Pure Harvest Corporate Group, Inc. - FORM 10-K

Attached files

file	filename
EX-32.1 - Pure Harvest Corporate Group, Inc.	ex32-1.htm
EX-31.2 - Pure Harvest Corporate Group, Inc.	ex31-2.htm
EX-31.1 - Pure Harvest Corporate Group, Inc.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act Of 1934

For the year ended December 31, 2019

[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act Of 1934

For the transition period from __________ to __________

Commission File Number: 333-212055

PURE HARVEST CANNABIS GROUP, INC.

(Exact name of registrant as specified in its charter)

Colorado

71-0942431

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2401 E. 2^nd Avenue, Suite 600

Denver, CO 80206

(Address of principal executive offices, including Zip Code)

(800) 924-3716

(Registrant’s telephone number, including area code)

N/A

(Former name or former address if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
N/A		N/A		N/A

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[X]	Smaller reporting company	[X]
		Emerging growth company	[X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2019 was approximately $12,015,000.

State the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date: 30,465,330 shares of common stock as of March 31, 2020.

PART I

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “projects,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

ITEM 1.

BUSINESS

On December 31, 2018 Pure Harvest Cannabis Producers, Inc. (“PHC”) was acquired by the Company. At the time of the acquisition, the Company had 6,808,657 outstanding shares of common stock. The Company issued 8,953,008 shares of its common stock, as well as warrants to purchase an additional 8,953,008 shares of the Company’s common stock to the shareholders of PHC in exchange for all of the outstanding shares of PHC. The warrants issued to the former shareholders of PHC allow the holder to acquire one share of the Company’s common stock at a price of $8.00 per share at any time on or before December 31, 2021. PHC is now a wholly owned subsidiary of the Company.

On February 5, 2019 the Company changed its name to Pure Harvest Cannabis Group, Inc. On March 15, 2019 shareholders owning a majority of the Company’s outstanding shares approved a two-for-one forward split of the Company’s common stock. The name change and forward stock split will become effective in the public market on a date determined by FINRA.

As a result of the acquisition of PHC the Company’s new business plan includes the acquisition of licensed medical and recreational marijuana dispensaries, cultivation facilities and production facilities in states which allow publicly traded companies to own and operate dispensaries, cultivation facilities and production facilities. Depending on the markets entered and state regulation, the Company’s plan may also include: asset purchases, management/consulting operating agreements, or similar allowable agreements. The Company plans to use a combination of cash, shares of common or preferred stock, notes, or other financing vehicles to complete these acquisitions.

As an alternative to a standard acquisition, the Company may use joint ventures and/or licensing arrangements to provide the Company with the same economic benefits as would be obtained from an outright acquisition.

The Company is dedicated to the research and development of the highest quality products to support patient health and well-being. The Company intends to develop into a large vertically integrated producer and distributor of cannabis initially targeting states with attractive markets that have legalized cannabis for both medicinal and adult-use. The Company will also enter markets that are in various stages of legalization with branded hemp derived CBD and terpene infused product lines. In addition to products tailored to marijuana retail dispensaries, the Company’s line will incorporate infused product options including beverages, edibles, topicals, concentrates, and distillates.

The Company’s goals include establishing the Company as an iconic consumer product brand that can be sold across multiple markets that have legalized cannabis and hemp-derived products either partially or fully. The Company’s products will include the highest quality natural ingredients to become synonymous with products consumers trust and rely on for active and healthy lifestyles.

The acquisition of a target company will be approved by the board of directors. The Company will not call a meeting of shareholders to approve the acquisition of a target company. Shareholders will not be entitled to dissenters’ rights in connection with the acquisition of a target company.

The Company may acquire companies that may be financially unstable or in their early stages of development or growth, which would subject the Company to the numerous risks inherent in such companies.

The Company is not prohibited from pursuing a business combination with a target that is affiliated with its officers or directors, or making the acquisition through a joint venture or other form of shared ownership with its officers or directors. In the event the Company plans to complete a business combination with a target that is affiliated with our executive officers or directors, the Company will not be required, to obtain an opinion from an independent firm that the business combination is fair to the Company from a financial point of view.

In evaluating a prospective target business, the Company expects to conduct an extensive due diligence review which will encompass, among other things, meetings with management and employees of the target business, document reviews, interviews of customers and suppliers, inspection of facilities, as well as a review of financial and other information which will be made available to us.

The time required to select and evaluate a target business and to structure and complete a business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target business with which a business combination is not ultimately completed will result in the Company’s incurring losses and will reduce the funds the Company can use to complete another business combination.

Although the Company will assess the risks inherent in a particular target business which it may acquire, this assessment may not result in the identification of all risks that a target business may encounter. Furthermore, some of those risks may be outside of the Company’s control, meaning that the Company can do nothing to control or reduce the chances that those risks will adversely impact a target business.

The acquisition of marijuana dispensaries and cultivation/manufacturing/processing facilities is subject to the approval of government authorities which license and regulate marijuana dispensaries in their applicable jurisdictions. No assurance can be given that any such approvals can be obtained.

Prolific Nutrition

Prolific Nutrition and Gratus Living are Colorado-based hemp/CBD companies that have developed and now market a line of CBD products direct to consumers. Prolific Nutrition and Gratus Living currently offer CBD oil tincture, CBD oil gummies, CBD oil capsules, CBD oil lotion, hemp oil and lip balm. Prolific Nutrition and Gratus Living have also developed and now market hemp extract dietary supplements, hemp extract capsules for pain and hemp extract pet treats for dogs and cats.

In connection with this acquisition, Daniel Garza, a member of Prolific, was appointed as the Company’s Chief Marketing Officer and a director.

Solar Cultivation Technologies, Inc.

On November 4, 2019 the Company signed an Agreement which provides the Company the option to acquire all of the assets of Solar Cultivation Technologies, Inc. (“SCT”). SCT has developed a proprietary set of technologies and processes to cultivate cannabis using solar power and battery storage.

The Agreement provides the Company with two alternatives (either of which can be selected by the Company in its sole discretion) for acquiring the assets of SCT.

Valuation Method One:

(ANI x PE) - L = A

A/ASP = S

Where:

ANI	=	Annual Net Income of SCT for most recent fiscal year

PE	=	Price Earnings Ratio (Same PE ratio applicable to Pure Harvest. If Pure Harvest does not have net income, PE ratio will be 10)

L	=	Total liabilities of SCT.

A	=	Amount to be paid for all assets of SCT.

ASP	=	Pure Harvest’s average closing price for 30 days prior to exercising option to acquire all assets of SCT.

S	=	Number of Pure Harvest shares to be issued for all assets of SCT.

If option is exercised, Pure Harvest will assume all disclosed liabilities of SCT.

Requirements

Option to acquire the assets of SCT pursuant to Alternative One cannot be exercised:

	●	unless ANI is at least $1,500,000;

	●	after April 1 2022;

	●	unless SCT has positive shareholder’s equity, and

	●	unless the total liabilities of SCT do not exceed 150% of SCT’s net cash flow from operating activities during the prior twelve months.

Valuation Method Two:

Where:

A/ASP	=	S

A	=	Price to be paid for all assets of SCT. Price will equal value of SCT based upon an independent third party valuation.

ASP	=	Pure Harvest’s average closing price for 30 days prior to exercising option to acquire all assets of SCT

S	=	Number of Pure Harvest shares to be issued for all assets of SCT.

If option is exercised, Pure Harvest will assume all disclosed liabilities of SCT.

Requirements

Option to acquire the assets of SCT pursuant to Alternative Two cannot be exercised:

●

after April 1, 2022.

As of March 31, 2020 SCT had no revenues and nominal assets and liabilities.

Love Pharm, LLC

On February 12, 2020, the Company entered into an Operating Agreement with Dr. James Rouse, MD regarding the ownership, operation, and management of Love Pharm, LLC. Love Pharm was organized to formulate, develop, manufacture, and brand hemp/CBD products for sale and distribution as well as to form a multi-channel media platform for public and patient education regarding the endocannabinoid system utilizing Dr. Rouse’s name, public image and his extensive experience and expertise in medicine and entrepreneurship. Under the Operating Agreement between the Company and Dr. Rouse, the Company owns 51% of Love Pharm and has a right of first refusal to purchase the remaining 49% of Love Pharm from Dr. Rouse. Additionally, Dr. Rouse will become the Company’s Chief Medical Advisor. Dr. Rouse will receive 100,000 shares of the Company’s common stock for services provided to the Company. As of April 10, 2020 Love Pharm had not generated any revenue.

How Smooth It Is

On March 12, 2020 the Company entered into an agreement to acquire fifty-one percent (51%) of the outstanding membership interests in How Smooth It Is, Inc. (“HSII”) for $1,500,000 in cash and 7,000,000 shares of the Company’s restricted common stock. HSII is a state-licensed medical marijuana processor based in Riverdale, Michigan and plans to offer a wide range of cannabis-infused products including chocolate bars, gummies, beverages, and other Pure Harvest branded products. HSII is based in a 5,800 square foot facility and has the capability of extracting, processing and manufacturing an array of products containing THC and CBD. HSII has also submitted applications for four dispensary licenses in Riverdale, White Cloud, Alma and Mount Pleasant, MI.

In connection with this acquisition, Leonard Cusenza, the principal shareholder of HSII, was appointed as HSII’s Chief Executive Officer. Mr. Cusenza brings over 20 years of business and confectionary manufacturing experience to the HSII’s operations. He has been operating a family owned candy business in Michigan for decades and has an exceptional depth of knowledge regarding confection and manufacturing operations.

The acquisition of the 51% interest in HSII is subject to a number of conditions, including the approval of the Michigan Department of Licensing and Regulatory Affairs (LARA).

HSII is in the development stage and as of March 31, 2020 had generated only limited revenue.

Sofa King Medical

On March 13, 2020 the Company entered into an agreement to acquire all of the outstanding membership interests in Sofa King Medicinal Wellness Products, LLC (“SKM”) for 3,000,000 shares of the Company’s common stock. The completion of the acquisition is subject to a number of conditions, including the approval of the acquisition by the Colorado Marijuana Enforcement Division (MED).

SKM is a vertically integrated cannabis operator located in Dumont, CO and has recently been approved to move its dispensary to a corner location along the busy I-70 corridor between Denver and Colorado’s world-class ski destinations.

On May 3, 2019 the Company leased two buildings, consisting of approximately 2,750 square feet combined, located in Dumont, Colorado. The lease expires on April 30, 2022, but may be renewed for an additional five years at the option of the Company. The monthly rent is $8,000 for the initial three year term, increasing to $10,000 per month if the Company elects to extend the term of the lease. The lease is a “triple net” lease, which requires the Company, in addition to the monthly rent, to pay the cost of all utilities, insurance, repairs, maintenance and real estate taxes. The Company plans to remodel the buildings so they can be used by SKM.

The Company has an option to purchase the buildings at price ranging between $1,400,000 and $1,600,000 at various dates prior to May 1, 2022. The Company issued the landlord 400,000 shares of its post-split common stock in consideration for the option to purchase the buildings

EdenFlo, LLC

The Company is in negotiations to acquire substantially all of EdenFlo, LLC, a producer of CBD extracts and concentrates (“EdenFlo”). Upon the acquisition, EdenFlo will join Prolific Nutrition and Love Pharm, LLC to secure and expand the Company’s position in the national Hemp/CBD industry. EdenFlo manufactures a 99.9% pure CBD Isolate as well as a full-spectrum hemp distillate that contains more than 90% active cannabinoids. The full-spectrum distillate contains a number of cannabinoids, in addition to CBD, including trace amounts of THC. EdenFlo has developed a process to manufacture a 100% THC free distillate and markets this product along with its isolate and full-spectrum distillate products. These products are the raw materials required to produce the Company’s branded CBD consumer products and the acquisition of EdenFlo will support the Company’s manufacturing operations by supplying the Company’s raw materials requirements.

The acquisition of EdenFlo will involve the issuance of shares of the Company’s common stock and will be subject to a number of conditions, including the execution of a definite agreement between the parties.

Market Conditions

Legal marijuana sales in North America reached $14billion in 2019, according to ArcView Market Research/BDS Analytics. The research firm projects sales to increase to $24.5 billion by 2021.

Adult-Use marijuana is now legal in 11 states and the District of Columbia, and medical marijuana is legal in 33 states and the District of Columbia.

While the industry is growing rapidly, the cannabis industry faces three major obstacles that challenge its growth and profitability. First, the cultivation of cannabis is a very capital-intensive enterprise. Many cannabis entrepreneurs do not have access to the capital required to build the infrastructure required to meet growing demand and sales projections. Traditional sources of financing, such as banks, are not available currently to cannabis producers and retailers. Second, there is shortage of knowledge related to virtually all areas of the cannabis business. When new states are added to the list of regulated cannabis markets, there may be a scarcity of experience and expertise to serve the needs of growers and retailers in these states. Third, as explained below, marijuana is illegal under federal law.

Government Regulation

Cannabis is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law.

A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. However, the Department of Justice defines Schedule 1 controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” If the federal government decides to enforce the Controlled Substances Act in Colorado with respect to marijuana, persons that are charged with distributing, possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine.

As of March 31, 2020, 33 states and the District of Columbia allowed their citizens to use Medical Marijuana. Additionally, 11 states, the District of Columbia and the country of Canada have legalized cannabis for recreational use by adults. However, the state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level.

The previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. In this regard, the prior DOJ Deputy Attorney General of the Obama administration issued a memorandum (the “Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning cannabis enforcement under the CSA.

The Cole Memo noted that the Department of Justice is committed to using its investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way. In furtherance of those objectives, the Cole Memo provided guidance to Department of Justice attorneys and law enforcement to focus their enforcement resources on persons or organizations whose conduct interferes with any one or more of the following in preventing:

	●	the distribution of cannabis to minors;
	●	revenue from the sale of cannabis from going to criminal enterprises, gangs and cartels;
	●	the diversion of cannabis from states where it is legal under state law in some form to other states;
	●	state-authorized cannabis activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
	●	violence and the use of firearms in the cultivation and distribution of cannabis;
	●	drugged driving and the exacerbation of other adverse public health consequences associated with cannabis use;
	●	the growing of cannabis on public lands and the attendant public safety and environmental dangers posed by cannabis production on public lands; and
	●	cannabis possession or use on federal property.

On January 4, 2018, the U.S. Attorney General Jeff Sessions issued the Sessions Memo stating that the Cole Memo was rescinded effectively immediately. In particular, Mr. Sessions stated that “prosecutors should follow the well-established principles that govern all federal prosecutions,” which require “federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” Mr. Sessions went on to state in the memorandum that “previous nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.”

It is unclear at this time whether the Sessions Memo indicates that the Trump administration will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement.

However, on March 21, 2018, President Trump signed a $1.3 trillion budget bill that includes a provision that prevents the Justice Department, including the Drug Enforcement Administration, from using funds to arrest or prosecute patients, caregivers, and businesses that are acting in compliance with state medical marijuana laws. This provision, known as the Rohrabacher-Blumenauer Amendment, prohibits the Justice Department from using federal funds to interfere with state medical marijuana programs.

During the confirmation hearings of new Attorney General William Barr, he made comments that he wouldn’t prosecute marijuana businesses operating within state law. Additionally, in April of 2019 Mr. Barr stated that he would prefer that Congress enact legislation allowing states to legalize marijuana instead of continuing the current approach under which a growing number of states have ended cannabis prohibition in conflict with federal law. The above notwithstanding, there can be no assurance that the Federal government will not seek to uphold federal law and supersede state law to prosecute cannabis companies.

General

Our principal executive offices are located at 2401 E. 2^nd Avenue, Suite 600, Denver, CO 80206. Our main telephone number is (800) 924-3716. Our website is www.pureharvestcannabis.com. As of March 31, 2020 we had 25full time employees.

ITEM 1A.

RISK FACTORS

Certain risks, including those described below, which could adversely affect the value of the Company’s common stock. The Company does not make, nor has it authorized any other person to make, any representation about the future market value of its common stock. In addition to the other information contained in this report, the following factors should be considered carefully in evaluating an investment in the Company’s securities.

The Company has a limited operating history with respect to its new business and may never be profitable.

Since the Company only recently began its new business, it is difficult for potential investors to evaluate the Company’s future prospectus. The Company will need to raise enough capital to be able to fund its operations. There can be no assurance that the Company will be profitable.

Any forecasts the Company makes concerning its operations may prove to be inaccurate. The Company’s prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in the early stage of development. As a result of these risks, challenges, and uncertainties, an investment in the Company’s common stock could be completely lost.

The Company needs capital to implement its business plan.

The Company needs capital in order to operate. The Company does not know what the terms of any future capital raising may be but any future sale of the Company’s equity securities will dilute the ownership of existing stockholders. The failure of the Company to obtain the capital which it requires may result in the slower implementation of the Company’s business plan.

The Company may not be able to effectively manage its growth which would impair results of operations.

The Company intends to expand the scope of our operations activities significantly. If the Company is successful in executing its business plan, it will experience business growth that could place a significant strain on operations, finances, management, and other resources.

The ability to effectively manage growth may require the Company to substantially expand the capabilities of administrative and operational resources and to attract, train, manage, and retain qualified management and other personnel. There can be no assurance that the Company will be successful in recruiting and retaining new employees or retaining existing employees.

The Company cannot provide assurances that management will be able to manage this growth effectively. The failure to successfully manage growth could materially adversely affect business, financial condition, or results of operations.

A drop in the retail price of medical and adult use marijuana products may negatively impact business.

The Company’s future revenue will depend in part on the price of commercially grown marijuana. Fluctuations in economic and market conditions that impact the prices of commercially grown marijuana, such as increases in the supply of marijuana and the decrease in the price of products using commercially grown marijuana, could result in a decline in revenue.

The Company may not be able to successfully execute on its merger and acquisition strategy.

The Company’s business plan depends on acquiring marijuana dispensaries and cultivation facilities. The success of any acquisition will depend upon, among other things, the ability to integrate acquired personnel, operations, products and technologies into our organization effectively, to retain and motivate key personnel of acquired businesses, and to retain their customers. Any acquisition may be dilutive to financial results and/or result in impairment charges and write-offs. The Company may also spend time and money investigating and negotiating with potential acquisition or investment targets, but not complete the transaction.

Although the Company expects to realize strategic, operational and financial benefits as a result of its acquisitions, the Company cannot predict whether and to what extent such benefits will be achieved. There are significant challenges to successfully operating an acquired business.

Any future acquisition could involve other risks, including the assumption of unidentified liabilities for which the Company, as a successor owner, may be responsible. Acquisitions of businesses typically involve a number of risks that present financial and other challenges, including the future discovery of existing but unknown disputes, liabilities, contingencies or changes in the industry, location, or regulatory or political environment in which these businesses operate. Such due diligence may not adequately uncover or predict such hidden problems associated with a target acquisition.

The Company’s proposed business is dependent on laws pertaining to the marijuana industry.

Continued development of the marijuana industry is dependent upon continued legislative authorization of marijuana at the state level. Any number of factors could slow or halt progress in this area. Further, progress for the industry, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt use of marijuana, which would negatively impact the Company’s proposed business.

In December 2018 the Agriculture Improvement Act was signed into law. Amongst other things this law removed Hemp from the Controlled Substance Act, which means it will no longer be an illegal substance under the federal law. The FDA issued a statement following the passage of the law clarifying that it remains unlawful under the Food Drug and Cosmetic Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived.

As of March 31, 2020, 33 states in the U.S. and the District of Columbia allow its citizens to use medical marijuana. Additionally, 11 states, the District of Columbia and the country of Canada have legalized cannabis for recreational use by adults. However, the state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the Trump administration will not materially change its stated policy regarding the low-priority enforcement of federal laws. Additionally, the Trump administration, and any new administration that follows, could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to the Company and its shareholders.

The marijuana industry faces strong opposition.

It is believed by many that large well-funded businesses may have a strong economic opposition to the marijuana industry. The Company believes that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant revenue. For example, medical marijuana will likely adversely impact the existing market for the current “marijuana pill” sold by mainstream pharmaceutical companies. Further, the medical marijuana industry could face a material threat from the pharmaceutical industry, should marijuana displace other drugs or encroach upon the pharmaceutical industry’s products. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical marijuana movement. Any inroads the pharmaceutical industry could make in halting or impeding the marijuana industry could have a detrimental impact on the Company’s proposed business.

Marijuana remains illegal under Federal law.

Marijuana is a schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in the Company’s inability to proceed with its business plan.

Laws and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect the Company’s proposed operations.

Local, state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require the Company to incur substantial costs associated with compliance or alter its business plan. In addition, violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in a material adverse effect on its operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to the Company’s proposed business. The Company cannot predict the nature of any future laws, regulations, interpretations or applications, nor can the Company determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on its business.

The Company may have difficulty accessing the service of banks, which may make it difficult to operate.

Since the use of marijuana is illegal under federal law, many banks will not accept for deposit funds from businesses involved with the marijuana industry. Consequently, businesses involved in the marijuana industry often have difficulty finding a bank willing to accept them as customers. The inability to open or maintain bank accounts may make it difficult to operate medical and adult marijuana use businesses. If any of the Company’s bank accounts are closed, the Company may have difficulty processing transactions in the ordinary course of business, including paying suppliers, employees and vendors, which could have a significant negative effect on operations.

Potential competitors could duplicate the Company’s business model.

There is no aspect of the Company’s business which is protected by patents, copyrights, trademarks, or trade names. As a result, potential competitors could duplicate the Company’s business model with little effort.

The Company is dependent on its management and the loss of any of its officers could harm the Company’s business.

The Company’s future success depends largely upon the experience, skill, and contacts of the Company’s officers. The loss of the services of these officers may have a material adverse effect upon the Company’s business.

Impact of the Coronavirus

The Company’s business could be disrupted and materially adversely affected by the recent outbreak of COVID-19. As a result of measures imposed by the governments in affected regions, businesses and schools have temporarily closed due to quarantines intended to contain this outbreak. The spread of COVID-19 from China to other countries has resulted in the Director General of the World Health Organization declaring COVID-19 a pandemic on March 11, 2020. International stock markets have reflected the uncertainty associated with the slow-down in the world economies. The significant declines in the Dow Industrial Average were also largely attributed to the effects of COVID-19. The Company is still assessing the impact COVID-19 may have on its business, but there can be no assurance that this analysis will enable the Company to avoid part or all of any impact from the spread of COVID-019 or its consequences, including downturns in business sentiment generally. The extent to which the COVID-19 pandemic and global efforts to contain its spread will impact the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the pandemic and the actions taken to contain or treat the COVID-19 pandemic.

Disclosure requirements pertaining to penny stocks may reduce the level of trading activity in the market for the Company’s common stock and owners of the Company’s common stock may find it difficult to sell their shares.

Trades of the Company’s common stock, may be subject to Rule 15g-9 of the Securities and Exchange Commission, which rule imposes certain requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule, brokers/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser’s written agreement to the transaction prior to sale. The Securities and Exchange Commission also has rules that regulate broker/dealer practices in connection with transactions in “penny stocks”. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in that security is provided by the exchange or system). 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 prepared by the Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide 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.

Owners of the Company’s common stock may have difficulty depositing their shares with a broker or selling shares of our common stock which you acquire in this offering.

Many securities brokers will not accept securities for deposits and will not sell securities which:

	●	are considered penny stocks

	●	trade in the over-the-counter market, or

	●	were issued by companies which are involved in the marijuana industry.

Further, for a securities broker which will, under certain circumstances sell securities which fall under any or all of the three categories listed above, the customer, before the securities broker will accept the shares for deposit, must often complete a questionnaire detailing how the customer acquired the shares, provide the securities broker with an opinion of an attorney concerning the ability of the shares to be sold in the public market, and pay a “legal review” fee which in some cases can exceed $1,000.

ITEM 2.

PROPERTIES

None.

ITEM 3.

LEGAL PROCEEDINGS

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is currently quoted on the OTCQB market under the symbol “PHCG”.

The following table sets forth the high and low bid quotations for our common stock as reported on the OTC Pink for the periods indicated.

Period	Low		High

March 31, 2018	$	1.03	$	0.05
June 30, 2018	$	0.55	$	0.21
September 30, 2018	$	0.45	$	0.11
December 31, 2018	$	0.95	$	0.25

March 31, 2019	$	0.60	$	0.80
June 30, 2019	$	0.45	$	0.80
September 30, 2019	$	0.26	$	0.65
December 31, 2019	$	0.42	$	0.55

Holders of our common stock are entitled to receive dividends as may be declared by the Board of Directors. The Board of Directors is not restricted from paying any dividends but is not obligated to declare a dividend. No cash dividends have ever been declared and it is not anticipated that cash dividends will ever be paid.

Our Articles of Incorporation authorize our Board of Directors to issue up to 25,000,000 shares of preferred stock. The provisions in the Articles of Incorporation relating to the preferred stock allow directors to issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of common stock. The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally and will have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers if these transactions are not favored by our management. As of March 31, 2020, no preferred shares were outstanding.

ITEM 6.

SELECTED FINANCIAL DATA

Not applicable.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On December 31, 2018 Pure Harvest Cannabis Producers, Inc. (“PHC”) was acquired by the Company. At the time of the acquisition, the Company had 13,617,314 (post-split) outstanding shares of common stock. The Company issued 17,906,016 (post-split) shares of its common stock, as well as warrants to purchase an additional 17,906,016 (post-split) shares of the Company’s common stock to the shareholders of PHC in exchange for all of the outstanding shares of PHC. The warrants issued to the former shareholders of PHC allow the holder to acquire one share of the Company’s common stock at a price of $4.00 per share at any time on or before December 31, 2021. PHC is now a wholly owned subsidiary of the Company.

The transaction was accounted for as a reverse acquisition since: (i) the shareholders of PHC owned the majority of the outstanding common stock of the Company after the share exchange; (ii) a majority of the directors of the Company are also directors of PHC; and (iii) the old officers of the Company were replaced with officers designated by PHC. Effective December 31, 2018, the Company’s stockholders’ equity was retroactively recapitalized as that of PHC. The Company and PHC remain separate legal entities (with the Company as the parent of PHC).

On February 5, 2019 the Company changed its name to Pure Harvest Cannabis Group, Inc. On March 15, 2019 shareholders owning a majority of the Company’s outstanding shares approved a two-for-one forward split of the Company’s common stock. The name change, forward stock split and the change in the Company’s trading symbol (from “PCKK” to “PHCG”) become effective in the public market May 2, 2019.

On September 6, 2019 the Company acquired all of the outstanding membership interests in Prolific Nutrition, LLC and Gratus Living, LLC (collectively “Prolific Nutrition”) for 400,000 shares of the Company’s restricted common stock. Prolific Nutrition and Gratus Living are Colorado-based hemp/CBD companies that have developed and now market a line of CBD products directly to consumers. Prolific Nutrition and Gratus Living currently offer CBD oil tincture, CBD oil gummies, CBD oil capsules, CBD oil lotion, hemp oil and lip balm. Prolific Nutrition and Gratus Living have also developed and now market hemp extract dietary supplements, hemp extract capsules for pain and hemp extract pet treats for dogs and cats.

The Company will continue to collect royalties for licensing the Company’s patent and trademarks in connection with the manufacturing and sale of the Pocket Shot branded specialty alcohol beverage pouches.

Results of Operations

Material changes in the line items in the Company’s Statement of Operations for the year ended December 31, 2019 as compared to the same period last year, are discussed below:

	Increase (I) or
Item	Decrease (D)	Reason
Operating Expenses	I	Increase was primarily due to (i) salary expenses, as well as legal and accounting services as the Company commenced its new business and (ii) stock based compensation.

Capital Resources and Liquidity

The Company’s sources and (uses) of cash for the years ended December 31, 2019 and 2018 are shown below:

	2019			2018
Cash used in operations	$	(917,417	)	$	(1,127	)
Cash used in investing activities		(2,532,015	)		—
Provided by financing activities		5,092,178			—

On March 6, 2020, the Company borrowed $1,500,000 from an unrelated third party. The loan is evidenced by a promissory note which bears interest at 8% per year.

The note is due and payable as follows:

	●	$500,000, together with all accrued and unpaid interest, on April 13, 2020

	●	$1,000,000, together with all accrued and unpaid interest, on May 6, 2020

Accrued interest will be paid in shares of the Company’s common stock based upon a 25% discount to the ten day average closing price of the Company’s common stock immediately prior to May 6, 2020. Accrued interest will include 150,000 additional shares of the Company’s common stock and warrants to purchase 150,000 shares of the Company’s common stock. The warrants are exercisable at any time on or before January 1, 2025 at a price of $2.00 per share.

The first payment of $500,000 was made on a timely basis.

On April 20, 2020, the holder of the Note agreed to extend the due date for the $1,000,000 payment from May 6, 2020 to June 15, 2020. In consideration for extending the repayment date for the second amount to June 15, 2020, the Company issued to the note holder 200,000 shares of its common stock, and warrants to purchase 200,000 shares of the Company’s common stock. The warrants are exercisable at a price of $2.00 per share and expire January 1, 2025. A late payment penalty of $5,000 per day will be due if the $1,000,000 is not paid by June 15, 2020.

Except as disclosed elsewhere in this report, the Company does not know of any trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, the Company’s liquidity increasing or decreasing in any material way.

The Company may sell additional shares of common stock and/or other securities to raise capital for its operations. There is no assurance that the Company will be successful in raising any additional capital.

Off Balance Sheet Arrangements

As of December 31, 2019, the Company did not have any off balance sheet arrangements.

Critical Accounting Policies and Estimates

See Note 2 to the December 31, 2019 financial statements included as part of this report for a description of the Company’s critical accounting policies and estimates.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See financial statements attached to this report.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.

CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. We evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. As a result of this evaluation, management concluded that our disclosure controls and procedures were not effective as of December 31, 2019 for the same reasons that our internal control over financial reporting was not effective:

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s 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 accounting principles generally accepted in the United States of America and includes those policies and procedures that:

	1.	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

	2.	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

	3.	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.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of December 31, 2019, our management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective due to the following material weakness identified:

	●	Lack of appropriate segregation of duties,

	●	Lack of control procedures that include multiple levels of supervision and review, and

	●	There is an overreliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material, nonstandard transactions.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Name	Age	Position
Matthew Gregarek	40	Chief Executive, Chairman, Financial and Accounting Officer and a Director
Daniel Garza	35	Chief Marketing Officer and a Director

Matthew Gregarek has been our Chief Executive, Chairman, and Financial and Accounting Officer since July 29, 2019. Mr. Gregarek founded Alternity Capital Management, LLC (ACM) in 2010, which specializes in providing alternative investments to the private sector that are non-correlated to the typical capital markets, mainly focusing in the automobile financial sector. He has grown ACM to $15mm in assets under management, and has performed duties at ACM involving financial management since 2012. Prior to founding ACM, Mr. Gregarek was the managing partner of Access Capital Investment Group, LLC, (“ACIG”) and the manager of a privately funded auto acquisition company called Capex Acquisitions, LLC, where he specialized in portfolio management, business development, and investor relations. He helped grow ACIG to $20 million under management before selling all of his interest in ACIG in May, 2010. Mr. Gregarek has been a director of the Company since July 2, 2015. Mr. Gregarek received a B.S. in finance from the University of Colorado. We believe Mr. Gregarek is qualified to act as a director as a result of his experience in finance and business development.

Daniel Garza has been an officer and director of the Company since September 7, 2019. Mr. Garza brings over 10 years of business and marketing experience to the Company. In 2009 he founded Denver Print Company, grew it into a multi-million dollar business in less than five years and has consistently grown the business by 30% year over year since its inception. Mr. Garza was hired as the Chief Executive Officer of Prolific Nutrition in 2018 where he branded Colorado CBD Oil and launched Wild Pet Blends. We believe Mr. Garza is qualified to act as a director as a result of his business and marketing experience.

The Company’s directors serve until the next annual meeting of our shareholders and until their successors have been duly elected and qualified. The Company’s officers serve at the discretion of our directors. The Company does not compensate any person for acting as a director.

On July 29, 2019 David Lamadrid and Sterling Scott resigned as officers and directors of the Company.

Audit Committee, Independent Directors and Financial Expert

We do not have an Audit Committee; our board of directors currently acts as our Audit Committee. None of our directors are independent, as that term is defined in the rules of the NYSE American. None of our directors is considered a “Financial Expert”.

Code of Ethics

We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions since one person, Matthew Gregarek, serves in all the above capacities.

ITEM 11.

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to our officers during the fiscal years ended December 31, 2019 and 2018.

Name & Position	Year		Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		All other compensation ($) ⁽³⁾		Total ($)
Matthew Gregarek, CEO ⁽¹⁾		2019		-		-		-		-		-		-
		2018		-		-		-		-		-		-

Jarrold Bachmann, CEO ⁽²⁾		2018		-		-		-		-		-		-

Daniel Garza, Chief Marketing Officer ⁽⁴⁾		2019		-		-		-		-		-		-

(1)	Mr. Gregarek has been an officer since July, 2019.

(2)	Mr. Bachmann, who was our Chief Executive Officer in 2017 and 2018, resigned as an officer and director on December 31, 2018.

(3)	On January 1, 2006, we entered into an agreement with Mr. Bachmann which provided that we would pay $1.20 to Mr. Bachmann for each case of Pocket Shot Pouches (consisting of between 60 and 120 pouches per case) sold by the Company or its licensee(s).

(4)	Mr. Garza has been an officer since September, 2019.

During the two years ended December 31, 2019:

	●	we did not grant any options to any officer or director,
	●	none of our officers or directors exercised any options, and
	●	no options previously granted to any officer or director expired.

As of March 31, 2020, we had outstanding warrants which allowed the holders to purchase up to 500,000 shares of our common stock at a price of $4.00 per share at any time on or before December 31, 2021.

We do not currently compensate our Directors for acting such as.

The following shows the amounts we expect to pay to our officers and the amount of time these persons expect to devote to our business during the year ending December 31, 2020.

Name	Projected Monthly Compensation		Percent of Time to Be Devoted to the Company’s Business

Matthew Gregarek	$	14,583		100	%
Daniel Garza	$	12,500		100	%

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table shows the ownership, as of March 31, 2020, of those persons owning beneficially 5% or more of the Company’s common stock and the number and percentage of outstanding shares owned by each of the Company’s directors and officers and by all officers and directors as a group. Unless otherwise indicated, each owner has sole voting and investment power over their shares of common stock.

Name	Shares Owned		% of Outstanding Shares

Matthew Gregarek		1,700,000		5.6	%

Daniel Garza		228,000		0.7	%

All officers and directors as a group (two persons)		1,928,000		6.3	%

Mr. Gregarek acquired 1,000,000 of his shares in connection with the Company’s acquisition of PHC.

In connection with the Company’s acquisition of PHC the Company issued warrants to the former shareholders of PHC, including the person shown below:

Name	Shares issuable upon the exercise of warrants		Exercise Price		Expiration Date

Matthew Gregarek		500,000	$	4.00	12/31/21

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

None.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth fees billed to us by our independent auditors for the years ended December 31, 2019 and 2018 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.

Services	2019		2018

Audit fees	$	75,600	$	18,620
Audit-related fees	$	9,030		—
Tax fees				—
All other fees				—
Total fees	$	84,630	$	18,620

Audit fees and audit related fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the review of our interim financial statements. Before our independent accountants were engaged by to render these services, their engagement was approved by our Directors.

PURE HARVEST CANNABIS GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2019 and 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-1

CONSOLIDATED BALANCE SHEETS	F-2

CONSOLIDATED STATEMENTS OF OPERATIONS	F-3

CONSOLIDATED STATEMENTS OF CASH FLOWS	F-4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT	F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-6

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of Pure Harvest Cannabis Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Pure Harvest Cannabis Group, Inc. as of December 31, 2019 and 2018, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the fmancial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a significant.accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Si BF Borgers CPA PC

BF Borgers CPA PC

We have served as the Company’s auditor since 2015

Lakewood, CO

April 27, 2020

F-1

Pure Harvest Cannabis Group, Inc.

Consolidated Balance Sheets

	As of December 31, 2019			As of December 31, 2018
ASSETS
Current assets
Cash	$	1,665,247		$	22,501
Accounts receivable		1,653			22,802
Interest receivable		8,194			-
Inventory		70,091			63,940
Deferred rent		93,333			-
Total current assets		1,838,518			109,243

Long-term assets
Machinery and equipment		331,383			305,165
Accumulated depreciation		(287,249	)		(274,615	)
Deferred rent, net of current portion		132,223			-
Right of use asset		184,685			-
Notes receivable		2,450,000			-
Goodwill		141,453			-
Other assets		15,000			-
Total assets	$	4,806,013		$	139,793

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	115,126		$	104,330
Accrued interest		23,890			-
Accrued expenses		75,131			36,000
Royalty payable		770			194
Due to related parties		116,667			19,889
Loans		-			117,000
Convertible notes payable, net of discount of $41,695		958,305			-
Total current liabilities		1,289,889			277,413

Long term liabilities
Right of use liability		133,554			-
Total liabilities		1,423,443			277,413

Commitments and contingencies

Stockholders’ deficit
Preferred stock; $0.01 par value; 25,000,000 shares authorized; no shares issued and outstanding as of December 31, 2019 and 2018		-			-
Common stock, $0.01 par value; 100,000,000 shares authorized, 37,716,330 and 31,523,330 shares issued and outstanding as of December 31, 2019 and 2018, respectively		377,164			315,233
Additional paid-in capital		4,391,587			(201,539	)
Accumulated deficit		(1,386,181	)		(251,314	)
Total stockholders’ deficit		3,382,570			(137,620	)
Total liabilities and stockholders’ deficit	$	4,806,013		$	139,793

The accompanying notes are an integral part of these consolidated financial statements

F-2

Pure Harvest Cannabis Group, Inc.

Consolidated Statements of Operations

For The Years Ended December 31, 2019 and 2018

	For the Year Ended December 31, 2019			For the Year Ended December 31, 2018

REVENUES
Royalty income	$	38,550		$	-

Cost of sales		38,153			-

Gross margin		397			-

OPERATING EXPENSES
Advertising and promotion		186,876			-
General and administrative expenses		802,937			46,169
Travel and entertainment		81,816			-
Depreciation expense		12,634			-
Total operating expenses		1,084,263			46,169

Loss from operations		(1,083,866	)		(46,169	)

Other income (expense):
Interest expense		(26,195	)		-
Other income (expense)		9,926			-
Bad debt expense		(34,732	)		-
Total other income (expense)		(51,001	)		-

Loss before provision for income taxes		(1,134,867	)		(46,169	)

Provision for income taxes		-			-

NET LOSS	$	(1,134,867	)	$	(46,169	)

Basic and diluted net loss per common share	$	(0.03	)	$	(0.01	)
Basic and diluted weighted-average number of common shares outstanding		33,096,662			8,953,008

The accompanying notes are an integral part of these consolidated financial statements

F-3

Pure Harvest Cannabis Group, Inc.

Consolidated Statements of Cash Flows

For The Years Ended December 31, 2019 and 2018

	For the Year Ended December 31, 2019			For the Year Ended December 31, 2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,134,867	)	$	(46,169	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		12,634			-
Stock-based compensation		133,000			-
Amortization of debt discount		2,305			-
Changes in operating assets and liabilities:
Accounts receivable		21,149			-
Interest receivable on notes receivable		(8,194	)		-
Inventory		(6,151	)		-
Other assets		(15,000	)		-
Deferred rent		54,444			-
Accounts payable		10,797			500
Accrued interest		23,890			-
Accrued expense		39,131			36,000
Royalty payable		576			-
Right of use asset and liability		(51,131	)		-
Net cash used in operating activities		(917,417	)		(9,669	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable		(2,450,000	)		-
Net cash received (paid) in connection with acquisition		(55,797	)		22,501
Purchase of machinery and equipment		(26,218	)		-
Net cash used in investing activities		(2,532,015	)		22,501

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (payments) from (to) related parties, net		96,778			8,542
Proceeds from issuance of convertible notes payable		1,000,000			-
Proceeds from sale of common stock		4,045,500			-
Payment of offering costs		(50,100	)		-
Net cash provided by financing activities		5,092,178			8,542

Change in cash and cash equivalents		1,642,746			21,374
Cash and cash equivalents, beginning of year		22,501			1,127
Cash and cash equivalents, end of year	$	1,665,247		$	22,501

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

Non-cash investing and financing activities:
Beneficial conversion feature recorded on convertible debt	$	44,000		$	-
Common stock issued for conversion of notes payable	$	117,000		$	-
Common stock issued for business acquisitions	$	85,656		$	-
Common stock issued in connection with operating lease	$	280,000		$	-

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Pure Harvest Cannabis Group, Inc.

Statements of Stockholders’ Deficit

For The Years Ended December 31, 2019 and 2018

													Total
	Common Stock						Additional			Accumulated			Stockholders’
	Shares			Amount			Paid-in Capital			Deficit			Deficit
Balance, December 31, 2017		17,906,016		$	179,060		$	(179,036	)	$	(205,145	)	$	(205,121	)

Issuance of stock for acquisition		13,617,314			136,174			(22,503	)		-			113,671
Net loss		-			-			-			(46,169	)		(46,169	)
Balance, December 31, 2018		31,523,330			315,234			(201,539	)		(251,314	)		(137,619	)

Stock-based compensation		280,000			2,800			130,200			-			133,000
Stock returned by former executives		(2,750,000	)		(27,500	)		27,500			-			-
Issuance of stock for acquisition		172,000			1,720			83,936			-			85,656
Issuance of stock to note holders		-			-			117,000			-			117,000
Issuance of stock for lease		400,000			4,000			276,000			-			280,000
Issuance of stock to investors		8,091,000			80,910			3,964,590			-			4,045,500
Offering costs		-			-			(50,100	)		-			(50,100	)
Beneficial conversion feature		-			-			44,000			-			44,000
Net loss		-			-			-			(1,134,867	)		(1,134,867	)
Balance, December 31, 2019		37,716,330		$	377,164		$	4,391,587		$	(1,386,181	)	$	3,382,570

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Pure Harvest Cannabis Group, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

The Company was formed as a Colorado corporation in April 2004.

On December 31, 2018 the Company acquired all of the outstanding common stock of Pure Harvest Cannabis Producers, Inc., (“PHCP”) in exchange for 17,906,016 (post-split) shares of the Company’s common stock. The transaction was accounted for as a reverse acquisition. The accompanying consolidated financial statements are those of PHCP prior to December 31, 2018 and exclude the financial position, results of operations, cash flows and stockholders’ equity of the Pocket Shot Company prior to December 31, 2018. See “Reverse Acquisition” below for additional information.

As a result of the acquisition of PHCP, the Company’s new business involves the acquisition and operation of licensed marijuana cultivation facilities, manufacturing facilities and dispensaries.

The Company will continue to collect royalties for licensing the Company’s patent and the trademarks in connection with manufacturing and sale of Pocket Shot branded specialty alcohol beverage pouches.

The Company changed its name to Pure Harvest Cannabis Group, Inc. in February 2019.

On March 15, 2019, shareholders owning a majority of the Company’s outstanding shares approved the following amendments to the Company’s Articles of Incorporation:

Increasing the authorized capital stock of the Company to 250,000,000 shares of common stock, $0.01 par value, and 25,000,000 shares of preferred stock, $0.01 par value. The preferred stock may be issued in one or more series as may be determined by the Company’s Board of Directors. The designations, powers, rights, preferences, qualifications, restrictions and limitations of the preferred stock shall be established from time to time by the Company’s Board of Directors; and

Forward splitting the outstanding shares of the Company’s common stock on a two-for-one basis.

The Company’s accounting year end is December 31.

Reverse Acquisition

On December 31, 2018 the Company (“The Pocket Shot Company”) acquired all of the outstanding common stock of PHCP in exchange for 17,906,016 (post-split) shares of the Company’s common stock. In addition, the shareholders of PHCP were issued warrants to purchase 17,906,016 (post-split) shares of the Company’s common stock. The warrants have an exercise price of $4.00 per share and a life of three years. The issuance of the warrants did not have an impact on the financial statements and was reflected similar to the shares issued to PHCP as discussed below.

The transaction was accounted for as a reverse acquisition since: (i) the shareholders of PHCP owned the majority of the outstanding common stock of the Company after the share exchange; (ii) a majority of the directors of the Company are also directors of PHCP; and (iii) the old officers of the Company were replaced with officers designated by PHCP. Effective December 31, 2018, the Company’s stockholders’ equity was retroactively recapitalized as that of PHCP, while the stockholders’ equity of the Company was recorded as being acquired in the reverse acquisition. The Company and PHCP remain separate legal entities (with the Company as the parent of PHCP). The accompanying consolidated financial statements are those of PHCP prior to December 31, 2018 and exclude the financial position, results of operations, cash flows and stockholders’ equity of The Pocket Shot Company prior to December 31, 2018.

All references to common stock, share and per share amounts have been retroactively restated to reflect as if the transaction had taken place as of the beginning of the earliest period presented.

F-6

The Company’s assets and liabilities pre- reverse acquisition:

Net Assets Acquired:

Cash	$	22,501
Accounts receivable		22,802
Inventory		63,940
Machinery & equipment		30,550
Total Assets	$	139,793

Accounts payable and other current liabilities	$	14,765
Due to related parties		11,358
Total Liabilities	$	26,123

Net Assets Acquired	$	116,670

The following summarized unaudited consolidated pro forma information shows the results of operations of the Company had the reverse acquisition occurred on January 1, 2018:

Pro-forma:

	2018

Revenues	$	105,869
Net Loss	$	(103,460	)	)
Net loss per common share – basic and diluted	$	(0.01	)	)

The summarized consolidated pro forma results are not necessarily indicative of results which would have occurred if the reverse acquisition had been in effect for the periods presented. Further, the summarized unaudited consolidated pro forma results are not intended to be a projection of future results.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, however, the above conditions raise substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustment to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

Management plans to fund future operations by raising capital and or seeking joint venture opportunities.

Principles of Consolidation

The Company evaluates the need to consolidate affiliates based on standards set forth in ASC 810 Consolidation (“ASC 810”).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, PHCP and Prolific Nutrition (Note 10). All significant consolidated transactions and balances have been eliminated in consolidation. The operations of PHCP are included in the consolidated financial statement from the date of acquisition of December 31, 2018 onward. The operations of Prolific Nutrition are included in the consolidated financial statement from the date of acquisition of September 30, 2019 onward.

F-7

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include estimated useful lives and potential impairment of property and equipment, estimate of fair value of share based payments and valuation of deferred tax assets.

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of six months or less to be cash equivalents.

Accounts Receivable

We record accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and is charged to other income (expense) in the combined statements of operations. We calculate this allowance based on our history of write-offs, the level of past-due accounts based on the contractual terms of the receivables, and our relationships with, and the economic status of, our customers. As of December 31, 2019 and 2018, an allowance for estimated, uncollectible accounts was determined to be unnecessary.

Inventory

Inventory is reported at the lower of cost or market on the first-in, first-out (FIFO) method. Our inventory is subject to obsolescence. Accordingly, quantities on hand are periodically monitored for items no longer being sold, which are written off. All inventory is stored at the manufacturer and maintained by them. Inventory consists of pouches, display and shipping boxes and no inventory is deemed obsolete.

Machinery and Equipment

Machinery and equipment is recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant machinery and equipment categories are five years.

Impairment of Long-Lived Assets and Intangible Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the Company determines that the carrying value of the asset is not recoverable, a permanent impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. There were no impairments recorded during the year ended December 31, 2019.

F-8

Goodwill

Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Goodwill is not amortized, but tested for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company performed its annual test on December 31, 2019 for which no impairments were recorded.

Lease Commitments

The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.

Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.

The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.

Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.

Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company’s statement of operations in the same line item as expense arising from fixed lease payments. As of December 31, 2019, management determined that there were no variable lease costs.

Convertible Debt and Convertible Preferred Stock

When the Company issues convertible debt or convertible preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480, “Distinguishing Liabilities from Equity”, and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations.

If a conversion feature does not meet the conditions to be separated and accounted for as an embedded derivative liability, the Company then determines whether the conversion feature is “beneficial”. A conversion feature would be considered beneficial if the conversion feature is “in the money” when the host instrument is issued or, under certain circumstances, later. If convertible debt contains a beneficial conversion feature (“BCF”), the amount of the amount of the proceeds allocated to the BCF reduces the balance of the convertible debt, creating a discount which is amortized over the debt’s term to interest expense in the consolidated statements of operations.

F-9

When a convertible preferred stock contains a BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized over the period beginning when the convertible preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the convertible preferred stock is immediately exercisable, the discount is fully amortized at the date of issuance. The amortization is recorded similar to a dividend.

Offering Costs

The Company accounts for offering costs in accordance with FASB ASC 340, “Other Assets and Deferred Costs” Prior to the completion of an offering, offering costs will be capitalized as deferred offering costs on the balance sheet. The deferred offering costs will be charged to stockholders’ equity or as a reduction of debt upon the completion of an offering or to expense if the offering is not completed.

Business Combinations

The Company accounts for businesses it acquires in accordance with ASC Topic 805, “Business Combinations”, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

Revenue Recognition

The Company records revenue under the adoption of ASC 606 by analyzing exchanges with its customers using a five-step analysis such as 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 separate performance obligation. The Company’s policy is to record revenue as earned when a firm commitment, indicating sales quantity and price exists, delivery has taken place and collectability is reasonably assured. The Company records sales of finished products once the customer places the order and the product is shipped. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Provisions for discounts, returns, allowances, customer rebates and other adjustments are netted with gross sales. The Company accounts for such provisions during the same period in which the related revenues are earned. Provisions for discounts, returns, allowances, customer rebates and other adjustments are minimal and are recorded as a reduction of revenue

Cost of Sales

The costs associated with our royalty income are packaging, a royalty of $1.20 per case, and repair and maintenance costs of our filling machines.

General and Administrative

This category includes salaries and costs of legal and accounting, telephone, office supplies, product samples, insurance, registration costs, and consulting expenses.

Travel and Entertainment

This category includes the costs of air travel, hotels, meals and reimbursed automotive expenses.

F-10

Stock-Based Compensation

The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options and restricted stock awards using the Black-Scholes option pricing model. Share based expense paid through direct stock grants is expensed over the vesting period or upon issuance for awards with no further service requirements.

Income Taxes

The Company is taxed as a C-Corporation, whereby it is subject to federal and state income taxes. The Company follows ASC 740, Income Taxes for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.

As of December 31, 2019 and 2018, the Company’s deferred tax assets consisted entirely of net operating losses to which there is a full valuation allowance applied. In addition, as of December 31, 2019 all tax years since 2016 are open for examination for which not current examinations are in progress.

Fair Value of Financial Instruments

The Company applies the accounting guidance under Financial Accounting Standards Board (“FASB”) ASC 820-10, “Fair Value Measurements”, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

The guidance also establishes a fair value hierarchy for measurements of fair value as follows:

	●	Level 1 - quoted market prices in active markets for identical assets or liabilities.

	●	Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

	●	Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

F-11

The carrying amount of the Company’s financial instruments approximates their fair value as of December 31, 2019 and 2018, due to the short-term nature of these instruments.

Net Loss per Share

Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, “Earnings per Share”. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. As of December 31, 2019 and 2018, dilutive instruments consisted of convertible notes payable and warrants to purchase shares of the Company’s common stock, the effects of which to net loss are anti-dilutive.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU, Leases (ASC 842), which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability. Lessor accounting under the standard is substantially unchanged. Additional qualitative and quantitative disclosures are also required. The Company adopted the standard effective January 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted the following practical expedients and elected the following accounting policies related to this standard update:

	●	The option to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019.

	●	Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and

	●	The option to not separate lease and non-lease components for certain equipment lease asset categories such as freight car, vehicles and work equipment.

	●	The package of practical expedients applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases.

The Company has inventoried all leases where the Company is a lessee as of the initial date of application and has examined other contracts with suppliers, vendors, customers and other outside parties to identify whether such contracts contain an embedded lease as defined under the new guidance. As of December 31, 2019, the Company has one lease to which requires treatment under ASC 842. The lease was entered into during May 2019 and didn’t impact periods prior to then. The adoption of ASC 842 had a material effect on the consolidated financial statements. In addition, the Company will review for the existence of embedded leases in future agreements. See Note 9 for additional information.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. This standard is effective for public companies for annual periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted as long as ASU 2014-09 has been adopted. The Company adopted the guidance on January 1, 2019. The adoption did not have a material impact on our consolidated financial statements.

The Company reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

F-12

NOTE 3 – RELATED PARTY TRANSACTIONS

Effective January 1, 2019, the Company entered into employment agreements with its two officers. Under the terms of the agreement the combined minimum annual compensation is $350,000. During the year ended December 31, 2019, the Company accrued $188,388 in connection with these agreements and $24,715 for expenses, both of which are included in due to related parties on the accompanying consolidated balance sheet and within general and administrative expenses on the accompanying statement of operations. See Note 6 for discussion regarding common stock issued in connection with the employment agreements.

On July 30, 2019, the two officers referred to above resigned as officers and directors of the Company. In connection with their resignations Mr. Lamadrid agreed to return to the Company 1,750,000 shares, and Mr. Scott agreed to return to the Company 1,200,000 shares of the Company’s common stock. These shares, upon their return to the Company, were cancelled and now represent authorized but unissued shares.

Prior to the reverse acquisition, the Company entered into an agreement with Jarrold R. Bachmann, a former officer and a current shareholder, to pay royalties of $1.20 on a per case basis for sales of the Company’s product: The Pocket Shot. Amounts due as of December 31, 2019 and 2018 under the agreement were insignificant.

NOTE 4 – ROYALTY INCOME

Under the terms of an existing license agreement, for which was entered into prior to the reverse acquisition, the Company receives royalty income in exchange for the license to manufacture, fill and distribute the Company’s Pocket Shot product, a plastic pouch containing specialty alcohol beverages. The initial term of the agreement was for five years, expiring in 2010, with automatic renews for succeeding terms of two years each unless either party has given a written notice of its election to terminate the agreement at least one hundred, eighty calendar days prior to the end of any initial or extended term.

The Licensee is required to pay the Company a royalty per case as provided in the agreement. All royalties due to the Company accrue upon the sale of the products, regardless of the time of collection by the Licensee. In addition, all of the Company’s revenues, prior to the reverse acquisition, have been historically generated from this contract. Prior to the reverse acquisition, the Company has operated in a single business segment, licensing its product to customers in the United States.

NOTE 5 - EARNEST MONEY DEPOSIT

In February 2019 the Company entered into an agreement to buy property located approximately 35 miles west of Denver, Colorado. As required by the agreement, the Company placed an earnest money deposit of $20,000 with an escrow agent. The deposit of $20,000 was to be applied to the purchase price at closing. The Company subsequently assigned its rights to purchase the property to an unrelated third party and then leased the property from the unrelated third party. The Company has determined it will not receive any credit for the deposit and has charged the amount to general and administrative expense. See Note 9 for additional information.

NOTE 6 –NOTES PAYABLE

Promissory Notes

In 2017, the Company entered into three promissory notes with third parties. Total proceeds received were $117,000 for which were used for operations. The promissory notes are unsecured, payable on demand and do not incur interest. In 2019, one of the note holders and existing shareholder forgave their promissory note and transferred shares of common stock held by the shareholder to the other note holders in satisfaction of the promissory notes. The promissory notes were reclassed to additional paid-in capital due the transaction being for the behalf of the Company by the shareholder.

F-13

Convertible Notes Payable

During the year ended December 31, 2019, the Company issued a series of convertible notes with original principal balances of $1,000,000. The convertible notes mature at dates ranging from November 1, 2021 to December 1, 2021 and incur interest at 20% per annum. In addition, convertible notes are convertible upon issuance at a fixed price of $0.50 per common share. In connection with the issuance, the Company recorded a beneficial conversion feature of $44,000 resulting in a discount to the convertible notes. The discount is being amortized to interest expense using the straight-line method, due to the short-term nature of the convertible notes, over the term. During the year ended December 31, 2019, the Company amortized $2,305 to interest expense. The remaining discount of $41,695 is expected to be amortized in 2020 of $22,910 and 2021 of $18,795. The convertible notes include other provisions such as first right of refusal on additional capital raises, authorization of holder to incur debts senior to the convertible notes, etc. Additionally, should the holder exercise the option to exercise, a warrant to purchase an additional share of common stock for which the terms aren’t defined in the agreement. Thus, the issuance of the warrant is a contingent to which the Company hasn’t accounted for. Should warrants be ultimately issued, the Company expects to record the fair value of such as additional interest expense.

NOTE 7 – NOTES RECEIVABLE

In May and June 2019, the Company advanced $28,593 to two unrelated individuals in connection with potential acquisitions for the Company. The amounts are to be repaid, without interest, in October 2019. As of December 31, 2019, the Company has continued collection efforts on these notes receivable but has provided an allowance of such due to the unlikelihood of closing the acquisitions or collecting on the notes receivable.

In December 2019, the Company advanced $800,000 to How Smooth It Is, Inc. in connection with the potential acquisition of that entity by the Company. The note receivable is due June 1, 2020 and incurs interest at 6% per annum for sixty days and then is increased to 10% per annum thereafter. In March 2020, the Company entered into an acquisition agreement to acquire the entity for which the note receivable was used to offset a portion of the purchase price, see Note 11 for additional information. On April 9, 2020, the company submitted the required applications to the Michigan Department of Licensing and Regulatory Affairs (LARA) to be approved and pre-qualified as a Processor to be added to the HSII license. Upon approval, PHCG will become 51% owners and can participate in revenue.

In December 2019, the Company advanced $1,650,000 to EdenFlo, LLC in connection with the potential acquisition of that entity by the Company. The note receivable is due June 1, 2020 and incurs interest at 6% per annum for sixty days and then is increased to 10% per annum thereafter. In addition, the note receivable is secured by all the asset of EdenFlo, LLC and the amount loaned represents the expected cash portion to be paid in connection with the acquisition. As of the date of this filing the Company is still reviewing the Share Exchange Agreement and anticipates closing on Eden Flow by the end of April 2020 or sooner.

NOTE 8 – STOCKHOLDERS’ DEFICIT

Change in Articles of Incorporation

On March 15, 2019, shareholders owning a majority of the Company’s outstanding shares approved the following amendments to the Company’s Articles of Incorporation:

Forward splitting the outstanding shares of the Company’s common stock on a two-for-one basis.

The name change, trading symbol change (PCKK to PHCG) and forward stock split became effective in the public market on May 2, 2019 and have been retroactively reflected for all periods presented.

F-14

Stock-Based Compensation

In January 2019, the Company authorized the issuance of 140,000 shares of common stock to a consultant for services rendered. The Company valued the common stock at $133,000, using the closing market price of the Company’s common stock on the date of the agreement. The Company expensed the value of the common stock upon issuance as there were no additional performance criteria.

Offering of Common Stock and Warrants

In February 2019, the Company commenced a private offering of its common stock for up to $10 million in proceeds. The Company is offering up to 20 million shares of common stock at a purchase price of $0.50 per share. In addition, for each share purchased the investor will receive a warrant to purchase one additional share of common stock at a price of $2.00 per share. The warrants expire on December 31, 2021 or sooner at the Company’s option, if the Company’s stock trades for a price of $3.00 per share for 10 days with an average volume of 100,000 shares per day. During the year ended December 31, 2019, the Company received $4,045,500 related to the sale of 8,091,000 shares of common stock and warrants. As of December 31, 2019, all shares of common stock have been issued and thus recorded within common stock and additional paid-in capital. Additionally, in connection with the private offering the Company issued warrants to purchase 8,091,000 shares of common stock based upon the terms disclosed above.

The Company incurred offering costs of $50,100 to placement agent in connection with the private offering. These offering costs have been offset against the proceeds received from the private offering. In addition, these placement agents received the option to purchase units at a $1.00 to per unit which consists of 2,000 shares of common stock and 2,000 warrants to purchase shares of common stock. The warrants have the same terms as the offering disclosed above. As of December 31, 2019, the placement agents had an option to purchase 41.50 units for which represent 83,500 shares of common stock and 83,500 warrants. An entry for the fair market value of common stock and warrants was not recorded as the entry would have been an increase and decrease to additional paid-in capital due to the common stock and warrants being issued in connection with the private offering.

Reverse Acquisition

See Note 1 for shares issued in connection with the reverse acquisition.

Satisfaction of Promissory Notes

See Note 4 for shares transferred by a shareholder in satisfaction of promissory notes.

NOTE 9 – LEASE AGREEMENT

In May 2019, the Company entered into a lease agreement for the property referred to in Note 5. The Company intends to use this property for a marijuana retail store. The initial term of the lease is for a period of three years. The Company has an option to purchase the property at prices ranging between $1,400,000 and $1,600,000 at various dates prior to May 1, 2022. The Company issued the landlord 400,000 shares of its post-split common stock in consideration for the option to purchase the property for which was recorded as deferred rent and is being amortized to rent expense using the straight line method over the term of the lease. At inception of the lease, the Company recorded a right of use asset and liability. The Company used an effective borrowing rate of 10 percent within the calculation. The following are the expected lease payments as of December 31, 2019, including the total amount of imputed interest related:

Years ending December 31,:

2020	$	96,000
2021		96,000
2022		56,000
Total		248,000
Less: Imputed Interest		(39,315	)
Total	$	208,685

F-15

NOTE 10 – ACQUISITION

On September 6, 2019 the Company acquired all of the outstanding membership interests in Prolific Nutrition, LLC and Gratus Living, LLC (collectively “Prolific Nutrition”) for 172,000 shares of the Company’s restricted common stock. The Company valued the shares of common stock at $85,656 based upon the closing market price of the Company’s common stock on the date of acquisition.

Prolific Nutrition and Gratus Living are Colorado-based hemp/CBD companies that have developed and now market a line of CBD products directly to consumers. Prolific Nutrition and Gratus Living currently offer CBD oil tincture, CBD oil gummies, CBD oil capsules, CBD oil lotion, hemp oil and lip balm. Prolific Nutrition and Gratus Living have also developed and now market hemp extract dietary supplements, hemp extract capsules for pain and hemp extract pet treats for dogs and cats.

The Company accounted for the transaction as follows:

Cash	$	(15,000	)
Payable on Acquisition		(50,000	)
Common Stock		(1,720	)
APIC		(83,936	)
Cash (Acquired)		9,203
Goodwill		141,153

The purchase price for the acquisition was allocated to the fair value of the assets acquired and liabilities assumed based on the estimates of the fair values at the acquisition date, with the amount exceeding the estimated fair values being recorded as goodwill. The goodwill is not expected to be deductible for tax purposes.

Prolific Nutrition’s results of operations have been included in the Company’s operating results for the period subsequent to the acquisition on September 30, 2019. Prolific Nutrition contributed revenues of approximately $3,000 during the year ended December 31, 2019.

NOTE 11 – SUBSEQUENT EVENTS

On March 6, 2020, the Company borrowed $1,500,000 from an unrelated third party. The loan is evidenced by a promissory note which bears interest at 8% per year.

The note is due and payable as follows:

	●	$500,000, together with all accrued and unpaid interest, on April 13, 2020
	●	$1,000,000, together with all accrued and unpaid interest, on May 6, 2020

The first payment of $500,000 was made on a timely basis.

The acquisition of the 51% interest in HSII is subject to a number of conditions, including the approval of the Michigan Department of Licensing and Regulatory Affairs (LARA).

HSII is in the development stage and as of March 31, 2020 had generated only limited revenue.

The Company has evaluated subsequent events through the filing date of these consolidated financial statements and has disclosed that there are no other events that are material to the financial statements to be disclosed.

F-16

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES

Exhibit
Number		Description

3.1		Articles of Incorporation (1)
3.2		Amended Articles of Incorporation (1)
3.3		Bylaws (1)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

(1)	Incorporated by reference to the same exhibit filed with the Company’s annual report on Form 10-K for the year ended December 31, 2018

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 27^th day of April 2020.

	PURE HARVEST CANNABIS GROUP, INC.

	By:	/s/ Matthew Gregarek
		Matthew Gregarek
		Principal Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

April 27, 2020	By:	/s/ Matthew Gregarek
		Matthew Gregarek
		Principal Executive, Financial and
		Accounting Officer and a Director

April 27, 2020	By:	/s/ Daniel Garza
		Daniel Garza
		Director

Pure Harvest Corporate Group, Inc. - FORM 10-K - April 27, 2020

Attached files

Pure Harvest Corporate Group, Inc. Reports