) to support the other party's efforts to conduct its Joint Venture Project Plan activities or (ii) for the other party to exercise its rights or meet its obligations under this Agreement, and any other Information that the other party reasonably requests for any of the purposes set forth in this Agreement. These required disclosures include all disclosures required this Agreement and any design, development, manufacturing, clinical, pre-clinical or non-clinical, testing, financial, marketing, sales, quality, and regulatory approval and compliance Information described in the preceding sentence.

(b)        Within ninety (90) Business Days after the Effective Date, each party shall provide to the other party:

(i) a copy of each U.S. and foreign patent and patent application filed by or on behalf of the providing party relating to any Background Intellectual Property that it has not already provided or made available to the other party and such other patent information as the other party reasonably requests to support its efforts to conduct its activities pursuant to this Agreement.

(c)        Each party may use Information relating to the Joint Venture Project, including all tests, studies, data and reports conducted as part of or concerning the Joint Venture Project, for all purposes permitted by this Agreement. The Joint Venture Team shall ensure that all data, database information and reports of or concerning the Joint Venture Project is centralized and held at a location to be chosen by NEWCO, with a duplicate set available to each party for deposit at a site of its own selection.

(d)       Neither party is required to provide to the other party, or any other Person, any Information that is not required or useful for the other party to perform its obligations or exercise its rights under this Agreement in a cost-effective and efficient manner.

(e)        Neither party may use the other party's Information for any purpose other than solely to exercise its rights under this Agreement or to perform its obligations under the Joint Venture Project Plan in compliance with all applicable Laws. Neither party may sell, transfer, disclose or otherwise provide access to the providing party's Information, without the prior express written consent of the providing party. Notwithstanding the

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foregoing or any other provision of this Agreement, the receiving party may allow access, on a need-to-know basis, to the providing party's Information by the receiving party's Representatives pursuant to this Section 2.6 (e) provided that the Representatives are made aware of and agree in writing to be bound by the restrictions on the Information's use set forth in this Agreement.

(f)         On expiration or termination of this Agreement, the receiving party shall, as directed by the providing party (i) return to the providing party the providing party's Information and any remaining quantities of the Materials provided to the receiving party by the providing party, or (ii) otherwise dispose of such Information and Materials.

(g)        Any Materials provided to a receiving party are provided "as is" without any warranties, express or implied. Materials provided by or on behalf of a providing party to the receiving party may have biological and/or chemical properties that are unpredictable and unknown at the time of transfer. The receiving party shall use the providing party's Materials with caution and prudence, and shall not use the providing party's Materials for testing in or treatment of humans.

(h)        All right, title and interest in and to any Information or Materials a providing party provides to the receiving party, including any replication, copy, derivative or progeny thereof, including all Intellectual Property rights relating to any of the foregoing, shall be, and remain, vested in the providing party.

3.       Cost Allocation .  

3.1        NEWCO Project Costs .  MCOA’s Background Property includes a best efforts commitment to raise up to one and one half million dollars ($1,500,000) USD for NEWCO, and the Parties intend to use this financing for all operational costs, experimental studies and plans, commercialization, marketing and sales related to NEWCO and the Project Venture Plan. (See Funding Schedule Attached)

4.       Developed Intellectual Property .  

4.1        Invention Disclosure and Record-keeping .  

(a)        Each party shall disclose to the other party all Developed Intellectual Property, including copies of all invention disclosures and other similar documents created in the normal course of its business that disclose any conception or reduction to practice of any Intellectual Property constituting Developed Intellectual Property.

(b)        Each party shall maintain contemporaneous, complete and accurate written records of its Representatives' activities concerning Developed Intellectual Property that provide proof of the conception date and reduction to practice date of any Developed Intellectual Property for which the party's Representative claims inventorship status.

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4.2        Ownership of Developed Intellectual Property .  

(a)        Regardless of inventorship, as between the parties, NEWCO shall own all right, title and interest in and to Developed Intellectual Property and any and all Developed Intellectual Property relating to the First Technology and the Project Venture Products or New Business.

(b)        Except as otherwise expressly provided in this Agreement, under no circumstances shall a party, as a result of this Agreement, obtain any ownership interest or other right, title or interest in or to any other Intellectual Property or Confidential Information of the other party, whether by implication, estoppel or otherwise, including any items controlled or developed by the other party, or delivered by the other party, at any time pursuant to this Agreement.

(c)        For purposes of this definition only, "controlled" means, with respect to any Intellectual Property or Confidential Information, the possession of (whether by ownership or permit, other than pursuant to this Agreement) or the ability of a party [and/or its Affiliates] to grant the other party access, a permit or a subpermit to Intellectual Property or Confidential Information on the terms and conditions set forth in this Agreement without requiring a third party's consent, or violating the terms of any agreement or other arrangement with or obligation to a third party existing at the time such party [and/or its Affiliates] would be required under this Agreement to grant the other party such access, permit or subpermit.

5.       Confidentiality .

5.1        Confidentiality Obligations . Each party (the " Receiving Party ") acknowledges that in connection with this Agreement it will gain access to Confidential Information of the other party (the " Disclosing Party "). As a condition to being provided with Confidential Information, the Receiving Party shall, during the Term and for three (3) years thereafter]:

(a)        not use the Disclosing Party's Confidential Information other than as strictly necessary to exercise its rights and perform its obligations under this Agreement; and

(b)        maintain the Disclosing Party's Confidential Information in strict confidence and, subject to Section 5.2, not disclose the Disclosing Party's Confidential Information without the Disclosing Party's prior written consent, provided, however, the Receiving Party may disclose the Confidential Information to its Representatives who:

(i) have a need to know the Confidential Information for purposes of the Receiving Party's performance, or exercise of its rights concerning the Confidential Information, under this Agreement;
(ii) have been apprised of this restriction; and
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(iii) are themselves bound by written nondisclosure agreements at least as restrictive as those set forth in Section 5.1, provided further that the Receiving Party shall be responsible for ensuring its Representatives' compliance with, and shall be liable for any breach by its Representatives of, Section 5.1.

The Receiving Party shall use reasonable care, at least as protective as the efforts it uses for its own confidential information, to safeguard the Disclosing Party's Confidential Information from use or disclosure other than as permitted hereby.

5.2        Exceptions . If the Receiving Party becomes legally compelled to disclose any Confidential Information, the Receiving Party shall:

(a)        provide prompt written notice to the Disclosing Party so that the Disclosing Party may seek a protective order or other appropriate remedy or waive its rights under Section 5; and

(b)        disclose only the portion of Confidential Information that it is legally required to furnish.

If a protective order or other remedy is not obtained, or the Disclosing Party waives compliance under Section 5, the Receiving Party shall, at the Disclosing Party's expense, use reasonable efforts to obtain assurance that confidential treatment will be afforded the Confidential Information.

6.       Publication .

6.1        Publication Approval . MCOA and GCR shall jointly determine the strategy for, and coordinate, the publication and presentation of any results or other data generated by the Joint Venture Project pursuant to this Agreement. A publishing party shall provide, and shall cause its Affiliates to provide, to the non-publishing party copies of any press intended for publication or any presentation intended for public disclosure by or on behalf of the publishing party or its Affiliates that incorporates any Information generated under this Agreement or includes Confidential Information of the non-publishing party, at least ten (10) Business Days before the submission of any press for publication or for other public presentation. No later than fifteen (15) Business Days after the non-publishing party receives the publishing party's proposed press or presentation, the non-publishing party shall return to the publishing party the press or presentation with any proposed changes aimed at ensuring the Information is fairly stated, the confidentiality of any Confidential Information is maintained and the opportunity to obtain patent protection for Developed Intellectual Property is preserved. The publishing party shall, to the extent consistent with applicable Law and professional standards, incorporate the non-publishing party's proposed changes to the manuscript or presentation and (i) delete references to the non-publishing party's Confidential Information; and (ii) withhold all

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publication and presentation of the manuscript or presentation for an additional ten (10) Business Days to permit NEWCO or its designee to file patent applications for Developed Intellectual Property disclosed by the manuscript or presentation.

6.2        Attribution . The parties shall ensure that any manuscript or presentation incorporating any Information concerning any aspect of the Joint Venture Project includes recognition of the contributions of the non-publishing party according to standard practice for assigning scientific credit, either through authorship or acknowledgement, as may be appropriate.

6.3        Third Party Obligations . Each party shall use Commercially Reasonable Efforts to cause investigators and institutions that participate in any trials or studies (including any clinical, pre-clinical, non-clinical or post-approval studies) under the Joint Venture Project to agree in writing to terms substantially similar to those set forth in this Section 6.

7.       Mutual Representations and Warranties . Each party represents and warrants to the other party that:

(a)        it is duly organized, validly existing and in good standing as a corporation or other entity as represented herein under the laws and regulations of its jurisdiction of incorporation, organization or chartering;

(b)        (i) it has the full right, power and authority to enter into this Agreement and to perform its obligations hereunder, and (ii) the execution of this Agreement by a Representative whose signature is set forth at the end hereof has been duly authorized by all necessary corporate action of the party;

(c)        when executed and delivered by the party, this Agreement shall constitute the legal, valid and binding obligation of that party, enforceable against that party in accordance with its terms;

(d)       it is the sole and exclusive legal and beneficial owner and has sole and exclusive control (by ownership, license, permit or otherwise) of the entire right, title, and interest in and to its Background Property, and specifically are able to assign or contribute to the Joint Venture Project its Background Property without legal hindrance or other third-party approval;

(e)        it has, and throughout the Term, will retain the unconditional and irrevocable right, power and authority to grant the rights hereunder to its Background Property pursuant to the terms of this Agreement;

(f)         it has not granted and will not grant any licenses or permits or other contingent or non-contingent right, title or interest under or relating to the Background Property, or will not be under any obligation, that does or will conflict with or otherwise

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affect this Agreement, including any party's representations, warranties or obligations or rights, licenses or permits hereunder;

(g)        it is under no obligation to any third party that would interfere with its representations, warranties or obligations under this Agreement; and

(h)        there neither are nor at any time during the Term will be any encumbrances, liens or security interests involving its Background Intellectual Property.

8.       Warranty Disclaimer . EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT, EACH PARTY DISCLAIMS ALL WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, SAFETY, NON-TOXICITY, ABSENCE OF ERRORS, ACCURACY, COMPLETENESS OF RESULTS, THE PROSPECTS OR LIKELIHOOD OF SUCCESS FINANCIAL, REGULATORY OR OTHERWISE OF THE JOINT VENTURE PROJECT OR THE JOINT VENTURE PRODUCT OR THE VALIDITY, SCOPE OR NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY.

9.       Indemnification .

9.1        Indemnification Obligations . Each party shall indemnify, defend and hold harmless the other party and its officers, directors, employees, agents, successors and assigns against all Losses arising out of or resulting from any third party claim, suit, action or proceeding related to or arising out of or resulting from (a) the other party's breach of any representation, warranty, covenant or obligation under this Agreement; or (b) use by a party of the other party's Background Intellectual Property in connection with any activities performed pursuant to the Joint Venture Project Plan. After organizing, NEWCO shall obtain appropriate and sufficient insurance to cover its Joint Venture operations and Joint Venture Project Plan.

9.2        Indemnification Procedure . The indemnitee shall promptly notify indemnitor in writing of any Action and cooperate with the indemnitee at the indemnitor's sole cost and expense. The indemnitor shall immediately take control of the defense and investigation of the Action and shall employ counsel of its choice/reasonably acceptable to the indemnitee to handle and defend the Action, at the indemnitor's sole cost and expense. The indemnitor shall not settle any Action in a manner that adversely affects the indemnitee's rights without the indemnitee's prior written consent, which shall not be unreasonably withheld or delayed. The indemnitee's failure to perform any obligations under this Section shall not relieve the indemnitor of its obligation under this Section except to the extent that the indemnitor can demonstrate that it has been materially prejudiced as a result of the failure. The indemnitee may participate in and observe the proceedings at its own cost and expense with counsel of its own choosing.

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10.   Term and Termination .

10.1    Term . This Agreement shall commence on the Effective Date and, unless terminated earlier, shall remain in force perpetually until the completion of the Joint Venture Project.

10.2    Buy-Out Provisions/Right of First Refusal .  

(a)        In the event that either Party believes that a material breach of this Agreement (“Dispute”) has occurred, is occurring or is about to occur, the Parties agree to communicate with each other over the issue or issues before submitting the matter to the legal process agreed to in Section 11. The Parties shall act in good faith to resolve any issues immediately, and to act consistent with their fiduciary capacities and obligations in favor of NEWCO. In the event that GCR or MCOA cannot resolve the Dispute and such disagreement continues for ten [10] days despite good faith deliberations by the Parties, then either Party shall be entitled to exercise a right of first refusal for the buy-sell rights in this Section. No Party shall transfer any Membership Interest to any third party until the other Party has refused first rights to purchase same in writing.

(b)        If a Party wishes to exercise the right of first refusal and buy-sell right provided in this Section, such Party (the "Initiating Party") shall deliver to the other Party (the "Responding Party") written notice (the "Buy-Sell Offer Notice") of such election, which notice shall include (i) a description of the circumstances that triggered the buy-sell right, and (ii) the purchase price at which the Initiating Party shall purchase all of the Membership Interests owned by the Responding Party (the "Buy-out Price").

(c)        Within fifteen (15) days after the Buy-Sell Offer Notice is received (the "Buy-Sell Election Date"), the Responding Member shall deliver to the Initiating Member a written notice (the "Response Notice") stating whether it elects to sell all its Membership interests to the Initiating Member for the Buy-out Price. The failure of the Responding Member to deliver the Response Notice by the Buy-Sell Election Date shall be deemed to be an election to sell all of its Membership Interests to the Initiating Member at the Buy-out Price.

(d)       The closing of any purchase and sale of Membership Interests pursuant to this Section shall take place thirty [30] days after the Response Notice is delivered or deemed to have been delivered or some other date mutually agreed upon by the Parties. The Buy-out Price shall be paid at closing by wire transfer of immediately available funds to an account designated in writing by the selling Party (the "Selling Party"). At the closing, the Selling Party shall deliver to the purchasing Party (the "Purchasing Party") good and marketable title to its Membership Interests, free and clear of all liens and encumbrances. Each Party agrees to cooperate and take all actions and execute all documents reasonably necessary or appropriate to reflect the purchase of the Selling Party’s Membership Interest by the Purchasing Party.

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(e)        If the Parties cannot agree on a Buy-Out Price, then an independent third party arbitrator shall be selected by the Parties to determine the Buy-Out Price and order the sale thereon. The Parties agree to submit Disputes in this Section to the provisions in this Agreement governing law in Section 11. The Court has the authority to award attorney fees and costs against a Party whose Buy-Sell Notice or Response Notice is not made in good faith or whose Buy-Sell Notice or Response Notice is made in bad faith and grossly inconsistent with the value of the Membership Interests to be sold.

10.3    Effect of Termination .  

(a)        Expiration or termination of this Agreement shall not relieve the parties of any obligations accruing prior to the effective date of expiration or termination. Any expiration or termination of this Agreement shall not preclude either party from pursuing all rights and remedies it may have hereunder at Law or in equity with respect to any breach of this Agreement nor prejudice either party's right to obtain performance of any obligation. On any expiration or termination of this Agreement, each party shall, subject to this Section immediately cease all activities concerning the Joint Venture Project.

(b)        On expiration or termination of this Agreement all licenses and permits to Background Intellectual Property and Developed Intellectual Property granted under this Agreement shall automatically terminate as of the effective date of such expiration or termination.

(c)        If property can’t be secured for project, a CUP isn’t granted, or a state license is not issued, this Agreement may be canceled by either party if any of the forgoing three occurrences do not occur within a twelve month period.

10.4    Survival . The rights and obligations of the parties set forth in this Section and Section 1 (Definitions), Section 4 (Developed Intellectual Property), Section 5 (Confidentiality), Section 7 (Mutual Representations and Warranties), Section 9 (Indemnification), Section 12 (Dispute Resolution and Governing Law), Section 11 (Effect of Termination) and Section 13 (Miscellaneous), and any right, obligation or required performance of the parties in this Agreement which, by its express terms or nature and context is intended to survive termination or expiration of this Agreement, shall survive any such termination or expiration.

11.   Dispute Resolution / Governing Law. This agreement shall be deemed to have been entered into in California State and shall be governed by and construed under the laws of California without giving effect to the principles of conflicts of law. Any Dispute for which a party is permitted to bring a court proceeding shall be instituted in the courts of California, and each party irrevocably submits to the jurisdiction of such courts in any such suit, action, or proceeding. Service of process, summons, notice, or other document by mail to such party's address set forth herein shall be effective service of process for any suit, action, or other proceeding brought in any such court.

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11.1    In any claim for equitable relief, each party acknowledges that a breach by the other party of this Agreement may cause the non-breaching party irreparable harm, for which an award of damages would not be adequate compensation and, in the event of such a breach or threatened breach, the non-breaching party shall be entitled to seek equitable relief, including in the form of a restraining order, orders for preliminary or permanent injunction, specific performance and any other relief that may be available from any court, and the parties hereby waive any requirement for the securing or posting of any bond or the showing of actual monetary damages in connection with such relief. These remedies shall not be deemed to be exclusive but shall be in addition to all other remedies available under this Agreement at law or in equity, subject to any express exclusions or limitations in this Agreement to the contrary.

(a)        In any Dispute for which a Party is permitted to bring a court proceeding, the prevailing Party shall be entitled to recover its actual attorneys' fees and court costs from the non-prevailing Party.

12.   Miscellaneous .  

12.1    Force Majeure . Neither party shall be liable or responsible to the other party, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay in fulfilling or performing any term of this Agreement, when and to the extent such failure or delay is caused by:

(a)        acts of God;

(b)        flood, fire or explosion;

(c)        war, terrorism, invasion, riot or other civil unrest;

(d)       embargoes or blockades in effect on or after the date of this Agreement;

(e)        national or regional emergency;

(f)         strikes, labor stoppages or slowdowns or other industrial disturbances;

(g)        any passage of law or governmental order, rule, regulation or direction, or any action taken by a governmental or public authority, including imposing an embargo, export or import restriction, quota or other restriction or prohibition; or

(h)        national or regional shortage of adequate power or telecommunications or transportation facilities.

each of the foregoing, a " Force Majeure "), in each case, provided that (i) such event is outside the reasonable control of the affected party; (ii) the affected party provides prompt notice to the other party, stating the period of time the occurrence is

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expected to continue; and (iii) the affected party uses diligent efforts to end the failure or delay and minimize the effects of such Force Majeure event. A party may terminate this Agreement if a Force Majeure event affecting the other party continues substantially uninterrupted for a period of one hundred and twenty (120) Business Days or more. Unless the party terminates this Agreement pursuant to the preceding sentence, all timelines in the Joint Venture Project Plan shall automatically be extended for a period up to the duration of the Force Majeure event.

12.2    Further Assurances . Each party shall, upon reasonable request, and at the request of the other party, promptly execute such documents and perform such acts as may be necessary to give full effect to the terms of this Agreement.

12.3    Independent Contractors . The relationship between the parties is that of independent contractors. Nothing contained in this Agreement shall be construed as creating any agency, partnership, joint venture or other form of joint enterprise, employment or fiduciary relationship between the parties, and neither party shall have authority to contract for or bind the other party in any manner whatsoever.

12.4    No Public Statements or Use of Trademarks . Neither party shall issue or release any announcement, statement, press release or other publicity or marketing materials relating to this Agreement, or, unless expressly permitted under this Agreement, otherwise use the other party's trademarks, service marks, trade names, logos, domain names or other indicia of source, association or sponsorship, in each case, without the prior written consent of the other party, which shall not be unreasonably withheld or delayed.

12.5    Notices . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given in accordance with this Section:

 

 

If to MCOA

5256 South Mission Road, 703, #314, Bonsall, CA 92003

Facsimile: 888-777-4362

Email: don@donaldsteinberg.com

Attention: DONALD STEINBERG

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 If to GCR:

520 S. Grand Ave., Ste 665

Los Angeles, CA 90071

Facsimile: 626-513-8816

EMAIL: eddiema-nolos@gmail.com

Attention: Eddie Manolos

Notices sent in accordance with this Section shall be deemed effectively given: (a) when received, if delivered by hand (with written confirmation of receipt); (b) when received, if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail (in each case, with confirmation of transmission), if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the five (5) Business Day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid.

12.6    Interpretation . For purposes of this Agreement, (a) the words "include," "includes" and "including" shall be deemed to be followed by the words "without limitation"; (b) the word "or" is not exclusive; and (c) the words "herein," "hereof," "hereby," "hereto" and "hereunder" refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Sections and Schedules refer to the Sections of and Schedules attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof; and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. Any Schedules referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

12.7    Privileged Communications . It is expected that, in furtherance of this Agreement, the parties will, from time to time, disclose to one another privileged communications with counsel, including opinions, memoranda, letters and other written, electronic and verbal communications. Such disclosures are made with the understanding that they shall remain confidential and that they are made in connection with the shared community of legal interests existing between the parties, including the community of legal interests in avoiding infringement of any valid, enforceable third party patents and in obtaining patent protection for Developed Intellectual Property.

12.8    Headings . The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

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12.9    Entire Agreement . This Agreement, together with all Schedules and any other documents incorporated herein by reference, constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any conflict between the terms and provisions of this Agreement and those of any Schedule or other document, the following order of precedence shall govern: (a) first, this Agreement, excluding its Schedules; (b) second, the Schedules to this Agreement as of the Effective Date; and (c) third, any other documents incorporated herein by reference.

12.10                   Assignment . Neither party shall assign or otherwise transfer any of its rights, or delegate or otherwise transfer any of its obligations or performance, under this Agreement, in each case whether voluntarily, involuntarily, by operation of law or otherwise, without the other party's prior written consent. No delegation or other transfer will relieve the other party of any of its obligations or performance under this Agreement. Any purported assignment, delegation or transfer in violation of this Section is void. This Agreement is binding upon and inures to the benefit of the parties hereto and their respective permitted successors and assigns.

12.11                   No Third-party Beneficiaries . This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement.

12.12                   Amendment; Modification; Waiver . This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the waiving party. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

12.13                   Severability . If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to affect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

Page 22  of 23
 

12.14                   Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission (to which a PDF copy is attached) shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the Effective Date.

 

 

 

  MARIJUANA COMPANY OF AMERICA, INC.
 

 

 

By /s/ Donald Steinberg

Name: Donald Steinberg

Title: President, Chief Executive Officer

 

 

GATEC RESEARCH

 

 

By /s/ Adam Agathakis

Name: Adam Agathakis

Title: Officer/Director

   

 

 

Page 23  of 23
 

 

 

Schedules :

1 – LICENSE AND/OR permit agreement to grow marijuana in adelanto county

2 - Business Summary

3 – funding schedule

 

 

Schedule 1

LICENSE AND/ OR permit agreement to grow marijuana in adelanto county

 

 

 

  

 

Schedule 1
 

 

schedule 2

Business Summary

 

1) GCR shall retain ownership of the LICENSE AND/OR permit and shall participate in the profits of grow operation with MCOA
2) gcr will operate the day to day growing of the grow operation
3) mcoa and gcr shall both allocate best efforts to sell the product at the highest prices
4) mcoa shall be providing management services to grow operation and has agreed to receive compensation for management services in the form of a fifty percent allocation of the profits.

 

Schedule 2
 

 

 

Schedule 3

funding schedule

$50,000 – GOOD FAITH DEPOSIT – WITHIN 15 DAYS OF SIGNED AGREEMENT

$450,000 FUNDED – WITHIN 90 DAYS OF SIGNED AGREEMENT

$500,000 FUNDED WITHIN 180 DAYS OF SIGNED AGREEMENT

$500,000 FUNDED WITHIN ONE YEAR OF SIGNED AGREEMENT

TOTAL FUNDING: $1,500,000.00

 

 

Schedule 3

 

 

 

 

 

  

 

 

 

 

MarketPowerPRO License Agreement

 

 

 

 

 
 

 

 

MULTISOFT LICENSE &

APPLICATION SERVICE PROVIDER AGREEMENT (ASP)

For the MarketPowerPRO System

 

THIS AGREEMENT , by and between MultiSoft Corporation (hereinafter "MultiSoft" or "Licensor") located at 1723 SE 47 th Terrace, Cape Coral FL 33904, and: H Smart, Inc. , having a principal place of business at: 5256 S. Mission Rd. #703-314 Bonsall , California 92003 United States , hereinafter ("Licensee").

 

 

WHEREAS , Licensor is the owner of all right, title, and interest in a computer software System known as MarketPowerPRO, hereinafter ("System"); and

 

WHEREAS , Licensee is desirous of obtaining a month-to-month license to participate in MultiSoft's Application Service Provider ("ASP") program;

 

NOW, THEREFORE , in consideration of the mutual obligations assumed by Licensor and Licensee, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as follows:


DEFINITIONS

 

 

Application Service Provider (ASP) : This is a service whereby MultiSoft licenses access to hardware, software and Internet bandwidth to Licensee.

 

Licensee's Administrator, its distributors and end user customers gain month-to-month password protected access to the MultiSoft ASP System exclusively via the Internet. For the duration of this agreement MultiSoft provide all hardware, software and Internet bandwidth. In short, MultiSoft rents use of its System, hardware and bandwidth on a monthly basis to Licensee and MultiSoft is compensated as detailed in Addendum I.

 

The System shall be modified to only as detailed in Addendum II from the most current and standard version of the System.

 

Distributor(s) : Are herein defined as multi-level marketing (MLM) individuals or any other entities registered with the Licensee to sell its products and services to end users/customers.

 

Some companies allow distributors to have multiple "Income Centers" defined as multiple earning positions in the genealogy for the same individual or entity.

 
 

 

 

ASP fees are charged on a per Income Center basis, not a per distributor basis.

 

Customer(s) : Are individual(s) or entities that purchase products and/or services from Licensee and through Licensee's distributors, or direct from Licensee at retail cost. Unlike Distributors, Customers may NOT have "multiple Income Centers".


1. TERM

 

Licensor hereby grants Licensee a non-exclusive license to use the System for as long as Licensee's account remains in good standing. Licensee does not become the owner of the System, nor does Licensee acquire the right to copy or alter the software or printed materials related to the System. Licensee agrees to be legally accountable for any violation of this License Agreement by Licensee.

 

The System may not be transferred or sold by Licensee; this is a month-to-month license and Licensee may terminate this agreement at any time by providing Licensor thirty (30) days prior written notice, paying all outstanding balances owed to Licensor and by destroying or returning the System, software and all proprietary documentation and information known to be owned by MultiSoft.

 

2. FEES

 

In consideration of the grant of the license described herein, Licensee shall pay MultiSoft Fees as set forth in Addendum I. Any additional custom services will be billed at MultiSoft's standard hourly programming rate. Licensor's billing facility will automatically suspend any System that carries an outstanding balance beyond (5) calendar days.

 

Licensee acknowledges and agrees that Licensor has the right to make reasonable adjustments to its prices and fees at any time, in its sole discretion, provided Licensor provides Licensee with at least three

(3) months prior notice of such changes and provided that such changes do not increase by more than 10% in any given six month period. Any increase will be accompanied by a detailed justification of the increase.

 

3. SERVICES TO BE PROVIDED BY MULTISOFT

 

 

A. ACCESS AND USE

 

Licensor hosts the System on its provided hardware. Licensee will be granted access to use of the software via the Internet and have the ability to modify certain Licensor designated areas of Software.

 

B. BACKUP OF DATA

 

 
 

 

Licensor will backup Licensee's data on a daily basis. If requested in writing by Licensee, Licensor will prepare hard copy backups for which Licensee shall be billed US$200.00 per backup.

 

C. MODIFICATIONS TO SYSTEM

 

Licensor may modify, improve, adapt and/or replace any components of the System at any time, without additional cost to Licensee providing that, within reason, such modification, improvement, adaptation or replacement does not materially degrade the performance or functionality of the System.

 

4. DELIVERY OF SYSTEM

 

Licensor agrees to commence programming of the System upon receipt of a signed License Agreement and cleared funds.

 

5. TERMS OF SERVICE

 

By using the System provided by Licensor, Licensee agrees to these Terms of Service ("TOS") on its behalf and on behalf of Licensee's employees, agents, distributors, customers, affiliates and any other permitted third party users.

 

A.   Internet Access . In order to use the System, Licensee is required to provide its own Internet access and to be solely responsible for the cost of its own local connection(s) to the Internet.

 

B.   Domain & SSL. Provision of a domain name ( www.yourwebsite.com ) and SSL (Secure Socket Layer - Internet security protocol for securing data) are not included as part of this agreement. Cost of purchase of these items is Licensee's responsibility, although Licensor may assist with the technical aspects of the purchase on behalf of Licensee at Licensees request.

 

C.   Registration and Other Information . Licensee agrees to: (a) provide true, accurate, current and complete information that is reasonably required by Licensor to carry out the terms of this Agreement as requested by Licensor, and (b) provide additional information to Licensor as reasonably required by Licensor, to enable it to adequately provide access to the System under this Agreement.

 

D.   Access Rights . During use of the System, Licensee will have a limited, revocable, non-transferable and non-exclusive license to use the System consistent with these TOS. These access rights apply solely to Licensee, its administrators, distributors and customers. Licensor will provide Licensee a login/password to gain access to the System. Licensee shall: (a) be responsible for the security and/or use of the login/password System; (b) not disclose the login/password methods to any person or entity that is not an administrator, distributor or customer of Licensee;

 
 

 

 

(c) not permit any other person or entity to use the login/password System except as provided herein; and
(d) use the System consistent with these TOS.

  

E.   Suspension or Revocation . Subject to notifying Licensee and cure rights set forth herein, Licensor reserves the right to deny, suspend or revoke access to the System, in whole or in part, if Licensor believes, in good faith, that Licensee is in breach of, or using the System in a manner inconsistent with this license and these TOS. Subject to notifying Licensee and cure rights set forth herein, Licensor reserves the right to disable and/or remove certain Licensee's data or other materials that are, in Licensor's reasonable discretion, disruptive to the operation of the System. Subject to Licensee's notice and cure rights, in the event that an account is disabled or deleted, the disabling or deletion of the account will occur immediately and the Licensee will be notified immediately. These rights are in addition to those rights set forth under the terms of default.

 

F.   Security . Unless otherwise notified pursuant to the terms of this license, Licensee is responsible for all electronic communications, including account registration and other information of Licensee such as e-mail, files and other data ("Electronic Communications") entered through the System. Licensor will assume that all Electronic Communications it receives were authorized and sent by Licensee and where appropriate, will act in full reliance thereon. Licensee agrees to notify Licensor immediately if it becomes aware of any unauthorized use of the Systems.

 

The security of Electronic Communications shall be maintained through the use of passwords and other methods which Licensor may employ, or which Licensor may suggest or reasonably require that Licensee employ. Licensee acknowledges and agrees however, that Licensor cannot guarantee that the System and/or Electronic Communications will be protected against third party interference, interception, or other actions.

 

(i) Licensor complies with the Payment Card Industry (PCI) financial security standards. These standards are industry accepted practices for maintaining the security of credit card and ACH data within the Licensor's network. If Licensee chooses to host with Licensor a website that has been designed by the Licensee or a third party agent working on behalf of Licensee, that website must meet the PCI security standards. Websites placed for hosting with Licensor will be scanned for vulnerabilities. If vulnerabilities are discovered with the website, Licensee will have two business days to address them before the site is suspended.

 

Each website hosted with Licensor will be scanned for security vulnerabilities periodically. Vulnerabilities introduced to a site by Licensee must be remedied by

 
 

 

Licensee within two business days. Vulnerabilities not remedied will result in suspension of the site until the vulnerabilities have been eliminated by Licensee.

 

G. Electronic Communications between Licensor and Licensee

 


Licensor and Licensee may communicate in an electronic manner. Licensee acknowledges and agrees to the following with respect to use of Electronic Communications:

 

(i)   Licensor shall be entitled, but is not obligated, to review or retain Electronic Communications to confirm compliance with the License Agreement and these TOS, and to maintain the security of the System.

 

(ii)    Provided that Licensor complies with the confidentiality and disclosure provisions of this Agreement, Licensor may disclose Electronic Communications if so required by law or in the good faith belief that such disclosure is reasonably necessary to: (a) comply with legal, judicial or other governmental process; (b) enforce this Agreement and/or these TOS; (c) respond to claims that any Electronic Communication violates the rights of third parties; or (d) protect the rights, property, or personal security of Licensor, its customers, or others.

 

(iii)    Licensor shall from time to time provide notices, statements and other communications to Licensee through e-mail, posting on the Systems, or through other electronic transmissions. Licensee agrees to comply with, and be bound by, all such notices and communications upon receipt of the same, unless such notices, statements or other communications modify the terms and conditions of this Agreement and provided that such notices, statements or other communications do not materially alter Licensee's rights to use the System.

 

H. General Practices and Additional Guidelines Regarding the Use of the System

 

 

Licensee acknowledges that Licensor may establish and post general practices concerning use of the System subsequent to the signing of this Agreement. Licensee further acknowledges and agrees that Licensor has the right to change these general practices at any time, in its sole discretion, provided that such changes are reasonable and do not unreasonably alter Licensee's rights to use the System, or are required by law or court order. In addition, when using specific components of the System, Licensee agrees to comply with, and be bound by, any reasonable guidelines or reasonable rules applicable to such components of the System which Licensor may communicate to Licensee. Continued use of the

 
 

 

 

System after receipt of notice of such changes, constitutes Licensee's acceptance of said terms and conditions and to be bound thereby.

 

I.   Modifications Licensor reserves the right to reasonably modify or update these TOS upon 30 days prior written notice to Licensee in the manner provided by the terms of this License Agreement.

 

J. Prohibited Activities Neither Licensee, its agents, employees, customers, distributors, nor other authorized third party users, may engage in any of the following:

 

(i)    Upload, post, E-mail, transmit or otherwise make available any content that is unlawful, harmful, threatening, abusive, harassing, tortuous, defamatory, vulgar, obscene, libelous, invasive of another's privacy, hateful, racially or ethnically objectionable;

 

(ii)      Upload, post, E-mail, transmit or otherwise make available any content that is, or may reasonably be considered to be harmful to minors (defined as individuals under the age of eighteen (18));

 

(iii)   Impersonate any person or entity, including, but not limited to, a MultiSoft official, forum leader, guide or host, or falsely state or otherwise misrepresent Licensee's affiliation with a person or entity;

 

(iv)   Forge or falsify headers or otherwise manipulate identifiers in order to disguise the origin of any content transmitted through the System;

 

(v)   Knowingly upload, post, E-mail, transmit or otherwise make available any content that Licensee does not have a right to make available under any law or under contractual or fiduciary relationship (such as inside information, proprietary and confidential information learned or disclosed as part of employment relationships or under non-disclosure Agreements);

 

(vi)   Knowingly upload, post, E-mail, transmit or otherwise make available any content that infringes any patent, trademark, trade secret, copyright or other proprietary rights of any party whether identified in this document or otherwise;

 

(vii)   Knowingly upload, post, E-mail, transmit or otherwise make available any unsolicited or unauthorized advertising, promotional materials, junk mail, spam, chain letters, pyramid schemes, or any other form of illegal solicitation;

 
 

 

 

(viii)    Knowingly upload, post, E-mail, transmit or otherwise make available any material that contains software viruses or any other computer code, files or programs designed to interrupt, destroy or limit the functionality of any computer software or hardware or telecommunications equipment; upload, introduce or transmit in, to or through the Systems any viruses, worms, trap door, back doors, timers, clocks, counters or other limiting harmful or destructive routines, instructions, files or designs;

 

(ix)    Conduct operations in a manner that negatively affects other user's ability to engage in real time exchanges;

 

(x)    Interfere with or disrupt System, services or networks connected to the System, or disobey any requirements, procedures, policies or regulations of networks connected to the System;

 

(xi)    Violate any local, state, national or international law, including, but not limited to, regulations promulgated by the U.S. Securities and Exchange Commission, any rules of any national or other securities exchange, including, without limitation, the New York Stock Exchange, the American Stock Exchange or the NASDAQ, and any regulations having the force of law;

 

(xii) "Stalk" or otherwise harass other users;

 

 

(xiii) Use, collect or store personal data on users for negative or harmful purposes;

 

 

(xiv)   Intentionally, directly or indirectly, provide, disclose, divulge, make available to, or permit the use of the System by any person other than Licensee's administrators, customers and distributors without Licensor's prior written consent.

 

K.   Branding. Licensor reserves the right to display: "MarketPowerPRO Enterprise - Powered by MultiSoft" discreetly on pages within the software System.

 

L.   Flash and Video . Flash files created by Licensee and added to the System are to be limited to a maximum size of 2MB. The use of multiple Flash files on the same page is discouraged and will cause substantially slow page loads and overall deterioration of the System's speed.

Video and streaming audio files added to the System are to be limited to a maximum size of 2MB. It is important to understand that Licensor is not a streaming media company and as such Licensor's servers are not configured for optimal performance of streaming media. Licensor does not provide or guarantee any load time, speed or caching of streaming media files.

 
 

 

 

There are a number of companies that are outfitted to host streaming media and which you may wish to consider hosting such files with; files hosted with third party vendors can be linked into the System. Many can be located by searching for "Streaming Media Service" or "Video Hosting Services" on a search engine. Licensor endorses no such vendor but recommends that Licensee researches and selects a competent streaming media hosting vendor for its streaming media hosting needs.

 

6. WARRANTIES

 

 

A. LICENSOR'S LIMITED WARRANTIES

 

Licensor understands that from time to time programming errors, bugs, can be discovered in any commercial software package. Licensor stands behind its product and will correct any discovered bugs for the life of the license at no additional charge to the Licensee.

 

B. LICENSOR'S DISCLAIMER OF WARRANTIES

 

EXCEPT AS OTHERWISE PROVIDED HEREIN, THE SYSTEM IS PROVIDED "AS IS" WITHOUT WARRANTY OR GUARANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED. TO THE MAXIMUM EXTENT PERMITTED BY LAW. ANY AND ALL EXPRESS AND IMPLIED WARRANTIES OF ANY KIND WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, THOSE OF MERCHANTABILITY, OR THAT THE SYSTEM WILL BE FIT FOR A PARTICULAR PURPOSE. LICENSOR FURTHER DISCLAIMS ALL WARRANTIES OF NON-INFRINGEMENT AND TITLE.

 

LICENSOR DOES NOT WARRANT AND EXPRESSLY DISCLAIMS THAT (i) THE SYSTEM WILL MEET ANY REQUIREMENTS THAT ARE NOT EXPLICITLY OUTLINED IN THIS AGREEMENT OR ADDENDUMS, (ii) THE SYSTEM WILL BE UNINTERRUPTED, TIMELY, SECURE OR ERROR-FREE, (iii) THE RESULTS THAT MAY BE OBTAINED FROM THE USE OF THE SYSTEM WILL BE ACCURATE OR RELIABLE, OR (iv) ANY ERRORS IN THE SYSTEM WILL BE IMMEDIATELY CORRECTED.

 

LICENSEE ASSUMES ALL RESPONSIBILITY FOR THE SELECTION OF THE SYSTEM IN ATTEMPTING TO ACHIEVE ITS INTENDED RESULTS. EXAMPLES OF RESULTS CONTAINED WITHIN THE SYSTEM, DOCUMENTATION, AND/OR MARKETING MATERIALS, ARE SOLELY FOR THE PROMOTION OF LICENSOR'S SYSTEM. UNLESS SPECIFICALLY DETAILED IN ADDENDUM I, LICENSOR DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN THE SYSTEM WILL: a) FIT LICENSEE'S MARKETING MODEL; b) MEET LICENSEE'S EXACT REQUIREMENTS; OR c) OPERATE PROPERLY IN CONJUNCTION WITH ANY OTHER SOFTWARE OWNED, USED OR LICENSED BY LICENSEE.

 
 

 

 

THERE ARE NO OTHER WARRANTIES EXPRESS OR IMPLIED GIVEN BY LICENSOR WITH RESPECT TO THE SYSTEM OTHER THAN EXPRESSLY SET FORTH HEREIN. NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY LICENSEE FROM LICENSOR OR THROUGH THE USE OF THE SYSTEM SHALL CREATE ANY WARRANTY NOT EXPRESSLY STATED IN THIS AGREEMENT.

 

C. LICENSEE'S WARRANTIES & ACKNOWLEDGMENTS

 

Licensee warrants that it has independently determined the merchantability and fitness of the software for its particular purpose, prior to the purchase of the System from Licensor. Licensee further warrants that the specifications furnished by Licensee to Licensor for incorporation into the System are delivered free of the rightful claim of any third person or entity by way of infringement or the like, and Licensee expressly agrees to indemnify and hold harmless Licensor to the extent any such claim that arises out of Licensors compliance with the specifications.

 

Licensee acknowledges that Licensor has not advised Licensee as to the legality and/or feasibility of its business and/or marketing methods. Licensee further acknowledges that Licensor has provided no accounting, financial, legal or tax advice to Licensee relating to the software or other services to be provided by Licensor.

 

Licensee also acknowledges and agrees that any content downloaded or otherwise obtained through the use of the System is done at Licensee's own discretion and risk and that Licensee will be solely responsible for any damages to its computer System or for lost data that result from the download of such content. Licensee assumes the entire cost of all necessary servicing, repair and correction resulting there from.

 

Licensee further acknowledges and agrees that Licensee has reviewed a demonstration of the System prior to Licensee making a final purchase decision.

 

7. LIMITATIONS OF LIABILITY

 

EXCLUSION OF INCIDENTAL AND CONSEQUENTIAL DAMAGES TO THE EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, OR DAMAGES FOR LOSS OF REVENUE, PROFITS, DATA OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 
 

 

 

WITHOUT LIMITATION BY THE FOREGOING, LICENSOR SHALL NOT BE LIABLE FOR ANY LOSS RESULTING FROM A CAUSE OVER WHICH LICENSOR DOES NOT HAVE SOLE AND DIRECT CONTROL, INCLUDING, BUT NOT LIMITED TO, FAILURE OF ELECTRONIC OR MECHANICAL EQUIPMENT OR COMMUNICATION LINES; TELEPHONE OR OTHER INTERCONNECTION PROBLEMS; BUGS, ERRORS, CONFIGURATION PROBLEMS OR INCOMPATIBILITY OF COMPUTER HARDWARE OR SOFTWARE; FAILURE OR UNAVAILABILITY OF INTERNET ACCESS; PROBLEMS WITH INTERNET SERVICE PROVIDERS OR OTHER EQUIPMENT OR SERVICES RELATING TO LICENSEE'S COMPUTERS; PROBLEMS WITH INTERMEDIATE COMPUTER OR COMMUNICATIONS NETWORKS OR FACILITIES; PROBLEMS WITH DATA TRANSMISSION FACILITIES OR LICENSEE'S TELEPHONE OR TELEPHONE SERVICES; OR UNAUTHORIZED ACCESS, THEFT, OPERATOR ERRORS, SEVERE WEATHER, EARTHQUAKES, OTHER ACTS OF GOD OR LABOR DISPUTES.

 

8. ASSUMPTION OF RISK

 

EXCEPT AS OTHERWISE PROVIDED HEREIN, LICENSEE HEREBY EXPRESSLY ASSUMES THE ENTIRE RISK OF USING THE SYSTEM.

 

9. EXCLUSIVE REMEDY

 

AT THE SOLE OPTION OF LICENSOR, THE MAXIMUM LIABILITY OF THE LICENSOR WILL BE LIMITED EXCLUSIVELY TO EITHER: REPAIR, REPLACEMENT OR MODIFICATION OF THE NON- CONFORMING COMPONENTS OF THE SYSTEM, OR IF LICENSOR IS UNABLE TO REMEDY, THE REFUND OF A MAXIMUM OF THE THEN CURRENT MONTH OF FEES PAID BY LICENSOR.

 

10. INDEMNIFICATION & HOLD HARMLESS

 

Licensee agrees to indemnify and hold harmless MultiSoft (Licensor) and its subsidiaries, affiliates, officers, directors, managers, agents, co-branders, vendors, sub-contractors or other partners and employees from all and for any claim or demand, costs, losses and damages (including reasonable attorneys'fees and costs, even if incident to appellate, post-judgment or bankruptcy proceedings), arising out of, or in any way incidental to or in connection with Licensee's breach of this Agreement or Licensee's negligence, gross negligence or willful misconduct. This indemnity obligation continues in full force and effect notwithstanding the expiration or termination of this Agreement.

 

Licensor shall defend, indemnify and hold harmless Licensee from and against any and all actions, claims, costs (including without limitation, costs of investigation, litigation, and court costs), damages, demands, fines, interest, judgments, liabilities, losses, penalties, proceedings, suits (including appeal), and expenses (including, without limitation, reasonable attorney's fees) (collectively, "Claims") brought by or on behalf of any person or entity arising out of or in connection with

 
 

 

any allegation, in whole or in part, that the Licensee's use of the System infringes, misappropriates, dilutes, or violates the copyright, trade secret, trademark, trade dress, service mark, patent or any other proprietary right of any person or entity. This indemnity obligation continues in full force and effect notwithstanding the expiration or termination of this Agreement.

 

11. BASIS OF THE BARGAIN

 

Licensee acknowledges that Licensor has set its fees and entered into this License Agreement in reliance upon the limitations of liability and the disclaimers of warranties and damages set forth herein, and that such limitations are an essential basis of the bargain between the parties.

 

12. OBLIGATIONS OF LICENSEE PRIOR TO FIRST USE

 

Licensee understands that System comes equipped with Help files designed to provide instruction on System functions. Licensee also understands that two days of free training is available at the MultiSoft offices at no additional charge to Licensee; acceptance of training is optional on purchase of a MarketPowerPRO license. Should Licensee desire custom programming at any future point, Licensee acknowledges that Licensor may require Licensee to come to the MultiSoft offices for training on the use of the customizations (travel and lodging expense to be paid in full by Licensee).

 

Licensee acknowledges that even in the event that Licensor contributes feedback, assistance or direction with respect to compensation plan development, it is Licensee's responsibility to assume the final determination on the feasibility and fitness of the compensation plan. Licensor does not warrant that a compensation plan will meet the Licensee's payout goal; that is wholly the responsibility of the Licensee.

 

Licensee understands and acknowledges that due to the nature of custom programming and the very fact that the labor expended cannot be retrieved MultiSoft cannot provide refunds. Licensee acknowledges that Licensor is satisfied that MarketPowerPRO meets with Licensee's needs "As Is" prior to purchasing a license and commencing any programming of the System.

 

Licensee also acknowledges and understands that proper data processing procedure requires that any program be thoroughly tested with non-critical data before relying on it. Licensee acknowledges that he/she/it will do so and has assumed the entire risk of using the program, except as provided otherwise herein. Licensee also warrants that it has BACKED-UP all of its existing data programs on their own computer before installing or using the System.

 
 

 

13. DEFAULT

 

 

a)   Subject to the cure provisions provided below, either party may terminate this Agreement upon the other party's failure to comply with any term or condition of this Agreement with 30 days written notice.

 

b)   In the event either party is in breach of this Agreement, the non-breaching party shall provide breaching party with written notice of the act or acts of default, in the manner provided hereunder. Should the breaching party fail to cure any such default within thirty (30) days after receipt of such written notice of default, the non-breaching party may terminate this Agreement.

 

c)   Upon an act of default by Licensee, and after Licensor provides Licensee with an electronic notice via the Licensee System login screen, Licensor shall automatically restrict access to the System until all outstanding fees or charges have been paid in full, or until all other defaults have been cured as provided in this section.

 

d)   Should access to the System be restricted or terminated due to a default under this section, as a further condition to reinstate access after the cure of any such default, Licensor may require, at its sole discretion, that Licensee pay to MultiSoft a reinstatement charge in an amount equal to the last two (2) months monthly fees incurred by Licensee prior to such default.

 

e)   Should Licensee become insolvent, file for federal bankruptcy protection, or cease business operations for any reason, Licensee shall be deemed to be in default of this Agreement. Upon Licensee's default under this sub-section, Licensor may immediately restrict access to the System without notice.

 

14. TERMINATION

 

a)   For cause and subject to the cure provisions herein, either party may terminate this Agreement with thirty

(30) calendar day's written notice to the other party. In the event that Licensee terminates this Agreement, all unpaid outstanding balances as detailed in Addendum I shall become payable to Licensor.

 

b)   During the thirty (30) day calendar period pending termination, the parties shall continue to be bound by, and responsible to comply with, all of the terms and conditions of this Agreement, including the payment of all fees required pursuant to all addendums to this Agreement. Upon receipt of payment of all outstanding amounts owed to Licensor by Licensee, Licensor agrees at Licensee's written request to extract the personal information of distributors and customers from its database and transfer such data to Licensee in either TXT or CSV format.

 
 

 

 

c)   Upon termination of this Agreement: (i) all obligations and rights hereunder relating to the System shall terminate; and (ii) any and all payment obligations relating to Services provided prior to the date of termination shall immediately become due and payable by Licensee, unless Licensee terminates this Agreement pursuant to Sections 13(a) and (b) above.

 

 

d)   Licensor's billing facility will automatically suspend any System that has an open billing amount 5 days past due. In conjunction with this, Licensor may, at its sole discretion, terminate this Agreement in the event that any billing amount equals or exceeds 10 days past due.

 

15. MULTISOFT'S PROPRIETARY RIGHTS

 

The System and its software, source and object code, processes and informational content thereof, including all copyrights thereto, text and artwork is owned by, and at all times shall remain the property of MultiSoft/Licensor. This Agreement creates no ownership rights of any nature, form, or description for Licensee, its agents or employees. MultiSoft remains the sole owner of all source code, methodology, templates, design, technology, trademarks and service marks, and other intellectual property rights associated with the System and related software and products, whether or not subject to formal registered patent, copyright or other legal protection. Licensee acknowledges such ownership rights of MultiSoft and agrees that no use of the System by Licensee is permissible except under the terms of this Agreement, and only while this Agreement is in effect.

 

Licensee acknowledges and agrees that the System contains proprietary and confidential information that is protected by applicable intellectual property and other laws. Except as expressly authorized by MultiSoft, Licensee agrees not to modify, copy, rent, lease, loan, sell, distribute or create derivative works based on the System, in whole or in part. Licensee further acknowledges and agrees that the System is of a confidential nature, and therefore agrees that Licensee shall exercise due and reasonable care not to sell, grant, convey, make available, or in any other manner disclose to a third party the System licensed herein or any portion thereof. It is hereby specifically agreed that any impermissible or voluntary negligent disclosure of the System to a third party is a material breach of this license Agreement. The terms and conditions of the Mutual Confidentiality Agreement executed by the parties prior to the execution of this Agreement are incorporated herein by reference as if said terms and conditions were expressly re-stated herein.

 

Licensor grants Licensee a non-transferable and non-exclusive right and license to use the System; provided that Licensee does not copy, modify, create a derivative work, reverse engineer, reverse assemble, or otherwise attempt to discover any source code, sell, assign, sub-license, grant a security interest in or otherwise

 
 

 

 

transfer any right in the System or software related thereto. Licensee agrees not to modify the System or software related thereto in any manner or form, or to use modified versions of the System for any purpose.

 

16. THIRD PARTY VENDORS

 

Licensee acknowledges that the use by Licensee of certain third party software applications (e.g. tax tables or other applications) or other services provided as part of the System may be subject to additional terms and conditions imposed by third party vendors. Licensee agrees to abide by all such additional terms and conditions, provided Licensee is given a copy of all such additional terms and conditions prior to Licensee's use of such third party applications.

 

17. NON-SOLICITATION OF MULTISOFT EMPLOYEES

 

In further consideration for the providing of technical support by MultiSoft, Licensee agrees that except with the prior written consent of MultiSoft, during the term of this Agreement and for a period of two (2) years thereafter, Licensee will not solicit for employment with Licensee or have any discussion with any current or former employee(s) of MultiSoft concerning employment of any nature, and Licensee shall not induce or attempt to influence any employee of MultiSoft to terminate his or her employment with MultiSoft. An individual is considered to be a former employee of MultiSoft if employed by MultiSoft within the two years prior to execution or termination of this Agreement, whichever should later occur.

 

18. GOVERNING LAW

 

This Agreement shall be governed by, and interpreted under, the laws of the State of Florida, United States of America. The parties acknowledge that a substantial portion of the negotiations, performance and signing of this Agreement occurred or will occur in Lee County, Florida, and therefore, each of the parties irrevocably and unconditionally: (a) agrees that any suit, action or legal proceeding arising out of or relating to this Agreement shall be brought in the circuit or county courts of the State of Florida, which state Courts shall have exclusive subject matter and personal jurisdiction over the parties, with exclusive venue in Lee County, Florida; (b) consents to the jurisdiction of each court in any suit, action or proceeding; (c) waives any objection that it may have to personal jurisdiction or the laying of venue of any suit, action or proceeding in any of these courts; and (d) agrees that service of any court paper may be effected on that party by mail at the last known address, as provided in this Agreement, or in any other manner as may be provided under Florida law.

 

In the event of a breach or anticipatory breach of this agreement by Licensee, Licensor may apply for and receive a temporary restraining order, without prior notice or bond, restraining such breach or anticipatory breach, as a part of any

 
 

 

 

legal action against Licensee for injunctive or protective relief. This provision shall not apply to non- payment of contract amounts owed or to be paid by Licensee to Licensor under this agreement.

 

19. TAXES

 

Licensee is solely responsible for payment of his/her/its own income and all other taxes of whatever nature imposed upon Licensee, including those of its employees or agents, due and owing to any country, state, county, province, territory, municipal authority, or other duly authorized governmental body, and agrees to pay directly to the appropriate governmental agency all such taxes which accrue due to the granting, and/or arising out of the use of, this license. MultiSoft Corporation shall not be responsible for payment of any such taxes which are the responsibility of Licensee hereunder.

 

20. NOTICES

 

Routine communications and notices required under this Agreement may be given by regular mail and by e-mail. Each party shall designate an e-mail address or addresses for these communications. Sensitive or confidential notices shall be sent via certified mail to addresses and addressees designated in writing, or if no instructions are given, shall be addressed to the signer of this contract at the principal business office of the party. Certified mail notices shall be deemed given upon tender of delivery or notice of availability from the U.S. Post Office.

 

21. SEVERABILITY

 

If any provision of this Agreement or any other Agreement entered into pursuant to this Agreement is contrary to, prohibited by or deemed invalid under applicable law or regulation, that provision is inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder of this Agreement will not be invalidated thereby and will be given full force and effect so far as possible. If any provision of this Agreement may be construed in two or more ways, one of which would render the provision invalid or otherwise voidable or unenforceable and another of which would render the provision valid and enforceable, that provision has the meaning that renders it valid and enforceable.

 

22. SURVIVAL

 

All obligations of MultiSoft and Licensee that expressly or by their nature survive the expiration or termination of this Agreement will continue in full force and effect subsequent to and notwithstanding its expiration or termination and until they are satisfied or by their nature expire.

 

23. SUCCESSORS AND ASSIGNS BOUND

 

 
 

 

 

This Agreement shall be binding on Licensor and Licensee, their agents, successors and assigns. It supersedes any prior version of this Agreement executed by the parties.

 

24. WAIVER

 

The failure or delay of any party at any time to require performance by another party of any provision of this Agreement, even if known, will not affect the right of that party to require performance of that provision or to exercise any right, power or remedy under this Agreement. Any waiver by any party of any breach of any provision of this Agreement should not be construed as a waiver of any continuing or succeeding breach of that provision, a waiver of the provision itself, or a waiver of any right, power or remedy under this Agreement. No notice to or demand on any party in any case will, of itself, entitle that party to any other or further notice or demand in similar or other circumstances.

 

25. FORCE MAJEURE

 

The parties shall not be liable for failure or delay in its performance under this Agreement due to any cause beyond its reasonable control, including, but not limited to: acts of God; failure or disruptions in third party- controlled or operated communications facilities, internet service providers; and/or worms, viruses and other disabling and/or disruptive software, communications and/or files.

 

26. SECTION HEADINGS

 

The section titles are for convenience only and have no legal or contractual effect.

 

27. CONSTRUCTION

 

Whenever used in this Agreement words referring to the singular shall include the plural and vice versa, and words referring to the male gender shall include the female gender and vice versa. All references to third parties shall mean and include individuals, corporations, partnerships, joint ventures, trusts and any other form of entity or organization whether or not incorporated.

 

28. ENTIRE AGREEMENT

 

This License Agreement, its Addendums and all other written Agreements expressly referenced in, or related to this Agreement, including, but not limited to, a Mutual Confidentiality Agreement, represent the entire understanding and Agreement between the parties with respect to the subject matter of this Agreement and supersede all other negotiations, understandings and representations, if any, made by and between the parties.

 

No representations, inducements, promises or Agreements, oral or otherwise, if not embodied in this Agreement, its schedules or in other written Agreements related to

 
 

 

 

this Agreement and expressly referenced in this Agreement will be of any force or effect. The terms and conditions of this Agreement cannot be altered or varied except by a written Agreement executed by the duly authorized representatives of the parties on a date subsequent to the execution of this Agreement.

 

 

 

ACCEPTED ON THE DATES SET FORTH BELOW:

 

 

BY LICENSEE: H Smart, Inc.

 

By: /s/ Charles Larsen

Authorized officer

Date: 1/13/2017



BY LICENSOR: MultiSoft Corporation

 

By: /s/ Robert Proctor

Robert Proctor, President MultiSoft Corporation

Date: 1/13/2017

 

 

Delivery Schedule:

 

Licensor shall automatically deliver a standard online MarketPowerPRO "Replicated" distributor "Back Office" Pre-Launch System ( see replicated Pre-Launch System ) for the purpose of entering distributors and customers after receiving the first month's payment.

Optionally, and upon receipt of a Custom Programming Deposit, Licensor shall then commence any required custom programming as detailed in the mutually signed and mutually accepted "Compensation Plan - Addendum II". Delivery of the Upgrades from Addendum II shall be as detailed in "Payment Terms & Delivery Schedule".

 
 

 

 

ADDENDUM I - Monthly Fees

 

 

Monthly Fees:

 

 

 

1)   Licensee is required to pay an ongoing monthly US$499 Base Fee to use of the System.Paying "this month's" fee entitles licensee to use the System "next month".Licensee's month is according to its activation date.For instance, a licensee activated on the 14 th would have each of its billing periods run from the 14 th of "this month" to the 13 th of "next month".

 

2)   Monthly ASP Fees begin 30 days from receipt of 1 st payment.Additionally, monthly ASP Fees are charged according to the number of non-deleted *Income Centers present at the end of a billing period.

 

US$1.75 per month, per non-deleted Income Center.
Plus US$0.10 per month, per customer with a non-deleted invoice.

 

* = there is a distinction between distributors and Income Centers. A distributor is a person, e.g. Mary. An Income Center is a position within the genealogy. E.g. if Mary held a tri-pack, she would have three Income Centers.

 

Note: When Licensee's total monthly fees reach US$5,000, Licensee may select one of the following two options:

 

1.   At US$5,000, the full MarketPowerPRO System, Run-Time Code (see below) may be transferred to Licensee's own supplied hardware and bandwidth. An ongoing license and support fee of US$5,000 flat rate per month will be paid to Licensor. Monthly ASP fees are then 100% waived .

 

(or)

 

 

2.   Licensee may continue to be hosted on Licensor's hardware, and the per Income Center ASP fee will automatically drop from US$1.75 down to US$0.75 per Income Center on the 2,858 th non-deleted Income Center.E.g. Licensee has 3,120 non-deleted Income Centers for the billing period.The Licensee would be billed US$1.75 for the 1 st through 2,857 th non-deleted Income Centers and US$0.75 for the 2,858 th through 3,120 th non-deleted Income Centers.

 

Note: purchase of the Native Source Code can also be exercised at any time according to the terms of this agreement.

 
 

 

 

Important: If Licensee chooses to offer "free enrollment" options to distributors or Income Centers, regardless of whether Licensee chooses to allow free enrollments or not, the monthly ASP fee will apply to all non-deleted Income Centers present in the database.

 

Run-Time Code:

After reaching a minimum of $5,000 in monthly ASP fees, Licensee may exercise the option to stop paying Licensor's ASP fees and instead install the full Run-Time Code on Licensee's supplied hardware. When exercising this option Licensee agrees to pay Licensor US$5,000 per month, due on Licensee's normal end of billing period date; Licensee understands and accepts that this is a non-negotiable, mandatory fee. The Run-Time Code is offered for Licensee's internal use only (not for resale or distribution in any fashion; useable exclusively by Licensee) . The responsibility and cost to license all 3 rd Party applications used by MarketPowerPRO (for example Microsoft SQL) will be Licensee's alone. Upon installation of the run-time code on Licensee's hardware, Licensee shall pay Licensor US$5,000 per month. This fee is for support and continued licensing.

 

Native Source Code:

 

At any time after delivery of the System, Licensee may exercise the option to purchase the full Native Source Code at a pre-agreed price of US$500,000. The Native Source Code is for Licensee's internal use only (not for resale or distribution in any fashion; useable exclusively by Licensee) . Licensee may use the Native Source Code to modify the System as desired. Modification to the System by Licensee does not make it a "new System" - i.e. regardless of the modifications made, the source code cannot be resold or distributed in any fashion.

 

Payments made by Licensee during the term of the license shall not apply towards purchase of the Native Source Code. The responsibility and cost to license all 3 rd Party programs used by MarketPowerPRO (for example Microsoft SQL) will be Licensee's alone. Upon installation of the Native Source Code on Licensee's hardware, Licensee shall pay Licensor US$5,000 per month for a minimum of three months for mandatory technical support. Thereafter Licensee may optionally discontinue technical support or opt to pay Licensor's then hourly rate if further support is desired.

 

Optional:

 

If additional training is required in Florida USA or Manila Philippines, the fee is $1,000 per day held at a MultiSoft office (max 3 people); or if training is held at

 
 

 

 

Licensee's location (unlimited attendees) $2,000 per day, Licensee prepays travel and hotel expenses.

 

Ongoing Development:

 

Ongoing development, modifications and customizations to the System are billed at Licensor's then current hourly development rate.

 

Website:

 

Licensee has the option to host their static corporate website at Licensor's facility. Licensee will have full access to update and modify the corporate website hosted at Licensor's facility. If, on Licensee's behalf, Licensor performs modifications to the website, Licensee must take care not to damage or overwrite the work performed by the Licensor. In the event that Licensor's work is damaged or overwritten by the Licensee, Licensor reserves the right to bill for restoration of the damaged or overwritten portions.

 

Additional Approved Expenses:

 

All Licensee requested expenses incurred during development, such as: travel, food, accommodation, transfers and any other additional Licensee approved expenses will be pre-approved, pre-booked and pre- paid by Licensee. All other expenses incurred during development of the documentation, such as: travel, food, accommodation, transfers and any other additional Licensee approved expenses will be pre-booked or pre-paid by Licensee.

 
 

 

 

Addendum II - Upgrades

 

 

 

Licensee may use the Pre-Launch System "As-Is" for an unlimited period of time in order for Licensee to calculate and pay commissions Licensee is required to upgrade to one of the following optional packages:

 

* Upgrade to MarketPowerPRO Starter .................................... US$5,600

* Upgrade to MarketPowerPRO Professional ............................ US$9,600

* Upgrade to MarketPowerPRO Enterprise ............................... US$19,600

* Upgrade to MarketPowerPRO International Professional ...... US$50,000
* Upgrade to MarketPowerPRO International Enterprise ......... US$150,000

* Contact a MultiSoft representative for appropriate pricing matrix.

Additional custom programming ........................... US$ - per quote -

 

 

 

 

 

Exhibit 21

List of Subsidiaries

 

 

Pursuant to Item 601(b)(21) of Regulation SK The following is a list of the Subsidiaries of the registrant, the state or other jurisdiction of incorporation or organization of each, and the names under which such subsidiaries do business:

 

Exhibit 21

List of Subsidiaries

 

 

Pursuant to Item 601(b)(21) of Regulation SK The following is a list of the Subsidiaries of the registrant, the state or other jurisdiction of incorporation or organization of each, and the names under which such subsidiaries do business:

 

 

MCOA CA Inc., a California corporation
H Smart, Inc., a Delaware corporation

 

 

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