| Title of Each Class of Securities to be Registered | Amount to be Registered (2) | Proposed Maximum Offering Price per Security (1) ($) | Proposed Maximum Aggregate Offering Price (1) ($) | Amount of Registration Fee ($) |
| Shares of Common Stock, par value $0.001 | 7,500,000 | 0.02 | 150,000 | 15.11 |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with sectionSection 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said sectionSection 8(a), may determine.
The information in this preliminary prospectus is not complete and may be amended. The Registrantchanged. We may not sell these securities nor may offers to buy these securities be accepted until the Registration Statementregistration statement filed with the Securities and Exchange Commission isbecomes effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 21, 2018
PROSPECTUS
SANSAL WELLNESS HOLDINGS, INC.
62,875,000 Shares of Common Stock
The selling shareholders named in this prospectus are offering up to 62,875,000 shares of common stock through this prospectus consisting of (a) 31,437,500 shares held by the selling shareholders named in this prospectus purchased as part of a private offering of units (“Units”) completed in July 2018, each Unit consisting of one share of common stock and one common stock purchase warrant (“Warrants”), as described in “Prospectus Summary-Selling Shareholders;” (b) 18,308,333 shares held by the selling shareholders named in this prospectus, which have subsequently been issued upon exercise of Warrants; and (b) 13,129,167 shares issuable upon exercise of the remaining outstanding Warrants.
The selling shareholders named in this prospectus, and any of their pledgees, donees, transferees or other successors-in-interest, may offer and sell the shares from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the sale of the shares of common stock. However, we may receive proceeds in connection with the exercise of the Warrants, if they are exercised for cash. The selling shareholders will sell the shares of common stock in accordance with the “Plan of Distribution” set forth in this prospectus.
The selling shareholders will bear all commissions and discounts, if any, attributable to the sales of shares of common stock. We will bear all costs, expenses and fees in connection with the registration of the shares of common stock.
Our common stock is currently quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. under the symbol “SSWH.” On December 10, 2018 the closing price for our common stock was $0.40.
The Company is an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “Jobs Act”) and as such, may elect to comply with certain reduced public company reporting requirements for future filings.
The purchase of the shares of common stock offered through this prospectus involves a high degree of risk. See the section of this prospectus entitled “Risk Factors” beginning at page 10.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
The date of a maximum of 7,500,000 shares (the “Offering”) of our common stock at an offering price of $0.02 per share. There is no minimum for this Offering and we will retain the proceeds from the sale of any of the offered shares that are sold. The Offering will commence promptly on the date upon which this prospectus is declared effective________ __, 2018
TABLE OF CONTENTS
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This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission (the “SEC”) using the SEC’s registration rules for a delayed or continuous offering and sale of securities. Under the registration rules, using this prospectus and, if required, one or more prospectus supplements, the selling shareholders named herein may distribute the shares of common stock covered by the SEC and will continue for 180 days. At the discretionthis prospectus. This prospectus also covers any shares of our management, wecommon stock that may discontinue the Offering before expirationbecome issuable as a result of the 180 day periodstock splits, stock dividends or extend the Offering for up to 90 days following the expiration of the 180-day Offering period. We will pay all expenses incurredsimilar transactions. A prospectus supplement may add, update or change information contained in this Offering. If all of the shares offered by us are purchased, the gross proceeds to us will be $150,000.
You should rely only on the information contained in this prospectus. We have not authorized anyoneany dealer, salesperson or other person to provide you with information different from thatconcerning us, except for the information contained in this Prospectus.prospectus. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless ofwhen the time of delivery of this prospectus or the sale of any sale of our common shares.
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This summary provides an overview of all material information contained in this prospectus. It does not contain all the information you should consider before making a decision to purchase the shares our selling shareholders are offering. You should very carefully and thoroughly read the more detailed information in this prospectus and review our financial statements and all other information that is completeincorporated by reference in this prospectus.
Unless the context otherwise requires, references in this prospectus to “SanSal Wellness,” “the Company,” “we,” “our” and accurate as“us” refer to SanSal Wellness Holdings, Inc. and its subsidiary. All share and per share information in this report gives pro forma effect to the implementation of a six for one forward stock split effective November 9, 2017.
Business Overview
SanSal Wellness is an entirely vertically-integrated agribusiness focused on producing, marketing, and distributing highest purity full spectrum natural phytocannabinoid-rich industrial hemp products. SanSal Wellness owns and operates a 140-acre farm in Pueblo, Colorado, capable of producing over 200,000 proprietary full spectrum phytocannabinoid-rich hemp plants yielding a potential minimum annual harvest of over 200,000 pounds of outdoor-grown industrial hemp. While part of the date oncannabis family, industrial hemp, which contains less than 0.3% tetrahydrocannabinol (“THC”), the front cover, butpsychoactive compound that produces the information may have changed since“high” in marijuana, is distinguished from marijuana by its use, physical appearance and lower THC concentration (marijuana generally has a THC level of 10% or more). The Company also operates approximately 15,000 sq. ft. of climate-controlled greenhouses to produce a consistent supply of year-round indoor-cultivated hemp. In addition, there is a 10,000-sq. ft. onsite facility used for processing raw industrial hemp, oil extraction, formulation laboratories, and quality/purity testing. SanSal Wellness is registered with the Colorado Department of Agriculture to grow industrial hemp pursuant to federal law.
SanSal Wellness meticulously processes its hemp crop to produce superior quality whole-plant hemp oil, extracts and derivatives which contain the entire broad spectrum of cannabinoids extracted from the flowers and leaves of hemp plants. Whole-plant hemp oil is known to provide the essential phytocannabinoid “entourage effect” resulting from the synergistic absorption of the entire broad spectrum of unique hemp cannabinoids by the receptors of the human endocannabinoid system. Most commercially available hemp oil and extracts are not derived from the entire plant and are usually from less desired hemp seed which contain fewer cannabinoids. As a result, SanSal Wellness believes that date.
SanSal Wellness has developed a wide variety of formulated phytocannabinoid-rich hemp products which are marketed and distributed by the effective dateCompany under its Veritas Farms™ and SanSal Wellness brand names. Our products are also available in bulk, white label and private label custom formulations for distributors and retailers. These types of this prospectus) all dealers that effect transactionsproducts are in these securities, whether or not participatinghigh demand by health food markets, wellness centers, physicians and other healthcare practitioners.
SanSal Wellness and Veritas Farms™ products (20+ SKUs) include vegan capsules, gummies, tinctures, lotions, salves, vape oils and oral syringes. All product applications come in this offering, may be required to deliver a prospectus. This isvarious flavors and strength formulations, in addition to bulk. Many of the dealers’ obligation to deliver a prospectus when actingCompany’s whole-plant hemp oil products and formulations are available for purchase online directly from the Company through its Veritas Farms™ website, as underwriterswell as through numerous other online retailers and with respect to their unsold allotments or subscriptions.
Corporate Information
The Company was incorporated in this Prospectus discusses financial projections, information or expectations about our business plans, results of operations, products or markets, or otherwise makes statements about future events, such statements are forward-looking. Such forward-looking statements can be identified by the use of words such as “intends”, “anticipates”, “believes”, “estimates”, “projects”, “forecasts”, “expects”, “plans” and “proposes”. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These include, among others, the cautionary statements in the “Risk Factors” section beginning on page 9 of this Prospectus and the “Management’s Discussion and Analysis of Financial Position and Results of Operations” section elsewhere in this Prospectus.
Our fiscal year end is January 31. Our businessexecutive offices are currently located at 1805-141 Lyon Court, Toronto, Ontario, Canada, M6B 3H2. The address of agent for service in Nevada1512 E. Broward Boulevard, Suite 300, Fort Lauderdale, FL 33301 and registered corporate office is c/o National Registered Agents, Inc. of Nevada, 100 East William Street, Suite 204, Carson City, NV, 89701. Ourour telephone number is (647) 640-3625.(954) 722-1300. Our corporate website iswww.sansalwellness.com and our Veritas Farms™ website iswww.theveritasfarms.com. Information appearing on our websites is not part of this prospectus.
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Corporate History
The Company’s original business objective following its incorporation, was to produce and market its own brand of ice wine made from grapes harvested in Armenia. While the Company took numerous steps with respect to implementation of its business plan, including securing sources of production and did, in fact produce 4,500 bottles of ice wine for product sampling and customer marketing purposes, the Company was unable to raise sufficient capital to fully implement its business plan and generate revenues.
On June 5, 2017, Jaitegh Singh purchased a total of 45,000,000 “restricted” shares of our Company’s common stock from our then sole officer and director, Cassandra Tavukciyan, for aggregate consideration of $345,000. The share purchase was consummated in a private transaction pursuant to a common stock purchase agreement entered into between Mr. Singh and Ms. Tavukciyan.
Concurrent with the share purchase transaction, Cassandra Tavukciyan resigned as our Chief Executive Officer, Chief Financial Officer and sole director, and was succeeded in those capacities by Jaitegh Singh. Mr. Singh relocated the Company’s principal offices to Fort Lauderdale, Florida.
On September 27, 2017 (“Closing”), the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with all the members (the “Members”) of 271 Lake Davis Holdings, LLC d/b/a SanSal Wellness (“271”), pursuant to which it became a wholly-owned subsidiary of the Company (the “SanSal Acquisition”). 271, founded in 2015, is a rarevertically-integrated agribusiness focused on producing full spectrum natural phytocannabinoid-rich industrial hemp extracts.
Pursuant to the Exchange Agreement, we acquired all the outstanding limited liability company interests of 271 in exchange for the issuance to the Members,pro rata, of 46,800,000 “restricted” shares of our common stock, whereupon Jaitegh Singh, the holder of the Company’s currently outstanding 45,000,000 “restricted” shares of common stock contributed those shares to the capital of the Company for cancellation.
At Closing, Alexander M. Salgado and expensive typeErduis Sanabria, the members of dessert wine produced271’s management team, were appointed to the Company’s board of directors and as the Company’s Chief Executive Officer and Executive Vice President, respectively. Jaitegh Singh, who was then the Company’s President and sole director, then stepped down from grapes thatsuch position, but assumed the position of the Company’s Vice President and Secretary. At this time, the Company has no independent directors, no audit committee, no compensation committee, and no corporate governance committee.
In addition, at Closing, Members, holding an aggregate of 26,674,500 shares of our common stock, including Messrs. Salgado and Sanabria, entered into a five-year voting agreement, pursuant to which Messrs. Salgado and Erduis have been frozen while stillthe right to direct the voting of their shares on all matters presented to shareholders for a vote.
Following completion of the SanSal Acquisition, the Company determined to focus its business on the vine. There are onlybusiness of 271. Accordingly, we applied to FINRA to (a) change our corporate name from “Armeau Brands Inc.” to “SanSal Wellness Holdings, Inc.” (with a few countriescomparable change in our trading symbol from ARUU to SSWH); (b) authorize a class of “blank check” preferred stock; and (c) implement a six-for-one forward stock split. The name, trading symbol and authorized capitalization changes became effective as of November 7, 2017 and the world with the right climatic conditions that can produce icewine. Currently, Canada is the industry leader. Icewine requiresstock split was implemented on November 9, 2017.
As a grape growing region with a continental climate: very hot in summer, to allow the proper ripeningresult of the grapes, and very cold in winter to achieve the optimum freezing temperature of -8°C (18°F). Armenia is one such country.
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Selling Shareholders
On July 31, 2018, the Company completed a private offering (the “Private Offering”) of 29,250,000 Units at a price of $0.10 per Unit for total cash proceeds of $2,925,000. Each Unit consisted of (a) one share of the Company’s common stock; and (b) one five-year common stock purchase warrant (“Warrants”) In addition, a $175,000 ninety (90) day convertible bridge promissory note issued by the Company in May 2018 to a single accredited investor in a private transaction, converted in accordance with its terms into 2,187,500 Units at the first closing of the Private Offering.
The Warrants entitle the holder thereof to purchase one share at an exercise price of $0.15 during the five (5) year period from the date of issuance. The exercise price and number of shares issuable upon exercise of the Warrants will be subject to anti-dilution adjustment in the event of stock splits, stock dividends and similar recapitalization events. The registration statement of which this initial sample production, we intendprospectus forms a part, covers the resale by the selling shareholders of the Shares included in the Units and issuable upon exercise of the Warrants. The Warrants will provide for a “cashless” exercise in the event that the Company does not have this registration statement declared effective by the SEC on or before January 31, 2019.
WestPark Capital, Inc., a member of the Financial Industry Regulatory Authority, acted as the Company’s exclusive placement agent (the “Placement Agent” or “WestPark”) for the Private Offering. The Placement Agent was paid (a) a commission equal to grow our business10% of the aggregate offering price of Units sold in the Private Offering; and (b) a non-accountable expense allowance equal to 3% of the aggregate offering price of Units sold in the Private Offering. In addition, the Placement Agent received a seven-year warrant to purchase a number of Units equal to 10% of the total Units sold in the Private Offering, with an exercise price of $0.10 per Unit. The Company has also paid the Placement Agent (a) a $15,0000 non-refundable retainer for agreeing to act as placement agent for the Private Offering; and (b) $10,000 for the Placement Agent’s legal fees.
The Units offered and sold in the Private Offering were offered and sold pursuant to the exemption from registration afforded by significantly increasing our production inSection 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506(b) of Regulation D thereunder.
In order to supplyprovide additional funding for our continued growth, in September 2018, the two largest potential markets: China and Russia.
The Offering
This prospectus relates to the resale from time to time by the selling shareholders named in this prospectus of 62,875,000 shares of our common stock, par value $0.001 per share. No shares are being offered for sale by the Company.
| Common stock offered by selling shareholders: | 62,875,000 shares, of which 31,437,500 are shares included in the | |
| Common stock outstanding as of the date of | 110,129,841 shares of common |
| (1) |
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| Terms of the Offering: | The selling shareholders will determine when and how they will sell the shares of common stock offered in this prospectus. |
| Use of Proceeds: | We | |
| Risk | The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the |
SUMMARY FINANCIAL INFORMATION
The following table sets forth selectedsummary financial information, whichdata should be read in conjunction with the information set forth in the “Management’s“Management’s Discussion and Analysis of Financial PositionCondition and Results of Operations” sectionOperations,” and the accompanying financial statementsConsolidated Financial Statements and related notesNotes thereto, included elsewhere in this Prospectus.
The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial Statements and Notes thereto, included elsewhere in this prospectus.
| For the Nine Months Ended | For the Years Ended | |||||||||||||||
| September 30, | December 31, | |||||||||||||||
| Statement of Operations | 2018 | 2017 | 2017 | 2016 | ||||||||||||
| (Unaudited) | ||||||||||||||||
| Revenues | $ | 1,277,914 | $ | 755,749 | $ | 1,114,674 | $ | 76,232 | ||||||||
| Cost of Sales | 887,840 | 570,248 | 923,260 | 521,500 | ||||||||||||
| Selling, General and | ||||||||||||||||
| Administrative Expenses | 2,041,773 | 867,717 | 1,524,308 | 984,140 | ||||||||||||
| Other Expense (Income) | 26,012 | 291,503 | 1,121,114 | 28,717 | ||||||||||||
| Income Tax Benefit/Provision | 0 | 0 | 0 | 0 | ||||||||||||
| Net Income (Loss) | $ | (1,677,711 | ) | $ | (973,719 | ) | $ | (2,454,008 | ) | $ | (1,458,125 | ) | ||||
| As of September 30, | As of December 31, | |||||||||||
| Balance Sheet Data | 2018 | 2017 | 2016 | |||||||||
| (Unaudited) | ||||||||||||
| Cash | $ | 546,897 | $ | 27,803 | $ | 95,591 | ||||||
| Total Assets | $ | 6,368,125 | $ | 5,210,740 | $ | 4,924,643 | ||||||
| Total Liabilities | $ | 1,860,484 | $ | 2,102,453 | $ | 772,414 | ||||||
| Total Shareholders’ Equity | $ | 4,507,641 | $ | 3,108,287 | $ | 4,152,229 | ||||||
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Year Ended January 31, 2016 ($) | Year Ended January 31, 2015 ($) | |
| Revenues | Nil | Nil |
| Expenses | 6,464 | 553 |
| Net Loss | (6,464) | (553) |
| Net loss per share | (0.03) | (5.53) |
January 31, 2016 ($) | January 31, 2015 ($) | |
| Working Capital (Deficiency) | (62,681) | (56,217) |
| Total Assets | 15 | 109 |
| Total Liabilities | 62,696 | 56,326 |
The shares of our common stock asbeing offered for resale by the sole source of funds for our future operations.
We are an early stage company with a limited operating history.
The Company is an early stage company, which commenced operations in 2016 and began generating commercial revenues in 2017. The Company incurred a net loss of $2,454,008 for the year ended December 31, 2017 and net losses of $1,677,711 and $973,719 and the nine months ended September 30, 2018 and 2017, respectively. We are subject to all the problems, expenses, difficulties, complications and delays encountered in establishing a new business. The Company does not know if it will become commercially viable and ever generate significant revenues or operate at a profit.
The Company’s ultimate success will be dependent in part on our ability to successfully develop, produce and market a portfolio of natural phytocannabinoid-rich industrial hemp products and market acceptance of our planned products.
Our Business
In addition, we do not carry any products liability insurance. Thus, we may not be able to cover all or any part of any claims that may be asserted against us. A successful products liability claim brought against us that is in excess of our available capital could have a formal long-term agreementmaterial adverse effect on our business and results of operations.
A significant product defect or product recall could materially and adversely affect our brand image, causing a decline in our sales and profitability, and could reduce or deplete our financial resources.
A significant product defect could materially harm our brand image and could force us to conduct a product recall. This could damage our relationships with our customers and reduce end-user loyalty.A product recall would be particularly harmful to us because we have limited financial and administrative resources to effectively manage a winemakerproduct recall and it would detract management’s attention from implementing our core business strategies. As a result, a significant product defect or product recall could cause a decline in Armenia but itour sales and profitability and could reduce or deplete our financial resources.
We need to undertake significant marketing efforts and we have only limited marketing experience.
Our marketing efforts to date have been limited in large part to sales in the business-to-business channel. In order to achieve profitability, we need to undertake significant marketing efforts for our existing and planned products in the business-to-consumer and medical channels, including building awareness of our Veritas Farms™ and SanSal Wellness brands and promoting both online and “brick and mortar” sales. Current management has only limited marketing experience and we will need to build an in-house sales force and/or establish a network of independent sales representatives to market and sell our products. Accordingly, there is no assurance that any marketing strategy we develop can be terminated onsuccessfully implemented or if implemented, that it will result in significant sales of our existing and planned products.
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Our current revenues are generated from sales of our products to a 90-day notice
To date, substantially all of our revenues have been generated from sales of our products to a formal agreementlimited number of distributors in the business-to-business channel. For the year ended December 31, 2017, one customer accounted for 72% of sales and for the nine months ended September 30, 2017, that same customer accounted for 74% of sales. For the nine months ended September 30, 2018, two customers accounted for 41% and 12% of sales, respectively. If any of these customers fails to timely pay us amounts owed, we could suffer a significant decline in cash flow and liquidity. Accordingly, until we expand our sales channels and customer base, the loss or failure to pay amounts owed when due of any of such customers could materially harm our business, results of operations and financial condition, up to and including putting us out of business, in which case you would lose your entire investment.
Our agreements with a winemaker in Armeniacustomers do not require them to produce icewine. Ifpurchase any specified amounts of our products or dollar amounts of sales or to make any purchases whatsoever. Therefore, we cannot continueassure you that, in any future period, our sales generated from these customers, individually or in the aggregate, will equal or exceed historical levels. We also cannot assure you that, if sales to secure an agreement, our current businessany of these customers cease or decline, we will be severely impaired.able to replace these sales with sales to either existing or new customers in a timely manner, or at all. A cessation or reduction of sales, or a decrease in the prices of products sold to one or more of these customers could cause a significant decline in our net sales and profitability.
The Company may require additional financing to become profitable.
To date, the Company has funded its development activities primarily through private placements of equity, capital contributions from its principals and shareholder loans. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2017 includes an explanatory paragraph stating that our lack of revenues and working capital raise substantial doubt about our ability to continue as a growing concern. In order to become profitable, the Company may require additional financing. There can be no assurance that additional financing will be available to the agreement can continue indefinitelyCompany when needed, on favorable terms or otherwise. Moreover, any such additional financing may dilute the interests of existing shareholders. The absence of additional financing, if and when needed, could cause the Company to delay full implementation of its business plan in whole or in part, curtail its business activities and seriously harm the Company and its prospects.
Our business is subject to compliance with government regulation the cost of which may be material and the failure to comply with present and future government regulation could harm our business, results of operations, financial condition and prospects, could put us out of business and could cause you to lose your entire investment.
We are subject to numerous federal, state, local, and foreign laws and regulations, including those relating to:
| · | the production of our products; |
| · | environmental protection; |
| · | interstate commerce and taxation; and |
| · | workplace and safety conditions, minimum wage and other labor requirements. |
The federal Agricultural Act of 2014, along with the corresponding Consolidated Appropriations Act of 2016 provisions (as extended by resolution into 2018) and Colorado’s Industrial Hemp Regulatory Program, provide for the cultivation of industrial hemp for purposes of research as part of agricultural pilot programs adopted by individual states, including Colorado (pursuant to which we operate). The uncertainty of conflicting interpretations of these legislative authorities, as they relate to the federal Controlled Substance Act’s provisions relating to the cultivation of “marijuana,” presents a substantial risk to the success and ongoing viability of the Company and the hemp industry in general. The uncertainty is a deterrent to investment in cannabis-related businesses, securing channels of distribution and obtaining banking, payment processing services, transfer agent, clearing, and other financial services. Investors face uncertainty in the ability to deposit and clear the securities offered herein.
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The Trump Administration announced last year that management deems sufficiently favorable. If we are unable to obtain a new agreement for icewine production upon terms that management deems sufficiently favorable, or at all, it wouldthere may be greater enforcement of federal laws regarding marijuana. Federal enforcement of existing laws and regulations could have a material adverse impact upon our ability to conducteffect on our business operations. Further, we have confidentiality agreementsand may cause you to lose your entire investment.
New legislation or regulations may be introduced at either the federal and/or state level which, if passed, would impose substantial new regulatory requirements on the manufacture, packaging, labeling, advertising and distribution and sale of hemp-derived products. New legislation or regulations may require the reformulation, elimination or relabeling of certain products to meet new standards and revisions to certain sales and marketing materials, and it is possible that the costs of complying with our suppliers in Armenia protecting our icewine-making knowledge and a non-compete clause that extends even after the termination of the agreements. However, we cannot assure that it can indefinitely protect that competitive knowledge.
The U.S. Food and Drug Administration (the “FDA”), Federal Trade Commission (the “FTC”) and their state-level equivalents, possess broad authority to enforce the provisions of federal and state law, respectively, applicable to consumer products and safeguards as such relate to foods, dietary supplements and cosmetics, including powers to issue a public warning or notice of violation letter to a Company, publicize information about illegal products, detain products intended for import or export (in conjunction with U.S. Customs and Border Protection) or otherwise deemed illegal, request a recall of illegal products from the market, and request the Department of Justice, or the state-level equivalent, to initiate a seizure action, an injunction action, or a criminal prosecution in the U.S. or respective state courts. The initiation of any regulatory action towards industrial hemp or hemp derivatives by limitationsthe FDA, FTC or any other related federal or state agency, would result in greater legal cost to SanSal Wellness, may result in substantial financial penalties and enjoinment from certain business-related activities, and if such actions were publicly reported, they may have a materially adverse effect on our accessthe Company, its business and its results of operations.
If SanSal Wellness fails to capital. There can be no assurance that capital from outside sourcesproperly manage its anticipated growth, the Company’s business could suffer.
A significant part of SanSal Wellness’ strategy will be available, or ifto expand sales and marketing of its existing products into new channels and geographic markets and develop, sell and market additional product, such financing is available, that itas those in its Veritas Farms™ product line. Our planned expansion may place a significant strain on management, as well as on operational and financial resources and systems. To manage growth effectively, the Company will be on terms that management deems sufficiently favorable. If we are unable to obtain additional financing upon terms that management deems sufficiently favorable, or at all, it would have a material adverse impact upon our ability to conduct our business operations and pursue our expansion strategy. As of the date of this Prospectus, we have minimal operations and did not generate any revenues during the year ended January 31, 2016. In the event we do not raise additional capital from conventional sources, it is likely that we may need to scale back or curtail implementingmaintain a system of management controls, and attract and retain qualified personnel, as well as, develop, train and manage management-level and other employees. Failure to manage our business plan, whichanticipated growth effectively could cause any securitiesus to over-invest or under-invest in infrastructure, and result in losses or weaknesses in our company to be worthless.
SanSal Wellness will likely face substantial competition.
The industrial hemp cultivation and derivative products industry is relatively new and evolving. While we believe that the industry is fragmented at the present time, there are numerous competitors, including Green Roads, diamond CBD, Folium Biosciences, CBD Rx., Mary’s Nutritional and CV Sciences, some of whom are larger and have a longer operating history and greater financial resources than does the Company. Moreover, we may also face competition with larger firms in consumer products manufacturing and distribution industry, who elect to enter the market given the relatively low barriers to entry. SanSal Wellness believes that it competes effectively with its competitors because of its vertical integration through the cultivation, extraction, formulation, manufacturing and distribution processes, the quality of its products and customer service. However, no assurance can be given that SanSal Wellness will effectively compete with its existing or future competitors. In addition, competition may drive the prices of our company. In addition,products down, which may have a materially adverse effect on our business.
We are dependent upon our Chief Executive Officer and Executive Vice President and the loss of Ms. Tavukciyan may forceeither of such individuals could have an adverse effect on the Company.
Until we build up our companymanagement infrastructure, our success depends in large part upon the efforts of Alexander M. Salgado, our Chief Executive Officer and Erduis Sanabria, our Executive Vice President. While we are party to seek a replacement who may have less experience, fewer contacts, or less understanding of our business. Further, we can make no assurances that we will be able to find a suitable replacement for Ms. Tavukciyan, which could force our company to curtail its operations and/or cause any investment in our company to become worthless. Our company does not have an employment agreement with Ms. Tavukciyan nor any each of those individuals, we do not currently maintain “key personman” life insurance on Ms. Tavukciyan
either of them. Notwithstanding the foregoing, the loss of either of their services would currently have a material adverse effect on SanSal Wellness.
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The translation impact may be more material in the future. We have not utilized risk management tools such as hedging.
The Company’s success will be lost. Ifdependent in part upon its ability to attract qualified management, administrative, product development and marketing and sales personnel and consultants. The inability to do so on favorable terms may harm the freeze is too severe, no juice can be extracted. The longer the harvest is delayed, the more fruit will be lost to wild animalsCompany’s proposed business.
We do not have any business interruption insurance, and dropped fruit. Theft is another concern in a poor country so the vineyard has to be constantly monitored and maintained. Since the fruit must be pressed while it is still frozen, pickers often must work at night or very early in the morning, harvesting the grapes within a few hours.
There are a variety of things that may cause an interruption in the eventour business, such as weather events. We do not carry business interruption insurance, which means that if our business is interrupted, we could be unable to produce, develop and market our products, and could lose substantial revenue and cash flow, materially harming our business, operations, and financial results.
We depend upon our trademarks and proprietary rights, and any failure to protect our intellectual property rights or any claims that we cannot generate revenues, obtain additional financing and/or attain profitable operations. As such,are infringing upon the rights of others may adversely affect our independent auditors have raised substantial doubt as tocompetitive position.
Our success depends, in large part, on our ability to continueprotect our current and future brands (including Veritas Farms™) and products and to defend our intellectual property rights. We cannot be sure that trademarks will be issued with respect to any future trademark applications or that our competitors will not challenge, invalidate or circumvent any existing or future trademarks issued to us.
Risks Related to our Status as a going concernPublic Company
We are and plan to continue to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934 that requires us to incur audit fees and legal fees in their auditedconnection with the preparation of such reports. These additional costs could reduce or eliminate our ability to earn a profit.
We are and plan to continue to be required to file periodic reports with the SEC pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm has to review our financial statements attached hereto. The accompanyingon a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel has to review and assist in the preparation of such reports. The incurrence of such costs is an expense to our operations, may increase as the Company grows and therefore have a negative effect on our ability to meet our overhead requirements and earn a profit. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
Our internal controls are inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and |
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| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Our Chief Executive Officer (our Principal Executive, Financial and Accounting Officer) identified the following two material weaknesses that have caused management to conclude that, as of December 31, 2017, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level in that:
| ● | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
| ● | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Our Chief Executive Officer (our Principal Executive, Financial and Accounting Officer), evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
We are taking additional steps to remedy these material weaknesses. However, we expect to incur additional expenses and diversion of management’s time in order to do so, which may adversely affect our business, results of operations and financial condition. Further effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
The Jobs Act has reduced the information that the Company is required to disclose, which could adversely affect the price of our common stock.
Under the Jobs Act, the information that the Company is required to disclose has been reduced in a number of ways.
Before the adoption of the Jobs Act, the Company was required to register the common stock under the Exchange Act within 120 days after the last day of the first fiscal year in which the Company had total assets exceeding $1,000,000 and 500 record holders of the common stock; the Jobs Act has changed this requirement such that the Company must register the common stock under the Exchange Act within 120 days after the last day of the first fiscal year in which the Company has total assets exceeding $10,000,000 and 2,000 record holders or 500 record holders who are not include“accredited investors.” As a result, the Company is now required to register the common stock under the Exchange Act substantially later than previously.
As a company that had gross revenues of less than $1 billion during the Company’s last fiscal year, the Company is an “emerging growth company,” as defined in the Jobs Act (an “EGC”). The Company will retain that status until the earliest of (a) the last day of the fiscal year which the Company has total annual gross revenues of $1,000,000,000 (as indexed for inflation in the manner set forth in the Jobs Act) or more; (b) the last day of the fiscal year of following the fifth anniversary of the date of the first sale of the common stock pursuant to an effective registration statement under the Securities Act; (c) the date on which the Company has, during the previous three year period, issued more than $1,000,000,000 in non-convertible debt; or (d) the date on which the Company is deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act or any adjustments that might resultsuccessor thereto. As an EGC, the Company is relieved from the outcomefollowing:
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| ● | The Company is excluded from Section 404(b) of the Sarbanes-Oxley of 2002 (“Sarbanes-Oxley”), which otherwise would have required the Company’s auditors to attest to and report on the Company’s internal control over financial reporting. The Jobs Act also amended Section 103(a)(3) of Sarbanes-Oxley to provide that (i) any new rules that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) requiring mandatory audit firm rotation or changes to the auditor’s report to include auditor discussion and analysis (each of which is currently under consideration by the PCAOB) shall not apply to an audit of an EGC; and (ii) any other future rules adopted by the PCAOB will not apply to the Company’s audits unless the SEC determines otherwise. |
| ● | The Jobs Act amended Section 7(a) of the Securities Act to provide that the Company need not present more than two years of audited financial statements in an initial public offering registration statement and in any other registration statement, need not present selected financial data pursuant to Item 301 of Regulation S-K for any period prior to the earliest audited period presented in connection with such initial public offering. In addition, the Company is not required to comply with any new or revised financial accounting standard until such date as a private company (i.e., a company that is not an “issuer” as defined by Section 2(a) of Sarbanes-Oxley) is required to comply with such new or revised accounting standard. Corresponding changes have been made to the Exchange Act, which relates to periodic reporting requirements, which would be applicable if the Company were required to comply with them. | |
| ● | As long as the Company is an EGC, the Company may comply with Item 402 of Regulation S-K, which requires extensive quantitative and qualitative disclosure regarding executive compensation, by disclosing the more limited information required of a “smaller reporting company.” | |
| ● | In the event that the Company registers the common stock under the Exchange Act as it intends to do, the Jobs Act will also exempt the Company from the following additional compensation-related disclosure provisions that were imposed on U.S. public companies pursuant to the Dodd-Frank Act: (i) the advisory vote on executive compensation required by Section 14A(a) of the Exchange Act; (ii) the requirements of Section 14A(b) of the Exchange Act relating to shareholder advisory votes on “golden parachute” compensation; (iii) the requirements of Section 14(i) of the Exchange Act as to disclosure relating to the relationship between executive compensation and our financial performance; and (iv) the requirement of Section 953(b)(1)of the Dodd-Frank Act, which requires disclosure as to the relationship between the compensation of the Company’s chief executive officer and median employee pay. |
Since the Company is not required, among other things, to file reports under Section 13 of this uncertaintythe Exchange Act or to comply with the proxy requirements of Section 14 of the Exchange Act until such registration occurs or to comply with certain provisions of Sarbanes-Oxley and if we cannot continuethe Dodd-Frank Act and certain provisions and reporting requirements of or under the Securities Act and the Exchange Act or to comply with new or revised financial accounting standards as a going concern, your investment in us could become devalued or worthless.
As a result of our products’ trademark rightssuch reduced disclosure, the price for the common stock may not only erode sales of our products, but may also cause significant damage to our brand name and reputation, interfere with its ability to effectively represent us to our customers, contractors, suppliers, and increase litigation costs. Presently it is estimated that 50% of icewines in China are fake.
Public companies are focusing significant resources on icewine that currently competesubject to risks relating to securities fraud and will compete with our products in the future. In addition, we expect other copycat products to appear from Armenian competitors now that Armeau Brands successfully produced the first icewine in Armenia. We can make no assurance that it will be able to effectively compete with these other companies or that competitive pressures, including possible downward pressure on the prices we charge for our products, will not arise. In the event that we cannot effectively compete on a continuing basis or competitive pressures arise, such inability to compete or competitive pressures willderivative lawsuits, which may have a material adverse effect on our business, results of operations, and financial condition.
As a publicly-traded company, we are subject to state and federal securities laws. There is a risk that we may be subject to lawsuits that allege that we have violated such laws. Such a lawsuit would cause us to incur significant strainslegal fees and could take up significant time of our executive officers and directors. We may be unable to defend or settle such an action, causing a material adverse effect on our resources
Such allegations could materially harm our reputation among investors and provide indemnification for,damage our officersability to raise funds, issue securities, or remain liquid. It may reduce trading volume and directors.
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Risks RelatingRelated to Our Common Stock
We cannot guarantee the continued existence of an active established public trading market for our shares.
Our shares are currently quoted on the OTCQB tier of the Offering, if any,over-the-counter market operated by OTC Markets Group, Inc. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may be insufficienthave little to fund planned operations and may not even cover the costs of the offering and you may lose your entire investment.
Market prices for our shares may also be influenced by a number of other factors, including:
| · | the issuance of new equity securities pursuant to a public or private offering; |
| · | changes in interest rates; |
| · | competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; |
| · | variations in quarterly operating results; |
| · | change in financial estimates by securities analysts; |
| · | the depth and liquidity of the market for our shares; |
| · | investor perceptions of SanSal Wellness and its industry generally; and |
| · | general economic and other national conditions. |
Our common stock willis currently deemed to be subjecta “penny stock” and is restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which may limit a shareholder’s ability to the requirements of Rule 15(g)9, promulgated under the Securities Exchange Act as long as the price ofbuy and sell our common stock.
Our common stock is belowcurrently classified as a “penny stock.” The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share. Under such rule,share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our common stock is covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who recommend low-priced securitiessell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse in each of the two preceding years, with a reasonable expectation of having such income in the current year. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must satisfyprovide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special sales practice requirements, includingwritten determination that the penny stock is a requirement that they make an individualized written suitability determinationsuitable investment for the purchaser and receive the purchaser’s consent priorwritten agreement to the transaction. The Securities Enforcement Remedies and Penny Stock Reform ActThese disclosure requirements may have the effect of 1990, also requires additional disclosurereducing the level of trading activity in connection with any trades involving athe secondary market for the stock defined as a penny stock. Generally, the Commission defines athat is subject to these penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The requiredrules. Consequently, these penny stock disclosures includerules may affect the delivery, priorability of broker-dealers to any transaction, of a disclosure schedule explainingtrade our securities. We believe that the penny stock marketrules discourage investor interest in, and the risks associated with it. Such requirements could severely limit the market liquiditymarketability of, the securities and the ability of purchasers to sell their securities in the secondary market.our shares.
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In addition various state securities laws impose restrictions on transferring “penny stocks” and as a result, investors in the common stock may have their ability to sell their shares of the common stock impaired.
The market for penny stocks has experienced numerous frauds and have an adverse effect onabuses that could adversely impact investors in our shares.
Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
| · | control of the market for the security by one or a few broker-dealers that are often related to a promoter or issuer; |
| · | manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
| · | “boiler room” practices involving high pressure sales tactics and unrealistic price projections by sales persons; |
| · | excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
| · | wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
Your voting rights and control of the Company may be affected by the unrestricted ability of the board of directors to issue shares of preferred stock and to fix the rights, preferences, and number of shares constituting any series of preferred stock they may issue.
Our board of directors has the authority, without further action by the shareholders, to issue shares of preferred stock in one or more series and to fix the rights, preferences and the number of shares constituting any series of the designation of such series. While our Articles of Incorporation and bylaws do not contain any provisions that may delay, defer or prevent a change in control, the issuance of preferred stock may have the effect of delaying or preventing a change in control, make removal of our management more difficult, or reduce your voting rights.
We do not have any independent directors.
At present, neither of our directors is “independent” as defined under Rule 10A-3(b)(1) under the Exchange Act, although we intend to seek additional qualified individuals who would be so categorized to join our board. Because our directors are insiders, they may have a conflict of interest under circumstances that may arise in the future.
Our board of directors does not currently have an audit committee, a compensation committee, or a corporate governance committee. We plan to establish such committees in the near future, all the members of which will be independent directors. Because we do not have independent committees, we do not have independent oversight of the Company, its financials, executive compensation, and corporate governance.
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Our Articles of Incorporation and By Laws provide for indemnification of officers and directors at our expense and limit their liability that 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 Articles of Incorporation and Bylaws provide for the indemnification of our officers and directors. We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
We do not expect to pay cash dividends in the foreseeable future.
We have never paid cash dividends on our shares. We do not expect to pay cash dividends on our shares depressingat any time in the foreseeable future. The future payment of dividends directly depends upon our share price.
The “market overhang” from options, warrants and until the shares of our common stock are qualified for secondary trading under the applicableconvertible securities laws of such state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in such state. There can be no assurance that we will be successful in registering or qualifying our common stock for secondary trading, or identifying an available exemption for secondary trading in our common stock in every state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, our common stock in any particular state, the shares of common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the market for the common stock will be limited which could drive downadversely impact the market price of our common stockshares.
The “market overhang” from options, warrants and reduce the liquidity of the shares of our common stock and a stockholder’s ability to resell shares of our common stock at all or at current market prices, whichconvertible securities could increase a stockholder’s risk of losing some or all of his investment.
Risks Related to be sold pursuant to this prospectus, and such price does not reflect the actual market price for the securities. Consequently, there is an increased risk that you may not be able to re-sell our common stock at the price you bought it for.
This prospectus contains forward-looking statements and information relating to our business that are based on our beliefs, on assumptions made by us, or upon information currently available to us.statements.
This prospectus contains forward-looking statements. These statements reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties. Forward-looking statements are often identified by words like: “believe,” “expect,” “estimate,” “anticipate,” “intend,” “project” and similar expressions or words which, by their nature, refer to future events. In some cases, you can also identify forward-looking statements by terminology such as “may,” “will,” “should,” “plans,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors including the risks in the section entitled Risk Factors beginning on page 9, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by theseour forward-looking statements. In addition, you are directed to factorsSuch risks and uncertainties include, among other things, those discussed in the Management’s Discussionthese “Risk Factors” and Analysis of Financial Condition and Results of Operation section beginning on page 27 and the section entitled “Description of Our Business” beginning on page 22, and as well as those discussed elsewhere in this prospectus. Other factors include, among others: general economic and business conditions; industry capacity; industry trends; competition; changes in business strategy or development plans; project performance; availability, terms, and deploymentExamples of capital; and availability of qualified personnel.
We will not receive any proceeds to us from the sale of the common stock offered through this prospectus by the selling shareholders. We may receive proceeds in connection with the exercise of the Warrants, if exercised for cash. We intend to use any such proceeds for working capital and other general corporate purposes. There is no assurance that any of the Warrants will ever be exercised for cash, if at all. We have agreed to bear the expenses (other than any underwriting discounts or commissions or broker’s commissions) in connection with the registration of the common stock being offered hereby by the selling shareholders.
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This prospectus covers the resale from time to time by the selling shareholders identified in the table below of up to 7,500,00062,875,000 shares offeredof common stock through this prospectus consisting of (a) 31,437,500 shares held by the selling shareholders named in this prospectus as part of the Units they purchased in the Private Offering completed in July 2018; (b) 18,308,133 shares held by the selling shareholders named in this prospectus, which have subsequently been issued upon exercise of Warrants; and (b) 13,129,167 shares issuable upon exercise of the remaining outstanding Warrants included in the Units.
We are registering the shares to permit the selling shareholders and any of their pledgees, donees, transferees, assignees and successors-in-interest to, from time to time, sell any or all of the shares through public or private transactions at a public offering priceprevailing market prices, at prices related to prevailing market prices or at privately negotiated prices of $0.02 per share will vary depending uponcommon stock on any stock exchange, market or trading facility on which the totalshares are traded or in private transactions when and as they deem appropriate in the manner described in “Plan of Distribution.” As of the date of this prospectus, there are 109,979,841 shares of our common stock issued and outstanding.
The following table sets forth, as of the date of this prospectus, the name of each selling shareholder, the number and percentage of shares sold. Regardless of our common stock beneficially owned by each selling shareholder prior to the offering for resale of the shares under this prospectus, the number of shares sold, we expectof our common stock beneficially owned by each selling shareholder that may be offered from time to incurtime under this prospectus, and the number and percentage of shares of our common stock beneficially owned by the selling shareholder after the offering expenses estimated at approximately an aggregate of $30,000 that comprises of $25,000 for legal and accounting, and $5,000 for other costs in connection with this offering (estimated transfer agent fees, filing fee, etc.). The table below shows the intended net proceeds from this offering we expect to receive for scenarios where we sell various amounts of shares. Since we are making this offering without any minimum requirement, there is no guarantee that we will be successful at selling any of the securities being offered in this prospectus. Accordingly, the actual amount of proceeds we will raise in this offering, if any, may differ.
| 10% | 25% | 50% | 75% | 100% | |
| Shares Sold | 750,000 | 1,875,000 | 3,750,000 | 5,625,000 | 7,500,000 |
| Gross Proceeds | $15,000 | $37,500 | $75,000 | $112,500 | $150,000 |
| Less Offering Expenses | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 |
| Net Offering Proceeds (Loss) | ($15,000) | $7,500 | $45,000 | $82,500 | $120,000 |
There are no agreements between the Company and any selling shareholder pursuant to usewhich the funds under the various percentages of amountsshares subject to this registration statement were issued. None of the related offering. All amounts listed below are estimates.
| % of Offering Sold | 10% | 25% | 50% | 75% | 100% |
| Legal and Accounting | $ - | $ 7,500 | $ 30,000 | $ 30,000 | $ 30,000 |
| Salaries/Consulting Fees | $ - | $ - | $ 15,000 | $ 30,000 | $ 30,000 |
| Purchase of land and building | - | - | - | $ 20,000 | $ 20,000 |
| Renovations to building | - | - | - | $ 2,500 | $ 10,000 |
| Grape pressing equipment | - | - | - | - | $ 20,000 |
| Production expenses for 2016/2017 vintage | - | - | - | - | $ 10,000 |
| Total | $ - | $ 7,500 | $ 45,000 | $ 82,500 | $ 120,000 |
Beneficial ownership is determined in accordance with the rules of the SEC, and accounting expensesincludes any shares of common stock as to which a person has sole or shared voting power or investment power and transfer agent fees. Our sole officer and director will not receive any compensation for her efforts in selling our shares.
| Name of Selling Shareholder | Total Shares Owned by Selling Shareholder | Total Shares to be Registered Pursuant to this Offering | Percentage of Common Stock Before Offering | Number of Shares Owned by Selling Shareholder After Offering | ||||||||||||
| Ian Wight | 2,000,000 | 2,000,000 | 1.8 | % | 0 | |||||||||||
| Robert A. Williams and Melissa Williams | 2,000,000 | 2,000,000 | 1.8 | % | 0 | |||||||||||
| Makahit LLC(1) | 4,500,000 | 4,500,000 | 4.1 | % | 0 | |||||||||||
| Paul David Crain | 4,000,000 | 4,000,000 | 3.7 | % | 0 | |||||||||||
| George Atlee Bodden | 14,375,000 | 14,375,000 | 13. | 1% | 0 | |||||||||||
| Joseph Seely | 1,200,000 | 1,200,000 | 1.1 | % | 0 | |||||||||||
| Steven Eberly | 400,000 | 400,000 | * | 0 | ||||||||||||
| William R. Maines | 10,000,000 | 10,000,000 | 9.1 | % | 0 | |||||||||||
| Marcus Simonds | 2,000,000 | 2,000,000 | 2.1 | % | 0 | |||||||||||
| Richard Danzansky | 1,562,500 | 1,562,500 | 1.4 | % | 0 | |||||||||||
| John Gould | 1,000,000 | 1,000,000 | * | 0 | ||||||||||||
| Joseph E. Simmons and Jacqueline Simmons | 1,000,000 | 1,000,000 | * | 0 | ||||||||||||
| Lewis Rissman | 1,200,000 | 1,200,000 | 1. | 1% | 0 | |||||||||||
| Steven Gurland | 500,000 | 500,000 | * | 0 | ||||||||||||
| Cornelis F. Wit | 4,500,000 | 4,500,000 | 4. | 1% | 0 | |||||||||||
| Dennis F. Ratner Revocable Trust | 2,000,000 | 2,000,000 | 1.8 | % | 0 | |||||||||||
| Deborah Ann Mulligan | 500,000 | 500,000 | * | 0 | ||||||||||||
| Matthew Ian Wight | 700,000 | 700,000 | * | 0 | ||||||||||||
| Michael Gordon | 1,062,500 | 1,062,500 | 1.1 | % | 0 | |||||||||||
| Naul Clayton Bodden | 1,000,000 | 1,000,000 | * | 0 | ||||||||||||
| Morton Brown | 250,000 | 250,000 | * | 0 | ||||||||||||
| Nicholas Petrocelli | 2,000,000 | 2,000,000 | 1.8 | % | 0 | |||||||||||
| Manoel A. Pinto | 500,000 | 500,000 | * | 0 | ||||||||||||
| Michael Martin | 2,000,000 | 2,000,000 | 1.8% | 0 | ||||||||||||
| Rainbow 18, LLC(2) | 1,000,000 | 1,000,000 | * | 0 | ||||||||||||
| ARA Capital Trading, LLC(3) | 1,500,000 | 1,500,000 | 1.4 | % | 0 | |||||||||||
*Less than 1%.
| (2) | Herbert Hirsch has voting and dispositive control of the shares held by Rainbow 18, LLC. |
| (3) | Alain Aragon has voting and dispositive control of the shares held by ARA Capital Trading, LLC. |
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The selling shareholders named in this prospectus, and |
The selling shareholders will bear all commissions and discounts, if any, attributable to the sales of shares of common stock. We will bear all costs, expenses and fees in connection with the registration of the shares of common stock.
Our common stock is currently quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. under the symbol “SSWH.” On December 10, 2018 the closing price for our common stock was $0.40.
The selling shareholders may use any one or more of the following methods when selling shares:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits investors; |
| ● | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; |
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| ● | privately negotiated transactions; |
| ● | to cover short sales made after the date that this registration statement is declared effective by the SEC; | |
| ● | broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share; | |
| ● | through the distribution of common stock by any selling shareholder to its partners, members or shareholders; |
| ● | any other method permitted pursuant to applicable law; and |
| ● | a combination of any such methods of sale. |
Broker-dealers engaged by the selling shareholders may arrange for broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling shareholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
The selling shareholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus.
Upon a selling shareholder’s notification to us that any material arrangement has been entered into with a broker-dealer for the sale of such shareholder’s common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act disclosing (a) the name of each such selling shareholder and of the participating broker-dealer(s); (b) the number of shares involved; (c) the price at which such shares of common stock were sold; (d) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable; (e) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus; and (f) other facts material to the transaction. In addition, upon our being notified in writing by a selling shareholder that a donee or pledgee intends to sell more than 500 shares of common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.
The selling shareholders also may transfer the shares of common stock in other circumstances, in which case the donees, assignees, transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and therefore,may sell the shares of common stock from time to time under this prospectus after we have filed any necessary supplements to this prospectus under Rule 424(b), or other applicable provisions of the Securities Act supplementing or amending the list of selling shareholders to include such donee, assignee, transferee, pledgee, or other successor-in-interest as a selling shareholder under this prospectus.
In the event that the selling shareholders are deemed to be “underwriters,” any broker-dealers or agents that are involved in selling the shares will be deemed to be “underwriters” within the meaning of the Securities Act, in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of the shares of common stock will be paid by the selling shareholder and/or the purchasers. Each selling shareholder has represented and warranted to us that it acquired the securities subject to this registration statement for his/her own account for investment and not for the benefit of any other person and not with a view to distribute or sell in violation of the Securities Act or any state securities laws or rules and regulations promulgated thereunder.
If a selling shareholder uses this prospectus for any sale of the common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The selling shareholders will be responsible to comply with the applicable provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such selling shareholders in connection with resales of their respective shares under this registration statement. We are required to pay all fees and expenses incident to the registration of the shares, but we will not receive any proceeds from the sale of the common stock.
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Overview
SanSal Wellness is an entirely vertically-integrated agribusiness focused on producing, marketing, and distributing highest purity full spectrum natural phytocannabinoid-rich industrial hemp products. SanSal Wellness owns and operates a 140-acre farm in Pueblo, Colorado, capable of producing over 200,000 proprietary full spectrum phytocannabinoid-rich hemp plants yielding a potential minimum annual harvest of over 200,000 pounds of outdoor-grown industrial hemp. While part of the cannabis family, industrial hemp, which contains less than 0.3% tetrahydrocannabinol (“THC”), the psychoactive compound that produces the “high” in marijuana, is distinguished from marijuana by its use, physical appearance and lower THC concentration (marijuana generally has a THC level of 10% or more). The Company also operates approximately 15,000 sq. ft. of climate-controlled greenhouses to produce a consistent supply of year-round indoor-cultivated hemp. In addition, there is a 10,000-sq. ft. onsite facility used for processing raw industrial hemp, oil extraction, formulation laboratories, and quality/purity testing. SanSal Wellness is registered with the Colorado Department of Agriculture to grow industrial hemp pursuant to federal law.
SanSal Wellness meticulously processes its hemp crop to produce superior quality whole-plant hemp oil, extracts and derivatives which contain the entire broad spectrum of cannabinoids extracted from the flowers and leaves of hemp plants. Whole-plant hemp oil is known to provide the essential phytocannabinoid “entourage effect” resulting from the synergistic absorption of the entire broad spectrum of unique hemp cannabinoids by the receptors of the human endocannabinoid system. Most commercially available hemp oil and extracts are not derived from the entire plant and are usually from less desired hemp seed which contain fewer cannabinoids. As a result, SanSal Wellness believes that its products are premier quality cannabinoids and are highly sought after by consumers and manufacturers of premium hemp products.
SanSal Wellness has developed a wide variety of formulated phytocannabinoid-rich hemp products which are marketed and distributed by the Company under its Veritas Farms™ and SanSal Wellness brand names. Our products are also available in bulk, white label and private label custom formulations for distributors and retailers. These types of products are in high demand by health food markets, wellness centers, physicians and other healthcare practitioners.
SanSal Wellness and Veritas Farms™ products (20+ SKUs) include vegan capsules, gummies, tinctures, lotions, salves, vape oils and oral syringes. All product applications come in various flavors and strength formulations, in addition to bulk. Many of the Company’s whole-plant hemp oil products and formulations are available for purchase online directly from the Company through its Veritas Farms™ website, as well as through numerous other online retailers and “brick and mortar” retail outlets.
Corporate History
The Company’s original business objective following its incorporation, was to produce and market its own brand of ice wine made from grapes harvested in Armenia. While the Company took numerous steps with respect to implementation of its business plan, including securing sources of production and did, in fact produce 4,500 bottles of ice wine for product sampling and customer marketing purposes, the Company was unable to raise sufficient capital to fully implement its business plan and generate revenues.
On June 5, 2017, Jaitegh Singh purchased a total of 45,000,000 “restricted” shares of our Company’s common stock from our then sole officer and director, Cassandra Tavukciyan, for aggregate consideration of $345,000. The share purchase was consummated in a private transaction pursuant to a common stock purchase agreement entered into between Mr. Singh and Ms. Tavukciyan.
Concurrent with the share purchase transaction, Cassandra Tavukciyan resigned as our Chief Executive Officer, Chief Financial Officer and sole director, and was succeeded in those capacities by Jaitegh Singh. Mr. Singh relocated the Company’s principal offices to Fort Lauderdale, Florida.
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On September 27, 2017 (“Closing”), the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with all the members (the “Members”) of 271 Lake Davis Holdings, LLC d/b/a SanSal Wellness (“271”), pursuant to which it became a wholly-owned subsidiary of the Company (the “SanSal Acquisition”). 271, founded in 2015, is a vertically-integrated agribusiness focused on producing full spectrum natural phytocannabinoid-rich industrial hemp extracts.
Pursuant to the Exchange Agreement, we acquired all the outstanding limited liability company interests of 271 in exchange for the issuance to the Members,pro rata, of 46,800,000 “restricted” shares of our common stock, whereupon Jaitegh Singh, the holder of the Company’s currently outstanding 45,000,000 “restricted” shares of common stock contributed those shares to the capital of the Company for cancellation.
At Closing, Alexander M. Salgado and Erduis Sanabria, the members of 271’s management team, were appointed to the Company’s board of directors and as the Company’s Chief Executive Officer and Executive Vice President, respectively. Jaitegh Singh, who was then the Company’s President and sole director, then stepped down from such position, but assumed the position of the Company’s Vice President and Secretary. At this time, the Company has no independent directors, no audit committee, no compensation committee, and no corporate governance committee.
In addition, at Closing, Members, holding an aggregate of 26,674,500 shares of our common stock, including Messrs. Salgado and Sanabria, entered into a five-year voting agreement, pursuant to which Messrs. Salgado and Erduis have the right to direct the voting of their shares on all matters presented to shareholders for a vote.
Following completion of the SanSal Acquisition, the Company determined to focus its business on the business of 271. Accordingly, we applied to FINRA to (a) change our corporate name from “Armeau Brands Inc.” to “SanSal Wellness Holdings, Inc.” (with a comparable change in our trading symbol from ARUU to SSWH); (b) authorize a class of “blank check” preferred stock; and (c) implement a six-for-one forward stock split. The name, trading symbol and authorized capitalization changes became effective as of November 7, 2017 and the stock split was implemented on November 9, 2017.
As a result of the completion of the SanSal Acquisition and management’s determination to focus the Company’s future business efforts on the SanSal Wellness business, 271 is deemed to be the survivor of the SanSal Acquisition for financial statement purposes. Moreover, we changed the Company’s fiscal year-end from January 31 to December 31 to coincide with 271’s fiscal year-end, effective with the year ended December 31, 2017.
Our Mission
SanSal Wellness is a pioneer in quality phytocannabinoid products and organic farming methods. It is committed to serving the global community by uncompromising on our quality and continuing the pursuit of cutting-edge, ethical innovation.
SanSal Wellness is different. We produce pure natural hemp derivatives, pesticide residual and solvent free, with whole plant phytocannabinoids. We achieve highest potency and purity in the derivative products from our oils.
SanSal Wellness is committed to the research and development of improved, proprietary hemp genetics cultivation and innovation in order to provide the global community with uncompromised quality hemp products, containing the highest quality, quantity and consistency in the industry.
Our commitment to enhancing the symbiotic relationship between healthy plants and healthy people ensures that we provide whole plant, broad spectrum cannabinoid-rich hemp products while using only natural protocols and sustainable farming methods.
Our philosophy is to practice strict natural protocols for hemp cultivation and the latest technology to assist our sustainable, environmentally sound farming practices to ensure pure, pesticide free, and high quality consistent products.
Why Cannabinoids?
Cannabinoid-rich hemp oil is made from the stalks and leaves of the cannabis sativa plant. Like tetrahydrocannabinol, or THC, cannabinoid-rich hemp is an active cannabinoid found in cannabis plants. Unlike THC, however, cannabinoid-rich hemp has no psychoactive properties — and its health benefits may be even more profound than those of THC.
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What are cannabinoids? They are chemical compounds secreted by the flowers of the cannabis plant. Our brains have receptors that respond pharmacologically to them. THC is the psychoactive cannabinoid, which binds to receptors in the brain, while cannabinoid-rich hemp binds to receptors throughout the body. Whole-plant hemp extracts are known to provide the essential phytocannabinoid “entourage effect” resulting from the synergistic absorption of the entire broad spectrum of unique hemp cannabinoids by the receptors of the human endocannabinoid system.
Through our body’s endocannabinoid receptors, cannabinoid-rich hemp can mitigate both pain and swelling or inflammation associated with it. Science has long known about cannabinoid’s analgesic properties, which is why we now have any number of cannabinoid-rich hemp-infused topical creams and salves designed for direct application to skin.
There seems to be no end to the painful conditions for which cannabinoid-rich hemp could mean a measure of localized relief. Enthusiasts commonly cite arthritis, menstrual cramps, headaches, and even plain old muscle soreness or the itchiness from psoriasis and dermatitis as potential targets for the cannabis compound.
Current Industry Factors
Typical Cannabinoid Company Profile. The majority of cannabinoid companies are either farmers/extractors, manufacturers, or retail brands. Farmers often grow and extract their oil, sometimes selling their oil wholesale to product manufacturers and sometimes manufacturing their own products and then selling them in bulk to brands that use them for private label products. Retail brands are forced into a state of constant supply search and often have to order from multiple farmers/extractors in order to ensure their demand is met. This causes inconsistency in product potency and quality, often leading to products that don’t have accurate Certificate of Analysis’ (COA’s) or additional contaminate tests.
Poor Quality Products, Morally Questionable Companies. As with any burgeoning new market, opportunistic entrepreneurs and entities have surfaced selling inferior products that are often misrepresented and mislabeled. These products may contain little to no active cannabinoid compounds, “dirty” or contaminated cannabinoid compounds, and often are aiming to find a quick payday for the company’s founders and take advantage of the lack of consumer education about the industry.
Lack of Consumer Knowledge/Confusion in Market Place. New markets and products are often rife with miseducation and misunderstanding. Cannabinoid products are just beginning to be absorbed by the mainstream public, who is still very un-aware of quality control concerns and how to alleviate them, proper applications and treatment uses, and dosing.
Our goal is to secure as large a share of the growing market for cannabinoid products as possible, by taking advantage of the fractured nature of the industry, the sometimes poor quality products offered and the lack of knowledge of the potential benefits of cannabinoid through:
| ● | Offering only the highest quality products by maintaining control of the growing, extracting and manufacturing processes. |
| ● | Providing a one-stop vertically integrated source for cannabinoid products; |
| ● | Increasing demand by educating consumers on the potential benefits of use of cannabinoid products; and |
| ● | Employing an integrated marketing plan across both traditional and digital channels. |
Our Products
SanSal Wellness has developed a wide variety of formulated phytocannabinoid-rich hemp products which are marketed and distributed by the Company under its Veritas Farms™ and SanSal Wellness brand names. Our products are also available in bulk, white label and private label custom formulations for distributors and retailers. These types of products are in high demand by health food markets, wellness centers, physicians and other healthcare practitioners.
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SanSal Wellness and Veritas Farms™ products (20+ SKUs) include vegan capsules, gummies, tinctures, lotions, salves, vape oils and oral syringes. All product applications come in various flavors and strength formulations, in addition to bulk. Many of the Company’s whole-plant hemp oil products and formulations are available for purchase online directly from the Company through its SanSal Wellness and Veritas Farms™ websites, as well as through numerous other online retailers and “brick and mortar” retail outlets. Our products include:
| ● | Cannabinoid-rich hemp oil: a pure, concentrated extract made from the flowers, leaves and stalks of either cannabis species — which is sold at bulk wholesale and also used for SanSal Wellness product formulation. |
| ● | Cannabinoid-rich hemp capsules offer the same product in easy-to-swallow form. |
| ● | Tinctures are used sublingually as an efficient way to absorb cannabinoids. |
| ● | Cannabinoid-rich hemp oil for use in vaporizers. |
| ● | Topically applied products include lotions and oils applied directly to the skin, usually to treat a specific spot of pain or inflammation. |
| ● | Pet products taken internally, like flavored tinctures. |
All SanSal Wellness products are of the highest-quality and third-party laboratory tested for strength/purity, bio-contaminants, heavy metals, pesticides, and solvents. SanSal Wellness is working on launching additional product lines, opening up potential new markets for the Company. Our product pipeline includes:
| ● | Additional pet products for dogs and cats |
| ● | Hemp edibles designed to deliver cannabinoid-rich hemp. |
| ● | An equine line for horses, which we plan to launch during the second quarter of 2018 |
| ● | A beauty and skin care product line encompassing massage oils, body scrubs and beauty soap, with an anticipated launch in the second half of 2018. |
| ● | A medical product line formulated in partnership with dermatologists, internists, chiropractors and veterinarians, which is currently under development, with an expected launch in the second half of 2018. |
Production
Hemp growth, extraction, processing, formulation and product manufacture takes place at our facilities located on our 140-acre farm in Pueblo Colorado. Our farm is capable of producing over 200,000 plants yielding a potential minimum annual harvest of 200,000 to 300,000 pounds of outdoor grown hemp.
In addition, the Company’s 15,000 square feet of climate-controlled greenhouses produce a consistent supply of approximately 25,000 pounds per year of indoor cultivated hemp over 4-6 individual harvests.
There is an additional 10,000 sq. ft. on-site facility used for plant processing and oil extraction, in addition to housing SanSal Wellness’ testing and formulation laboratories, wherein GMP (good manufacturing practices) are strictly maintained.
The production process starts in the ground, with our cultivation team. SanSal Wellness is fortunate to have a team of dedicated, experienced, and passionate farming experts that nurture our plants with individual care, much like the care and attention paid to vines in a vineyard.
After harvest, our in-house laboratory chemists and extraction technicians produce varieties of high quality, pure hemp derivative oils while constantly finding methods to improve processes and improve our products.
SanSal Wellness uses advanced, strict natural protocols to cultivate its cannabinoid-rich hemp oil yield from its plants. After naturally air drying, only the leaves and flowers richly coated with tricomes are processed with our advanced ethanol spray evaporation extractors according to the planned uses for the cannabinoid-rich hemp extracts. Whole plant full spectrum cannabinoid-rich hemp extracts are then further processed using chromatography and other techniques yielding pure distillates and other derivatives exceeding 80% cannabinoid-rich hemp with 0% THC (if so desired).
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Marketing
Overview
The primary target customers markets for SanSal Wellness’ products are:
| ● | Ages 35 – 55 (Gen X and Baby Boomers) |
| ○ | Health conscious/open minded |
| ○ | Affluent middle class |
| ● | Medical patients |
| ○ | Looking to treat chronic disease, illness, and pain |
| ● | Millennials |
| ○ | Health Conscious |
| ○ | Cannabis enthusiasts |
| ○ | Progressive/forward thinking/open minded |
| ● | Athletes |
| ● | Pet Owners |
| ○ | Passionate about pets |
| ○ | Disposable income spent on pets |
| ○ | Affluent 30+ |
To date, substantially all of our revenues have been generated from sales of our products to a limited number of distributors in the business-to-business channel. For the year ended December 31, 2017, one customer accounted for 72% of sales and for the nine months ended September 30, 2017, that same customer accounted for 74% of sales. For the nine months ended September 30, 2018, two customers accounted for 41% and 12% of sales, respectively. If any of these customers fails to timely pay us amounts owed, we could suffer a significant decline in cash flow and liquidity. Accordingly, until we expand our sales channels and customer base, the loss or failure to pay amounts owed when due of any of such customers could materially harm our business, results of operations and financial condition
As part of the Company’s increased focus on sales and marketing, SanSal Wellness recently launched a line of products under its own proprietary brand, Veritas Farms™, including hemp oil and extract products. The Veritas Farms™ brand line, including new packaging, was developed to expand the Company’s potential customer base. The Veritas Farms™ product line is expected to ultimately include vegan capsules, gummies, tinctures, lotions, salves, and oral syringes in various potency levels and flavors.
Currently, SanSal Wellness incorporates an aggressive marketing plan to compete in the Cannabinoid industry. To become a market leader in the industry, the Company plans to use three primary channels to market its products, web-based marketing, traditional marketing and medical marketing.
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Web-Based Marketing
General.SanSal’s expanded Veritas Farms™ e-commerce retail platform, which was launched in the second quarter of 2018, is designed to be a source for offering the Company’s premium phytocannabinoid-rich extract products directly to consumers under the Veritas Farms™ brand. The site has the ability to quickly adapt to a rapidly evolving market and to position our branded product lines as a leader in the industry. In addition to its e-commerce platform, SanSal Wellness is pursuing distribution with leading third-party online retailers.
Content Marketing via Blogs and Social Media. We believe that content marketing offers a cost-effective marketing strategy. The core components to SanSal Wellness content marketing strategy are blogs and social media posts. SanSal Wellness has partnered with Content Bacon (https://contentbacon.com/) to establish a market leader presence surrounding the cannabinoid industry, especially since blogging has the strongest impact on content marketing return on investment.1 SanSal Wellness plans to launch an engaging social media campaign to promote the overall vision to quality and transparent phytocannabinoid products.
Influencer Campaigns. Influencer marketing is a type of marketing that focuses on using online leaders to drive the brand’s message to the larger market. Rather than market directly to a large group of consumers, SanSal Wellness will partner with influencers to utilize their personal social channels to spread the word about the brand.2 Influencers would be celebrities, high-quality content creators, buzz builders and promoters and natural health advocates. Extensive tracking methods will be implemented to determine the effectiveness of the influencer campaigns.
Search Engine Optimization (SEO). Search Engine Optimization (SEO) is important for establishing and creating an online presence. Most every single online interaction starts with key words manually entered into a search engine to draw up relevant website options for the user. With SEO keywords maximized throughout SanSal Wellness digital media campaign, the Target Market has a 93% increased chance of exposure to the brand.3 The SanSal Wellness SEO marketing plan contemplates a monthly campaign to ensure the website ranks in top relevance for industry-related searches on major search engines such as Google, Bing and Yahoo.
Magazine and Guest Blog Features. Through a number of features in industry-related magazines and websites, such as:The Money Show,New To The Street on Fox Business and theNational Hemp Association, SanSal Wellness plans to consistently promote its brand and products and educate consumers with other hemp industry-related information.
Traditional Marketing
In-House Sales Force Expansion. SanSal Wellness maintains an in-house sales force to market to wholesale and retail accounts. Following completion of the Private Offering in July 2018, we have undertaken a significant expansion of our in-house sales team. The in-house sales team, which is based out of Fort Lauderdale, Florida, focuses on marketing to wholesale and retail accounts nationwide to grow our market share in traditional retail. In addition, we plan to further expand that portion of our sales team, which travels to major markets nationwide and focuses on direct sales to larger potential customers such as retail chains, including regional grocery stores, health food stores, and pharmacies. Further, they will be tasked with supporting retail account sales growth using staff education and incentives, point-of-sale promotions and in-store customer samplings.
Industry-Related Trade Shows and Conventions. SanSal Wellness currently participates in major industry trade shows and conventions to develop its business to business and business to consumer sales pipelines. These expos include Natural Food and Vitamin, Holistic Healing, Pharmacy and Medical, Chiropractic, Cannabis/Phytocannabinoid, Sports Health, Veterinarian, Pet Food and Supply, and Natural Products. The Company plans to continue and expand these sales and marketing efforts.
1 http://growwithtrellis.com/blog/the-importance-of-content-marketing-infographic/
2 https://www.tapinfluence.com/the-ultimate-influencer-marketing-guide/
3 https://www.imforza.com/blog/what-is-seo/
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Medical Sales and Marketing
SanSal Wellness is completing development and expects to launch of its new line of medical products, formulated in partnership with dermatologists, internists, chiropractors and veterinarians in the fourth quarter of 2018. In order to attract medical professionals and patients alike, the new line will be marketed and sold under a stand-alone brand and will be available exclusively to medical professionals.
The marketing of the medical product line will be overseen by Nicholas DiFrancesco, our Vice President of Medical Sales and Marketing. Mr. DiFrancesco has successfully launched pharmaceutical and medical device products nationally and is now building a medical sales team around the medical product line. The line will only be available only through medical professionals, pharmacies, and a dedicated portion of the e-commerce website that will require a promotional code from a partner medical professional.
Government Regulation
We are subject to numerous federal, state, local, and foreign laws and regulations, including those relating to:
| ● | The production of our products; |
| ● | Environmental protection; |
| ● | Interstate commerce and taxation; and |
| ● | Workplace and safety conditions, minimum wage and other labor requirements. |
The federal Agricultural Act of 2014, along with the corresponding Consolidated Appropriations Act of 2016 provisions (as extended by resolution into 2018) and Colorado’s Industrial Hemp Regulatory Program, provide for the cultivation of industrial hemp for purposes of research as part of agricultural pilot programs adopted by individual states, including Colorado (pursuant to which we operate). However, there can be no assurance that new legislation or regulations may be introduced at either the offering will be totally subscribed forfederal and/or state level which, if passed, would impose substantial new regulatory requirements on the manufacture, packaging, labeling, advertising and distribution and sale of hemp-derived products. New legislation or regulations may require the maximum 7,500,000reformulation, elimination or relabeling of certain products to meet new standards and revisions to certain sales and marketing materials and it is possible that the costs of complying with these new regulatory requirements could be material.
The U.S. Food and Drug Administration (the “FDA”), Federal Trade Commission (the “FTC”) and their state-level equivalents, possess broad authority to enforce the provisions of federal and state law, respectively, applicable to consumer products and safeguards as such relate to foods, dietary supplements and cosmetics, including powers to issue a public warning or notice of violation letter to a Company, publicize information about illegal products, detain products intended for import or export (in conjunction with U.S. Customs and Boarder Protection) or otherwise deemed illegal, request a recall of illegal products from the market, and request the Department of Justice, or the state-level equivalent, to initiate a seizure action, an injunction action, or a criminal prosecution in the U.S. or respective state courts. The initiation of any regulatory action towards industrial hemp or hemp derivatives by the FDA, FTC or any other related federal or state agency, would result in greater legal cost to SanSal Wellness, may result in substantial financial penalties and enjoinment from certain business-related activities, and if such actions were publicly reported, they may have a materially adverse effect on the Company, its business and its results of operations.
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Competition
The industrial hemp cultivation and derivative products industry is relatively new and evolving. While we believe that the industry is fragmented at the present time, there are numerous competitors, including Green Roads, diamond CBD, Folium Biosciences, CBD Rx. St. Mary’s Nutritional and CV Sciences, some of whom may be larger and have a longer operating history and greater financial resources than does the Company. Moreover, we may also face competition with larger firms in consumer products manufacturing and distribution industry, who elect to enter the market given the relatively low barriers to entry. SanSal Wellness believes that it competes effectively with its competitors because of its vertical integration through the cultivation, extraction, formulation, manufacturing and distribution processes, the quality of its products and customer service. However, no assurance can be given that SanSal Wellness will effectively compete with its existing or future competitors.
Employees
As of the date of this prospectus, we have 36 full-time employees including our executive officers, 10 of whom are based in Fort Lauderdale, Florida and 26 of whom are based in Pueblo, Colorado, with the Company employing up to an additional 25-30 employees in Pueblo, Colorado during the outdoor harvest season.
Properties
The Company owns its 140-acre cultivation and production facility located at 8648 Lake Davis Road, Pueblo, Colorado.
The Company’s executive and sales offices are currently located in approximately 2,145 square feet of space at 1512 E. Broward Blvd., Suite 300, Fort Lauderdale, FL 33301. This space is leased from a non-affiliated party at a rental of $6,648.44 per month pursuant to a three-year lease expiring in August 2021. The Company believes that its production and office facilities are adequate for its present and proximate future needs.
Legal Proceedings
Currently there are no legal proceedings pending or threatened against us. However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in any such matter may harm our business.
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MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock was traded on the OTCPink tier of the over-the-counter market operated by OTC Markets Group, Inc. from October 2, 2017, until February 12, 2018, when it commenced trading on the OTCQB tier of the over-the-counter market under the symbol “SSWH”. Such market is extremely limited. We can provide no assurance that our shares of common stock being offered.
The following table sets forth asthe range of January 31, 2016, the number of shares of common stock purchased from ushigh and the total consideration paid by our existing stockholders and by new investors in the Offering if new investors purchase 10%, 25%, 50%, 75% or 100% of the offering, before deducting offering expenses payable by us.
| Percent of Shares Sold | 10% | 25% | 50% | 75% | 100% |
| Number of shares sold | 750,000 | 1,875,000 | 3,750,000 | 5,625,000 | 7,500,000 |
| Anticipated net offering proceeds | ($15,000) | $7,500 | $45,000 | $82,540 | $120,000 |
| Total shares issued and outstanding post offering | 8,250,000 | 9,375,000 | 11,250,000 | 13,125,000 | 15,000,000 |
| Offering price per share | $0.02 | $0.02 | $0.02 | $0.02 | $0.02 |
| Pre-offering net tangible book value/share | ($0.01) | ($0.01) | ($0.01) | ($0.01) | ($0.01) |
| Post offering net tangible book value | ($77,681) | ($55,181) | ($17,681) | $19,819 | $57,319 |
| Post offering net tangible book value/share | ($0.01) | ($0.01) | $0.00 | $0.00 | $0.00 |
| Increase (Decrease) in net tangible book value per share after offering | - | - | 0.01 | 0.01 | 0.01 |
| Dilution per share to new shareholders | $0.03 | $0.03 | $0.02 | $0.02 | $0.02 |
| New shareholders percentage of ownership after offering | 9.1% | 20% | 33.3% | 42.9% | 50% |
| Existing stockholders percentage of ownership after offering | 90.9% | 80% | 66.7% | 57.1% | 50% |
| Quarter | High | Low | ||||||||
| 2017 | Fourth Quarter, commencing October 2, 2017 | $ | 1.33 | $ | 0.50 | |||||
| 2018 | First Quarter | $ | 0.68 | $ | 0.35 | |||||
| Second Quarter | $ | 0.45 | $ | 0.15 | ||||||
| Third Quarter | $ | 0.53 | $ | 0.23 | ||||||
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, (otherother than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
| that: (a) contains a description |
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, athe customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer must also provide a customer with:
In addition, the penny stock rules require that prior to effecting anya transaction in a penny stock not otherwise exempt from those rules athe broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, (ii) a written agreement to transactions involving penny stocks, and (iii) a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our securities, and thereforestock if it becomes subject to these penny stock rules. Therefore, because our stockholderscommon stock is subject to the penny stock rules, shareholders may have difficulty selling their shares.
Holders of our common stock.
As of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to receive, rateably, the net assets available to stockholders after payment of all creditors.
Transfer Agent
VStock Transfer, LLC, Woodmere, New York, is the transfer agent for our common stock.
Dividend Policy
The payment by us of dividends, if any, assurancein the future rests within the discretion of our board of directors and will depend, among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors. We have not paid any dividends since our inception and we do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business.
Rule 144 Shares
Rule 144 under the Securities Act provides that wea person who is not an affiliate and has held restricted securities for a prescribed period of at least six months (if the issuer is a reporting company) or twelve (12) months (if the issuer is a non-reporting company, as is the case herein), may, under certain conditions, sell all or any of his shares without volume limitation. Affiliates, however, may not sell shares in excess of 1% of the Company’s outstanding common stock in any three-month period. There is no limit on the amount of restricted securities that may be sold by a non-affiliate (i.e., a shareholder who has not been an officer, director or control person for the three months prior to sale) after the restricted securities have been held by the owner for the aforementioned prescribed period of time. 46,421,506 shares of common stock not covered by this prospectus are currently eligible for public sale pursuant to Rule 144. The remaining 1,000,000 shares of common stock not covered by this prospectus will be ableeligible for public sale pursuant to raise sufficient fundingRule 144 in February 2019 (1,000,000 shares).
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Explanatory Note
271 is deemed to be the survivor of the SanSal Acquisition for financial statement purposes. Moreover, we changed the Company’s fiscal year-end from January 31 to December 31 to coincide with 271’s fiscal year-end, effective with the year ended December 31, 2017.
Results of Operations
Year ended December 31, 2017 compared to year ended December 31, 2016
Revenues.We had net sales for the year ended December 31, 2017 of $1,114,674, as compared to $76,232 for the year ended December 31,2016, giving effect to the commencement of commercial production and sale of SanSal Wellness’ hemp extract products in 2017, as opposed to only limited trial marketing having taken place in 2016. Sales include bulk oils for wholesale, vegan capsules, tinctures, lotions, salves, vape oils, and oral syringes, all in various potency levels and flavors. We co-package in addition to marketing our own product lines. The majority of sales come from one customer, which may pose a business risk.
Cost of Sales:All expenses incurred to grow, process, and package the finished goods are included in our cost of sales. In both 2017 and 2016, the Company experienced large plant losses due to weather and unnatural circumstances, resulting in higher costs of raw material. Reflecting the foregoing, cost of sales was $923,260 in 2017, as compared to $521,500 in 2016, which resulted in gross profit of $191,414 for the year ended December 31, 2017, as compared to loss $(445,268) for the year ended December 31, 2016.
Expenses.Selling, general and administrative expenses increased substantially to $1,524,308 for the year ended December 31, 2017, from $984,140 for the year ended December 31, 2016, reflecting SanSal Wellness’ increased level of operations in 2017. General and administrative expenses consist primarily of administrative personnel costs, facilities expenses, and professional fee expenses. During 2017, we also incurred merger expenses of $260,750 related to the SanSal Acquisition and our becoming a public company, as compared to $-0- in 2016.
Interest expense for the year ended December 31, 2017 was $41,773, reflecting increased outstanding debt, $16,230 of which was attributable to loans from principal shareholders, as compared to $28,717 for the year ended December 31, 2016.
In 2017 we also recognized a $818,591 loss on disposal of capital lease equipment that was not functioning properly and was repossessed. The Company has not formally been released from the related liability of $538,254 and is currently in negotiations with the lessor.
As a result of the increase in operating and other expenses incurred during the year ended December 31, 2017, offset by revenues in sales less cost of goods sold, net loss for the year ended December 31, 2017, increased to $(2,454,008) or $(.04) per share based on 58,677,212 weighted average shares outstanding from $(1,458,125) or $(.02) per share based on 58,500,000 weighted average shares outstanding in 2016.
Nine months ended September 30, 2018 compared to nine months ended September 30, 2017
Revenues.We had net sales for the nine months ended September 30, 2018 of $1,277,914, as compared to $755,749 for the nine months ended September 30, 2017, giving effect to the ramp up of commercial production and sale of newly branded Veritas Farms hemp extract products and additional marketing efforts in the 2018 period from the 2017 period. Sales include bulk oils for wholesale, vegan capsules, tinctures, lotions, salves, vape oils, and oral syringes, all in various potency levels and flavors. We co-package in addition to marketing our common stockown product lines. The majority of sales come from two customers, which may pose a business risk.
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Cost of Sales:All expenses incurred to fundgrow, process, and package the finished goods are included in our objectives. We believe that debt financing will not be an alternative for funding the complete marketing program. We do not have any arrangements in place for any future equity financing.
Expenses.Selling, general and administrative expenses increased to $2,041,773 for the nine months ended September 30, 2018, from $867,717 for the nine months ended September 30, 2017, reflecting the expansion of operations as a result of the increased availability of capital during the 2018 period. General and administrative expenses consist primarily of administrative personnel costs, facilities expenses, and professional fee expenses. Professional fee expenses and a large marketing campaign towards Veritas Farms™ and an online presence comprise much of this increase.
Interest expense for the nine months ended September 30, 2018 was $26,012, $16,248 of which was attributable to loans from a principal shareholder, as compared to $30,753 for the nine months ended September 30, 2017, $9,716 of which was attributable to loans from a principal shareholder.
Merger expenses relating to the reverse merger of $260,750 were incurred during the nine months ended September 30, 2017, compared to $0 in the near future. We currently do not have2018 period.
As a specific planresult of how we will obtain such funding; however, we anticipate that additional funding will bethe increase in operating and other expenses incurred for the nine months ended September 30, 2018, offset partially by higher gross profit, net loss for the nine months ended September 30, 2018, decreased to $(1,677,711) or $(0.02) per share based on 70,348,222 weighted average shares outstanding from $(973,719) or $(0.02) per share for the nine months ended September 30, 2017, based on 58,522,500 weighted average shares outstanding.
Liquidity and Capital Resources
As of September 30, 2018, total assets were $6,368,125, as compared to $5,210,740 at December 31, 2017. Assets increased due to a small increase in fixed assets, build out of inventory for a custom order and an increase in prepaid insurance.
Total current liabilities as of September 30, 2018 were $1,760,008, as compared to $2,002,487 at December 31, 2017, decreasing in the formperiod due to payment of equity financingaccounts payable and accrued expenses.
Net cash used in operating activities was $2,215,463 for the nine months ended September 30, 2018, as compared to $1,327,622 for the same period in 2017. The results of operations in addition to decreases in accounts payable and accrued expenses comprise most of the change.
Net cash used in investing activities declined to $292,212 for the nine months ended September 30, 2018, from $373,887 for the nine months ended September 30, 2017, reflecting a decrease in cash used for the purchase of property and equipment from the sale2017 period to the 2018 period.
Net cash provided by financing activities was $2,936,769 for the nine months ended September 30, 2018, primarily attributable to the proceeds from a private offering of our common stock. equity securities, as compared to $1,701,173 for the nine months ended September 30, 2017.
Our management is preparedprimary sources of capital to provide us with short-term loans, although no such arrangement hasdevelop and implement our business plan have been made. At this time, we cannot provide investors with any assurance that we will be able to raise sufficient fundingthe proceeds from the saleprivate offerings of our common stock or through a loan from our directors to meet our obligations over the next twelve months. We do not have any arrangements in place for any future equity financing. If we are unable to raise sufficient funds we will be forced to abandon our business plan. If this is the case we will have to find a more viable business plan or go outsecurities, capital contributions and loans made by members of business.
On July 31, 2018, the Company completed the Private Offering of 29,250,000 Units at a price of $0.10 per Unit for total cash proceeds of $2,925,000. Each Unit consisted of (a) one share of the Company’s common stock and (b) one Warrant. In addition, a $175,000 ninety (90) day convertible bridge promissory note issued by the Company in May 2018 to a single accredited investor in a private transaction, converted in accordance with its terms into 2,187,500 Units at the first closing of the Private Offering.
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The Warrants entitle the holder thereof to purchase our common stock or securities convertible into sharesone share at an exercise price of our common stock.
In order to January 31, 2016. However, we did produce 4,500 bottles of icewine which will be used for product sampling and marketing to potential customers and distributors. We have not commenced the marketing stage of our business, other than the review of data and online research, the development of a logo and label, selection of a bottle, mini-product brochure and the development of a website www.armeaubrands.com, and can provide no assurance that we will generate revenue from the proposed sale of our beverages.
Notwithstanding consummation of the company.
| Legal and Accounting - | $ | 30,000 | ||
| Salaries | 30,000 | |||
| Purchase of land and building - | 20,000 | |||
| Renovations to building | 10,000 | |||
| Purchase of grape pressing and other equipment | 20,000 | |||
| Production expenses for 2016/2017 vintage | 10,000 | |||
| $ | 120,000 |
Critical Accounting Policies
Revenue Recognition
In responseMay 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these conditions,amendments with ASU 2014-09 (collectively, the new revenue standards).
The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we may raise additional capital throughsatisfy the saleperformance obligation.
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Revenues from product sales are recognized when the customer obtains control of equity securities, through an offeringthe Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of debt securitiesobtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or through borrowings from financial institutionsless or individuals. The financial statementsthe amount is immaterial.
Property, Plant and Equipment
Purchase of property, plant and equipment are recorded at cost. Improvements and replacements of property, plant and equipment are capitalized. Maintenance and repairs that do not includeimprove or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any adjustmentsgain or loss is reported in the Statements of Operations. Depreciation is provided over the estimated economic useful lives of each class of assets and is computed using the straight-line method
Impairment of Long-Lived Assets
The carrying value of long-lived assets are reviewed when facts and circumstances suggest that mightthe assets may be necessary if we are unableimpaired or that the amortization period may need to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. It also requires management to exercise its judgment in the processing of applying our company’s accounting policies. Our company regularly evaluatesActual results could differ from those estimates. Significant estimates and assumptionsincluded deferred revenue, costs incurred related to deferred revenue, the useful lives of property and equipment and the useful lives of intangible assets.
Income Taxes
The Company was a limited liability company for income tax valuation allowances. Our company bases its estimatespurposes until September 27, 2017, when the transaction discussed in “Nature of Business” under Note 1 to the Company’s consolidated financial statements included in Item 1 of this report, occurred. In lieu of corporate income taxes, the owners were taxed on their proportionate shares of the Company’s taxable income. Accordingly, no liability for federal or state income taxes and assumptions on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The impacts of such estimates and judgments are pervasive throughoutno provision for federal or state income taxes have been included in the financial statements up to that date.
The Company accounts for income taxes under ASC 740 Income Taxes. Under the asset and may require accounting adjustments based on future occurrences. Revisions to accounting estimatesliability method of ASC 740, deferred tax assets and judgmentsliabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period in which the estimateenactment occurs. A valuation allowance is revisedprovided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
In accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes, management evaluated the Company’s tax positions and future periods ifconcluded that the revision affects both current and future periods.Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The actual results experiencedCompany is subject to routine audits by our company may differ materially and adversely from our company’s estimates. To the extenttaxing jurisdictions; however, there are currently no audits for any tax periods in progress.
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Effective September 27, 2017, the Company became taxed as a C-Corporation. Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely than-not be sustained upon examination by taxing authorities. The Company has analyzed tax positions taken for filings with the Internal Revenue Service and all tax jurisdictions where it operates. The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material differences betweenadverse effect on the estimates and the actual results, futureCompany’s financial condition, results of operations will be affected.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Termination of Saturna Group Chartered Professional Accountants LLP
Effective November 8, 2017, we terminated Saturna Group Chartered Professional Accountants LLP (“Saturna Group”), as our independent registered public accounting firm. The decision to terminate Saturna Group was unanimously approved by the board of directors of SanSal Wellness on November 8, 2017.
The report of Saturna Group for the fiscal years ended January31, 2017 and January 31, 2016, did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that such reports on the Company’s financial statements contained an explanatory paragraph in respect to the substantial doubt about its ability to continue as a going concern.
During the fiscal years ended January 31, 2017 and January 31, 2016, and the subsequent period through the date of termination (a) there have been no disagreements with Saturna Group, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Saturna Group, would have caused Saturna Group, to make reference to the subject matter of the disagreement in connection with their respective reports; (b) no such disagreement was discussed with the Company’s board of directors or any committee of the board of directors of the Company; and (c) there have been no “reportable events” as described in Item 304(a)(1)(v) of Regulation S-K.
Engagement of Paritz & Company, P.A.
Effective November 8, 2017, SanSal Wellness engaged Paritz & Company, P.A. (“Paritz”) as our independent public accountants since our inception.registered accounting firm. The engagement of Paritz was approved by the Company’s board of directors on November 8, 2017.
During the Company’s two most recent fiscal years and any subsequent interim period prior to Paritz’s engagement as the Company’s new independent registered public accounting firm, the Company did not consult withParitzregarding either (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (b) any matter that was either the subject of a disagreement as defined in Item 304 of Regulation S-K or a “reportable event” as such term is described in Item 304(a)(1)(v)of Regulation S-K.
Resignation of Paritz & Company, P.A.;Engagement of Prager Metis CPAs LLC
On October 25, 2018, Paritz announced its resignation effective on the same date. As a result, the Company’s board of directors engaged Prager Metis CPAs LLC (��Prager”) to serve as the Company’s independent registered public accounting firm effective October 25, 2018.
The reports of Paritz on the financial statements of the Company as of and for the fiscal years ended December 31, 2017 and 2016 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that the audit reports on the financial statements of the Company for the two fiscal years contained an uncertainty about the Company’s ability to continue as a going concern.
During the Company’s fiscal years ended December 31, 2017 and 2016 and the subsequent interim period from January 1, 2018 to the date of this report, and in connection with the audit of the Company’s financial statements for such periods, there were no disagreements between the Company and Paritz on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Paritz, would have caused Paritz to make reference to the subject matter of such disagreements in connection with its audit reports on the Company’s financial statements.
During the Company’s fiscal years ended December 31, 2017 and 2016 and the subsequent interim period from January 1, 2018 to the date of this report, there were no reportable events within the meaning of Item 304(a)(1)(v) of Regulation S-K.
During the Company’s fiscal years December 31, 2017 and 2016 and the subsequent interim period from January 1, 2018 to the date of this report, the Company did not consult with Prager regarding any of the matters set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
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Directors and Executive Officers
Our directors and executive officers and their respective ages and titles are as follows:
| Name | Age | Position(s) and Office(s) Held | ||
| Alexander M. Salgado | 52 | Chief Executive Officer and Director | ||
| Erduis Sanabria | 44 | Executive Vice President and Director | ||
| Dave Smith | 63 | Chief Operating Officer | ||
| Riana Meyer | 49 | Vice President of Operations | ||
| Derek Thomas | 32 | Vice President of Business Development | ||
| Nicholas Di Francesco | 37 | Vice President of Medical Sales and Marketing | ||
| Jaitegh Singh | 31 | Vice President and Secretary |
Set forth below is not required by smaller reporting companies.
Alexander M. Salgadoco-founded SanSal Wellness and has served as its Chief Executive Officer since its inception in January 2015. From 2013 to 2015, Mr. Salgado was the Chief Operating Officer of IXE Agro USA LLC, a division of a multi-national conglomerate of firms involved in the agricultural industry focused on the growing, marketing, shipping and selling of fresh produce throughout the Americas. From 2006 to 2013, Mr. Salgado was the President of Protex Investment Group LLC, a real estate acquisition and management consultation company. Since 2000, Mr. Salgado, a board licensed Certified Public Accountant has also served as President of Alexander M. Salgado, CPA, PA, an accounting, tax and consulting firm located in Miami, Florida. Mr. Salgado holds a bachelor’s degree in Accounting from Florida International University.
Erduis Sanabriaco-founded SanSal Wellness and has served as its Executive Vice President since its inception in January 2015. From December 2012 to August 2014, Mr. Sanabria served as the Managing Member of Pam Exchange Recycling, LLC, a company he co-founded engaged in the business of recycling aluminum products in the Dominican Republic. During that same period, Mr. Sanabria served as Manager of Pam Exchange, LLC, a South Florida based diamond and watch trading company he founded in May 2010.
Dave Smithjoined the Company as its Chief Operating Officer in September 2018. In an almost 40-year career, Mr. Smith has held various executive management positions in marketing, sales, operations, and business development. Prior to joining SanSal Wellness, he was President of Inter-Continental Cigar Corporation, distributor of Al Capone Cigarillos, the #1 premium cigarillo in the U.S., from 2011 to 2018.
From 2008 to 2011, Mr. Smith was President of JDS Consumer Solutions, a Florida-based consumer and customer sales and marketing solutions provider. From 2006 to 2008, he was Chief Operating Officer of Pantheon Chemical, an Arizona-based “green” chemical company. From 2002 to2006, he was Senior Vice President and subsequently, Chief Operating Officer of FB Foods Inc., a Florida-based manufacturer of children’s refrigerated meals.
From 1989 to 2001, Mr. Smith held various senior positions with fruit beverage giant Tropicana Products, including Director Business Development-Asia Pacific from 1998 to 2001 (Hong Kong), Commercial Director from 1994 to 1996 (Taiwan), Director Channel Development-Grocery in 1993 (Florida), Director-National Accounts in 1992 (Florida), Southern Division Manager in 1991 (Florida) and Region Manager from 1989 to 1990 (Alabama).
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Mr. Smith has also held key positions with other Fortune 500 companies, including Director-Sales and Marketing of The Seagram Company Ltd. from 1996 to1998 and various management positions with The Gillette Company Safety Razor Division from 1981 to1989. He is a veteran of the U.S. Navy (Seabees) and graduate of the University of Alabama at Birmingham.
Rianna Meyer joined the Company in August 2015 and became Vice President of Operations on November 20, 2017. As an original team member of the Company, she has overseen the successful establishment and growth of SanSal’s operations and employee team. Ms. Meyer’s daily operations responsibilities include overseeing the cultivation team, laboratory technicians, and overall production of SanSal’s products. Prior to joining the Company, she was the principal of her own consulting firm from 2014 to 2015, focused on assisting cannabis licensees in Colorado with compliance and other industry related matters. Prior to joining the legal cannabis industry, Ms. Meyer supported the National Science Foundation as a Fire Captain for the Antarctica Program. Ms. Meyer also served in the United States Air Force.
Derek Thomasjoined the Company on December 6, 2017 as its Vice President of Business Development. Mr. Thomas is a business development, branding, and communications strategist who is focused on helping companies grow their brands and tell their compelling stories. From 2014 until joining the Company, he worked as an independent consultant with various startups to evolve the dialogue taking place between consumers and brands, particularly in the cannabis industry, including the Hemp Blue and Technical420 brands. Mr. Thomas previously spent several years working in hospitality for multimillion dollar brands. From 2012 to 2014, Mr. Thomas was the Director of International Business Development of Life In Color, a wholly owned subsidiary of LiveStyle Inc., the largest global producer of live events and digital entertainment content focused on electronic music culture (EMC) and other world-class festivals. From 2010 to 2012, Mr. Thomas managed operations, private rentals and special events as a General Manager with sbe Group, operator of the luxury SLS Hotels in Miami, Beverly Hills, South Beach, and Las Vegas.
Nicholas DiFrancesco joined SanSal Wellness as its Vice President of Medical Sales and Marketing in May 2018. Mr. DiFrancesco is directly overseeing the creation, launch, marketing, and sale of the Company's planned product line targeted to key participants in the professional medical community such as doctors, pharmacists, physiotherapists, and chiropractors. With over 16 years of sales and marketing experience in the pharmaceutical and medical device industries, Mr. DiFrancesco holds a record of consistent achievements in driving innovative, cost-effective sales and marketing strategies, programs and initiatives that produce ground breaking impact to account retention and revenue growth. Mr. DiFrancesco has hired, managed and trained medical sales teams who helped achieve growth targets in their respective product categories For seven years prior to joining SanSal Wellness, Mr. DiFrancesco was employed by Primus Pharmaceuticals, where he initially served as served as Professional Specialty Territory Manager from March 2011 to August 2012 and then was promoted to the newly created position of National Marketing and Sales Associate, a position he occupied from August 2012 to August 2017.
Jaitegh Singh, became the Company’s Chief Executive Officer, Chief Financial Officer and sole director on June 5, 2017 and served in those positions until completion of the SanSal Acquisition on September 27, 2017, at which time he stepped down from those positions and assumed the positions of the Company’s Vice President and Secretary. Mr. Singh has been a practicing attorney in South Florida since November 2012, focusing on bankruptcy and creditors’ rights matters as a partner in the Fort Lauderdale, Florida firm of Singh Law, P.A. During that same period, he also served as Chief Executive Officer of Bankruptcy Court Secrets Corp., a Fort Lauderdale based company which operates an independent educational platform for every day real estate investors to learn how to buy real estate through the bankruptcy court process. From June 2014 to May 2015, Mr. Singh also served as President and Chief Executive Officer of High Desert Assets, Inc., a Scottsdale, Arizona based publicly-held company whose shares are traded on the over-the-counter market, which provides consulting services to the legal medical and recreational marijuana industry in Colorado and Arizona. Mr. Singh holds a J.D. degree from the Shepard Broad Law Center of Nova Southeastern University.
Terms of Office
Our directors are appointed for a one-year term to hold office until the next annual meeting of the security holdersour shareholders and until a successor is appointed and qualified, or until their successors have been elected and qualified. Theremoval, resignation, or death. Executive officers serve at the pleasure of the board of directors.
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Director Independence
At present, neither of our company are appointed bydirectors is “independent” as defined under Rule 10A-3(b)(1) under the Exchange Act, although we intend to seek additional qualified individuals who would be so categorized to join our board.
Board Committees
Our board of directors and hold office until their death, resignation or removal from office. Our directors and executive officers, their ages, positions held, and duration as such, are as follows:
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to among otheremployees, including our principal executive officer, principal financial officer, or persons membersperforming similar functions.
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Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to each of our executive officers for the years ended December 31, 2017 and December 31, 2016.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards (#) | Option Awards (#) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||||
| Alexander M. Salgado, Chief Executive | 2017 | 150,000 | 0 | 0 | 1,000,000 | 76,155 | 0 | 0 | 226,153 | |||||||||||||||||||||||||||||
| Officer(1) | 2016 | — | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| Erduis Sanabria, Executive Vice President | 2017 | 150,000 | 0 | 0 | 1,000,000 | 76,155 | 0 | 0 | 226,153 | |||||||||||||||||||||||||||||
| Officer(2) | 2016 | — | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| Rianna Meyer, Vice President of Operations(3) | 2017 | 75,000 | 0 | 0 | 500,000 | 11,423 | 0 | 0 | 86,423 | |||||||||||||||||||||||||||||
| 2016 | 70,000 | 0 | 0 | 0 | 0 | 0 | 0 | 70,000 | ||||||||||||||||||||||||||||||
Derek Thomas, Vice President of Business Development(4) | 2017 | 8,331 | 0 | 0 | 0 | 0 | 0 | 0 | 8,331 | |||||||||||||||||||||||||||||
| Jaitegh Singh, Vice President and Secretary | 2017 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
(1)Mr. Salgado was granted an option for 1,000,000 shares on September 27, 2017, all vested immediately.
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(2)Mr. Sanabria was granted an option for 1,000,000 shares on September 27, 2017, all vested immediately.
(3)Ms. Meyer was granted an option for 500,000 shares on September 27, 2017, which vests in three equal annual installments on September 27, 2018, 2019 and 2020, subject to her continued employment with the Company.
(4)Mr. Thomas joined the Company in December 2017.
Employment Agreements
At Closing of the SanSal Acquisition on September 27, 2017, the Company entered into employment agreements with each of Messrs. Salgado and Sanabria. Each employment agreement provides for a three-year rolling term, base salary of $150,000, increasing to $250,000 on April 1, 2018 and a grant of 1,000,000 vested options under the Company’s 2017 Stock Incentive Plan. The options are exercisable at any time during the ten (10) year period commencing on the date of grant, at an exercise price of $0.0833 per share and are otherwise subject to the terms of the 2017 Stock Incentive Plan. The employment agreements also contain customary confidentiality, non-competition and change in control provisions.
In August 2018, the Company granted an additional 2,000,000 options to each of Messrs. Salgado and Sanabria under the Company’s 2017 Stock Incentive Plan. The options vest in three equal installments on the date of grant, on the six-month and first anniversaries of the date of grant. The options are exercisable, to the extent vested, at any time during the ten (10) year period commencing on the date of grant, at an exercise price of $0.36 per share and are otherwise subject to the terms of the 2017 Stock Incentive Plan.
Contemporaneously with the grants to Messrs. Salgado and Sanabria, the Company granted to each of Rianna Meyer, its Vice President of Operations and Derek Thomas, its Vice President of Business Development, 200,000 options under the Company’s 2017 Stock Incentive Plan. The options vest in three equal installments on the first, second and third anniversaries of the date of grant. The options are exercisable, to the extent vested, at any time during the ten (10) year period commencing on the date of grant, at an exercise price of $0.36 per share and are otherwise subject to the terms of the 2017 Stock Incentive Plan.
In August 2018, the Company entered into a three-year employment agreement with Dave Smith, to serve as the Company’s Chief Operating Officer, effective in September 2018. The employment agreement provides for a base salary of $225,000, the ability to be granted an annual bonus of up to $125,000 based on performance criteria set by the board of directors our company's officers including our president, chief executive officer and chief financial officer, employees, consultantsa grant of 750,000 options under the Company’s 2017 Stock Incentive Plan, 375,000 of which vested on the grant date and advisors. As adopted, our Codethe 375,000 balance of Business Conductwhich will vest on the six-month anniversary of the grant date. The options are exercisable, to the extent vested, at any time during the ten (10) year period commencing on the date of grant, at an exercise price of $0.36 per share and Ethics sets forth written standards that are designedotherwise subject to deter wrongdoingthe terms of the 2017 Stock Incentive Plan. The employment agreement also contains customary confidentiality, non-competition and to promote:
Outstanding Equity Awards at Fiscal Year End
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each of our named executive officers duringoutstanding as of December 31, 2017, the end of our last twocompleted fiscal years.
| Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | Number of Shares that have not vested | Market value of shares of stock that have not vested | |||||||||||||||||
| Alexander M. Salgado | 1,000,000 | 1,000,000 | $ | 0.0833 | September 27, 2027 | 0 | $ | 0 | ||||||||||||||
| Erduis Sanabria | 1,000,000 | 1,000,000 | $ | 0.0833 | September 27, 2027 | 0 | $ | 0 | ||||||||||||||
| Rianna Meyer | 500,000 | 500,000 | $ | 0.0833 | September 27, 2027 | 500,000 | $ | 345,000 | ||||||||||||||
| Derek Thomas | -0- | -0- | n/a | n/a | n/a | n/a | ||||||||||||||||
Compensation of Directors
We currently do not have any non-employee directors. Accordingly, for the year ended December 31, 2017, our last completed fiscal year, ended January 31, 2016, thereneither of our directors were no options exercised by our named officers.
2017 Incentive Stock Plan
Our 2017 Incentive Stock Plan provides for equity incentives to be granted to our director since the inception of our company.
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The following table sets forth, the ownership, as of May 5 , 2016,the date of this prospectus, the beneficial ownership of our common stock by each director and executive officer, by each person known by us to beneficially own 5% or more of our common stock and by directors and executive officers by all of our executive officers and directors as a group. Unless otherwise stated, the address of the persons set forth in the table is c/o the Company, 1512 E. Broward Blvd., Suite 300, Fort Lauderdale, FL 33301.
| Names and addresses of beneficial owners | Number of shares of common stock* | Percentage of class (%)* | ||||||
| Directors and executive officers: | ||||||||
| Alexander M. Salgado(1) | 29,007,833 | 25.8 | ||||||
| Erduis Sanabria(2) | 29,007,833 | 25.8 | ||||||
| Dave Smith | 375,000 | * | ||||||
| Riana Meyer | 166,667 | * | ||||||
| Derek Thomas | 0 | 0 | ||||||
| Nicholas DiFrancesco | 0 | 0 | ||||||
| Jaitegh Singh | 0 | 0 | ||||||
| All directors and executive officers as a group (seven persons)(1)(2) | 35,229,850 | 30.7 | ||||||
| Other 5% or greater shareholders: | ||||||||
| George Attlee Boden 198 Magellan Quay Grand Cayman Cayman Islands KY1-1108 | 14,375,000 | 13.1 | ||||||
| William R. Maines 15 Meadowood Lane Binghamton, NY 13901 | 10,000,000 | 9.1 | ||||||
| * | Includes shares issuable upon the exercise of options within sixty (60) days of the date of this prospectus. |
| (1) | Includes (a) 5,680,350 shares owned of record by Mr. Salgado; (b) 2,333,333 shares underlying presently exercisable options held by Mr. Salgado; and (c) 20,994,150 shares held by other shareholders who were former Members of 271, which Messrs. Salgado and Sanabria have the right to vote (but not dispose of) pursuant to a five-year voting agreement entered into among Messrs. Salgado, Sanabria and such other shareholders at Closing of the SanSal Acquisition on September 37, 2017 (the “Voting Agreement”). |
| 42 |
| (2) | Includes (a) 5,680,350 shares owned of record by Mr. Sanabria; (b) 2,333,333 shares underlying presently exercisable options held by Mr. Sanabria; and (c) 20,994,150 shares held by other shareholders who were former Members of 271, which Messrs. Salgado and Sanabria have the right to vote (but not dispose of) pursuant to the Voting Agreement. |
The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the SEC, a person (or group and by eachof persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person knownmay be deemed to us who is thebe a beneficial owner of more than 5%the same security.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Voting Agreement
At Closing of any class of our securities. As of May 5 , 2016, there were 7,500,000the SanSal Acquisition, on September 27, 2017, shareholders holding 26,674,500 shares of our common stock, who were former Members of 271, including Messrs. Salgado and Sanabria, entered into the Voting Agreement, pursuant to which Messrs. Salgado and Sanabria have the right to vote (but not dispose of) such shares for a five-year period.
Loans
Prior to completion of the Private Offering in July 2018, a primary source of capital to develop and implement our business plan came from the proceeds of loans made by members of 271during 2017 prior to completion of the SanSal Acquisition (none of which lenders was an officer, director or principal shareholder of the Company) and loans made during 2017 and 2018 by Erduis Sanabria, our Executive Vice President and a director. The loans accrued interest at rates between 2% and 3% per annum. The principal balance of the loans from members of 271 aggregated approximately $745,000 and the loans from Mr. Sanabria aggregated approximately $798,000. As of the date of this prospectus, the principal balance of the loans to the members of 271 have been reduced to $130,985 and $154,339, respectively. It is anticipated that the principal balance of these loans together with accrued interest will be repaid in full by March 31, 2019.
Legal Services
A law firm owned by the brother of Alexander M. Salgado, our Chief Executive Officer, rendered legal services to the Company during the year ended December 31, 2017 and the nine months ended September 30, 2018. The firm was paid an aggregate of $116,955 and $179,245 for such services during such year and such period and accrued $116,955 and $93,220 for such services during such year and such period.
Review, Approval and Ratification of Related Party Transactions
Given our small size and limited financial resources, we had not adopted formal policies and procedures for the review, approval or ratification of transactions with our executive officers, directors and significant shareholders. However, we intend that such transactions will, on a going-forward basis, be subject to the review, approval or ratification of our board of directors, or an appropriate committee thereof.
| 43 |
General
Our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.001 and 5,000,000 shares of preferred stock, par value $0.001, of which, as of the date of this prospectus, 110,129,841 shares of common stock are issued and outstanding not assumingand no shares of preferred stock are issued and outstanding.
Common Stock
All issued and outstanding shares are, and the completionshares issuable upon exercise of the Offering. All persons namedWarrants, when paid for and issued will be, fully paid and non-assessable. Each holder of shares is entitled to one vote for each share owned on all matters voted upon by shareholders and a majority vote is required for all actions taken by shareholders. In the event we liquidate, dissolve or wind-up our operations, the holders of the shares are entitled to share equally and ratably in our assets, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any shares of preferred stock that may then be outstanding. The shares have soleno preemptive rights, cumulative voting rights and investmentno redemption, sinking fund, or conversion provisions.
Holders of common stock are entitled to receive dividends, if and when declared by the board of directors, out of funds legally available for such purpose, subject to the dividend and liquidation rights of any preferred stock that may then be outstanding.
Preferred Stock
Our board of directors has the authority, without further action by the shareholders, to issue shares of preferred stock in one or more series and to fix the rights, preferences and the number of shares constituting any series of the designation of such series. While our Articles of Incorporation and bylaws do not contain any provisions that may delay, defer or prevent a change in control, the issuance of preferred stock may have the effect of delaying or preventing a change in control or make removal of our management more difficult.
The validity of the common stock being offered hereby has been passed upon by Gutiérrez Bergman Boulris, PLLC, Coral Gables, Florida. Members of the law firm hold options to acquire 350,000 shares of our common stock granted under our 2017 Incentive Stock Plan.
The audited financial statements included in this prospectus and elsewhere in the registration statement have so been included in reliance upon the report of Paritz and Company, P.A., independent registered public accountants, upon the authority of said firm as experts in accounting and auditing in giving said report.
We have filed a registration statement on Form S-1 under the Securities Act with the SEC with respect to the shares exceptof our common stock offered through this prospectus. This prospectus is filed as otherwise noted. The numbera part of shares described below includes shares which the beneficial owner described has the right to acquire within 60 daysthat registration statement, but does not contain all of the date of this registration statement.
| 44 |
ITEM 12A - DISCLOSURE OF COMMISSIONSEC POSITION ON INDEMNIFICATION OF SECURITES
FOR SECURITIES ACT LIABILITIES
In accordance with the provisions in our Amended and Restated Articles of Incorporation, we maywill indemnify our directors and officers to the fullest extent.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controland controlling persons pursuant to the foregoing provisions, or otherwise, we have been informedadvised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
SANSAL WELLNESS HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
To the Board of Directors and StockholdersShareholders of Armeau Brands
SanSal Wellness Holdings, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Armeau BrandsSanSal Wellness Holdings, Inc. (the Company) as of JanuaryDecember 31, 20162017 and 2015,2016, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit,operation, shareholders’ equity, and cash flows for each of the two years then ended. in the period ended December 31, 2017, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes considerationAs part of our audits, we are required to obtain an understanding 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
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discusseddescribed in Note 110 to the consolidated financial statements, the Company has sustained substantial losses from operations since its inception. As of and for the year ended December 31, 2017, the Company had an accumulated deficit of $4,091,017, a net loss of $2,454,008, and a working capital deficit and an accumulated deficit since inception.of $423,931. These factors, among others, raise substantial doubt aboutregarding the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discusseddescribed in Note 110 to the accompanying financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ Paritz & Company, P.A. | |
| We have served as the Company’s auditor since 2017. | |
| Hackensack, New Jersey | |
| April 23, 2018 |
| F-2 |
SanSal Wellness Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | 27,803 | $ | 95,591 | ||||
| Inventories | 1,428,758 | 546,623 | ||||||
| Accounts Receivable | 79,901 | - | ||||||
| Prepaid Expenses | 42,094 | - | ||||||
| Total Current Assets | $ | 1,578,556 | $ | 642,214 | ||||
| PROPERTY PLANT AND EQUIPMENT, net of accumulated depreciation of $306,038 and $73,318, respectively | $ | 3,609,184 | $ | 4,282,429 | ||||
| Deposits | $ | 23,000 | $ | - | ||||
| TOTAL ASSETS | $ | 5,210,740 | $ | 4,924,643 | ||||
See Accompanying Notes to Consolidated Financial Statements
| F-3 |
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | 245,082 | $ | 51,652 | ||||
| Accrued Expenses | 159,904 | 6,756 | ||||||
| Accrued Interest - Related Parties | 16,230 | - | ||||||
| Notes Payable - Related Parties | 1,030,080 | - | ||||||
| Current Portion of Long Term Debt | 551,191 | 390,600 | ||||||
| Total Current Liabilities | $ | 2,002,487 | $ | 449,008 | ||||
| LONG-TERM DEBT | $ | 99,966 | $ | 323,406 | ||||
| Total Liabilities | $ | 2,102,453 | $ | 772,414 | ||||
| SHAREHOLDERS' EQUITY | ||||||||
| Common Stock, $0.001 par value, 200,000,000 shares authorized, 59,895,000 and 58,500,000 shares issued and outstanding at December 31, 2017 and 2016 respectively | $ | 59,895 | $ | 58,500 | ||||
| Additional Paid in Capital | 7,139,409 | 5,730,738 | ||||||
| Accumulated Deficit | (4,091,017 | ) | (1,637,009 | ) | ||||
| Total Shareholders' Equity | $ | 3,108,287 | $ | 4,152,229 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 5,210,740 | $ | 4,924,643 | ||||
See Accompanying Notes to Consolidated Financial Statements
| F-4 |
January 31, 2016 $ | January 31, 2015 $ | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | 15 | 109 | ||||||
| Total assets | 15 | 109 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | 3,159 | – | ||||||
| Due to related party (Note 3) | 59,537 | 56,326 | ||||||
| Total liabilities | 62,696 | 56,326 | ||||||
| Nature of operations and continuance of business (Note 1) | ||||||||
| Subsequent event (Note 6) | ||||||||
| Stockholders’ deficit | ||||||||
| Common stock | ||||||||
| Authorized: 200,000,000 common shares, $0.001 par value 7,500,000 and 100 shares issued and outstanding, respectively | 7,500 | 1 | ||||||
| Additional paid-in capital | 7,600 | 99 | ||||||
| Share subscriptions receivable (Note 4) | (15,000 | ) | – | |||||
| Deficit | (62,781 | ) | (56,317 | ) | ||||
| Total stockholders’ deficit | (62,681 | ) | (56,217 | ) | ||||
| Total liabilities and stockholders’ deficit | 15 | 109 | ||||||
SanSal Wellness Holdings, Inc. and Subsidiary
Consolidated Statements of Operations
| Year Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Sales | $ | 1,114,674 | $ | 76,232 | ||||
| Cost of sales | 720,340 | 42,793 | ||||||
| Plant Inventory Write-off | 202,920 | 478,707 | ||||||
| $ | 923,260 | $ | 521,500 | |||||
| Gross profit (loss) | $ | 191,414 | $ | (445,268 | ) | |||
| Operating Expenses | ||||||||
| Selling, General and Administrative | 1,524,308 | 984,140 | ||||||
| Total Operating Expenses | $ | 1,524,308 | $ | 984,140 | ||||
| Operating loss | $ | (1,332,894 | ) | $ | (1,429,408 | ) | ||
| Other Expense | ||||||||
| Merger Expenses | $ | 260,750 | $ | - | ||||
| Loss on Disposal of Property and Equipment | 818,591 | - | ||||||
| Interest Expense - Related Party | 16,230 | - | ||||||
| Interest Expense - Other | 25,543 | 28,717 | ||||||
| Total Other Income | 1,121,114 | 28,717 | ||||||
| Loss before Provision for Income Taxes | $ | (2,454,008 | ) | $ | (1,458,125 | ) | ||
| Income Tax Provision | - | - | ||||||
| NET LOSS | $ | (2,454,008 | ) | $ | (1,458,125 | ) | ||
| Net Loss per Share | $ | (0.04 | ) | $ | (0.02 | ) | ||
| Weighted Average Shares Outstanding | 58,677,212 | 58,500,000 | ||||||
See Accompanying Notes to Consolidated Financial Statements
| F-5 |
SanSal Wellness Holdings, Inc. and Comprehensive LossSubsidiary
Consolidated Statements of Shareholders’ Equity
| Common Stock | Additional | Accumulated | ||||||||||||||||||
| Shares | Amount | Paid in Capital | Deficit | Total | ||||||||||||||||
| Balance, December 31, 2015 | 58,500,000 | $ | 58,500 | $ | 1,142,854 | $ | (178,884 | ) | $ | 1,022,470 | ||||||||||
| Contribution from Shareholders | - | 4,676,866 | - | 4,676,866 | ||||||||||||||||
| Distributions to Shareholders | (88,982 | ) | (88,982 | ) | ||||||||||||||||
| Net Loss | - | - | - | (1,458,125 | ) | (1,458,125 | ) | |||||||||||||
| Balance, December 31, 2016 | 58,500,000 | $ | 58,500 | $ | 5,730,738 | $ | (1,637,009 | ) | $ | 4,152,229 | ||||||||||
| Contribution from Shareholders | - | - | 575,195 | - | 575,195 | |||||||||||||||
| Distributions to Shareholders | (59,825 | ) | (59,825 | ) | ||||||||||||||||
| Issuance of Common Stock for Cash | 1,395,000 | 1,395 | 699,105 | 700,500 | ||||||||||||||||
| Stock-based Compensation | - | - | 194,196 | - | 194,196 | |||||||||||||||
| Net Loss | - | - | - | (2,454,008 | ) | (2,454,008 | ) | |||||||||||||
| Balance, December 31, 2017 | 59,895,000 | $ | 59,895 | $ | 7,139,409 | $ | (4,091,017 | ) | $ | 3,108,287 | ||||||||||
See Accompanying Notes to Consolidated Financial Statements
| F-6 |
| Year Ended | Year Ended | |||||||
| January 31, | January 31, | |||||||
| 2016 | 2015 | |||||||
| $ | $ | |||||||
| Operating expenses | ||||||||
| General and administrative | 254 | 553 | ||||||
| Product development | 3,051 | – | ||||||
| Professional fees | 3,159 | – | ||||||
| Total operating expenses | 6,464 | 553 | ||||||
| Net loss and comprehensive loss | (6,464 | ) | (553 | ) | ||||
| Basic and diluted loss per share | (0.03 | ) | (5.53 | ) | ||||
| Weighted average shares outstanding | 226,124 | 100 | ||||||
| Additional | Share | |||||||||||||||||||||||
| Common Stock | Paid-In | Subscriptions | ||||||||||||||||||||||
| Shares | Amount | Capital | Receivable | Deficit | Total | |||||||||||||||||||
| # | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance, January 31, 2014 | 100 | 1 | 99 | – | (55,764 | ) | (55,664 | ) | ||||||||||||||||
| Net loss for the year | – | – | – | – | (553 | ) | (553 | ) | ||||||||||||||||
| Balance, January 31, 2015 | 100 | 1 | 99 | – | (56,317 | ) | (56,217 | ) | ||||||||||||||||
| Issuance of shares | 7,500,000 | 7,500 | 7,500 | (15,000 | ) | – | – | |||||||||||||||||
| Cancellation of shares | (100 | ) | (1 | ) | 1 | – | – | – | ||||||||||||||||
| Net loss for the year | – | – | – | – | (6,464 | ) | (6,464 | ) | ||||||||||||||||
| Balance, January 31, 2016 | 7,500,000 | 7,500 | 7,600 | (15,000 | ) | (62,781 | ) | (62,681 | ) | |||||||||||||||
| Year Ended | Year Ended | |||||||
| January 31, | January 31, | |||||||
| 2016 | 2015 | |||||||
| $ | $ | |||||||
| Operating activities | ||||||||
| Net loss | (6,464 | ) | (553 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable | 3,159 | – | ||||||
| Due to related party | 3,211 | 300 | ||||||
| Net cash used in operating activities | (94 | ) | (253 | ) | ||||
| Decrease in cash | (94 | ) | (253 | ) | ||||
| Cash, beginning of year | 109 | 362 | ||||||
| Cash, end of year | 15 | 109 | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | – | – | ||||||
| Income taxes paid | – | – | ||||||
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (2,454,008 | ) | $ | (1,458,125 | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used Operating Activities | ||||||||
| Depreciation | 232,720 | 71,973 | ||||||
| Stock-based Compensation | 194,196 | - | ||||||
| Loss on Disposal of Property and Equipment | 818,591 | - | ||||||
| Changes in Operating Assets and Liabilities | ||||||||
| Inventories | (882,135 | ) | (539,123 | ) | ||||
| Prepaid Expenses | (42,094 | ) | 19,846 | |||||
| Accounts Receivable | (79,901 | ) | 3,250 | |||||
| Deposits | (23,000 | ) | - | |||||
| Accrued Interest - Shareholders | 16,230 | - | ||||||
| Accrued Expenses | 153,148 | 6,756 | ||||||
| Accounts Payable | 193,430 | 19,098 | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | (1,872,823 | ) | (1,876,325 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of Property and Equipment | (447,066 | ) | (2,341,866 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (447,066 | ) | (2,341,866 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments on Capital Lease | - | (276,926 | ) | |||||
| Payments on Long-term Debt | (12,246 | ) | (14,964 | ) | ||||
| Distributions to Shareholders | (41,428 | ) | (88,982 | ) | ||||
| Proceeds from Note Payable Shareholders | 1,030,080 | - | ||||||
| Capital Contribution from Shareholders | 575,195 | 4,676,866 | ||||||
| Proceeds from Issuance of Common Stock | 700,500 | - | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 2,252,101 | 4,295,994 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (67,788 | ) | 77,803 | |||||
| CASH AND CASH EQUIVALENTS - Beginning of Year | 95,591 | 17,788 | ||||||
| CASH AND CASH EQUIVALENTS - End of Year | $ | 27,803 | $ | 95,591 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash Paid for Interest | $ | 7,176 | $ | 28,717 | ||||
| Cash Paid for Income Taxes | $ | - | $ | - | ||||
| Non-Cash Operating Activities | ||||||||
| Acquisition Property and Equipment for a Capital Lease | $ | - | $ | 599,574 | ||||
| Non-Cash Financing Activities | ||||||||
| Distribution of Land Held for Investment | $ | 18,397 | $ | - | ||||
See Accompanying Notes to theConsolidated Financial Statements
SanSal Wellness Holdings, Inc., and Subsidiary
Notes to Consolidated Financial Statements
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Business
SanSal Wellness Holdings Inc. (the “Company”), was incorporated as Armeau Brands Inc. in the State of Nevada on March 15, 2011. On October 13, 2017, the Company filed Amended and Restated Articles of Incorporation with the Nevada Secretary of State changing the name from “Armeau Brands Inc.” to “SanSal Wellness Holdings, Inc.” The Company’s business objectives are to produce natural rich-hemp products, using strict natural protocols and marketmaterials yielding broad spectrum phytocannabinoid rich hemp oils, distillates and isolates. The Company is licensed by the Colorado Department of Agriculture to grow industrial hemp pursuant to Federal law on its own brandfarm.
Effective September 27, 2017, the Company acquired 100% of icewine thatthe issued and outstanding limited liability company membership interests of 271 Lake Davis Holdings LLC dba SanSal Wellness (“271 Lake Davis”) in exchange for 46,800,000 (7,800,000 pre-split) restricted shares of the Company’s common stock, which represented 100% of 271 Lake Davis’s total membership interests outstanding immediately following the closing of the transaction. The transaction has been accounted for as a reverse merger, whereby 271 Lake Davis is using grapes harvested in Armenia, with the plan to export its ice wine to Chinaaccounting survivor and Russia.
SanSal, LLC was a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilitieswholly owned subsidiary that was merged into 271 Lake Davis Holdings, LLC in the normal courseJanuary 2016.
Basis of business. Presentation
The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholder, the ability of the Company to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. As at January 31, 2016, the Company has a working capital deficiency of $62,681 and accumulated losses of $62,781 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Principles of Consolidation
The accompanying consolidated financial statements reflect the accounts of SanSal Wellness Holdings, Inc. and are expressed271 Lake Davis and its wholly owned subsidiary, SanSal, LLC. All significant inter-company accounts and transactions have been eliminated in U.S. dollars. The Company’s fiscal year-end is January 31.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect thecertain reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. It also requires management to exercise its judgment in the processing of applying the Company’s accounting policies. The Company regularly evaluates estimates and assumptions related to deferred income tax valuation allowances. The Company bases its estimates and assumptions on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The impacts of such estimates and judgments are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates and judgments are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. The actualdisclosures. Actual results experienced by the Company maycould differ materially and adversely from the Company’sthese estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
| F-8 |
Fair Value Measurement
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of the Company’s short and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the leveldescribes three levels of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 applies to assets or liabilities for which there are– quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as– quoted prices for similar assets orand liabilities in active markets; quoted prices for identicalmarkets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The Company does not have any assets or liabilities measured at fair value on a recurring basis.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At times, cash and cash equivalents may be in marketsexcess of FDIC insurance limits.
Revenue Recognition
The Company recognizes revenue in accordance with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable orAccounting Standards Codification No. 605, “Revenue Recognition” (“ASC-605”), ASC-605 requires that four basic criteria must be met before revenue can be derived principally from, or corroborated by, observable market data.
| F-9 |
Inventories
Inventories consist of work-in-processgrowing and finished goods relating to the productionprocessed plants and distribution of ice wine,oils and is recordedare valued at the lower of cost or net realizable value. In evaluating whether inventories are stated at lower of cost or net realizable value, on a first-in first-out basis.management considers such factors as inventories in hand, estimated time to sell such inventories and current market conditions. Write-offs for inventory obsolescence are recorded when, in the opinion of management, the value of specific inventory items has been impaired.
Property, Plant and Equipment
Purchase of property, plant and equipment are recorded at cost. Improvements and replacements of property, plant and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in theStatements of Operations. Depreciation is provided over the estimated economic useful lives of each class of assets and is computed using the straight-line method.
Impairment of Long-Lived Assets
The carrying value of long-lived assets are reviewed when facts and circumstances suggest that the assets may be impaired or that the amortization period may need to be changed. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equalconsiders internal and external factors relating to each asset, including cash flows, local market developments, industry trends and other publicly available information. If these factors and the projected undiscounted cash flows of the Company over the remaining amortization period indicate that the asset will not be recoverable, the carrying value will be adjusted to the difference betweenfair market value. The Company has determined that no impairment exists at December 31, 2017 and 2016.
Compensation and Benefits
The Company records compensation and benefits expense for all cash and deferred compensation, benefits, and related taxes as earned by its employees. Compensation and benefits expense also includes compensation earned by temporary employees and contractors who perform similar services to those performed by the costCompany’s employees.
Stock-Based Compensation
The Company accounts for share-based payments in accordance with ASC 718, “Compensation - Stock Compensation,” which requires all share-based payments to employees, including grants of inventoryemployee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, “Measurement Objective – Fair Value at Grant Date,” the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share- based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and the estimated realizable value based upon assumptions about futureinterest rates, and market conditions.to allow for actual exercise behavior of option holders.
| F-10 |
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Stock-Based Compensation (Continued)
The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the Financial Statements
The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments, and 2015
Income Taxes
The Company was a Limited Liability Company (“LLC”) for income tax purposes until September 27, 2017 when the transaction referred to in U.S. dollars)
The Company byaccounts for income taxes under ASC 740 Income Taxes. Under the weighted average numberasset and liability method of common shares outstandingASC 740, deferred tax assets and liabilities are recognized for the relevant period. Diluted loss per sharefuture tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is computed by dividingrecognized in income in the net income or loss applicable to common shares byperiod the sum ofenactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the weighted average number of common shares issuedCompany will not realize tax assets through future operations.
In accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes, management evaluated the Company’s tax positions and outstanding and all additional common sharesconcluded that would have been outstanding, if potentially dilutive instruments were converted. As at January 31, 2016 and 2015, the Company had taken no potentially dilutive shares outstanding.
Effective September 27, 2017 the Company became taxed as a C-Corporation. Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely than-not be sustained upon examination by taxing authorities. The Company has analyzed tax positions taken for filings with the Internal Revenue Service and stateall tax jurisdictions where it operates. The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Company’s financial condition, results of operations or cash flows. Accordingly, the Company has not recorded any reserves, or related accruals for interest and penalties for uncertain income tax positions at December 31, 2017 and 2016.
| F-11 |
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Related Party Transactions
The Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall include disclosures of related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity is expected to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each performance obligation. ASU 2014-09, as deferred one year by ASU 2015-14, will be effective for annual reporting periods beginning after December 15, 2018 using either of two methods: (a) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (b) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined in ASU 2014-09. The Company has not yet selected a transition method and is currently evaluating the impact of the pending adoption of ASU 2014-09 on the financial statements.
| F-12 |
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
New Accounting Pronouncements (Continued)
In July 2015, the FASB issued ASU 2015-11,Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in the ASU require entities that measure inventory using the first-in, first-out or average cost methods to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. This ASU will be effective for the Company for fiscal years beginning after December 15, 2016. The Company has adopted ASU 2015-11 and it did not have a material effect on its financial statements.
In November 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This Accounting Standards Update simplifies the presentation of deferred income taxes atby eliminating the requirement for entities to separate deferred tax liabilities and assets into current and noncurrent amounts in classified balance sheets. Instead, it requires deferred tax assets and liabilities be classified as noncurrent in the balance sheet. Accounting Standards Update 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2017. The Company early adopted this standard on a rate of 34% (2015 – 34%) per annum. The reconciliation of the provision for income taxes at the statutory rate compared to the Company’s income tax expense as reported is as follows:
2016 $ | 2015 $ | |||||||
| Income tax recovery at statutory rate | (2,198 | ) | (188 | ) | ||||
| Valuation allowance change | 2,198 | 188 | ||||||
| Provision for income taxes | – | – | ||||||
In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). The FASB issued ASU 2016-02 to increase transparency and comparability among Companies by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Certain qualitative and quantitative disclosures are required, as well as a retrospective recognition and measurement of impacted leases. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. Management is currently evaluating the standard.
Subsequent Events
The Company has evaluated subsequent events through the date which the financial statements were available to be issued.
| F-13 |
| NOTE 2: | INVENTORIES |
At December 31, 2017 and 2016 inventory consists of:
| 2017 | 2016 | |||||||
| Inventory | ||||||||
| Work in Progress | $ | 1,370,148 | $ | 546,623 | ||||
| Finished Goods | 44,802 | - | ||||||
| Other | 13,808 | - | ||||||
| Inventory | $ | 1,428,758 | $ | 546,623 | ||||
During the years ending December 31, 2017 and 2016, the Company realized a loss from destruction of plants in the amounts of $202,920 and $478,707, respectively.
During the years ending December 31, 2017 and 2016, the Company recorded work in process inventory net of $33,000 and $60,000 reserves, respectively.
| NOTE 3: | PROPERTY AND EQUIPMENT |
| Life | December 31, 2017 | December 31, 2016 | ||||||||
| PROPERTY AND EQUIPMENT | ||||||||||
| Land and Land Improvements | - | $ | 398,126 | $ | 433,825 | |||||
| Building and Improvements | 39 | 1,443,182 | 1,427,130 | |||||||
| Greenhouse | 39 | 693,987 | 691,456 | |||||||
| Fencing and Irrigation | 15 | 185,895 | 160,903 | |||||||
| Machinery and Equipment | 7 | 941,702 | 585,180 | |||||||
| Furniture and Fixtures | 7 | 216,116 | 204,893 | |||||||
| Computer Equipment | 5 | 20,053 | 21,019 | |||||||
| Truck | 5 | 16,161 | 16,161 | |||||||
| Capital Lease Asset - not in service | - | - | 815,180 | |||||||
| $ | 3,915,222 | $ | 4,355,747 | |||||||
| Less Accumulated Depreciation | (306,038 | ) | (73,318 | ) | ||||||
| Property and Equipment | $ | 3,609,184 | $ | 4,282,429 | ||||||
Total depreciation expense was $232,720 and $71,973 for the years ended December 31, 2017 and 2016, respectively.
In August 2016 the company entered into a capital lease for the purchase of equipment. In January 2017, the lessor repossessed the equipment and the Company recorded a loss of $815,180 on the disposal of the equipment.
| F-14 |
| NOTE 4: | LONG-TERM DEBT |
Long-term debt consisted of the following:
| 2017 | 2016 | |||||||
| Note Payable which requires monthly payments of $1,618 including interest at 6.00% per annum until February 1, 2020 when the balance is due in full. The note is secured by specific assets of the Company. | $ | 112,903 | $ | 125,149 | ||||
| Mortgage Payable which requires monthly payments of $466 including interest at 6.00% per annum. The loan is secured by specific assets of the Company. In February 2017, the Company distributed the land to on one of the members. | - | 50,603 | ||||||
| Capital Lease Payable which requires monthly payments of $32,850 until May 2018, when the Company may purchase the equipment for $1. The Company made no payments since August 2016 and is currently in default with the lessor. (See Note 3) | 538,254 | 538,254 | ||||||
| 651,157 | 714,006 | |||||||
| Less Current Portion | (551,191 | ) | (390,600 | ) | ||||
| Long-Term Debt - net of current portion | $ | 99,966 | $ | 323,406 | ||||
Future principal payments for the next 5 years are as follows for the years ended December 31:
| 2018 | $ | 551,191 | ||
| 2019 | 13,735 | |||
| 2020 | 86,231 | |||
| $ | 651,157 |
| F-15 |
| NOTE 5: | STOCK-BASED COMPENSATION |
The Company approved their 2017 Incentive Stock Plan on September 27, 2017 (the “Incentive Plan”) which authorizes the Company to grant or issue non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards up to a total of 7.5 million shares. Under the terms of the Incentive Plan, awards may be granted to our employees, directors or consultants. Awards issued under the Incentive Plan vest as determined by the Board of Directors or any of the Committees appointed under the Incentive Plan at the time of grant.
The Company’s outstanding stock options have a 10-year term. Outstanding non-qualified stock options granted to employees and a consultant vested immediately. Outstanding incentive stock options issued to employees vest over a three-year period. The incentive stock options granted vest based solely upon continued employment (“time-based”). The Company’s time-based share awards that vest in their entirety at the end of three-year periods, time-based share awards where 33.3% of the award vests on each of the three anniversary dates.
Stock-based compensation expense was as follows:
| Year Ended December 31: | ||||||||
| 2017 | 2016 | |||||||
| Non-Qualified Stock Options - Immediate | $ | 194,196 | $ | - | ||||
| Incentive Stock Options - Time Bases | - | - | ||||||
| Total Stock-based Compensation Expense | $ | 194,196 | $ | - | ||||
Stock option activity was as follows in the years ended December 31, 2017 and 2016:
| Stock Options | Weighted- Average Exercise | Weighted- Average Remaining | ||||||||
| Outstanding at December 31, 2016 | - | |||||||||
| Granted | 3,199,890 | $ | 0.083 | 10 Years | ||||||
| Exercised | - | |||||||||
| Forfeited/Canceled | - | |||||||||
| Outstanding at December 31, 2017 | 3,199,890 | $ | 0.083 | 9.75 Years | ||||||
| Vested at December 31, 2017 | 2,550,000 | $ | 0.083 | 9.75 Years | ||||||
| Exercisable at December 31, 2017 | 2,550,000 | $ | 0.083 | 9.75 Years | ||||||
| F-16 |
| NOTE 5: | STOCK BASED COMPENSATION (CONTINUED) |
The Company estimated the fair value of each stock option on the date of grant using the Black Scholes valuation model with the following assumptions:
| Valuation Assumptions | ||
| Risk-free interest rate | 2.14% – 2.31% | |
| Expected dividend yield | 0% | |
| Expected stock price volatility | 105% | |
| Expected life of stock options (in years) | 10 |
| NOTE 6: | OPERATING LEASES |
On January 15, 2017, the Company entered an agreement with Pueblo, CO Board of Water Works to lease water for the Company’s cultivation process. The agreement went into effect as of November 1, 2016 with a term of 10 years expiring on October 31, 2026, with an option to extend the lease upon expiration for 10 additional years. This agreement replaced previously entered agreements with Pueblo, CO Board of Water Works. The lease requires annual non-refundable minimum service fees of $15,000 and a usage charge of $1,063 per acre for 30 acres. The minimum service fees and usage charges are subject to escalators for each year based upon percentage increases of Pueblo, CO Board of Water Works rates from the previous calendar year. Total water lease expense was $48,896 and $61,638 for the years ended December 31, 2017 and 2016, respectively.
On July 12, 2016, the Company entered an agreement to lease office space for a sales office for a term of 15 months expiring on October 31, 2017. The agreement required monthly lease payments of $4,078 and included three free months of rent. This lease was not renewed.
On November 9, 2016, the Company entered an agreement to lease office space for a sales office for a term of 7 months expiring on May 31, 2017. The lease required monthly lease payments of $704 and was not renewed.
As of December 31, 2017, operating leases have no minimum rental commitments.
| F-17 |
| NOTE 7: | COMMON STOCK |
Effective September 27, 2017, the Company acquired 100% of the issued and outstanding limited liability company membership interests of 271 Lake Davis Holdings LLC dba SanSal Wellness (“271 Lake Davis”) in exchange for 46,800,000 (7,800,000 pre-split) restricted shares of the Company’s common stock.
On November 9, 2017, Financial Industry Regulatory Authority authorized a 6-for-1 forward split of the Company’s issued and outstanding shares of common stock in the form of a stock dividend. Accordingly, shareholders of the Company as of the record date of November 9, 2017 received five additional shares of common stock for each share then held. All relevant information relating to number of shares and per share information have been retrospectively adjusted to reflect the split for all periods presented.
In September 2017, the Company issued 340,000 shares of common stock for proceeds of $170,000.
In October 2017, the Company issued 100,000 shares of common stock for proceeds of $50,000.
In November 2017, the Company issued 605,000 shares of common stock for proceeds of $302,500.
In December 2017, the Company issued 350,000 shares of common stock for proceeds of $178,000.
Prior to the merger referred to in Note 1, the members of the Company made capital contributions in aggregate of $4,676,866 and $575,195 during the years ended December 31, 2016 and 20152017, respectively. There were also distributions to members of $88,982 and $59,825 during the years ended December 31, 2016 and 2017, respectively.
| F-18 |
| NOTE 8: | INCOME TAX |
The reconciliation of income tax computed at the Federal statutory rate to the provision for income taxes from continuing operations is as follows:
| Year Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Federal Taxes (credits) at statutory rates | $ | (518,000 | ) | $ | - | |||
| Permanent differences | - | - | ||||||
| State and local taxes, net of Federal benefit | $ | (69,000 | ) | - | ||||
| Change in valuation allowance | 587,000 | - | ||||||
| $ | - | $ | - | |||||
Components of deferred tax assets are as follows:
2016 $ | 2015 $ | |||||||
| Net operating losses carried forward | 21,346 | 19,148 | ||||||
| Valuation allowance | (21,346 | ) | (19,148 | ) | ||||
| Net deferred income tax asset | – | – | ||||||
| 2017 | 2016 | |||||||
| Deferred Tax Assets; | $ | - | ||||||
| Net Operating Loss Carryforwards | $ | 397,000 | - | |||||
| Total Deferred Tax Assets | 397,000 | - | ||||||
| Valuation Allowance | (162,000 | ) | - | |||||
| Total Deferred Tax Assets net of Valuation Allowance | $ | 235,000 | $ | - | ||||
| Deferred Tax Liabilities; | - | - | ||||||
| Depreciation and Amortization | 235,000 | - | ||||||
| Total Deferred Tax Liabilities | 235,000 | - | ||||||
| Net Deferred Tax Assets | $ | - | $ | - | ||||
The Company has approximately $1,480,000 net operating losses carried forward of $62,781loss carryforwards that are available to offsetreduce future taxable income. Those NOLs begin to expire in 2038. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized.
The Company’s deferred tax liability associated with timing differences related to depreciation and amortization includes $207,000 of liability resulting from tax depreciation deducted in excess of GAAP depreciation prior to the Company becoming taxed as a C-Corporation. The Company’s deferred tax assets and liabilities have been remeasured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting in a deferred tax expense of $207,000 for the year ended December 31, 2017, as entire net deferred tax asset has been reduced to $0 by a valuation allowance.
| F-19 |
| NOTE 8: | INCOME TAX (CONTINUED) |
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into law, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company has estimated its provision for income taxes in accordance with the 2017 Tax Act and the guidance available as of the date of March 30, 2018, but has kept the full valuation allowance. As a result, the Company has recorded no income tax expense in the fourth quarter of 2017, the period in which the 2017 Tax Act was enacted.
On December 22, 2017, the Securities and Exchange Commission published Staff Accounting Bulletin No. 118 (“SAB 118”), which addressed the application of GAAP in situations where the Company does not have the necessary information (including computations) available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The deferred tax expense to be recorded in connection with the remeasurement of deferred tax assets is to be a provisional amount and a reasonable estimate at December 31, 2017, based upon the best information currently available. The ultimate result may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in the interpretations and assumptions that the Company has made, additional regulatory guidance that may be issued, and actions that the Company may take as a result of the 2017 Tax Act. Any subsequent adjustment to these amounts will be recorded in current tax expense in the quarter of 2018 when the analysis is complete. The accounting is expected to be complete when the Company’s 2017 federal corporate income tax return is filed in 2018.
The Company files income tax returns in the U.S. federal jurisdiction, and the state of Colorado.
The Company adopted the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes. Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company had no significant adjustments as a result of the implementation of FASB ASC 740.
| NOTE 9: | CONCENTRATIONS |
The Company had one customer in 2017 accounting for 72% of total sales. In 2016, three customers accounted for 20%, 19%, and 17% of sales.
The Company had one customer in 2017 accounting for 79% of accounts receivable. In 2016 there were no accounts receivable concentrations.
| F-20 |
| NOTE 10: | GOING CONCERN |
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations since its inception. As of and for the year ended December 31, 2017, the Company had an accumulated deficit of $4,091,017, a net loss of $2,454,008, and a working capital deficit of $423,931. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. Continuation as a going concern is dependent on the ability to raise additional capital and financing, though there is no assurance of success.
The Company is currently in the final stages of launching a new rebranded line of hemp oil and extract products as part of the Company’s increased focus on sales and marketing. The rebranded product line, including new trade name and packaging, is being developed to expand the company’s potential customer base. The newly branded products are expected to be available to consumers, retailers, and distributors in the second quarter of 2018, and will include vegan capsules, tinctures, lotions, salves, and oral syringes in various potency levels and flavors.
Currently, the Company incorporates an aggressive marketing plan to compete in the Cannabinoid industry. To become market leaders in the market, the Company will use three primary departments to market its products including: web-based marketing, traditional marketing, and medical marketing departments.
| NOTE 11: | RELATED PARTY |
The Company paid a related party $59,260 and $0 during the years ended December 31, 2017 and 2016, respectively for legal services. As of December 31, 2017 and 2016, the Company had related party legal accruals for $93,220 and $0, respectively.
The Company entered into various note payables with shareholders of the Company between March 2017 and September 2017. The notes bear interest between 2.00% and 3.00% per annum. Principal and interest are payable in one installment due July 31, 2018. The principal balance due on these notes is $1,030,080 and $16,230 of interest is accrued as of December 31, 2017.
| NOTE 12: | SUBSEQUENT EVENTS |
In January 2018, the Company issued 84,000 shares of common stock for proceeds of $168,000.
In March 2018, the Company issued 50,000 shares of common stock for proceeds of $100,000.
| F-21 |
SanSal Wellness Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | 546,897 | $ | 27,803 | ||||
| Inventories | 1,746,021 | 1,428,758 | ||||||
| Accounts Receivable | 212,524 | 79,901 | ||||||
| Prepaid Expenses | 107,348 | 42,094 | ||||||
| Total Current Assets | $ | 2,612,790 | $ | 1,578,556 | ||||
| PROPERTY PLANT AND EQUIPMENT, net of accumulated depreciation of $500,133 and $306,038, respectively | $ | 3,707,301 | $ | 3,609,184 | ||||
| Deposits | $ | 48,034 | $ | 23,000 | ||||
| TOTAL ASSETS | $ | 6,368,125 | $ | 5,210,740 | ||||
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
| F-22 |
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | 107,422 | $ | 245,082 | ||||
| Accrued Expenses | 140,562 | 159,904 | ||||||
| Accrued Interest - Related Parties | 25,122 | 16,230 | ||||||
| Notes Payable - Related Parties | 945,324 | 1,030,080 | ||||||
| Current Portion of Long Term Debt | 541,578 | 551,191 | ||||||
| Total Current Liabilities | $ | 1,760,008 | $ | 2,002,487 | ||||
| LONG-TERM DEBT | $ | 100,476 | $ | 99,966 | ||||
| Total Liabilities | $ | 1,860,484 | $ | 2,102,453 | ||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common Stock, $0.001 par value, 200,000,000 shares authorized, 91,821,500 and 59,895,000 shares issued and outstanding at September 30, 2018 and December 31, 2017 respectively | $ | 93,822 | $ | 59,895 | ||||
| Additional Paid in Capital | 10,182,547 | 7,139,409 | ||||||
| Accumulated Deficit | (5,768,728 | ) | (4,091,017 | ) | ||||
| Total Stockholders’ Equity | $ | 4,507,641 | $ | 3,108,287 | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 6,368,125 | $ | 5,210,740 | ||||
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
| F-23 |
SanSal Wellness Holdings, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Sales | $ | 1,277,914 | $ | 755,749 | ||||
| Cost of sales | $ | 887,840 | 570,248 | |||||
| Gross profit | $ | 390,074 | $ | 185,501 | ||||
| Operating Expenses | ||||||||
| Selling, General and Administrative | $ | 2,041,773 | $ | 867,717 | ||||
| Total Operating Expenses | $ | 2,041,773 | $ | 867,717 | ||||
| Operating loss | $ | (1,651,699 | ) | $ | (682,216 | ) | ||
| Other Expenses | ||||||||
| Merger Expenses | $ | — | $ | 260,750 | ||||
| Interest Expense - Related Party | 16,248 | 9,716 | ||||||
| Interest Expense - Other | 9,764 | 21,037 | ||||||
| Total Other Expenses | 26,012 | 291,503 | ||||||
| Loss before Provision for Income Taxes | $ | (1,677,711 | ) | $ | (973,719 | ) | ||
| Income Tax Provision | — | — | ||||||
| NET LOSS | $ | (1,677,711 | ) | $ | (973,719 | ) | ||
| Net Loss per Share | $ | (0.02 | ) | $ | (0.02 | ) | ||
| Weighted Average Shares Outstanding | 70,348,222 | 58,522,500 | ||||||
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
| F-24 |
SanSal Wellness Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (1,677,711 | ) | $ | (973,719 | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash | ||||||||
| Used Operating Activities | ||||||||
| Depreciation | 194,095 | 148,833 | ||||||
| Stock-based Compensation | 46,437 | 198,476 | ||||||
| Loss on Disposal of Property and Equipment | — | — | ||||||
| Changes in Operating Assets and Liabilities | ||||||||
| Inventories | (317,263 | ) | (1,040,648 | ) | ||||
| Prepaid Expenses | (65,254 | ) | (3,915 | ) | ||||
| Accounts Receivable | (132,623 | ) | — | |||||
| Deposits | (25,034 | ) | (23,000 | ) | ||||
| Accrued Interest - Related Parties | 8,892 | 6,342 | ||||||
| Accrued Expenses | (19,342 | ) | 217,655 | |||||
| Accounts Payable | (137,660 | ) | 142,354 | |||||
| NET CASH USED IN OPERATING ACTIVITIES | (2,125,463 | ) | (1,327,622 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of Property and Equipment | $ | (292,212 | ) | $ | (373,887 | ) | ||
| NET CASH USED IN INVESTING ACTIVITIES | (292,212 | ) | (373,887 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments of Long-term Debt | $ | (9,103 | ) | $ | (12,704 | ) | ||
| Repayment of Notes Payable - Related Parties | (84,756 | ) | — | |||||
| Capital Contribution from Shareholders | — | 1,030,080 | ||||||
| Proceeds from Issuance of Common Stock | 3,030,628 | 683,797 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 2,936,769 | 1,701,173 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 519,094 | (336 | ) | |||||
| CASH AND CASH EQUIVALENTS - Beginning of Period | 27,803 | 95,591 | ||||||
| CASH AND CASH EQUIVALENTS - End of Period | $ | 546,897 | $ | 95,255 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash Paid for Interest | $ | 14,928 | $ | 8,205 | ||||
| Cash Paid for Income Taxes | $ | — | $ | — | ||||
| Non-Cash Financing Activities | ||||||||
| Distribution of Land Held for Investment | $ | — | $ | 18,397 | ||||
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
| F-25 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Business
SanSal Wellness Holdings Inc. (the “Company”), was incorporated as Armeau Brands Inc. in the State of Nevada on March 15, 2011. On October 13, 2017, the Company filed Amended and Restated Articles of Incorporation with the Nevada Secretary of State changing the name from “Armeau Brands Inc.” to “SanSal Wellness Holdings, Inc.” The Company’s business objectives are to produce natural rich-hemp products, using strict natural protocols and materials yielding broad spectrum phytocannabinoid rich hemp oils, distillates and isolates. The Company is licensed by the Colorado Department of Agriculture to grow industrial hemp pursuant to Federal law on its farm.
Effective September 27, 2017, the Company acquired 100% of the issued and outstanding limited liability company membership interests of 271 Lake Davis Holdings LLC dba SanSal Wellness (“271 Lake Davis”) in exchange for 46,800,000 (7,800,000 pre-split) restricted shares of the Company’s common stock, which represented 100% of 271 Lake Davis’s total membership interests outstanding immediately following the closing of the transaction. The transaction has been accounted for as a reverse merger, whereby 271 Lake Davis is the accounting survivor and the historical financial statements presented are those of 271 Lake Davis.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2018, and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2018, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Form 10-K for the year ended December 31, 2017, filed with the SEC on April 23, 2018.
Reclassifications
Certain reclassifications have been made in the 2017 financial statements to conform to classifications used in 2018.
Principles of Consolidation
The accompanying consolidated financial statements reflect the accounts of Sansal Wellness Holdings, Inc. and 271 Lake Davis Holdings and its wholly owned subsidiary, SanSal, LLC. All significant inter-company accounts and transactions have been eliminated in consolidation.
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
| F-26 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from these estimates.
Fair Value Measurement
The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of the Company’s short and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes 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 – quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The Company does not have any assets or liabilities measured at fair value on a recurring basis.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At times, cash and cash equivalents may be in excess of FDIC insurance limits.
| F-27 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).
The new revenue standards became effective for the Company on January 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Inventories
Inventories consist of growing and processed plants and oils and are valued at the lower of cost or net realizable value. In evaluating whether inventories are stated at lower of cost or net realizable value, management considers such factors as inventories in hand, estimated time to sell such inventories and current market conditions. Write-offs for inventory obsolescence are recorded when, in the opinion of management, the value of specific inventory items has been impaired.
| F-28 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Property, Plant and Equipment
Purchase of property, plant and equipment are recorded at cost. Improvements and replacements of property, plant and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in theConsolidated Statements of Operations. Depreciation is provided over the estimated economic useful lives of each class of assets and is computed using the straight-line method.
Impairment of Long-Lived Assets
The carrying value of long-lived assets are reviewed when facts and circumstances suggest that the assets may be impaired or that the amortization period may need to be changed. The Company considers internal and external factors relating to each asset, including cash flows, local market developments, industry trends and other publicly available information. If these factors and the projected undiscounted cash flows of the Company over the remaining amortization period indicate that the asset will not be recoverable, the carrying value will be adjusted to the fair market value. The Company has determined that no impairment exists at September 30, 2018 and December 31, 2017.
Compensation and Benefits
The Company records compensation and benefits expense for all cash and deferred compensation, benefits, and related taxes as earned by its employees. Compensation and benefits expense also includes compensation earned by temporary employees and contractors who perform similar services to those performed by the Company’s employees.
Stock-Based Compensation
The Company accounts for share-based payments in accordance with ASC 718, “Compensation - Stock Compensation,” which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, “Measurement Objective – Fair Value at Grant Date,” the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share- based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders.
| F-29 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Stock-Based Compensation (Continued)
The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.
The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments, and is recognized as expense over the service period.
Income Taxes
The Company was a Limited Liability Company (“LLC”) for income tax purposes until September 27, 2017 when the transaction referred to in Note 1 discussed in the “Nature of Business” occurred. In lieu of corporate income taxes, the owners were taxed on their proportionate shares of the Company’s taxable income. Accordingly, no liability for federal or state income taxes and no provision for federal or state income taxes have been included in the financial statements up to that date.
The Company accounts for income taxes under ASC 740 Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future yearsoperations.
In accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes, management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
Effective September 27, 2017 the Company became taxed as a C-Corporation. Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely than-not be sustained upon examination by taxing authorities. The Company has analyzed tax positions taken for filings with the Internal Revenue Service and all tax jurisdictions where it operates. The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Company’s financial condition, results of operations or cash flows. Accordingly, the Company has not recorded any reserves, or related accruals for interest and penalties for uncertain income tax positions at September 30, 2018 and December 31, 2017.
| F-30 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Related Party Transactions
The Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which expiresinvestments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall include disclosures of related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
New Accounting Pronouncements
In July 2015, the FASB issued ASU 2015-11,Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in the ASU require entities that measure inventory using the first-in, first-out or average cost methods to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. This ASU will be effective for the Company for fiscal years beginning of fiscal 2032.
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
| NOTE 1: | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
New Accounting Pronouncements (Continued)
In November 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This Accounting Standards Update simplifies the presentation of deferred income taxes by eliminating the requirement for entities to separate deferred tax liabilities and assets into current and noncurrent amounts in classified balance sheets. Instead, it requires deferred tax assets and liabilities be classified as noncurrent in the balance sheet. Accounting Standards Update 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2017. The Company early adopted this standard on a retrospective basis all deferred income tax assets and liabilities have been presented as noncurrent.
In February 8, 2016, the FASB issued ASU 2016-02,Leases (Topic 842). The FASB issued ASU 2016-02 to increase transparency and comparability among Companies by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Certain qualitative and quantitative disclosures are required, as well as a retrospective recognition and measurement of impacted leases. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. Management is currently evaluating the standard.
Subsequent Events
The Company has evaluated subsequent events through the date which the financial statements were available to be issued.
| F-32 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2: INVENTORIES
Inventory consists of:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Inventory | ||||||||
| Work In Progress | $ | 1,511,459 | $ | 1,370,148 | ||||
| Finished Goods | 122,433 | 44,802 | ||||||
| Other | 112,129 | 13,808 | ||||||
| Inventory | $ | 1,746,021 | $ | 1,428,758 | ||||
During the periods ending September 30, 2018 and December 31, 2017, the Company realized a loss from destruction of plants in the amounts of $0 and $202,920, respectively.
NOTE 3: PROPERTY AND EQUIPMENT
| September 30, | December 31, | |||||||||
| Life | 2018 | 2017 | ||||||||
| PROPERTY AND EQUIPMENT | ||||||||||
| Land and Land Improvements | — | $ | 398,126 | 398,126 | ||||||
| Building and Improvements | 39 | 1,449,748 | 1,443,182 | |||||||
| Greenhouse | 39 | 693,987 | 693,987 | |||||||
| Fencing and Irrigation | 15 | 185,895 | 185,895 | |||||||
| Machinery and Equipment | 7 | 1,203,782 | 941,702 | |||||||
| Furniture and Fixtures | 7 | 224,682 | 216,116 | |||||||
| Computer Equipment | 5 | 20,053 | 20,053 | |||||||
| Vehicles | 5 | 31,161 | 16,161 | |||||||
| $ | 4,207,434 | $ | 3,915,222 | |||||||
| Less Accumulated Depreciation | (500,133 | ) | (306,038 | ) | ||||||
| Property and Equipment | $ | 3,707,301 | 3,609,184 | |||||||
Total depreciation expense was $67,367 and $49,611 for the three month period and $194,095 and $148,833 for the nine month period ended September 30, 2018 and 2017, respectively.
| F-33 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4: LONG-TERM DEBT
Long-term debt consisted of the following:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Note Payable which requires monthly payments of $1,618 including interest at 6.00% per annum until February 1, 2020 when the balance is due in full. The note is secured by specific assets of the Company. | $ | 103,800 | $ | 112,903 | ||||
| Capital Lease Payable which requires monthly payments of $32,850 until May 2018, when the Company may purchase the equipment for $1. The Company made no payments since August 2016 and is currently in default with the lessor. | 538,254 | 538,254 | ||||||
| 642,054 | 651,157 | |||||||
| Less Current Portion | (541,578 | ) | (551,191 | ) | ||||
| Long-Term Debt - net of current portion | $ | 100,476 | $ | 99,966 | ||||
Future principal payments for the next 5 years are as follows for the years ended December 31:
| 2018 | $ | 541,578 | ||||
| 2019 | 13,735 | |||||
| 2020 | 86,741 | |||||
| $ | 642,054 |
| F-34 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5: STOCK-BASED COMPENSATION
The Company approved their 2017 Incentive Stock Plan on September 27, 2017 (the “Incentive Plan”) which authorizes the Company to grant or issue non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards up to a total of 7.5 million shares. Under the terms of the Incentive Plan, awards may be granted to our employees, directors or consultants. Awards issued under the Incentive Plan vest as determined by the Board of Directors or any of the Committees appointed under the Incentive Plan at the time of grant.
The Company’s outstanding stock options have a 10-year term. Outstanding non-qualified stock options granted to employees and a consultant vested immediately. Outstanding incentive stock options issued to employees vest over a three-year period. The incentive stock options granted vest based solely upon continued employment (“time-based”). The Company’s time-based share awards that vest in their entirety at the end of three-year periods, time-based share awards where 33.3% of the award vests on each of the three anniversary dates.
| Stock-based compensation expense was as follows: | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30: | September 30: | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Non-Qualified Stock Options - Immediate | $ | 2,887 | $ | — | $ | 8,662 | $ | — | ||||||||
| Incentive Stock Options - Time Bases | — | — | — | — | ||||||||||||
| Total Stock-based Compensation Expense | $ | 2,887 | $ | — | $ | 8,662 | $ | — | ||||||||
Stock option activity was as follows in the periods ended September 30, 2018 and December 31, 2017:
| Weighted- | Weighted- | ||||||||||||
| Stock | Average | Average | |||||||||||
| Options | Exercise | Remaining | |||||||||||
| Outstanding at December 31, 2017 | 533,336 | $ | 0.50 | 9.75 Years | |||||||||
| Granted | — | ||||||||||||
| Exercised | — | ||||||||||||
| Forfeited/Canceled | (25,000 | ) | |||||||||||
| Outstanding at September 30, 2018 | 508,336 | $ | 0.50 | 9 Years | |||||||||
| Vested at September 30, 2018 | 425,001 | $ | 0.50 | 9 Years | |||||||||
| Exercisable at September 30, 2018 | 425,001 | $ | 0.50 | 9 Years | |||||||||
| F-35 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5: STOCK BASED COMPENSATION (CONTINUED)
The Company estimated the fair value of each stock option on the date of grant using the Black Scholes valuation model with the following assumptions:
| Valuation Assumptions | |
| Risk-free interest rate | 2.14% – 2.31% |
| Expected dividend yield | 0% |
| Expected stock price volatility | 105% |
| Expected life of stock options (in years) | 10 |
NOTE 6: OPERATING LEASES
On January 15, 2017, the Company entered an agreement with Pueblo, CO Board of Water Works to lease water for the Company’s cultivation process. The agreement went into effect as of November 1, 2016 with a term of 10 years expiring on October 31, 2026, with an option to extend the lease upon expiration for 10 additional years. This agreement replaced previously entered agreements with Pueblo, CO Board of Water Works. The lease requires annual non-refundable minimum service fees of $15,000 and a usage charge of $1,063 per acre for 30 acres. The minimum service fees and usage charges are subject to escalators for each year based upon percentage increases of Pueblo, CO Board of Water Works rates from the previous calendar year. Total water lease expense was $11,724 for the three month periods and $35,172 for the nine month periods ended September 30, 2018 and 2017, respectively.
As of September 30, 2018 and December 31, 2017, operating leases have no minimum rental commitments.
NOTE 7: COMMON STOCK
Effective September 27, 2017, the Company acquired 100% of the issued and outstanding limited liability company membership interests of 271 Lake Davis Holdings LLC dba SanSal Wellness (“271 Lake Davis”) in exchange for 46,800,000 (7,800,000 pre-split) restricted shares of the Company’s common stock.
On November 9, 2017, Financial Industry Regulatory Authority authorized a 6-for-1 forward split of the Company’s issued and outstanding shares of common stock in the form of a stock dividend. Accordingly, stockholders of the Company as of the record date of November 9, 2017 received five additional shares of common stock for each share then held. All relevant information relating to number of shares and per share information have been retrospectively adjusted to reflect the split for all periods presented.
In 2017 the Company issued 1,395,000 shares of common stock for proceeds of $15,000$700,500.
| F-36 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7: COMMON STOCK (CONTINUED)
On May 18, 2018 the Company entered into a convertible promissory note in the amount of $175,000 with an automatic conversion feature if the company consummates a qualified financing where the principal and all accrued but unpaid interest shall automatically convert into shares with a 20% discount to the effective per share offering price. On May 30, 2018 the note and accrued interest converted to 2,187,500 shares of common stock.
In 2018 the Company issued 29,514,000 shares of common stock for proceeds of $3,027,000 and 225,000 shares of common stock for marketing services valued at $38,000.
NOTE 8: INCOME TAX
The reconciliation of income tax computed at the Federal statutory rate to the provision for income taxes from continuing operations is as follows:
| Nine Months Ended | ||||
| September 30, | ||||
| 2018 | ||||
| Federal Taxes (credits) at statutory rates | $ | (494,000 | ) | |
| Permanent differences | — | |||
| State and local taxes, net of Federal benefit | $ | (77,000 | ) | |
| Change in valuation allowance | 571,000 | |||
| $ | — | |||
| Components of deferred tax assets are as follows: | ||||||||
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Deferred Tax Assets; | ||||||||
| Net Operating Loss Carryforwards | $ | 802,000 | $ | 397,000 | ||||
| Lease Payable | 142,000 | — | ||||||
| Accrued Related Party Expenses | 36,000 | — | ||||||
| Inventory Reserve | 22,000 | — | ||||||
| Accrued Officer Salary | 6,000 | — | ||||||
| Total Deferred Tax Assets | 1,008,000 | 397,000 | ||||||
| Valuation Allowance | (733,000 | ) | (162,000 | ) | ||||
| Total Deferred Tax Assets net of Valuation Allowance | $ | 275,000 | $ | 235,000 | ||||
| Deferred Tax Liabilities; | — | — | ||||||
| Depreciation and Amortization | 245,000 | 235,000 | ||||||
| Prepaid Expense | 30,000 | — | ||||||
| Total Deferred Tax Liabilities | 275,000 | 235,000 | ||||||
| Net Deferred Tax Assets | $ | — | $ | — | ||||
| F-37 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 8: INCOME TAX (CONTINUED)
The Company has approximately $3,000,000 net operating loss carryforwards that are available to reduce future taxable income. Those NOLs begin to expire in 2038. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized.
The Company’s deferred tax liability associated with timing differences related to depreciation and amortization includes $188,000 of liability resulting from tax depreciation deducted in excess of GAAP depreciation prior to the Company becoming taxed as a C-Corporation.
The Company files income tax returns in the U.S. federal jurisdiction, and the state of Colorado.
The Company adopted the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes. Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. The Company has no significant adjustments as a result of the implementation of FASB ASC 740.
NOTE 9: CONCENTRATIONS
The Company had two customers in the nine months ended September 30, 2018 accounting for 41% and 12% of total sales. For the nine months ended September 30, 2017, one customer accounted for 74% of sales.
The Company had one customer in the three months ended September 30, 2018 accounting for 33% of total sales. For the three months ended September 30, 2017, one customer accounted for 81% of sales.
The Company had three customers at September 30, 2018 accounting for 37%, 22%, and 11% or accounts receivable. At December 31, 2017, one customer accounted for 79% of accounts receivable.
NOTE 10: GOING CONCERN
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations since its inception. As of and for the 7,500,000 common shares issued tonine months ended September 30, 2018, the PresidentCompany had an accumulated deficit of $5,768,728, and a net loss of $1,677,711. These factors, among others, raise substantial doubt about the ability of the Company.Company to continue as a going concern. Continuation as a going concern is dependent on the ability to raise additional capital and financing, though there is no assurance of success.
| F-38 |
SanSal Wellness Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 10: GOING CONCERN (CONTINUED)
The Company recently launched a new rebranded line of hemp oil and extract products as part of the Company’s increased focus on sales and marketing. The rebranded product line, including new trade name and packaging, is being used to expand the company’s potential customer base. The newly branded products became available to consumers, retailers, and distributors in the second quarter of 2018, and include vegan capsules, tinctures, lotions, salves, and oral syringes in various potency levels and flavors.
Currently, the Company incorporates an aggressive marketing plan to compete in the Cannabinoid industry. To become market leaders in the market, the Company will use three primary departments to market its products including: web-based marketing, traditional marketing, and medical marketing departments.
NOTE 11: RELATED PARTY
The Company incurred $78,025 and $72,695 of related party legal expenses during the three months period and $179,245 and $116,955 during the nine month period ended September 30, 2018 and 2017, respectively for legal services. As of September 30, 2018 and December 31, 2017, the Company had related party legal accruals for $116,955 and $93,220, respectively.
The Company entered into various note payables with stockholders of the company between June 2017 and June 2018. The notes bear interest between 2.00% and 3.00% per annum. Principal and interest are payable in one installment due January 1, 2018. The principal balance due on these notes was $945,324 and $1,030,080 as of September 30, 2018 and December 31, 2017. Interest accrued was $25,122 and $16,230 as of September 30, 2018 and December 31, 2017, respectively. The Company issued stock incentives to various directors and employees. Refer to Note 4(a).5 for additional details.
NOTE 12: SUBSEQUENT EVENTS
Subsequent to September 30, 2018, 7,825,008 shares have been issued upon the exercise of warrants sold in the private offering described in Note 7 for proceeds of $1,173,751.
| F-39 |
PART II –
INFORMATION NOT REQUIRED IN THE PROSPECTUS
| ITEM 13. | OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION |
| Registration Fees | $ | 1,981.32 | ||
| Transfer Agent Fees | $ | 2,500.00 | ||
| Accounting Fees and Expenses | $ | 5,000.00 | ||
| Legal Fees and Expenses | $ | 35,000.00 | ||
| Miscellaneous Fees and Expenses | $ | 518,68 | ||
| Total | $ | 45,000.00 |
All amounts are estimates other than the SEC’s registration fee. We are paying all expenses of the offering listed above. No portion of these expenses will be borne by the Selling Security Holders. Our estimatedselling shareholders. The selling shareholders, however, will pay any other expenses incurred in connection with the issuance and distributionselling their common stock, including any brokerage commissions or costs of the securities being registered in this Prospectus are as follows:
| Commission filing fee | $ | 15 | ||
| Legal fees and expenses | 14,485 | |||
| Accounting fees and expenses | 10,500 | |||
| Printing and marketing expenses | Nil | |||
| Miscellaneous | 5,000 | |||
| Total | $ | 30,000 | ||
| ITEM 14. | INDEMNIFICATION OF DIRECTORS AND OFFICERS |
Our Amended and Restated Articles of the NRS provides that a director or officer will not be individually liable unless it is proven that (i) the director’s or officer’s acts or omissions constituted a breachIncorporation and bylaws provide for indemnification of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud or a knowing violation of the law.
| ITEM 15. | RECENT SALES OF UNREGISTERED SECURITIES |
During the past three years, we effected the following transactions in reliance upon exemptions from registration under the Securities Act, as amended (all share numbers herein give pro forma effect to a six for one forward stock split implemented on November 8, 2017):
(a) On January 20, 2016, we entered into a private placement agreement with
Cassandra(b) On September 27, 2017 (“Closing”), the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with all the members of 271 Lake Davis Holdings, LLC (the “Members”). Pursuant to the Exchange Agreement, at Closing we acquired all the outstanding limited liability company interests from the Members in exchange for the issuance to the Members,pro rata, of 46,800,000 shares of our common stock.
(c) Contemporaneously with Closing, we sold 340,000 “restricted” shares of our common stock at a purchase price of $0.50 per share to four “accredited investors” in a private offering.
(d) Effective between November 27, 2017 and January 17, 2018, we sold 414,000 shares of our common stock at a purchase price of $0.50 per share to five “accredited investors” in a private offering In connection with private offering we paid a $3,336 placement fee paid to a single foreign broker-dealer.
(e) Effective March 12, 2018, we issued 50,000 shares of our common stock to a media marketing company for services rendered valued at $20,500.
(f) During the three months ended March 31, 2018, the Company sold (i) 180,000 shares at a price of $0.50 per share to a single “accredited investor” in a private transaction; and (ii) 120,000 shares at a price of $0.25 per share to a single “accredited investor” in a private transaction.
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(g) On July 31, 2018, the Company completed a private offering of 29,250,000 Units to a group of “accredited investors” at a price of $0.10 per Unit for total cash proceeds of $2,925,000. Each Unit consisted of (i) one share of the Company’s common stock; and (ii) one five-year common stock purchase warrant (“Warrants”), exercisable at a price of $0.15. In addition, a $175,000 ninety (90) day convertible bridge promissory note issued by the Company in May 2018 to a single “accredited investor” in a private transaction, converted in accordance with its terms into 2,187,500 Units at the first closing of the private offering.
WestPark Capital, Inc., a member of the Financial Industry Regulatory Authority, acted as the Company’s exclusive placement agent (the “Placement Agent” or “WestPark”) for the private offering. The Placement Agent was paid (i) a commission equal to 10% of the aggregate offering price of Units sold in the private offering; and (ii) a non-accountable expense allowance equal to 3% of the aggregate offering price of Units sold in the private offering. In addition, the Placement Agent received a seven-year warrant to purchase a number of Units equal to 10% of the total Units sold in the private offering, with an exercise price of $0.10 per Unit. The Company has also paid the Placement Agent (i) a $15,0000 non-refundable retainer for agreeing to act as placement agent for the private offering; and (ii) $10,000 for the Placement Agent’s legal fees.
(h) Subsequent to completion of the private offering described in (g) above, the Company retained WestPark to solicit exercise of the Warrants. In connection therewith, SanSal Wellness has agreed to pay WestPark, a warrant solicitation fee in cash equal to five percent (5%) of the gross proceeds raised from exercise of the Warrants. The Company also engaged WestPark under an Investment Banking Advisory Agreement, which provides for additional fees in the form of cash and warrants. As of December 11 2018, 18,308,333 of the Warrants have been exercised, resulting in proceeds to the Company, net of WestPark’s warrant solicitation fee of $137,312, of $2,608,937.
Except as otherwise specifically noted above (a) all of the securities offered and sold in several private transactions described herein, were offered and sold pursuant to the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506(b) of 1933, as amended.
| ITEM 16. | EXHIBITS |
| 10.9 | Employment Agreement with Dave Smith(7) * |
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| (1) | Filed as an exhibit to the |
| (2) | Filed as an exhibit the registrant’s Registration Statement on Form S-1 (File No. 333-210190) and incorporated herein by reference. | |
| (3) | Filed herewith. | |
| (4) | Filed as an exhibit to the |
| (5) | Filed as an | |
| (6) | Filed as an exhibit to the registrant’s Current Report on Form 8-K dated June 19, 2018 and incorporated herein by reference. | |
| (7) | Filed as an exhibit to the registrant’s Current Report on Form 8-K dated October 22, 2018 and incorporated herein by reference. | |
| (8) | Filed as an exhibit to Amendment No.1 to the registrant’s Current Report on Form 8-K/A dated November 30, 2017 and incorporated herein by reference. | |
| (9) | Filed as an exhibit to the registrant’s Current Report on Form 8-K dated October 31, 2018 and incorporated herein by reference. |
*Management incentive or compensation plan.
| ITEM 17. | UNDERTAKINGS |
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
(a) to include any prospectus required by Section 10(a) (3) of the Securities Act of 1933;
(b) to reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation From the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.; and
(c) to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in the registration statement.
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2. That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities being registered hereby which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons of the registrant pursuant to the foregoing provisions above, or otherwise, the registrant haswe been advised that in the opinion of the SECSecurities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable.
Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B of the Securities Act or other than prospectuses filed in reliance on Rule 430A of the Securities Act, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
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In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has duly causedreasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and authorized Amendment No. 1 to this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Toronto, Ontario, Canada,Fort Lauderdale, Florida, on May 6 , 2016.
| By: | /s/ Alexander M. Salgado | ||
| Alexander M. Salgado, Chief Executive Officer | |||
| Accounting Officer) | |||
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alexander M. Salgado and Erduis Sanabria, and each of them, as a true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for each of them and in each name, place and stead, in any and all capacities, to sign any and all pre- or post-effective amendments to this registration statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as each might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, as amended, this registration statement has beenwas signed by the following personsperson in the capacities and on the dates stated.
Signatures | Date | |||
| /s/ Alexander M Salgado | Chief Executive Officer and Director | |||
| Alexander M. Salgado | (Principal Executive, Financial and Accounting Officer) | December 21, 2018 | ||
| Executive Vice President and Director | December 21, 2018 | |||
| Erduis Sanabria | ||||