0001360442
--12-31
cbds
Yes
No
No
false
2017
Q3
0001360442
2017-01-01
2017-09-30
0001360442
2017-09-30
0001360442
2017-11-13
0001360442
2016-12-31
0001360442
2017-07-01
2017-09-30
0001360442
2016-07-01
2016-09-30
0001360442
2016-01-01
2016-09-30
0001360442
2015-12-31
0001360442
2016-09-30
0001360442
fil:IbudtenderIncMember
2016-08-08
0001360442
fil:PrestocorpMember
2017-07-27
0001360442
fil:ConsultantMember
2017-01-01
2017-06-30
0001360442
fil:PatentMember
2017-01-01
2017-09-30
0001360442
fil:PatentsAndTrademarksMemberus-gaap:MinimumMember
2017-01-01
2017-09-30
0001360442
fil:PatentsAndTrademarksMemberus-gaap:MaximumMember
2017-01-01
2017-09-30
0001360442
us-gaap:InternetDomainNamesMember
2017-01-01
2017-09-30
0001360442
us-gaap:IntellectualPropertyMemberus-gaap:MinimumMember
2017-01-01
2017-09-30
0001360442
us-gaap:IntellectualPropertyMemberus-gaap:MaximumMember
2017-01-01
2017-09-30
0001360442
us-gaap:FairValueInputsLevel1Member
2017-09-30
0001360442
us-gaap:FairValueInputsLevel2Member
2017-09-30
0001360442
us-gaap:FairValueInputsLevel3Member
2017-09-30
0001360442
us-gaap:FairValueInputsLevel1Member
2016-12-31
0001360442
us-gaap:FairValueInputsLevel2Member
2016-12-31
0001360442
us-gaap:FairValueInputsLevel3Member
2016-12-31
0001360442
fil:HempcoinsMember
2017-09-30
0001360442
fil:HempcoinsMember
2016-12-31
0001360442
2015-01-01
2015-12-31
0001360442
fil:GarycoinsMember
2017-09-30
0001360442
fil:PresidentJohnsonCoinsMember
2017-09-30
0001360442
fil:PresidentJohnsonCoinsMember
2016-12-31
0001360442
us-gaap:InternetDomainNamesMember
2017-09-30
0001360442
us-gaap:InternetDomainNamesMember
2016-12-31
0001360442
fil:CannabisSativaMemberus-gaap:IntellectualPropertyMember
2017-09-30
0001360442
fil:CannabisSativaMemberus-gaap:IntellectualPropertyMember
2016-12-31
0001360442
fil:VaporpenzMemberus-gaap:IntellectualPropertyMember
2017-09-30
0001360442
fil:VaporpenzMemberus-gaap:IntellectualPropertyMember
2016-12-31
0001360442
fil:IbudtenderIncMemberus-gaap:IntellectualPropertyMember
2017-09-30
0001360442
fil:IbudtenderIncMemberus-gaap:IntellectualPropertyMember
2016-12-31
0001360442
fil:PrestocorpMemberus-gaap:IntellectualPropertyMember
2017-09-30
0001360442
fil:PrestocorpMemberus-gaap:IntellectualPropertyMember
2016-12-31
0001360442
fil:CannabisSativaMemberfil:PatentsAndTrademarksMember
2017-09-30
0001360442
fil:CannabisSativaMemberfil:PatentsAndTrademarksMember
2016-12-31
0001360442
fil:WildEarthMemberfil:PatentsAndTrademarksMember
2017-09-30
0001360442
fil:WildEarthMemberfil:PatentsAndTrademarksMember
2016-12-31
0001360442
fil:IbudtenderIncMember
2017-09-30
0001360442
fil:IbudtenderIncMember
2016-12-31
0001360442
fil:PrestocorpMember
2017-09-30
0001360442
fil:PrestocorpMember
2016-12-31
0001360442
fil:PrestocorpMember
2017-01-01
2017-09-30
0001360442
fil:IbudtenderIncMember
2017-01-01
2017-09-30
0001360442
us-gaap:MinimumMember
2017-09-30
0001360442
us-gaap:MaximumMember
2017-09-30
0001360442
us-gaap:InvestorMember
2017-01-01
2017-09-30
0001360442
us-gaap:InvestorMember
2016-01-01
2016-09-30
0001360442
us-gaap:CommonClassAMemberus-gaap:PreferredStockMember
2017-09-30
0001360442
us-gaap:CommonClassAMemberus-gaap:PreferredStockMember
2017-01-01
2017-09-30
0001360442
us-gaap:CommonStockMember
2016-01-01
2016-12-31
0001360442
2016-01-01
2016-12-31
0001360442
fil:ConsultantMember
2017-01-01
2017-09-30
0001360442
us-gaap:CommonStockMember
2017-01-01
2017-09-30
0001360442
us-gaap:CommonStockMember
2016-12-31
2016-12-31
0001360442
2016-01-01
2017-03-31
0001360442
us-gaap:CommonStockMember
2016-12-31
0001360442
us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember
2017-01-01
2017-09-30
0001360442
fil:RelatedPartyNotePayableMemberfil:PrincipalMember
2017-01-01
2017-09-30
0001360442
fil:RelatedPartyNotePayableMemberfil:InterestMember
2017-01-01
2017-09-30
0001360442
fil:RelatedPartyNotePayableMemberus-gaap:CommonStockMember
2017-01-01
2017-09-30
0001360442
fil:Purchase1Memberus-gaap:IntellectualPropertyMember
2017-01-01
2017-09-30
0001360442
fil:Purchase1Memberus-gaap:IntellectualPropertyMember
2017-09-30
0001360442
fil:Purchase2Memberus-gaap:IntellectualPropertyMember
2017-01-01
2017-09-30
0001360442
fil:WarehouseLeaseMember
2017-01-01
2017-09-30
0001360442
fil:PrestocorpMember
2017-08-01
0001360442
us-gaap:TechnologyBasedIntangibleAssetsMember
2017-01-01
2017-09-30
0001360442
us-gaap:CustomerRelationshipsMember
2017-01-01
2017-09-30
0001360442
us-gaap:MarketingRelatedIntangibleAssetsMember
2017-01-01
2017-09-30
0001360442
us-gaap:DirectorMemberus-gaap:SubsequentEventMember
2017-10-01
2017-11-14
0001360442
fil:VendorsMemberus-gaap:SubsequentEventMember
2017-10-01
2017-11-14
0001360442
fil:PrestocorpMemberus-gaap:PreferredStockMemberus-gaap:SubsequentEventMember
2017-11-06
2017-11-06
0001360442
fil:PrestocorpMemberus-gaap:PreferredStockMemberus-gaap:SubsequentEventMember
2017-11-06
0001360442
fil:PrestocorpMemberus-gaap:CommonStockMemberus-gaap:SubsequentEventMember
2017-11-06
xbrli:pure
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
CANNABIS SATIVA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 and 2016
4. Hempcoins
At September 30, 2017 and December 31, 2016, the Company has possession of approximately 110,000,000 Hempcoins. Hempcoins are reported as digital currency. Every 10 Hempcoins are backed by 1 share of Rocky Mountain Inc (RMTN). At September 30, 2017 and December 31, 2016 the value of Hempcoins was $14,365 and $14,911, 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. Approximately 10,000,000 were earned by the Company during 2015 with a cost basis of $207.
5. Garycoins
At September 30, 2017 and 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 September 30, 2017 and December 31, 2016 the value of these coins was estimated to be $15,804 and $26,280, respectively, computed by converting to a bitcoin value in US Dollars and adjusted for estimated liquidity limitations. (See Note 1).
6. Intangibles
Intangible assets consisted
of the following at September 30, 2017 and December 31, 2016:
|
Unaudited
|
|
|
September 30,
|
December 31,
|
|
2017
|
2016
|
|
|
|
CBDS.com website (Cannabis Sativa)
|
$ 13,999
|
$ 13,999
|
Intellectual Property Rights (Cannabis Sativa)
|
2,894,250
|
2,894,250
|
Intellectual Property Rights Vaporpenz (Cannabis Sativa)
|
210,100
|
-
|
Intellectual Property Rights (iBudtender)
|
330,000
|
400,000
|
Intellectual Property Rights (PrestoDr)
|
1,080,000
|
-
|
Patents and Trademarks (Cannabis Sativa)
|
17,348
|
17,348
|
Patents and Trademarks (Wild Earth)
|
4,425
|
4,425
|
|
4,550,122
|
3,330,022
|
Less: Accumulated Amortization
|
(711,898)
|
(389,054)
|
|
|
|
Net Intangible Assets
|
$ 3,838,224
|
$ 2,940,968
|
Amortization expense for the nine months ended September 30, 2017 and 2016 was $322,844 and $12,946 respectively. Amortization for each of the next 5 years is $1,323,600 annually.
Goodwill of $4,719,869 consists of $336,667 and $247,051 from the acquisition of iBudtender at September 30, 2017 (as adjusted based on final purchase price allocation) and December 31, 2016, respectively and $4,383,202 and $-0- from the acquisition of PrestoCorp at September 31, 2017 and December 31, 2016, respectively.
The following summary approximates goodwill adjustments during the nine months ended September 30, 2017:
Beginning Balance
|
$ 247,051
|
PrestoCorp
|
4,383,202
|
iBudtender
|
89,616
|
Ending Balance
|
$ 4,719,869
|
13
CANNABIS SATIVA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 and 2016
7. Related Parties
The Company has received advances from related parties and officers of the Company to cover operating expenses. At September 30, 2017 and December 31, 2016, net amounts due to the related parties were $358,266 and $451,879, respectively. During the nine months ended September 30, 2017 and 2016, the Company has imputed interest on these advances at the rates between 5% and 8% per annum and has recorded interest expense related to these balances in the amount of $11,880 and $3,509, respectively. Because the related parties do not expect the imputed interest to be repaid, the interest has been recorded as a contribution of capital.
At September 30, 2017 and December 31, 2016 the Company has a note receivable from a related party in the amount of $15,742 and $15,000, respectively, which is due on demand.
14
CANNABIS SATIVA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 and 2016
8. Stockholders’ Equity
Preferred Stock
The Company is authorized to issue up to 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.
Common Stock
During the year ended December 31, 2016, the board of directors approved the issuance of 1,077,433 shares of common stock for services in the amount of $2,721,150. Approximately $158,000 was recorded as prepaid consulting due to the non-forfeitable nature of the shares issued. During the nine months ended September 30, 2017, the Company amortized approximately $111,000 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 150,000 shares of common stock to purchase iBudtender Inc., with a fair value of $300,000 (see Note 10). At September 30, 2017 and 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 which expire in January 2020. The offering terminated on December 14, 2016 but can be extended for up to 60 additional days. At March 31, 2017 and December 31, 2016, the Company had received $356,100 and $197,730, respectively, for a total of $553,830. At March 31, 2017, all the stock had been issued to investors, totaling 230,775 shares common stock including the $197,730 included in stock payable at December 31, 2016. At December 31, 2016 no stock had yet been issued. Such amount was included in stock subscriptions payable in the accompanying balance sheet at December 31, 2016.
During the nine months ended September 30, 2017, the board of directors approved the issuance of 914,008 shares of common stock for services rendered from January 2017 to October 2019 in the amount of $4,069,484, including a loss on settlement of approximately $37,000. Of the above stock issuances, approximately $1,000,000 was recorded as prepaids in the accompanying balance sheet and is being amortized over the related service period. Approximately $-0- was amortized during the nine months ended September 30, 2017. The fair value of the shares issued was based on the market price of the Company’s common stock on the measurement date.
During the nine months ended September 30, 2017, a related party purchased 80,000 shares common stock for $415,136 in cash.
During the nine months ended September 30, 2017, a related party note payable was repaid in the amount of $100,000 plus $4,469, in interest with the issuance of 43,169 shares of common stock, per the terms of the note agreement.
During the nine months ended September 30, 2017, the Company paid $150,000 and issued 10,000 shares of common stock to purchase intellectual property. The total investment was valued at $210,100 of which
the 10,000 shares of common stock issued was valued at $60,100. The Company has recorded the intellectual property rights in intangible assets in the accompanying condensed consolidated balance sheet.
During the nine months ended September 30, 2017, the Company issued 1,027,169 shares of common stock to purchase intellectual property. The total investment was valued at $5,463,202 The Company has recorded the intellectual property rights in intangible assets in the accompanying condensed consolidated balance sheet. See Note 11.
15
CANNABIS SATIVA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 and 2016
9. 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 condensed 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 condensed 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.
10. Commitments and Contingencies
Lease
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. Rent expense for the nine months ended September 30, 2017 and 2016 was $11,288 and $6,945 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.
Stock Payable
During the nine months ended September 30, 2017 the Company recorded approximately $969,000 of stock payable related to common stock to be issued. The following summary approximates the activity of stock payable during the nine months ended September 30, 2017:
Beginning Balance, 12/31/16
|
$ 243,000
|
Additions
|
1,106,000
|
Issuances
|
(380,000)
|
Ending Balance, 9/30/17
|
$ 969,000
|
16
CANNABIS SATIVA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 and 2016
11. Purchase of PrestoCorp
Effective August 1, 2017, the Company purchased 51% voting interest in PrestoCorp. The Company can issue PrestoCorp 1,027,169 shares of common stock valued at approximately $3,500,000. In exchange, PrestoCorp issued 2,550 shares of its common stock to the Company. The purchase price includes an earn-out based on future performance of PrestoCorp if certain revenue and income milestones are achieved.
The following summarizes the transaction with PrestoCorp at closing on August 1, 2017:
|
|
Cash
|
$ 8,714
|
Prepaid Assets
|
8,565
|
Property & Equipment, Net
|
8,702
|
Intellectual Property
|
1,080,000
|
Goodwill
|
4,383,202
|
Total Assets
|
$ 5,489,183
|
|
|
Accounts Payable
& Accrued Exps
|
(20,507)
|
Fair value of NCI
|
(3,130,000)
|
Due to – Related Parties
|
(5,473)
|
|
|
Net Purchase
|
$ 2,333,203
|
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 of the identified intangible assets and is amortizing such assets over their estimated useful lives ranging from 5-10 years. The goodwill of $4,383,202 arising from the purchase of PrestoCorp consists largely of the synergies and economies of scale expected from combining the operations of the Company and PrestoCorp. None of the goodwill recognized is expected to be deductible for income tax purposes. 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 nine months ended September 30, 2017 and the year ended December 31, 2016 assumes the acquisition of PrestoCorp had occurred as of January 1, 2017 and 2016, 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 PrestoCorp, been operated as part of the Company since January 1, 2017 and 2016.
|
|
September 30, 2017
|
December 31, 2016
|
Revenues
|
|
$ 680,000
|
$ 546,642
|
Expenses
|
|
5,040,000
|
3,978,474
|
Net Loss
|
|
$ (5,720,000)
|
$ (3,431,832)
|
|
|
|
|
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
|
$
|
520,000
|
|
5 Years
|
Customer Base
|
|
300,000
|
|
10 Years
|
Marketing Related
|
|
260,000
|
|
10 Years
|
Total Intangible Assets
|
$
|
1,080,000
|
|
|
17
CANNABIS SATIVA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 and 2016
12. Subsequent Events
Common Stock Issued for Services
During the period from October 1, 2017 through November 14, 2017, 64,083 shares were issued for services provided by the Board of Directors and 238,799 shares were issued to vendors for services.
On November 6, 2017, the Company issued 1,000 shares of Presto Corp. Series A Preferred Stock (“Series A”) for sponsorship and advertising services. The Series A have a liquidation value of $1,000 per share and are convertible into an aggregate of 332,447 shares of the Company’s common stock. The term of the agreement is through October 2019. The Company will compensate the vendor in connection with various introductory services.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Cannabis Sativa, Inc., together with its subsidiaries, are collectively referred to “Cannabis Sativa”, the “Company”, “us”, “we”, or “our”. The following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. For additional context with which to understand our financial condition and results of operations, see the discussion and analysis included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (“SEC”) on May 5, 2017, as well as the consolidated financial statements and related notes contained therein.
Forward Looking Statements
Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “may,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results and the development of our products, are forward-looking statements.
Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include those discussed in this Quarterly Report on Form 10-Q. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We file reports with the SEC. You can read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
Corporate History
18
We were incorporated under the laws of Nevada in November 2005. We acquired a wholly-owned subsidiary named Kush, a Nevada corporation, in June 2014 in exchange for shares of our common stock. Since November 2015, Kush has been spun off and is no longer a subsidiary of the Company. 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. We acquired a 50.1% interest in our subsidiary iBudtender, Inc., including its wholly owned subsidiary iBudtender, LLC, a California limited liability company (collectively, “iBudtender”) in August of 2016 in exchange for cash and shares of our common stock. On July 27, 2017, we acquired a 51% interest in PrestoCorp, a Delaware corporation, 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.
Description of Our Business
We are engaged in the research, development, acquisition and licensing of specialized natural cannabis related products, including cannabis formulas, edibles, topicals, strains, recipes and delivery systems. We also are engaged in marketing and branding within the cannabis space, including with our trademark pending “hi” brand and others. We hold a license for a proprietary cannabis lozenge delivery methodology, and a proprietary cannabis trauma cream formula. We have recently been awarded a U.S. patent for a strain of cannabis plant named Ecuadorian Sativa (also referred to as CTS-A or CTA). We also have U.S. patents pending on cannabis based compositions and methods of treating hypertension and a lozenge delivery system. Our online portal iBudtender (www.ibudtender.com) offers information and patient reviews on marijuana dispensaries, cannabis businesses, marijuana strains, edibles, concentrates and products. iBudtender’s software has been designed to help cannabis patients find cannabis products that are right for them. Through its 51% owned subsidiary PrestoCorp, the Company operates an online telemedicine service that allows patients to use secure and confidential video conference technology to speak with a licensed physician for a medical marijuana evaluation. PrestoCorp currently offers its services in California and Nevada and is actively targeting expansion into additional states where medical marijuana is legal.
Our Strategy
We plan to license our intellectual property, including patents, branding and know-how to companies licensed under, and in full compliance with, state regulations applicable to cannabis businesses. We also plan to market certain products and to control the quality of our products beginning at the formulation stage and continuing through controlled sourcing of raw ingredients, manufacturing, packaging, and labeling. We will continue to support and prosecute our pending patents, and to develop and acquire new patents, trade secrets, trademarks and other intellectual property. In addition, we will seek new branding and licensing opportunities for our intellectual property and we will seek strategic corporate and product acquisitions.
Results of Operations
Three Months Ended September 30, 2017, compared with the Three Months Ended September 30, 2016
Revenue for the fiscal quarters ended September 30, 2017 and 2016 was $121,400 and $6,707, respectively. Cost of revenues for the fiscal quarters ended September 30, 2017 and 2016 was $69,144 and $1,243, respectively. Gross profit for the fiscal quarters ended September 30, 2017 and 2016 was $52,256 and $5,464, respectively. Net loss for the fiscal quarter ended September 30, 2017 was $1,133,087 compared to net loss of $471,354 for the fiscal quarter ended September 30, 2016. The increase in revenue and the corresponding increase in gross profit was a result of the acquisition of a 51% interest in PrestoCorp, a Delaware corporation, on July 27, 2017.
Total operating expenses were $1,194,208 for the fiscal quarter ended September 30, 2017 and $456,844 for the fiscal quarter ended September 30, 2016. The increase of $737,364 was due primarily to an increase of $732,496 in professional fees related to the development of business transactions for the Company. The bulk of the expenses for both quarters were non-cash transactions where stock was issued for services. Despite the large net loss amounts for
19
both quarters, because of non-cash transactions, the net cash used in operating activities was $270,253 for the quarter ended September 30, 2017 and $56,976 for the quarter ended September 30, 2016.
Nine Months Ended September 30, 2017, compared with the Nine Months Ended September 30, 2016
Revenue for the nine month periods ended September 30, 2017 and 2016 was $124,446 and $24,243, respectively. Cost of revenues for the nine month periods ended September 30, 2017 and 2016 was $73,121 and $8,567, respectively. Gross profit for the nine month periods ended September 30, 2017 and 2016 was $51,325 and $15,676, respectively. Net loss for the nine month period ended September 30, 2017 was $5,100,660 compared to net loss of $851,392 for the nine month period ended September 30, 2016. The revenue increase and its corresponding impact on gross profit is also the result of the acquisition of an interest in PrestoCorp as explained earlier.
Total operating expenses were $5,111,006 for the nine month ended September 30, 2017 and $890,009 for the nine month period ended September 30, 2016. The increase of $4,220,997 was due primarily to an increase of $3,318,695 in professional fees related to the development of business transactions for the Company. The bulk of the expenses for both nine month periods was non-cash transactions. In the nine month period ended September 30, 2017, the primary non-cash transaction was stock issued for services and amortization of prepaids in the amount of $3,199,481. In the nine month period ended September 30, 2016, the primary non-cash transaction was also stock issued for services and amortization of prepaids in the amount of $1,570,124. Despite the large net loss amounts for both quarters, because of non-cash transactions, the net cash used in operating activities was $657,938 for the nine month period ended September 30, 2017 and $168,755 for the nine month period ended September 30, 2016.
Compensation of Officers and Certain Employees and Consultants.
In order to conserve the cash assets of the Company, the compensation of all officers and certain employees and consultants is paid solely in shares of the Company’s common stock. Therefore stock sale transactions by these individuals may occur on a normal and recurring basis for them to realize the liquidity they need that would otherwise result from cash compensation.
Also, the Company has restructured its compensation plan for officers, employees, and certain consultants as fixed annual dollar amounts rather than in fixed numbers of shares. This will provide the Company a more predictable, controllable, and lower compensation expense. These compensation obligations will be paid using the Company’s common stock.
Liquidity and Capital Resources
As stated above, our operations used $657,938 in cash for the nine month period ended September 30, 2017. During the same period, financing activities provided cash of $772,150. Cash provided by financing activities during the period came from cash proceeds from the sale of stock in the amount of $415,136 and cash proceeds from a private offering of stock in the amount of $356,100.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As stated above, we incurred net loss of $5,100,660 and $851,392, respectively for the nine month periods ended September 30, 2017, and 2016, and had an accumulated deficit of $64,214,293 as of September 30, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company may seek to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital or convertible debt. The Company has also issued an aggregate of 230,775 warrants which expire on January 31, 2020. Each warrant is for the purchase of one share of common stock of the Company at the exercise price of $2.00 per share. It will be important for the Company to be successful in its efforts to raise capital in this manner if it is going to be able to further its business plan in an aggressive manner. Raising capital in this manner will cause dilution to current shareholders.
As of November 14, 2017, the Company had cash on hand of approximately $90,000. As a result, the Company has
20
sufficient liquidity to meet the immediate needs of its current operations.
Off Balance Sheet Arrangements
None
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management including our chief executive officer and our chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure.
Based on its evaluation, our management concluded that there are material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management identified the following material weaknesses:
We have not performed a risk assessment and mapped our processes to control objectives;
We have not implemented comprehensive entity-level internal controls; and
We have not implemented adequate system and manual controls.
We did not employ an adequate number of people to ensure a control environment that would allow for the
accurate and timely reporting of the financial statements in accordance with GAAP; and
We do not have sufficient segregation of duties.
Based on our evaluation under the frameworks described above, our management has concluded that our internal control over financial reporting was not effective as of September 30, 2017. However, moving forward with the intended addition of additional staff, we believe our current framework will help remedy our material weaknesses.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
21
Item 1. Legal Proceedings.
We are not a party to any material legal proceedings and, to the best of our knowledge, no such legal proceedings have been threatened against us.
Item 1A. Risk Factors
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter ended September 30, 2017, the board of directors approved the issuance of 398,606 shares of common stock for services in the amount of approximately $1,316,184. The fair value of the shares issued was based on the market price of the Company’s common stock on the measurement date.
During the quarter ended September 30, 2017, the Company issued 1,027,169 shares of common stock to purchase intellectual property. The total investment was valued at $5,463,202.
Each of the issuances of stock set forth above in this Item 2 was exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the Act since the issuance of the shares did not involve any public offering.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The following documents are included as exhibits to this report:
(a) Exhibits
(1) Incorporated by reference to Exhibits 3.01 and 3.02 of the Company's Registration Statement on Form 10 filed January 28, 2009.
(2) XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cannabis Sativa, Inc.
Date: November 14, 2017
By: /s/ Mike Gravel
|
Mike Gravel, Chief Executive Officer
|
(Principal Executive Officer)
|
|
|
By: /s/ Donald J. Lundbom
|
Donald J. Lundbom, Chief Financial Officer
|
(Principal Financial Officer)
|
23