CANNABIS SATIVA, INC.
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2016
|
|
2015
|
|
|
|
|
Assets
|
Current Assets
|
|
|
|
Cash and Cash Equivalents
|
$ 257,746
|
|
$ 10,356
|
Digital Currency
|
41,191
|
|
5,203
|
Accounts Receivable
|
2,673
|
|
—
|
Prepaids
|
158,160
|
|
44
|
Inventories
|
9,128
|
|
24,937
|
Investment in Joint Venture
|
—
|
|
35,000
|
|
|
|
|
Total Current Assets
|
468,898
|
|
75,540
|
|
|
|
|
Property and Equipment, Net
|
3,858
|
|
4,504
|
Intangible Assets, Net
|
2,940,968
|
|
2,902,254
|
Goodwill
|
247,051
|
|
|
Investment
|
—
|
|
9,760
|
Deposits
|
35,000
|
|
—
|
Note Receivable - Related Party
|
15,000
|
|
—
|
|
|
|
|
Total Assets
|
$ 3,710,775
|
|
$ 2,992,058
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
Current Liabilities:
|
|
|
|
Accounts Payable and Accrued Expenses
|
$ 183,258
|
|
$ 328,395
|
Convertible Note Payable - Net of Discounts
|
—
|
|
5,833
|
Derivative
|
—
|
|
80,902
|
Stock Subscriptions Payable
|
242,730
|
|
14,000
|
Due to Related Parties - Short Term
|
451,879
|
|
27,427
|
|
|
|
|
Total Current Liabilities
|
877,867
|
|
456,557
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
Preferred stock $0.001 par value; 5,000,000 shares authorized;
732,018 issued and outstanding
|
732
|
|
732
|
Common stock $0.001 par value; 45,000,000 shares authorized;
18,645,021 and 17,374,738 shares issued and outstanding, respectively
|
18,645
|
|
17,375
|
Additional Paid-In Capital
|
61,820,910
|
|
58,609,455
|
Accumulated Deficit
|
(59,226,331)
|
|
(56,092,955)
|
|
|
|
|
Total Cannabis Sativa, Inc. Stockholders' Equity
|
2,613,956
|
|
2,534,607
|
|
|
|
|
Non-Controlling Interest
|
218,952
|
|
894
|
|
|
|
|
Total Stockholders' Equity
|
2,832,908
|
|
2,535,501
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
$ 3,710,775
|
|
$ 2,992,058
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
F-
1
CANNABIS SATIVA, INC.
|
|
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|
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CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
For the Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Revenues
|
|
|
$ 29,168
|
|
$ 11,344
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
27,321
|
|
10,023
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,847
|
|
1,321
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
Impairment Expense
|
|
|
9,760
|
|
—
|
Professional fees
|
|
|
2,136,788
|
|
8,833,133
|
General and Administrative Expenses
|
|
|
684,869
|
|
136,120
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
2,831,417
|
|
8,969,253
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(2,829,570)
|
|
(8,967,932)
|
|
|
|
|
|
|
Other (Income) and Expenses
|
|
|
|
|
|
Change in Fair Value of Derivative
|
|
|
1,621
|
|
174,290
|
Gain on Digital Currency Conversion
|
|
|
(30,056)
|
|
(266)
|
Interest Expense
|
|
|
353,464
|
|
182,319
|
|
|
|
|
|
|
Total Other Expenses, net
|
|
|
325,029
|
|
356,343
|
|
|
|
|
|
|
Loss from Continuing Operations Before Discontinued Operations
|
|
|
(3,154,599)
|
|
(9,324,275)
|
|
|
|
|
|
|
Loss from Discontinued Operations
|
|
|
—
|
|
(108,440)
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(3,154,599)
|
|
(9,432,715)
|
|
|
|
|
|
|
Income Taxes
|
|
|
—
|
|
—
|
|
|
|
|
|
|
Net Loss
|
|
|
(3,154,599)
|
|
(9,432,715)
|
|
|
|
|
|
|
Loss Attributable to Non-Controlling Interest
|
|
|
(21,223)
|
|
—
|
|
|
|
|
|
|
Net Loss Attributable To Cannabis Sativa, Inc.
|
|
|
$ (3,133,376)
|
|
$ (9,432,715)
|
|
|
|
|
|
|
Net Loss per Common Share:
|
|
|
|
|
|
Basic & Diluted Continuing Operations
|
|
|
$ (0.18)
|
|
$ (0.57)
|
Basic & Diluted Discontinued Operations
|
|
|
$ —
|
|
$ (0.01)
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
Basic & Diluted
|
|
|
17,866,631
|
|
16,227,690
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
F-
2
CANNABIS SATIVA, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT FOR THE YEARS ENDED DECEMBER 31 2016 AND 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
|
|
Other
|
|
|
|
|
|
Total
|
|
$ .001 Par
|
|
$ .001 Par
|
|
Paid-In
|
|
Comprehensive
|
|
Accumulated
|
|
Non-Controlling
|
|
Stockholders'
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income
|
|
Deficit
|
|
Interest
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2015
|
—
|
|
$ —
|
|
15,114,738
|
|
$ 15,115
|
|
$ 46,614,604
|
|
$ 4,876
|
|
$ (46,915,104)
|
|
$ 894
|
|
$ (279,615)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Issued for Related Party Debt
|
732,018
|
|
732
|
|
—
|
|
—
|
|
611,128
|
|
—
|
|
—
|
|
—
|
|
611,860
|
Contribution Based on Shortfall of Value of Preferred Stock to Debt Settled
|
—
|
|
—
|
|
—
|
|
—
|
|
245,310
|
|
—
|
|
—
|
|
—
|
|
245,310
|
Preferred Stock Issued for Related Party Debt
|
1,500,000
|
|
1,500
|
|
|
|
|
|
2,888,999
|
|
—
|
|
—
|
|
—
|
|
2,890,499
|
Shares Issued for Services
|
—
|
|
—
|
|
1,010,000
|
|
1,010
|
|
8,166,240
|
|
—
|
|
—
|
|
—
|
|
8,167,250
|
Derivatives on Preferred Stock Issued
|
—
|
|
—
|
|
—
|
|
—
|
|
(47,000)
|
|
—
|
|
—
|
|
—
|
|
(47,000)
|
Reclassification of Derivative on Preferred Stock
|
|
|
|
|
|
|
|
|
252,000
|
|
|
|
|
|
|
|
252,000
|
Derivatives on Convertible Note
|
—
|
|
—
|
|
—
|
|
—
|
|
73,003
|
|
—
|
|
—
|
|
—
|
|
73,003
|
Spin-Off
|
(1,500,000)
|
|
(1,500)
|
|
1,250,000
|
|
1,250
|
|
(238,172)
|
|
(4,876)
|
|
254,864
|
|
—
|
|
11,566
|
Imputed Interest on Loans
|
—
|
|
—
|
|
—
|
|
—
|
|
33,300
|
|
—
|
|
—
|
|
—
|
|
33,300
|
Contributed by Shareholder
|
—
|
|
—
|
|
—
|
|
—
|
|
5,312
|
|
—
|
|
—
|
|
—
|
|
5,312
|
Investment in Hemp Coins
|
—
|
|
—
|
|
—
|
|
—
|
|
4,731
|
|
—
|
|
—
|
|
—
|
|
4,731
|
Net Loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(9,432,715)
|
|
—
|
|
(9,432,715)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2015
|
732,018
|
|
732
|
|
17,374,738
|
|
17,375
|
|
58,609,455
|
|
—
|
|
(56,092,955)
|
|
894
|
|
2,535,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued for Services
|
—
|
|
—
|
|
1,077,433
|
|
1,077
|
|
2,720,073
|
|
—
|
|
—
|
|
—
|
|
2,721,150
|
Conversion of Debt to Equity
|
—
|
|
—
|
|
299,298
|
|
299
|
|
572,664
|
|
—
|
|
—
|
|
—
|
|
572,963
|
Imputed Interest on Loans
|
—
|
|
—
|
|
—
|
|
—
|
|
9,716
|
|
—
|
|
—
|
|
—
|
|
9,716
|
Stock Returned
|
—
|
|
—
|
|
(256,448)
|
|
(256)
|
|
(479,302)
|
|
—
|
|
—
|
|
—
|
|
(479,558)
|
Conversion of Debt to Equity Derivative Change
|
—
|
|
—
|
|
—
|
|
—
|
|
82,523
|
|
—
|
|
—
|
|
—
|
|
82,523
|
Investment in Gary Coins
|
—
|
|
—
|
|
—
|
|
—
|
|
5,931
|
|
—
|
|
—
|
|
—
|
|
5,931
|
Purchase of iBudtender
|
—
|
|
—
|
|
150,000
|
|
150
|
|
299,850
|
|
—
|
|
—
|
|
239,281
|
|
539,281
|
Net Loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,133,376)
|
|
(21,223)
|
|
(3,154,599)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2016
|
732,018
|
|
$ 732
|
|
18,645,021
|
|
$ 18,645
|
|
$ 61,820,910
|
|
$ —
|
|
$ (59,226,331)
|
|
$ 218,952
|
|
$ 2,832,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
F-
3
CANNABIS SATIVA, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net Loss
|
|
$ (3,154,599)
|
|
|
$ (9,432,715)
|
|
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
|
|
|
|
|
|
|
Bad Debt
|
|
9,800
|
|
|
4,190
|
|
Change in Fair Value of Derivative
|
|
1,621
|
|
|
174,290
|
|
Interest Expense Derivatives and Discounts
|
|
179,467
|
|
|
155,448
|
|
Impairment
|
|
9,760
|
|
|
—
|
|
Depreciation and Amortization
|
|
361,932
|
|
|
105,481
|
|
Stock Issued for Services
|
|
2,643,067
|
|
|
8,806,250
|
|
Stock Returned - Legal Settlement
|
|
(479,558)
|
|
|
—
|
|
Imputed Interest on Loans
|
|
9,716
|
|
|
33,300
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Digital Currency
|
|
(30,057)
|
|
|
—
|
|
Accounts Receivable
|
|
(12,473)
|
|
|
(4,190)
|
|
Inventories
|
|
15,809
|
|
|
(7,100)
|
|
Prepaids
|
|
(33)
|
|
|
(31)
|
|
Deposits
|
|
(35,000)
|
|
|
1,031
|
|
Accounts Payable and Accrued Expenses
|
|
228,530
|
|
|
(174,069)
|
|
Accounts Payable and Accrued Expenses - Kush
|
|
—
|
|
|
6,084
|
Net Cash Used in Operating Activities:
|
|
(252,018)
|
|
|
(332,031)
|
Net Cash Provided by Discontinued Activities:
|
|
—
|
|
|
6,840
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
Purchase of Fixed Assets and Intangibles
|
|
—
|
|
|
(14,739)
|
|
Purchase of digital currency
|
|
—
|
|
|
(5,203)
|
|
Cash received for sale of available for sale securities
|
|
—
|
|
|
4,876
|
|
Spin Off
|
|
—
|
|
|
11,566
|
|
Net cash paid in Merger
|
|
(44,365)
|
|
|
—
|
|
Note Receivable - Related Party
|
|
(15,000)
|
|
|
—
|
Net Cash Used in Investing Activities:
|
|
(59,365)
|
|
|
(3,500)
|
Net Cash Provided by Discontinued Activities:
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
Payments to Related Parties
|
|
(7,738)
|
|
|
(42,398)
|
|
Contributions by related parties
|
|
—
|
|
|
10,043
|
|
Proceeds Received from Private Placement Memorandum
|
|
197,730
|
|
|
—
|
|
Proceeds from Related Parties
|
|
368,781
|
|
|
345,408
|
Net Cash Provided by Financing Activities:
|
|
558,773
|
|
|
313,053
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
247,390
|
|
|
(15,638)
|
|
|
|
|
|
|
|
Cash and Cash Equivalents - Beginning of Year
|
|
10,356
|
|
|
25,994
|
|
|
|
|
|
|
|
Cash and Cash Equivalents - End of Year
|
|
$ 257,746
|
|
|
$ 10,356
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Activities:
|
|
|
|
|
|
|
Interest
|
|
$ (2,078)
|
|
|
$ —
|
|
Income taxes
|
|
$ —
|
|
|
$ —
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non Cash Activities:
|
|
|
|
|
|
|
Contribution of Digital Currency
|
|
$ 5,931
|
|
|
$ —
|
|
Conversion of Debt to Equity
|
|
$ 387,663
|
|
|
$ —
|
|
Note payable issued in connection with R&D joint venture
|
|
$ —
|
|
|
$ 35,000
|
|
Fair value of derivatives issued with preferred and note payable
|
|
$ —
|
|
|
$ 182,000
|
|
Fair value of derivatives reclassified to additional paid-in capital
|
|
$ 82,523
|
|
|
$ 325,003
|
|
Intangibles acquired
|
|
$ 400,000
|
|
|
$ —
|
|
Common stock issued upon conversion of note payable
|
|
$ 35,000
|
|
|
$ —
|
|
Common stock issued for prepaid consulting
|
|
$ 417,000
|
|
|
$ —
|
|
Preferred Shares Issued for Related Party Payables
|
|
$ —
|
|
|
$ 3,747,669
|
|
Goodwill acquired in acquisition
|
|
$ 247,051
|
|
|
$ —
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
F-
4
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2016 and 2015
1. Organization and Summary of Significant Accounting Policies:
Nature of Corporation:
Ultra Sun Corp (the “Company,” “we” or “our”) was incorporated under the laws of Nevada in November 2004. On November 13, 2013, we changed our name to Cannabis Sativa, Inc. Our wholly-owned subsidiary Kush was acquired by us in June 2014 in exchange for shares of our common stock. Our wholly-owned subsidiary Wild Earth Naturals, Inc. (“Wild Earth”) was acquired by us in July 2013 in exchange for shares of our common stock. From our inception through September 30, 2013 we were engaged in the tanning salon business and operated a tanning salon in Saratoga Springs, Utah under the name “Sahara Sun Tanning.” As a result of our acquisition of Wild Earth in July 2013, we became engaged in the herbal skin care products business. On September 30, 2013, we sold the assets of the tanning salon business to a third party. As a result of our acquisition of Kush in June 2014, along with our Wild Earth operations we are now engaged in the developing and promoting of natural cannabis products. On November 2, 2015, Kush was spun out of the Company. On August 8, 2016 the Company entered into a securities purchase agreement with iBudtender Inc. to purchase 50.1% of iBudtender Inc.
Principles of Consolidation:
The consolidated financial statements include the accounts of Cannabis Sativa, Inc., and its wholly owned subsidiary; Wild Earth Naturals, Inc., Hi-Brands International, Inc., Eden Holdings LLC and Kush (through November 2015 – that date of spin-off), its 90% ownership of Kubby Patent and Licensing, Limited liability company and its 50.1% ownership of iBudtender Inc. (the “Company”). All significant inter-company balances have been eliminated in consolidation.
Method of Accounting:
The Company maintains its books and prepares its financial statements on the accrual basis of accounting.
Use of Estimates:
The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such management estimates include the valuation of realizability of digital currency, allowance for doubtful accounts, realizability of inventories, valuation of intangible assets, recoverability of long-lived assets, fair valuation of derivative liabilities and the valuation of equity based instruments and beneficial conversion features. Actual results could differ from those estimates.
Liquidity
Our operations have been financed primarily through proceeds from notes payable, convertible notes payable, sale of common stock and revenue generated from sales of our products. These funds have provided us with the resources to operate our business, sell and support our products, attract and retain key personnel and add new products to our portfolio. We have experienced net losses and negative cash flows from operations each year since
F-
5
our inception. As of December 31, 2016, we had an accumulated deficit of approximately $60,000,000 and a working capital deficit of approximately $400,000.
We have raised funds through the issuance of debt and the sale of common stock. We have also issued equity instruments in certain circumstances to pay for services from vendors and consultants. In December 2016, we raised $197,730 in gross proceeds from the issuance of a private placement memorandum. As of December 31, 2016, such shares have not been issued.
Accounts Receivable:
We estimate credit loss reserves for accounts receivable on an individual receivable basis. A specific impairment allowance reserve is established based on expected future cash flows and the financial condition of the debtor. We charge off customer balances in part or in full when it is more likely than not that we will not collect that amount of the balance due. We consider any balance unpaid after the contract payment period to be past due. At December 31, 2016 and 2015 the Company has established an allowance for doubtful accounts of $-0-.
Inventory:
Inventory cost includes those costs directly attributable to the product before sale. Inventory consists of salves, ointments, lotions, creams and balms and is carried at the lower of cost or market, using first-in, first-out method of determining cost. At December 31, 2016 the Company has $8,783 in raw materials and $345 in finished goods inventory. At December 31, 2015 there was $24,044 in raw materials and $893 in finished goods inventory.
Fixed Assets:
Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets. The average lives range from five (5) to ten (10) years. Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or the useful life. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred.
Fair Value of Financial Instruments:
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts receivable, accounts payable, accrued liabilities, and notes payable approximate fair value given their short term nature or effective interest rates.
Cash and Cash Equivalents:
For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments purchased with an initial maturity of three (3) months or less.
Net Loss per Share:
Net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Common stock equivalents from convertible notes payable and preferred stock were approximately $775,000 and $750,000 at December 31, 2016 and 2015, respectively and are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive.
Revenue Recognition:
F-
6
The Company recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured.
Digital Currencies Translations and Re-measurements
The Company accounts for digital currencies, which it considers to be an operating asset, at their initial cost and subsequently re-measures the carrying amounts of digital currencies it owns at each reporting period based on their current fair value. The changes in the fair value of digital currencies are included as a component of income or loss from operations. The Company currently classifies digital currencies as a current asset. The Company estimates the equivalency rate of hempcoins to bitcoins to USD from Coinmarketcap.com. The equivalency rate of garycoins to bitcoins to USD is estimated from C-cex.com and Coinmarketcap.com. The equivalency rate obtained from Coinmarket represents a generally well recognized quoted price in an active market for bitcoins, which market and related database are accessible to the Company on an ongoing basis.
Intangible Assets:
Intangible assets are comprised of patents, trademarks, the Company’s “CBDS.com” website domain and intellectual property rights. The patent is
being amortized using the straight-line method over its economic life, which is estimated to be twenty (20) years. The trademark, which is still in the application phase, is expected to have an indefinite useful life. The CBDS.com website is being amortized using the straight-line method over its economic life, which is estimated to be fifteen (15) years. The intellectual property rights are being amortized using the straight-line month over its economic life, which is estimated to be (20) years.
Long-Lived Assets:
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We evaluate assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the assets. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. During the years ended December 31, 2016 and 2015, we did not recognize any impairment of our long-lived assets.
Income Taxes:
The Company estimates the annual tax rate based on projected taxable income for the full year and records a quarterly income tax provision in accordance with the anticipated annual rate. As the year progresses, we refine the estimates of the year’s taxable income as new information becomes available, including year-to-date financial results. This continual estimation process can result in a change to the expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual tax rate. Significant judgment may be required in determining the Company’s effective tax rate and in evaluating our tax positions.
The effective income tax rate of 0% for the periods ended December 31, 2016 and 2015 differed from the statutory rate, due primarily to net operating losses incurred by the Company in the respective periods. For the year ended December 31, 2016 a tax benefit of approximately $470,006 would have been generated. For the year ended December 31, 2015 a tax benefit of approximately $1,414,907 would have been generated. However, all benefits have been fully offset through an allowance account due to the uncertainty of the utilization of the net operating losses. As of December 31, 2016 the Company had net operating losses of approximately $3,133,376 resulting in a deferred tax asset of approximately $470,006. As of December 31, 2015 the Company had net operating losses of approximately $9,432,715 resulting in a deferred tax asset of approximately $1,414,907.
F-
7
The Company has established a valuation allowance in the full amount of the deferred tax asset due to the uncertainty of the utilization of operating losses in future periods.
Derivative Liabilities:
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.
The Company reviews the terms of the preferred stock, common stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. The Company uses a lattice model for valuation of the derivative.
When an instrument contains embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the derivative instrument could be required within the 12 months of the balance sheet date.
Stock-Based Compensation:
Stock-based compensation is computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718. FASB ASC 718 requires all share-based payment to employees, including grants of employee stock options, to be recognized as compensation expense in the financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company has selected the Black-Scholes option pricing model as the most appropriate fair value method for our awards and have recognized compensation costs immediately as our awards are 100% vested.
The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.
In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with ASC 718.
Advertising Expense:
Advertising costs are expensed as incurred and are included in general and administrative expense in the accompanying consolidated statements of operations. Advertising costs were approximately $145,595 and $80,847 for the years ended December 31, 2016 and 2015, respectively.
F-
8
Business Combinations:
We account for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The final purchase price may be adjusted up to one year from the date of the acquisition. Identifying the fair value of the tangible and intangible assets and liabilities acquired requires the use of estimates by management and was based upon currently available data. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents and discount rates utilized in valuation estimates.
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of relevant revenue or other targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have a material effect on the consolidated statements of operations, financial position and cash flows in the period of the change in the estimate.
Pending Accounting Pronouncements:
There have been no recent accounting pronouncements issued which are expected to have a material effect on the Company’s financial statements. Management continues to monitor and review recently issued accounting guidance upon issuance.
2. Eden Holdings LLC
During the quarter ended September 30, 2014, the Company created Eden Holdings LLC. The purpose of the entity is to hold the intellectual property of Cannabis Sativa, Inc. As of December 31, 2016 and 2015 there has been no activity in the LLC.
3. Fair Value Measurements
We adopted ASC Topic 820 for financial instruments measured at fair value on a recurring basis. ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
|
·
|
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
|
|
·
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
|
·
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts receivable, inventory, notes payable, accounts payable, accrued liabilities approximate fair value given
F-
9
their short term nature or effective interest rates. We measure certain financial instruments at fair value on a recurring basis.
F-
10
As of December 31, 2016, assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Digital Currency
|
|
$ 28,051
|
|
$ -
|
|
$ 28,051
|
|
$ -
|
Total assets measured at fair value
|
|
$ 28,051
|
|
$ -
|
|
$ 28,051
|
|
$ -
|
As of December 31, 2015, assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Digital Currency
|
|
$ 5,203
|
|
$ -
|
|
$ 5,203
|
|
$ -
|
Total assets measured at fair value
|
|
$ 5,203
|
|
$ -
|
|
$ 5,203
|
|
$ -
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$ 80,902
|
|
$ -
|
|
$ -
|
|
$ 80,902
|
Total liabilities measured at fair value
|
|
$ 80,902
|
|
$ -
|
|
$ -
|
|
$ 80,902
|
The following table presents the approximate changes in fair value of the Company’s embedded conversion features (see Notes 6 and 8) measured at fair value on a recurring basis for the years ended December 31, 2015 and 2016:
F-
11
Balance, December 31, 2014
|
$
|
––
|
Issuance of embedded conversion features
|
|
232,000
|
Change in fair value
|
|
174,000
|
Reclassification to additional paid-in capital
|
|
(325,000)
|
Balance, December 31, 2015
|
|
81,000
|
Issuance of embedded conversion features
|
|
––
|
Change in fair value
|
|
2,000
|
Reclassification to additional paid-in capital
|
|
(83,000)
|
Balance, December 31, 2016
|
$
|
––
|
4. Hempcoins
At December 31, 2016, the Company has possession of 110,000,000 Hempcoins. Hempcoins are reported as digital currency. Every 10 Hempcoins are backed by 1 share of Rocky Mountain Inc (RMTN). At December 31, 2016 and 2015 the value of Hempcoins was $14,911 and $5,203, respectively, computed by converting first to bitcoin and then to US Dollars. (See Note 1). 100,000,000 hempcoins were contributed to the Company in 2015 by a director with a cost basis of $4,731. 10,000,000 were earned by the Company during 2015 with a cost basis of $207.
5. Garycoins
At December 31, 2016, the Company has possession of 900,005,098 cryptocurrency coins named “President Johnson” trading under symbol “GARY,” which were contributed to the Company by a director during 2016 with a cost basis of $5,931. President Johnson coins are reported as digital currency. At December 31, 2016 and 2015 the value of these coins was estimated to be $26,280 and $-0-, respectively, computed by converting to a bitcoin value in US Dollars. (See Note 1).
6.
Investment in Joint Venture
On September 11, 2015, Hi-Brands International, Inc. a wholly owned subsidiary of the Company entered into a joint venture agreement with I.D.E.A – International Dental Emergency Alliance, LLC. (IDEA). IDEA is the developer of a pharmacy discount card distribution and online marketing platform with access to a network of approximately 60,000 participating pharmacies through a virtual and/or physical discount card. IDEA and the Company wish to develop, market and distribute a private label discount card and system under its proprietary brands and/or trademarks to the general public and to sub-distributors. The Company and IDEA have agreed to share all revenues 50/50 and IDEA has agreed to pay the Company 50% of a $0.50 shared fee per claim. The claim fee will increase based upon a set schedule as claims increase. The term of the agreement is for 3 years, but can be renewed for an additional three (3) year term periods. IDEA is charging the Company a set up fee and as part of the agreement IDEA is expected to generate 25,000 members/cardholders in the first year.
The Company entered into a convertible note payable with IDEA for payment of the $35,000 set-up fee. The convertible note and accrued interest were convertible into shares of the Company’s common stock at a variable conversion price equal to 40% multiplied by the average of the 3 highest and 2 lowest trading days in the 10-day period preceding conversion. In addition, the note contains an antidilution feature in which the conversion price could further adjust if the Company sells equity securities at an effective price less than the current conversion price, as defined. The maturity date of the note was January 2, 2017. The note bore interest at 10%. IDEA converted the note into 30,000 shares in April 2016. In December 2016, the Company issued an additional 30,000 as compensation to IDEA, which were valued at approximately $150,000 based on the closing price on such date and recorded as interest expense.
During the year ended December 31, 2015, the Company recorded the initial derivative liability of approximately $83,000 based upon the following Black-Scholes option pricing model average assumptions: an exercise price of $0.92, stock price on the date of grant of $2.31, expected dividend yield of 0%, expected volatility of 179%, risk
F-
12
free interest rate of 0.50% and expected term of 2 years. Upon initial valuation, the derivative liability exceeded the face value of the convertible note payable by approximately $48,000, which was recorded as a day one loss on derivative liability. Subsequent remeasurements were based on the following assumptions at December 31, 2015 and April 20, 2016 (date of conversion): exercise prices of $0.28 and $2.05, stock price on the valuation date of $0.70 and $5.12, expected dividend yield of 0% and 0%, expected volatility of 134% and 169%, risk free interest rate of 0.50% and 0.50% and expected terms of 2 and 2 years, respectively. Upon conversion, the Company reclassified approximately $83,000 to additional paid-in capital related to the convertible note.
7. Fixed Assets and Intangibles
Property and Equipment consisted
of the following at December 31, 2016 and 2015:
|
December 31,
|
December 31,
|
|
2016
|
2015
|
Furniture and Equipment
|
$5,667
|
$5,667
|
Leasehold Improvements
|
2,500
|
2,500
|
|
8,167
|
8,167
|
Less: Accumulated Depreciation
|
4,309
|
3,663
|
Net Property and Equipment
|
$3,858
|
$4,504
|
Depreciation expense for the years ended December 31, 2016 and 2015 was $646 and $708, respectively.
Intangible assets consisted
of the following at December 31, 2016 and 2015:
|
December 31,
|
December 31,
|
|
2016
|
2015
|
CBDS.com website (Cannabis Sativa)
|
$13,999
|
$13,999
|
Intellectual Property Rights (Cannabis Sativa)
|
$1,484,250
|
1,484,250
|
Intellectual Property Rights (iBudtender)
|
400,000
|
––
|
Patents and Trademarks (Cannabis Sativa)
|
17,348
|
17,348
|
Patents and Trademarks (Wild Earth)
|
4,425
|
4,425
|
Patents and Trademarks (KPAL)
|
$1,410,000
|
$1,410,000
|
|
3,330,022
|
2,930,022
|
Less: Accumulated Amortization
|
389,054
|
27,768
|
Net Intangible Assets
|
$2,940,968
|
$2,902,254
|
Amortization expense for the years ended December 31, 2016 and 2015 was $361,286 and $104,773 respectively. Amortization for each of the next 5 years is $146,427 annually.
Goodwill consisted of the following at December 31, 2016 and 2015:
Beginning balance, December 31, 2015
|
$
|
-
|
Acquisition of iBudtender (see Note 12)
|
|
247,051
|
Ending balance, December 31, 2016
|
|
$247,051
|
8. Related Parties
During the years ended December 31, 2016 and 2015, the Company received additional short-term advances from related parties and officers of the Company to cover operating expenses. During 2016 and 2015, net advances to the Company were approximately $369,000 and $345,000, respectively. During 2016 and 2015, the Company has imputed interest on these sums at the rate of 5% per annum and has recorded interest expense related to these
F-
13
balances in the amount of $9,716 and $33,300, respectively. Because the related parties do not expect the imputed interest to be repaid, the interest has been recorded as a contribution of capital.
Included in the advances noted above for 2015, is a $100,000 convertible note payable to a related party investor. The convertible note and accrued interest are convertible into shares of the Company’s common stock at a conversion price equal to $2.00. In addition, the note contained an antidilution feature in which the conversion price could further adjust if the Company sells equity securities at an effective price less than the current conversion price, as defined. The maturity date of the note was April 2017. The note bore interest at 10%. The related party converted the note into shares of the Company’s preferred stock in September 2015 (see below).
During the year ended December 31, 2015, the Company recorded the initial derivative liability of $101,605 based upon the following Black-Scholes option pricing model average assumptions: an exercise price of $2.00, stock price on the date of grant of $2.28, expected dividend yield of 0%, expected volatility of 166%, risk free interest rate of 0.50% and expected term of 2 years. Upon initial valuation, the derivative liability exceeded the face value of the convertible note payable by approximately $1,600, which was recorded as a day one loss on derivative liability. Subsequent remeasurement was based on the following assumptions at September 30, 2015 (date of conversion): an exercise price of $2.00, stock price on the valuation date of $2.05, expected dividend yield of 0%, expected volatility of 176%, risk free interest rate of 0.50% and expected term of .50 years. Upon conversion, the Company reclassified approximately $73,000 to additional paid-in capital.
During the year ended December 31, 2015, the Company issued 428,585 shares of preferred stock in connection with the conversion of approximately $857,170 of amounts due (including the amount noted directly above). The preferred shares contained a ratchet provision that if the Company’s share price dropped below $2 per share between October 2015 – December 2015, then additional shares will be issued to the holders, as defined. In accordance with such provision, the Company issued an additional 303,433 shares, which were valued at approximately $250,000 and recorded as interest expense. The Company recorded the provision as a derivative liability with an initial value of $47,000, a change in fair value during the period it existed (October 2015 – December 2015) of $205,000 and reclassified the fair value at expiration of $252,000 to additional paid in capital.
The Company used a discounted cash flow analysis based on a lack of historical earnings. Such forecast was developed based on the Company’s best estimates of future cash flows, including, among others, average gross margin of approximately 32% and an average net income of approximately 4.6% of revenues. As the Company operates in a developing market, such assumptions are based on significant subjectivity.
The Company also has a $15,000 note receivable from a related party, which is due on demand.
9. Stockholders’ Equity
Preferred Stock
The Company authorized 5,000,000 shares of preferred stock. The Company designated and determined the rights of Series A preferred stock (“Series A”) with a par value of $0.001. The Company is authorized to issue 5,000,000 shares of Series A. The holders of Series A are entitled to dividends if the Company declares a dividend on common shares, have no liquidation preference, have voting rights equal to 1 vote per share, and can be converted into one share of common.
During the year ended December 31, 2015, the Company issued 732,018 shares of preferred stock in connection with the conversion of amounts due to related parties (see Note 8).
During the year ended December 31, 2015 the board of directors approved the issuance of 1,500,000 shares of preferred stock to relieve the related party debt in the amount of $2,890,499 that was acquired with the purchase of Kush Inc. (see Note 15.)
Common Stock
During the year ended December 31, 2015 the board of directors approved the issuance of 1,010,000 shares of restricted common stock for services in the amount of $8,167,250.
F-
14
During the year ended December 31, 2016 the board of directors approved the issuance of 1,077,433 restricted shares of common stock for services in the amount of $2,721,150. Approximately $417,000 was recorded as prepaid consulting due to the non-forfeitable nature of the shares issued. During the year ended December 31, 2016, the Company amortized approximately $260,000 to professional fees in the accompanying consolidated statement of operations.
During the year ended December 31, 2016 the board of directors approved the issuance of 299,298 shares of common stock to relieve debt in the amount of $572,963.
During the year ended December 31, 2016, 256,488 shares of common stock previously issued for services were returned to the Company with a fair value of $479,558 at the time of the return.
During the year ended December 31, 2016 the board of directors approved the issuance of 150,000 shares of common stock to purchase iBudtender Inc., with a fair value of $300,000 (see Note 12). At December 31, 2016, 50,000 shares have yet to be issued.
The Company approved a Private Placement Memorandum on October 14, 2016. The total offering proceeds can be up to $1,500,000 by offering 625,000 of the Company’s stock at $2.40 per share. Each unit will consist of 1 (one) share of common stock and 1 (one) warrant. Each warrant entitles the holder to purchase 1(one) common share at the exercise price of $4.00. The offering was scheduled to terminate on December 14, 2016 but could be extended for up to 60 additional days. The offering did terminate on January 31, 2017. At December 31, 2016, the Company had received $197,730 but at December 31, 2016 no stock had yet been issued. Such amount is included in stock subscriptions payable in the accompanying balance sheet at December 31, 2016.
10. Convertible Promissory Notes Payable
The Company had the following convertible notes payable:
|
December 31,
|
December 31,
|
|
2016
|
2015
|
|
|
|
Convertible Note Payable
|
$ ––
|
$35,000
|
Less: Discounts
|
––
|
29,167
|
|
|
|
Convertible note payable, net
|
$ ––
|
$5,833
|
See Notes 6 and 8 for the disclosures on convertible notes.
11. Hi Brands International Inc. – Centuria Foods Agreement
On February 6, 2015, the Company formed Hi Brands International Inc., a Nevada Corporation and wholly owned subsidiary of Cannabis Sativa, Inc.
On February 25, 2015, the Company through its wholly owned subsidiary Hi Brands International, Inc. (jointly referred to hereinafter as “Cannabis Sativa”), entered into a Purchase, Supply and Joint Venture Agreement (the “Agreement”), with Centuria Natural Foods, Inc. (“Centuria”) whereby Cannabis Sativa will market Centuria’s proprietary CBD (Cannabidiol) Rich Hemp Oil products (the “Products”).
The initial term of the Agreement is one year which may be renewed for additional one year periods upon the mutual agreement of the parties. Within the first 90 days of the initial term of the Agreement, Cannabis Sativa shall order at least 5,000 units of Product. Thereafter, Cannabis Sativa shall order at least 5,000 units of Product per month with the additional requirement that Cannabis Sativa order a minimum of 55,000 units of Product during the first 12
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months of the Agreement. Fifty percent of all gross revenue generated by the sale of the Products will be paid to Cannabis Sativa and fifty percent will be paid to Centuria.
As of December 31, 2016, there has not been any activity in Hi Brands International Inc. other than the execution of the above agreement. The Company has not ordered any product under this agreement as of December 31, 2016. On October 6, 2016, this agreement was terminated by mutual consent.
12. Purchase of iBudtender Inc.
On August 8, 2016, the Company purchased 50.1% interest in iBudtender Inc. The Company paid iBudtender $50,000 and agreed to issue iBudtender 150,000 shares of common stock, of which 100,000 were issued at closing and 50,000 are to be issued 180 days from closing. In exchange, iBudtender issued 5,010,000 shares of its common stock to the Company. Since this was not a significant acquisition, the Company did not file an Amended 8K.
The following summarizes the transaction with iBudtender at closing on August 8, 2016:
Cash
|
$
|
5,635
|
Intellectual Property
|
|
400,000
|
Goodwill
|
|
247,051
|
Total Assets
|
|
$652,686
|
|
|
|
Fair value of NCI
|
|
-239,281
|
Notes Payable – Related Parties
|
|
-63,405
|
|
|
|
Net Purchase
|
$
|
350,000
|
In determining the fair value of the intangible assets, the Company considered, among other factors, the best use of acquired assets such as a business to consumer web portal and app, analyses of historical financial performance of the products and estimates of future performance of the products and intellectual properties acquired. The fair values of the identified intangible assets related to Intellectual Property and Goodwill and the Company has preliminarily recorded the purchase price as an intangible asset and such asset is being amortized over its estimated useful life of 10 years. During 2014 and 2015, the Company utilized an amortization period of 20 years, but based on a change in estimate and the evolving industry, the Company is utilizing a useful life of 10 years. The purchase price allocation is subject to completion of the Company’s analysis of the fair value of the assets acquired as of the date of the acquisition. Any related adjustment is not expected to be material. The final valuation is expected to be completed as soon as practicable but no later than one year from the closing of the transaction. The fair value of the non-controlling interest is based on the estimated fair value, net of discounts for lack of marketability and control. The establishment of the allocation to goodwill and identifiable intangible assets requires the extensive use of accounting estimates and management judgment. The fair values assigned to the assets acquired are based on estimates and assumptions from data currently available.
The following unaudited supplemental pro forma information for the years ended December 31, 2016 and 2015, assumes the acquisition of iBudtender, Inc. had occurred as of January 1, 2016 and 2015, giving effect to purchase accounting adjustments such as amortization of intangible assets. The pro forma data is for informational purposes only and may not necessarily reflect the actual results of operations had the assets of iBudtender, Inc. been operated as part of the Company since January 1, 2016 and 2015.
|
|
2016
|
2015
|
Revenues
|
|
$ 29,168
|
$ 17,044
|
Expenses
|
|
3,183,767
|
9,480,334
|
Net Loss
|
|
$ (3,154,599)
|
$ (9,463,290)
|
|
|
|
|
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The following table sets forth the components of identified intangible assets associated with the Acquisition and its estimated useful life:
|
|
Fair Value
|
|
Useful Life
|
Technology: Website & App
|
$
|
400,000
|
|
15 Years
|
|
|
|
|
|
13. Going Concern Considerations
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has negative working capital, has incurred operating losses since inception, and has not yet produced significant continuing revenues from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern. Management anticipates that it will be able to raise additional working capital through the issuance of stock and through additional loans from investors.
The ability of the Company to continue as a going concern is dependent on its ability to raise adequate capital to fund operating losses until it is able to engage in profitable business operations. To the extent financing is not available, the Company may not be able to, or may be delayed in, developing its services and meeting its obligations. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing in order to satisfy its working capital and other cash requirements. The accompanying financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.
14. Commitments and Contingencies
The Company leases an office and warehouse facility in Mesquite, Nevada that serves as the principal executive offices and provides manufacturing and warehouse space. The leased space consists of 908 square feet. The building in which the space was located is in foreclosure, therefore, the Company rented from the bank that controls the property on a month to month basis. Rent expense was $772 per month. Rent expense for the years ended December 31, 2016 and 2015 was $9,321 and $8,490, respectively. On March 1, 2017, a new lease agreement was signed at a monthly rate of $1,392. Lease term is for 12 (twelve) months with a renewal option available for an additional 12 (twelve) months.
Litigation
In the ordinary course of business, we may face various claims brought by third parties and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property disputes, contractual disputes and other commercial disputes. Any of these claims could subject us to litigation. Management believes the outcomes of currently pending claims are not likely to have a material effect on our consolidated financial position and results of operations.
In May 2015, a suit was brought against the Company by a subcontractor for non-payment of services. In April 2017, the pending litigation was settled for $19,000, which the Company had accrued for as of December 31, 2015.
Indemnities
The Company’s Articles of incorporation and Bylaws require us, among other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as our director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification by us. We also
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indemnify our lessor in connection with our facility lease for certain claims arising from the use of the facilities. These indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying consolidated balance sheets.
15. Discontinued Operations / Spin-Off
Kush
Kush was a party to three individual license agreements with Steve Kubby. Pursuant to the license agreements Kush owed license fees to Mr. Kubby of approximately $2,900,000. During 2015, and in contemplation of the spin-off, all liability to Mr. Kubby was retired in exchange for 1,500,000 shares of Cannabis Sativa Preferred Stock, which were valued at approximately $2,900,000.
On November 2, 2015, the Company approved the spin-off of Kush. In this transaction, every shareholder of CBDS received 4.3155 Kush shares for every share of CBDS stock that they held as of August 25, 2015, the record date. As a part of the spin-off transaction, Kubby exchanged his 1,500,000 shares of Cannabis Sativa Preferred Stock for a controlling interest in Kush. Additionally, as part of the spinoff, Kush was issued 1,250,000 shares of the Company’s common stock in exchange for 9% ownership of Kush.
Based on the substance of the spinoff transaction, such related party transaction was recorded at its book value resulting in a net adjustment of approximately $12,000 to the Company’s stockholders’ equity. The Company reclassified its operations as discontinued in accordance with ASC No. 205-20, Discontinued Operations.
The following financial information presents the statement of operations of Kush from January 1, 2015 through November 2, 2015 (the spin off date):
Revenues
|
$
|
0
|
Expenses
|
|
108,440
|
Net loss
|
|
$108,440
|
16. Subsequent Events
Private Placement Memorandum
Subsequent to December 31, 2016 the Company completed its Private Placement Memorandum. A total of 230,775 units were purchased at $2.40 per unit. Each unit consisted of 1 share of common stock and 1 warrant to purchase a common share at $4.00 per share. Prior to December 31, 2016 $197,730 was received on this memorandum. During this time frame, the Company also sold 80,000 restricted common shares in an isolated transaction for $415, 136.
Common Stock Issued for Services
During the period from January 1, 2017 through April 30, 2017, 430,209 restricted shares were issued for services.
Acquisition
In April 2017, the Company purchased intellectual property associated with the White Rabbit line of cannabis products, for $150,000 and 10,000 shares of the Company’s common stock.
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