|6 Months Ended|
Jun. 30, 2017
|Subsequent Events [Abstract]|
NOTE 13 – SUBSEQUENT EVENTS
St. George Investments LLC.
Effective July 3, 2017, the Company issued a secured convertible promissory note in aggregate of $752,500 to St George Investments LLC (“St George”). The promissory note is bears interest at 10% per annum, is due upon maturity sixteen months after purchase price date and includes an original issue discount (“OID”) of $67,500. In addition, the Company agreed to pay $10,000 for legal, accounting and other transaction costs of the lender. The promissory note will be funded in four tranches of $422,500, $27,500, $27,500 and $275,000; net of OID and transaction costs.
The promissory note is convertible, at any time at the lender’s option, at $0.04. However, in the event the Company’s market capitalization (as defined) falls below $35,000,000, the conversion rate is 60% of the 3 lowest closing trade prices due the 20 trading days immediately preceding date of conversion, subject to additional adjustments, as defined. In addition, the promissory note includes certain anti-dilution provisions should the Company subsequently issue any common stock or equivalents at an effective price less than the lender conversion price.
The Company has a right to prepayment of the note, subject to a 20% prepayment premium and is secured by a trust deed of certain assets of the Company.
GateC Joint Venture Termination
On March 19, 2018, the Company and GateC entered into a Recession and Mutual Release Agreement. GateC and the Company rescinded the joint venture agreement and concurrently released each other from any all any and all losses, claims, debts, liabilities, demands, obligations, promises, acts, omissions, agreements, costs and expenses, damages, injuries, suits, actions and causes of action, of whatever kind or nature, whether known or unknown, suspected or unsuspected, contingent or fixed, that they may have against each other and their Affiliates, arising out of the joint venture agreement.
Tangiers Global LLC
The Company entered into a Investment Agreement on July 25, 2017 with Tangiers Global, LLC, (“Tangiers”). Pursuant to an Investment Agreement between the Company and Tangiers, Tangiers agreed to invest up to five million dollars ($5,000,000) to purchase the Company’s common stock. Coincidentally, the Company and Tangiers entered into a Registration Rights Agreement, as an inducement to Tangiers to execute and deliver the Investment Agreement, whereby the Company agreed to provide certain registration rights with respect to the shares of common stock issuable for Tangiers’s investment pursuant to the Investment Agreement. The Investment Agreement terminates thirty-six (36) months after the effective date, or when Tangiers has purchased an aggregate of Five Million Dollars ($5,000,000) in the Company’s common stock, or at such time that the registration statement agreed to in the Registration Rights Agreement is no longer in effect, or upon the election of the Company, providing 15 days written notice to Tangiers.
The Company and Tangiers also executed two fixed convertible promissory notes: one in the amount of two hundred and fifty thousand dollars ($250,000) and one in the amount of fifty thousand dollars ($50,000), each bearing interest at the rate of ten percent (10%). The $250,000 Note is due and payable within seven months of the effective date of each payment, and is convertible at a price equal to $0.0125. The $50,000 Note is due and payable on February 25, 2018, and is convertible at a price equal to $0.0175. Tangiers may convert any amount of principal or interest due into the Company’s common stock.
On August 4, 2017, the Company entered into a forbearance agreement with St George Investments LLC, due to the Company’s breached of certain default provisions of the secured promissory note entered into with St George on July 3, 2017. The breach occurred due to the Company entering into an investment agreement with Tangiers on July 15, 2017 and issued a fixed convertible promissory note to Tangiers. Due to the breach, St George has the right, among other things, to accelerate the maturity date of the note, increase interest from 10% to 22% and cause the balance of the outstanding promissory note to increase due to the application of the default provisions.
St George has agreed to refrain and forbear from bringing any action to collect under the promissory note, including the interest rate increase and balance increase, with respect to the default. As consideration of the forbearance, the Company agreed to accelerate the installment conversions from 1 year to 6 months and to add an additional OID of $112,875, which will be considered fully earned as of August 4, 2017, nonrefundable and to be included in the first tranche. The Company and St George ratified the outstanding balance, after the added OID and accrued interest, of $868,936 as of August 4, 2017.
Default on Bougainville Ventures, Inc. Joint Venture Agreement Payment Schedule.
On March 16, 2017, the Company entered into a Joint Venture Agreement (“Agreement”) with Bougainville Ventures, Inc., a corporation organized under the laws of Canada to engage in the development and promotion of products in the legalized marijuana industry in the state of Washington under the name of BV-MCOA Management LLC.
Pursuant to the Agreement, the Company is committed to raising one million dollars for the joint venture based on the following schedule:
As of June 30, 2017, the Company made payment of $75,000 on April 4, and a $300,000 payment on July 17, 2017, but otherwise failed to comply with the funding schedule set forth in the Agreement. As a result, the Company is in default of the Agreement as of June 30, 2017.
On November 6, 2017, pursuant to Section 12.9 of the Agreement, the Registrant and Bougainville entered into a written amendment which reduced the Registrant’s funding obligation and liability from one million dollars ($1,000,000) to eight hundred thousand dollars ($800,000), and separately required the Registrant to issue to Bougainville fifteen million (15,000,000) shares of its restricted common stock pursuant to the Reg. D exemption from registration pursuant to the 1933 Securities and Exchange Act.
On November 7, 2017, the Registrant paid Bougainville $425,000, equaling total payments to Bougainville of $800,000 consistent with the amended Agreement. On November 9, 2017, the Registrant issued 15 million shares of common stock to Bougainville.
Status Update on Bougainville Operations
Thereafter, the Company determined that Bougainville was not a lessee to property in Washington State as represented in the joint venture agreement, but rather was a party to a purchase agreement for real property that included Green Ventures Capital Corp., a Canadian corporation. The real property purchase agreement was in breach due to non-payment by Bougainville and Green Ventures. Bougainville also did not possess an agreement with an I503 license holder to grow Marijuana on the property. Nonetheless, as a result of funding arranged for by the Company, Bougainville and Green Ventures purchased the land.
Thereafter, Bougainville, the Company and Green Ventures entered into good faith negotiations to revise and restate the joint venture agreement to clarify the respective contributions and roles of the parties going forward. Once the revised and restated joint venture agreement is finalized, and the land is subdivided by the Okanogan County Assessor, Green Ventures and Bougainville will deed the land to the joint venture. Thereafter, the joint venture will lease the property to a licensed third party who will operate and curate the land for the growth, cultivation harvest and sale of agricultural products determined by the lessee of the land in its discretion. The Company will also provide financial consulting services to the joint venture. The following documents, once completed and executed, will be filed on Form 8-K:
▪ The revised and restated joint venture agreement between the Company and Bougainville;
▪ A copy of the deed transferring the land to BV-MCOA Management, LLC;
▪ The lease agreement between BV-MCOA Management, LLC and a licensed third party; and,
▪ The agreement between BV-MCOA Management, LLC and the Company for consulting services.
January 4, 2018 U.S. Department of Justice Prosecutorial Guidance
The federal government recently issued guidance to federal prosecutors concerning marijuana enforcement under the Controlled Substances Act (CSA). On January 4, 2018, Attorney General Jeff Sessions issued a memorandum for all United States Attorneys concerning marijuana enforcement. Mr. Sessions rescinded all previous prosecutorial guidance issued by the Department of Justice regarding marijuana, including the August 29, 2013 memorandum by James Cole, Deputy Attorney General (the “Cole Memorandum”).
The Cole Memorandum previously set out the Department of Justice’s prosecutorial priorities in light of various states legalizing marijuana for medicinal and/or recreational use. The Cole Memorandum provided that when states have implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale, and possession of marijuana, conduct in compliance with those laws and regulations is less likely to threaten the federal priorities. Indeed, a robust system may affirmatively address those priorities by, for example, implementing effective measures to prevent diversion of marijuana outside of the regulated system and to other states, prohibiting access to marijuana by minors, and replacing an illicit marijuana trade that funds criminal enterprises with a tightly regulated market in which revenues are tracked and accounted for. In those circumstances, consistent with the traditional allocation of federal-state efforts in this area, the Cole Memorandum provided that enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing marijuana-related activity. If state enforcement efforts are not sufficiently robust to protect against the harms set forth above, the federal government may seek to challenge the regulatory structure itself in addition to continuing to bring individual enforcement actions, including criminal prosecutions, focused on those harms.
By rescinding the Cole Memorandum, Mr. Sessions injected material uncertainty as it relates to how the Department of Justice will evaluate marijuana cases for prosecution, and risk into the Company’s business as it relates to the research, development, marketing and sale of its products containing CBD.
Mr. Sessions stated that U.S. Attorneys must decide whether or not to pursue prosecution of marijuana activity based upon factors including: the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community. Mr. Sessions reiterated that the cultivation, distribution and possession of marijuana continues to be a crime under the U.S. Controlled Substances Act.
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
Reference 1: http://www.xbrl.org/2003/role/presentationRef